SEMI-ANNUAL REPORTFor the 7th Period
from July 1, 2009 to December 31, 2009

Solid Management for Stable Growth

Profile
Japan Excellent, Inc. (JEI) listed its
units in the real estate investment trust
market of the Tokyo Stock Exchange onJune 27, 2006, and initiated operations
on the same date. Since then, JEI has
used the support of its group ofsponsors, which are leading companies
in real estate and finance, to invest
mainly in office buildings in majorurban areas, primarily Tokyo. Over the
medium-to-long term, JEI will manage
its portfolio with the fundamental
policies of achieving steady asset
expansion and stable revenue growth.

Contents
JEI Snapshot ................................................

2

Financial Highlights ......................................

4

To Our Unitholders .......................................

6

Investment Strategy ..................................... 10
Portfolio Map ................................................ 11
Portfolio ........................................................ 12
Main Properties ............................................ 14
Management ................................................ 18
Performance Report ..................................... 20
Financial Statements .................................... 27
Investor Information ..................................... 42

Omori Bellport D

Japan Excellent, Inc. 1

JEI Snapshot
Basic Strategies

Deploy the Comprehensive
Strengths of Our
Corporate Sponsors

Stable Operations
Centered on Metropolitan
Tokyo Office Buildings

JEI’s sponsors are strong in both real estateand finance. Kowa Real Estate Co., Ltd., The
Dai-ichi Life Insurance Company, Limited andSekisui House, Ltd. have developed numerous
office buildings and are experienced in the leasing
and management of properties. These companies
supply properties, human resources and expertise
to JEI. Our sponsors from the financial industry
include Mizuho Corporate Bank, Ltd. and Mizuho
Trust and Banking Co., Ltd. They are part of theMizuho Financial Group, which is one of Japan’s
three mega banking groups. We use thecomprehensive strengths of our sponsors to
JEI invests primarily in office buildings. All

steadily manage operations.

properties in our portfolio at this time are officebuildings. We primarily invest in Tokyo, whereproperty leasing demand is strong. Currently, on an

Japan Excellent, Inc.

Property market

2 Japan Excellent, Inc.

Financial market

acquisition price basis 94 percent of our portfolio isin metropolitan Tokyo.

Total leasable floor space

Portfolio

18

220,521.66m

2

properties

Sixteen of the eighteen properties in JEI’s
portfolio are in metropolitan Tokyo.

Occupancy rate

Acquisition price

181.0

billion yen

Steady portfolio expansion over the
3 years since JEI listed on the Tokyo
Stock Exchange.

Profitability

Financial
Stability

Generates stable revenues.

126

97.0

tenants

Tenant leasing risk is well dispersed.

Stable at a very high level.

Distribution per unit

NOI yield

16,085yen

5.4

JEI has maintained stable distributions
since listing its investment units.

JEI is securing stable returns from its
properties through efforts to generateinternal growth despite the unstable realestate market.

Ratings

LTV ratio

A3,AA(Moody’s/R&I)

JEI maintains ratings from international
rating agencies to provide high levels oftransparency.

49.0
JEI’s LTV compares favorably with its
peers in the J-REIT market.

Japan Excellent, Inc. 3

Financial Highlights
7th Period

July 1, 2009 to
December 31, 2009

6th Period

January 1, 2009 toJune 30, 2009

5th Period

July 1, 2008 to
December 31, 2008

Millions of yen, except per unit dataor where otherwise indicatedTotal revenues (Note 2) ..................................
Operating income ..........................................
Net income ....................................................

¥

7,494
3,349
2,485

¥

7,544
3,278
2,442

¥

7th Period

July 1, 2009 to
December 31, 2009

Thousands of U.S. dollars(Note 1)

8,501
4,000
3,155

$

81,40236,37527,000Funds from operations (Note 3) ...................
Net operating income (NOI) (Note 3) .............
Total distribution ............................................

3,476
4,907
2,485

3,432
4,814
2,442

3,296
4,732
3,155

37,76053,29627,000Total assets ...................................................
Interest-bearing debt .....................................
Net assets .....................................................
LTV (Loan to value) ratio (Note 3) ..................

195,040
95,50089,45049.0%

195,145
95,50089,36348.9%

195,929
95,50090,01948.7%

2,118,390
1,037,254
971,549

154,550
578,780
16,085

154,550
578,215
15,802

154,550
582,458
20,4186,286
175

22,494

22,211

21,331

244

Total number of outstanding
investment units (units) ..............................
Net assets per unit (Yen/$) ............................
Distribution per unit (Yen/$) ...........................
Funds from operations
per unit (Yen/$) (Note 3) ...............................

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥92.07 = U.S.$1.00, the approximate exchange rate on December 31, 2009.
2. Total revenues do not include consumption taxes.
3. Funds from operations: Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization
Net operating income: (Rental business revenues - Property operating expenses) + Depreciation and amortization
Loan to value ratio: Interest-bearing debt / Total assets
Funds from operations per unit: (Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation
and amortization) / Weighted average number of common units issued and outstanding during the period

Portfolio Highlights
As of December 31, 2009

Investment Areas (Acquisition price basis)

By Property Size (Acquisition price basis)

metropolitan
TokyoTokyo
metropolitan
area area
percentage
percentage

9494
%%

Medium-sizedMedium-sizedbuildings
buildings
21.4%
21.4%
Large
buildings
Largebuildings
78.6%
78.6%

Note: Area Ⅰ: Six central wards of Tokyo
Area Ⅱ: Central Osaka, central Nagoya and central Fukuoka
Area Ⅲ: Tokyo other than AreaⅠ, and its vicinity
For details see page 10.

Note:
Large buildings: Floor areas of over 10,000 tsubo* within Tokyo’s 23 wards
or over 4,000 tsubo outside Tokyo’s 23 wards
Medium-sized buildings: Floor areas of 1,000 - 10,000 tsubo within Tokyo’s
23 wards or 1,000 - 4,000 tsubo outside Tokyo’s
23 wards* 1 tsubo = 3.306m2
For details see page 10.

4 Japan Excellent, Inc.

Total Revenues / Net Income

Funds from Operations

Net Operating Income (NOI)(Millions of yen)

(Millions of yen)

(Millions of yen)

3rd

3rd

period3rd

period4th

period4th

period4th

period5th

period5th

period5th

period6th

period6th

period6th

period7th

period7th

period7th

period
0

2,000

4,000

6,000

8,000

10,000period
0

800

1,600

2,400

3,200

0 1,000 2,000 3,000 4,000 5,000

4,000

6,000

Total revenues
Net income

Net Assets

LTV (Loan to Value) Ratio

Distribution per Unit

(Millions of yen)

(%)

(Yen)

3rd

3rd

period3rd

period4th

period4th

period4th

period5th

period5th

period5th

period6th

period6th

period6th

period7th

period7th

period7th

period0

20,000 40,000 60,000 80,000 100,000

period
0

10.0

20.0

30.0

40.0

50.0

60.0

0

10,000 12,000 14,000 16,000 18,000 20,000 22,000

Major Tenants
Name

Toshiba Information Systems (Japan)
Corporation
2rd ﬁscal period

Leased Space(m2)

Property

Kowa Kawasaki
Net income Higashiguchi Building
2rd ﬁscal period

Percentage ofTotal Leased Area

18,612.72

8.7

18,206.18

3th ﬁscal period
8.5

2rd ﬁscal period

National Mutual Insurance Federation
3th ﬁscal periodof Agricultural
Cooperatives

ﬁscal period
Kowa Kawasaki Nishiguchi 3th
Building

Roche
K.K.
4thDiagnostics
ﬁscal period

Shiba 2-Chome Building

4th ﬁscal period

9,284.18

4.3
4th ﬁscal period

Fujitsu
Social Science Laboratory Ltd.
5th ﬁscal periodMusashikosugi Tower Place5th ﬁscal period

8,680.74

4.1

Fujitsu Network Solutions Ltd.

Kawasaki Nisshincho Building

7,259.45

3.4

6th ﬁscal period

Total revenues

6th ﬁscal period

5th ﬁscal period

Note: Major tenants are the portfolio’s top five tenants in terms of total leased floor space. If a tenant leases space in multiple properties held by the investment
2000
6000is included
8000 in10000
01000 2000 3000 4000 5000 6000
corporation, floor0 spacein such4000
properties
the tenant’s total leased floor space.

6th ﬁscal period0

2rd ﬁscal period

2rd ﬁscal period

2rd ﬁscal period

3th ﬁscal period

3th ﬁscal period

Japan3th
Excellent,
Inc. 5ﬁscal period

800

1600

To Our Unitholders

Based on solid management,
we are poised for stable growthover the medium-to-long term.

6 Japan Excellent, Inc.

Overview of 7th Period Results

million yen (down ¥50 million, or 0.7 percent, compared

Solid management delivered an increase inprofits despite the harsh environment.
During the 7th Period, the six-month period ended

to the previous period), operating income was ¥3,349

Stable Portfolio

million (up ¥70 million, or 2.1 percent), net income

totaled ¥2,485 million (up ¥43 million, or 1.8 percent)and distributions per unit were ¥16,085 (up ¥283).

December 31, 2009, as the large-scale fiscal measures

We attribute our ability to increase profits amid such

implemented by nations across the globe graduallya harsh environment to the solid earnings base JEI

took effect, the global recession bottomed out and aenjoys—a source of our competitive strength.

moderate recovery followed. Japan’s economy,
however, remained in a deflationary phase as theemployment environment worsened and personal
consumption stagnated. As a result, the economy as awhole experienced only a subdued recovery.

The Market Environment Looking Forward
We expect the Tokyo office building
environment to enter a gentle recovery phase.

In the office leasing market, vacancy rates rose in

The economy is in a recovery phase, as the worst

most areas and office rents declined as tenants cutof the global financial crisis is behind us and economic

costs and reduced office space.

indicators in the US show signs of recovery following

Amid such an environment, Japan Excellent, Inc.

