SEMI-ANNUAL REPORTFor the 4th Fiscal Period
From January 1, 2008 to June 30, 2008

Highlights of the
Fiscal Period
Committed to maximizing
investor value

Operating Results¥17,218

Distribution per unit:¥7,840¥3,432¥2,661¥206,079¥89,655¥580,107

Revenues:

Japan Excellent is committed
to making the best use of
the strengths of its sponsors

Operating income:Net income:
Total assets:

Sponsors with robust finance strength

Net assets:

Sponsors with robust real estate strength

Net assets per investment unit:

Office buildings in major
metropolitan areas are the main
assets in the portfolio

Financial Highlights

Revenues (million yen)
1st fiscal period

Investment target (breakdown by use (Note))

2nd fiscal period

Office buildings: 90% or more
Other: 10% or lessmillionmillionmillionmillion

Net income (million yen)
1st fiscal period

4,751
5,505

1,856
2,239

2nd fiscal period

6,982

3rd fiscal period

7,840

4th fiscal period

Note: Please see later sections for details on sponsors and portfolio
management.

million

2,420

3rd fiscal period

2,661

4th fiscal period

Distribution per unit (yen)Total assets (million yen)

1st fiscal period

1st fiscal period

2nd fiscal period
3rd fiscal period
4th fiscal period

13,773
16,614
15,663
17,218

2nd fiscal period

114,199
156,291

3rd fiscal period

205,486

4th fiscal period

206,079

Table of Contents
Highlights of the Fiscal Period
Message to Our Unitholders
Strengths of Japan Excellent, Inc.
Investment Strategy
External GrowthInternal Growth
Financial Strategies
Portfolio Roster
Portfolio Map
Main Properties
Overview of Japan Excellent, Inc.
Overview of Asset Management Company
Financial Statements
WebsiteInformation for Investors

01
02
04
05
06
07
07
08
09
10
12
14
15
33
33

TopicsTopic

1 Given the changes in the business environment, we have decided to sell two

properties to strengthen the competitiveness of the overall portfolio. In the twoyears since listing, our assets scale has expanded from 98.3 billion yen(portfolio at IPO: 14 properties) to 180.7 billion yen (18 properties).

Topic

2 By raising rents through renegotiations, this fiscal period also witnessed a

steady growth in rental revenues. Total rental revenues for the fourth fiscal
period rose 3.0% (6.1% on an annual basis) compared with the third fiscal
period, excluding the growth factor from additional property acquisition(portfolio at IPO: 14 properties).

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period1Message to
Our Unitholders
Executive Director,
Japan Excellent, Inc.
President,
Japan Excellent Asset Management Co., Ltd.

Junichi Tamura

ProfileApril 1976 Entered Industrial Bank of Japan, Limited
May 1998 General Manager, Equity Research Department,
IBJ Securities Co., Ltd.
June 1999 Executive Director, IBJ Securities
June 2000 General Manager, Corporate Planning
Department, Shinko Securities Co., Ltd.
June 2003 General Manager, Corporate Business
Promoting & Planning Department, Shinko
Securities
April 2004 Executive Officer and General Manager,
Corporate Business Promoting & Planning
Department, Shinko Securities
April 2005 President and Representative Director,
Japan Excellent Asset Management Co., Ltd.
February 2006 Executive Director, Japan Excellent, Inc.

2

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

Performance in
the Fourth Fiscal Period

Investment PolicyFirst, we would like to thank you, our unitholders, for yoursupport of Japan Excellent, Inc. (JEI) and Japan Excellent
Asset Management Co., Ltd. (JEAM).

JEI maintains a consistent investment policy of investing
mainly in office buildings located in the major metropolitan
areas, while considering the balance of region, property
size, and tenants. We pursue both stability and expansion of
profits in order to realize the steady, medium- to long-term
growth which is expected of REIT investments.
Our greatest geographic emphasis is on the six central
wards of Tokyo — Chiyoda, Chuo, Minato, Shinjuku, Shibuya
and Shinagawa. Properties located in these six wards
accounted for 53% of the total portfolio at the IPO, and 52%
at the end of the fourth fiscal period (after the sale of theaforementioned two properties), maintaining a level of over50%.
Considering the latest investment environment, where
the rent is peaking out in some high-grade office buildings in
the Tokyo metropolitan area and vacancy rates are going up
in many regional cities, we are convinced of the need for
implementing more prudent investment strategies.
Based on the recognition of this market environment, we
will continue to implement our policy of expanding theportfolio over the medium- to long-term, and continue toacquire assets provided by our sponsors as a core strategy.
We will also continue to seek opportunities to acquire
properties from third parties. While all three of the coresponsors of JEI are actively involved in the real estatedevelopment business, they recognize the need for offbalancing their assets after development projects have been
completed. Thus, JEI expects continued contribution ofproperties from its sponsors in the foreseeable future.
As of the end of the fourth fiscal period, of the 18
properties that JEI owns after the sale of the two properties,
15 were acquired from the sponsors, and two acquired fromthird parties utilizing the networks of the sponsors.
Based on our view of the intensifying competitivenessamong properties, we will continue to emphasize theimprovement of the quality of our property management
and enforce effective additional investments in theproperties in order to increase rent revenues and improvetenant satisfaction.

Since our IPO in the real estate investment trust market of
the Tokyo Stock Exchange on June 27, 2006, JEI has primarily
invested in office buildings, with our objective being tosteadily grow in asset size and maximize unitholder value
from a medium- to long-term perspective.
We have just concluded our fourth fiscal period, which
ran from January 1, 2008, to June 30, 2008. I would like toreview our business and the financial results for the fiscal
period.
JEI posted revenues of 7,840 million yen, income before
income taxes of 2,662 million yen, and net income of 2,661
million yen in the fourth fiscal period. As a result, we wereable to distribute 17,218 yen per investment unit to ourunitholders. Since the listing, revenues, net income, and the
distribution per investment unit have steadily increased.
Revenues for this fiscal period increased 12.3% from theprevious fiscal period. This is attributable to the fullcontribution from the two properties (AKASAKA INTERCITY
and Kowa Kawasaki Nishiguchi Building) acquired from oneof our core sponsors, Kowa Real Estate Co., Ltd., during thethird fiscal period, and to the rent increase of 6.1% perannum for the 14 properties initially in our portfolio, which
offset the decrease in rent revenue due to the repair work
for JEI Nishi-Honmachi Building. The rent increase wascarried out in close collaboration with our prominent
property managers, while at the same time we worked tomaintain and improve the level of satisfaction of tenants.
In prompt response to the changes in the real estate market
environment, this fiscal period we decided to sell Shuwa
Iidabashi Building and Sendai Kowa Building in order tostrengthen our portfolio. After the sale of these two
properties, our portfolio will be 18 office buildings with a
total acquisition price of 180.7 billion yen.
As to financial activities, JEI submitted a shelf registration
for its investment corporation bonds, and increased thefixed interest rate portion to 72% (as of the end of the fourthfiscal period) of the total amount of our long-termborrowings to further enhance its financial stability.

well as to take steps to diversify lenders and repayment
periods, and maintain a balance between short- and longterm borrowings. We also intend to increase the portion of
fixed-rate borrowings in order to mitigate the risk of risinginterest rates in the future.
The real estate and financial environments as well as theregulatory systems surrounding the J-REIT business areundergoing dramatic changes, which include theenforcement of the Financial Instruments and Exchange Law
in September 2007. JEI and JEAM will continue to cope withthese environmental changes promptly and effectively.

Junichi Tamura
Executive Director, Japan Excellent, Inc.
President, Japan Excellent Asset Management Co., Ltd.

