Kenedix Realty Investment Corporation (KRI)
Summary of 3rd Period Results (ending Oct. 2006)
December 2006
Kenedix REIT Management, Inc.
http://www.kdx-reit.com/eng/index.html

12060V954 - 80c1e7d8Disclaimer
The contents of this document, including summary notes, quotes, data and other information, areprovided solely for informational purposes and not intended for the purpose of soliciting investmentin, or as a recommendation to purchase or sell, any specific products.
Please be aware that matters described herein may change or cease to exist without prior notice ofany kind. This document contains forward-looking statements and anticipations of future results,
based on current assumptions and beliefs in light of currently available information and resources.
Risks and uncertainties, both known and unknown, including those relating to the future performanceof the real estate market in Japan, interest rate fluctuations, competitive scenarios, and changing
regulations or taxations, may cause Kenedix Realty Investment Corporation (KRI)'s actual results,
performance, achievements and financial performance to be materially different from those explicitly
or implicitly expressed in this document.
With respect to any and all terms herein, including without limitation, this document, the information
provided is intended to be thorough. However, no absolute assurance or warranties are given withrespect to the accuracy or completeness thereof.
Neither KRI nor Kenedix REIT Management (KDRM) shall be liable for any errors, inaccuracies, loss
or damage, or for any actions taken in reliance thereon, or undertake any obligation to publicly
update the information contained in this document after the date of this document.

1

12060V954 - 80c1e7d8

Change in portfolio construction policy to focus on investment in office buildings
Specific investment policies:♦ Investment to focus on office buildings♦ No new investments in residential for time being♦ To invest in urban-type retail properties as an alternative
to investing in office buildings
Change in portfolio construction policy
SectorUsage

After Change Before Change

Office Buildings
Office buildings for rent
Residential
Rental housing
Commercial Facilities Urban-type retailproperties
OthersBusiness hotels,
Educational facilities,

Overview of current portfolio（ As at 11 December 2006）

Retail properties

310.6%

Residential

32

29.5%

Office Buildings

30

59.9%

50〜100%0〜30%
0〜20％
0% fortime being♦ Kenedix Realty Investment Corporation’s basic
strategy（investment policy）：♦Flexible and dynamic investment with accurate timing,based on grasp of market trends♦

Stress on three-point investment criteria（property type,area, and size)♦Construct diversified asset portfolio

50% or more
20% or more
30% or less

Portfolio envisaged when asset size
target (¥200bn) is achieved
Residential

c. 25%

Urban-type retail properties
c. 8-10%
New investments in office buildingsc. 75%
Office buildingsc. 65-67％♦ Has grown to become diversified
portfolio of assets, with 65
properties worth c. ¥150bn

212060V954 - 80c1e7d8

Highlights in the 3rd Period

3rd Period
Results

Financialperformance

Internal
growthExternal
growthFuture management
policies & targets♦ ¥81.4bn (35 properties) at end of the 2nd Period→¥150.9bn（65 properties)
at Dec. 11, 2006
♦ Bulk purchases at time of PO using multi-pipeline approach（26 properties, c. ¥58bn）♦ Assets acquired during term using asset management company’sproprietary network （5 properties, c. ¥9bn）♦ Increases in new rents (average of 16%) based on high move out rates (6.1%
annualised in the 3rd Period, 12.3% annualised in the 4th Period) of medium-size
office buildings♦ Construction work and leasing management based on results of CS survey (foroffice buildings)♦ Invest mainly in officebuildings♦ Asset size of ¥200bn by end2007♦ Focus on portfolio NOI yield♦ Increases in new andexisting rents♦ Credit ratings: A+ (JCR, Dec 2006), A3 (Moody’s, Feb. 2006)♦ Corporate bond issues♦ Equity finance raised through global offering (1 May 2006)♦ Diversified maturity dates♦ Diversified maturity dates（have taken on 7-year and 10-year fixed borrowings))♦ Extend duration♦ Results for the 3rd Period– Distribution per unit:– FFO per unit:¥13,529¥19,759♦ Stable growth in distribution
per unit3

