KENEDIX Realty Investment Corporation

Semiannual Report
Fifth Fiscal Period
From May 1, 2007 to October 31, 2007

Basic Investment Strategy
In principle, Kenedix Realty Investment Corporation (“the Investment Corporation”) invests in real estate andspecified assets including securities backed by real estate for the purpose of securing stable earnings,
sustainable investment asset growth and maximum cash distribution to investors.
To this end, the Investment Corporation adopts a dynamic and flexible investment stance that accurately reflects
its environment and market trends, and endeavors to ensure a timely response to each and every opportunity.
The Investment Corporation strives to develop a diversified investment portfolio named “KENEDIX Selection,”
adopting a three-point investment criteria based on property type, area and size.
In order to realize its objectives, the Investment Corporation has appointed Kenedix REIT Management, Inc.
(“the Asset Management Company”), as its asset management company.
The Asset Management Company is supported by the vision, experience, and human resources of Kenedix,
Inc. (“Kenedix”)
Note: Kenedix REIT Management, Inc. is a wholly owned subsidiary of Kenedix, Inc.

Kenedix, Inc.
ÒA pioneer in real estate investment management services in JapanÓ
ÒAssets under management totaling approximately 676 billion yenÓShared vision, experience, andhuman resources

Kenedix REIT Management,Inc.

Extensive information network(Asset Management Company)

ÒTrends and TimingÓ
+ÒThree-point investment criteriaÓ
(Type, Area and Size)

Kenedix Realty Investment Corporation

ÒA diversified asset portfolio Ó(KENEDIX Selection)

Stable earnings

Sustainable investment asset growth

Real Estate Investment Trust Market(Broad investor base)Contents
Investment Highlights ...............................1
To Our Unitholders....................................2
KENEDIX Selection ...................................6
Asset Size Growth and Future Growth .....7
KDX Toranomon Building .........................8
Increasing the Rent Level of Office Buildings andDecreasing the Building Management Costs ......9

Properties Roster ....................................10
Q&A.........................................................13
Financial Summary .................................17
Management Review & Policies..............18
Financial Statements ..............................25
Management Report ...............................39

Investment Highlights
Cash Distribution for the Fifth Fiscal Period (May 1, 2007 to October 31, 2007): ¥13,960 per unit
Note: The fifth fiscal period commenced on May 1, 2007, and ended on October 31, 2007, a period of 184 days.

Investment Highlights
Results for the First Results for the Second Results for the Third Results for the Fourth Results for the Fifth
Fiscal Period
Fiscal Period
Fiscal Period
Fiscal Period
Fiscal Period

Operating Revenues¥1,196 million¥2,871 million¥5,288 million¥5,778 million¥7,208 million

Operating Income¥589 million¥1,343 million¥2,565 million¥2,686 million¥3,470 million

Ordinary Income¥243 million¥1,103 million¥2,125 million¥2,148 million¥2,793 million

Net Income¥242 million¥1,101 million¥2,124 million¥2,148 million¥2,792 million

Distribution per Unit

¥3,052¥13,884¥13,529¥13,682¥13,960

Financial Results
Results for the First Results for the Second Results for the Third Results for the Fourth Results for the Fifth
Fiscal Period
Fiscal Period
Fiscal Period
Fiscal Period
Fiscal Period

Total Assets¥77,325 million¥92,053 million ¥160,314 million ¥188,400 million ¥213,763 million

Unitholders’ Equity¥44,527 million¥45,387 million¥90,933 million

Unitholders’ Equity
to Total Assets

57.6%

49.3%

56.7%

48.2%

59.8%

Unitholders’ Equity
per Unit¥561,008¥571,840¥579,192¥578,839¥638,809

Operating Revenues

(¥M)

8,000

¥90,877 million ¥127,761 million

Net Income

(¥M)

3,000

6,000
2,000
4,000
1,000
2,000
0

0

Results forResults forResults forResults forResults for
the First
the Second
the Third
the Fourth
the Fifth
Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period

Distribution per Unit
14,500(¥)

Results forResults forResults forResults forResults for
the First
the Second
the Third
the Fourth
the Fifth
Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period

Unitholders’ Equity per Unit(¥)

650,000

14,000600,000
13,50013,000550,000

3,000
0

Results forResults forResults forResults forResults for
the First
the Second
the Third
the Fourth
the Fifth
Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period

500,000

Results forResults forResults forResults forResults for
the First
the Second
the Third
the Fourth
the Fifth
Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period1

To Our Unitholders

Executive Director, Kenedix Realty Investment Corporation
CEO and President, Kenedix REIT Management, Inc.

Taisuke Miyajima

Taking this opportunity to present our fifth semiannual report, I would like to thank all unitholders for their continued
support and understanding as we strive to achieve stable earnings and sustainable growth. The operating results forthe fifth fiscal period are as follows.

Distribution per Unit ¥13,960
In its fifth fiscal period (May 1, 2007 to October 31, 2007), Kenedix Realty Investment Corporation (“the Investment
Corporation”) recorded operating revenues of ¥7,208 million, operating income of ¥3,470 million, ordinary income of¥2,793 million and net income of ¥2,792 million. As a result, cash distribution for the fiscal period under review was¥13,960 per unit.

Acquisition of New Properties
Investment focusing on mid-sized office buildings and raising the office ratio through cross-deal
The Investment Corporation conducted a review of its portfolio development policy in December 2006 in order to shift
to investing more in office buildings. The Investment Corporation decided to invest mainly in office buildings and to
make no new investment in residential properties for a certain period.

Review of the Portfolio Development Policy

Type of Use

2

After the Change

Before the Change

Office Buildings

50% - 100%More than 50%

Central Urban Retail
Properties

0% - 20%

Less than 30%

Residential Properties

0% - 30%

More than 20%

Other

0% for now

Less than 30%

Based on the new portfolio development policy, the Investment Corporation concentrated on office building acquisition
during the fourth and fifth fiscal periods, in which we acquired 15 office buildings and sold 2 residential properties. As aresult, the office ratio of the whole portfolio increased to 70% as of the end of fifth fiscal period. In addition, the Investment
Corporation sold 23 residential properties and have acquired 9 new office buildings in February 2008 which contributed to
the further increase of the office ratio of the whole portfolio.

Increase in Asset Size and Office Ratio
The Investment Corporation carried out its policy of investing mainly in office buildings and has favorablyincreased portfolio’s asset size.
The Investment Corporation will continue to raise the office ratio, which will include the cross-deal of residential properties
and office buildings.

OfficeNew investments in 25 office buildings worth ¥87.1B
since we reviewed our portfolio development policy inDec. 2006

Central Urban RetailResidential

(¥B)

200

64 props.
¥146.7B

31 props.
¥69.1B

35 props.
¥81.4B

0

6.2%
21.8%

30.2%
70.0%

27.4%

85.7%

66.2%

25.5%

50

64 props.
¥202.0B

24.5%

150

100

72 props.
¥175.1B

77 props.
¥197.1B

58.7%

54.6%

59.2%

17.9%

15.2%

10.9%

9.1%

8.1%

7.9%

End of
1st period(Oct. 31,2005)

End of
2nd period(Apr. 30,2006)

End of
3rd period(Oct. 31,2006)

End of
4th period(Apr. 30,
2007)

End of
5th period(Oct. 31,
2007)

After
cross-deal(Feb. 1,
2008)

Announcementof our policy tochange asset
composition
through
replacement
based on typeof properties

Announced thesale of 23
residentials andacquisition of 9
offices (crossdeal)

Realization of an
office-focused
portfolio throughcross-dealNotes: 1. Amounts refer to the initial acquisition price and are rounded to ¥100 million.
2. Ratios are rounded down to the first decimal place.

Announced thepolicy toincrease theoffice ratio andmake no newinvestments inresidential
properties3

To Our Unitholders

Management of Existing Property
Emphasis on cash flow management and conduct CS survey
The Investment Corporation has increased its office portfolio NOI yield levels by increasing the newly contracted rent
levels, increasing rent realized at contract renewal and reviewing the operating costs. Taking into consideration
economic and real estate market trends, the Investment Corporation will continue to adopt a tenant-oriented approach
to its leasing activities with emphasis on timely and flexible responses, and optimal tenant satisfaction. Accordingly, theInvestment Corporation will aim to increase cash flow by offering office environments with high tenant appeal.

During the fifth fiscal period, the Investment Corporation conducted the second CS survey for our office buildings in our
portfolio.

Improve profitability
During 4th & 5th period

Increase in rent leveland property value

CS survey
Improve competitivenessof properties

Ongoing Internal
GrowthDuring 2nd period

During 5th period

During 3rd & 4th period

Identify the needsof tenants

Maintenance andcapital improvement

Details of the 2nd CS survey
Target respondent for the survey
The administration officers of each tenant andtenant employees of the 43 office buildings andone central urban retail property
Survey population

Response rate

Administration
officers

Administration
officers

88%

Tenantemployees

81%

Tenantemployees

446
2,348

Examples of questions in the questionnaire
Q: Please indicate your level of satisfaction with the facade andentrance part of the building

A. Is it easy to open/
close entrance door?
B. Time required for opening/closing the entrance door
C. Interior work (floor, walls,
ceiling) of entrance hall
D. Ventilation of entrance hall

Satisfied
to a certain
degreeCan’t tellDissatisfied
to a certain Dissatisfied
degree

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

Q: Please indicate your level of satisfaction regarding inquiries from you tothe property management company of our buildings

A. Is it easy to find out contact
person/contact said person?
B. Attitude of staff, politenessof their language

4

SatisfiedSatisfiedSatisfied
to a certain
degreeCan’t tellDissatisfied
to a certain Dissatisfied
degree

1

2

3

4

5

1

2

3

4

5

C. Did they respond quickly?

1

2

3

4

5

D. How was their ability to copewith accidents and defects?

1

2

3

4

5

Financial Strategy
Realization of flexible debt funding and stable financial management
Since its public listing in 2005, the Investment Corporation has maintained the confidence of financial institutions.
Thanks to these established relationships of trust, the Investment Corporation refinanced the same amount for thesame period and thereby managed to improve (lower) procurement costs (spread over basic interest rate, etc.) for all
borrowings that have matured during the fiscal period under review. The Investment Corporation will continue todiversify its financing methods while varying maturities to avoid refinancing risk, lengthen average debt maturities andeffectively fix interest rates to mitigate interest rate risk.

Debt maturity

Fixed debt interest rates

Diversified maturities to avoid
refinancing risk
Amount of debt maturing in each year
(¥B)
25
20
14.0

(as of Feb. 1, 2008)
Floating interest debt
¥7.5B
9.4%

Fixed interest debt
¥71.5B
90.5%

13.5

11.5
10

7.5

9.0

5
0

(as of Feb. 1, 2008)

Current borrowings
Investment corporation
bonds

21.5
15

Effectively fixed interest rates tomitigate interest rate risk

5.0

3.0

3.0

4.5
Notes: 1. “Fixed interest debt” includes debt that were converted to fixed fromfloating through interest rate swap
2. Second decimal place omitted for ratios

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Notes: Debt due each year

Diversified financing methods include issuance of investment corporation bonds(as of Feb. 1, 2008)

Credit Rating
Credit Rating Agency
Moody’s Investors Service (Moody’s)
Japan Credit Rating Agency, Ltd. (JCR)

Details of the Ratings

Acquired Date

Rating: A3 (Stable)
Senior Debts : A+ (Stable)

Feb. 28, 2006
Dec. 11, 2006

Investment Corporation Bonds
Total Amount of Bonds

Interest Rate

Term

Issuance Date

¥9B
¥3B

1.74% / year
2.37% / year

5 years
10 yearsMar. 15, 2007
Mar. 15, 2007

First Series Unsecured Investment Corporation Bonds
Second Series Unsecured Investment Corporation Bonds

Changes in LTV
(¥B)
150
120

Credit facility agreement
(%)
50.0

47.0

45.6
38.7

37.5

(as of Feb. 1, 2008)

LenderAmountBank of Tokyo Mitsubishi UFJ, Ltd.
Citibank Japan, Ltd.

¥2.5B
¥2.5B

40.0
88.5

90

35.3

30.0

75.5
62.0

60

20.0

42.0
30

29.0

10.0

0

0.0
End of
1st period(Oct. 31,2005)

End of
End of
2nd period 3rd period(Apr. 30,
(Oct. 31,
2006)
2006)

Total interest-bearing debt

End of
4th period(Apr. 30,
2007)

End of
5th period(Oct. 31,
2007)

LTV

5

KENEDIX Selection (As of February 1, 2008)
Emphasis on mid-sized office buildings in the Tokyo metropolitan area, in particular central Tokyo.

Acquisition price(Tokyo metropolitan area)
Acquisition price(Other regional areas)

Niigata
1 property ¥ 1.3B

Greater Osaka area
5 properties ¥ 16.3B

Sendai1 property ¥ 2.1B

Fukuoka
3 properties ¥8.6B
Chiba
1 property ¥2.2B

Kanagawa
6 properties ¥20.2B

Hachioji, Tokyo
1 property ¥1.1B

Office portfolio(based on acquisition price)

Tokyo’s 23 wards
36 properties ¥121.1B

Other regional areas(10 properties)

16.4%
Tokyo metropolitan area
(excluding central Tokyo)(16 properties)

Central Tokyo
28 properties ¥102.7B
CentralTokyo(28 properties)

59.3%

Tokyo’s 23 wards(excluding central Tokyo)
8 properties ¥18.3B

24.2%

Notes:
1. Central Tokyo consists of the Chiyoda, Chuo, Minato, Shibuya and Shinjuku wards.
2. Acquisition prices are rounded to the nearest ¥100 million.
3. Ratios indicate the total acquisition price for properties in each area in proportion to the totalacquisition price for all properties combined.
4. Ratios are rounded down to the first decimal place.

6

Tokyo’s 23 wards

Asset Size Growth and Future Growth (Acquisition by Pipeline)
The Investment Corporation will continue to grow through the original network of the Asset Management Company and
Kenedix’s support-line including development projects.

Achieve portfolio size of ¥400B in the
mid-to-long term

K e n ed i x , Inc.’s
p rop ri et ary
i n vest ment
( Devel op ment
p roj ect s)

77 properties¥197.0B

Growth based on
Kenedix, Inc’s
support-line
including development
projects

Support linefrom KenedixGroupP e nsi on f und s/
P rivat e f und sRealestate market

O ri gi nal
n e twork of t heAsset Management
C omp any

Growth throughthe original networkof the AssetManagement Company

Future vision

End of
5th period(Oct. 31, 2007)

Kenedix, Inc. track record for development
projects and pipeline

Examples of Kenedix, Inc. office development projects
KDX Harumi Project

Offices

(¥B)

Other

Location

Harumi 3-chome, Chuo-ku,
TokyoPlannedcompletion

Feb. 2008

120

101.1

Size

100

1B/11F GFA: 3,907 tsubo.Only 2km to Ginza and80

Keyadvantages

47.9
62.4

61.4

57.3

60.9

excellent access in all
directions with Oedo Line

.260 tsubo leasable area

per floor; shaped astylar
space

60

Office development project in Koto-ku
40

26.5

Location
53.2

Koto-ku, Tokyo

Planned completion May 2008

20

26.5

Office development project in Chuo-ku Osaka

5.1
0.5

0

2005A

2006A

Source: Kenedix, Inc. (Nov. 2007)

2007A

Location
2008E

Chuo-ku, Osaka Prefecture

Planned completion Jun. 2009
Note: We have no current plans to acquire any of these properties but may consider
acquiring one or more of them in the future as appropriate.

7

KDX Toranomon Building - Renovation for the Entire Building
Leverage of Kenedix Group’s management expertise to maximum extent
Development of a strong asset base (portfolio) and leverage expertise in management of mid-sized office buildings.

A-39 KDX Toranomon Building

Location: Toranomon, Minato-ku, Tokyo
Leasable area: 1,966.56m2
Year built: April 1988
Acquisition date: April 2007
Acquisition price: ¥4,400M

At acquisition in April 2007

As of October 2007

Appraisal value¥4.02B (after renovation ¥4.19B)¥4.77B

Occupancy

0% (vacant building)

100% (full occupancy)

Rent level (per month/per tsubo) ¥32,000 (estimated post renovation value)¥34,500 (average contracted rent)

Use of 1st Floor

Game hall (former pachinko arcade)Office (branch office of a financial institution)

Use of B1 Floor

Game hall (former pachinko arcade)Restaurant

Examples of the renovation work

BeforeAfter

Entrance

Entrance

Elevator Hall

Elevator Hall

8

Increasing the Rent Level of Office Buildings andDecreasing the Building Management Costs
Results of increase of rent level of office buildings
Taking advantage of the high turnover ratio for the mid-sized office buildings, the Investment Corporation has realized
to increase rents drastically.
Breakdown of rate of rent increase on
new contracts (5th period)

Acquisition of new contracts by region (5th period)

More than 30%
increase-10 to -15%
-5 to -10%
0 to -5%

0 to +5%

Averagechange rate*

Average rent
increase rate

Average rent
reduction rate(# of contracts)(# of contracts)(# of contracts)

22%
(10)
8%
(9)
6%
(11)
12%
(30)

22%
(10)
10%
(8)
18%
(6)
17%
(24)

(0)
-0%
(1)
-8%
(5)
-7%
(6)

Central Tokyo (5 wards)+5 to +10%

+20 to +30%
Other Tokyo metropolitan area

+10 to +20%
Other regional areas
Total
Note: The above breakdown is based on leased area as of end of 5th period.

*Indicates the simple average of the fluctuations in the rent for new contracts.
The weighted average of the fluctuations based on leased floor area is 16% for the total portfolio(Central Tokyo: 23%; Other Tokyo metropolitan area: 11%; Other regional areas: 7%).

