Investment
Invincible Corporation

Audited Financial Statements
for the 28th Fiscal Period(from January 1, 2017 to June 30, 2017)

INDEX TO FINANCIAL STATEMENTS
Page

Greetings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 1

Independent Auditor’s Report ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 3

Balance Sheet as of June 30, 2017 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 4

Statement of Income and Retained Earnings for the six months ended June 30, 2017 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 6

Statement of Changes in Net Assets for the six months ended June 30, 2017 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 7

Statement of Cash Flows for the six months ended June 30, 2017 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 9

Notes to Financial Statements as of and for the six months ended June 30, 2017 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 10

Greetings from Naoki Fukuda, Executive Director of Invincible Investment Corporation andPresident & CEO of Consonant Investment Management Co., Ltd.
I would like to take this opportunity to express my sincere gratitude to all unitholders of Invincible
Investment Corporation (“INV”) for your continued support.
We hereby provide you with a report on INV’s asset management and financial results for the 28th fiscal
period (covering the period from January 1, 2017 to June 30, 2017; the “Reporting Period”).
INV positions hotels and residential properties as its core assets and proactively conducts management
activities to maximize growth and stability of the portfolio.
During the Reporting Period, INV acquired two residential properties with proceeds from the March 2017
public offering along with new borrowings. Royal Parks Tower Minami-Senju, one of the properties
acquired, is a 39 story high-rise apartment with 555 residential units. It serves as the flagship residential
property in the portfolio as it is the largest residential property by acquisition value and is also the second
largest property in the entire portfolio (by acquisition value). Following the acquisition of these twohigh-quality residential properties, INV acquired Hotel MyStays Premier Hamamatsucho in May 2017 withnew borrowings and cash on hand without issuing new equity. The hotel is one of five MyStays branded
hotels with the “Premier” distinction in its name. Hotel MyStays Premier Hamamatsucho has 120 recently
renovated guest rooms and boasts a large room size of 28.5 m2, capable of accommodating three to fiveguests and offers excellent access to Haneda Airport and nearby connections to the Shinkansen (bullet
train), making the property an attractive destination for both domestic and foreign guests. Thesetransactions are a continuation of INV’s efforts to provide steady external growth in its core asset classes ofhotels and residential properties.
INV benefits from an abundant pipeline of assets from affiliates of Fortress Group based on the
Memorandum of Understanding (MOU). The MOU provides INV with preferential negotiation rights toacquire both hotels and residential properties, and consists of 30 properties as of the end of the Reporting
Period (21 hotels with 6,007 rooms and 9 residential properties with 743 units).
In regards to the hotel portfolio, INV continues to work closely with MyStays Hotel Management Co., Ltd.
(“MHM”), a hotel operator in the sponsor group, and recently implemented the conversion of smoking
rooms to non-smoking rooms to reflect changes in customer preferences in order to achieve higher dailyrates, a strategic increase in the overbooking ratio to reduce last-minute cancellations and improve guest
room daily rates. At the same time, INV continues to focus on maximizing revenue by capturing a large
percentage of inbound guests by capitalizing on the strong increase in foreign visitors to Japan bypromoting MHM hotels via tie-ups with Asian airline companies/credit card companies, and by improving
the booking website.
As for the residential portfolio, INV conducts proactive asset management to further improve property
performance and streamline operational management, and has been working to consolidate master lessees
and property managers (the “ML/PM”). Since the end of last year, INV changed the ML/PM at 20
properties, further improving rates of rent increases as well as reducing operational costs including PM fees
which all contribute to higher net operating income.
As a result, operating revenues reached JPY 9,260 million, operating income JPY 5,344 million and net
income JPY 4,702 million, with a distribution per unit (DPU) of JPY 1,264, an increase of 6.6%
year-on-year(1).
INV will continue to implement its basic policy to “increase DPU,” and will ensure the implementation of
measures to maximize unitholder value.

1

2

3

INVINCIBLE INVESTMENT CORPORATIONBALANCE SHEETAs of June 30, 2017
As ofJune 30,
2017

December 31,
2016

June 30,2017(in thousands of
U.S. dollars)(in thousands of yen)
ASSETS
Current assets:
Cash and bank deposits (Notes 6 and 15) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥Cash and bank deposits in trust (Notes 6 and 15) ∙∙∙∙∙∙
Accounts receivable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Rental receivables ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Prepaid expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Consumption taxes receivable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Allowance for doubtful accounts ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total current assets ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Non‐current assets:
Property and equipment (Notes 7 and 8):
Buildings, at cost ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Buildings and accompanying facilities, at cost ∙∙∙∙∙∙∙∙∙∙∙∙
Structures, at cost ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Tools, furniture and fixtures, at cost ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Land ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Buildings in trust, at cost ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Buildings and accompanying
facilities in trust, at cost ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Structures in trust, at cost ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Tools, furniture and fixtures in trust, at cost ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Land in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Subtotal ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Less: Accumulated depreciation ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total property and equipment, net ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Intangible assets:
Leasehold rights in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total intangible assets ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Investments and other assets:
Guarantee deposits ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Long‐term prepaid expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Derivatives assets (Note 16) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total investments and other assets ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total non‐current assets ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙TOTAL ASSETS ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

8,714,907
5,499,826
19
1,398,433
387,328‐
32(1,334)
15,999,214¥

3,532,405
6,065,755
8,204
1,420,192
445,116
20,8230(33)
11,492,465$

31,55054,17773
12,684
3,975
185
0
(0)
102,647

85,91438,862
2,779‐
711,834
102,029,376

85,91438,8622,779
2,395
711,834
118,192,822

767
347
24
21
6,357
1,055,670

23,379,828

26,991,646

241,082

340,005
651,007135,384,518
262,624,127(11,526,460)
251,097,667

345,467
898,892
142,046,411
289,317,026(13,726,024)
275,591,001

3,085
8,028
1,268,724
2,584,110(122,597)
2,461,513

8,840,627
8,840,627

16,946,974
16,946,974

151,366
151,366

613,914616,340
151,259
42,851
1,424,366
261,362,660

1,651,565
601,737
92,24345,0622,390,608
294,928,585

14,751
5,374
823
402
21,352
2,634,231

277,361,874¥

306,421,050$

2,736,879

4

As ofJune 30,
2017

December 31,
2016

June 30,2017(in thousands of
U.S. dollars)(in thousands of yen)
LIABILITIESCurrent liabilities:
Accounts payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥
Accounts payable‐other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Accrued expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Income taxes payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Consumption taxes payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Advances received ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Deposits received ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total current liabilities ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Non‐current liabilities:
Long‐term loans payable (Notes 9 and 15) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Tenant leasehold and security deposits in trust(Note 15) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Tenant leasehold and security deposits (Note 15) ∙Asset retirement obligations(Note 17) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total non‐current liabilities ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙TOTAL LIABILITIES ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙NET ASSETS (Note 10)
Unitholders’ equity:
Unitholders’ capital ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Surplus:Capital surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Allowance for temporary differences
adjustment(Note 5) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Other deduction of capital surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Capital surplus (net)∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Voluntary reserve
Retained earnings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total unitholders’ equity ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Valuation and translation adjustments:
Deferred gains or losses on hedges ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total valuation and translation adjustments ∙∙∙∙∙∙∙TOTAL NET ASSETS ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙TOTAL LIABILITIES AND NET ASSETS ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

182,601
51,825
166,066605
460,521522,072
13,583
1,397,276¥

170,911
175,062
164,764
605‐
540,675
15,932
1,067,951

$

1,526
1,563
1,471
5
‐
4,829
142
9,538

142,419,000

163,990,000

1,464,719

2,030,396

2,240,373

20,01028,66331,260144,509,319
145,906,596

28,663
31,468166,290,505
167,358,457

256
281
1,485,267
1,494,805

120,367,271

128,984,946

1,152,062

6,264,432

6,264,432

55,952(224,225)‐‐(763,290)
5,276,915(987,516)
5,276,915(8,820)47,1325,659,831
10,936,747
131,304,019

4,708,487
9,985,403
138,970,350

42,05589,1871,241,250

151,259
151,259
131,455,278
277,361,874

92,24392,243139,062,593
306,421,050

823
823
1,242,073
2,736,879¥$

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

5

INVINCIBLE INVESTMENT CORPORATIONSTATEMENT OF INCOME AND RETAINED EARNINGSFor the six months ended June 30, 2017

December 31,
2016

For the six months ended
June 30,2017(in thousands of yen)
Operating revenue
Rental revenue－real estate (Note 12) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥Total operating revenue ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Operating expenses
Property related expenses (Note 12) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Asset management fees ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Directors’ compensation ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Asset custody fees ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Administrative service fees ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Provision of allowance for doubtful accounts ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total operating expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Operating income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Non‐operating income
Interest income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Interest on tax refund ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Refund of consumption taxes∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total non‐operating income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Non‐operating expenses
Interest expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Loan‐related costs ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Investment unit issuance costs ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total non‐operating expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Ordinary income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Income before income taxes ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Income taxes (Note 13):
Current ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total income taxes ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙Net income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Retained earnings brought forward ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙Unappropriated retained earnings (Note 11)∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

9,511,466
9,511,466¥

9,260,917
9,260,917

June 30,2017(in thousands of U.S.
dollars)$

82,71682,716

3,162,067
250,000
4,800
14,02627,8901,123
117,347
3,577,255
5,934,211

3,518,684
250,000
4,800
13,59429,98333
99,3603,916,456
5,344,461

31,428
2,232
42
121
267
0
887
34,98047,735129
6,722
35,949385
43,186

70
150
‐
1,077
1,297

0
1
‐
9
11

359,540
186,249‐545,789
5,431,608
5,431,608

377,451
223,228
42,401
643,080
4,702,678
4,702,678

3,371
1,993
378
5,743
42,00342,003605
605
5,431,003
228,827
5,659,831

605
605
4,702,073
6,414
4,708,487

55
41,99757
42,055¥$The accompanying notes are an integral part of these financial statements.