As for financial strategies, we plan to implement an efficientand dynamic strategy to raise capital for external growth,
including the floating of investment corporation bonds, asJapan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

3Strengths of Japan Excellent, Inc.

Investment Strategy

Collective support from sponsor companies with strengths in real estate and financeWith sponsors engaging in a wide range of real estate businesses and sponsors with extensive financial expertise, JEI is able

Portfolio centering on office buildings in major metropolitan areas*, balanced revenue
stability, and expansion

to maximize unitholder value by combining their comprehensive strengths.

* Major metropolitan areas refer to the metropolis of Tokyo and its vicinity (Kanagawa, Saitama and Chiba Prefectures) as well as government-ordinance designated cities.

JEI invests 90% or more of its portfolio in office buildings. As of June 30, 2008, all of the assets in the portfolio were office buildings.
Target investment areas are the major metropolitan areas centering on the six central wards of Tokyo. JEI will strengthen its

Real Estate Sector
Kowa Real Estate Co., Ltd.

portfolio with a focus on regional, property scale, and tenant mix balance.

Finance Sector

Liabilities
AssetsSekisui House, Ltd.

Portfolio composition by type of usage
EquityMizuho Corporate Bank, Ltd.

Morgan Stanley Capital K.K.

Usage*

Investment ratio in portfolio

The Dai-ichi Building Co., Ltd.

The Dai-ichi Mutual Life Insurance Company

Office buildings

90% or more

Sohgo Housing Co., Ltd.

Mizuho Trust and Banking Co., Ltd.

Others (commercial facilities, housing, etc.)

10% or less

* Usage of a building is defined as the usage to which more than 50% of the total floor space available for rent revenue of the asset is designated.

Core sponsors

Sponsors providing pipeline support agreement

Lenders

Target investment areas
Core sponsor companies with extensive track records in development, investment, andasset management of office buildings (Note 1)
Core
Sponsor

Kowa Real Estate Co., Ltd.

Targeted investment areas

Investment ratio in portfolio

Core areas

80% or more

Area I

Mizuho Corporate Bank’s close partner in real estate
Comprehensively engages in construction, maintenance, andmanagement operations of state of the art office buildings centered in theTokyo metropolitan area

Area IISHINAGAWA INTERCITYAKASAKA INTERCITYThe Dai-ichi Mutual Life Insurance Company
Extensive experience and an established track record in the real estateleasing business
Sophisticated risk-control abilities demonstrated by longstanding asset
management experienceCore
SponsorHARUMI TRITON SQUARE

50% or less of the core areas

Tokyo other than Area I, and its vicinity (Kanagawa, Saitama andChiba Prefectures)

50% or less of the core areas

Area IV

Osaka, Nagoya and Fukuoka other than Area II, and othergovernment-ordinance designated cities, etc.

20% or less

Regional Balance

JEI recognizes that Area I is the top priority for its investment activities, but will also perform proactive
investment in properties situated in Areas II and III. Through these initiatives, JEI expects to minimize
the impact of any market fluctuations caused by changes in economic conditions and theconcentration of large-scale development projects in major urban areas.

Property Scale Balance

JEI pursues optimal portfolio development by effectively balancing its investment in large-scalebuildings*, which are believed to offer advantages and competitiveness in the real-estate market, andmedium-sized buildings*, which are regarded as assets with high liquidity and stable rent levels.

Tenant Mix Balance

JEI aims to minimize various risks related to tenants, such as tenants vacating the properties. To thisend, JEI is endeavoring to optimize tenant mix and diversify risks by avoiding the over-concentration of
the same kind of tenants or tenants from the same industries in its portfolio.

OMORI BELLPORT

Sekisui House, Ltd.
Prime development projects include Rokko Island City (Kobe) (Note 2) andAkasaka Garden City (Note 3).

ROKKO ISLAND CITY

(Note 1) JEAM considers Kowa Real Estate Co., Ltd., The Dai-ichi Mutual Life Insurance Company and Sekisui House, Ltd. as its core sponsors.
(Note 2) Currently, there are no plans to acquire this property.
(Note 3) JEI currently owns a part of this property.

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

Central Nagoya (Meieki, Fushimi, Sakae districts, etc.)

Area IIIA leading home-builder in Japan with an established track record in largescale urban development business4

Central Osaka (Umeda, Dojima, Nakanoshima, Yodoyabashi,
Honmachi districts, etc.)

Portfolio with a focus on regional, property scale, and tenant mix balance

Actively supplies high-quality office space and property management

Prime development projects include Harumi Triton Square (Note 2) andOmori Bellport (Note 3).

50% or more of the coreareas

and Central Fukuoka (Tenjin, Hakata-Terminal peripheral districts, etc.)

Prime development projects include SHINAGAWA INTERCITY (Note 2) andAKASAKA INTERCITY (Note 3).

Core
SponsorSix central wards of Tokyo (Chiyoda, Chuo, Minato, Shinjuku,
Shinagawa and Shibuya)

AKASAKA GARDEN CITY

* JEI defines buildings located in the 23 wards of Tokyo with total floor space of approximately 33,058 m2 or larger as large-scale buildings, and those with total floor space
between 3,306 m2 and 33,057 m2 as medium-sized buildings. For properties in all other areas, JEI defines buildings in such areas with total floor space of approximately
13,223 m2 or larger as large-scale buildings, and those with total floor space between 3,306 m2 and 13,222 m2 as medium-sized buildings.

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

5External GrowthInternal Growth

Expanding the portfolio while responding to changes in the real estate
investment environment

A steady growth of rent revenues through rent renewal negotiations
Total rents of the portfolio at IPO (14 properties) increased by 3.0% (annualized: 6.1%) from the previous period.

The asset size of the portfolio expanded from 98.3 billion yen (14 properties) to 180.7 billion yen (18 properties after the sale oftwo properties) during the two years after listing. We will ensure steady management of the assets, with the target of expanding

Transition of total rents

asset size to 300.0 billion yen within 5 years of the IPO (Note 1).

(total rent of the portfolio at IPO: 14 properties)

Track record of occupancy rate

millions of yen

300.0

5 years after listing

180.7

billion yen

4,300

188.9

billion yen

139.1(annualized 6.1%)

95.0(annualized 2.4%)(annualized 2.2%)

90.0

Flexible shift of the portfolio in response tochanges in the operating environment

85.0

4,000
80.0

3,900
3,800

Area I
Area II
Area IIIArea IV
Total

75.0

3,700

Tenant recruitment has been temporarily stopped
for JEI Nishi-Honmachi Building in Area II due toasbestos removal and renewal work.

70.0

3,600

billion yen

20 properties

At end of
2nd fiscal period

+1.2%

+1.1%

4,100

18 properties
At end of
3rd fiscal period

+3.0%

4,400

4,200

After disposition (Note 2)

100.0

4,500

65.0

0

Acquisition of large-scale buildings in city
centers that will become the core of theportfolio, with an emphasis on regional balance.

FP1(December 2006)

FP2(June 2007)

FP3(December 2007)

FP1(December 2006)

FP4(June 2008)

FP2(June 2007)(Note) Total rent includes service fees, but does not include other revenues. The number of days for the first fiscal period has been adjusted as one-half of a year for the total
rents.

billion yen

98.3

billion yen

14 properties

Acquisition of properties that will become acore of revenues, with an emphasis on NOI
return.

(Note 1) This is the current target, with the possibility that the target may not be achieved due to future events or to the market environment.
(Note 2) “After disposition” is defined as the portfolio (20 properties, total acquisition value: 188.9 billion yen) at the end of the fourth fiscal period (June 30, 2008), fromwhich Shuwa Iidabashi Building and Sendai Kowa Building are excluded.

