Asset Management Report for 12th Period(Semi-Annual Report for 12th Period)
From January 1, 2012 to June 30, 2012

I. Greetings
To Our Unitholders
We would like to express our sincere appreciation for your continued support of Japan Excellent, Inc.
(JEI) and Japan Excellent Asset Management Co., Ltd.
We have announced our financial results for the twelfth period started January 1, 2012 and ended June 30,
2012.
JEI recorded total revenues of 7,740 million yen and net income of 2,434 million yen. Distribution perunit marked 12,200 yen, an increase of 346 yen compared with the last period, as expected in our forecast
at the beginning of the period.
Whilst the office market remains softened, we realized solid expansion of our asset portfolio throughproperty acquisitions leveraging the support of our sponsors. In addition, the interim average occupancy
rate of the portfolio improved to 94.8 percent from 93.8 percent, as a result of our proactive leasing
activities.
Looking at the financial strength, we maintain sound financial management through promotion of
conversion of floating-rate debts to fixed-rate debts and diversification of maturity dates.

About Future Asset Management
In the office leasing market, a temporary rise in the vacancy rate is anticipated due to the current one-timelarge supply of office buildings. Yet future supply of new buildings is expected to slide and the demandand supply will improve gradually following a period of ups and downs in a narrow range.
Based on these projections, Japan Excellent, Inc. (JEI) will further enhance interactions with our property
management companies, seek for stable portfolio management and enhanced profitability, and look at
appropriate investment opportunities for quality properties.
In financing, we will consistently strive for stable and sound financial operation through diversifying andstandardizing maturity dates, converting floating-rate debts to fixed-rate debts, and lengthening borrowing
spans.
JEI will further promote our compliance system through strict conformance with the Financial
Instruments and Exchange Act and other applicable laws and regulations. In addition, we will be always
paying attention to provide information about our financial conditions and asset management
performance to our unitholders in an accurate and straightforward manner.
We kindly ask for your continued cooperation and support.
Chifumi Toda
Executive Director, Japan Excellent, Inc.
President, Japan Excellent Asset Management Co., Ltd.

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)2

Ⅱ. Asset Management Report
1. Outline of asset management operation(1) Operating results and financial position of the Investment Corporation
9th Period
July 1, 2010
to December
31, 2010

10th Period
January 1,
2011
to June 30,
2011

7,302

7,094

7,337

7,085

7,740

7,302

7,094

7,034

7,085

7,587

4,050

4,040

4,117

4,116

4,400

3,516

3,494

3,555

3,645

3,901

3,252

3,053

3,220

2,969

3,340

2,367

2,219

2,362

2,237

2,435

2,366

2,218

2,313

2,236

2,434

194,710

199,186

209,142

227,249

228,818(%)(-0.1)

(2.2)

(4.9)

(8.6)

(0.6)

(Millions ofyen)

89,38989,272

104,366

104,338

104,537(0.0)(-0.1)(16.9)

(0.0)

(0.1)

Fiscal period

Revenues(Rental revenues)
Operating expenses(Property operating expenses)
Operating income
Ordinary income
Net income
Total assets(Period-on-period change) (Note1)
Net assets(Period-on-period change) (Note1)

Period11th Period 12th
January
1,
July 1, 20112012
to December to June30,
31, 2011
2012

8th Period
January 1,
2010
to June 30,
2010(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions of
yen)

(%)
(Millions ofyen)(units)87,08387,083102,052

102,052

102,052

154,550

154,550

188,650

188,650

188,650(yen)

578,387

577,629553,227

553,081554,134(yen)(Millions of
yen)
(yen)

15,314

14,353

12,677

11,853

12,906

2,366

2,218

2,263

2,236

2,301

15,315

14,353

12,00011,854

12,200(yen)

15,315

14,353

12,00011,854

12,200

(yen)

(－)

(－)

(－)

(－)

(－)

(%)

1.2
(2.5)

1.1
(2.2)

1.2
(2.3)

1.0
(2.0)

1.1
(2.1)

2.6
(5.3)

2.5
(4.9)

2.4
(4.8)

2.1
(4.3)

2.3
(4.7)

(%)
(%)

45.9
(0.0)

44.8
(-1.1)

49.9
(5.1)

45.9
(-4.0)

45.7(-0.2)

100.0

99.9

97.8

100.0

94.5

Number of investment properties(properties)

18

19

19

23

24

Number of tenants(tenants)

124

108

109

124

136

Unitholders’ capital
Outstanding investment units
Net assets per unit
Net income per unit (Note 2)
Total distribution
Distribution per unit
(Profit distribution per unit)(Distribution in excess ofearnings per unit)
Return on assets (Note 3)(Annualized rate)
Return on equity (Note 4)(Annualized rate)
Capital ratio (Note 5)(Period-on-period change)
Payout ratio (Note 6)

(%)
(%)
(%)
(%)

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
3

Total leasable space
Occupancy rate
Depreciation
Capital expenditure
Net operating income (NOI)(Note 7)
Funds from operation (FFO) per unit
(Note 8)
FFO multiples (Note 9)
Debt service coverage ratio (DSCR)(Note 10)(m2)

220,474

228,177

234,547

262,464

266,981

97.4

91.7

92.4

93.8

94.7

992

993

1,080

1,156

1,260

248

328

347

357

393

4,778

4,593

4,559

4,595

4,946

(yen)

21,737

20,78016,391

17,982

18,780(times)

9.6

13.0

12.2

8.4

10.5

(times)

4.4

4.3

4.5

4.3

4.2

95,500100,400

95,500112,800

113,800

49.0

50.4

45.7

49.6

49.7

181

184

181

184

182

(%)
(Millions ofyen)(Millions ofyen)(Millions ofyen)

Loan-to-value (Note11)(Millions of
yen)
(%)

Number of days in operation(days)

Interest-bearing debt

(Note 1) Period-on-period change of total assets and net assets are rounded down to one decimal place.
(Note 2) Net income per unit is calculated by dividing the net income by the weighted-average number ofunits outstanding during the six months period.
(Note 3) Return on assets = Ordinary income / [(Period beginning total assets) + (Period end total assets) /2] × 100 (The ratio is rounded to one decimal place.)(Note 4) Return on equity = Net income / [(Period beginning net assets) + (Period end net assets)/ 2] ×
100 (The ratio is rounded to one decimal place.)(Note 5) Capital ratio = Period end net assets / Period end total assets × 100 (The ratio is rounded to one
decimal place.)(Note 6) Payout ratio = Total distribution / Net income × 100 (The ratio is rounded down to one decimal
place.)(Note 7) NOI = Rental revenues – Property operating expenses + Depreciation(Note 8) FFO per unit = (Net income + Depreciation – Gain on sale real estate + Loss on sale of realestate) / Number of Outstanding investment units (The figure is rounded down to the whole
number.)(Note 9) FFO multiples = Period end investment unit price / Annualized FFO per unit (The rate isrounded down to one decimal place.)(Note 10) DSCR = Net income before interest and taxes / (Interest expenses + Interest expense on
investment corporation bonds) (The ratio is rounded one first decimal place.)(Note 11) Loan-to-value = Period end interest-bearing debt / Period end total assets × 100 (The ratio isrounded to one decimal place.)(2) Asset Management Development
Japan Excellent, Inc. (JEI) was founded on February 20, 2006 in accordance with the Law
Concerning Investment Trusts and Investment Corporations of Japan t (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) andlisted 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

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
4

office buildings with the aim to maintain sound corporate growth and stable revenues based on themedium- and long-term perspectives. On June 30, 2012, we settled our twelfth period.

1) Business Conditions and Results
The domestic economy for the period showed a slight rebound in demand, primarily driven by theimmediate needs for the recovery from the Great East Japan Earthquake. Still, the economic
sentiment in Japan remains as difficult as ever among concerns over European debt crisis,
downturn in the US and Chinese economies and softened manufacturing and export, casting
continued uncertainties.
In the office leasing market, a demand increase can be seen in some favorable industries such as
information and telecommunications, yet generally the demand and supply has shown a back andforth state on the fear of continuing uncertainties. In the Tokyo metropolitan area, the current large
supply in office buildings has caused the occupancy rate to the bottoming out. Also the rent level inthe market has been moving at a rock bottom state. While a slightly healthy demand has beententatively indicated in Osaka and Nagoya areas, the rent level remains weakened given thenear-term forecast of loosening demand and supply in the office leasing market.
In these severe business conditions, JEI worked on thoughtful control over asset management
expenses and stimulated leasing activities, particularly through close interactions with respective
property management companies. As a result, the interim average occupancy rate for our holding
properties as a whole improved to 94.8 percent from 93.8 percent. Precisely, to realize an effective
and efficient property management operation, we monitored the service level of each property,
performed the corresponding control measures and reviewed the fee structure that aligns with theleasing environment (i.e., simultaneous implementation of the cost reduction and incentive
program).
In the real estate investment market, amid a number of reported capital increase through public
offering and new listing by realty investors, trading led by these companies has been continuing
steadily. Under these circumstances, JEI acquired two properties, Hiroshima Hacchobori Dai-ichi
Seimei Building and Shintomicho Building, during the period.
The entire asset portfolio held by JEI as of the end of the period recorded 24 properties in theinvestment amount of 217 billion yen (on the acquisition price basis) with total leasable space of
266,981.61m2 (80,761.93 tsubo) at a 94.7 percent occupancy rate (an increase of 0.9 percentage
points from the last period).

2) Fund Raising Highlight
We have made efforts consistently since the previous period to raise funds, focusing on conversionof floating-rate debts to fixed-rate debts, diversification of maturity dates and lengthening ofinterest-bearing debts.
For refinancing a short-term loan of 9 billion yen which matured on January 31, 2012, JEI
managed to raise long-term loan in the same amount (Breakdown: 2 billion yen of 8-year fixedinterest loan, 5-billion yen of 5-year floating interest loan, and 2 billion yen of 3.8-year floatinginterest loan). As for floating interest loans (totaled 7 billion yen), we promoted the conversion of
floating-rate debts to fixed-rate debts through interest rate swaps.
JEI entered into a short-term loan of 1 billion yen on a revolving credit line basis on May 7, 2012

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)5

to apply to part of funds for the acquisition of Shintomicho Building.
As a result, as of the end of the period, the average remaining debt maturity of interest-bearing
debts became 2.83 years, long-term borrowing ratio was 99.1percent, fixed rate ratio was 69.7
percent, and weighted average interest rate for loans purchased recorded 1.36 percent. Outstanding
interest-bearing debts totaled 113.8 billion yen, of which 1 billion yen was for short-term loans,
88.8 billion yen was for long-term loans (including those of 21 billion yen with the maturity of lessthan one year) and 24 billion yen for investment corporation bonds (loan to value ratio for the total
assets was 49.7 percent as of the end of the period).
JEI has registered the issuance of investment corporation bonds for the purpose of dynamic
arrangement of long-term funds as follows:(Bond Issuance Registration Highlight)
Type

Estimated amount ofissuance

Scheduled period for issuance

Investment corporationbond

100 billion yen

From February 9, 2012 to February 8, 2014

The ratings for JEI provided by the following rating agencies are shown below:(Ratings as of June 30, 2012)

Issuer rating (outlook)

Rating and Investment
Information, Inc. (R&I)

Moody’s Japan

AA- (Stable)

A3 (Stable)

AA--(Note)

Individual debt issue rating(Note) Ratings for unsecured investment corporation bonds (No.1 through No.4).

3) Financial Results and Distribution Highlight
As a result of the above investments, JEI recorded 7,740 million yen in total revenues, 3,340 million
yen in operating income, 2,435 million yen in ordinary income and 2,434 million yen in net income
for the period under review.
As for distributions, JEI determined to retain part of retained earnings at the end of period as reserve
for advanced depreciation, applying Special Measure Concerning Taxation for Advance Acquisitionof Land, etc. During the Period from Calendar Year 2009 to 2010 (Section 66.2 of the Special
Taxation Measures Law).
JEI also determined to distribute most of the balance of retained earnings at the end of period bydeducting the reserve for advanced depreciation stipulated in Section 66.2 of the Law (rounding
down the amount of investment unit to the nearest yen). As a result, JEI determined the amount of
distribution per investment unit to be 12,200 yen.