Decreasing of building management costs(Lowered construction costs by contracting for air-conditioning construction on 4 properties in bulk)
Expanded portfolio allows for bundled handling of similar construction projects which will lower the construction costs.

Average
auction price232

Construction
costs

242

187

163

166
122

135

117

¥190M
reduction
0

100

200

300

400

500

600

700

KDX Higashi-Shinjuku Bldg.

KDX Shiba Daimon Bldg.

KDX Hirakawa-cho Bldg.

KDX Hachioji Bldg.

800
(¥M)

Merits for KRI:
Lower construction costs
Ability to place orders with major construction
companies who have high credibility
Improved specification of air-conditioning
systems
Merits for tenants:
Change centrally-controlled toindividually-controlled air conditioning system
Reliable construction company

Maintained and improved occupancy ratios after property acquisition through flexible leasing activities
Occupancy Ratio and Leasable Floor Area
Occupancy
Ratio (%)
100

Leasable
Floor Area (m2)
280,000

95

240,000
200,000

90

160,000
85
120,000
80
80,00075

40,00070
End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of
Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sept. Oct.
2005
2006
2007

OfficeCentral Urban Retail0

Residential

9Properties Roster
Properties as of the end of the 5th period (77 properties)
Type

Area

Name

Other
Regional
Areas

Acquisition Price(¥M) (Note 1)

Completion
Date (Note 2)

Occupancy Ratio(%) (Note 3)

Toranomon Toyo Building

Minato ward, Tokyo

9,850

Aug. 1962

97.5

KDX Ochanomizu Building

Chiyoda ward, Tokyo

6,400

Aug. 1982

100.0

KDX Shiba-Daimon Building

Minato ward, Tokyo

6,090

Jul. 1986

100.0

KDX Kojimachi Building

Chiyoda ward, Tokyo

5,950

May 1994

97.1

KDX Nihonbashi 313 Building

Chuo ward, Tokyo

5,940

Apr. 1974

100.0

Toshin 24 Building

Yokohama, Kanagawa

5,300

Sept. 1984

100.0

KDX Hirakawacho Building

Chiyoda ward, Tokyo

5,180

Mar. 1988

100.0

Ebisu East 438 Building

Shibuya ward, Tokyo

4,640

Jan. 1992

100.0

Higashi-Kayabacho Yuraku Building

Chuo ward, Tokyo

4,450

Jan. 1987

100.0

KDX Toranomon Building

Minato ward, Tokyo

4,400

Apr. 1988

100.0

KDX Nishi-Gotanda Building

Shinagawa ward, Tokyo

4,200

Nov. 1992

100.0

KDX Hatchobori Building

Chuo ward, Tokyo

3,680

Jun. 1993

100.0

KDX Omori Building

Ohta ward, Tokyo

3,500

Oct. 1990

100.0

KDX Hamamatsucho Buildng

Minato ward, Tokyo

3,460

Sept. 1999

100.0

KDX Higashi-Shinjuku Building

Shinjuku ward, Tokyo

2,950

Jan. 1990

92.6

KDX Kayabacho Building

Chuo ward, Tokyo

2,780

Oct. 1987

100.0

KDX Shinbashi Building

Minato ward, Tokyo

2,690

Feb. 1992

100.0

Nakano ward, Tokyo

2,533

Aug. 1992

100.0

Tokyo
KDX Nakano-Sakaue Building
Metropolitan
KDX Shin-Yokohama Building
Area

OfficeLocation

Acquired during the 5th Period

Yokohama, Kanagawa

2,520

Sept. 1990

99.6

Harajuku F.F. Building

Shibuya ward, Tokyo

2,450

Nov. 1985

100.0

KDX Kajicho Building

Chiyoda ward, Tokyo

2,350

Mar. 1990

85.8

KDX Hamacho Building

Chuo ward, Tokyo

2,300

Sept. 1993

100.0

KDX Shinjuku 286 Building

Shinjuku ward, Tokyo

2,300

Aug. 1989

100.0

FIK Minami Aoyama

Minato ward, Tokyo

2,270

Nov. 1988

100.0

KDX Funabashi Building

Funabashi, Chiba

2,252

Apr. 1989

100.0

KDX Okachimachi Building

Taito ward, Tokyo

2,000

Jun. 1988

100.0

Kanda Kihara Building

Chiyoda ward, Tokyo

1,950

May 1993

100.0

KDX Yotsuya Building

Shinjuku ward, Tokyo

1,950

Oct. 1989

100.0

KDX Shinjuku-Gyoen Building

Shinjuku ward, Tokyo

1,610

Jun. 1992

100.0

KDX Kiba Building

Koto ward, Tokyo

1,580

Oct. 1992

100.0

KDX Nishi-Shinjuku Building

Shinjuku ward, Tokyo

1,500

Oct. 1992

100.0

KDX Monzen-Nakacho Building

Koto ward, Tokyo

1,400

Sept. 1986

84.4

KDX Hon-Atsugi Building

Atsugi, Kanagawa

1,305

May 1995

100.0

KDX Hachioji Building

Hachioji, Tokyo

1,155

Dec. 1985

85.6

KDX Nogizaka Building

Minato ward, Tokyo

1,065

May 1991

87.7

KDX Koishikawa Building

Bunkyo ward, Tokyo

704

Oct. 1992

100.0

Portus Center Building

Sakai, Osaka

5,570

Sept. 1993

94.6

Karasuma Building (Note 4)

Kyoto, Kyoto

5,400

Oct. 1982

100.0

KDX Hakata Building

Fukuoka, Fukuoka

2,350

Jul. 1982

100.0

KDX Sendai Building

Sendai, Miyagi

2,100

Feb. 1984

97.1

KDX Minami Semba Dai-1 Building

Osaka, Osaka

1,610

Mar. 1993

100.0

KDX Minami Semba Dai-2 Building

Osaka, Osaka

1,560

Sept. 1993

93.6

Hakata-Ekimae Dai-2 Building

Fukuoka, Fukuoka

1,430

Sept. 1984

94.4

KDX Niigata Building

Niigata, Niigata

1,305

Jul. 1983

71.2

137,979

Avg. 20.8 yrs

97.5

Office (Total 44 properties) Sub Total

Notes:
1. Figures in the “Acquisition Price” column represent the real estate or trust beneficiary interest sales price (excluding consumption tax, rounded down to the nearest million yen) for each property acquired, identified in relevant Real Estate or Trust Beneficiary Interest Purchase and Sales Agreements.
2. The “Completion Date” column refers to the date on which construction was first completed. Each average age subtotal and total for the investment portfolio is shown as the weighted-averages portfolio age based upon acquisition prices with a base date of October 31, 2007.
3. “Occupancy Ratio” is the leased floor area divided by total leasable floor area for each property as a percentage to the nearest first decimal place. Ratios for the 77 properties held as of theend of fifth fiscal period, are calculated as of October 31, 2007. In addition, the ratios for the 10 properties acquired during the sixth fiscal period, are calculated as of November 30, 2007.
Subtotals and total for the investment portfolio are weighted-averages.
4. The Investment Corporation had been planning to change the name of the “Karasuma Building” to “KDX Kyoto Karasuma Building.” Due to the high name recognition of the building’s current
name, the plan to change the name was canceled.
5. The current name of the “KDX Kawasaki-Ekimae Hon-cho Building” is the “Dai-46 Kowa Building,” “KDX Hamacho Nakanohashi Building” is the “Hamacho Nakanohashi Building,” “KDX
Kanda Misaki-cho Building” is the “Misaki-cho MMK Building,” and “KDX Kitahama Building” is the “Doshou Building.” Following the acquisition, the Investment Corporation intends to carryout procedures to change the name of the buildings.

10

Sold during the 6th period
Type

Area

Name
Frame Jinnan-zaka

Tokyo
Central Metropolitan Area KDX Yoyogi Building
Urban
Retail Other Regional Areas ZARA Tenjin Nishi-doriLocation

Other
Regional
Areas

Completion
Date (Note 2)

Occupancy Ratio(%) (Note 3)

9,900

Mar. 2005

100.0

Shibuya ward, Tokyo

2,479

Aug. 1991

100.0

3,680

Nov. 2005

100.0

16,059Avg. 4.4 yrs

100.0

Jan. 2004

100.0

Fukuoka, Fukuoka

Chuo ward, Tokyo

5,353: Jan. 2006

Regalo Ochanomizu .

Bunkyo ward, Tokyo

3,600

Storia Sirokane

Minato ward, Tokyo

3,150

Feb. 2003

93.5

Tre di Casa Minami Aoyama

Minato ward, Tokyo

2,460

Feb. 2004

94.8

Regalo Shiba-Kouen

Minato ward, Tokyo

2,260

Nov. 2005

94.9

Court Mejiro

Shinjuku ward, Tokyo

1,250

Mar. 1997

100.0

Apartments Motoazabu

Minato ward, Tokyo

1,210

Jan. 2004

97.4

Apartments Wakamatsu Kawada

Shinjuku ward, Tokyo

1,180

Feb. 2004

94.6

Chigasaki Socie Ni-bankan

Chigasaki, Kanagawa

1,160

Jan. 1991

89.6

Chuo ward, Tokyo

1,130

Feb. 2004

96.7

Shinjuku ward, Tokyo

1,130

Oct. 2005

100.0

Court Nihonbashi-Hakozaki
Tokyo
Metropolitan Court Nishi-Shinjuku
Area
Side Denenchofu

Residential(¥M) (Note 1)

Shibuya ward, Tokyo

Central Urban Retail (Total 3 properties) Sub Total
Residence Charmante Tsukishima

Acquisition Price: Feb. 2006

97.2

Ohta ward, Tokyo

1,110

Feb. 1997

97.2

Gradito Kawaguchi

Kawagushi, Saitama

1,038

Feb. 2006

100.0

S-court Yokohama-Kannai

Yokohama, Kanagawa

945

Mar. 2003

97.4

Regalo Komazawa-Kouen

Setagaya ward, Tokyo

912

Feb. 2006

97.8

Court Motoasakusa

Taito ward, Tokyo

880

Jan. 2005

88.3

Court Shin-Okachimachi

Taito ward, Tokyo

878

Oct. 2005

90.7

Bloom Omotesando

Shibuya ward, Tokyo

875

Mar. 2003

82.8

Human Heim Okachimachi

Taito ward, Tokyo

830

Dec. 2004

100.0

Primo Regalo Kagurazaka

Shinjuku ward, Tokyo

762

Jan. 2006

97.2

Primo Regalo Youga

Setagaya ward, Tokyo

730

Dec. 2005

100.0

Court Shimouma

Setagaya ward, Tokyo

638

Oct. 2005

96.9

Ashiya Royal Homes

Ashiya, Hyogo

2,330

Jun. 1991

100.0

Venus Hibarigaoka

Sapporo, Hokkaido

1,800

Mar. 1989

94.4: May 1991

Regalo Ibaraki .

Ibaraki, Osaka

1,600

Collection Higashi-Sakura

Nagoya, Aichi

1,264

Mar. 2006

85.1

Renaissance 21 Hirao Jousui-machi

Fukuoka, Fukuoka

900

Oct. 2005

95.8

Montore Nishikouen Bay Court

Fukuoka, Fukuoka

826

Feb. 2006

97.2

Abreast Hara

Nagoya, Aichi

444

Feb. 2000

97.8

Abreast Hirabari

Nagoya, Aichi

407

Mar. 2000

100.0: Mar. 1993

90.1

Residential (Total 30 properties) Sub Total

43,052

Avg. 5.6 yrs

95.5

Total of 77 properties

197,090

Avg. 16.2 yrs

96.9

100.0

Properties Acquired in the 6th Period

OfficeHiei Kudan-Kita Building

Chiyoda ward, Tokyo

7,600

Mar. 1988

KDX Shin-Yokohama 381 Building

Yokohama, Kanagawa

4,700Mar. 1988

97.5

KDX Kawasaki-Ekimae Hon-cho Building (Note 5) Kawasaki, Kanagawa

3,760

Feb. 1985

100.0

Minato ward, Tokyo

3,330

Apr. 1989

91.3

Yokohama, Kanagawa

2,710

Jul. 1991

100.0

Ikejiri-Oohashi Building

Meguro ward, Tokyo

2,400

Sept. 1988

71.8

KDX Hamacho Nakanohashi Building (Note 5)

Chuo ward, Tokyo

2,310

Sept. 1988

100.0

KDX Kanda Misaki-cho Building (Note 5)

Chiyoda ward, Tokyo

1,380

Oct. 1992

100.0

KDX Hakata-Minami Building

Fukuoka, Fukuoka

4,900

Jun. 1973

94.2

Osaka, Osaka

2,220

Jul. 1994

88.1

35,310--Tokyo
KDX Roppongi 228 Building
Metropolitan
Nissou Dai-17 Building
Area

Other
Regional Areas KDX Kitahama Building (Note 5)
Office (Total 10 properties) Sub Total

11

A-13

KDX Kojimachi Building

A-40

Toranomon Toyo Building

A-2

KDX Hirakawacho Building

12

A-37

KDX Ochanomizu Building

A-21
A-46

Hiei Kudan-Kita Building

KDX Shinbashi Building

A-42

Karasuma Building

Questions & Answers“Questions & Answers” are based on an interview with Taisuke Miyajima, CEO and President ofKenedix REIT Management, Inc. (“the Asset Management Company”), the asset managementcompany for Kenedix Realty Investment Corporation (“the Investment Corporation”).

Reciprocal Purchase and Sale of Office Buildings and Residential Properties
Q. Please elaborate on the purpose of the “reciprocal purchase and sale of office buildings and residential
properties” conducted on February 1, 2008.
A. The Investment Corporation revised its portfolio development policy in December 2006 and has since been striving to develop a portfolio
focused on mid-sized office buildings. The transaction made on February 1, 2008 concerning reciprocal purchase and sale is consistent withthis investment policy. Furthermore, the Investment Corporation is convinced that the reciprocal purchase and sale will reinforce the potential
for internal growth backed by the favorable office building leasing market, as it will contribute to a strengthened portfolio that consists mainly of
mid-sized office buildings and achieve to raise the investment ratio of office buildings.
In addition, the concentration on office buildings is viewed to enable the Asset Management Company to strengthen its expertise in asset
management. These are regarded to be in line with the basic policy of the Investment Corporation that is to strive to maximize cash
distribution to investors.

Q. What are the reasons for embarking the “reciprocal purchase and sale of office buildings and residential
properties” at this time? Also, why is Kenedix, Inc. the counterparty to the transaction?
A. The Investment Corporation revised its portfolio development policy in December 2006 and has since been making new investments in only
office buildings.

In correlation, the Investment Corporation has been seizing various opportunities to brief investors on the new policy. The

Investment Corporation believes that these briefings have generated support from investors in relation to the policy to seek a “portfolio focusedon mid-sized office buildings.”
Since the change in portfolio development policy, the Investment Corporation has been prioritizing investment in office buildings and has
raised the investment ratio of office buildings in the overall portfolio.
Under such circumstances, the Investment Corporation received an offer from the sponsor company Kenedix, Inc. (“Kenedix”) for theInvestment Corporation to purchase several office buildings in Kenedix’s portfolio. Negotiations have been underway in relation to the price,conditions and other details concerning the office buildings selected by the Investment Corporation. In the course of the negotiations,
Kenedix, which is advancing the forming of residential funds, proposed a reciprocal purchase and sale arrangement to the Investment
Corporation for the Investment Corporation to sell some of the residential properties in the Investment Corporation’s portfolio to Kenedix inconjunction with the Investment Corporation’s purchase of the office buildings.
Considerations by the Asset Management Company resulted in the reciprocal purchase and sale arrangement being deemed advantageous to
the Investment Corporation in the following aspects and this has led to the decision being made to implement the reciprocal purchase andsale:• Enables high-quality office buildings to be acquired en bloc through reciprocal purchase and sale with residential properties; and• Enables the Investment Corporation to achieve to raise the investment ratio of office buildings while maintaining asset size and profitability.

Q. What are your plans for the remaining residential properties?
A. The policy of the Investment Corporation is to develop a “portfolio focused on mid-sized office buildings.”

Based on this policy, the plan is tocontinue decreasing investment ratio of residential properties, which will involve replacing residential properties in the portfolio, while
continuing to make new investments in office buildings. No date has been set, however, on until when exactly the ongoing decrease in theinvestment ratio of residential properties.

13Changes to the Memorandum of Understanding with Kenedix and Kenedix Advisors
Q. Please elaborate on the changes to the Memorandum of Understanding announced in April 2007.
A. As the sponsor company, Kenedix has provided property information and support staff to the Investment Corporation and the AssetManagement Company. At the same time, the Investment Corporation believes that the role of J-REITs in the Kenedix Group has increased
in importance.
Accordingly, the Investment Corporation revised the Memorandum of Understanding with Kenedix and Kenedix Advisors Co., Ltd. (“Kenedix
Advisors”) in April 2007 for the purpose of adjustment of real estate information flow in the Kenedix Group, and provide the Investment
Corporation with increased preferential rights which strengthened its property acquisition capacity even more.
■Details of the Change of Memorandum of Understanding

・When Kenedix receives information regarding any available property that in its reasonable opinion meets our investment criteria, including
properties under development, from parties other than the contracting parties, the Asset Management Company has first preferential rights tosuch information.
(Before Revision: The Investment Corporation had second preferential rights after certain pension funds to such property information acquiredby Kenedix.)

