Financial Section
Contents
Independent Auditor’s ReportF

Balance Sheets

G

Statements of Income and Retained Earnings

H

Statements of Changes in Net Assets

H

Notes to Financial Statements

I

Statements of Cash Flows (Unaudited)S

Financial Summary (Unaudited)
Historical Operating Trends
For the 11th–15th Fiscal Periods

PeriodUnit

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

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

13th Period(as of Oct. 31, 2011)

14th Period(as of Apr. 30, 2012)

15th Period(as of Oct. 31, 2012)

Operating revenues

mn yen

8,358

8,136

9,044

9,090

(Rental revenues)

mn yen

8,242

8,136

8,498

9,090

10,212
9,617

Operating expenses

mn yen

4,522

4,427

4,618

5,004

5,696

(Property-related expenses)

mn yen

3,817

3,767

3,961

4,284

4,822

Operating income

mn yen

3,835

3,709

4,425

4,086

4,516

Ordinary income

mn yen

2,608

2,346

3,040

2,551

3,011

Net income (a)mn yen

2,607

2,309

3,052

2,540

3,009

Total assets (b)mn yen251,080

261,928

274,973

303,284

306,734(-0.2)(+4.3)(+5.0)(+10.3)(+1.1)

102,567

112,715

110,914137,372

140,581(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(-0.4)(+9.9)(-1.6)(+23.9)(+2.3)

135,732

135,505150,272

150,063

150,389(+0.0)(-0.2)(+10.9)(-0.1)(+0.2)

133,129

133,129

147,153

147,153

147,153

(0.0)

(0.0)

(+10.5)

(0.0)

(0.0)

(Period-on-period change)%

Number of investment units issued andoutstanding (e)unit

233,550

233,550

286,550

286,550

286,550

Unitholders’ equity per unit (d)/(e)yen581,170

580,199

524,419

523,688524,828

Total distribution (f)mn yen

2,541

2,310

2,749

2,683

2,738

yen

10,881

9,891

9,596

9,364

9,557

(Earnings distributed per unit)

yen

10,881

9,891

9,596

9,364

9,557

(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 (2.2)

0.9 (1.8)

1.0 (2.0)

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

1.9 (3.8)

1.7 (3.4)

2.1 (4.2)

1.7 (3.4)

2.0 (4.0)

54.1

51.7

54.6

49.5

49.0

(+0.1)(-2.3)(+2.9)(-5.2)(-0.5)

40.9

43.0

40.3

45.3

45.8

Distribution per unit (f)/(e)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)%%%(-0.1)(+2.2)(-2.7)(+5.0)(+0.5)

97.4

100.0

90.0

105.6

90.9

Other references
Number of properties

properties

Total leasable floor aream2

Occupancy at end of period

67

71

74

83

84

267,737.33

286,237.93

300,016.89

340,589.96

351,153.72

%

93.6

94.6

94.7

95.4

95.5

Depreciation expenses for the period

mn yen

1,440

1,406

1,442

1,578

1,621

Capital expenditures for the period

mn yen

312

574

674

918

904

Leasing NOI (Net Operating Income) (Note 5)

mn yen

5,864

5,776

5,980

6,384

6,416

FFO (Funds From Operation) (Note 6)

mn yen

3,995

3,716

3,950

4,119

4,187

yen

17,106

15,914

13,786

14,374

14,612

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 11th Fiscal Period are calculated based on a period of 184 days, 181 days for the 12th Fiscal Period, 184 days for the 13th Fiscal Period,
182 days for the 14th Fiscal Period, and 184 days for the 15th 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 – Gain on sale of real estate property + Loss on sale of real estate property
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.

Kenedix Realty Investment Corporation Semiannual Report

| 15

16 |

Kenedix Realty Investment Corporation Semiannual ReportBalance Sheets
Kenedix Realty Investment Corporation
As of October 31, 2012 and April 30, 2012

In thousands of yen
As of October 31, 2012

As of April 30, 2012

¥ 11,513,930¥ 14,019,939

425,746

176,474

Consumption tax refundable—

220,729

Other current assets (Note 7)

79,42470,447

12,019,100

14,487,589

Land

205,933,483

201,938,266

Buildings and structures (Note 5)

100,188,719

97,166,954

Machinery and equipment

1,548,922

1,540,138

Tools, furniture and fixtures

433,305

429,679

Construction in progress

6,699

6,894

(16,448,292)(15,326,838)

