Asset Management Report for 23rd Period(Semi-Annual Report for 23rd Period)
From July 1, 2017 to December 31, 2017

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)1

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 23rd period (from July 1, 2017 to December 31, 2017).
During the 23rd period, we worked to improve profitability by transferring properties (24.3 billion yen in total) with low
profitability as part of future asset replacement, in addition to additionally acquiring properties (8.3 billion yen in total)
centering on a joint ownership property from the sponsor.
In addition, we worked to attract new tenants while prioritizing the increase of the rent level and conclude upward rent
revisions, promoting an increase of rental revenues.
Furthermore, we successfully strengthened financial standing by lowering the LTV level, raising the ratio of fixedinterest rates and extending the average remaining period of interest-bearing debt, through repayment and refinancing ofborrowings.
As a result, JEI recorded operating revenue of 11,085 million yen, operating income of 4,519 million yen and net incomeof 3,700 million yen, all marking a new record high. Distribution per unit increased by 20 yen from the previous period
to 2,670 yen.

About Future Asset Management
The real estate transaction market is expected to see real estate transaction prices remaining high, backed by thecontinuing favorable fund procurement environment, strong appetite for investment by market participants and otherfactors. In the office building transaction market, the vacancy rate and rent levels are expected to continue to improve forthe time being supported by active office demand. On the other hand, market trends must be watched more carefully as
an increase in supply of office space is expected especially in central Tokyo.
With this perspective, JEI will continue with growth through investment in prime real estate as well as asset replacement
utilizing also the sponsor pipeline, with an aim to expand its asset size and improve profitability over the medium to longterm. Furthermore, JEI will endeavor to enhance profitability of the entire portfolio by not only maintaining the highoccupancy rate but also by improving the rent level based on market trends and proactively implementing renovation
work to maintain and improve competitiveness going forward. In terms of finance, JEI will strive to conduct stablefinancial management by working to reduce financing costs, while continuing to follow the basic policy of fixing interest
rates of loans, extending borrowing periods and diversifying maturity dates.
In addition, JEI remains committed to strict adherence to the Financial Instruments and Exchange Act and other laws andregulations to promote compliance, as well as to accurate and easy-to-understand disclosure of the status of ouroperations 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 23rd period (Semi-Annual Report for 23rd Period)

2II. Asset Management Report
1. Outline of asset management operation(1) Operating results and financial position of the Investment Corporation
19th Period
July 1, 2015 to
December 31,
2015

20th Period,
January 1,
2016 to June30, 2016

10,83910,223

10,653

10,642

11,085(10,669)(10,223)(10,653)(10,642)(10,806)

6,537

6,240

6,431

6,488

6,565

(5,916)(5,655)(5,849)(5,890)(5,931)

4,301

3,982

4,221

4,154

4,519

3,385

3,113

3,407

3,460

3,701

3,384

3,112

3,406

3,459

3,700

284,443

283,653

296,081

297,177

282,197(-5.5)(-0.3)

(4.4)

(0.4)

(-5.0)

137,857

137,808

143,640

143,693

143,933(5.2)(-0.0)

(4.2)

(0.0)

(0.2)

134,434

134,434

139,972

139,972

139,972(units)

1,264,450

1,264,450

1,305,700

1,305,700

1,305,700(yen)

109,025

108,987

110,010110,050

110,234(yen)(Millions of
yen)
(yen)

2,685

2,461

2,614

2,649

2,833

3,161

3,113

3,406

3,460

3,486

2,500

2,462

2,609

2,650

2,670

(yen)

(2,500)(2,462)(2,609)(2,650)(2,670)

(yen)

(－)

(－)

(－)

(－)

(－)

Fiscal period
Operating revenue(Rental revenues)
Operating expenses(Property operating expenses)
Operating income
Ordinary income
Net income
Total assets(Period-on-period change)
Net assets(Period-on-period change)
Unitholders’ capital
Total outstanding investment
units
Net assets per unit
Net income per unit (Note 1)
Total distribution
Distribution per unit
(Profit distribution per unit)(Distribution in excess ofearnings per unit)
Return on assets (Note 2)(Annualized rate)
Return on equity (Note 3)(Annualized rate)
Capital ratio (Note 4)(Period-on-period change)
Payout ratio (Note 5)
Number of investment
properties
Number of tenants
Total leasable space (Note 6, 7)
Occupancy rate

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

21st Period
22nd Period
23rd Period
July 1, 2016 to January 1, 2017
July 1, 2017
December 31,
to Juneto December 31,
2016
30, 2017
2017

(%)

1.2

1.1

1.2

1.2

1.3

(%)

(2.3)

(2.2)

(2.3)

(2.4)

(2.5)

(%)

2.5

2.3

2.4

2.4

2.6

(%)

(5.0)

(4.5)

(4.8)

(4.9)

(5.1)

(%)

48.5

48.6

48.5

48.4

51.0

(%)

(4.9)

(0.1)

(-0.1)(-0.2)

(2.7)

(%)

93.4

100.0

100.0

100.0

94.2

(properties)

30

30

31

31

29

(tenants)

224

228

237

242

243

356,918

356,8542

356,884

362,305362,292(%)(Millions ofyen)(Millions of
yen)

98.5

99.1

99.0

99.4

99.1

1,908

1,899

1,956

1,967

1,972

635

729

1,294

1,056

1,092

Net operating income (NOI)(Note 8)Funds from operation (FFO) per
unit (Note 9)
FFO multiples (Note 10)
Debt service coverage ratio(DSCR) (Note 11)(Millions of
yen)

6,662

6,467

6,760

6,719

6,847

(yen)

4,051

3,964

4,107

4,156

4,131

(times)

16.5

17.6

18.2

14.9

16.0

(times)

8.1

8.2

9.4

10.7

10.7

Interest-bearing debt

(Millions of
yen)
(%)

131,900

131,900

137,900

137,900

122,500

46.4

46.5

46.6

46.4

43.4

184

182

184

181

184

Depreciation
Capital expenditure

Loan-to-value (Note 12)
Number of days in operation(m )(days)

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)3

(Note 1) Net income per unit is calculated by dividing the net income by the weighted-average number of units outstanding during
the six months period.
(Note 2) Return on assets = Ordinary income / [(Period beginning total assets) + (Period end total assets) / 2] × 100(Note 3) Return on equity = Net income / [(Period beginning net assets) + (Period end net assets)/ 2] × 100(Note 4) Capital ratio = Period end net assets / Period end total assets × 100(Note 5) Payout ratio = (Distribution per unit (not including distribution in excess of earnings per unit) / Net income per unit) × 100(Figures are rounded to the first decimal place.)
The payout ratio for the 19th and 21st periods are calculated with the following formula as new investment units were
issued.
Payout ratio = Total distributions (not including distribution in excess of earnings) / Net income) × 100(Note 6) For properties with joint ownership, a figure obtained by multiplying the leasable space of the entire property by theownership ratio is indicated as JEI’s leasable space. The same shall apply hereinafter.
(Note 7) Spaces are rounded to the nearest specified unit. The same applies hereinafter.
(Note 8) NOI = Rental revenues – Property operating expenses + Depreciation(Note 9) FFO per unit = (Net income + Depreciation – Gain on sale of real estate + Loss on sale of real estate) / Total number ofoutstanding investment units (the figure is rounded down to the whole number).
(Note 10) FFO multiples = Period end investment unit price / Annualized FFO per unit
(Note 11) DSCR = Net income before interest and taxes + Depreciation / (Interest expenses + Interest expense on investment
corporation bonds)(Note 12) Loan-to-value = Period end interest-bearing debt / Period end total assets × 100

Asset Management Report for 23rd period (Semi-Annual Report for 23rd 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, JEI has continued investment management
primarily in office buildings with the aim of maintaining sound corporate growth and stable revenues from themedium- to long-term perspectives. On December 31, 2017, JEI settled its twenty-third period.
1) Business conditions and results
The Japanese economy during the 23rd period (ended December 2017) is on a recovery trend continuing fromthe previous period, against the backdrop of the recovery of the world economy and the pickup in consumer
spending, as well as of corporates’ investment appetite fostered by growing sense of labor shortage among
other factors.
In the real estate transaction market, transaction yields were at low level amid the continuing favorable fundprocurement environment, and real estate transaction prices remain high. Market participation of overseas
investors, private funds, private REITs and general companies, etc. is also continuing.
In the office building leasing market, tenant needs for floor area increase in the same building, relocation for
expansion and better location, etc. continue to be apparent, and vacancy rates and asking rent levels are
improving. JEI has conducted leasing activities emphasizing rent levels and has promoted upward rent
revisions to suit the value of properties for current contracts by ensuring to seize opportunities of upward rent
revision. n. As to new contracts, JEI has conducted leasing activities while setting higher rent levels based onmarket trends. As a result, rental revenues at the end of the 23rd period increased 0.9% from the previous
period to 9,851 million yen.
The total number of properties owned and managed by JEI at the end of the current period was 29 with totalacquisition price of 270.0 billion yen and total leasable space of 356,853.73 m2 (107,948.25 tsubo).
2) Fund procurement highlights
During the 23rd period, JEI borrowed a total of 8.6 billion yen in August as funds to acquire Kowa NishiShimbashi Building and additional interest in Akasaka Garden City, etc., with an average borrowing periodof 7.8 years and an average interest rate of 0.77%.
Moreover, JEI refinanced the total of 12 billion yen of loans matured in November (average borrowing
period: 5.9 years; average interest rate: 1.41%) with loans with an average borrowing period of 5.2 years andan average interest rate of 0.57%.
In addition, JEI conducted an early repayment of loans totaling 24 billion yen in December using proceedsfrom the sales of Akasaka Garden City and No. 44 Kowa Building.
As a result of the above, as of the end of the 23rd period the average remaining period of interest-bearing
debts (Note 1) was 4.4 years (extended by 0.7 years from the end of the previous period) and the period end
average interest-bearing debt interest rate (Note 2) was 0.85% (up 0.03% from the end of the previous
period) and the loan to value ratio to the total assets (total assets-based LTV) was 43.4% (down 3.0% fromthe end of the previous period).
In addition, JEI continues to have commitment lines of 14.0 billion yen to reduce refinancing risk, enhancestability for fund procurement, etc.
The ratings granted to JEI by the following rating agencies are shown below:(Ratings as of December 31, 2017)
Individual debt issue rating
Issuer rating (outlook)
Credit rating agency(Note 3)
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)
Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)53) Financial results and distribution highlights
As a result of the above management, JEI posted 11,085 million yen in operating revenue, 4,519 million yen
in operating income, 3,701 million yen in ordinary income and 3,700 million yen in net income for the period
under review.
Upon considering distributions in the period under review, JEI applied special provisions of the tax system on
investment corporations (Section 67-15 of the Special Taxation Measures Law) as well as the “Special
Provisions for Taxation in Cases of Repurchase of Specified Assets” (Article 65-7 of the Special Taxation
Measures Law) for the purpose of stabilizing the distribution level.
Based on the above, JEI determined to internally reserve part of unappropriated retained earnings at the end of
period (214,060,652 yen) as reduction entry and to distribute 3,486,219,000 yen, which is the maximum
integral multiple to 1,305,700 units issued and outstanding as the distribution of earnings, not exceeding
unappropriated retained earnings after deducting the internal reserve. Accordingly, distribution per unit for theperiod was 2,670 yen.

(Note 1) Average remaining period of interest-bearing debts = Remaining period of borrowings and investment
corporation bonds before repayment dates and maturity dates as of the end of the period ÷ Balance of relevantborrowings and investment corporation bonds as of the end of the period (weighted average)(Note 2) The period end average interest-bearing debt interest rate is calculated by using a weighted–average of theinterest at the end of the current period, by balance of respective interest-bearing debt with all the interestbearing debts.
(Note 3) The rating of JCR is for the 4th series unsecured investment corporation bonds, 5th series unsecured
investment corporation bonds, 6th series unsecured investment corporation bonds, 7th series unsecured
investment corporation bonds, 8th series unsecured investment corporation bonds, 9th series unsecured
investment corporation bonds, 10th series unsecured investment corporation bonds and 11th series unsecured
investment corporation bonds. The rating of R&I is for the 4th series unsecured investment corporation bonds.

