INVESTMENT HIGHLIGHTSFOR THE NINTH FISCAL PERIOD
Kenedix Realty Investment Corporation (KENEDIX-REIT) is issuing a cash distribution of 10,511 yen per unit tounitholders (shareholders) as a distribution for operations during the Ninth Fiscal Period running from May 1, 2009
to October 31, 2009.

PORTFOLIO GROWTH

Stability-emphasizedy pNote: The amounts are rounded to
the nearest 100 million yen.

200

th
w
o
gr
Re-

146.7
1
4 6.7

222.0

220.1

12.7
12.3

197.0
1
97.0

10.3
12.3

228.9
228
9
10.3
12.3

43.0

100

16.0

196.9

69.1

197.4

206.2

137.9

18.9
12.3

End of 7th Period(200,000 units)

End of 8th Period(200,000 units)

End of 9th Period(200,000 units)

81,920 units: 41.0%

90,772 units: 45.4%

95,004 units: 47.5%

2,670 units: 1.3%

2,461 units: 1.2%

91,126 units: 45.6%

84,966 units: 42.5%

86,234 units: 43.1%

16,234 units: 8.1%

21,592 units: 10.8%

16,301 units: 8.2%

Units Held

Share of Outstanding Units

10,720 units: 5.4%

Financial institutions(including securities companies)
Individuals and others
Note: Figures are rounded to the ﬁrst decimal place.

TOP TEN UNITHOLDERS (as of October 31, 2009)
Name
Japan Trustee Services Bank, Ltd. (trust account)

16.0(billion yen)

Residential
R
CentralUrban Retail

Oﬃce

44.4

50

Foreign corporations and individuals

Other domestic corporations

d
ize
s
a
ph
em
h
wt
o
Gr

150

GENERAL BREAKDOWN OF UNITHOLDERS

16,569

8.28%

NikkoCiti Trust and Banking Corporation (investment trust account)

15,834

7.91%

Trust & Custody Services Bank, Ltd. (securities investment trust account)

14,382

7.19%

Goldman Sachs International

13,881

6.94%

The Nomura Trust and Banking Co., Ltd. (investment trust account)

10,271

5.13%

The Master Trust Bank of Japan, Ltd. (trust account)

9,510

4.75%

Merrill Lynch Japan Securities Company, Limited

6,502

3.25%

Morgan Stanley & Company, Inc.

5,258

2.62%

JP Morgan Chase Oppenheimer JASDEC Lending Account

5,000

2.50%

The Bank of New York Treaty JASDEC Account

4,188

2.09%

Total

101,395

50.69%

86.2

Note: Ratios are rounded down to the second decimal place.

37.7
IR SCHEDULE (9th and 10th Periods)0

End of
1st Period

End of
3rd Period

End of
5th Period

End of
7th Period

End of
9th Period

2005/10

2006/10

2007/10

2008/10

2009/10

Operating Revenues

7,921

mn yenPeriod-on-period decrease of 282 million yen primarily from capital losses
resulting from property sales and the impact of fewer tenants and rent
decreases

Net Income

Distribution per Unit

Total Unitholders’ Equity

1 │ Kenedix Realty Investment Corporation

2,102
10,511
127,067

As of
February 1,
2010

TABLE OF CONTENTS
Investment Highlights for the Ninth Fiscal Period ................... 1
Q&A with the CEO........................................................... 2

October

DecemberJanuary

April

End of 9th Period

Performance for
9th Period is announced

Distributions forthe 9th Period are paid

End of 10th Period

June

Performance for10th Period is announced

July

Distributions forthe 10th Period are paid

Information is regularly disclosed throughout the year via press releases and the website at www.kdx-reit.com/eng/

Q&A with the General Managerof the Financial Planning Division....................................... 5mn yenQ&A with the General Managerof the Investment Management Division.............................. 7
Acquisition and Dispositions ............................................. 9
Acquisitions: Four New Buildings Join the Portfolio ............... 10

yen

Q&A with the General Managerof the Property Management Division ............................... 11
Transparency and Governanceat the Asset Management Company.................................. 14
KENEDIX-REIT Portfolio Table........................................... 15

mn yenFinancial Summary ....................................................... 17

Disclaimer
This semiannual report includes translations of certain documents originally ﬁled and made available in Japan in accordance with the Securities and Exchange Law of Japan. The English language semiannual report
was prepared solely for the convenience of readers outside Japan and is not intended to constitute a document for an oﬀer to sell, or seeking an oﬀer to buy, any securities of KENEDIX Realty Investment Corporation(KENEDIX-REIT).
English terms for Japanese legal, accounting, tax and business concepts used herein may not be precisely identical to the concept of the equivalent Japanese terms. With respect to any and all terms herein, including
without limitation, ﬁnancial statements, if there exist any discrepancies in the meaning or interpretation thereof between the original Japanese documents and English translation contained herein, the original
Japanese documents will always govern the meaning and interpretation.
None of KENEDIX-REIT, Kenedix REIT Management, Inc. nor any of their respective directors, officers, employees, partners, unitholders, agents, affiliates nor their advisors shall be responsible or liable for thecompleteness, appropriateness, or accuracy of English translations or the selection of the portion(s) of any document(s) translated into English.
The ﬁnancial statements of KENEDIX-REIT have been prepared in accordance with generally accepted accounting principles in Japan (Japanese GAAP), which may materially diﬀer in certain respects from generally
accepted accounting principles of other jurisdictions.
This semiannual report contains forward-looking statements. These statements appear in a number of places in this semiannual report and include statements regarding the intent, belief, or current and future
expectations of KENEDIX-REIT or Kenedix REIT Management, Inc. with respect to its business, ﬁnancial condition and results of operations. In some cases, you can identify forward-looking statements by terms
such as ”may,” ”will,” ”should,” ”would,” ”expect,” ”plan,” ”anticipate,” ”believe,” ”estimate,” ”predict,” ”potential,” or the negative of these terms or other similar terminology. These statements are not guarantees of future
performance and are subject to various risks and uncertainties. Actual results, performance or achievements, or those of the industries in which we operate, may diﬀer materially from any future results, performanceor achievements expressed or implied by these forward-looking statements. In addition, these forward-looking statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or
imprecise and involve known and unknown risks and uncertainties. Accordingly, readers of this document should not interpret the forward-looking statements included herein as predictions or representations of
future events or circumstances.
Potential risks and uncertainties also include those identiﬁed and discussed in this document. Given these risks and uncertainties, readers of this document are cautioned not to place undue reliance on forwardlooking statements, which speak only as of the date of information produced herein. We disclaim any obligation to update or, except in the limited circumstances required by the Tokyo Stock Exchange, announce
publicly any revisions to any of the forward-looking statements contained in these documents.

Kenedix Realty Investment Corporation │ 34

S p e a k i n g

t o

Yo u

Q&A with the CEO

Ready, Set, Go: The Constant
Advantage of Being a Half-Step Ahead
Q

A

Let's cut to the chase! Defend Japan for me.
We Japanese love to talk about "Japan passing" these days. It is true our neighbor is huge and it is true the
Democratic Party of Japan is failing to meet the low, and I mean low, expectations we set. BUT I ambullish on Japan and this is why. We are presently the second largest economy in the world. Yes, we willsoon be third but the new second has over a billion people, we have just over 100 million. The leader, theU.S.A., is several times larger and blessed by resources. We should be proud of our continual
accomplishment of having a globally successful economy and globally successful brand as well as
corporate leaders.

Drill down to Tokyo and the real estate market is the largest metropolitan market in the world, bar none.
And be careful with demographics because the population of Tokyo is growing. The economy andbanking sectors, though not stellar, are stable and Tokyo, my city, is a comprehensive leader in Japan andglobally across many sectors.

Drill down even further to the market of KENEDIX-REIT and matters are even brighter. There isrelatively little new mid-sized office stock and this enables us to deliver safe, stable and absolute rents. We
are further bolstered by the fact that 93.4% of Tokyo offices have 29 or fewer people and 28.6% of officestock has floor areas between 500 and 3,000 tsubos. Our entire portfolio had an occupancy in the NinthFiscal Period of 94.7%. This compares to 93.9% for large-sized office buildings in Tokyo during Octoberaccording to CB Richard Ellis (CBRE). Rents are also far less volatile in the mid-sized office building
sector, so I like Japan, Tokyo and, of course, KENEDIX-REIT.

Kenedix Realty Investment Corporation │ 2

Q

A

Q

A

How can you remain so positive when you admit rents are down?
That is simple. They are only down a few hundred yen for the entire portfolio on average. Let's look atwhat we have found out. First, tenant turnover in our market space is around 10% — no matter if theeconomy is good or bad. Second, vacancies and down time were up, but our occupancy is now over 94%
and we signed a record number of new leases in the period from August to October 2009. This is what
we learned: Office space is rented, IF priced right!

We often talk about the "elusive" half step. How important is it to be a half-step ahead?

We are responsible to our investors. We cannot just sit around waiting for the god of economics torecover. In the Fifth Fiscal Period (ended October 2007), I announced the need to focus our portfolio. I
declared that the portfolio would be aligned to Tokyo office buildings and we would sell off ourresidential properties. This has taken place.

A year ago when our sponsor's name began to suffer after the Lehman Shock, we brought in a blue
chip trading company, ITOCHU Corporation, as a partial owner of our asset management company.
ITOCHU's participation along with a recovery in our sponsor's reputation have been a boon for us.
When rents were still going up in an unhealthy economy, we announced we would not raise rents andwere warmly welcomed by our tenants.

As the long-term, fixed rate loans of our finance strategy began to feel the pain of the market, weannounced we would sell properties even at a loss if it helped us pay down debt and ensure we met
commitments. We did that and we were the first office J-REIT to do a public offering in 18 months. We
raised capital on the market to acquire properties and reduce our leverage once again to the 39% level
through "equitization."
OFFICE BUILDING PORTFOLIO: 62 PROPERTIES AND TOTAL PORTFOLIO ACQUISITIONS 206.2 BILLION YEN (as of February 1, 2010)
Tokyo Metropolitan Area: Tokyo's 23 wards

44 properties:¥149.2 bn

TTotal acquisition price((Tokyo Metropolitan Area)
TTotal acquisition price((Other Regional Areas)

Other Regional Areas: Miyagi Prefecture
Other Regional Areas: Niigata Prefecture

1 property: ¥1.3 bn

1 property: ¥2.1 bn

Other Regional Areas:
Osaka and Kyoto prefecturesTokyo

5 properties: ¥16.3 bn
Other Regional Areas:
Fukuoka Prefecture

1 property: ¥4.9 bn
Other Regional Areas:
Aichi Prefecture

1 property: ¥7.5 bn

Tokyo Metropolitan Area: Chiba Prefecture

1 property: ¥2.2 bn
Tokyo Metropolitan Area: Kanagawa Prefecture

7 properties: ¥21.3 bn
Tokyo Metropolitan Area: Hachioji, Tokyo

1 property: ¥1.1 bn

Note: Central Tokyo is comprised of Chiyoda, Chuo, Minato, Shibuya and Shinjuku wards.

Q

A

Other 18 wards

9 properties: ¥23.3 bn
Central Tokyo

35 properties: ¥125.9 bn

Did you benefit from the public offering?

We acted while others stood by and our debt costs are down because of this, and nonrecourse loanlenders and property owners have become a non-stop supply of property information. And of course wehave a more robust portfolio. These actions we have taken are not reckless, if anything they areconservative. We added four properties in the Tenth Fiscal Period and lowered our leverage while doingso.