291,662,836

285,755,093

ASSETS
Current assets:
Cash and bank deposits (Note 12)
Rental receivables

Total current assets
Property and equipment, at cost: (Notes 3, 11 and 13)

Less-accumulated depreciation
Net property and equipment
Other assets:
Ground leasehold (Notes 11 and 13)

357,881358,655

Investment securities (Note 12)896,655

896,655

Corporate bond issuance costs

32,66939,405

Unit issuance costs

56,70983,991Other assets (Notes 11 and 13)
Total assets

1,708,798

1,662,657¥306,734,648¥303,284,045¥¥

LIABILITIES AND NET ASSETS
Liabilities
Current liabilities:
Trade and other payables

894,162

775,125

Current portion of corporate bonds (Notes 4 and 12)

1,500,000—

Short-term debt and current portion of long-term debt (Notes 4 and 12)

19,700,000

26,580,000

Deposits received
Rents received in advance
Other current liabilities

18,96427,2491,482,863

1,887,967

328,146

220,298

23,924,135

29,490,639

Corporate bonds (Notes 4 and 12)

4,500,000

6,000,000

Long-term debt (Notes 4 and 12)

114,881,000

104,792,500

Leasehold and security deposits received

13,039,969

12,937,903

156,345,104

153,221,042

147,153,820

147,153,820

Total current liabilities

Total liabilities
Net Assets
Unitholders’ equity
Unitholders’ capital
Units authorized: 2,000,000 units
Units issued and outstanding: 286,550 units
As of October 31, 2012 and April 30, 2012, respectively
Surplus
Voluntary retained earnings
Reserve for reduction entry
Retained earnings
Total surplus
Total unitholders’ equity

225,796368,7963,009,928

2,540,387

3,235,724

2,909,183

150,389,544

150,063,003

Total net assets (Note 8)

150,389,544

150,063,003

Total liabilities and net assets¥306,734,648¥303,284,045

See accompanying notes to the financial statements.
Kenedix Realty Investment Corporation Semiannual Report| 17

Statements of Income and Retained Earnings
Kenedix Realty Investment Corporation
For the period from May 1, 2012 to October 31, 2012 and the period from November 1, 2011 to April 30, 2012

In thousands of yen
From May 1, 2012 to October 31, 2012

From November 1, 2011 to April 30, 2012

¥ 9,617,355¥9,090,653

Operating revenues:
Rental revenues (Notes 10 and 11)
Gain on sale of real estate property (Note 10)595,516—

10,212,871

9,090,653

Property-related expenses (Notes 10 and 11)

4,822,166

4,284,757

Loss on sale of real estate property (Note 10)

151,823—

Asset management fees

548,085

491,073

Total operating revenues
Operating expenses:

Administrative service and custodian fees

68,53980,726

Other operating expenses

105,575

147,751

Total operating expenses
Operating income

5,696,188

5,004,307

4,516,683

4,086,346

Non-operating expenses:
Interest expense

1,093,771

1,058,930

Financing-related expenses

366,756444,047

Amortization of unit issuance costs

27,282

27,282

Amortization of corporate bond issuance costs

6,736

9,001

Others, net

10,904(4,723)

Total non-operating expenses
Ordinary income

1,505,449

1,534,537

3,011,234

2,551,809

Extraordinary losses
Litigation settlement
Income before income taxes—

10,0003,011,234

2,541,809

Income taxes (Note 7)
Net income

1,439

1,526

3,009,795

2,540,283

Retained earnings at the beginning of period
Retained earnings at the end of period

133

104

¥ 3,009,928¥2,540,387

See accompanying notes to the financial statements.

Statements of Changes in Net Assets
Kenedix Realty Investment Corporation
For the period from May 1, 2012 to October 31, 2012 and the period from November 1, 2011 to April 30, 2012

In thousands of yen
Unitholders’ Equity
Surplus
Voluntary retained
earnings
Unitholders’capitalReserve for
reduction entry

Retainedearnings

Total
surplusTotal
unitholders’equityTotal¥147,153,820¥ 65,796¥3,052,838¥3,118,634¥150,272,454¥150,272,454

Reversal of reserve for reduction entry—

303,000(303,000)———

Payments of dividends——(2,749,734)(2,749,734)(2,749,734)(2,749,734)
2,540,283

Balance as of October 31, 2011
Changes during the fiscal period

Net income——

2,540,283

2,540,283

2,540,283—

303,000(512,451)(209,451)(209,451)(209,451)¥147,153,820¥368,796¥2,540,387¥2,909,183¥150,063,003¥150,063,003

Reversal of reserve for reduction entry—(143,000)

143,000———

Payments of dividends——(2,683,254)(2,683,254)(2,683,254)(2,683,254)
3,009,795

Total changes during the fiscal period
Balance as of April 30, 2012
Changes during the fiscal period

Net income——

3,009,795

3,009,795

3,009,795—(143,000)

469,541

326,541

326,541

326,541¥147,153,820¥225,796¥3,009,928¥3,235,724¥150,389,544¥150,389,544

Total changes during the fiscal period
Balance as of October 31, 2012
See accompanying notes to the financial statements.

