Asset Management Report for 21st Period(Semi-Annual Report for 21st Period)
From July 1, 2016 to December 31, 2016

I. Greetings
To Our Unitholders
We would like to express our sincere gratitude for your continued support of Japan Excellent, Inc. (JEI) and Japan
Excellent Asset Management Co., Ltd.
We hereby report the financial results of JEI for the 21st period (from July 1, 2016 to December 31, 2016).
JEI has continued with quality growth through acquisition of Mansard Daikanyama, a property close to central
Tokyo located near a station that is relatively new and has high competitiveness, from the core sponsor, while
procuring a total of around 5.5 billion yen through issuance of new investment units in July 2016.
As for current lease contracts, JEI accelerated efforts to increase rents by ensuring to take opportunities of upward
rent revision. Also, as for new lease contracts, JEI promoted filling of vacancies while setting higher rent levels.
In terms of finance, JEI successfully reduced financial costs through refinancing while adhering to the basic policyof fixing interest rates of loans, extending borrowing periods and diversifying maturity dates. JEI continues toretain a rating of AA- from the rating agency as JEI’s ongoing stable finance management was recognized.
JEI recorded operating revenue of 10,653 million yen and operating income of 4,221 million yen. The net incomeof 3,406 million yen was a new record high. As a result, the distribution per unit increased to 2,609 yen for the 21st
period, an increase of 147 yen from the previous period.

About Future Asset Management
In the real estate market, backed by the continuing favorable fund procurement environment and strong appetite forinvestment by market participants, real estate transaction prices are expected to remain high. In the office building
leasing market, the vacancy rate and the rent level are forecasted to continue to improve gradually for the time
being mainly for competitive buildings, as office demand is strong.
With this perspective, JEI will continue with growth through pursuit of opportunities to invest in prime real estate,including replacement of assets, with an aim to expand its asset size over the medium to long-term. Furthermore,
JEI will endeavor to enhance profitability of the entire portfolio by not only maintaining the high occupancy
rate but also by improving the rent level based on market trends. In terms of finance, JEI will strive to conduct
stable financial management by working to reduce financing costs, while continuing to follow the basic policyof fixing interest rates of loans, extending borrowing periods and diversifying maturity dates.
In addition, JEI remains committed to strict adherence to the Financial Instruments and Exchange Act and otherlaws and regulations to promote compliance, as well as to accurate and easy-to-understand disclosure of the statusof our operations and asset management to our unitholders.
We kindly ask for your continued understanding and support.
Hidehiko Ogawa
Executive Director, Japan Excellent, Inc.
President, Japan Excellent Asset Management Co., Ltd.

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

2II. Asset Management Report
1. Outline of asset management operation(1) Operating results and financial position of the Investment Corporation
17th Period 18th Period 19th Period 20th Period, 21st Period
July 1, 2014 to January 1, July 1, 2015 to January 1, July 1, 2016 to
December 31, 2015 to June December 31, 2016 to June December 31,
2014
30, 2015
2015
30, 2016
2016

Fiscal period(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)Operating revenue(Rental revenues)
Operating expenses(Property operating expenses)
Operating income
Ordinary income
Net income
Total assets(Period-on-period change)(%)(Millions ofyen)

Net assets(Period-on-period change)(%)

Unitholders’ capital
Total outstanding investment
units
Net assets per unit
Net income per unit (Note 1)

9,695

10,121

10,83910,223

10,653(9,695)(10,121)(10,669)(10,223)(10,653)

5,731

6,102

6,537

6,240

6,431

(5,180)(5,533)(5,916)(5,655)(5,849)

3,963

4,018

4,301

3,982

4,221

3,041

3,098

3,385

3,113

3,407

3,040

3,097

3,384

3,112

3,406

278,037

300,976

284,443

283,653

296,081

(0.1)

(8.3)

(−5.5)(-0.3)(4.4)

131,028

131,085

137,857

137,808

143,640

(0.0)

(0.0)

(5.2)

(ᇞ0.0)(4.2)(Millions ofyen)

127,950

127,950

134,434

134,434

139,972(units)

1,212,750

1,212,750

1,264,450

1,264,450

1,305,700(yen)

108,042

108,089

109,025

108,987

110,010

(yen)

2,506

2,554

2,685

2,461

2,614

(Millions of
yen)

3,040

3,097

3,161

3,113

3,406

Distribution per unit

(yen)

2,507

2,554

2,500

2,462

2,609

(Profit distribution per unit)(Distribution in excess ofearnings per unit)
Return on assets (Note 2)(Annualized rate)

(yen)

2,507

2,554

2,500

2,462

2,609

(–)

(－)

(－)

(－)

(%)

1.1

1.1

1.2

1.1

1.2

(%)

(2.2)

(2.2)

(2.3)

(2.2)

(2.3)

Return on equity (Note 3)(Annualized rate)

(%)

2.3

2.4

2.5

2.3

2.4

(%)

(4.6)

(4.8)

(5.0)

(4.5)

(4.8)

Capital ratio (Note 4)(Period-on-period change)

(%)

47.1

43.6

48.5

48.6

48.5

(%)

(−0.0)(−3.6)

(4.9)

(0.1)

(-0.1)

Payout ratio (Note 5)

(%)

100.0

99.9

93.4

100.0

100.0

Number of investment properties(properties)

30

31

30

30

31

Number of tenants(tenants)

214

219

224

228

237

(㎡)

330,180

370,671356,918

356,884

362,305

(%)

99.1

97.9

98.5

99.1

99.0

1,657

1,786

1,908

1,899

1,956

415

790

635

729

1,294

(Millions of
yen)

6,172

6,374

6,662

6,467

6,760

(yen)

3,873

4,027

4,051

3,964

4,107

(times)

20.8

17.4

16.5

17.6

18.2

(times)

5.0

5.0

5.6

5.5

6.4

Total distribution(yen)

Total leasable space (Note 6, 7)
Occupancy rate

(Millions ofyen)(Millions ofyen)

Depreciation
Capital expenditure
Net operating income (NOI)(Note 8)Funds from operation (FFO) per
unit (Note 9)
FFO multiples (Note 10)
Debt service coverage ratio
st

(－)

st

Asset Management Report for 21 period (Semi-Annual Report for 21 Period)3

(DSCR) (Note 11)
Interest-bearing debt

(Millions ofyen)

133,900

155,400

131,900

131,900

137,900

Loan-to-value (Note 12)

(%)

48.2

51.6

46.4

46.5

46.6

Number of days in operation(days)

184

181

184

182

184

(Note 1) Net income per unit is calculated by dividing the net income by the weighted-average number of units outstanding during
the six months period.
(Note 2) Return on assets = Ordinary income / [(Period beginning total assets) + (Period end total assets) / 2] × 100(Note 3) Return on equity = Net income / [(Period beginning net assets) + (Period end net assets)/ 2] × 100(Note 4) Capital ratio = Period end net assets / Period end total assets × 100(Note 5) Payout ratio = Total distribution / Net income × 100 (figures for the 18th period and before are rounded down to the firstdecimal place while figures for the 19th period and after are rounded to the first decimal place.)(Note 6) For properties with joint ownership, a figure obtained by multiplying the leasable space of the entire property by theownership ratio is indicated as JEI’s leasable space. The same shall apply hereinafter.
(Note 7) Spaces are rounded to the nearest specified unit. The same applies hereinafter.
(Note 8) NOI = Rental revenues – Property operating expenses + Depreciation(Note 9) FFO per unit = (Net income + Depreciation – Gain on sale of real estate + Loss on sale of real estate) / Total number ofoutstanding investment units (the figure is rounded down to the whole number).
(Note 10) FFO multiples = Period end investment unit price / Annualized FFO per unit (The rate is rounded down to the first decimal
place for the 18th period and before.)(Note 11) DSCR = Net income before interest and taxes / (Interest expenses + Interest expense on investment corporation bonds)(Note 12) Loan-to-value = Period end interest-bearing debt / Period end total assets × 100

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

4

(2) Asset Management Development
Japan Excellent, Inc. (JEI) was founded on February 20, 2006 under the Law Concerning Investment Trusts andInvestment Corporations of Japan (hereinafter referred to the “Investment Trust Law”). On March 15, 2006, it
completed the corporate registration to the Kanto Finance Bureau (registration number 52, issued by the Head of
the Kanto Local Finance Bureau) and listed on the Real Estate Investment Trust Section of the Tokyo Stock
Exchange (Securities Code: 8987) on June 27, 2006. Since the listing, we have continued investment management
primarily in office buildings with the aim of maintaining sound corporate growth and stable revenues from themedium- to long-term perspectives. On December 31, 2016, we settled our twenty-first period.
1) Business conditions and results
The Japanese economy during the 21st period (ended December 2016) continues to be on a moderate recovery
trend against the backdrop of the pickup in consumer spending and continuation of strong corporate earnings
as well as improvement in the employment situation although delay in improvement is also seen in some areas.
In the real estate transaction market, transaction yields were at low level amid the continuing favorable fundprocurement environment, and real estate transaction prices remain high. In addition to the new listings of JREITs, market participation of overseas investors, private funds, private REITs and general companies, etc. isalso continuing.
In the office building leasing market, tenant needs for floor area increase in the same building, relocation for
expansion and better location, etc. continue to be apparent, and vacancy rates and asking rent levels are
steadily improving. JEI has conducted leasing activities emphasizing rent levels and has promoted upward
rent revisions to suit the value of properties for current contracts by ensuring to seize opportunities of upward
rent revision. As to new contracts, JEI has conducted leasing activities while setting higher rent levels basedon market trends. As a result of these efforts, the portfolio occupancy rate at the end of the current periodstood at 99.0% (99.1% at the end of the previous period).
The total number of properties owned and managed by JEI at the end of the current period was 31 with totalacquisition price of 286.9 billion yen and total leasable space of 362,304.64 m2 (109,597.15 tsubo).
2) Fund raising highlights
JEI has conducted financial operations under the basic policies of extending borrowing periods, converting to
fixed-rate loans and diversifying maturity dates. During the current period, interest rates decreased after the
UK made the decision to leave the EU through a referendum vote, and an upward trend of interest rates has
emerged due to depreciation of the yen, stock appreciation and bond depreciation following the US
presidential election. However, keeping an eye on factors such as change in Japanese long-term interest rates
due to the Bank of Japan’s attitude to control long-term interest rates, which have become clear since the endof September under the current period, JEI believes that the current medium-and-long-term interest ratelevels won’t fluctuate largely for the time being. Thus, JEI raises funds mainly through combining mediumterm borrowings with floating or fixed rates and issuance of long-term investment corporation bonds.
Loans of 11.5 billion yen made in line with the acquisition of Mansard Daikanyama in the beginning of Julyof the current period were refinanced through the public offering and short-term loans. With regard to thepast borrowings which were due during the current period, these were refinanced with borrowings for 3 to 5
years. Furthermore, as for redemption of 5.0 billion yen of the 3rd Series Unsecured Investment Corporation
Bonds for which maturity arrived, JEI issued 9th Series Unsecured Investment Corporation Bonds of 2.0
billion yen (10 years) and 10th Series Unsecured Investment Corporation Bonds of 2.0 billion yen (7 years),
and refinanced 4.0 billion yen in total with the investment corporation bonds, as well as procured theremaining 1.0 billion yen through short-term loans. As such, JEI successfully reduced financing costs further.
As a result, the loan to value ratio to the total assets (total assets-based LTV) was 46.6%, the averageremaining period of interest-bearing debts (Note 1) was 3.52 years and both long-term borrowing ratio (Note2) and fixed rate ratio (Note 3) were 99.3% and 82.8%, reducing the period end average interest-bearing debt
interest rate (Note 4) to 0.88%.
Total outstanding interest-bearing debts was 137.9 billion yen and of which, total outstanding investment
corporation bonds stood at 29.0 billion yen.
JEI has commitment lines of 14.0 billion yen to reduce refinancing risk, enhance stability for fundprocurement, etc.
Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

5The ratings granted to JEI by the following rating agencies are shown below:(Ratings as of December 31, 2016)
Credit rating agency

Issuer rating (outlook)

Japan Credit Rating Agency, Ltd.
(JCR)
Rating and Investment Information,
Inc. (R&I)

Long-term issuer rating
AA- (Stable)
Issuer rating
A+ (Stable)
Issuer rating
A3 (Stable)

Moody’s Japan

Individual debt issue rating(Note 5)AA−A+―3) Financial results and distribution highlights
As a result of the above management, JEI posted 10,653 million yen in operating revenue, 4,221 million yen
in operating income, 3,407 million yen in ordinary income and 3,406 million yen in net income for the period
under review.
Considering distributions in the period under review, JEI determined to distribute the whole unappropriatedretained earnings (except for the portion of less than one yen per unit) to be eligible for special provisions of
the tax system on investment corporations (Section 67-15 of the Special Taxation Measures Law), that allows
JEI to deduct the amount of profit distribution from its taxable income. Accordingly, distribution per unit forthe period was 2,609 yen.
(Note 1) Average remaining period of interest-bearing debts = Remaining period of borrowings and investment
corporation bonds before repayment dates and maturity dates as of the end of the period ÷ Balance of relevantborrowings and investment corporation bonds as of the end of the period (weighted average)(Note 2) Long-term borrowing ratio = (long-term loans (including long-term loans due within one year) at the end of
the period + investment corporation bonds (including investment corporation bonds due within one year) at
the end of the period) / total interest-bearing debts at the end of the period x 100(Note 3) Fixed rate ratio = Total interest-bearing debts at fixed interest rate at the end of the period (including longterm loans whose interest rates were fixed through interest rate swap transactions) / total interest-bearing
debts at the end of the period x 100(Note 4) The period end average interest-bearing debt interest rate is calculated by using a weighted–average of theinterest at the end of the current period, by balance of respective interest-bearing debt with all the interestbearing debts.
(Note 5) The rating of JCR is for the 4th series unsecured investment corporation bonds, 5th series unsecured
investment corporation bonds, 6th series unsecured investment corporation bonds, 7th series unsecured
investment corporation bonds, 8th series unsecured investment corporation bonds, 9th series unsecured
investment corporation bonds and 10th series unsecured investment corporation bonds. The rating of R&I isfor the 4th series unsecured investment corporation bonds.