3 │ Kenedix Realty Investment Corporation

MANAGEMENT THAT CONSIDERS THE MARKET ENVIRONMENT
MarketEnvironmentt Financial crisist Credit contractiont Rising cap ratest3JTJOHPóDF
vacanciest3FTVSSFDUJPO
of equity
financingt*ODSFBTFJOQSPQFSUJFTEVF
to maturity of
non-recourse loans,etc.

t"DRVJTJUJPO
of properties
by J-REITs

Management that is a half-step ahead
Measures during 8th
and 9th Periods(November 2008 ~ October 2009)

KRI Buyingt Selling of regional office building

and selling and small office building
properties t Acquiring of KDX Nagoya Sakae

Building (building portion)
t Sale of two residential properties

Financialaffairs

Measures during
10th Period and After

Sourcing of Properties with Equity(November 2009)

Re-opening of property acquisitions Stable growtht Tokyo Metropolitan Area
Acquisition of four mid-sized officebuildings

t Steady property acquisition by
utilizing KENEDIX-REIT's advantages
in the market place

Stabilization of financial affairst Stabilization of bank formationt Continuation of spreading out ofdebt maturitiest Stable capital raising throughplacement of collateralt Acquisition of properties throughnew financing
t Flexible financing
t Maintaining a conservative LTV

t Conducting of equity financet Lowering of leverage

Managing Conversion to focus on occupancy
existing
portfolio t Emphasis on steady cash flowt Raising number of new tenants through flexible leasing activitiest Reduction of construction costs and conducting a customer (tenant) satisfaction survey

Q

A

Q

A

What now?
We have demonstrated that mid-sized office buildings have greaterliquidity than other real estate. We will no longer sell properties ata loss, but we will continue to optimize our portfolio whileemphasizing cash flow and equity finance to garner steady growth
and this will drive down the costs of financing. Six months ago
banks stayed away, now they come without a phone call.

Unfortunately the distribution per unit is down. What are yourthoughts about this?

Stability of
cash flow

2009 PUBLIC OFFERING
Units oﬀered

Domestic publicoﬀering:
33,550 units

Over allotment

1,450 units

Designated buyerof units

Kenedix REITManagement:
1,200 units

Outstanding units
233,550 units
after oﬀering
Pricing date November 9, 2009
Delivery dateNovember 17, 2009

Discount rate

3.0%

Issue price¥252,200

Raised amount¥8.5 bn

Bookrunner

Nomura Securities Co.,Ltd.
Actually the sale of properties at a loss drove our forecasts down to
the low 9,000 yen level at mid-period. The fact that we reached 10,511 yen per unit is a testament to ourcommitment to proactive property management. Our ability to reduce costs through consolidation ofvendors and other measures and our ability to increase occupancy of our portfolio above the market
average drove up our distribution. This excellent occupancy rate and cost management are a testament to
our team. We intend to raise our distribution further through smart acquisitions and resilient property
management backed by customer satisfaction as we continue to be "onthe go" in response to the market cycle.

Taisuke Miyajima
CEO and President
Kenedix REIT Management, Inc.
Miyajima entered Kenedix, Inc. after serving in the Capital Markets Department of Mitsubishi UFJ Trustand Banking in its Los Angeles Branch. He worked in real estate investment advisory for seven years, after
which he transferred employment to serve as CEO and President of Kenedix REIT Management, Inc. andExecutive Director of KENEDIX-REIT.

Kenedix Realty Investment Corporation │ 4

S p e a k i n g

t o

Yo u

Q&A with the General Managerof the Financial Planning Division

Finishing the Marathon,
Only to Begin Running Again
Q

A

The biggest development of the Ninth Fiscal Period was obviously the public offering that happened at
the beginning of the Tenth Fiscal Period. BUT you obviously did not stand around waiting for this tohappen. How did you position yourself to carry out the public offering?
Our REIT is unique in that we have always made statements. Our statement during this financial crisis
was that you had to keep running. There were things to do. We needed to continue our strategy of fixedinterest and long-term, diversified loans. We needed to overcome situations sometimes drastically, aswith the collateralizing over 70% of our properties in the previous fiscal period to ensure refinancing andselling of a few properties at a loss to ensure our strategies progressed.

This period we had a couple of clear milestones: buying the KDX Nagoya Sakae Building and paying off
Citibank's loan to us. Our CEO had previously iterated that we would sell properties, even at a loss, topull these off and we demonstrated that mid-sized office buildings can be sold even in down times, and by
selling Apartments Motoazabu and Apartments Wakamatsu-Kawada, which were both uncollateralized,
we were able to combine this capital with that from selling two uncollateralized buildings in the Eighth
Fiscal Period to arrange the funding to buy the KDX Nagoya Sakae Building and to repay the 2.5 billion
yen of loans from Citibank.
DIVERSIFICATION OF DEBT MATURITIES as of January 13, 2010

DIVERSIFICATION OF MATURITIES as of December 14, 2009
Short-term borrowings

Investment
corporation
bonds

Short-termborrowings¥8.5 bn
8.8%

Long-term borrowings
to be paid within 1 year

¥14.5 bn
15.1%

9.0
12.34

Long-term borrowings
and investment corporation bonds

Long-term
borrowings

18.59¥73.22 bn
76.1%

11.59

Borrowings fromthe Development
Bank of Japan

10.03
6.44
5.0

2.59
0.5
(bn yen) 2009
2H

4.56

2.0
2010
1H

2010
2H

2011
1H

2011
2H

2012
1H

2012
2H

5.0

3.06 2.52
2013
1H

2013
2H

2014
1H

2014
2H

2015
1H

2015
2H

2016
1H

Notes: 1. Shows debt amounts that mature in each period
2. 1H is from Apr. 1 to Sep. 30 and 2H is from Oct. 1 to Mar. 31 of the following year, and are not identical with the ﬁscal periods of KENEDIX-REIT
3. Balance of borrowings from the Development Bank of Japan (excluding dividend repayment amount) shown in

5 │ Kenedix Realty Investment Corporation

3.0
2016
2H

S p e a k i n g

t o

Yo u

We also refinanced a number of long and short-term loans maturing at the end of the Ninth Fiscal Period
through a combination of long-term loans from Sumitomo Mitsui Bank and short-term loans from theother lenders. The long-term loans have fixed interest rates and mature in 2013. This refinancing and thepaying off of a regional bank in the Eighth Fiscal Period and a foreign bank this fiscal period has created a
stress free bank formation and demonstrated the support we enjoy among our financing sources.
BREAKDOWN OF FINANCING SOURCES as of January 13, 2010
A strong bank formation supported by megabanks, trust banks and the Development Bank of Japan

Mitsui Sumitomo Insurance 1.2%

Sumitomo Mitsui Banking Corporation

Norinchukin Bank 4.7%

23.1%

Resona Bank 5.0%

Mitsubishi UFJ Trust and Banking

8.5%Bank of Tokyo Mitsubishi UFJ

Chuo Mitsui Trust and Banking

11.6%

17.2%

Development Bank of Japan

Aozora Bank

14.2%

Q

A

Q

14.2%

What were the effects of these efforts on leverage?
First and foremost, our ability to do what we have stated we will do has had a dramatic impact all around.
Our leverage at the end of the Ninth Fiscal Period, despite acquisition of the KDX Nagoya Sakae
Building, was down to 41.1% and with the public offering it dropped to the 39% level. Difficulties
refinancing have all but disappeared. In the past, we discussed rising costs and rising interest rates with
our investors. Today the spread is coming down, the associated costs of financing are down after equity
raising. And interestingly, the banks are coming to us with their "trouble" cases seeing if we can be thesolution to their problems rather than the feeling apparent after the Lehman Shock that J-REITs were theproblem.

So where to now?

CHANGE IN LTV(%)

AThe CEO has for the Eighth and Ninth Fiscal 50
Periods articulated a plan to return to steady 45
growth from the Tenth Fiscal Period. The
40
successful public offering, the first among
office REITs in Japan after the past crisis, has 35
pointed to the new stage in the evolution of
30
KENEDIX-REIT's external growth of25
acquiring properties with brand-new debt
while managing the portfolio at a20
conservative, low leverage.

47.0

45.6

KENEDIX-REIT is committed
to a conservative leverage
41.2 41.4 41.1

37.5

38.7

38.9
35.3

39%
level

1st 2nd 3rd 4th 5th 6th 7th 8th 9th after PO
Period Period Period Period Period Period Period Period Period (Nov. 2009)

Note: LTV = Total debt ÷ Total assets

Masahiko Tajima
Director and General Manager
Financial Planning Division
Kenedix REIT Management, Inc.

Tajima served in Chuo Mitsui Trust and Banking for twelve years
where he worked in business planning and securitization. He
joined Kenedix, Inc. in May 2005 after four years in the structured
finance department at Sumitomo Life Insurance Company.

Kenedix Realty Investment Corporation │ 6

S p e a k i n g

t o

Yo u

Q&A with the General Managerof the Investment Management Division

A Half-Step Ahead: Balancing
Enthusiasm and Rationality
QA

In your new role as CIO what is the investment policy of KENEDIX-REIT that you are pursuing?
My sole aim is to strengthen our portfolio of mid-sized office buildings. The new acquisitions we madeafter the close of the Ninth Fiscal Period places 90% of our portfolio in office buildings and 85% of ourportfolio in the Tokyo Metropolitan Area. These are all critical milestones as we seek to be the "onlyplayer" of significance in the mid-sized office building market.

PORTFOLIO BREAKDOWN BY USAGE

Residential

KENEDIX-REIT has clearly adjusted its portfolio since announcing a shift ininvestment policy to medium-sized office buildings and beginning to sell off
residential properties.

CentralUrban Retail

5.4%

Office70.0%
70.

Residential

21.8%
CentralUrban Retail¥16.0 bnQ

A

¥10.3 bn
¥12.3 bn

¥197.4 bn¥137.9 bn

as of end of 5th Period

A

90.0%

¥43.0 bn

8.1%

Q

Office4.5%

as of February 1, 2010

Why did you buy now and what convinced you to act?
KENEDIX-REIT is committed to being a half-step ahead. We really shifted to re-growth for two reasons.
First, we judged that following the acute financial crisis it was the time to buy. Second, it was time todemonstrate we could buy to achieve future external growth.

But why was it the time to buy?
If you look at the figure, it is clear that the investment real estate market moves in cycles. Interestingly,
this is the first true investment real estate cycle in Japan since this market only took shape in the late
1990s when opportunistic buyers ruled the market. Since the high growth period of 2005-2007, themarket has been in decline. The leasing market, however, appears to have bottomed out and most signs
point to us having handled the crisis somewhat successfully. This led to our judgment that it was time tobuy. The inability for banks to provide excessive leverage and our ability to move fast with our low
leverage made it the perfect time for us to buy with little competition.

7 │ Kenedix Realty Investment Corporation

Q

A

MARKET CYCLE

Was the public offering and ensuringacquisition of properties successful?

We again stood out as being a half-stepahead. The timing was great because wefollowed Nihon Accommodations but
preceded Japan Real Estate. And we wereable to avoid the Dubai Shock.

Decline ingrowthDownturn

Real estatemarket cycle

High Bottom
growthout

Oﬃce building
leasing market

From our perspective, the public offering andOﬃce building
sales market
acquisitions were also successful because of J-REIT market
the press they received. Additionally, ournow even lower leverage and evidence that
we are buying properties have been a magnet for drawing banks to us with un-circulated opportunities
just as we had hoped. We are now in our stable re-growth period, as the figure shows, and we are poised
to grow ahead of the coming wave of high growth in the real estate market.

STABLE GROWTH THROUGH ACQUISITION OF PROPERTIES
Growth-Emphasized

Track record (mn yen)

Stability-Emphasized

Handling Crisis

Re-Growth

8thPeriodDec. 2009(10th Period)

80,00060,000Acquisition

40,000Propertytransaction

20,0000

Sales-20,000-40,000
1st
Period

Q

A

Q

A

2nd
Period3rd
Period4th
Period5th
Period6th
Period7th
Period9th
PeriodDo you prefer to buy product that is in excellent condition or that which needs to be fixed?
There is nothing like buying a high performance building at a low price, but our DNA prefers to buy abuilding that our underwriting reveals to be full of potential and underperforming and then position it
better in the market with refurbishing, optimal management and other factors so that it adds value to the
KENEDIX-REIT portfolio.