Asia and other emerging markets. Japan’s economy(JEI) focused on releasing vacated space. As a result,also appears to be headed toward a gentle recovery

our portfolio occupancy rate stood at a high 97.0

phase led by exporters, despite downside risks such as

percent at the end of the period and we achieved rental

deterioration in the employment situation andrevenue of a level comparable to that of the previous

prolonged deflation.
We forecast the Tokyo office building leasing market

period.
In the 7th Period, total revenue declined slightly but

will gradually bottom out as the pace of rent declines

Average Asking Rents in Central Tokyo*

Occupancy
Rate in Central
Tokyo,
profitsrose. Specifically,
total revenue
was ¥7,494

Occupancy
Rate
forpropertiesJEI Properties
slows,
mainly atprimesuch as large

Occupancy Rate in Central Tokyo,
Central Osaka and Central Nagoya(Yen per tsubo)(%)

Central Osaka and Central Nagoya

(%)

100

Central Tokyo
Central Osaka
Central Nagoya

Average Asking Rents in Central Tokyo*

Rent mhigherthe ma40,000100
35,00090
30,000

95

Oppo

33.0%

Transfer of
Sendai Kowa Building

80
25,00090

Samethe ma70
20,00085
08/2008 10/2008 12/2008 2/2009 4/2009 6/2009 8/2009 10/2009 12/2009
7/2008 9/2008 11/2008 1/2009 3/2009 5/2009 7/2009 9/2009 11/2009

Central Tokyo: Chiyoda, Chuo, Minato, Shinjuku and Shibuya
Central Osaka: Umeda, Minami-Morimachi, Yodoyabashi / Honcho, Senba,
Shinsaibashi / Namba, and Shin-Osaka
Central Nagoya: Meieki, Fushimi, Sakae and Marunouchi
Source: Miki Shoji Co., Ltd.

15,00060
0
0 6/2006 12/2006 6/2007 12/2007 6/2008 12/2008 6/2009 12/2009
8/2008 10/2008 12/2008 2/2009 4/2009 6/2009 8/2009 10/2009 12/2009
7/2008 9/2008 11/2008 1/2009 3/2009 5/2009 7/2009 9/2009 11/2009
Average Asking Rent for New Buildings
Average Asking Rent for Existing Buildings
Total Average Asking Rent

* Central Tokyo: Chiyoda, Chuo, Minato, Shinjuku and Shibuya
Source: Miki Shoji Co., Ltd.

Japan Excellent, Inc. 7

8.9%

a

009

buildings in the city center. In Osaka and Nagoya,at enhancing tenant satisfaction as a means of

however, we believe tenant demand will remain weak

maintaining asset value and enhancing theand expect market rents to continue to trend

competitiveness of our properties.

downward.
In the real estate investment market for office

Our External Growth Strategy

buildings, we forecast increased activity as investors

Leverage information gathered by ourgain easier access to funding and a consensus

sponsors to make selective investments indevelops for a bottom in the leasing market.

quality properties.

Keep occupancy rates high and generate
stable earnings.
We expect the office building leasing market toIG

At JEI, we are targeting an asset scale of ¥300

Our Internal Growth Strategy

billion on an acquisition price basis over the medium
term. We plan to actively acquire properties mainly in
the Tokyo metropolitan area. We expect the investment
environment to improve and plan to make selective

continue to be soft. That said, we at JEI plan toinvestments in quality properties by leveraging one ofleverage our competitive edge in terms of the location

JEI’s strengths—the powerful networks of informationand grade of buildings we own to maintain occupancy

our sponsors can access.

rates by setting rents at appropriate levels.
Furthermore, on the property operations and

Our Financial Strategy

management side, we will strive to improve cost

Take steps to further stabilize ourefficiencies through the periodic evaluation of property

funding base.

managers and other measures. Moreover, we plan toenhance our competitiveness over the medium-to-long

20-Property Basis(Before dispositions)

AreaⅢ for J-REITs
In our view, the financing environment

Asset Growth (Acquisition Price Basis) 42.6%

Occupancy
Rate for JEI Properties
term by making additional strategic investments aimed

has gradually normalized since the middle of 2009.

Occupancy Rate for JEI Properties

Asset Growth (Acquisition Price Basis)(%)(Billions of yen)

100

300

Average age of buildings:
Occupancy rate:

Inves

AreaⅠ
49.3%
15.1 years
93.3%

250

90
Transfer of
Sendai Kowa Building
80200

Enhancement of Competitiveness

150

70

100

18-Property Basis(After dispositions)

50

60
0

AreaⅡ
5.8% ¥ 300
billion

AreaⅣ
2.2%

8/2008 10/2008 12/2008 2/2009 4/2009 6/2009 8/2009 10/2009 12/2009
7/2008 9/2008 11/2008 1/2009 3/2009 5/2009 7/2009 9/2009 11/2009

0

AreaⅢ
42.3%

12/2006 6/2007 12/2007 6/2008 12/2008 6/2009 12/2009

AreaⅠ
51.6%

Note: For details see page 12.

8 Japan Excellent, Inc.

Mid-term
targetAreaⅡ
6.1%

Tokyo metroparea ratio

94% (+To Our Unitholders

However, as long as uncertainties remain about the

but we cannot yet become optimistic, and assume

outlook for Japan’s economy, we must remain vigilant.

rental revenues will decline slightly.

For that reason, we at JEI recently issued

In the 8th Period, we forecast operating revenue ofinvestment corporation bonds (¥12 billion issuance of¥7,305 million, operating income of ¥3,160 million, net

4-year bonds paid in March 11, 2010) and prepaid ¥12

income of ¥2,318 million and distributions per unit ofbillion in short-term loans as part of efforts to stabilize¥15,000. In the 9th Period, we forecast operating

our finances by restructuring our debt portfolio withrevenue of ¥7,213 million, operating income of ¥3,072

greater weighting on longer maturities and fixed rates

million, net income of ¥2,163 million and distributions

and diversifying financing instruments. We will

per unit of ¥14,000.

strengthen ties with financial institutions including

At JEI, we aim to achieve stable growth and to

Mizuho Corporate Bank, Ltd., and aim to further

maximize unitholder value over the medium-to-longstabilize our funding base by continuing a shift toterm by staying the course in terms of solid

longer-term borrowings and an evenly distributed

management of the portfolio while we seek to fully

maturity schedule and diversifying our lender base.

utilize the overall capabilities of our sponsors, who havestrength in both real estate and finance.

Forecasts and Our Basic Approach
Moving Forward
While the immediate-term environment
remains harsh, continue solid management
and aim for growth over the medium-tolong term.
The environment for office buildings appears to be

Balanceof Interest-Bearing
Debt
Balanceof Interest-Bearing
Debt
bottoming out mainly in the Tokyo metropolitan area,

Balance of Interest-Bearing Debt
As of December 31, 2009
As of December 31, 2009
Short-term, floating-rate
Short-term, floating-rate¥12.0 billion¥12.0 billion(12.6%)(12.6%)
Interest-Bearing
Interest-Bearing
Debt
Debt

¥95.5
¥95.5
billionbillionLong-term,Long-term,
fixed-rate
fixed-rate¥35.75 billion¥35.75 billion(37.4%)(37.4%)
Long-term, floating-rateLong-term, floating-rate¥47.75 billion¥47.75 billion(50.0%)(50.0%)

As of March 31, 2010
As of March 31, 2010

Long-term, floating-rateLong-term, floating-rate¥47.75 billion¥47.75 billion(57.2%)(57.2%)
Interest-Bearing
Interest-Bearing
Debt
Debt

¥83.5
¥83.5
billionbillionLong-term,Long-term,
fixed-rate
fixed-rate¥35.75 billion¥35.75 billion(42.8%)(42.8%)
100%
Ratio of long-term debt:
of long-term
debt:debt: 42.8%100%
Ratio ofRatio
long-term,
fixed-rate
Ratio of long-term, fixed-rate49.0%
debt: 42.8%
LTV ratio:
LTV ratio:
49.0%

Chifumi Toda
Executive Director, Japan Excellent, Inc.

Balanceby Repayment
DateandandBalanceby Repayment
Date
Average
Interest
Rate
Average Interest Rate

Balance by Repayment Date and
Average Interest Rate
(Billions of yen)(Billions of yen)
45
45

30

15

0

30

15

0 20102011 2012 2013 2014 20152010 2011 2012 2013 2014 2015

Long-term debt
Average remaining debt term: 1.97 years
Long-term
Short-term
debt debt
debt term:
AverageAverageinterestremainingrate:
1.45%1.97 years
Short-term debt

Averagerate:
1.45%(includedin the interest
above, long-term
1.50%)(included in the above, long-term 1.50%)

Japan Excellent, Inc. 9

Investment Strategy
JEI has built a portfolio centered on office buildings in major metropolitan
areas that balances stable profitability and revenue growth.
JEI invests primarily in office buildings, and has set other usage at less than 10 percent of its
portfolio. As of December 31, 2009, office buildings accounted for 100 percent of JEI’s portfolio.
JEI invests in urban properties, primarily in the central business districts of Tokyo, and is moving
to further enhance the stability and profitability of its portfolio with a focus on strong tenant
relationships, property scale and quality, and a balanced tenant mix.

Portfolio Composition Target by Usage
Usage*

Investment Ratio in Portfolio

Office buildings

90% or more

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 rental revenue of the asset is designated.

Portfolio Composition Target by Area
Target Investment Areas

Investment Ratio in Portfolio

Core areas (80% or more)		
Area I

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

50% or more of the core areas		Area Ⅱ

Central Osaka (Umeda, Dojima, Nakanoshima,
Yodoyabashi, Honmachi districts, etc.)
Central Nagoya (Meieki, Fushimi, Sakae districts, etc.)
Central Fukuoka (Tenjin, Hakata-Terminal peripheral
districts, etc.)

50% or less of the core areas		Area ⅢTokyo other than AreaⅠ, and its vicinity (Kanagawa,
Saitama and Chiba prefectures)

50% or less of the core areas

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

20% or less		

Non-core areas		
Area Ⅳ

Portfolio with a Focus on Regional, Property Scale, and Tenant Mix Balance
Regional Balance

Property Scale Balance

Tenant Mix Balance

JEI recognizes that AreaⅠis the top priority
for its investment activities, but will also
proactively invest in properties situated in
AreasⅡ and Ⅲ. Through these initiatives,
JEI expects to minimize the impact ofany market fluctuations caused bychanges in economic conditions and theconcentration of large-scale development
projects in major urban areas.

JEI pursues optimal portfolio development
by effectively balancing its investment inlarge buildings*, which are believed tooffer advantages and competitiveness in
the real-estate market, and medium-sizedbuildings*, which are regarded as assets
with high liquidity and stable rent levels.

