KENEDIX-REIT Semiannual Report

PROVEN STRATEGY:Designed for Steady Growth
12th Fiscal Period
http://www.kdx-reit.com/eng/

November 1, 2010 – April 30, 2011

Contents
02 Message from the CEO

Fukuoka

03 An Overview of

SapporoTHE KENEDIX-REIT Portfolio (as of April 30, 2011)

Newly Acquired Properties
04 Special Feature:
Designed for Steady Growth

Total Assets:

04 Proven Strategy 1: Safety First71

06 Proven Strategy 2: Selectivity

246.4

Billion yen

Buildings

07 Proven Strategy 3: Stability

08 Corporate Governance
09 KENEDIX-REIT Portfolio Table

SendaiOsaka

10 Financial Section

Niigata

25 Unitholders’ Information

NagoyaDisclaimer
This semiannual report includes translations of certain
documents originally filed and made available in Japan inaccordance with the Securities and Exchange Law ofJapan. The English language semiannual report was prepared solely for the convenience of readers outside Japanand is not intended to constitute a document for an offer
to sell, or seeking an offer to buy, any securities of
KENEDIX Realty Investment Corporation (KENEDIX-REIT).
English terms for Japanese legal, accounting, tax andbusiness concepts used herein may not be precisely identical to the concept of the equivalent Japanese terms.
With respect to any and all terms herein, including without limitation, financial statements, if there exist any discrepancies in the meaning or interpretation thereof
between the original Japanese documents and English
translation contained herein, the original Japanese documents will always govern the meaning and interpretation.
None of KENEDIX-REIT, Kenedix REIT Management,
Inc. nor any of their respective directors, officers, employees, partners, unitholders, agents, affiliates nor their advisors shall be responsible or liable for 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-REIT have been
prepared in accordance with generally accepted accounting principles in Japan (Japanese GAAP), which may
materially differ in certain respects from generally accepted accounting principles of other jurisdictions.
This semiannual report contains forward-looking
statements. These statements appear in a number ofplaces in this semiannual report and include statements
regarding the intent, belief, or current and future expectations of KENEDIX-REIT or Kenedix REIT Management,
Inc. with respect to its business, financial condition andresults 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,” orthe negative of these terms or other similar terminology.
These statements are not guarantees of future performance and are subject to various risks and uncertainties.
Actual results, performance or achievements, or those of
the industries in which we operate, may differ materiallyfrom any future results, performance or achievements
expressed or implied by these forward-looking statements. In addition, these forward-looking statements arenecessarily dependent upon assumptions, estimates anddata that may be incorrect or imprecise and involve
known and unknown risks and uncertainties. Accordingly,
readers of this document should not interpret theforward-looking statements included herein as predictions
or representations of future events or circumstances.
Potential risks and uncertainties also include those
identified and discussed in this document. Given theserisks 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
the Tokyo Stock Exchange, announce publicly any revisions to any of the forward-looking statements containedin these documents.

Tokyo
Metropolitan Area

Fukushima

Saitama
Saitama

Tokyo
Tokyo

Tokyo

Chiba
Chiba

Kanagawa
Kanagawa

PROVEN ST RATEGY:Designed for Steady Growth
On March 11, a magnitude 9.0 earthquake struck the northeastern

The disaster delayed a turnaround in the real estate market, but this provides KENEDIX-REIT with additional

coast of Honshu. With an epicenter approximately 373 kilometers northopportunities to upgrade the portfolio. In fact, KENEDIX-REIT completed its first post-quake purchase on March 25.

of Tokyo, the East Japan Earthquake of 2011 was the most powerful on

We believe our strategy of maintaining a conservative interest-bearing debt ratio has been validated, as has therecord to strike Japan and, according to the U.S. Geological Service,

portfolio’s focus on safety, selectivity and stability.

ranks as the world’s fourth largest quake since 1900.

Tested by disaster, both our strategy

During the 12th Fiscal Period (November 1, 2010–April 30, 2011),

Kenedix Realty Investment Corporation (KENEDIX-REIT) was not

KENEDIX-REIT added four properties, with a total acquisition price ofmaterially impacted by the quake, the subsequent tsunami or the ensu-

13.1 billion yen, to the portfolio, which totaled 71 properties valued at

ing nuclear crises. The portfolio, including a property in Sendai nearest

246.4 billion yen as of the end of the 12th Fiscal Period. Occupancy

the epicenter, performed according to design. It held up well, with noremained high at 94.6% for the entire portfolio.

material damage at the properties. The estimated budget for repairs andconstruction work amounts to 0.04% of total acquisition price.

and portfolio performed as designed.
KENEDIX-REIT continues steady
portfolio growth.

With a proven strategy focused on mid-sized office buildings in the Tokyo Metropolitan Area, KENEDIX-REIT aims
to deliver steady growth. Please read ahead to learn how

Safety, Selectivity and Stability
contribute to performance.
Kenedix Realty Investment Corporation Semiannual Report| 1Message from the CEO
An Overview of

NEWLY ACQUIRED PROPERTIES
Acquisitions during 12th period: Total acquisition value 13.17 billion yen

TAI SUKEMI YAJ I MA

CEO and President
Kenedix REIT Management, Inc.

Performance was ahead of forecast across many key indi-

Dear Investors,

Kyodo Building (Ginza No.8)

Kyodo Building (Honcho 1chome)

KDX Kobayashi-Doshomachi Building

Kitananajo SIA Building

Location: Chuo-ku, Tokyo

Location: Chuo-ku, Tokyo

Location: Chuo-ku, Osaka-shi, Osaka

Location Kita-ku, Sapporo-shi, Hokkaido

Gross Floor Area: 4,724.62m2

Gross Floor Area: 5,110.45 m2

Gross Floor Area: 10,723.83 m2

Gross Floor Area: 5,503.90 m2

Acquisition Price: 4,300 million yen

Acquisition Price: 4,000 million yen

Acquisition Price: 2,870 million yen

Acquisition Price: 2,005 million yen

Acquisition Date: November 12, 2010

Acquisition Date: November 12, 2010

Acquisition Date: December 1, 2010

Acquisition Date: March 25, 2011

cators during the 12th period. Operating revenue hit 8,136

The East Japan Earthquake of 2011 had a profound impact

million yen, beating the forecast of 8,075 million yen.

on many people’s lives. KENEDIX-REIT extends its deepest

Operating expenses came in slightly lower than forecast at

sympathy to all of those who were affected. It is our most fer-

4,427 million yen. As a result, KENEDIX-REIT was able tovent wish that the recovery proceed with great haste so theachieve operating income of 3,709 million yen, ahead of thevictims will soon be able to return to a more normal existence.

forecast 3,646 million yen.

KENEDIX-REIT is working to further develop the portfolio

The events of March 11 tested our strategy. It performed

while maintaining its strong financial base. We remain com-according to design. This, I believe, says more than words

mitted to our focus on mid-sized office buildings, which now

about the robustness of our strategy. KENEDIX-REIT remains

comprise over 91% of the portfolio, and steady growth.

determined to realize steady growth.

During the 12th Fiscal Period (November 1, 2010–April 30,

Newly acquired properties in July 2011: Total acquisition value 14.27 billion yen

July 20112011), KENEDIX-REIT continued to improve portfolio quality
through new property acquisitions while maintaining a highoccupancy rate. Four new properties were added to the portfolio and occupancy stood at 94.6% for the entire portfolio as

Taisuke Miyajima

of April 30, 2011. The portfolio has now grown to 71 proper-

CEO and President

ties with fully 62% of office buildings located in central Tokyo.

Kenedix REIT Management, Inc.

Kyodo Building (Iidabashi)

P’s Higashi-Shinagawa Building

Nihonbashi Dai-2 Building

Kyodo Building (Shin-Nihonbashi)

Location: Shinjuku-ku, Tokyo

Location: Shinagawa-ku, Tokyo

Location: Chuo-ku, Tokyo

Location: Chuo-ku, Tokyo

Gross Floor Area: 5,422.64 m2

Gross Floor Area: 10,138.65 m2

Gross Floor Area: 6,332.48 m2

Gross Floor Area: 3,712.25 m2

Acquisition Price: 4,670 million yen

Acquisition Price: 4,590 million yen

Acquisition Price: 2,710 million yen

Acquisition Price: 2,300 million yen

Acquisition Date: July 22, 2011

Acquisition Date: July 22, 2011

Acquisition Date: July 22, 2011

Acquisition Date: July 22, 2011

Operating Revenues

Operating Income

Net Income

Distribution per Unit

Total Assets

Millions of yen

Millions of yen

Millions of yen

Yen

Millions of yen

8,204

7,921

8,067

8,358

3,738

8,136

3,835

3,709

3,463

2,567

2,607

12,172
251,566

2,434

10,993

2,309

3,213

Interest-Bearing Debt Ratio/
Interest-Bearing Debt

10,511

238,745

10,881251,080

261,92841.4%

236,320

41.1%

40.9%

40.9%

43.0%

9,891

2,102

98,75097,220102,968

102,567

112,715

millions yen

millions yen

millions yen

millions yen

millions yen

8th Period

9th Period

10th Period

11th Period 12th Period

8th Period

9th Period

10th Period

11th Period 12th Period

8th Period

9th Period

10th Period

11th Period 12th Period

8th Period

9th Period

10th Period

11th Period 12th Period

8th Period

9th Period

10th Period

11th Period 12th Period

8th Period

9th Period

10th Period

11th Period 12th Period(Apr. 30, 2009)(Oct. 31, 2009)(Apr. 30, 2010)(Oct. 31, 2010)(Apr. 30, 2009)(Oct. 31, 2009)(Apr. 30, 2010)(Oct. 31, 2010)(Apr. 30, 2009)(Oct. 31, 2009)(Apr. 30, 2010)(Oct. 31, 2010)(Apr. 30, 2009)(Oct. 31, 2009)(Apr. 30, 2010)(Oct. 31, 2010)(Apr. 30, 2009)(Oct. 31, 2009)(Apr. 30, 2010)(Oct. 31, 2010)( Apr. 30, 2009)(Oct. 31, 2009)(Apr. 30, 2010)(Oct. 31, 2010)(Apr. 30, 2011)(Apr. 30, 2011)(Apr. 30, 2011)(Apr. 30, 2011)(Apr. 30, 2011)(Apr. 30, 2011)(Fiscal periods ended)

2 |Kenedix Realty Investment Corporation Semiannual Report

Kenedix Realty Investment Corporation Semiannual Report| 3Special Feature: Designed for Steady Growth

Overview:

capacity was brought back on line, and energy-saving measures

KENEDIX-REIT’s proven strategy delivered
steady performance, benefiting from focus on:

2. Most assets meet Japan’s strict building codes andseismic strength requirements.

Safety.