Portfolio at end of FP1

Portfolio at end of FP4(the end of December 2006)(the end of June 2008)

Portfolio after
disposition

Number of properties

Number of properties

Number of properties

14 properties

20 properties

18 properties

Total acquisition priceTotal acquisition priceTotal acquisition price98.4 billion yen

188.9 billion yen

180.7 billion yen

Financial Strategies
Grasping the trend of declining market interest rates, and promoting fixed interest rates
on borrowing
As of June 30, 2008, JEI borrows a total of 105.5 billion yen (including 49.0 billion yen borrowed from its sponsors) from 12 financial
institutions, including its sponsor company, Mizuho Corporate Bank, Ltd.

Breakdown of outstanding loans
By interest rate

2.2%

Sompo Japan Insurance 1.9%
Development Bank of Japan 1.9%

42.6%

53.1%

42.5%

49.4%

42.2%

51.7%
15.75 billion yen

4.4%

5.8%

6.1%

The Norinchukin Bank 6.6%

Mizuho Corporate Bank

Long-term fixed

Property scale

22.7%

21.5%

40.75 billion yen

Mizuho Trust & Banking Co., Ltd. 9.0%
Mitsubishi UFJ Trust and Banking

43.5%
56.5%

77.3%

Sumitomo Mitsui Banking

78.5%(Total 105.5 billion yen)

6

The Dai-ichi Mutual Life Insurance 4.7%

Aozora Bank 7.6%

49.0 billion yen

Medium building

Nichido Fire Insurance

32.7%

Short-term floating

Large building

0.9% Tokio Marine &The Chuo Mitsui Trust and Banking 2.8%
Long-term floating

Area IIIArea IV

By lenders
Resona Bank 1.4%

Investment areas
Area II

FP4(June 2008)18 properties

At listing

Area I

FP3(December 2007)

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

11.6%

18.8%

(Total 105.5 billion yen)Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

7Portfolio Roster

Portfolio Map
Portfolio map: Length of bars indicates acquisition priceTotal Floor
Area (m2)(Note 1)

Completion(Note 2)Acquisition Price Appraisal Value Investment
Ratio (%)
(mm yen)(mm yen)(Note 5)(Note 3)(Note 4)PML(%)
(Note 6)

Property
No.

Name

I-7

Akasaka Garden City

Akasaka, Minato Ward, Tokyo

46,776.76

Jan 2006

23,30025,300

12.3

8.6

I-1

Omori Bellport D

Minami-Oi, Shinagawa Ward,Tokyo

155,778.75

Sep 1996

22,55326,080

11.9

8.0

I-8

AKASAKA INTERCITY

Akasaka, Minato Ward, Tokyo

73,061.33

Jan 2005

17,857

18,400

9.4

9.2

I-2

Shiba 2-Chome Building

Shiba, Minato Ward, Tokyo

19,518.15

Mar 1994

9,450

13,2005.0

8.2

JEI Hamamatsucho Building (Note 7)

Hamamatsucho, Minato Ward,

8,327.53

Dec 1991

8,350

10,300

4.4

8.2

Location

23,300 mm yen I-7
III-3
III-4

Tokyo's six central wards

III-7
I-5

I-3

(former Shuwa Daiichi Hamamatsucho Building) Tokyo

No. 32 Kowa Building

Minami-Azabu, Minato Ward,
Tokyo

10,110.96

Mar 1979

5,040

5,797

2.7

13.2

I-5

No. 36 Kowa Building

Sanbancho, Chiyoda Ward,Tokyo

8,266.55

Sep 1982

4,000

4,450

2.1

13.2

I-6

No. 28 Kowa Building

Nishi-Gotanda,
Shinagawa Ward, Tokyo

6,282.23

Feb 1975

2,859

4,210

1.5

13.5

I-4

5,400 mm yen

4,023 mm yen
2,550 mm yen

4,000 mm yen

17,857 mm yen I-8
5,040 mm yen I-4

I-3
I-2

1,150 mm yen III-6

8,350 mm yen

9,450 mm yen

Chiba Prefecture
2,859 mm yen I-6

Subtotal

II-2
II-1

328,122.26-

93,409107,73749.4-

JEI Nishi-Honmachi Building

Nishi Ward, Osaka City, Osaka

15,800.31

Feb 1988

6,674

7,040

3.5

11.5

NHK Nagoya
Housou-Center Building

Higashi Ward, Nagoya City,
Aichi Prefecture

80,809.95

Jul 1991

4,300

5,660

2.3

11.9

96,610.26-

10,974

12,700

5.8

-

I-1

Subtotal

13,890 mm yen III-1

III-9

Kowa Kawasaki
Nishiguchi Building

Saiwai Ward, Kawasaki City,
Kanagawa Prefecture

61,856.92

Feb 1988

32,00032,600

16.9

7.9

III-1

Musashikosugi Tower Place

Nakahara Ward, Kawasaki City,
Kanagawa Prefecture

53,711.13

Jul 1995

13,89018,400

7.3

11.5

III-2

Kowa Kawasaki
Higashiguchi Building

Kawasaki Ward, Kawasaki City,
Kanagawa Prefecture

31,009.62

Apr 1988

10,976

11,500

5.8

6.7

III-8

Ebina Prime Tower

Chuo, Ebina City,
Kanagawa Prefecture

55,806.20

May 1995

6,470

6,580

3.4

12.2

Hongo, Bunkyo Ward, Tokyo

5,877.11

Feb 1991

5,400

5,540

2.9

14.2

Koraku, Bunkyo Ward, Tokyo

5,083.77

Oct 1988

4,023

4,940

2.1

12.9

Kawasaki Ward, Kawasaki City,
Kanagawa Prefecture

22,141.60

Apr 1992

3,905

5,880

2.1

14.7

Ryogoku, Sumida Ward, Tokyo

5,820.56

Aug 1996

2,550

2,560

1.3

14.3

Higashiyama, Meguro Ward,Tokyo

3,359.55

Jul 1984

1,150

1,840

0.6

13.4

Subtotal

244,666.46-

80,364

89,84042.5-

Aoba Ward, Sendai City,
Miyagi Prefecture

18,564.45

Aug 1979

4,238

4,208

2.2

9.2

Total

687,963.43

188,984

214,485

100.0

6.3

III-3
III-4
III-5
III-7
III-6

JEI Hongo Building (Note 6)(former Hongo TS Building)Shuwa Iidabashi Building(Sold on July 4, 2008)

Kawasaki Nisshincho Building
JEI Ryogoku Building (Note 6)(former Ryogoku Dai-ichi Life Building)

No. 44 Kowa Building

32,000 mm yen III-9
III-2 10,976 mm yen

Kanagawa Prefecture

Sendai Kowa Building(Sold on August 29, 2008)

III-5 3,905 mm yen

Tokyo

IV-1

6,470 mm yen

Ebina City
I-1

The main usage for the assets in the portfolio is 100% office buildings.

