Asset Management Report for 16th Period(Semi-Annual Report for 16th Period)
From January 1, 2014 to June 30, 2014

I. Greetings
To Our Unitholders
We would like to express our sincere gratitude for your continued support of Japan Excellent, Inc.
(JEI) and Japan Excellent Asset Management Co., Ltd.
We hereby report the financial results of JEI for the 16th period (from January 1, 2014 to June 30,2014).
JEI recorded total revenues of 9,558 million yen and net income of 3,010 million yen. The
distribution per unit for the period was 2,482 yen, surpassing the previous period and initial forecast
and realizing increase in distribution.
JEI has expanded its asset size through continuous property acquisitions since the 9th period andfurther promoted asset size growth by continuously implementing a public offering during the 16th
period. JEI acquired “HAMARIKYU INTERCITY (Additional Acquisition of Co-ownership
Interest)” located in central Tokyo and two other properties through the public offering. In addition,
JEI conducted acquisition of “NHK Nagoya Housou-Center Building (Additional Acquisition of Coownership Interest)” later on. JEI has continued quality growth through acquisitions of properties(totaling 19.8 billion yen) which boast well-balanced growth potential and profitability.
Although a large tenant vacated during the 16th period, JEI successfully progressed with prompt
leasing up and maintained the high occupancy rate of 98% level observed in the previous period.
About Future Asset Management
In the office building leasing market, demand for offices has increased backed by the economic
recovery and expectations for improvement in corporate performance and the vacancy rate is
expected to continue to be on an improving trend. Furthermore, the progress in eliminating vacancies
centering on large-scale, excellent buildings in central Tokyo is likely to result in gradual rent rise.
With this perspective, in addition to maintaining a high occupancy rate, JEI will endeavor to improve
profitability of the entire portfolio by keeping and raising the rent level based on market trends.
Furthermore, JEI will pursue opportunities to invest in excellent real estate properties, including
asset replacements, for increasing asset size over the medium- to long-term and continue growth.
In terms of finance, we will continue our efforts in conducting stable financial operations bypromoting conversion to fixed interest rates in preparation for the risk of interest rate rises, as well as
striving to diversify maturity dates and minimize financing costs.
In addition, JEI remains committed to strict adherence to the Financial Instruments and Exchange
Act and other laws and regulations to promote compliance, as well as to accurate and easy-tounderstand disclosure of the status of our operations and asset management to our unitholders.
We kindly ask for your continued understanding and support.
Hidehiko Ogawa
Executive Director, Japan Excellent, Inc.
President, Japan Excellent Asset Management Co., Ltd.

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

2II. Asset Management Report
1. Outline of asset management operation(1) Operating results and financial position of the Investment Corporation
12th Period 13th Period
14th Period 15th Period 16th Period
January 1, July 1, 2012 to January 1, July 1, 2013 to January 1,
2012 to June December 31, 2013 to June December 31, 2014 to June30, 2012
2012
30, 2013
2013
30, 2014

Fiscal period(Millions of
yen)

7,740

7,599

8,418

8,850

9,558

(Rental revenues)(Millions of
yen)

7,587

7,597

8,409

8,848

(9,558)Operating expenses(Millions of
yen)

4,400

4,427

4,871

5,140

5,592

(Millions of
yen)

3,901

3,950

4,350

4,605

(5,022)

Operating income(Millions of
yen)

3,340

3,172

3,546

3,709

3,966

Ordinary income(Millions of
yen)

2,435

2,310

2,589

2,775

3,011

Net income(Millions of
yen)

2,434

2,309

2,598

2,774

3,010

Total assets(Millions ofyen)

228,818

228,020

257,613257,901

277,842(0.6)(－0.3)(12.9)

(0.1)

(7.7)

104,537

104,545

120,683

120,713130,998

Revenues(Property operating expenses)(Period-on-period change)
Net assets(Period-on-period change)(%)(Millions of
yen)

(0.1)

(0.0)

(15.4)

(0.0)

(8.5)

(Millions ofyen)

102,052

102,052

117,901

117,901

127,950

Outstanding investment units(units)188,650

188,650

224,950

224,950

1,212,750

Net assets per unit (Note 2)(yen)554,134

554,175

107,297

107,324

108,017

Net income per unit (Note 3)(yen)

12,906

12,241

2,376

2,466

2,511

(Millions of
yen)

2,301

2,309

2,744

2,774

3,010

(yen)

12,20012,242

12,200(2,440)12,334(2,466)

2,482

(yen)

12,20012,242

12,200(2,440)12,334(2,466)

2,482

(yen)

(－)

(－)

(－)
(－)

(－)
(－)

(－)

(Of this, distribution in excess of earnings
per unit after split)(Note 4)Return on assets (Note 5)

(%)

1.1

1.0

1.1

1.1

1.1

(%)

(2.1)

(2.0)

(2.2)

(2.1)

(2.3)

(%)

2.3

2.2

2.3

2.3

2.4

(Annualized rate)

(%)

(4.7)

(4.4)

(4.7)

(4.6)

(4.8)

Capital ratio (Note 7)

(%)

45.7

45.8

46.8

46.8

47.1

(%)

(－0.2)

(0.1)

(1.0)

(-0.0)

(0.3)

(%)

94.5

100.0

105.6

99.9

99.9

Number of investment properties(properties)

24

24

28

28

30

Number of tenants(tenants)

136

134

152

157

206

Total leasable space(㎡)

266,981

266,915

302,505

302,505

330,285

Unitholders’ capital

Total distribution(%)

Distribution per unit
(Distribution per unit after split)(Note 4)

(Profit distribution per unit)(Of this, profit distribution per unit after
split)(Note 4)(Distribution in excess ofearnings per unit)(Annualized rate)
Return on equity (Note 6)(Period-on-period change)
Payout ratio (Note 8)

Asset Management Report for 16th period (Semi-Annual Report for 16th Period)3

Occupancy rate

(%)

94.7

94.0

97.1

98.7

98.3

Depreciation(Millions of
yen)

1,260

1,284

1,433

1,504

1,624

Capital expenditure(Millions of
yen)

393

283

572

775

558

(Millions of
yen)

4,946

4,932

5,493

5,747

6,160

(yen)

18,78019,050

3,584

3,804

3,822

(times)

10.5

12.7

15.4

16.3

17.4

(times)

4.2

4.0

4.4

4.4

4.8

113,800

113,300

125,400

125,400

133,900

Net operating income (NOI)(Note 9)Funds from operation (FFO) per
unit (Note 10)
FFO multiples (Note 11, 12)
Debt service coverage ratio(DSCR) (Note 13)
Interest-bearing debt

(Millions ofyen)

Loan-to-value (Note14)

(%)

49.7

49.7

48.7

48.6

48.2

Number of days in operation(days)

182

184

181

184

181

(Note 1) Unless otherwise specified, amounts are rounded down to the nearest specified unit, and space and ratio are rounded to thenearest specified unit. The same applies hereinafter.
(Note 2) A five-for-one split of investment units was implemented with January 1, 2014 as the effective date. Net assets per unit iscalculated assuming the split of investment units was implemented at the beginning of the fourteenth period.
(Note 3) Net income per unit is calculated by dividing the net income by the weighted-average number of units outstanding during
the six months period. Moreover, a five-for-one split of investment units was implemented with January 1, 2014 as theeffective date. Net income per unit is calculated assuming the split of investment units was implemented at the beginning of
the fourteenth period.
(Note 4) A five-for-one split of investment units was implemented with January 1, 2014 as the effective date. Distribution per unit
after spit, of this, profit distribution per unit after split and of this, distribution in excess of earnings per unit after split arecalculated assuming the split of investment units was implemented at the beginning of the fourteenth period (figures arerounded down to the nearest whole number).
(Note 5) Return on assets = Ordinary income / [(Period beginning total assets) + (Period end total assets) / 2] × 100(Note 6) Return on equity = Net income / [(Period beginning net assets) + (Period end net assets)/ 2] × 100(Note 7) Capital ratio = Period end net assets / Period end total assets × 100(Note 8) Payout ratio = Total distribution / Net income × 100(Note 9) NOI = Rental revenues – Property operating expenses + Depreciation(Note 10) FFO per unit = (Net income + Depreciation – Gain on sale real estate + Loss on sale of real estate) / Number of Outstanding
investment units (the figure is rounded down to the whole number). Moreover, a five-for-one split of investment units was
implemented with January 1, 2014 as the effective date. Outstanding investment units are calculated assuming the split ofinvestment units was implemented at the beginning of the fourteenth period.
(Note 11) FFO multiples = Period end investment unit price / Annualized FFO per unit (The rate is rounded down to one decimal
place.)(Note 12) A five-for-one split of investment units was implemented with January 1, 2014 as the effective date. FFO multiples arecalculated based on the period end investment unit price calculated assuming the split of investment units was implemented
at the beginning of the fourteenth period.
(Note 13) DSCR = Net income before interest and taxes / (Interest expenses + Interest expense on investment corporation bonds)(Note 14) Loan-to-value = Period end interest-bearing debt / Period end total assets × 100

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

4

(2) Asset Management Development
Japan Excellent, Inc. (JEI) was founded on February 20, 2006 under the Law Concerning Investment Trusts andInvestment Corporations of Japan (hereinafter referred to the “Investment Trust Law”). On March 15, 2006, it
completed the corporate registration to the Kanto Finance Bureau (registration number 52, issued by the Head of
the Kanto Local Finance Bureau) and listed on the Real Estate Investment Trust Section of the Tokyo Stock
Exchange (Securities Code: 8987) on June 27, 2006. Since the listing, we have continued investment management
primarily in office buildings with the aim of maintaining sound corporate growth and stable revenues from themedium- to long-term perspectives. On June 30, 2014, we settled our sixteenth period.
1) Business conditions and results
During the period, although some weakening of personal consumption due to the backlash following rush
demand ahead of the consumption tax hike was observed, the Japanese economy has been coming out of thestagnation. The economy continues to be on a mild recovery trend combined with an improving trend in
corporate performance and employment situation.
In the office building leasing market, tenant needs for floor area increase in the same building and relocationfor expansion have become apparent backed by economic recovery and expectations for improvement incorporate performance, and the vacancy rate continues to be on an improving trend. Along with the decreasein vacancy rate, some excellent buildings in central Tokyo have begun to see rents make an upturn after
bottoming out. However the pace of rent rise in the leasing market as a whole is expected to be slow.
Although a large tenant vacated at JEI Hamamatsucho Building, JEI worked to promptly lease up vacancy
and succeeded in making occupancy rate decline of the portfolio slight, at 98.3% at the end of the period
under review from 98.7% at the end of the previous period.
In the real estate investment market, rise in real estate transaction prices due mainly to decrease in expected
yields is observed amid the continuing favorable fund procurement environment. Not only the ongoing newlistings of J-REITs and procuring funds through public offerings, but more overseas investors, private funds,
private REITs, etc. are also beginning to participate in the market, creating active real estate transactions.
However, there is some sense of overheating as well.
JEI acquired HAMARIKYU INTERCITY (additional acquisition of compartmentalized ownership), Aobadori Plaza and Daiwa Minami-morimachi Building with funds procured through public offering andborrowings conducted in January 2014, then later acquired NHK Nagoya Housou-Center Building(additional acquisition of compartmentalized ownership). The entire real estate portfolio of JEI at the end of
the period was 30 properties in terms of the number of properties held, 265.4 billion yen in investment
amount (on an acquisition price basis) and 330,284.81m2 (99,911.16 tsubo) in total leasable space at aperiod-end.
2) Fund raising highlights
During the period, JEI resolved the issuance of investment units through public offering and the issuance of
new investment units through third-party allotment, and procured 9.1 billion yen on January 27, 2014 and
900 million yen on February 26, 2014 through these issuances. Along with funds raised through theseissuances of new investment units, JEI issued investment corporation bonds of 13 billion yen (5 billion yen
for 5 years and 8 billion yen for 10 years) on March 10, 2014, and conducted 7.5 billion yen of long-termloans with floating-rate. The funds are allocated to funds for acquisitions of HAMARIKYU INTERCITY(additional acquisition of compartmentalized ownership), Aoba-dori Plaza and Daiwa Minami-morimachi
Building and to funds for redemption of investment corporation bonds with redemption date of March 11,
2014. Furthermore, the interest rates of the long-term loans were fixed through interest rate swap
transactions.
During the period, JEI also aimed to reduce borrowing costs and convert floating-rate debts to fixed ratedebts by taking advantage of financing environment with low interest rate while continuing to make efforts
as during the previous period to extend borrowing period and diversify maturity dates.
Asset Management Report for 16th period (Semi-Annual Report for 16th Period)5

As a result, as of the end of the period, JEI had the average remaining debt maturity of interest-bearing debts
at 3.24 years, long-term borrowing ratio at 100.0 percent, fixed rate ratio at 91.4 percent, and weighted
average interest rate for loans purchased at 1.17 percent. Outstanding interest-bearing debts totaled 133.9
billion yen, 103.9 billion yen in long-term loans (of which, including 20.5 billion yen in long-term loans due
within one year) and 30. 0 billion yen in investment corporation bonds (of which, including 5.0 billion yen
of investment corporation bonds scheduled to be redeemed within one year). (The loan to value ratio to thetotal assets was 48.2 percent as of the end of the period.)
JEI has registered the issuance of investment corporation bonds for the purpose of dynamic arrangement oflong-term funds as follows:(Bond Issuance Registration Highlight)
Scheduled issue
TypeamountInvestment
100 billion yen
corporation bond

Scheduled period for issuance
From February 9, 2014 to February 8, 2016

The ratings granted to JEI by the following rating agencies are shown below:(Ratings as of June 30, 2014)
Individual debt issue rating
Issuer rating (outlook)
Credit rating agency(Note)
Japan Credit Rating Agency, Ltd.
Long-term issuer rating
AA(JCR)
AA- (Stable)
Issuer rating
Rating and Investment Information,
A+
Inc. (R&I)
A+ (Stable)
Issuer rating
Moody’s Japan―
A3 (Stable)(Note) The rating of JRC is for the 2nd series unsecured investment corporation bonds, 3rd series unsecured
investment corporation bonds, 4th series unsecured investment corporation bonds, 5th series unsecured
investment corporation bonds, 6th series unsecured investment corporation bonds and 7th series unsecured
investment corporation bonds. The rating of R&I is for the 2nd series unsecured investment corporation
bonds, 3rd series unsecured investment corporation bonds and 4th series unsecured investment corporation
bonds.