Substantially all of our buildings were built after the building code was rigorously
bolstered in 1981 to ensure structural integrity during and after major earthquakes.
The others have been reinforced or have similar levels of earthquake resistance.

Selectivity.

Many of the scheduled power outages proved unnecessary, andthe program was suspended early.
Doing its part, KENEDIX-REIT is accelerating energy efficiency measures. Portfolio-wide we aim to cut peak-timeelectricity usage by 15% this summer. This will entail some

3. KENEDIX-REIT is accelerating energy-saving
measures.

additional capital expenditure, but there will be ongoing opera-

4. Probable maximum loss (PML) across
KENEDIX-REIT’s portfolio is a conservative 5.15%.

tional savings. For example, we are installing LED lights to illuminate exit signs; replacing conventional lighting with LEDs in
hallways, restrooms and other areas; and installing motion
detectors to automatically switch lights on and off in stairways.

We are highly selective in the buildings and locations we purchase. Focus on officespace in the highly sought Tokyo Metropolitan Area enhances performance.

Stability.

SAFETY FIRST

Stable funding means momentary shocks present KENEDIX-REIT with new opportunities. In fact, we completed our first post-quake purchase on March 25, utilizingbank borrowings of 2 billion yen.

Designed for Steady Growth

were rapidly undertaken by government, industry and households.

1. Portfolio damage from the magnitude 9.0 quake waslimited to approximately 110 million yen.

The disaster tested our strategy. It performed according to design. Our performanceremains steady.

Designed for Steady Growth

Strategy 1: SAFETY FIRST

Throughout Japan there is a new awareness that electricity

Fast Response

cannot be taken for granted, that supply must be more robust

Preparation for emergencies, disasters and other contingencies

and usage optimized through efficiency. This intense interest in

ranging from fire to terrorism enables fast response. Following

smart grids and renewable energy places Tokyo at the cutting

the East Japan Earthquake of 2011, KENEDIX-REIT immediatelyedge of a growing issue worldwide.

began inspections to confirm the status of each property. In addition, an expert third-party was commissioned to inspect each ofStrategy Minimizes Probable Maximum Loss (PML)

the affected properties. Within 2 days of the earthquake,

It’s a fact. Earthquakes, tsunami and other disasters happen.

KENEDIX-REIT could report there was no significant damage

Safety is taken very seriously. Working together, both thethat would materially impact operations. The independent

Government and the private sector have learned techniques toinspection, conducted by HI International Consultant Ltd., confirmed

minimize property damage.

the absence of any material structural damage. Subsequently, 110

KENEDIX-REIT monitors the probable maximum loss (PML)

million yen was allocated to make the repairs that were identified.

for each of its properties. PML is generally defined as the largest
anticipated loss in value that could result from an event. In the

Fukushima Fallout

evaluations conducted by NKSJ Risk Management, Inc., PML refers

Following the meltdown of the Fukushima Daiichi Nuclear Plant,

to the ratio (%) of costs required to restore a building damaged

Safety matters. A cornerstone of the KENEDIX-REIT portfolio, safety is

the code came into effect performed much better than those that

225 kilometers from Tokyo, atmospheric radiation levels briefly

by an earthquake to replacement cost.* Portfolio-wide, PML

of fundamental importance to tenants and investors alike. The portfo-

were built before.

spiked in central Tokyo on March 15. Rising to 0.496 microsieverts,

stands at a very low 5.15% as of the end of 12th Fiscal Period

the levels never mandated special measures and soon fell to normal

ended April 30, 2011.
* The calculation assumes that property damage caused by a large-scale earthquake

lio was not materially impacted by the East Japan Earthquake of 2011,
the ensuing tsunami, liquefaction, the nuclear incident at Fukushima

The Evolution of Japan’s Rigorous Building Codes

levels. To place things in perspective, a typical chest x-ray exposes

Daiichi Reactor or the power outages. Despite some media hype,

To increase safety and improve seismic strength, the government ofpatients to 50 microsieverts, about 100 times more radiation.

Tokyo was also largely unscathed.

Japan has strengthened building requirements in response to major
earthquakes. In Japan, the Urban Building Law was even introduced

Radiation Levels in Central Tokyo (Shinjuku):

in 1919 before the Great Kanto Earthquake. Since then, several

Japan’s building codes are said to be the world’s most advanced

major revisions have followed. Major changes are summarized below.

in terms of quake resistance. They are routinely updated in line

All of the buildings in the KENEDIX-REIT portfolio werewith growing knowledge and technological capabilities. The mosteither built after the building code was rigorously bolstered

3.5

important overhaul was enacted in 1981 to ensure structuralin 1981 or have similar levels of earthquake resistance.

3.0

integrity during and after major quakes. Validation came with the

KENEDIX-REIT will continue to invest mainly in buildings

1995 Great Hanshin Earthquake near Kobe. Buildings built afterthat meet these demanding quake requirements.

50 years during the generally accepted service life of a building.

Anti-Seismic Case Studies(March 13 – 19, 2011)

Structural Strength to Withstand Quakes

happens once every 475 years, or has a roughly 10% probability of occurring every

The buildings in KENEDIX-REIT’s portfolio have a variety ofµ Sv/h5.0

anti-seismic design features. Here are two examples.

4.5
4.0

KDX Omori Building (1990)

Toranomon Toyo Building (1962)

Eastern Japan did, however, experience power supply issues. For a

A seismic isolation device is installed

Previous owner completed anti-seismic

short period, Tokyo Electric Power Company (TEPCO) introduced

below ground in the foundation to mini-

reinforcement work utilizing Taisei Corp.

mize vibration of above-ground floors.

in October 2005. The oldest property in

2.5
2.0
1.5
1.0
0.5

Major Developments in Japan’s Building Codes
Event

0

Revised Building Standard

Major Revisions

1948

Fukui Earthquake씮 1950Establishment of the BuildingStandard Law

Abolishment of the Urban Building Law– Minimum wall requirements introduced to withstand seismic force– Framing requirements defined with types and dimensions for wall strength

1978

Miyagi Earthquake씮 1981

Revision of the Building Standard Law

New earthquake resistance standards introduced

1995

Great Hanshin Earthquake Structures built after 1982 predominantly receive relatively light damage.
씮 2000

Revision of the Building Standard Law

Performance-based design requirements replace prescriptive requirements

6 12 18 0

2011/3/13

6 12 18 0

3/14

6 12 18 0

3/15

6 12 18 0

3/16

6 12 18 0

3/17

6 12 18 0

3/18

6 12 18

3/19* Source: Japan Ministry of Education, Culture, Sports, Science and Technologyof Education.

Energy-Saving Measuresplanned power outages to avoid uncontrolled outages. Idled

the portfolio is one of just three built
prior to building code revisions.

4 |Kenedix Realty Investment Corporation Semiannual Report

Kenedix Realty Investment Corporation Semiannual Report| 5

Designed for Steady Growth

Designed for Steady Growth

Strategy 2: SELECTIVITY

Strategy 3: STABILITY
Stability is yet another top priority of KENEDIX-REIT. Stable funding

Diversified Tenants

KENEDIX-REIT is highly selective in considering buildings and locations

1.

Munich6.

Stockholmmeans momentary shocks present KENEDIX-REIT with new opportuni-

As of April 30, 2011, 691 end-tenants, representing a range ofto acquire.

2.

Copenhagen

7.

Paris

ties. In fact, we completed our first post-quake purchase on March 25,

industries, are based in our office buildings. This diversification

3.

Zurich8.

Vienna

4.

Tokyo

9.

Melbourne

utilizing bank loans of 2 billion yen.

contributes to stability. Combined, our three largest tenants5.

Helsinki

10.

MadridAnother chief consideration, selectivity, goes hand in hand with safety.

1. Tokyo is the world’s largest metropolitan area.
2. Nearly 90% of our office buildings are within 6 minutes of a station, and over 60% are within 3 minutes.

2010 Quality of Life Rankings*Sources: Monocle Magazine. Issue 35.

account for 5.1% of the total leased floor area of the portfolio.

The Stability of the Portfolio Strategy

The largest tenant alone accounts for just 1.9%. We believe

KENEDIX-REIT is well placed to benefit from economic growth,

this diversification helps insulate KENEDIX-REIT from the

Urban Convenienceon the back of massive fiscal and monetary stimulus in Japan.

impact of an end-tenant departure or sluggish performance

3. KENEDIX-REIT is the first J-REIT to receive Green
Building Certification from the Development Bankof Japan.

Tokyo and other urban centers in Japan benefit from a public

KENEDIX-REIT maintains a conservative debt profile. The total

in a given sector.

transportation system that is the envy of many cities. The trainsinterest-bearing debt ratio is generally less than 45%, though thisand subways that help keep Tokyo and other Japanese cities clean,

may be allowed to rise to the upper 40% range to acquire highEconomies of Scale

4. Tokyo is projected to remain a “hot spot” in 2025 andscores high in quality of life.

green and convenient are also an important draw for tenants.

quality properties through debt financing. Steady, diversified

By focusing on office buildings in the Tokyo Metropolitan Area

Focus on office space in the desirable Tokyo Metropolitan Area

KENEDIX-REIT considers location carefully when evaluating

sources of funds enable promising deals, while high occupancy

KENEDIX-REIT has created economies of scale, as a recent example

potential properties. Nearly 90% of the portfolio’s properties are

and economies of scale contribute to steady performance andillustrates. With the aim of reducing peak power consumption by

located within 6 minutes of a mass transit station and over 60%

operational stability.

15%, KENEDIX-REIT accelerated capital expenditure to install LED
lights in emergency signs, hallways, restrooms and other areas.

are within 3 minutes. Tenants place a premium on such proximity.