6

INVINCIBLE INVESTMENT CORPORATIONSTATEMENT OF CHANGES IN NET ASSETSFor the six months ended June 30, 2017
Unitholdersʹ equity
SurplusCapital surplus

Voluntary reserve

Deduction of capital surplus

Unitholdersʹ
capitalCapital surplus

Allowance fortemporarydifferences
adjustment

Other
deduction ofcapital surplus

¥

¥

¥

Deduction ofcapital surplus

Capital surplus(net)

Reserve fortemporarydifferences
adjustment

Voluntary
reserve¥¥¥(in thousands of yen)
Balance as of July 1, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥120,367,271

6,264,432‐(763,290)¥(763,290)

5,501,141

708

708

Changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Reversal of reserve for temporary(708)

differences adjustment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(708)

Distributions from surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Distributions in excess of retained
earnings from allowance for(224,225)(224,225)(224,225)

temporary differences adjustment ∙∙∙∙∙∙∙Net income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Changes other than unitholders’equity(net) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙
Balance as of December 31, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙ ¥‐‐120,367,271¥

6,264,432(224,225)¥‐(224,225)¥(224,225)(763,290)¥(987,516)(224,225)¥

5,276,915

(708)
¥

(708)

‐

¥

‐

Changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Issuance of new investment units ∙∙∙∙∙∙∙∙∙

8,393,450

Reversal of allowance for temporary

224,225

differences adjustment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

224,225(224,225)‐‐

Distributions from surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙Net income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Changes other than unitholders’equity(net) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙

8,617,675

Balance as of June 30, 2017 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥128,984,946‐¥

6,264,432

224,225¥(224,225)‐¥‐(987,516)¥(987,516)

Unitholdersʹ equity

5,276,915

‐
¥

‐

‐

¥

‐

Valuation and translation adjustments

SurplusRetained earnings‐¥

Total unitholdersʹ
equityTotal surplus

Deferred gains orlosses on hedges

Total valuationand translation
adjustments

Total net assets(in thousands of yen)
Balance as of July 1, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

4,363,420¥

9,865,270¥

130,232,542¥(227,532)¥(227,532)¥

130,005,009

Changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Reversal of reserve for temporary differences
adjustment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Distributions from surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

708

‐

‐

‐

(4,135,302)(4,135,302)(4,135,302)(4,135,302)(224,225)(224,225)(224,225)

5,431,003

5,431,003

Distributions in excess of retained earnings fromallowance for temporary differences adjustment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙Net income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

5,431,003

5,431,003

Changes other than unitholders’equity(net) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

378,792

Total changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Balance as of December 31, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

1,296,410¥

5,659,831

1,071,476¥

10,936,747

1,071,476¥

131,304,019

378,792

378,792¥

151,259

378,792

378,792¥

151,259

1,450,268¥

131,455,278

Changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Issuance of new investment units ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

8,393,450

8,393,450(224,225)(224,225)‐‐

Distributions from surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(5,429,192)(5,429,192)(5,429,192)(5,429,192)

Net income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

4,702,073

4,702,073

4,702,073

Reversal of allowance for temporary differences
adjustment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

4,702,073

Changes other than unitholders’equity(net) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Balance as of June 30, 2017 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(951,344)¥

4,708,487(951,344)¥

9,985,403

7,666,331¥

138,970,350¥(59,016)(59,016)(59,016)(59,016)(59,016)

7,607,315

92,243¥92,243¥139,062,593

7

Unitholdersʹ equity
SurplusCapital surplus
Deduction of capital surplus

Unitholdersʹ capital
Allowance fortemporarydifferences
adjustment

Capital surplus

Other deduction ofcapital surplus

Capital surplus (net)

Deduction ofcapital surplus(in thousands of U.S dollars)
Balance as of December 31, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙$

1,075,091$

55,952$(2,002)$(6,817)$(8,820)$47,132

Changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Issuance of new investment units ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

74,968

Reversal of allowance for temporary

2,002

differences adjustment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

2,002(2,002)‐‐Distributions from surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙Net income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Changes other than unitholders’equity(net) ∙∙∙∙∙∙∙
Total changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Balance as of June 30, 2017 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

76,971$

1,152,062

‐
$

2,002

55,952$(2,002)‐$Unitholdersʹ equity
SurplusRetained earnings

Total surplus‐(8,820)$‐(8,820)$47,132

Valuation and translation adjustments
Total unitholdersʹ
equityTotal valuationand translation
adjustments

Deferred gains orlosses on hedges

Total net assets(in thousands of U.S dollars)
Balance as of December 31, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙$

50,552$

97,684$

1,172,776

$

1,351

$

1,351

$

1,174,127

Changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Issuance of new investment units ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Reversal of allowance for temporary differences

74,96874,968(2,002)(2,002)‐‐Distributions from surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(48,492)(48,492)(48,492)(48,492)

Net income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

41,997

41,997

41,997

adjustment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

41,997

Changes other than unitholders’equity(net) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(8,497)

Total changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Balance as of June 30, 2017 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙$

42,055(8,497)$89,187

68,473$

1,241,250

$

(527)

(527)

(527)

(527)

(527)

67,946

823

$

823

$

1,242,073

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

8

INVINCIBLE INVESTMENT CORPORATIONSTATEMENT OF CASH FLOWSFor the six months ended June 30, 2017

December 31,
2016

For the six months ended
June 30,2017(in thousands of yen)
Cash flows from operating activities:
Income before income taxes ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥
Depreciation and amortization ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Investment unit issuance costs ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

5,431,608
2,065,066‐¥

4,702,678
2,281,374
42,401$

June 30,2017(in thousands of
U.S. dollars)
42,003
20,376378

Loan‐related costs ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

186,249

223,228

1,993

Interest income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Interest expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Changes in assets and liabilities
Increase (decrease) in allowance for doubtful accounts ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Decrease (increase) in rental receivables ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(129)359,540(70)
377,451(0)
3,371(1,430)(22,587)(1,301)(21,759)

(11)
(194)

Decrease (increase) in consumption taxes receivable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

2,672,787(20,823)(185)

Increase (decrease) in accounts payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(66,883)

81,748730

Increase (decrease) in consumption taxes payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

460,521(460,521)(4,113)

Increase (decrease) in accounts payable‐other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Increase (decrease) in accrued expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Increase (decrease) in advances received ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Increase (decrease) in deposits received ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Other, net ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Subtotal ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Interest income received ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Interest expenses paid ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Income taxes paid ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(881,047)(5,946)
14,936(23,418)(12,451)
10,176,817
129(358,219)(605)

25,473444
18,602(21,461)(17,577)
7,209,888
70(379,198)
(605)

227
3
166
(191)
(156)
64,3970(3,386)(5)

Net cash provided by operating activities ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

9,818,122

6,830,155

61,005

Cash flows from investing activities:
Purchases of property and equipment∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Purchases of property and equipment in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Purchases of leasehold rights in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Repayments of tenant leasehold and security deposits in trust ∙∙∙∙∙∙
Proceeds from tenant leasehold and security deposits in trust ∙∙∙∙∙∙∙
Payments of tenant leasehold and security deposits ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Other, net ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐(8,449,701)‐(53,815)
48,371‐(2,211)(2,395)(26,684,589)(8,187,950)(79,334)
290,004(1,037,651)(2,211)(21)(238,340)(73,132)
(708)
2,590
(9,268)(19)

Net cash used in investing activities ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(8,457,356)(35,704,126)(318,900)(3,498,000)
4,000,000(53,775)(4,118,229)‐
21,571,000(257,922)(5,406,728)‐
192,667(2,303)(48,291)(224,225)‐‐‐(15,879)

8,351,048‐

74,589‐Net cash provided by (used in) financing activities ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(3,910,109)

24,257,397

216,661

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 6) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥(2,549,344)
16,764,078
14,214,734(4,616,573)
14,214,734
9,598,161(41,234)
126,962
85,728Cash flows from financing activities:
Repayments of short‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Proceeds from long‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Payments for loan‐related costs ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Payments of distributions of earnings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Payments of distributions in excess of retained earnings fromallowance for temporary differences adjustment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Proceeds from issuance of investment units ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Other, net ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥$