4,238 mm yen

Sendai City
III-8

IV-1

22,553 mm yen

Ebina City, Kanagawa Prefecture

II-1

6,674 mm yen II-2

4,300 mm yen III-1

III-9

I-8

93,409 mm yen

80,364 mm yen

Nagoya City
Osaka City
Note
1. “Total Floor Area” is the total floor area of the building or the building in trust (excluding the area of accessory buildings) listed on the registry. If the building or the buildingin trust is a proprietary part of a compartmentalized ownership, the total area is listed.
2. “Completion” is the newly built date on the registry.
3. Figures for “Acquisition Price” are prices recorded in sales agreements (excluding taxes). Amounts of less than one million yen are rounded.
4. “Appraisal Value” at the end of FP4 refers to the appraisal value listed on the real estate value report prepared by the real estate appraiser of Japan Real Estate Institute,
Chuo Real Estate Appraisal Co., Ltd., and Hiro & Reas network, Inc. at the end of the fourth fiscal period.
5. “Investment Ratio” figures show the ratio of the acquisition price for each acquired property in proportion to the total acquisition price for all acquired properties in theportfolio. Figures are rounded to the first decimal place.
6. “PML” figures are based on the PML in the structural condition study report, which includes the PML calculation report. The figures are no more than a representation of
opinions indicated in the report and JEI does not guarantee their accuracy.
7. Shuwa Daiichi Hamamatsucho Building and Ryogoku Dai-ichi Life Building were renamed JEI Hamamatsucho Building and JEI Ryogoku Building respectively on July 1, 2008,
while Hongo TS Building was renamed JEI Hongo Building on September 1, 2008.

8

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

Note
1. The figures indicated in mm yen have been rounded to
the nearest million yen.
2. The portfolio map shown above represents the portfolio
as of the end of the fourth fiscal period (June 30, 2008),
including Shuwa Iidabashi Building (sold on July 4, 2008)
and Sendai Kowa Building (sold on August 29, 2008).

Area I
Area II
Area IIIArea IV
Area
Total acquisition price 93,409 mm yen 10,974 mm yen 80,364 mm yen 4,238 mm yen
82
91
No. of properties

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period9Main Properties
I-1

Omori Bellport D

I-7

Akasaka Garden City

I-8

AKASAKA INTERCITY

II-1

NHK Nagoya Housou-Center Building

III-1

Musashikosugi Tower Place

III-5

Kawasaki Nisshincho Building

I-5

No. 36 Kowa Building

I-2

Shiba 2-Chome Building

I-4

No. 32 Kowa Building

II-2

JEI Nishi-Honmachi Building

III-2

Kowa Kawasaki Higashiguchi Building

III-9

Kowa Kawasaki Nishiguchi Building

I-1

I-7

I-8

II-1

III-1

III-5

I-5

I-2

I-4

II-2

III-2

III-9

Overview ofJapan Excellent, Inc.
Overview of unitholders’ capital
PeriodOrganization

1st Fiscal Period

2nd Fiscal Period

3rd Fiscal Period

4th Fiscal Period(as of December 31, 2006)(as of June 30, 2007)(as of December 31, 2007)(as of June 30, 2008)

Number of issuable
investment units

2,000,000 units

2,000,000 units

2,000,000 units

2,000,000 units

Total number of outstanding
investment units

134,800 units

134,800 units

154,550 units

154,550 units

Total unitholders’ capital

67,641 million yen

67,641 million yen

87,083 million yen

87,083 million yen

No. of unitholders

2,529

2,193

3,708

4,170

Sponsor Companies Providing
Pipeline Support
A. Kowa Real Estate Co., Ltd.
B. Sekisui House, Ltd.
C. Mizuho Trust & Banking Co., Ltd.

4

Unitholders’ Meeting

Asset Management Company

1

5

Units
Owned

Ownership
Ratio (%)

Think Tanks

Accounting Auditor

A. Mizuho Research Institute, Ltd.
B. Urban Research Institute Corporation

Ernst & Young ShinNihon LLC (Note)

Kowa Real Estate Co., Ltd.

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

14,312

9.26

Trust & Custody Services Bank, Ltd.
(securities investment trust account)

Harumi Island Triton Square Office Tower Z,
1-8-12 Harumi, Chuo Ward, Tokyo

11,851

7.67

Japan Trustee Services Bank, Ltd.
(investment trust account)

1-8-11 Harumi, Chuo Ward, Tokyo

11,628

7.52

NikkoCiti Trust and Banking Corporation(investment trust account)

Citi Group Center
2-3-14 Higashi Shinagawa, Shinagawa Ward, Tokyo

11,450

7.41

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

2-11-3 Hamamatsucho, Minato Ward, Tokyo

9,491

6.14

North Pacific Bank, Ltd

3-11 Odori-Nishi, Chuo Ward, Sapporo, Hokkaido

4,573

2.96

The Nomura Trust and Banking Co., Ltd.
(investment trust account)

2-2-2 Otemachi, Chiyoda Ward, Tokyo.

4,138

2.68

The Dai-ichi Mutual Life Insurance Company

1-13-1 Yurakucho, Chiyoda Ward, Tokyo

4,132

2.67

Bank of Ikeda, Ltd.

2-1-11 Jonan, Ikeda City, Osaka

3,711

2.40

JPMorgan Chase Goldman Sachs Trust
JASDEC Lending AccountGoldman Sachs and Co.
180 Maiden Lane, New York, NY 10038 U.S.A.

3,211

2.08

78,49750.79

1

Asset management agreement

2(A) Pipeline support agreement with Kowa Real Estate (B) Pipeline support agreement with Sekisui House(C) Pipeline support agreement with Mizuho Trust & Banking

3(A) Agreement with Mizuho Research Institute for provision of market and other relevant information(B) Agreement with Urban Research Institute for provision of market and other relevant information

4

Agreement to entrust administrative duties and asset custody

5

Agreement to entrust administration of unitholders’ register(Note) Ernst & Young ShinNihon has changed its corporate name to Ernst & Young ShinNihon LLC as of July 1, 2008, after becoming a Limited Liability Auditing Firm.

Investment unit performance & TSE J-REIT index
Investment unit price (thousand yen)
TSE J-REIT Index

1,500
1,400
4,000

1,300

Total

Mizuho Trust & Banking Co., Ltd.

Executive Director: Junichi Tamura
Supervisory Director: Makoto Sakagami
Supervisory Director: Tsuyoshi Nagahama
Supervisory Director: Shunichi Maekawa

3

The following are the primary unitholders as of June 30, 2008.

Transfer Agent

Board of Directors

Information on investment units

Address

Mizuho Trust & Banking Co., Ltd.

2

Japan Excellent
Asset Management Co., Ltd.

Name

Administrative Agent
Asset Custodian

Japan Excellent, Inc.

1,200

JEI Unit Price

3,500

1,100
(Note) Figures for “Ownership Ratio” have been rounded to the second decimal place.

3,000

1,000
900

2,500

800
700

Information on board of directors

2,000

600
1,500

500

Name
Junichi Tamura

Post
Executive Director

Primary Concurrent Positions
President and Representative Director, Japan
Excellent Asset Management Co., Ltd.

Makoto Sakagami

Supervisory Director

Sakagami CPA Office

Tsuyoshi Nagahama

Supervisory Director

Partner, Anderson Mori & Tomotsune

Shunichi Maekawa

Supervisory Director

Professor, Faculty of Real Estate Sciences,
Meikai University

Accounting Auditor–

Ernst & Young ShinNihon(Note 2)Compensation during
Relevant Operational Period–

TSE J-REIT Index

400

1,000

300
200

500

100
0
Jun. 27, End of
2006
Aug.
(at listing) 2006

End ofOct.
2006

End ofDec.
2006

End ofFeb.
2007

End ofApr.
2007

End ofJun.
2007

End ofAug.
2007

End ofOct.
2007

End ofDec.
2007

End ofFeb.
2008

End ofApr.
2008

0
End ofJun.
2008

6,540 thousand yen

13,700 thousand yen(Note 1) Neither the Executive Director nor the Supervisory Directors own investment units of JEI. While a Supervisory Director may concurrently hold a position as director of
corporations not indicated above, in neither these positions nor in the above directorships does an interest relationship exist with JEI.
(Note 2) Ernst & Young ShinNihon has changed its corporate name to Ernst & Young ShinNihon LLC as of July 1, 2008, after becoming a Limited Liability Auditing Firm. The total
amount of auditors’ compensation mentioned above is an estimate, including the auditing fee for English financial statements.