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)63) Capital Increase
JEI carried out additional capital increase by public offering (37,500 units) on July 11, 2016, followed by issuanceof investment units by third-party allotment (3,750 units) as a result of exercise of a greenshoe option by Mizuho
Securities Co., Ltd. (the lead manager of the primary offering) on August 10, 2016, raising a total amount of 5,538
million yen in funds. The outline of the changes in the total number of outstanding investment units andunitholders’ capital until the end of the period under review are as follows:
Unitholders’ capital
Capital transaction (units)
Remarks
Paid-up Date
Capital transaction(Millions of yen)
ChangeFebruary 20, 2006
June 26, 2006
July 21, 2006
July 11, 2007
August 8, 2007
January 31, 2011
February 28, 2011
January 30, 2013
February 27, 2013
January 1, 2014
January 27, 2014
February 26, 2014
July 13, 2015
August 12, 2015
July 11, 2016
August 10, 2016

Private placement
for incorporation
Public offering
Allocation of
investment units toa third party
Public offering
Allocation of
investment units toa third party
Public offering
Allocation of
investment units toa third party
Public offering
Allocation of
investment units toa third party
Split of investment
unit
Public offering
Allocation of
investment units toa third party
Public offering
Allocation of
investment units toa third party
Public offering
Allocation of
investment units toa third party

Balance

ChangeBalance

400

400

200

200

(Note 1)

128,000

128,400

64,23064,430(Note 2)6,400

134,800

3,211

67,641(Note 3)19,000

153,800

18,702

86,344(Note 4)

750

154,550738

87,083(Note 5)31,000185,550

13,608100,691(Note 6)

3,100

188,650

1,360

102,052(Note 7)33,000221,650

14,408116,460(Note 8)3,300

224,950

1,440

117,901(Note 9)899,800

1,124,750–

117,901(Note 10)80,0001,204,750

9,135

127,036(Note 11)8,000

1,212,750

913

127,950(Note 12)47,0001,259,750

5,894

133,845(Note 13)4,700

1,264,450

589

134,434(Note 14)37,5001,301,950

5,034

139,469(Note 15)3,750

1,305,700

503

139,972(Note 16)

(Note 1) JEI was incorporated through private placement at a price of 500,000 yen per unit.
(Note 2) New investment units were issued at an offer price of 520,000 yen per unit (issue price of 501,800 yen per unit) through apublic offering in order to fund acquisition of new properties which were acquired at the time of the listing.
(Note 3) New investment units were issued at an issue price of 501,800 yen per unit through an allocation of investment units to athird party in order to partially fund new property acquisitions.
(Note 4) New investment units were issued at an offer price of 1,019,200 yen per unit (issue price of 984,360 yen per unit) through apublic offering in order to partially repay debts procured to acquire properties in the second period.
(Note 5) New investment units were issued at an issue price of 984,360 yen per unit through an allocation of investment units to athird party in order to partially repay debts procured to acquire properties in the second period.
(Note 6) New investment units were issued at an offer price of 454,930 yen per unit (issue price of 438,984 yen per unit) through apublic offering in order to repay short-term loans procured to acquire properties in the ninth period and to fund acquisitionof a new property which was acquired in the tenth period.
(Note 7) New investment units were issued at an issue price of 438,984 yen per unit through an allocation of investment units to athird party in order to repay short-term loans procured to acquire new properties in the ninth period and to fund acquisitionof a new property which was acquired in the tenth period.
(Note 8) New investment units were issued at an offer price of 451,425 yen per unit (issue price of 436,609 yen per unit) through apublic offering in order to fund acquisition of new properties which were acquired at the fourteenth period.
(Note 9) New investment units were issued at an issue price of 436,609 yen per unit through an allocation of investment units to athird party in order to fund acquisition of properties acquired in the fourteenth period.
(Note 10) With December 31, 2013 as the record date, JEI implemented a 5-for-1 split of its investment units held by Unitholders

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

7

stated or recorded on that date’s final unitholder registry with January 1, 2014 as the effective date.
(Note 11) New investment units were issued at an offer price of 118,072 yen per unit (issue price of 114,196 yen per unit) through apublic offering in order to fund acquisition of new properties which were acquired at the sixteenth period.
(Note 12) New investment units were issued at an issue price of 114,196 yen per unit through an allocation of investment units to athird party in order to partially fund future acquisitions of specified assets or repayment of loans and redemption of
investment corporation bonds.
(Note 13) New investment units were issued at an offer price of 129,675 yen per unit (issue price of 125,419 yen per unit) through apublic offering in order to partially repay debts procured to acquire properties in the eighteenth period.
(Note 14) New investment units were issued at an issue price of 125,419 yen per unit through an allocation of investment units to athird party in order to partially fund future acquisitions of specified assets or partially fund repayment of loans.
(Note 15) New investment units were issued at an offer price of 138,742 yen per unit (issue price of 134,259 yen per unit) through apublic offering in order to partially repay debts procured to acquire properties in the twenty-first period.
(Note 16) New investment units were issued at an issue price of 134,259 yen per unit through an allocation of investment units to athird party in order to partially fund future acquisitions of specified assets or partially fund repayment of loans.
(Note 17) At JEI, there exist no investment units held by JEI (investment units without voting rights provided in Article 308-2 of the
Corporate Law which will be applied mutatis mutandis pursuant to Article 94 of the Investment Trust Law) or cross-heldinvestment units (investment units without voting rights provided in Article 160 of the Investment Trust Enforcement
Ordinance) as of the end of the twenty-first period.

[Market price of the investment securities]
The period-on-period fluctuations in the highest and lowest (closing) prices of JEI’s investment units listed on theReal Estate Investment Trust Section of the Tokyo Stock Exchange during each period is as follows:
17th period
21st period
19th period
Fiscal period
20th period
18th period(December(December(December
(June
2016)
(June
2015)
(closing date)
2014)
2016)
2015)
Investment unit
market priceHighest (yen)149,200
164,700
168,400
141,900
161,000
Lowest (yen)(Note)

133,400

141,400

122,400

123,200

132,900

The highest and lowest prices of investment units refer to the closing prices on the Real Estate Investment Trust Section of
the Tokyo Stock Exchange.

(4) Distributions Paid
The distribution per unit for the period (the 21st period) was 2,609 yen per unit, based on JEI’s decision to
distribute the whole unappropriated retained earnings (except for the portion of less than one yen per unit) to beeligible for the special tax treatment on investment corporations (Article 67-15 of the Special Taxation Measures
Law) that allows JEI to deduct the amount of profit distribution from its taxable income.
Fiscal period
Accounting period
Unappropriated retained
earnings at end of period(Thousands of yen)
Retained income (Thousands ofyen)
Total cash distribution amount(Thousands of yen)
(Cash distributions perunit) (yen)Of which, total profit
distributions (Thousands ofyen)(Profit distribution per unit)(yen)
Total refund of investment
equity(Refund of investment equity
per unit)
Of total refund of investment
equity, total distribution amountfrom reserve for temporary
difference adjustments(Of refund of investment equity
per unit, distribution amount perunit from reserve for temporary
difference adjustments)

17th period

18th period

19th period

20th period

21st period

July 1, 2014 to January 1, 2015 to July 1, 2015 to January 1, 2016 to July 1, 2016 to
December 31, 2014 June 30, 2015 December 31, 2015 June 30, 2016 December 31, 2016
3,040,640

3,098,080

3,385,019

3,113,717

3,406,981

275

717

261,241641

409

3,040,364

3,097,363

3,161,125

3,113,075

3,406,571(2,507)(2,554)(2,500)(2,462)(2,609)3,040,364

3,097,363

3,161,125

3,113,075

3,406,571(2,507)(2,554)(2,500)(2,462)(2,609)

–

－

－

－

－

(–)

(－)

(－)

(－)

(－)

–

－

－

－

－

(–)

(－)

(－)

(－)

(－)

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)8

Of total refund of investment
equity, total distribution amountfrom distribution reducing
unitholders’ capital for tax
purpose(Of refund of investment
equity per unit, distribution
amount per unit from
distribution reducing
unitholders’ capital for tax
purpose)

–

－

－

－

－

(–)

(－)

(－)

(－)

(－)

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

9(5) Policy and Issues on Future Investment Management
1) Outlook for investment environment
In the real estate market, while transaction yields are drawing closer to the level where room for further
lowering is scarce, real estate transaction prices are expected to remain high backed by factors such as thefavorable fund procurement environment and vigorous appetite for investment by market participants.
In the office building leasing market, the vacancy rate and the asking rent level are forecasted to improvecentering on competitive buildings for the time being, as the office demand is strong. However, focusing onmarket trends including corporate performances seems necessary going forward as increase in the amount ofoffice floor supply is expected mainly in central Tokyo.
2) Policy and issues on future investment management
For external growth, JEI will continue striving to acquire, including replacing assets, competitive properties
with well-balanced investments based on size, concentration and target area to increase asset size and realize
stable profitability in our portfolio over the medium to long term. To this end, we will continue enhancing
further interaction and collaboration with sponsor companies and have the asset management company
cultivate and refine property information sources in an effort to promptly gain access to market information
on disposition of properties and thereby keep seizing the right business opportunities. Furthermore, Mansard
Daikanyama acquired in the current period is a property developed by the sponsor.
For internal growth, JEI will continue to make efforts to capture the needs of existing tenants in a timely
manner by further strengthening finely-tuned relationships. JEI will aim to enhance earnings of the entire
portfolio by continuously making additional strategic investments in order to maintain asset value andimprove property competitiveness over the medium to long term while setting new rents based on market
trends as well as promoting upward rent revisions to realize rents that are more suitable for the property
value, along with the aforementioned initiatives.
Regarding financial operations, while fund procurement for long-term and with fixed interest rates willremain as our basic policies, JEI will consistently work on stable and sound financial operations. However,
JEI believes that flexible fund procurement through short-term borrowings with floating interest rates might
be an option while carefully monitoring change in long-term borrowing ratio and fixed rate ratio, and taking
into account the trend of financial environment, interest rate levels for relevant terms and the balance of
maturing debts in each fiscal period.
(6) Subsequent Events
None

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)10

2. Outline of the Investment Corporation(1) Investment units
17th
As of December
31, 2014

Fiscal period
Total number of units
authorized
Total number of units
issued and outstanding

18th
As of June 30,
2015

19th
As of December
31, 2015

20th
As of June 30,
2016

21st
As of December
31, 2016

10,000,000 units

10,000,000 units

10,000,000 units

10,000,000 units

10,000,000 units

1,212,750 units

1,212,750 units

1,264,450 units

1,264,450 units

1,305,700 units

Unitholders’ capital

127,950 million yen 127,950 million yen 134,434 million yen 134,434 million yen 139,972 million yen

Number of unitholders

7,917 individuals

7,848 individuals

8,465 individuals

7,686 individuals

7,850 individuals(2) Unitholders
Major unitholders as of December 31, 2016 are as follows:
Number ofunits held
(Units)Ratio of number ofunits held tooutstanding
investment units(%)

Japan Trustee Services Bank, Ltd.
1-8-11 Harumi, Chuo-ku, Tokyo(Trust Account)

350,343

26.83

The Master Trust Bank of Japan,
Ltd. (Trust Account)

2-11-3 Hamamatsu-cho, Minato-ku, Tokyo

143,145

10.96

Trust & Custody Services Bank,
Harumi Island Triton Square Office Tower Z,
Ltd. (Securities Investment Trust
1-8-12 Harumi, Chuo-ku, Tokyo
Account)

104,473

8.00

NIPPON STEEL KOWA REALESTATE CO., LTD.

1-15-5 Minami Aoyama, Minato-ku, Tokyo

71,560

5.48

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

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

52,434

4.02

The Dai-ichi Life Insurance
Company, Limited

1-13-1 Yuraku-cho, Chiyoda-ku, Tokyo

20,660

1.58

STATE STREET BANK AND
TRUST COMPANY 505012

ONE LINCOLN STREET, BOSTON MA
USA 02111

18,352

1.41

STATE STREET BANK - WEST
1776 HERITAGE DRIVE， NORTHPENSION FUND CLIENTS QUINCY，
MA 02171， U.S.A．
EXEMPT 505233

16,774

1.28

STATE STREET BANK AND
TRUST COMPANY 505223

P. O. BOX 351 BOSTONMASSACHUSETTS 02101 U.S.A.

16,144

1.24

CBNY DFA INTERNATIONALREAL ESTATE SECURITIESPORTFOLIO

388 GREENWICH STREET，NEW
YORK，NY 10013 USA

14,621

1.12

Total

808,506

61.92

Name

Address

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

11

(3) Officers
1) Directors and accounting auditor
Name

Post

Compensation or fee forthe six months ended
December 31, 2016
(Thousands of yen)

Major additional post

Executive
Director

Hidehiko Ogawa

President, Japan Excellent Asset Management
Co., Ltd.

Supervisory
Director

Tsuyoshi Nagahama

Advisor, Anderson, Mori & Tomotsune

Shunichi Maekawa

Professor, Faculty of Real Estate, Meikai
University

Eiji Takagi

Eiji Takagi Certified Public Accounting Office

Supervisory
Director
Supervisory
Director
Accounting
AuditorErnst & Young ShinNihon
LLC

–

6,540

19,200(Note 2)–

(Note 1) There are no investment units of JEI held by either the Executive Director or the Supervisory Directors. Although
Supervisory Directors may have additional posts in companies other than those listed above, there is no conflict of interests
between those companies, including those listed above, and JEI.
(Note 2) The total amount of compensation or fee shown above is an estimated amount and includes the fee for the English financial
statements audit and the preparation of a comfort letter upon the issuance of new investment units conducted in July 2016,etc.

2) Policy on dismissal and discontinuation of re-election of accounting auditor
The board of directors of JEI shall deliberate dismissal of accounting auditor in accordance with the provisions
set out in the Investment Trust Law, and deliberate discontinuation of re-election based on circumstances in all
respects.
3) Matters concerning an entity which received a business suspension order in the past two years

The accounting auditor of JEI received an order to suspend accepting new engagements for 3 months (fromJanuary 1, 2016, to March 31, 2016) from the Financial Services Agency on December 22, 2015.
(4) Name of Asset Management Company, Asset Custodian and Administrative Agents
Our asset management company, asset custodian and administrative agents as of December 31, 2016 are as follows:
Classification

Name

Asset management company

Japan Excellent Asset Management Co., Ltd.

Asset custodian

Mizuho Trust & Banking Co., Ltd.