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

9

INVINCIBLE INVESTMENT CORPORATIONNOTES TO FINANCIAL STATEMENTS
As of and for the six months ended June 30, 2017

1. Organization
Invincible Investment Corporation (the“Company”), a real estate investment corporation, was incorporated on January 18, 2002, underthe Act on Investment Trusts and Investment Corporations of Japan (the“Investment Trust Act”) with initial capital of ¥200 million.
The Company is externally managed by a registered asset management company, Consonant Investment Management Co., Ltd. (the“Asset Manager”). The Asset Manager is currently owned 100% by Calliope Godo Kaisha (Calliope). The Company was formed toinvest primarily in properties in Japan.
On May 17, 2004, the Company raised ¥3,377,250 thousand through an initial public offering of 9,000 investment units. As a“comprehensive investment REIT focusing on the Tokyo metropolitan area and on residential properties,” the Company was listed on
the Osaka Securities Exchange in May 2004.
On February 7, 2005, the Company completed its second public offering of 10,650 investment units at a price of ¥369,734 per unit inconnection with a public offering in Japan.
On July 31, 2006, the Company completed its third public offering of 25,000 investment units at a price of ¥332,045 per unit in connection
with a public offering in Japan. The Company was listed on the J‐REIT market of the Tokyo Stock Exchange in August 2006 (in order tofocus trading on one securities exchange and reduce administrative tasks and costs accompanying a duplicate listing, the Company
delisted from the Osaka Securities Exchange on October 6, 2007).
Effective on February 1, 2010, the Company executed a five‐to‐one unit split and 215,596 investment units were issued in connection
with the unit split. Effective on the same day, the Company also merged with LCP Investment Corporation (LCP) and allocated 367,200
investment units at a ratio of 4 units (post‐unit split) of the Company per one investment unit of LCP. As a result, investment units issued
and outstanding were 636,695 units as of February 1, 2010.
On July 29, 2011, the Company completed a third party allotment of 711,597 investment units at a price of ¥9,837 per unit.
On December 20, 2013, the Company completed a third party allotment of 224,887 investment units at a price of ¥13,340 per unit.
On July 16, 2014, the Company completed its fourth public offering totaling 1,040,000 new investment units at a price of ¥21,873 per unit.
527,322 of such units were issued in connection with a Domestic Public Offering, and the remaining 512,678 units were issued inconnection with an International Offering pursuant to Rule 144A and Regulation S under the U.S. Securities Act of 1933. On August 13,
2014, the Company issued an additional 55,507 investment units domestically in connection with the exercise of an over‐allotment
option. Net proceeds of approximately ¥23.9 billion were used to repay the Company’s outstanding short term borrowings and inconnection with the acquisition of 18 properties during this fiscal period.
On July 15, 2015, the Company completed its fifth public offering totaling 500,000 new investment units at a price of ¥57,817 per unit.
211,250 of such units were issued in connection with a Domestic Public Offering, and the remaining 288,750 units were issued inconnection with an International Offering pursuant to Rule 144A and Regulation S under the U.S. Securities Act of 1933. On August 12,
2015, the Company issued an additional 25,000 investments units domestically in connection with the exercise of an over‐allotment
option. Net proceeds of approximately ¥29.3 billion were used to repay the Company’s outstanding long term borrowings and inconnection with the acquisition of 14 properties during this fiscal period.
On March 30, 2016, the Company completed its sixth public offering totaling 459,512 new investment units at a price ¥81,217 per unit.
194,144 of such units were issued in connection with a Domestic Public Offering, and the remaining 265,368 units were issued inconnection with an International Offering pursuant Rule 144A and Regulation S under the U.S. Securities Act of 1933. On April 27, 2016,
the Company issued and additional 22,626 investments units domestically in connection with the exercise of an over‐allotment option.
Net proceeds of approximately ¥37.9 billion were used to repay the Company’s outstanding long term borrowing and in connection
with the acquisition of 6 properties during this fiscal period.
On March 13, 2017, the Company completed its seventh public offering totaling 185,000 new investment units at a price ¥46,897 per unit
in connection with Japanese Primary Offering.

10

2. Summary of Significant Accounting Policies(a) Basis of Presentation
The Company maintains its accounts and records in conformity with accounting principles and practices generally accepted in Japan(“Japanese GAAP”), including provisions set forth in the Investment Trust Act, the Companies Act of Japan, the Financial Instruments
and Exchange Act of Japan, and other related regulations, which are different in certain respects from the application and disclosure
requirements of International Financial Reporting Standards or accounting principles generally accepted in the United States of America.
The financial statements are prepared based on the Japanese audited financial statements of the Company, which were prepared inaccordance with Japanese GAAP and filed with the Kanto Local Finance Bureau as required by the Financial Instruments and Exchange
Act of Japan. In preparing the accompanying financial statements, certain information in the notes has been added and certain
reclassifications have been made from the financial statements issued domestically for the convenience of the readers outside Japan.
The financial statements are not intended to present the financial position and the results of operations in accordance with accounting
principles and practices generally accepted in countries and jurisdictions other than Japan.
The Company’s fiscal period is a six‐month period, which ends at the end of June and December of each year.

Amounts less than ¥1 thousand and US$ 1 thousand have been rounded down. As a result, the totals shown in the financial statements
and notes thereto do not necessarily agree with the sum of the individual amounts.
The Company does not prepare consolidated financial statements as it has no subsidiaries.
(b) Cash and Cash Equivalents
Cash and cash equivalents consist of cash, demand deposits, and short‐term investments which are highly liquid and readily convertible
to cash, have a low risk of price fluctuation, and mature within three months from the date of acquisition.
(c) Property and Equipment
Property and equipment are recorded at cost. Depreciation of property and equipment, except for land, is calculated on a straight‐line
basis over the estimated useful lives of the assets as stated below:
For the six months ended
June 30, 2017
Buildings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

77years

Buildings and accompanying facilities ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

8‐24

Structures ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

7‐18

Tools, furniture and fixtures∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

8

Buildings in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

5‐67

Buildings and accompanying facilities in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

2‐33

Structures in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

3‐55

Tools, furniture and fixtures in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

2‐19(d) Intangible Assets
Intangible assets are amortized on a straight‐line basis. Amortization of a term leasehold interest for business use is calculated by thestraight‐line method over the lease term.
(e) Long‐term Prepaid Expenses
Long‐term prepaid expenses are amortized on a straight‐line basis.
(f)

Investment Unit Issuance Costs

Investment unit issuance costs are recorded as expenses when incurred.
(g) Allowance for Doubtful Accounts
Allowance for doubtful accounts is provided based on past experience for normal receivables and on a valuation of any receivables fromcompanies and individuals with financial difficulties.

11(h) Impairment of Fixed Assets
An assessment for impairment is carried out on an asset or group of assets, such as fixed assets, intangible assets and investments,
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the asset or group of assets isdeemed to be impaired, an impairment loss is recognized for the difference between the carrying amount and the recoverable value ofthe asset or group of assets using the discounted cash flow model.
(i)

Accounting Treatment of Trust Beneficiary Interests in Real Estate Trusts

For trust beneficiary interests in real estate trusts, which are commonly utilized to obtain ownership in investment properties in Japanand through which the Company holds all of its real estate, all assets and liabilities with respect to assets in trust, as well as all income
generated and expenses incurred with respect to assets in trust, are recorded in the relevant accounts of the balance sheet and statementof income and retained earnings of the Company in proportion to the percentage that such trust beneficiary interest represents. Certain
material accounts with respect to assets and liabilities in trust are presented separately from other accounts in the balance sheets of theCompany.
(j)

Income Taxes

Deferred tax assets and liabilities are computed based on the temporary differences between the financial statement and income tax
basis of assets and liabilities using the applicable statutory tax rate.
(k) Consumption Taxes
Consumption taxes withheld and consumption taxes paid are not included in the statement of income and retained earnings.
Consumption taxes paid are generally offset against the balance of consumption taxes withheld. As such, the excess of payments overamounts withheld are included in current assets and the excess of amounts withheld over payments are included in current liabilities as
the case may be.
(l)Taxes on Property and Equipment

Property and equipment are subject to various taxes, such as property taxes and urban planning taxes on an annual basis. An owner of aproperty is registered in the record maintained by the local government in each jurisdiction, and such taxes are imposed on the ownerregistered in the record as of January 1 of each year based on the assessment made by the local government.
Under the above tax rules, a seller of a property at the time of disposal is liable for these taxes on the property from the date of disposal tothe end of the calendar year in which the property is disposed. The seller, however, is reimbursed by the purchaser for these accrued tax
liabilities and the amount of settlement reflects this adjustment. For the purchaser, a portion of such taxes calculated from the acquisition
date to the end of the calendar year is capitalized as a cost of the property in accordance with Japanese GAAP. In subsequent calendar
years, half of such taxes on property and equipment for each calendar year are charged as operating expenses in each fiscal period.
Tax on property and equipment capitalized as part of the acquisition cost of properties amounted to ¥78,074 (US$697) thousand for thesix months ended June 30, 2017.