12

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

13Overview ofAsset Management Company
OutlineCorporate NameJapan Excellent Asset Management Co., Ltd.

Headquarters

1-9-20 Akasaka, Minato-ku, Tokyo

Established

April 14, 2005

Capital450 Million Yen

Shareholders

Kowa Real Estate Co., Ltd.
The Dai-ichi Mutual Life Insurance Company
Sekisui House Ltd.
The Dai-ichi Building Co., Ltd.
Sohgo Housing Co., Ltd.
Morgan Stanley Capital K.K.
Mizuho Corporate Bank, Ltd.
Mizuho Trust & Banking Co., Ltd.

Business Operations

Financial Instrument Dealer
Investment Management Business: Director-General of Kanto Local Financial Bureau No. 331
Real Estate Agency License:
Governor of Tokyo (1) No. 84511
Discretionary License:
Minister of MLIT No. 44

Financial Statements

40.0%
20.0%
15.0%
5.0%
5.0%
5.0%
5.0%
5.0%

Table of Contents(Note) The ratio stated in the table above represents the ratio of the number of investment units held to the total number of outstanding investment units.

Organization
Shareholders' Meeting

Report of Independent Auditors

17

Balance Sheets

18

Statements of Income and Retained Earnings

20

Statements of Changes in Net Assets

21

Statements of Cash Flows

22

Notes to Finacial Statements

23

AuditorBoard of Directors
Compliance Committee

Investment Committee

Compliance Officer
Executive Director

Planning and Management Div.

Corporate
Planning
Dept.

14

Finance andAccounting
Dept.

Business
Management
Dept.

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

Real Estate Investment Div.

Investment
Planning
Dept.

Real Estate
Investment
Dept.

Real EstateManagement
Dept.

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

15

16

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

17

Japan Excellent, Inc.

Total net assets
Total liabilities and net assets

89,655,600¥206,079,651

89,292,568¥205,486,156

842,469,467$1,936,474,833

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

As of June 30, 2008 and December 31, 2007
As of
As of
June 30,
December 31,
2008
2007
(Thousands of yen)
AssetsCurrent assets:
Cash and cash equivalents including trust accounts (Note 4)
Rental receivables
Consumption taxes refundable
Derivative assets
Other current assets
Total current assets–¥ 14,586,906
546,118
669,083$ 154,194,393
3,947,773–

59,486
1,511,210
159,712,862

6,330
160,823
16,996,642–

127,993
15,930,100

Property and equipment (Note 6):
Buildings and building improvements
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(3,242,515)
180,259,754

Investments and other assets:
Leasehold rights
Leasehold rights for trust accounts
Investment in securities (Note 5)
Security deposits
Long-term prepaid expenses
Derivative assets
Other assets
Total investments and other assets
Total assets

1,185,045
7,380,017
10,76815,182
148,653
46,992
36,5988,823,255¥206,079,651

31,213
8,797,767¥205,486,156

11,135,546
69,348,025
101,184
142,658
1,396,852
441,568
343,906
82,909,739$1,936,474,833

¥

¥

$

Liabilities
Current liabilities:
Accounts payable – trade
Short-term loans (Note 7)
Accounts payable – other
Unpaid consumption taxes
Derivative liabilities
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term debt (Note 7)
Security deposits from tenants
Security deposits from tenants for trust accounts
Derivative liabilities
Other long-term liabilities
Total long-term liabilities
Total liabilities
Net assets (Note 8):
Unitholders’ equity:
Unitholders’ capital:
Units authorized: 2,000,000 units
Units issued and outstanding: 154,550 units as ofJune 30, 2008 and December 31, 2007
Retained earnings
Total unitholders’ equity
Valuation and translation adjustments:
Unrealized loss on deferred hedge transactions
Total valuation and translation adjustments

18¥ 16,409,367
420,122

As ofJune 30,
2008(U.S. dollars)(Note 2)

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

3,240,198
363
1,739
65,556,671
383,743
18,675
114,300,880–

571,646
62,000,000
336,334
220,578
26,567127,050
63,282,175

3,219,074–

126
65,049,362
382,373
6,593
114,300,604
210(2,200,053)
180,758,289
1,185,045
7,380,017
10,76815,182
175,542–

753,529
49,000,000
280,475––

115,592
50,149,596
56,500,000
466,672
8,866,066
211,254

30,447,268
3,414
16,338616,018,330
3,605,933
175,488
1,074,054,502–(30,469,041)
1,693,852,232

5,371,604
582,597,256
3,160,445
2,072,708
249,644
1,193,854
594,645,511

43,500,000
476,914
9,052,173
94,27918,51053,141,876
116,424,051

66,043,992
116,193,588

408,757,752
4,481,426
85,060,825
885,918
173,934
499,359,855
1,094,005,366

87,083,030

87,083,030

818,295,715

2,661,098
89,744,128

2,420,792
89,503,822

25,005,625
843,301,340(88,528)(88,528)(211,254)(211,254)(831,873)(831,873)–

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

19

Japan Excellent, Inc.

Japan Excellent, Inc.

Statements of Income and Retained Earnings

Statements of Changes in Net Assets

For the periods from January 1, 2008 to June 30, 2008
and from July 1, 2007 to December 31, 2007

For the periods from January 1, 2008 to June 30, 2008
and from July 1, 2007 to December 31, 2007

For the period
For the period
from January 1,
from July 1,2008 to2007 toJune 30,
December 31,
2008
2007
(Thousands of yen)

For the period
from January 1,
2008 toJune 30,
2008(U.S. dollars)(Note 2)

Revenues:
Rental revenues (Note 11)
Other (Note 11)
Total revenues¥7,135,748
704,917
7,840,665¥6,335,265
647,070
6,982,335$67,052,695
6,623,923
73,676,618

Operating expenses:
Property operating expenses (Note 11)
Asset management fees
Custodian fees
Administrative service fees
Compensation for directors
Other
Total operating expenses
Operating income

3,849,842
436,367
15,684
27,201
6,540
72,697
4,408,331
3,432,334

3,437,912
369,975
12,24024,648
5,100
76,6793,926,554
3,055,781

36,175,928
4,100,420
147,379
255,605
61,455683,111
41,423,898
32,252,720

2,067
15,7207

2,625
13,885257

19,430147,71565

686,658
67,451

6,452,345
633,819319,388
25,014,378
9,432
38
25,004,908
717$25,005,625

Other income:Refund of consumption taxes including interest
Interest income
Other
Other expenses:
Interest expense
Loan arrangement fees
New unit issuance costs
Other
Income before income taxes

33,9892,662,030

533,71176,27040,74712,421,819

Income taxes – current (Note 10)
Income taxes – deferred
Net income
Retained earnings at beginning of period
Retained earnings at end of period

1,004
4
2,661,02276¥2,661,098

1,086
(6)
2,420,739
53¥2,420,792––

Number ofunits in issue
Balance as of June 30, 2007
Changes during the fiscal period:
Issuance of new units
Distributions from retained earnings
Net income
Changes in unrealized loss ondeferred hedge transactions
Total changes during the fiscal period
Balance as of December 31, 2007

¥67,641,920¥ 2,239,620¥69,881,540¥ (67,776)¥ (67,776)¥69,813,764

19,750––19,441,110–––(2,239,567)
2,420,739

19,441,110(2,239,567)
2,420,739

–
–
–

–
–
–

19,441,110(2,239,567)
2,420,739–
19,750154,550–
19,441,110¥87,083,030–
181,172¥ 2,420,792–
19,622,282¥89,503,822(143,478)(143,478)¥(211,254)(143,478)(143,478)¥(211,254)(143,478)
19,478,804¥89,292,568