18 |Kenedix Realty Investment Corporation Semiannual ReportNotes to Financial Statements
Kenedix Realty Investment Corporation
For the period from May 1, 2012 to October 31, 2012 and the period from November 1, 2011 to April 30, 2012

1.

ORGANIZATION AND BASIS OF PRESENTATIONORGANIZATION
Kenedix Realty Investment Corporation (”the Investment Corporation”) was established on May 6, 2005 under the Act on Investment
Trusts and Investment Corporations of Japan (“the Investment Trust Act”). 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 and outstanding(Securities Code: 8972). Subsequently, the Investment Corporation raised funds through four public offerings and other means including
global offerings. As a result, as of October 31, 2012, the end of the fifteenth fiscal period, the number of investment units issued andoutstanding totaled 286,550 units.
The Investment Corporation is externally managed by Kenedix Office Partners, Inc. (Note) (“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
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 has partially changed the management guidelines contained in thecompany regulations of the Asset Management Company as of September 1, 2012, and raised the lower limit of the investment ratio of
office buildings along with changing the upper limits, etc. of the investment ratio of other types of properties. (Note: As of September 1,
2012, Kenedix REIT Management, Inc. changed the company name. Same applies below.)
During the period ended October 31, 2012, the Investment Corporation acquired three office buildings (Fuchu South Building, Kasuga
Business Center Building and Nakameguro Business Center Building: total acquisition price of ¥10,800 million) located in the Tokyo
Metropolitan Area and sold KDX Omori Building (initial acquisition price of ¥3,500 million) and Gradito Kawaguchi (initial acquisition
price of ¥1,038 million) (total sales price of ¥5,060 million). As of October 31, 2012, the Investment Corporation had total unitholders’capital of ¥147,154 million with 286,550 investment units outstanding. The balance of interest-bearing debt amounted to ¥140,581
million as of October 31, 2012, comprising ¥134,581 million in borrowings (¥128,881 million in long-term borrowings and ¥5,700 million
in short-term borrowings) and ¥6,000 million in investment corporation bonds. The Investment Corporation owned a portfolio of 84
properties with a total acquisition price of ¥293,129 million containing a total leasable area of 351,153.72m2 and preferred equity securities with a total acquisition price of ¥891 million. The occupancy ratio was approximately 95.5%. A portfolio of 84 properties consistsof 78 office buildings, 3 residential properties, 2 central urban retail properties and one others. 67 properties are located in the Tokyo
Metropolitan Area and 17 properties are located in Other Regional Areas.
BASIS OF PRESENTATIONThe Investment Corporation maintains its accounting records and prepares its financial statements in accordance with accounting
principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements ofInternational Financial Reporting Standards. The financial statements are prepared in accordance with the Investment Trust Act.
The financial statements are basically a translation of the Japanese audited financial statements of the Investment Corporation. In preparing the accompanying financial statements, certain reclassifications have been made to the financial statements issued domestically inorder to present them in a format which is familiar to readers outside Japan. Certain information in the business report and supplementaryschedule has been omitted. Additional information has been added to the Japanese audited financial statements for the convenience ofreaders outside Japan and this includes disclosing the prior year’s comparatives as supplemental information in the English translated
financial statements although the Japanese audited financial statements only need to disclose the current year’s information.

Kenedix Realty Investment Corporation Semiannual Report

| 19

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(A) SECURITIESNon-marketable securities classified as other securities are carried at cost. Cost of securities sold is determined by the moving averagemethod.
(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, 2012 to October 31, 2012

From November 1, 2011 to April 30, 2012

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(C) UNIT ISSUANCE COSTS
Unit issuance costs are amortized over a period of 3 years under the straight-line method.
(D) CORPORATE BOND ISSUANCE COSTS
Corporate bond issuance costs are amortized over a loan period under the straight-line method.
(E) ACCOUNTING TREATMENT OF TRUST BENEFICIARY INTERESTS IN REAL ESTATE
For trust beneficiary interests in real estate, which are commonly utilized in the ownership of commercial properties in Japan, all assets
and liabilities within trust are recorded in the relevant balance sheets and statements of income and retained earnings.
(F) LEASEHOLD RIGHTS
Fixed term leasehold with special agreement on buildings sales, and the building are amortized over a contractual period of 48 years and9 months under the straight-line method.
(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 such amounts
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 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 ¥23,009 thousand and ¥23,881 thousand as of October 31, 2012 and April 30, 2012, 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.