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Overview in the 3rd Period financial results—Performance highlights
Performance

Financial Ratios
2nd period

3rd period

2nd period

3rd periodNotes

Interest-bearing Debt
Ratio

45.6%

38.7% Decreased by approx. 6.9%

¥160,314m

Equity Ratio

49.3%

56.7% −

¥45,387m¥90,933m

NOI from leasing
business¥2,256m¥3,869m

Rental business revenue - Property-related
expense + Depreciation for the period

Number of units
outstanding

79,370 units

157,000 units

FFO¥1,752m¥3,102m

Net assets per unit

Net Income + Depreciation for the period –Profit on sale of properties¥571,840¥579,192

Distribution per unit

¥13,884¥13, 529

Net Income¥1,101m¥2,124m

Total assets¥92,053m

Net assets

FFO pay-out ratio

62.9%

FFO per unit

68.5% Distribution/FFO¥19,759 −¥22,076♦ Relationship between property revenue, leverage effects, and distribution （illustrated 3rd period results）
8%

6%

1．Annual rate calculations based on 179-day average management
period of assets acquired, weighted by acquisition cost

4%

2．Ratios are percentages of total liabilities + market capitalization(excluding Leverage effects and Total)–

2%

3．Leverage effects calculated based on rental business profit
margin÷(1-debt ratio）– Used monthly average debt ratio for current period of c. 36%0%(2% )Rental businessrevenues

Gains on realestate disposals

Property-related
expenses (excl.
depreciation)

6.2%

0.2%

(1.5% )

(1.4% )

1.9%

(0.4% )

(0.5% )

4.4%

6.4%
2nd Period(For reference)−(1.4%)(1.4%)

2.4%(0.6%)(0.5%)

4.8%

3rd Period

Rental NOI yield (rental business revenue - property-related
expense) of c. 5.4% on acquisition price basis

Depreciation

Leverage effectof debt

Operatingexpenses (AMfees etc.)

Non-operating
Total (source ofexpenses (interestdistribution)
paid etc.)

4．（Reference）Earnings yield level based on unit price as of the end ofthe perild– Unit price as of the end of 3rd period (Oct. 31. 2006):¥628,000–

Actual days under management: 179 days–

Distribution per unit ¥13,529 → approx. 4.4%
4

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4th Period Earnings Forecasts
Operating forecasts for 4th Period（to April 2007）
2nd period results(to April 2006)

3rd period results(to October 2006)

4th period forecasts(to April 2007)

Operating revenues

2,871

5,288

5,542

Operating expenses

1,527

2,723

2,973

615

1,261

1,309

650
1,343

1,135
2,565

1,199
2,568

246

442

493

Ordinary Income
Net Income

164
1,103
1,101

375
2,125
2,124

431
2,075
2,074

Number of units outstanding
Distribution per unit (Yen)79,37013,884

157,000
13,529157,000
13,200

NOI

2,256

3,869

4,232

FFO

1,752

3,102

3,274

2nd period

3rd period

4th period

32 → 35 properties

59→64 properties

65 properties(￥million)

Property-related expenses(excl. depreciation)
Depreciation

Operating Income
Non-operating expenses
Interest expense

Rental business revenues forecasts(for reference）♦ Rental business revenues
based on ARGUS, ageneral-use real estatesoftware program♦ For office buildings, reflects
vacation notifications(generally 6 months inadvance) and leasing
situation

Major changes in Term 5（to October 2007)♦Expected Fixed Asset Tax & Urban Planning Tax
costs: ＋¥123m compared with 4th period

Notes¥157m profit booked on sale of residential properties in the3rd period
Management fees up ¥101m because of expansion in asset
size in the 3rd period

Both the 3rd period and the 4th period, ¥18m amortisation ofinvestment unit issue expenses
The 4th period borrowings ¥66.0bn

Rental business revenue ‒ Property-related expenses +depreciation
Net Income + depreciation for the period ‒ Profit on sale ofproperties