Simultaneous bids reduced this investment by roughly 30%.

enhances performance. Indeed, 84.2% of the portfolio is located in
the Tokyo Metropolitan Area, the world’s largest metropolitan area.
Selectivity means our buildings are highly sought after,

Walking Distance to Station (Office buildings)
9-10 minutes (1 property)

102

in step with market demand. Of companies based in thebillion yen
7-8 minutes (3 properties)

Tokyo Metropolitan Area, 93.4% are small and medium

131 billion yen

sized, which is why we focus on buildings for this market.
This fact also explains how we have achieved tenant diversification
with 691 end tenants for our office portfolio and maintained a

1. Our occupancy remains high at 94.6%.

6 minutes (7 properties)

1 minute (14 properties)

245 billion yen

531 billion yen

5 minutes (4 properties)

2 minutes (14 properties)

131 billion yen

417 billion yen

2. KENEDIX-REIT’s diversified tenant base includes
691 end tenants (for our office buildings), mainly
small- and medium-sized companies.

Conservative Interest-Bearing Debt Ratio

3. Economies of scale from our 71 properties result in
lower costs.

maintained a conservative interest-bearing debt ratio, ranging

The interest-bearing debt ratio is calculated by dividing total debt
by total assets based on book value. KENEDIX-REIT has historicallyfrom 35% to 47%.

4. KENEDIX-REIT maintains a conservativeinterest-bearing debt ratio.

Diversified Funding

Note: Property values and portfolio percentages are based on acquisition price.
Amounts of less than 1 billion yen have been omitted.

5. KENEDIX-REIT intends to diversify sources offunding and stagger debt maturities.

foundation. To achieve steady funding, sources include investment
include 6 major banks. Diversified debt maturities further

vibrant newcomers. Not Tokyo. According to a study conductedGreen Premium

6. KENEDIX-REIT cultivates multiple acquisition
channels to identify promising properties.

by the McKinsey Global Institute on the world’s projected Top 25

Increasingly, tenants are also placing a premium on a building’s

Hot Spots for 2025, Tokyo will rank first or second in four of

eco-features. In June 2011, KENEDIX-REIT became the first J-REIT

seven major categories: #2 in GDP, #1 in total population,

to receive Green Building Certification from the Development Bank

Stable Occupancy

Exacting criteria contribute to stability. We also try to spread#1 in total households and #1 in households with annualof Japan (DBJ). Three of its urban properties in Tokyo, Nagoya and

KENEDIX-REIT has achieved portfolio-wide occupancy of 94.6%

acquisitions out for steady growth. Rapid, accurate market

income over $20,000.

Osaka achieved DBJ Green Building Certification, which is awarded

as of April 30, 2011. We are aiming to raise this to 95% andintelligence is essential.

at four levels (Bronze – Platinum) using a proprietary scoring model.

have already attained this level with our Tokyo Metropolitan

vacancy rate of 5.4% for the entire portfolio, beating the industry

4 minutes (10 properties)

average as of April 30, 2011.

284 billion yen

Tokyo: Future and Present

3 minutes (12 properties)

403 billion yen

By 2025, many of today’s leading cities will be overtaken by more

Top 25 Hot Spots by 2025
DBJ Green Building Certification

Criteria

First Place

Second PlaceGDP

New YorkTokyo

Building

Location DBJ Green Building Rating

Total populationTokyo

MumbaiKDX Harumi BuildingTokyo

Silver*Households

Tokyo

Shanghai

Nagoya Sakae Building

NagoyaSilver*Households with annual income over
$20,000Tokyo

New York

KDX Kobayashi-Doshomachi Building

OsakaBronze** Sources: McKinsey Global Institute. Urban World: Mapping the economic power ofcities. March 2011.

* Silver denotes buildings with highly forward-looking approaches to environmental
and social consciousness. Bronze denotes buildings with forward-looking approaches to environmental and social consciousness.

We make use of both related parties and third-parties to locate
attractive acquisitions that meet our exacting criteria. Sponsors

contributes greatly to financial stability.

Kenedix, Inc. and ITOCHU Corporation can provide vital pipelines

Changes in office occupancy ratios (by area) (As of April 30,2011)
95.5%

96

(TokyoMetropolitan Area)

94

94.2%

92

Moving forward, KENEDIX-REIT’s focus on selectivity will

88
86

“Quality of Life Rankings” in which lifestyle magazine Monocle

convenience, eco-friendliness and other features highly sought by84

determines the world’s most liveable cities.

tenants.

82
80
2008/5to property transactions. In addition, third-parties have accounted
for a growing percentage of property acquisitions since 2010.

(%)

98

continue to place a premium on properties that provide added

Kenedix Realty Investment Corporation Semiannual Reportcontribute to both stability and flexibility.

Area office buildings (95.5% occupancy). Stable occupancy

a place to live, work and visit. Tokyo placed fourth in the annual

6 |corporation bonds and public offerings. Sources of borrowings

Multi-Channel Acquisitions

90

Tokyo’s staying power is no surprise. It routinely ranks high as

KENEDIX-REIT has worked to build a sound and stable financial

Six of nine properties acquired since November 2009 wereacquired from third parties other than Kenedix Group. Moreover,(Total Office
Buildings)

all four properties we acquired in July 2011 were from third

90.4%

parties. In the future, we will continue utilizing multiple channels(Other Regional
Areas)

to gather information on potential acquisitions. Multi-channel
intelligence helps KENEDIX-REIT maintain stability by spreading

Reference:
Total portfolio

acquisitions out for steady growth.

94.6%
2008/11

2009/5

2009/112010/5

2010/11

Kenedix Realty Investment Corporation Semiannual Report| 7Corporate Governance

KENEDIX-REIT Portfolio Table (as of April 30, 2011)

With the aim of becoming an “autonomous J-REIT,”KENEDIX-REIT endeavors to build a corporate

Corporate Governance System of Kenedix REITManagement

governance system that fosters highly transparent

Kenedix REIT Management endeavors to control the various risks

asset management operations and fair transactions.

related to investment management by drafting management

No.

guidelines and adhering to fundamental investment management
Ensuring management independence and transparency isconcepts, including investment policies, transaction rules withextremely important in undertaking fair transactions and indis-

interested parties, and investment allotment and disclosure policies.
Furthermore, based on a review conducted by the

pensable for promoting sound management practices. In order toremain in compliance with each legal regulation and realize asset

Compliance Officer, important items that include transactions

management operations that are fair and highly transparent,with interested parties are subject to strict protocols that involve

KENEDIX-REIT and Kenedix REIT Management are mindful of thedeliberations and resolutions undertaken by the AMC and thefollowing items, shown in the chart below. In particular, theCompliance Committee (which includes one outside lawyer).

Compliance Officer and the Asset Management Committee

Final decisions regarding such transactions are made by the Board(AMC) function as two integral aspects of the decision-makingof Directors.

process, ensuring compliance with rules and regulations that

AMC’s Role in Advancing Decision Making

govern J-REITs, organization-wide support and implementation.

On a weekly basis, AMC members receive reports on tenant

Corporate Governance System of KENEDIX-REIT

movements and plans, discuss measures to deal with negative

KENEDIX-REIT has established a Board of Directors—a meeting of

movements, receive proposals on renovations and other improve-

which is held on a regular basis—that is fully capable of undertak-ments, and deliberate and approve property acquisitions anding operating decisions and functioning as a body that supervises

dispositions. While each division takes action to fulfill its respective

the executive officers. Through the functions of the Board ofareas of responsibility, the process of discussion and approval vets

Directors, KENEDIX-REIT works to grasp and oversee the status ofissues and ensures a flow of communication that is logical and

Kenedix REIT Management’s business operations.

meaningful to the decision-making process.

Decision Making at Kenedix REIT Management
쎲 The Compliance Officer previews the REIT’s major pending decisions to ensure that no transactions are detrimental to the interests of investors, that the rules for deals with interested
parties are obeyed and that the deals are implemented in accordance with established guidelines. The Compliance Officer also works to ensure that service providers are in compliancewith the rules and regulations that govern J-REITs.
Preview

Deliberation and Resolution

Deliberation and Resolution

Resolution or Reporting

Creation of management guidelines

Corresponding
Division왘Compliance
Officer왘Compliance
Committee(including 1 outside lawyer)

Approval for transactions withinterested parties

Asset Management
Committee(AMC)

Approval for transactions outsideof management guidelines

Resolution
Boardof
Directors왘ReportingApproval for transactions that follow management guidelines,
excluding those with interested parties

쎲 AMC is the crux of cross-organizational management and communication. Attendees of theregular weekly meetings comprise leaders and managers, and meetings related to property orother material decisions are attended by the CEO and President of Kenedix REITManagement, the General Manager of the Financial Planning Division (CFO), the General
Manager of the Investment Management Division (CIO), the General Manager of the Property
Management Division and the Compliance Officer.

Meetings of Committees in Each Fiscal Period(Period)

1st

2nd

3rd

4th

5th

6th

7th

8th

9th

10th

11th

12th

Compliance Committee

7

7

7

8

6

8

9

8

8

10

7

7

Asset Management Committee

21

35

39

39

38

38

52

44

36

39

32

37

Kenedix REIT Management Board of Directors

9

7

9

8

9

7

10

8

10

12

11

9

KENEDIX-REIT Board of Directors

11

7

7

9

7

7

7

8

8

8

8

7

8 |

Kenedix Realty Investment Corporation Semiannual Report

Collateralized
Assets (Note 1)