Administrative agent(Transfer agent and other administrative work for accounting Mizuho Trust & Banking Co., Ltd.
and institution operation)
Administrative agent(Investment corporation bonds)

Mizuho Bank, Ltd.

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)12

3. Investment Portfolio of the Investment Corporation(1) Investment Portfolio by Area
Area
(Note 1)
Classification

20th Period(June 30, 2016)

21st Period(December 31, 2016)

Total
Total
acquisition
Investment
acquisition
Investment
price (Millions
ratio inprice (Millions
ratio inof yen)portfolio (%)
of yen)portfolio (%)(Note 2)
(Note 2)

Use

Area I

3,800

1.3

3,808

1.3

Area II

5,708

2.0

5,645

1.9

Office Area I
building Area II

104,96237.0

116,091

39.2

9,132

3.2

9,107

3.1

Area III

102,34236.1

102,242

34.5

Area IV

18,995

6.7

18,896

6.4

OthersTrust beneficiary (commercial
interest in realfacilities, Area I
estateresidence,
etc.)

18,308

6.5

18,166

6.1

Total

263,24992.8

273,958

92.5

Deposits in bank and other assets

20,404

7.2

22,122

7.5

Total assets

283,653

100.0

296,081100.0

Real estate property

Trust beneficiaryinterest in realestate(Note 1) Areas are classified as follows:
Area I: Six central wards of Tokyo (Chiyoda, Chuo, Minato, Shinjuku, Shinagawa and Shibuya)
Area II: Central Osaka (Umeda, Dojima, Nakanoshima, Yodoyabashi, Honmachi, etc.), Central Nagoya (Meieki, Fushimi,
Sakae, etc.) and Central Fukuoka (Tenjin, Hakata-ekimae, etc.).
*Central Osaka refers to the areas within about a 10-minute walk from JR Osaka Station, Umeda Station (Hankyu
Railway, Hanshin Electric Railway, and Osaka City Subway), Yodoyabashi Station (Osaka City Subway) or
Honmachi Station (Osaka City Subway), respectively. Central Nagoya refers to the areas within about a 10minute walk from Nagoya Station (JR, Nagoya City Subway, and Nagoya Railroad), Fushimi Station (Nagoya
City Subway), or Sakae Station (Nagoya City Subway and Nagoya Railroad), respectively. Central Fukuoka
refers to the areas within about a 10-minute walk from Hakata Station (JR and Fukuoka City Subway), Tenjin
Station (Fukuoka City Subway) and Nishitetsu Fukuoka Station (Nishi-Nippon Railroad), respectively. They are,however, not always in line with administrative districts.
Area III: Tokyo other than Area I, and its vicinity (Kanagawa, Saitama, and Chiba)
Area IV: Areas in Osaka, Nagoya and Fukuoka other than Area II, and other government designated cities.
The same applies hereinafter.
(Note 2) Total acquisition price is based on the amounts accounted for in the balance sheets as of the settlement date (amounts of realestate property and trust beneficiary interest in real estate are based on the book value after depreciations).

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

13

(2) Major Property
The principal properties (top ten properties in net book value) owned by JEI as of December 31, 2016 are as
follows:
Ratio of rental
Book value
Leasable space Leased space Occupancy revenue to total
Name
Major use
(Millions ofrate (%)(m2) (Note 1)(m2) (Note 2)
rental revenues(Note 3)yen)(%)
Kowa Kawasaki
Office28,98938,375.66
38,049.02
99.1
8.7
Nishiguchi Buildingbuilding
OfficeAKASAKA INTERCITY
5.5
27,253
11,021.03
11,021.03
100.0
building
Nisseki Yokohama
Office24,38240,440.73
39,748.67
98.3
10.7
Buildingbuilding
OfficeAkasaka Garden City
3.7
22,321
8,769.53
8,769.53
100.0
building
OfficeOmori Bellport D
8.8
21,15425,801.66
25,801.66
100.0
building
Other(commercial
HAMARIKYU
18,166
19,718.11
19,388.91
98.3
6.7 facilities,
INTERCITY
residence,etc.)
Musashikosugi Tower
Office12,74325,159.49
25,159.49
100.0
7.5
Place
building
OfficeMansard Daikanyama
2.8
11,4755,420.80
5,278.26
97.4
building
Daiba Garden City
Office10,145
12,122.85
12,122.85
100.0
3.1
Buildingbuilding
Kowa Kawasaki
Office9,565
18,612.72
18,612.72
100.0(Note 4)
Higashiguchi Buildingbuilding
Total

186,198

205,442.58

203,952.14

99.3

－

－

(Note 1) Leasable space refers to space available for lease of which ownership is attributable to JEI as of December 31, 2016. For
properties with joint ownership, the value is obtained by multiplying the total leasable space of the shared property by thepercentage of the interest owned by JEI, regarding the figure as JEI’s leasable space.
(Note 2) Leased space refers to space with lease contracts or master lease agreements that guarantee a certain amount of fixed rent
payment concluded with end tenants as of December 31, 2016. For properties with joint ownership, the value is obtained bymultiplying the total leased space of the property by the percentage of the interest owned by JEI, regarding the figure as
JEI’s leased space. For properties which are used for profit by the master lease company, leased space refers to the portion
used and the figures indicate space which can be reasonably calculated based on the lease agreement on the master leasing.
The leased space of end tenants who terminated their lease arrangement but have not yet moved out as of the end of period
is included in the leased space. This also applies to any figure which is calculated based on “leased space” in this document.
(Note 3) Occupancy rate is a percentage of total leased space to total leasable space as of December 31, 2016.
(Note 4) The values of Kowa Kawasaki Higashiguchi Building are not disclosed as consent on disclosure from the end tenants havenot been obtained.

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

14

(3) Portfolio Ownership Breakdown
Real estate properties and their forms of ownership as of December 31, 2016 are as follows:
Property
No.

Property nameLocation (Residential address)-1

Omori Bellport D

6-26-3 Minami-Oi, Shinagawa-ku, Tokyo-2

Shiba 2-Chome Building

2-6-1 Shiba, Minato-ku, Tokyo-3

JEI Hamamatsucho Building

2-2-12 Hamamatsu-cho, Minato-ku, Tokyo-7

Akasaka Garden City

4-15-1 Akasaka, Minato-ku, Tokyo-8

AKASAKA INTERCITY

1-11-44 Akasaka, Minato-ku, Tokyo-9

Kowa Shirokanedai Building

3-19-1 Shirokanedai, Minato-ku, Tokyo

Ｉ-10

Daiba Garden City Building

2-3-5 Daiba, Minato-ku, Tokyo-12

HAMARIKYU INTERCITY

1-9-1 and 15 Kaigan, Minato-ku, Tokyo

-13

Shintomicho Building

3-10-9 Irifune, Chuo-ku, Tokyo-14

Kowa Nishi-Shimbashi Building

2-1-1 Nishi-Shimbashi, Minato-ku, Tokyo-15

Mansard Daikanyama

10-1 Sarugakucho, Shibuya-ku, Tokyo

-1
-2
-3

-1
-2
-3
-5
-6
-7
-8
-9
-10
-11
-12

-2
-3
-4
-5
-6
-7

Form of ownership
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Real estate
Trust beneficiaryinterest in real estate

Area I
1-13-3 Higashi-Sakura, Higashi-ku, Nagoya-shi,
Real estate
Aichi
Trust beneficiary
JEI Nishi-Honmachi Building
1-3-15 Awaza, Nishi-ku, Osaka-shi, Osakainterest in real estate
Osaka Kogin Building (Land with
Trust beneficiary
4-1-1 Koraibashi, Chuo-ku, Osaka-shi, Osaka
Leasehold Interest)
interest in real estate
Area II
1-403 Kosugi-machi, Nakahara-ku, KawasakiTrust beneficiary
Musashikosugi Tower Placeshi, Kanagawa
interest in real estate
Kowa Kawasaki Higashiguchi
1-53 Nisshin-cho, Kawasaki-ku, Kawasaki-shi, Trust beneficiary
Building
Kanagawa
interest in real estate
Trust beneficiary
JEI Hongo Building
2-38-16 Hongo, Bunkyo-ku, Tokyo
interest in real estate
7-1 Nisshin-cho, Kawasaki-ku, Kawasaki-shi,
Trust beneficiary
Kawasaki Nisshincho Building
Kanagawa
interest in real estate
Trust beneficiaryNo. 44 Kowa Building
1-2-7 Higashiyama, Meguro-ku, Tokyo
interest in real estate
Trust beneficiary
JEI RYOGOKU BUILDING
3-25-5 Ryogoku, Sumida-ku, Tokyo
interest in real estate
Trust beneficiary
Ebina Prime Tower
2-9-50 Chuo, Ebina-shi, Kanagawa
interest in real estate66-2 Horikawa-cho, Saiwai-ku, Kawasaki-shi,
Trust beneficiary
Kowa Kawasaki Nishiguchi Building
Kanagawa
interest in real estate
Trust beneficiary
Pacific Square Sengoku
2-29-24 Hon-Komagome, Bunkyo-ku, Tokyo
interest in real estate
Trust beneficiaryCore City Tachikawa
2-37-7 Akebono-cho, Tachikawa-shi, Tokyo
interest in real estate
1-1-8 Sakuragi-cho, Naka-ku, Yokohama-shi,
Trust beneficiary
Nisseki Yokohama Building
Kanagawa
interest in real estate
Area III
2-2-48 Kata-machi, Tsushima-ku, Osaka-shi,
Trust beneficiary
JEI Kyobashi Building
Osakainterest in real estate14-4 Hacchobori, Naka-ku, Hiroshima-shi,
Trust beneficiary
JEI Hiroshima Hacchobori Building
Hiroshimainterest in real estate
1-1-2 Kitananajonishi, Kita-ku, Sapporo-shi,
Trust beneficiary
SE Sapporo Building
Hokkaido
interest in real estate
Trust beneficiary
Aoba-dori Plaza
3-2-1 Chuo, Aoba-ku, Sendai-shi, Miyagi
interest in real estate
2-6, 2-chome Kita Tenjinbashi, Kita-ku,
Trust beneficiary
Daiwa Minami-morimachi Building
Osaka-shi, Osakainterest in real estate
Trust beneficiary
JEI Naha Building
2-8-1 Kumoji, Naha-shi, Okinawa
interest in real estate
Area IV
NHK Nagoya Housou-Center
Building

Total

Appraisal value
at end of period Net book value(Millions of yen) (Millions of yen)
(Note)
25,40021,154

11,600

8,883

7,210

8,288

17,60022,32125,60027,253

4,990

4,802

12,30010,14522,30018,166

1,960

1,765

4,000

3,808

12,00011,475

144,960

138,066

5,710

5,645

4,570

7,242

2,090

1,865

12,37014,753

19,50012,743

9,260

9,565

4,680

5,126

4,110

4,413

1,740

1,012

2,160

2,271

3,910

5,835

25,30028,989

1,330

1,656

8,020

6,244

25,80024,382

105,810102,242

4,060

3,026

3,150

2,636

6,630

5,274

3,360

2,191

5,070

4,304

1,470

1,462

23,74018,896

286,880

273,958(Note) Appraisal value at end of period indicates the appraisal value described in the real estate appraisal report prepared by realestate appraisers belonging to Japan Real Estate Institute, Chuo Real Estate Appraisal Co., Ltd., Japan Valuers Co., Ltd. andDaiwa Real Estate Appraisal Co., Ltd. as of December 31, 2016 pursuant to the articles of incorporation of JEI and theregulations stipulated by the Investment Trusts Association, Japan. For properties with joint ownership in the current portfolio,

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

15

the value is obtained by multiplying the total value of the shared real estate by the percentage of the interest owned by JEI or
the trustee.

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

16

Property
No.

Ⅰ-1
Ⅰ-2
Ⅰ-3
Ⅰ-7
Ⅰ-8
Ⅰ-9
Ｉ-10
Ⅰ-12
Ⅰ-13
Ⅰ-14
Ⅰ-15
Ⅱ-1
Ⅱ-2
Ⅱ-3

Ⅲ-1
Ⅲ-2
Ⅲ-3
Ⅲ-5
Ⅲ-6
Ⅲ-7
Ⅲ-8
Ⅲ-9
Ⅲ-10
Ⅲ-11
Ⅲ-12
Ⅳ-2
Ⅳ-3
Ⅳ-4
Ⅳ-5
Ⅳ-6
Ⅳ-7

Property name

Omori Bellport D
Shiba 2-Chome Building
JEI Hamamatsucho
Building
Akasaka Garden CityAKASAKA
INTERCITY
Kowa Shirokanedai
Building
Daiba Garden City
Building
HAMARIKYUINTERCITY
Shintomicho Building
Kowa Nishi-Shimbashi
Building
Mansard Daikanyama
Area I
NHK Nagoya HousouCenter Building
JEI Nishi-Honmachi
Building
Osaka Kogin Building(Land with Leasehold
Interest)
Area II
Musashikosugi Tower
Place
Kowa Kawasaki
Higashiguchi Building
JEI Hongo Building
Kawasaki Nisshincho
Building
No. 44 Kowa Building
JEI Ryogoku Building
Ebina Prime Tower
Kowa Kawasaki
Nishiguchi Building
Pacific Square Sengoku
Core City Tachikawa
Nisseki Yokohama
Building
Area IIIJEI Kyobashi Building
JEI Hiroshima
Hacchobori Building
SE Sapporo Building
Aoba-dori Plaza
Daiwa Minamimorimachi Building
JEI Naha Building
Area IV
Total

20th Period
21st Period
January 1, 2016 to June 30, 2016
July 1, 2016 to December 31, 2016
Ratio ofRatio of
Total number
Total number
Occupancy Rental revenue
rentalOccupancy Rental revenue
rentalofofrate (At end(Interim)
revenue torate (At end(Interim)
revenue totenants
tenantsof period)(Millions of
total rentalof period)(Millions of
total rental(At end(At end(%)yen)
revenues(%)yen)
revenuesof period)of period)(Note 1)
(Note 1)
(%)
(%)
1
99.6
929
9.1
1
100.0
938
8.8
2
99.2
372
3.6
2
100.0
373
3.5
1

100.0

208

2.0

1

100.0

210

2.0

1

100.0

379

3.7

1

100.0

395

3.7

14

100.0

549

5.4

14

100.0

581

5.5

1

100.0

161

1.6

1

100.0

165

1.6

1

100.0

334

3.3

1

100.0

334

3.1

1

98.5

720

7.0

1

98.3

713

6.7

10

95.4

68

0.7

11

100.0

69

0.7

6

100.0

(Note 2)