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
6

(3) Capital Increase
JEI had no changes in the number of outstanding investment units for the period under review. The
outline of the changes is as follows:
Outstanding investment units
Unitholders’ capital(units)(Millions of yen)
Paid-up Date
Capital transaction
ChangeBalance
ChangeBalanceFebruary
2006

20, Private placement
for corporation

Remarks

400

400

200

200

(Note 1)

June 26, 2006

Public offering

128,000

128,400

64,23064,430(Note 2)

July 21, 2006

Allocationofinvestment units
to a third party

6,400

134,800

3,211

67,641(Note 3)

July 11, 2007

Public offering

19,000

153,800

18,702

86,344(Note 4)

August 8, 2007

Allocationofinvestment units
to a third party

750

154,550738

87,083(Note 5)January 31, 2011

Public offering

31,000185,550

13,608100,691(Note 6)

Allocationofinvestment units
3,100
188,650
1,360
102,052
to a third party(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 a price of 520,000 yen per unit (subscription price of
501,800 yen per unit) through a public offering in order to raise funds for purchasing newproperties which were acquired at the time of the listing.
(Note 3) New investment units were issued at a price of 501,800 yen per unit through an allocation of
investment units to a third party in order to apply to certain part of funds for new property
acquisitions.
(Note 4) New investment units were issued at a price of 1,019,200 yen per unit (subscription price of984,360 yen per unit) through a public offering in order to refund certain part of debts procured
to acquire properties in the second period.
(Note 5) New investment units were issued at a price of 984,360 yen per unit through an allocation of
investment units to a third party in order to refund certain part of debts procured to acquire
properties in the second period.
(Note 6) New investment units were issued at a price of 454,930 yen per unit (subscription price of
438,984 yen per unit) through a public offering in order to refund certain short-term loans
procured to acquire properties in the ninth period and to raise funds to acquire a new property
which was acquired in the tenth period.
(Note 7) New investment units were issued at a price of 438,984 yen per unit through an allocation of
investment units to a third party in order to refund the short-term loans procured to acquire new
February
2011

28,(Note 7)

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
7

properties in the ninth period and to raise funds to acquire a new property which was acquired in
the tenth 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 the Real Estate Investment Trust Section of the Tokyo Stock Exchange during eachperiod are as follows:
9th period
11th period
Fiscal period
8th period
10th period
12th period(December(December(closing date) (June 2010)
(June
2011)
(June
2012)
2010)
2011)
Investment unit
market priceHighest (yen)496,500
570,000
543,000
408,000
430,000
Lowest (yen)386,500

397,000

363,500

295,500

297,600(Note) The highest and lowest prices of investment uints refer to the closing prices on the the Real
Estate Investment Trust Section of the Tokyo Stock Exchange.

(4) Distributions Paid
The distributions for the twelfth fiscal period were determined to be 12,200 yen per unit. The
Investment Corporation has determined to distribute most of retained earnings at the end of period,
less reserve for advanced depreciation stipulated in Section 66.2 of the Special Taxation Measures
Law, rounding down the portion less than 1 yen of distribution per investment unit, with the intent
to apply the Special Taxation Measures Law (Section 67.15 of the Law on the Special Taxation
Measures Law) and Special Taxation Measures for Advance Acquisition of Land, etc. During the
Period from Calendar Year from 2009 to 2010 (Section 66.2 of the Special Taxation Measures
Law) in which the amount equivalent to distributions from profits is deducted from taxable
corporate income as a deductible expense.
Fiscal period

Accounting Term
Retained earnings at endof period(Thousands ofyen)
Retainedearnings(Thousands of yen)
Total profit
distributions(Thousands ofyen)(Distributions perunit)(yen)Totalprofitdistributions(Thousands ofyen)(Profit distribution perunit)(yen)Total refund of investment

8th period

9th period

10th period

11th period

12th period

1, 2010
1, 2011January 1, 2010 to July
January 1, 2011 to July
January 1, 2012
December
31,
December
31, toto June 30, 2010
to
June
30,
2011
June 30, 2012
2010
2011

2,366,962

2,218,333

2,314,032

2,236,262

2,434,824

29

76

50,232

5

133,294

2,366,933

2,218,256

2,263,800

2,236,257

2,301,530(15,315)(14,353)(12,000)(11,854)(12,200)

2,366,933

2,218,256

2,263,800

2,236,257

2,301,530(15,315)(14,353)(12,000)(11,854)(12,200)

－

－

－

－

－

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)8equity(Refund of investment per
unit)

(－)

(－)

(－)

(－)

(－)

(5) Policy and issues on future investment management
1) Outlook for investment environment
Looking ahead, the domestic economy is expected for a slight recovery and growth given the
demand for restoration associated with the Great East Japan Earthquake. However, it will takesome time towards a full scale economic recovery due to the slowdown of the US and Chinese
economies and concerns for a potential resurfacing of European financial crisis. In the officeleasing market in the Tokyo metropolitan area, a rise in the vacancy rate is anticipated due to therecent one-time oversupply of office buildings. Yet the future supply and demand is expected totrend in a consistent to slightly increasing level, based on the anticipated decrease in supply of newbuildings in the months ahead. Though rent level for certain buildings in the center of Tokyo seems
to bottom out, the recovery momentum in general is not expected to come anytime soon.
In Osaka and Nagoya areas, amid extended trend in moderate supply and demand due to scheduled
supply of major office buildings, the current difficult situations will remain for the time being.
In the real estate investment market, sale and purchase transactions are expected to increase as
easing trend of fund-raising conditions and needs of realty investment enterprises and otherinvestors are likely to continue. Based on the fact, however, that there is a gap in target price andinterest rate between sellers and buyers, supply in quality properties that meet the expectations for
asset size or envisioned price of the both parties will remain limited.

2) Policy and issues on future investment management
Amid a delay in recovery in the office leasing market, JEI works to improve our profitability in theoverall asset portfolio through improvement of occupancy rate of existing properties and otherappropriate measures. We will continue to strive for realizing more efficient property management
operation, focusing on retaining new tenants as early as possible, particularly for properties withlow occupancy rate such as Ebina Prime Tower and Kawasaki Nissincho Building throughsimultaneous implementation of cost reduction measures and incentive program, etc. In order tomaintain the asset value of our portfolio and improve competitive position of our properties on themedium- to long-term basis, we will consistently implement additional strategic investment plansincluding the placement of an emergency power generator placement based on the needs stipulated
in the business continuity plans.
For external growth, we will plan and implement well-balanced investments based on the size,
profitability and target area, including asset replacements, to increase asset size and realize stableprofitabilities in our portfolio on the medium- to long-term basis. To this end, we will continueenhancing further interaction and collaboration with sponsor companies, have our asset
management companies to cultivate and refine property information sources, and seek business
opportunities with efforts to proactively gain access to market information.
As for the financial environment, the fund-raising environment is generally favorable for realty
investment enterprises. Still, we will consistently work on stable and sound financial operation toaddress uncertainties for the future in the financial market due to arising out of the European

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
9financial crisis that may become more severe and other factors, through taking appropriate
measures on converting floating-rate debts to fixed-rate debts, diversifying maturity dates,
lengthening borrowing spans, maintaining liquidity by renewing commitment lines and ensuring
appropriate ratio of interest-bearing debts.

(6) Subsequent eventsNone.

2. Outline of the Investment Corporation(1) Investment unit
Fiscal period

Number of units
authorized
Number of units
issued andoutstanding
Unitholders’ capital

11th
9th
10th
12th
8th
As of December 31,
As of December 31,
As of June 30, 2011
As of June 30, 2012
As of June 30, 2010
2010
2011
2,000,000
units

2,000,000
units

2,000,000
units

2,000,000
units

2,000,000
units

154,550 units

154,550 units

188,650 units

188,650 units

188,650 units

87,083 million yen

87,083 million yen 102,052 million yen 102,052 million yen 102,052 million yen

Number ofunitholders

5,469
individuals

5,495
individuals

7,411
individuals

7,875
individuals

7,447
individuals(2) Unitholders
Major unitholders as of June 30, 2012 are as follows:
Number ofunits owned(Units)Ratio of number of
units
owned
to
outstanding
investment units (%)

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

45,614

24.18

Kowa Real Estate Co., Ltd.

14,312

7.59

11,704

6.20

11,184

5.93

The Master Trust Bank of Japan,
2-11-3 Hamamatsu-cho, Minato-ku, Tokyo
Ltd. (Trust Account)

7,569

4.01

NOMURA(LUXEMBOURG) S.A.

BANK Batiment A, 33, Rue de Gasperich, L-5826,
Luxembourg

5,294

2.81

North Pacific Bank, LTD.

3-7 Odori-Nishi, Chuo-ku, Sapporo-shi,
Hokkaido

4,590

2.43

The Dai-ichi Life
Company, Limited

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

4,132

2.19

1-15-20 Marunouchi, Kita-ku, Okayama-shi,
Okayama

3,405

1.80

Name

Address

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

The Nomura Trust and Banking
Co., Ltd. (Investment Trust 2-2-2 Otemachi, Chiyoda-ku, Tokyo
Account)
Trust & Custody Services Bank,
Harumi Island Toriton Square Office Tower
Ltd. (Securities Investment TrustZ, 1-8-12 Harumi, Chuo-ku, Tokyo
Account)

Insurance

The Chugoku Bank, LTD.

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
10The Gibraltar Life Insurance Co.,
2-13-10 Nagata-cho, Chiyoda-ku, Tokyo
Ltd. (General Account J-REIT)
Total

2,225

1.18

110,029

58.32(Note) Ratio of number of units owned to outstanding investment units is rounded to two decimal places.

(3) Officers
1) Directors and Accounting Auditor
Post
Executive
Director
Supervisory
Director
Supervisory
Director
Supervisory
Director
Accounting
Auditor

Name

Compensation or fee
for the six months
ended June 30, 2012
(Thousands of yen)

Major additional post

Chifumi Toda

President and Director, Japan Excellent AssetManagement Co., Ltd.

Makoto Sakagami

Makoto Sakagami Certified Public Accounting
OfficeTsuyoshi Nagahana

Advisor, Anderson, Mori & Tomotsune

Shunichi Maekawa

Professor, Faculty of Real Estate, Meikai
University

Ernst
&
Young
ShinNihon LLC

-

6,540

13,000(Note 2)－

(Note 1) There is no investment unit of JEI held by the Executive Director nor the Supervisory Directors.
Although Supervisory Directors may have additional post in other company than listed above,
there is no conflict of interests between those companies including listed above and JEI.
(Note 2) Total of compensations is an estimated amount and include fees for English financial statement
audit.

2) Policy on dismissal and discontinuation of re-election of accounting auditor
The board of directors deliberate dismissal of accounting auditor in accordance with the provisions
set out in the Act on Investment Trust and Investment Corporation and deliberate discontinuation of
re-election based on circumstances in all respects.

(4) Name of asset management company, asset custodian and administrative
agentsOur asset management company, asset custodian and administrative agents as of June 30, 2012 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 foraccounting and institution operation)

Mizuho Trust & Banking Co., Ltd.

Administrative agent(Investment corporation bonds)

Mizuho Corporate Bank, Ltd.

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)11

3. Investment Portfolio of the Investment Corporation(1) Investment Portfolio by Area
11th Period(December 31, 2011)
Classification

Use

Area

Acquisition
Investment
Acquisition
Investment
price (Millions
ratio inprice (Millions
ratio inof yen)of yen)portfolio (%)
portfolio (%)(Note 1)

Real estate property

12th Period(June 30, 2012)(Note 2)

(Note 1)

(Note 2)

Area II(Note 4)

4,377

1.9

4,480

2.0

Area I(Note 4)

114,24250.3

112,923

49.3

Area II(Note 4)

7,461

3.3

7,443

3.2

Area III(Note 4)

74,62932.8

74,11932.4

Area IV(Note 4)

3,395

1.5

6,168

2.7

Area I(Note 4)

7,096

3.1

7,044

3.1

Total

211,203

92.9

212,178

92.7

Deposits in bank and other assets

16,046

7.1

16,639

7.3

Total assets

227,249100.0

228,818100.0(Note 3)

Trust beneficiaryinterest in realestate (Note 3)

Trust beneficiaryinterest in realestateOfficeOthers(Note 1) Acquisition price is based on the amounts accounted for in the balance sheet as of the closing
date (amounts of real estate and trust beneficiary interest in real estate are based on the bookvalue after adjusting depreciations).
(Note 2) Investment ratio in portfolio is rounded to one decimal place.
(Note 3) Leasehold rights held combined with buildings and other structures are indicated in real estate
property and trust beneficiary interest in real estate at the combined amount.
(Note 4) 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.)
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.