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

* JEI defines buildings located in the 23 wards of Tokyo with total floor space of approximately 33,058m2 (10,000 tsubo) or larger as large buildings, and those with total
floor space of 3,306m2 (1,000 tsubo) or larger but smaller than 33,058m2 as medium-sized buildings. For properties in all other areas, JEI defines buildings with total
floor space of approximately 13,223m2 (4,000 tsubo) or larger as large buildings, and those with total floor space of 3,306m2 or larger but smaller than 13,223m2 as
medium-sized buildings.

10 Japan Excellent, Inc.

Portfolio Map(Length of bars indicates portfolio on an acquisition price basis. /Figures have been rounded to the nearest million yen.)¥93,409 million

Tokyo

Kanagawa
Prefecture¥76,641 million¥6,470 million
Ebina City

¥4,300 million¥6,674 million

Nagoya City
Osaka City

¥23,300 million¥5,400 million

Tokyo’s six central wards¥2,550 million¥4,000 million¥17,857 million¥8,350 million¥5,040 million¥1,150 million¥9,450 million¥2,859 million

Chiba
Prefecture

Kanagawa
Prefecture¥22,553 million

Japan Excellent properties
within a¥13,890 million

20km radius¥32,000 millionof Tokyo’s six central wards.

¥10,976 million¥3,905 million¥4,205

Area

Area I

Area Ⅱ

Area Ⅲ

Total acquisition price(Millions of yen)

93,40910,974

76,6418

2

8

No. of properties

Japan Excellent, Inc. 11

Portfolio

Property
NumberName

Investment
TypeYear Built

Acquisition Price1(Millions of yen)Book Value(Millions of yen)Appraisal Value(Millions of yen)

I-7

Akasaka Garden City

Trust

2006

23,30023,10021,900I-1

Omori Bellport D

Trust

1996

22,55322,327

24,830

I-8

AKASAKA INTERCITY

Trust

2005

17,857

17,69813,800

I-2

Shiba 2-Chome Building

Trust

1994

9,450

9,314

11,600I-3

JEI Hamamatsucho Building

Trust

1991

8,350

8,279

8,940

I-4

No. 32 Kowa Building

Trust

1979

5,040

5,002

5,478

I-5

No. 36 Kowa Building

Trust

1982

4,000

4,023

4,242

I-6

No. 28 Kowa Building

Trust

1975

2,859

2,837

3,560

93,40992,582

94,350Subtotal
Ⅱ-2

JEI Nishi-Honmachi Building

Ⅱ-1

NHK Nagoya Housou-Center Building

Trust

1988

6,674

7,624

4,780

Ownership

1991

4,300

4,191

4,960

10,974

11,815

9,740

Subtotal
Ⅲ-9

Kowa Kawasaki Nishiguchi Building

Trust

1988

32,00031,41827,500

Ⅲ-1

Musashikosugi Tower Place

Trust

1995

13,89013,447

15,900

Ⅲ-2

Kowa Kawasaki Higashiguchi Building

Trust

1988

10,976

10,541

10,300

Ⅲ-8

Ebina Prime Tower

Trust

1995

6,470

6,453

5,140

Ⅲ-3

JEI Hongo Building

Trust

1991

5,400

5,281

5,160

Ⅲ-5

Kawasaki Nisshincho Building

Trust

1992

4,205

4,138

5,320

Ⅲ-7

JEI Ryogoku Building

Trust

1996

2,550

2,459

2,198

Ⅲ-6

No. 44 Kowa Building

Trust

1984

1,150

1,025

1,480

Subtotal

76,641

74,76772,998

Total

181,023

179,165

177,088

Notes: 1. Figures for “Acquisition Price” are sales prices recorded in sales agreements (excluding taxes). Amounts of less than one million yen are rounded.
2. Figures for “Total Floor Space” are for each entire building, including buildings in which JEI has acquired compartmentalized ownership or co-ownership.
3. Figures for “Investment Ratio” show the ratio of the acquisition price for each acquired property in proportion to the total acquisition price for all acquired properties
in the portfolio. Figures are rounded to the first decimal place.

12 Japan Excellent, Inc.

Total Floor Space2(m2)

Total Leasable
Floor Space(m2)

Total Leased
Space at End of Period(m2)

Occupancy Rate
at End of Period(%)

Revenue(Millions of yen)

NOI(Millions of yen)

Investment
Ratio3(%)

PML

46,776.76

8,769.53

8,769.53

100.0

559

461

12.9

8.6

155,778.75

25,828.29

25,101.25

97.2

1,073

682

12.5

8.0

73,061.33

5,622.98

5,622.98

100.0

372

269

9.9

9.2

19,518.15

11,749.30

11,370.05

96.8

372

278

5.2

8.2

8,327.53

6,411.26

6,411.26

100.0

317

246

4.6

8.2

10,110.96

5,299.67

4,398.25

83.0

226

166

2.8

13.2

8,266.55

5,720.34

5,720.34

100.0

—

120

2.2

13.2

6,282.23

4,472.71

4,009.77

89.6

151

107

1.6

13.5

328,122.26

73,874.08

71,403.43

96.7

—

2,333

51.6

—

15,800.31

10,601.70

10,601.70

100.0

254

148

3.7

11.5

80,809.95

8,964.88

8,415.96

93.9

323

191

2.4

11.9

96,610.26

19,566.58

19,017.66

97.2

—

339

6.1

—

61,856.92

38,332.15

36,907.69

96.3

1,135

697

17.7

7.9

53,711.13

25,275.07

24,003.14

95.0

788

521

7.7

11.5

31,009.62

18,612.72

18,612.72

100.0

—

340

6.1

6.7

55,806.20

25,362.37

24,649.59

97.2

528

242

3.6

12.2

5,877.11

4,078.37

4,078.37

100.0

178

131

3.0

14.2

22,141.60

8,980.70

8,980.70

100.0

233

176

2.3

14.7

5,820.56

3,871.64

3,871.64

100.0

108

67

1.4

14.3

3,359.55

2,567.98

2,475.00

96.4

94

56

0.6

13.4

239,582.69

127,081.00

123,578.85

97.2

—

2,234

42.3

—

664,315.21

220,521.66

213,999.94

97.0

7,494

4,907

100.0

6.6

Japan Excellent, Inc. 13

Main Properties

I -1

Shiba 2-Chome
Building

I -4

No. 32 Kowa Building

Omori Bellport D

I -3
14 Japan Excellent, Inc.

I -2

JEI Hamamatsucho
Building

I -6

I -5

No. 36 Kowa Building

I -8
I -7

No. 28 Kowa Building

AKASAKA INTERCITY

Akasaka Garden City
Japan Excellent, Inc. 15

Ⅱ-2

Ⅱ-1

NHK Nagoya
Housou-Center Building

Ⅲ-6

Ⅲ-5
16 Japan Excellent, Inc.

JEI Nishi-Honmachi
Building

KawasakiNisshincho Building

No. 44 Kowa Building

Ⅲ-7

JEI Ryogoku BuildingMain Properties

Ⅲ-2

Ⅲ-1

Musashikosugi
Tower Place

Ⅲ-8

Ebina Prime Tower

Kowa Kawasaki
Higashiguchi Building

Ⅲ-3

Ⅲ-9

JEI Hongo Building

Kowa Kawasaki
Nishiguchi Building

Japan Excellent, Inc. 17

Management
Overview of Investment Corporation
Japan Excellent, Inc. (JEI) was established with the aim of managing investment in the form of specified assets under the Trust
Law. The asset management company Japan Excellent Asset Management (JEAM) performs all the asset management.
JEAM is characterized by asset management that aims at securing steady earnings and stable growth of assets undermanagement from a medium-to-long-term perspective. It accomplishes this by targeting investment properties in major
metropolitan areas centering on the six central wards of Tokyo, investing 90 percent or more of the total portfolio in officebuildings or real estate constructed on such sites, and investing in marketable securities, beneficiary trust rights and otherassets that back the real estate.

Organization
Sponsor Companies Providing
Pipeline Support

Administrative Agent
Asset Custodian

Japan Excellent, Inc.

Kowa Real Estate Co., Ltd. (A)Sekisui House, Ltd. (B)Mizuho Trust & Banking Co., Ltd. (C)42Unitholders’ Meeting

Asset Management Company
Japan Excellent
Asset Management Co., Ltd. (JEAM)

Mizuho Trust & Banking Co., Ltd.

Transfer Agent
1

3

Board of Directors
Executive Director: Chifumi Toda
Supervisory Director: Makoto Sakagami
Supervisory Director: Tsuyoshi Nagahama
Supervisory Director: Shunichi Maekawa

Think Tanks

5

Mizuho Trust & Banking Co., Ltd.

General administrator related toinvestment corporation bonds

Accounting Auditor

Mizuho Research Institute, Ltd. (A)Urban Research Institute Corporation (B)Ernst & Young ShinNihon LLC

6

Mizuho Corporate Bank, Ltd.