・In the event that Kenedix disposes of a property that in its reasonable opinion meets our investment criteria, including properties underdevelopment or properties that it owns, the Asset Management Company has first preferential negotiating rights with respect to suchproperties.
(Before Revision: The Investment Corporation had second preferential negotiating rights with respect to such properties after certain pension
funds)
Also as a result of the revisions, the Pipeline relationship between the Kenedix Group and the Investment Corporation was significantly
strengthened, allowing the Investment Corporation preferential rights to properties developed by the Kenedix Group. Looking ahead, theInvestment Corporation and the sponsor company plans to closely cooperate to achieve further external growth in such investments asGroup-wide joint investments and property developments.

Changes to the Portfolio Development Policies
Q. Please elaborate on the changes to the portfolio development policy announced in December 2006.
A. 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 strives to develop a diversified investment

portfolio for its basic policy. Based upon this basic policy, the Investment Corporation has conducted a review of its portfolio development
policies in order to shift to investments in office buildings. Details are as follows.
(After the changes)
Type of Use

Investment Ratio Target

Office Buildings

50% – 100%

Residential Properties

0% – 30%

Central Urban Retail Properties

0% – 20%

Other

0% for now

Based on the new portfolio development policy, we have acquired 25 office buildings with total acquisition price of approximately ¥87.1 billion
since the fourth fiscal period. As of February 1, 2008, the Investment Corporation owns a portfolio of 54 office buildings with a total acquisition
price of approximately ¥173.2 billion, and the office ratio of the whole portfolio increased from 58.7% (as of the end of third fiscal period) to
85.5%.

14

Q. What are the reasons for changing the portfolio development policy in December 2006?
A. The Investment Corporation adheres to a basic policy that adopts a dynamic and flexible investment stance. Working from this policy, as ofFebruary 1, 2008, the Investment Corporation owned a portfolio of 64 properties with a total acquisition price of approximately ¥202 billion,
demonstrating its success in diversifying properties.
The Investment Corporation has previously emphasized investment in mid-sized office buildings located in the Tokyo metropolitan area.
However, to respond to recent conditions in the office leasing market (increased rent levels, improvement of occupancy ratios, etc.), theInvestment Corporation has decided to invest mainly in office buildings and to make no new investment in residential properties for a certain
period.

Growth Potential
Q. What target for asset scale have you set for the future?
A. The Investment Corporation will aim to build a strong portfolio focusing on mid-sized office buildings by continuing to improve the quality of its
portfolio, such as location, size and type of properties, through various measures, including replacement of assets, and also, the Investment
Corporation will continue to decrease the residential properties ratio in the portfolio. In addition, the Investment Corporation aims ¥400 billion
for the asset size for mid- and long-term goal. Our goals, however, do not revolve entirely around increasing asset scale. In concert withefforts to increase the size of the Investment Corporation’s portfolio, we will make every effort to steadily enhance earnings per share (EPS).

Q. What steps does the Investment Corporation take with regard to property management?
A. Rental revenues provide a major source of income for the Investment Corporation. Accordingly, every effort is made to maintain and enhance
rent level and occupancy ratios, which are the key components in the Investment Corporations’ leasing activities.

While taking into

consideration economic and real estate market trends, the Investment Corporation adopts a tenant-oriented approach to its leasing activities
with the aim of ensuring a timely and flexible response as well as optimal tenant satisfaction.
Rental revenue aforementioned, the Asset Management Company undertakes property management activities as follows.
・Identify and enhance satisfaction through use of tenant surveys
・Maintain attractive properties based on KDX standards
・Leasing management based on CS Strategy
・Careful control of management and operating costs
The Investment Corporation has appointed Kenedix Advisors Co., Ltd as its sole property management company.

Investment Properties
Q. Please elaborate on the unique characteristics of mid-sized office buildings.
A. Compared with large-sized office buildings, mid-sized office buildings provide greater liquidity. In addition to the larger number of buildings on
the market, the acquisition prices and rent level of mid-sized office buildings offer a wider scope of acquisition and leasing opportunities.
Under these circumstances, the Investment Corporation recognizes that mid-sized office buildings provide the Investment Corporation with thebest avenue to leverage its abilities in identifying properties with competitive advantage and its expertise and know-how in property leasing andmanagement. Furthermore, given tenant characteristics and the large pool of competing properties, the Investment Corporation recognizes
that mid-sized office buildings exhibit higher rates of tenant turnover with rent levels more finely attuned to economic trends, particularly in timesof recovery.

Q. Why does the Investment Corporation invest mainly in mid-sized office buildings?
A. As a fund manager, the Kenedix Group boasts a wealth of experience and know-how in mid-sized office buildings. Focusing on this segment
enables the Investment Corporation to leverage this considerable strength. We also hold high expectation for continued increase in rent levelin line with favorable economic trends.

15

Financial Strategy
Q. What benchmark have you established for interest-bearing debt ratio, and what are the Investment Corporation’s
debt policies?
A. The Investment Corporation is conscious of maintaining a prudent financial strategy together with an appropriate interest-bearing debt ratio (abalance between total assets and interest-bearing debt). Currently, the target ratio is set between 35 to around 50%.
Corporation seeks to continue diversifying the debt maturity to decrease the refinance risk.

The Investment

In addition, the Investment Corporation will aim tolengthen the average debt maturity by increasing the portion of its long-term borrowings and issuing the investment corporation bonds.

16

Financial Summary
Trends in Operating ConditionsFirst Fiscal
PeriodOperating revenues

Second Fiscal

Third Fiscal

Fourth Fiscal

Fifth Fiscal

PeriodPeriodPeriodPeriodPeriod(As of Oct. 31,(As of Apr. 30,(As of Oct. 31,(As of Apr. 30,(As of Oct. 30,

2005)

2006)

2006)

2007)

2007)

¥M

1,196

2,871

5,288

5,778

7,208

（Rental revenues）

¥M

1,196

2,871

5,131

5,647

7,208

Operating expenses

¥M

606

1,527

2,723

3,091

3,737

(Property-related expenses）

¥M

518

1,265

2,397

2,607

3,205

Operating income

¥M

589

1,343

2,565

2,686

3,470

Ordinary income

¥M

243

1,103

2,125

2,148

2,793

Net income

(a)

¥M

242

1,101

2,124

2,148

2,792

Total assets

(b)

¥M

77,32592,053

160,314

188,400

213,763Interest-bearing debt

(c)

¥M

29,00042,00062,00088,50075,500Unitholders’ equity

(d)

¥M

44,52745,38790,93390,877

127,761¥M

44,28544,28588,72988,729124,973

Unitholders’ capital(e)

Per Unit

79,37079,370157,000

157,000

200,000(d)／(e)Yen

561,008

571,840

579,192

578,839

638,809

Total distribution

(f)

¥M

242

1,101

2,124

2,148

2,792

Distribution per unit(f)／(e)

Yen

3,052

13,884

13,52913,682

13,96013,884

13,52913,682

13,960−-

Number of investment units issued and outstanding
Unitholders’ equity per unit

（Earnings distributed per unit）

Yen（Distribution in excess of earnings per unit）

3,052

Yen

−

−

−

％

0.3（1.3）

1.3（2.6）

1.7（3.3）

1.2（2.5）

1.4(2.8)

Return on assets（annualized）(Note 1,2)

Return on unitholders’ equity (annualized)(Note 2,3)％

0.6（2.2）

2.5（4.9）

3.1（6.2）

2.4（4.8）

2.6(5.1)

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

％

57.6

49.3

56.7

48.2

59.8

Interest-bearing debt ratio at the end of period(c)／(b)

％

37.5

45.6

38.7

47.0

35.3

Payout ratio (Note 4)(f)／(a)

％

99.9

99.9

99.9

100.0

99.9

Number of properties

Properties

31

35

64

72

77

Total leasable floor area㎡

81,298.67

104,868.65

192,085.34

223,322.77

248,653.07

Occupancy ratio at the end of period

％

96.6

94.9

95.3

95.9

96.9

Depreciation expenses for the period

¥M

268

650

1,135

1,243

1,392

Capital expenditures for the period

¥M

47

510

655

1,132

1,238

[Other reference]

Leasing NOI (net operating income)(Note 5)

¥M

945

2,256

3,869

4,283

5,394

FFO (funds from operation)(Note 6)

¥M

510

1,752

3,102

3,261

4,184

FFO per unit

(Note 7)

Yen

6,430

22,076

19,75920,772

20,920Notes:
1. Return on assets = Ordinary income / (Total assets at the beginning of period + Total assets at the end of period) / 2 x 100
Total assets at the beginning of first fiscal period reflect the value on August 1, 2005, which was the first actual date of operations of the first fiscal period.
2. Annualized values for the second fiscal period are calculated based upon a period of 181 days, 184 days for the third fiscal period, 181 days for the fourthfiscal period and 184 days for the fifth fiscal period Annualized values for the first fiscal period are calculated based upon a period of 92 days, the actual
number of business days in the first fiscal period (from August 1, 2005 to October 31, 2005).
3. Return on unitholders’ equity = Net income / (Total unitholders’ equity at the beginning of period + Total unitholders’ equity at the end of period) / 2 x 100
Total unitholders’ equity at the beginning of period reflects the value on August 1, 2005, which was the first actual date of operations of the first fiscal period.
4. Payout ratio is rounded down to the first decimal place.
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
7. FFO per unit = FFO / number of investment units issued and outstanding (figures below ¥1 rounded down)

17

Management Review & Policies
Operating Conditions for the Fifth Fiscal Period(1) The Investment Corporation
The Investment Corporation was established on May 6, 2005 in accordance with the Investment Trust and Investment Corporation Law (“theInvestment Trust Law”). On July 21, 2005, the Investment Corporation was listed on the Real Estate Investment Trust Market of the Tokyo Stock
Exchange. (Securities Code: 8972).

Subsequently, the Investment Corporation has conducted a global offering in May 2006. In addition, theInvestment Corporation has conducted the second global offering in May 2007. Consequently, as of October 31, 2007, the end of the fifth fiscal
period, the number of investment units issued and outstanding totaled 200,000 units.
The Investment Corporation appointed Kenedix REIT Management, Inc. as its asset management company. In concert with the AssetManagement Company, the Investment Corporation strives to maximize 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, and endeavors to ensure a timely response to each and every opportunity. The Investment Corporation
endeavors to develop a diversified investment portfolio named “KENEDIX Selection,” adopting a three-point investment criteria based on property
type, area and size.

(2) Investment Environment and Management Performancea. Investment environment
During the fiscal period under review, the Japanese economy made an improvement in corporate earnings and capital expenditures along withrobust employment conditions. Although growth in personal consumption was stagnant, the economic recovery continued.
According to the official announcement of land prices as of January 1, 2007, average land prices in Japan for the one-year period fromJanuary 2006 increased by 2.3% for commercial properties and 0.1% for residential properties. This was the first increase since 1991, or in 16
years. In Tokyo, the average increase was 13.9% for commercial properties and 8.0% for residential properties, the second consecutive yearthat prices for both categories increased.
b. Management performance
In the fiscal period under review, the Investment Corporation acquired 5 office buildings with a total acquisition price of ¥22,000 million.
a result, the number of properties owned as of October 31, 2007 stood at 77, with a total acquisition price of ¥197,090 million.

As

Looking at theportfolio as a whole, 70.0% was comprised of office buildings, 8.1% central urban retail properties and 21.8% of residential properties on an
acquisition price basis. In addition, the occupancy ratio as of the end of the fifth fiscal period was 96.9%, reflecting stable investment and asset
management.
＜External Growth Performance after IPO＞
First Fiscal Period(as of October 31, 2005)

Second Fiscal Period(as of April 30, 2006)

Third Fiscal Period(as of October 31, 2006)

Fourth Fiscal Period(as of April 30, 2007)

Total
Acquisition Price(Millions of Yen)

Ratio
(%)

Total
Acquisition Price(Millions of Yen)

Ratio
(%)

Total
Acquisition Price(Millions of Yen)

Ratio
(%)

Total
Acquisition Price(Millions of Yen)

Ratio
(%)

Total
Acquisition Price(Millions of Yen)

Ratio
(%)

37,76754.6

48,26959.2

86,224

58.7

115,979

66.2

137,979

70.0

12,37917.912,37915.2

16,05910.9

16,0599.1

16,0598.1

Residential Properties

18,98627.4

20,78625.5

44,45930.2

43,052

24.5

43,052

21.8

Total

69,132100.0

81,434100.0

146,742100.0

175,090100.0

197,090

100.0

Tokyo Metropolitan Area

61,281

88.6

71,783

88.1

123,32184.0

150,36485.8

162,514

82.4

Office Buildings
Type of Use

Central Urban Retail
Properties

Area

Other Regional Areas

7,851

11.3

9,651

11.8

23,421

15.9

24,726

14.1

34,576

17.5

Total

69,132100.0

81,434100.0

146,742100.0

175,090100.0

197,090

100.0

Notes: Total acquisition price is the total of acquisition price for each property classified by type and area.
Total acquisition price is rounded down to the nearest million yen. Percentages are rounded down to the nearest first decimal place.

18

Fifth Fiscal Period(as of October 31, 2007)

Operation and Management of Existing Properties
The Investment Corporation has appointed Kenedix Advisors Co., Ltd. as its sole property management company for the entire portfolio as ofthe end of the fifth fiscal period. In establishing a single point of contact for all matters relating to property management activities, the Investment
Corporation strives to secure consistent policies, specifications and procedures along with ensuring swift and quality service.

As of October 31,

2007, the investment portfolio maintains a high occupancy ratio. The Investment Corporation is satisfied with the quality of property
management.
In addition to property management services, the Investment Corporation has executed master lease agreements with Kenedix Advisors
covering all of its properties held as of October 31, 2007 (excluding Residence Charmante Tsukishima, Frame Jinnan-zaka, ZARA Tenjin Nishi-dori
and tenants without approval for subleasing). In appointing a member of the Kenedix Group as lessee, the Investment Corporation is able toprovide better tenant-oriented leasing management through Kenedix Advisors. At the same time, this scheme allows the Investment Corporation
to more effectively utilize tenant security and guarantee deposits.
The Investment Corporation leverages scale merits and the communication and negotiation skills of the Kenedix Group in an effort to reduce
operating costs, and have succeeded reductions in building maintenance costs.

(3) Capital Acquisition
The Investment Corporation procured net proceeds of ¥36.2 billion through the primary offering and third-party allotment of investment units,
and undertook prepayment of ¥13.0 billion in borrowings (¥11.5 billion in short-term borrowings and ¥1.5 billion in long-term borrowings) provided
from cash on hand from equity finance. As a result, the Investment Corporation managed to decrease the interest-bearing debt ratio andincrease borrowing capacity.
In addition, concerning borrowings maturing during the fifth fiscal period, the Investment Corporation refinanced the same amount for thesame period and thereby managed to improve (lower) procurement costs (spread over basic interest rate, etc.) for all borrowings that havematured. As a result, the balance of interest-bearing debt stood at ¥75.5 billion as of October 31, 2007, comprising ¥63.5 billion in borrowings(¥57.0 billion in long-term borrowings and ¥6.5 billion in short-term borrowings) and ¥12.0 billion in investment corporation bonds.
As of October 31, 2007, the Investment Corporation had ¥57.0 billion in long-term borrowings, of which ¥45.3 billion had floating interest
rates effectively fixed by utilizing interest-swap agreements. In addition, the long-term debt ratio (Note2) was 91.4% and the long-term fixedinterest debt ratio (Note3) was 91.4%.
Since its public listing through to the end of the fifth fiscal period, the Investment Corporation has undertaken flexible debt funding on both an
unsecured and unguaranteed basis.

This is the result of the high standing in which the Investment Corporation, its investment policies, asset

quality as well as the personnel and expertise of the Asset Management Company are held among financial institutions. In addition, theInvestment Corporation strives to diversify repayment dates for its debt financing in an effort to reduce refinancing risk.

The Investment

Corporation also strives to extend average repayment periods by placing added emphasis on long-term debt.
Notes:
1. Short-term borrowings refers to borrowings with a period of less than or equal to one year from the drawdown date to the repayment date.
Long-term borrowings refers to borrowings with a period of more than one year from the drawdown date to the repayment date.
2. Long-term debt ratio＝（Balance of long-term borrowings＋Balance of investment corporation bonds）÷（Total borrowings＋Balance ofinvestment corporation bonds）
3. Long-term fixed interest debt ratio＝（Balance of long-term fixed interest rate borrowings＋Balance of investment corporation bonds）÷（Total
borrowings＋Balance of investment corporation bonds）
The balance of long-term fixed interest rate borrowings includes borrowings with floating interest rates effectively fixed by utilizing interest-rate
swap agreements.
The Investment Corporation acquired a credit rating of A+ (Outlook: Stable) from Japan Credit Rating Agency, Ltd. in December 2006.
This was the second credit rating acquired following the A3 (Outlook: Stable) from Moody’s Investors Services, Inc. in February 2006. Details of
the credit ratings as of October 31, 2007 are as follows.
Credit Rating Agency
Moody’s Investors Service
Japan Credit Rating Agency, Ltd.

Details of the Ratings
Rating：A3
Outlook：Stable
Senior Debts：A+
Outlook: Stable

19

The Investment Corporation filed a debt shelf registration statement in February 2007, and filed an equity shelf registration statement to
conduct equity financing in April 2007. Details are as follows.
Investment Corporation Bonds

Investment Unit Certificate

Planned Issue Amount¥100,000,000,000 (Note)¥100,000,000,000

Planned Issuance Period

February 15, 2007 to February 14, 2009

May 7, 2007 to May 6, 2009

Acquisition funds for specified assets, repayment

Acquisition funds for specified assets, repaymentof borrowings, repayment of investment corporation of borrowings, repayment of investment corporation
Use of Funds

bonds, refund of lease and guarantee deposits,

bonds, refund of lease and guarantee deposits,

funds to pay for repairs and maintenance, working

funds to pay for repairs and maintenance, working

capital, etc

capital, etc

Note: First Series Unsecured Investment Corporation Bonds of ¥9,000,000,000 and Second Series Unsecured Investment Corporation
Bonds of ¥3,000,000,000 has been issued in March 2007 based on the debt shelf registration.
The Investment Corporation established a credit commitment line with The Bank of Tokyo-Mitsubishi UFJ, Ltd., allowing it to borrow up to¥2.5 billion on an unsecured basis.