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
12

(2) Major Property
The principal properties (top ten properties in net book value) held by JEI as of June 30, 2012 are
as follows:
Ratio of rental
Book value Leasable space Leased space Occupancy revenue to total
2
2
Name(Millions of
(m )
(m )
rate (%) rental revenues(Note 1)
(Note 2)
(Note 3)yen)(%)

Major use

(Note 4)

Kowa
KawasakiNishiguchi Building

30,41938,332.15

36,281.92

94.7

12.0

OfficeAkasaka Garden City

22,824

8,769.53

7,992.53

91.1

4.7

OfficeOmori Bellport D

21,86725,828.29

24,748.26

95.8

13.0

Office17,494

5,622.98

5,622.98

100.0

4.2

Office13,00425,217.28

25,217.28

100.0

10.5

Office10,877

12,122.85

12,122.85

100.0

4.5

OfficeKowa
KawasakiHigashiguchi Building

10,22918,612.72

18,612.72

100.0(Note 5)

OfficeShiba 2-Chome Building

9,172

11,749.30

11,749.30

100.0

4.9

OfficeNo. 35 Kowa Building

8,300

9,377.16

9,377.16

100.0(Note 5)

OfficeJEI
Hamamatsucho
Building

8,272

6,411.26

6,411.26

100.0

3.4

Office152,463

162,043.52

158,136.26

97.6

66.8

－

AKASAKA
INTERCITY
Musashikosugi
Place
Daiba
GardenBuilding

Total

Tower
City

(Note 1) Leasable space refers to space available for lease of which ownership is attributable to JEI as ofJune 30, 2012 and is rounded to two decimal places. If the property is a joint ownership property,
the value is obtained after multiplying the total leasable space of the shared real estate by thepercentage of the interest owned by JEI.
(Note 2) Leased space refers to space with lease arrangements between end tenants as of June 30, 2012
and is rounded to two decimal places. If the property is a joint ownership property, the value isobtained after multiplying the total leased space of the shared real estate by the percentage of theinterest owned by JEI. The leased space of end tenants who terminated their lease arrangement
but not yet removed as of the end of period is included in the leased space. This also applies tothe calculations of occupancy rate in (Note 3) below and the total number of tenants in (Note 1)
in (3) Portfolio Ownership Breakdown.
(Note 3) Occupancy rate is a percentage of total leased space to total leasable space as of June 30, 2012
and rounded to one decimal place.
(Note 4) Ratio of rental revenue to total rental revenues is rounded to one decimal place.
(Note 5) The values of Kowa Kawasaki Higashiguchi Building and No. 35 Kowa Building are
undisclosed because the consent from the tenants have not obtained.

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
13

(3) Portfolio Ownership Breakdown
Real estate properties and their forms of ownership as of June 30, 2012 are as follows:
Property No.

Name of property

Location (Displayed Address)

Form ofownershipTrust
6-26-3 Minami-Oi, Shinagawa-ku, beneficiaryI-1 Omori Bellport Dinterest in realTokyoestateTrustbeneficiaryI-2 Shiba 2-Chome Building
2-6-1 Shiba, Minato-ku, Tokyo
interest in realestateTrust
JEI
Hamamatsucho 2-2-12 Hamamatsu-cho, Minato-ku, beneficiary
I-3
Tokyo
Building
interest in realestateTrust
5-2-32 Minami-Azabu, Minato-ku, beneficiaryI-4 No. 32 Kowa BuildingTokyo
interest in realestateTrustbeneficiaryI-7 Akasaka Garden City
4-15-1 Akasaka, Minato-ku, Tokyo
interest in realestateTrustbeneficiaryI-8 AKASAKA INTERCITY
1-11-44 Akasaka, Minato-ku, Tokyo
interest in realestateTrust
Kowa
Shirokanedai 3-19-1 Shirokanedai, Minato-ku, beneficiary
I-9
Tokyo
Building
interest in realestateTrustbeneficiaryI-10 Daiba Garden City Building 2-3-5 Daiba, Minato-ku, Tokyo
interest in realestateTrustbeneficiaryI-11 No. 35 Kowa Building
1-14-14 Akasaka, Minato-ku, Tokyo
interest in realestateTrust
HAMARIKYU
1-9-1 and 15 Kaigan, Minato-ku, beneficiary
I-12
INTERCITY
Tokyo
interest in realestateTrustbeneficiary
I-13 Shintomicho Building
3-10-9 Irifune, Chuo-ku, Tokyo
interest in realestateArea I
II-1

NHK Nagoya
Center Building

Housou 1-13-3 Higashi-Sakura, Higashi-ku,
Real estate
Nagoya-shi, Aichi

Appraisalvalue at the Net bookend ofvalue
periodof(Millions of (Millions
yen)
yen)
(Note 1)
24,11021,867

10,900

9,172

7,470

8,272

7,080

7,396

17,70022,824

12,50017,494

5,090

4,904

11,73010,877

9,110

8,300

7,550

7,044

1,806

1,812

115,046

119,967

4,250

4,480

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
14

TrustNishi-Honmachi 1-3-15 Awaza, Nishi-ku, Osaka-shi, beneficiary
II-2
Osaka
interest in realestateArea II
Trust
Musashikosugi
Tower 1-403 Kosugi-machi, Nakahara-ku, beneficiary
III-1
Kawasaki-shi, Kanagawa
Placeinterest in realestateTrust
Kowa
Kawasaki 1-53 Nisshin-cho, Kawasaki-ku, beneficiary
III-2
Kawasaki-shi, Kanagawa
Higashiguchi Building
interest in realestateTrustbeneficiaryIII-3 JEI Hongo Building
2-38-16 Hongo, Bunkyo-ku, Tokyo
interest in realestateTrust
KawasakiNisshincho 7-1
Nisshin-cho,
Kawasaki-ku, beneficiary
III-5
Kawasaki-shi, Kanagawa
Building
interest in realestateTrust
1-2-7 Higashiyama, Meguro-ku, beneficiaryIII-6 No. 44 Kowa BuildingTokyo
interest in realestateTrustbeneficiaryIII-7 JEI Ryogoku Building
3-25-5 Ryogoku, Sumida-ku, Tokyo
interest in realestateTrustbeneficiaryIII-8 Ebina Prime Tower
2-9-50 Chuo, Ebina-shi, Kanagawa
interest in realestateTrust
Kowa Kawasaki Nishiguchi 66-2 Horikawa-cho, Saiwai-ku, beneficiary
III-9
Kawasaki-shi, Kanagawa
Building
interest in realestateTrust
2-29-24
Hon-Komagome, beneficiaryIII-10 Pacific Square Sengoku
interest in real
Bunkyo-ku, Tokyo
estateArea III
Trust
2-2-48 Kata-machi, Tsushima-ku, beneficiaryIV-2 JEI Kyobashi Building
Osaka-shi, Osakainterest in realestate
Trust
Hiroshima
Hacchobori 14-4
Hacchobori,Naka-ku, beneficiary
IV-3
Hiroshima-shi, Hiroshima
Dai-ichi Seimei Building
interest in realestateArea IVJEI
Building

Total

4,420

7,443

8,670

11,923

16,40013,004

8,380

10,229

4,560

5,248

3,570

4,063

1,540

993

2,136

2,379

3,690

6,116

24,50030,419

1,638

1,664

66,414

74,119

3,510

3,365

2,770

2,803

6,280

6,168

196,410

212,178

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
15

(Note 1) Appraisal value at the end of period indicates the appraisal value described in the real estateappraisal report prepared by a real estate appraiser belonging to Japan Real Estate Institute, Chuo
Real Estate Appraisal Co., Ltd., and Japan Valuers Co., Ltd. as of June 30, 2012 based on thearticles of incorporation of JEI and the regulations stipulated by the Investment Trusts
Association, Japan. When there is a joint ownership property in the current portfolio, its value isobtained after multiplying the total value of the shared real estate by the percentage of theinterest owned by JEI or the trustee.

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
16

11th Period
July 1, 2011 to December 31, 2011
Prop
erty Name of propertyNo.

I-1 Omori Bellport D
Shiba
2-ChomeI-2
Building
JEI
I-3 Hamamatsucho
Building
No. 32 Kowa
I-4
Building
No. 28 Kowa
I-6
Building (Note 4)
Akasaka Garden
I-7
City
AKASAKA
I-8
INTERCITY
Kowa
I-9 Shirokanedai
Building
Daiba Garden City
I-10
Building
No. 35 Kowa
I-11
Building
HAMARIKYU
I-12
INTERCITY
Shintomicho
I-13
Building
Area INHK
NagoyaII-1 Housou
CenterBuilding
JEI
II-2 Nishi-Honmachi
Building
Area II
Musashikosugi
III-1
Tower Place
Kowa Kawasaki
III-2 Higashiguchi
Building
JEI
Hongo
III-3
Building
KawasakiIII-5 Nisshincho
Building
No. 44 Kowa
III-6
Building

12th Period
January 1, 2012 to June 30, 2012

Ratio ofRatio of
Total
rentalTotal
rentalOccupanc
Occupanc
RentalRentalnumber of y rate (At revenue
revenue number of y rate (At revenue
revenuetenants (At the end of (Interim)
to total tenants (At the end of (Interim)
to total
the end of period) (Millions of rental
the end of period) (Millions of rental
period)revenues
period)revenues(Note 1)
(Note 1)
(%)
yen)
(%)
yen)
(%)
(%)
(Note 2)
(Note 2)
1

100.0

1,028

14.5

1

95.8

989

13.0

2

97.6

372

5.3

2

100.0

371

4.9

1

100.0

295

4.2

1

100.0

254

3.4

1

97.4

276

3.9

1

98.2

274

3.6

1

100.0

120

1.7

－

－

39

0.5

1

82.3

357

5.0

1

91.1

359

4.7

13

100.0

312

4.4

13

100.0

318

4.2

1

100.0

205

2.9

1

80.4

191

2.5

1

100.0

338

4.8

1

100.0

338

4.5

1

100.0

(Note 3)(Note 3)1100.0(Note 3)(Note 3)

4

87.2

15

0.2

7

98.6

260

3.4

-

-

-

-

9

100.0

37

0.5

27

97.1

-

-

38

96.9

-

-

32

90.6

291

4.1

30

96.0

292

3.9

1

90.0

229

3.2

1

90.0

208

2.7

33

90.3

-

-

31

92.7

-

-

36

100.0

796

11.2

36

100.0

794

10.5

1

100.0

(Note 3)(Note 3)1100.0(Note 3)(Note 3)

1

100.0

174

2.5

1

100.0

174

2.3

1

96.7

223

3.2

1

96.1

217

2.9

1

99.1

91

1.3

1

100.0

90

1.2

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
17

JEI
Ryogoku
Building
Ebina
Prime
III-8
Tower
Kowa Kawasaki
III-9 Nishiguchi
Building
III-1 Pacific
Square0 Sengoku
Area IIIJEIKyobashi
IV-2
Building
Hiroshima
Hacchobori
IV-3
Dai-ichiSeimei
Building
Area IV
III-7

Total

1

100.0

109

1.5

1

100.0

108

1.4

15

69.3

323

4.6

17

75.9

324

4.3

1

92.6

886

12.5

1

94.7

913

12.0

6

100.0

5

0.1

6

100.0

80

1.1

63

91.6

-

-

65

93.4

-

-

1

96.3

124

1.8

1

96.2

185

2.4

-

-

-

-

1

90.5

33

0.4

1

96.3

-

-

2

93.5

-

-

124

93.8

7,085

100.0

136

94.7

7,587

100.0

(Note 1) Total number of tenants indicates total number of tenants in each property as of the end of eachperiod. A property entered into a master lease arrangement is counted as one tenant. A tenant
who has multiple tenancies in one property is counted as one tenant. A tenant who has tenancies
in multiple properties is counted as one tenant for each property.
(Note 2) Ratio of rental revenue to total rental revenues is rounded to one decimal place.
(Note 3) The values of Kowa Kawasaki Higashiguchi Building and No. 35 Kowa Building are
undisclosed because the consent from the tenants have not obtained.
(Note 4) No. 28 Kowa Building was sold on February 29, 2012.