20 |Kenedix Realty Investment Corporation Semiannual Report(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
The Investment Corporation utilizes interest-rate swap agreements as derivative financial instruments only for the purpose of hedging its
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 hedging accounting.
However, the Investment Corporation adopted special treatment for interest-swap agreements if its interest-rate swap agreements met
the criteria for hedging accounting under this treatment, 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 shownin the accompanying financial statements do not necessarily agree with the sums of the individual amounts.

3.

SCHEDULE OF PROPERTY
In millions of yen
As of October 31, 2012
Acquisition
costs

Accumulated
depreciation

As of April 30, 2012
Book
value

Acquisition
costs

Accumulated
depreciation

¥

Book
value

Land

¥205,933¥—¥205,933¥201,938—¥201,938

Buildings and structures

100,189

15,58484,605

97,167

14,52682,641

Machinery and equipment

1,549

638

911

1,540

590

950

Tools, furniture and fixtures

433

226

207

430

211

219

Construction in progress

7

—

7

7

—

7

¥308,111¥16,448¥291,663¥301,082¥15,327¥285,755

Total

4.

SHORT-TERM DEBT, LONG-TERM DEBT AND CORPORATE BONDS

The following summarizes short-term debt, long-term debt and corporate bonds outstanding as of October 31, 2012:
Classification

Short-term debt

Current portion of long-term debt

Subtotal

Drawdown date

Last
repayment date

Weighted-averageinterest rate

Balance(In millions of yen)

January 31, 2012
July 31, 2012

January 31, 20130.83%

¥ 1,200

July 31, 2013

0.83%

October 31, 2012

1,500

October 31, 2013

0.78%

3,000

December 8, 2009

December 8, 2012

1.67%

500

June 30, 2008

December 28, 2012

2.26%

3,000

January 13, 2010

January 15, 2013

1.90%

1,000

February 18, 2010

February 18, 2013

1.90%

1,500

April 28, 2011

April 30, 2013

1.50%

1,000

July 30, 2010

July 31, 2013

1.49%

500

September 1, 2006

August 31, 2013

2.12%

3,000

March 31, 2011

September 30, 2013

1.53%

2,000

September 30, 2011

September 30, 2013

1.15%

1,000

October 29, 2010

October 31, 2013

1.46%

500
19,700Kenedix Realty Investment Corporation Semiannual Report| 21

Classification

Long-term debt

Subtotal
Corporate bonds

Drawdown date

Last
repayment date

Weighted-averageinterest rate

Balance(In millions of yen)

May 1, 2006
January 29, 2010
February 18, 2010
April 2, 2010
July 30, 2010
July 30, 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
April 28, 2011
April 28, 2011
July 13, 2011
July 29, 2011
July 29, 2011
August 31, 2011
September 1, 2011
September 30, 2011
September 30, 2011
September 30, 2011
December 26, 2011
December 26, 2011
December 26, 2011
December 26, 2011
December 26, 2011
December 26, 2011
January 10, 2012
January 31, 2012
March 12, 2012
March 12, 2012
March 28, 2012
March 28, 2012
March 30, 2012
April 27, 2012
June 29, 2012
September 21, 2012
October 31, 2012
October 31, 2012
October 31, 2012
October 31, 2012
October 31, 2012

April 30, 2016
January 30, 2015
February 18, 2015
April 2, 2015
January 31, 2014
July 31, 2014
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
January 29, 2016
March 31, 2016
October 31, 2015
January 29, 2016
July 14, 2014
July 31, 2014
July 31, 2014
February 27, 2015
August 29, 2014
March 31, 2014
September 30, 2014
March 31, 2015
October 31, 2014
October 31, 2014
October 31, 2015
October 31, 2015
October 31, 2016
October 31, 2016
January 29, 2016
January 30, 2015
March 12, 2014
March 12, 2015
March 28, 2017
March 28, 2019
September 30, 2015
October 30, 2015
June 30, 2017
September 21, 2017
April 30, 2015
October 31, 2016
October 31, 2016
October 31, 2017
October 31, 2018