(4) Operating Results and Cash Distribution
As a result of the aforementioned management performance, the Investment Corporation reported operating revenues of ¥7,208 million,
operating income of ¥3,470 million, ordinary income of ¥2,793 million and net income of ¥2,792 million for its fifth fiscal period.

.

In accordance with Article 67.15 of the Special Taxation Measures Law, the Investment Corporation distributes the total amount of its
unappropriated retained earnings for each period. Cash distribution for the fifth fiscal period was ¥13,960 per unit.

20Future Management Policies(1) Investment Environment
Looking ahead, the Japanese economy is forecasted to continue its path toward recovery. Favorable conditions are attributed to a robust
corporate sector.

Meanwhile, improvements in employment conditions have come to a standstill and personal consumption has generally leveled

off.
Under this economic condition, positive signs are emerging in the domestic real estate market. Posted land prices for March 2007
confirmed land price appreciation in the three major cities of Tokyo, Osaka and Nagoya.
regional areas are also increasing.

At the same time, land prices for specific major cities in

On a nationwide basis, land prices are exhibiting increased polarization. Appreciation is restricted to major

economic and financial centers of the Tokyo metropolitan area (in particular the Central Tokyo), and specific regional areas that exhibit strong
potential for population growth (for example, Sendai in Tohoku and Fukuoka in Kyushu).
From the perspective of real estate purchase and sales, the acquisition of prime properties is expected to continue to be competitive. This is
attributed to the continued flow of domestic and overseas real estate funds in search of prime properties. These activities in the real estatemarket are expected to remain robust with positive conditions prevailing throughout.
The Investment Corporation will focus investments in mid-sized office buildings in the Tokyo metropolitan area based on its investment
policies and the following trends:
・Increasing Occupancy Ratios and Increasing Rents for Office Buildings
・Increasing Role of the Tokyo Metropolitan Area as Business Hub・Large Tenant Demand for and Increasing Availability of Mid-Sized Office Buildings
Note: The Tokyo metropolitan area consists of Tokyo, Kanagawa, Saitama and Chiba prefectures.
Increasing Occupancy Ratios and Increasing Rents for Office Buildings
Office property occupancy ratios and rents have steadily increased in some major cities, such as Tokyo and Osaka. We believe theseincreased occupancy ratios and rents reflect improved demand, and, if sustained, may allow us to achieve higher rental revenues from our officeproperties.
Increasing Role of the Tokyo Metropolitan Area as Business Hub
The Tokyo metropolitan area serves as Japan’s main business hub. We believe this concentration of business activity in the Tokyo
metropolitan area is intensifying, along with increasing demand for office space. By focusing our investments on office properties in the Tokyo
metropolitan area, we believe we can continue to take advantage of this trend.
Large Tenant Demand for and Increasing Availability of Mid-Sized Office Buildings
We believe that there is a substantial market of tenants for mid-sized office buildings in Japan, and that we can take advantage of thisdemand by providing attractive and competitive office spaces and customer-oriented property management. In addition, we believe that tenants at
mid-sized office buildings have a relatively high turnover ratio, which facilitates increases in rent levels in line with market trends. Moreover, we
believe the supply of mid-sized office buildings available for purchase in Japan is increasing, as demonstrated for example, by an increase in the
proportion of office buildings with a total area of less than 10,000 ㎡ among office buildings sold in Japan from 76% in the year ended March 31,
2003 to 81% in the year ended March 31, 2006.

(2) Management Policies
a. Existing property management strategy (Internal Growth Strategies)
Taking into consideration economic and real estate market trends, the Investment Corporation adopts a tenant-oriented approach to its
leasing activities with aims of ensuring a timely and flexible responses as well as optimal tenant satisfaction. Accordingly, the Investment
Corporation will aim to increase of the cash flow by offering office environment with high tenant satisfaction.

Based on the aforementioned, theAsset Management Company undertakes property management activities as follows:・Identify and enhance satisfaction through use of tenant surveys
・Maintain attractive properties based on KDX standards
・Leasing management based on CS Strategy
・Careful control of management and operating costs
The Investment Corporation has appointed Kenedix Advisors Co., Ltd. as its Property Management Company for its entire portfolio.

21

Identify and enhance tenant satisfaction through use of tenant surveys
The Investment Corporation recognizes each tenant as a key customer and strives to enhance customer satisfaction and raise thecompetitiveness of its properties as the means to maintain and increase earnings.
The Investment Corporation conducted a customer satisfaction survey through J.D. Power Asia Pacific, Inc., an internationally recognizedcompany that engages in customer satisfaction evaluation, to better understand the needs of its tenants and take steps to respond to theirpreferences. As a part of this survey the administration officers of each tenant and tenant employees were asked to respond to many questions
concerning buildings and facilities as well as operating and management services. The Investment Corporation conducted the first CS survey,
which covered 20 of its properties, during the second fiscal period, and the second CS survey, which covered 44 of its properties, during the fifth
fiscal period.
Details of the 2nd CS Survey
Target respondent for the survey: The administration officers of each tenant and tenant employees of the 43 office buildings and one central urban
retail property.
Survey population / Response rate: 446 administration officers / 391 collected (response rate of 88%)2,348 tenant employees / 1,894 collected (response rate of 81%)
Examples of questions: Building location and environment, external façade, entrance, air conditioning system for lease space areas, lighting
ventilation, OA compliant, elevators, toilets, kitchen facilities, smoking areas, parking, management company service,status and standard of cleaning, security, and fire prevention.
On a scale one to five, respondents were asked to rank each of these areas. The survey provided invaluable information pertaining to thestrengths and weaknesses of each building. Under the remarks section, a number of respondents provided insightful observations. Based on
survey results, the Investment Corporation will work to clarify and improve outstanding issues. Through this vital feedback channel, theInvestment Corporation will also implement appropriate maintenance and renovations for each property taking into consideration associated costs
and benefits.
In addition, concerning properties where construction was conducted to address customer satisfaction based on the results of the first survey,
the effects of such construction (improvements in the level of satisfaction) were studied.

The results confirmed that the effects of maintenanceand renovations of the “external façade and entrance” and “toilets” were high. The Investment Corporation will use this as reference fordetermining the priority of maintenance and renovations in the future.
Through these means, the Investment Corporation is working efficiently to generate improvements in rent levels and asset values, increase
earnings and promote sustained internal growth.
Maintain attractive properties based on KDX standards
The Investment Corporation aims to provide attractive mid-sized office buildings in order to enhance portfolio value and rental revenues.
We believe that the quality of mid-sized office buildings in Japan vary considerably depending on the nature of the owner.

For example, abuilding owned by an individual or small company that owns only one or a few buildings may not have the resources to provide high-quality
maintenance. Furthermore, when a building is owned by a large company, property management is often dictated by that company’s priorities
and does not necessarily correspond to tenant needs or satisfaction.
The Investment Corporation aims to differentiate itself by efficiently providing certain uniform standards, termed “KDX” standards, as well as
attractive office environments.
Examples of KDX standards include the followings:
・Installation of security cameras for elevators and entrance halls
・Installation of emergency devices for elevators
・Installation of modern restrooms that include western-style toilets with hot-water self-cleaning functions
・Creation and distribution of security and evacuation maps
・Creation and distribution of detailed building rules
In addition, the Investment Corporation enhances its brand awareness by renaming its office buildings so that “KDX” is included in the newname.
Leasing management based on CS Strategy
The Investment Corporation aims to provide flexible and focused leasing activities that take into account economic and market trends, andthat utilize the results of tenant surveys to enhance tenant satisfaction.
In addition, the Investment Corporation believes that tenants at mid-sized office buildings generally tend to have high turnover ratios, and theInvestment Corporation is focused on obtaining higher rent levels when entering new lease contracts.

The Investment Corporation also

negotiates with tenants that pay lower rent levels than the market price in order to raise rents under existing leases.

22

Careful control of management and operating costs
The Investment Corporation utilizes the scale merits of owning many properties and the negotiating strength of the Kenedix Group (theKenedix Group refers to Kenedix, Inc., Kenedix Advisors and other related companies, the same applies below) to reduce building management
costs.

Accordingly, the Investment Corporation reduces property management expenses, electricity costs and property taxes.

The Investment

Corporation will continue to carefully control management and operating costs by periodically reviewing its property management standards toensure that they remain relevant and appropriate for each property, and by maintaining an appropriate balance between initiatives that aim tosustain or increase revenues with its efforts to control operating costs.
b. New Property Investment Strategy (External Growth Strategy)
The Investment Corporation will continue to concentrate on mid-sized office buildings with an emphasis on the Tokyo metropolitan area while
also investing in central urban retail property located in highly flourishing districts as an alternative to investment in office buildings. In addition,
the Investment Corporation will make no new investment in residential properties for a certain period and has replaced assets mentioned asfollows. To facilitate the implementation of the aforementioned investment policy, the Investment Corporation will leverage the “Multi-Pipeline”
provided by the support of the Kenedix Group, in addition to the original network of the Asset Management Company.
Through the Multi-Pipeline, the Asset Management Company is positioned to secure real estate information related to properties for which
the Kenedix Group acts as intermediary, properties under development, properties that it owns, and pension funds (Note). Based on thisinformation, the Investment Corporation has first preferential negotiating rights for an acquisition. Against the backdrop of a competitive market,
the role of the support-line is increasingly significant for the Asset Management Company’s acquisition of quality properties.
Note: Pension Funds refer to real estate investment funds for pension plans that are managed by Kenedix Advisors Co., Ltd.
Another key role of the support-line is to facilitate property acquisition through the warehousing function.

Under the warehousing function,members of the Kenedix Group may acquire or temporarily hold an investment property in the event that the Investment Corporation is not itself in
an immediate position to acquire the property, or the property fails to fully comply with the Investment Corporation’s investment criteria at thatspecific time.
The Investment Corporation seeks to continue improving the quality of its portfolio in terms of location, size and type of properties, throughvarious measures including replacement of assets. In addition, the Investment Corporation will continue to steadily grow by acquiring properties
and aims accelerate this growth by utilizing its leverage relationship with the Kenedix Group and the Asset Management Company’s original
network for sourcing properties, as well as make diversified acquisitions, as discussed below.
Reciprocal purchase and sale of office buildings and residential properties
On February 1, 2008, the Investment Corporation sold 23 residential properties (total acquisition price of ¥30,343 million) out of the 30
residential properties in its portfolio as of October 31, 2007 (total acquisition price of ¥43,052 million), and newly purchased 9 office buildings (totalacquisition price of ¥31,980 million) on the same date.
Leverage Relationship with the Kenedix GroupAs the sponsor company, Kenedix, Inc. has provided property information and support staff to the Investment Corporation and the AssetManagement Company. At the same time, the Investment Corporation believes that the role of J-REITs in the Kenedix Group has increased inimportance.
In April 2007, the Investment Corporation revised the Memorandum of Understanding between it, Kenedix, Inc., Kenedix Advisors Co., Ltd.
and the Asset Management Company, which was originally conducted at the time of the Investment Corporation’s IPO.
Details of the Change of Memorandum of Understanding
・When Kenedix, Inc. receives information regarding any available property that in its reasonable opinion meets our investment criteria, including
properties under development, from parties other than the contracting parties, the Asset Management Company has first preferential rights tosuch information.
(Before Revision: The Investment Corporation had second preferential rightsafter certain pension funds to such property information acquired by
Kenedix, Inc.)
・In the event that Kenedix, Inc. disposes of a property that in its reasonable opinion meets our investment criteria, including properties underdevelopment or properties that it owns, the Asset Management Company has first preferential negotiating rights with respect to such properties.
(Before Revision: The Investment Corporation had second preferential negotiating rights with respect to such properties after certain pension
funds)

23

・As long as the Investment Corporation and the Asset Management Company continue to not invest in new residential properties, the Revised
Memorandum of Understanding will not apply with respect to residential properties
Also as a result of the revisions, the Pipeline relationship between the Kenedix Group and the Investment Corporation was significantly
strengthened, allowing the Investment Corporation preferential rights to properties developed by the Kenedix Group. Looking ahead, theInvestment Corporation and the sponsor company plans to closely cooperate to achieve further external growth in such investments asGroup-wide joint investments and property developments.
Make Diversified Acquisitions
As of October 31, 2007, the Investment Corporation owned 77 properties for a total acquisition price of approximately ¥197.0 billion with a
96.9% occupancy ratio. Supported by this asset base along with the management know-how of mid-sized office building accumulated by the
Asset Management Company, the Investment Corporation plans to continue acquiring properties based on its diversified property acquisition
strategy. Furthermore, while implementing various property acquisition strategies such as those described above, the Investment Corporation
believes that increasingly proactive investment property acquisitions are possible by centering the portfolio on mid-sized office buildings that havea relatively advantageous return than large-sized office buildings in consideration of the weighted average cost of capital based on the level ofreturn on distributions calculated from investment unit price and distributions per unit, as well as the debt procurement costs and interest-bearing
debt ratio.

(3) Financial Strategy
The Investment Corporation will continue to pursue debt financing on an unsecured and unguaranteed basis and as well as makearrangements to ensure fixed interest rate debt in line with interest rate trends and other considerations.
In addition, the Investment Corporation will seek to diversify its debt repayment period to reduce refinancing risk, maintain long-term debt
ratios at or above prudent levels and issue investment corporate bonds with the aim of extending the average repayment period of its liabilities.
The Investment Corporation will maintain the ratio of interest-bearing debt to total assets at a prudent level and implement leveraged
management in an effort to ensure stable financial management.

(4) Information Disclosure
Consistent with its basic information disclosure policy, the Investment Corporation proactively engages in IR activities with the aim ofpromptly providing a wide range of relevant information to investors. In specific terms, the Investment Corporation provides information throughthe Timely Disclosure Network System (TDnet), which is a system operated by the Tokyo Stock Exchange, as well as press releases and its Web
site (URL: http://www.kdx-reit.com/eng/ ).

24

Financial Statements（Fifth Fiscal Period:From May 1, 2007 to October 31, 2007）
26
27
28
29
30
31

Report of Independent Auditors
Balance Sheets
Statements of Income and Retained Earnings
Statements of Changes of Unitholders’ Equity
Statements of Cash Flows
Notes to Financial Statements

25

Kenedix Realty Investment Corporation

BALANCE SHEETSAs of October 31, 2007 and April 30, 2007
In thousands of yen

As of October31, 2007
AssetsCurrent assets:
Cash and bank deposits
Rental receivables
Consumption tax refundable
Other current assets
Total current assets
Property and equipment, at cost:
Land
Buildings and structures
Machinery and equipment
Tools, furniture and fixtures
Less-accumulated depreciation
Net property and equipment
Other assets:
Ground leasehold
Organization costs
Corporate bond issuance costs
Unit Issuance costs
Other assets
Total assets

Liabilities and Unitholders'Equity
Liabilities
Current liabilities :Trade and other payables
Short-term debt
Deposits received
Rents received in advance
Other current liabilities
Total current liabilities
Corporate bonds
Long-term debt
Leasehold and security deposits received
Other liabilities
Total liabilities
Unitholders'equity
Unitholders'capital
Units Authorized:2,000,000units
Units Issued and outstanding:200,000units
as of October31, 2007 and April 30, 2007, respectively
Retained earnings
Unrealized gain from deferred hedge transactions
Total unitholders'equity
Total liabilities and unitholders'equity

¥

¥

¥

¥

12,323,340
141,91047,552
58,16912,570,971

As of April30, 2007¥

8,923,063
75,125302,041
32,956
9,333,185

131,547,185
72,108,105
861,811670,095(4,622,859)
200,564,337

113,187,263
67,134,816
823,009602,585(3,230,846)
178,516,827

285,350
25,44862,997
171,775
83,112
213,763,990 ¥

285,145
30,53868,875
71,13994,969188,400,678

526,994 ¥19,500,000
1,985
1,141,333
75,60021,245,912
12,000,000
44,000,000
8,749,709
6,434
86,002,055

413,751
20,000,000
26,743916,372
87,286
21,444,152
12,000,000
56,500,000
7,578,756−
97,522,908

124,973,750

88,729,652

2,792,084(3,899)127,761,935
213,763,990 ¥

2,148,118−
90,877,770
188,400,678

See notes to financial statements

27

Kenedix Realty Investment Corporation

STATEMENTS OF INCOME AND RETAINED EARNINGSFor the period from November 1, 2006 to April 30, 2007, and the period from May 1, 2007 to October 31, 2007
In thousands of yen

From May 1, 2007
to October 31, 2007
Operating Revenues:
Rental revenues
Profit on sale of trust beneficiary interests in real estate
Total operating revenues
Operating Expenses:
Property-related expenses
Asset management fees
Administrative service and custodian fees
Other operating expenses
Total operating expenses
Operating income
Non-Operating Expenses:
Interest expense
Financing related expense
Amortization of organization costs
Amortization of unit issuance costs
Amortization of corporate bond issuance costs
Others, net
Income before income taxes
Income taxes
Net income
Retained earnings at the beginning of period
Retained earnings at the end of period
See notes to financial statements