Trends in the number of properties

Disclosure policies for profit forecasts♦ Disclose if DPU changes by 5% or more
♦ Disclose in principle if Operating revenues or
Net income change by 15% or more

512060V954 - 80c1e7d8

Turn-over ratio for office building and newly-contracted rental levels
Past and forecast vacation rates
for office building portfolio（annualised）
1st Period 2nd Period 3rd Period

12.2%

2.7%

Special features of medium-sized office buildings

4th Period(Estimate) 1♦ Most tenants are medium and small, and move-out
rates are high

12.3%

♦ When rents are rising, rental levels can be increased

6.1%

Note:
1 Proportion of floor space to be newly vacated in 4th period
based on advance notifications of contract cancellations

Newly-contracted rental levels（Leased floor space basis）

Distribution of increases in newly-contracted rental levels（Leased floor space basis）

30% or more increase 0–5% increase
8.7%
25.4%

Rental decline21%

20–30%
increase
20.2%
Rental increase79%

10–20% increase
32.4%

5–10%
increase
13.3%

No. of tenants basis
Rentalincrease

Tokyo economic area
9Regional economic areas 4Total
131.
2.
3.

Rentaldecline145

Largest increase：c. 39% (+¥9,000/tsubo)
Average increase（number of cases basis）：c.16%

3rd Period results (new rental contracts signed in the 3rd Period)
Comparison with standard floor (offices above floors 1 and 2, excluding special usage) average rents(The one case of rental decline in the Tokyo economic region was signed at the same level as the previous tenant)
Limited to office usage above floor 26

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Results of increase in office building NOI levels
Office portfolio internal growth performance

Activity and results

Supplementary notes

1.Increase in ongoingrental levels

Of office buildings in the Tokyo metropolitanarea, we chose to negotiate rental increases
unrelated to contract renewal date at thebeginning of 3rd Period （20% of total officetenant rental floor space in the Tokyo
metropolitan area)

Of buildings for which we asked for rental
increases, rental increases were successfully
negotiated for c. 38%

Succeeded in reductions on 15 of 23 properties
under review （reductions total around ¥5m per  Of 25 properties owned at the beginning of the3rd Period, 23 properties are under review (2month）nd

Average reduction of c. 20%

Office building occupancy rate
97.3%（15 properties）→97.7%（29 properties）

2.Reduction in BM costsproperties already reduced in the 2

3.Increase in occupancyrates

4.OtherPeriod)

New contracts during the 3rd Period for spacevacant at the start of the period or when acquired① Reduced electricity charges：14 properties① Reduction resulting from change of plan
② Reduced Fixed Asset Tax：2 properties（applies from the 4th period）③ Parking revenue, vending machine installations,② Utilized Fixed Asset Tax reduction consultant
antenna installations etc.

（Reference）Office building acquisition policy at time of the 2nd period results presentation♦Focus on medium-scale office buildings inTokyo economic area→aiming for rises in CF7

12060V954 - 80c1e7d8“KENEDIX Selection”—External Growth and Target Asset Size
Current target ¥200bn by the end of 2007

Initial target ¥200bn by the end of 2008

Anticipated portfolio when asset
size target (¥200bn）is achieved
1,600
1,400

RetailGrowth inasset size

Residential

1,200Office(¥B)

1,000
800
600

65 properties¥150.9bn

64 properties¥146.7bn

29 properties¥61.0bn

31 properties¥69.1bn

10.9%

10.6%

30.2%

29.4%

58.7%

59.9%

Urban-type retailproperties

c. 25%

c. 8–10%

New investments in office buildings

35 properties¥81.4bn

15.2%

17.9%

16.2%

Residential

25.5%

27.4%

400

31.0%

200

52.7%

54.6%

Just after IPO(2005/8/1)

1st Period(2005/10/31)

2nd Period(2006/4/30)

3rd Priod(2006/10/31)

Current(2006/12/11)

Just after IPO
29 properties
were acquired

2 properties
acquired during
1st period

4 properties
acquired during
2nd period

31 properties acquired,
2 properties sold during
3rd period

1 property
acquired

Office buildingsc. 65-67%

59.2%

0

Note: figures shown are rounded down to nearest ¥100m,or 1 decimal place for ratios