Balance as of December 31, 2007
Changes during the fiscal period:
Distributions from retained earnings
Net income
Changes in unrealized loss ondeferred hedge transactions
Total changes during the fiscal period
Balance as of June 30, 2008

For the period from January 1, 2008 to June 30, 2008
Net assets
Valuation and translation
Unitholders’ equity
adjustments
Unrealized
Total
loss onvaluation and
TotaldeferredUnitholders’
Retained
unitholders’translation
hedge
capitalearnings
adjustments
transactions
equity(Thousands of yen)Total
net assets

154,550¥87,083,030¥ 2,420,792¥89,503,822¥(211,254)¥(211,254)¥89,292,568

–
–

–
–

(2,420,716)
2,661,022(2,420,716)
2,661,022–––(2,420,716)
2,661,022––
154,550––¥87,083,030–
240,306¥ 2,661,098–
240,306¥89,744,128

122,727
122,727¥( 88,527)

122,727
122,727¥( 88,527)

122,727
363,032¥89,655,600

Number ofunits in issue

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

Total
net assets

134,800

Number ofunits in issue
Balance as of December 31, 2007
Changes during the fiscal period:
Distributions from retained earnings
Net income
Changes in unrealized loss ondeferred hedge transactions
Total changes during the fiscal period
Balance as of June 30, 2008

For the period from July 1, 2007 to December 31, 2007
Net assets
Valuation and translation
Unitholders’ equity
adjustments
Unrealized
Total
loss onvaluation anddeferredTotaltranslation
Unitholders’
Retained
unitholders’
hedge
capitalearnings
equityadjustments
transactions(Thousands of yen)

For the period from January 1, 2008 to June 30, 2008
Net assets
Valuation and translation
Unitholders’ equity
adjustments
Unrealized
Total
loss onvaluation and
TotaldeferredUnitholders’
Retained
unitholders’translation
hedge
capitalearnings
adjustments
transactions
equity(U.S. dollars) (Note 2)

Total
net assets

154,550$818,295,715$ 22,747,538$841,043,253$(1,985,101)$(1,985,101)$839,058,152

–
–

–
–

(22,746,822)
25,004,908(22,746,822)
25,004,908

–
–

–
–

(22,746,822)
25,004,908––
154,550––$818,295,715–
2,258,086$ 25,005,624–
2,258,086$843,301,339

1,153,228
1,153,228$ (831,873)

1,153,228
1,153,228$ (831,873)

1,153,228
3,411,314$842,469,466

The accompanying notes are an integral part of these financial statements.
20

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period21

Japan Excellent, Inc.
Statements of Cash Flows

Japan Excellent, Inc.

For the periods from January 1, 2008 to June 30, 2008
and from July 1, 2007 to December 31, 2007

Notes to Financial Statements

Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Amortization of new unit issuance costs
Interest income
Interest expense
Decrease (increase) in rental receivables
Decrease (increase) in consumption taxes refundable
Increase in prepaid expenses(Decrease) increase in accounts payable – trade
Increase (decrease) in accounts payable – other
Increase in unpaid consumption taxes
Increase in advances received
Decrease (increase) in long-term prepaid expenses
Other, net
SubtotalInterest received
Interest paid
Income taxes paid
Net cash provided by operating activities
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
Issuance of new units
Payments for new unit issuance costs
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 1,2008 to2007 toJune 30,
December 31,
2007
2008
(Thousands of yen)

For the period
from January 1,
2008 toJune 30,
2008(U.S. dollars)(Note 2)

¥ 2,662,030
1,042,494$ 25,014,378
9,796,036–(15,720)686,658
125,996
669,083(52,413)(164,026)
48,115220,578576
26,88934,8285,285,088
15,720(696,752)(3,188)4,600,868¥ 2,421,819
894,032
40,747(13,885)533,711(188,259)(150,442)(9,771)
246,623(3,884)–

10,544(62,861)(61,728)
3,656,646
13,885(454,211)(3,059)3,213,261(147,715)
6,452,345
1,183,947
6,287,193(492,508)(1,541,306)
452,125
2,072,708
5,413
252,672
327,266
49,662,554
147,715(6,547,195)(29,951)
43,233,123(23,288)(538,497)
22,624(12,382)(14,752)(50,274,542)
7,453(57,275)(218,829)(5,060,113)
212,589(116,353)

519,036(332,928)(365,435)

2,054,486(698,629)(48,983,259)

4,877,239(3,128,434)(3,433,901)

–
–
–
–
–

–
–
–
–
–

(2,412,972)(2,412,972)

49,000,000(39,100,000)
18,000,000
19,441,110(65,687)(2,238,229)
45,037,194(22,674,047)(22,674,047)

1,822,461
14,586,906¥ 16,409,367(732,804)
15,319,710¥ 14,586,906

17,125,175
137,069,218$ 154,194,393–

For the periods from January 1, 2008 to June 30, 2008
and from July 1, 2007 to December 31, 2007
1.

Organization

Japan Excellent, Inc. (hereinafter, “JEI”), established on February 20, 2006 under the Law
Concerning Investment Trusts and Investment Corporations of Japan (the “Investment TrustLaw”), is a real estate investment corporation which primarily invests in office buildings.
JEI is externally managed by a licensed asset management company, Japan Excellent AssetManagement (“JEAM”). JEAM is owned 40% by Kowa Real Estate Co., Ltd., 20% by
The Dai-ichi Mutual Life Insurance Company, 15% by Sekisui House, Ltd. and 25% byother corporations.
JEI was listed on the Tokyo Stock Exchange on June 27, 2006. As of June 30, 2008, JEI
held 20 properties with 234,006 square meters of total leasable space and had leases with131 tenants excluding residential tenants.
2.

Basis of Presentation

JEI maintains its accounting records and prepares its financial statements in accordancewith accounting principles generally accepted in Japan (“Japanese GAAP”), including
provisions set forth in the Investment Trust Law, the Corporation Law of Japan, theFinancial Instruments and Exchange Law of Japan, the Securities and Exchange Law ofJapan and related regulations, which are different in certain respects as to the applicationand disclosure requirements of International Financial Reporting Standards.
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 the accompanying financial statements and in the notes thereto whereas amounts weretruncated in 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 ¥106.42 = U.S.$1.00, the foreign exchange rate prevailing on June 30, 2008, hasbeen used for translation. The inclusion of such amounts is not intended to imply thatJapanese yen have been or could be readily converted, realized or settled into U.S. dollars
at that or any other rate.

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

22

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

23

3.

3.

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies (continued)

Cash and cash equivalents

Revenue recognition

Cash and cash equivalents consist of cash on hand, deposits with banks and short-term
investments which are highly liquid, readily convertible into cash with an insignificant riskof price fluctuation and with an original maturity of three months or less.

Rental revenues are generally recognized on an accrual basis over the life of each lease.

Investments in securities

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.

Non-marketable securities classified as other securities are carried at cost.
securities sold is determined by the moving average method.

Cost of

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:

Derivatives and hedge accounting

JEI deferred recognition of gains or losses resulting from changes in the fair value ofinterest-rate swap agreements because its interest-rate agreements met the criteria fordeferred hedge accounting.
Properties in trust accounts

Buildings
Building improvements
Machinery and equipment
Furniture and fixtures

2 – 59 years
4 – 59 years
7 – 16 years
4 – 10 years

Amortization of trademark rights is computed using the straight-line method over a periodof 10 years.
Unit issuance costs
New unit issuance costs are charged to income as incurred.