(Note 2)6100.0(Note 2)

(Note 2)

38

99.5

-

-

7
46

97.4
99.6

299
-

2.8
-

31

95.1

370

3.6

31

95.3

372

3.5

1

100.0

193

1.9

1

100.0

196

1.8

1

100.0

83

0.8

1

100.0

83

0.8

33

97.8

-

-

33

97.9

-

-

37

100.0

789

7.7

37

100.0

797

7.5

1

100.0

(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)

1

100.0

190

1.9

1

100.0

191

1.8

1
1
36

100.0
97.8
98.6

85
103
421

0.8
1.0
4.1

1
1
37

100.0
100.0
98.8

88
104
413

0.8
1.0
3.9

1

98.7

924

9.0

1

99.1

923

8.7

9
1

95.5
98.5

49
324

0.5
3.2

9
1

95.5
98.5

49
309

0.5
2.9

1

99.7

1,129

11.0

1

98.3

1,134

10.7

90
1

99.3
94.3

159

1.6

91
1

99.1
91.8

166

1.6

1

98.9

144

1.4

1

98.2

149

1.4

1
53

100.0
99.4

354
183

3.5
1.8

1
53

99.2
99.4

369
188

3.5
1.8

10

100.0

196

1.9

10

100.0

198

1.9

1
67
228

100.0
98.8
99.1

73
10,223

0.7
100.0

1
67
237

95.8
97.6
99.0

74
10,6530.7
100.0(Note 1) Total number of tenants indicates the total number of tenants in each property as of the end of each period. For properties forwhich master lease agreements have been concluded, the number of tenants is counted as one per property. When a tenant
has multiple tenancies in the same property, it is counted as one tenant, and when in multiple properties, it is counted as
multiple tenants. As for Osaka Kogin Building (Land with Leasehold Interest), total number of tenants is counted as one
based on the lease agreement for the leased land.
(Note 2) Rental revenue (interim) and ratio of rental revenue to total rental revenues for Kowa Nishi-Shimbashi Building, Kowa
Kawasaki Higashiguchi Building and JEI Hongo Building are not disclosed as consents on disclosure of rents from the end
tenants have not been obtained.

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

17

(4) Securities Portfolio
None(5) Renewable power generation facility
None(6) Right to operate public facilityNone(7) Other Assets
1) Contract amount and fair value of specified transactions and foreign exchange forwards transactions
Fair value
Contract amount (Thousands of yen) (Note 1)(Thousands of yen)
(Note 2)
Classification
Type
Over one year

Over-the-countertransaction

Interest rate swap
transactions
Floating interest ratereceivable
Fixed interest rate
payable60,140,000

46,140,000–(Note 1) Contract amount of swap transactions is calculated based on notional principal.
(Note 2) Fair value is omitted for presentation as over-the-counter transactions meet requirements for special accounting under the
Accounting Standard for Financial Instruments.

(8) Status of JEI’s properties by country and region
None for JEI’s properties in countries or regions other than Japan.

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)18

4. Capital Expenditures for Owned Properties(1) Scheduled Capital Expenditures
The following table shows major items of scheduled capital expenditures for repairs and maintenance planned
for the properties owned by JEI as of the end of the 21st period (ended December 31, 2016). The values below
include portions to be expensed for accounting purposes.
Estimated construction costs(Millions of yen)
Paymentforthe six
Property nameLocation
PurposeSchedule term
Total ofmonths advance
Total
ended
payment
December31, 2016
SE Sapporo
Building

Sapporo-shi,
Hokkaido

Musashikosugi
Tower Place

Kawasaki-shi,
Kanagawa

NHK Nagoya
Housou-Center
Building
JEI Nishihonmachi
Building
NissekiYokohama
Building

Renewal of common
space

Nagoya-shi, Aichi

Renewal of wallthrough type air
conditioner (5/5th
term)
Renewal of air
conditioners in lower
floorsFrom February 2017
To June 2017

203

－

－

From January 2017
To March 2017

91

－

－

From July 2016
To March 2017

62

－

－

Osaka-shi, Osaka

Renewal of heatsource chiller

From April 2017
To May 2017

42

－

－

Yokohama-shi,
Kanagawa

Replacement ofintegrating electricity
meter

From October 2016
To March 2017

36

－

－

(2) Capital Expenditures for the Six months Ended December 31, 2016
The following table shows constructions conducted by JEI during the period ended December 2016 andexpensed as capital expenditures. Capital expenditures for the period ended December 2016 were 1,294
million yen and, when combined with repairs and maintenance costs of 267 million yen classified as expenses
in the period under review, the amount of constructions completed totaled 1,561 million yen.

Property nameLocation

PurposeScheduled term

Amounts
Paid(Millions ofyen)

Nisseki Yokohama
Building

Yokohama-shi,
Kanagawa

Renewal of air-conditioning
systems

From April 2015
To October 2016

514

Musashikosugi Tower
Place

Kawasaki-shi,
Kanagawa

Renewal of wall-throughtype air conditioner (4/5th
term)

From July 2016
To December 2016

117

Ebina Prime Tower

Ebina-shi, Kanagawa

Renewal of central
monitoring equipment

From March 2016
To December 2016

98

JEI Naha Building

Naha-shi, Okinawa

Renewal of common space

From July 2016
To December 2016

55

–

509

Other constructions
Total

1,294

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

19

(3) Reserved Funds for Long-term Repairs and Maintenance Plans
Based on our long-term repairs and maintenance plans developed for each property, JEI has set aside thefollowing cash reserves, derived from depreciation and other excess cash flows, in order to fund large-scale
repairs and maintenance and other construction.
(Unit: Millions of yen)Item

21st Period
19th Period
17th Period
20th Period
18th Period
July 1, 2016 toJuly 1, 2015 toJuly 1, 2014 toJanuary 1, 2016
January 1, 2015
December 31,
December 31,
December 31,
to June 30, 2016
to June 30, 2015
2016
2015
2014

Reserved funds at beginning of
period

368

316

317

310

436

Increase

80

119

65

619

675

Decrease

132

118

72

492

662

Reserved funds at the end of
period

316

317

310

436

450

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)20

5. Expenses and Liabilities(1) Expenses Associated with Asset Management(Unit: Thousands of yen)Account

20th Period
January 1, 2016
to June 30, 2016

21st Period
July 1, 2016
to December 31, 2016(a) Asset management fees

424,387

442,497(b) Custodian fees

21,211

21,155(c) Administrative service fees

41,17840,025(d) Compensation for directors

6,540

6,540

(e) Accounting auditor fees

11,00011,000(f) Other

81,12561,502585,442582,721

Total

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

21

(2) Borrowings
Borrowings by each financing source as of the end of the 21st period (ended December 31, 2016) are as follows:
Classification
Lender

Nippon Life Insurance Company

Drawdown
date
December
10, 2015

Balance at
beginning of
period(Thousands ofyen)
1,000,000

Balance at end of
Averageperiodinterest rate
(Thousands of(%) (Note 1)
yen)－

0.26148

Maturity
date

Repayment
methodUse

DecemberAcquisition

10, 2016

of real estate

Short-term

Remarks

Unsecuredandof investment unguaranteed

Lump- Redemption

loans
Mizuho Bank, Ltd. (Note 2)

November2, 2016－

1,000,000

0.23000

Septembersum

29, 2017

corporationbonds

Sub Total
Mitsui Sumitomo Trust & Banking Co.,Ltd.

November

1,000,000

1,000,000

1,620,000－

1,080,000

Mizuho Bank, Ltd.

520,000－－－

Mizuho Bank, Ltd.

2,000,000

2,000,000

1,500,000

1,500,000

1,500,000

1,500,000

Mizuho Bank, Ltd.

1,500,000

1,500,000

Mitsubishi UFJ Trust and Banking

1,300,000

1,300,000

Sumitomo Mitsui Banking Corporation
Mitsubishi UFJ Trust and Banking

Mitsubishi UFJ Trust and Banking
Sumitomo Mitsui Banking Corporation

29, 2011

January 31,
2012

540,000

Sumitomo Mitsui Banking Corporation

July 31,1,200,000

1,200,000

Long-term Sompo Japan Nipponkoa Insurance Inc.
Loans due
within one Tokio Marine & Nichido Fire Insurance
year
Co., Ltd.

2012

2,000,000

2,000,000

1,000,000

1,000,000－

6,000,000

－
－
－
－
－
－
－

1,000,000

Development Bank of Japan Inc.
Mizuho Bank, Ltd.
Mitsubishi UFJ Trust and Banking
Sumitomo Mitsui Banking Corporation

November30, 2010
July 31,2012

Mizuho Bank, Ltd.
Aozora Bank, Ltd.
Resona Bank, Ltd.

June 28,

Sompo Japan Nipponkoa Insurance Inc.

2013

Tokio Marine & Nichido Fire InsuranceCo., Ltd.
Sub Total

1,000,000
1,000,000
1,000,000
500,000
500,000
500,000－

500,000

15,760,000

24,000,000

1.24375 November(Note 3)29, 2016

1.24750(Note 3)1.03000 January 31,(Note 3)2017

1.09734

Lump-(Note 3)sum

Repayment Unsecuredof existingandborrowing unguaranteed

1.73875(Note 3)1.08375(Note 3)1.04550

November30, 2017(Note 3)

1.19212(Note 3)

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

22Classification
LenderDrawdown
date
November

Balance at
beginning of
period(Thousands ofyen)

Balance at end of
Averageperiodinterest rate
(Thousands of(%) (Note 1)
yen)

6,000,000－

1,000,000

1,000,000－－－

Mizuho Bank, Ltd.

1,000,000－

Aozora Bank, Ltd.

500,000

500,000－－－

500,000－－－－

1,500,000

3,000,000

3,000,000

5,000,000

5,000,000

2,000,000

2,000,000

1,100,000

1,100,000

1,000,000

1,000,000

200,000

200,000

Development Bank of Japan Inc.
Mizuho Bank, Ltd.
Mitsubishi UFJ Trust and Banking
Sumitomo Mitsui Banking Corporation

Resona Bank, Ltd.
Sompo Japan Nipponkoa Insurance Inc.

30, 2010
July 31,2012

June 28,
2013

Tokio Marine & Nichido Fire InsuranceCo., Ltd.
Mizuho Bank, Ltd.
Mitsubishi UFJ Trust and Banking
Sumitomo Mitsui Banking Corporation

November29, 2016

The Dai-ichi Life Insurance Company

June 29,

Limited

2011

Mizuho Bank, Ltd.
Long-term Mitsubishi UFJ Trust and Banking
loans
Sumitomo Mitsui Banking Corporation
The Norinchukin Bank
Resona Bank, Ltd.

June 28,2013

1,000,000

500,000

Maturitydate

1.08375(Note 3)
November
1.0455030, 2017(Note 3)

1.192122,500,000(Note 3)0.23000

2,000,000

May 29,2018

1.65125

June 29,(Note 3)2018
Lumpsum

0.81225

June 30,(Note 3)2018

700,000

700,000

1,000,000

1,000,000

The Norinchukin Bank

1,450,000

1,450,000

Mizuho Bank, Ltd.

850,000

850,000

0.74500 November 1,

Mitsubishi UFJ Trust and Banking

850,000

850,000(Note 3)2018

March 11,600,000

600,0002014

1,450,000

1,450,000

Mizuho Bank, Ltd.

850,000

850,000

0.77500

March 8,Mitsubishi UFJ Trust and Banking

850,000

850,000(Note 3)2019

Mizuho Trust & Banking Co., Ltd.

600,000

600,000－

1,000,000

4,600,000

4,600,000

4,400,000

4,400,000

4,000,000

4,000,000

Nippon Life Insurance Company
Mitsubishi UFJ Trust and Banking
Mizuho Trust & Banking Co., Ltd.
Sumitomo Mitsui Banking Corporation

December
12, 2016
June 29,
2016

Remarks(Note 3)

Shinkin Central Bank

The Norinchukin Bank

Use

1.73875

The Bank of Fukuoka

Mizuho Trust & Banking Co., Ltd.

Repayment
methodRepayment Unsecuredof existingandborrowing unguaranteed

0.25000 December(Note 3)0.28120

12, 2019
December30, 2019

Asset Management Report for 21st period (Semi-Annual Report for 21st Period)

23

Classification
LenderDevelopment Bank of Japan Inc.

Drawdown
date
January 31,
2012

Mizuho Bank, Ltd.
Mitsubishi UFJ Trust and Banking

Balance at
beginning of
period(Thousands ofyen)

Balance at end of
Averageperiodinterest rate
(Thousands of(%) (Note 1)
yen)

2,000,000

2,000,000

500,000

500,000

500,000

500,000

1.36400

June 28,

1,000,000

1,000,000(Note 3)

Mizuho Trust & Banking Co., Ltd.

2013

600,000

600,000

LimitedThe Norinchukin Bank

1,000,000

1,000,000

1,162,500

1,162,500

2020

December

675,000

675,000

1.00000

27, 2013

675,000

675,000(Note 3)

487,500

487,500

2,000,000

2,000,000

1.60750(Note 3)0.98834(Note 3)2021

0.40727

November29, 2021

Development Bank of Japan Inc.
The Dai-ichi Life Insurance Company
LimitedJuly 31,2014

2,000,000

2,000,000－－－－

520,000

November29, 2016

Mizuho Bank, Ltd.
Mitsubishi UFJ Trust and Banking
Sumitomo Mitsui Banking Corporation
Sumitomo Mitsui Trust Bank Limited
Mitsubishi UFJ Trust and Banking

540,000
1,080,000

June 30,

1,620,000

2,000,000

2,000,000

Mizuho Bank, Ltd.

December

1,950,000

1,950,000

0.81875 December

Mizuho Trust & Banking Co., Ltd.

29, 2014

1,200,000

1,200,000(Note 3)600,000

600,000

2,000,000

2,000,000

Long-term
Resona Bank, Ltd.
loans

Development Bank of Japan Inc.

July 31,2014

Mitsubishi UFJ Trust and Banking

1.15417(Note 3)30, 2021
June 30,2022

2,000,000

2,000,000

Mizuho Bank, Ltd.

December

1,950,000

1,950,000

0.93625 December

Mizuho Trust & Banking Co., Ltd.