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)63) Capital Increase
JEI had no changes in the total number of outstanding investment units for the period under review. The outline of
the changes in the total number of outstanding investment units and unitholders’ capital until the end of the period
under review are as follows:
Unitholders’ capital
Capital transaction (units)
Capital transaction
Remarks
Paid-up Date
(Millions of yen)
ChangeFebruary 20, 2006
June 26, 2006
July 21, 2006
July 11, 2007
August 8, 2007
January 31, 2011
February 28, 2011
January 30, 2013
February 27, 2013
January 1, 2014
January 27, 2014
February 26, 2014
July 13, 2015
August 12, 2015
July 11, 2016
August 10, 2016

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

Balance

ChangeBalance

400

400

200

200

(Note 1)

128,000

128,400

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

134,800

3,211

67,641(Note 3)19,000

153,800

18,702

86,344(Note 4)

750

154,550738

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

13,608100,691(Note 6)

3,100

188,650

1,360

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

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

224,950

1,440

117,901(Note 9)899,800

1,124,750–

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

9,135

127,036(Note 11)8,000

1,212,750

913

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

5,894

133,845(Note 13)4,700

1,264,450

589

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

5,034

139,469(Note 15)3,750

1,305,700

503

139,972(Note 16)

(Note 1) JEI was incorporated through private placement at a price of 500,000 yen per unit.
(Note 2) New investment units were issued at an offer price of 520,000 yen per unit (issue price of 501,800 yen per unit) through apublic offering in order to fund acquisition of new properties which were acquired at the time of the listing.
(Note 3) New investment units were issued at an issue price of 501,800 yen per unit through an allocation of investment units to athird party in order to partially fund new property acquisitions.
(Note 4) New investment units were issued at an offer price of 1,019,200 yen per unit (issue price of 984,360 yen per unit) through apublic offering in order to partially repay debts procured to acquire properties.
(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.
(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 and to fund acquisition of a new property.
which was acquired.
(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 and to fund acquisition of a new property.
(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.
(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.
(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.

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)7

(Note 12) New investment units were issued at an issue price of 114,196 yen per unit through an allocation of investment units to athird party in order to partially fund future acquisitions of specified assets or repayment of loans and redemption of
investment corporation bonds.
(Note 13) New investment units were issued at an offer price of 129,675 yen per unit (issue price of 125,419 yen per unit) through apublic offering in order to partially repay debts procured to acquire properties.
(Note 14) New investment units were issued at an issue price of 125,419 yen per unit through an allocation of investment units to athird party in order to partially fund future acquisitions of specified assets or partially fund repayment of loans.
(Note 15) New investment units were issued at an offer price of 138,742 yen per unit (issue price of 134,259 yen per unit) through apublic offering in order to partially repay debts procured to acquire properties.
(Note 16) New investment units were issued at an issue price of 134,259 yen per unit through an allocation of investment units to athird party in order to partially fund future acquisitions of specified assets or partially fund repayment of loans.
(Note 17) At JEI, there exist no investment units held by JEI (investment units without voting rights provided in Article 308-2 of the
Corporate Law which will be applied mutatis mutandis pursuant to Article 94 of the Investment Trust Law) or cross-heldinvestment units (investment units without voting rights provided in Article 160 of the Investment Trust Enforcement
Ordinance) as of the end of 23rd period.
Fiscal period
Accounting period
Unappropriated retained
earnings at end of period(Thousands of yen)
Retained income(Thousands of yen)
Total cash distribution
amount (Thousands of yen)
(Cash distributions perunit) (yen)Of which, total profit
distributions (Thousands ofyen)(Profit distribution per unit)(yen)
Of which, total refund ofinvestment equity(Refund of investment
equity per unit)
Of total refund ofinvestment equity, total
distribution amount fromreserve for temporary
difference adjustments(Of refund of investment
equity per unit, distribution
amount per unit fromreserve for temporary
difference adjustments)
Of total refund ofinvestment equity, total
distribution amount from
distribution reducing
unitholders’ capital for tax
purpose(Of refund of investment
equity per unit,
distribution amount perunit from distribution
reducing unitholders’capital for tax purpose)

19th period

20th period

21st period

22nd period

23rd period

July 1, 2015 to
December 31, 2015

January 1, 2016 toJune 30, 2016

3,385,019

3,113,717

3,406,981

3,460,111

3,700,279

261,241

641

409

6

214,060

3,161,125

3,113,075

3,406,571

3,460,105

3,486,219(2,500)(2,462)(2,609)(2,650)(2,670)3,161,125

3,113,075

3,406,571

3,460,105

3,486,219(2,500)(2,462)(2,609)(2,650)(2,670)

－

－

－

－

－

(－ )

(－ )

(－ )

(－ )

(－ )

－

－

－

－

－

(－ )

(－ )

(－ )

(－ )

(－ )

－

－

－

－

－

(－ )

(－ )

(－ )

(－ )

(－ )

July 1, 2016 toJanuary 1, 2017 January 1, 2017
December 31, 2016 to June 30, 2017 to June 30, 2017

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

8[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:
19th period
21st period
23rd period
Fiscal period
20th period
22nd period(December(December(December
Investment(June 2016)(June 2017)(closing date)
2015)
2016)
2017)
unit market
Highest (yen)141,900
161,000
149,200
147,200
137,200
price
Lowest (yen)122,400
123,200
132,900
125,100
121,100(Note)The highest and lowest prices of investment units refer to the closing prices on the Real Estate Investment Trust Section of
the Tokyo Stock Exchange.

(4) Distributions Paid
Upon considering distributions in the period under review, JEI applied special provisions of the tax system on
investment corporations (Section 67-15 of the Special Taxation Measures Law) as well as the “Special Provisions
for Taxation in Cases of Repurchase of Specified Assets” (Article 65-7 of the Special Taxation Measures Law)for the purpose of stabilizing the distribution level.
Based on the above, JEI determined to internally reserve part of unappropriated retained earnings at the end of
period (214,060,652 yen) as reduction entry and to distribute 3,486,219,000 yen, which is the maximum integral
multiple to 1,305,700 units issued and outstanding as the distribution of earnings, not exceeding unappropriatedretained earnings after deducting the internal reserve. Accordingly, distribution per unit for the period was 2,670
yen.

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

9(5) Policy and Issues on Future Investment Management
1) Outlook for investment environment
In the real estate market, while transaction yields are drawing closer to the level where room for further
lowering is scarce, real estate transaction prices are expected to remain high backed by factors such as thefavorable fund procurement environment and vigorous appetite for investment by market participants.
In the office building leasing market, the vacancy rate and the asking rent level are forecasted to improvecentering on competitive buildings for the time being, as the office demand is strong. Going forward,
focusing on market trends seems necessary as increase in the amount of office floor supply is expected
mainly in central Tokyo.
2) Policy and issues on future investment management
For external growth, JEI will continue striving to acquire, including replacing assets, competitive properties
with well-balanced investments based on size and target area to increase asset size and realize stableprofitability in its portfolio over the medium to long term. JEI will continue enhancing further interaction
and collaboration with sponsor companies and have the asset management company newly cultivate andrefine property information sources in an effort to promptly gain access to market information on dispositionof properties and thereby keep seizing the right business opportunities.
For internal growth, JEI will continue to make efforts to capture the needs of existing tenants in a timely
manner by further strengthening finely-tuned relationships. JEI will aim to enhance earnings of the entire
portfolio by continuously making additional strategic investments in order to maintain asset value andimprove property competitiveness over the medium to long term while setting new rents based on market
trends as well as promoting upward rent revisions to realize rents that are more suitable for the property
value, along with the aforementioned initiatives.
Regarding financial operations, while fund procurement for long-term and with fixed interest rates willremain as its basic policies, JEI will consistently work on stable and sound financial operations.
(6) Subsequent Events
None

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)10

2. Outline of the Investment Corporation(1) Investment units
19th
As of December
31, 2015

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

20th
As of June 30,
2016

21st
As of December
31, 2016

22nd
As of June 30,
2017

23rd
As of December
31, 2017

10,000,000 units

10,000,000 units

10,000,000 units

10,000,000 units

10,000,000 units

1,264,450 units

1,264,450 units

1,305,700 units

1,305,700 units

1,305,700 units

Unitholders’ capital

134,434 million yen 134,434 million yen 139,972 million yen 139,972 million yen

139,972 million yen

Number of unitholders

8,465 individuals

7,680 individuals

7,686 individuals

7,850 individuals

8,086 individuals(2) Unitholders
Major unitholders as of December 31, 2017 are as follows:
Number ofunits held
(Units)Ratio of number ofunits held tooutstanding
investment units(%)

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

353,977

27.11

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

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

171,525

13.14

Nippon Steel Kowa Real EstateCo., Ltd.

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

71,560

5.48

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

64,4694.94

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

52,772

4.04

ONE LINCOLN STREET, BOSTON MA
USA 02111

23,722

1.82

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

21,219

1.63

The Dai-ichi Life Insurance
Company, Limited

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

20,6601.58

DFA INTERNATIONAL REALESTATE SECURITIESPORTFOLIO

6300 BEE CAVE ROAD, BUILDING ONE
AUSTIN TX 78746 US

16,913

1.30

STATE STREET BANK WEST
CLIENT - TREATY 505234

1776 HERITAGE DRIVE, NORTHQUINCY, MA 02171,U.S.A.

16,086

1.23

Total

812,903

62.26

Name

Trust & Custody Services Bank,
Ltd. (Securities Investment Trust
Account)
The Nomura Trust and Banking
Co., Ltd. (Investment Trust
Account)
STATE STREET BANK AND
TRUST COMPANY 505012

Address

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

11

(3) Officers
1) Directors and accounting auditor
Compensation or fee forthe six months ended
December 31, 2017
(Thousands of yen)

Post

Name

Executive
Director

Hidehiko Ogawa

President, Japan Excellent Asset Management
Co., Ltd.

Supervisory
Director

Tsuyoshi Nagahama

Advisor, Anderson, Mori & Tomotsune

Shunichi Maekawa

Professor, Sugiyama Jogakuen University, Schoolof Modern Management

Eiji Takagi

Eiji Takagi Certified Public Accounting Office

Supervisory
Director
Supervisory
Director
Accounting
AuditorErnst & Young
ShinNihon LLC

Major additional post

–

6,540

12,200(Note 2)–

(Note 1) There are no investment units of JEI held by either the Executive Director or the Supervisory Directors. Although
Supervisory Directors may have additional posts in companies other than those listed above, there is no conflict of interests
between those companies, including those listed above, and JEI.
(Note 2) The total amount of compensation or fee shown above is an estimated amount and indicates the total of the amount paid ascompensation for auditing during the 23rd period (11,000 thousand yen) and the fee for the English financial statements
audit.

2) Policy on dismissal and discontinuation of re-election of accounting auditor
The board of directors of JEI shall deliberate dismissal of accounting auditor in accordance with the provisions
set out in the Investment Trust Law, and deliberate discontinuation of re-election based on circumstances in all
respects.
3) Matters concerning an entity which received a business suspension order in the past two years
The accounting auditor of JEI received an order to suspend accepting new engagements for 3 months (fromJanuary 1, 2016, to March 31, 2016) from the Financial Services Agency on December 22, 2015.
(4) Name of Asset Management Company, Asset Custodian and Administrative Agents
JEI’s asset management company, asset custodian and administrative agents as of December 31, 2017 are as follows:
Classification

Name

Asset management company

Japan Excellent Asset Management Co., Ltd.

Asset custodian

Mizuho Trust & Banking Co., Ltd.

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

Mizuho Bank, Ltd.