2.73%
2.17%
2.19%
2.22%
1.66%
1.73%
1.58%
1.79%
2.02%
1.44%
1.54%
2.21%
1.57%
1.94%
1.91%
1.95%
1.63%
1.91%
1.39%
1.86%
1.89%
1.54%
1.13%
1.40%
1.08%
1.15%
1.16%
1.27%
1.29%
1.24%
1.26%
1.34%
1.32%
1.44%
1.42%
1.27%
1.19%
1.04%
1.08%
1.36%
1.77%
1.21%
1.27%
1.29%
1.16%
1.01%
1.06%
1.05%
1.10%
1.25%

March 15, 2007
September 15, 2011
March 8, 2012

March 15, 2017
September 13, 2013
September 8, 2017

2.37%
1.59%
2.00%

5,000
1,056
4,675
1,750
3,700
3,700
2,700
2,000
2,300
800
1,000
700
1,300
800
3,000
500
2,700
2,000
1,000
1,500
1,000
1,000
3,200
300
1,500
1,000
2,500
1,000
2,500
2,500
5,000
4,500
2,500
4,500
2,500
2,500
1,500
6,300
1,000
500
2,400
2,000
1,000
1,500
7,000
2,500
2,500
1,500
2,500
2,500
114,881
3,000
1,500
1,500
6,000
¥140,581

Subtotal
Total

5.

REDUCTION ENTRY

The amount of reduction entry of property and equipment acquired by government subsidy
In thousands of yen

Buildings and structures

22 |Kenedix Realty Investment Corporation Semiannual Report

As of October 31, 2012

As of April 30, 2012

¥26,230¥26,230

6.

PER UNIT INFORMATION
Yen
From May 1, 2012 to October 31, 2012

From November 1, 2011 to April 30, 2012

Net asset value per unit

¥524,828¥523,689

Net income per unit

¥ 10,504¥

Weighted average number of units (units)286,550

8,865
286,550

The weighted average number of units outstanding of 286,550 was used for the computation of the amount of net income per unit asof October 31, 2012 and April 30, 2012. Net income per unit after adjusting for residual units is not included because there were noresidual investment units.

7.

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
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 in excess of 90% of its distributable income in the form of cash distributions totaling ¥2,739 million (deducting ¥271 million as the provision of reserve for reduction
entry) and ¥2,683 million (including ¥143 million as the reversal of reserve for reduction entry) for the periods ended October 31, 2012
and April 30, 2012. Such distributions were treated as deductible distributions for purposes of corporate income taxes. The effective tax
rate on the Investment Corporation’s income was 0.05% and 0.06% for the periods ended October 31, 2012 and April 30, 2012. The
following summarizes the significant difference between the statutory tax rate and the effective tax rate:
As of October 31, 2012

As of April 30, 2012

Statutory tax rate

36.59%

39.33%

Deductible cash distributions(33.28)(41.52)

Provision of reserve for reduction entry(3.30)—

Others0.04

2.25

Effective tax rate

0.05%

0.06%

The significant components of deferred tax assets and liabilities as of October 31, 2012 and April 30, 2012 were as follows:
In thousands of yen
As of October 31, 2012

As of April 30, 2012

Deferred tax assets:
Enterprise tax payable¥

Amortization of leasehold rights

1,014

749

1,041

792

Subtotal deferred tax assets
Valuation allowance
Total deferred tax assets

8.

27

¥ 43

1,014

749

¥

¥ 43

27

NET ASSETSThe Investment Corporation issues only non-par value units in accordance with the Investment Trust Act. 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 Act.

Kenedix Realty Investment Corporation Semiannual Report

| 23

9.

RELATED-PARTY TRANSACTIONSTRANSACTIONS WITH KENEDIX OFFICE PARTNERS, INC.
Kenedix Office Partners, 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 Office Partners, Inc. property management feesin accordance with the terms of its Property Management Agreements. For these services, the Investment Corporation paid ¥373 million
to Kenedix Office Partners, Inc.

10.

BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUES, PROPERTY-RELATED EXPENSES,GAIN ON SALE OF REAL ESTATE PROPERTY AND LOSS ON SALE OF REAL ESTATE PROPERTY

Rental and other operating revenues, property-related expenses, gain on sale of real estate property and loss on sale of real estate property for the periods from May 1, 2012 to October 31, 2012 and from November 1, 2011 to April 30, 2012 consist of the following:
In thousands of yen
From May 1, 2012 to October 31, 2012

From November 1, 2011 to April 30, 2012

Rental revenues¥6,664,510¥6,581,677

Common area charges

1,559,549

1,490,246

8,224,059

8,071,923

Parking space rental revenues

286,632

271,260

Utility charge reimbursement

769,331621,582

Miscellaneous

337,333

125,888

Rental and other operating revenues:

Subtotal
Others:1,393,296

1,018,730

Total rental and other operating revenues

Subtotal¥9,617,355¥9,090,653

Property management fees and facility management fees

¥ 937,543¥ 911,939

Depreciation

1,621,151

1,578,845

Utilities

790,093

663,800

Taxes

823,223

724,628

Insurance

14,67314,084

Repairs and maintenance

400,960

165,367

Trust fees

42,68247,277

Loss on retirement of fixed assets

17,689

3,719

Others174,152

175,098¥4,822,166¥4,284,757

Revenue from sale of investment property¥4,200,000¥

Cost of investment property

3,355,390

Total property-related expenses
Gain on sale of real estate property:

Other sales expenses
Gain on sale of real estate property——

249,094—¥ 595,516¥¥ 860,000¥—

Loss on sale of real estate property:
Revenue from sale of investment property
Cost of investment property
Other sales expenses
Loss on sale of real estate property

24 |Kenedix Realty Investment Corporation Semiannual Report992,112
19,711¥ 151,823

—
—
—

¥

—

11.

PROPERTY INFORMATION

Details of the property portfolio as of October 31, 2012 were as follows:
Residential
Properties

Type

Office Buildings

Location

Tokyo
Metropolitan Area

Other Regional
Areas

Tokyo
Metropolitan Area

63

15

2

Number of properties

Central Urban
Retail Properties

OthersOther Regional
Areas

Tokyo
Metropolitan Area

Other
Regional Areas

1

2

1

Property information(In millions of yen)

Acquisition price¥219,406¥52,295¥6,603¥1,800¥12,380¥ 645

Percentage of total acquisition price74.85%

17.84%

2.25%

0.62%

4.22%

0.22%

Net book value

220,073

51,079

6,105

1,788

12,297679

Appraisal value

202,737

44,569

5,476

1,540

11,1501,090

Percentage of total appraisal value

76.06%

16.72%

2.05%

0.58%

4.18%

0.41%

Financial results for the period from May 1, 2012 to October 31, 2012
Rental and other operating revenues(In thousands of yen)

¥6,792,155¥2,137,711¥199,735¥91,321¥334,010¥62,423

Rental revenues

5,788,509

1,819,697

177,878

80,942

302,11354,920

Other revenues

1,003,646

318,014

21,857

10,37931,897

7,503

2,168,805

842,926

55,99336,07978,915

18,297

Property-related expenses
Property management fees

612,441

268,714

20,154

8,170

22,514

5,550

Taxes

582,622

193,399

14,376

7,622

20,276

4,928

Utilities

535,832

217,783

2,506

2,049

26,547

5,376

Repairs and maintenance297,443

80,735

8,863

9,982

3,218

719

8,234

5,317

388

324

199

211

Insurance
Trust fees and other expenses
NOI (Net Operating Income)

132,233

76,978

9,706

7,932

6,161

1,513

4,623,350

1,294,785

143,742

55,242

255,095

44,126

Depreciation expenses

1,060,150

401,925

60,72323,12568,018

7,210

Operating income from property leasing activities

3,563,200

892,860

83,01932,117

187,077

36,916

Capital expenditures

604,911254,340

4,221

4,383

36,896129

NCF (Net Cash Flow)¥4,018,439¥1,040,445¥139,521¥50,859¥218,199¥43,997

A breakdown of property-type as of October 31, 2012 was as follows:
Balance at the end of period(In millions of yen)Class of assets

Property type

Area

Property and equipment

Office Buildings

Tokyo Metropolitan Area
Other Regional Areas

Subtotal
Residential Properties

Subtotal
Total
Investment securities

16.7%

271,152

88.4%

6,105

2.0%

Other Regional Areas

1,788

0.6%

7,893

2.6%

Tokyo Metropolitan Area

12,297

4.0%

12,2974.0%

Subtotal
Others71.7%

51,079

Tokyo Metropolitan Area

Subtotal
Central Urban Retail Properties

Percentage of total assets¥220,073

Other Regional Areas

679

0.2%

679

0.2%

292,021

95.2%

897

0.3%

Bank deposits and other assets

13,817

4.5%

Total assets

306,735

100.0%

Total liabilities

156,345

51.0%

Net assets¥150,390

49.0%

Kenedix Realty Investment Corporation Semiannual Report

| 25

12.