Property Name

A-1*
KDX Nihonbashi 313 Building
A-2
KDX Hirakawacho Building (Note 3)
A-3*
Higashi-Kayabacho Yuraku Building
A-4
KDX Hatchobori Building
A-5*
KDX Nakano-Sakaue Building
A-6*
Harajuku F.F. Building
A-7
FIK Minami Aoyama
A-8*
Kanda Kihara Building
A-13
KDX Kojimachi Building
A-14*
KDX Funabashi Building
A-15*
KDX Hamacho Building
A-16*
Toshin 24 Building
A-17
Ebisu East 438 Building
A-18*
KDX Omori Building
A-19*
KDX Hamamatsucho Building
A-20*
KDX Kayabacho Building
A-21
KDX Shinbashi Building
A-22*
KDX Shin-Yokohama Building
A-23
KDX Yotsuya Building
A-26*
KDX Kiba Building
A-27*
KDX Kajicho Building
A-28
KDX Nogizaka Building
A-29*
KDX Higashi-Shinjuku Building
A-30*
KDX Nishi-Gotanda Building
A-31*
KDX Monzen-Nakacho Building
A-32*
KDX Shiba-Daimon Building
OfficeA-33
KDX Okachimachi Building(Tokyo Metropolitan
A-34*
KDX Hon-Atsugi Building
Area)
A-35
KDX Hachioji Building
A-37*
KDX Ochanomizu Building
A-38
KDX Nishi-Shinjuku Building
A-39*
KDX Toranomon Building
A-40*
Toranomon Toyo Building
A-41*
KDX Shinjuku 286 Building
A-45
KDX Roppongi 228 Building
A-46*
Hiei Kudan-Kita Building
A-47*
KDX Shin-Yokohama 381 Building (Note 4)
A-48*
KDX Kawasaki-Ekimae Hon-cho Building
A-49*
Nissou Dai-17 Building
A-50*
Ikejiri-Oohashi Building
A-51*
KDX Hamacho Nakanohashi Building
A-52
KDX Kanda Misaki-cho Building
A-55*
Shin-toshin Maruzen Building
A-56*
KDX Jimbocho Building
A-57
KDX Gobancho Building
A-59
KDX Iwamoto-cho Building
A-60*
KDX Harumi Building
A-61
KDX Hamamatsucho Dai-2 Building
A-62*
Koishikawa TG Building
A-63*
Gotanda TG Building
A-64*
KDX Nihonbashi 216 Building
A-66*
KDX Shinjuku Building
A-67*
Kyodo Building (Ginza No.8)
A-68*
Kyodo Building (Honcho 1chome)
A-12*
Portus Center Building
A-24*
KDX Minami Semba Dai-1 Building
A-25*
KDX Minami Semba Dai-2 Building
A-36
KDX Niigata Building
A-42*
Karasuma Building
A-44*
KDX Sendai Building
Office(Other Regional Areas) A-53*
KDX Hakata-Minami Building
A-54
KDX Kitahama Building
A-58
KDX Nagoya Sakae Building
A-69
KDX Kobayashi-Doshomachi Building
A-70
Kitananajo SIA Building
Office Subtotal (65 properties)
B-3
Court Mejiro
B-18*
Venus Hibarigaoka
B-19*
Residence Charmante Tsukishima
Residential
B-34
Gradito Kawaguchi
Residential Subtotal (4 properties)
C-1*
Frame Jinnan-zaka
KDX Yoyogi Building
Central Urban Retail C-2
Central Urban Retail Subtotal (2 properties)

Total (71 properties)

Location
Chuo-ku, Tokyo
Chiyoda-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Nakano-ku, Tokyo
Shibuya-ku, Tokyo
Minato-ku, Tokyo
Chiyoda-ku, Tokyo
Chiyoda-ku, Tokyo
Funabashi, Chiba
Chuo-ku, Tokyo
Yokohama, Kanagawa
Shibuya-ku, Tokyo
Ohta-ku, Tokyo
Minato-ku, Tokyo
Chuo-ku, Tokyo
Minato-ku, Tokyo
Yokohama, Kanagawa
Shinjuku-ku, Tokyo
Koto-ku, Tokyo
Chiyoda-ku, Tokyo
Minato-ku, Tokyo
Shinjuku-ku, Tokyo
Shinagawa-ku, Tokyo
Koto-ku, Tokyo
Minato-ku, Tokyo
Taito-ku, Tokyo
Atsugi, Kanagawa
Hachioji, Tokyo
Chiyoda-ku, Tokyo
Shinjuku-ku, Tokyo
Minato-ku, Tokyo
Minato-ku, Tokyo
Shinjuku-ku, Tokyo
Minato-ku, Tokyo
Chiyoda-ku, Tokyo
Yokohama, Kanagawa
Kawasaki, Kanagawa
Yokohama, Kanagawa
Meguro-ku, Tokyo
Chuo-ku, Tokyo
Chiyoda-ku, Tokyo
Shinjuku-ku, Tokyo
Chiyoda-ku, Tokyo
Chiyoda-ku, Tokyo
Chiyoda-ku, Tokyo
Chuo-ku, Tokyo
Minato-ku, Tokyo
Bunkyo-ku, Tokyo
Shinagawa-ku, Tokyo
Chuo-ku, Tokyo
Shinjuku-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Sakai, Osaka
Osaka, Osaka
Osaka, Osaka
Niigata, Niigata
Kyoto, Kyoto
Sendai, Miyagi
Fukuoka, Fukuoka
Osaka, Osaka
Nagoya, Aichi
Osaka, Osaka
Sapporo, Hokkaido
Shinjuku-ku, Tokyo
Sapporo, Hokkaido
Chuo-ku, Tokyo
Kawaguchi, Saitama
Shibuya-ku, Tokyo
Shibuya-ku, Tokyo

Acquisition Price(mn yen)Year Built(Note 2)

5,940
5,180
4,450
3,680
2,533
2,450
2,270
1,950
5,950
2,252
2,300
5,300
4,640
3,500
3,460
2,780
2,690
2,520
1,950
1,580
2,350
1,065
2,950
4,200
1,400
6,090
2,000
1,305
1,155
6,400
1,500
4,400
9,850
2,300
3,300
7,600
5,800
3,760
2,710
2,400
2,310
1,380
2,110
2,760
1,951
1,864
10,250
2,200
3,080
2,620
2,010
6,800
4,300
4,000
5,570
1,610
1,560
1,305
5,400
2,100
4,900
2,220
7,550
2,870
2,005
224,636
1,250
1,800
5,353
1,038
9,441
9,900
2,479
12,379246,456

Apr. 1974
Mar. 1988
Jan. 1987
Jun. 1993
Aug. 1992
Nov. 1985
Nov. 1988
May 1993
May 1994
Apr. 1989
Sep. 1993
Sep. 1984
Jan. 1992
Oct. 1990
Sep. 1999
Oct. 1987
Feb. 1992
Sep. 1990
Oct. 1989
Oct. 1992
Mar. 1990
May 1991
Jan. 1990
Nov. 1992
Sep. 1986
Jul. 1986
Jun. 1988
May 1995
Dec. 1985
Aug. 1982
Oct. 1992
Apr. 1988
Aug. 1962
Aug. 1989
Apr. 1989
Mar. 1988
Mar. 1988
Feb. 1985
Jul. 1991
Sep. 1988
Sep. 1988
Oct. 1992
Jul. 1990
May 1994
Aug. 2000
Mar. 2008
Feb. 2008
Apr. 1992
Nov. 1989
Apr. 1988
Oct. 2006
May 1993
Nov. 1991
Jan. 1984
Sep. 1993
Mar. 1993
Sep. 1993
Jul. 1983
Oct. 1982
Feb. 1984
Jun. 1973
Jul. 1994
Apr. 2009
Jul. 2009
Oct. 1989
Avg. 21.4 years
Mar. 1997
Mar. 1989
Jan. 2004
Feb. 2006
Avg. 10.8 years
Mar. 2005
Aug. 1991
Avg. 8.8 years
Avg. 20.4 years

Occupancy
Ratio
71.8%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
93.5%
100.0%
100.0%
100.0%
84.7%
100.0%
100.0%
100.0%
100.0%
100.0%
93.1%
100.0%
100.0%
100.0%
56.2%
100.0%
100.0%
84.3%
100.0%
100.0%
100.0%
100.0%
100.0%
87.6%
100.0%
100.0%
100.0%
65.1%
95.9%
89.5%
100.0%
86.4%
74.4%
100.0%
86.9%
100.0%
74.8%
100.0%
100.0%
98.2%
100.0%
100.0%
80.0%
100.0%
100.0%
100.0%
100.0%
95.8%
95.6%
100.0%
66.7%
94.2%
99.1%
75.4%
92.8%
93.7%
91.0%
100.0%
94.2%
91.3%
96.7%
100.0%
100.0%
97.5%
100.0%
100.0%
100.0%
94.6%

Note: 1. KENEDIX-REIT used the opportunity afforded by public offerings initiated in July 2011 to dissolve all of its collateralized assets on July 20, 2011.
2. The year built refers to the date of construction completion recorded in the land register. The average age subtotal and total data are calculated using the weighted-average based on
acquisition prices as of April 30, 2011, and are rounded down to the first decimal place.
3. KDX Hirakawacho Building was sold on June 30, 2011
4. As of the end of the fiscal period ended October 31, 2010, A-47 KDX Shin-Yokohama 381 Building and A-65 KDX Shin-Yokohama 381 Building Annex Tower are presented collectively
as one property. Year of construction of existing tower is shown. Upon calculating the weighted-average portfolio age, the completion date (April 2009) for the KDX Shin-Yokohama
381 Building Annex Tower is not considered.
5. Amounts indicated have been rounded down.

Kenedix Realty Investment Corporation Semiannual Report| 9Financial Section
Contents
Report of Independent Auditors

A

Balance Sheets

B

Statements of Income and Retained Earnings /Statements of Changes in Unitholders’ Equity

C

Notes to Financial Statements

DStatements of Cash Flows (Unaudited)M

Financial Summary (Unaudited)
Historical Operating Trends
For the 8th–12th Fiscal Periods

PeriodUnit

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

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

10th Period(as of Apr. 30, 2010)

11th Period(as of Oct. 31, 2010)

12th Period(as of Apr. 30, 2011)

Operating revenues

mn yen

8,204

7,921

8,067

8,358

8,136

(Rental revenues)

mn yen

8,204

7,921

8,067

8,242

8,136

Operating expenses

mn yen

4,740

4,708

4,329

4,522

4,427

(Property-related expenses)

mn yen

3,603

3,652

3,714

3,817

3,767

Operating income

mn yen

3,463

3,213

3,738

3,835

3,709

Ordinary income

mn yen

2,435

2,103

2,568

2,608

2,346

Net income (a)mn yen

2,434

2,102

2,567

2,607

2,309

Total assets (b)mn yen238,745

236,320

251,566

251,080

261,928(-0.4)(-1.0)(+6.5)(-0.2)(+4.3)

98,75097,220102,968

102,567

112,715(Period-on-period change)

Interest-bearing debt (c)%mn yen(Period-on-period change)%

Unitholders’ equity (d)mn yen(Period-on-period change)%

Unitholders’ capitalmn yen(Period-on-period change)

Number of investment units issued andoutstanding (e)Unitholders’ equity per unit (d)/(e)(0.0)(-1.5)(+5.9)(-0.4)(+9.9)

127,398

127,067

135,689

135,732

135,505(-0.5)(-0.3)(+6.8)(+0.0)(-0.2)

124,973

124,973

133,129

133,129

133,129

%

(0.0)

(0.0)

(+6.5)