3) Financial results and distribution highlights
As a result of the above management, JEI posted 9,558 million yen in total revenues, 3,966 million yen in
operating income, 3,011 million yen in ordinary income and 3,010 million yen in net income for the period
under review.
Considering distributions in the period under review, JEI determined to distribute the whole unappropriatedretained earnings (except for the portion of less than one yen per unit) to be eligible for special provisions of
the tax system on investment corporations (Section 67-15 of the Special Taxation Measures Law), that allows
JEI to deduct the amount of profit distribution from its taxable income. Accordingly, distribution per unit forthe period was 2,482 yen.

Asset Management Report for 16th period (Semi-Annual Report for 16th Period)63) Capital Increase
The outline of the changes in the number of outstanding investment units and unitholders’ capital since inception
until the end of the period under review is as follows:

Paid-up Date

Capital transaction

ChangeFebruary 20, 2006

Private placement
for incorporation

June 26, 2006

Unitholders’ capital(Millions of yen)

Capital transaction (units)
Balance

ChangeRemarks

Balance

400

400

200

200

(Note 1)

Public offering

128,000

128,400

64,23064,430(Note 2)

July 21, 2006

Allocation of
investment units toa third party

6,400

134,800

3,211

67,641(Note 3)

July 11, 2007

Public offering

19,000

153,800

18,702

86,344(Note 4)

August 8, 2007

Allocation of
investment units toa third party

750

154,550738

87,083(Note 5)January 31, 2011

Public offering

31,000185,550

13,608100,691(Note 6)

February 28, 2011

Allocation of
investment units toa third party

3,100

188,650

1,360

102,052(Note 7)January 30, 2013

Public offering

33,000221,650

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

224,950

1,440

117,901(Note 9)January 1, 2014

Allocation of
investment units toa third party
Split of investment
unit

899,800

1,124,750－

117,901(Note 10)January 27, 2014

Public offering

80,0001,204,750

9,135

127,036(Note 11)February 26, 2014

Allocation of
investment units toa third party

8,000

1,212,750

913

127,950(Note 12)February 27, 2013

(Note 1) JEI was incorporated through private placement at a price of 500,000 yen per unit.
(Note 2) New investment units were issued at an offer price of 520,000 yen per unit (issue price of 501,800 yen per unit) through apublic offering in order to fund acquisition of new properties which were acquired at the time of the listing.
(Note 3) New investment units were issued at an issue price of 501,800 yen per unit through an allocation of investment units to athird party in order to partially fund new property acquisitions.
(Note 4) New investment units were issued at an offer price of 1,019,200 yen per unit (issue price of 984,360 yen per unit) through apublic offering in order to partially repay debts procured to acquire properties in the second period.
(Note 5) New investment units were issued at an issue price of 984,360 yen per unit through an allocation of investment units to athird party in order to partially repay debts procured to acquire properties in the second period.
(Note 6) New investment units were issued at an offer price of 454,930 yen per unit (issue price of 438,984 yen per unit) through apublic offering in order to repay short-term loans procured to acquire properties in the ninth period and to fund acquisitionof a new property which was acquired in the tenth period.
(Note 7) New investment units were issued at an issue price of 438,984 yen per unit through an allocation of investment units to athird party in order to repay short-term loans procured to acquire new properties in the ninth period and to fund acquisitionof a new property which was acquired in the tenth period.
(Note 8) New investment units were issued at an offer price of 451,425 yen per unit (issue price of 436,609 yen per unit) through apublic offering in order to fund acquisition of new properties which were acquired at the fourteenth period.
(Note 9) New investment units were issued at an issue price of 436,609 yen per unit through an allocation of investment units to athird party in order to fund acquisition of properties acquired in the fourteenth period.
(Note 10) With December 31, 2013 as the record date, JEI implemented a 5-for-1 split of its investment units held by Unitholders
stated or recorded on that date’s final unitholder registry with January 1, 2014 as the effective date.
(Note 11) New investment units were issued at an offer price of 118,072 yen per unit (issue price of 114,196 yen per unit) through apublic offering in order to fund acquisition of new properties which were acquired at the sixteenth period.
(Note 12) New investment units were issued at an issue price of 114,196 yen per unit through an allocation of investment units to athird party in order to partially fund future acquisitions of specified assets, repayment of loans and redemption of investment
corporation bonds.

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

7

[Market price of the investment securities]
The period-on-period fluctuations in the highest and lowest (closing) prices of JEI’s investment units listed on theReal Estate Investment Trust Section of the Tokyo Stock Exchange during each period is as follows:

Investment unit
market priceFiscal period 12th period(closing date) (June 2012)

15th period (December 2013)

13th period(December
2012)

14th period(June 2013)

Before exrights date

After exrights date

16th period(June 2014)

Highest (yen)430,000

511,000

739,000

639,000

123,300

141,600

Lowest (yen)297,600

371,000

463,000

515,000

117,600

114,200(Note 1) The highest and lowest prices of investment units refer to the closing prices on the Real Estate Investment Trust Section of
the Tokyo Stock Exchange.
(Note 2) JEI implemented a 5-for-1 split of its investment units with January 1, 2014 as the effective date.

(4) Distributions Paid
The distribution per unit for the period (the sixteenth period) was 2,482 yen per unit, based on JEI’s decision to
distribute the whole unappropriated retained earnings (except for the portion of less than one yen per unit) to beeligible for the special tax treatment on investment corporations (Article 67-15 of the Special Taxation Measures
Law) that allows JEI to deduct the amount of profit distribution from its taxable income.
Fiscal period

Accounting period
Retained earnings at end of
period (Thousands of yen)
Retained income (Thousandsof yen)Total cash distribution
amount (Thousands of yen)
(Cash distributions perunit) (yen)(Distribution per unit after
split) (yen) (Note)
Of which, total profit
distributions (Thousands ofyen)(Profit distribution per unit)(yen)(Profit distribution per unit
after split) (yen) (Note)
Total refund of investment
equity(Refund of investment per
unit)(Refund of investment perunit after split) (yen) (Note)

12th period

13th period

14th period

15th period

16th period

January 1, 2012
to June 30, 2012

July 1, 2012 to
December 31,
2012

January 1, 2013
to June 30, 2013

July 1, 2013 to
December 31,
2013

January 1, 2014
to June 30, 2014

2,434,824

2,309,504

2,598,369

2,774,683

3,010,447

133,294

51

－

149

402

2,301,530

2,309,453

2,744,390

2,774,533

3,010,045(12,200)(12,242)(12,200)(12,334)(2,482)(2,440)(2,466)2,301,530

2,309,453

2,744,390

2,774,533

3,010,045(12,200)(12,242)(12,200)(12,334)(2,482)(2,440)(2,466)

－

－

－

－

－

(－)

(－)

(－)

(－)

(－)

(－)

(－)

(Note) JEI implemented a five-for-one split of investment units with January 1, 2014 as the effective date. Distribution per unit after
split, profit distribution per unit after split and refund of investment per unit after split are calculated assuming the split ofinvestment units was implemented at the beginning of the fourteenth period.

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

8

(5) Policy and Issues on Future Investment Management
1) Outlook for investment environment
In the Japanese economy ahead, mild recovery is expected to continue along with gradual easing of therebound of rush demand ahead of the consumption tax hike. Improvements in employment and income
situations are likely to bring underlying strength in personal consumption and housing investments while mild
recovery of capital investment buoyed by improvements in corporate earnings is forecast. However, future
trends must be carefully watched since risks remain that slowdown in overseas economy, mainly in emerging
nations and resource-rich nations, turmoil in overseas financial and capital markets and heightening
geopolitical tension could affect Japanese economy.
In the office building leasing market, the vacancy rate is expected to continue to be on an ongoing trend of
improving since office demand is on the rise due to improvement in employment situation and increased drivefor capital investment by companies, etc. Furthermore, new rents have made a turnaround at properties whosevacancies are being eliminated centering on large-scale, excellent building in central Tokyo, and such
movements are beginning to be observed in wider areas. In addition, some existing tenants that moved in withdiscounted rents are being consulted for increase of rent, bringing an expectation that the rent level will
gradually make a turnaround.
In the real estate investment market, real estate transaction prices are expected to increase particularly incentral Tokyo and metropolitan areas against the backdrop of the favorable fund procurement environment
and increase in market players. Since anticipation for high prices has grown for property prices and prices
sellers are seeking are on the rising trend as well, close attention for further overheatedness in the real estate
investment market is needed.
2) Policy and issues on future investment management
Based on the above outlook, in addition to maintaining a high occupancy rate, JEI will strive to maintain andimprove earnings of the entire portfolio by keeping and raising the rent level based on market trends.
Moreover, in order to maintain asset value and improve property competitiveness over the medium to longterm, JEI will consistently implement additional strategic investment plans.
For external growth, we will continue to keep aiming for acquisition of competitive properties, including asset
replacements, with well-balanced investments based on size, concentration and target area in mind to increase
asset size and realize stable profitability in our portfolio over the medium- to long-term. To this end, we willcontinue enhancing further interaction and collaboration with sponsor companies and have our asset
management company cultivate and refine property information sources in an effort to proactively gain accessto market information and thereby keep seizing the right business opportunities. On a further note, among theproperties acquired during the period under review, HAMARIKYU INTERCITY (additional acquisition ofcompartmentalized ownership), Aoba-dori Plaza and Daiwa Minami-morimachi Building are from either
sponsors or a bridge fund formed by sponsors.
Regarding financial operations, the fund-raising environment is generally favorable for REITs. Still, JEI willconsistently work, with an aim to reduce borrowing costs by realizing long-term fixed interest rates taking
advantage of current low interest financing environment, on stable and sound financial operations to address
future changes in situations in and outside Japan through endeavoring to convert floating-rate debts to fixedrate debts, diversify maturity dates, lengthen the remaining period of debts, ensure liquidity by renewing
commitment lines and maintain appropriate ratio of interest-bearing debts.

(6) Subsequent Events
None

Asset Management Report for 16th period (Semi-Annual Report for 16th Period)9

2. Outline of the Investment Corporation(1) Investment units
12th
As of June 30,
2012

Fiscal period

2,000,000
Number of units
authorizedunits
Number of units
188,650 units
issued and outstanding
102,052 million
Unitholders’ capital
yen

13th
As of December
31, 2012

14th
As of June 30,
2013

15th
As of December
31, 2013

16th
As of June 30,
2014

2,000,000
units

2,000,000
units

2,000,000
units

10,000,000
units

188,650 units

224,950 units

224,950 units

1,212,750 units

102,052 million
yen

117,901 million
yen

117,901 million
yen127,950 million
yen
8,451
Number of unitholders 7,447 individuals 6,760 individuals 7,361 individuals 6,846 individuals
individuals(Note) JEI implemented a five-for-one split of its investment units held by unitholders stated on the record date’s final unitholder
registry with December 31, 2013 as the record date and January 1, 2014 as the effective date.

(2) Unitholders
Major unitholders as of June 30, 2014 are as follows:
Number ofunits held
(Units)Ratio of number ofunits held tooutstanding
investment units(%)

1-8-11 Harumi, Chuo-ku, Tokyo

327,097

26.97

Harumi Island Toriton Square Office Tower
Z, 1-8-12 Harumi, Chuo-ku, Tokyo

77,8606.42

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

71,5605.90

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

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

69,0905.70

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

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

55,548

4.58

The Dai-ichi Life Insurance
Company, Limited

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

20,6601.70

NOMURA BANK(LUXEMBOURG) S.A.

BATIMENT A, 33, RUE DE GASPERICH,
L-5826, LUXEMBOURG

20,563

1.70

STATE STREET BANK AND
TRUST COMPANY 505223

P.O. BOX 351 BOSTONMASSACHUSETTS 02101 U.S.A
700 Yakushimaemachi, Karasuma-dori,Matsubara Noboru, Shimogyo-ku, Kyoto-shi,
Kyoto
1-18-11 Minami-Senba, Chuo-ku, Osakashi, Osaka

19,303

1.59

13,574

1.12

12,4001.02

687,655

56.70

Name

Japan Trustee Services Bank, Ltd.
(Trust Account)
Trust & Custody Services Bank,
Ltd. (Securities Investment Trust
Account)
NIPPON STEEL KOWA REALESTATE CO., LTD.

Bank of Kyoto, Ltd.
The Fuji Fire and Marine
Insurance

Address

Total

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

10

(3) Officers
1) Directors and accounting auditor
Name

Post

Compensation or fee forthe six months ended June30, 2014 (Thousands ofyen)

Major additional post

Executive
Director

Hidehiko Ogawa (Note 2)

President, Japan Excellent Asset Management
Co., Ltd.

Supervisory
Director

Tsuyoshi Nagahana

Advisor, Anderson, Mori & Tomotsune

Shunichi Maekawa

Professor, Faculty of Real Estate, Meikai
University

Eiji Takagi

Eiji Takagi Certified Public Accounting Office

Supervisory
Director
Supervisory
Director
Accounting
AuditorErnst & Young ShinNihon
LLC

－

6,540

22,000(Note 3)－(Note 1) There is no investment unit of JEI held by the Executive Director nor the Supervisory Directors. Although Supervisory
Directors may have additional posts in companies other than those listed above, there is no conflict of interests between
those companies, including those listed above, and JEI.
(Note 2) Hidehiko Ogawa assumed the post of President of Japan Excellent Asset Management Co., Ltd., an asset managementcompany of JEI, on March 3, 2014.
(Note 3) The total amount of compensation or fee shown above is an estimated amount and includes the fee for the English financial
statements audit and the fee for the preparation of a comfort letter and other services upon the issuances of the 6th and 7thseries unsecured investment corporation bonds in March 2014.

2) Policy on dismissal and discontinuation of re-election of accounting auditor
The board of directors of JEI shall deliberate dismissal of accounting auditor in accordance with the provisions
set out in the Law Concerning Investment Trusts and Investment Corporations, and deliberate discontinuation ofreelection based on circumstances in all respects.