28

¥

¥

From November1, 2006
to April 30, 2007

7,208,246 ¥7,208,246

5,647,462
130,748
5,778,210

3,205,728
369,00972,56590,0183,737,320
3,470,926

2,607,389
306,965
66,601
110,510
3,091,465
2,686,745

595,160
24,3395,090
41,4695,878
5,925
2,793,065
1,024
2,792,041
43
2,792,084 ¥

479,926
20,595
5,090
17,785
1,501
12,9692,148,879
821
2,148,058
60
2,148,118

Kenedix Realty Investment Corporation

Statements of Changes in Unitholders’ Equity
For the period from November 1, 2006 to April 30, 2007 and the period from May 1, 2007 to October 31, 2007

(Thousands in Yen)
Unitholders' Equity
Unrealized gainfrom deferred

Balance as of November 1, 2006¥

Unitholders'

Retained

hedge

capitalearnings

transactions

88,729,652¥

2,124,112

¥

Total

79,533¥90,933,297

Changes during the fiscal period
Payment of dividends-(2,124,052)-(2,124,052)

Net income-

2,148,058-

2,148,058

Interest-rate swap--

(79,533)(79,533)-

24,006(79,533)(55,527)

Total changes during the fiscal period
Balance as of April 30, 2007¥

88,729,652¥

2,148,118¥-¥

90,877,770

Changes during the fiscal period
New unit issuance

36,244,098--

36,244,098

Payment of dividends-(2,148,074)-(2,148,074)

Net income-

2,792,041-

2,792,040

Interest-rate swap--

(3,899)(3,899)36,244,098

643,966(3,899)36,884,165

Total changes during the fiscal period
Balance as of October 31, 2007¥

124,973,750¥

2,792,084¥(3,899)¥127,761,934

See notes to financial statements

29

Kenedix Realty Investment Corporation

STATEMENTS OF CASH FLOWSFor the period from November 1, 2006 to April 30, 2007 and the period from May 1, 2007 to October 31, 2007
In thousands of yen

From May 1,2007
to October 31, 2007
Cash Flows from Operating Activities
Income before income taxes
Adjustments to reconcile income before income taxes
to net cash provided by operating activities
Depreciation and amortization
Interest expense
Changes in assets and liabilities:
Rental receivables
Consumption tax refundable
Trade and other payables
Rents received in advance¥

2,793,065 ¥

2,148,879

1,465,288
595,160

1,288,871
479,926(66,786)
254,489
103,499
224,961

8,250
297,446
3,328
148,836(56,018)
5,313,658(606,962)(543)
4,706,153

1,433,571
37,0185,846,125(420,546)(924)
5,424,655

Cash Flow from Investing Activities:
Purchases of property and equipment
Proceeds from leasehold and security deposits received
Payments of leasehold and security deposits received
Payments of restricted bank deposits
Proceeds from restricted bank deposits
Others, net
Net cash used in investing activities(23,439,729)
1,779,663(599,597)(111,083)
435,530(762)(21,935,978)(31,759,821)
1,909,350(455,487)(361,623)
355,864
6,555(30,305,162)

Cash Flows from Financing Activities:
Proceeds from short-term debt
Payment of short-term debt
Proceeds from long-term debt

5,250,000(17,250,000)
2,000,000

19,500,000(14,500,000)
9,500,000

Payment of long-term debt

(3,000,000)-

Proceeds from issuance of units

36,101,994--

12,000,000

Sale of trust beneficiary interests in real estate
Others, net
Subtotal
Cash payments of interest expense
Cash payments of income taxes
Net cash provided by operating activities

Proceeds from issuance of corporate bonds
Payment of corporate bond issuance costs
Payment of dividends
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of period
Cash and cash equivalents at the end of period
See notes to financial statements

30

From November 1,2006
to April 30, 2007¥

(2,147,444)
20,954,550
3,724,725
7,606,600
11,331,325 ¥(70,376)(2,120,522)
24,309,102(571,405)
8,178,005
7,606,600

Kenedix Realty Investment Corporation

Notes to Financial Statements
For the period from November 1, 2006 to April 30, 2007 and the period from May 1, 2007 to October 31, 2007

1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Kenedix Realty Investment Corporation (“the Investment Corporation”) is a real estate investment corporation whose units are listed on theTokyo Stock Exchange. The Investment Corporation is engaged in ownership and operation of selected office buildings, residential and retailproperties in Japan. The Investment Corporation was incorporated as an investment corporation under the Law Concerning Investment Trusts
and Investment Corporations of Japan, or the Investment Trust Law. Pursuant to this law, the Investment Corporation is externally managed by alicensed asset management company, Kenedix REIT Management, Inc.("Asset Management Company"), a wholly-owned subsidiary of Kenedix,
Inc.(“Kenedix”)
On May 6, 2005, the Investment Corporation was originally formed with ¥200 million of initial capital contributions from Kenedix, AssetManagement Company and their executives and employees. On July 20, 2005, the Investment Corporation raised ¥41,869 million of equity
capital through an initial public offering of 75,000 investment units and was listed on the J-REIT section of the Tokyo Stock Exchange on thefollowing day.
On August 1, 2005, 29 properties with an aggregate purchase price of ¥61,083 million were acquired with additional debt proceeds of ¥23,000
million and substantial operations of the Investment Corporation were commenced from that date.
On August 16, 2005, the Investment Corporation completed third-party allotment of 3,970 investment units, generating an additional ¥2,216
million. Subsequent to that, the Investment Corporation acquired 2 additional properties in September, 2005.

During the period ended April 30,

2006, the Investment Corporation acquired 4 additional properties by utilizing internal cash and bank borrowing.
On May 1, 2006, the Investment Corporation raised ¥42,172 million of equity capital through a public offering of 73,660 investment units and 26
properties with an aggregate purchase price of ¥58,033 million were acquired with additional debt proceeds of ¥16,000 million.
On May 26, 2006, the Investment Corporation completed third-party allotment of 3,970 investment units, generating an additional ¥2,273 million.
During the period ended October 31, 2006, the Investment Corporation sold 2 properties and acquired 5 properties.
During the period ended April 30, 2007, the Investment Corporation acquired 10 additional properties by utilizing internal cash and bankborrowing, and sold 2 properties.
On March 15, 2007, the Investment Corporation issued the investment corporation bonds. Their total amounts is ¥12,000 million and term are
five years and ten years.
At October 31, 2007, the Investment Corporation had total unitholders’ capital of ¥124,974 million with 200,000 investment units outstanding.
The Investment Corporation owned a portfolio of 77 properties with total acquisition costs of ¥197,090 million containing total leasable area of
248,653 m2. The occupancy ratio was approximately 96.9%.
properties and 3 central urban retail properties.

A portfolio of 77 properties consists of 44 office buildings, 30 residential

60 properties are located in the Tokyo Metropolitan Area and 17 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 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 for Japanese
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 the accompanying financial statements, relevant
notes have been added and certain reclassifications have been made from the financial statements issued domestically in order to present them ina 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.

31

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) 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 the date of purchase.
(b) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is calculated on a straight-line basis over the estimateduseful lives of the assets ranging as stated below:
From May 1, 2007
to October 31, 2007

From November 1, 2006
to April 30, 2007

Buildings and structures ......................................................................................................

2-46 years

2-46 years

Machinery and equipment ...................................................................................................

3-17 years

3-17 years

Tools, furniture and fixtures .................................................................................................

3-15 years

3-15 years(c) Impairment of Fixed Assets
The Investment Corporation adopted “Accounting Standard for Impairment of Fixed Assets” (“Opinion on Establishment of AccountingStandard for Impairment of Fixed Assets” issued by the Business Accounting Deliberation Council in Japan on August 9, 2002) and“Implementation Guidance for the Accounting Standards for Impairments of Fixed Assets” (“Financial Accounting Guidance No. 6” issued by the
Accounting Standards Board of Japan on October 31, 2003). The Investment Corporation has not recognized an impairment loss on any of theproperties during the fiscal periods ended October 31, 2007 and April 30, 2007.
(d) Organization Costs
Organization costs are amortized over a period of five years, comprised of ten fiscal periods, with an equal amount amortized in each fiscal
period.
(e) Unit Issuance Costs
Unit issuance costs are amortized over a period of three years under the straight-line method.
(f)Corporate Bond Issuance Costs
Investment corporation bonds issuance costs are amortized over a loan period under the straight-line method.

(g) 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 and throughwhich the Investment Corporation holds all of its real property, all assets and liabilities within trust are recorded in the relevant balance sheet
and income statement accounts.
(h) 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 and their 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.

32

(i)

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 ofdisposal to the end of the calendar year in which the property is disposed. The seller, however, is reimbursed 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 allocated portions of theproperty-related taxes are capitalized as part of the acquisition costs of the related properties. Capitalized property-related taxes amounted to¥82 million and ¥101 million as of October 31, 2007 and April 30, 2007.

In subsequent calendar years, such property-related taxes are charged

as operating expenses in the fiscal period in which the installments of such taxes are paid to the relevant tax authorities.
(j)

Income Taxes
Deferred tax assets and liabilities are computed based on the difference between the financial statements and income tax bases of assets

and liabilities using the statutory tax rates.
(k) Derivative Financial Instruments
The Investment Corporation utilizes interest rate swap contracts, which are derivative financial instruments only for the purpose of hedging its
exposure to adverse fluctuations and changes in interest rates.
Derivative financial instruments are measured at fair value. For derivatives used for hedging purposes, if such derivatives qualify for deferredhedge treatment due to high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives
are deferred until maturity of the hedged transactions and are reported on the balance sheet as either assets or liabilities.
Although deferred hedge treatment is generally adopted, if the interest rate swap contracts meet the criteria for the special treatment, theInvestment Corporation has applied the special treatment to interest rate swap contracts beginning the year ended April 30, 2007 based on therevised investment Trust Law.

Under the special treatment, interest rate swaps are not remeasured at fair value, Instead, the net amount paidor received under the interest rate swap contacts is recognized and include in interest expense or income.
(l)Rounding of Amounts Presented
Amounts have been truncated in the Japanese financial statements prepared in accordance with Japanese GAAP and filed with regulatory

authorities in Japan, whereas amounts have been rounded to the nearest million in the accompanying financial statements.

Totals shown in theaccompanying financial statements do not necessarily agree with the sums of the individual amounts.

3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following as of October 31, 2007 and April 30, 2007:
In thousands of yen

As of October 31, 2007

As of April 30, 2007

Cash and bank deposits ...................................................................................

¥ 12,323,340¥ 8,923,063

Restricted bank deposits held in trust ..............................................................

(992,015)(1,316,463)

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

¥ 11,331,325¥ 7,606,600

Restricted bank deposits held in trust are retained for repayment of tenant leasehold and security deposits.

33

4. SCHEDULE OF PROPERTY
In millions of yen
As of October 31, 2007

As of April 30, 2007

Acquisition costs

Accumulated
depreciation¥ 131,547−¥ 131,547¥ 113,187

Buildings andstructures

72,108

4,335

67,773

Machinery andequipment

862

169

Tools, furnitureand fixtures

670
205,187

Land

Total

Book value

Acquisition costs

Accumulated
depreciation¥

Book value−¥ 113,187

67,135

3,026

64,109

693

823

119

704

119

551

603

86

517

4,623

¥ 200,564¥ 181,748¥ 3,231¥ 178,517

5. SHORT-TERM AND LONG-TERM DEBTS
The following summarizes short-term and long-term debt outstanding as of October 31, 2007 :(As of October 31, 2007)
Classification

Unsecuredshort-term debt

Drawdown Date

Repayment Date

Weighted-averageinterest rate

Balance(In millions of yen)March 1, 2007

February 29, 2008

1.02%

¥ 1,250

July 31, 2007

July 31, 2008

1.05%

2,000

July 31, 2007

July 31, 2008

1.02%

1,000

September 20, 2007

September 20, 2008

1.04%

1,250

October31, 2007

October 31, 2008

1.10%

1,000

Unsecured current potion ofAugust 1, 2005

July 31, 2008

0.87%

9,500

long-term debt

November 1 , 2005

October 31, 2008

1.09%

3,500

Subtotal

19,500August 1, 2005

July 31 , 2010

1.29%

9,500

December 8, 2005

December 7, 2008

1.10%

2,000

March 1, 2006

February 28, 2009

1.45%

2,000

March 16, 2006

March 16, 2009

1.48%

2,500

May 1, 2006

April 30, 2009

1.63%

6,500

May 1, 2006

April 30, 2011

2.20%

2,500

Unsecured

May 1, 2006

April 30, 2016

2.73%

5,000

long-term debt

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, 2010

1.57%

2,000

April 2, 2007

April 2, 2012

1.88%

2,000

April 17, 2007

April 16, 2011

1.26%

1,500

October 31, 2007

October 31, 2009

1.34%

2,000

Subtotal
Corporate bonds

March 15, 2007

March 15, 2012

March 15, 2007

March 15, 2017

44,000
1.74%

9,000

2.37%

3,000

Subtotal
Total

34

12,000¥75,5006. UNSECURED LINE OF CREDIT
The Investment Corporation established a credit facility with a financial institution in March 2007 which provides access to an aggregate ¥ 2.5
billion on an unsecured basis.

7. PER UNIT INFORMATIONThe net asset value per unit as of October 31, 2007 and April 30, 2007 was ¥638,810 and ¥578,839. Net income per unit as of October 31,
2007 and April 30, 2007 was ¥14,334 and ¥13,681 .
The weighted average number of units outstanding of 194,772 and 157,000 was used for the computation of the amount of net income per unit
as of October 31, 2007 and April 30, 2007.

8. INCOME TAXESThe Investment Corporation is subject to corporate income taxes at a regular statutory rate of approximately 40%. However, the Investment
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 of tax requirements, including a requirement it
currently distribute in excess of 90% of its taxable income for the fiscal period in order to be able to deduct such amounts.

If the Investment

Corporation does not satisfy all of the requirements, the entire taxable income of 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 2,792 million and ¥2,148 million for the periods ended October 31, 2007 and April 30, 2007.

Such distributions were treated as

deductible distributions for purposes of corporate income taxes. The effective tax rate on the Investment Corporation’s income was 0.03% and0.04% for the periods ended October 31, 2007 and April 30, 2007.

The following summarizes the significant difference between the statutory

tax rate and the effective tax rate:
From May 1, 2007
to October 31, 2007

From November 1, 2006
to April 30, 2007

Statutory tax rate .....................................................................................................

39.39%

39.39%

Deductible cash distributions ...................................................................................

(39.37)(39.38)Other ........................................................................................................................

0.01

0.03

Effective tax rate ......................................................................................................

0.03%

0.04%

9. UNITHOLDERS’ EQUITYThe Investment Corporation issues only non-par value units in accordance with the Investment Trust Law.
price of new units is designated as stated capital.

The entire amount of the issue

The Investment Corporation is required to maintain net assets of at least ¥50 million as

required by the Investment Trust Law.

35

10. RELATED-PARTY TRANSACTIONS(a) Transactions with Kenedix Advisors Co., Ltd. ("Kenedix Advisors")
Kenedix Advisors, a wholly-owned subsidiary of Kenedix, provides the Investment Corporation with property management services and related
services. For these services, the Investment Corporation pays Kenedix Advisors property management fees and other fees in accordance withthe terms of its Property Management Agreements. Transactions with Kenedix Advisors are as follows:
In thousands of yen

From May 1, 2007
to October 31, 2007

From November 1, 2006
to April 30, 2007

Property management fees ......................................................................................

¥ 256,842¥ 202,279

Management transfer fees .......................................................................................

10,80021,200Construction management fees ...............................................................................

40,19737,432(b) Transactions with Y.K.KWO Fourth (“KWO Fourth”)
KWO4 is a wholly owned subsidiary of Kenedix. On June 1, 2007 the Investment Corporation acquired 5 properties from KWO Fourth for¥22,000 million.

The purchase price of these properties was determined based on an independently appraised value at the time of acquisition.

11. BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUES AND
PROPERTY-RELATED EXPENSES
Rental and other operating revenues and property-related expenses for the periods from May 1, 2007 to October 31, 2007 and from November
1, 2006 to April 30, 2007 consist of the following:
In thousands of yen
From May 1, 2007
to October 31, 2007

From November 1, 2006
to April 30, 2007

Rental and other operating revenues:
Rental revenues .................................................................................................

¥

5,336,255¥

4,234,864

Common area charges ......................................................................................

998,453

730,439

Subtotal ........................................................................................................

6,334,708

4,965,303

222,255

182,047

Others:Parking space rental revenues ...........................................................................
Utility charge reimbursement ..............................................................................

476,613274,748

Miscellaneous ....................................................................................................

174,670

225,364

Subtotal ........................................................................................................

873,538

Total rental and other operating revenues ...............................................................

¥

Property management fees and facility management fees .....................................

¥

Depreciation ............................................................................................................

¥

704,418¥

5,647,462
571,266

1,392,013

1,243,900

Utilities .....................................................................................................................

454,313275,900

Taxes .......................................................................................................................

329,928

206,872

Insurance .................................................................................................................

17,21914,701

Repairs and maintenance .......................................................................................

119,71089,964

Trust fees .................................................................................................................

55,386

46,396

Others ......................................................................................................................

132,741

158,390

Total property-related expenses ..............................................................................

36

682,159

7,208,246¥

3,205,728¥

2,607,389

12. LEASESThe Investment Corporation, as lessor, has entered into leases whose fixed monthly rents are due in advance with lease term of generally two
years for office buildings and residential properties and with lease term ranging from two to ten years for retail properties.