3. U.S. Dollar Amounts
The Company maintains its accounting records in Japanese yen. The U.S. dollar amounts included in the accompanying financial
statements and notes thereto represent the arithmetical result of translating Japanese yen into U.S. dollars at the rate of ¥111.96 = US$1,
the effective rate of exchange prevailing at June 30, 2017. The inclusion of such U.S. dollar amounts associated with the fiscal six months
ended June 30, 2017 is solely for the convenience of readers outside Japan. Such translations should not be construed as representations
that the Japanese yen amounts represent, or have been, or could be converted into, U.S. dollars at that or any other rate.

4. Reserve for temporary differences adjustment
For the six months ended December 31, 2016
JPY 708 thousand reserve for temporary differences adjustment was distributed
For the six months ended June 30, 2017
Not Applicable.

125. Allowance for temporary differences adjustment
For the six months ended December 31, 2016
On the Balance Sheet, there are the increase and decrease of allowance for temporary differences adjustment.
1. Reason, related assets and amounts(in thousands of yen)
Allowance
Related assets,
etc.

Deferred
gains or losses
on hedges

Reason for
occurrence

InitialamountBeginningbalanceset aside

ReversalduringperiodduringperiodEndingbalance

Reason for reversal

Loss on interest rate
swaps recognized at
the end of the fiscal
periodTotal¥ (224,225)‐¥ (224,225)‐¥ 224,225)‐¥ (224,225)‐¥ (224,225)‐¥ 224,225)‐

2. Method of reversal(1) Deferred gains or losses on hedges
Based on changes in the fair value of derivatives used as hedging instruments, the corresponding amount is scheduled to be reversed.

For the six months ended June 30, 2017
On the Balance Sheet, there are the increase and decrease of allowance for temporary differences adjustment.
1. Reason, related assets and amounts(in thousands of yen)
Allowance

ReversalEndingRelated assets,

Reason for

InitialBeginning

set asideetc.

occurrence

amountbalanceduringperiod‐¥ (224,225)¥ (224,225)‐¥ 224,225‐

Changes in the fair value ofderivatives¥ (224,225)¥ (224,225)‐¥ 224,225‐‐

duringperiodReason for reversal

balance

Deferred
gains or losses
on hedges
Total

13

(in thousands of U.S dollars)
Allowance
Related assets,

Reason for

InitialBeginning

set asideetc.

occurrence

amountbalanceduringperiodReversalduringperiodEndingReason for reversal

balance

Deferred
gains or losses
on hedges

‐

Total

$ (2,002)$ (2,002)‐$ 2,002‐

Changes in the fair value ofderivatives$ (2,002)$ (2,002)‐$ 2,002‐‐

2. Method of reversal(1) Deferred gains or losses on hedges
Based on changes in the fair value of derivatives used as hedging instruments, the corresponding amount is reversed.

6. Cash and Cash Equivalents
Cash and cash equivalents shown in the statements of cash flows consist of the following balance sheet items.
As ofDecember 31,
2016

June 30,
2017

June 30,2017(in thousands of
U.S. dollars)(in thousands of yen)
Cash and bank deposits ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥Cash and bank deposits in trust ∙∙∙∙∙∙∙∙∙∙∙∙

8,714,907
5,499,826¥

3,532,405
6,065,755$

31,55054,177

Cash and cash equivalents ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥14,214,734¥

9,598,161$

85,72814

7. Property and Equipment
The following tables show the summary of movement in property and equipment for the six months ended June 30, 2017.
At costBeginningbalance

Increase

Endingbalance

Decrease

Accumulated
depreciation

Depreciation forthe period

Net property andequipment(in thousands of yen)
Buildings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

85,914¥

Buildings and accompanying facilities ∙∙∙∙∙

38,862‐‐

38,862

22,925774

15,937Structures ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

2,779

‐

‐

2,779

1,533

65

1,245

Tools, furniture and fixtures ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

‐

2,395

‐

2,395

67

67

2,327

Land ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

711,834‐‐

711,834‐‐

711,834

Buildings in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Buildings and accompanying facilities
in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Structures in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

102,029,376

16,163,446‐

118,192,822

8,155,443

1,354,965

110,037,378

23,379,828

3,611,817‐

26,991,646

5,092,225

780,169

21,899,421

340,005

5,461‐

345,467

169,049

10,623

176,417

Tools, furniture and fixtures in trust ∙∙∙∙∙∙∙∙∙∙

651,007247,884‐

898,892

273,748

52,564625,143

Land in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

135,384,518

6,661,892‐

142,046,411‐‐

142,046,411

Leasehold rights in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

8,891,821

8,187,950‐

17,079,771

132,796

81,603

16,946,974

Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

271,515,949¥‐

34,880,848

¥

‐

¥

‐

¥

¥

85,914306,396,797¥

11,031¥

13,858,821

¥

¥

541

2,281,374¥¥

74,883

292,537,976

At costBeginningbalance

Increase

Endingbalance

Decrease

Accumulated
depreciation

Depreciation forthe period

Net property andequipment(in thousands of U.S dollars)
Buildings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙$

767

Buildings and accompanying facilities ∙∙∙∙∙

347

‐

‐

347

204

6

142

Structures ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

24

‐

‐

24

13

0

11

Tools, furniture and fixtures ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

‐

21

‐

21

0

0

20

Land ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

6,357

‐

‐

6,357

‐

‐

6,357

Buildings in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Buildings and accompanying facilities
in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Structures in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

911,302144,368‐

1,055,670

72,842

12,102

982,827

208,823

32,259‐241,082

45,482

6,968

195,600

3,036

48

‐

3,085

1,509

94

1,575

Tools, furniture and fixtures in trust ∙∙∙∙∙∙∙∙∙∙

5,814

2,214

‐

8,028

2,445

469

5,583

Land in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

1,209,222

59,502‐

1,268,724‐‐

1,268,724

Leasehold rights in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

79,419Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙$

2,425,115$‐$

73,132$

311,547

‐

$

‐
$

‐

767

$

98

152,552$

2,736,663

$

1,186
$

123,783

4

$

728
$

20,376668

151,366$

2,612,879

Increases in the net book values are mainly due to the acquisition of 3 properties(￥32,562,000thousand) as shown below and capitalized expenditures.
Property name

Property No.

Acquisition cost(in thousands of yen)

Acquisition cost(in thousands of U.S. dollars)
195,418

A105

Royal Parks Tower Minami‐Senju

21,879,000A106Royal Parks Seasir Minami‐Senju

2,683,000

23,963

D49

Hotel MyStays Premier Hamamatsucho

8,000,000

71,45432,562,000

290,836

Total

15

8. Fair Value of Investment and Rental Properties
The following tables show the net book value and the fair value of the investment and rental properties in the aggregate for the six
months ended December 31, 2016 and June 30, 2017.
Residential
As of / For the six months ended
June 30,
June 30,
December 31,
2017
2017
2016
(in thousands of(in thousands of yen)
U.S. dollars)
Net book value
Balance at the beginning of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

68,274,496

Net increase (decrease) during period ∙∙∙∙∙∙∙∙∙∙
Balance at the end of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(438,657)
67,835,839

Fair value ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

77,843,000¥

67,835,839$

25,277,356
93,113,195¥

104,752,000

605,893
225,771
831,664$

935,619

OfficeAs of / For the six months ended
June 30,
June 30,
December 31,
2016
2017
2017
(in thousands of(in thousands of yen)
U.S. dollars)
Net book value
Balance at the beginning of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

8,470,387

Net increase (decrease) during period ∙∙∙∙∙∙∙∙∙∙
Balance at the end of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(29,405)8,440,981

Fair value ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

7,406,000¥

8,440,981$(16,247)
8,424,734¥

7,636,000

75,392(145)
75,247$

68,202Retail facilities
As of / For the six months ended
June 30,
June 30,
December 31,
2016
2017
2017
(in thousands of(in thousands of yen)
U.S. dollars)
Net book value
Balance at the beginning of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

5,087,525

Net increase (decrease) during period ∙∙∙∙∙∙∙∙∙∙
Balance at the end of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(38,298)
5,049,226

Fair value ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

5,890,000¥

5,049,226$(47,956)
5,001,269¥

5,980,000

45,098(428)
44,670$53,411

Parking lots
As of / For the six months ended
June 30,
June 30,
December 31,
2016
2017
2017
(in thousands of(in thousands of yen)
U.S. dollars)
Net book value
Balance at the beginning of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

100,820

Net increase (decrease) during period ∙∙∙∙∙∙∙∙∙∙
Balance at the end of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(1)
100,819

Fair value ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

113,000¥

100,819$(1)
100,818¥

113,000

900
(0)
900

$

1,009

16

HotelAs of / For the six months ended
June 30,
June 30,
December 31,
2016
2017
2017
(in thousands of(in thousands of yen)
U.S. dollars)
Net book value
Balance at the beginning of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