(4) Other Assets
1) Contract amount and fair value of specified transactions and foreign exchange
forwards transactions
Classification

Contract amount (Thousands of yen)(Note 1)

Fair value(Thousands of yen)
(Note 2)

TypeOver one year

Interest rate swap
contracts
with28,300,000
28,300,000
floating-ratetofixed-rate interest(Note 1) Contract amount of swap is calculated based on notional principal.
(Note 2) Fair value is omitted for presentation because over-the-counter transactions meet requirements
for special accounting under the Accounting Standard for Financial Instruments.
Over-the-countertransaction－

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)18

4. Capital Expenditures for Holding Properties(1) Scheduled Capital Expenditures
The following table shows major planned capital expenditures associated with planned
maintenance and repair for the properties held by JEI as of June 30, 2012. The values below
include those to be expensed for accounting purposes.
Estimated construction costs(Millions of yen)
Payment
for the six Total of
Name of property
Location
PurposeScheduled termmonths advanceTotal
ended payment
June 30,
2012
NHK
NagoyaFireprevention
Higashi-ku,
From July 201151－－
HousouCentermonitoring
systemNagoya-shi
To July 2012
Buidingrenewal construction
Kawasaki
From June 2012
Kawasaki-ku,
42－－
Utility renovation
Nisshincho
To August 2012
Kawasaki-shi
Building
Air-conditioning
JEI
From September
systemrenewalNishi-Honmachi
Nishi-ku, Osaka-shi
2012
29
－
－
construction(2nd
Building
To November 2012
term)(2) Capital expenditures for the six months ended June 30, 2012
The following table shows constructions completed during the period and to be expensed as capital
expenditure pertaining to our portfolio held as of June 30, 2012. During the period, the amount ofconstructions completed totaled 580 million yen, composed of 393 million yen of capital
expenditure and 186 million yen of maintenance and repair classified as expenditure for the six
months ended June 30, 2012.
Name

NHK Nagoya
Center Buiding
JEI
Building

Location

Housou Higashi-ku,
Nagoya-shi

Hamamatsucho

JEI Hongo Building
NHK Nagoya
Center Buiding

PurposeMinato-ku, Tokyo

Bunkyo-ku, Tokyo

Housou Higashi-ku,
Nagoya-shi

Scheduled term

Amounts
paid(Millions ofyen)

Air-conditioning
systemFrom August 2011
renewal construction (4thto May 2012term)
Air-conditioning
systemFrom April 2012
renewal construction (2ndto May 2012term)
Air-conditioning
systemFrom April 2012
renewal construction (3rdto May 2012
term)

34

Sprincler maintenance and From August 2011
to March 2012
repair (3rd term)

30

Other constructions

－

97

33

197

Total

393

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
19

(3) Reserved funds for long-term maintenance and repair plan
JEI has reserved funds for maintenance and repair as below to appropriate for future expenditureson large-scale maintenance and repair, taking out from depreciation and other excess cash flow
based on our long-term maintenance and repair plan developed for each property.
(Unit: Millions of yen)
9th
Period11th Period
8th Period
10th Period
12th Period
Item
January 1, 2010 July 1, 2010 January 1, 2011 July 1, 2011 January 1, 2012
to December 31,
to December 31,
to June 30, 2010
to June 30, 2011
to June 30, 2012
2010
2011
Reserved funds at beginning of
254
254
259
251
299
periodIncrease

－

5

5

48

14

Decrease

－

－

13

－

47

Reserved funds at the end of
period

254

259

251

299

267

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

11th Period
July 1, 2011
to December 31, 2011

12th Period
January 1, 2012
to June 30, 2012(a) Asset management fees

337,980

356,378(b) Custodian fees

15,93917,207(c)

Administrative service fees

33,092

34,199(d) Compensation for directors

6,540

6,540

(e) Accounting auditor fees

11,50011,000(f) Other

65,43673,297

470,489

498,623

Total

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
20

(2)Borrowings
Borrowings by each financing source as of the end of the 12th period (ended June 30, 2012) are as
follows:
Classification
LenderBalance at Balance at
beginning of the end of Average interest Maturity Repay
Borrowing
periodperiodrate(%)
ment Usedate method(Note 1)
date(Thousands (Thousandsof yen)of yen)Mizuho Corporate Bank, Ltd.

Short-term
loans

4,000,000

Mitsubishi UFJ Trust and December
Banking Corporation
20, 2011
Sumitomo Mitsui Banking
Corporation
Mizuho Trust & Banking Co.,Ltd.
May 7, 2012
Mizuho Trust & Banking Co.,
Ltd.

3,000,000－

2,000,000－－

500,000－

500,000

9,000,000

1,000,000

2,300,000

2,300,000

2,200,000

2,200,000

2,000,000

2,000,000

500,000

500,000

2,500,000

2,500,000

1,500,000

1,500,000

2,000,000

2,000,000

Tokio Marine & Nichido Fire
Insurance Co., Ltd.

1,000,000

1,000,000

Mizuho Corporate Bank, Ltd.

－6,000,000－

1,000,000

Sub Total
Mitsubishi UFJ Trust andBanking Corporation
Sumitomo Mitsui Banking
Corporation
July 31, 2007
The Norinchukin Bank
Risona Bank, Ltd.

Long-termloanswith Mizuho Corporate Bank, Ltd.
maturity of Mizuho Trust & Banking Co.,
less than one Ltd.
July 31, 2007year
Sompo Japan Insurance Inc.

October 24,
Mitsubishi UFJ Trust and2008
Banking Corporation
Sub Total
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust andBanking Corporation
Long-termloans (Note 4)－

14,000,000 21,000,000
October 24,
2008

The Norinchukin Bank
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust andBanking Corporation
Mizuho Trust & Banking Co.,Ltd.

June 29,2010

6,000,000

To
appro
－
priate Unsecured
Lump- forandsum acquis unguarante
Octoberition ed0.68000
31, 2012
of realestateFebruary
0.68000
28, 2013
January
31, 2012

0.68000

July 31,2012
1.96907(Note 2)

3,100,000

3,100,000

1,800,000

1,800,000

1,800,000

1,800,000

1,300,000

1,300,000

－

－

－

For
repay
ment
Lump- ofsum other
borro
wing

Unsecured
andunguarante
ed1.03615 June 28,
2013
1.23046－－－

0.68615－

1,000,000

Remarks－－－

June 28,
2013

－

For
repay
Unsecuredment
Lumpandofsum
unguarante
otherDecembered
1.08667borro
27, 2013
wing

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

Balance at Balance atof the end of Average interest Maturity Repay
Borrowing beginning
rate (%)
periodperiodment Usedate method
date(Note 1)(Thousands (Thousandsof yen)of yen)Classification
Lenders
The Dai-ichi Life Insurance
Company Limited

Development Bank of JapanInc.

2,000,000

July 31, 2007

Mitsubishi UFJ Trust andBanking Corporation
Mizuho Corporate Bank, Ltd.
Mizuho Trust & Banking Co.,Ltd.

June 29,2011

2,000,000

2,000,000

4,000,000

4,000,000

3,900,000

3,900,000
2,400,000

1,200,000

1,200,000

3,000,000

3,000,000

2,000,000

2,000,000

1,620,000

1,620,000

Aozora Bank, Ltd.

1,620,000

1,620,000

Aozora Bank, Ltd.

650,000

650,000

370,000

370,000

280,000

280,000

Mizuho Corporate Bank, Ltd.

－

500,000

Mitsubishi UFJ Trust andBanking Corporation－

500,000

The Dai-ichi Life Insurance
Company Limited
October 24,
2008
Development Bank of JapanInc.
Mizuho Trust & Banking Co.,Ltd.

Mizuho Corporate Bank, Ltd.

(Note 4)

Sumitomo Mitsui
Corporation

November29, 2011

Banking

January 31,
2012

Aozora Bank, Ltd.

－

200,000

The Bank of Fukuoka－

300,000

4,600,000

4,600,000

Mizuho Corporate Bank, Ltd.

4,400,000

4,400,000

Sumitomo Mitsui
Corporation

4,000,000

4,000,000

BankingJune 29,2011(Note 2)

December29, 2014

2.27344 June 30,(Note 2)
2015

For
repay
ment
of
other
borro
wing

To
appro Unsecured
1.13750
Lump- priate and(Note 2)sum forunguaranteacquis ed
ition
Novembeof realr 30, 2015
estate(Note 2)500,000

Mitsubishi UFJ Trust andBanking Corporation

July 31,2014
2.28417To
appro
priateforacquisitionof realestate1.14125－

Risona Bank, Ltd.

2.25875(Note 2)0.98667
2,400,000

Risona Bank, Ltd.

Long-term
loans

2,000,000

RemarksFor
repay

1.36375 June 29,(Note 2)
2016

ment
of
other
borro
wing

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)22Balance at Balance atof the end of Average interest
Borrowing beginning
rate (%)
periodperioddate(Note 1)(Thousands (Thousandsof yen)of yen)Classification
Lenders

Long-term loans(Note 4)

Sumitomo Mitsui Trust
Bank, Limited (Note 3)
Sumitomo
Mitsui
Banking Corporation
November
Mitsubishi UFJ Trust 29, 2011
andBanking
Corporation
MizuhoCorporate
Bank, Ltd.
MizuhoCorporate
Bank, Ltd.
Mitsubishi UFJ Trust
January 31,
andBanking2012
Corporation
Sumitomo
Mitsui
Banking Corporation

1,620,000

1,620,000

1,080,000

1,080,000
1.24375(Note 2)

540,000

540,000

520,000

520,000－

2,000,000－

1,500,000－

1,500,000

Development Bank ofJapan Inc.

November30, 2010

6,000,000

6,000,000

The
Dai-ichiLife
Insurance
Company
LimitedJune 29,2011

3,000,000

3,000,000

Development Bank of January 31,
Japan Inc.
2012－

2,000,000

Maturity date
Repayment method
Use

RemarksNovem
ber 29,2016

For
repaymJanuary
Unsecured
1.24750
Lumpent of
31,(Note 2)andother2017 sumunguaranteborroweding
1.73875(Note 2)

Novem
ber 30,2017

1.65125 June 29,(Note 2)
2018

(Note 2)January31,
2020

1.60000

Sub Total

65,800,000 67,800,000

1.40367

－

－

－

－

Total

88,800,000 89,800,000

1.35526

－

－

－

－

(Note 1) The average interest rates are calculated using a weighted-average of the loan balance at the endof period by multiplying the interest rate of each loan agreement as of period-end, rounding tofive decimal places. 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) The loans are fixed-rate loans (including loans with fixed-rate interest using interest rate
swaps).
(Note 3) Sumitomo Mitsui Trust Bank, Limited was established through a merger among the Chuo
Mitsui Trust and Banking Company, Chuo Mitsui Asset Trust and Banking Company, andSumitomo Trust and Banking Co., Ltd. (company surviving absorption-type merger) on April 1,
2012.(Note 4) The following table shows annual total amount of long-term loans (excluding
those with maturity date of less than one year) for each year after the balance sheet date.
(Unit: Thousands of yen)Classification

Over 1 year
within 2 years

Over 2 years
within 3 years

Over 3 years
within 4 years

Over 4 years
within 5 years

Over 5 years

Long-term loans

8,000,000

20,500,000

19,540,000

8,760,000

11,000,000

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
23

(3) Investment Corporation Bonds
Investment corporation bonds issued as of June 30, 2012 are as follows:
Balance at Balance at
beginning of the end of Interest
rate Maturity Repayment(Note 1)
Issuance
Issue
periodperioddate
date
method(%)(Thousands (Thousandsof yen)of yen)
1st series unsecured
March 11,
March 11,
investment
Lump-sum
12,000,000 12,000,000
1.52000
2010
2014
corporation bonds
2ndseriesunsecured
June 28,
June 26,
Lump-sum
5,000,000 5,000,000
1.29000
investment
2010
2015
corporation bonds
3rd series unsecured
NovemberNovember
5,000,000 5,000,000
1.01000
investmetn
Lump-sum4, 20114, 2016
corporation bonds
4th series unsecured
NovemberNovemberinvestment
Lump-sum
2,000,000 2,000,000
1.40000
4, 20112, 2018
corporation bonds
Total
24,000,000 24,000,000
1.35583

Use

Remarks(Note 2)

(Note 4)(Note 2)

(Note 4)(Note 3)(Note 4)(Note 3)(Note 4)(Note 1) The interest rate indicated in the total column is calculated using a weighted-average of thebalance at the end of period by multiplying the loan interest rate of each investment corporationbond, rounding to five decimal places.
(Note 2) The funds were appropriated to repayments of borrowings.
(Note 3) The funds were appropriated to new property acquisitions.
(Note 4) The bonds are with special pari passu conditions among specified investment corporate bonds.