1 Asset management agreement
2 (A) Pipeline support agreement with Kowa Real Estate
3 (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
6 Fiscal, issuing and paying agency agreement related to the first issuance of unsecured investment corporation bonds

Japan Excellent, Inc. Management Team
Chifumi Toda
Executive Director
February 1998			
September 2000
			July 2004
				
			March 2009							November 2009
Makoto Sakagami

Supervisory Director

December 1990

				

			
			

April 1961

Partner, Chuo Coopers & Lybrand Consulting Co., Ltd.
(currently IBM Business Consulting Services K.K.)
Established Makoto Sakagami Certified Public Accounting Office (current)
Supervisory Director, Japan Excellent, Inc. (current)			February 2006

Entered the Ministry of Transport (currently Ministry of Land,
Infrastructure, Transport and Tourism)
Partner, Attorney at law, Anderson Mori and Rabinowitz (currently
Anderson Mori & Tomotsune)
Supervisory Director, Japan Excellent, Inc. (current)

Shunichi Maekawa
Supervisory Director
			
			
			

April 1978
April 1999
November 2007
April 2008

Entered Japan Real Estate Institute
Professor, Faculty of Real Estate Sciences, Meikai University
Supervisory Director, Japan Excellent, Inc. (current)
Director, Land Information Center (current)

Tsuyoshi Nagahama

Supervisory Director

July 2000
February 2006

Manager, Namba branch, Industrial Bank of Japan, Limited
General Manager, Mizuho Holdings, Inc.
Executive Officer / General Manager, Building Business Sales
Department, Kowa Real Estate Co., Ltd.
President and Representative Director, Japan Excellent AssetManagement Co., Ltd. (current)
Executive Director, Japan Excellent, Inc. (current)

				

			

January 1972				

18 Japan Excellent, Inc.

Overview of Asset Management Company
Company Outline
Corporate NameJapan Excellent Asset Management Co., Ltd. (JEAM)

Officers

President

Headquarters

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

Director, Chief Operating Officer

Hiroshi Tabei

Established

April 14, 2005

		Director, Chief Investment Officer

Naoki Fukuda

Capital¥450 million		

Director (Non-executive)

Takashi Uchida

Shareholders
		
		
		
		
		
		
		
		

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

		

Auditor (Non-executive)

Masatoshi Tamaru		Compliance Officer

Business
Operations

Financial Instrument Dealer

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

Chifumi Toda

Michiro Ezaki		

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 Land,
Infrastructure, Transport and Tourism No. 44

Note: The ratio stated in the table above represents the number of investment units held to the total number of outstanding investment units.

JEAM Management Team
Chifumi Toda
President
February 1998			
September 2000
			July 2004
				
			March 2009							November 2009Manager, Namba branch, Industrial Bank of Japan, Limited
General Manager, Mizuho Holdings, Inc.
Executive Officer / General Manager, Building Business Sales
Department, Kowa Real Estate Co., Ltd.
President and Representative Director, Japan Excellent AssetManagement Co., Ltd. (current)
Executive Director, Japan Excellent, Inc. (current)

Hiroshi Tabei
Director,
October 2004
		
Chief Operating Officer
April 2008							April 2009

Advisor, ALC Advisory Division (Business Research Division), Mizuho Bank, Ltd.
General Manager, Corporate Planning Division, Japan Excellent
Asset Management Co., Ltd. (current)
Director, Japan Excellent Asset Management Co., Ltd. (current)

Naoki Fukuda
Director,
April 1998
		
Chief Investment Officer
April 2004							
April 2006
			April 2008

President, Dai-ichi Life Capital Properties, Inc.
Deputy General Manager, Real Estate Planning Group, Real Estate
Department, Dai-ichi Mutual Life Insurance Company
President, Dai-ichi Life International (U.S.A.), Inc.
Director, Chief Investment Officer, Japan Excellent Asset Management Co., Ltd. (current)

Takashi UchidaDirector (Non-executive)			August 2005
April 2006

Director, Japan Excellent Asset Management Co., Ltd. (current)
Director and Managing Executive Officer, Sekisui House, Ltd. (current)

April 2004
April 2005
July 2007

Executive Officer, General Manager, Finance Control Department,
Kowa Real Estate Co., Ltd.
Supervisory Director, Japan Excellent Asset Management Co., Ltd. (current)Standing Auditor, Kowa Real Estate Co., Ltd. (current)

June 2001
April 2002
September 2005

Corporate Auditor, Auditing Department, Industrial Bank of Japan, Limited
Chief Corporate Auditor, Internal Audit Division, Mizuho Corporate Bank, Ltd.
Compliance Officer, Japan Excellent Asset Management Co., Ltd. (current)

Masatoshi Tamaru
Auditor		(Non-executive)						Michiro Ezaki
Compliance Officer						Organization of JEAM
Shareholders’ Meeting
AuditorBoard of Directors
Compliance Committee

Investment Committee

Compliance Officer
Executive Director
Planning and Management Div.
Corporate
Planning Dept.

Finance andAccounting Dept.

Business
Management Dept.

Real Estate Investment Div.
Investment
Planning Dept.

Real Estate
Investment Dept.

Real EstateManagement Dept.
Japan Excellent, Inc. 19

Performance Report
Summary of Selected Financial Data
7th Period

July 1, 2009
to December 31, 2009

6th Period

5th Period

January 1, 2009
July 1, 2008
to June 30, 2009 		
to December 31, 2008

Millions of yen, except per share dataor where otherwise indicatedTotal revenues (Note 2)...................................
Rental business revenues...........................
Operating expenses.......................................
Property operating expenses......................
Income before income taxes..........................
Net income.....................................................

¥

7,494
7,494
4,145
3,577
2,486
2,485

¥

7,544
7,544
4,266
3,720
2,443
2,442

¥

7th Period

July 1, 2009
to December 31, 2009

Thousands of U.S. dollars
except per share data (Note 1)

8,501
7,647
4,500
3,910
3,156
3,155

$

81,40281,40245,02638,85427,01127,000Funds from operations (Note 3)...................
Net operating income (NOI) (Note 3).............
Total distribution ............................................
Depreciation and amortization.......................
Capital expenditures......................................

3,476
4,907
2,485
990
134

3,432
4,814
2,442
990
267

3,296
4,732
3,155
995
799

37,76053,29627,00010,7591,455

Total assets....................................................
Interest-bearing debt......................................
Net assets......................................................

195,040
95,50089,450

195,145
95,50089,363

195,929
95,50090,0192,118,390
1,037,254
971,549

154,550
578,780
16,085

154,550
578,215
15,802

154,550
582,458
20,4186,286
175

22,494

22,211

21,331244

ROA (%) (Note 3).........................................
(Annualized rate) (%).................................
ROE (%) (Note 3)..........................................
(Annualized rate) (%).................................
LTV (Loan to value) ratio (%) (Note 3)............
Capital ratio (%).............................................
Payout ratio (%) (Note 4)..............................
Number of days..............................................

1.3
(2.5)
2.8
(5.6)
49.0
45.9
100.0
184

1.2
(2.5)
2.7
(5.5)
48.9
45.8
99.9
181

1.6
(3.1)
3.5
(7.0)
48.7
45.9
100.0
184

Number of investment properties (Note 5)......
Number of tenants (Note 5).............................
Total rentable area (m2)................................
Occupancy rate (Note 5).................................

18
126
220,521
97.0

18
126
220,521
98.5

18
127
220,52195.2

Total number of outstanding
investment units (units) . ............................
Net assets per unit (Yen/$) ............................
Distribution per unit (Yen/$) . .........................
Funds from operations
per unit (Yen/$) (Note 3)................................

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥92.07 = U.S. $1.00, the approximate exchange rate on December 31, 2009.
2. Total revenues do not include consumption tax.
3. All valuations are calculated through the following formulas. The figures in parentheses are annualized based on the 6-month figures for the period.
		 ROA: Income before income taxes / (Initial total assets + Total assets at end of period) ÷ 2
		 ROE: Net income / (Initial net assets + Net assets at end of period) ÷ 2
		 Net operating income: (Rental business revenues - Property operating expenses) + Depreciation and amortization
		 Funds from operations: Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization
		 Funds from operations per unit: (Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation andamortization) / Weighted average number of common units issued and outstanding during the period
		 Loan to value ratio: Interest-bearing debt / Total assets
4. Payout ratio figures are calculated to one decimal place only.
5. Number of investment properties means units generally perceived to be one office building. Number of tenants means gross number of tenants by building.
Occupancy rate is the ratio of gross .leased area to total rentable area at the end of the period.

20 Japan Excellent, Inc.

Operating Environment and Results
During the 7th Period, the six-month period ended December 31, 2009, as the large-scale fiscal measures implemented
by nations across the globe gradually took effect, the global recession bottomed out and a moderate recovery followed.
Japan’s economy, however, remained in a deflationary phase as the employment environment worsened and personal
consumption stagnated. As a result, the economy as a whole experienced only a subdued recovery.
In the office leasing market, vacancy rates rose in most areas and office rents declined as deteriorating corporate
earnings forced tenants to cut costs and reduce office space. In the Tokyo metropolitan area, the overall vacancy rate roseand rents continued to decline in high-end and mid-to-low-end properties, alike. In the Osaka and Nagoya metropolitan
areas, new supply came on line as tenants reduced space, disrupting the balance between supply and demand, resulting ina prolonged decline in market rents.
Amid such a harsh environment, JEI worked closely with its property managers to swiftly release vacated space. As aresult, our portfolio occupancy rate stood at a high 97.0 percent at the end of the period.
Furthermore, on the property operations and management side, we continued to improve cost efficiencies through efforts
including calling for tenders to make air conditioning improvements aimed at upgrading building performance and driving
down running costs.
As of the end of the period, JEI owned a portfolio of 18 properties (no change from the previous period) with a total
investment value of ¥181 billion (on an acquisition price basis), having 220,521 m2 (66,707 tsubo) in aggregate leasable
space and housing 126 tenants.

Overview of Performance
In the 7th Period, total revenue declined slightly but profits rose. Specifically, total revenue was ¥7,494 million yen (down¥50 million, or 0.7 percent, compared to the previous period), operating income was ¥3,349 million (up ¥70 million, or 2.1
percent) and net income totaled ¥2,485 million (up ¥43 million, or 1.8 percent).

Japan Excellent, Inc. 21

Distribution for Current Period
Distribution per unit totaled ¥16,085. The payout ratio was therefore 100.0 percent.
6th Period

7th Period

July 1, 2009
to December 31, 2009

5th Period

January 1, 2009
to June 30, 2009

July 1, 2008
to December 31, 2008

Thousands of yen, except per share amounts

Retained earnings................................................................
Undistributed earnings.........................................................
Total distribution...................................................................
(Total distribution per unit)................................................
Distribution of accumulated earnings..................................
(Distribution of accumulated earnings per unit)................
Distribution in excess of accumulated earnings..................
(Per share).........................................................................

¥2,442,271
72
2,442,199(15,802)2,442,199(15,802)—(—)¥2,486,006
69
2,485,936(16,085)
2,485,936(16,085)—(—)¥3,155,635
33
3,155,601(20,418)
3,155,601(20,418)—(—)

Unitholders’ Capital
An overview of the issue of investment units is as follows.
			