29, 2014

1,200,000

1,200,000(Note 3)30, 2022

600,000

600,000

2,000,000

2,000,000

1.20250(Note 3)June 30,
2023

Mizuho Trust & Banking Co., Ltd.

1,560,000

1,560,000

The Norinchukin Bank

1,500,000

1,500,000

Resona Bank, Ltd.
Development Bank of Japan Inc.

June 30,
2015

Aozora Bank, Ltd.

750,000

750,000

Resona Bank, Ltd.

November

500,000

500,000

0.84375 November

Mizuho Bank, Ltd.

30, 2015(Note 3)420,000

420,000

Mitsubishi UFJ Trust and Banking

250,000

250,000

The Bank of Fukuoka

150,000

150,000

Sumitomo Mitsui Banking Corporation

140,000

140,000

Mizuho Trust & Banking Co., Ltd.

1,560,000

1,560,000

Resona Bank, Ltd.

1,000,000

1,000,000

Mizuho Bank, Ltd.

870,000

870,000

750,000

750,000

590,000

590,000

Sumitomo Mitsui Banking Corporation

350,000

350,000

The Bank of Fukuoka

150,000

150,000

Sub Total

85,140,000

83,900,000

Total

101,900,000

108,900,000

Aozora Bank, Ltd.
Mitsubishi UFJ Trust and Banking

November30, 2015

Remarks(Note 3)

Mitsubishi UFJ Trust and Banking

June 28,
2013

Use

January 31,
1.31261

Mizuho Bank, Ltd.

Mizuho Trust & Banking Co., Ltd.

Repayment
method1.60000(Note 3)

Sumitomo Mitsui Banking Corporation

The Dai-ichi Life Insurance Company

Maturity
date

Lumpsum

Repayment Unsecuredof existingandborrowing unguaranteed

30, 2023

0.96275 November(Note 3)30, 2024

Asset Management Report for 20th period (Semi-Annual Report for 20th Period)24

(Note 1) The average interest rates are calculated using a weighted-average of the loan balance during the period. Borrowings
hedged by interest rate swaps to avoid interest rate fluctuation risk are calculated using a weighted average rate adjusting
the effect of the interest rate swaps.
(Note 2) Conducted debt financing of 3,000,000 thousand yen on November 2, 2016 and partial early repayment of 2,000,000
thousand yen on December 30, 2016.
(Note 3) Loans are fixed-rate loans (including loans with fixed-rate interest using interest rate swaps).

Asset Management Report for 20th period (Semi-Annual Report for 20th Period)

25

(3) Investment Corporation Bonds
The outstanding investment corporation bonds issued by JEI as of December 31, 2016 are as follows:
Issue

3rd series unsecured
investment corporationbonds
4th series unsecured
investment corporation
bonds
5th series unsecured
investment corporationbonds
6th series unsecured
investment corporation
bonds
7th series unsecured
investment corporation
bonds

Balance at
beginning ofIssuance dateperiod(Thousands ofyen)

Balance at endof period(Thousands ofyen)Interest rate(%)

Maturity date

5,000,000－

1.01000

November 4,
2016

November 4,
2011

Use

2,000,000

1.40000

November 2,
2018(Note 2)5,000,000

5,000,000

0.46000

5,000,000

5,000,000

0.46000

March 11,2019

March 10,2014

Lump-sum
8,000,000

8,000,000

1.13000

March 11,2024

(Note 3)8th series unsecured
investment corporation
bonds

September 9,2015

5,000,000

5,000,000

1.03000

September 9,2025(Note 2)

9th series unsecured
investment corporation
bonds

October 27,
2016－

2,000,000

0.45000

October 27,
2026(Note 4)10th series unsecured
investment corporation
bonds

December 20,
2016－

2,000,000

0.39000

December 20,
2023(Note 2)30,000,000

29,000,000

Total(Note 1)
(Note 2)
(Note 3)(Note 4)(Note 5)

Remarks(Note 1)2,000,000

November25, 2013

Repayment
method(Note 5)

The funds were used for acquiring new properties.
The funds were used for repaying existing borrowings.
The funds are used for redeeming existing investment corporation bonds and repaying existing borrowings.
The funds are used for redeeming existing investment corporation bonds.
The bonds are with special pari passu conditions among specified investment corporation bonds.

(4) Short-Term Investment Corporation Bonds
None(5) Subscription rights for New Investment Units
None

Asset Management Report for 20th period (Semi-Annual Report for 20th Period)26

6. Condition of Investment Transactions(1) Transactions of Property, Asset-Backed Securities, etc. and Infrastructure Assets, etc.
and Infrastructure Related Assets(millions of yen)Type of assets

Name ofproperty

Trust beneficiaryinterest in real estate

Mansard
Daikanyama

Total(Note)

Acquisition

Transfer

Acquisitiondate

Acquisition
price (Note)

July, 1, 2016

11,420－11,420Transferdate

TransferamountNet book
value

Gain (loss)
on transfer

－

－

－

－

－

－

－

－

The acquisition price indicate the amounts excluding related expenses (brokerage fee, taxes, etc.) required for theacquisition, thus are the purchase amounts of real estate stated in the trust beneficiary interest purchase agreements(2) Transactions of Other Assets
None(3) Appraisal and Research for Specified Asset Value, etc.
1) Real estate, etc.
(millions of yen)
Acquisition
or Transfer

Name ofproperty

Type ofassetsAcquisitiondate

Acquisition price(Note)

Appraisal
Value

Appraiser

Appraisal
Date

Trust
beneficiary
July, 1,
Japan RealMay 1,
Acquisition
11,42011,600interest in
2016
Estate Institute2016
real estate(Note) The acquisition price is the purchase price of the property stated in the purchase agreement (excluding the amountequivalent to consumption taxes, etc.).
Mansard
Daikanyama2) OthersNone(4) Transactions with Interested Parties
1) Transactions(Unit: Million yen)Classification
Total amount

Acquisition price or disposal amount
Acquisition price

Disposal amount
11,420－11,420 (100.0%)－(－%)

11,420 (100.0%)－(－%)

Breakdown for transactions with interested parties
YK Daikanyama Challengers
Total(Note)

Interested parties refers to the interested parties of the asset management company, which has concluded an asset
management agreement with JEI as prescribed in Article 123 of the Investment Trust Enforcement Order and Section 26,
Paragraph 1, Item 27 of the Regulations for Management Reports Concerning Investment Trusts and Investment
Corporations of the Investment Trusts Association, Japan.

Asset Management Report for 20th period (Semi-Annual Report for 20th Period)272) Amounts of fees paid and other expenses(Unit: Thousands of yen)Classification

Property management
costs and fees

Total amount paid (A)Breakdown of transactions with interested parties
Paid toNIPPON STEEL KOWA
REAL ESTATE CO., LTD.
Kowa Real Estate Facilities,
1,422,920 Co., Ltd.
Nippon Steel Community
Service Co., Ltd.

Property transaction
brokerage fees
Total

NIPPON STEEL KOWA
57,100 REAL ESTATE CO., LTD.
1,480,020–

Amount paid (B)B/A

175,11212.3%

271,313

19.1%

88

0.0%

57,100100.0%

503,61334.0%(Note 1) Figures indicate fees paid to interested parties of asset management companies with whom JEI had transactions during thesix months ended December 31, 2016.
(Note 2) Other than the Total amount paid indicated above, the following payments were made for maintenance and repair work, etc.
which were ordered to interested parties during the period.
NIPPON STEEL KOWA REAL ESTATE CO., LTD.
5,618 thousand yen
KOWA REAL ESTATE FACILITIES CO., LTD.
132,423 thousand yen(5)Transactions with Asset Management Company Concerning the Additional Businesses of
the Asset Management Company
The Asset Management Company (Japan Excellent Asset Management Co., Ltd.) does not conduct any
additional business falling under the categories of the type I financial instruments business, type II financial
instruments business, building lots and buildings transaction business, or real estate specified joint enterprise,and had no applicable transactions.

Asset Management Report for 20th period (Semi-Annual Report for 20th Period)28

7. Accounting(1) Assets, Liabilities, Principal, and Profit and Loss
For assets, liabilities, principal, and profit and loss, please refer to the attached Balance Sheets, Statements ofIncome and Retained Earnings, Statements of Changes in Net Assets, Notes to Financial Statements andDistribution Information.

(2) Change in Depreciation Calculation Method
No changes were made during the period.

(3) Change in Asset and Infrastructure Assets, etc. Valuation Method
No changes were made during the period

8. Others(1) Notice1) General unitholders’ meeting
There were no applicable items during the period.
2) Board of directors meeting
Major issues related to the execution and modification of major contracts approved by the board of directorsof JEI during the six months ended December 31, 2016 is summarized below.
Approval dateJuly 4, 2016

Approved agenda

Description

Conclusion of new investment
units underwriting agreement(agreement for entrustment ofgeneral administrative duties
concerning offering ofinvestment units)

With issuance of new investment units, anunderwriting agreement for the newinvestment units was concluded with Mizuho
Securities Co., Ltd., Nomura Securities Co.,
Ltd., Mitsubishi UFJ Morgan Stanley
Securities Co., Ltd., SMBC Nikko Securities
Inc. and Mito Securities Co., Ltd., entrustingthem with general administrative duties
concerning the offering of investment units.

(2) Investment Trust Beneficiary Certificates Incorporated by JEIThere were no applicable items during the period.

(3) Juridical Persons Owning Overseas Real Estate and Status of the Owned Real Estate
There were no applicable items during the period.

(4) Other
Unless otherwise stated, monetary amounts have been rounded down and percentage figures have beenrounded off to the nearest indicated unit in this Report.

Asset Management Report for 20th period (Semi-Annual Report for 20th Period)

29

9.

Risk Factors

An investment in JEI’s units involves significant risks. The principal risks with respect to investment in JEI are as
follows.
Property and Business Risks

Any adverse conditions in the Japanese economy could adversely affect JEI.



JEI may not be able to acquire properties to execute its growth and investment strategy in a manner that isaccretive to earnings.

Illiquidity in the real estate market may limit JEI’s ability to grow or adjust its portfolio.

The past experience of the Asset Management Company in the Japanese real estate market is not anindicator or guarantee of the future results.



JEI’s reliance on the core sponsors, the Asset Management Company and third party service providers could
have a material adverse effect on its business.

There are potential conflicts of interest between JEI and the core sponsors as well as the Asset Management
Company.



JEI’s revenues largely comprise leasing revenues from the portfolio properties, which may be negatively
affected by factors including vacancies, decreases in rent, and late or missed payments by tenants.



JEI invests primarily in office properties, the market for which may be affected by macro-economic
trends and other forces which JEI cannot control.



JEI faces significant competition in seeking tenants and it may be difficult to find replacement tenants.



Increases in prevailing market interest rates may increase JEI’s interest expense and may result in a decline in
the market price of JEI’s units.



JEI may suffer large losses if any of its properties incurs damage from a natural or man-made disaster suchas an earthquake, fire, flood, tsunami or typhoon.

Due to the concentration of JEI’s portfolio in the Tokyo metropolitan area, JEI’s business is highly
susceptible to circumstances and developments that may adversely impact that area.



Any inability to obtain financing for future acquisitions could adversely affect the growth of JEI’s
portfolio.

The ownership rights in some of JEI’s properties may be declared invalid or limited.



JEI’s lack of control over operating costs may adversely affect its business.

Liquidity and other limitations on JEI’s activities under debt financing arrangements may adversely affectits business, financial condition and results of operations.

Entering into forward commitment contracts or contracts to purchase properties under development may
expose JEI to contractual penalties and market risks.



Decreases in tenant leasehold deposits and/or security deposits may increase JEI’s funding costs.



JEI may lose rental revenues in the event of lease terminations, decreased lease renewals, or the default
of a tenant as a result of financial difficulty or insolvency, and is exposed to the risk of careless or
imprudent management of properties by tenants.



Master leases may give rise to certain risks.



JEI’s cost of complying with regulations applicable to its properties could adversely affect the results of its
operations.



Any property defect may adversely affect JEI’s financial condition and results of operations.



JEI relies on expert appraisals and engineering, environmental and seismic reports, which are subject tosignificant uncertainties.
JEI relies on industry and market data that are subject to significant uncertainties.



Asset Management Report for 20th period (Semi-Annual Report for 20th Period)30The environmental assessments of JEI’s properties made prior to its ownership may not uncover allenvironmental liabilities, and Japanese laws subject property owners to strict environmental liabilities.



JEI’s performance depends on the efforts of key personnel of the Asset Management Company.



JEI’s success depends on the performance of service providers to which it is required to assign various
key functions.



J-REITs and its asset managers are subject to tight supervision by the regulatory authorities.

Taxation Risks



JEI’s failure to satisfy a complex series of requirements pursuant to Japanese tax regulations would
disqualify JEI from certain taxation benefits and significantly reduce the cash distributions to theunitholders.



If the Japanese tax authorities disagree with our interpretations of the Japanese tax laws andregulations for prior periods, JEI may be forced to pay additional taxes for those periods.



JEI may not be able to benefit from reductions in certain real estate taxes enjoyed by qualified JREITs.



Changes in Japanese tax laws may significantly increase JEI’s tax burden.



JEI expects to be treated as a “passive foreign investment company” for U.S. federal income tax
purposes.



Unitholders may be subject to U.S. Foreign Account Tax Compliance Act (FATCA) withholding tax after
2018.

Legal and Regulatory Risks



JEI’s ownership rights in some of its properties may be declared invalid or limited.



JEI may lose its rights in a property if the purchase of the property is recharacterized as a secured
financing.



JEI’s leasehold or subleasehold rights may be terminated or may not be asserted against a third party in somecases.



JEI’s properties may be held in the form of stratified ownership (kubun shoyū) interests, and its rights
relating to such properties may be affected by the intentions of other owners.
JEI’s properties may be held in the form of a property or trust co-ownership interest (kyōyū-mochibun),and its rights relating to such properties may be affected by the intentions of other owners.
JEI may hold interests in some properties through preferred shares of special purpose companies (tokutei
mokuteki kaisha), and illiquidity in the market for such shares may limit its ability to sell its interest, andits rights relating to the properties held by such special purpose companies may be limited.



JEI’s properties may be subject to preferential negotiation rights of others.



JEI may hold interests in some properties through Japanese anonymous association (tokumei kumiai)agreements, and JEI’s rights relating to such properties may be limited.