(0.0)

(0.0)

unit

200,000

200,000

233,550

233,550

233,550
580,199yen

636,990

635,335

580,987

581,170

mn yen

2,434

2,102

2,567

2,541

2,310

Distribution per unit (f)/(e)yen

12,172

10,511

10,993

10,881

9,891(Earnings distributed per unit)

yen

12,172

10,511

10,993

10,881

9,891(Distribution in excess of earnings per unit)

yen

—

—

—

—

—

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

1.0 (2.1)

0.9 (1.8)

1.1 (2.1)

1.0 (2.1)

0.9 (1.8)

Return on net assets (annualized) (Notes 2 and 3)%

1.9 (3.8)

1.7 (3.3)

2.0 (3.9)

1.9 (3.8)

1.7 (3.4)

53.4

53.8

53.9

54.1

51.7

(-0.1)(+0.4)(+0.2)(+0.1)(-2.3)

41.4

41.1

40.9

40.9

43.0

Total distribution (f)Net assets ratio at end of period (d)/(b)(Period-on-period change)

Interest-bearing debt ratio at end of period (c)/(b)(Period-on-period change)

Payout ratio (Note 4) (f)/(a)%%%(+0.2)(-0.2)(-0.2)(-0.1)(+2.2)

100.0

100.0

99.9

97.4

100.0

Other reference
Number of properties

properties

Total leasable floor aream2

Occupancy at end of period

67

65

70

67

71

250,364.42

254,225.04

271,260.81

267,737.33

286,237.93

%

95.7

94.7

94,4

93.6

94.6

Depreciation expenses for the period

mn yen

1,429

1,451

1,477

1,440

1,406

Capital expenditures for the period

mn yen

891

400

330

312

574

Leasing NOI (Net Operating Income) (Note 5)

mn yen

6,030

5,721

5,830

5,864

5,776

FFO (Funds From Operation) (Note 6)

mn yen

4,356

3,994

4,044

3,995

3,716

yen

21,78019,973

17,318

17,106

15,914

FFO per unit (Note 7)

Notes: 1. Return on assets = Ordinary income/(Total assets at beginning of period + Total assets at end of period)/2 × 100
2. Annualized values for the 8th Fiscal Period are calculated based on a period of 181 days, 184 days for the 9th Fiscal Period, 181 days for the 10th Fiscal Period, 184 days
for the 11th Period and 181 days for 12th Fiscal Period.
3. Return on net assets = Net income/(Total net assets at beginning of period + Total net assets at end of period)/2 × 100
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 + Loss on sale of trust beneficiary interests in real estate or real estate
7. FFO per unit = FFO/Number of investment units issued and outstanding (figures below ¥1 rounded down)
8. Where applicable, figures are rounded down to the nearest million.

10 |Kenedix Realty Investment Corporation Semiannual Report

Kenedix Realty Investment Corporation Semiannual Report| 11Balance Sheets

Statements of Income and Retained Earnings

Kenedix Realty Investment Corporation
As of April 30, 2011 and October 31, 2010

Kenedix Realty Investment Corporation
For the period from November 1, 2010 to April 30, 2011 and the period from May 1, 2010 to October 31, 2010

In thousands of yen

In thousands of yen
As of April 30, 2011ASSETS
Current assets:
Cash and bank deposits (Notes 6 and 15)
Rental receivables
Consumption tax refundable
Other current assets (Note 9)
Total current assets
Property and equipment, at cost (Notes 4, 6, 14 and 16):Land
Buildings and structures (Note 7)
Machinery and equipment
Tools, furniture and fixtures
Less—accumulated depreciation
Net property and equipment
Other assets:
Ground leasehold (Notes 14 and 16)
Corporate bond issuance costs
Unit issuance costs
Other assets (Notes 6, 14 and 16)
Total assets
LIABILITIES AND NET ASSETS
Liabilities
Current liabilities:
Trade and other payables
Current portion of corporate bonds (Notes 5 and 15)
Short-term debt and current portion of long-term debt (Notes 5, 6 and 15)
Deposits received
Rents received in advance
Provision for loss due to disaster
Other current liabilities
Total current liabilities
Corporate bonds (Notes 5 and 15)
Long-term debt (Notes 5, 6 and 15)
Leasehold and security deposits received
Total liabilities
Net Assets (Note 10)
Unitholders' equity
Unitholders' capital
Units authorized: 2,000,000 units
Units issued and outstanding: 233,550 units
As of April 30, 2011 and October 31, 2010, respectively
Surplus
Voluntary retained earnings
Reserve for reduction entry
Retained earnings
Total surplus
Total unitholders’ equity
Valuation, transaction adjustment and others
Unrealized gain from deferred hedge transactions
Total net assets
Total liabilities and net assets
See accompanying notes to the financial statements.

12 |Kenedix Realty Investment Corporation Semiannual Report

As of October 31, 2010

¥ 13,794,963
186,413
310,485
60,39014,352,251¥ 16,245,674
208,479—
74,717
16,528,870

171,111,081
85,658,330
1,308,858
401,538(12,653,540)
245,826,267

163,047,282
80,067,548
1,276,061
366,696(11,318,857)
233,438,730

360,204
22,20625,136
1,342,835¥261,928,899

285,350
27,98833,515
765,604¥251,080,057¥¥

617,497
9,000,000
36,160,000
16,243
1,872,708
30,932244,82247,942,202
3,000,000
64,555,500
10,925,583¥126,423,285

711,485—
41,550,000
7,159
1,166,896—
445,572
43,881,112
12,000,000
49,017,000
10,449,570¥115,347,682

From November 1, 2010 to April 30, 2011

From May 1, 2010 to October 31, 2010

¥8,136,917—
8,136,917¥8,242,200
116,397
8,358,597

3,767,178—
448,106
79,591132,133
4,427,008¥3,709,909

3,817,752
64,349458,034
80,061
102,747
4,522,943¥3,835,654¥1,048,723
303,479
8,380
5,782(3,193)
1,363,170
2,346,739¥ 993,950
211,796
8,379
5,878
7,595
1,227,598
2,608,056

26,230—35,36026,2302,311,379
1,384
2,309,995
68
2,310,063——
2,608,056
999
2,607,057
65¥2,607,122

Operating revenues:
Rental revenues (Notes 12 and 14)
Profit on sale of real estate (Note 12)
Total operating revenues
Operating expenses:
Property-related expenses (Notes 12 and 14)
Loss on sale of real estate (Note 12)
Asset management fees
Administrative service and custodian fees
Other operating expenses
Total operating expenses
Operating income
Non-operating expenses:
Interest expense
Financing-related expenses
Amortization of unit issuance costs
Amortization of corporate bond issuance costs
Others, net
Total non-operating expenses
Ordinary income
Extraordinary income
Subsidy
Extraordinary losses
Loss on disaster
Loss on reduction of fixed assets
Income before income taxes
Income taxes (Note 9)
Net income
Retained earnings at the beginning of period
Retained earnings at the end of period
See accompanying notes to the financial statements.

Statements of Changes in Unitholders’ Equity
Kenedix Realty Investment Corporation
For the period from November 1, 2010 to April 30, 2011 and the period from May 1, 2010 to October 31, 2010

In thousands of yen
Valuation, Transaction
Adjustments andOthersUnitholders’ Equity
Surplus¥133,129,755

65,7962,310,063
2,375,859
135,505,614—
2,607,122
2,607,122
135,736,877—
135,505,614¥261,928,899(4,502)
135,732,375¥251,080,057

Retainedearnings

Total
SurplusTotal
unitholders’equityUnrealized gainfrom deferredhedgetransactions

Total

—

¥2,567,480¥2,567,480¥135,697,235¥(7,596)¥135,689,639———(2,567,415)
2,607,057—(2,567,415)
2,607,057—(2,567,415)
2,607,057
—

—
—
3,094

(2,567,415)
2,607,057
3,094

—
—

39,642¥2,607,122

39,642¥2,607,122

39,642¥135,736,877

3,094¥(4,502)42,736¥135,732,375

—
—
—
—

65,796———(65,796)(2,541,258)
2,309,995——(2,541,258)
2,309,995——(2,541,258)
2,309,995
—

—
—
—
4,052

—
(2,541,258)
2,309,995
4,502—¥133,129,755

65,796¥65,796(297,059)¥2,310,063(231,263)¥2,375,859(231,263)¥135,505,614

4,502
—

(226,761)¥135,505,614

Unitholders’capital¥133,129,755
Balance as of April 30, 2010
Changes during the fiscal period
Payments of dividends
Net income
Interest-rate swap
Total changes during
the fiscal period
Balance as of October 31, 2010
Changes during the fiscal period
Provision of reserve for
reduction entry
Payments of dividends
Net income
Interest-rate swap
Total changes during
the fiscal period
Balance as of April 30, 2011

Voluntary retained
earnings
Reserve for
reduction entry¥133,129,755

¥

—
—
—
—
¥133,129,755¥¥

See accompanying notes to the financial statements.
Kenedix Realty Investment Corporation Semiannual Report| 13Notes to Financial Statements
Kenedix Realty Investment Corporation
For the period from November 1, 2010 to April 30, 2011 and the period from May 1, 2010 to October 31, 2010

1.

(B) UNIT ISSUANCE COSTSORGANIZATION AND BASIS OF PRESENTATION

Unit issuance costs are amortized over a period of three years under the straight-line method.