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

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

22nd Period(As of June 30, 2017)

23rd Period(As of December 31, 2017)

Total
acquisition
price (Millionsof yen)(Note 2)

Investment
ratio inportfolio (%)

Total
acquisition
price (Millionsof yen)(Note 2)

Investment
ratio inportfolio (%)

Area I

3,796

1.3

11,032

3.9

Area II

5,650

1.9

5,583

2.0

Area I

116,02739.0

93,492

33.1

Area II

9,111

3.1

9,057

3.2

Area III

101,64434.2

100,441

35.6

Area IV

18,883

6.4

18,747

6.6

OthersTrust beneficiary (commercial
facilities, Area I
interest in realresidence,
estateetc.)

18,025

6.1

17,918

6.3

Total

273,13991.9

256,272

90.8

Deposits in bank and other assets

24,037

8.1

25,925

9.2

Total assets

297,177

100.0

282,197100.0Classification

Use

Real estate
property

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

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

13

(2) Major Property
The principal properties (top ten properties in net book value) owned by JEI as of December 31, 2017 are as
follows:
Ratio of rental
Book value
Leasable space Leased space Occupancy revenue to total
Name
Major use
(Millions ofrate (%)(m ) (Note 1)(m ) (Note 2)
rental revenues(Note 3)yen)(%)
Kowa Kawasaki
Office29,07638,375.65
37,371.15
97.4
8.7
Nishiguchi Buildingbuilding
OfficeAKASAKA INTERCITY
27,13811,021.03
10,870.26
98.6
5.4
building
Nisseki Yokohama
Office23,93340,440.73
40,314.37
99.7
10.6
Buildingbuilding
OfficeOmori Bellport D
21,04025,801.66
25,801.66
100.0
8.7
building
Other(commercial
HAMARIKYU
6.8 facilities,
17,91819,718.11
19,558.46
99.2
INTERCITY
residence,etc.)
Musashikosugi Tower
Office12,65925,043.93
25,043.93
100.0
7.5
Place
building
OfficeMansard Daikanyama
11,4055,420.80
4,625.14
85.3
2.7
building
Kowa Nishi-Shimbashi
Office11,032
8,949.04
8,949.04
100.0(Note 4)
Buildingbuilding
Daiba Garden City
Office9,981
12,122.85
12,122.85
100.0
3.1
Buildingbuilding
Kowa Kawasaki
Office9,483
18,612.72
18,612.72
100.0(Note 4)
Higashiguchi Buildingbuilding
2

Total

173,668

205,506.52

2

203,269.58

98.9

－

－

(Note 1) Leasable space refers to space available for lease of which ownership is attributable to JEI as of December 31, 2017. For
properties with joint ownership, the value is obtained by multiplying the total leasable space of the shared property by thepercentage of the interest owned by JEI, regarding the figure as JEI’s leasable space.
(Note 2) Leased space refers to space with lease contracts or master lease agreements that guarantee a certain amount of fixed rent
payment concluded with end tenants as of December 31, 2017. For properties with joint ownership, the value is obtained bymultiplying the total leased space of the property by the percentage of the interest owned by JEI, regarding the figure as
JEI’s leased space. For properties which are used for profit by the master lease company, leased space refers to the portion
used and the figures indicate space which can be reasonably calculated based on the lease agreement on the master leasing.
The leased space of end tenants who terminated their lease arrangement but have not yet moved out as of the end of period
is included in the leased space. This also applies to any figure which is calculated based on “leased space” in this document.
(Note 3) Occupancy rate is a percentage of total leased space to total leasable space as of December 31, 2017.
(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 23rd period (Semi-Annual Report for 23rd Period)

14

(3) Portfolio Ownership Breakdown
Real estate properties and their forms of ownership as of December 31, 2017 are as follows:
Property
No.

Property nameLocation (Residential address)

Ⅰ-1

Omori Bellport D

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

Ⅰ-2

Shiba 2-Chome Building

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

Ⅰ-3

JEI Hamamatsucho Building

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

Ⅰ-8

AKASAKA INTERCITY

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

Ⅰ-9

Kowa Shirokanedai Building

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

Ｉ-10

Daiba Garden City Building

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

Ⅰ-12

HAMARIKYU INTERCITY

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

Ⅰ-13

Shintomicho Building

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

Ⅰ-14

Kowa Nishi-Shimbashi Building

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

Ⅰ-15

Mansard Daikanyama

10-1 Sarugakucho, Shibuya-ku, Tokyo

NHK Nagoya Housou-Center
Building

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

Ⅱ-1
Ⅱ-2

JEI Nishi-Honmachi Building

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

Ⅱ-3

Osaka Kogin Building (Land with
Leasehold Interest)

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

Ⅲ-1

Musashikosugi Tower Place

Ⅲ-2

Kowa Kawasaki Higashiguchi
Building

Area II
1-403 Kosugi-machi, Nakahara-ku,
Kawasaki-shi, Kanagawa
1-53 Nisshin-cho, Kawasaki-ku, Kawasaki-shi,
Kanagawa

Ⅲ-3

JEI Hongo Building

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

Ⅲ-5

Kawasaki Nisshincho Building

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

Ⅲ-7

JEI RYOGOKU BUILDING

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

Ⅲ-8

Ebina Prime Tower

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

Ⅲ-9

Kowa Kawasaki Nishiguchi Building

66-2 Horikawa-cho, Saiwai-ku, Kawasaki-shi,
Kanagawa

Ⅲ-10

Pacific Square Sengoku

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

Ⅲ-11

Core City Tachikawa

2-37-7 Akebono-cho, Tachikawa-shi, Tokyo
1-1-8 Sakuragi-cho, Naka-ku, Yokohama-shi,
Kanagawa
Area III
2-2-48 Kata-machi, Tsushima-ku, Osaka-shi,Osaka
14-4 Hacchobori, Naka-ku, Hiroshima-shi,
Hiroshima
1-1-2 Kitananajonishi, Kita-ku, Sapporo-shi,
Hokkaido

Ⅲ-12

Nisseki Yokohama Building

Ⅳ-2

JEI Kyobashi Building

Ⅳ-3

JEI Hiroshima Hacchobori Building

Ⅳ-4

SE Sapporo Building

Ⅳ-5

Aoba-dori Plaza

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

Ⅳ-6

Daiwa Minami-morimachi Building

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

Ⅳ-7

JEI Naha Building

2-8-1 Kumoji, Naha-shi, Okinawa

Form of ownership
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Real estate
Trust beneficiaryinterest in real estate
Real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estateAppraisal value
at end of period Net book value(Millions of yen) (Millions of yen)
(Note)
25,70021,04012,000

9,160

7,680

8,219

26,70027,138

5,090

4,766

11,5009,981

22,40017,918

2,050

1,780

12,00011,032

12,20011,405

137,320

122,442

5,720

5,583

4,700

7,192

2,200

1,865

12,62014,64020,70012,659

9,650

9,483

4,750

5,086

4,230

4,355

2,250

2,265

4,340

5,735

25,80029,076

1,300

1,643

8,340

6,201

27,60023,933

108,960

100,441

4,230

2,924

3,410

2,619

7,450

5,286

3,690

2,205

5,240

4,271

1,640

1,438

Area IV

25,66018,747

Total

284,560

256,272(Note) Appraisal value at end of period indicates the appraisal value described in the real estate appraisal report prepared by realestate appraisers belonging to Japan Real Estate Institute, Chuo Real Estate Appraisal Co., Ltd., Japan Valuers Co., Ltd. andDaiwa Real Estate Appraisal Co., Ltd. as of December 31, 2017 pursuant to the articles of incorporation of JEI and theregulations stipulated by the Investment Trusts Association, Japan. For properties with joint ownership in the current portfolio,
the value is obtained by multiplying the total value of the shared real estate by the percentage of the interest owned by JEI or
the trustee.

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

15

Property
No.

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

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

Property name

Omori Bellport D
Shiba 2-Chome Building
JEI Hamamatsucho
Building
Akasaka Garden City
(Note 3)
AKASAKA
INTERCITY
Kowa Shirokanedai
Building
Daiba Garden City
Building
HAMARIKYUINTERCITY
Shintomicho Building
Kowa Nishi-Shimbashi
Building
Mansard Daikanyama
Area I
NHK Nagoya HousouCenter Building
JEI Nishi-Honmachi
Building
Osaka Kogin Building(Land with Leasehold
Interest)
Area II
Musashikosugi Tower
Place
Kowa Kawasaki
Higashiguchi Building
JEI Hongo Building
Kawasaki Nisshincho
Building
No. 44 Kowa Building(Note 3)JEI Ryogoku Building
Ebina Prime Tower
Kowa Kawasaki
Nishiguchi Building
Pacific Square Sengoku
Core City Tachikawa
Nisseki Yokohama
Building
Area IIIJEI Kyobashi Building
JEI Hiroshima
Hacchobori Building
SE Sapporo Building
Aoba-dori Plaza
Daiwa Minamimorimachi Building
JEI Naha Building
Area IV
Total

22nd Period
January 1, 2017 to June 30, 2017
Ratio of
Total number
Occupancy Rental revenue
rentalofrate (At end(Interim)
revenue totenantsof period)(Millions of
total rental(At end(%)yen)
revenuesof period)(Note 1)
(%)
1
100.0
940
8.8
2
100.0
371
3.5

23rd Period
July 1, 2017 to December 31, 2017
Ratio of
Total number
Occupancy Rental revenue
rentalofrate (At end(Interim)
revenue totenantsof period)(Millions of
total rental(At end(%)yen)
revenuesof period)(Note 1)
(%)
1
100.0
937
8.7
2
99.2
158
1.5

1

100.0

209

2.0

1

100.0

226

2.1

1

100.0

390

3.7

-

-

402

3.7

14

100.0

578

5.4

13

98.6

587

5.4

1

100.0

170

1.6

1

100.0

179

1.7

1

100.0

334

3.1

1

100.0

334

3.1

1

98.9

719

6.8

1

99.2

734

6.8

11

100.0

71

0.7

11

100.0

71

0.7

5

100.0

(Note 2)

(Note 2)5100.0(Note 2)

(Note 2)

7
45

97.4
99.7

291
-

2.7
-

8
44

85.3
98.9

294
-

2.7
-

31

94.2

366

3.4

35

96.4

353

3.3

1

100.0

193

1.8

1

96.9

210

2.0

1

100.0

83

0.8

1

100.0

83

0.8

33

97.3

-

-

37

97.0

-

-

40

100.0

778

7.3

40

100.0

812

7.5

1

100.0

(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)

1

100.0

190

1.8

1

100.0

195

1.8

1

100.0

90

0.8

-

-

85

0.8

1
39

95.8
99.6

104
429

1.0
4.0

1
38

100.0
99.7

107
442

1.0
4.1

1

100.0

938

8.8

1

97.4

939

8.7

10
1

100.0
98.5

54
308

0.5
2.9

10
1

100.0
100.0

55
311

0.5
2.9

1

99.7

1,138

10.7

1

99.7

1,149

10.6

97
1

99.7
100.0

168

1.6

95
1

99.3
100.0

182

1.7

1

98.0

141

1.3

1

100.0

148

1.4

1
53

98.6
98.5

361
189

3.4
1.8

1
53

100.0
99.4

368
191

3.4
1.8

10

100.0

195

1.8

10

100.0

198

1.8

1
67
242

91.7
98.5
99.4

74
10,642

0.7
100.0

1
67
243

100.0
99.9
99.1

80
10,8060.7
100.0(Note 1) Total number of tenants indicates the total number of tenants in each property as of the end of each period. For properties forwhich master lease agreements have been concluded, the number of tenants is counted as one per property. When a tenant
has multiple tenancies in the same property, it is counted as one tenant, and when in multiple properties, it is counted as
multiple tenants. As for Osaka Kogin Building (Land with Leasehold Interest), total number of tenants is counted as one
based on the lease agreement for the leased land.
(Note 2) Rental revenue (interim) and ratio of rental revenue to total rental revenues for Kowa Nishi-Shimbashi Building, Kowa
Kawasaki Higashiguchi Building and JEI Hongo Building are not disclosed as consents on disclosure of rents from the end
tenants have not been obtained.
(Note 3) JEI completed sales of Akasaka Garden City and No. 44 Kowa Building on December 20, 2017.