JEI owns all of its properties through trust beneficiary interests and may suffer losses as a trust
beneficiary.



There are important differences regarding the rights of unitholders in a J-REIT compared to those ofshareholders in a corporation.



The Alternative Investment Fund Managers Directive (AIFMD) may negatively affect JEI’s ability tomarket its units in the EEA and increase its compliance costs associated with the marketing of its units inthe EEA.



JEI’s units may be deemed to constitute “plan assets” for ERISA purposes, which may lead to therescission of certain of its transactions, tax or fiduciary liability and JEI being held in violation of ERISA
requirements.

Asset Management Report for 20th period (Semi-Annual Report for 20th Period)31

Financial Statements
Japan Excellent, Inc.
For the six-month periods ended
December 31, 2016 and June 30, 2016
with Independent Auditor’s ReportJapan Excellent, Inc.
Balance Sheets
As of December 31, 2016 and June 30, 2016

As of
As of
June 30,
December 31,
2016
2016
(Thousands of yen)
AssetsCurrent assets:
Cash and cash equivalents including trust
accounts (Notes 4 and 5)
Rental receivables
Consumption taxes refundable
Prepaid expenses and other current assets
Total current assets

20,096,382
559,458
58,187
183,753
20,897,782

18,373,960
653,046–
149,155
19,176,162

5,849,052
6,253
12,2703,032,788
3,812

5,820,683
6,253
11,294
3,032,788–

120,173,335
772,751
193,087
160,660,425
55,969(25,909,714)
264,850,033

116,350,394
737,708
179,032
151,752,645
203,425(23,952,945)
254,141,281

Intangible assets:
Leasehold rights
Brand and trademark
Leasehold rights for trust accounts
Other intangible assets for trust accounts
Total intangible assets

1,721,607
138
7,382,016
4,562
9,108,325

1,721,607
164
7,382,016
4,689
9,108,477

Investments and other assets:
Security deposits
Long-term prepaid expenses
Other assets
Total investments and other assets

15,181
705,216
382,193
1,102,591

15,181
739,930
367,226
1,122,338

122,341
122,341
296,081,074

105,433
105,433
283,653,693

Property and equipment (Note 7):
Buildings and building improvements
Machinery and equipment
Furniture and fixtures
Land
Construction in progress
Buildings and building improvements for trust
accounts
Machinery and equipment for trust accounts
Furniture and fixtures for trust accounts
Land for trust accounts
Construction in progress for trust accounts
Less: accumulated depreciation
Net property and equipment

Deferred assets:
Investment corporation bond issuance costs
Total deferred assets
Total assets

The accompanying notes are an integral part of these financial statements.
34

As of
As ofJune 30,
December 31,
2016
2016
(Thousands of yen)
Liabilities
Current liabilities:
Accounts payable – trade
Short-term loans (Notes 5 and 8)
Investment corporation bonds due within one year
(Notes 5 and 9)
Long-term debt due within one year
(Notes 5 and 8)
Accounts payable – otherAccrued expenses
Accrued corporation taxes
Accrued consumption taxes
Advances received
Other current liabilities
Total current liabilities

Long-term liabilities:
Investment corporation bonds(Notes 5 and 9)
Long-term debt
(Notes 5 and 8)
Security deposits from tenants(Note 5)
Security deposits from tenants for trust accounts(Note 5)
Total long-term liabilities
Total liabilities

Net assets (Note 10)
Unitholders’ equity:
Unitholders’ capital
Surplus
Voluntary reserve
Reserve for advanced depreciation of
non-current assets
Retained earnings
Total surplus
Total unitholders’ equity
Total net assets
Total liabilities and net assets

1,204,829
1,000,000

986,466
1,000,000–

5,000,000

24,000,000
434,187
182,273764–
76,142
105
26,898,303

15,760,000
439,906
187,327522
98,31882,536490
23,555,567

29,000,000

25,000,000

83,900,000

85,140,000

733,092

740,329

11,909,335
125,542,427
152,440,731

11,408,901
122,289,230
145,844,798

139,972,885

134,434,701

260,476
3,406,981
3,667,457
143,640,343
143,640,343
296,081,074

260,476
3,113,717
3,374,193
137,808,895
137,808,895
283,653,693

The accompanying notes are an integral part of these financial statements.
35

Japan Excellent, Inc.
Statements of Income and Retained Earnings
For the periods from July 1, 2016 to December 31, 2016
and from January 1, 2016 to June 30, 2016

For the period
For the period
from July 1, 2016 from January 1,
to December 31, 2016 to June 30,
2016
2016
(Thousands of yen)
Revenues (Notes 13):
Rental business revenues
Other
Total revenues

9,702,024
951,062
10,653,086

9,351,939
871,294
10,223,234

Operating expenses (Note 13):
Property operating expenses
Asset management fees
Custodian fees
Administrative service fees
Compensation for directors
Other
Total operating expenses
Operating income

5,849,144
442,497
21,15540,025
6,540
72,502
6,431,865
4,221,220

5,655,480
424,387
21,211
41,1786,540
92,1256,240,922
3,982,311

158
713

1,985
737

506,703
142,818
13,965
128,180

565,152
142,464
17,451
132,477

13,592
9,699
3,407,130

13,475225
3,113,786

3,407,130

3,113,786

788
1
3,406,339
641
3,406,981

826
7
3,112,951
765
3,113,717

Other income:Interest income
Other
Other expenses:
Interest expense
Loan arrangement fees
New investment unit issuance costs
Interest expense on investment corporation bonds
Amortization of investment corporation bondissuance costs
Other
Ordinary income
Income before income taxes
Income taxes (Note 12):Current
Deferred
Net income
Retained earnings at beginning of period
Retained earnings at end of period

The accompanying notes are an integral part of these financial statements.
36

Japan Excellent, Inc.
Statements of Changes in Net Assets
For the periods from July 1, 2016 to December 31, 2016
and from January 1, 2016 to June 30, 2016

For the period from January 1, 2016 to June 30, 2016
Net assets
Unitholders’ equity
Surplus
Voluntary
reserve
Reserveforadvanceddepreciati
Numberon ofof units Unitholders’ non-curre
in issuent assets
capitalRetainedearnings

Total
surplusTotal
unitholders’equityTotal net
assets(Thousands of yen)
Balance as ofDecember 31, 2015
Changes during the
fiscal period:
Reversal of reserve
for reduction entry
Provision of reserve
for reduction entry
Distributions fromretained earnings
Net income
Total changes during
the fiscal period
Balance as ofJune 30, 2016

1,264,450

134,434,701

37,347

3,385,019

3,422,366

137,857,068

137,857,068––(37,347)

37,347

–

–

–

–

–

260,476(260,476)

–

–

–

–

–

–

(3,161,125)(3,161,125)(3,161,125)(3,161,125)

–

–

–

3,112,951

3,112,951

3,112,951

3,112,951––

223,129(271,302)(48,173)(48,173)(48,173)

1,264,450

134,434,701

260,476

3,113,717

3,374,193

137,808,895

137,808,895

For the period from July 1, 2016 to December 31, 2016
Net assets
Unitholders’ equity
Surplus
Voluntary
reserve
Reserveforadvanceddepreciati
on of
Numberof units Unitholders’ non-curre
nt assetsin issuecapitalBalance as ofJune 30, 2016
Changes during the
fiscal period:
Issuance of new units
Distributions fromretained earnings
Net income
Total changes during
the fiscal period
Balance as ofDecember 31, 2016

Retained
Total
earnings
surplus(Thousands of yen)Totalunitholders’equityTotal net
assets

1,264,450

134,434,701

260,476

3,113,717

3,374,193

137,808,895

137,808,895

41,2505,538,183–––

5,538,183

5,538,183–––(3,113,075)(3,113,075)(3,113,075)(3,113,075)

–

–

–

3,406,339

3,406,339

3,406,339

3,406,339

41,2505,538,183–

293,264

293,264

5,831,447

5,831,447

1,305,700

139,972,885

260,476

3,406,981

3,667,457

143,640,343

143,640,343

The accompanying notes are an integral part of these financial statements.
37

Japan Excellent, Inc.
Statements of Cash Flows
For the periods from July 1, 2016 to December 31, 2016
and from January 1, 2016 to June 30, 2016

For the period
For the period
from
from
January 1
July 1,2016 to2016 toJune 30,
December 31,
2016
2016
(Thousands of yen)
Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Amortization of investment corporation bond issuance costs
New unit issuance costs
Interest income
Interest expense
Decrease (increase) in rental receivables
Decrease (increase) in consumption taxes refundable
Decrease (increase) in prepaid expenses
Increase (decrease) in accounts payable – trade
Increase (decrease) in accounts payable – other
Increase (decrease) in unpaid consumption taxes
Increase (decrease) in advances received
Decrease (increase) in long-term prepaid expenses
Other, net
SubtotalInterest received
Interest paid
Income taxes paid
Net cash provided by operating activities

3,407,130
1,956,920
13,592
13,965(158)
634,884
93,587(58,187)(53,299)
75,65917,248(98,318)(6,394)34,713(39,653)
5,991,692
158(639,938)(546)
5,351,365

3,113,786
1,900,022
13,475
17,451(1,985)
697,629
142,435–
31,235(122,061)(14,170)(432,059)
5,434
35,956(39,142)
5,348,009
1,985(700,952)(846)
4,648,194

Cash flows from investing activities
Purchases of property and equipment
Purchases of property and equipment for trust accounts
Purchases of intangible assets for trust accounts
Proceeds from security deposits from tenants
Payments for security deposits to tenants
Proceeds from security deposits in trust accounts from tenants
Payments for security deposits in trust accounts to tenants
Net cash used in investing activities(8,933)(12,513,882)–
6,369(13,607)
680,893(143,788)(11,992,949)(10,356)(1,144,736)(2,150)6,133(749)
180,575(113,030)(1,084,314)

Cash flows from financing activities
Proceeds from short-term loans
Repayment for short-term loans
Proceeds from long-term debt
Repayment for long-term debt
Proceeds from issuance of investment corporation bonds
Payments for redemption of investment corporation bonds
Proceeds from issuance of investment units
Distributions to unitholders
Net cash provided by (used in) financing activities

14,500,000(14,500,000)
10,760,000(3,760,000)
3,969,500(5,000,000)
5,506,766(3,112,259)
8,364,006––
13,000,000(13,000,000)–––(3,160,062)(3,160,062)

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

1,722,422
18,373,960
20,096,382

403,817
17,970,143
18,373,960

The accompanying notes are an integral part of these financial statements.
38

Japan Excellent, Inc.
Notes to Financial Statements
For the periods from July 1, 2016 to December 31, 2016
and from January 1, 2016 to June 30, 2016

1.

Organization

Japan Excellent, Inc. (hereinafter, “JEI”), established on February 20, 2006 under the Law
Concerning Investment Trusts and Investment Corporations of Japan (the “Investment TrustLaw”), is a real estate investment corporation which primarily invests in office buildings.
JEI is externally managed by a licensed asset management company, Japan Excellent AssetManagement (“JEAM”). JEAM was originally owned 45% by NIPPON STEEL KOWA
REAL ESTATE CO., LTD., 20% by The Dai-ichi Life Insurance Company, Limited, 15% by
Sekisui House, Co., LTD., and 20% by other corporations. Due to the transfer of ownershipby Sekisui House, Co., LTD., on May 12, 2014, ownership interests of 9% and 6% were eachacquired by NIPPON STEEL KOWA REAL ESTATE CO., LTD., and The Dai-ichi Life
Insurance Company, Limited, respectively.
JEI was listed on the Tokyo Stock Exchange on June 27, 2006. As of December 31, 2016, JEI
held 31 properties with 362,304.64 square meters of total leasable space and had leases with
237 tenants excluding residential tenants.

2.

Basis of Presentation

JEI maintains its accounting records and prepares its financial statements in accordance withaccounting principles generally accepted in Japan (“Japanese GAAP”), including provisions
set forth in the Investment Trust Law, the Corporation Law of Japan, the Financial
Instruments and Exchange Law of Japan and related regulations, which are different in certain
respects as to the application and disclosure requirements of International Financial ReportingStandards.
The accompanying financial statements are a translation of the financial statements of JEI,
which were prepared in accordance with Japanese GAAP and presented in the securities
report of JEI filed with the Kanto Local Finance Bureau. In preparing the accompanying
financial statements, certain reclassifications and modifications have been made for theconvenience of readers outside Japan. In addition, the notes to the financial statements include
information that might not be required under Japanese GAAP but is presented herein as
additional information.
The amounts have been rounded down to the nearest thousand yen in the accompanying
financial statements in accordance with the financial statements originally prepared inJapanese and filed with the regulatory authorities in Japan.

39

3.

Summary of Significant Accounting Policies

Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits with banks and short-term
investments which are highly liquid, readily convertible into cash with an insignificant risk ofprice fluctuation and with an original maturity of three months or less.
Property and equipment including trust accounts and trademark rights
Depreciation is computed by the straight-line method over the estimated useful lives of therespective assets as follows:
Buildings
Building improvements
Machinery and equipment
Furniture and fixtures

2 – 60 years
2 – 59 years
6 – 16 years
3 – 15 years

Amortization of trademark rights is computed using the straight-line method over a period of
10 years.
Deferred assets
Investment corporation bond issuance costs are amortized using the straight-line method over
the amortization periods.
New investment unit issuance costs are charged to income as incurred.
Income taxes
Income taxes are accounted for on the basis of taxable income for financial statement
purposes. The asset and liability method is used to recognize deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
Consumption taxes
Consumption taxes received and paid are not included in the accompanying statements ofincome and retained earnings. Consumption tax related to properties, which has not been
deducted, is included in the cost of the properties.
Property-related taxes
Principally, property-related taxes including property taxes, urban planning taxes anddepreciable property taxes are imposed on a calendar-year basis and are expensed as property
and other taxes (refer to Note 13).

40

3.