(4) Name of Asset Management Company, Asset Custodian and Administrative Agents
Our asset management company, asset custodian and administrative agents as of June 30, 2014 are as follows:
Classification

Name

Asset management company

Japan Excellent Asset Management Co., Ltd.

Asset custodian

Mizuho Trust & Banking Co., Ltd.

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

Mizuho Bank, Ltd. (Note)

Asset Management Report for 16th period (Semi-Annual Report for 16th Period)11

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

Use

Area

15th Period(December 31, 2013)

16th Period(June 30, 20143)

Total
Total
Investment
Investment
acquisitionacquisition
ratio inratio inprice (Millions
price (Millions
portfolio (%)
portfolio (%)
of yen)of yen)Area I)

3,853

1.5

3,844

1.4

Area II

4,510

1.7

5,826

2.1

Area I

122,23447.4

121,910

43.9

Area II

9,256

3.6

9,229

3.3

Area III

79,92531.0

79,475

28.6

Area IV

11,4404.4

17,960

6.5

Area I

6,882

2.7

18,8536.8

238,103

92.3

257,099

92.5

Ownership interests in an anonymous association (Note 3)

114

0.0

-

-

Deposits in bank and other assets

19,683

7.6

20,742

7.5

Total assets

257,901

100.0

277,842100.0

Real estate property(Note 2)

OfficeTrust beneficiaryinterest in realestate (Note 2)

Trust beneficiaryinterest in realestateOthers
Total(Note 1) Areas are classified as follows:
Area I: Six central wards of Tokyo (Chiyoda, Chuo, Minato, Shinjuku, Shinagawa and Shibuya)
Area II: Central Osaka (Umeda, Dojima, Nakanoshima, Yodoyabashi, Honmachi, etc.) (*), Central Nagoya (Meieki,
Fushimi, Sakae, etc.) (*) and Central Fukuoka (Tenjin, Hakata-ekimae, etc.) (*).
*Central Osaka refers to the areas within about a 10-minute walk from JR Osaka Station, Umeda Station (Hankyu
Railway, Hanshin Electric Railway, and Osaka City Subway), Yodoyabashi Station (Osaka City Subway) or
Hommachi Station (Osaka City Subway), respectively. Central Nagoya refers to the areas within about a 10minute walk from Nagoya Station (JR, Nagoya City Subway, and Nagoya Railroad), Fushimi Station (Nagoya
City Subway), or Sakae Station (Nagoya City Subway and Nagoya Railroad), respectively. Central Fukuoka
refers to the areas within about a 10-minute walk from Hakata Station (JR and Fukuoka City Subway), Tenjin
Station (Fukuoka City Subway) and Nishitetsu Fukuoka Station (Nishi-Nippon Railroad), respectively. They are,however, not always in line with administrative districts.
Area III: Tokyo other than Area I, and its vicinity (Kanagawa, Saitama, and Chiba)
Area IV: Areas in Osaka, Nagoya and Fukuoka other than Area II, and other government designated cities.
The same applies hereinafter.
(Note 2) Leasehold rights owned in combination with buildings and other structures are included in real estate property and trust
beneficiary interest in real estate at the combined amount.
(Note 3) This represents the ownership interests in an anonymous association managed by Bois Vert LLC.

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

12

(2) Major Property
The principal properties (top ten properties in net book value) owned by JEI as of June 30, 2014 are as
follows:
Ratio of rental
Book value
Leasable space Leased space Occupancy revenue to total
Name(Millions ofMajor use
rate (%)(m ) (Note 1)(m ) (Note 2)
rental revenues(Note 3)yen)(%) (Note 4)
Kowa Kawasaki
Office29,96438,375.66
38,205.96
99.6
9.9
Nishiguchi Building
2

2

AKASAKA INTERCITY

27,56011,021.03

11,021.03

100.0

5.4

OfficeAkasaka Garden City

22,6008,769.53

8,769.53

100.0

3.8

OfficeOmori Bellport D

21,45325,801.66

25,801.66

100.0

9.7

Office18,853

19,718.11

19,590.21

99.4

6.7

Other

12,65925,159.49

25,159.49

100.0

8.2

Office10,546

12,122.85

12,122.85

100.0

3.5

Office9,905

18,612.72

18,612.72

100.0(Note 4)

OfficeShiba 2-Chome Building

9,063

11,749.30

11,749.30

100.0

3.9

OfficeJEI Hamamatsucho
Building

8,432

6,411.26

5,583.03

87.1

2.5

Office171,040

177,741.61

176,615.78

99.4

－

－

HAMARIKYUINTERCITY
Musashikosugi Tower
Place
Daiba Garden City
Building
Kowa Kawasaki
Higashiguchi Building

Total(Note 1) Leasable space refers to space available for lease of which ownership is attributable to JEI as of June 30, 2014. For
properties with joint ownership, the value is obtained by multiplying the total leasable space of the shared real estate by thepercentage of the interest owned by JEI.
(Note 2) Leased space refers to space with lease contracts concluded with end tenants as of June 30, 2014. For properties with joint
ownership, the value is obtained by multiplying the total leased space of the shared real estate by the percentage of theinterest owned by JEI. For properties which are used for profit by the master lease company, leased space refers to the
portion used and the figures indicate space which can be reasonably calculated based on the lease agreement on the masterleasing. The leased space of end tenants who terminated their lease arrangement but have not yet moved out as of the end of
period is included in the leased space. This also applies to any figure which is calculated based on “leased space” in thisdocument.
(Note 3) Occupancy rate is a percentage of total leased space to total leasable space as of June 30, 2014.
(Note 4) The values of Kowa Kawasaki Higashiguchi Building are not disclosed as consent on disclosure from the end tenants havenot been obtained.

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

13

(3) Portfolio Ownership Breakdown
Real estate properties and their forms of ownership as of June 30, 2014 are as follows:
Property
No.

Property nameLocation (Residential address)

Form of ownershipAppraisal value
at end of period Net book value(Millions of yen) (Millions of yen)
(Note)

Ⅰ-1

Omori Bellport D

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

Trust beneficiaryinterest in realestate23,30021,453

Ⅰ-2

Shiba 2-Chome Building

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

Trust beneficiaryinterest in realestate11,4009,063

Ⅰ-3

JEI Hamatsucho Building

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

Trust beneficiaryinterest in realestate

6,170

8,432

Ⅰ-4

No. 32 Kowa Building

5-2-32 Minami-Azabu, Minato-ku, Tokyo

Trust beneficiaryinterest in realestate

6,690

7,378

Ⅰ-7

Akasaka Garden City

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

Trust beneficiaryinterest in realestate16,70022,600

Ⅰ-8

AKASAKA INTERCITY

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

Trust beneficiaryinterest in realestate25,10027,560Ⅰ-9

Kowa Shirokanedai Building

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

Trust beneficiaryinterest in realestate

5,030

4,853

Ｉ-10

Daiba Garden City Building

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

Trust beneficiaryinterest in realestate11,800

10,546

Ⅰ-11

No. 35 Kowa Building

1-14-14 Akasaka, Minato-ku, Tokyo

Trust beneficiaryinterest in realestate

9,210

8,230

Ⅰ-12

HAMARIKYU INTERCITY

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

Trust beneficiaryinterest in realestate20,80018,853

Ⅰ-13

Shintomicho Building

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

Trust beneficiaryinterest in realestate

1,790

1,790

Ⅰ-14

Kowa Nishi-Shimbashi Building

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

Real estate

4,230

3,844

142,220

144,608

Area I
Ⅱ-1

NHK Nagoya Housou-Center
Building

1-13-3 Higashi-Sakura, Higashi-ku, Nagoya-shi,
Aichi

Real estate

5,530

5,826

Ⅱ-2

JEI Nishi-Honmachi Building

1-3-15 Awaza, Nishi-ku, Osaka-shi, Osaka

Trust beneficiaryinterest in realestate

4,290

7,364

Ⅱ-3

Osaka Kogin Building (Land with
Leasehold Interest)

4-1-1 Koraibashi, Chuo-ku, Osaka-shi, Osaka

Trust beneficiaryinterest in realestate

1,850

1,865

Area II

11,67015,055

16,80012,659Ⅲ-1

Musashikosugi Tower Place

1-403 Kosugi-machi, Nakahara-ku, Kawasaki-shi,
Kanagawa

Trust beneficiaryinterest in realestateⅢ-2

Kowa Kawasaki Higashiguchi
Building

1-53 Nisshin-cho, Kawasaki-ku, Kawasaki-shi,
Kanagawa

Trust beneficiaryinterest in realestate

8,450

9,905

Ⅲ-3

JEI Hongo Building

2-38-16 Hongo, Bunkyo-ku, Tokyo

Trust beneficiaryinterest in realestate

4,580

5,161

Ⅲ-5

Kawasaki Nisshincho Building

7-1 Nisshin-cho, Kawasaki-ku, Kawasaki-shi,
Kanagawa

Trust beneficiaryinterest in real

3,870

4,523

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

14

estateⅢ-6

No. 44 Kowa Building

1-2-7 Higashiyama, Meguro-ku, Tokyo

Trust beneficiaryinterest in realestate

1,520

965

Ⅲ-7

JEI RYOGOKU BUILDING

3-25-5 Ryogoku, Sumida-ku, Tokyo

Trust beneficiaryinterest in realestate

2,130

2,323

Ⅲ-8

Ebina Prime Tower

2-9-50 Chuo, Ebina-shi, Kanagawa

Trust beneficiaryinterest in realestate

3,700

5,930

Ⅲ-9

66-2 Horikawa-cho, Saiwai-ku, Kawasaki-shi,
Kowa Kawasaki Nishiguchi Building Kanagawa

Trust beneficiaryinterest in realestate24,90029,964

Ⅲ-10

Pacific Square Sengoku

2-29-24 Hon-Komagome, Bunkyo-ku, Tokyo

Trust beneficiaryinterest in realestate

1,510

1,653

Ⅲ-11

Core City Tachikawa

2-37-7 Akebono-cho, Tachikawa-shi, Tokyo

Trust beneficiaryinterest in realestate

6,900

6,387

Area III

74,36079,475

3,950

3,200

Ⅳ-2

JEI Kyobashi Building

2-2-48 Kata-machi, Tsushima-ku, Osaka-shi,
Osaka

Trust beneficiaryinterest in realestateⅣ-3

JEI Hiroshima Hacchobori Building

14-4 Hacchobori, Naka-ku, Hiroshima-shi,
Hiroshima

Trust beneficiaryinterest in realestate

2,680

2,726

Ⅳ-4

SE Sapporo Building (Note 2)

1-1-2 Kitananajonishi Kita-ku, Sapporo-shi,
Hokkaido

Trust beneficiaryinterest in realestate

6,020

5,439

Ⅳ-5

Aoba-dori Plaza

3-2-1 Chuo, Aoba-ku, Sendai-shi, Miyagi

Trust beneficiaryinterest in realestate

2,750

2,187

Ⅳ-6

Daiwa Minami-morimachi Building

2-2-6 Kita Tenjinbashi, Kita-ku, Osaka-shi, Osaka

Trust beneficiaryinterest in realestate

4,740

4,405

Area IV

20,14017,960

Total

248,390257,099(Note 1) Appraisal value at end of period indicates the appraisal value described in the real estate appraisal report prepared by realestate appraisers belonging to Japan Real Estate Institute, Chuo Real Estate Appraisal Co., Ltd., Japan Valuers Co., Ltd. andDaiwa Real Estate Appraisal Co., Ltd. as of June 30, 2014 pursuant to the articles of incorporation of JEI and the regulations
stipulated by the Investment Trusts Association, Japan. For properties with joint ownership in the current portfolio, the value
is obtained by multiplying the total value of the shared real estate by the percentage of the interest owned by JEI or thetrustee.
(Note 2) SE Sankyo Building has changed its name to SE Sapporo Building on July 1, 2014. The same shall apply hereinafter.

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

1515th Period
July 1, 2013 to December 31, 2013
Property
No.

Property name

Total numberoftenants(At endof period)

Occupancy Rental revenue
rate (At end(Interim)of period)(Millions of
(%))
yen)

(Note 1)

16th Period
January 1, 2014 to June 30, 2014
Ratio ofrentalrevenue tototal rental
revenues(%)

Total numberoftenants(At endof period)

Occupancy Rental revenue
rate (At end(Interim)of period)(Millions of
(%))
yen)

(Note 1)

Ratio ofrentalrevenue tototal rental
revenues(%)

Ⅰ-1

Omori Bellport D

1

100.0

934

10.6

1

100.0

923

9.7

Ⅰ-2

Shiba 2-Chome Building

2

98.4

370

4.2

2

100.0

370

3.9

Ⅰ-3

JEI Hamamatsucho
Building

1

100.0

255

2.9

1

87.1

237

2.5

Ⅰ-4

No. 32 Kowa Building

1

100.0

253

2.9

1

100.0

249

2.6

Ⅰ-7

Akasaka Garden City

1

100.0

342

3.9

1

100.0

366

3.8

Ⅰ-8

AKASAKA
INTERCITY

12

91.9

592

6.7

13

100.0

516

5.4

Ⅰ-9

Kowa Shirokanedai
Building

1

100.0

177

2.0

1

100.0

175

1.8

Ｉ-10

Daiba Garden City
Building

1

100.0

336

3.8

1

100.0

336

3.5

Ⅰ-11

No. 35 Kowa Building

1

100.0

(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)

Ⅰ-12

HAMARIKYUINTERCITY

6

99.1

284

3.2

1

99.4

637

6.7

Ⅰ-13

Shintomicho Building

9

100.0

71

0.8

11

100.0

71

0.8

Ⅰ-14

Kowa Nishi-Shimbashi
Building

6100.0(Note 2)

(Note 2)6100.0(Note 2)

(Note 2)

42

99.0

-

-

40

99.2

-

-

Area I
Ⅱ-1

NHK Nagoya Housou
Center

29

95.9

297

3.4

29

97.0

349

3.7

Ⅱ-2

JEI Nishi-Honmachi
Building

1

100.0

219

2.5

1

100.0

208

2.2

Ⅱ-3

Osaka Kogin Building(Land with Leasehold
Interest)