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

16

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

Over-the-countertransaction

Interest rate swap
transactions
Floating interest ratereceivable
Fixed interest rate
payable46,140,000

31,390,000–(Note 1) Contract amount of swap transactions is calculated based on notional principal.
(Note 2) Fair value is omitted for presentation as over-the-counter transactions meet requirements for special accounting under the
Accounting Standard for Financial Instruments.

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

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)17

4. Capital Expenditures for Owned Properties(1) Scheduled Capital Expenditures
The following table shows major items of scheduled capital expenditures for repairs and maintenance planned
for the properties owned by JEI as of the end of the 23rd period (ended December 31, 2017). The values below
include portions to be expensed for accounting purposes.

Property nameLocation

Kowa Kawasaki
Nishiguchi Building

Estimated construction costs(Millions of yen)
Payment
for the six
Total ofmonthsTotal
advanceended
payment
December31, 2017

PurposeSchedule term

Kawasaki-shi,
Kanagawa

Renovation of airconditioning systems(Phase 1/4)

From November 2017
To June 2018

219

－

－

JEI Naha Building

Naha-shi, Okinawa

Renovation of exterior
wall

From February 2018
To June 2018

100

－

－

Musashikosugi Tower
Place

Kawasaki-shi,
Kanagawa

Renewal of central
monitoring equipment(Phase 1/2)

From October 2017
To March 2018

90

－

－

Kowa Kawasaki
Nishiguchi Building

Kawasaki-shi,
Kanagawa

Renovation of elevators(Phase 1)

From January 2018
To June 2017

83

－

－

NHK Nagoya HousouCenter Building

Nagoya-shi, Aichi

Renovation ofbathrooms/kitchens(Phase 1/2)

From April 2017
To March 2018

79

－

－

HAMARIKYUINTERCITY

Minato-ku, Tokyo

Repair of common
space lighting

From January 2018
To May 2018

33

－

－

NHK Nagoya HousouCenter Building

Nagoya-shi, Aichi

Renewal of security
camerasFrom September 2017
To February 2018

31

－

－

(2) Capital Expenditures for the Six Months Ended December 31, 2017
The following table shows constructions conducted by JEI during the period ended December 2017 andexpensed as capital expenditures. Capital expenditures for the period ended December 2017 were 1,092 million
yen and, when combined with repairs and maintenance costs of 202 million yen classified as expenses in the
period under review, the amount of constructions completed totaled 1,295 million yen.
Property nameLocation

PurposeScheduled term

Amounts
Paid (Millions of yen)

Kowa Kawasaki
Nishiguchi Building

Kawasaki-shi,
Kanagawa

Renewal of common space

From March 2017
To December 2017408

Shiba 2-Chome
Building

Minato-ku, Tokyo

Renovation of common spacesof entire office building

From April 2017
To June 201796

Kowa Kawasaki
Nishiguchi Building

Kawasaki-shi,
Kanagawa

Omori Bellport D

Shinagawa-ku, Tokyo

Aoba-dori Plaza

Sendai-shi, Miyagi

Repair of refractory coating
From November 2017
alongside update of passenger
To December 2017
elevators
Renewal of automatic air
From December 2017
conditioning control equipment
To December 2017
(Phase 1/5)
Update of heat accumulator

90

48

From October 2017
To December 2017

38

–

410

Other constructions
Total

1,092

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

18

(3) Reserved Funds for Long-term Repairs and Maintenance Plans
Based on the 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

19th Period
20th Period
22nd Period
21st Period
23rd Period
July 1, 2015 toJuly 1, 2016 toJuly 1, 2017 toJanuary 1, 2016
January 1, 2017
December 31, 2015 to June 30, 2016 December 31, 2016 to June 30, 2017 December 31, 2017

Reserved funds at
beginning of period

317

310

436

450

546

Increase

65

619

675

468

484

Decrease

72

492

662

371

742

Reserved funds at theend of period

310

436

450

546

289

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

19

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

22nd Period
January 1, 2017
to June 30, 2017

23rd Period
July 1, 2017
to December 31, 2017(a) Asset management fees

442,866

457,509(b) Custodian fees

22,025

22,102(c) Administrative service fees

41,48941,804(d) Compensation for directors

6,540

6,540

(e) Accounting auditor fees

11,00011,000(f) Other

73,724

95,510597,646

634,466

Total

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

20

(2) Borrowings
Borrowings by each financing source as of the end of the 23rd period (ended December 31, 2017) are as follows:
Classification
Drawdown

Short-term

Lenderdate

Mizuho Bank, Ltd.

August 10,2017

Balance at
beginning of
period(Thousands ofyen)

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

900,000－

900,000

6,000,000－

1,000,000－

1,000,000－

Sumitomo Mitsui Banking Corporation

1,000,000－

Mizuho Bank, Ltd.

1,000,000－

Aozora Bank, Ltd.

500,000－loans

Sub Total
Development Bank of Japan Inc.

November30, 2010

Mizuho Bank, Ltd.
Mitsubishi UFJ Trust and Banking

July 31,2012

0.25952

Maturity
Date

July 31, 2018

Repayment
methodUse

Lump- Acquisition
sum of real estate

Remarks

Unsecured
andunguaranteed

1.73875(Note 3)

Resona Bank, Ltd.

June 28,500,000－

Sompo Japan Nipponkoa Insurance Inc.

2013

500,000－

500,000－

3,000,000

3,000,000

5,000,000

5,000,000

Mitsubishi UFJ Trust and Banking

2,000,000

2,000,000

Sumitomo Mitsui Banking Corporation

1,100,000

1,100,000

1,000,000

1,000,000

The Norinchukin Bank

1,000,000

1,000,000

The Bank of Fukuoka

700,000

700,000

Resona Bank, Ltd.

200,000

200,000

Mizuho Bank, Ltd.

－

850,000

March 11,

－

2014

－

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

1.19212Tokio Marine & Nichido Fire
Insurance Co., Ltd.
Long-termloans due The Dai-ichi Life Insurance Company
within one
Limitedyear
Mizuho Bank, Ltd.

Shinkin Central Bank

The Norinchukin Bank
Mitsubishi UFJ Trust and Banking
Mizuho Trust & Banking Co., Ltd.
Sub Total

June 29,2011

June 28,2013(Note 3)1.65125

June 29,(Note 3)2018

0.81225

June 30,(Note 3)2018

1,450,000

0.74500

November 1,

850,000(Note 3)2018－

600,000

26,000,000

17,750,000

Lumpsum

Repayment Unsecuredof existingandborrowing unguaranteed

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

21

Classification
LenderBalance at end of
Balance atperiodDrawdown beginning of period(Thousands of(Thousands of
date
yen)
yen)

Mizuho Bank, Ltd.

3,500,000－

Mitsubishi UFJ Trust and Banking January 31,

2,800,000－

2,700,000－

Sumitomo Mitsui Banking

2017

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

March 11,2014

The Norinchukin Bank
Mitsubishi UFJ Trust and Banking
Mizuho Trust & Banking Co., Ltd.
Nippon Life Insurance Company

December
12, 2016

Mizuho Bank, Ltd.
Mitsubishi UFJ Trust and Banking

June 29,

Sumitomo Mitsui Banking

2016

Corporation
Development Bank of Japan Inc.

January 31,
2012

Mizuho Bank, Ltd.
Sumitomo Mitsui Banking
Corporation
Mizuho Trust & Banking Co., Ltd.
Long-term
Mitsubishi UFJ Trust and Banking
loans
The Dai-ichi Life Insurance

June 28,
2013

Company Limited
Mizuho Bank, Ltd.

Averageinterest rate(%) (Note 1)

0.21538

Maturity
date－－

0.74500

November 1,

850,000－(Note 3)

2018－
850,000

1,450,000

1,450,000

0.77500

850,000

850,000(Note 3)600,000

600,000

1,000,000

1,000,000

4,400,000－

4,600,000－

4,000,000－

2,000,000

2,000,000

500,000

500,000

1,000,000

1,000,000
600,000

500,000

500,000

1,000,000

1,000,000

675,000

675,000

March 8, 20190.25000

December(Note 3)12, 2019
December 30,

0.28538

600,000

2019(Note 2)1.60000(Note 3)1.36400(Note 3)January 31,
2020
1.31261(Note 3)

The Norinchukin Bank

December

1,162,500

1,162,500

1.00000

Mitsubishi UFJ Trust and Banking

27, 2013

675,000

675,000(Note 3)

487,500

487,500

2,000,000

2,000,000

2,000,000

2,000,000

520,000

520,000

540,000

540,000

1,080,000

1,080,000

1,620,000

1,620,000

1,950,000

1,950,000

Mitsubishi UFJ Trust and Banking December

2,000,000

2,000,000

0.81875

December 30,

29, 2014

1,200,000

1,200,000(Note 3)2021

600,000

600,000

2,000,000

2,000,000

0.35000

January 31,(Note 3)2022

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

June 28,
2013

The Dai-ichi Life Insurance

July 31,

Company Limited

2014

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

November

Corporation

29, 2016

Sumitomo Mitsui Trust Bank
LimitedMizuho Bank, Ltd.

Mizuho Trust & Banking Co., Ltd.
Resona Bank, Ltd.
Sompo Japan Nipponkoa Insurance
Inc.
Tokio Marine & Nichido Fire

January 31,
2017

Insurance Co., Ltd.
Development Bank of Japan Inc.

July 31,2014

1,000,000

1,000,000

2,000,000

2,000,000

Remarks(Note 2)850,000

850,000

Use

July 31, 2018

1,450,000

600,000

Repayment
methodLumpsum

Repayment Unsecuredof existingandborrowing unguaranteed

1.60750(Note 3)0.98834

June 30, 2021

(Note 3)0.40896

1.15417(Note 3)

November 29,
2021

June 30, 2022

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

22Classification
LenderBalance at end of
Balance at
AverageperiodDrawdown beginning of periodinterest rate
(Thousands of(Thousands of(%) (Note 1)
date
yen)
yen)
－

500,000－

500,000

Mizuho Bank, Ltd.

1,950,000

1,950,000

Mitsubishi UFJ Trust and Banking

2,000,000

Sompo Japan Nipponkoa Insurance Inc.
Tokio Marine & Nichido Fire

November30, 2017

Maturity
date

0.35000

November(Note 3)30, 2022

2,000,000

0.93625

1,200,000

1,200,000(Note 3)

December30, 2022

600,000

600,000

2,000,000

2,000,000

Repayment
methodUse

Remarks

Insurance Co., Ltd.

Mizuho Trust & Banking Co., Ltd.

December29, 2014

Resona Bank, Ltd.
Development Bank of Japan Inc.

June 30,
2015

Mizuho Bank, Ltd.

420,000

420,000

Mitsubishi UFJ Trust and Banking

250,000

250,000

140,000

140,000

1,560,000

1,560,000

Sumitomo Mitsui Banking

1.20250(Note 3)June 30,2023

Corporation
Mizuho Trust & Banking Co., Ltd.

November30, 2015

1,500,000

1,500,000

Resona Bank, Ltd.

500,000

500,000

Aozora Bank, Ltd.

750,000

750,000

The Bank of Fukuoka

150,000

150,000－

1,000,000－

3,500,000－

500,000

Aozora Bank, Ltd.

－

500,000

Development Bank of Japan Inc.

－

3,500,000

The Norinchukin Bank

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

November30, 2017

870,000

870,000

Mitsubishi UFJ Trust and Banking

590,000

590,000

350,000

350,000

1,560,000

1,560,000

Resona Bank, Ltd.

1,000,000

1,000,000

Aozora Bank, Ltd.

750,000

750,000

The Bank of Fukuoka

150,000

150,000

Mizuho Bank, Ltd.