Summary of Significant Accounting Policies (continued)

JEI capitalizes the property-related taxes allocated to the sellers of properties to JEI at thetime of acquisition of such properties including trust accounts. No property-related taxes were
capitalized for the period from January 1, 2016 to June 30, 2016. The capitalized amount forthe period from July 1, 2016 to December 31, 2016 was ¥27,726 thousand.
Revenue recognition
Rental revenues are generally recognized on an accrual basis over the life of each lease.
Derivatives and hedge accounting
JEI utilizes interest-rate swap agreements as derivative financial instruments solely for the
purpose of hedging its exposure against fluctuation risk in interest rates. JEI has therefore
entered into certain interest-rate swap contracts in order to hedge the risk of variable rates for
its long-term debt obligations.
Each corresponding interest-rate swap is not required to be re-measured to fair value, because
it meets the criteria for the special hedge accounting treatment under Japanese GAAP, which
JEI applies to each interest-rate swap agreement.
Under this special hedge accounting treatment, the differentials paid or received under theswap agreements are recognized and included in interest expense of the hedged loans, and theinterest-rate swaps are not required to be measured at fair value separately. For interest-rate
swaps that meet the specific criteria for the special accounting treatment, assessments ofhedge effectiveness are not performed.
Properties in trust accounts
All assets and liabilities held in trust, for which real estate in possession of JEI was entrusted,
and all earnings and expenses resulting from such trust, are properly reflected in theaccompanying balance sheets and statements of income and retained earnings, respectively.

4.

Cash and Cash Equivalents

Cash and cash equivalents including trust accounts in the accompanying balance sheets andcash and cash equivalents in the accompanying statements of cash flows at December 31,
2016 and June 30, 2016 consisted of the following:
As of,
As ofDecember 31,
June 30,
2016
2016(Thousands of yen)
Cash and cash deposits
Cash and deposits in trust
Cash and cash equivalents including
trust accounts

3,790,935
16,305,446

2,962,118
15,411,841

20,096,382

18,373,960

41

5.

Financial Instruments

For the periods from July 1, 2016 to December 31, 2016 and from January 1, 2016 toJune 30, 2016
Overview(1) Policy for Financial Instruments
JEI borrows from banks, issues investment corporation bonds and issues investment units
to procure funds required to grow its assets under management and to repay liabilities,
based on the financial policy set forth by JEAM and the JEI’s Annual Funding
Procurement Plan. When procuring funds by means of interest-bearing debt, matters suchas seeking longer durations and maturities, securing fixed interest rates over the entire
term of the instrument in order to benefit from the recent favorable financial environment
with low interest rates, and diversifying maturity dates are taken into consideration toachieve a more stable financial situation and avoid the risk of future interest rate hikes.
Surplus funds may be invested in deposits and safe, liquid financial assets and investment
securities, but are, in principle, placed in fixed-rate term deposits. Derivative transactions
are used solely for the purpose of hedging against the risk of fluctuations in interest rates
of borrowings and investment corporation bonds.
(2) Types of Financial Instruments, Related Risks and Risk Management System(a) Market Risks (Interest rate fluctuation risk)
Borrowings and investment corporation bonds are primarily used to acquire
properties or to refinance existing borrowings or bonds. Some of such debt were
floating rate instruments and thus were exposed to the risk of interest rate
fluctuations. Based on interest rate forecasts developed through constant financial
market monitoring activities, JEI has concentrated on hedging against the risk ofinterest rate fluctuations using interest-rate swaps, through which a floating interest
rate is swapped for a fixed interest rate, which finally led to 82.8% of existing
borrowings being covered by a fixed interest rate swap for the entire maturity as ofDecember 31, 2016. To reduce credit risk, derivative transactions (interest-rate
swaps) are entered into exclusively with counterparties that are financial institutions
with high credit ratings. For hedging accounting methods, hedging instruments,
hedged items, hedging policies and methods for evaluation of the effectiveness ofhedging activities, see “Derivatives and hedge accounting” under Summary of
Significant Accounting Policies.
(b) Liquidity Risk (Risk of being unable to procure funds required for repayments)
Borrowings and investment corporation bonds are exposed to liquidity risk. This risk
is reduced through diversification of maturity dates and funding sources, andarrangement of commitment line agreements (as described in Note 8, “Short-Term
Loans and Long-Term Debt,” there is no balance outstanding under the facility
agreements as of December 31, 2016). Liquidity risk is also mitigated through theconstant management of liquidity on hand.

42

5.

Financial Instruments (continued)(3) 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. Sincevarious assumptions and factors are reflected in estimating the fair value, different
assumptions and factors could result in a different fair value.
Fair value of financial instruments
The following are carrying values and fair values as of December 31, 2016 and June 30, 2016of financial instruments and the differences between them. When fair value is difficult toascertain, it is excluded from the following table (Note B).
As of June 30, 2016
As of December 31, 2016
Carrying
Fair value
Carrying
Fair value
Difference
Difference
value(Note A)
value
(Note A)
(Thousands of yen)
(1) Cash and cash
deposits(2) Cash and deposits
in trust

3,790,935

3,790,935

16,305,446

Total assets

20,096,382
1,000,000(3) Short-term loans(Note C)(4) Investment
corporation bonds
due within one year
(Note C)
(5) Long-term debt
due within one
year (Note C)––

2,962,118

2,962,118

16,305,446–

15,411,841

15,411,841–

20,096,382–

18,373,960

18,373,960–

1,000,000–

1,000,000

1,000,000––

5,000,000

5,015,900

15,900––24,000,000

24,207,439

207,439

15,760,000

15,904,700

144,700(6) Investment
corporation bonds(Note C)

29,000,000

29,596,890

596,890

25,000,000

25,962,830

962,830(7) Long-term debt
(Note C)83,900,000

85,175,932

1,275,932

85,140,000

87,359,510

2,219,510

Total liabilities

137,900,000

139,980,262

2,080,262

131,900,000

135,242,941

3,342,941(8) Derivativetransactions *

–

–

–

–

–

–

* The value of assets and liabilities arising from derivative transactions is shown at net value.

(Note A)
Methods for calculating the fair value of financial instruments and matters related toderivatives transactions
Assets(1) Cash and cash deposits and(2) Cash and deposits in trust
Carrying value approximates fair value because of the short maturities of these
instruments.
Liabilities(3) Short-term loans,(5) Long-term debt due within one year and43

5.

Financial Instruments (continued)(7) Long-term debt
Where floating rates apply, book value is generally considered appropriate as fair value.
The fair value of such liabilities is considered to approximate book value, since floating
rates reflect market interest rates within a short period of time.
If the loan is part of long-term debt, in the case of floating-rate debt hedged by aninterest-rate swap, the fair value is calculated in a similar manner using the total principal
and interest amount, treated in combination with the interest-rate swap, given that theinterest-rate swap is subject to the special treatment of interest-rate swaps under Japanese
GAAP.
The fair value of long-term fixed-rate debt and long-term fixed-rate debt due within one
year are calculated by applying a reasonably assumed interest rate as a discount rate,
which was determined to be applicable for the borrowings under similar conditions.
(4) Investment corporation bonds due within one year and(6) Investment corporation bonds
The fair value of investment corporation bonds issued by JEI is based on quoted market
prices.
(8) Derivative transactions
Please refer to Note 15, “Derivative Transactions.”(Note B)・Financial instruments for which fair value is deemed extremely difficult to determine
The fair values of security deposits from tenants and security deposits from tenants for trust
accounts are as follows:
As of
As of
December 31,
June 30,
2016
2016(Thousands of yen)
① Security deposits from tenants*

733,092

740,329② Security deposits from tenants fortrust accounts*

11,909,335

11,408,901* Security deposits from tenants and security deposits in trust accounts from tenants in leased properties are
not subject to fair value disclosure, since such deposits have no market price. Furthermore, due to theircharacteristics, it is extremely difficult to estimate the fair value of security deposits in advance because of
the uncertainty of the timing when the tenant vacates. As a result, it is therefore impossible to rationallyestimate the exact cash flow from such security deposits.

44

5.

Financial Instruments (continued)

・The scheduled redemption amounts of financial assets after the balance sheet date
1 year or less
Cash and cash deposits
Cash and deposits in
trust
Total

As of December 31, 2016
2 to 3 years 3 to 4 years(Thousands of yen)

4 to 5 years

Over 5 years

3,790,935

–

–

–

–

–

16,305,446
20,096,382

–
–

–
–

–
–

–
–

–
–

1 year or less
Cash and cash deposits
Cash and deposits in
trust
Total

1 to 2 years

1 to 2 years

As of June 30, 2016
2 to 3 years 3 to 4 years(Thousands of yen)

4 to 5 years

Over 5 years

2,962,118

–

–

–

–

–

15,411,841
18,373,960

–

–

–

–

–

–

–

–

–

–

(Note C)The scheduled redemption amounts of borrowings, investment corporation bonds and otherinterest-bearing debt after the balance sheet date

Short-term loans
Investment
corporation bonds
due within one year
Long-term debt due
within one year
Investment
corporation bonds
Long-term debt
Total

As of December 31, 2016
2 to 3 years
3 to 4 years(Thousands of yen)

1 year or less

1 to 2 years

4 to 5 years

Over 5 years

1,000,000

–

–

–

–

–

–

–

–

–

–

–

24,000,000

–

–

–

–

–

–
–
25,000,000

7,000,000
23,750,000
30,750,000

5,000,000
17,750,000
22,750,000–
8,600,000
8,600,000–
13,510,000
13,510,000

17,000,000
20,290,000
37,290,000

1 year or less

1 to 2 years

2 to 3 years
3 to 4 years(Thousands of yen)

4 to 5 years

Over 5 years

1,000,000

–

–

–

–

–

5,000,000

–

–

–

–

–

15,760,000

–

–

–

–

–

–
–
21,760,000–
26,000,000
26,000,000

12,000,000
7,500,000
19,500,000–
21,600,000
21,600,000–
4,000,000
4,000,000

13,000,000
26,040,000
39,040,000

As of June 30, 2016

Short-term loans
Investment
corporation bonds
due within one year
Long-term debt due
within one year
Investment
corporation bonds
Long-term debt
Total

45

6.

Investment and Rental Property

For the periods from July 1, 2016 to December 31, 2016 and from January 1, 2016 toJune 30, 2016
JEI owns rental office buildings and other properties in Tokyo and other regions for the
purpose of generating rental income. The following is the carrying value and fair value as ofDecember 31, 2016 and June 30, 2016 for such real estate for lease.

As ofJuly 1, 2016
263,249,595

As ofJanuary 1, 2016
264,252,146

Carrying value
ChangeAs ofduring period(*1)
December 31, 2016
(Thousands of yen)
10,708,624

Fair value
As ofDecember 31, 2016

273,958,219

286,880,000

Carrying value
ChangeAs of(*2)
during period
June 30, 2016
(Thousands of yen)

Fair value
As ofJune 30, 2016

（1,002,551）

272,170,000

263,249,595

A) Carrying value represents the acquisition cost less accumulated depreciation.
B) Details of change during period:(*1) The increase of ¥10,708,624 thousand during the period is mainly due to an increase of¥11,514,768 thousand related to the acquisition of Mansarde Daikanyama Building
offset by a decrease of ¥1,956,895 thousand for depreciation costs.
(*2) The decrease of ¥1,002,551 thousand during the period is mainly due to a decrease of¥1,899,992 thousand for depreciation costs.
C) Fair value
Fair value as of December 31, 2016 and June 30, 2016 is appraisal value provided bythird-party real estate appraisers.

46

7.

Property and Equipment

Property and equipment at December 31, 2016 and June 30, 2016 consisted of the following:
As of December 31, 2016
Acquisition
cost

Accumulated
depreciation

As of June 30, 2016

Netbook value

Acquisition
cost

Accumulated
depreciation

Netbook value(Thousands of yen)
Buildings and building
improvements

5,849,052（1,165,549）

4,683,503

Machinery andequipment

6,253（1,973）

Furniture and fixtures

12,270（4,384）Land
Construction in progress
Buildings and building
improvements for trust
accounts
Machinery andequipment for trust
accounts

5,820,683（1,078,656）

4,742,027

4,279

6,253

（1,692）

4,561

7,885

11,294（3,761）

7,533

3,032,788–

3,032,788

3,032,788–

3,032,788

3,812

–

3,812

–

–

–

120,173,335（24,284.695）

95,888,639

116,350,394（22,451,366）

93,899,028

772,751（346,901）

425,850

737,708（319,724）

417,983

193,087（106,209）（97,744）

Furniture and fixtures
for trust accounts
Land for trust accounts

86,878179,032

160,660,425–

160,660,425

151,752,645–

151,752,645

Construction in progress
for trust accounts

55,969－55,969203,425－

203,425

290,759,747（25,909,714）

264,850,033

278,094,226（23,952,945）

254,141,281

Total

81,28847

8.