FINANCIAL INSTRUMENTS

Fifteenth Fiscal Period (May 1, 2012 to October 31, 2012)(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
surplus funds is undertaken in a prudent manner that considers fully such factors as safety, liquidity, interest rate conditions and cash flows.
(2) TYPES OF FINANCIAL INSTRUMENTS AND RELATED RISK
Investment securities are preferred equity securities of TMK as set forth by the Act on Securitization of Assets and are exposed to credit
risk of the issuer and risk of fluctuation of value of its property.
Debt and corporate bonds are used primarily for procuring funds necessary for the acquisition of properties and have a redemption dateof 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
Corporation fixes its interest expense for long-term debt bearing interest at a variable rate. With regard to hedge accounting methods,
hedging instruments and hedged items, hedge policy, and the assessment of the effectiveness of hedging activities, please see 2. (K)Derivative Financial Instruments.
(3) RISK MANAGEMENT FOR FINANCIAL INSTRUMENTS(a) Monitoring of market risk (the risks arising from fluctuations in interest rates and others)
The Investment Corporation uses interest-rate swap transactions in order to minimize risk arising from fluctuations in interest rates onfunds procured. The Investment Corporation periodically reviews the value of the property and financial condition of the issuer withregard to investment securities.
(b) Monitoring of liquidity risk (the risk that the Investment Corporation may not be able to meet its obligations on scheduled
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
due dates and by using diversified fund procurement methods. Liquidity risk is also managed by such means as regularly checking thebalance of cash reserves.
(4) SUPPLEMENTARY EXPLANATION OF THE ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available,
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.

26 |Kenedix Realty Investment Corporation Semiannual Report(B) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments on the balance sheet as of October 31, 2012 and estimated fair value are shown in the following table. The following table does not include financial instruments for which it is extremely difficult to determine the fair value(Refer to note 2 below).
In thousands of yen
Carrying value

Estimated fair value

Difference¥ 11,513,930¥ 11,513,930¥

Subtotal

11,513,930

11,513,930—

햲 Short-term debt

5,700,000

5,700,000—

햳 Corporate bonds(including current portion of corporate bonds)

6,000,000

5,916,450(83,550)

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

128,881,000

129,110,084

229,084

Subtotal¥140,581,000¥140,726,534¥145,534———

햲 Cash and bank deposits

Derivative Transactions*—* The value of assets and liabilities arising from derivatives is shown at net value and with the amount in parentheses representing net liability position.

note 1: METHODS TO DETERMINE THE ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS AND OTHER MATTERS RELATEDTO SECURITIES AND DERIVATIVE TRANSACTIONSASSETS햲 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.
햳 Corporate bonds
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 variable rate, which is subject to fixedinterest rates resulting from interest-rate swaps and special treatment applied to said swaps, is based on the present value of the total ofprincipal and interest, which is handled together with applicable interest-rate swaps, discounted by the interest rate to be applied if similarloans were entered into.
DERIVATIVE TRANSACTIONS(1) ITEMS THAT ARE NOT APPLIED TO HEDGE ACCOUNTING
Not applicable(2) ITEMS THAT ARE APPLIED TO HEDGE ACCOUNTING

Hedge accounting
methodType of derivativetransactions

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

Contracted amount(In thousands of yen)
Maturing after 1 year

Fair value(In thousands of yen)

¥21,500,000¥20,500,000*¥21,500,000¥20,500,000

Hedged items

Long-term debt

Calculation method for
applicable fair value* 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.

Kenedix Realty Investment Corporation Semiannual Report| 27note 2: FINANCIAL INSTRUMENTS FOR WHICH IT IS EXTREMELY DIFFICULT TO DETERMINE THE FAIR VALUEClassification

Carrying value (In thousands of yen)Preferred equity securities¥896,655

Because no quoted market price is available and it is extremely difficult to determine the fair value, the above financial instruments are not included in the above table.

note 3: REDEMPTION SCHEDULE FOR RECEIVABLES
Due within 1 year or less
(In thousands of yen)

Cash and bank deposits¥11,513,930

Total¥11,513,930

note 4: REDEMPTION SCHEDULE FOR DEBT AND CORPORATE BONDS
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

¥ 5,700,000

¥

¥

¥

¥

Corporate bonds

1,500,000———

4,500,000—

Long-term debt

14,000,000

38,546,000

30,135,000

26,800,000

11,500,000

7,900,000

13.