179,537,920

Net increase (decrease) during period ∙∙∙∙∙∙∙∙∙∙
Balance at the end of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(1,026,493)
178,511,427

Fair value ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

236,940,000¥

178,511,427$

1,594,421

7,386,530
185,897,957¥

245,021,000

65,974
1,660,396$

2,188,469

Total
As of / For the six months ended
June 30,
June 30,
December 31,
2017
2017
2016
(in thousands of(in thousands of yen)
U.S. dollars)
Net book value
Balance at the beginning of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

261,471,150

Net increase (decrease) during period ∙∙∙∙∙∙∙∙∙∙
Balance at the end of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(1,532,855)
259,938,294

Fair value ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

328,192,000¥

259,938,294$

2,321,706

32,599,681
292,537,976¥

363,502,000

291,172
2,612,879$

3,246,713

Notes:
1.Fair value has been determined based on the appraisals or research provided by independent real estate appraisers.
2.For rental revenues and expenses for the six months ended December 31, 2016 and June 30, 2017, please refer to “Note 12: Rent Revenues－Real Estate and Expenses Related toProperty Rental Business“

9. Loans Payable
The following table shows the details of loans payable for the six months ended June 30, 2017.
For the six months ended June 30, 2017Classific
ation

Name oflender

Beginningbalance

Increase

Endingbalance

Decrease

Beginningbalance(in thousands of yen)

Long‐term loans
payableIncrease

Endingbalance

Decrease(in thousands of U.S. dollars)

Averageinterest
rate (%)(1)

Maturitydate

MizuhoBank, Ltd.

5,992,000‐‐

5,992,000

53,519‐‐53,5190.375

16‐Jul‐18

The Bank ofTokyo‐Mits
ubishi UFJ,Ltd.

5,992,000‐‐

5,992,000

53,519‐‐53,5190.375

16‐Jul‐18

Sumitomo
Mitsui
Banking
Corporation

5,992,000‐‐

5,992,000

53,519‐‐53,5190.375

16‐Jul‐18

ShinseiBank,
Limited.

3,330,000‐‐

3,330,000

29,742‐‐

29,7420.375

16‐Jul‐18

Citibank
Japan Ltd.

3,000,000‐‐

3,000,000

26,795‐‐

26,7950.375

16‐Jul‐18

Sumitomo
MitsuiTrust Bank,
Limited

2,670,000‐‐

2,670,000

23,847‐‐

23,8470.375

16‐Jul‐18

ResonaBank,
Limited.

1,335,000‐‐

1,335,000

11,923‐‐

11,9230.375

16‐Jul‐18

Use ofproceeds

Remarks(2)

Unsecured andunguaranteed

17

Classification

Name oflender

Beginningbalance

Increase

Endingbalance

Decrease

Beginningbalance(in thousands of yen)

Long‐term loans
payableIncrease

Endingbalance

Decrease(in thousands of U.S. dollars)

Averageinterest
rate (%)(1)

Maturity
date

Mitsubishi
UFJ TrustandBanking
Corporation

668,000‐‐

668,000

5,966

‐

‐

5,966

0.375

16‐Jul‐18

MizuhoBank, Ltd.

5,992,000‐‐

5,992,000

53,519‐‐53,5190.480

16‐Jul‐19

The Bank ofTokyo‐Mits
ubishi UFJ,Ltd.

5,992,000‐‐

5,992,000

53,519‐‐53,5190.480

16‐Jul‐19

Sumitomo
Mitsui
Banking
Corporation

5,992,000‐‐

5,992,000

53,519‐‐53,5190.480

16‐Jul‐19

ShinseiBank,
Limited.

3,330,000‐‐

3,330,000

29,742‐‐

29,7420.480

16‐Jul‐19

Citibank
Japan Ltd.

3,000,000‐‐

3,000,000

26,795‐‐

26,7950.480

16‐Jul‐19

Sumitomo
MitsuiTrust Bank,
Limited

2,670,000‐‐

2,670,000

23,847‐‐

23,8470.480

16‐Jul‐19

ResonaBank,
Limited.

1,335,000‐‐

1,335,000

11,923‐‐

11,9230.480

16‐Jul‐19

Mitsubishi
UFJ TrustandBanking
Corporation

668,000‐‐

668,000

5,966

‐

‐

5,966

0.480

16‐Jul‐19

MizuhoBank, Ltd.

5,992,000‐‐

5,992,000

53,519‐‐53,5190.590

16‐Jul‐20

The Bank ofTokyo‐Mits
ubishi UFJ,Ltd.

5,992,000‐‐

5,992,000

53,519‐‐53,5190.590

16‐Jul‐20

Sumitomo
Mitsui
Banking
Corporation

5,992,000‐‐

5,992,000

53,519‐‐53,5190.590

16‐Jul‐20

ShinseiBank,
Limited.

3,330,000‐‐

3,330,000

29,742‐‐

29,7420.590

16‐Jul‐20

Citibank
Japan Ltd.

3,000,000‐‐

3,000,000

26,795‐‐

26,7950.590

16‐Jul‐20

Sumitomo
MitsuiTrust Bank,
Limited

2,670,000‐‐

2,670,000

23,847‐‐

23,8470.590

16‐Jul‐20

ResonaBank,
Limited.

1,335,000‐‐

1,335,000

11,923‐‐

11,9230.590

16‐Jul‐20

Mitsubishi
UFJ TrustandBanking
Corporation

668,000‐‐

668,000

5,966

‐

‐

5,966

0.590

16‐Jul‐20

MizuhoBank, Ltd.

3,682,000‐‐

3,682,000

32,886‐‐32,886

0.480

28‐Aug‐19

Sumitomo
MitsuiTrust Bank,
Limited

3,400,000‐‐

3,400,000

30,367‐‐30,3670.343

22‐Jan‐19

Mitsubishi
UFJ TrustandBanking
Corporation

850,000‐‐

850,000

7,591

‐

‐

7,591

0.343

22‐Jan‐19

Use ofproceeds

Remarks(2)

Unsecured andunguaranteed

18

Classification

Name oflender

Beginningbalance

Increase

Endingbalance

Decrease

Beginningbalance(in thousands of yen)

Long‐term loans
payableIncrease

Endingbalance

Decrease(in thousands of U.S. dollars)

Averageinterest
rate (%)(1)

Maturity
date

Sumitomo
MitsuiTrust Bank,
Limited

3,400,000‐‐

3,400,000

30,367‐‐30,3670.600

22‐Jan‐21

Mitsubishi
UFJ TrustandBanking
Corporation

850,000‐‐

850,000

7,591

‐

‐

7,591

0.600

22‐Jan‐21

MizuhoBank, Ltd.

465,000‐‐

465,000

4,153

‐

‐

4,153

0.430

30‐Mar‐19

The Bank ofTokyo‐Mits
ubishi UFJ,Ltd.

1,125,000‐‐

1,125,000

10,048‐‐10,0480.430

30‐Mar‐19

Sumitomo
MitsuiTrust Bank,
Limited2,181,000‐‐

2,181,000

19,480‐‐19,4800.430

30‐Mar‐19

ShinseiBank,
Limited.

570,000‐‐

570,000

5,091

‐

‐

5,091

0.430

30‐Mar‐19

ResonaBank,
Limited.

570,000‐‐

570,000

5,091

‐

‐

5,091

0.430

30‐Mar‐19

Mitsubishi
UFJ TrustandBanking
Corporation

650,000‐‐

650,000

5,805

‐

‐

5,805

0.430

30‐Mar‐19

Japan Post
Bank Co.,Ltd.

2,000,000‐‐

2,000,000

17,863‐‐

17,8630.430

30‐Mar‐19

Developme
nt Bank ofJapan Inc.

1,000,000‐‐

1,000,000

8,931

‐

‐

8,931

0.430

30‐Mar‐19

The Bank ofFukuoka,Ltd.

333,000‐‐

333,000

2,974

‐

‐

2,974

0.430

30‐Mar‐19

The
Shizuoka
Bank, Ltd.

1,270,000‐‐

1,270,000

11,343‐‐

11,3430.430

30‐Mar‐19

The Daishi
Bank, Ltd.

1,000,000‐‐

1,000,000

8,931

‐

‐

8,931

0.430

30‐Mar‐19

The
NomuraTrust andBankingCo., Ltd.

270,000‐‐

270,000

2,411

‐

‐

2,411

0.430

30‐Mar‐19

MizuhoBank, Ltd.

965,000‐‐

965,000

8,619

‐

‐

8,619

0.530

30‐Mar‐20

The Bank ofTokyo‐Mits
ubishi UFJ,Ltd.

1,125,000‐‐

1,125,000

10,048‐‐10,0480.530

30‐Mar‐20

Sumitomo
MitsuiTrust Bank,
Limited

2,180,000‐‐

2,180,000

19,471‐‐

19,4710.530

30‐Mar‐20

ShinseiBank,
Limited.