The future minimum

rental revenues under existing non-cancelable operating leases as of October 31, 2007 and April 30, 2007 are as follows:
In thousands of yen
As of October 31, 2007

As of April 30, 2007¥¥

Due within one year .................................................................................................
Due after one year ...................................................................................................
Total ................................................................................................................

¥

1,561,805

1,266,446

10,516,248

9,741,832

12,078,054¥ 11,008,278

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 contracts, which are derivative financial instruments, only
for the purpose of mitigating future risks of fluctuations of interest rates, but does not enter into such transactions for speculative or trading
purposes. The Investment Corporation entered into such derivative transactions to hedge interest rate risk in accordance with its Articles ofIncorporation 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 contacts as of October 31,
2007.
The estimated unrealized loss does not include the interest rate swap contracts that met the criteria for the special treatment.
(As of October 31, 2007)
Type
Interest-rate swap:
Fixed rate payable and floating rate receivable

Notional amount¥45,300 million

Unrealized loss
¥ (6 million)37

14. PROPERTY INFORMATION
Details of the property portfolio as of October 31, 2007 were as follows:
Type

Office Buildings

Location
Number of properties

Residential Properties

Central Urban RetailTokyo
Metropolitan
Area

Other
Regional
Areas

Tokyo
Metropolitan
Area

Other
Regional
Areas

Tokyo
Metropolitan
Area

Other
Regional
Areas

36

8

22

8

2

1

¥ 116,654¥ 21,325

Property information(In millions of yen)
Acquisition price
Percentage of total acquisition costs¥ 33,481¥ 9,571¥ 12,380¥ 3,680

59.2%

10.8%

17.0%

4.9%

6.3%

1.9%

Net book value

119,088

21,32333,899

9,998

12,863

3,679

Appraisal value at year end

133,938

22,11034,702

9,646

14,440

3,810

61.3

10.1

15.9

4.4

6.6

1.7

4,238,851

980,450

1,084,938

383,989

411,922108,000

3,750,764

798,944996,510354,084

326,652

108,000

Percentage of total appraisal value
Financial results for the period ended October(In thousands of yen)
Rental and other operating revenues
Rental revenues
Other revenues

488,087

181,506

88,42829,90585,270-1,072,853

312,517

216,214107,144

95,192

8,381

Property management fees

393,484

159,271

84,15435,426

27,737

4,347

Taxes

210,242

38,42132,721

24,844

19,666

2,725

Utilities

304,875

85,63027,155

6,880

29,773-

Repairs and maintenance

64,186

11,27225,37817,615

1,170-

Property-related expenses

Insurance

7,971

4,450

2,756

1,504

429

109

Trust fees and other expenses

92,095

13,47344,05020,875

16,417

1,200

NOI (Net Operating Income)Depreciation expenses
Operating income from property leasing

3,165,998

667,933

868,724

276,845

316,730

99,619708,771

227,845

272,131

99,89973,5129,856

2,457,227

440,088596,593

176,946

243,218

89,763

Capital expenditures

972,457

143,567

12,72689,72918,594-

NCF (Net Cash Flow)

2,193,541

524,366

855,998

187,116

298,136

99,619A breakdown of property-type as of October 31, 2007 was as follows:
Property type

Area

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

Tokyo Metropolitan Area

Office Buildings

Other Regional Areas

10.0
65.7

Tokyo Metropolitan Area

33,89915.8

Other Regional Areas

9,998

4.7

43,897

20.5

Tokyo Metropolitan Area

12,863

6.0

Other Regional Areas

3,679

1.7

16,542

7.7

Subtotal
Total

200,850

93.4

Bank deposits and other assets

12,914

6.0

Total assets

213,764

100.0

Total liabilities

86,002

40.2

127,762

59.8

Net assets

38

55.7

21,323

Subtotal
Central Urban Retail Properties¥ 119,088
140,411

Subtotal
Residential Properties

Percentage of
total assets¥

Management Report
40

Structure of Investment Corporation

40

Board of Directors

41

Outline of the Asset Management Company

42

The Kenedix Group

42

Memorandum of Understanding with Kenedix and Kenedix Advisors

44

Policies with Respect to Certain Activities

46

Our Investment Objective and Strategy

47

Distributions

48

Movements in Investment Units Issued and Outstanding

48

Trends of Investment Unit Certificate Price on the Tokyo Stock Exchange

49

The Main Investors of the Investment Corporation

50

Borrowings

52

Investment Corporation Bonds

53

Portfolios Outline

54

Capital Expenditure

56

Expenses and Liabilities

56

Details of Related-Party Transactions

39

Structure of Investment Corporation
Investment Corporation
Information and Property Providers(Support-Line Companies)
Kenedix, Inc.
Kenedix Advisors Co., Ltd.

General Meeting of Unitholders④

Asset Management Company
Administrative Agent for Directors’ Meeting

Administrative Agent
Asset Custodian

Kenedix Realty Investment Corporation②

Mizuho Trust & Banking Co., Ltd.

Board of Directors
Executive Director: Taisuke Miyajima
Supervisory Director: Kimio Kodama
Supervisory Director: Shiro Toba①

Kenedix REIT Management, Inc.

Accounting Auditor

Transfer Agent③

The Chuo Mitsui Trust and Banking Co., Limited

Ernst & Young ShinNihon①

Asset Management Agreement / Operating Agency Agreement②

Administrative Agency Agreement / Asset Custodian Agreement③

Transfer Agency Agreement④

Memorandum of Understanding with Kenedix, Inc. and Kenedix Advisors Co., Ltd.

Board of Directors
The members of our board of directors are as follows:

Taisuke Miyajima
Taisuke Miyajima has been our executive director since May 2005. In 1985, he joined Mitsubishi UFJ Trust and Banking Corporation (formerly The Mitsubishi Trustand Banking Corporation) where he gained about a decade of business experience in a number of positions within the company, including its Capital Markets
Department. He joined Kenedix (formerly Kennedy-Wilson Japan Co., Ltd.) in 1998, and was seconded to the Asset Management Company in 2004 where hebecame chief executive officer and president. Prior to serving as our executive director, he transferred his employment to the Asset Management Company in 2005,
continuing to serve in the same position. He has obtained approval from the Commissioner of the Finance Services Agency for holding concurrent positions with us
and the Asset Management Company pursuant to Article 13 of the Investment Trust Law, as of April 18, 2005. Taisuke Miyajima holds 20 of our units.

Kimio Kodama
Kimio Kodama has been a supervisory director since May 2005. He was admitted to the Japanese bar in 1963 and is a general practitioner of Japanese law. He
established Hanzomon Sogo Law Office (formerly Towa Law Office) in 1966. He has been a director of Kyoritsu Women’s Educational Institution since 1997 andserved as a director for The Housing Loan Guarantee Corporation since 1998.

Shiro Toba
Shiro Toba has been a supervisory director since May 2005. He joined Misuzu Audit Corporation (formerly Chuo Shinko Audit Corporation) in 1989 and became aJapanese certified public accountant in 1993. Prior to being certified as a tax accountant in 2002, he established Toba Public Accounting Office in 1997. He has
been serving as a representative director of Minori Accounting Co., Ltd. since January 2005 and as a director of BTK Solution Co., Ltd. since March 2005.

40

Outline of the Asset Management Company
Name:

Kenedix REIT Management, Inc.

Capital:¥200 million

History: November 28, 2003
July 2, 2004

KW REIT Management was established
Building Lots and Buildings Transaction Business License, License No. (1) 83303, issued by the Governor of Tokyo

November 9, 2004

Renamed to Kenedix REIT Management, Inc.

February 28, 2005

Discretionary Transaction Agent License, License No. 33, issued by the Governor of Tokyo

April 18, 2005

Investment Corporation/Asset Management License, License No. 44, granted by the Prime Minister of Japan

April 26, 2005

Obtained approval to be Operating Agent for the Investment Corporation

September 30, 2007 Registered as Financial Products Transaction Operator (Investment Management Operator), Financial Instruments
Registration No. 323, issued by the Director-General of the Kanto Local Finance Bureau

Organization Chart (As of the end of fifth fiscal period):
Shareholder’s Meeting
Auditors
Board of Directors
Compliance Officer
Investment Committee

Compliance Committee
Representative Director

Investment Management Division
Real Estate
Investment
Group

Asset
Management
Group

Financial Planning Division

IR
Group

Finance andAccounting
Group

Corporate Planning / Administration Division
Business
AdministrationGroup

Principal Shareholder:

Name
Kenedix, Inc.

Location
2-2-9, Shimbashi, Minato-ku, Tokyo

Number of Stocks Owned
6,450 units

Ratio (Note)
100.00%(Note) Ratio represents the number of stocks owned in proportion to the total number of outstanding stocks.

41

The Kenedix GroupThe Kenedix Group is made up of Kenedix, Inc. (“Kenedix”), as well as its subsidiaries and affiliates, including leading providers of real estateadvisory services, real estate asset and property management services and real estate investment management services in Japan. Kenedix
owned 3.92% of our units as of October 31, 2007. Since our formation, which was promoted by Kenedix, we have received significant support
from the Kenedix Group in our business and activities, particularly from Kenedix, Kenedix REIT Management Co., Ltd. (“Asset Management
Company”) and Kenedix Advisors Co., Ltd. (“Kenedix Advisors”). We expect to continue to rely on these companies and believe that our
relationship with them provides us with competitive advantages.
• Kenedix, Inc. Kenedix was originally founded in April 1995 under the name of Kennedy-Wilson Japan and renamed to Kenedix, Inc. in
May 2005. Kenedix commenced property fund management in February 1999. Kenedix commenced managing property funds for major
Japanese insurance companies in July 2001 and is listed on the First Section of the Tokyo Stock Exchange. The core businesses of Kenedix
include real estate advisory, asset management and collateralized debt investment management services, including on behalf of international
investors, pension funds and other institutional investors. Kenedix targets investment in office buildings, in addition to residential, retail, logistics
and other facilities, while actively engaging in real estate development for investment. Kenedix has also diversified its investment into areas suchas hotels, nursing homes and other properties for which income depends heavily on active property management, and responded to global
movements of funds by making more investments overseas. We believe we benefit from the experience and resources of Kenedix and thecompetitive advantages of our relationship with Kenedix as an independent real estate management company.
• Kenedix REIT Management, Inc. The Asset Management Company is broadly responsible for the formulation and execution of ourinvestment strategy and our other activities. The Asset Management Company’s employees have diverse experience in the real estate andfinancial markets in Japan, including experience in real estate appraisal and securities analysis. We seek to take advantage of the knowledge
and experience of the Asset Management Company and its employees in the real estate market to help us locate and acquire properties that fit ourinvestment strategy.
• Kenedix Advisors Co., Inc. Kenedix Advisors was incorporated in November 2003 as a real estate fund and property managementcompany, particularly for pension funds. Kenedix Advisors was renamed from KW Pension Fund Advisors Co., Ltd. in May 2005 and is a 100%
subsidiary of Kenedix.
We and the Asset Management Company are parties to a memorandum of understanding dated May 31, 2005 with Kenedix and Kenedix
Advisors, which was recently revised in April 2007. The memorandum of understanding provides us with certain assurances from Kenedix and
Kenedix Advisors with respect to information, negotiation rights and other support for the acquisition of properties.

Memorandum of Understanding with Kenedix and Kenedix Advisors
We entered into a memorandum of understanding on May 31, 2005 with Kenedix, Kenedix Advisors and the Asset Management Company, which
was subsequently revised on April 9, 2007 to provide us with increased preferential rights. We believe that revised memorandum of
understanding reflects the strengthened relationship between the Kenedix Group and us. The revised memorandum of understanding has a termof one year, which is automatically renewed for successive one-year periods unless any of the parties notifies the other parties of its intent toterminate the memorandum of understanding at least 30 days prior to the expiration of the term.

Support from Kenedix
Pursuant to the revised memorandum of understanding, Kenedix has agreed to provide support to us in the following areas:• First Preference to Property Information Acquired by Kenedix.
When Kenedix receives information regarding any available property owned by a third party that, in the reasonable opinion of Kenedix, meets ourinvestment criteria, including properties under development, Kenedix, has agreed to preferentially provide information on such property to the
Asset Management Company, unless prohibited by laws or regulations or contracts to which it is a party. Until Kenedix becomes capable ofreasonably determining that it is difficult to sell such property to us, Kenedix has agreed not to provide such information to any person other thanthe Asset Management Company or to acquire the property for itself. Prior to the revision on April 9, 2007, the Asset Management Company had
a second-preference right to information, with the first-preference right reserved for real estate investment funds in which the major investors are
pension funds for which Kenedix Advisors served as asset management company.

42• First-Preference Negotiating Rights for Properties Owned by Kenedix.
In the event that Kenedix disposes of a property owned by Kenedix, an entity wholly owned by Kenedix, or a fund fully financed by Kenedix orwholly owned entity, such as silent partnership fund (a “Kenedix Property”) that, in the reasonable opinion of Kenedix, meets our investment
criteria, Kenedix has agreed to grant the Asset Management Company first-preferential negotiating rights for such property, unless prohibited bylaw or regulation or contracts to which it is a party. In the event that Kenedix and the Asset Management Company do not reach an agreement
for the sale and purchase of such property during the negotiation period, Kenedix may offer such property to any person other than the AssetManagement Company after giving notice to the Asset Management Company. Prior to the revision on April 9, 2007, Kenedix granted the AssetManagement Company second-preference negotiating rights for a Kenedix Property that no pension fund for which Kenedix Advisors served asasset management company had agreed to purchase during its first-preference negotiation period on that in the reasonable option of Kenedix, met
our investment criteria but did not meet the investment criteria of any such pension fund.
• Information on Property Owned by Kenedix Private Placement Funds.
In the event that Kenedix disposes of a property that is owned by a real estate investment fund for which it serves as asset management company(excluding any fund referred to in the immediately preceding paragraph) and, in the reasonable opinion of Kenedix, that meets our investment
criteria, Kenedix has agreed to provide information on such property to the Asset Management Company no later than such time as Kenedix
provides such information to any person other than the Asset Management Company, unless otherwise prohibited by law or regulation or contracts
to which it is a party.
• Property Pre-Acquisition Support.
The Asset Management Company may request Kenedix to purchase and hold a property owned or managed by a third party with a view toreselling it to us. In the event that Kenedix accepts such a request and purchases the property directly or indirectly through a wholly owned entity,
we are granted the first option to purchase such property for one year following the acquisition, and Kenedix may not offer such property to any
party other than the Asset Management Company during such period.

Support from Kenedix Advisors
Pursuant to the revised memorandum of understanding, Kenedix Advisors has agreed to provide support to us in the following area:• First-Preference to Properties Owned by Pension Funds.
In the event that Kenedix Advisors disposes of a property that is owned by a pension fund, and if Kenedix Advisors reasonably determines thatsuch property meets our investment criteria Kenedix Advisors has agreed to preferentially offer to sell such property to the Asset Management
Company, unless otherwise prohibited by law or regulation or contracts to which it is a party. Kenedix Advisors has agreed not to offer to sellsuch property to other parties than the Asset Management Company during the negotiation period. In the event that Kenedix Advisors and theAsset Management Company do not reach an agreement for the sale and purchase of the property during the negotiation period, Kenedix
Advisors may offer such property to a third party after giving notice to the Asset Management Company.

43

Policies with Respect to Certain Activities
Basic Policies
We seek to achieve our investment objective within the framework of the following basic policies, which are reflected in our articles ofincorporation as follows:• We will invest, directly or indirectly, primarily in office, residential and retail properties located in the Tokyo metropolitan area including
major cities in Tokyo, Kanagawa, Saitama and Chiba prefectures and other major cities throughout Japan, including
government-designated cities (or seirei shitei toshi; cities designated by government ordinance and authorized to perform many of thefunctions normally performed by prefectures), through specified assets.
• We will conduct an investigation and a comprehensive review of all relevant information regarding any prospective acquisition target,
such as anticipated future revenues from such property, potential of the area in which such property is located, construction specifications,equipment, estimated earthquake resistance, state of maintenance, environmental and geological features, and related rights attached tosuch property.
• We will maintain the percentage of the value of our specified real estate assets relative to the value of our specified assets at 75% ormore at any time. Specified real estate assets refers to real estate, real estate leasing rights, surface rights, and beneficiary interests intrusts which hold real estate, land leasing rights or surface rights.

Other Policies
We and the Asset Management Company have developed additional policies with respect to our activities. These policies, to the extent
that they are not addressed in our articles of incorporation, may be amended or revised from time to time without a vote of our unitholders. For
example, in December 2006 we revised our portfolio goals to concentrate more on office properties, as described below. These policies are notbinding and are intended to guide the implementation of our investment objective and management of our operations. The Asset Management
Company has broad discretion to develop our business strategies and to manage our operations. At any given time, our business operations or
the characteristics of our property portfolio may not be fully consistent with these policies.