In closing, what makes a successful CIO?
Being a half-step ahead when you move to buy and when you move to sell. Put differently, a balance
between an enthusiasm to buy and a cool head are essential to success as a CIO.

Koju Komatsu
General Manager (CIO)
Investment Management Division
Kenedix REIT Management, Inc.

Komatsu worked for Chuo Mitsui Trust and Banking for sevenyears serving in property sales, property investment advisory andasset finance. After working in the Real Estate Department ofCititrust & Banking Corporation, he joined Kenedix, Inc. in April
2005. Komatsu was assigned to Kenedix REIT Management, Inc.
as Vice President of the Investment Management Division andCompliance Officer before being transferred to Kenedix REITManagement in July 2007 where he served as Compliance Oﬃcer
and Senior Manager of the Investment Management Division
before being assigned to his current post in September 2009.
Komatsu is also a real estate appraiser.

Kenedix Realty Investment Corporation │ 8

ACQUISITION AND DISPOSITIONS
9th Fiscal Period

ACQUISITION: KDX NAGOYA SAKAE BUILDINGKENEDIX-REIT acquired the KDX Nagoya Sakae Building built on previously acquired land. The acquisition was carried out afternegotiating terms more favorable to KENEDIX-REIT due to the recession. The building is a mere 3-minute walk from Sakae Station,a core shopping and office district of Nagoya and is rated A- under the CASBEE building rating system.

Date acquired
Location
Site area
GFA
Built
StoriesAcquisition priceLand:
April 25, 2008
Building: July 1, 2009
4-chome Sakae,
Naka-ku, Nagoya-shi
1,192.22m2
9,594.00m2
April 200911 ﬂoors
Land:¥4,000 mn
Building: ¥3,550 mn

DISPOSITIONS: APARTMENTS MOTOAZABU AND APARTMENTS WAKAMATSUKAWADA
This fiscal period KENEDIX-REIT sold two residential properties. These properties were sold in line with KENEDIX-REITs
announced portfolio strategy of focusing on mid-sized office buildings in the Tokyo Metropolitan Area and they were also sold toreinforce the financial foundation of KENEDIX-REIT. In particular, funds from the sale of Apartments Motoazabu and Apartments
Wakamatsu-Kawada were applied to the acquisition of the KDX Nagoya Sakae Building in Nagoya and to the paying down of debt
related to Citibank.
Also, President Miyajima has clearly stated that these two properties are the last to be sold at a loss and any future sales will be equal toor exceed book values if they are to be sold.
Name

Apartments Motoazabu

Apartments Wakamatsu-Kawada

Sold dateJune 23, 2009

August 27, 2009

Sales price¥1,052,000,000¥930,000,000

Book value¥1,206,691,482¥1,151,822,673

Diﬀerence-¥154,691,482-¥221,822,673

9 │ Kenedix Realty Investment Corporation

ACQUISITIONS: FOUR NEW BUILDINGS JOIN THE PORTFOLIO
10th Fiscal Period

KENEDIX-REIT conducted a public offering on November 16, 2009 and applied the procured funds to the acquisition of thefollowing four office buildings.

KOISHIKAWA TG BUILDING
Date acquired
Location
Site area
GFA
Built
StoriesAcquisition priceNovember 18, 2009
Bunkyo-ku, Tokyo
1,250.42m2
5,862.02m2
November 1989
8 ﬂoors (plus 1 basement ﬂoor)¥3,080 mn

GOTANDA TG BUILDING
Date acquired
Location
Site area
GFA
Built
StoriesAcquisition priceNovember 18, 2009
Shinagawa-ku, Tokyo
582.90m2
4,440.61m2
April 1988
9 ﬂoors (plus 1 basement ﬂoor)¥2,620 mn

KDX NIHONBASHI 216 BUILDING
Date acquired
Location
Site area
GFA

December 1, 2009
Chuo-ku, Tokyo
307.77m2
1,871.62m2

Built
StoriesAcquisition price

October 2006
9 ﬂoors¥2,010 mn

KDX SHINYOKOHAMA 381 BUILDING ANNEX TOWER
Date acquired
Location
Site area
GFA
Built
StoriesAcquisition priceNovember 18, 2009
Yokohama-shi, Kanagawa
1,229.24m2
10,290.30m2
April 200910 ﬂoors (plus 1 basement ﬂoor)¥1,100 mn

Kenedix Realty Investment Corporation │ 10

Q&A with the General Managerof the Property Management Division

Proactive Management Generates
Strong Results
NEW TENANTS AND LEAVING TENANTS(unit: cases)
6th Period

7th Period

A

Q

A

9th Period
43

〜

〜

〜

〜

〜

Obviously the economy has not been great and18
the national elections in July led to an entirely
new government taking the reins of power. So
in the macro sense we had economic and-25
political instability. At the micro level our rateof tenants leaving versus new tenants leasing
Feb
Feb
May
Aug
Nov
May
Aug
Nov
2008
2007
troughed at -10 during May - July 2009.
Apr
Jul
Oct
Apr
Jul
Oct
Aug
Jan
2008 2008 20082009 2009 2009
Interestingly, August - October saw an unheard
2008
2009
of rush of new contracts during which it wasNote: These numbers are based on ﬂoors so if one tenant left from two ﬂoors orcontracts for two ﬂoors it is counted as two rather than 1.
clearly easier to find tenants. During the periodof August - October the same measure of new tenants versus old was a +18.
〜

Q

8th Period

50
Number of new tenants
40
30
34
30
Diﬀerence
20
23
19
18
17
16
10
6
5
5
0
-1
-1
-6
-13
-10
-10
-18
-20
-22
-24
-20
-29
-33
-30
Number of leaving tenants
-40
〜

A

How would you rate the performance of theportfolio during the Ninth Fiscal Period?

〜

Q

There has also been much in the news about fluctuating rents among office buildings and how the figures
are relatively undependable. How do you address this?
The media tends to look for easy answers. It may be the limited space available for their articles or just alack of research but in our case we have found that rents have fallen in the past year and a half but the fallhas been anything but drastic. The rents for our overall office portfolio have dropped an average of 1.2%
with the regional areas leading the way at 2.9%. We are confident our rents are under control.
Interestingly, in the case of re-contracting existing tenants, rents held steady in 66.4% of the cases,
decreased in 24.0% of the cases and actually increased in 9.6% of the cases.

The negotiations that reduced the price foracquiring the KDX Nagoya Sakae Building had
one clear negative result and that is KENEDIXREIT lost the master lease term that was part ofthe original contract. How has the leasing been
going?
Obviously a major focus of our efforts this fiscal
period was leasing up this property. Since its
acquisition on July 1, we have held open houses
and used our network to actively promote thebuilding. Consequently as of the end of the

11 │ Kenedix Realty Investment Corporation

KDX NAGOYA SAKAE BUILDING:PROACTIVE MANAGEMENT LEADS TO GREATER OCCUPANCY
(%)
80

61.8

70

66.0

72.3

60
50

30.4

40
30

18.0

Proactive leasing activities

20
10

Jul 1, 2009
End of Jul(Acquisition date)

End of Aug

End of Sep

End of Oct

Ninth Fiscal Period we had an occupancy rate of 72.3%. This excellent result is due to the phenomenal
efforts of our team. We are convinced the figure will improve in the next fiscal period.

We have also continued to work at leasing our other properties and are achieving strong results. Throughthese efforts, we have successfully demonstrated that a portfolio with this property makeup can do welleven in hard times.

Q

A

What do you attribute this success to?

END TENANTS OF OFFICE BUILDINGS (by Sector)
Individuals

We are not dependent on a few large
conglomerates. Our tenants are spread out
among many sectors and this diversificationacts as a risk hedge and a broad source ofpotential tenants. For example, we have 580
end tenants as of the end of the Ninth Fiscal
Period of which the largest end tenant only
rents 2.2% of the portfolio and the top three
only 5.6% of the portfolio.

4.5%

Mining

0.2%

Construction

4.8%

Public sector(other)Manufacturing

0.3%

13.6%

Service39.5%

Who
Wholesale,retail and food service
retaiTransportt andd
communications

24.3%

2.9%

Finance and insurance

6.2%

Real estate

Is your customer satisfaction strategy also
critical to your success in keeping tenants andholding rents?

Q

A

3.6%
PROPORTION OF RESPONSESIN CUSTOMER SATISFACTION RESULTS

This is clearly the other success of our strategy
Sales maintenance staff 3%
Security andfor keeping tenants. KENEDIX-REIT is
disaster handling system
Cleaning staff 2%
convinced that satisfaction and continuing
7%
Office (air-conditioning,
Contact fromsize, lighting, etc.)
tenants are interlinked. Every two years we hireproperty managers
30%
3
J.D. Power Asia Pacific to conduct a customer
8%
satisfaction survey for us and to notify us of ourSoftware42%
index score. The survey was conducted in July
Hardware2009 and covered 58 properties. The total
58%
number of questionnaires distributed was 477
Propertyto administration department personnel andmanagers
Outside and entrance
2,950 to employees. The collection rate was8%
11%82% for administration and 83% for otherConstruction handling
Other common area
14%
aspects
personnel. The total CSI for administration
8%
showed a small increase from 719 to 728 andBathrooms 6%
Elevators 3%
the total CSI for employees climbed from 690
to 714 with a full score being 1,000. The chart
Improvements are needed in both hardware
and software (servicing)to the right shows the portion each responsecomprises of the satisfaction results in the thirdsurvey for the administration category. As a result of these studies we have initiated various studies andimprovement plans and the flow based on this third survey is outlined below, also.

ACTION PLAN BASED ON RESULTS OF 3RD CUSTOMER SATISFACTION SURVEY
Through 9th Period

10th Period

Hardware

Implementation of construction
in response to survey
Establishing of uniform guidelines

Continual improvements

Software

Changing andconsolidating building standards

Integrated standards(guidelines) being established

Maintaining rent levels
and asset values by maintaining
and improving customer satisfaction

Kenedix Realty Investment Corporation │ 12

Q

A

Mr. Miyajima, your CEO, often mentions that just because the market is slow it doesn't mean you can lay
back and do nothing. You and your division are proof of this. First, you have raised or maintained
occupancy and second you are taking steps to heighten customer satisfaction and as a consequencetenant retention. What else have you achieved.

You are right but you are also limiting your perception to increasing revenues. We are also tasked withthe jobs of reducing costs and heightening our energy performance.

As we all know global warming is one of the hot topics of today. Under the Energy Saving Act, any
company using more than the equivalent of 1,500 kiloliters of oil a year must institute conservation
measures. Since many of our buildings are older, one of the easiest energy efficiency measures for us
consists of installing new air conditioning or other systems to replace relatively outdated facilities. These
measures of course also raise the value of the building in the eyes of the tenants and in the eyes of themarket. An example of the success we havefound in this area is a focused replacement
REDUCING AIR CONDITIONING COSTS THROUGH BID (case from 6th Period)of air-conditioning systems during the Sixth
KDX Kayabacho Building
Fiscal Period where we replaced the systems
KDX Nogizaka Building
KDX Kiba Building
for five buildings at the same time.
KDX Okachimachi Building
KDX Nakano-Sakaue Building

All of the systems were replaced for 269
million yen, this was 174 million yen lessthan the average bid. Clearly we achieved acost saving of 39.3% by conducting the bid
and also heightened efficiency by replacing
the systems.

Average auction
price (5 Co.)