1

100.0

83

0.9

1

100.0

83

0.9

31

98.4

-

-

31

98.6

-

-

Area II
Ⅲ-1

Musashikosugi Tower
Place

37

100.0

800

9.0

36

100.0

787

8.2

Ⅲ-2

Kowa Kawasaki
Higashiguchi

1

100.0

(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)

Ⅲ-3

JEI Hongo Building

1

100.0

(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)

Ⅲ-5

Kawasaki Nisshincho
Building

1

100.0

192

2.2

1

100.0

193

2.0

Ⅲ-6

No. 44 Kowa Building

1

100.0

92

1.0

1

100.0

91

1.0

Ⅲ-7

JEI Ryogoku Building

1

100.0

105

1.2

1

98.0

102

1.1

Ⅲ-8

Ebina Prime Tower

30

94.8

372

4.2

33

97.2

477

5.0

Ⅲ-9

Kowa Kawasaki
Nishiguchi Building

1

99.6

952

10.8

1

99.6

945

9.9

Ⅲ-10

Pacific Square Sengoku

7

94.9

67

0.8

5

69.1

67

0.7

Ⅲ-11

Core City Tachikawa

1

96.1

296

3.4

1

87.7

363

3.8

81

98.6

-

-

81

97.9

-

-

Area III
Ⅳ-2

JEI Kyobashi Building

1

100.0

187

2.1

1

100.0

182

1.9

Ⅳ-3

JEI Hiroshima
Hacchobori Building

1

99.0

145

1.6

1

98.5

142

1.5

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

16

Ⅳ-4

SE Sapporo Building

1

98.5

373

4.2

1

99.2

363

3.8

Ⅳ-5

Aoba-dori Plaza

-

-

-

-

42

84.7

137

1.4

Ⅳ-6

Daiwa Minamimorimachi Building

-

-

-

-

9

97.7

162

1.7

Area IV

3

99.0

-

-

54

96.8

-

-

Total

157

98.7

8,848

100.0

206

98.3

9,558

100.0

(Note 1) Total number of tenants indicates the total number of tenants in each property as of the end of each period. For properties forwhich master lease agreements have been concluded, the number of tenants is counted as one per property. When a tenant
has multiple tenancies in the same property, it is counted as one tenant, and when in multiple properties, it is counted as
multiple tenants. As for Osaka Kogin Building (Land with Leasehold Interest), total number of tenants is counted as one
based on the lease agreement for the leased land.
(Note 2) No. 35 Kowa Building, Kowa Nishi-Shimbashi Building, Kowa Kawasaki Higashiguchi and JEI Hongo Building are notdisclosed as consents on disclosure from the end tenants have not been obtained.

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

17

(4) Securities Portfolio
None

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

18

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

Contract amount (Thousands of yen) (Note 1)
Classification

Type

Fair value(Thousands of yen)
(Note 2)

Over one year

Over-the-countertransaction

Interest rate swap
transactions
Fixed interest rate
payableFloating interest ratereceivable

65,400,000

65,400,000－(Note 1) Contract amount of swap transactions is calculated based on notional principal.
(Note 2) Fair value is omitted for presentation as over-the-counter transactions meet requirements for special accounting under the
Accounting Standard for Financial Instruments.

Asset Management Report for 16th period (Semi-Annual Report for 16th Period)19

4. Capital Expenditures for Owned Properties(1) Scheduled Capital Expenditures
The following table shows major items of scheduled capital expenditures for repairs and maintenance planned
for the properties owned by JEI as of June 30, 2014. The values below include portions to be expensed foraccounting purposes.
Estimated construction costs(Millions of yen)
Payment
for the six
Property nameLocation
PurposeSchedule term
Total ofmonths advanceTotal
ended payment
June 30,
2014
Replacement of multiSE Sapporo
From July 2014－－
Kita-ku, Sapporo-shi level parking lot no. 2
49
Building
To
December 2014
pallet floorboard
Daiwa MinamiFrom April 2014
Renewal of air－－morimachi
Kita-ku, Osaka-shi
47
conditioning systems
To July 2014
Building(2) Capital Expenditures for the Six months Ended June 30, 2014
The following table shows constructions conducted by JEI during the period for properties it owned as of June30, 2014 and expensed as capital expenditures. Capital expenditures for the period ended June 30, 2014 were
558 million yen and, when combined with repairs and maintenance costs of 189 million yen classified as
expenses, the amount of constructions completed totaled 747 million yen.
Amounts
Paid
Property nameLocation
PurposeScheduled term(Millions ofyen)
Kowa Kawasaki
Nishiguchi Building

Saiwai-ku,
Kawasaki-shi

Renewal of air-conditioning
systems (2nd term)

From March, 2013
To January 201450

Ebina Prime Tower

Ebina-shi, Kanagawa

Installation of emergency
power generator

From January 2014
To March 201450

SE Sapporo Building

Kita-ku, Sapporo-shi

Replacement of multi-levelparking lot no. 4 pallet
floorboard

From January 2014
To June 201449

JEI Hamatsucho Building

Minato-ku, Tokyo

Renewal of air-conditioning
systems (5th term)

From April 2014
To May 2014

46

－

361

Other constructions
Total

558

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

20

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

13th Period
12th Period
14th Period
July 1, 2012 toJanuary 1, 2012
January 1, 2013
December 31,
to June 30, 2013
to June 30, 20122012

15th Period
July 1, 2013 to
December 31,
2013

16th Period
January 1, 2014
to June 30, 2014

Reserved funds at beginning of
period

299

267

281

299

309

Increase

14

14

25

364

143

Decrease

47

－

7

354

83

Reserved funds at the end of
period

267

281

299

309

368

Asset Management Report for 16th period (Semi-Annual Report for 16th Period)21

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

15th Period
July 1, 2013
to December 31, 2013

16th Period
January 1, 2014
to June 30, 2014(a) Asset management fees

389,209397,206(b) Custodian fees

19,332

19,353(c) Administrative service fees

38,36337,294(d) Compensation for directors

6,540

6,540

(e) Accounting auditor fees

11,00011,000(f) Other

71,071

98,152535,516

569,545

Total

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

22

(2) Borrowings
Borrowings by each financing source as of the end of the 16th period (ended June 30, 2014) are as follows:
Classification
Lender
The Dai-ichi Life Insurance
Company Limited

Drawdown
date

2.25875(Note 2)2.28417(Note 2)

July 31,2014

Acquisition ofreal estate0.86000

LumpDecembersum
29, 2014

Unsecured
and
Repayment of unguaranteed
existingborrowing

2,000,000

2,000,000

2,000,000

4,000,000

4,000,000

3,900,000

3,900,000

2,400,000

2,400,000

1,200,000

1,200,000-

3,000,000-

2,000,000

15,500,000

20,500,000

3,000,000-

2,000,000-

1,620,000

1,620,000

1,620,000

1,620,000

650,000

650,000

Mizuho Bank, Ltd.

370,000

370,000

Sumitomo Mitsui Banking
Corporation

280,000

280,000

Mizuho Bank, Ltd.

500,000

500,000

Mitsubishi UFJ Trust and Banking

500,000

500,000

500,000

500,000

Aozora Bank, Ltd.

200,000

200,000

The Bank of Fukuoka

300,000

300,000

2,000,000

2,000,000

1,500,000

1,500,000

500,000

500,000

4,600,000

4,600,000

4,400,000

4,400,000

4,000,000

4,000,000

1,620,000

1,620,000

1,080,000

1,080,000

540,000

540,000

520,000

520,000

2,000,000

2,000,000

1,500,000

1,500,000

Sumitomo Mitsui Banking
Corporation

1,500,000

1,500,000

Mizuho Bank, Ltd.

1,500,000

1,500,000

1,300,000

1,300,000

1,200,000

1,200,000

Mitsubishi UFJ Trust and Banking
Long-termloans due Mizuho Bank, Ltd.
withinMizuho Trust & Banking Co., Ltd.
one yearResona Bank, Ltd.
The Dai-ichi Life Insurance
Company Limited
Development Bank of Japan Inc.

July 31,2007

June 29,2011

October 24,
2008

Sub Total
The Dai-ichi Life Insurance
Company Limited
Development Bank of Japan Inc.

October
24, 2008

Mizuho Trust & Banking Co., Ltd.
Aozora Bank, Ltd.
Aozora Bank, Ltd.

Resona Bank, Ltd.

November29, 2011

January
31, 2012

The Norinchukin Bank

(Note 4)

Maturity
date

2,000,000

Development Bank of Japan Inc.

Long-term
loans

Balance atBalance at end
beginning of
Averageof period
periodinterest rate
(Thousands of(Thousands of(%) (Note 1)
yen)
yen)

Mizuho Trust & Banking Co., Ltd.

July 31,
2012

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

June 29,2011

November29, 2011

Mizuho Bank, Ltd.
Mizuho Bank, Ltd.
Mitsubishi UFJ Trust and Banking

Mitsubishi UFJ Trust and Banking
Sumitomo Mitsui Banking
Corporation

January
31, 2012

July 31,
2012

Repayment
methodUse

Remarks

2.27344 June 30,(Note 2)2015
1.48015－

June 30,
2015

Repayment ofexistingborrowing

1.13750(Note 2)Acquisition ofreal estate

November30, 2015
1.14125(Note 2)

0.97125(Note 2)

Lumpsum

1.36375(Note 2)June 29,2016

1.24375(Note 2)

November29, 2016

Unsecured
andunguaranteed

Repayment ofexistingborrowing

1.24750(Note 2)January
31, 2017
1.03000(Note 2)

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

23Sompo Japan Nipponkoa Insurance
Inc. (Note 3)
Tokio Marine & Nichido Fire
Insurance Co., Ltd.

2,000,000

2,000,000

1,000,000

1,000,000

6,000,000

6,000,000

1,000,000

1,000,000

1,000,000

1,000,000

Sumitomo Mitsui Banking
Corporation

1,000,000

1,000,000

Mizuho Bank, Ltd.

1,000,000

1,000,000

Aozora Bank, Ltd.

500,000

500,000

500,000

500,000

500,000

500,000

500,000

500,000

3,000,000

3,000,000

Mizuho Bank, Ltd.

5,000,000

5,000,000

Mitsubishi UFJ Trust and Banking

2,000,000

2,000,000

1,100,000

1,100,000

1,000,000

1,000,000

Resona Bank, Ltd.

200,000

200,000

The Bank of Fukuoka

700,000

700,000

Long-term
loans

Shinkin Central Bank

1,000,000

1,000,000(Note 4)The Norinchukin Bank-

1,450,000

Mizuho Bank, Ltd.

-

850,000

Mitsubishi UFJ Trust and Banking-

850,000-

600,000-

1,450,000

Mizuho Bank, Ltd.

-

850,000

Mitsubishi UFJ Trust and Banking-

850,000-

600,000

2,000,000

2,000,000

500,000

500,000

500,000

500,000

1,000,000

1,000,000

Development Bank of Japan Inc.

November30, 2010

Mizuho Bank, Ltd.
Mitsubishi UFJ Trust and Banking

Resona Bank, Ltd.
Sompo Japan Nipponkoa Insurance
Inc. (Note 3)
Tokio Marine & Nichido Fire
Insurance Co., Ltd.
The Dai-ichi Life Insurance
Company Limited

July 31,2012

June 28,2013

June 29,2011

Sumitomo Mitsui Banking
Corporation
The Norinchukin Bank

Mizuho Trust & Banking Co., Ltd.
The Norinchukin Bank

June 28,2013

March 11,2014

Mizuho Trust & Banking Co., Ltd.
Development Bank of Japan Inc.

January
31, 2012

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

June 28,
2013

Mizuho Trust & Banking Co., Ltd.

1.09734(Note 2)
1.73875(Note 2)

1.08375(Note 2)
November30, 2017
1.04550(Note 2)

1.19212(Note 2)1.65125(Note 2)June 29,2018

0.81225(Note 2)June 30,
2018

Lump- Repayment of Unsecured
sum
existing
andborrowing unguaranteed

0.74500(Note 2)

November
1, 2018

0.77500(Note 2)

March 8,2019

1.60000(Note 2)

1.36400(Note 2)600,000

600,000

The Dai-ichi Life Insurance
Company Limited

1,000,000

1,000,000

The Norinchukin Bank

1,162,500

1,162,500

675,000

675,000

675,000

675,000

487,500

487,500

2,000,000

2,000,000

1.60750(Note 2)

Sub Total

80,900,000

83,400,000

1.17765

Total

96,400,000

103,900,000

1.23733

Mizuho Bank, Ltd.
Mitsubishi UFJ Trust and Banking

December27, 2013

Mizuho Trust & Banking Co., Ltd.
Development Bank of Japan Inc.

June 28,2013

1.31261(Note 2)January
31, 2020

1.00000(Note 2)June 30,
2021

Asset Management Report for 16th period (Semi-Annual Report for 16th Period)24

(Note 1) The average interest rates are calculated using a weighted-average of the loan balance at the end of period by multiplying
the interest rate of each loan agreement as of period-end. Borrowings hedged by interest rate swaps to avoid interest rate
fluctuation risk are calculated using a weighted average rate adjusting the effect of the interest rate swaps.
(Note 2) The loans are fixed-rate loans (including loans with fixed-rate interest using interest rate swaps).
(Note 3) Sompo Japan Insurance Inc. changed its trade name to Sompo Japan Nipponkoa Insurance Inc. on September 1, 2014.
(Note 4) The following table shows annual total amount of long-term loans (excluding those due within one year) for each year after
the balance sheet date.
(Unit: Thousands of yen)Classification

Due after 1 year
through 2 years

Due after 2 years
through 3 years

Due after 3 years
through 4 years

Due after 4 years
through 5 years

Due after 5 years

Long-term loans

23,540,000

15,760,000

26,000,000

7,500,000

10,600,000

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

25

(3) Investment Corporation Bonds
The outstanding investment corporation bonds issued by JEI as of June 30, 2014 are as follows:
Issue

1st series unsecured
investment corporationbonds
2nd series unsecured
investment corporationbonds
3rd series unsecured
investment corporationbonds
4th series unsecured
investment corporation
bonds
5th series unsecured
investment corporationbonds
6th series unsecured
investment corporation
bonds
7th series unsecured
investment corporation
bonds
Total

Balance atBalance at end
beginning ofof period
Issuance dateperiod(Thousands of(Thousands of
yen)
yen)
March 11,2010

12,000,000－

Interest rate
(Note 1)(%)

Maturity date－

March 11,2014

Repayment
methodUse

Remarks(Note 2)June 28, 2010

5,000,000

5,000,000

1.29000 June 26, 2015

5,000,000

5,000,000

1.01000

November 4,
2011

November 4,
2016(Note 3)2,000,000

2,000,000

1.40000

Lump-sum(Note 5)

November 2,
2018
November25, 2013(Note 2)5,000,000

5,000,000

0.46000－

5,000,000

0.46000

March 11,2019
March 11,2024

March 30,
2014

(Note 4)－8,000,000

1.13000

29,000,000

30,000,000

0.93133(Note 1) The interest rate indicated in the total column is calculated using a weighted average of the balance at the end of period bymultiplying the loan interest rate of each investment corporation bond.
(Note 2) The funds were used for repaying existing borrowings.
(Note 3) The funds were used for acquiring new properties.
(Note 4) The funds are used for redeeming existing investment corporation bonds and repaying existing borrowings.
(Note 5) The bonds are with special pari passu conditions among specified investment corporation bonds.