Investment units outstanding		 Paid-in capital
Issue date
Remarks
Increase		
Balance
Increase 		
Balance				
Units			 Millions of yen

February 20, 2006
June 26, 2006
July 21, 2006
July 11, 2007
August 8, 2007

Initial capital(private)
Public offering
Third party
Public offering
Third party

400

400

128,000
6,400
19,000750

128,400
134,800
153,800
154,550¥200¥

64,2303,211
18,702
738

Notes

200

Note 164,43067,641
86,34487,083Note 2
Note 3Note 4Note 5

Notes: 1. JEI was established with an issue of investment units priced at ¥500,000 per unit.
2. JEI issued new investment units through a public offering at a price of ¥520,000 per unit (underwriting price: ¥501,800 per unit) to raise capital primarily for theacquisition of properties following its listing on the Tokyo Stock Exchange.
3. JEI issued new investment units through a private placement at a price of ¥501,800 per unit to raise a portion of the capital required for the acquisition of properties.
4. JEI issued new investment units through a public offering at a price of ¥1,109,200 per unit (underwriting price: ¥984,360 per unit) to raise a portion of the capitalrequired for the acquisition of properties during the second period.
5. JEI issued new investment units through a private placement at a price of ¥984,360 per unit to raise a portion of the capital required for the acquisition ofproperties during the second period.

Market Price of Units
High/Low (closing price) of units on the TSE:
7th Period

July 1, 2009
to December 31, 2009

6th Period

January 1, 2008
to June 30, 2008

5th Period

July 1, 2008
to December 31, 2008

Yen

High......................................................................................
Low.......................................................................................

22 Japan Excellent, Inc.

¥490,000
388,000¥413,000
298,000¥535,000
254,000

Performance Report

Loans
Loans by lending institution as of December 31, 2009 are summarized below.
List of lenders		Lender		

Outstanding debt at				end of this period
ShareLong-term
Short-term
Millions of yen			Millions of yen

Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Sumitomo Mitsui Banking Corporation
The Dai-ichi Mutual Life Insurance Company (Note 4)
The Norinchukin Bank
Mizuho Trust & Banking Co., Ltd.
Aozora Bank, Ltd.
Development Bank of Japan
Chuo Mitsui Trust & Banking Co., Ltd.
Sompo Japan Insurance Inc.
Resona Bank, Ltd.
Tokio Marine & Nichido Fire Insurance Co., Ltd.

¥30,500
17,800
9,200
8,000
7,000
6,500
5,000
4,000
3,000
2,000
1,500
1,000

31.9%
18.6%
9.6%
8.4%
7.3%
6.8%
5.2%
4.2%
3.1%
2.1%
1.6%
1.0%

¥23,500
14,800
7,200
8,000
7,000
6,500
5,000
4,000
3,000
2,000
1,500
1,000

¥ 7,000
3,000
2,000
0
0
0
0
0
0
0
0
0

Total

¥95,500

100.0%¥83,500¥12,000

Short-term loans				
LenderDue onBalance			Millions of yen

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

September 30, 2009
September 30, 2009
September 30, 2009

Total short-term loans		

Average interest
rate (%) (Note 1)

Repayment
methodUse of
funds

Notes

¥ 7,000
3,000
2,000

1.0
1.0
1.0

Bulletpayment

Repayment ofloans

Unsecured /unguaranteed¥12,000

1.0

—

—

—

Average interest
rate (%) (Note 1)

Repayment
methodUse of
funds

Notes

Bulletpayment

Acquisition ofreal estate

Unsecured /unguaranteed

—

—

—

Long-term debt due within 1 year				LenderDue onBalance			Millions of yen

The Norinchukin Bank
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust andBanking Corporation
Aozora Bank, Ltd.

June 29, 2010
June 29, 2010

¥ 5,000
3,000

1.5
1.5

June 29, 2010
June 29, 2010

3,000
2,000

1.5
1.5

¥13,000

1.5

Total long-term debt due within 1 year		Japan Excellent, Inc. 23

Long-term loans (Note 3)
				LenderDue onBalance			Millions of yen

Average interest
rate (%) (Note 1)

Mizuho Corporate Bank, Ltd.
June 29, 2011
¥ 5,000
Mitsubishi UFJ Trust and Banking Corporation
June 29, 2011
3,500
Resona Bank, Ltd.
June 29, 2011
1,000
The Dai-ichi Mutual Life Insurance Company
June 29, 2011
3,000
(Note 4) 			
Mizuho Corporate Bank, Ltd.
June 29, 2011
6,000
Mitsubishi UFJ Trust and Banking Corporation
June 29, 2011
4,000
Sumitomo Mitsui Banking Corporation
June 29, 2011
3,000
Mizuho Trust & Banking Co., Ltd.
June 29, 2011
2,000
Aozora Bank, Ltd.
November 29, 2011
3,000
Chuo Mitsui Trust & Banking Co., Ltd.
November 29, 2011
3,000
Mizuho Trust & Banking Co., Ltd.
November 29, 2011
3,000
Sumitomo Mitsui Banking Corporation
November 29, 2011
2,000
Mizuho Corporate Bank, Ltd.
November 29, 2011
1,000
Mitsubishi UFJ Trust and Banking Corporation
November 29, 2011
1,000
Mitsubishi UFJ Trust and Banking Corporation
July 31, 2012
2,300
Sumitomo Mitsui Banking Corporation
July 31, 2012
2,200
The Norinchukin Bank
July 31, 2012
2,000
Resona Bank, Ltd.
July 31, 2012
500
Mizuho Corporate Bank, Ltd.
July 31, 2012
2,500
			
Mizuho Trust & Banking Co., Ltd.
July 31, 2012
1,500
			
Sompo Japan Insurance Inc.
July 31, 2012
2,000
			
Tokio Marine & Nichido Fire
July 31, 2012
1,000
Insurance Co., Ltd.			
Mizuho Corporate Bank, Ltd.
June 28, 2013
6,000
Mitsubishi UFJ Trust and Banking Corporation
June 28, 2013
1,000
The Dai-ichi Mutual Life
July 31, 2014
2,000
Insurance Company (Note 4)			
Development Bank of Japan
July 31, 2014
2,000
			
The Dai-ichi Mutual Life
June 30, 2015
3,000
Insurance Company (Note 4)			
Development Bank of Japan
June 30, 2015
2,000
			

1.5
1.5
1.5
2.0

Repayment
methodUse of
funds

Notes

Acquisition ofreal estate(Note 2)

1.1
1.1
1.1
1.1
1.5
1.5
1.5
1.5
1.5
1.5
1.0
1.0
1.0
1.0
2.0

Repayment ofloans

Bulletpayment

Unsecured /unguaranteed

Acquisition ofreal estate(Note 2)2.0

(Note 2)2.0

(Note 2)2.0

(Note 2)

1.2
1.2
2.2

Repayment ofloans(Note 2)Acquisition ofreal estate

2.2(Note 2)

2.3

(Note 2)

Repayment of
loans

2.3

(Note 2)

Total long-term loans		

¥70,500

1.5

—

—

—

Total loans		

¥95,500

1.4

—

—

—

Notes: 1. Average interest rate is a weighted average of interest rates on each loan contract as of the end of the period. In addition, JEI uses interest-rate swaps to mitigate the risk
associated with variable interest rates. The weighted average is calculated after adjusting the interest rate for applicable loans for the effect of the interest-rate swap.
2. Fixed-rate loans
3. Annual maturities of long-term loans (excluding long-term loans due within one year) due after more than one year from the balance sheet date are listed below.
4. From April 1, 2010, The Dai-ichi Mutual Life Insurance Company became The Dai-ichi Life Insurance Company, Limited.

Amount borrowed........................

1 to 2 years

2 to 3 years

3 to 4 years
Millions of yen

4 to 5 years

5 to 10 years¥40,500¥14,000¥7,000¥4,000¥5,000Bonds
JEI has submitted a shelf registration so that it can smoothly issue investment corporation bonds, but has not issued such bonds.
24 Japan Excellent, Inc.

Performance Report

Capital Expenditures
Planned Capital Expenditures
Primary planned capital expenditures for properties in JEI’s portfolio as of December 31, 2009 for renovation and otherpurposes are as follows. The planned construction expenditures below include the portion already recorded as expenses.
						
				
Estimated		Name of property
Address
Objective
duration
Total amounts						

Omori Bellport D

Shinagawa-ku,
Tokyo

NHK Nagoya
Higashi-ku,
Housou-Center Building Nagoya
Kowa Kawasaki
Higashiguchi Building

Estimated amounts
Payment for thecurrent period
Millions of yen

Cumulative
amount paid

Upgrade central
September 2009
monitoring equipment to April 2010

¥60

—

—

Upgrade central
March 2009
monitoring equipment to March 2010

50

—

—

42

—

—

Kawasaki-ku, Kawasaki, Improve automatic
Kanagawa Prefecture
fire alarm equipment

August 2009
to March 2010

Capital Expenditures for the Current Period
Construction requiring capital expenditures during the period ended December 31, 2009 for properties in JEI’s portfolio
as of December 31, 2009 is outlined below. Capital expenditures during the period ended December 31, 2009 totaled ¥134
million. The total of capital expenditures and repair expenses of ¥142 million during the period ended December 31, 2009was ¥276 million.
Name of property
Address
Objective
Estimated duration					

Kowa Kawasaki
Higashiguchi Building

Kawasaki-ku, Kawasaki,
Kanagawa Prefecture

NHK Nagoya
Higashi-ku, Nagoya
Housou-Center Building		

Expenditure
Millions of yen

Upgrade uninterruptible power
supply (UPS) in high voltage room

December 2009
to December 2009¥ 10

Upgrade water tank

September 2009
to December 20099

Other buildings			

—113

Total				¥134Cash Reserve for Capital Improvements
JEI formulates a long-term maintenance plan for each of its properties, and uses it as the basis for provisions to the cash
reserve for capital improvements to cover major repairs and other future property issues, as outlined below.
7th Period

July 1, 2009
to December 31, 2009

6th Period

January 1, 2009
to June 30, 2009

Millions of yen

Reserve balance at the beginning of the period.....................................................
Amount accumulated in the current period.........................................................
Withdrawal from reserves in the current period...................................................
Amount carried forward...........................................................................................

¥254
—
—
¥254

¥254
—
—
¥254

Japan Excellent, Inc. 25

Performance Report

Trading Activities during the Current Period
Trading of Real Estate and Real Estate Held in Trust
None

Trading of Other Assets Including Total Amount and Transactions
Assets other than real estate, securitized assets and other assets principally consist of current bank deposits, including
trust accounts.