Portfolio Management Policies
We have portfolio management policies focusing on developing and maintaining a portfolio that seeks to achieve stable revenues anddistributions.
Types of Properties. We divide property acquisition targets into one of three functional types of properties: office properties, focusing on
mid-sized office properties, central urban retail properties and residential properties. In light of the favorable market conditions and outlook foroffice buildings, in December 2006, we revised our portfolio goals to concentrate more on office properties and have decided to make no newinvestments in residential properties for the foreseeable future.
Geographic Diversification. Our geographic investment focus is on properties located in the Tokyo metropolitan area, including major
cities in Tokyo, Kanagawa, Saitama, and Chiba prefectures, with an emphasis on central Tokyo consisting of the Chiyoda, Chuo, Minato, Shibuya
and Shinjuku wards. A portion of our investment portfolio is also located in other major cities (primarily government-designated cities or major
regional hub cities) with the aim of ensuring portfolio diversification and minimizing risks associated with changes in economic and real estatemarket conditions, earthquakes, typhoons and other natural disasters, and uneven population distribution among regions.
Size and Value of Property. Our general policy for the value of investment properties is to purchase office and central urban retailproperties with a minimum value of ¥1 billion with a total investment value of a single property not to exceed 30% of the total investment portfolio.
In addition, we may purchase residential properties with a minimum value of ¥0.5 billion. The total floor space at an office or a central urban retailbuilding should be more than 1,000 m2. Our investment targets in residential properties are single-type, compact-type, family-type andprestige-type residential properties.
Tenant Characteristics. We make investment decisions based on a tenant’s attributes, credibility, line of business, purpose of use, leaseterms and conditions, and possible turnover.
Other Portfolio Goals. Based on our focus on properties in the Tokyo metropolitan area as described above, the Asset Management
Company decides on specific portfolio goals with respect to our investments. The policy takes into account general economic conditions, realestate market conditions, interest rate trends, population shifts, and other factors, with the aim of realizing our basic investment objective. In theevent of a significant change in economic, real estate market or other conditions, however, this portfolio management policy is reviewed andamended as and when considered appropriate by the Asset Management Company.

44

The Asset Management Company has set non-binding portfolio composition boundaries as general aspirations with respect to our investment
activities. These may change from time to time. Pursuant to the revisions in investment guidelines in December 2006, the Asset Management
Company has set a broad framework for a portfolio consisting of 50%-100% office properties, less than 20% central urban retail properties andless than 30% residential properties and other properties. In terms of location, the policy calls for 70% or more of our properties to be located in
the Tokyo metropolitan area with the remainder in other major cities. However, at any given time, our actual property portfolio may not reflect
these given goals.

Compliance with Certain Japanese Tax Law Matters
We intend to manage our investments in such a manner as to qualify for lower property registration and acquisition taxes and for deductibilityof distributions to our unitholders under Japanese tax laws applicable to J-REITs.

Other Investments
We may, through the Asset Management Company, make investments other than as previously described, although we do not currently
intend to do so. We are permitted to make certain investments other than real estate-related investments within the restrictions imposed by the
Tokyo Stock Exchange’s J-REIT listing rules and the Investment Trusts Association’s J-REIT rules and our articles of incorporation. For example,
we are permitted to invest in securities issued in connection with real estate securitizations under Japanese law.
Our articles of incorporation prohibit us from investing in foreign real estate, assets or securities backed by foreign real estate and assets
denominated in foreign currency.
Our Investment Guidelines set forth that in principle, investment properties are acquired from a medium- and long-term prospective, andassets are not acquired for short-term buying and selling. Short-term herein means a period of less than a year, medium-term means a period of
more than a year to less than 5 years, and long-term means a period of more than 5 years.

Cash Management
Although our articles of incorporation allow us to invest surplus funds in low-risk negotiable securities and monetary claims, we do not intend
to make investments in securities and monetary claims for the purpose of cash management. Surplus funds may be used for acquisition of
investment properties and capital expenditures, working capital, distribution payment, and payment of obligations including repayment of tenantleasehold and security deposits and borrowings as well as redemption of bonds.

Financial Policy
We borrow only from qualified institutions as defined in the Securities and Exchange Law of Japan (assuming that our tenant leasehold andsecurity deposits are not loans for such purposes). All of our current borrowings are unsecured, provided that we maintain certain financial ratios.
We currently do not have any outstanding guarantees. By financing our property acquisitions only after we identify specific properties forpotential purchase, we seek to limit the amount of our cash and cash equivalents for which we have no immediate use.
In general, we seek to keep the aggregate amount of our borrowings (excluding tenant leasehold and security deposits) at 60% or less of thetotal value of our total assets. We may, however, exceed that percentage from time to time, for example, as a result of financing acquisitions ofadditional properties through borrowings instead of equity.
We seek to limit our borrowings and issuances of investment corporation bonds to ¥1 trillion in the aggregate.
We have recently been seeking to raise long-term debt capital in longer terms, including debt with maturities over 5 years, in order to extend
our average maturity and lower refinancing risk by spreading principal repayments over fiscal periods. In this manner, we seek to create a
relatively stable debt financing program.
Depending on market conditions, our financing needs for particular acquisitions or our general liquidity requirements, we may make various
types of bank borrowings—fixed or variable interest, short- or long-term—and also obtain bank lines of credit. We may also issue debt in thecapital markets. We may enter into interest hedging transactions, such as interest options and swaps, in order to minimize market and interest
rate risks with respect to our borrowings.
We may, by resolution of our board of directors and without unitholder approval, issue additional units in any manner and on such terms as
we deem appropriate, subject to the provisions of the Investment Trust Law. Existing unitholders have no preemptive right to purchase units
issued in any offering, and any such offering would cause dilution of a unitholder’s investment in us.

45Our Investment Objective and Strategy
Our investment objective is to secure, in the medium to long term, relatively stable distributions for our unitholders through real estate
investment. We seek to achieve our investment objective through the following strategies:

External Growth Strategies
Seek Stable Portfolio Growth through Diversified Property Investments
We have continued to expand our property portfolio. We started with an initial portfolio that had an aggregate acquisition price of ¥61.1
billion shortly after our initial public offering in July 2005 and set a target of achieving a portfolio with an aggregate acquisition price of ¥200 billion
by the end of 2008. In 2006, we moved this target forward to the end of 2007. In June 2007, we achieved a portfolio with an aggregateacquisition price of ¥197.1 billion, thus substantially achieving our target six months early.

We intend to continue increasing our total portfolio

size and have set a target of achieving a portfolio with an aggregate acquisition price of ¥400 billion in the mid-to-long term. In light of thefavorable market conditions and outlook for office buildings, we revised our portfolio goals in December 2006 to concentrate more on officeproperties and have decided to make no new investments in residential properties for the foreseeable future.

In particular, we are targeting

mid-sized office properties, with an emphasis on the Tokyo metropolitan area, especially central Tokyo. We believe that improved conditions in
office property markets in major urban areas, including rising property values, occupancy ratios and rents, as well as greater transaction volume,
create a favorable environment for expanding our portfolio. We seek to continue improving the quality of our portfolio, such as the location, size
and type of properties, through various measures, including replacement of assets.
Leverage Relationship with the Kenedix GroupWe believe that we have an increasingly strong relationship with the Kenedix Group, which has broad expertise and experience in real
property investment and management in Japan. In April 2007, we revised our memorandum of understanding with Kenedix, Kenedix Advisors
and the Asset Management Company, pursuant to which the Asset Management Company has first preference to informational and negotiatingrights from Kenedix and Kenedix Advisors about properties meeting our specified investment criteria. In addition, in a February 2007 press
release of Kenedix announcing its operating results for its fiscal year ended December 31, 2006, Kenedix noted the contribution of J-REITs andtheir sustained growth to the Kenedix Group, and noted that the Kenedix Group was taking steps to expand its J-REIT business.

We intend tocontinue to draw on the expertise and experience of the Kenedix Group and its employees to help us locate and acquire attractive properties andincrease their value through active property management. We refer to our portfolio in our marketing activities as “Kenedix Selection” toemphasize the importance of the Kenedix Group in the selection and management of our properties.
Utilize the Asset Manager’s Original Network for Sourcing Properties
The Asset Management Company’s employees have diverse experience in the real estate and financial markets in Japan. A part of our
growth strategy involves acquiring information about potential acquisition opportunities through the Asset Management Company’s network. We
plan to continue to utilize the Asset Management Company’s knowledge, experience and network of contacts in the real estate market to help us
locate and acquire properties that match our investment strategy.
Make Diversified Acquisitions
We plan to continue making diversified acquisitions of mid-sized office properties, including properties that we subsequently renovate with aview to enhancing their property values and rental revenues. For example, from time to time we acquire properties with high vacancy rates andmake substantial renovations to make them more attractive to potential tenants. We also purchase buildings and convert portions of them fromresidential or other use to office or retail space. We intend to continue acquiring properties for renovation as part of our diversified acquisition
strategy to enhance our portfolio.

Internal Growth Strategies
Increase Cash Flow and the Value of Properties that We Acquire through Active Property Management
A key part of our strategy is to increase unitholder value through focused and proactive management of our properties. Key components ofour property management strategies include conducting tenant surveys and making appropriate improvements, maintaining attractive properties
with uniform standards, engaging in flexible and focused leasing activities geared towards tenant needs and market trends, and exercising careful
control of management and operating costs. As a result of our property management strategies and favorable conditions in the office property
market, rents for units in our office properties tended to increase when we entered into new lease agreements in the fiscal period ended October
31, 2007.

46

Achieve Efficient Property Management
We seek to implement efficient property management by engaging Kenedix REIT Management, Inc. as the property management company
for each of our properties from March 2008. By centralizing property management, we believe we can take advantage of the size of our portfolio
to delegate property-related tasks in an efficient and cost-effective manner to on-site property managers and facility managers.

Distributions
In order to maintain our favorable tax treatment, which is available to J-REITs under the Special Taxation Measures Law of Japan, we must
distribute in excess of 90% of our distributable income as defined in the Special Taxation Measures Law, which differs slightly from retained
earnings under Japanese GAAP. Our articles of incorporation require that we make cash distributions of at least this amount. If our retained
earnings are less than 90% of our distributable income, or if we determine it is appropriate to do so, our articles of incorporation permit us to
distribute cash to our unitholders in excess of retained earnings up to the maximum amount calculated in accordance with the standards set by theInvestment Trusts Association of Japan. These standards set forth that a closed-end J-REIT, such as us, may distribute up to 60% of its
depreciation expense in excess of net income as a return of capital. If such maximum amount is still below 90% of our distributable income as
defined in the Special Taxation Measures Law, our articles of incorporation further permit us to make distributions in the amount we determine
necessary to satisfy the requirements to maintain our favorable tax treatment under the Special Taxation Measures Law.
However, any distribution in excess of retained earnings is likely to create complex Japanese tax issues, especially for individual Japanese
resident unitholders. Accordingly, we do not intend to distribute any such excess amounts in the absence of appropriate changes in Japanese
tax law that address these Japanese tax issues.
Distribution Performance
Fiscal Period
Duration of Period

First Fiscal Period
May 6, 2005 to
October 31, 2005

Second Fiscal Period
November 1, 2005
to April 30, 2006

Third Fiscal Period Fourth Fiscal Period Fifth Fiscal Period
May 1, 2006 to
November 1, 2006
May 1, 2007 to
October 31, 2006
to April 30, 2007
October 31, 2007

Unappropriated Retained Earnings¥242,251,377¥1,102,013,492¥2,124,112,014¥2,148,117,194¥2,792,084,129

Retained Earnings for the next fiscal period
Cash Distributions(Distribution per unit)
Earnings Distributed(Earnings Distributed per unit)
Payments for capital participations(Payments for capital participations per unit)¥14,137¥242,237,240（¥3,052）¥242,237,240（¥3,052）−（ − ）¥40,412¥1,101,973,080（¥13,884）¥1,101,973,080（¥13,884）−（ − ）¥59,014¥2,124,053,000（¥13,529）¥2,124,053,000（¥13,529）−（ − ）¥43,194¥2,148,074,000（¥13,682）¥2,148,074,000（¥13,682）−（ − ）¥84,129¥2,792,000,000（¥13,960）¥2,792,000,000（¥13,960）
−
（ − ）

47

Movements in Investment Units Issued and Outstanding
Movements in unitholders’ capital and the number of investment units issued and outstanding until the end of the fifth fiscal period aresummarized in the following table.
Settlement Date
May 6, 2005
July 20, 2005
August 16, 2005
May 1, 2006
May 26, 2006
May 22, 2007
June 19, 2007

Particulars
Private placement
Public offering
Third-party allocation
Public offering
Third-party allocation
Public offering
Third-party allocation

Investment Units Issued andOutstanding (Units)
Increase
Balance(Decrease)400
400
75,00075,4003,970
79,37073,660153,030
3,970
157,000
40,900
197,900
2,100
200,000

Unitholders’ Capital(Millions of Yen)
Increase
Balance(Decrease)200
200
41,86842,0682,216
44,28542,17186,4562,272
88,72934,474
123,203
1,770
124,973

Remarks(Note 1)
(Note 2)
(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)

Notes:
1. The Investment Corporation was established with an offer price of ¥500,000 per unit.
2. The Investment Corporation undertook an additional issue of new investment units (public offering) with the aim of procuring funds for the acquisition of
investment properties. The offer price was ¥580,000 per unit with an underwritten price of ¥558,250 per unit.
3. The Investment Corporation undertook an additional issue of new investment units by way of third-party allotment with the aim of procuring funds for theacquisition of investment properties. The issue price was ¥558,250 per unit.
4. The Investment Corporation undertook an additional issue of new investment units (public offering) with the aim of procuring funds for the acquisition of
investment properties. The offer price was ¥593,096 per unit with an issue price of ¥572,519 per unit.
5. The Investment Corporation undertook an additional issue of new investment units by way of third-party allotment with the aim of procuring funds for theacquisition of investment properties. The issue price was ¥572,519 per unit.
6. The Investment Corporation undertook an additional issue of new investment units (public offering) with the aim of procuring funds for the acquisition of
investment properties and repayment of borrowings. The offer price was ¥873,180 per unit with an issue price of ¥842,886 per unit.
7. The Investment Corporation undertook an additional issue of new investment units by way of third-party allotment with the aim of procuring funds for theacquisition of investment properties and repayment of borrowings. The issue price was ¥842,886 per unit

Trends of Investment Unit Certificate Price on the Tokyo Stock ExchangeHigh and low trading prices for the Investment Corporation’s investment units for each fiscal period as traded on the REIT market of theTokyo Stock Exchange were as follows:
PeriodEnd of Fiscal PeriodHigh Price
Low Price48

First Fiscal Period
October 31, 2005
¥618,000¥573,000

Second Fiscal Period
April 30,2006¥670,000¥574,000

Third Fiscal Period
October 31,2006¥636,000¥564,000

Fourth Fiscal Period
April 30,2007¥918,000¥607,000

Fifth Fiscal Period
October 31,2007¥988,000¥659,000

The Main Investors of the Investment Corporation
The main investors of the Investment Corporation as of October 31, 2007 are as follows.
NameJapan Trustee Services Bank, Ltd.
(Trust Account)
Nikko Cititrust and Banking Co.
(Investment Trust Account)
Trust & Custody Services Bank, Ltd.
(Securities Investment Trust Account)
State Street Bank and Trust Company
The Master Trust Bank of Japan, Ltd.
(Trust Account)
The Nomura Trust and Banking Co., Ltd.
(Investment Trust Account)

Number ofInvestment Units
owned

Address

Ratio (%)

1-8-11, Harumi, Chuo-ku, Tokyo

18,0229.01

2-3-14, Higashi-Shinagawa, Shinagawa-ku, Tokyo

14,3417.17

1-8-12, Harumi, Chuo-ku, Tokyo

14,3297.16

6-7, Kabutocho, Nihonbashi Chuo-ku, Tokyo

12,953

6.47

2-11-3, Hamamatsucho, Minato-ku, Tokyo

11,4995.74

2-2-2, Otemachi, Chiyoda-ku, Tokyo

9,061

4.53

Kenedix, Inc.
The Bank of New York,
Treaty JASDEC Account2-2-9, Shimbashi, Minato-ku, Tokyo

7,850

3.92

2-7-1, Marunouchi, Chiyoda-ku, Tokyo

5,950

2.97

Goldman Sachs International

6-10-1, Roppongi, Minato-ku, Tokyo

4,556

2.27

JPMC Goldman Sachs Trust JASDEC
lending Account2-7-1, Marunouchi, Chiyoda-ku, Tokyo

4,382

2.19

102,943

51.47

Total
Note: Figures for ratio of investment units owned have been rounded down to the second decimal place.

49

Borrowings
Borrowings on a financial institution basis as of October 31, 2007 are as follows.
Classification

LenderDrawdown
Date

Balance at theEnd of current
Period(Millions of Yen)

Interest
Rate(Note 1)

Repayment
Date

0.883

July 31,
2007

0.910

September
20, 2007

Aozora Bank, Ltd.

2,000

-

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

1,000

-

500

-

500

-

3,000

-

1,000

-

1,000

-

0.959

500

-

0.970

500

-

500

-

250

-

1,750

750

500

500

Mitsubishi UFJ Trust and Banking
Corporation

1,000

-

Aozora Bank, Ltd.

2,000

Resona Bank, Ltd.
Mitsubishi UFJ Trust and Banking
Corporation
The Chuo Mitsui Trust and Banking
Co., Ltd.
Resona Bank, Ltd.
Mitsubishi UFJ Trust and Banking
Corporation
Sumitomo Mitsui Banking Corporation
Resona Bank, Ltd.
Short-Term Borrowings

The Chiba Bank, Ltd.

July 31,2006

September
20, 2006
October
31, 2006
December
1, 2006
January
19, 2007The Chuo Mitsui Trust and Banking
Co., Ltd.
Sumitomo Mitsui Banking Corporation
The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Mitsubishi UFJ Trust and Banking
Corporation

March 1,
2007

April
2, 2007

The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Aozora Bank, Ltd.
The Bank of Tokyo-Mitsubishi UFJ,Ltd.
The Chuo Mitsui Trust and Banking
Co., Ltd.
Mitsubishi UFJ Trust and Banking
Corporation
Sub Total

50

Balance at theEnd of Previous
Period(Millions of Yen)

July 31,2007
September
20, 2007
October
31, 2007

0.910

Payment
MethodUsage

Remarks

Full onmaturity(Note 2)

Unsecured/
Unguaranteed

October
31, 2007
November30, 2007
January
18, 2008

1.020

February29, 2008-

0.945

October 2,
2007

1,500

-

0.965

1,000

-

1.015

-

2,000

1.045

-

1,000

1.015

-

1,250

1.035

-

1,000

1.100

18,5006,500

April 2,
2008
July 31,2008
September
20, 2008
October
31, 2008

Classification

Balance at theEnd of Previous
Period(Millions of Yen)

Balance at theEnd of current
Period(Millions of Yen)

Mitsubishi UFJ Trust and Banking
Corporation

2,700

2,700

The Norinchukin Bank

2,500

2,500

The Chiba Bank, Ltd.