139

103

101

Total: ¥269 mn

Construction
costs

70

50

79

74

26

Total: ¥443 mn

58 12Reduction: 39.3%
Cost saving of ¥174 mn
0

50 100 150 200 250 300 350 400 450(mn yen)As the figure below also shows, we havebeen successful at lowering the cost of
CHANGES IN DEPRECIATION AND ACTUAL CONSTRUCTION COSTS & BUDGET
construction and repair work. All theseas of February 1, 2010
efforts transform into reduced energy costs(mn yen)Depreciation
and reduced construction costs combined
1,600
Construction cost
Construction budget
with greater occupancy. This of course
1,400
drove up our net operating income and
1,200
consequently propped up distributions to
1,000
investors compared to our earlier forecasts,
800
and thus was very well received by the600market. Please realize we are not satisfied yet
400
and will continue to improve occupancies
200
above the market levels and reduce costs0
to create a portfolio that is functioning
77th
th
88th
th
99th
th
10th
100t
0thh
0th
11th
11t
1thh
12th
122t
2thh
PeriodPeriodPeriodPeriodPeriodPeriodoptimally.
(Budget) (Budget)(Image)Masashi Ohwa
Director and General Manager
Property Management Division
Kenedix REIT Management, Inc.

13 │ Kenedix Realty Investment Corporation

Ohwa joined Kenedix, Inc. in June 2004 after working for nearly adecade at Asahi Urban Development Corporation and other realestate companies. After one year at Kenedix, Inc., he was assigned
to the position of Executive Oﬃcer and General Manager of the
REIT Management Division of Kenedix Advisors Co., Ltd. Ohwa
served in this position for two years before being assigned to hiscurrent position at Kenedix REIT Management, Inc.

TRANSPARENCY AND GOVERNANCE AT THE ASSETMANAGEMENT COMPANY

One of the profound changes that the J-REIT market unleashed on the Japanese real estate market was the concept of transparency.
Prior to the market's existence, rarely were the prices of transactions and the amounts of fees disclosed for the perusal of investors andthe general public. Additionally, transactions at "fair market value," particularly in the event of transactions with interested parties, areclosely scrutinized. This scrutiny makes compliance a critical issue for all J-REITs and also makes J-REITs a truly viable investment
object. KENEDIX-REIT makes it a mission for our committees to meet regularly so that we fulfill our duties in these areas.

DECISIONMAKING AT KENEDIX REIT MANAGEMENT
Preview

Corresponding
Division

Compliance
Officer

Deliberation and Resolution

Deliberation and Resolution
Creation of management
guidelines

Asset
Management
Committee

Resolution or Reporting

Compliance
Committee

Approval for transactions withinterested parties

Resolution(1 outside member(lawyer) )Approval for transactions outsideof management guidelines

Board
of
Directors

Approval for transactions that
follow management guidelines
excluding those with interested parties

One of the keys to successful governance ishaving a system in practice and not just in writing.
Our committees meet regularly and the AssetManagement Committee, which assumes thelargest role in the compliance and decision-making
process, is most diligent.
As mentioned above, transactions with interested
parties are particularly closely governed.
KENEDIX-REIT has established specific rules
concerning these transactions.
It is absolutely essential for the asset managementcompany to be profitable, but excessive fees are also
impermissible. Fees became a somewhat material
issue in the West in the aftermath of the Lehman
Shock for a plethora of reasons, and we provide asampling of our fees below to ensure our investors
are convinced of their fairness.

Reporting

MEETINGS OF COMMITTEES IN EACH FISCAL PERIOD
1st
Period2nd
Period3rd
Period4th
Period5th
Period6th
Period7th
Period8th
Period9th
PeriodCompliance
Committee
Asset Management
Committee

7

7

7

8

6

8

9

8

8

21

35

39

39

38

38

52

44

36

Board of Directors

9

7

9

8

9

7

9

8

10

KENEDIX-REIT Boardof Directors

11

7

7

9

7

7

8

8

8

TRANSACTIONS WITH INTERESTED PARTIES• Asset acquisition: Transactions that exceed appraised values by licensed
real estate appraisers are prohibited (excluding when the property iswarehoused)• Asset disposition: Dispositions of properties below the appraised valuesby licensed real estate appraisers are prohibited

FEES CHARGED BY KENEDIX REIT MANAGEMENT
Asset Management Fees
• Management fee I: 0.15% of total assets• Management fee II: 3.0% of distributable amount each ﬁscal period• Acquisition fee: 0.5% of acquisition price (0.25% in case of transaction with interested party)• Disposition fee: Ceiling of 0.5% of the disposition price
Property Management Fees
• Rental management fee: 2% of property income + 2% of property operating income (after deducting operating expenses andbefore deducting depreciation)• Management transfer fee: Set fee in correlation with acquisition price/sales price (e.g., ¥2 mn for ¥1-3 bn transaction; ¥2.4 mn for¥5-10 bn transaction)• Construction management fee: Amount set in correlation to construction cost (e.g. 5% in the event of ¥1-5 mn construction and¥450,000 + 3% in the event of ¥10-100 mn construction)

Kenedix Realty Investment Corporation │ 14

KENEDIXREIT PORTFOLIO TABLE
END OF 9TH PERIOD
Collateralized
Assets

No.

A
Oﬃce

A-1
A-2
A-3
A-4
A-5
A-6
A-7
A-8
A-9
A-12
A-13
A-14
A-15
A-16
A-17
A-18
A-19
A-20
A-21
A-22
A-23
A-24
A-25
A-26
A-27
A-28
A-29
A-30
A-31
A-32
A-33
A-34
A-35
A-36
A-37
A-38
A-39
A-40
A-41
A-42
A-44
A-45
A-46
A-47
A-48
A-49
A-50
A-51
A-52
A-53
A-54
A-55
A-56
A-57

■

■

■
■

■

■

■
■
■

■
■
■

■

■
■
■
■

■
■
■
■

■

■

■
■
■
■
■

■

■
■
■
■

■

■
■

Property NameKDX Nihonbashi 313 Building
KDX Hirakawacho Building
Higashi-Kayabacho Yuraku Building
KDX Hatchobori Building
KDX Nakano-Sakaue Building
Harajuku F.F. Building
FIK Minami Aoyama
Kanda Kihara Building
KDX Shinjuku-Gyoen Building
Portus Center Building
KDX Kojimachi Building
KDX Funabashi Building
KDX Hamacho Building
Toshin 24 Building
Ebisu East 438 Building
KDX Omori Building
KDX Hamamatsucho Building
KDX Kayabacho Building
KDX Shinbashi Building
KDX Shin-Yokohama Building
KDX Yotsuya Building
KDX Minami Semba Dai-1 Building
KDX Minami Semba Dai-2 Building
KDX Kiba Building
KDX Kajicho Building
KDX Nogizaka Building
KDX Higashi-Shinjuku Building
KDX Nishi-Gotanda Building
KDX Monzen-Nakacho Building
KDX Shiba-Daimon Building
KDX Okachimachi Building
KDX Hon-Atsugi Building
KDX Hachioji Building
KDX Niigata Building
KDX Ochanomizu Building
KDX Nishi-Shinjuku Building
KDX Toranomon Building
Toranomon Toyo Building
KDX Shinjuku 286 Building
Karasuma Building
KDX Sendai Building
KDX Roppongi 228 Building
Hiei Kudan-Kita Building
KDX Shin-Yokohama 381 Building (Note 1)
KDX Kawasaki-Ekimae Hon-cho Building
Nissou Dai-17 Building
Ikejiri-Oohashi Building
KDX Hamacho Nakanohashi Building
KDX Kanda Misaki-cho Building
KDX Hakata-Minami Building
KDX Kitahama Building
Shin-toshin Maruzen Building
KDX Jimbocho Building
KDX Gobancho Building

Location
Chuo Ward, Tokyo
Chiyoda Ward, Tokyo
Chuo Ward, Tokyo
Chuo Ward, Tokyo
Nakano Ward, Tokyo
Shibuya Ward, Tokyo
Minato Ward, Tokyo
Chiyoda Ward, Tokyo
Shinjuku Ward, Tokyo
Sakai, Osaka
Chiyoda Ward, Tokyo
Funabashi, Chiba
Chuo Ward, Tokyo
Yokohama, Kanagawa
Shibuya Ward, Tokyo
Ota Ward, Tokyo
Minato Ward, Tokyo
Chuo Ward, Tokyo
Minato Ward, Tokyo
Yokohama, Kanagawa
Shinjuku Ward, Tokyo
Osaka, Osaka
Osaka, Osaka
Koto Ward, Tokyo
Chiyoda Ward, Tokyo
Minato Ward, Tokyo
Shinjuku Ward, Tokyo
Shinagawa Ward, Tokyo
Koto Ward, Tokyo
Minato Ward, Tokyo
Taito Ward, Tokyo
Atsugi, Kanagawa
Hachioji, Tokyo
Niigata, Niigata
Chiyoda Ward, Tokyo
Shinjuku Ward, Tokyo
Minato Ward, Tokyo
Minato Ward, Tokyo
Shinjuku Ward, Tokyo
Kyoto, Kyoto
Sendai, Miyagi
Minato Ward, Tokyo
Chiyoda Ward, Tokyo
Yokohama, Kanagawa
Kawasaki, Kanagawa
Yokohama, Kanagawa
Meguro Ward, Tokyo
Chuo Ward, Tokyo
Chiyoda Ward, Tokyo
Fukuoka, Fukuoka
Osaka, Osaka
Shinjuku Ward, Tokyo
Chiyoda Ward, Tokyo
Chiyoda Ward, Tokyo

Acquisition Price(mn yen)Site Area(m2)

Floor Area
(m2)

5,940
5,180
4,450
3,680
2,533
2,450
2,270
1,950
1,610
5,570
5,950
2,252
2,300
5,300
4,640
3,500
3,460
2,780
2,690
2,520
1,950
1,610
1,560
1,580
2,350
1,065
2,950
4,200
1,400
6,090
2,000
1,305
1,155
1,305
6,400
1,500
4,400
9,850
2,300
5,400
2,100
3,300
7,600
4,700
3,760
2,710
2,400
2,310
1,380
4,900
2,220
2,110
2,760
1,951

1,047.72
1,013.85
773.43992.201,235.16
699.67369.47410.18383.63
13,936.63
612.17
1,180.41
554.801,287.16
724.22
1,123.93
504.26617.17536.11705.00996.65715.44606.45922.77526.43409.36
1,340.97
684.41580.991,188.28
239.72724.62460.62
1,110.56
1,515.28
626.06288.20869.01421.701,788.67
987.78408.86
1,844.83
1,229.24
1,968.13
629.00834.79462.29314.54
1,826.25
751.92457.64465.92335.708,613.09
8,002.97
5,916.48
4,800.43
6,399.42
3,812.44
1,926.98
2,393.94
2,594.88
79,827.08
5,323.81
5,970.12
4,133.47
8,483.17
4,394.58
7,334.77
3,592.38
3,804.86
3,960.22
6,180.51
3,329.68
4,236.59
3,315.93
2,820.64
3,147.70
1,695.07
7,885.40
5,192.87
2,668.91
7,824.03
1,882.00
3,603.63
2,821.21
6,810.29
7,720.08
2,017.63
2,277.38
8,346.83
3,432.04
12,632.68
5,918.30
2,235.30
11,425.31
10,290.30
7,420.87
4,016.61
3,482.96
3,280.41
1,536.60
13,238.16
4,652.96
3,439.37
3,292.13
1,893.11

A-58

KDX Nagoya Sakae Building

Nagoya, Aichi

7,550

1,192.22

9,594.00

A-59

KDX Iwamoto-cho Building

Chiyoda Ward, Tokyo

1,864

266.86

1,618.65

KDX Harumi Building

Chuo Ward, Tokyo

10,2502,230.69

12,694.32

KDX Hamamatsucho Dai-2 Building

Minato Ward, Tokyo

2,200

368.282,478.90

A-60

■

A-61

197,461

Oﬃce Subtotal (58 Properties)