570,000‐‐

570,000

5,091

‐

‐

5,091

0.530

30‐Mar‐20

ResonaBank,
Limited.

570,000‐‐

570,000

5,091

‐

‐

5,091

0.530

30‐Mar‐20

Mitsubishi
UFJ TrustandBanking
Corporation

650,000‐‐

650,000

5,805

‐

‐

5,805

0.530

30‐Mar‐20

Use ofproceeds

Remarks(2)

Unsecured andunguaranteed

19Classification

Name oflender

Beginningbalance

Increase

Endingbalance

Decrease

Beginningbalance(in thousands of yen)

Long‐term loans
payableIncrease

Endingbalance

Decrease(in thousands of U.S. dollars)

Averageinterest
rate (%)(1)

Maturity
dateJapan Post
Bank Co.,Ltd.

2,000,000‐‐

2,000,000

17,863‐‐

17,8630.530

30‐Mar‐20

The Bank ofFukuoka,Ltd.

333,000‐‐

333,000

2,974

‐

‐

2,974

0.530

30‐Mar‐20

The
Shizuoka
Bank, Ltd.

270,000‐‐

270,000

2,411

‐

‐

2,411

0.530

30‐Mar‐20

The
KagawaBank, Ltd.

500,000‐‐

500,000

4,465

‐

‐

4,465

0.530

30‐Mar‐20

The
Hyakugo
Bank, Ltd.

1,000,000‐‐

1,000,000

8,931

‐

‐

8,931

0.530

30‐Mar‐20

The
NomuraTrust andBankingCo., Ltd.

270,000‐‐

270,000

2,411

‐

‐

2,411

0.530

30‐Mar‐20

MizuhoBank, Ltd.

1,965,000‐‐

1,965,000

17,550‐‐17,5500.630

30‐Mar‐21

The Bank ofTokyo‐Mits
ubishi UFJ,Ltd.

1,125,000‐‐

1,125,000

10,048‐‐10,0480.630

30‐Mar‐21

Sumitomo
MitsuiTrust Bank,
Limited

2,180,000‐‐

2,180,000

19,471‐‐

19,4710.630

30‐Mar‐21

ShinseiBank,
Limited.

570,000‐‐

570,000

5,091

‐

‐

5,091

0.630

30‐Mar‐21

ResonaBank,
Limited.

570,000‐‐

570,000

5,091

‐

‐

5,091

0.630

30‐Mar‐21

Mitsubishi
UFJ TrustandBanking
Corporation

650,000‐‐

650,000

5,805

‐

‐

5,805

0.630

30‐Mar‐21

The Bank ofFukuoka,Ltd.

1,333,000‐‐

1,333,000

11,906‐‐

11,9060.630

30‐Mar‐21

The
Shizuoka
Bank, Ltd.

270,000‐‐

270,000

2,411

‐

‐

2,411

0.630

30‐Mar‐21

The
KagawaBank, Ltd.

500,000‐‐

500,000

4,465

‐

‐

4,465

0.630

30‐Mar‐21

The
Hiroshima
Bank, Ltd.

1,000,000‐‐

1,000,000

8,931

‐

‐

8,931

0.630

30‐Mar‐21

The
NomuraTrust andBankingCo., Ltd.

270,000‐‐

270,000

2,411

‐

‐

2,411

0.630

30‐Mar‐21

Citibank
Japan Ltd.

1,000,000‐‐

1,000,000

8,931

‐

‐

8,931

0.430

15‐Jun‐19

Citibank
Japan Ltd.

1,000,000‐‐

1,000,000

8,931

‐

‐

8,931

0.530

15‐Jun‐20

Citibank
Japan Ltd.

1,000,000‐‐

1,000,000

8,931

‐

‐

8,931

0.630

15‐Jun‐21

Use ofproceeds

Remarks(2)

Unsecured andunguaranteed

20

Classification

Name oflender

Beginningbalance

Increase

Endingbalance

Decrease

Beginningbalance

Increase(in thousands of yen)

Long‐term loans
payableEndingbalance

Decrease(in thousands of U.S. dollars)

Averageinterest
rate (%)(1)

Maturity
date

Developme
nt Bank ofJapan Inc.

1,000,000‐‐

1,000,000

8,931

‐

‐

8,931

0.430

30‐Jun‐19

AEON
Bank, Ltd.

3,000,000‐‐

3,000,000

26,795‐‐

26,7950.630

30‐Jun‐21

The Tokyo
Star Bank,
Limited

700,000‐‐

700,000

6,252

‐

‐

6,252

0.430

20‐Jul‐19

The Tokyo
Star Bank,
Limited

1,600,000‐‐

1,600,000

14,290‐‐14,2900.530

20‐Jul‐20

The Tokyo
Star Bank,
Limited

1,700,000‐‐

1,700,000

15,183‐‐

15,1830.630

20‐Jul‐21

MizuhoBank, Ltd.

‐634,000‐

634,000

‐

5,662

‐

5,662

0.430

14‐Mar‐20

Developme
nt Bank ofJapan Inc.

‐

1,000,000‐

1,000,000

‐

8,931

‐

8,931

0.430

14‐Mar‐20

ResonaBank,
Limited.

‐333,000‐

333,000

‐

2,974

‐

2,974

0.430

14‐Mar‐20

The Bank ofFukuoka,Ltd.

‐333,000‐

333,000

‐

2,974

‐

2,974

0.430

14‐Mar‐20

The
NomuraTrust andBankingCo., Ltd.

‐

333,000‐

333,000

‐

2,974

‐

2,974

0.430

14‐Mar‐20

The Towa
Bank, Ltd.

‐

252,000‐

252,000

‐

2,250

‐

2,250

0.430

14‐Mar‐20

The
Shizuoka
Bank, Ltd.

‐

200,000‐

200,000

‐

1,786

‐

1,786

0.430

14‐Mar‐20

The
Gunma
Bank, Ltd.

‐

165,000‐

165,000

‐

1,473

‐

1,473

0.430

14‐Mar‐20

MizuhoBank, Ltd.

‐1,633,000‐

1,633,000‐

14,585‐

14,5850.530

14‐Mar‐21

ResonaBank,
Limited.

‐333,000‐

333,000

‐

2,974

‐

2,974

0.530

14‐Mar‐21

The Bank ofFukuoka,Ltd.

‐333,000‐

333,000

‐

2,974

‐

2,974

0.530

14‐Mar‐21

The
NomuraTrust andBankingCo., Ltd.

‐

333,000‐

333,000

‐

2,974

‐

2,974

0.530

14‐Mar‐21

The Towa
Bank, Ltd.

‐

253,000‐

253,000

‐

2,259

‐

2,259

0.530

14‐Mar‐21

The
Shizuoka
Bank, Ltd.

‐

200,000‐

200,000

‐

1,786

‐

1,786

0.530

14‐Mar‐21

The
Gunma
Bank, Ltd.

‐

165,000‐

165,000

‐

1,473

‐

1,473

0.530

14‐Mar‐21

Use ofproceeds

Remarks(2)

Unsecured andunguaranteed

21

Classification

Name oflender

Beginningbalance

Increase

Endingbalance

Decrease

Beginningbalance

Increase(in thousands of yen)

Long‐term loans
payableEndingbalance

Decrease(in thousands of U.S. dollars)

Averageinterest
rate (%)(1)

Maturitydate

Use ofproceeds

Remarks(2)

Unsecured andunguaranteed

MizuhoBank, Ltd.

‐1,733,000‐

1,733,000‐

15,478‐15,4780.630

14‐Mar‐22

ResonaBank,
Limited.

‐333,000‐

333,000

‐

2,974

‐

2,974

0.630

14‐Mar‐22

The Bank ofFukuoka,Ltd.

‐333,000‐

333,000

‐

2,974

‐

2,974

0.630

14‐Mar‐22

The
NomuraTrust andBankingCo., Ltd.

‐

333,000‐

333,000

‐

2,974

‐

2,974

0.630

14‐Mar‐22

AEON
Bank, Ltd.

‐

900,000‐

900,000

‐

8,038

‐

8,038

0.630

14‐Mar‐22

The Towa
Bank, Ltd.

‐

253,000‐

253,000

‐

2,259

‐

2,259

0.630

14‐Mar‐22

The
Shizuoka
Bank, Ltd.

‐

200,000‐

200,000

‐

1,786

‐

1,786

0.630

14‐Mar‐22The
Dai‐ichi Life
Insurancecompany,
Limited

‐500,000‐

500,000

‐

4,465

‐

4,465

0.630

14‐Mar‐22

The
Gunma
Bank, Ltd.

‐

165,000‐

165,000

‐

1,473

‐

1,473

0.630

14‐Mar‐22

Sumitomo
Mitsui
Banking
Corporation‐

3,000,000‐

3,000,000‐

26,795‐

26,7950.480

14‐Sep‐20

MizuhoBank, Ltd.