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
the accompanying 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, 2008
and December 31, 2007 consisted of the following:

Income taxes

As of
As of
December 31,
June 30,
2007
2008(Thousands of yen)

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 andliabilities for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.

Cash and cash deposits
Cash in trust and deposits in trust
Cash and cash equivalents

Consumption taxes
Consumption taxes received and paid are not included in the accompanying statements ofincome and retained earnings.
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 11).
JEI capitalized 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
for the periods from January 1, 2008 to June 30, 2008 and from July 1, 2007 to December
31, 2007 were ¥0 and ¥35,951 thousand, respectively.

24

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period5.

¥ 3,892,158
12,517,209¥16,409,367¥ 2,440,880
12,146,026¥14,586,906

As ofJune 30,
2008(U.S. dollars)$ 36,573,557
117,620,836$154,194,393

Investment in Securities

Investment in securities at June 30, 2008 and December 31, 2007 consisted of thefollowing:
As of
As of
June 30,
December 31,
2008
2007
(Thousands of yen)
Unlisted stock¥10,768¥10,768

As ofJune 30,
2008(U.S. dollars)$101,184

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

25

5.

7.

Investment in Securities (continued)

Short-Term Loans and Long-Term Debt

As of June 30, 2008

Numberof shares

Name

Unlisted stock
NHK Nagoya Build
Systems Co., Ltd.
Total

64
64

Acquisition cost
Unit
Total
Total
price
price
price
(Thousands of yen)(U.S.
dollars)

Book value
Unit
Total
price
price
(Thousands of yen)

Gain or loss on
valuation
Total
Total
Total
price
price
price
(U.S. (Thousands (U.S.
dollars)of yen)dollars)

¥168
¥168

¥168
¥168

$101,184$101,184¥10,768¥10,768$101,184$101,184¥10,768¥10,768

¥
¥

–
–

$
$

Short-term loans and long-term debt as of June 30, 2008 and December 31, 2007 consistedof the following:
As of June 30, 2008
WeightedaverageAmountinterest rate
(Thousands of
yen)

–
–

As of December 31, 2007
Book value

Acquisition cost
Numberof shares

Name
Unlisted stock
NHK Nagoya Build
Systems Co., Ltd.
Total

64
64

Unit
price

Total
price

¥168
¥168

Gain orloss onvaluation
Total
price

Unit
Total
price
price
(Thousands of yen)

¥10,768¥10,768¥168¥168¥10,768¥10,768¥¥––

6. Property and Equipment
Property and equipment at June 30, 2008 and December 31, 2007 consisted of thefollowing:
As of December 31, 2007

As of June 30, 2008
Acquisition
cost

Accumulated
depreciation

Netbook value

Acquisition
cost

Accumulated
depreciation

As of June 30, 2008

Netbook value

Acquisition
cost

Accumulated
depreciation(Thousands of yen)
Buildings and building
improvements¥ 3,240,198
Furniture and fixtures
363
Buildings and building
improvements fortrust accounts
65,556,671
Machinery andequipment for trust
accounts
383,743
Furniture and fixtures
for trust accounts
18,675Land for trust accounts 114,300,880
Construction inprogress
1,739
Construction inprogress for trust
accounts–
Total¥183,502,269

Netbook value(U.S. dollars)¥ (152,793)(21)¥ 3,087,405
342¥ 3,219,074–¥ (115,854)–¥ 3,103,220–$ 30,447,268
3,414$ (1,435,754)(195)$ 29,011,514
3,219(3,038,372)

62,518,299

65,049,362(2,046,300)

63,003,062

616,018,330(28,550,760)

587,467,570(49,875)

333,868

382,373(37,142)345,232

3,605,933(468,666)

3,137,267(1,454)–

17,221
114,300,880

6,593
114,300,604

(757)
–

5,835
114,300,604

175,488
1,074,054,502(13,666)–

161,822
1,074,054,502

–

1,739

126

–

126

16,338–16,338

–

–

210

–

210

–

–

–

¥(3,242,515)¥180,259,754¥182,958,342¥(2,200,053)¥180,758,289$1,724,321,273$(30,469,041)$1,693,852,232

As of December 31, 2007
WeightedaverageAmountinterest rate
(Thousands ofyen)

Short-term loans:
Unsecured loans frombanks due on October24, 2008
Subtotal¥ 49,000,000
49,000,000

0.95917%¥ 49,000,000
49,000,000

Long-term debt due
within in one year:
Unsecured loans frombanks due on June 29,
2009
Subtotal

13,000,000
13,000,000

1.39779 %–Long-term debt:
Unsecured loans frombanks due on June 29,–2009
Unsecured loans frombanks due on June 29,
13,000,000
2010
Unsecured loans frombanks due on June 29,
9,500,000
2011
Unsecured loans froman insurancecompany due on June
3,000,000
29, 2011
Unsecured loans frombanks due on July 31,
7,000,000
2012
Unsecured loans frombanks and insurancecompanies due on
7,000,000
July 31, 2012
Unsecured loans froman insurancecompany due on July
2,000,000
31, 2014
Unsecured loans froma bank due on July
31, 2014
2,000,000
Subtotal
43,500,000
Total¥105,500,000

8.

As of
June 30,
2008
Amount(U.S. dollars)

1.04667%$460,439,767
460,439,767––

122,157,489
122,157,489

13,000,000

1.43420％–

1.56821 %13,000,000

1.58785%

122,157,489

1.60718％

9,500,000

1.59975%

89,268,934

1.96625％

3,000,000

1.96625%

28,190,190

1.18667％

7,000,000

1.20000%

65,777,110

1.96907％7,000,000

1.96907%

65,777,110

2.25875％

2,000,000

2.25875%

18,793,460

2.28417％2,000,000
56,500,000¥105,500,000

2.28417%

18,793,460
408,757,753$991,355,009–

Net Assets

JEI issues only non-par value investment units in accordance with the Investment TrustLaw.
JEI is required to maintain net assets of at least ¥50 million in accordance with theInvestment Trust Law.

26

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

27

9.

10.

Per Unit Information

Net assets per unit were ¥580,107 as of June 30, 2008 and ¥577,758 as of December 31,
2007. Net income per unit was ¥17,217 for the period from January 1, 2008 to June 30,
2008 and ¥15,784 for the period from July 1, 2007 to December 31, 2007 and wascomputed based on the weighted-average number of units outstanding during the respective
periods.
10.

Income Taxes

A reconciliation of the differences between the statutory tax rate and the effective tax rate
for the period from January 1, 2008 to June 30, 2008 and for the period from July 1, 2007
to December 31, 2007 is as follows:
For the period
For the period
from January 1,
from July 1,2008 to2007 toJune 30,
December 31,
2008
2007

JEI is subject to income taxes in Japan.

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

JEI’s policy is to make dividend distributions in excess of 90% of taxable income for eachfiscal 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 as of June 30, 2008 and December
31, 2007 are summarized as follows:

Deferred tax assets:
Accrued enterprise taxes
Unrealized loss on deferredhedge transactions
Gross deferred tax assets
Valuation reserve
Total deferred tax assets
Net deferred tax assets
Deferred tax liabilities:
Unrealized loss on deferredhedge transactions
Total deferred tax liabilities
Net deferred tax liabilities

28

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

As of
As of
June 30,
December 31,
2008
2007
(Thousands of yen)

As ofJune 30,
2008(U.S. dollars)

¥

$

20

¥

24

83,213
83,237(83,213)24¥
24

447,298
447,485(447,298)
187$-¥ 21,003
21,003¥ 20,983¥$197,365
197,365$197,178¥11.