(4) Short-term investment corporation bonds
JEI has no outstanding short-term investment corporation bonds as of June 30, 2012.

6. Condition of Investment Transactions(1) Transactions of property and asset-backed securities, etc.
(Unit: Millions of yen)
Acquisition
Type of assets
Trust beneficiaryinterest in realestateTrust beneficiaryinterest in realestateName of real
property

No. 28
Building

Kowa

Shintomicho
Building

Hiroshima
Trust beneficiary
Hacchobori
interest in real
Dai-ichi Seimei
estateBuilding

Acquisition date

Transfer

Acquisition
price(Note 1)

Transferdate

Transferamount(Note 1)

Net book Gain (loss)
on transfer
value(Note 2)－－February 29,
2012

2,960

2,798

152

March 28, 2012

1,750

－

－

－

－

May 22, 2012

2,760

－

－

－

－

－

4,510

－

2,960

2,798

152

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)24

(Note 1) The acquisition price and transfer amount indicate each contracted amount of the property ineach purchase agreement or trust beneficiary interest transfer agreement excluding related
expenses (brokerage fee, taxes, etc.)(Note 2) Gain (loss) on transfer indicates the amount of transfer deducting the net book value and othercosts to sell.

(2) Transactions of other assets
Other assets than property or asset-backed securities, etc. above are mainly bank deposits and bankdeposits in trust.

(3) Appraisal and research for specified asset value, etc.
1) Appraisal
Acquisition ortransfer

Property name

(Unit: Millions of yen)
Property
Acquisition appraisal
Type of assets Acquisition
price
Property appraiser
value
date
(Note 1)
(Note 2)

Valuation
date

Trust
Chuo Real Estate March 1,
March 28,
beneficiary
Acquisi Shintomicho
1,750
1,787
Appraisal Co., Ltd.
2012
2012
interest in realtion Building
estate
Trust
Hiroshima
Japan Real Estate January 1,
beneficiaryMay 22,Acquisi
2,760
2,760
Hacchobori Dai-ichi
Institute2012
interest in real
2012
tion
Seimei Building
estate(Note 1) The acquisition price and transfer amount indicate each contracted amount of the property ineach purchase agreement or trust beneficiary interest transfer agreement excluding related
expenses (brokerage fee, taxes, etc.), rounding to the million yen.
(Note 2) The appraisals were performed based on Chapter 3 Appraisals Regarding Values of Real Estate
Property Subject to Securitization indicated in each section in the Real Estate Appraisal
Standards.

2) Research for specified assets value, etc.
Transactions of JEI that are subject to research for specified assets value and other particulars
under Section 201 of the Investment Law are researched and reported by Ernst & Young
ShinNihon LLC.
Two interest rate swap contracts were subject to the research during the period from January 1,
2012 to June 30, 2012 and we have received the related research report from Ernst & Young
ShinNihon LLC. In the research, Ernst & Young ShinNihon LLC is supposed to report on thename of counterparty, currency, contractual interest rate, transaction term and other matterspertaining to the subject interest rate swap contracts.

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)
25

(4) Transactions with interested parties or major shareholders
1) Transactions
Acquisition price or disposal amountClassification

Acquisition priceTotal amount

Disposal amount

4,510 million yen

2,960 million yen

Acquisition price from interested
parties and major shareholders
2,760 million yen (61.2%)

Disposal amount to interested
parties and major shareholders
2,960 million yen (100.0%)

Breakdown for transactions with interested parties and major shareholders
KW Emerald Specific Purpose
Company
The Dai-ichi Life Insurance
Company Limited
Total- million yen (-%)

2,960 million yen (100.0%)

2,760 million yen (61.2%)- million yen (-%)

2,760 million yen (61.2%)

2,960 million yen (100.0%)(Note) Above transactions indicate transactions made between interested parties and major shareholders
for the six months ended June 30, 2012. “Interested parties” means the interested parties related tothe asset management company of JEI as prescribed in Section 26, Paragraph 1, Item 27 of theRegulations for Management Reports Concerning Investment Trusts and Investment Corporationsof the Investment Trusts Association, Japan. “Major shareholders” means the major shareholders
as defined in Section 29-4, Paragraph 2 of the Financial Instruments and Exchange Act.

2) Amounts of fees paid and other expenses

Classification

Total amount paid (A)(Unit: Thousands of yen)
Breakdown of transactions with interested parties
and major shareholders
Paid to

Property management
costs and fees
(Note 2)

Property transaction
brockerage fees
Total

Kowa Real Estate Co.,
1,023,049 Ltd.
Sekisui House, Ltd.
55,188 Kowa Real Estate Co., Ltd.
1,078,237-

B/A

Amount paid (B)387,348

37.9%

55,521

5.4%

55,188100%

498,057

46.2%(Note 1)Figures indicate fees paid to interested parties and major shareholders of asset management companies withwhom JEI had transactions during the six months ended June 2012.
(Note 2)Property management costs and fees include construction management fees that were not expensed but
capitalized in property management fees and expenses.
(Note 3)The amounts do not include consumption tax and other taxes.

(5) Transactions with asset management companies concerning the additional
businesses of the asset management companies
The Asset Management Company (Japan Excellent Asset Management Co., Ltd.) does not run any
additional businesses classified in the type I financial instruments business, type II financial
instruments business, building lots and buildings transaction business, or real estate specified joint
enterprise and did not have applicable transactions.

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)26

7. Accounting(1) Assets, liabilities, principal, and profit and loss
For assets, liabilities, principal, and profit and loss, please refer to the attached Balance Sheet,
Statement of Income and Retained Earnings, Statement of Changes in Net Asset, Notes toFinancial Statements and Distribution Information.

(2) Change in depreciation calculation method
No changes were made during the period.

(3) Change in asset valuation method
No changes were made during the period.

8. Others(1) Investment trust beneficiary certificates incorporated by JEI
Not applicable during the period.

(2) Scheduled meetings
1) Unitholders’ meeting
Not applicable during the period.

2) Board of directors meeting
Outline of major contracts to be entered into or revised which were approved by the board of
directors of JEI during the six months ended June 30, 2012 is as follows:
Approval date

Approved agenda

Description

February 14, 2012

Entering into revised agreement for Provisions on cost sharing between the Assetongoingasset
management Management Company and the Investment
agreement
Corporation were partially revised.

February 14, 2012

The board of directors made a comprehensive
resolution on the issuance of investment
corporation bonds for the period from February
15, 2012 to February 14, 2013. In addition, it
selected and approved respective general
Entrusting administrative duties administrators for “subscription of investment
concerning investment corporation corporation bonds” and “acceptance of claims
for exercising the rights and other inquiries
bonds
from creditors of the Investment Corporationand other administrative duties concerninginvestment corporation bonds during the fiscal
period”, and assigned decisions on all othernecessary matters to the Executive Directors.

(3) Other
Figures less than unit indicated in each statement have been rounded down for amounts androunded for ratio unless otherwise indicated in this Report.

Asset Management Report for 12th Period (Semi-Annual Report for 12th Period)27

Financial Statements
Japan Excellent, Inc.
For the six-month periods ended
June 30, 2012 and December 31, 2011
with Independent Auditor’s ReportJapan Excellent, Inc.
Balance Sheets
As of June 30, 2012 and December 31, 2011

As of
As of
June 30,
December 31,
2012
2011
(Thousands of yen)
AssetsCurrent assets:
Cash and cash equivalents including trust
accounts (Notes 4 and 5)
Rental receivables
Consumption taxes refundable
Other current assets
Total current assets

As ofJune 30,
2012(U.S. dollars)(Note 2)

¥ 15,383,755
539,343–
156,814
16,079,912¥ 14,708,786
453,875
227,660
118,216
15,508,537$ 193,969,932
6,800,439–
1,977,223
202,747,594

Property and equipment (Note 7):
Buildings and building improvements
Machinery and equipment
Furniture and fixtures
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

3,755,620
265
2,285
12,2333,605,649
265
1,850
12,23347,353,672
3,343
28,807
154,240

82,573,706
428,169
79,349128,008,244
8,416(11,254,423)
203,613,864

81,146,718
416,916
76,706
127,497,971–(10,120,288)
202,638,020

1,041,151,252
5,398,680
1,000,498
1,614,024,005
106,118(141,904,208)
2,567,316,407

Investments and other assets:
Leasehold rights
Leasehold rights for trust accounts
Security deposits
Long-term prepaid expenses
Investment corporation bond issuance costs
Other assets
Total investments and other assets
Total assets

1,185,045
7,380,017
15,182385,828
79,695
79,1489,124,915¥ 228,818,691

1,185,045
7,380,017
15,182355,240
93,38773,787
9,102,658¥ 227,249,215

14,941,935
93,052,790
191,4224,864,814
1,004,860
997,960
115,053,781$ 2,885,117,782

The accompanying notes are an integral part of these financial statements.
30

Liabilities
Current liabilities:
Accounts payable – trade
Short-term loans (Notes 5 and 8)
Long-term debt due within one year (Notes 5
and 8)
Accounts payable – other
Unpaid consumption taxes
Provision for loss on disaster
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:
Units authorized: 2,000,000 units
Units issued and outstanding: 188,650 units asof June 30, 2012 and December 31, 2011
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

¥

As of
As of
June 30,
December 31,
2012
2011
(Thousands of yen)

As ofJune 30,
2012(U.S. dollars)(Note 2)587,879
1,000,000$¥

583,762
9,000,000

7,412,418
12,608,751

21,000,000
381,713155,102–328,977
23,453,671

14,000,000
303,706–56
271,276
24,158,800

264,783,760
4,812,924
1,955,640–
4,147,989
295,721,482

24,000,000
67,800,000
425,044

24,000,000
65,800,000
415,626

302,610,011
854,873,282
5,359,277

8,602,586
100,827,630
124,281,301

8,535,962
98,751,588
122,910,388

108,467,866
1,271,310,436
1,567,031,918

102,052,384

102,052,384

1,286,753,050

50,181
2,434,825
2,485,006
104,537,390
104,537,390¥ 228,818,691

50,1812,236,262
2,286,443
104,338,827
104,338,827¥ 227,249,215

632,719
30,700,095
31,332,814
1,318,085,864
1,318,085,864$ 2,885,117,782

The accompanying notes are an integral part of these financial statements.
31

Japan Excellent, Inc.
Statements of Income and Retained Earnings
For the periods from January 1, 2012 to June 30, 2012
and from July 1, 2011 to December 31, 2011

For the period
For the period
from January 1,
from July 1,
2012 to2011 toJune 30,
December 31,
2012
2011
(Thousands of yen)