Transactions with Related Parties and Transactions with Major
Shareholders of Asset Management Company
Ongoing Transactions
None
Fees Paid for the Period from July 1, 2009 to December 31, 2009					Category			Description of transactions with related parties (Note 1)
Total fees paid		
Amount of(A)
Paid topayment (B)(Millions of yen)		
(Millions of yen)

Maintenance expenses¥1,068
Kowa Real Estate Co., Ltd.
(Note 2)		Sekisui House, Ltd.
¥1,068		
Total

¥396
34
¥430

B/A

37.1%
3.2%
40.3%

Notes: 1. “Related parties” are defined as related parties of asset management companies under the asset management agreement with JEI as defined in Article 123 ofOrder for Enforcement of the Law Concerning Investment Trusts and Investment Corporations. “Major shareholders” are the major shareholders of asset
management companies as defined in Article 29, Section 4, Paragraph 2 of the Financial Instruments and Exchange Law. During the period ended June 30,
2009, transactions with Kowa Real Estate Co., Ltd. and Sekisui House, Ltd. are as described above.
2. Maintenance expenses include construction management compensation associated with assets that have not been adjusted to reflect compensation and
expenses related to project management.
3. Amounts do not include consumption or other taxes.

26 Japan Excellent, Inc.

Financial Statements
For the six-month periods ended December 31, 2009 and June 30, 2009
with Report of Independent Auditors

Contents
Report of Independent Auditors.............................................. 29
Balance Sheets....................................................................... 30
Statements of Income and Retained Earnings........................ 31
Statements of Changes in Net Assets.................................... 32
Statements of Cash Flows...................................................... 33
Notes to Financial Statements................................................ 34

Japan Excellent, Inc. 27

28 Japan Excellent, Inc.

Report of Independent Auditors

Japan Excellent, Inc. 29

Balance Sheets
As of December 31, 2009 and June 30, 2009

		
As of
As of
December 31,
June 30,
2009
		
2009

As of
December 31,
2009

Thousands of yen

U.S. dollars (Note 2)

AssetsCurrent assets:
Cash and cash equivalents including trust accounts (Note 4)­..............................
Rental receivables.................................................................................................
Oth­er current assets..............................................................................................
Total current assets...................................................................................................

¥ 14,691,160
467,058
168,511
15,326,729¥ 13,841,046
453,974
186,509
14,481,529$ 159,565,112
5,072,853
1,830,251
166,468,216

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.....................................................................................

3,264,543
662
5,488
64,382,651
409,185
55,172
108,502,799
3,360(6,023,500)
170,600,360

3,254,086
363
5,488
64,280,337
409,186
32,194
108,502,799—(5,032,923)
171,451,530

35,457,188
7,186
59,605699,279,369
4,444,286
599,236
1,178,481,579
36,495(65,423,046)
1,852,941,898

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

1,185,045
7,380,017
10,76815,182
468,857
53,2489,113,117¥195,040,206

1,185,045
7,380,017
10,76815,182574,245
47,3709,212,627¥195,145,686

12,871,129
80,156,585
116,954
164,893
5,092,400
578,347
98,980,308$2,118,390,422

Current liabilities:
Accounts payable - trade......................................................................................
Short-term loans (Note 7)......................................................................................
Accounts payable - other......................................................................................
Unpaid consumption taxes...................................................................................
Derivative liabilities................................................................................................
Other current liabilities..........................................................................................
Total current liabilities................................................................................................

¥    472,913
25,000,000
351,764
94,27940,020220,459
26,179,435¥    523,422
25,000,000
327,801
32,347
79,328
270,710
26,233,608$     5,136,451
271,532,530
3,820,617
1,023,986
434,672
2,394,466
284,342,722

Long-term liabilities:
Long-term debt (Note 7)........................................................................................
Security deposits from tenants.............................................................................
Security deposits from tenants for trust accounts................................................
Derivative liabilities................................................................................................
Total long-term liabilities............................................................................................
Total liabilities............................................................................................................

70,500,000
448,904
8,382,851
78,48379,410,238
105,589,673

70,500,000
465,5058,500,600
82,83579,548,940
105,782,548

765,721,734
4,875,686
91,048,671
852,423
862,498,514
1,146,841,236

87,083,030
2,442,271
89,525,301

945,835,017
27,001,264
972,836,281(162,163)(162,163)
89,363,138¥195,145,686(1,287,095)(1,287,095)
971,549,186$2,118,390,422

Liabilities

Net assets (Note 8):
Unitholders’ equity:
		 Unitholders’ capital:
			 Units authorized: 2,000,000 units
			 Units issued and outstanding: 154,550 units as of			 December 31, 2009 and June 30, 2009......................................................
		 Retained earnings.............................................................................................
Total unitholders’ equity........................................................................................
Valuation and translation adjustments:
		 Unrealized loss on deferred hedge transactions...............................................
Total valuation and translation adjustments..........................................................
Total net assets.........................................................................................................
Total liabilities and net assets....................................................................................
The accompanying notes are an integral part of these financial statements.

30 Japan Excellent, Inc.

87,083,030
2,486,006
89,569,036(118,503)(118,503)
89,450,533¥195,040,206­	Statements of Income and Retained Earnings
For the periods from July 1, 2009 to December 31, 2009
and from January 1, 2009 to June 30, 2009		For the period For the period
from July 1,
from January 1,
2009 to2009 toDecember 31,
June 30,
		
2009
2009

For the period
from July 1,
2009 toDecember 31,
2009

Thousands of yen

U.S. dollars (Note 2)

Revenues:
Rental revenues (Note 11)........................................................................
Other (Note 11)........................................................................................
Total revenues.............................................................................................

¥6,886,689
608,0297,494,718¥6,890,298
654,437
7,544,735$74,798,405
6,603,981
81,402,386

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

3,577,299
423,891
14,96028,2906,540
94,637
4,145,617
3,349,101

3,720,471
418,130
15,01528,2196,540
77,701
4,266,076
3,278,659

38,854,123
4,604,003
162,487
307,267
71,033
1,027,882
45,026,795
36,375,591

Other income:Refund of property taxes.........................................................................
Interest income........................................................................................
Other........................................................................................................

—
2,743
603

11,665
10,95055—
29,791
6,552

Other expenses:
Interest expense......................................................................................
Loan arrangement fees............................................................................
Other........................................................................................................
Income before income taxes.......................................................................

701,727
163,78012,486,939

707,446
150,62402,443,259

7,621,664
1,778,866
8
27,011,396

Income taxes (Note 10)
Current................................................................................................
Deferred...................................................................................................
Net income..................................................................................................
Retained earnings at beginning of period...................................................
Retained earnings at end of period.............................................................

1,004
1
2,485,934
72¥2,486,006

1,023
(2)
2,442,238
33¥2,442,271

10,90511
27,000,480
784$27,001,264

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

Japan Excellent, Inc. 31

Statements of Changes in Net Assets­­
For
the periods from July 1, 2009 to December 31, 2009
and from January 1, 2009 to June 30, 2009

For the period from January 1, 2009 to June 30, 2009
Net assets
		Unitholders’ equity
					
					
				
Total
Number ofUnitholders’
Retained
unitholders’units in issue
capitalearnings
equityThousands of yen

Balance as of December 31, 2008......
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, 2009................

Valuation and translation
adjustments
Unrealized
loss onTotal
deferredvaluation andhedge
translationtransactions
adjustments

Total
net assets

154,550¥87,083,030¥ 3,155,635¥90,238,665¥(219,653)¥(219,653)¥90,019,012

—
—

—
—

(3,155,602)
2,442,238(3,155,602)
2,442,238

—
—

—
—

(3,155,602)
2,442,238——
154,550——¥87,083,030—(713,364)¥ 2,442,271—(713,364)¥89,525,301

57,49057,490¥(162,163)

57,49057,490¥(162,163)

57,490(655,874)¥89,363,138

For the period from July 1, 2009 to December 31, 2009
Net assets
		Unitholders’ equity
					
					
				
Total
Number ofUnitholders’
Retained
unitholders’units in issue
capitalearnings
equityThousands of yen

Balance as of June 30, 2009................
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 December 31, 2009......

Valuation and translation
adjustments
Unrealized
loss onTotal
deferredvaluation andhedge
translationtransactions
adjustments

Total
net assets

154,550¥87,083,030¥ 2,442,271¥89,525,301¥(162,163)¥(162,163)¥89,363,138

—
—

—
—

(2,442,199)
2,485,934(2,442,199)
2,485,934

—
—

—
—

(2,442,199)
2,485,934——
154,550——¥87,083,030—
43,735¥ 2,486,006—
43,735¥89,569,036

43,66043,660¥(118,503)

43,66043,660¥(118,503)

43,66087,395¥89,450,533

For the period from July 1, 2009 to December 31, 2009
Net assets
		Unitholders’ equity
					
					
				
Total
Number ofUnitholders’
Retained
unitholders’units in issue
capitalearnings
equityU.S. dollars (Note 2)

Balance as of June 30, 2009................
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 December 31, 2009......

154,550 $945,835,017
—
—

—
—
—
—
154,550 $945,835,017

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

32 Japan Excellent, Inc.

——

Valuation and translation
adjustments
Unrealized
loss onTotal
deferredvaluation andhedge
translationtransactions
adjustments$ 26,526,244 $972,361,261$(1,761,305)(26,525,460)
27,000,480

—
—

—
—
475,020
475,020$ 27,001,264 $972,836,281

474,210474,210$(1,287,095)(26,525,460)
27,000,480

Total
net assets$(1,761,305) $970,599,956——(26,525,460)
27,000,480

474,210474,210949,230
474,210$(1,287,095) $971,549,186

Statements of Cash Flows
For the periods from July 1, 2009 to December 31, 2009
and from January 1, 2009 to June 30, 2009

For the		
period For the period
from July 1,
from January 1,
2009 to2009 toDecember31,
June 30,
		
2009
2009

For the period
from July 1,
2009 toDecember 31,
2009

Thousands of yen

U.S. dollars (Note 2)

Cash flows from operating activities
Income before income taxes.......................................................................
Depreciation and amortization....................................................................
Interest income............................................................................................
Interest expense..........................................................................................
Increase in rental receivables......................................................................
Increase in prepaid expenses......................................................................
Decrease in accounts payable – trade........................................................
Increase (decrease) in accounts payable – other........................................
Increase (decrease) in unpaid consumption taxes......................................
(Decrease) increase in advances received..................................................
Decrease (increase) in long-term prepaid expenses...................................
Other, net.....................................................................................................
		 Subtotal................................................................................................
Interest received..........................................................................................
Interest paid.................................................................................................
Income taxes paid.......................................................................................
Net cash provided by operating activities...................................................