(4) Short-Term Investment Corporation Bonds
JEI has no outstanding short-term investment corporation bonds as of June 30, 2014.

Asset Management Report for 16th period (Semi-Annual Report for 16th Period)26

6. Condition of Investment Transactions(1) Transactions of Property and Asset-Backed Securities, Etc.
(Unit: Millions of yen)
Acquisition
Type of assets

Name of property
Acquisition date

HAMARIKYUINTERCITY
Trust beneficiary(additional acquisition of February 4, 2014
interest in real estatecompartmentalized
ownership)
Trust beneficiary
Aoba-dori Plaza
February 4, 2014
interest in real estate
Trust beneficiary
Daiwa MinamiFebruary 4, 2014
interest in real estate morimachi Building
NHK Nagoya HousouCenter Building
Real Estate(additional acquisition
March 24, 2014of compartmentalized
ownership)
Total

Transfer

Acquisition
price(Note)

Transferdate

Transferamount12,000

－

－

－

－

2,120

－

－

－

－

4,410

－

－

－

－

1,310

－

－

－

－

－

－

－

19,840Net book Gain (loss)
value
on transfer(Note) The acquisition price indicates each contracted amount of the property in each purchase agreement or trust beneficiary interest
transfer agreement excluding related expenses (brokerage fee, taxes, etc.).

(2) Transactions of Other Assets
Other than those described above, major assets transacted are mainly bank deposits and bank deposits in trust.

(3) Appraisal and Research for Specified Asset Value, Etc.
1) Real estate, etc.
(Unit: Millions of yen)
Acquisition
price(Note)

Appraisalvalue
at end ofperiodFebruary
4, 2014

12,000February
4, 2014February
4, 2014Acquisitionor transfer

Name of property

Type ofassetsAcquisitiondate

Acquisition

HAMARIKYUINTERCITY(additional acquisitionof compartmentalized
ownership)

Trust
beneficiaryinterest inreal estate

Acquisition

Aoba-dori Plaza

Acquisition

Daiwa Minamimorimachi Building

Trustbeneficiaryinterest inreal estate
Trustbeneficiaryinterest inreal estateAppraiser

Date ofappraisal

12,000Japan Real Estate
Institute

November30, 2013

2,120

2,560

Japan Real Estate
Institute

August 1,
2013

4,410

4,520

Japan Real Estate
Institute

August 1,
2013

NHK Nagoya HousouCenter Building
March 24,
Japan Real Estate
NovemberAcquisition(additional acquisition
Real Estate
1,310
1,310
2014
Institute30, 2013
of compartmentalized
ownership)(Note) The acquisition price is the purchase price of the property stated in the purchase agreement (excluding the amount equivalent
to consumption taxes, etc.).

Asset Management Report for 16th period (Semi-Annual Report for 16th Period)273) Others
Of the transactions of JEI that are subject to research for specified assets value and other particulars under
Section 201 of the Investment Trust Law, those other than what are described in 1) Real estate, etc. areresearched and reported by Ernst & Young ShinNihon LLC.
Two interest rate swap transaction was subject to the research during the period from January 1, 2014 to June30, 2014 and we have received the related research report from Ernst & Young ShinNihon LLC. In the
research, Ernst & Young ShinNihon LLC is requested to report on the name of counterparty, currency,
contractual interest rate, transaction term and other matters pertaining to the subject interest rate swap
transactions.

(4) Transactions with Interested Parties or Major Shareholders
1) Transactions(Unit: Millions of yen)
Acquisition price or disposal amountClassification
Acquisition price

Disposal amount– million yen

19,840 million yen
Total

Acquisition price from interested parties
Disposal amount to interested parties
and major shareholders
and major shareholders
12,000 million yen (60.5%)– million yen (–%)

Breakdown for transactions with interested parties and major shareholders
NIPPON STEELKOWA REALESTATE CO.,LTD.

12,000 million yen (60.5%)– million yen (–%)

Total

12,000 million yen (60.5%)– million yen (–%)

(Note) Above transactions indicate transactions made with interested parties and major shareholders for the six months ended
December 31, 2010. “Interested parties” means the interested parties related to the asset management company of JEI as
prescribed in Section 26, Paragraph 1, Item 27 of the Regulations for Management Reports Concerning Investment Trusts andInvestment Corporations of the Investment Trusts Association, Japan. “Major shareholders” means the major shareholders as
defined in Section 29-4, Paragraph 2 of the Financial Instruments and Exchange Act. “Interested parties” include “interested
parties” as defined in Section 201 of the Investment Trust Law as well as such juridical persons, etc. as in the case where themajority interest of them is owned by or the majority of their officers come from said interested parties and major shareholders.
(The same applies hereinafter in this section).

2) Amounts of fees paid and other expenses

Classification

Property management
costs and fees

Total

(Unit: Thousands of yen)
Breakdown of transactions with interested parties
and major shareholders
Total amount paid (A)B/APaid toAmount paid (B)
NIPPON STEEL KOWA
REAL ESTATE CO., LTD.
1,272,706 Kowa Real Estate Facilities,
Co., Ltd.

1,272,706

168,12813.2%

275,605

21.7%

Sekisui House, Ltd. (Note 2)

14,8691.2%－

458,60336.0%(Note 1) Figures indicate fees paid to interested parties and major shareholders of asset management companies with whom JEI had
transactions during the six months ended June 30, 2014.
(Note 2) Sekisui House, Ltd. became no longer the major shareholder of the Asset Management Company as of May 12, 2014.
Therefore, transactions during the period when it was a major shareholder of the Asset Management Company are indicated.
(Note 3) Other than the Total amount paid indicated above, the following payments were made for maintenance and repair work, etc.
which were ordered to interested parties and major shareholders during the period.
NIPPON STEEL KOWA REAL ESTATE CO., LTD..

9,475 thousand yen

KOWA REAL ESTATE FACILITIES CO., LTD.

74,286 thousand yen

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

28

(5) Transactions with Asset Management Company Concerning the Additional Businesses of
the Asset Management Company
The Asset Management Company (Japan Excellent Asset Management Co., Ltd.) does not conduct any
additional business falling under the categories of the type I financial instruments business, type II financial
instruments business, building lots and buildings transaction business, or real estate specified joint enterprise,and had no applicable transactions.

Asset Management Report for 16th period (Semi-Annual Report for 16th Period)29

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

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

(3) Change in Asset Valuation Method
No changes were made during the period

8. Others(1) Investment Trust Beneficiary Certificates Incorporated by JEIThere were no applicable items during the period.

(2) Scheduled Meetings
1) General unitholders’ meeting
There were no applicable items during the period.

2) Board of directors meeting
Major issues related to the execution and modification of major contracts approved by the board of
directors of JEI during the six months ended June 30, 2014 is summarized below.
Approval date

January 20, 2014

February 17, 2014

May 12, 2014

Approved agenda

Description

With issuance of new investment units, anunderwriting agreement for the newConclusion of new investment
investment units was concluded withunits underwriting agreement
Mizuho Securities Co., Ltd., Nomura(agreement for entrustment ofSecurities Co., Ltd., Mitsubishi UFJ Morgan
general administrative duties
Stanley Securities Co., Ltd., SMBC Nikko
concerning offering of
Securities Inc. and Mito Securities Co., Ltd.,
investment units)
entrusting them with general administrative
duties concerning the offering of investment
units.
The board of directors made acomprehensive resolution on investment
corporation bonds to be issued in the period
from February 18, 2014 to February 17,
2015. The board of directors approved therespective candidate general administrator
Entrustment of generalfor “administrative duties concerning
administrative duties
offering of investment corporation bonds”
concerning investment
and “administrative duties concerning
corporation bonds
acceptance of claims for exercise of rights
and other inquiries from creditors of theinvestment corporation, and otheradministrative duties concerning investment
corporation bonds during the period,” andassigned decisions on all other necessary
matters to the Executive Director.
In line with the withdrawal of Sekisui
Conclusion of cancellation
House, Ltd. as a shareholder of JEI’s asset
memorandum of a service
management company, cancellation
provision contract regarding
memorandum of a service contract
property information, etc.
regarding property information, etc. wasconcluded among Sekisui House, Ltd., JEI
and the Asset Management Company.

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

30

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

Asset Management Report for 16th period (Semi-Annual Report for 16th Period)31

Financial Statements
Japan Excellent, Inc.
For the six-month periods ended
June 30, 2014 and December 31, 2013
with Independent Auditor’s ReportJapan Excellent, Inc.
Balance Sheets
As of June 30, 2014 and December 31, 2013

As of
As of
June 30,
December 31,
2014
2013
(Thousands of yen)
AssetsCurrent assets:
Cash and cash equivalents including trust
accounts (Notes 4 and 5)
Rental receivables
Consumption taxes refundable
Prepaid expenses and other current assets
Total current assets

As ofJune 30,
2014(U.S. dollars)(Note 2)

¥ 18,431,014
857,232
374,253
253,502
19,916,001¥ 17,914,434
833,899–
157,471
18,905,804$ 181,944,860
8,462,309
3,694,505
2,502,487
196,604,161

5,637,229
6,253
10,716
3,022,966
11,266

4,798,600
5,125
8,860
3,022,966
3,241

55,648,856
61,731
105,786
29,841,721
111,212103,368,528
590,461
152,432
152,290,671
9,469(17,101,867)
247,998,124

92,745,310
518,882
146,763
143,748,477
16,835(15,477,022)
229,538,037

1,020,419,823
5,828,836
1,504,757
1,503,362,991
93,471(168,823,961)
2,448,155,223

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

1,721,403
366
7,380,017
9,101,786

1,185,045
422
7,380,017
8,565,484

16,993,125
3,609
72,853,078
89,849,812

Investments and other assets:
Investment securities
Security deposits
Long-term prepaid expenses
Other assets
Total investments and other assets–
15,182
370,695
315,397
701,274

114,513
15,181
393,471
303,244826,409–
149,868
3,659,382
3,113,489
6,922,739

125,301
125,301¥277,842,486

65,60665,606¥257,901,340

1,236,929
1,236,929$2,742,768,864

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

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

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

As of
As ofJune 30,
December 31,
2014
2013
(Thousands of yen)
Liabilities
Current liabilities:
Accounts payable – trade
Investment corporation bonds due within one year
(Notes 5 and 9)
Long-term debt due within one year (Notes 5 and 8)
Accounts payable – otherAccrued expenses
Accrued corporation taxes
Accrued consumption taxes
Advances received
Total current liabilities
Long-term liabilities:
Investment corporation bonds (Notes 5 and 9)
Long-term debt (Notes 5 and 8)
Security deposits from tenants (Note 5)
Security deposits from tenants for trust accounts(Note 5)
Total long-term liabilities
Total liabilities
Net assets (Note 10):Unitholders’ equity:
Unitholders’ capital
Units authorized:
10,000,000 units as of June 30, 2014 and2,000,000 units as of December 31, 2013
Units issued and outstanding:
1,212,750 units as of June 30, 2014 and
224,950 units as of December 31, 2013
Surplus
Voluntary reserve
Reserve for advanced depreciation of
non-current assets
Retained earnings
Total surplus
Total unitholders’ equity
Total net assets
Total liabilities and net assets¥

900,124¥

762,932

As ofJune 30,
2014(U.S. dollars)(Note 2)$8,885,728

5,000,000
20,500,000
332,909236,686
33－
98,801
27,068,553

12,000,000
15,500,000
337,804
254,981252
243,808
136,801
29,236,578

49,358,341
202,369,200
3,286,367
2,336,488
320－
975,332
267,211,776

25,000,000
83,400,000
775,322

17,000,000
80,900,000
638,826

246,791,708
823,297,137
7,653,724

10,600,277
119,775,599
146,844,152

9,412,615
107,951,441
137,188,019

104,642,419
1,182,384,988
1,449,596,764

127,950,539

117,901,291

1,263,085,282

37,3473,010,448
3,047,795
130,998,334
130,998,334¥ 277,842,486

37,3472,774,683
2,812,030
120,713,321
120,713,321¥ 257,901,340

368,678
29,718,140
30,086,818
1,293,172,100
1,293,172,100$2,742,768,864

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

Japan Excellent, Inc.
Statements of Income and Retained Earnings
For the periods from January 1, 2014 to June 30, 2014
and from July 1, 2013 to December 31, 2013

For the period
from January 1,
2014
to June 30,
2014

For the period
from July 1,
2013
to December 31,
2013(Thousands of yen)
Revenues:
Rental revenues (Note 13)
Other (Note 13)
Dividend income from investment in anonymous
association
Total revenues
Operating expenses:
Property operating expenses (Note 13)
Asset management fees
Custodian fees
Administrative service fees
Compensation for directors
Other
Total operating expenses
Operating income
Other income:Interest income(Note 13)
Other
Other expenses:
Interest expense
Loan arrangement fees
New investment unit issuance costs
Interest expense on investment corporation bonds
Amortization of investment corporation bondissuance costs
Other
Ordinary income
Income before income taxes
Income taxes (Note 12):Current
Deferred
Net income
Retained earnings at beginning of period
Retained earnings at end of period