－

2,200,000

Mitsubishi UFJ Trust and Banking－

1,750,000

Sumitomo Mitsui Banking－

1,100,000－

850,000

Aozora Bank, Ltd.

－

500,000

Development Bank of Japan Inc.

－

1,300,000

Sumitomo Mitsui Banking

Mizuho Trust & Banking Co., Ltd.

Corporation
The Norinchukin Bank

November30, 2023

November30, 2015

September
29, 2017(Note 3)0.684310.96275(Note 3)0.83441(Note 3)0.83071(Note 3)

Sub Total

75,900,000

67,850,000

Total

101,900,000

101,900,000

Lumpsum

0.64801(Note 3)

Mizuho Bank, Ltd.

Corporation

0.84375(Note 3)

Repayment Unsecuredof existingandborrowing unguaranteed

May 31,2024

November30, 2024

Marcy 31,2026

September
30, 2026(Note 1) The average interest rates are calculated using a weighted-average of the loan balance during the period. Borrowings hedged
by interest rate swaps to avoid interest rate fluctuation risk are calculated using a weighted average rate adjusting the effectof the interest rate swaps.
(Note 2) Conducted early repayment in full on December 29, 2017.
(Note 3) Loans are fixed-rate loans (including loans with fixed-rate interest using interest rate swaps).

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

23

(3) Investment Corporation Bonds
The outstanding investment corporation bonds issued by JEI as of December 31, 2017 are as follows:
Issue

Issuance date

4th series unsecured
November 4,
investment corporation
2011
bonds
5th series unsecured
Novemberinvestment corporation
25, 2013
bonds
6th series unsecured
investment corporation
bonds
March 10,2014
7th series unsecured
investment corporation
bonds
8th series unsecured
September 9,
investment corporation
2015
bonds
9th series unsecured
October 27,
investment corporation
2016
bonds
10th series unsecured
Decemberinvestment corporation 20, 2016bonds
11th series unsecured
April 25,
investment corporation
2017
bonds
Total

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

Balance at
beginning of period(Thousands ofyen)

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

2,000,000

2,000,000

1.40000

Maturity date

Repayment
methodUse

November 2,
2018(Note 1)

(Note 2)5,000,000

5,000,000

0.46000

5,000,000

5,000,000

0.46000

March 11,2019

8,000,000

8,000,000

1.13000

March 11,2024
Lump-sum(Note 3)5,000,000

5,000,000

1.03000

September 9,2025

2,000,000

2,000,000

0.45000

October 27,
2026(Note 2)2,000,000

2,000,000

0.39000

December 20,
2023(Note 4)7,000,000

7,000,000

0.65000

April 23,2027

(Note 2)36,000,000

36,000,000

Remarks(Note 5)

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

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

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)24

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

Property nameAcquisition
date

Kowa Nishi-Shimbashi
Building (Additional
August 1,
Real estate property
acquisition of2017
ownership interest,
etc.)
Akasaka Garden City
(Additional acquisition August 10,
Real estate property
of co-ownership2017
interest)
Trust beneficiary
Akasaka Garden City－
interest in real estate
Trust beneficiaryNo. 44 Kowa Building－
interest in real estate
Total

－

Transfer

Acquisition
priceTransfer date
(Note 1)

Transfer
price(Note 1)

Net book
value(Note 2)Gain (loss)
on transfer(Note 3)

7,500

－

－

－

－

869

－

－

－

－

22,50023,106

(608)

1,890

1,001

887

24,39024,108279

December 20,
2017
December 20,
－
2017
－

8,369

－

(Note 1) The acquisition price and the transfer price indicate the amounts excluding related expenses (brokerage fee, taxes, etc.)
required for the acquisition or the transfer, thus are the purchase amounts of real estate stated in the trust beneficiaryinterest purchase agreements.
(Note 2) Net book value at the time of transfer is indicated.
(Note 3) Gain (loss) on transfer indicates the amount obtained by subtracting book value and other sales-related expenses fromthe transfer price.

(2) Transactions of Other Assets
None

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

25

(3) Appraisal and Research for Specified Asset Value, etc.
1) Real estate, etc.
Acquisition orTransfer

Name of property

Type of assets

Acquisition/transfer date

Acquisition/
Appraisaltransfer priceValue(millions of(millions of
yen)
yen)

Appraiser

Appraisal
Date(Note)

Acquisition

Acquisition

Kowa NishiShimbashi Building(Additional
acquisition ofownership interest,
etc.)
Akasaka Garden
City (Additional
acquisition of coownership interest)

Real estate
property

August 1,
2017

7,500

7,820

Japan Real
June 1, 2017
Estate InstituteReal estate
property

August 10, 2017

869

1,040

Japan Real
Estate Institute

July 31,
2017

Trust
beneficiary
December 20,
Japan Real November
Transfer
22,50019,100interest in real
Estate Institute 1, 2017
2017
estateTrustbeneficiary
December 20,
Japan Real November
No. 44 Kowa
Transfer
1,890
1,810
interest in real
Estate Institute 1, 2017
2017
Building
estate(Note) The acquisition/transfer price is the purchase/sales price of the property stated in the purchase agreement (excluding theamount equivalent to consumption taxes, etc.).
Akasaka Garden
City2) OthersNone(4) Transactions with Interested Parties
1) Transactions
Acquisition price or disposal amountClassification
Acquisition priceTotal amount

Disposal amount

8,369 million yen

24,390 million yen

Nippon Steel Kowa Real Estate Co., Ltd.

7,500 million yen (89.6%)

1,890 million yen (7.7%)

Total

7,500 million yen (89.6%)

1,890 million yen (7.7%)

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

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

262) Amounts of fees paid and other expenses(Unit: Thousands of yen)
Breakdown of transactions with interested parties
Classification

B/A

Total amount paid (A)Paid to

Property management
costs and fees

Nippon Steel Kowa Real
Estate Co., Ltd.
Kowa Real Estate Facilities,
1,441,309 Co., Ltd.

Amount paid (B)171,910

11.9%

294,386

20.4%

72

0.0%

466,370

32.4%

Nippon Steel Community
Service Co., Ltd.
Total

1,441,309–(Note 1) Figures indicate fees paid to interested parties of asset management companies with whom JEI had transactions during thesix months ended December 31, 2017.
(Note 2) Other than the Total amount paid indicated above, the following payments were made for maintenance and repair work, etc.
which were ordered to interested parties during the period.
Nippon Steel Kowa Real Estate Co., Ltd.
21,433 thousand yen
Kowa Real Estate Facilities Co., Ltd.
662,054 thousand yen
Nihon Sekkei, Inc.
1,709 thousand yen(5)Transactions with Asset Management Company Concerning the Additional Businesses of
the Asset Management Company
The Asset Management Company (Japan Excellent Asset Management Co., Ltd.) does not conduct any
additional business falling under the categories of the type I financial instruments business, type II financial
instruments business, building lots and buildings transaction business, or real estate specified joint enterprise,and had no applicable transactions.

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

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

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

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)27

8. Others(1) Notice1) General unitholders’ meeting
The seventh general unitholders’ meeting of JEI was held on September 29, 2017. The following tablesummarizes the major matters approved by the unitholders’ meeting.
AgendaElection of one executive
director
Election of one substituteexecutive director
Election of three supervisory
directors

Summary
Hidehiko Ogawa was elected as an executive director. The term of his
office is two years from November 1, 2017.
Toshihiko Sasaki was elected as a substitute executive director.
Tsuyoshi Nagahama, Shunichi Maekawa and Eiji Takagi were elected
as supervisory directors. The term of their office is two years from
November 1, 2017.

2) Board of directors meeting
There were no applicable items during the period.

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

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

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

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)28

9. Risk Factors
An investment in JEI’s units involves significant risks. The principal risks with respect to investment in JEI are as
follows.
The principal risks with respect to investment in JEI are as follows:• any adverse conditions in the Japanese economy could adversely affect JEI;• JEI may not be able to acquire properties to execute its growth and investment strategy in a manner that isaccretive to earnings;• illiquidity in the real estate market may limit JEI’s ability to grow or adjust its portfolio;• the past experience of the Asset Management Company in the Japanese real estate market is not an indicator or
guarantee of the future results;• JEI’s reliance on the Core Sponsors, the Asset Management Company and third party service providers could
have a material adverse effect on its business;• there are potential conflicts of interest between JEI and the Core Sponsors as well as the Asset Management
Company;• JEI’s revenues largely comprise leasing revenues from the portfolio properties, which may be negatively
affected by factors including vacancies, decreases in rent, and late or missed payments by tenants;• JEI invests primarily in office properties, the market for which may be affected by macro-economic trends andother forces which JEI cannot control;• JEI faces significant competition in seeking tenants and it may be difficult to find replacement tenants;• increases in prevailing market interest rates may increase JEI’s interest expense and may result in a decline in
the market price of JEI’s units;• JEI may suffer large losses if any of its properties incurs damage from a natural or man-made disaster such as
an earthquake, fire, flood, tsunami or typhoon;• due to the concentration of JEI’s portfolio in the Tokyo metropolitan area, JEI’s business is highly susceptible
to circumstances and developments that may adversely impact that area;• any inability to obtain financing for future acquisitions could adversely affect the growth of JEI’s portfolio;• JEI’s failure to satisfy a complex series of requirements pursuant to Japanese tax regulations would disqualify
JEI from certain taxation benefits and significantly reduce the cash distributions to the unitholders; and• the ownership rights in some of JEI’s properties may be declared invalid or limited.
In addition, JEI is subject to the following risks:• risks related to increasing operating costs;• risks related to JEI’s dependence on the efforts of the Asset Management Company’s key personnel;• risks related to the restrictive covenants under debt financing arrangements;• risks related to entering into forward commitment contracts;• risks related to third party leasehold interests in the land underlying JEI’s properties;• risks related to holding property in the form of stratified ownership (kubun shoyū) interests or co-ownershipinterests (kyōyū-mochibun);• risks related to properties not in operation (including properties under development);• risks related to the defective title, design, construction or other defects or problems in the properties;• risks related to suffering impairment losses relating to the properties;• risks related to decreases in tenant leasehold deposits and/or security deposits;• risks related to tenants’ default as a result of financial difficulty or insolvency;• risks related to the insolvency of master lessees;• risks related to relying on expert appraisals and engineering, environmental and seismic reports as well as
industry and market data;• risks related to the presence of hazardous or toxic substances in JEI’s properties, or the failure to properly
remediate such substances;• risks related to strict environmental liability for the properties;• risks related to potential amendment of applicable administrative laws and local ordinances;• risks related to holding interests in Japanese anonymous association (tokumei kumiai);• risks related to holding properties through trust beneficiary interests;• risks related to JEI’s tight supervision by regulatory authorities and compliance with applicable rules andregulations;• risks related to the possibility that tax authorities may disagree with the Asset Management Company’s
interpretations of the Japanese tax laws and regulations;
Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

29

•
•
•

risks related to being unable to benefit from reductions in certain real estate taxes enjoyed by qualified JREITs;
risks related to changes in Japanese tax laws; andthe risk of dilution as a result of further issuances of units.