B

B-3

Residential

B-18

■

B-19

■

Court Mejiro

Shinjuku Ward, Tokyo

1,250

1,581.91

3,326.07

Venus Hibarigaoka

Sapporo, Hokkaido

1,800

8,595.00

14,976.25

Residence Charmante Tsukishima

Chuo Ward, Tokyo

5,353

4,252.86

18,115.39

B-25

Court Shin-Okachimachi

Taito Ward, Tokyo

878

311.22

1,494.55

B-34

Gradito Kawaguchi

Kawaguchi, Saitama

1,038

423.94

1,705.38

10,319Residential Subtotal (5 properties)

C

C-1

Central Urban
Retail

C-2■

Frame Jinnan-zaka

Shibuya Ward, Tokyo

9,900

1,240.51

6,302.58

KDX Yoyogi Building

Shibuya Ward, Tokyo

2,479

228.74

1,269.06

Central Urban Retail Subtotal (2 properties)

12,379TOTAL 65 properties

220,159

15 │ Kenedix Realty Investment Corporation

Completion Date

Acquisition Date

Occupancy

Apr. 1974
Mar. 1988
Jan. 1987
Jun. 1993
Aug. 1992
Nov. 1985
Nov. 1988
May 1993
Jun. 1992
Sep. 1993
May 1994
Apr. 1989
Sep. 1993
Sep. 1984
Jan. 1992
Oct. 1990
Sep. 1999
Oct. 1987
Feb. 1992
Sep. 1990
Oct. 1989
Mar. 1993
Sep. 1993
Oct. 1992
Mar. 1990
May 1991
Jan. 1990
Nov. 1992
Sep. 1986
Jul. 1986
Jun. 1988
May 1995
Dec. 1985
Jul. 1983
Aug. 1982
Oct. 1992
Apr. 1988
Aug. 1962
Aug. 1989
Oct. 1982
Feb. 1984
Apr. 1989
Mar. 1988
Mar. 1988
Feb. 1985
Jul. 1991
Sep. 1988
Sep. 1988
Oct. 1992
Jun. 1973
Jul. 1994
Jul. 1990
May 1994
Aug. 2000

Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Sep. 2005
Nov. 2005
Mar. 2006
Mar. 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
Jun. 2006
Jul. 2006
Jul. 2006
Sep. 2006
Dec. 2006
Jan. 2007
Mar. 2007
Mar. 2007
Mar. 2007
Mar. 2007
Mar. 2007
Apr. 2007
Apr. 2007
Apr. 2007
Jun. 2007
Jun. 2007
Jun. 2007
Jun. 2007
Jan. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Mar. 2008
Mar. 2008

100.0%
100.0%
100.0%
93.1%
91.3%
100.0%
100.0%
100.0%
100.0%
88.5%
86.7%
100.0%
100.0%
93.3%
100.0%
100.0%
100.0%
100.0%
100.0%
93.1%
100.0%
84.4%
82.1%
100.0%
94.3%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
85.6%
62.2%
100.0%
100.0%
89.3%
95.4%
100.0%
86.1%
96.6%
52.4%
100.0%
100.0%
100.0%
100.0%
91.3%
100.0%
100.0%
94.4%
96.4%
100.0%
100.0%
85.7%

Land: Apr. 2008
Building: Jul. 2009
May 2008
Jun. 2008
Sep. 2008

75.0%

Apr. 2009
Mar. 2008
Feb. 2008
Apr. 1992

72.3%
100.0%
100.0%

94.4%
Mar. 1997

Aug. 2005

85.3%

Mar. 1989

Dec. 2005

96.5%

Jan. 2004

May 2006

100.0%

Oct. 2005

May 2006

88.5%

Feb. 2006

Jun. 2006

100.0%

Mar. 2005

Aug. 2005

93.6%

Aug. 1991

Sep. 2005

100.0%

CHANGES IN OCCUPANCY RATIO FOR OFFICE BUILDINGS by region
(%)
100

97.3

Tokyo Metropolitan Area

95

85.9
85

Other Regional Areas
Acquisition of
KDX Nagoya Sakae Building

80

May
2007

Jul

Sep

Nov

Jan
2008

Mar

May

Jul

Sep

Nov

Jan
2009

Mar

May

Jul

Sep

Oct

Reference: Occupancy at end of 9th Period (Oct. 31, 2009)
Total portfolio (65 properties) 94.7% (+2.3% compared to Jul. 31, 2009)
Total oﬃce buildings (58 properties) 94.4% (+2.7% compared to Jul. 31, 2009)RENTAL NOI RETURNS (annualized)
KENEDIX-REIT continues to maintain a steady NOI return
despite harsh economic times.
5th
Period6th
Period7th
Period8th
Period

9th Period

Oﬃce

5.5%

5.6%

5.3%

5.5%

5.2%

Central Urban
Retail

5.1%

4.3%

4.8%

4.7%

4.6%

Residential

5.3%

5.3%

5.3%

5.2%

5.0%

Total

5.4%

5.5%

5.3%

5.4%

5.2%

Note: Each of the ﬁgures represent the values after adjustment of property and city taxes

SUMMARY OF APPRAISED VALUES AS OF OCTOBER 31, 2009
The demonstrated resilience of appraised values for officebuildings clearly proves the wisdom of KENEDIX-REIT's
decision to focus on office buildings.
(mn yen)CentralResidential
Urban RetailOﬃce① Acquisition

Total

197,461

12,37910,319220,159② Book Value

199,675

12,557

10,216

222,449③ Appraisal Value

183,217

12,2408,479

203,936-14,244-139-1,840-16,223

-7.2%

-1.1%

-17.8%-7.4%-16,458-317-1,737-18,513

-8.2%

-2.5%

-17.0%

-8.3%

Price

④ DiﬀerencefromAcquisition
Price ( ③ - ① )Percentage④/①⑤ Diﬀerence
from Book
Value ( ③ - ② )Percentage
⑤/②

96.4%

94.9%
94.7%

Notes: 1. The ﬁgure is the area of the entire site on which there is a single building combinedwith the KDX Shin-Yokohama 381 Building Annex Tower (A-65) that was acquired on
November 18, 2009.
2. Amounts indicated have been rounded down

Kenedix Realty Investment Corporation │ 16

FINANCIAL SUMMARY
Historical Operating Trends for the Fifth – Ninth Fiscal Periods

Periodunit

5th Period(as of Oct. 31, 2007)

6th Period(as of Apr. 30, 2008)

7th Period(as of Oct. 31, 2008)

8th Period(as of Apr. 30, 2009)

9th Period(as of Oct. 31, 2009)

Operating revenues

mn yen

7,208

8,582

8,456

8,204

7,921

(Rental revenues)

mn yen

7,208

7,630

8,156

8,204

7,921

Operating expenses

mn yen

3,737

4,517

4,311

4,740

4,708

(Property-related expenses)

mn yen

3,205

3,447

3,678

3,603

3,652

Operating income

mn yen

3,470

4,065

4,144

3,463

3,213

Ordinary income

mn yen

2,793

3,343

3,124

2,435

2,103

Net income (a)mn yen

2,792

3,342

3,123

2,434

2,102

Total assets (b)mn yen213,763

230,520

239,648

238,745

236,320(+13.5)(+7.8)(+4.0)(-0.4)(-1.0)

mn yen89,75098,75098,75097,220(Period-on-period change)%

75,500(-14.7)(+18.9)(+10.0)(0.0)(-1.5)

Unitholders’ equity (d)mn yen128,314

128,087

127,398

127,067(Period-on-period change)%

127,761(+40.6)(+0.4)(-0.2)(-0.5)(-0.3)

Unitholders’ capitalmn yen124,973

124,973

124,973

124,973

124,973(+40.8)

(0.0)

(0.0)

(0.0)

(0.0)

unit

200,000

200,000

200,000

200,000

200,000

yen

638,809641,570

640,437

636,990

635,335(Period-on-period change)

Interest-bearing debt (c)(Period-on-period change)

Number of investment units
issued and outstanding (e)Unitholders’ equity per unit(d)/(e)Total distribution (f)%%mn yen

2,792

3,342

3,123

2,434

2,102

Distribution per unit (f)/(e)yen

13,96016,711

15,618

12,172

10,511(Earnings distributed per
unit)

yen

13,96016,711

15,618

12,172

10,511(Distribution in excess ofearnings per unit)

yen

-

-

-

-

-

Return on assets(annualized) (Notes 1 and 2)%

1.4 (2.8)

1.5 (3.0)

1.3 (2.6)

1.0 (2.1)

0.9 (1.8)

Return on unitholders’ equity(annualized) (Notes 2 and 3)%

2.6 (5.1)

2.6 (5.2)

2.4 (4.8)

1.9 (3.8)

1.7 (3.3)

Unitholders’ equity ratio at
end of period (d)/(b)

%

59.8

55.7

53.4

53.4

53.8

(+11.5)(-4.1)(-2.2)(-0.1)(+0.4)

35.3

38.9

41.2

41.4

41.1

(Period-on-period change)

Interest-bearing debt ratio at
end of period (c)/(b)%(Period-on-period change)(-11.7)(+3.6)(+2.3)(+0.2)(-0.2)

%

99.9

99.9

99.9

100.0

100.0

Number of properties

Properties

Payout ratio (Note 4) (f)/(a)Other reference

77

68

69

67

65

Total leasable ﬂoor aream2

248,653.07

248,625.52

256,214.30

250,364.42

254,225.04

Occupancy at end of period

%

96.9

95.9

95.6

95.7

94.7

Depreciation expenses forthe period
Capital expenditures for theperiodLeasing NOI (net operating
income) (Note 5)

mn yen

1,392

1,430

1,445

1,429

1,451

mn yen

1,238

1,152

1,105

891

400

mn yen

5,394

5,612

5,923

6,030

5,721

FFO (funds from operation)

mn yen

4,184

4,259

4,269

4,356

3,994

yen

20,92021,297

21,34521,78019,973(Note 6)

FFO per unit (Note 7)

Notes: 1. Return on assets = Ordinary income/(Total assets at beginning of period + Total assets at end of period)/2 x 100
2. Annualized values for the Fifth Fiscal Period are calculated based on a period of 184 days, 182 days for the Sixth Fiscal Period, 184 days for the Seventh Fiscal Period, 181 days
for the Eighth Fiscal Period and 184 days for the Ninth Fiscal Period
3. Return on unitholders’ equity = Net income/(Total unitholders’ equity at beginning of period + Total unitholders’ equity at end of period)/2 x 100
4. Payout ratio is rounded down to the ﬁrst decimal
5. Leasing NOI = Rental revenues – Rental expenses + Depreciation expenses for the period
6. FFO = Net income + Depreciation expenses for the period – Proﬁt on sale of trust beneﬁciary interests in real estate or real estate + Loss on sale of trust beneﬁciary interests
in real estate or real estate
7. FFO per unit = FFO/Number of investment units issued and outstanding (ﬁgures below ¥1 rounded down)

17 │ Kenedix Realty Investment Corporation

19 │ Kenedix Realty Investment Corporation

BALANCE SHEETSAS OF OCTOBER 31, 2009 AND APRIL 30, 2009

In thousands of yen
As of October 31, 2009

As of April 30, 2009ASSETS
Current assets:
Cash and bank deposits¥

12,870,430¥

15,608,085

Rental receivables

184,068

Consumption tax refundable

136,065-

Other current assets

99,29673,324

13,289,859

15,941,977

Land

152,327,017

153,829,839

Buildings and structures

76,930,254

74,328,940

Machinery and equipment

1,228,084

901,145

Total current assets

260,568

Property and equipment, at cost:Tools, furniture and ﬁxtures

327,711

379,847(8,650,220)(7,543,943)

222,162,846

221,895,828

Ground leasehold

285,350

285,350

Organization costs

5,090

10,179Corporate bond issuance costs

39,64745,525

Unit issuance costs

23,68447,368Other assets

513,945

518,783

Less-accumulated depreciation
Net property and equipment
Other assets:

Total assets¥

236,320,421¥

469,905¥

238,745,010

LIABILITIES AND UNITHOLDERS' EQUITY
Liabilities
Current liabilities:
Trade and other payables¥

Short-term debt

24,500,000

Deposits received
Rents received in advance
Other current liabilities

614,834
19,000,000

15,10568,644

1,133,738

1,173,618

171,408

416,183

26,290,156

21,273,279

Corporate bonds

12,000,000

12,000,000

Long-term debt

60,720,000

67,750,000

Leasehold and security deposits received

10,228,542

10,306,968

Total current liabilities

Other liabilities
Total liabilities

14,554

16,665¥109,253,252¥

111,346,912¥

124,973,750¥

124,973,750

Unitholders' equity
Unitholders' capital
Units authorized: 2,000,000units
Units issued and outstanding: 200,000units
As of October31, 2009 and April 30, 2009, respectively
Retained earnings
Unrealized gain from deferred hedge transactions

2,102,249(8,830)Total unitholders' equity
Total liabilities and unitholders' equity

2,434,458(10,110)127,067,169¥

236,320,421

127,398,098¥

238,745,010

See accompanying notes to the ﬁnancial statements

Kenedix Realty Investment Corporation │ 20

STATEMENTS OF INCOME AND RETAINED EARNINGSFOR THE PERIOD FROM NOVEMBER 1, 2008 TO APRIL 30, 2009, AND THE PERIOD FROM MAY 1, 2009 TO OCTOBER 31, 2009

In thousands of yen
From May 1, 2009
to October 31, 2009

From November 1, 2008
to April 30, 2009

Operating Revenues:
Rental revenues¥

Total operating revenues

7,921,862¥

8,204,122

7,921,862

8,204,122

Property-related expenses

3,652,105

3,603,207

Loss on sale of real estate

440,771492,463

Asset management fees

423,183

434,811Administrative service and custodian fees

76,72778,432Other operating expenses

115,723

132,023

4,708,509

4,740,936

Operating Expenses:

Total operating expenses
Operating income¥

3,213,353¥

3,463,186¥

907,825¥

858,419

Non-Operating Expenses:
Interest expense
Financing related expense

147,899

107,828

Amortization of organization costs

5,090

5,089

Amortization of unit issuance costs

23,684

41,469Amortization of corporate bond issuance costs

5,878

5,782

Others, net

19,7299,270

2,103,248

2,435,329

1,057

970

2,102,191

2,434,359

58

99

Income before income taxes
Income taxes
Net income
Retained earnings at the beginning of period
Retained earnings at the end of period
See accompanying notes to the ﬁnancial statements

21 │ Kenedix Realty Investment Corporation¥

2,102,249¥

2,434,458

STATEMENTS OF CHANGES IN UNITHOLDERS’ EQUITY
FOR THE PERIOD FROM NOVEMBER 1, 2008 TO APRIL 30, 2009 AND THE PERIOD FROM MAY 1, 2009 TO OCTOBER 31, 2009

In thousands of yen
Unitholders' Equity

Unitholders'
capitalBalance as of October 31, 2008¥

124,973,750

Retainedearnings¥

3,123,699

Unrealized gainfrom deferred hedgetransactions¥(9,872)

Total¥

128,087,577

Changes during the ﬁscal period
New unit issuance

-

-

-

-

Payment of dividends-(3,123,600)-(3,123,600)

Net income-

2,434,359-

2,434,359

Interest-rate swap

-

-

(238)

(238)

-

(689,241)(238)(689,479)

Total changes
during the ﬁscal period
Balance as of April 30, 2009¥

124,973,750¥

2,434,458¥(10,110)¥

127,398,098

Changes during the ﬁscal period
New unit issuance

-

-

-

-

Payment of dividends-(2,434,400)-(2,434,400)

Net income-

2,102,191-

2,102,191

Interest-rate swap

-

-

1,280

1,280

-

(332,209)

1,280(330,929)

Total changes
during the ﬁscal period
Balance as of October 31, 2009¥

124,973,750¥

2,102,249¥(8,830)¥127,067,169

See accompanying notes to the ﬁnancial statements

Kenedix Realty Investment Corporation │ 22

NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM NOVEMBER 1, 2008 TO APRIL 30, 2009, AND THE PERIOD FROM MAY 1, 2009 TO OCTOBER 31, 2009

1. ORGANIZATION AND BASIS OF PRESENTATIONORGANIZATION
Kenedix Realty Investment Corporation ("the Investment Corporation") was established on May 6, 2005, under the Law
concerning Investment Trusts and Investment Corporations of Japan ("the Investment Trust Law"). On July 21, 2005, theInvestment Corporation was listed on the Real Estate Investment Trust Market of the Tokyo Stock Exchange with a total of 75,400
investment units issued and outstanding. (Securities Code: 8972). Subsequently, the Investment Corporation raised funds throughpublic offerings including two global offerings. Consequently, as of October 31, 2009, the end of the ninth fiscal period, the numberof investment units issued and outstanding totaled 200,000 units.
The Investment Corporation is externally managed by Kenedix REIT Management, Inc. ("the Asset Management Company")
as its asset management company. In concert with the Asset Management Company, the Investment Corporation strives tomaximize cash distribution to investors by securing stable earnings and sustainable investment growth. To this end, the Investment
Corporation adopts a dynamic and flexible investment stance that accurately reflects its environment and market trends, andendeavors to ensure a timely response to each and every opportunity. The Investment Corporation endeavors to develop adiversified investment portfolio named "KENEDIX Selection," adopting a three-point investment criteria based on property type,area and size.
During the period ended October 31, 2009, the Investment Corporation sold 2 properties and acquired 1 property. At October 31,
2009, the Investment Corporation had total unitholders' capital of ¥124,974 million with 200,000 investment units outstanding.
The Investment Corporation owned a portfolio of 65 properties with total acquisition price of ¥220,159 million containing total
leasable area of 254,225m2. The occupancy ratio was approximately 94.7%. A portfolio of 65 properties consists of 58 officebuildings, 5 residential properties and 2 central urban retail properties. 55 properties are located in the Tokyo metropolitan areaand 10 properties are located in other regional areas.

BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust
Law of Japan, the Japanese Corporation Law, the Financial Instruments and Exchange Law of Japan and related regulations, and in
conformity with accounting principles and practices generally accepted in Japan ("Japanese GAAP"), which are different in certain
respects as to the application and disclosure requirements of International Financial Reporting Standards or accounting principles
generally accepted in the United States of America.
The accompanying financial statements are a basically translation of the audited financial statements that were prepared forJapanese domestic purposes from the accounts and records maintained by the Investment Corporation and filed with the Kanto
Local Finance Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Law. In preparing theaccompanying financial statements, relevant notes have been added and certain reclassifications have been made from the financial
statements issued domestically in order to present them in a form that is more familiar to readers outside Japan. The Investment
Corporation's fiscal period is a six-month period which ends at the end of April and October of each year, respectively. The
Investment Corporation does not prepare consolidated financial statements because it has no subsidiaries.

23 │ Kenedix Realty Investment Corporation

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESA PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and equipment is calculated on a straight-line basis over theestimated useful lives of the assets ranging as stated below:
From May 1, 2009 to October 31, 2009

From November 1, 2008 to April 30, 2009

Buildings and structures

2-49 years

2-49 years

Machinery and equipment

3-17 years

3-17 years

Tools, furniture and ﬁxtures

3-20years

3-20 years

B ORGANIZATION COSTS
Organization costs are amortized over a period of five years, comprised of ten fiscal periods, with an equal amount amortized ineach fiscal period.

C UNIT ISSUANCE COSTS
Unit issuance costs are amortized over a period of three years under the straight-line method.

D CORPORATE BOND ISSUANCE COSTS
Corporate bond issuance costs are amortized over a loan period under the straight-line method.

E ACCOUNTING TREATMENT OF TRUST BENEFICIARY INTERESTS IN REAL ESTATE
For trust beneficiary interests in real estate, which are commonly utilized in the ownership of commercial properties in Japan, allassets and liabilities within trust are recorded in the relevant balance sheet and income statement accounts.

F REVENUE RECOGNITION
Operating revenues consist of rental revenues including base rents and common area charges, and other operating revenues
including utility charge reimbursements, parking space rental revenues and other miscellaneous revenues. Rental revenues are
generally recognized on an accrual basis over the life of each lease. Utility charge reimbursements are recognized when earned andtheir amounts can be reasonably estimated. Reimbursements from tenants including utility charge reimbursements are recorded
on a gross basis and such amounts are recorded both as revenue and expense during the fiscal period, respectively.

G TAXES ON PROPERTY AND EQUIPMENT
Property-related taxes including property taxes, city planning taxes and depreciable property taxes are imposed on properties
on a calendar year basis. Under the Japanese tax rule, the seller of the property at the time of disposal is liable for these taxes on
the property from the date of disposal to the end of the calendar year in which the property is disposed. The seller, however, isreimbursed by the purchaser for these accrued property-related tax liabilities.
When the Investment Corporation purchases properties, it typically allocates the portion of the property-related taxes related
to the period following the purchase date of each property through the end of the calendar year. The amounts of those allocatedportions of the property-related taxes are capitalized as part of the acquisition costs of the related properties. In subsequentcalendar years, such property-related taxes are charged as operating expenses in the fiscal period in which the installments of suchtaxes are paid to the relevant tax authorities.

H INCOME TAXES
Deferred tax assets and liabilities are computed based on the difference between the financial statements and income tax bases ofassets and liabilities using the statutory tax rates.

Kenedix Realty Investment Corporation │ 24

NOTES TO FINANCIAL STATEMENTS

I DERIVATIVE FINANCIAL INSTRUMENTS
The Investment Corporation utilizes interest-rate swap agreements as derivative financial instruments only for the purpose ofhedging its exposure to changes in interest rates. The Investment Corporation deferred recognition of gains or losses resulting fromchanges in fair value of interest-rate swap agreements because its interest-rate swap agreements met the criteria for deferral hedging
accounting. But, the Investment Corporation adopted special treatment for interest-swap agreements if its interest-rate swap
agreements met the criteria for hedging accounting under this treatment, the net amount to be paid or received under the interest
rate swap contract is added to or deducted from the interest on the assets or liabilities for which the swap contract was executed.

J ROUNDING OF AMOUNTS PRESENTED
Amounts have been truncated in the Japanese financial statements prepared in accordance with Japanese GAAP and filed withregulatory authorities in Japan, whereas amounts have been rounded to the nearest million in the accompanying financial
statements. Totals shown in the accompanying financial statements do not necessarily agree with the sums of the individual
amounts.