For the period
from January 1,
2012 toJune 30,
2012(U.S. dollars)(Note 2)

Revenues:
Rental revenues (Note 13)
Other (Note 13)
Gain on sale of real estate (Note 14)
Total revenues¥7,046,224
541,770
152,695
7,740,689¥6,569,425
515,944–
7,085,369$88,844,078
6,831,048
1,925,293
97,600,419

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

3,901,998
356,379
17,207
34,2006,540
84,2984,400,622
3,340,067

3,645,610
337,980
15,94033,093
6,540
76,936
4,116,099
2,969,270

49,199,322
4,493,492
216,965
431,21382,461
1,062,890
55,486,343
42,114,076

1,578

1,841

19,896–
8,207

61,354
12,829–103,479

599,796
138,538
161,785551,628
101,837
136,523

7,562,677
1,746,788
2,039,914

13,692180
2,435,861

11,1286,846
2,237,332

172,636
2,276
30,713,160

Extraordinary income:Reversal of provision for loss on disaster

56

–

706

Extraordinary losses:
Loss on disaster

–

64

–

2,435,917

2,237,268

30,713,866

1,097
(0)
2,434,820
5¥2,434,825

1,062
(4)
2,236,210
52¥2,236,262

13,835(1)
30,700,032
63$30,700,095

Other income:Interest income
Gain on adjustment for property rental businessprofitOther
Other expenses:
Interest expense
Loan arrangement fees
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.
32

Japan Excellent, Inc.
Statements of Changes in Net Assets
For the periods from January 1, 2012 to June 30, 2012
and from July 1, 2011 to December 31, 2011

Balance as of June 30, 2011
Changes during the fiscal period:
Provision for reserve for
reduction
Distributions from retained
earnings
Net income
Total changes during the fiscal
periodBalance as of December 31, 2011

Balance as of December 31, 2011
Changes during the fiscal period:
Distributions from retained
earnings
Net income
Total changes during the fiscal
periodBalance as of June 30, 2012

Balance as of December 31, 2011
Changes during the fiscal period:
Distributions from retained
earnings
Net income
Total changes during the fiscal
periodBalance as of June 30, 2012

For the period from July 1, 2011 to December 31, 2011
Net assets
Unitholders’ equity
Surplus
Voluntary
reserve
Reserve foradvanceddepreciation of
Total
non-current
Retained
unitholders’assetsearnings
Total surplus
equity(Thousands of yen)

Number ofunits inissue

Unitholders’capital188,650¥102,052,384–

Total net assets–¥ 2,314,033¥ 2,314,033¥104,366,417¥104,366,417–

50,181(50,181)

–

–

–

–
–

–
–

–
–

(2,263,800)
2,236,210(2,263,800)
2,236,210(2,263,800)
2,236,210(2,263,800)
2,236,210–
188,650–¥102,052,384

50,181¥ 50,181(77,771)¥ 2,236,262(27,590)¥ 2,286,443(27,590)¥104,338,827(27,590)¥104,338,827¥

For the period from January 1, 2012 to June 30, 2012
Net assets
Unitholders’ equity
Surplus
Voluntary
reserve
Reserve foradvanceddepreciation of
Total
non-current
Retained
unitholders’assetsearnings
Total surplus
equity(Thousands of yen)

Number ofunits inissue

Unitholders’capital188,650¥102,052,384¥50,181¥ 2,236,262¥ 2,286,443¥104,338,827¥104,338,827

–
–

–
–

–
–

(2,236,257)
2,434,820(2,236,257)
2,434,820(2,236,257)
2,434,820(2,236,257)
2,434,820–
188,650–¥102,052,384–¥50,181

198,563¥ 2,434,825

198,563¥ 2,485,006

198,563¥104,537,390

198,563¥104,537,390

For the period from January 1, 2012 to June 30, 2012
Net assets
Unitholders’ equity
Surplus
Voluntary
reserve
Reserve foradvanceddepreciation of
Total
non-current
Retained
unitholders’assetsearnings
Total surplus
equity(U.S. dollars) (Note 2)

Total net assets

Number ofunits inissue

Unitholders’capital188,650$1,286,753,050$632,719$ 28,196,471$ 28,829,190$1,315,582,240$1,315,582,240

–
–

–
–

–
–

(28,196,408)
30,700,032(28,196,408)
30,700,032(28,196,408)
30,700,032(28,196,408)
30,700,032–
188,650–$1,286,753,050–$632,719

2,503,624$ 30,700,095

2,503,624$ 31,332,814

2,503,624$1,318,085,864

2,503,624$1,318,085,864

Total net assets

The accompanying notes are an integral part of these financial statements.
33

Japan Excellent, Inc.
Statements of Cash Flows
For the periods from January 1, 2012 to June 30, 2012
and from July 1, 2011 to December 31, 2011

Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Amortization of investment corporation bond issuancecosts
Decrease in provision for loss on disaster
Interest income
Interest expense
Increase in rental receivables
Decrease (increase) in consumption taxes refundable
Increase in prepaid expenses
Increase (decrease) in accounts payable – trade
Increase (decrease) in accounts payable – other
Increase in unpaid consumption taxes
Increase (decrease) in advances received(Increase) decrease in long-term prepaid expenses
Decrease in property and equipment for trust accounts
due to sale
Other, net
SubtotalInterest received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities
Purchases of property and equipment
Purchases of property and equipment for trust accounts
Proceeds from security deposits from tenants
Payments for security deposits to tenants
Proceeds from security deposits from tenants for trust
accounts
Payments for security deposits to tenants for trust
accounts
Net cash used in investing activities
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 investment corporation bond issuancecosts
Distributions to unitholders
Net cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

For the period
For the period
from January 1,
from July 1,
2012 to2011 toJune 30,
December 31,
2012
2011
(Thousands of yen)

For the period
from January 1,
2012 toJune 30,
2012(U.S. dollars)(Note 2)¥$

2,435,917
1,260,724¥

2,237,268
1,156,168

30,713,866
15,896,161

13,692(56)(1,578)761,582(85,468)
227,659(37,877)
72,874
92,835
155,1026,137(30,588)

11,128(16,374)(1,841)
688,151(78,527)(34,286)(12,180)(29,064)(44,199)–(8,978)
7,595

172,636(706)(19,896)
9,602,591(1,077,642)
2,870,502(477,582)
918,853
1,170,531
1,955,640
77,378(385,679)

2,798,378(12,016)
7,657,317
1,578(710,751)(1,009)6,947,135–
4,203
3,879,064
1,841(672,394)(995)
3,207,516

35,284,053(151,507)
96,549,199
19,896(8,961,682)(12,721)87,594,692(263,348)(4,850,934)
22,853(13,435)(34,787)(20,830,784)
681(6,701)(3,320,491)(61,164,221)
288,145(169,391)

503,743

1,154,787

6,351,574(437,118)(5,038,239)(272,665)(19,989,469)(5,511,517)(63,525,901)

1,000,000(9,000,000)
9,000,000––

10,300,000(1,300,000)
8,300,000(7,000,000)
7,000,000

12,608,750(113,478,754)
113,478,754–––(2,233,927)(1,233,927)(43,500)(2,262,553)
14,993,947–(28,167,020)(15,558,270)

674,969
14,708,786¥ 15,383,755(1,788,006)
16,496,792¥ 14,708,786

8,510,521
185,459,411$ 193,969,932

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

Japan Excellent, Inc.
Notes to Financial Statements
For the periods from January 1, 2012 to June 30, 2012
and from July 1, 2011 to December 31, 20111.

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 is owned 45% by Kowa Real Estate Co., Ltd., 20% by The
Dai-ichi Life Insurance Company, Limited, 15% by Sekisui House, Ltd. and 20% by othercorporations.
JEI was listed on the Tokyo Stock Exchange on June 27, 2006. As of June 30, 2012, JEI held
24 properties with 266,981 square meters of total leasable space and had leases with 136
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. Amounts have been rounded to the nearest thousand yen in theaccompanying financial statements and in the notes thereto, whereas amounts were truncatedin the Japanese financial statements prepared in accordance with Japanese GAAP.
Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The
rate of ¥79.31 = U.S.$1.00, the foreign exchange rate prevailing on June 30, 2012, has beenused for translation. The inclusion of such amounts is not intended to imply that Japanese yen
have been or could be readily converted, realized or settled into U.S. dollars at that or any
other rate.

35

3.

Summary of Significant Accounting Policies

Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits with banks, a negotiablecertificate of deposit and short-term investments which are highly liquid, readily convertible
into cash with an insignificant risk of price fluctuation and with an original maturity of threemonths 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
7 – 16 years
3 – 10 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.
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).
JEI capitalizes the property-related taxes allocated to the sellers of properties to JEI at thetime of acquisition of such properties including trust accounts. The capitalized amounts forthe periods from January 1, 2012 to June 30, 2012 and from July 1, 2011 to December 31,
2011 were ¥37,298 thousand ($470,287) and ¥15,667 thousand, respectively.

36

3.

Summary of Significant Accounting Policies (continued)

Provision for loss on disaster
Provision for loss on disaster is recorded at the amount estimated as of December 31, 2011 toprovide for possible repair and recovery costs arising from the Great East Japan Earthquake.
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 to fluctuation in interest rates. JEI has entered into certain
interest-rate swap contracts to hedge variable rates for its long-term debt obligations.
The corresponding interest-rate swap meets the criteria for the special hedge accounting
treatment under Japanese GAAP, and it is therefore not recorded at fair value.
The amounts paid or received via the swap transaction are recognized as interest adjustments.
An assessment of hedge effectiveness is omitted accordingly.
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 June 30, 2012 andDecember 31, 2011 consisted of the following:
As of
As of
June 30,
December 31,
2012
2011
(Thousands of yen)
Cash and cash deposits
Cash in trust and deposits in trust
Cash and cash equivalents including
trust accounts

As ofJune 30,
2012(U.S. dollars)¥ 3,490,795
11,892,960¥ 2,940,334
11,768,452$ 44,014,569
149,955,363¥15,383,755¥14,708,786$193,969,932

37

5.

Financial Instruments

For the periods from January 1, 2012 to June 30, 2012 and from July 1, 2011 to
December 31, 2011
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 Company’s Annual Funds
Procurement Plan. When procuring funds by means of interest-bearing debt, matters suchas seeking longer durations and maturities, securing fixed interest rates and diversifying
maturity dates are taken into consideration to achieve 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 indeposits. Derivative transactions are used solely for the purpose of hedging against therisk of fluctuations in interest rates of borrowings and the like.
(2) Types of Financial Instruments, Related Risks and Risk Management System(a) Market Risks (Interest Rate Fluctuation Risks)Borrowings and investment corporation bonds are primarily used to acquire
properties or to refinance existing borrowings. Some of such debt are floating rate
instruments and thus are exposed to the risk of interest rate fluctuations. Based oninterest rate forecasts developed through constant monitoring activities, JEI hedges
against the risk of interest rate fluctuations using derivative transactions(interest-rate swaps), which swap a floating interest rate for a fixed interest rate. To
reduce credit risk, derivative transactions (interest-rate swaps) are entered into
exclusively with counterparties that are financial institutions having a high credit
rating. For hedging accounting methods, hedging instruments, hedged items,
hedging policies and methods for evaluation the effectiveness of hedging activities,
see “Derivatives and hedge accounting” under Summary of Significant Accounting
Policies.
(b) Liquidity Risk (the risk of being unable to procure funds required for repayments)
Borrowings and investment corporation bonds are exposed to liquidity risk. This risk
is reduced by diversifying maturity dates and funding sources, executing
commitment line agreements (As described in Note 8, “Short-Term Loans andLong-Term Debt,” there is no balance outstanding under the facility agreements asof June 30, 2012), and liquidity risk is managed through the constant management ofliquidity on hand.
(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.

38

5.