ORGANIZATION
Kenedix Realty Investment Corporation (”the Investment Corporation”) was established on May 6, 2005 under the Law concerning
Investment Trusts and Investment Corporations of Japan (“the Investment Trust Law”). On July 21, 2005, the Investment Corporation
was listed on the Real Estate Investment Trust Market of the Tokyo Stock Exchange with a total of 75,400 investment units issued andoutstanding. (Securities Code: 8972). Subsequently, the Investment Corporation raised funds through public offerings including two
global offerings. The Investment Corporation also undertook an additional issue of 33,550 investment units through a public offering inJapan on November 16, 2009. Consequently, as of April 30, 2011, the end of the twelfth fiscal period, the number of investment units
issued and outstanding totaled 233,550 units.
The Investment Corporation is externally managed by Kenedix REIT Management, Inc. (“the Asset Management Company”) as its
asset management company. In concert with the Asset Management Company, the Investment Corporation strives to maximize cash distribution to investors by securing stable earnings and sustainable investment growth. To this end, the Investment Corporation adopts adynamic 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.
During the period ended April 30, 2011, the Investment Corporation acquired four office buildings (total acquisition price of ¥13,175
million), two in the Tokyo metropolitan area and two in other regional areas. As of April 30, 2011, the Investment Corporation had total
unitholders’ capital of ¥133,130 million with 233,550 investment units outstanding. The Investment Corporation owned a portfolio of
71 properties with a total acquisition price of ¥246,457 million containing a total leasable area of 286,237.93 m2. The occupancy ratio
was approximately 94.6%. The portfolio of 71 properties consists of 65 office buildings, 4 residential properties and 2 central urban
retail properties. 59 properties are located in the Tokyo metropolitan area and 12 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 ofJapan, the Japanese Corporation Law, the Financial Instruments and Exchange Law of Japan and related regulations, and in conformity
with accounting principles and practices generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to theapplication and disclosure requirements of the 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 in a form that is more familiar to readers outside Japan. The Investment Corporation’s fiscal period is a
six-month period which ends at the end of April and October of each year, respectively. The Investment Corporation does not prepare
consolidated financial statements because it has no subsidiaries.

2.

(C) CORPORATE BOND ISSUANCE COSTS
Corporate bond issuance costs are amortized over a loan period under the straight-line method.
(D) 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, all assets
and liabilities within trust are recorded in the relevant balance sheets and statements of income and retained earnings.
(E) LEASEHOLD RIGHTS
Fixed term leasehold with special agreement on buildings sales, and the building are amortized over a contractual period of forty-eight
years and nine months under the straight-line method.
(F) PROVISION FOR LOSS DUE TO DISASTER
For cost of repairs on impaired fixed assets due to the massive earthquake off the east coast of Japan, the amount reasonably estimableat the end of period is recognized as “provision for loss due to disaster” under current liability.
(G) 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 recognizedon 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 suchamounts are recorded both as revenues and expenses during the fiscal period, respectively.
(H) 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. These taxes are generally charged to operating expenses for the period, for the portion of such taxes corresponding tosaid period. Under the Japanese tax rule, the seller of the property at the time of disposal is liable for these taxes on the property fromthe date of disposal 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 theperiod 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 ¥23,704 thousand and ¥52,548 thousand as of April 30, 2011 and October 31, 2010, respectively. In subsequent calendar years, suchproperty-related taxes are charged as operating expenses in the fiscal period to which the installments of such taxes correspond.
(I) 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.
(J) CONSUMPTION TAXES
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes. Non-deductible consumption taxes
applicable to the acquisition of assets are included in the cost of acquisition for each asset.
(K) DERIVATIVE FINANCIAL INSTRUMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CORPORATE BONDS

The Investment Corporation utilizes interest-rate swap agreements as derivative financial instruments only for the purpose of hedging its(A) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and equipment is calculated on a straight-line basis over the estimated useful lives of the assets ranging as stated below:

exposure to changes in interest rates. The Investment Corporation deferred recognition of gains or losses resulting from changes in fairvalue of interest-rate swap agreements because its interest-rate swap agreements met the criteria for deferral hedge accounting.
However, the Investment Corporation adopted special treatment for interest-swap agreements if its interest-rate swap agreements met

From November 1, 2010 to April 30, 2011

From May 1, 2010 to October 31, 2010

Buildings and structures

2-49 years

2-49 years

Machinery and equipment

3-17 years

3-17 years

Tools, furniture and fixtures

3-20 years

3-20 years

the criteria for hedge accounting under this treatment, whereby the net amount to be paid or received under the interest-rate swap
contract is added to or deducted from the interest on the assets or liabilities for which the swap contract was executed. The hedge
effectiveness for interest-rate swap contracts is assessed each fiscal period except for those that meet the criteria of special treatment.
(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 the accompanying financial statements do not necessarily agree with the sums of the individual amounts.

14 |Kenedix Realty Investment Corporation Semiannual Report

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| 15

3.

Classification

ADDITIONAL INFORMATION

Long-term debt

The Investment Corporation concluded an agreement dated June 30, 2011 to sell the KDX Hirakawacho Building on April 5, 2011.
Property Name

KDX Hirakawacho Building

Type of Specified Asset

Trust beneficiary interest in real estate

Location

1-4-12 Hirakawacho, Chiyoda-ku, Tokyo

Transferee

Sanshin Co., Ltd.

Planned Sales Price¥5,800,000 thousand

The aforementioned planned sales price excludes sales costs, adjusted amounts for property and city-planning tax, consumption tax,
regional consumption tax, etc.
Profit on sale of real estate is estimated to be ¥535 million for the thirteenth fiscal period.

4.

SCHEDULE OF PROPERTY
In millions of yen
As of April 30, 2011

Land

Acquisition
costs

Accumulated
depreciation¥171,111¥

As of October 31, 2010
Book
value

Acquisition
costs

Accumulated
depreciation

¥

Book
value

—

¥171,111¥163,047—¥163,047

Buildings and structures

85,658

11,98373,67580,068

10,71469,354

Machinery and equipment

1,309

497

812

1,276

452

824

Tools, furniture and fixtures

402

174

228

367

153

214

¥258,480¥12,654¥245,826¥244,758¥11,319¥233,439

Total

5.

6.

SHORT-TERM AND LONG-TERM DEBT

The following summarizes short-term debt, long-term debt and corporate bonds outstanding as of April 30, 2011:
Classification

Short-term debt

Current portion of long-term debt

SubtotalLong-term debt

16 |Drawdown date

Repayment date

Weighted-averageinterest rate

July 30, 2010
October 29, 2010
January 31, 2011
March 25, 2011
April 18, 2011
July 14, 2006
July 31, 2008
February 29, 2008
September 1, 2008
March 31, 2008
March 31, 2008
April 30, 2009
October 26, 2010
May 1, 2008
December 1, 2006
January 10, 2008
February 27, 2009
April 2, 2007
April 30, 2009

July 31, 2011
October 31, 2011
January 31, 2012
March 23, 2012
November 30, 2011
July 13, 2011
July 31, 2011
August 31, 2011
September 1, 2011
September 30, 2011
September 30, 2011
October 31, 2011
October 31, 2011
November 1, 2011
November 30, 2011
January 10, 2012
February 29, 2012
April 2, 2012
April 27, 2012

1.14%
1.14%
1.09%
1.43%
1.38%
2.15%
1.99%
1.43%
1.78%
1.61%
1.56%
2.24%
1.24%
1.91%
1.96%
1.50%
2.07%
1.88%
2.24%

May 1, 2006
September 1, 2006
June 30, 2008
June 30, 2008
February 27, 2009
October 26, 2009
October 30, 2009
December 8, 2009
January 13, 2010
January 29, 2010

April 30, 2016
August 31, 2013
June 30, 2012
December 28, 2012
August 31, 2012
October 26, 2013
October 30, 2013
December 8, 2012
January 15, 2013
January 30, 2015

2.73%
2.12%
2.15%
2.26%
2.04%
2.42%
2.45%
1.67%
1.90%
2.17%

Kenedix Realty Investment Corporation Semiannual Report

Subtotal
Current portion of corporate bonds
Corporate bonds
Subtotal
Total

Drawdown date

Repayment date

Weighted-averageinterest rate

Balance(In millions of yen)February 18, 2010
February 18, 2010
April 2, 2010
July 30, 2010
July 30, 2010
July 30, 2010
October 29, 2010
October 29, 2010
November 12, 2010
November 12, 2010
November 12, 2010
December 1, 2010
December 1, 2010
December 1, 2010
January 31, 2011
January 31, 2011
February 28, 2011
February 28, 2011
March 22, 2011
March 31, 2011
March 31, 2011
March 31, 2011
April 28, 2011
April 28, 2011
April 28, 2011

February 18, 2013
February 18, 2015
April 2, 2015
July 31, 2013
January 31, 2014
July 31, 2014
October 31, 2012
October 31, 2013
November 12, 2013
November 12, 2015
November 12, 2017
November 12, 2013
November 12, 2015
November 12, 2017
January 31, 2014
January 29, 2016
August 31, 2015
January 29, 2016
September 22, 2014
September 30, 2013
January 29, 2016
March 31, 2016
April 30, 2013
October 31, 2015
January 29, 2016

1.90%
2.19%
2.22%
1.49%
1.66%
1.73%
1.45%
1.46%
1.58%
1.79%
2.02%
1.37%
1.47%
2.21%
1.57%
1.94%
1.91%
1.95%
1.63%
1.53%
1.91%
1.39%
1.50%
1.86%
1.89%

March 15, 2007
March 15, 2007

March 15, 2012
March 15, 2017

1.74%
2.37%

1,500
5,088
1,900
500
3,700
3,700
2,500
500
2,700
2,000
2,300
800
1,000
700
1,300
800
3,000
500
2,700
2,000
2,000
1,000
1,000
1,500
1,000
¥ 64,556
9,000
3,000
¥ 12,000¥112,716

ASSETS PLEDGED AS COLLATERAL AND SECURED LOANS PAYABLE

Balance(In millions of yen)

¥

1,500
1,000
2,700
2,000
1,500
1,000
3,500
1,500
1,000
3,000
2,000
3,500
1,500
1,000
2,500
2,500
460
2,000
2,000
¥ 36,160¥ 5,000
3,000
1,500
3,000
920
940
1,880
500
1,000
1,128

(As of April 30, 2011)
Assets pledged as collateralIn thousands of yen

Cash and bank deposits

¥

Land

127,680,740

Buildings and structures

54,309,842

Machinery and equipment

507,811

Tools, furniture and fixtures

135,035

5,090,463

Other assets

909

Total

¥187,724,800

Secured loans payable:
Short-term debt

¥ 36,160,000

Long-term debt

64,555,500

Total

7.

¥100,715,500

REDUCTION ENTRY

The amount of reduction entry of property and equipment acquired by government subsidy.
Yen
From November 1, 2010
to April 30, 2011

Buildings and structures¥26,230

Kenedix Realty Investment Corporation Semiannual Report

| 17

8.

(B) TRANSACTION WITH GODO KAISHA KRF 15
Godo Kaisha KRF 15 is a wholly owned subsidiary of Kenedix. On December 1, 2010, the Investment Corporation acquired a property

PER UNIT INFORMATION(“KDX Kobayashi-Doshomachi Building”) from Godo Kaisha KRF 15 for ¥2,870 million. The purchase price of this property was deter-

Yen
From November 1, 2010 to April 30, 2011

From May 1, 2010 to October 31, 2010

Net income per unit

¥

9,891

¥ 11,163

Net asset value per unit

¥580,200¥581,171

Weighted average number of units (units)

233,550

230,550

mined based on an independently appraised value at the time of acquisition.