—

—

—

—

Due after
5 years¥—

INVESTMENT AND RENTAL PROPERTIES

Fifteenth Fiscal Period (May 1, 2012 to October 31, 2012)
The Investment Corporation owns real estate for rental purposes mainly in the Tokyo Metropolitan Area for the purpose of generating
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 April 30, 2012

Net change

As of October 31, 2012

Fair value as of October 31, 2012
(In thousands of yen)

¥286,114,419¥5,906,850¥292,021,269¥266,252,000

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. The fair value of Kanazawa Nikko Building is based on the sales
price of ¥780,000 thousand under the sales and purchase agreement dated November 1, 2012.
3. Among changes in the amount of real estate for rental purposes that occurred during the fiscal period under review, principal increases and decreases were theacquisition of 3 properties totaling ¥10,988,507 thousand, the sale of 2 properties totaling 4,347,502 and depreciation amounting to ¥1,621,151 thousand.

Income and loss in the fiscal period ended October 31, 2012 for real estate for rental purposes is listed in the Note “10.
BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUES, PROPERTY-RELATED EXPENSES, GAIN ON SALE OF REAL ESTATEPROPERTY AND LOSS ON SALE OF REAL ESTATE PROPERTY”.

28 |Kenedix Realty Investment Corporation Semiannual ReportStatements of Cash Flows (Unaudited)
Kenedix Realty Investment Corporation
For the period from May 1, 2012 to October 31, 2012 and the period from November 1, 2011 to April 30, 2012

In thousands of yen
From May 1, 2012
to October 31, 2012

From November 1, 2011
to April 30, 2012

¥ 3,011,234¥ 2,541,809

1,965,534

1,872,257

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 income

(857)

(674)

Interest expense

1,093,771

1,058,930

Loss on retirement of fixed assets

17,6893,719—

10,000(249,271)(2,702)

Consumption tax refundable

220,729(220,729)

Accrued consumption tax

122,971(66,864)

Trade and other payables

98,211(30,365)

Rents received in advance(405,105)

606,160

Property and equipment due to sale

4,349,377—

Litigation settlement
Changes in assets and liabilities:
Rental receivables

Others, net(374,870)(572,096)

Subtotal

9,849,413

5,199,445

Interest income received
Cash payments of interest expense
Litigation settlement paid
Cash payments of income taxes
Net cash provided by operating activities

857

674

(1,108,485)(1,044,716)—(10,000)(1,829)(1,352)

8,739,956

4,144,051(11,909,217)(32,830,637)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Purchase of investment securities(5,655)(891,000)

Proceeds from leasehold and security deposits received

1,155,231

2,494,697

Payments of leasehold and security deposits received(1,012,861)(900,339)

Payments of restricted bank deposits(597,875)(131,125)

Proceeds from restricted bank deposits

86,62840,729Others, net
Net cash used in investing activities

—

(20)

(12,283,749)(32,217,695)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt

4,500,000

8,700,000

Payments of short-term debt

(13,500,000)(4,200,000)

Proceeds from long-term debt

20,000,000

38,700,000

Payments of long-term debt

(7,791,500)(9,241,500)

Proceeds from issuance of investment corporation bonds—

1,481,583

Redemption of investment corporation bonds—(9,000,000)

Payments of investment unit issuance costs
Payment of dividends
Net cash provided by financing activities—(28,322)(2,681,963)(2,747,109)

526,537

23,664,652

Net change in cash and cash equivalents(3,017,256)(4,408,992)

Cash and cash equivalents at the beginning of period

13,519,011

17,928,003

Cash and cash equivalents at the end of period¥ 10,501,755¥ 13,519,011

See related notes.

Kenedix Realty Investment Corporation Semiannual Report| 29

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (UNAUDITED)CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, deposits placed with banks and short-term investments which are highly liquid, readily convertible to cash and with insignificant risk of market value fluctuation, with maturities of three months or less from the date ofpurchase.
CASH AND CASH EQUIVALENTS (UNAUDITED)Cash and cash equivalents consisted of the following as of October 31, 2012 and April 30, 2012:
In thousands of yen

Cash and bank deposits
Restricted bank deposits (Note)
Cash and cash equivalents

As of October 31, 2012

As of April 30, 2012

¥11,513,930¥14,019,939(1,012,175)(500,928)¥10,501,755¥13,519,011

note: Restricted bank deposits are retained for repayment of tenant leasehold and security deposits.

30 |Kenedix Realty Investment Corporation Semiannual Report