¥ 2,486,939
990,621(2,743)
701,727(13,083)(3,761)(17,003)
17,204
61,931(66,764)
105,388
16,237
4,276,693
2,743(685,618)(721)
3,593,097¥ 2,443,259
990,609(10,950)
707,446(83,440)(50,328)(84,221)(19,108)(89,599)
85,493(144,862)(20,298)
3,724,001
10,950(732,090)(2,190)3,000,671$ 27,011,396
10,759,435(29,791)
7,621,664(142,104)(40,851)(184,673)
186,853
672,655(725,140)
1,144,647
176,360
46,450,451
29,791(7,446,710)(7,827)39,025,705

Cash flows from investing activities
Purchases of property and equipment........................................................
Purchases of property and equipment for trust accounts..........................
Purchases of intangible fixed assets...........................................................
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...........................................................

(1,465)(171,448)(281)—(16,601)
474,198(591,946)(307,543)(13,352)(421,089)—
21,933(8,475)472,706(272,535)(220,812)(15,906)(1,862,153)(3,052)—(180,307)
5,150,406(6,429,309)(3,340,321)

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....................................................................
Distributions to unitholders.........................................................................
Net cash used in financing activities...........................................................

12,000,000(12,000,000)——(2,435,440)(2,435,440)

12,000,000(12,000,000)
13,000,000(13,000,000)(3,147,314)(3,147,314)

130,335,614(130,335,614)——(26,452,046)(26,452,046)

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

850,114
13,841,046¥ 14,691,160(367,455)
14,208,501¥ 13,841,046

9,233,338
150,331,774$ 159,565,112

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

Japan Excellent, Inc. 33

Notes to Financial Statements
For the periods from July 1, 2009 to December 31, 2009
and from January 1, 2009 to June 30, 2009

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 Trust Law”), is a real estate investment corporation which primarily invests in office buildings.
JEI is externally managed by a licensed asset management company, Japan Excellent Asset Management (“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% by other corporations.
JEI was listed on the Tokyo Stock Exchange on June 27, 2006. As of December 31, 2009, JEI held 18 properties with 220,521 square meters of
total leasable space and had leases with 126 tenants excluding residential tenants.

2. Basis of Presentation
JEI maintains its accounting records and prepares its financial statements in accordance with accounting principles generally accepted in Japan(“Japanese GAAP”), including provisions set forth in the Investment Trust Law, the Corporation Law of Japan, the Financial Instruments andExchange Law of Japan and related regulations, which are different in certain respects as to the application and disclosure requirements ofInternational 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 the convenience 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 havebeen rounded to the nearest thousand yen in the accompanying financial statements and in the notes thereto, whereas amounts were truncated 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 ¥92.07 = U.S.$1.00, the foreign exchange
rate prevailing on December 31, 2009, has been used for translation. The inclusion of such amounts is not intended to imply that Japanese yen havebeen or could be readily converted, realized or settled into U.S. dollars at that or any other rate.

3. Summary of Significant Accounting Policies●

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, deposits with banks and short-term investments which are highly liquid, readily convertible
into cash with an insignificant risk of price fluctuation and with an original maturity of three months or less.
●Securities
Non-marketable securities classified as other securities are carried at cost. Cost of securities sold is determined by the moving average method.

●

Property and equipment including trust accounts and trademark rights
Depreciation is computed by the straight-line method over the estimated useful lives of the respective assets as follows:
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 period of 10 years.
●

Income taxes

Income taxes are accounted for on the basis of taxable income for financial statement purposes. The asset and liability method is used torecognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and thetax bases of assets and liabilities.
●

Consumption taxes

Consumption taxes received and paid are not included in the accompanying statements of income and retained earnings. Consumption tax
related to properties, which has not been deducted, is included in the cost of the properties.

34 Japan Excellent, Inc.

●

Property-related taxes

Principally, property-related taxes including property taxes, urban planning taxes and depreciable property taxes are imposed on a calendar-yearbasis and are expensed as property and other taxes (refer to Note 11).
JEI capitalizes the property-related taxes allocated to the sellers of properties to JEI at the time of acquisition of such properties including trust
accounts. For the periods from July 1, 2009 to December 31, 2009 and from January 1, 2009 to June 30, 2009, no property-related taxes were
capitalized.
●

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 ininterest rates. JEI has entered into certain interest-rate swap contracts to hedge variable rates for its long-term debt obligations.
JEI deferred recognition of gains or losses resulting from changes in the fair value of interest-rate swap agreements because its interest-rateagreements met the criteria for deferred hedge accounting.
●

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 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 and cash and cash equivalents in the accompanying
statements of cash flows at December 31, 2009 and June 30, 2009 consisted of the following:

As of
December 31,
2009

As of
June 30,
2009

Thousands of yen

Cash and cash deposits..............................................................................
Cash in trust and deposits in trust..............................................................
Cash and cash equivalents including trust accounts..................................

¥ 3,027,658
11,663,502¥14,691,160

As of
December 31,
2009
U.S. dollars¥ 2,253,964
11,587,082¥13,841,046$ 32,884,300
126,680,812$159,565,112

As ofJune 30,
2009

As of
December 31,
2009

5. Securities(1) Investment in securities
Investment in securities at December 31, 2009 and June 30, 2009 consisted of the following:

As of
December 31,
2009

Thousands of yen

Unlisted stock..............................................................................................

¥10,768¥10,768

U.S. dollars$116,954

Japan Excellent, Inc. 35

As of December 31, 2009
Book value
Unit priceTotal priceThousands of yen

Total price
U.S. dollars

Unlisted stock
NHK Nagoya Build
64¥168¥10,768 $116,954¥168¥10,768
Systems Co., Ltd.......
64¥168¥10,768$116,954¥168
Total................................. 		 ¥10,768$116,954$116,954

Name
Number of shares		Acquisition cost
Unit priceTotal priceThousands of yen

Total price
U.S. dollars

Gain or loss on valuation
Total priceTotal priceThousands of yen U.S. dollars

¥—
¥—

$—
$—

As of June 30, 2009			Acquisition cost
Book value
Name
Number of shares
Unit priceTotal price
Unit priceTotal priceThousands of yen

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

64
64

¥168
¥168

¥10,768¥10,768¥168¥168

Gain or loss
on valuation
Total price¥10,768¥10,768¥—¥—

6. Property and Equipment
Property and equipment at December 31, 2009 and June 30, 2009 consisted of the following:

As of December 31, 2009				Acquisition
cost

Accumulated
depreciation

As of June 30, 2009

Net
Acquisition
book value
cost
Thousands of yen

Accumulated
depreciation

Netbook value

Buildings and building
improvements........... ¥   3,264,543 ¥ (264,342) ¥   3,000,201 ¥   3,254,086 ¥ (227,013) ¥ 3,027,073
Furniture and fixtures....
288
662
(111)
551
363
(75)
Construction inprogress......................
5,488
5,488
—
5,488
5,488
—
Buildings and building
improvements fortrust accounts............. 64,382,651 (5,660,442)
59,556,011
58,722,209
64,280,337 (4,724,326)
Machinery andequipment for trust
accounts.....................
332,858
409,185(90,104)
319,081409,186(76,328)
Furniture and fixtures
for trust accounts........
27,01355,172(8,501)
46,67132,194(5,181)
Land for trust
accounts..................... 108,502,799— 108,502,799 108,502,799— 108,502,799
Construction inprogress for trust
accounts.....................
—
—
3,360
—
3,360
—
Total . ............................ ¥176,623,860 ¥(6,023,500) ¥170,600,360 ¥176,484,453 ¥(5,032,923) ¥171,451,530

36 Japan Excellent, Inc.

As of December 31, 2009
Acquisition
cost

Accumulated
depreciation
U.S. dollars

Netbook value$   35,457,188 $ ( 2,871,101) $    32,586,087
7,186(1,202)
5,984
59,605—59,605699,279,369(61,479,766)

637,799,603

4,444,286(978,654)

3,465,632

599,236(92,323)

506,913

1,178,481,579—

1,178,481,579

36,495—36,495$1,918,364,944 $(65,423,046) $1,852,941,898

Notes to Financial Statements

7. Short-Term Loans and Long-Term Debt
Short-term loans and long-term debt as of December 31, 2009 and June 30, 2009 consisted of the following:		
As of December 31, 2009
As of June 30, 2009
			
			
		
AmountWeighted-average		interest rate
AmountThousands of yen

Short-term loans:
Unsecured loans from banks due
on September 30, 2009...............
Unsecured loans from banks due
on September 30, 2010.................
		 Subtotal........................................
Long-term debt due within one year:
Unsecured loans from banks due
on June 29, 2010...........................
		 Subtotal........................................
Long-term debt:
Unsecured loans from banks due
on June 29, 2011...........................
Unsecured loans from aninsurance company due on
June 29, 2011................................
Unsecured loans from banks due
on June 29, 2011...........................
Unsecured loans from banks dueon November 29, 2011..................
Unsecured loans from banks due
on July 31, 2012............................
Unsecured loans from banks andinsurance companies due
on July 31, 2012............................
Unsecured loans from banks due
on June 28, 2013...........................
Unsecured loans from an insurancecompany due on July 31, 2014.....
Unsecured loans from a bank due
on July 31, 2014............................
Unsecured loans from aninsurance company and a bankdue on June 30, 2015....................
			 Subtotal....................................
Total . ................................................