1,200

1,200

The Chuo Mitsui Trust and Banking
Co., Ltd.

1,000

1,000

1,000

1,000

LenderDrawdown
Date

Sumitomo Mitsui Banking Corporation
The Bank of Tokyo-Mitsubishi UFJ, Ltd.

August 1,
2005

Repayment
Date

0.869

July 31,
2008

1.288

July 31,
2010

0.769

October
31, 2007

1.090

October
31, 2008

1.098

December
7, 2008

1.449

February28, 2009

800

800

Resona Bank, Ltd.

300

300

The Chuo Mitsui Trust and Banking
Co., Ltd.

3,750

3,750

Sumitomo Mitsui Banking Corporation

3,750

3,750

Mitsubishi UFJ Trust and Banking
Corporation

1,500

1,500

Resona Bank, Ltd.

500

500

Sumitomo Mitsui Banking Corporation

1,500

-

3,000

3,000

500

500

1,500

1,500

500

500

800

800

500

500

700

700

2,500

2,500

Aozora Bank, Ltd.

2,000

2,000

The Chuo Mitsui Trust and Banking
Co., Ltd.

1,500

1,500

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

1,000

1,000

1,000

1,000

1,000

1,000

Aozora Bank, Ltd.

1,500

1,500

Mitsui Sumitomo Insurance Co., Ltd.

1,000

1,000

Development Bank of Japan

5,000

5,000

2.731

1,000

1,000

2.149

3,000

3,000

2.124

2,500

2,500

1.964

2,000

2,000

1.574

2,000

2,000

1.875

3,000

1,500

1.264

-

2,000

1.339

Sub Total

58,00057,000Total

76,50063,500

The Norinchukin Bank

November
1, 2005

Resona Bank, Ltd.
Aozora Bank, Ltd.
Resona Bank, Ltd.
Long-Term Borrowings

Interest
Rate(Note 1)

December
8, 2005

The Chiba Bank, Ltd.
Aozora Bank, Ltd.

March 1,
2006

Mitsui Sumitomo Insurance Co., Ltd.
The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Mitsubishi UFJ Trust and Banking
Corporation
Resona Bank, Ltd.

Mitsubishi UFJ Trust and Banking
Corporation
Development Bank of JapanThe Norinchukin Bank
Sumitomo Mitsui Banking Corporation
The Chuo Mitsui Trust and Banking
Co., Ltd.
The Norinchukin Bank
Sumitomo Mitsui Banking Corporation

March 16,2006

May 1,
2006

July 14,2006
September
1, 2006
December
1, 2006
April 2,
2007
April 17,2007
October
31, 2007

1.476

March 16,
2009

1.629

April 30,
2009

2.199

April 30,
2011

Payment
MethodUsage

Remarks

Full onmaturity(Note 2)

Unsecured/
Unguaranteed

April 30,
2016
July 13,2011
August 31,
2013
November 30,
2011
April 2,
2010
April 2,2012
April 16,2011
October
31, 2009

Notes:
1. The average interest rate is the weighted-average interest rate for the fiscal period. The Investment Corporation entered into interest-rate swap
transactions with the aim of minimizing the risk of future increase in interest rates. The effect of interest-rate swap transactions has been incorporated into
calculations for the weighted-average interest rate.
2. Funds procured through borrowings were used to acquire real estate or trust beneficiary interests in real estate and to repay borrowings.

51

Investment Corporation Bonds
The status of the investment corporation bonds as of October 31, 2007 are as follows.
( Millions of Yen)
Issuance
Date

Balance at the End
of Previous Period(Millions of Yen)

Balance at the Endof current Period(Millions of Yen)

Interest
Rate

First Series Bonds

March

9,000

9,000

1.74

March 15, 2012

Full onSecond Series Bonds

15, 2007

3,000

3,000
12,0002.37

March 15, 2017

maturity

Total

12,000(%)

Notes:
1. Ranking pari passu among the Specified Investment Corporation Bonds.
2. Funds procured through issuance of investment corporation bonds were used repay borrowings.

52

Redemption
Date

Payment
MethodUsage

Remarks(Note1)(Note2)

Portfolios Outline
Composition of Portfolio Assets
Fourth Fiscal Period(As of April 30, 2007)

Type ofSpecified Asset

Type

Area

Office Buildings
Central Urban Retail
Properties
Total for Real Estate
Real Estate

Total Amount Held
(Millions of Yen)
(Note 1)

Ratio(%) (Note 2)

Total Amount Held
(Millions of Yen)
(Note 1)

Ratio(%) (Note 2)

Tokyo Metropolitan Area

13,047

6.9

13,052

6.1

Tokyo Metropolitan Area

50

0.0

47

0.0

13,097
93,525
11,456104,981
34,15810,00844,166
12,867
3,688
16,556
165,704
9,598
188,400

6.9
49.6
6.1
55.7
18.1
5.3
23.4
6.8
2.0
8.8
88.0
5.1
100.0

13,100106,035
21,323
127,358
33,8989,997
43,896
12,815
3,678
16,493
187,749
12,914
213,763

6.1
49.6
10.0
59.6
15.9
4.7
20.5
6.0
1.7
7.7
87.8
6.0
100.0

Tokyo Metropolitan Area

Office Buildings

Other Regional Areas

Total for Office Buildings
Trust BeneficiaryInterest in Real Estate

Residential Properties

Fifth Fiscal Period(As of October 31, 2007)

Tokyo Metropolitan Area
Other Regional Areas

Total for Residential Properties
Central Urban RetailTokyo Metropolitan Area
Properties
Other Regional Areas
Total for Central Urban Retail Properties
Total of Trust Beneficiary Interests in Real Estate
Bank Deposits and Other Assets
Total Assets
Notes:

1. “Total Amount Held” is the amount allocated in the balance sheets at the end of the period (figures are on a net book value basis after deducting
depreciation).
2. “Ratio” is the ratio of the amount allocated in the balance sheets to the total assets rounded to the first decimal place.

Purchase and Sales during the Fiscal Period Under Review
Status of Real Estate and Securities Backed by Real Estate Purchase and Sales
Purchase
Type

No.

Property Name

Date of
Acquisition

A-40

Toranomon Toyo Building

June 1, 2007

9,850

-

-

-

-

Area

A-41

KDX Shinjuku 286 Building

June 1, 2007

2,300

-

-

-

-

Other

A-42

Karasuma Building

June 1, 2007

5,400

-

-

-

-

Regional

A-43

KDX Hakata Building

June 1, 2007

2,350

-

-

-

-

Areas

A-44

KDX Sendai Building

June 1, 2007

2,100

-

-

-

-

22,000

-

-

-

-

Area

Tokyo
Metropolitan
Office

Total
Note:

Sales
Acquisition
Price(Millions of
Yen)

Date of
Sales

Sales Price(Millions ofYen)Book Value(Millions of
Yen)

CapitalGain (Loss)(Millions ofYen)

Acquisition prices are the sales amounts recorded in trust beneficiary interest agreements exclusive of associated costs such as brokerage fees and taxes.

53Capital Expenditure
Planned capital expenditures
Major capital expenditure plans for renovation of properties in which the Investment Corporation holds a trust beneficiary interest for the sixth
fiscal period (November 1, 2007 to April 30, 2008) are as follows. Planned capital expenditure includes portions classified into expenses foraccounting purposes.

Property Name
(Location)

54

PurposeSchedule

Planned Amount of Capital Expenditure(Millions of Yen)
Paid in the
Total Amount
Total
Fiscal Period
Previously
Under Review
Paid

KDX Higashi-Shinjuku Building(Shinjuku-ku, Tokyo)

Upgrade of individual air conditioning
system, otherNovember 2007
to April 2008

181

−

−

KDX Shiba-Daimon Building(Minato-ku, Tokyo)

Upgrade of individual air conditioning
system, other

As above

164

−

−

KDX Hirakawa-cho Building(Chiyoda-ku, Tokyo)

Upgrade of individual air conditioning
system, other

As above

110

−

−

KDX Hachioji Building(Hachioji-shi, Tokyo)

Upgrade of individual air conditioning
system, other

As above

100

−

−

KDX Okachimachi Building(Taito-ku, Chiba)

Upgrade of individual air conditioning
system, other

As above95−−

KDX Sendai Building(Sendai-shi, Miyagi)

Renovation for restrooms, other

As above70−−

KDX Omori Building(Ohta-ku, Chiba)

Renovation for external wall, other

As above51−−

Capital Expenditures During the Fifth Fiscal Period
The Investment Corporation undertook the following major capital expenditures as follows. In the fifth fiscal period, the Investment
Corporation completed work across its entire portfolio totaling ¥1,238 million. This total comprised of ¥1,357 million in capital expenditures and¥119 million for repairs, maintenance and renovation expenses.
Property Name

Purpose(Location)

Schedule

Amount of Capital Expenditures(Millions of Yen)

May 2007 to

KDX Toranomon Building(Minato-ku, Tokyo)

Renovation for the entire building

KDX Shiba-Daimon Building(Minato-ku, Tokyo)

Renovation for external wall, upgrade ofindividual air conditioning system, other

As above82

Ashiya Royal Homes(Ashiya-shi, Hyogo)

Upgrade of indoor facilities, other

As above82

KDX Niigata Building(Niigata-shi, Niigata)

Renewal work for common use areas,
upgrade of air conditioning system, other

As above69

KDX Hachioji Building(Hachioji-shi, Tokyo)

Upgrade of individual air conditioning
system, other

As above54

KDX Higashi-Shinjuku Building(Shinjuku-ku, Tokyo)

Upgrade of individual air conditioning
system, other

As above50

KDX Funabashi Building(Funabashi-shi, Chiba)

Renovation for external wall, other

As above46

KDX Kajicho Building(Chiyoda-ku, Tokyo)

Renovation for external wall, other

As above45

KDX Hamacho Building(Chuo-ku, Tokyo)

Renovation for external wall, other

As above

31

KDX Shinjuku 286 Building(Shinjuku-ku, Tokyo)

Upgrade of restrooms, ｒenewal work forsecurity system other

As above28

KDX Minami Semba Dai-1 Building(Osaka-shi, Osaka)

Renovation for external wall, other

As above27

KDX Kiba Building(Koto-ku, Tokyo)

Renovation for external wall, other

As above

17

KDX Nogizaka Building(Minato-ku, Tokyo)

Upgrade of individual air conditioning
system, other

As above13

KDX Koishikawa Building(Bunkyo-ku, Tokyo)

Upgrade of individual air conditioning
system, other

As above

7330

October 2007

Others351

Portfolio Total

1,238

Long-Term Repairs, Maintenance, and Renovation Plans
The Investment Corporation formulates long-term repairs, maintenance, and renovation plans on an individual investment property basis andallocates a portion of its cash flows generated during the period to a reserve for repairs, maintenance, and renovation to meet large-scalerenovation over the medium to long terms. The following amount has been transferred to the reserve from period cash flows.
( Millions of Yen)
Fiscal period

First Fiscal
PeriodSecond Fiscal
PeriodThird Fiscal
PeriodFourth Fiscal

Fifth Fiscal

PeriodPeriodReserve for the end of the previous period

−

92

165

288

406

Reserve for the fiscal period under review

92

130

148

118

370

Reversal of reserve for the fiscal period under review

−

57

26

0

−

Reserve bring to the next period

92

165

288

406

777

55

Expenses and Liabilities
Details for Expenses

(a)
(b)
(c)
(d)
(e)
(f)

Item
Asset management fees
Custodian fees
Administrative service fees
Directors’ compensation
Audit fees
Other operating expenses

Fourth Fiscal Period
306,965
17,92848,6725,400
7,800
97,309

Total

484,075( Thousands of Yen)
Fifth Fiscal Period
369,009
20,45652,1085,400
7,800
76,818531,592

Note : In addition to the asset management fees indicated in the above table, a total of ¥117,550 thousand for the fourth fiscal period and ¥55,000 thousand
for the fifth fiscal period, representing property acquisition management fees, was included in the book values of individual real estate assets.

Details of Related-Party Transactions(1) Details
Purchase and Sales Amounts
Amount of Purchase (Thousands of Yen)
Amount of Sales (Thousands of Yen)
22,000,000
Total−
Amount of Sale to Related -Parties

Amount of Purchase from Related -Parties
22,000,000 (100%)−

22,000,000 (100%)−

Details of related-party transactions
Y.K. KWO Fourth(2) Fees
Details of fees and other
Classification

Total Fees (A)(Thousands of Yen)

Ratio

payments to related parties
Payment Recipient

Amount of Fee (B)(B /A)%(Thousands of Yen)

Leasing management fees

256,842

Kenedix Advisors Co., Ltd.

256,842100.0Management transfer fees

10,800As above

10,800100.0

Construction supervision fees

40,197As above

40,197100.0

Note: Related parties in the above table are the related parties for the Asset Management Company, which are defined under Implementation Ordinance No.
123 of the Investment Trust Law. Transaction details and commissions paid to Kenedix Advisors and Y.K. KWO Fourth during the fiscal period underreview are listed in the above table.

56

Trends in Investment Unit Prices
The Investment Corporation’s investment unit certificates were first listed on the Tokyo Stock Exchange on July 21, 2005. Trends ininvestment unit price and trading turnover from the date of public listing to the close of its fifth fiscal period, October 31, 2007, areprovided in the following table.
Aggregate Market Value as of October 31, 2007: ¥159,000mn
Highest Trading Price: ¥988,000 (May 31, 2007)
Lowest Trading Price: ¥564,000 (June 20, 2006)

KRI Closing Price
VolumeVolume (Unit)KRI Closing Price (Yen)
1,100,000

11,000Offer Price at PO¥873,180

6,000

1,000,000
900,000

5,000
4,000

Offer Price at IPO¥580,000

3,000

800,000

Offer Price at PO¥593,096

700,000

2,000

600,000

1,000

500,000
400,000

0Jul. 21, 05

Oct. 31, 05

Apr. 30, 06

Oct. 31, 06

Apr. 30, 07

Oct. 31, 07

Notes: 1. Investment unit prices are shown based upon closing prices.
2. References to “KRI” are to Kenedix Realty Investment Corporation.

Details of the Unitholders
Financial Institutions
End of 4th fiscal period(incl. securities companies)
73,049 units (46.52%)(157,000 units)

Other Domestic
Foreign Corporation andCorporation
Individuals
10,022 units (6.38%) 63,198 units (40.25%)

Individuals andOthers
10,731 units (6.83%)

Financial Institutions(incl. securities companies)
96,845 units (48.42%)

Other Domestic
Foreign Corporation andCorporation
Individuals
10,189 units (5.09%) 81,602 units (40.80%)

Individuals andOthers11,364 units (5.68%)

End of 5th fiscal period(200,000 units)

Note: Comparative ratios are rounded down to the second decimal place.

Information Provided on the Investment Corporation’s Website
The Investment Corporation will make every effort to disclose relevant and accurate information on its website in a timely fashion.

URL

http://www.kdx-reit.com/eng/

This semiannual report includes translation of certain documents originally filed and made available in Japan in accordance with the Securities and Exchange Law ofJapan. This 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.
English terms for Japanese legal, accounting, tax and business concepts used herein may not to be precisely identical to the concept of the equivalent Japaneseterms. 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 andinterpretation.
None of Kenedix Realty Investment Corporation, Kenedix REIT Management, Inc. or any of their respective directors, officers, employees, partners, unitholders,
agents, affiliates or their advisors will be responsible or liable for the completeness, 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 Realty Investment Corporation 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 in 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 Realty Investment Corporation 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 notguarantees 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, performance or achievements expressed or implied by these forward-looking statements. In addition, theseforward-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 representationsof 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 forward-looking 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 Tokyo Stock Exchange, announce publicly any revisions to any of the forward-looking statements
contained in this documents.

Kenedix Realty Investment Corporation
Corporate Data
(As of February 1, 2008)
Corporate Office
KDX Shinbashi Building 6F
2-2-9, Shimbashi, Minato-ku,
Tokyo 105-0004, Japan
Tel +81-3-3519-3491
Fax +81-3-3519-3555
Date of Incorporation
May 6, 2005
Capital¥124,964,750,470
200,000 units
Stock Listing
REIT market of the Tokyo Stock Exchange
Security Code8972
Transfer Agent
The Chuo Mitsui Trust & Banking Co., Ltd.
3-33-1 Shiba, Minato-ku, Tokyo 105-8574, Japan
Independent Auditor
Ernst & Young ShinNihon
Kasumigaseki Bldg.
3-2-5, Kasumigaseki, Chiyoda-ku,
Tokyo 100-6028, Japan
Investor Relations
For further information, please contact our Asset Management
Company:
Kenedix REIT Management, Inc.
Financial Planning Division, Director / General Manager
Masahiko Tajima
KDX Shinbashi Building 6F
2-2-9, Shimbashi, Minato-ku,
Tokyo 105-0004, Japan
Tel +81-3-3519-3491
Fax +81-3-3519-3555

URL: http://www.kdx-reit.com/eng/