Asset Management Report for 23rd period (Semi-Annual Report for 23rd Period)

30

Financial Statements
Japan Excellent, Inc.
For the six-month periods ended
December 31, 2017 and June 30, 2017with Independent Auditor’s Report

31

32

Japan Excellent, Inc.
Balance Sheets
As of December 31, 2017 and June 30, 2017

As ofDecember 31, 2017

As ofJune 30, 2017

(Thousands of yen)
AssetsCurrent assets:
Cash and cash equivalents including trust accounts(Notes 4 and 5)
Rental receivables
Prepaid expenses and other current assets
Total current assets

23,591,162
456,268
191,862
24,239,293

22,182,030
486,122
196,472
22,864,624

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

6,949,821
6,253
12,2709,272,487
12,606
116,764,611
815,194
225,151
141,454,273
99,194(28,447,970)
247,163,894

5,922,283
6,253
12,2703,032,788
12,606
121,130,825
797,332
194,343
160,660,425
139,031(27,877,107)
264,031,052

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

1,721,607
88
7,382,016
4,710
9,108,423

1,721,607
113
7,382,016
4,848
9,108,586

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

15,181
796,524
738,882
1,550,588

15,181
628,970379,051
1,023,203

135,216
135,216
282,197,416

149,786
149,786
297,177,254

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

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

As of
As ofJune 30, 2017
December 31, 2017
(Thousands of yen)
Liabilities
Current liabilities:
Accounts payable – trade
Short-term loans (Notes 5 and 8)
Investment corporation bonds due within one year
(Notes 5 and 9)
Long-term debt due within one year
(Notes 5 and 8)
Accounts payable – otherAccrued expenses
Accrued corporation taxes
Accrued consumption taxes
Advances received
Other current liabilities
Total current liabilities
Long-term liabilities:
Investment corporation bonds (Notes 5 and 9)
Long-term debt (Notes 5 and 8)
Security deposits from tenants (Note 5)
Security deposits from tenants for trust accounts (Note 5)
Total long-term liabilities
Total liabilities
Net assets (Note 10)
Unitholders’ equity:
Unitholders’ capital
Surplus
Voluntary reserve
Reserve for advanced depreciation of non-current assets
Retained earnings
Total surplus
Total unitholders’ equity
Total net assets
Total liabilities and net assets

1,627,141
900,000

1,465,612－

7,000,000－

17,750,000
445,675
144,768977
677,350
79,326
028,625,240

26,000,000
438,800
133,136678
289,887
83,886－28,412,001

29,000,000
67,850,000
1,084,728

36,000,000
75,900,000
723,098

11,703,805
109,638,534
138,263,774

12,448,681
125,071,779
153,483,781

139,972,885

139,972,885

260,476
3,700,279
3,960,756
143,933,641
143,933,641
282,197,416

260,476
3,460,111
3,720,588
143,693,473
143,693,473
297,177,254

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

Japan Excellent, Inc.
Statements of Income and Retained Earnings
For the periods from July 1, 2017 to December 31, 2017
and from January 1, 2017 to June 30, 2017

For the period
from July 1, 2017
to December 31, 2017

For the period
from January 1, 2017
to June 30, 2017

(Thousands of yen)
Revenues (Note 13 and 14) :Rental business revenues
Other
Gain on sales of real estate properties
Total revenues
Operating expenses (Note 13) :Property operating expenses
Asset management fees
Custodian fees
Administrative service fees
Compensation for directors
Other
Total operating expenses
Operating income
Other income:Interest income
Other
Other expenses:
Interest expense
Loan arrangement fees
Interest expense on investment corporation bonds
Amortization of investment corporation bond issuance 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

9,851,628
954,398
279,042
11,085,069

9,760,176
882,490－
10,642,667

5,931,137
457,509
22,10241,804
6,540
106,510
6,565,603
4,519,465

5,890,983
442,866
22,02541,4896,540
84,724
6,488,630
4,154,037

105
658

98
1,034

442,384
221,464
140,286
14,570271
3,701,251
3,701,251

437,910
114,622
123,538
13,5545,143
3,460,399
3,460,399

993(14)
3,700,272
6
3,700,279

693
4
3,459,701
409
3,460,111

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

Japan Excellent, Inc.
Statements of Changes in Net Assets
For the periods from July 1, 2017 to December 31, 2017
and from January 1, 2017 to June 30, 2017

For the period from July 1, 2017 to December 31, 2017
Net assets
Unitholders’ equity
SurplusNumber ofunits in issue

Unitholders’capitalVoluntary
reserve
Reserve foradvanceddepreciation of
non-current
assetsRetainedearnings

Total surplus

Totalunitholders’equityTotal net
assets(Thousands of yen)
Balance as ofJune 30, 2017
Changes during
the fiscal period:
Distributions fromretained earnings
Net income
Total changes
during the fiscal
periodBalance as ofDecember 31, 2017

1,305,700

139,972,885

260,476

3,460,111

3,720,588

143,693,473

143,693,473

－

－

－

(3,460,105)(3,460,105)(3,460,105)(3,460,105)

－

－

－

3,700,272

3,700,272

3,700,272

3,700,272－－－

240,167

240,167

240,167

240,167

1,305,700

139,972,885

260,476

3,700,279

3,960,756

143,933,641

143,933,641

For the period from January 1, 2017 to June 30, 2017
Net assets
Unitholders’ equity
SurplusNumber ofunits in issue

Unitholders’capitalVoluntary
reserve
Reserve foradvanceddepreciation of
non-current
assetsRetainedearnings

Total surplus

Totalunitholders’equityTotal net
assets(Thousands of yen)
Balance as ofDecember 31, 2016
Changes during
the fiscal period:
Distributions fromretained earnings
Net income
Total changes
during the fiscal
periodBalance as ofJune 30, 2017

1,305,700

139,972,885

260,476

3,406,981

3,667,457

143,640,343

143,640,343

－

－

－

(3,406,571)(3,406,571)(3,406,571)(3,406,571)

－

－

－

3,459,701

3,459,701

3,459,701

3,459,701－－－

53,13053,13053,13053,1301,305,700

139,972,885

260,476

3,460,111

3,720,588

143,693,473

143,693,473

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

Japan Excellent, Inc.
Statements of Cash Flows
For the periods from July 1, 2017 to December 31, 2017
and from January 1, 2017 to June 30, 2017

For the period
For the period
from July 1, 2017from January 1, 2017
to December 31, 2017
to June 30, 2017
(Thousands of yen)
Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Amortization of investment corporation bond issuance costs
Interest income
Interest expense
Decrease (increase) in rental receivables
Decrease (increase) in consumption taxes refundable
Decrease (increase) in prepaid expense
Increase (decrease) in accounts payable – trade
Increase (decrease) in accounts payable – other
Increase (decrease) in unpaid consumption taxes
Increase (decrease) in advances received
Decrease (increase) in long-term prepaid expenses
Decrease in property and equipment for trust accounts due to sale
Other, net
SubtotalInterest received
Interest paid
Income taxes paid
Net cash provided by operating activities

3,701,251
1,972,950
14,570(105)
582,670
29,853－
1,540(103,534)
6,463
387,463(4,559)(167,553)
24,108,013(358,243)
30,170,782
105(571,039)(694)
29,599,154

3,460,399
1,967,549
13,554(98)
561,449
73,33658,187(7,422)
124,373
5,780
289,887
7,744
76,246－(2,806)
6,628,182
98(610,586)(779)
6,016,915

Cash flows from investing activities
Purchases of property and equipment
Purchases of property and equipment for trust accounts
Proceeds from security deposits from tenants
Payments for security deposits to tenants
Proceeds from security deposits in trust accounts from tenants
Payments for security deposits in trust accounts to tenants
Net cash used in investing activities(7,267,725)(1,680,016)
395,152(33,522)656,954(1,401,829)(9,330,987)(102,514)(909,906)
13,393(23,387)
628,846(89,501)(483,068)

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

10,600,000(9,700,000)
17,700,000(34,000,000)－(3,459,034)(18,859,034)－(1,000,000)
12,000,000(18,000,000)
6,959,000(3,407,199)(3,448,199)

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 4)

1,409,132
22,182,030
23,591,162

2,085,647
20,096,382
22,182,030

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

Japan Excellent, Inc.
Notes to Financial Statements
For the periods from July 1, 2017 to December 31, 2017
and from January 1, 2017 to June 30, 2017

1.

Organization

Japan Excellent, Inc. (hereinafter, “JEI”), established on February 20, 2006 under the Law
Concerning Investment Trusts and Investment Corporations of Japan (the “Investment TrustLaw”), is a real estate investment corporation which primarily invests in office buildings.
JEI is externally managed by a licensed asset management company, Japan Excellent AssetManagement (“JEAM”). JEAM was originally owned 45% by NIPPON STEEL KOWA
REAL ESTATE CO., LTD., 20% by The Dai-ichi Life Insurance Company, Limited, 15% by
Sekisui House, Co., LTD., and 20% by other corporations. Due to the transfer of ownershipby Sekisui House, Co., LTD., on May 12, 2014, ownership interests of 9% and 6% were eachacquired by NIPPON STEEL KOWA REAL ESTATE CO., LTD., and The Dai-ichi Life
Insurance Company, Limited, respectively.
JEI was listed on the Tokyo Stock Exchange on June 27, 2006. As of December 31, 2017, JEI
held 29 properties with 356,853.73 square meters of total leasable space and had leases with
243 tenants excluding residential tenants.

2.

Basis of Presentation

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

38

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 and building improvements
Machinery and equipment
Furniture and fixtures

2 – 60 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.
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).

39

3.

Summary of Significant Accounting Policies (continued)

JEI capitalizes the property-related taxes allocated to the sellers of properties to JEI at thetime of acquisition of such properties including trust accounts. No property-related taxes were
capitalized for the period from January 1, 2017 to June 30, 2017. The capitalized amount forthe period from July 1, 2017 to December 31, 2017 was ¥24,555 thousand.
Revenue recognition
Rental revenues are generally recognized on an accrual basis over the life of each lease.
Derivatives and hedge accounting
JEI utilizes interest-rate swap agreements as derivative financial instruments solely for the
purpose of hedging its exposure against fluctuation risk in interest rates. JEI has therefore
entered into certain interest-rate swap contracts in order to hedge the risk of variable rates for
its long-term debt obligations.
Each corresponding interest-rate swap is not required to be re-measured to fair value, because
it meets the criteria for the special hedge accounting treatment under Japanese GAAP, which
JEI applies to each interest-rate swap agreement.
Under this special hedge accounting treatment, the differentials paid or received under theswap agreements are recognized and included in interest expense of the hedged loans, and theinterest-rate swaps are not required to be measured at fair value separately. For interest-rate
swaps that meet the specific criteria for the special accounting treatment, assessments ofhedge effectiveness are not performed.
Properties in trust accounts
All assets and liabilities held in trust, for which real estate in possession of JEI was entrusted,
and all earnings and expenses resulting from such trust, are properly reflected in theaccompanying balance sheets and statements of income and retained earnings, respectively.

4.

Cash and Cash Equivalents

Cash and cash equivalents including trust accounts in the accompanying balance sheets andcash and cash equivalents in the accompanying statements of cash flows at December 31,
2017 and June 30, 2017 consisted of the following:

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

As of
As of
December 31, 2017
June 30, 2017
(Thousands of yen)
7,486,725
5,373,222
16,104,436
16,808,808
23,591,162
22,182,030

40

5.

Financial Instruments

For the periods from July 1, 2017 to December 31, 2017 and from January 1, 2017 toJune 30, 2017
Overview(1) Policy for Financial Instruments
JEI borrows from banks, issues investment corporation bonds and issues investment units
to procure funds required to grow its assets under management and to repay liabilities,
based on the financial policy set forth by JEAM and the JEI’s Annual Funding
Procurement Plan. When procuring funds by means of interest-bearing debt, matters suchas seeking longer durations and maturities, securing fixed interest rates over the entire
term of the instrument in order to benefit from the recent favorable financial environment
with low interest rates, and diversifying maturity dates are taken into consideration toachieve a more stable financial situation and avoid the risk of future interest rate hikes.
Surplus funds may be invested in deposits and safe, liquid financial assets and investment
securities, but are, in principle, placed in fixed-rate term deposits. Derivative transactions
are used solely for the purpose of hedging against the risk of fluctuations in interest rates
of borrowings and investment corporation bonds.
(2) Types of Financial Instruments, Related Risks and Risk Management System(a) Market Risks (Interest rate fluctuation risk)
Borrowings and investment corporation bonds are primarily used to acquire
properties or to refinance existing borrowings or bonds. Some of such debt were
floating rate instruments and thus were exposed to the risk of interest rate
fluctuations. Based on interest rate forecasts developed through constant financial
market monitoring activities, JEI has concentrated on hedging against the risk ofinterest rate fluctuations principally using interest-rate swaps, through which afloating interest rate is swapped for a fixed interest rate, which finally led to 96.2%
of existing borrowings being covered by a fixed interest rate swap for the entire
maturity as of December 31, 2017. To reduce credit risk, derivative transactions(interest-rate swaps) are entered into exclusively with counterparties that are
financial institutions with high credit ratings. For hedging accounting methods,
hedging instruments, hedged items, hedging policies and methods for evaluation of
the effectiveness of hedging activities, see “Derivatives and hedge accounting”
under Summary of Significant Accounting Policies.
(b) Liquidity Risk (Risk of being unable to procure funds required for repayments)
Borrowings and investment corporation bonds are exposed to liquidity risk. This risk
is reduced through diversification of maturity dates and funding sources, andarrangement of commitment line agreements (as described in Note 8, “Short-Term
Loans and Long-Term Debt,” there is no balance outstanding under the facility
agreements as of December 31, 2017). Liquidity risk is also mitigated through theconstant management of liquidity on hand.