‐7,321,000‐

7,321,000‐

65,389‐65,3890.580

19‐Nov‐21

Total
long‐term
loans
payable142,419,000

21,571,000‐

163,990,000

1,272,052

192,667‐

1,464,719

‐

‐

‐

‐

¥ 142,419,000¥ 21,571,00
0‐¥ 163,990,000$1,272,052$192,667‐$1,464,719

‐

‐

‐

‐

Total loans payable

Notes:(1)

The average interest rate indicates a weighted average interest rate for each six‐month period, rounded to three decimal places.

(2)

The funds are mainly used to acquire properties in trust and for repayment of loans payable.

(3)

Repayment schedule of long‐term loans payable (except for the current portion) for the next five years after each balance sheet date are as follows:

As ofJune 30,2017(in thousands of
U.S. dollars)

June 30,2017(in thousands of yen)
1‐2 years∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

46,663,000$

416,782

2‐3 years∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

48,044,000

429,117

3‐4 years∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

55,512,000

495,819

4‐5 years∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

13,771,000

122,99922

10. Net Assets
The Company issues only non‐par value units in accordance with the Investment Trust Act, and the entire amount of the issue price of
new investment units is allocated to unitholders’ capital within net assets. The Company is required to maintain net assets of at least¥50,000 thousand (US$ 446 thousand) as required by Article 67‐4 of the Investment Trust Act.
The number of investment units authorized was 10,000,000 units as of December 31, 2016 and June 30, 2017.
The number of investment units issued and outstanding were 3,675,824 as of December 31, 2016 and 3,860,824 June 30, 2017 respectively.

11. Appropriation of Retained Earnings
In accordance with the distribution policy in Article 17, Paragraph 1, of the Company’s articles of incorporation which stipulates making
distributions in excess of 90% of distributable profit as defined in Article 67‐15, Paragraph 1 of the Special Taxation Measures Act of Japanfor the fiscal period.
The following table shows the appropriation of retained earnings for the six months ended December 31, 2016 and June 30, 2017.
For the six months ended
June 30,
2017

December 31,
2016

June 30,2017(in thousands of
U.S. dollars)(in thousands of yen)
Unappropriated retained earnings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥5,659,831

Reversal of allowance for temporary differences adjustment∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(224,225)¥

4,708,487‐$

42,055‐‐(46,329)(413)

Distributions in excess of retained earnings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Allowance for temporary differences adjustment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Deduction from unitholders capital surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐(34,747)(310)

Distributions ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(5,429,192)(4,880,081)(43,587)

Of which, distributions of earnings∙∙ ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(5,429,192)(4,799,004)(42,863)

Of which, allowance for adjustment of temporary differences ∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐(46,329)(413)

Of which, deduction from unitholders capital surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐(34,747)(310)

Retained earnings carried forward ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥

6,414

¥

(90,516)$(808)

The distributions in respect of the six months ended June 30, 2017 of ¥1,264 (US$11.2) per investment unit, amounting to a total
distributions of ¥4,880,081 thousand (US$43,587 thousand), including distributions in excess of retained earnings, were proposed andapproved at the Board of Directors meeting on August 22, 2017. These financial statements do not reflect these distributions payable.
Cash distributions per investment unit were ¥1,477 and ¥1,264 (US$11.2) for the six months ended December 31, 2016, and June 30, 2017,
respectively.
Notes related to provision and reversal of allowance for temporary differences adjustment is below.
For the six months ended December 31, 2016
In this table, the Company reversed JPY224,225 thousand of allowance for temporary differences adjustment corresponding to thechange in the fair value of interest‐rate swaps.

For the six months ended June 30, 2017
In this table, the Company recorded allowance for temporary differences adjustment below.
(a) Reasons, related assets and allowance(in thousands of yen)
Related assets, etc.

Leasehold rights in trust

Reason for occurrenceOccurrence of amortization of leasehold rights in trust

Allowance for temporary difference adjustments

46,32923

(in thousands of U.S dollars)
Related assets, etc.

Leasehold rights in trust

Allowance for temporary difference adjustments

Reason for occurrenceOccurrence of amortization of leasehold rights in trust413(b) Method of reversal
Method of reversal

Related assets, etc.

Leasehold rights in trust

Upon sale, the corresponding amount is scheduled to be reversed.

12. Rent Revenues － Real Estate and Expenses Related to Property Rental Business
Rent revenue – real estate and expenses related to property rental business for the six months ended December 31, 2016 and June 30,
2017 consist of the following:
December 31,
2016

For the six months ended
June 30,
2017

June 30,2017(in thousands of
U.S. dollars)(in thousands of yen)
Rental revenue – real estate:
Rental revenue and common area charges ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥Other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total rental revenue – real estate ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥9,237,784
273,682
9,511,466¥

Expenses related to property rental business:
Facility management fees ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥Property related taxes ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Insurance expense ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Depreciation ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total expenses related to property rental business ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥Operating income from property leasing activities∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥580,896356,372
11,8072,065,066
147,924
3,162,067
6,349,399

¥

¥

¥
¥

8,927,781
333,135
9,260,917$

646,226
390,797
10,1952,281,374
190,0903,518,684
5,742,232

$

$

$
$

79,7402,975
82,716

5,771
3,490
91
20,376
1,697
31,42851,288

13. Income Taxes
The Company is subject to corporate income taxes in Japan. The Company may deduct from its taxable income the amounts distributed
to its unitholders, provided the requirements are met under the Special Taxation Measures Act of Japan. Under this act, the Company
must meet a number of tax requirements, including a requirement to distribute in excess of 90% of distributable profit for the fiscal
period in order to be able to deduct such amounts. If the Company does not satisfy all of the requirements, the entire taxable income of
the Company will be subject to regular corporate income taxes in Japan.
The Company has a policy of making distributions in excess of 90% of its distributable profit for the fiscal period to qualify for conditions
set forth in the Special Taxation Measures Act of Japan to achieve a deduction of distributions for income tax purpose and it distributes
approximately 100% of distributable profit. Hence, the Company has treated the distributions as a tax allowable deduction as defined in
the Special Taxation Measures Act of Japan.
(a) Reconciliations of the Company’s effective tax rates and statutory tax rates are as follows:
For the six months ended
December 31,
2016

June 30,
2017(Rate)
Statutory tax rates ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Deductible cash distributions ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Increase (decrease) in valuation allowance ∙∙∙∙∙∙∙∙∙∙∙
Other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

31.74 %
(31.71)(0.09)
0.08

31.74 %
(32.06)(0.32)
0.65

Effective tax rates ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

0.01 %

0.01 %

24

(b) Deferred tax assets and liabilities consist of the following:
As ofJune 30,
2017

December 31,
2016

June 30,2017(in thousands of
U.S. dollars)(in thousands of yen)
Deferred tax assets:
Current:
Enterprise tax payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥
Allowance for doubtful accounts ∙∙∙∙∙∙∙∙∙∙∙∙∙

423

10

8
0

Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

1,084

1,006

8

Non‐current:
Buildings and other (merger) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Land (merger) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙Net loss carried forward ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

700,210
2,092,087
7,200,289

689,159
2,092,087
7,200,289

6,155
18,68664,311

Asset retirement obligations ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Fixed‐term leasehold ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

9,921
16,248

9,987
42,14989376

Subtotal ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

10,018,757

10,033,674

89,618

9,797

9,797
29,278

87
261

661

¥

996

$

Deferred tax liabilities:
Non‐current
Asset retirement obligations ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Deferred gains or losses on hedges ∙∙∙∙∙∙∙∙

48,009Subtotal ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

57,80739,075

349

Valuation allowance ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(9,960,950)(9,994,598)(89,269)

Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

‐

‐

‐

Net deferred tax assets ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

‐

¥

‐

$

‐

14. Leases(a) Lease rental revenues
The future minimum rental revenues pursuant to existing rental contracts as of December 31, 2016 and June 30, 2017 scheduled to bereceived are summarized as follows:
As of
December 31,
2016

June 30,
2017

June 30,2017(in thousands of
U.S. dollars)(in thousands of yen)
Due within one year ∙∙∙∙∙∙∙∙∙∙∙∙¥
Due over one year ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

5,988,176
47,412,300¥

6,579,788
47,397,583$

58,769423,343

Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

53,400,477¥

53,977,372$

482,113(b) Lease rental expenses
The future minimum rental expenses pursuant to existing rental contracts as of December 31, 2016 and June 30, 2017 scheduled to be
paid are summarized as follows:
As of
December 31,
2016

June 30,
2017

June 30,2017(in thousands of
U.S. dollars)(in thousands of yen)
Due within one year ∙∙∙∙∙∙∙∙∙∙∙∙¥
Due over one year ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