3. SCHEDULE OF PROPERTY
In millions of yen
As of October 31, 2009
Acquisition
costs
Land

¥

Accumulated
depreciation

Buildings and structures

76,930Machinery and equipment
Tools, furniture and ﬁxtures
Total

-

152,327

Book value¥

152,327¥

68,73974,329

1,228

341

887

328

118

210
222,163¥ 229,440

¥

8,650

¥

Accumulated
depreciation

153,830

8,191¥ 230,813¥

As of April 30, 2009
Acquisition
costs

¥

Book value¥

153,830

7,133

67,196

901

290

611

380

121

259

7,544

¥ 221,896¥

4. SHORT-TERM AND LONG-TERM DEBTS
The following summarizes short-term and long term debt outstanding as of October 31, 2009:Classiﬁcation

Short-term debt

Current portion of long-term debt

Subtotal

25 │ Kenedix Realty Investment Corporation

Drawdown date

Repayment date

Weighted-averageinterest rate

Balance(In millions of yen)

November 4, 2008

November 2, 2009

0.94%

December 8, 2008

December 8, 2009

1.29%

¥

1,000
500
1,000

January 13, 2009

January 13, 2010

1.29%

February 27, 2009

February 26, 2010

0.99%

500

April 30, 2009

April 30, 2010

1.89%

2,000

October 26, 2009

October 26, 2010

1.84%

1,500

October 30, 2009

October 30, 2010

1.84%

3,500

April 2, 2007

April 2, 2010

1.57%

2,000

July 31, 2008

January 31, 2010

1.68%

2,500

August 1, 2005

July 31 ,2010

1.29%

9,500

October 31, 2008

October 31, 2010

1.57%

500
¥

24,500Classiﬁcation

Long-term debt

Drawdown date

Repayment date

Weighted-averageinterest rate

May 1, 2006

April 30, 20112.20%

May 1, 2006

April 30, 2016

2.73%

5,000

July 14, 2006

July 13, 2011

2.15%

1,000

September 1, 2006

August 31, 2013

2.12%

3,000

December 1, 2006

November 30, 2011

1.96%

2,500

April 2, 2007

April 2, 2012

1.88%

2,000

Subtotal
Total

¥

2,500

April 17, 2007

April 16, 2011

1.65%

1,500

January 10, 2008

January 10, 2012

1.50%

2,500

February 29, 2008

February 28, 2011

1.37%

2,000

February 29, 2008

August 31, 2011

1.43%

1,500

March 31, 2008

September 30, 2011

1.61%

3,000

March 31, 2008

September 30, 2011

1.56%

2,000

May 1, 2008

November 1, 2011

1.91%

1,000

June 30, 2008

February 28, 2011

1.99%

1,000

June 30, 2008

June 30, 2012

2.15%

1,500

June 30, 2008

December 28, 2012

2.26%

3,000

July 15, 2008

March 31, 2011

1.87%

2,000

July 31, 2008

January 31, 2011

1.87%

3,500

July 31, 2008

July 31, 2011

1.99%

3,500

September 1, 2008

September 1, 2011

1.78%

1,000

September 22, 2008

March 22, 2011

1.71%

1,250

September 30, 2008

March 31, 2011

1.82%

2,000

February 27, 2009

February 29, 2012

2.07%

490

February 27, 2009

August 31, 2012

2.04%

980

April 30, 2009

April 28, 2011

2.23%

1,500

April 30, 2009

April 28, 2011

2.23%

1,000

April 30, 2009

October 31, 2011

2.46%

3,500

April 30, 2009

April 27, 2012

2.46%

2,000

October 26, 2009

October 26, 2013

2.42%

1,000

October 30, 2009

October 30, 2013

2.45%

Subtotal
Corporate bonds

Balance(In millions of yen)

2,000
¥

March 15, 2007

March 15, 2012

1.74%

March 15, 2007

March 15, 2017

2.37%

¥

60,720
9,000
3,000

¥

12,000¥97,2205. LINE OF CREDIT
The Investment Corporation established the credit commitment lines with two lenders. The total borrowings under thecommitment line agreements are ¥3.5 billion. The Investment Corporation had outstanding balance of ¥5 billion as of October 31,
2009.
The commitment period of the commitment line agreement concluded with The Bank of Tokyo-Mitsubishi UFJ, Ltd. has already
expired. Furthermore, the expiration date of the commitment line agreement is March 31, 2011, set in the memorandum of
understanding executed on September 26, 2008. However, since the commitment period has already expired, the Investment
Corporation may not undertake new borrowings.
Since, the commitment period and the expiration date of the commitment line agreement concluded with Citibank Japan, Ltd has
already expired, the Investment Corporation may not undertake new borrowings.

Kenedix Realty Investment Corporation │ 26

NOTES TO FINANCIAL STATEMENTS

6. ASSETS PLEDGED AS COLLATERAL AND SECURED LOANS PAYABLE(As of October 31, 2009)

Assets pledged as collateralIn thousands of yen

Cash and bank deposits¥

4,815,094

Land¥

105,959,738

Buildings and structures¥

49,150,846

Machinery and equipment¥

555,870

Tools, furniture and ﬁxtures¥

125,800

Other assets

¥

1,264

Total

¥

160,608,612

Secured loans payable
Short-term loans debt¥

24,500,000

Long-term loans debt¥

60,720,000

Total

¥

85,220,000

7. PER UNIT INFORMATIONThe net asset value per unit as of October 31, 2009 and April 30, 2009 was ¥635,335 and ¥636,990. Net income per unit as of October 31, 2009
and April 30, 2009 was ¥10,510 and ¥12,171.
The weighted average number of units outstanding of 200,000 and 200,000 was used for the computation of the amount of net income per unit asof October 31, 2009 and. April 30, 2009.

8. INCOME TAXESThe Investment Corporation is subject to corporate income taxes at a regular statutory rate of approximately 40%. However, theInvestment Corporation may deduct from its taxable income amounts distributed to its unitholders, provided the requirements
are met under the Special Taxation Measure Law of Japan. Under this law, the Investment Corporation must meet a number oftax requirements, including a requirement it currently distribute in excess of 90% of its net income for the fiscal period in order tobe able to deduct such amounts. If the Investment Corporation does not satisfy all of the requirements, the entire taxable incomeof the Investment Corporation will be subject to regular corporate income taxes. Since the Investment Corporation distributed
approximately 100% of its distributable income in the form of cash distributions totaling ¥2,102 million and ¥2,434 million for theperiods ended October 31, 2009 and April 30, 2009. Such distributions were treated as deductible distributions for purposes ofcorporate income taxes. The effective tax rate on the Investment Corporation's income was 0.05% and 0.04% for the periods ended
October 31, 2009 and April 30, 2009. The following summarizes the significant difference between the statutory tax rate and theeffective tax rate:

Statutory tax rate ..............................................................................
Deductible cash distributions ......................................................
Other .......................................................................................................
Eﬀective tax rate ................................................................................

From May 1, 2009
to October 31, 200939.33%

From November 1, 2008
to April 30, 200939.33%(39.31)(39.31)

0.03

0.02

0.05%

0.04%

9. UNITHOLDERS’ EQUITYThe Investment Corporation issues only non-par value units in accordance with the Investment Trust Law. The entire amount of
the issue price of new units is designated as stated capital. The Investment Corporation is required to maintain net assets of at least¥50 million as required by the Investment Trust Law.

27 │ Kenedix Realty Investment Corporation

10. RELATED-PARTY TRANSACTIONSTRANSACTIONS WITH KENEDIX REIT MANAGEMENT, INC.
Kenedix REIT Management, Inc., a subsidiary of Kenedix, Inc., provides the Investment Corporation with property management
services and related services. For these services, the Investment Corporation pays Kenedix REIT Management, Inc. property
management fees in accordance with the terms of its Property Management Agreements. For these services, The Investment
Corporation paid ¥299 million to Kenedix REIT Management, Inc.

11. BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUES AND PROPERTY-RELATEDEXPENSES
Rental and other operating revenues and property-related expenses for the periods from May 1, 2009 to October 31, 2009 andfrom November 1, 2008 to April 30, 2009 consist of the following:
In thousands of yen
From May 1, 2009
to October 31, 2009

From November 1, 2008
to April 30, 2009

Rental and other operating revenues:
Rental revenues¥

5,711,053¥

5,985,836

Common area charges

1,195,072

1,246,786

Subtotal

6,906,125

7,232,622

Parking space rental revenues

231,982

241,962

Utility charge reimbursement

617,328

559,130

166,427

170,408

1,015,737

971,500

Others:Miscellaneous
Subtotal
Total rental and other operating revenues¥

7,921,862¥

8,204,122

Property management fees and facility management fees

¥764,052¥799,004

Depreciation

1,451,833

1,429,329

Utilities

529,106

578,389

Taxes

536,723494,867

Insurance

16,098

16,533

Repairs and maintenance

171,075

138,371

Trust fees

38,19245,274

Loss on retirement of ﬁxed assets

23,394-

Others121,632

101,440

Total property-related expenses¥

3,652,105¥

3,603,207¥

1,982,000¥

2,670,000

Loss on sale of real estate
Revenue from sale of investment properties
Cost of investment properties

2,348,605

Other sales expenses
Loss on sale of real estate

3,108,892

74,166¥440,771

53,571¥

492,463

Kenedix Realty Investment Corporation │ 28

NOTES TO FINANCIAL STATEMENTS

12. LEASESThe Investment Corporation, as lessor, has entered into leases whose fixed monthly rents are due in advance with lease term ofgenerally two years for office buildings and residential properties and with lease term ranging from two to ten years for retailproperties. The future minimum rental revenues under existing non-cancelable operating leases as of October 31, 2009 and April
30, 2009 are as follows:
In thousands of yen
As of October 31, 2009
Due within one year¥

Due after one year

1,059,032

As of April 30, 2009¥

7,538,786

Total

¥

8,597,818

1,314,069
7,930,499¥

9,244,568

13. DERIVATIVES AND HEDGE ACCOUNTINGThe Investment Corporation has entered into interest-rate swap agreements with several Japanese financial institutions to hedge its
variable rate long-term debt obligations. The Investment Corporation utilizes interest-rate swap agreements, which are derivative
financial instruments, only for the purpose of mitigating future risks of fluctuations of interest rates, but does not enter into suchtransactions for speculative or trading purposes. The Investment Corporation entered into such derivative transactions to hedge
risk in accordance with its Articles of Incorporation and the established risk management policies of the Asset Management
Company.
The following summarizes the notional principal amounts and the estimated unrealized loss from interest rate swap contracts as of
October 31, 2009:
The estimated unrealized loss does not include the interest rate swap contracts that met the criteria for the special treatment.
(As of October 31, 2009)
Type
Interest-rate swap:
Fixed rate payable and ﬂoating rate receivable29 │ Kenedix Realty Investment Corporation

Notional amount

Unrealized loss

¥29,500 million¥(15 million)

14. PROPERTY INFORMATION
Details of the property portfolio as of October 31, 2009 were as follows:TypeOﬃce Buildings

LocationCentral Urban Retail
Properties

Residential Properties

Tokyo
Metropolitan Area

Other Regional
Areas

Tokyo
Metropolitan Area

Other Regional
Areas

Tokyo Metropolitan
Area

49

9

4

1

2

Number of properties

Property information (In millions of yen)
Acquisition price¥

Percentage of total acquisition costs

165,246¥

75.06%

32,215
14.63%Net book value¥

167,657¥

32,019Appraisal value at year end¥

157,353¥

Percentage of total appraisal value¥

77.16%

8,519

¥

1,800

3.87%
¥

¥

0.82%

12,380
5.62%

8,318

¥

1,899

¥

12,55725,864¥7,109

¥

1,370

¥

12,24012.68%

3.49%

0.67%

6.00%

Financial results for the period ended October 31, 2009 (In thousands of yen)
Rental and other operating revenues¥

6,039,756¥

1,123,562¥

300,422¥

94,481¥

363,641

Rental revenues

5,302,542

927,112272,334

84,790319,348

Other revenues

737,214

196,451

28,0899,691

44,293

1,580,450

434,288

67,66242,85075,022

Property management fees

538,203

166,376

27,1228,201

24,150Taxes

417,328

74,10017,151

8,448

19,697

Utilities

397,552

103,967

2,982

1,923

22,683

Repairs and maintenance

98,68043,172

9,405

16,461

3,356

Insurance

9,767

4,757

761

482

330

118,920

41,915

10,242

7,336

4,806

NOI (Net Operating Income)

4,459,305

689,274

232,761

51,630288,618

Depreciation expenses

960,410317,126

86,143

22,33965,814

Operating income from property leasing
activities

3,498,895

372,149

146,617

29,291

222,804

Capital expenditures

294,11257,308

1,463

44,952

2,570

NCF (Net Cash Flow)

4,165,193

631,967

231,298

6,678

286,048

Property-related expenses

Trust fees and other expenses

Kenedix Realty Investment Corporation │ 30

NOTES TO FINANCIAL STATEMENTS

A breakdown of property-type as of October 31, 2009 was as follows:
Class of assets

Property type

Area

¥

Percentage of
total assets

167,657

70.9%

32,01913.5%

199,676

84.5%

Tokyo Metropolitan Area

8,318

3.5%

Other Regional Areas

1,899

0.8%

10,217

4.3%

12,557

5.3%¥

222,449

94.1%¥

13,871

5.9%

Total assets

236,320100.0%

Total liabilities

109,25346.2%

127,067

53.8%

Oﬃce Buildings

Tokyo Metropolitan Area

Balance at the end of period(In millions of yen)

Other Regional Areas
Subtotal
Property andequipment

Residential Properties
Subtotal
Central Urban Retail
Properties

Tokyo Metropolitan Area

Total
Bank deposits and other assets

Net assets¥

15. SUBSEQUENT EVENTSPRIMARY OFFERING OF THE ISSUE OF NEW INVESTMENT UNITS
On October 29, 2009 and November 9, 2009, the Board of Directors of the Investment Corporation resolved to issue newinvestment units as detailed below. The payments were completed on November 16, 2009 through public offering. As a result of
the issuance of additional investment units, the Investment Corporation had total unitholders' capital of ¥133,129,755,470 with
233,550 investment units outstanding as of November 16, 2009.