As ofDecember 31,
2009

Weighted-averageinterest rate

AmountThousands of yen

U.S. dollars

1.03455% $——¥12,000,000

12,000,000
12,000,000

1.07364%—
12,000,000—

130,335,614
130,335,614

13,000,000
13,000,000

1.49485%

13,000,000
13,000,000

1.51391%

141,196,916
141,196,916

9,500,000

1.47669%

9,500,000

1.51059%

103,182,362

3,000,000

1.96625%

3,000,000

1.96625%

32,583,904

15,000,000

1.13545%

15,000,000

1.21091%

162,919,518

13,000,000

1.52364%

13,000,000

1.44455%

141,196,916

7,000,000

0.88545%

7,000,000

0.96091%

76,029,108

7,000,000

1.96907%7,000,000

1.96907%

76,029,108

7,000,000

1.23545%

7,000,000

1.31091%

76,029,108

2,000,000

2.25875%

2,000,000

2.25875%

21,722,602

2,000,000

2.28417%2,000,000

2.28417%

21,722,602

5,000,000
70,500,000¥95,500,000

2.27344%5,000,000
70,500,000¥95,500,000

2.27344%

54,306,506
765,721,734$1,037,254,264¥—

Japan Excellent, Inc. 37

8. Net Assets

Notes to Financial Statements

In accordance with the Investment Trust Law, JEI issues only non-par value investment units and maintains net assets of at least ¥50 million.

9. Per Unit Information
Net assets per unit were ¥578,781 ($6,286) as of December 31, 2009 and ¥578,215 as of June 30, 2009. Net income per unit was ¥16,085($175) for the period from July 1, 2009 to December 31, 2009 and ¥15,802 for the period from January 1, 2009 to June 30, 2009 and wascomputed based on the weighted-average number of units outstanding during the respective periods.

10. 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 for each fiscal period in order to meet the condition set
forth in the Special Taxation Measures Law of Japan concerning the deductibility of cash dividends paid for income tax purposes.
Details of significant components of deferred tax assets and liabilities as of December 31, 2009 and June 30, 2009 are summarized as follows:

As of
December 31,
2009

As of
June 30,
2009

As of
December 31,
2009

Thousands of yen

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

¥

19
46,607
46,626(46,607)
19
¥
19

¥

U.S. dollars

20
63,77963,799(63,779)
20
¥
20

$

211
506,214506,425(506,214)
211
$
211

A reconciliation of the differences between the statutory tax rate and the effective tax rate for the periods from July 1, 2009 to December 31,
2009 and from January 1, 2009 to June 30, 2009 is as follows:

For the period
from July 1, 2009
to December 31, 2009

For the period
from January 1, 2009
to June 30, 2009

Statutory tax rate.........................................................................................

39.33%

39.33%

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

(39.31)0.02
0.04%(39.31)0.02
0.04%

38 Japan Excellent, Inc.

Notes to Financial Statements

11. Breakdown of Property Rental Business Revenues and Expenses

For the period
from July 1,
2009 toDecember 31,
2009

For the period
from January 1,
2009 toJune 31,2009

Thousands of yen

For the period
from July 1,
2009 toDecember 31,
2009
U.S. dollars

Rental business revenues:
Rental revenues.......................................................................................
Other........................................................................................................
Total rental business revenues....................................................................

¥6,886,689
608,0297,494,718¥6,890,298
654,437
7,544,735$74,798,405
6,603,981
81,402,386

Property operating expenses:
Property management costs and fees.....................................................
Utilities.....................................................................................................
Property and other taxes.........................................................................
Insurance.................................................................................................
Repairs and maintenance........................................................................
Depreciation.............................................................................................
Other........................................................................................................
Total property operating expenses..............................................................
Profit............................................................................................................

¥1,066,242
648,642542,20221,500142,858
990,577
165,278
3,577,299¥3,917,419¥1,141,115
685,227
540,854
21,116
182,522990,577
159,060
3,720,471¥3,824,264$11,580,775
7,045,100
5,889,017
233,520
1,551,628
10,758,953
1,795,130
38,854,123$42,548,263

12. Leases
JEI leases properties on which rental revenues are earned. At December 31, 2009 and June 30, 2009, future lease revenues under noncancelable operating leases are summarized as follows:

As of
December 31,
2009

As of
June 30,
2009

Thousands of yen

Due within one year.....................................................................................
Due after one year.......................................................................................
Total.............................................................................................................

¥1,128,389
671,295¥1,799,684¥1,134,029
1,235,490¥2,369,519

As of
December 31,
2009
U.S. dollars$12,255,767
7,291,141$19,546,908

Japan Excellent, Inc. 39

13. Derivatives and Hedge Accounting
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 arisingfrom fluctuation in interest rates, and does not enter into such transactions for speculative or trading purposes. JEI entered into such derivativetransactions to hedge risk in accordance with its Articles of Incorporation and the established risk management policies of JEAM.
The following table summarizes the notional amount and the estimated fair value of the interest-related positions outstanding as of December 31,
2009:

Notional
amountEstimated		fair value
Notional(negative)
amountThousands of yen

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

¥16,750,000¥(118,503)

Estimated
fair value(negative)
U.S. dollars$181,926,795$(1,287,095)

14. Related Party Transactions
For the period from July 1, 2009 to December 31, 2009(1) Major unitholders
Not applicable(2) Directors and major individual unitholders

Description of				transaction
AmountAmountAccountName			

Chifumi Toda				

Thousands of yen

Payment of asset¥423,891$4,604,003
management			
fees to JEAM

For the period from January 1, 2009 to June 30, 2009(1) Major unitholders
Not applicable(2) Directors and major individual unitholders
Not applicable

40 Japan Excellent, Inc.

U.S. dollars		

Accounts
payableBalance at theend of period

Balance at theend of period

Thousands of yen

U.S. dollars¥259,814$2,821,913

Notes to Financial Statements

15. 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 islimited by the amount of unappropriated retained 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 ¥2,485,936,750($27,000,508), the maximum integral multiple of the 154,550 units issued not exceeding unappropriated retained earnings at December 31, 2009.
No cash distribution exceeding the income amount set forth in Section 33.1.4 of the bylaws of JEI shall be made.
On February 12, 2010, the Board of Directors approved a resolution to make a cash distribution of ¥16,085 ($175) per unit aggregating to¥2,485,936,750 ($27,000,508) to unitholders of record as of December 31, 2009.

16. Significant Subsequent Events(1) Issuance of unsecured bonds		At the board meeting held on February 12, 2010, it was resolved that JEI would issue unsecured bonds in the amount of ¥12,000 million withcoupon of 1.52% due 2014. Receipt of the proceeds of such issue was completed on March 11, 2010. JEI intends to use the proceeds to repay
the short-term loans.

(2) Early repayment of loans		
On March 19, 2010, the Executive Director resolved to repay the following outstanding short-term loans on March 31, 2010 prior to their due
date:
1. Total amount of loans¥12,000 million

2. Lender	Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Sumitomo Mitsui Banking Corporation
3. Interest rate	1.05545%(from February 26, 2010 through March 31, 2010)
4. Start of the loan period

September 30, 2009

5. Original due date

September 30, 2010

Japan Excellent, Inc. 41

Investor Information
As of December 31, 2009

Name

Japan Excellent, Inc.

Location

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

EstablishedFebruary 20, 2006

Fiscal Periods

Six months ending June 30 and December 31

Unitholders

4,734

Total Number ofCommon Units Issued

7th Period (From July 1, 2009 to December 31, 2009)
6th Period (From January 1, 2009 to June 30, 2009)

Distributions

Confirmed distribution for the 7th Period (ended December 31, 2009) ¥16,085 per unit

154,550
154,550

Major Unitholders		
Name

Number ofUnits Held

Percentage of
Total

Japan Trustee Services Bank, Ltd. (Trust account)

16,38510.60%

Kowa Real Estate Co., Ltd.

14,312

9.26%

NikkoCiti Trust and Banking Corporation (Investment trust account)

12,503

8.09%

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

11,391

7.37%

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

10,259

6.64%

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

7,398

4.79%

North Pacific Bank, Ltd.

4,590

2.97%

The Dai-ichi Life Insurance Company, Limited

4,132

2.67%

The Bank of Ikeda, Ltd.

3,711

2.40%

The Chugoku Bank, Ltd.

2,145

1.39%

Total

86,82656.18%

42 Japan Excellent, Inc.

Investment Units

Investors (Number of unitholders)
Individuals
Individuals
12,631(8.2%)
12,631(8.2%)

Foreigncompanies,
Foreigncompanies,
etc.etc.
24,726(16.0%)
24,726(16.0%)
Other
domestic
Otherdomestic
companies
companies
22,427(14.5%)
22,427(14.5%)

Financial
Financial
institutions
institutions
andandsecurities
companies
securities
companies
88(1.9%)
88 (1.9%)

Otherdomestic
companies
Other
domestic
companies(2.4%)
115115(2.4%)
Foreigncompanies,
Foreigncompanies,
etc.etc.
(3.1%)
149149
(3.1%)

Financial
Financial
institutions
institutions
andandsecurities
companies
securities companies
94,766(61.3%)
94,766(61.3%)
Individuals
Individuals
4,382(92.6%)
4,382(92.6%)

Total
numberof units
issued:154,550
Total
numberof units
issued:154,550

Total
numberof unitholders:
4,734
Total
numberof unitholders:
4,734

JEI Unit Performance Measured against TSE J-REIT Index(TSE
J-REIT
Index)(TSE
J-REIT
Index)

(Yen)
(Yen)

2502501,500,000
1,500,000

2002001,200,000
1,200,000

150150900,000
900,000

100100600,000
600,000

50 50

300,000
300,000

0 0

9 10
6 67 78 89 10
11 11
12 12
1 12 23 34 45 56 67 78 89 910 10
11 11
12 12
1 12 23 34 45 56 67 78 89 910 10
11 11
12 12
1 12 23 34 45 56 67 78 89 910 10
11 11
12 12
2006
2007
2008
2009
2006
2007
2008
2009

0 0

closing
price(Rightscale)JEI JEI
closing
price(Rightscale)J-REIT
Index
scale)TSETSEJ-REIT
Index(Left(Leftscale)* June2006
is usedas thebaseindex.
* June30,30,
2006
is usedas thebase
100100index.

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 convenience ofreaders outside Japan and should not be considered as a disclosure statement. The original Japanese document shall prevail in the event ofany discrepancies or difference arising from the translations or interpretations contained in this English report. Estimates and projections forJapan 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.

URL: http://www.excellent-reit.co.jp/eng
TEL: 81-3-5575-3511
E-mail: info@jeam.co.jp

Japan Excellent, Inc. 43

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

Printed in Japan