12.

BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUES AND PROPERTY-RELATED EXPENSES

Rental and other operating revenues and property-related expenses for the periods from November 1, 2010 to April 30, 2011 and from

Net income per unit after adjusting for residual units is not included because there were no residual investment units.

May 1, 2010 to October 31, 2010 consist of the following:

9.

In thousands of yen

INCOME TAXESThe Investment Corporation is subject to corporate income taxes at a regular statutory rate of approximately 40%. However, theInvestment Corporation may deduct from its taxable income amounts distributed to its unitholders, provided the requirements are met
under the Special Taxation Measure Law of Japan. Under this law, the Investment Corporation must meet a number of tax requirements,
including a requirement that it currently distribute in excess of 90% of its net income for the fiscal period in order to be able to deduct

From November 1, 2010 to April 30, 2011

From May 1, 2010 to October 31, 2010

Rental revenues¥5,908,063¥5,861,094

Common area charges

1,300,172

1,298,267

7,208,235

7,159,361

Rental and other operating revenues:

Subtotal
Others:such amounts. If the Investment Corporation does not satisfy all of the requirements, the entire taxable income of the Investment

Parking space rental revenues

250,325

242,537

Corporation will be subject to regular corporate income taxes. Since the Investment Corporation distributed approximately 100% of its

Utility charge reimbursement

583,965

742,082

distributable income in the form of cash distributions totaling ¥2,310 million and ¥2,541 million for the periods ended April 30, 2011

Miscellaneous

94,392

98,220Subtotal

928,682

1,082,839

Total rental and other operating revenues¥8,136,917¥8,242,200

Property management fees and facility management fees

¥ 811,787¥ 804,755

Depreciation

1,406,895

1,440,312

Utilities

561,061

634,221Taxes

643,179

648,653

Insurance

16,20916,135

Repairs and maintenance

123,949

149,673

Trust fees

42,317

41,817

Loss on retirement of fixed assets

5,403

1,144

156,378

81,042¥3,767,178¥3,817,752¥

and October 31, 2010. Such distributions were treated as deductible distributions for purposes of corporate income taxes. The effective
tax rate on the Investment Corporation’s income was 0.06% and 0.04% for the periods ended April 30, 2011 and October 31, 2010.
The following summarizes the significant difference between the statutory tax rate and the effective tax rate:
From November 1, 2010 to April 30, 2011

From May 1, 2010 to October 31, 2010

Statutory tax rate

39.33%

39.33%

Deductible cash distributions(39.31)(38.32)

Other

0.04

(0.97)

Effective tax rate

0.06%

0.04%

The significant components of deferred tax assets and liabilities as of April 30, 2011 and October 31, 2010 were as follows:
In thousands of yen
As of April 30, 2011

Total property-related expenses
As of October 31, 2010

Profit on sale of real estate:

Deferred tax assets:
11

Revenue from sale of investment properties—¥1,710,000

254—

Cost of investment properties—

1,569,751

—

2,918

Other sales expenses—

23,852¥293¥2,929¥—¥ 116,397¥

Enterprise tax payable¥ 39

Amortization of leasehold rights
Unrealized loss from deferred hedge transactions
Subtotal deferred tax assets

Others¥Valuation allowance254—

Total deferred tax assets¥ 39¥2,929Profit on sale of real estate
Loss on sale of real estate:
Revenue from sale of investment properties

10.

—¥ 790,000

Cost of investment properties—

836,434

Other sales expenses—

Loss on sale of real estate

NET ASSETS¥

17,915—¥64,349The Investment Corporation issues only non-par value units in accordance with the Investment Trust Law. The entire amount of the issue
price of new units is designated as stated capital. The Investment Corporation is required to maintain net assets of at least ¥50 million as
required by the Investment Trust Law.

13.

LEASES

The Investment Corporation, as lessor, has entered into leases whose fixed monthly rents are due in advance with lease term of generally

11.

two years for office buildings and residential properties and with lease terms ranging from two to ten years for retail properties. The future
RELATED-PARTY TRANSACTIONS

minimum rental revenues under existing non-cancelable operating leases as of April 30, 2011 and October 31, 2010 are as follows:(A) TRANSACTIONS WITH KENEDIX REIT MANAGEMENT, INC.
In thousands of yen

Kenedix REIT Management, Inc., a consolidated subsidiary of Kenedix, Inc., provides the Investment Corporation with property management services and related services. For these services, the Investment Corporation pays Kenedix REIT Management, Inc. property man-

As of April 30, 2011

As of October 31, 2010

¥1,178,139

Due within one year

¥1,008,045

agement fees in accordance with the terms of its Property Management Agreements. For these services, the Investment Corporation

Due after one year

5,892,331

7,068,298

paid ¥314 million to Kenedix REIT Management, Inc.

Total

¥6,900,376¥8,246,437

18 |Kenedix Realty Investment Corporation Semiannual Report

Kenedix Realty Investment Corporation Semiannual Report

| 19

14.

15.

PROPERTY INFORMATION

Details of the property portfolio as of April 30, 2011 were as follows:
Central Urban
Retail Properties

Type

Office Buildings

Location

Tokyo
Metropolitan Area

Other Regional
Areas

Tokyo
Metropolitan Area

Other Regional
Areas

Tokyo
Metropolitan Area

54

11

3

1

2

Number of properties

FINANCIAL INSTRUMENTS

Twelfth Fiscal Period (November 1, 2010 to April 30, 2011)
Residential Properties(A) OVERVIEW(1) POLICY FOR FINANCIAL INSTRUMENTS
The Investment Corporation procures essential funds for acquiring properties and undertaking the repayment of loans primarily throughbank loans and the issuance of corporate bonds and new investment units. The Investment Corporation uses derivatives for the purpose ofhedging its exposure to changes in interest rates and does not enter into derivatives for speculative or trading purposes. Management of

Property information

surplus funds is undertaken in a prudent manner that considers fully such factors as safety, liquidity, interest rate conditions and cash flows.

(In millions of yen)

Acquisition price¥187,546¥37,090¥7,641¥1,800¥12,380(2) TYPES OF FINANCIAL INSTRUMENTS AND RELATED RISKPercentage of total acquisition costs

76.10%

15.05%

3.10%

0.73%

5.02%

Debt and corporate bonds are used primarily for procuring funds necessary for the acquisition of properties and have a redemption date

Net book value¥188,538

36,151

7,262

1,852

12,384

Appraisal value at year end¥173,334

29,202

6,368

1,400

11,470Percentage of total appraisal value

78.16%

13.17%

2.87%

0.63%

5.17%

of a maximum of seven years following the accounting date. Although a certain portion of said liabilities are subject to interest rate fluctuation risk, the Investment Corporation utilizes derivatives (interest-rate swap transactions) in order to reduce such risk.
Interest-rate swap transactions are used as derivative financial instruments. Utilizing interest-rate swap transactions, the Investment

Financial results for the period from November 1, 2010 to April 30, 2011

Corporation fixes its interest expense for long-term debt bearing interest at a variable rate. With regard to hedge accounting methods,(In thousands of yen)

Rental and other operating revenues

hedging instruments and hedged items, hedge policy, and the assessment of the effectiveness of hedging activities, please see 2. (K)¥6,147,778¥1,317,184¥230,676¥93,184¥348,095

Rental revenues

5,470,677

1,125,899

209,782

82,208319,669

Other revenues

677,101

191,285

20,894

10,97628,426

1,698,433

497,651

59,35936,052

68,788(a) Monitoring of market risk (the risks arising from fluctuations in interest rates and others)

Property-related expenses

Derivative Financial Instruments.
(3) RISK MANAGEMENT FOR FINANCIAL INSTRUMENTS

Property management fees

571,761

186,309

22,191

8,205

23,321The Investment Corporation uses interest-rate swap transactions in order to minimize risk arising from fluctuations in interest rates onTaxes

478,761

120,328

15,4988,331

20,261

funds procured.

Utilities

417,826

118,837

2,339

2,085

19,974(b) Monitoring of liquidity risk (the risk that the Investment Corporation may not be able to meet its obligations on sched-

Repairs and maintenance

97,838

10,598

7,591

6,664

1,258

Insurance

9,982

4,930

578

448

271

122,265

56,649

11,162

10,3193,703

4,449,345

819,533

171,317

57,132

279,307due dates and by using diversified fund procurement methods. Liquidity risk is also managed by such means as regularly checking theTrust fees and other expenses
NOI (Net Operating Income)uled due dates) associated with funds procurement
Although loans and other liabilities are subject to liquidity risk, the Investment Corporation reduces such risk by spreading out payment

927,003

324,473

66,75523,09865,565balance of cash reserves.

3,522,342

495,060

104,562

34,034

213,742(4) SUPPLEMENTARY EXPLANATION OF THE ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Capital expenditures

513,946

54,697

—

—

6,058

NCF (Net Cash Flow)

3,935,399

764,836

171,317

57,132

273,249

Depreciation expenses
Operating income from property leasing activities

Property type

Area

Property and equipment

Office Buildings

Tokyo Metropolitan Area
Other Regional Areas

Residential Properties

Percentage of total assets¥188,538

72.0%

36,151

13.8%
85.8%

Tokyo Metropolitan Area

7,262

2.8%

Other Regional Areas

1,852
9,114

Subtotal
Central Urban Retail Properties(B) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

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

224,689

Subtotal

The carrying value of financial instruments on the balance sheets as of April 30, 2011 and estimated fair value are shown in the following table.
In thousands of yen
Carrying value

Estimated fair value햲 Cash and bank deposits¥ 13,794,963¥ 13,794,963¥

Difference

—

0.7%

Subtotal¥ 13,794,963¥ 13,794,963

¥

—

3.5%

햲 Short-term debt

8,700,000

8,700,000—

햳 Corporate bonds(including current portion of long-term debt)

12,000,000

11,737,200(262,800)

햴 Long-term debt(including current portion of long-term debt)

92,015,500

91,186,358(829,142)¥112,715,500¥111,623,558¥(1,091,942)

—

—

—

12,384

4.7%¥246,187

94.0%

Bank deposits and other assets¥15,742

6.0%

Total assets

261,929100.0%

Subtotal

Total liabilities

126,423

48.3%

Derivative Transactions (*)

Net assets¥135,506

51.7%(*) The value of assets and liabilities arising from derivatives in shown at net value and with the amount in parentheses representing net liability position

Total

Tokyo Metropolitan Area

fair value is reasonably estimated. Since various assumptions and factors are reflected in estimating the fair value, different assumptions
and factors could result in a different fair value.