For the period
from January 1,
2014
to June 30,
2014(U.S. dollars)(Note 2)

¥8,599,070
959,325¥7,957,889
890,351$84,887,170
9,470,142－
9,558,395

2,139
8,850,379－
94,357,312

5,022,564
397,206
19,35337,294
6,540
109,152
5,592,109
3,966,286

4,605,010
389,209
19,33338,363
6,540
82,0715,140,526
3,709,853

49,581,085
3,921,087
191,047
368,155
64,561
1,077,513
55,203,448
39,153,864

1,760
1,849

1,937
3,401

17,37818,250632,100
115,11735,702
151,857

644,155
108,127－
166,580

6,239,878
1,136,396
352,438
1,499,085

16,304
7,416
3,011,399

14,607
5,965
2,775,757

160,953
73,21029,727,532

3,011,399

2,775,757

29,727,532

1,100
1
3,010,298
150¥3,010,448

1,082
(8)
2,774,683－¥2,774,683

10,863
7
29,716,662
1,478$29,718,140

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

Japan Excellent, Inc.
Statements of Changes in Net Assets
For the periods from January 1, 2014 to June 30, 2014
and from July 1, 2013 to December 31, 2013

Balance as of June 30, 2013
Changes during the fiscal period:
Reversal of reserve foradvanced depreciation of
non-current assets
Distributions from retained
earnings
Net income
Total changes during the fiscal
periodBalance as of December 31,
2013

Balance as of December 31, 2013
Changes during the fiscal period:
Split of units
Issuance of new units
Distributions from retained
earnings
Net income
Total changes during the fiscal
periodBalance as of June 30, 2014

Balance as of December 31, 2013
Changes during the fiscal period:
Split of units
Issuance of new units
Distributions from retained
earnings
Net income
Total changes during the fiscal
periodBalance as of June 30, 2014

For the period from July 1, 2013 to December 31, 2013
Net assets
Unitholders’ equity
Surplus
Voluntary
reserve
Reserve foradvanceddepreciation of
Total
non-current
Retained
unitholders’assetsearnings
Total surplus
equity(Thousands of yen)

Numberof units
in issueUnitholders’capital224,950¥117,901,291¥183,368¥ 2,598,369¥ 2,781,737¥120,683,028¥120,683,028––(146,021)–(146,021)(146,021)(146,021)

–
–

–
–

–
–

(2,598,369)
2,774,683(2,598,369)
2,774,683(2,598,369)
2,774,683(2,598,369)
2,774,683––(146,021)

176,31430,29330,29330,293

224,950¥117,901,291

37,347¥ 2,774,683¥ 2,812,030¥120,713,321¥120,713,321¥

For the period from January 1, 2014 to June 30, 2014
Net assets
Unitholders’ equity
Surplus
Voluntary
reserve
Reserve foradvanceddepreciation of
Total
non-current
Retained
unitholders’assetsearnings
Total surplus
equity(Thousands of yen)

Total net assets

Numberof units
in issueUnitholders’capital224,950¥117,901,291

37,347¥ 2,774,683¥ 2,812,030¥120,713,321¥120,713,321

899,800
88,000–10,049,248

–
–

–
–

–
–

–
10,049,248–
10,049,248

–
–

–
–

–
–

(2,774,533)
3,010,298(2,774,533)
3,010,298(2,774,533)
3,010,298(2,774,533)
3,010,298

987,800
1,212,750

10,049,248¥127,950,539–¥37,347

235,765¥ 3,010,448

235,765¥ 3,047,795

10,285,013¥130,998,334

10,285,013¥130,998,334¥

For the period from January 1, 2014 to June 30, 2014
Net assets
Unitholders’ equity
Surplus
Voluntary
reserve
Reserve foradvanceddepreciation of
Total
non-current
Retained
unitholders’assetsearnings
Total surplus
equity(U.S. dollars) (Note 2)

Total net assets

Numberof units
in issueUnitholders’capital224,950$1,163,882,439

368,678$ 27,390,750$ 27,759,428$1,191,641,867$1,191,641,867

899,800
88,000–99,202,843

–
–

–
–

–
–

–
99,202,843–
99,202,843

–
–

–
–

–
–

(27,389,272)
29,716,662(27,389,272)
29,716,662(27,389,272)
29,716,662(27,389,272)
29,716,662

987,800
1,212,750

99,202,843$1,263,085,282–
368,678

2,327,390$ 29,718,140

2,327,390$ 30,086,818

101,530,233$1,293,172,100

101,530,233$1,293,172,100$$

Total net assets

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

Japan Excellent, Inc.
Statements of Cash Flows
For the periods from January 1, 2014 to June 30, 2014
and from July 1, 2013 to December 31, 2013

Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Amortization of investment corporation bondissuance costs
New unit issuance costs
Interest income
Interest expense
Increase in rental receivables(Increase) decrease in consumption taxes refundable(Increase) decrease in prepaid expenses
Increase in accounts payable – trade(Decrease) increase in accounts payable – other(Decrease) increase in unpaid consumption taxes(Decrease) in advances received
Decrease in long-term prepaid expenses
Other, net
SubtotalInterest received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities
Purchases of investment securities
Proceeds from redemption of investment securities
Purchases of property and equipment
Purchases of property and equipment for trust
accounts
Purchases of intangible assets
Proceeds from security deposits from tenants
Payments for security deposits to tenants
Proceeds from security deposits in trust accounts
from tenants
Payments for security deposits in trust accounts
to tenants
Net cash used in investing activities
Cash flows from financing activities
Proceeds from short-term loans
Repayment for short-term loans
Proceeds from long-term debt
Repayment for long-term debt
Proceeds from issuance of new units
Proceeds from issuance of investment corporation
bonds
Payments for investment corporation bondredemption
Payments for investment corporation bond issuance
costs
Payments for new unit issuance costs
Distributions to unitholders
Net cash provided by (used in) financing activities

For the period
For the period
from
from
January 1,
July 1,2014 to2013 toJune 30,
December 31,
2014
2013
(Thousands of yen)

For the period
from
January 1,
2014 toJune 30,
2014(U.S. dollars)(Note 2)

¥ 3,011,399
1,624,902¥ 2,775,757
1,504,417$ 29,727,532
16,040,496

16,30435,702(1,760)783,957(23,332)(374,253)(108,871)
136,074(4,094)(243,807)(38,000)
22,776
17,5404,854,537
1,760(802,252)(1,722)
4,052,323

14,607－(1,937)810,735(104,972)
397,252
44,97725,457
24,566
243,807(15,458)
24,128(4,104)
5,739,232
1,937(790,680)(1,441)
4,949,048

160,953
352,438(17,378)
7,738,963(230,329)(3,694,505)(1,074,734)
1,343,278(40,412)(2,406,784)(375,123)
224,833
173,150
47,922,378
17,378(7,919,563)(16,997)
40,003,196－
97,285(866,748)(113,020)
2,715(27,134)－
960,364(8,556,247)(19,217,065)(536,359)
136,497－(700,319)－
3,931(5,280)(189,704,498)(5,294,755)
1,347,447－

1,515,515

192,759

14,960,665(327,854)(19,198,729)(246,217)(892,565)(3,236,464)(189,523,488)

9,000,000(9,000,000)
7,500,000－
10,049,248－－
3,000,000(8,000,000)－

88,845,015(88,845,015)
74,037,512－
99,202,843

13,000,000

5,000,000

128,331,688(12,000,000)－(118,460,020)(76,000)(35,702)(2,774,560)
15,662,986(27,900)－(2,746,542)(2,774,442)(750,247)(352,438)(27,389,533)
154,619,805

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

For the period
For the period
from
from
January 1,
July 1,2014 to2013 toJune 30,
December 31,
2014
2013
(Thousands of yen)
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

516,580
17,914,434¥18,431,014

1,282,041
16,632,393¥ 17,914,434

For the period
from
January 1,
2014 toJune 30,
2014(U.S. dollars)(Note 2)
5,099,513
176,845,347$ 181,944,860

The accompanying notes are an integral part of these financial statements.
39

Japan Excellent, Inc.
Notes to Financial Statements
For the periods from January 1, 2014 to June 30, 2014
and from July 1, 2013 to December 31, 2013

1.

Organization

Japan Excellent, Inc. (hereinafter, “JEI”), established on February 20, 2006 under the Law
Concerning Investment Trusts and Investment Corporations of Japan (the “Investment TrustLaw”), is a real estate investment corporation which primarily invests in office buildings.
JEI is externally managed by a licensed asset management company, Japan Excellent AssetManagement (“JEAM”). JEAM was originally owned 45% by NIPPON STEEL KOWA
REAL ESTATE CO., LTD., 20% by The Dai-ichi Life Insurance Company, Limited, 15% by
Sekisui House, Ltd. and 20% by other corporations. Due to the transfer of ownership by
Sekisui House on May 12, 2014, ownership interests of 9% and 6% were each acquired by
NIPPON STEEL KOWA REAL ESTATE CO., LTD., and The Dai-ichi Life Insurance
Company, Limited, respectively.
JEI was listed on the Tokyo Stock Exchange on June 27, 2006. As of June 30, 2014, JEI held
30 properties with 330,284.81 square meters of total leasable space and had leases with 206
tenants excluding residential tenants.

2.

Basis of Presentation

JEI maintains its accounting records and prepares its financial statements in accordance withaccounting principles generally accepted in Japan (“Japanese GAAP”), including provisions
set forth in the Investment Trust Law, the Corporation Law of Japan, the Financial
Instruments and Exchange Law of Japan and related regulations, which are different in certain
respects as to the application and disclosure requirements of International Financial ReportingStandards.
The accompanying financial statements are a translation of the financial statements of JEI,
which were prepared in accordance with Japanese GAAP and presented in the securities
report of JEI filed with the Kanto Local Finance Bureau. In preparing the accompanying
financial statements, certain reclassifications and modifications have been made for theconvenience of readers outside Japan. In addition, the notes to the financial statements include
information that might not be required under Japanese GAAP but is presented herein as
additional information. Amounts have been rounded to the nearest thousand yen in theaccompanying financial statements and in the notes thereto, whereas amounts were truncatedin the Japanese financial statements prepared in accordance with Japanese GAAP.
Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The
rate of ¥101.30 = U.S.$1.00, the foreign exchange rate prevailing on June 30, 2014, has beenused for translation. The inclusion of such amounts is not intended to imply that Japanese yen
have been or could be readily converted, realized or settled into U.S. dollars at that or any
other rate.
40

3.

Summary of Significant Accounting Policies

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

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

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

41

3.

Summary of Significant Accounting Policies (continued)

JEI capitalizes the property-related taxes allocated to the sellers of properties to JEI at thetime of acquisition of such properties including trust accounts. The capitalized amount for theperiod from January 1, 2014 to June 30, 2014 was ¥121,674 thousand ($1,201,125). No
property-related taxes were capitalized for the period from July 1, 2013 to December 31,
2013.
Revenue recognition
Rental revenues are generally recognized on an accrual basis over the life of each lease.
Derivatives and hedge accounting
JEI utilizes interest-rate swap agreements as derivative financial instruments solely for the
purpose of hedging its exposure to fluctuation in interest rates. JEI has entered into certain
interest-rate swap contracts to hedge variable rates for its long-term debt obligations.
The corresponding interest-rate swap meets the criteria for the special hedge accounting
treatment under Japanese GAAP, and it is therefore not recorded at fair value.
The amounts paid or received via the swap transaction are recognized as interest adjustments.
An assessment of hedge effectiveness is omitted accordingly.
Properties in trust accounts
All assets and liabilities held in trust, for which real estate in possession of JEI was entrusted,
and all earnings and expenses resulting from such trust, are properly reflected in theaccompanying balance sheets and statements of income and retained earnings, respectively.

4.

Cash and Cash Equivalents

Cash and cash equivalents including trust accounts in the accompanying balance sheets andcash and cash equivalents in the accompanying statements of cash flows at June 30, 2014 andDecember 31, 2013 consisted of the following:
As of
As of
June 30,
December 31,
2014
2013
(Thousands of yen)
Cash and cash deposits
Cash in trust and deposits in trust
Cash and cash equivalents including
trust accounts

As ofJune 30,
2014(U.S. dollars)¥ 3,967,721
14,463,293¥ 4,707,845
13,206,589$ 39,168,028
142,776,832¥18,431,014¥17,914,434$181,944,860

42

5.

Financial Instruments

For the periods from January 1, 2014 to June 30, 2014 and from July 1, 2013 to
December 31, 2013
Overview(1) Policy for Financial Instruments
JEI borrows from banks, issues investment corporation bonds and issues investment units
to procure funds required to grow its assets under management and to repay liabilities,
based on the financial policy set forth by JEAM and the Company’s Annual Funds
Procurement Plan. When procuring funds by means of interest-bearing debt, matters suchas seeking longer durations and maturities, securing fixed interest rates and diversifying
maturity dates are taken into consideration to achieve a more stable financial situation
and avoid the risk of future interest rate hikes. Surplus funds may be invested in deposits
and safe, liquid financial assets and investment securities, but are, in principle, placed indeposits. Derivative transactions are used solely for the purpose of hedging against therisk of fluctuations in interest rates of borrowings and the like.
(2) Types of Financial Instruments, Related Risks and Risk Management System(a) Market Risks (Interest Rate Fluctuation Risks)Borrowings and investment corporation bonds are primarily used to acquire
properties or to refinance existing borrowings. Some of such debt are floating rate
instruments and thus are exposed to the risk of interest rate fluctuations. Based oninterest rate forecasts developed through constant monitoring activities, JEI hedges
against the risk of interest rate fluctuations using derivative transactions(interest-rate swaps), which swap a floating interest rate for a fixed interest rate. To
reduce credit risk, derivative transactions (interest-rate swaps) are entered into
exclusively with counterparties that are financial institutions having a high credit
rating. For hedging accounting methods, hedging instruments, hedged items,
hedging policies and methods for evaluation the effectiveness of hedging activities,
see “Derivatives and hedge accounting” under Summary of Significant Accounting
Policies.
(b) Liquidity Risk (the risk of being unable to procure funds required for repayments)
Borrowings and investment corporation bonds are exposed to liquidity risk. This risk
is reduced by diversifying maturity dates and funding sources, executing
commitment line agreements (as described in Note 8, “Short-Term Loans andLong-Term Debt,” there is no balance outstanding under the facility agreements asof June 30, 2014), and liquidity risk is managed through the constant management ofliquidity on hand.
(3) Supplementary Explanation of the Estimated Fair Value of Financial Instruments
The fair value of financial instruments is based on their quoted market price, if available.
When there is no quoted market price available, fair value is reasonably estimated. Sincevarious assumptions and factors are reflected in estimating the fair value, different
assumptions and factors could result in a different fair value.