41

5.

Financial Instruments (continued)(3) Supplementary Explanation of the Estimated Fair Value of Financial Instruments
The fair value of financial instruments is based on their quoted market price, if available.
When there is no quoted market price available, fair value is reasonably estimated. Sincevarious assumptions and factors are reflected in estimating the fair value, different
assumptions and factors could result in a different fair value.
Fair value of financial instruments
The following are carrying values and fair values as of December 31, 2017 and June 30, 2017of financial instruments and the differences between them. When fair value is extremely
difficult to ascertain, it is excluded from the following table (Note B).

(1) Cash and cash deposits(2) Cash and deposits in trust
Total assets(3) Short-term loans (Note C)(4) Investment corporation bonds
due within one year (Note C)(5) Long-term debt
due within one year (Note C)(6) Investment corporation bonds(Note C)
(7) Long-term debt (Note C)
Total liabilities(8) Derivative transactions *As of December 31, 2017
As of June 30, 2017
Carrying
Carrying
Fair value
Fair value
Difference
Difference
value
value
(Note A)
(Note A)
(Thousands of yen)
5,373,222
5,373,222
7,486,725
7,486,725－－
16,808,808
16,104,436
16,104,436
16,808,808－－
23,591,162
23,591,162－
22,182,030
22,182,030－
900,000
900,000－－－－
7,000,000

7,034,020

34,02017,750,000

17,819,871

29,000,000
67,850,000
122,500,000
－

－

－

－

69,871

26,000,000

26,171,999

171,999

29,453,940
68,994,628
124,202,459

453,940
1,144,628
1,702,459

36,000,000
75,900,000
137,900,000

36,436,630
76,886,676
139,495,305

436,630
986,676
1,595,305

－

－

－

－

－

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

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

42

5.

Financial Instruments (continued)(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 approximate book value, since floating
rates reflect market interest rates within a short period of time.
If the loan is part of long-term debt, in the case of floating-rate debt hedged by aninterest-rate swap, the fair value is calculated in a similar manner using the total principal
and interest amount, treated in combination with the interest-rate swap, given that theinterest-rate swap is subject to the special treatment of interest-rate swaps under Japanese
GAAP.
The fair value of long-term fixed-rate debt and long-term fixed-rate debt due within one
year are calculated by applying a reasonably assumed interest rate as a discount rate,
which was determined to be applicable for the borrowings under similar conditions.
(4) Investment corporation bonds due within one year and(6) Investment corporation bonds
The fair value of investment corporation bonds issued by JEI is based on quoted market
prices.
(8) Derivative transactions
Please refer to Note 16, “Derivative Transactions.”(Note B)・Financial instruments for which fair value is deemed extremely difficult to determine
The fair values of security deposits from tenants and security deposits from tenants for trust
accounts are as follows:① Security deposits from tenants*② Security deposits from tenants for trust accounts*

As of
As of
December 31, 2017
June 30, 2017
(Thousands of yen)
1,084,728
723,098
12,448,681
11,703,805* Security deposits from tenants and security deposits for trust accounts from tenants in leased properties are
not subject to fair value disclosure, since such deposits have no market price. Furthermore, due to theircharacteristics, it is extremely difficult to estimate the fair value of security deposits in advance because of
the uncertainty of the timing when the tenant vacates. As a result, it is therefore impossible to rationallyestimate the exact cash flow from such security deposits.

43

5.

Financial Instruments (continued)

・The scheduled redemption amounts of financial assets after the balance sheet dateCash and cash deposits
Cash and deposits in trust
Total

Cash and cash deposits
Cash and deposits in trust
Total

1 year or less

1 to 2 years

7,486,725
16,104,436
23,591,162－－－

1 year or less

1 to 2 years

5,373,222
16,808,808
22,182,030－－－

As of December 31, 2017
3 to 4 years
2 to 3 years(Thousands of yen)
－
－
－
－
－
－
As of June 30, 2017
2 to 3 years
3 to 4 years(Thousands of yen)
－
－
－
－
－
－

4 to 5 years

Over 5 years

－
－
－

－
－
－

4 to 5 years

Over 5 years

－
－
－

－
－
－

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

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

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

As of December 31, 2017
2 to 3 years
3 to 4 years(Thousands of yen)－－

1 year or less

1 to 2 years

900,000－

7,000,000－－

17,750,000－－
25,650,000－
5,000,000
4,750,000
9,750,000－－
8,600,000
8,600,000

1 year or less

1 to 2 years

－

－

－

－

－

26,000,000－－
26,000,000－
12,000,000
16,500,000
28,500,000－－
22,600,000
22,600,000

4 to 5 years

Over 5 years

－

－

－

－

－

－
－
13,510,000
13,510,000－－
11,750,000
11,750,000－
24,000,000
29,240,000
53,240,000

4 to 5 years

Over 5 years

－

－

－

－

－

－
－
4,000,000
4,000,000－－
14,510,000
14,510,000－
24,000,000
18,290,000
42,290,000

As of June 30, 2017
2 to 3 years
3 to 4 years(Thousands of yen)
－
－

44

6.

Investment and Rental Property

For the periods from July 1, 2017 to December 31, 2017 and from January 1, 2017 toJune 30, 2017
JEI owns rental office buildings and other properties in Tokyo and other regions for the
purpose of generating rental income. The following is the carrying value and fair value as ofDecember 31, 2017 and June 30, 2017 for such real estate for lease.
Carrying value
As of
Change during period
As ofJuly 1, 2017(*1)
December 31, 2017
(Thousands of yen)
273,139,525(16,867,295)
256,272,229
Carrying value
As of
As of
Change during period
June 30, 2017
January 1, 2017(*2)
(Thousands of yen)
273,958,219(818,694)
273,139,525

Fair value
As ofDecember 31, 2017284,560,000

Fair value
As ofJune 30, 2017292,790,000

A) Carrying value represents the acquisition cost less accumulated depreciation.
B) Details of change during period:(*1) The decrease of ¥16,867,295 thousand during the period is mainly due to an increase of¥7,262,043 thousand related to the acquisition of Kowa Nishi-Shimbashi Building(Additional acquisition of ownership interest, etc.), an increase of ¥898,762 thousand
related to the acquisition of Akasaka Garden City (Additional acquisition of coownership interest), and a decrease of ¥23,106,531 thousand related to the transfer of
Akasaka Garden City, a decrease of ¥1,972,924 thousand for depreciation costs, and adecrease of ¥1,001,482 thousand related to the transfer of No.44 Kowa Building.
(*2) The decrease of ¥818,694 thousand during the period is mainly due to a decrease of¥1,967,524 thousand for depreciation costs.
C) Fair value
Fair value as of December 31, 2017 and June 30, 2017 is appraisal value provided bythird-party real estate appraisers.

45

7.

Property and Equipment

Property and equipment at December 31, 2017 and June 30, 2017 consisted of the following:
As of December 31, 2017

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
Total

8.

As of June 30, 2017

Acquisition
cost

Accumulated
depreciation

Net
Acquisition
book value
cost(Thousands of yen)

Accumulated
depreciation

Netbook value

6,949,821
6,253
12,2709,272,487
12,606(1,351,554)(2,536)(5,685)－－5,598,267
3,716
6,584
9,272,487
12,606

5,922,283
6,253
12,2703,032,788
12,606(1,253,386)(2,255)(5,035)－－

4,668,896
3,998
7,234
3,032,788
12,606

116,764,611(26,568,337)

90,196,274

121,130,825(26,126,326)

95,004,498

815,194(398,497)

416,697

797,332(375,536)

421,796

225,151
141,454,273(121,358)－

103,792
141,454,273

194,343
160,660,425(114,567)－

79,775
160,660,425

99,194
275,611,864－(28,447,970)

99,194
247,163,894

139,031291,908,160－(27,877,107)

139,031
264,031,052

Short-Term Loans and Long-Term Debt

Short-term loans and long-term debt as of December 31, 2017 and June 30, 2017 consisted of
the following:

Short-term loans:
Unsecured loans from a bank due on July 31, 2018
SubtotalLong-term debt due within one year:

As of December 31, 2017
Weighted-averageAmountinterest rate (*1)
(Thousands of yen)
900,000
900,000

0.25952%

As of June 30, 2017
Weighted-averageAmountinterest rate (*1)
(Thousands of yen)－－－Unsecured loans from a bank due on November 30, 2017－1.73875% (*3)

6,000,000

1.73875% (*3)

Unsecured loans from banks due on November 30, 2017－1.08375% (*3)

3,000,000

1.08375% (*3)

Unsecured loans from banks due on November 30, 2017
Unsecured loans from insurance companies due on
November 30, 2017
Unsecured loans from an insurance company due on
June 29, 2018－

1.04550% (*3)

2,000,000

1.04550% (*3)－

1.19212% (*3)

1,000,000

1.19212% (*3)

3,000,000

1.65125% (*3)

3,000,000

1.65125% (*3)

Unsecured loans from banks due on June 30, 2018

11,000,000

0.81225% (*3)

11,000,000

0.81225% (*3)

Unsecured loans from banks due on November 1, 2018
Subtotal

3,750,000
17,750,000

0.74500% (*3)－
26,000,000

－

46

8.