Financial Instruments (continued)

Fair value of financial instruments
The following are carrying values and fair values as of June 30, 2012 and December 31, 2011of financial instruments and the differences between them. When fair value is difficult toascertain, it is excluded from the following table (Note 2).
As of June 30, 2012
As of December 31, 2011
Carrying value
Fair value
Difference Carrying value
Fair value
Difference(Thousands of yen)

Carrying value

As of June 30, 2012
Fair value(U.S. dollars)

Difference(1) Cash and cash deposits(2) Cash in trust and deposits in
trust
Total assets

¥

¥

– ¥

¥

–

$

44,014,569 $

44,014,569 $–

11,892,960¥ 15,383,755

11,892,960¥ 15,383,755¥–
11,768,452– ¥ 14,708,786

11,768,452¥ 14,708,786

¥

–
–

$

149,955,363
193,969,932 $

149,955,363
193,969,932 $––(3) Short-term loans(4) Long-term debt due within
one year(5) Investment corporation bonds(6) Long-term debt
Total liabilities

¥

¥

¥

– ¥

¥

¥

–

$

12,608,751 $

12,608,751 $–(7) Derivative transactions *¥3,490,795

1,000,000

21,000,000
24,000,000
67,800,000¥ 113,800,000–¥

3,490,795

1,000,000

21,006,518
24,209,900
68,602,364¥ 114,818,782¥–

2,940,334

9,000,000

6,518
14,000,000
209,900
24,000,000
802,364
65,800,000¥ 1,018,782 ¥ 112,800,000
¥

– ¥

–

¥

2,940,334

9,000,000

14,039,015
24,188,000
66,178,742¥ 113,405,757¥–

39,015
188,000
378,742¥ 605,757¥–

264,783,760
264,865,942
82,182
302,610,011
305,256,588
2,646,577
854,873,282
864,990,095
10,116,813$ 1,434,875,804 $ 1,447,721,376 $ 12,845,572
$

– $

– $

–

* The value of assets and liabilities arising from derivatives is shown at net value, with the amount inparentheses representing net liability position.

(Note 1)
Methods for calculating the fair value of financial instruments and matters related toderivatives transactions
Assets(1) Cash and cash deposits and(2) Cash in trust and deposits in trust
Carrying value approximates fair value because of the short maturities of these
instruments.
Liabilities(3) Short-term loans,(4) Long-term debt due within one year and(6) Long-term debt
Where floating rates apply, fair value is based on book value. The fair value of suchliabilities is considered to be close to book value because 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 discounting the combined value of principal and interest of theapplicable long-term debt by a reasonable rate assuming the same amount were to beborrowed anew.
39

5.

Financial Instruments (continued)(5) Investment corporation bonds
The fair value of investment corporation bonds issued by JEI is based on quoted market
prices.
(7) Derivative transactions
Please refer to Note 16, “Derivative Transactions.”(Note 2)Financial instruments for which fair value is deemed extremely difficult to determine
As of
As of
June 30, 2012
December 31, 2011
(Thousands of yen)
(1) Security deposits fromtenants *(2) Security deposits fromtenants for trust accounts *As ofJune 30, 2012
(U.S. dollars)¥ 425,044¥ 415,626$

5,359,277¥8,602,586¥8,535,962$108,467,866* Security deposits from tenants and security deposits from tenants for trust accounts in leased properties
are not subject to fair value disclosure because such deposits have no market price. Moreover, it isdifficult to calculate the actual period of time on deposit, namely, from the time the tenant moves in until
the time the tenant vacates, and it is extremely difficult to rationally estimate cash flow.

(Note 3)
Planned redemption amounts after settlement date of financial assets

Cash and cash deposits
Cash in trust anddeposits in trust
Total

1 year or less

1 to 2 years¥ 3,490,795

¥

–

¥

–

¥

–

¥

–

¥

–

11,892,960¥15,383,755

¥

–
–

¥

–
–

¥

–
–

¥

–
–

¥

–
–

1 year or less

1 to 2 years

Cash and cash deposits $ 44,014,569
Cash in trust and
149,955,363
deposits in trust$193,969,932
Total

Cash and cash deposits
Cash in trust anddeposits in trust
Total

As of June 30, 2012
2 to 3 years 3 to 4 years(Thousands of yen)

$

–

$

–
–

As of June 30, 2012
2 to 3 years 3 to 4 years(U.S. dollars)
$

–

$

–
–

$

–

$

–
–

As of December 31, 2011
2 to 3 years 3 to 4 years(Thousands of yen)

4 to 5 years

4 to 5 years
$

–

$

–
–

4 to 5 years

Over 5 years

Over 5 years
$

–

$

–
–

1 year or less

1 to 2 years

Over 5 years¥ 2,940,334

¥

–

¥

–

¥

–

¥

–

¥

–

11,768,452¥14,708,786

¥

–
–

¥

–
–

¥

–
–

¥

–
–

¥

–
–

40

5.

Financial Instruments (continued)(Note 4)
Planned redemption amounts after settlement date of borrowings, investment corporation
bonds and other interest-bearing debt

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

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

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

6.

1 year or less

1 to 2 years¥ 1,000,000¥–

As of June 30, 2012
2 to 3 years
3 to 4 years(Thousands of yen)
¥

–

¥

–

4 to 5 years¥

Over 5 years

–

¥

–

21,000,000

–

–

–

–

–

–
–
¥ 22,000,000

12,000,000
8,000,000¥ 20,000,000

5,000,000
20,500,000¥ 25,500,000–
19,540,000¥ 19,540,000

5,000,000
8,760,000¥ 13,760,000

2,000,000
11,000,000¥ 13,000,000

1 year or less

1 to 2 years

As of June 30, 2012
2 to 3 years
3 to 4 years(U.S. dollars)

4 to 5 years

Over 5 years$ 12,608,750

–

$

–

$

$

–

–

$

–

$

264,783,760

–

–

–

–

–

–
–
$277,392,510

151,305,006
100,870,004$ 252,175,010

63,043,752
258,479,385$321,523,137–
246,374,984$ 246,374,984

63,043,753
110,452,654$ 173,496,407

25,217,501
138,696,255$ 163,913,756

1 year or less

1 to 2 years

As of December 31, 2011
2 to 3 years
3 to 4 years(Thousands of yen)

4 to 5 years

Over 5 years¥ 9,000,000

¥

–

¥

–

¥

–

¥

–

¥

–

14,000,000

–

–

–

–

–

–
–
¥23,000,000–
15,000,000¥ 15,000,000

12,000,000
15,500,000¥ 27,500,000

5,000,000
9,540,000¥ 14,540,000

5,000,000
16,760,000¥ 21,760,000

2,000,000
9,000,000¥11,000,000

Investment and Rental Property

For the periods from January 1, 2012 to June 30, 2012 and from July 1, 2011 to
December 31, 2011
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 ofJune 30, 2012 and December 31, 2011 for such real estate for lease.

As ofDecember 31, 2011
¥211,203,082

Carrying value
ChangeAs ofduring period (*1)
June 30, 2012
(Thousands of yen)
¥975,844¥212,178,926

Fair value
As ofJune 30, 2012
¥196,410,000

41

6.

Investment and Rental Property (continued)
Carrying value
ChangeAs of(*1)
during period
June 30, 2012
(U.S. dollars)

As ofDecember 31, 2011
$2,663,006,954$12,304,178

Fair value
As ofJune 30, 2012

$2,675,311,132$2,476,484,680

Carrying value
ChangeAs ofduring period (*2)
December 31, 2011
(Thousands of yen)

As ofJune 30, 2011
¥191,455,003¥19,748,079

Fair value
As ofDecember 31, 2011

¥211,203,082¥196,794,000(Note 1)
Carrying value represents the acquisition cost less accumulated depreciation.
(Note 2)(*1) Changes during period comprise increases of ¥1,820,798 thousand ($22,957,989)
related to the acquisition of Shintomicho Building, ¥2,810,335 thousand ($35,434,812)
related to the acquisition of Hiroshima Hacchobori Dai-ichi Seimei Building anddecreases of ¥2,798,378 thousand ($35,284,053) related to the disposition of No. 28
Kowa Building and ¥1,260,668 thousand ($15,895,443) for depreciation costs.
(*2) Changes during period comprise increases of ¥8,324,100 thousand related to theacquisition of No. 35 Kowa Building, ¥7,105,754 thousand related to the acquisition of
HAMARIKYU INTERCITY, ¥3,431,797 thousand related to the acquisition of MID
Kyobashi Building, ¥1,680,304 thousand related to the acquisition of Pacific Square
Sengoku and a decrease of ¥1,156,110 thousand for depreciation costs.
(Note 3)
Fair value as of June 30, 2012 and December 31, 2011 is appraisal value provided bythird-party real estate appraisers.
7.

Property and Equipment

Property and equipment at June 30, 2012 and December 31, 2011 consisted of the following:
Acquisition
cost
Buildings and building
improvements
Machinery and equipment
Furniture and fixtures
Construction in progress
Buildings and building
improvements for trust
accounts
Machinery and equipment
for trust accounts
Furniture and fixtures fortrust accounts
Land for trust accounts
Construction in progress
for trust accounts
Total

¥

3,755,620
265
2,285
12,233As of June 30, 2012
As of December 31, 2011
Accumulated
Net
Acquisition
AccumulatedNet
depreciation
book value
cost
depreciation
book value(Thousands of yen)¥

(474,436)
(48)
(423)
–

¥

3,281,184
217
1,862
12,233¥3,605,649
265
1,850
12,233¥(426,972)
(36)
(312)
–

¥

3,178,677
229
1,538
12,233As of June 30, 2012
Accumulated
Acquisition costdepreciation(U.S. dollars)$

47,353,672
3,343
28,807
154,240$(5,982,049)(602)(5,330)–Netbook value$

41,371,623
2,741
23,477
154,240

82,573,706(10,585,614)

71,988,091

81,146,718(9,518,760)

71,627,958

1,041,151,252(133,471,371)

907,679,881

428,169(160,413)

267,756

416,916(146,202)

270,714

5,398,680(2,022,607)

3,376,072

79,349128,008,244(33,489)–

45,861
128,008,244

76,706
127,497,971(28,006)–

48,700127,497,971

1,000,498
1,614,024,005(422,249)–

578,250
1,614,024,005

8,416¥ 214,868,287–¥ (11,254,423)

8,416¥ 203,613,864–¥ 212,758,308–¥ (10,120,288)–¥ 202,638,020

106,118$ 2,709,220,615–$ (141,904,208)

106,118$ 2,567,316,407

42

8.

Short-Term Loans and Long-Term Debt

Short-term loans and long-term debt as of June 30, 2012 and December 31, 2011 consisted of
the following:
As of June 30, 2012
As of December 31, 2011
Weighted-average
Weighted-averageAmountinterest rate (*1)
Amountinterest rate (*1)
(Thousands of(Thousands of
yen)
yen)
Short-term loans:
Unsecured loans from banks
due on January 31, 2012
Unsecured loans from a bankdue on October 31, 2012
Unsecured loans from a bankdue on February 28, 2013
SubtotalLong-term debt due within
one year:
Unsecured loans from banks
due on July 31, 2012
Unsecured loans from banks
and insurance companies due
on July 31, 2012
Unsecured loans from banks
due on June 28, 2013
SubtotalLong-term debt:
Unsecured loans from banks
due on June 28, 2013
Unsecured loans from banks
due on December 27, 2013
Unsecured loans from aninsurance company due on
July 31, 2014
Unsecured loans from a bankdue on July 31, 2014
Unsecured loans from banks
due on December 29, 2014
Unsecured loans from aninsurance company and abank due on June 30, 2015
Unsecured loans from banks
due on November 30, 2015
Unsecured loans from banks
due on November 30, 2015
Unsecured loans from banks
due on June 29, 2016
Unsecured loans from banks
due on November 29, 2016
Unsecured loans from banks
due on January 31, 2017
Unsecured loans from a bankdue on November 30, 2017
Unsecured loans from aninsurance company due on
June 29, 2018
Unsecured loans from a bankdue on January 31, 2020
Subtotal
Total

¥

–

–

¥ 9,000,000

0.68000%

As of June 30,
2012
Amount(U.S. dollars)$–

500,000

0.68000%––

6,304,375

500,000
1,000,000

0.68000%–
9,000,000–

6,304,376
12,608,751

7,000,000

0.68615%7,000,000

0.68643%

88,261,253

7,000,000

1.96907% (*2)