43

5.

Financial Instruments (continued)

Fair value of financial instruments
The following are carrying values and fair values as of June 30, 2014 and December 31, 2013of financial instruments and the differences between them. When fair value is difficult toascertain, it is excluded from the following table (Note 2).
As of June 30, 2014
As of December 31, 2013
Carrying value
Fair value
Difference
Carrying value
Fair value
Difference(Thousands of yen)
(1) Cash and cash deposits(2) Cash in trust anddeposits in trust
Total assets¥(3) Short-term loans(4) Investment corporation
bonds due within one
year(5) Long-term debt due
within one year(6) Investment corporation
bonds(7) Long-term debt
Total liabilities¥(8) Derivative transactions *¥3,967,721

14,463,293¥ 18,431,014
–

¥

–

¥

14,463,293¥ 18,431,014¥––

13,206,589¥ 17,914,434

–

¥

–

¥

¥

¥

3,967,721

4,707,845–

Carrying value

¥

–

$

13,206,589¥ 17,914,434¥––

142,776,832$ 181,944,860

–

¥

–

$

¥

¥

4,707,845

39,168,028–

As of June 30, 2014
Fair value(U.S. dollars)

Difference

39,168,028$–

142,776,832$ 181,944,860

$

–
–

–

$

–

$

$

5,000,000

5,049,400

49,40012,000,000

12,030,000

30,00049,358,342

49,846,002

487,660

20,500,000

20,644,680

144,680

15,500,000

15,537,316

37,316202,369,200

203,797,436

1,428,236

25,000,000
83,400,000¥ 133,900,000

25,302,410
84,827,154¥ 135,823,644

302,410
1,427,154¥ 1,923,644

17,000,000
80,900,000¥ 125,400,000

17,204,445
82,082,964¥ 126,854,725

204,445
1,182,964¥ 1,454,725

246,791,708
823,297,137$ 1,321,816,387

249,776,999
837,385,526$ 1,340,805,963

2,985,291
14,088,389$ 18,989,576

–

¥

–

¥

–

¥

–

¥

–

¥

–

$

–

$

–

$

–

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

(Note 1)
Methods for calculating the fair value of financial instruments and matters related toderivatives transactions
Assets(1) Cash and cash deposits and(2) Cash in trust and deposits in trust
Carrying value approximates fair value because of the short maturities of these
instruments.
Liabilities(3) Short-term loans,(5) Long-term debt due within one year and(7) Long-term debt
Where floating rates apply, book value is generally considered appropriate as fair value.
The fair value of such liabilities is considered to be close to book value, since floating
rates reflect market interest rates within a short period of time.
If the loan is part of long-term debt, in the case of floating-rate debt hedged by aninterest-rate swap, the fair value is calculated in a similar manner using the total principal
and interest amount, treated in combination with the interest-rate swap, given that theinterest-rate swap is subject to the special treatment of interest-rate swaps under Japanese
GAAP.
The fair value of long-term fixed-rate debt and long-term fixed-rate debt due within one
year are calculated by applying a reasonably assumed interest rate as a discount rate,
which was determined to be applicable for the borrowings under similar conditions.
44

5.

Financial Instruments (continued)(4) Investment corporation bonds due within one year and(6) Investment corporation bonds
The fair value of investment corporation bonds issued by JEI is based on quoted market
prices.
(8) Derivative transactions
Please refer to Note 15, “Derivative Transactions.”(Note 2)Financial instruments for which fair value is deemed extremely difficult to determine
As of
As of
June 30,
December 31,
2014
2013
(Thousands of yen)
(1) Investment securities (*1)－

¥ 114,513$－¥ 775,322¥ 638,826$

7,653,724¥10,600,277¥9,412,615$104,642,419¥(2) Security deposits from tenants(*2)(3) Security deposits from tenants fortrust accounts (*2)

As ofJune 30,
2014(U.S. dollars)(*1) As for investment securities (ownership interests in an anonymous association) without available
market price and reasonable estimates of cash flows from the underlying properties, the fair value isdeemed extremely difficult to determine. Accordingly, they are excluded from fair value disclosures.
(*2) Security deposits from tenants and security deposits in trust accounts from tenants in leased properties
are not subject to fair value disclosure, since such deposits have no market price. Furthermore, it isextremely difficult to calculate the whole cash flow from the time the tenant moves in until the time thetenant vacates, i.e., it is extremely difficult to rationally estimate the actual period of time on this kindof security deposit.

(Note 3)The scheduled redemption amounts of financial assets after the balance sheet dateCash and cash deposits
Cash in trust anddeposits in trust
Total

Cash and cash deposits
Cash in trust anddeposits in trust
Total

As of June 30, 2014
2 to 3 years 3 to 4 years(Thousands of yen)

1 year or less

1 to 2 years¥ 3,967,721

¥

–

¥

–

¥

–

¥

–

¥

–

14,463,293¥18,431,014

¥

–
–

¥

–
–

¥

–
–

¥

–
–

¥

–
–

1 year or less

1 to 2 years$ 39,168,028

$

–

$

–

$

–

$

–

$

–

142,776,832$181,944,860

$

–
–

$

–
–

$

–
–

$

–
–

$

–
–

As of June 30, 2014
2 to 3 years 3 to 4 years(U.S. dollars)

4 to 5 years

4 to 5 years

Over 5 years

Over 5 years

45

5.

Financial Instruments (continued)

Cash and cash deposits
Cash in trust anddeposits in trust
Total

As of December 31, 2013
2 to 3 years 3 to 4 years(Thousands of yen)

1 year or less

1 to 2 years

4 to 5 years

Over 5 years¥ 4,707,845

¥

–

¥

–

¥

–

¥

–

¥

–

13,206,589¥17,914,434

¥

–
–

¥

–
–

¥

–
–

¥

–
–

¥

–
–

(Note 4)The scheduled redemption amounts of borrowings, investment corporation bonds and otherinterest-bearing debt after the balance sheet date
1 year or less
Short-term loans
Investment
corporation bonds
due within one year
Long-term debt due
within one year
Investment
corporation bonds
Long-term debt
Total

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

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

¥

–

As of June 30, 2014
2 to 3 years
3 to 4 years(Thousands of yen)

1 to 2 years
¥

–

¥

–

¥

–

4 to 5 years¥–

Over 5 years¥–

5,000,000

–

–

–

–

–

20,500,000

–

–

–

–

–

–
–
¥ 25,500,000–
23,540,000¥ 23,540,000

5,000,000
15,760,000¥ 20,760,000–
26,000,000¥ 26,000,000

12,000,000
7,500,000¥ 19,500,000

8,000,000
10,600,000¥ 18,600,000

1 year or less

1 to 2 years

As of June 30, 2014
2 to 3 years
3 to 4 years(U.S. dollars)

4 to 5 years

Over 5 years

–

$

–

$

–

$

$

–

–

$

$

–

49,358,341

–

–

–

–

–

202,369,200

–

–

–

–

–

–
–
$251,727,541–
232,379,072$232,379,072

49,358,341
155,577,493$ 204,935,834–
256,663,376$256,663,376

118,460,020
74,037,512$192,497,532

78,973,347
104,639,684$183,613,031

1 year or less

1 to 2 years

As of December 31, 2013
2 to 3 years
3 to 4 years(Thousands of yen)

4 to 5 years

Over 5 years

¥

–

¥

–

¥

–

¥

–

¥

–

¥

–

12,000,000

–

–

–

–

–

15,500,000

–

–

–

–

–

–
–
¥ 27,500,000

5,000,000
15,540,000¥ 20,540,000

5,000,000
16,760,000¥ 21,760,000–
24,000,000¥ 24,000,000

7,000,000
14,000,000¥ 21,000,000–
10,600,000¥ 10,600,000

46

6.

Investment and Rental Property

For the periods from January 1, 2014 to June 30, 2014 and from July 1, 2013 to
December 31, 2013
JEI owns rental office buildings and other properties in Tokyo and other regions for the
purpose of generating rental income. The following is the carrying value and fair value as ofJune 30, 2014 and December 31, 2013 for such real estate for lease.
As ofDecember 31, 2013
¥238,103,099

As ofDecember 31, 2013
$2,350,474,816

Carrying value
ChangeAs ofduring period (*1)
June 30, 2014
(Thousands of yen)
¥18,996,445

Fair value
As ofJune 30, 2014

¥257,099,544¥248,390,000

Carrying value
ChangeAs of(*1)
during period
June 30, 2014
(U.S. dollars)

Fair value
As ofJune 30, 2014

$187,526,610$2,538,001,426

As ofJune 30, 2013

Carrying value
ChangeAs of(*2)
during period
December 31, 2013
(Thousands of yen)

¥238,861,898¥（758,799）¥238,103,099$2,452,023,692
Fair value
As ofDecember 31, 2013
¥226,440,000(Note 1)
Carrying value represents the acquisition cost less accumulated depreciation.
(Note 2)(*1) Changes during period comprise increases of ¥12,099,982 thousand ($119,447,010)
related to the acquisition of HAMARIKYU INTERCITY (Additional acquisition ofcompartmentalized ownership), ¥2,190,578 thousand ($21,624,658) related to theacquisition of Aoba-dori Plaza, ¥4,435,960 thousand ($43,790,326) related to theacquisition of Daiwa Minami-morimachi Building, ¥1,335,694 thousand ($13,185,528)
related to the acquisition of NHK Nagoya Housou-Center Building (Additional
acquisition of co-ownership interest), and a decrease of ¥1,624,845 thousand($16,039,933) for depreciation costs.
(*2) Changes during period comprise an increase of ¥396,969 thousand related to thecapital expenditure for the Kowa Kawasaki-Nishiguchi Building and a decrease of¥1,504,360 thousand for depreciation costs.
(Note 3)
Fair value as of June 30, 2014 and December 31, 2013 is appraisal value provided bythird-party real estate appraisers.
47

7.

Property and Equipment

Property and equipment at June 30, 2014 and December 31, 2013 consisted of the following:
Acquisition
cost
Buildings and building
improvements¥
5,637,229
Machinery andequipment
6,253
Furniture and fixtures
10,716Land
3,022,966
Construction in progress
11,266
Buildings and building
improvements for trust
accounts
103,368,528
Machinery andequipment for trust
accounts
590,461
Furniture and fixtures
for trust accounts
152,432
Land for trust accounts
152,290,671
Construction in progress
9,469
for trust accounts
Total¥ 265,099,991

As of June 30, 2014
As of December 31, 2013
Accumulated
Net
Acquisition
AccumulatedNet
depreciation
book value
cost
depreciation
book value(Thousands of yen)¥

(737,078)¥

4,900,151¥

4,798,600¥(658,713)¥

4,139,887

Acquisitioncost$

55,648,856

As of June 30, 2014
Accumulated
depreciation(U.S. dollars)$(7,276,195)

Netbook value$

48,372,661(566)(1,429)
–
–

5,687
9,287
3,022,966
11,266

5,125
8,860
3,022,966
3,241

(302)
(859)
–
–

4,823
8,001
3,022,966
3,241

61,731
105,786
29,841,721
111,212(5,594)(14,107)––56,137
91,67929,841,721
111,212(16,075,495)

87,293,033

92,745,310(14,556,797)

78,188,513

1,020,419,823(158,691,953)

861,727,870(223,973)

366,488518,882(206,234)

312,648

5,828,836(2,210,983)

3,617,853(63,326)–

89,106
152,290,671

146,763
143,748,477(54,117)–

92,646
143,748,477

1,504,757
1,503,362,991(625,129)–879,628
1,503,362,991–¥ (17,101,867)

9,469¥ 247,998,124

16,835¥ 245,015,059–¥ (15,477,022)

16,835¥ 229,538,037

93,471$ 2,616,979,184–$ (168,823,961)

93,471$ 2,448,155,223

48

8.