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

Long-term debt:
Unsecured loans from banks due on Juｌy 31, 2018 (*2)－

0.21538%

9,000,000

0.21000%

Unsecured loans from banks due on November 1, 2018－0.74500% (*3)

3,750,000

0.74500% (*3)

Unsecured loans from banks due on March 8, 2019
Unsecured loans from an insurance company due on
December 12, 2019
Unsecured loans from banks due on December 30, 2019(*2)

3,750,000

0.77500% (*3)

3,750,000

0.77500% (*3)

1,000,000

0.25000% (*3)

1,000,000

0.25000% (*3)

0.28538%

13,000,000

0.28000%

Unsecured loans from a bank due on January 31, 2020

2,000,000

1.60000% (*3)

2,000,000

1.60000% (*3)

Unsecured loans from banks due on January 31, 2020
Unsecured loans from an insurance company due on
January 31, 2020

2,600,000

1.36400% (*3)

2,600,000

1.36400% (*3)

1,000,000

1.31261% (*3)

1,000,000

1.31261% (*3)

Unsecured loans from banks due on January 31, 2020

3,000,000

1.00000% (*3)

3,000,000

1.00000% (*3)

Unsecured loans from a bank due on June 30, 2021
Unsecured loans from an insurance company due on
June 30, 2021

2,000,000

1.60750% (*3)

2,000,000

1.60750% (*3)

2,000,000

0.98834% (*3)

2,000,000

0.98834% (*3)

Unsecured loans from banks due on November 29, 2021

3,760,000

0.40896%

3,760,000

0.40727%

Unsecured loans from banks due on December 30, 2021
Unsecured loans from insurance companies due on
January 31, 2022

5,750,000

0.81875% (*3)

5,750,000

0.81875% (*3)

3,000,000

0.35000% (*3)

3,000,000

0.35000% (*3)

Unsecured loans from a bank due on June 30, 2022
Unsecured loans from insurance companies due on
November 30, 2022

2,000,000

1.15417% (*3)

2,000,000

1.15417% (*3)

1,000,000

0.35000% (*3)－－

Unsecured loans from banks due on December 30, 2022

5,750,000

0.93625% (*3)

5,750,000

0.93625% (*3)

Unsecured loans from a bank due on June 30, 2023

2,000,000

1.20250% (*3)

2,000,000

1.20250% (*3)

Unsecured loans from banks due on November 30, 2023

5,270,000

0.84375% (*3)

5,270,000

0.84375% (*3)

Unsecured loans from banks due on November 30, 2023

5,500,000

0.64801% (*3)－－

Unsecured loans from a bank due on May 31, 2024

3,500,000

0.68431% (*3)－－

Unsecured loans from banks due on November 30, 2024

5,270,000

0.96275% (*3)

5,270,000

0.96275% (*3)

Unsecured loans from banks due on March 31, 2026

6,400,000

0.83441% (*3)－－

Unsecured loans from a bank due on September 30, 2026
Subtotal
Total

1,300,000
67,850,000
86,500,000

0.83071% (*3)－
75,900,000
101,900,000－－(*1) The weighted-average interest rate is weighted-average figures during the period. As for the borrowings hedged byinterest-rate swaps for the purpose of mitigating interest rate fluctuation risk, the fixed interest rates after entering into
the interest rate swap transactions are used to calculate the weighted-average interest rate.
(*2) JEI made full early repayments of these borrowing on December 29, 2017.
(*3) These are fixed-rate debt (incl. fixed-rate debt through each interest-rate swap agreement).

The scheduled repayment amounts of long-term debt as of December 31, 2017 are as follows:
Long-term debt

1 year or less

1 to 2 years

17,750,000

4,750,000

2 to 3 years
3 to 4 years(Thousands of yen)
8,600,000
13,510,000

4 to 5 years

Over 5 years

11,750,000

29,240,000

JEI has commitment lines of ¥14,000,000 thousand with three financial institutions to
mitigate refinancing risk and enhance financial stability. As of December 31, 2017, thesecommitment lines have never been utilized.
47

9.

Investment Corporation Bonds

Details of total investment corporation bonds outstanding as of December 31, 2017 and June30, 2017 are summarized as follows:
As of December 31, 2017
WeightedaverageAmountinterest rate
(Thousands of yen)Unsecured bond #4
due on November 2, 2018
Unsecured bond #5
due on November 2, 2018
Unsecured bond #6
due on March 11, 2019
Unsecured bond #7
due on March 11, 2024
Unsecured bond #8
due on September 9, 2025
Unsecured bond #9
due on October 27, 2026
Unsecured bond #10
due on December 20, 2023
Unsecured bond #11
due on April 23, 2027
Total

As of June 30, 2017
WeightedaverageAmountinterest rate
(Thousands of yen)

2,000,000

1.40000%

2,000,000

1.40000%

5,000,000

0.46000%

5,000,000

0.46000%

5,000,000

0.46000%

5,000,000

0.46000%

8,000,000

1.13000%

8,000,000

1.13000%

5,000,000

1.03000%

5,000,000

1.03000%

2,000,000

0.45000%

2,000,000

0.45000%

2,000,000

0.39000%

2,000,000

0.39000%

7,000,000
36,000,000

0.65000%

7,000,000
36,000,000

0.65000%

The scheduled redemption amounts of investment corporation bonds as of December 31, 2017
are as follows:

1 year or less

1 to 2 years

7,000,000

5,000,000

Investment corporation bonds

10.

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

4 to 5 years

Over 5 years－

24,000,000

Net Assets

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

11.

Per Unit Information

Net assets per unit as of December 31, 2017 and June 30, 2017 were calculated based on thenumber of units outstanding as of each date, (1,305,700 units) and (1,305,700 units),
respectively.
Net income per unit for the periods from July 1, 2017 to December 31, 2017 and January 1,
2017 to June 30, 2017 was calculated based on the weighted-average number of units
outstanding during the corresponding periods, (1,305,700 units) and (1,305,700 units),
respectively.
Accordingly, net assets per unit were ¥110,234 as of December 31, 2017 and ¥110,050 as ofJune 30, 2017. Net income per unit was ¥2,833 for the period from July 1, 2017 to December
31, 2017 and ¥2,649 for the period from January 1, 2017 to June 30, 2017.
48

12.

Income Taxes

JEI is subject to income taxes in Japan.
JEI’s policy is to make dividend distributions in excess of 90% of distributable income foreach fiscal period in order to meet the condition set forth in the Special Taxation Measures
Law of Japan concerning the deductibility of cash dividends paid for income tax purposes.
Details of significant components of deferred tax assets and liabilities as of December 31,
2017 and June 30, 2017 are summarized as follows:
As of December 31,
As of June 30,
2017
2017
(Thousands of yen)
Deferred tax assets:
Accrued enterprise taxes
Total deferred tax assets
Net deferred tax assets

18
18
18

4
4
4

A reconciliation of the differences between the statutory tax rate and the effective tax rate forthe periods from July 1, 2017 to December 31, 2017 and from January 1, 2017 to June 30,
2017 is as follows:

Statutory tax rate
Reconciliation:
Deductible distributions paid
Provision of reserve for reduction entry
Other
Effective tax rate

For the period
from July 1, 2017
to December 31, 201731.74%For the period
from January 1, 2017
to June 30, 201731.74%(29.90)(1.84)
0.02
0.03%(31.74)
－
0.02
0.02%

49

13.

Breakdown of Revenues and Expenses

For the period
For the period
from July 1, 2017from January 1, 2017
to December 31, 2017
to June 30, 2017
(Thousands of yen)
Revenues:
Rental business revenues
Rental revenues
Common area revenues
Other rental revenues
Subtotal
Other
Utilities revenues
Other revenues
Subtotal
Total rental revenues
Property operating expenses:
Property management costs and fees
Utilities expenses
Property and other taxes
Insurance
Repairs and maintenance
Depreciation
Other
Total property operating expenses
Profit8,167,243
1,414,547
269,837
9,851,628

8,044,157
1,447,214
268,805
9,760,176

857,938
96,459954,398
10,806,026

758,214124,276
882,490
10,642,667

1,441,309
1,122,414
939,173
26,035
202,706
1,972,924
226,572
5,931,137
4,874,889

1,477,096
1,004,220
915,948
25,047
271,949
1,967,524
229,197
5,890,983
4,751,684

50

14.

Breakdown of Gain on sales of Real estate Properties

Gain on sales of real estate properties for the periods from July 1, 2017 to December 31, 2017
and from January 1, 2017 to June 30, 2017 is as follows:

For the period
For the period
from July 1, 2017from January 1, 2017
to December 31, 2017
to June 30, 2017
(Thousands of yen)
Akasaka Garden City
Proceeds from sale of real estate
Cost of sales of real estate
Other related sale expenses
Loss on sale of real estate

22,500,000
23,106,531
2,012
608,544－－－－

For the period
For the period
from July 1, 2017from January 1, 2017
to December 31, 2017
to June 30, 2017
(Thousands of yen)
No.44 Kowa Building
Proceeds from sale of real estate
Cost of sales of real estate
Other related sale expenses
Gain on sale of real estate

1,890,000
1,001,482
930
887,586－－－－

15．Leases
JEI leases properties on which rental revenues are earned. At December 31, 2017 and June 30,
2017, future lease revenues under non-cancelable operating leases are summarized as follows:

Due within one year
Due after one year
Total

As of December 31,
As of June 30,
2017
2017
(Thousands of yen)
600,494462,366
849,834
780,089
1,312,201
1,380,583

51

16.

Derivative Transactions

Derivative Transactions as of December 31, 2017
(1) Transactions to which hedge accounting is not applied:
Not applicable.
(2) Transactions to which hedge accounting is applied:
The following are the contract values or values corresponding to the principal amount as
stipulated by contracts as of December 31, 2017 for each hedge accounting method
applied.
Hedge
accounting
methodSpecialtreatment ofinterest-rate
swaps

Type of derivativetransaction

Interest-rate swap
Receive floating,pay fixed

Hedgeditem

Long-term
debt

Contract amount
Fair value
More than
one year(Thousands of yen)

46,140,000

31,390,000

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

52

16.

Derivative Transactions（continued）

Derivative Transactions as of June 30, 2017
(1) Transactions to which hedge accounting is not applied
Not applicable.
(2) Transactions to which hedge accounting is applied
The following are the contract values or values corresponding to the principal amount as
stipulated by contracts as of June 30, 2017 for each hedge accounting method applied.

Hedge
accounting
methodSpecialtreatment ofinterest-rate
swaps

Type of derivativetransaction

Interest-rate swap
Receive floating,pay fixed

Contract amount
Fair value
More than
one year(Thousands of yen)

Hedgeditem

Long-term
debt

51,140,000

35,140,000

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

17.

Related Party Transactions

For the period from July 1, 2017 to December 31, 2017
(1) Parent Company and Major Corporate Unitholders
Not applicable.
(2) Subsidiaries and Affiliated Companies
Not applicable.
(3) Sister Companies
Not applicable.
(4) Directors and Major Individual Unitholders
Name

Description of transaction

Hidehiko
Ogawa

Payment of asset management
fees to JEAM

Amount(Thousands of yen)
457,509

Account
Accounts
payableBalance at the end of period(Thousands of yen)
375,28753

17.

Related Party Transactions（continued）

For the period from January 1, 2017 to June 30, 2017
(1) Parent Company and Major Corporate Unitholders
Not applicable.
(2) Subsidiaries and Affiliated Companies
Not applicable.
(3) Sister Companies
Not applicable.
(4) Directors and Major Individual Unitholders
Name

Description of transaction

Hidehiko
Ogawa

Payment of asset management
fees to JEAM

18.

Amount(Thousands of yen)442,866

Account
Accounts
payableBalance at the end of period(Thousands of yen)
361,935

Segment Information

For the periods from July 1, 2017 to December 31, 2017 and from January 1, 2017 toJune 30, 2017
Since JEI has been engaged in the real-estate leasing business as a single segment, segment
information has been omitted.
Information about products and services
Since revenues from external customers for a single segment of similar products and services
accounted for more than 90% of total operating revenues, information about products andservices has been omitted.
Information about geographic area
(1) Revenues
Since 100% of the total operating revenues were generated from external customers
within Japan, geographical breakdown of revenues has been omitted.
(2) Property and equipment
Since 100% of total property and equipment on the balance sheet are located within
Japan, geographical breakdown of such property and equipment has been omitted.
Information about major clients
Since no single external client represents 10% or more of JEI’s total operating revenues,
information about major clients has been omitted.

54

19.

Distribution Information

In accordance with Section 33.1.2 of the bylaws set forth by JEI for distributions of cash
dividends, the amount of dividends payable, which is limited by the amount of retained
earnings at end of period, shall be in excess of 90% of its distributable income for the fiscal
period as set forth in Section 67.15 of the Special Taxation Measures Law. JEI decided torecognize provision of reserve for reduction entry due to the transfer of two real estate
properties, during the period from July 1, 2017 to December 31, 2017, in accordance with
Section 65.7 of the Special Taxation Measures Law. Accordingly, income available for
distributions of dividends amounted to ¥3,486,219,000, which is the maximum integral
multiple of the 1,305,700 units issued, but not exceeding ¥3,700,279,652 as the amount ofretained earnings at December 31, 2017. No cash distribution exceeding the income amountset forth in Section 33.1.4 of the bylaws of JEI shall be made.
On February 15, 2018, the Board of Directors approved a resolution to make a cash
distribution of ¥2,670 per unit aggregating to ¥3,486,219,000 to unitholders of record as ofDecember 31, 2017.

20.

Significant Subsequent Event

Not applicable.

55