A breakdown of property-type as of April 30, 2011 was as follows:
Class of assets

The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available,

Note 1: Methods to determine the estimated fair value of financial instruments and other matters related to securities and derivative transactions

ASSETS햲 Cash and bank deposits
Since these items are settled in a short period of time, their carrying value approximates fair value.
LIABILITIES햲 Short-term debt
Since these items are settled in a short period of time, their carrying value approximates fair value.

20 |Kenedix Realty Investment Corporation Semiannual Report

Kenedix Realty Investment Corporation Semiannual Report| 21

Statements of Cash Flows (Unaudited)
Kenedix Realty Investment Corporation
For the period from November 1, 2010 to April 30, 2011 and the period from May 1, 2010 to October 31, 2010

햳 Corporate bonds

In thousands of yen

The fair value of corporate bonds is based on quoted market prices.
햴 Long-term debt
The fair value of long-term debt is based on the present value of the total of principal and interest discounted by the interest rate to be
applied if similar new loans were entered into. The fair value of long-term debt bearing interest at a variable rate, which is subject tofixed interest rates resulting from interest-rate swaps and special treatment applied to said swaps, is based on the present value of the

From November 1, 2010
to April 30, 2011

From May 1, 2010
to October 31, 2010

¥ 2,311,379¥ 2,608,056

CASH FLOWS FROM OPERATING ACTIVITIES:
Income before income taxes
Adjustments to reconcile income before income taxes to
net cash provided by operating activities:

total of principal and interest, which is handled together with applicable interest-rate swaps, discounted by the interest rate to be

Depreciation and amortization

1,634,424

1,645,691

applied if similar loans were entered into.

Interest expense

1,048,723

993,950

Loss on retirement of fixed assets

5,403

1,144

Loss on disaster

35,360—Subsidy(26,230)—

Loss on reduction of fixed assets

26,230—22,067(57,116)

DERIVATIVE TRANSACTIONS(1) ITEMS THAT ARE NOT APPLIED TO HEDGE ACCOUNTING
Not applicable

Changes in assets and liabilities:(2) ITEMS THAT ARE APPLIED TO HEDGE ACCOUNTING

Hedge accounting
methodRental receivables
Contracted amount(In thousands of yen)Type of derivativetransaction

Maturing after 1 year

Hedged items

Interest-rate swaps:
Special treatment ofReceive/floating andinterest-rate swaps
pay/fixed

Long-term debt

Total

¥10,000,000¥1,000000¥10,000,000¥1,000,000

Fair value
Calculation method for(In thousands of yen) applicable fair value*

Consumption tax refundable(310,485)

48,308

Accrued consumption tax(230,841)

264,791

Trade and other payables(33,748)

73,500Rents received in advance

705,812(78,507)—2,406,185

Property and equipment due to sale

* Special treatment of interest-rate swaps is reported at the fair value of applicable long-term debt. This is because such swaps are handled together with hedged
long-term debt.
Note 2: Redemption schedule for receivables

Others, net(628,713)(254,016)

Subtotal

4,559,381

7,651,986(1,011,751)(987,326)

(633)

(640)

¥ 3,546,997¥ 6,664,020(13,803,598)(366,918)(75,499)—

Proceeds from leasehold and security deposits received

1,011,848

337,128

Payments of leasehold and security deposits(122,709)—

Payments of leasehold and security deposits received(615,156)(719,407)

Payments of time deposits(74,000)—

Payments of restricted bank deposits(134,900)(13,667)

Proceeds from restricted bank deposits

112,588

146,978

Cash payments of interest expense
Cash payments of income taxes

Due in 1 year or less
(In thousands of yen)

Cash and bank deposits¥13,794,963

Total¥13,794,963

Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment

Note 3: Redemption schedule for debt and corporate bonds

Purchase of intangible assets
In thousands of yen
Due within 1 year
or less

Due after 1 year
through 2 years

Due after 2 years
through 3 years

Due after 3 years
through 4 years

Due after 4 years
through 5 years

Short-term debt

¥ 8,700,000

¥

¥

¥

¥

Corporate bonds

9,000,000

—

—

—

—

3,000,000

Long-term debt

27,460,000

11,920,000

17,320,000

14,515,500

17,800,000

3,000,000

—

—

—

—

Due after
5 years¥—

Net cash used in investing activities

16.

¥(13,701,426)¥(615,886)

CASH FLOWS FROM FINANCING ACTIVITIES:INVESTMENT AND RENTAL PROPERTIES

Twelfth Fiscal Period (November 1, 2010 to April 30, 2011)

Proceeds from short-term debt

6,200,000

2,500,000

The Investment Corporation owns real estate for rental purposes mainly in the Tokyo metropolitan area for the purpose of generating

Payment of short-term debt

(3,800,000)(5,000,000)

rental revenues.
The carrying value in the balance sheets and corresponding fair value of those properties are as follows:
Carrying value (In thousands of yen)
As of October 31, 2010

Net change

As of April 30, 2011

Fair value as of April 30, 2011
(In thousands of yen)

¥233,725,108¥12,462,272¥246,187,380¥222,664,000

Notes: 1. The carrying value represents the acquisition cost less accumulated depreciation.
2. The fair value is the appraisal value or the survey value determined by outside appraisers. Exceptionally, the fair value of KDX Hirakawacho Building is basedon the planned sales price of ¥5,800 million under the sale and purchase agreement dated April 5, 2011.
3. Among changes in the amount of real estate for rental purposes that occurred during the fiscal period under review, principal increases were the acquisitionof four properties totaling ¥13,298,227 thousand, and depreciation amounting to ¥1,406,895 thousand.

Proceeds from long-term debt

26,300,000

12,400,000

Payment of long-term debt

(18,551,500)(10,301,500)

Payment of dividends(2,541,094)(2,565,441)

7,607,406(2,966,941)

Net cash (used in) provided by financing activities
Net change in cash and cash equivalents(2,547,023)

3,081,193

Cash and cash equivalents at the beginning of period

15,367,050

12,285,857¥ 12,820,027¥15,367,050

Cash and cash equivalents at the end of period
See related notes.

Income and loss in the fiscal period ended April 30, 2011 for real estate for rental purposes is listed in the Note “12,BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUES AND PROPERTY-RELATED EXPENSES”.

22 |Kenedix Realty Investment Corporation Semiannual Report

Kenedix Realty Investment Corporation Semiannual Report| 23

Unitholders’ Information(As of April 30, 2011)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (UNAUDITED)

Kenedix Realty Investment Corporation

General Breakdown of Unitholders

CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, deposits placed with banks and short-term investments which are highly liquid,readily convertible to cash and with insignificant risk of market value fluctuation, with maturities of three months or less from thedate of purchase.
CASH AND CASH EQUIVALENTS (UNAUDITED)In thousands of yen
As of April 30, 2011

As of October 31, 2010

¥13,794,963¥16,245,674

Restricted bank deposits held in trust (Note 1)(510,936)(488,624)

More than 3-month fixed deposits (Note 2)(464,000)(390,000)¥12,820,027¥15,367,050

Cash and cash equivalents

Individuals and others:
18,795 units
8.0%

Stock Listing: Real Estate Investment Trust Market of
the Tokyo Stock Exchange (Security Code: 8972)

Foreign corporations andindividuals: 100,681 units
43.1%

Financial institutions(including securities
companies): 110,317 units
47.2%

Transfer Agent: The Chuo Mitsui Trust and Banking
Company, Limited
2-8-4 Izumi, Suginami-ku, Tokyo 168-0063, Japan

Cash and cash equivalents consisted of the following as of April 30, 2011 and October 31, 2010:

Cash and bank deposits

Fiscal Periods: Six months ending April 30 and October 31

Other domestic corporations: 3,757 units
1.6%

Auditor: Ernst & Young ShinNihon LLC

Note: Figures are rounded to the first decimal place.

IR Schedule (12th and 13th periods)

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

April
2011

June

July

October

DecemberJanuary
2012

End of 12th Period

Performance for12th Period is announced

Distributions forthe 12th Period are paid

End of 13th Period

Performance for13th Period is announced

Distributions forthe 13th Period are paid

Top Ten Unitholders
Units Held

Share of Outstanding UnitsJapan Trustee Services Bank, Ltd. (trust account)Name

40,95217.53%

Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account)

28,88012.36%The Nomura Trust and Banking Co., Ltd. (Investment Trust Account)

23,230

9.94%

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

8,181

3.50%

Nomura Bank (Luxembourg) S.A.

7,098

3.03%

The Bank of New York, Treaty JASDEC Account

7,012

3.00%

BNP Paribas Securities Services Luxembourg/JASDEC/Henderson HHF SICAV

5,900

2.52%

State Street Bank and Trust Company 505223

3,785

1.62%

BNP Paribas Securities Services Singapore/BP2S Sydney/JASDEC/Australian Residents

3,708

1.58%

The Chase Manhattan Bank, N.A. London SECS LENDING Omnibus Account

3,076

1.31%

131,82256.44%

Total
Note: The respective shares are rounded down to the second decimal place.

Unit Price Performance
Closing Price

Trading Volume(units)(yen)

20,000 s

s 1,000,000

11,000 s

s 900,000

8,000 ss 800,000

7,000 ss 700,000

6,000 ss 600,000

5,000 ss 500,000

4,000 ss 400,000

3,000 ss 300,000

2,000 ss 200,000

1,000 ss 100,000

0s

s0
July

2005

24 |

Kenedix Realty Investment Corporation Semiannual Report

Oct.

Apr.

2006

Oct.

Apr.

2007

Oct.

Apr.

2008

Oct.

Apr.

2009

Oct.

Apr.

2010

Oct.

Apr.

2011

Kenedix Realty Investment Corporation Semiannual Report| 25

KENEDIX-REIT Semiannual Report

PROVEN STRATEGY:Designed for Steady Growth
12th Fiscal Period
http://www.kdx-reit.com/eng/

November 1, 2010 – April 30, 2011