Short-Term Loans and Long-Term Debt

Short-term loans and long-term debt as of June 30, 2014 and December 31, 2013 consisted of
the following:
As of June 30, 2014
Weighted-averageAmountinterest rate (*1)
(Thousands ofyen)Long-term debt due within
one year:
Unsecured loans from an insurancecompany due on July 31, 2014
Unsecured loans from a bank due on
July 31, 2014
Unsecured loans from banks due on
December 29, 2014
Unsecured loans from an insurancecompany and a bank due on June 30,
2015
SubtotalLong-term debt:
Unsecured loans from an insurancecompany and a bank due on June 30,
2015
Unsecured loans from banks due on
November 30, 2015
Unsecured loans from banks due on
November 30, 2015
Unsecured loans from banks due on
November 30, 2015
Unsecured loans from banks due on
June 29, 2016
Unsecured loans from banks due on
November 29, 2016
Unsecured loans from banks due on
January 31, 2017
Unsecured loans from banks due on
January 31, 2017
Unsecured loans from insurancecompanies due on January 31, 2017
Unsecured loans from a bank due on
November 30, 2017
Unsecured loans from banks due on
November 30, 2017
Unsecured loans from banks due on
November 30, 2017
Unsecured loans from insurancecompanies due on November 30,
2017
Unsecured loans from an insurancecompany due on June 29, 2018
Unsecured loans from banks due on
June 30, 2018
Unsecured loans from banks due on
November 1, 2018
Unsecured loans from banks due on
March 8, 2019
Unsecured loans from a bank due on
January 31, 2020
Unsecured loans from banks due on
January 31, 2020
Unsecured loans from an insurancecompany due on January 31, 2020
Unsecured loans from banks due on
January 31, 2020
Unsecured loans from a bank due on
June 30, 2021
Subtotal
Total

2,000,000

2.25875% (*2)

2,000,000

2.28417%(*2)

11,500,000
5,000,000
20,500,000–

As of December 31, 2013
Weighted-averageAmountinterest rate (*1)
(Thousands of
yen)

As of
June 30, 2014
Amount(U.S. dollars)

2,000,000

2.25875% (*2)

19,743,337

2,000,000

2.28417%(*2)

19,743,337

0.86000%

11,500,000

0.87091%

113,524,185

2.27344% (*2)–
15,500,000–

49,358,341
202,369,200–

5,000,000

2.27344% (*2)–

4,540,000

1.13750%(*2)

44,817,374(*2)

19,743,337

1.13750%(*2)

2,000,000

1.14125%(*2)

2,000,000

1.14125%

4,000,000

0.97125% (*2)

4,000,000

0.97125% (*2)

39,486,673

13,000,000

1.36375%(*2)

13,000,000

1.36375%(*2)

128,331,689

1.24375%(*2)

1.24375%(*2)

37,117,473

5,000,000

1.24750%(*2)

5,000,000

1.24750%(*2)

49,358,341

4,000,000

1.03000% (*2)

4,000,000

1.03000% (*2)

39,486,673

3,000,000

1.09734%(*2)

3,000,000

1.09734%(*2)

29,615,005

1.73875%(*2)

1.73875%(*2)

59,230,010

3,000,000

1.08375%(*2)

3,000,000

1.08375%(*2)

29,615,005

2,000,000

1.04550% (*2)

2,000,000

1.04550% (*2)

19,743,337

1,000,000

1.19212% (*2)

1,000,000

1.19212% (*2)

9,871,668

3,000,000

1.65125%(*2)

3,000,000

1.65125%(*2)

29,615,005

11,000,000

0.81225% (*2)

11,000,000

0.81225% (*2)

108,588,352

3,750,000

0.74500% (*2)––

3,750,000

0.77500%

(*2)

–

–

2,000,000

1.60000%(*2)

2,600,000

4,540,000

3,760,000

6,000,000

3,760,000

6,000,000

37,018,756
37,018,756

2,000,000

1.60000%(*2)

19,743,337

1.36400% (*2)

2,600,000

1.36400% (*2)

25,666,337

1,000,000

1.31261% (*2)

1,000,000

1.31261% (*2)

9,871,668

3,000,000

1.00000%(*2)

3,000,000

1.00000%(*2)

29,615,005

1.60750%(*2)

2,000,000
80,900,000¥ 96,400,000

1.60750%(*2)

19,743,336
823,297,137$ 1,025,666,337

2,000,000
83,400,000¥ 103,900,000(*1) The weighted-average interest rate is weighted by the balance of each borrowing at the end of the period
and rounded to the nearest fifth decimal place. As for the borrowings, which were hedged by interest-rate
swaps for the purpose of mitigating interest rate fluctuation risk, the fixed interest rates after entering into
the interest rate swap transactions are used to calculate the weighted-average interest rate.
(*2) These are fixed-rate debts (incl. Fixed-rate debts through each interest-rate swap agreement).

49

8.

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

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

Long-term debt

Long-term debt

1 to 2 years

2 to 3 years

3 to 4 years
4 to 5 years(Thousands of yen)Over 5 years¥23,540,000¥15,760,000¥26,000,000¥7,500,000¥10,600,000

1 to 2 years

2 to 3 years

3 to 4 years(U.S. dollars)

4 to 5 years

Over 5 years$232,379,072$155,577,493$256,663,376$74,037,512$104,639,684

JEI has commitment lines of ¥14,000 million ($138,203 thousand) with three financial
institutions to mitigate refinancing risk and enhance financial stability. As of June 30, 2014,
these commitment lines have never been utilized.

9.

Investment Corporation Bonds

Details of total investment corporation bonds outstanding as of June 30, 2014 and December
31, 2013 are summarized as follows:
As of June 30, 2014
WeightedaverageAmountinterest rate
(Thousandsof yen)Unsecured bond #1 dueon March 11, 2014
Unsecured bond #2 dueon June 26, 2015
Unsecured bond #3 dueon November 4, 2016
Unsecured bond #4 dueon November 2, 2018
Unsecured bond #5 dueon November 2, 2018
Unsecured bond #6 dueon March 11, 2019
Unsecured bond #7 dueon March 11, 2024
Total

As of December 31, 2013
WeightedaverageAmountinterest rate
(Thousandsof yen)As of June30, 2014

Amount(U.S. dollars)－－¥12,000,000

1.52000%$

5,000,000

1.29000%

5,000,000

1.29000%

49,358,341

5,000,000

1.01000%

5,000,000

1.01000%

49,358,341

2,000,000

1.40000%

2,000,000

1.40000%

19,743,337

5,000,000

0.46000%

5,000,000

0.46000%

49,358,341

5,000,000

0.46000%－－

49,358,342

8,000,000¥30,000,000

1.13000%－¥29,000,000－

78,973,347$296,150,049

¥

－

50

9.

Investment Corporation Bonds (continued)

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

Investment
corporation bonds

Investment
corporation bonds

1 year or less

1 to 2 years¥5,000,000–

1 year or less

1 to 2 years$49,358,341–

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

2 to 3 years
3 to 4 years(U.S. dollars)$49,358,341–

4 to 5 years

Over 5 years¥12,000,000¥8,000,000

4 to 5 years

Over 5 years$118,460,020 $78,973,347

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

11. Per Unit Information
JEI implemented a five-for-one split of its investment units with January 1, 2014 as theeffective date.
Net assets per unit as of June 30, 2014 were calculated based on the number of units
outstanding as of June 30, 2014, i.e. 1,212,750 units after completion of the abovementioned
five-for-one split of its investment units.
Net income per unit for the period from January 1, 2014 to June 30, 2014 was calculated
based on the weighted-average number of units outstanding during the respective period, i.e.
1,198,783 units.
Net assets per unit as of December 31, 2013 and net income per unit for the period from July
1, 2013 to December 31, 2013 were calculated based on the number of units of 1,124,750,
which would have been outstanding if the abovementioned five-for-one split of its investment
units had been implemented at the beginning of this period.
Accordingly, net assets per unit were ¥108,017 ($1,066) as of June 30, 2014 and ¥107,324 asof December 31, 2013. Net income per unit was ¥2,511 ($25) for the period from January 1,
2014 to June 30, 2014, and ¥2,466 for the period from July 1, 2013 to December 31, 2013.

51

12. Income Taxes
JEI is subject to income taxes in Japan.
JEI’s policy is to make dividend distributions in excess of 90% of distributable income foreach fiscal period in order to meet the condition set forth in the Special Taxation Measures
Law of Japan concerning the deductibility of cash dividends paid for income tax purposes.
Details of significant components of deferred tax assets and liabilities as of June 30, 2014 andDecember 31, 2013 are summarized as follows:
As of
As of
June 30,
December 31,
2014
2013
(Thousands of yen)
Deferred tax assets:
Accrued enterprise taxes
Total deferred tax assets
Net deferred tax assets

¥23
23
¥23

¥23
23
¥23

As of
June 30,
2014(U.S. dollars)
$223
223
$223

A reconciliation of the differences between the statutory tax rate and the effective tax rate forthe periods from January 1, 2014 to June 30, 2014 and from July 1, 2013 to December 31,
2013 is as follows:
For the period
For the period
from January 1, from July 1, 20132014 to June 30, to December 31,
2014
2013
Statutory tax rate
Reconciliation:
Deductible distributions paid
Other
Effective tax rate

36.59%

36.59%(36.57)0.02
0.04%(36.57)0.02
0.04%

Adjustment in deferred tax assets and deferred tax liabilities due to tax rate change
The “Act for Partial Revision of Income Tax Act” (Act No.10 of 2014) promulgated on March
31, 2014 partially revised the “Special Measures to Secure the Funds to Realize the
Restoration of the Damages following the Great East Japan Earthquake” (Act No.117 of
2011) to limit the taxation period of the special corporate tax for restoration to March 31,
2014, resulting in a change of the statutory tax rate applicable to the deferred tax assets anddeferred tax liabilities arising from the temporary differences that are expected to be resolvedin the fiscal period starting on April 1, 2014 and after to 34.16%. The impact of this change isminimal.

5213. Breakdown of Property Rental Business Revenues and Expenses
For the period
For the period
from January 1, from July 1, 20132014 to June 30, to December 31,
2014
2013
(Thousands of yen)
Rental business revenues:
Rental revenues
Other
Total rental businessrevenues
Property operating expenses:
Property management costs
and fees
Utilities
Property and other taxes
Insurance
Repairs and maintenance
Depreciation
Other
Total property operating
expensesProfit

For the period
from January 1,
2014 to June 30,
2014(U.S. dollars)¥8,599,070
959,325¥7,957,889
890,351$84,887,170
9,470,142

9,558,395

8,848,240

94,357,312

1,272,707
1,013,223
699,483
27,459189,1621,624,845
195,685

1,110,059
1,005,469
632,315
24,956
121,725
1,504,360
206,126

12,563,740
10,002,200
6,905,066
271,064
1,867,340
16,039,933
1,931,742

5,022,564¥4,535,831

4,605,010¥4,243,230

49,581,085$44,776,227

14. Leases
JEI leases properties on which rental revenues are earned. At June 30, 2014 and December 31,
2013, future lease revenues under non-cancelable operating leases are summarized as follows:
As of
As of
June 30,
December 31,
2014
2013
(Thousands of yen)
Due within one year
Due after one year
Total

¥

606,136489,252¥ 1,095,388¥ 442,335
517,255¥ 959,590

As ofJune 30,
2014(U.S. dollars)$ 5,983,574
4,829,734$ 10,813,308

53

15.

Derivative Transactions

Derivative Transactions as of June 30, 2014
(1) Hedge accounting not applied
Not applicable.
(2) Hedge accounting applied
The following are the contract values or values corresponding to the principal amount as
stipulated by contract as of June 30, 2014 for each hedge accounting method applied.
Hedge
accounting
methodType of derivativetransaction

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

Hedgeditem

SpecialInterest-rate swap
treatment ofLong-term
Receive floating,interest-rate
debt
pay fixed
swaps¥65,400,000¥65,400,000

Method ofcalculating
the fair value*

Contract amount
Fair
More thanvalue
one year(U.S. dollars)$645,607,108$645,608,108

Method ofcalculating
the fair value** Since the above interest-rate swap qualifies for hedge accounting and meets certain matching criteria, theswap is not recorded at fair value on the accompanying balance sheets, as described in the summary ofsignificant accounting policies.
In addition, since the swap and the long-term debt hedged by the swap are accounted for as a unit, the fairvalue of the swap is disclosed as part of the fair value of the hedged long-term debt in the fair value
disclosure in Note 5, “Financial Instruments.”

Derivative Transactions as of December 31, 2013
(1) Hedge accounting not applied
Not applicable.
(2) Hedge accounting applied
The following are the contract values or values corresponding to the principal amount as
stipulated by contract as of December 31, 2013 for each hedge accounting method
applied.
Hedge
accounting
methodType of derivativetransaction

Hedgeditem

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

Contract amount
Fair
More thanvalue
one year(Thousands of yen)
¥57,900,000¥57,900,000

Method ofcalculating
the fair value** Since the above interest-rate swap qualifies for hedge accounting and meets certain matching criteria, theswap is not recorded at fair value on the accompanying balance sheets, as described in the summary ofsignificant accounting policies.
In addition, since the swap and the long-term debt hedged by the swap are accounted for as a unit, the fairvalue of the swap is disclosed as part of the fair value of the hedged long-term debt in the fair value
disclosure in Note 5, “Financial Instruments.”54

16. Related Party Transactions
For the period from January 1, 2014 to June 30, 2014
(1) Parent company and major corporate unitholders
Not applicable.
(2) Affiliates
Not applicable.
(3) Sister companies
Not applicable.
(4) Directors and major individual unitholders
Description oftransaction

Name
Hidehiko
Ogawa

Payment of asset
management fees to
JEAM

Amount(Thousands(U.S. dollars)of yen)¥397,206$3,921,087

Account
Accounts
payableBalance at the end of period(Thousands(U.S. dollars)of yen)¥269,840$2,663,768

For the period from July 1, 2013 to December 31, 2013
(1) Parent company and major corporate unitholders
Not applicable.
(2) Affiliates
Not applicable.
(3) Sister companies
Not applicable.
(4) Directors and major individual unitholders
Name
Chifumi Toda

Description oftransaction
Payment of asset
management fees to
JEAM

Amount(Thousands of yen)
¥389,209

Account
Accounts
payableBalance at the end of period(Thousands of yen)
¥250,27755

17. Segment Information
For the periods from January 1, 2014 to June 30, 2014 and from July 1, 2013 to
December 31, 2013
Since JEI has been engaged in the real-estate leasing business as a single segment, segment
information has been omitted.
Information about products and services
Since revenues from external customers for a single segment of similar products and services
accounted for more than 90% of total operating revenues, information about products andservices has been omitted.
Information about geographic area
(1) Revenues
Since 100% of the total operating revenues were generated from external customers
within Japan, geographical breakdown of revenues has been omitted.
(2) Property and equipment
Since 100% of total property and equipment on the balance sheet are located within
Japan, geographical breakdown of such property and equipment has been omitted.
Information about major clients
Since no single external client represents 10% or more of JEI’s total operating revenues,
information about major clients has been omitted.

18. Distribution Information
In accordance with Section 33.1.2 of the bylaws set forth by JEI for distributions of cash
dividends, the amount of dividends payable, which is limited by the amount of unappropriatedretained earnings, shall be in excess of 90% of its distributable income for the fiscal period as
set forth in Section 67.15 of the Special Taxation Measures Law. Consequently, JEI set
income available for distributions of dividends at ¥3,010,045,500 ($29,714,171), which is the
maximum integral multiple of the 1,212,750 units issued not exceeding unappropriatedretained earnings at June 30, 2014. No cash distribution exceeding the income amount set
forth in Section 33.1.4 of the bylaws of JEI shall be made.
On August 18, 2014, the Board of Directors approved a resolution to make a cash distributionof ¥2,482 ($25) per unit aggregating to ¥3,010,045,500 ($29,714,171) to unitholders of record
as of June 30, 2014.

19. Significant Subsequent Events
Not applicable.

56