Short-Term Loans and Long-Term Debt

Short-term loans and long-term debt as of December 31, 2016 and June 30, 2016 consisted of
the following:

Short-term loans:
Unsecured loans from an insurancecompany due on December 10, 2016
Unsecured loans from a bank due on
September 29, 2017 (*2)
SubtotalLong-term debt due within one year:
Unsecured loans from banks due on
November 29, 2016
Unsecured loans from banks due on
January 31, 2017
Unsecured loans from banks due on
January 31, 2017
Unsecured loans from insurancecompanies due on January 31, 2017
Unsecured loans from a bank due on
November 30, 2017
Unsecured loans from banks due on
November 30, 2017
Unsecured loans from banks due on
November 30, 2017
Unsecured loans from insurancecompanies due on November 30, 2017
SubtotalLong-term debt:
Unsecured loans from a bank due on
November 30, 2017
Unsecured loans from banks due on
November 30, 2017
Unsecured loans from banks due on
November 30, 2017
Unsecured loans from insurancecompanies due on November 30, 2017
Unsecured loans from banks due on
May 29, 2018
Unsecured loans from an insurancecompany due on June 29, 2018
Unsecured loans from banks due on
June 30, 2018
Unsecured loans from banks due on
November 1, 2018
Unsecured loans from banks due on
March 8, 2019
Unsecured loans from an insurancecompany due on December 12, 2019
Unsecured loans from banks due on
December 30, 2019
Unsecured loans from a bank due on
January 31, 2020
Unsecured loans from banks due on
January 31, 2020
Unsecured loans from an insurancecompany due on January 31, 2020
Unsecured loans from banks due on
January 31, 2020
Unsecured loans from a bank due on
June 30, 2021
Unsecured loans from an insurancecompany due on June 30, 2021
Unsecured loans from banks due on
November 29, 2021
Unsecured loans from banks due on
December 30, 2021
Unsecured loans from a bank due on
June 30, 2022
Unsecured loans from banks due on
December 30, 2022
Unsecured loans from a bank due on
June 30, 2023
Unsecured loans from banks due on
November 30, 2023
Unsecured loans from banks due on
November 30, 2024
Subtotal
Total

As of December 31, 2016
Weighted-averageinterest rate (*1)
Amount(Thousands of yen)－
1,000,000
1,000,000－
0.23000%－

As of June 30, 2016
Weighted-averageinterest rate (*1)
Amount(Thousands of yen)
1,000,000

0.26455%－
1,000,000－

3,760,000

1.24375% (*3)

5,000,000

1.24750% (*3)

5,000,000

1.24750% (*3)

4,000,000

1.03000% (*3)

4,000,000

1.03000% (*3)

3,000,000

1.09734% (*3)

3,000,000

1.09734% (*3)

6,000,000

1.73875% (*3)－－

3,000,000

1.08375%

(*3)

－

－

2,000,000

1.04550% (*3)－－

1,000,000
24,000,000

1.19212% (*3)－
15,760,000

－

－

－

6,000,000

1.73875% (*3)－－

3,000,000

1.08375% (*3)－－

2,000,000

1.04550% (*3)－－

1,000,000

1.19212% (*3)－－

6,000,000

0.23000%

3,000,000

1.65125% (*3)

3,000,000

1.65125% (*3)

11,000,000

0.81225% (*3)

11,000,000

0.81225% (*3)

3,750,000

0.74500% (*3)

3,750,000

0.74500% (*3)

3,750,000

0.77500% (*3)

3,750,000

0.77500% (*3)

1,000,000

0.25000% (*3)－－

13,000,000

0.28120%

13,000,000

0.28364%2,000,000

1.60000%(*3)

2,000,000

1.60000% (*3)

2,600,000

1.36400% (*3)

2,600,000

1.36400% (*3)

1,000,000

1.31261% (*3)

1,000,000

1.31261% (*3)

3,000,000

1.00000% (*3)

3,000,000

1.00000% (*3)

2,000,000

1.60750% (*3)

2,000,000

1.60750% (*3)

2,000,000

0.98834% (*3)

2,000,000

0.98834% (*3)

3,760,000

0.40727%－－

0.81875%(*3)

5,750,000

0.81875%(*3)

2,000,000

1.15417%(*3)

2,000,000

1.15417% (*3)

5,750,000

0.93625% (*3)

5,750,000

0.93625% (*3)

2,000,000

1.20250% (*3)

2,000,000

1.20250% (*3)

5,270,000

0.84375% (*3)

5,270,000

0.84375% (*3)

5,270,000
83,900,000
108,900,000

0.96275% (*3)

5,270,000
85,140,000
101,900,000

0.96275% (*3)

5,750,000

48

8.

Short-Term Loans and Long-Term Debt (continued)(*1) The weighted-average interest rate is weighted-average figures during the period. As for the borrowings hedged byinterest-rate swaps for the purpose of mitigating interest rate fluctuation risk, the fixed interest rates after entering into
the interest rate swap transactions are used to calculate the weighted-average interest rate.
(*2) JEI borrowed ¥3,000,000 thousand on November 2, 2016 and made a partial early repayment of this borrowing in theamount of ¥2,000,000 thousand on December 30, 2016.
(*3) These are fixed-rate debt (incl. fixed-rate debt through each interest-rate swap agreement).

The scheduled repayment amounts of long-term debt as of December 31, 2016 are as follows:

Long-term debt

1 year or less

1 to 2 years

24,000,000

23,750,000

2 to 3 years
3 to 4 years(Thousands of yen)
17,750,000
8,600,000

4 to 5 years

Over 5 years

13,510,000

20,290,000

JEI has commitment lines of ¥14,000,000 thousand with three financial institutions to
mitigate refinancing risk and enhance financial stability. As of December 31, 2016, thesecommitment lines have never been utilized.

9.

Investment Corporation Bonds

Details of total investment corporation bonds outstanding as of December 31, 2016 and June30, 2016 are summarized as follows:
As of June 30, 2016
As of December 31, 2016

Amount(Thousands ofyen)
Unsecured bond #3 dueon November 4, 2016
Unsecured bond #4 dueon November 2, 2018
Unsecured bond #5 dueon November 2, 2018
Unsecured bond #6 dueon March 11, 2019
Unsecured bond #7 dueon March 11, 2024
Unsecured bond #8 dueon September 9, 2025
Unsecured bond #9 dueon October 27, 2026
Unsecured bond #10 due
on December 20, 2023

Total

Weightedaverage interest
rate

Amount(Thousands ofyen)

Weightedaverage interest
rate

—

—

5,000,000

1.01000%

2,000,000

1.40000%

2,000,000

1.40000%

5,000,000

0.46000%

5,000,000

0.46000%

5,000,000

0.46000%

5,000,000

0.46000%

8,000,000

1.13000%

8,000,000

1.13000%

5,000,000

1.03000%

5,000,000

1.03000%

2,000,000

0.45000%——

2,000,000

0.39000%——

29,000,000

30,000,000

The scheduled redemption amounts of investment corporation bonds as of December 31, 2016
are as follows:
1 year or less 1 to 2 years
Investment
corporation bonds－

7,000,000

2 to 3 years 3 to 4 years(Thousands of yen)
5,000,000－

4 to 5 years

Over 5 years－

17,000,000

4910. Net Assets
In accordance with the Investment Trust Law, JEI issues only non-par value investment units
and maintains net assets of at least ¥50,000 thousand.

11. Per Unit Information
Net assets per unit as of December 31, 2016 and June 30, 2016 were calculated based on thenumber of units outstanding as of each date, (1,305,700 units) and (1,264,450 units),
respectively.
Net income per unit for the periods from July 1, 2016 to December 31, 2016 and January 1,
2016 to June 30, 2016 was calculated based on the weighted-average number of units
outstanding during the corresponding periods, (1,302,847 units) and (1,264,450 units),
respectively.
Accordingly, net assets per unit were ¥110,010 as of December 31, 2016 and ¥108,987 as ofJune 30, 2016. Net income per unit was ¥2,614 for the period from July 1, 2016 to December
31, 2016 and ¥2,461 for the period from January 1, 2016 to June 30, 2016.

12. Income Taxes
JEI is subject to income taxes in Japan.
JEI’s policy is to make dividend distributions in excess of 90% of distributable income foreach fiscal period in order to meet the condition set forth in the Special Taxation Measures
Law of Japan concerning the deductibility of cash dividends paid for income tax purposes.
Details of significant components of deferred tax assets and liabilities as of December 31,
2016 and June 30, 2016 are summarized as follows:
As of
As of
December 31,
June 30,
2016
2016(Thousands of yen)
Deferred tax assets:
Accrued enterprise taxes
Total deferred tax assets
Net deferred tax assets

8
8
8

10
10
10

50

12. Income Taxes (continued)
A reconciliation of the differences between the statutory tax rate and the effective tax rate forthe periods from July 1, 2016 to December 31, 2016 and from January 1, 2016 to June 30,
2016 is as follows:

Statutory tax rate
Reconciliation:
Deductible distributions paid
Other
Effective tax rate

13.

For the period from
July 1, 2016 to
December 31, 201631.74%(31.73)0.02
0.02%

For the period fromJanuary 1, 2016 toJune 30, 201632.31%(32.30)0.02
0.03%

Breakdown of Revenues and Expenses
For the period from
For the period from
July 1, 2016 toJanuary 1, 2016 to
December 31, 2016
June 30, 2016
(Thousands of yen)

Revenues:
Rental business revenues
Rental revenues
Common area revenues
Other rental revenues
Subtotal
Other
Utilities revenues
Other revenues
Subtotal
Total rental revenues
Property operating expenses:
Property management costs andfees
Utilities expenses
Property and other taxes
Insurance
Repairs and maintenance
Depreciation
Other
Total property operating expenses
Profit

7,969,256
1,459,895
272,872
9,702,024

7,622,816
1,468,259
260,863
9,351,939

838,617
112,444
951,062
10,653,086

766,000
105,293871,294
10,223,234

1,422,920

1,423,291

1,064,241
891,506
25,281
267,395
1,956,895
220,9035,849,144
4,803,941

1,044,708
835,657
24,644
195,748
1,899,992
231,438
5,655,480
4,567,754

The account items “Rental revenues”, “Common area revenues”, and “Other rental revenues”(associated with rental revenues), which were included within “Rental revenues” in thefinancial statements up to the period from January 1, 2016 to June 30, 2016 are presented
separately effective the period from July 1, 2016 to December 31, 2016 to improve the clarityof the disclosure.
These account items have been reclassified for the previous fiscal period in order to reflect
this change in presentation.
51

13.

Breakdown of Revenues and Expenses (continued)

As a result, the ¥9,351,939 thousand in the statement of income and retained earnings for theperiod from January 1, 2016 to June 30, 2016 previously recognized as “Rental revenues”
under “Rental business revenues” in the above table was reclassified as “Rental revenues” of¥7,622,816 thousand, “Common area revenues” of ¥1,468,259 thousand, and “Other rental
revenues” of ¥260,863 thousand. In addition, the ¥871,294 thousand presented as “Other” wasreclassified as “Utilities revenues” of ¥766,000 thousand and ”Other revenues” of ¥105,293
thousand.
14．Leases
JEI leases properties on which rental revenues are earned. At December 31, 2016 and June 30,
2016, future lease revenues under non-cancelable operating leases are summarized as follows:
As of
As of
June 30,
December 31,
2016
2016
(Thousands of yen)
Due within one year
Due after one year
Total

845,244
899,010
1,744,254

150,182
628,373778,555

15. Derivative Transactions
Derivative Transactions as of December 31, 2016
(1) Transactions to which hedge accounting is not applied:
Not applicable.
(2) Transactions to which hedge accounting is applied:
The following are the contract values or values corresponding to the principal amount as
stipulated by contracts as of December 31, 2016 for each hedge accounting method
applied.
Hedge
accounting
methodSpecialtreatment ofinterest-rate
swaps

Type of derivativetransaction

Hedged item

Interest-rate swap
Long-term
Receive floating, pay
debt
fixed

Contract amount
Fair
More thanvalue
one year(Thousands of yen)

60,140,000

46,140,000

Method ofcalculating
the fair value** Since the above interest-rate swap meets the criteria for the special hedge accounting treatment underJapanese GAAP and therefore qualifies for hedge accounting, the swap is not revalued at fair value on theaccompanying balance sheets, as described in the summary of significant accounting policies.
In addition, since the swap and the long-term debt hedged by the swap are accounted for as a unit, the fairvalue of the swap is disclosed as part of the fair value of the hedged long-term debt in the fair value
disclosure in Note 5, “Financial Instruments.”52

15. Derivative Transactions (continued)
Derivative Transactions as of June 30, 2016
(1) Transactions to which hedge accounting is not applied
Not applicable.
(2) Transactions to which hedge accounting is applied
The following are the contract values or values corresponding to the principal amount as
stipulated by contracts as of June 30, 2016 for each hedge accounting method applied.
Hedge
accounting
methodSpecialtreatment ofinterest-rate
swaps

Type of derivativetransaction

Contract amount
Fair
More thanvalue
one year(Thousands of yen)

Hedged item

Interest-rate swap
Long-term
Receive floating, pay
debt
fixed

63,900,000

51,140,000

Method ofcalculating
the fair value** Since the above interest-rate swap meets the criteria for the special hedge accounting treatment underJapanese GAAP and therefore qualifies for hedge accounting, the swap is not revalued at fair value on theaccompanying balance sheets, as described in the summary of significant accounting policies.
In addition, since the swap and the long-term debt hedged by the swap are accounted for as a unit, the fairvalue of the swap is disclosed as part of the fair value of the hedged long-term debt in the fair value
disclosure in Note 5, “Financial Instruments.”

16. Related Party Transactions
For the period from July 1, 2016 to December 31, 2016
(1) Parent Company and Major Corporate Unitholders
Not applicable.
(2) Subsidiaries and Affiliated Companies
Not applicable.
(3) Sister Companies
Not applicable.
(4) Directors and Major Individual Unitholders
Name
HidehikoOgawa

Description oftransaction
Payment of asset
management fees to
JEAM

Amount(Thousands of yen)442,497

Account
Accounts
payableBalance at the end of period(Thousands of yen)
360,42853

16. Related Party Transactions (continued)
For the period from January 1, 2016 to June 30, 2016
(1) Parent Company and Major Corporate Unitholders
Not applicable.
(2) Subsidiaries and Affiliated Companies
Not applicable.
(3) Sister Companies
Not applicable.
(4) Directors and Major Individual Unitholders
Name
HidehikoOgawa

Description oftransaction
Payment of asset
management fees to
JEAM

Amount(Thousands of yen)
424,387

Account
Accounts
payableBalance at the end of period(Thousands of yen)341,988

17. Segment Information
For the periods from July 1, 2016 to December 31, 2016 and from January 1, 2016 toJune 30, 2016
Since JEI has been engaged in the real-estate leasing business as a single segment, segment
information has been omitted.
Information about products and services
Since revenues from external customers for a single segment of similar products and services
accounted for more than 90% of total operating revenues, information about products andservices has been omitted.
Information about geographic area
(1) Revenues
Since 100% of the total operating revenues were generated from external customers
within Japan, geographical breakdown of revenues has been omitted.
(2) Property and equipment
Since 100% of total property and equipment on the balance sheet are located within
Japan, geographical breakdown of such property and equipment has been omitted.
Information about major clients
Since no single external client represents 10% or more of JEI’s total operating revenues,
information about major clients has been omitted.

5418. Distribution Information
In accordance with Section 33.1.2 of the bylaws set forth by JEI for distributions of cash
dividends, the amount of dividends payable, which is limited by the amount of retained
earnings at end of period, shall be in excess of 90% of its distributable income for the fiscal
period as set forth in Section 67.15 of the Special Taxation Measures Law. Consequently, JEI
set income available for distributions of dividends at ¥3,406,571,300, which is the maximum
integral multiple of the 1,305,700 units issued, but not exceeding ¥3,406,981,184, which isthe amount of retained earnings at December 31, 2016. No cash distribution exceeding theincome amount set forth in Section 33.1.4 of the bylaws of JEI shall be made.
On February 16, 2016, the Board of Directors approved a resolution to make a cash
distribution of ¥2,609 per unit aggregating to ¥3,406,571,300 to unitholders of record as ofDecember 31, 2016.

19. Significant Subsequent Event
Not applicable.

55