39.39%

39.39%(39.37)0.02
0.04%(39.37)0.02
0.04%

Breakdown of Property Rental Business Revenues and Expenses
For the period
For the period
from January 1,
from July 1,2008 to2007 toJune 30,
December 31,
2008
2007
(Thousands of yen)

187

47,601
47,621(47,601)
20¥--

Income Taxes (continued)

Rental business revenues:
Rental revenues
Other
Property operating expenses:
Property management costs
and fees
Utilities
Property and other taxes
Insurance
Repairs and maintenance
Depreciation
Other
Profit

For the period
from January 1,
2008 toJune 30,
2008(U.S. dollars)¥7,840,666
7,135,748
704,918
3,849,843¥6,982,335
6,335,265
647,070
3,437,912$73,676,617
67,052,695
6,623,922
36,175,928

1,257,523
672,143457,50223,409217,246
1,042,463
179,557¥3,990,823

1,083,074
613,617330,655
22,082363,094
894,000
131,390¥3,544,423

11,816,602
6,315,947
4,299,020
219,967
2,041,404
9,795,738
1,687,250$37,500,689

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

29

12.

Leases14.

JEI leases properties on which rental revenues are earned. At June 30, 2008 andDecember 31, 2007, future lease revenues under non-cancelable operating leases are
summarized as follows:
For the period
For the period
from January 1,
from July 1,2008 to2007 toJune 30,
December 31,
2008
2007
(Thousands of yen)
Due within one year
Due after one year
Total
13.

¥ 864,340
1,677,698¥2,542,038¥ 864,339
2,109,868¥2,974,207

For the period
from January 1,
2008 toJune 30,
2008(U.S. dollars)$ 8,121,965
15,764,877$23,886,842

JEI has entered into certain interest-rate swap contracts with several Japanese financial
institutions to hedge its variable rate long-term debt obligations. JEI utilizes interest-rate
swap contracts, which are derivative financial instruments, only for the purpose of
mitigating future risk arising from fluctuation in interest rates, and does not enter into suchtransactions for speculative or trading purposes. JEI entered into such derivativetransactions to hedge risk in accordance with its Articles of Incorporation and theestablished risk management policies of JEAM.
The following table summarizes the notional amounts and the estimated fair value of theinterest-related positions outstanding as of June 30, 2008:
Estimated
Notional
fair value
amount(negative)(Thousands of yen)30

¥26,750,000

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

For the period from January 1, 2008 to June 30, 2008
(1) Major unitholders
Not applicable.
(2) Directors and major individual unitholders

Name

Description oftransaction

Amount(Thousands ofyen)

Amount(U.S.
dollars)

Account

Junichi Tamura

Payment of asset
management
fees to JEAM

¥436,367$4,100,420

Accounts
payableBalance at the Balance at theend of period end of period(Thousands of
(U.S.
yen)
dollars)¥268,836$2,526,183

For the period from July 1, 2007 to December 31, 2007

Derivatives and Hedge Accounting

Interest-rate swap:
Receive/floating and pay/fixed

Related Party Transactions¥ (67,524)

Estimated
Notional
fair value
amount(negative)(U.S. dollars)$251,362,526(1) Major unitholders
Not applicable.
(2) Directors and major individual unitholders

Name

Description oftransaction

Amount(Thousands ofyen)

Amount(U.S.
dollars)

Account

Junichi Tamura

Payment of asset
management
fees to JEAM

¥369,975$3,241,128

Accounts
payableBalance at the Balance at theend of period end of period(Thousands of
(U.S.
yen)
dollars)¥229,765$2,012,835$ (634,508)

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period31Website
15.
(1)

Significant Subsequent Events
Cash distribution

Japan Excellent, Inc. (JEI) is committed to disclosing information in a timely manner. Our website is the best

In accordance with Section 33.1.2 of the bylaws set forth by JEI for distributions of cash
dividends, the amount of dividends payable is limited by the amount of income and isequivalent to an amount exceeding 90% of income available for distributions of dividendsof JEI as set forth in Section 67.15 of the Special Taxation Measures Law. Consequently,
JEI set income available for distributions of dividends at ¥2,661,041,900 ($25,005,092), themaximum integral multiple of the 154,550 units issued not exceeding unappropriatedincome at June 30, 2008. No cash distribution exceeding the income amount set forth in
Section 33.1.4 of the bylaws of JEI shall be made.

vehicle to do this, and information is provided through press releases, presentation documents, and the like.
The URL for the English website is http://www.excellent-reit.co.jp/eng
with disclosure documents at http://www.excellent-reit.co.jp/eng/cms/disclosure.html
and the portfolio covered at http://www.excellent-reit.co.jp/eng/portfolio/portfolio_01.html

On August 15, 2008, the Board of Directors approved a resolution to make a cash
distribution of ¥17,218 ($162) per unit aggregating to ¥2,661,041,900 ($25,005,092) tounitholders of record as of June 30, 2008.
(2)

Dispositions of properties

The following properties were transferred.
（ a） Shuwa Iidabashi Building
1. Sales price
2. Type of assets sold3. Contract date
4. Delivery date
5. Buyer¥4,580,000 thousand（Note）
Trust
June 27, 2008
July 4, 2008
Sumitomo Realty & Development Co., Ltd.

（ b） Sendai Kowa Building
1. Sales price
2. Type of assets sold3. Contract date
4. Delivery date
5. Buyer¥4,814,600 thousand（Note）
Trust
July 10, 2008
August 29, 2008
Aoba Special Purpose Company（ Note） Transfer value does not include fees related to the transfer, adequate JEI share of thereal estate tax and city planning tax, and consumption tax.

(3)

Annual IR Schedule

June
Closing of accounts

March
Payment of the distributions
for the period ending in December

Early repayment of a loan

On July 24, 2008, the Board of Directors approved a resolution to repay the following
outstanding partial short-term loan on July 31, 2008 prior to its due date:
1. Total amount of the loan
¥49,000,000 thousand
2. Amount of Repayment¥5,880,000 thousand
3. Lender
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Sumitomo Mitsui Banking Corporation
Mizuho Trust & Banking Co., Ltd.
Aozora Bank, Ltd.
4. Start of the loan period
October 26, 2007
5. Original due date
October 24, 2008

32

Information for Investors

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

February
Announcement of the accounts
for the period ending in December

December

Information isregularly
disclosedon the website

AugustAnnouncement of the accounts
for the period ending in June

September
Payment of the distributions
for the period ending in June

Closing of accounts

Disclaimer
This semi-annual report in English is a translation of an equivalent document prepared in the Japanese language and filed in Japan inaccordance with the Financial Instruments and Exchange Law of Japan. This English translation was prepared solely for the convenienceof readers outside Japan and should not be considered as a disclosure statement. The original Japanese document shall prevail in theevent of any discrepancies or difference arising from the translations or interpretations contained in this English report. Estimates andprojections for Japan Excellent, Inc.’s results of future operations contained in this English semi-annual report are forward-looking
statements and are based on information currently available to us, and involve risks, uncertainties and assumptions.
Consequently, investors are cautioned not to place undue reliance on these estimates and projections for evaluating Japan Excellent, Inc.
Should any of the risks or uncertainties materialize or should underlying assumptions prove incorrect, the actual results may differ
substantially from these estimates and projections depending on numerous factors.

Japan Excellent, Inc. Semi-Annual Report for the 4th Fiscal Period

33Address: 1-9-20 Akasaka, Minato Ward, Tokyo, Japan
http://www.excellent-reit.co.jp/eng
E-mail: info@jeam.co.jp