① Issuance of New Investment Units through Public Offering
Total Number of Units Issued:
33,550units
Issue Price (Offer Price):¥252,200 per unit
Total Amount of the Issue Price (Offer Price):¥8,461,310,000
Paid-in Value (Issue Value):¥243,100 per unit
Net Proceeds:¥8,156,005,000
Payment date:November 16, 2009
Starting date of the computation of cash distribution: November 1, 2009
② Use of Funds
The Investment Corporation has applied the net proceeds from the public offering of new investment units to acquire theproperties.

31 │ Kenedix Realty Investment Corporation

STATEMENTS OF CASH FLOWS UNAUDITEDFOR THE PERIOD FROM NOVEMBER 1, 2008 TO APRIL 30, 2009, AND THE PERIOD FROM MAY 1, 2009 TO OCTOBER 31, 2009

In thousands of yen
From May 1, 2009
to October 31, 2009

From November 1, 2008
to April 30, 2009

Cash Flows from Operating Activities:
Income before income taxes¥

2,103,248¥

2,435,329

Adjustments to reconcile income before income taxes
to net cash provided by operating activities:
Depreciation and amortization

1,613,633

1,571,996

Interest expense

907,825

858,419

Loss on retirement of ﬁxed assets

23,394-

Changes in assets and liabilities:
Rental receivables

76,500(73,290)

Consumption tax refundable(136,065)

180,365

Accrued consumption tax(240,048)

252,054

Trade and other payables(136,412)(114,984)

Rents received in advance(39,880)(64,577)

Property and equipment due to sale

2,348,605

3,108,890

Others, net(192,155)(320,267)

Subtotal

6,328,645

7,833,935(912,655)(872,143)

Cash payments of interest expense
Cash payments of income taxes
Net cash provided by operating activities

(649)

(605)

5,415,341

6,961,187

Cash Flow from Investing Activities:
Purchases of property and equipment(4,110,567)(923,618)

Proceeds from leasehold and security deposits received

613,790441,191

Payments of leasehold and security deposits received(692,215)(777,846)

Payments of time deposits-(1,390,000)

Payments of restricted bank deposits(16,919)(563)

Proceeds from restricted bank deposits

1,034

820,124-(1,178)(4,204,877)(1,831,890)

Proceeds from short-term debt

5,000,000

12,000,000

Payment of short-term debt

(5,000,000)(7,000,000)

Proceeds from long-term debt

3,000,000

9,500,000

Payment of long-term debt

(4,530,000)(14,500,000)

Others, net
Net cash used in investing activities
Cash Flows from Financing Activities:

Payment of dividends
Net cash used in ﬁnancing activities(2,434,003)(3,121,451)(3,964,003)(3,121,451)

Net change in cash and cash equivalents(2,753,539)

2,007,846

Cash and cash equivalents at the beginning of period

13,711,495

11,703,649

Cash and cash equivalents at the end of period¥

10,957,956¥

13,711,495

See related notes

Kenedix Realty Investment Corporation │ 32

STATEMENTS OF CASH FLOWS UNAUDITEDSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Unaudited)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, deposits placed with banks and short-term investments which are highly liquid,readily convertible to cash and with insignificant risk of market value fluctuation, with maturities of three months or less from thedate of purchase.

CASH AND CASH EQUIVALENTS (Unaudited)
Cash and cash equivalents consisted of the following as of October 31, 2009 and April 30, 2009:
In thousands of yen
As of October 31, 2009
Cash and bank deposits ..............................................................................................

¥

12,870,430

As of April 30, 2009¥

15,608,085........................................................

(522,474)(506,590)

More than 3 months ﬁxed deposits (Note 2) ..............................................................

(1,390,000)(1,390,000)

Restricted bank deposits held in trust(Note 1)

Cash and cash equivalents ........................................................................................

¥

Notes: 1. Restricted bank deposits held in trust are retained for repayment of tenant leasehold and security deposits.
2. More than 3 months ﬁxed deposits are ﬁxed deposit which has deposit term of more than 3 months.

33 │ Kenedix Realty Investment Corporation

10,957,956¥

13,711,495

INVESTMENT HIGHLIGHTSFOR THE NINTH FISCAL PERIOD
Kenedix Realty Investment Corporation (KENEDIX-REIT) is issuing a cash distribution of 10,511 yen per unit tounitholders (shareholders) as a distribution for operations during the Ninth Fiscal Period running from May 1, 2009
to October 31, 2009.

PORTFOLIO GROWTH

Stability-emphasizedy pNote: The amounts are rounded to
the nearest 100 million yen.

200

th
w
o
gr
Re-

146.7
1
4 6.7

222.0

220.1

12.7
12.3

197.0
1
97.0

10.3
12.3

228.9
228
9
10.3
12.3

43.0

100

16.0

196.9

69.1

197.4

206.2

137.9

18.9
12.3

End of 7th Period(200,000 units)

End of 8th Period(200,000 units)

End of 9th Period(200,000 units)

81,920 units: 41.0%

90,772 units: 45.4%

95,004 units: 47.5%

2,670 units: 1.3%

2,461 units: 1.2%

91,126 units: 45.6%

84,966 units: 42.5%

86,234 units: 43.1%

16,234 units: 8.1%

21,592 units: 10.8%

16,301 units: 8.2%

Units Held

Share of Outstanding Units

10,720 units: 5.4%

Financial institutions(including securities companies)
Individuals and others
Note: Figures are rounded to the ﬁrst decimal place.

TOP TEN UNITHOLDERS (as of October 31, 2009)
Name
Japan Trustee Services Bank, Ltd. (trust account)

16.0(billion yen)

Residential
R
CentralUrban Retail

Oﬃce

44.4

50

Foreign corporations and individuals

Other domestic corporations

d
ize
s
a
ph
em
h
wt
o
Gr

150

GENERAL BREAKDOWN OF UNITHOLDERS

16,569

8.28%

NikkoCiti Trust and Banking Corporation (investment trust account)

15,834

7.91%

Trust & Custody Services Bank, Ltd. (securities investment trust account)

14,382

7.19%

Goldman Sachs International

13,881

6.94%

The Nomura Trust and Banking Co., Ltd. (investment trust account)

10,271

5.13%

The Master Trust Bank of Japan, Ltd. (trust account)

9,510

4.75%

Merrill Lynch Japan Securities Company, Limited

6,502

3.25%

Morgan Stanley & Company, Inc.

5,258

2.62%

JP Morgan Chase Oppenheimer JASDEC Lending Account

5,000

2.50%

The Bank of New York Treaty JASDEC Account

4,188

2.09%

Total

101,395

50.69%

86.2

Note: Ratios are rounded down to the second decimal place.

37.7
IR SCHEDULE (9th and 10th Periods)0

End of
1st Period

End of
3rd Period

End of
5th Period

End of
7th Period

End of
9th Period

2005/10

2006/10

2007/10

2008/10

2009/10

Operating Revenues

7,921

mn yenPeriod-on-period decrease of 282 million yen primarily from capital losses
resulting from property sales and the impact of fewer tenants and rent
decreases

Net Income

Distribution per Unit

Total Unitholders’ Equity

1 │ Kenedix Realty Investment Corporation

2,102
10,511
127,067

As of
February 1,
2010

TABLE OF CONTENTS
Investment Highlights for the Ninth Fiscal Period ................... 1
Q&A with the CEO........................................................... 2

October

DecemberJanuary

April

End of 9th Period

Performance for
9th Period is announced

Distributions forthe 9th Period are paid

End of 10th Period

June

Performance for10th Period is announced

July

Distributions forthe 10th Period are paid

Information is regularly disclosed throughout the year via press releases and the website at www.kdx-reit.com/eng/

Q&A with the General Managerof the Financial Planning Division....................................... 5mn yenQ&A with the General Managerof the Investment Management Division.............................. 7
Acquisition and Dispositions ............................................. 9
Acquisitions: Four New Buildings Join the Portfolio ............... 10

yen

Q&A with the General Managerof the Property Management Division ............................... 11
Transparency and Governanceat the Asset Management Company.................................. 14
KENEDIX-REIT Portfolio Table........................................... 15

mn yenFinancial Summary ....................................................... 17

Disclaimer
This semiannual report includes translations of certain documents originally ﬁled and made available in Japan in accordance with the Securities and Exchange Law of Japan. The English language semiannual report
was prepared solely for the convenience of readers outside Japan and is not intended to constitute a document for an oﬀer to sell, or seeking an oﬀer to buy, any securities of KENEDIX Realty Investment Corporation(KENEDIX-REIT).
English terms for Japanese legal, accounting, tax and business concepts used herein may not be precisely identical to the concept of the equivalent Japanese terms. With respect to any and all terms herein, including
without limitation, ﬁnancial statements, if there exist any discrepancies in the meaning or interpretation thereof between the original Japanese documents and English translation contained herein, the original
Japanese documents will always govern the meaning and interpretation.
None of KENEDIX-REIT, Kenedix REIT Management, Inc. nor any of their respective directors, officers, employees, partners, unitholders, agents, affiliates nor their advisors shall be responsible or liable for thecompleteness, appropriateness, or accuracy of English translations or the selection of the portion(s) of any document(s) translated into English.
The ﬁnancial statements of KENEDIX-REIT have been prepared in accordance with generally accepted accounting principles in Japan (Japanese GAAP), which may materially diﬀer in certain respects from generally
accepted accounting principles of other jurisdictions.
This semiannual report contains forward-looking statements. These statements appear in a number of places in this semiannual report and include statements regarding the intent, belief, or current and future
expectations of KENEDIX-REIT or Kenedix REIT Management, Inc. with respect to its business, ﬁnancial condition and results of operations. In some cases, you can identify forward-looking statements by terms
such as ”may,” ”will,” ”should,” ”would,” ”expect,” ”plan,” ”anticipate,” ”believe,” ”estimate,” ”predict,” ”potential,” or the negative of these terms or other similar terminology. These statements are not guarantees of future
performance and are subject to various risks and uncertainties. Actual results, performance or achievements, or those of the industries in which we operate, may diﬀer materially from any future results, performanceor achievements expressed or implied by these forward-looking statements. In addition, these forward-looking statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or
imprecise and involve known and unknown risks and uncertainties. Accordingly, readers of this document should not interpret the forward-looking statements included herein as predictions or representations of
future events or circumstances.
Potential risks and uncertainties also include those identiﬁed and discussed in this document. Given these risks and uncertainties, readers of this document are cautioned not to place undue reliance on forwardlooking statements, which speak only as of the date of information produced herein. We disclaim any obligation to update or, except in the limited circumstances required by the Tokyo Stock Exchange, announce
publicly any revisions to any of the forward-looking statements contained in these documents.

Kenedix Realty Investment Corporation │ 34