No. of properties infos （compiled by asset management company）

Infos from Assetmanager's proprietarynetwork
Infos from Kenedix
GroupTotal

1st Period（21/7/2005–10/2005）

2nd Period（11/2005–4/2006）

3rd Period（5/2006–10/2006）

179

409

318

30

76111

209

485

4288

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Financial
institutions
Developers
Corporate sector

Kenedix REITManagement, Inc.
(Asset manager)

Brokerage
Pension funds
Private funds

Support line

Warehousing

Multi-pipeline

Real estatemarket

Asset manager's
proprietary networkExternal growth strategy—properties acquired using multi-pipeline approach

11 properties50%

46 properties

Asset Management

1 property0%

Kenedix
Realty Investment
Corporation(Kenedix REIT)

Development
projects

At time of IPO/PO

During the 1st- 4th periods

Most acquisitions attime of IPO/PO were via
support line

Apart from one property,
all property purchases
during the each period
have been via theproprietary network

1st Period (exd. Just after IPO)
and 2nd Period

PO(2006/5/1)

3rd and 4th Periods(exd. PO）

TOTAL

Direct acquision

4 properties (c.8.8bn)

1 properties (c.1.2bn)

6 properties (c.13.2bn)

11 properties (c.23.3bn)

Warehousing

1 properties (c.6.0bn)

8 properties (c.16.3bn)

1st Period Just after IPO(2005/8/1)

Proprietarynetwork

Strong record of acquisitions
through asset manager's proprietary network
Proportion of new acquisitions by pipeline
Support line Proprietary network
100%
9 properties

Support line

29 properties (c.61.0bn) 1

1 properties (c.5.6bn)

17 properties (c.40.5bn)

TOTAL

29 properties (c.61.0bn) 1

6 properties (c.20.4bn)

26 properties (c.58.0bn)

Notes:
123

9 properties (c.22.3bn)
47 properties (c.107.1bn) 1,26 properties(c.13.2bn) 367 properties(c.152.7bn） 1Includes 2 residential properties (c. ¥1.7bn) sold in May 2006
Breakdown of support line：Pension funds 29 properties, private funds 6 properties、Kenedix’s own real estate investments 12 properties
As of 2006/12/11

9Financial strategies（raising funds through debt）
Credit ratings obtained
Rating agency

Type of rating

Date rating obtained

Japan Credit Rating Agency (JCR)Long-term preferential debt credit: A+ 11 Dec 2006
Moody’s Investors Service, Inc.
Issuer credit：A3 28 Feb 2006
Total unsecured borrowings since IPO Flexible fund-raising
Outstanding debt

Shifting towards Fixed Interest Debt

Avoiding risk ofinterest rate rises

Proportions at variable / fixed rates(¥bn)
60
40

Variable Interest Debt
¥15bn
22.7%

66

62
4220

Fixed Interest Debt
¥51bn
77.2%

29

230
Just after IPO 1st Period(2005/10)

2nd Period(2006/4)

3rd Period(2006/10)

Current(2006/12)

Note： Amount of unsecured loans outstanding

Diversified maturity dates
on borrowings
Debt outstanding by maturity date(¥bn)
20

16.5

15
10515
11

Reduction in
refinancing risks

Notes：
1 “Fixed Interest Debt” includes loans whose rates have been fixed by use ofinterest rate swaps
2 Proportions are shown rounded down to one decimal place

Prolonged debt average maturity¥24bn in newborrowings since 3rdperiod is red portion

Long term debt

40
63

20

5

00

Amount of debt maturing in each year

13.5

15

48.5

51

11.5
4
19

1019

30.5

Just after IPO 1st Period 2nd Period 3rd Period Current(2005/8) (2005/10) (2006/4) (2006/10) (2006/12)

20
07
2008
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Note:

Short term debt

60

9.5

Stable debt
financing strategy

Note:

fixed interest rates for all long-term loans through interest rate swaps