7,000,000

1.96907% (*2)

88,261,254

7,000,000
21,000,000

1.03615%–
14,000,000–

88,261,253
264,783,760––

7,000,000

1.03643%–

8,000,000

1.08667%

8,000,000

1.08643%

100,870,004

2,000,000

2.25875% (*2)

2,000,000

2.25875% (*2)

25,217,501

2,000,000

2.28417% (*2)

2,000,000

2.28417% (*2)

25,217,501

11,500,000

0.98667%

11,500,000

0.98643%

145,000,631

5,000,000

2.27344% (*2)

5,000,000

2.27344% (*2)

63,043,752

4,540,000

1.13750% (*2)

4,540,000

1.13750% (*2)

57,243,727

2,000,000

1.14125% (*2)––

25,217,501

13,000,000

1.36375% (*2)

13,000,000

1.36375% (*2)

163,913,756

3,760,000

1.24375% (*2)

3,760,000

1.24375% (*2)

47,408,902

5,000,000

1.24750% (*2)––

63,043,752

6,000,000

1.73875% (*2)

6,000,000

1.73875% (*2)

75,652,503

3,000,000

1.65125% (*2)

3,000,000

1.65125% (*2)

37,826,251

2,000,000
67,800,000¥ 89,800,000

1.60000% (*2)–
65,800,000¥ 88,800,000–

25,217,501
854,873,282$ 1,132,265,792(*1) The weighted-average interest rate is weighted by the balance of each borrowing at the end of the period
and rounded to the nearest fifth decimal place. As for the borrowings, which were hedged by interest-rate
swaps for the purpose of avoiding interest rate fluctuation risk, the swapped interest rates are used to
calculate the weighted average of interest.
(*2) These are fixed-rate debt. (Fixed-rate debt by the interest-rate swaps agreement is included.)

43

8.

Short-Term Loans and Long-Term Debt (continued)

The scheduled repayment amounts of long-term debt after the balance sheet date (excluding
the long-term debt due within one year) are as follows:

Long-term debt

Long-term debt

1 to 2 years

2 to 3 years

3 to 4 years
4 to 5 years(Thousands of yen)Over 5 years¥8,000,000¥20,500,000¥19,540,000¥8,760,000¥11,000,000

1 to 2 years

2 to 3 years

3 to 4 years(U.S. dollars)

4 to 5 years

Over 5 years$100,870,004$258,479,385$246,374,984$110,452,654$138,696,255

JEI has commitment lines of ¥14,000 million ($176,523 thousand) with three financial
institutions to reduce refinancing risk and enhance financial stability. The full amount of suchcommitment lines was unused at June 30, 2012.

9.

Investment Corporation Bonds

Details of total investment corporation bonds outstanding as of June 30, 2012 and December
31, 2011 are summarized as follows:

Unsecured bond due on
March 11, 2014
Unsecured bond due on
June 26, 2015
Unsecured bond due on
November 4, 2016
Unsecured bond due on
November 2, 2018
Total

As of June 30,
2012

As of June 30, 2012
WeightedaverageAmountinterest rate
(Thousandsof yen)As of December 31, 2011
WeightedaverageAmountinterest rate
(Thousandsof yen)¥12,000,000

1.52000%¥12,000,000

5,000,000

1.29000%

5,000,000

1.29000%

63,043,752

5,000,000

1.01000%

5,000,000

1.01000%

63,043,752

2,000,000¥24,000,000

1.40000%

2,000,000¥24,000,000

1.40000%

25,217,501$302,610,011

Amount(U.S. dollars)

1.52000% $151,305,006

The scheduled redemption amounts of investment corporation bonds after the balance sheet
date are as follows:

Investment
corporation bonds

Investment
corporation bonds

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–¥12,000,000¥5,000,000–¥5,000,000¥2,000,000

1 year or less

1 to 2 years

2 to 3 years
3 to 4 years(U.S. dollars)

4 to 5 years

Over 5 years–$63,043,752$25,217,501– $151,305,006$63,043,752

44

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 million.

11. Per Unit Information
Net assets per unit were ¥554,134 ($6,987) as of June 30, 2012 and ¥553,081 as of December
31, 2011. Net income per unit was ¥12,906 ($163) for the period from January 1, 2012 toJune 30, 2012 and ¥11,853 for the period from July 1, 2011 to December 31, 2011 and wascomputed based on the weighted-average number of units outstanding during the respective
periods.

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 June 30, 2012 andDecember 31, 2011 are summarized as follows:
As of
As of June 30,
December 31,
2012
2011
(Thousands of yen)
Deferred tax assets:
Accrued enterprise taxes
Total deferred tax assets
Net deferred tax assets

¥22
22
¥22

¥22
22
¥22

As of June 30,
2012(U.S. dollars)
$282
282
$282

A reconciliation of the differences between the statutory tax rate and the effective tax rate forthe periods from January 1, 2012 to June 30, 2012 and from July 1, 2011 to December 31,
2011 is as follows:

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

For the period
from January 1,
2012 to June 30,
2012

For the period
from July 1, 2011
to December 31,
2011

39.33%

39.33%(37.16)(2.13)
0.04%(39.31)
0.03
0.05%

45

12. Income Taxes (continued)
Adjustments to deferred tax assets and deferred tax liabilities due to tax rate change
On December 2, 2011, two tax bills were promulgated: the “Reform Bill for Partial Revisionof Income Tax Law, etc. in Response to the Changing Economic Structure” (Act No. 114 of
2011), which includes an approximately 5% reduction of the effective statutory corporate tax
rate, and the “Special Measures for Securing Financial Resources Necessary to Implement
Measures for Reconstruction following the Great East Japan Earthquake” (Act No. 117 of
2011), which introduced a 10% surtax on the corporate national tax for 3 years. This resulted
in a change of the statutory tax rate applicable to the deferred tax assets and deferred tax
liabilities arising from the temporary differences that are expected to reverse from thesix-month period ending December 31, 2012 (the 13th fiscal period) through the six-month
period ending June 30, 2015 (the 18th fiscal period) to 36.59%, and with respect to thetemporary differences that are expected to reverse during or after the six-month period ending
December 31, 2015 (the 19th fiscal period) to 34.16%. The impact on JEI as a result of thesechanges was immaterial for the period ended June 30, 2012.

13. Breakdown of Property Rental Business Revenues and Expenses
For the period
For the period
from January 1, from July 1, 20112012 to June 30, to December 31,
2012
2011
(Thousands of yen)
Rental business revenues:
Rental revenues
Other
Total rental businessrevenues
Property operating expenses:
Property management costs
and fees
Utilities
Property and other taxes
Insurance
Repairs and maintenance
Depreciation
Other
Total property operating
expensesProfit

For the period
from January 1,
2012 to June 30,
2012(U.S. dollars)¥7,046,224
541,770¥6,569,425
515,944$88,844,078
6,831,048

7,587,994

7,085,369

95,675,126

1,016,241
668,123592,943
25,198
186,950
1,260,668
151,875

1,014,099
627,237
556,563
21,81796,4591,156,111
173,324

12,813,524
8,424,199
7,476,269
317,7222,357,206
15,895,443
1,914,959

3,901,998¥3,685,996

3,645,610¥3,439,759

49,199,322$46,475,804

46

14. Breakdown of Gain on Sale of Real Estate
Gain on sale of real estate for the periods from January 1, 2012 to June 30, 2012 and from
July 1, 2011 to December 31, 2011 is as follows:
For the period
For the period
from January 1, from July 1, 20112012 to June 30, to December 31,
2012
2011
(Thousands of yen)
No. 28 Kowa Building
Proceeds from sale of realestateCost of sale of real estate
Other related sale expenses
Gain on sale of real estate¥2,960,000
2,798,378
8,927¥ 152,695

¥

¥

–
–
–
–

For the period
from January 1,
2012 to June 30,
2012(U.S. dollars)$37,321,901
35,284,053
112,555$ 1,925,293

15. Leases
JEI leases properties on which rental revenues are earned. At June 30, 2012 and December 31,
2011, future lease revenues under non-cancelable operating leases are summarized as follows:
As of
As of
December 31,
June 30, 2012
2011
(Thousands of yen)
Due within one year
Due after one year
Total

¥625,206
156,537¥781,743¥ 703,710
362,902¥1,066,612

As ofJune 30, 2012
(U.S. dollars)$7,883,072
1,973,731$9,856,803

47

16. Derivative Transactions
Derivative Transactions as of June 30, 2012
(1) Hedge accounting not applied
Not applicable.
(2) Hedge accounting applied
The following are the contract values or values corresponding to the principal amount as
stipulated by contract as of June 30, 2012 for each hedge accounting method applied.
Hedge
accounting
methodType of derivativetransaction

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

Hedgeditem

SpecialInterest-rate swap
treatment ofLong-term
Receive floating,interest-rate
debt
pay fixed
swaps¥28,300,000¥28,300,000

Method ofcalculating
the fair value*

Contract amount
Fair
More thanvalue
one year(U.S. dollars)$356,827,638$356,827,638

Method ofcalculating
the fair value** Since the above interest-rate swap qualifies for hedge accounting and meets certain matching criteria,
the swap is not recorded at fair value on the accompanying balance sheets, as described in the summaryof significant accounting policies.
In addition, since the swap and the long-term debt hedged by the swap are accounted for as a unit, thefair value 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.”

Derivative Transactions as of December 31, 2011
(1) Hedge accounting not applied
Not applicable.
(2) Hedge accounting applied
The following are the contract values or values corresponding to the principal amount as
stipulated by contract as of December 31, 2011 for each hedge accounting method
applied.
Hedge
accounting
methodType of derivativetransaction

Hedgeditem

SpecialInterest-rate swap
treatment ofLong-term
Receive floating,interest-rate
debt
pay fixed
swaps

Contract amount
Fair
More thanvalue
one year(Thousands of yen)
¥21,300,000¥21,300,000

Method ofcalculating
the fair value** Since the above interest-rate swap qualifies for hedge accounting and meets certain matching criteria,
the swap is not recorded at fair value on the accompanying balance sheets, as described in the summaryof significant accounting policies.
In addition, since the swap and the long-term debt hedged by the swap are accounted for as a unit, thefair value 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.”48

17. Related Party Transactions
For the period from January 1, 2012 to June 30, 2012
(1) Parent company and major corporate unitholders
Not applicable.
(2) Affiliates
Not applicable.
(3) Sister companies
Not applicable.
(4) Directors and major individual unitholders
Name

Description oftransaction

Chifumi Toda

Payment of asset
management fees to
JEAM

Amount(Thousands(U.S. dollars)of yen)¥356,379$4,493,492

Account
Accounts
payableBalance at the end of period(Thousands(U.S. dollars)of yen)¥226,556$2,856,590

For the period from July 1, 2011 to December 31, 2011
(1) Parent company and major corporate unitholders
Not applicable.
(2) Affiliates
Not applicable.
(3) Sister companies
Not applicable.
(4) Directors and major individual unitholders
Name
Chifumi Toda

Description oftransaction
Payment of asset
management fees to
JEAM

Amount(Thousands of yen)
¥337,980

Account
Accounts
payableBalance at the end of period(Thousands of yen)
¥214,971

49

18. Segment Information
For the periods from January 1, 2012 to June 30, 2012 and from July 1, 2011 to
December 31, 2011
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.

19. 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 unappropriatedretained earnings, 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 ¥2,301,530,000 ($29,019,417), which is the
maximum integral multiple of the 188,650 units issued not exceeding the amount of theretained earnings remaining after deducting the amount that was appropriated to the reserve
for advanced depreciation of non-current assets as stipulated in Section 66.2 of the Special
Taxation Measures Law. In addition, no cash distribution exceeding the income amount set
forth in Section 33.1.4 of the bylaws of JEI shall be made.
On August 13, 2012, the Board of Directors approved a resolution to make a cash distributionof ¥12,200 ($154) per unit aggregating to ¥2,301,530,000 ($29,019,417) to unitholders ofrecord as of June 30, 2012.

20. Significant Subsequent Events
Not applicable.
50