244,619
7,367,989¥

312,959
10,403,515

$

2,795
92,921

Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

7,612,609¥

10,716,474$

95,716

15. Financial Instruments(a) Qualitative information for financial instruments

25

(i) Policy for financial instrument transactions
The Company raises funds through loans payable and the issuance of investment units to acquire real estate properties, pay
property maintenance expenses and/or repay existing loans payable. Surplus funds are managed carefully through investments
in financial instruments taking into account liquidity and safety in light of the current financial market conditions. Derivative
instruments are used only for hedging purposes and not for speculation.
(ii) Nature and extent of risks arising from financial instruments and risk management
The funds raised through loans payable are mainly used to acquire real estate properties or properties in trust and for the
repayment of existing loans payable. Liquidity risks relating to loans payable are managed by the finance department of theAsset Manager by preparing monthly plans for funds, and monitoring the covenants defined in loan agreements.
(iii) Supplemental information for financial instruments
The fair value of financial instruments is based on quoted market prices if available. When quoted market prices are notavailable, fair value is estimated using valuation techniques which contain various assumptions. If other valuation models orassumptions were used, the estimated value may differ.
(b) Quantitative information for financial instruments
The following table shows the carrying amounts, fair values and valuation differences of financial instruments for which fairvalue is available as of December 31, 2016 and June 30, 2017.
As ofDecember 31,
2016
Carrying
amounts

June 30,
2017

June 30,
2017

Fair value

Carrying
amounts

Difference

Fair value

Carrying
amounts

Difference(in thousands of yen)

Fair value

Difference(in thousands of U.S. dollars)

Assets:Current:(1) Cash and bank deposits ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥8,714,907(2) Cash and bank deposits in trust. ∙∙∙∙∙

5,499,826

Total assets ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥14,214,734¥

8,714,907¥‐

5,499,826¥

14,214,734¥

3,532,405

‐
¥

‐

¥

6,065,755¥

9,598,161

3,532,405¥

6,065,755¥

9,598,161

‐

$

‐
¥

31,550$54,177‐$85,72831,550$‐54,177$85,728‐$‐

Liabilities:(3) Long‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Total liabilities ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥142,419,000
142,419,000

142,419,000¥

142,419,000‐¥‐

163,990,000¥

163,990,000

163,990,000¥

163,990,000‐¥

1,464,719‐$

1,464,719

1,464,719$

1,464,719

‐
$

‐

Notes

(i)The methods and assumptions used to estimate fair value are as follows:(1) Cash and bank deposits and (2) Cash and bank deposits in trust
Because of their short maturities, the carrying amounts approximate their fair value.
(3) Long‐term loans payable in trust
Long‐term loans payable with floating interest rates reflecting changes in market rates within a short term period are stated at their carrying amounts as their carrying
amounts approximate their fair values.

(ii) Financial instruments for which fair value is difficult to determine are as follows:
As ofJune 30,
2017

December 31,
2016

June 30,2017(in thousands of
U.S. dollars)(in thousands of yen)
Tenant leasehold and security deposits ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

28,663¥

28,663$

256

Tenant leasehold and security deposits in trust ∙∙∙∙∙∙∙∙∙∙∙∙¥

2,030,396¥

2,240,373$

20,010Tenant leasehold and security deposits are not publicly traded, and it is difficult to determine their fair value based on estimated future cash flows because the repayment datesof those deposits are not certain. Therefore, these financial instruments are not included in the above quantitative information.

26

(iii) Cash flow schedule of financial assets after the balance sheet dateWithin 1 year

1‐2 years

2‐3 years

3‐4 years

4‐5 years

Over 5 years(in thousands of yen)
As of December 31, 2016:
Cash and bank deposits ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥Cash and bank deposits in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

8,714,907
5,499,826

¥

‐
‐

¥

‐
‐

¥

‐
‐

¥

‐
‐

¥

‐
‐

Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

14,214,734

¥

‐

¥

‐

¥

‐

¥

‐

¥

‐

As of June 30, 2017:
Cash and bank deposits ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥Cash and bank deposits in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

3,532,405
6,065,755

¥

‐
‐

¥

‐
‐

¥

‐
‐

¥

‐
‐

¥

‐
‐

Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

9,598,161

¥

‐

¥

‐

¥

‐

¥

‐

¥

‐

Within 1 year

1‐2 years

2‐3 years

3‐4 years

4‐5 years

Over 5 years(in thousands of U.S. dollars)
As of June 30, 2017:
Cash and bank deposits ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙$Cash and bank deposits in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

31,55054,177

$

‐
‐

$

‐
‐

$

‐
‐

$

‐
‐

$

‐
‐

Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙$

85,728

$

‐

$

‐

$

‐

$

‐

$

‐

(iv) Cash flow schedule of financial liabilities after the balance sheet dateWithin 1 year

1‐2 years

2‐3 years

3‐4 years

4‐5 years

Over 5 years(in thousands of yen)
As of December 31, 2016:
Long‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐

Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥‐

28,979,000¥

28,979,000

51,045,000¥

51,045,000

42,012,000¥

42,012,000

20,383,000¥

20,383,000‐¥‐

As of June 30, 2017:
Long‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐

Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥‐

46,663,000¥

Within 1 year

46,663,000

48,044,000¥

1‐2 years

48,044,000

55,512,000¥

2‐3 years

55,512,000

13,771,000¥

3‐4 years

13,771,000‐¥

4‐5 years‐

Over 5 years(in thousands of U.S. dollars)
As of June 30, 2017:
Long‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐

Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙$‐

416,782$

416,782

429,117$429,117495,819$495,819

122,999$

122,999

‐
$

‐

27

16. Derivatives
Information on derivative transactions undertaken by the Company as of December 31, 2016 and June 30, 2017 is as follows. Derivative
instruments are used for hedging purposes only and are subject to hedge accounting.
As of December 31, 2016:
Contract amount(*1)
Method ofhedge
accounting

Type ofderivativetransactionMainhedgeditem

Over 1
year

Total

Fair
Value(*2)(in thousands of yen)

Principle
accounting
methodInterest rate
swap
transaction
floating ratereceivable andFixed rate
payableLong‐term
borrowings¥

99,119,000¥

99,119,000¥

151,259

Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥99,119,000¥

99,119,000¥

151,259(*1) The contract amount is based on the notional principal amount.
(*2) The fair value is provided by the financial institution.

As of June30, 2017:
Contract amount(*1)
Method ofhedge
accounting

Type ofderivativetransaction

Principle
accounting
methodInterest rate
swap
transaction
floating ratereceivable andFixed rate
payableMainhedgeditem

Contract amount(*1)

Over 1
year

Total

Fair
Value(*2)(in thousands of yen)

Long‐term
borrowings

Over 1
year

Total

Fair
Value(*2)(in thousands of U.S. dollars)¥

99,119,000¥

99,119,000¥

92,243$885,307$885,307$823

Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥99,119,000¥

99,119,000¥

92,243$885,307$885,307$823(*1) The contract amount is based on the notional principal amount.
(*2) The fair value is provided by the financial institution.

17. Asset Retirement Obligations
The Company has an obligation under a fixed‐term leasehold agreement to restore its leased land, which represents the land where
COMFORT HOTEL MAEBASHI, owned by the Company, is located upon the termination of agreement. The estimated period of useof property is estimated at 43 years based on the lease period per the agreement. The assets retirement obligation for the restoration isrecognized as a liability using discount rate at 1.342%.
Movements of asset retirement obligations for the six month ended December 31, 2016 and June 30, 2017 are as follows.
For the six month ended
June 30,
2017

December 31,
2016

June 30,2017(in thousands of
U.S. dollars)(in thousands of yen)
Balance at the beginning of the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥31,050¥31,260$279

Liabilities incurred due to the acquisition of properties ∙∙∙∙∙∙∙

‐

‐

‐

Accretion expense ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

209

208

1

Balance at the end of the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥31,260¥31,468$281

28

18. Segment Information
Segment information for the six months ended December 31, 2016 and June 30, 2017 is as follows:(a) Operating Segment Information
Disclosure is omitted as the Company is comprised of a single reportable segment engaged in the property rental business.
(b) Enterprise‐wide Disclosures(i) Information about Products and Services
Disclosure is not required as revenues from external customers for the single segment are in excess of 90% of total revenues.
(ii) Information about Geographic Areas(1) Revenues from Overseas Customers:
Disclosure is not required as revenues from external customers located in Japan are in excess of 90% of total revenues.
(2)Tangible Fixed Assets:
Disclosure is not required as tangible fixed assets located in Japan are in excess of 90% of total tangible fixed assets.
(c) Information about Major Customers
Information about major clients for the six‐month periods ended December 31, 2016 and June 30, 2017 were as follows:

For the six months ended December 31, 2016

Name of client

Mystays Hotel Management Co.,Ltd.
Naqua Hotel & Resorts Management
Co.,Ltd.

Operating Revenues(in thousands of yen)

Related segment¥4,043,845

Real estate investing business¥1,040,790

Real estate investing business

For the six months ended June 30, 2017

Name of client

Mystays Hotel Management Co.,Ltd.

Operating Revenues

Operating Revenues(in thousands of yen)(in thousands of U.S. dollars)¥3,852,826＄34,412

Related segment

Real estate investing business29

19. Related‐Party Transactions(a) Parent Company and Major Corporate Unitholders
For the six months ended December 31, 2016
Share capital
Type ofrelated‐party

Interested
party of the
Asset
Manager

Transactions for the period

Balance at the end of period(in millions ofyen)

Votinginterest intheCompany

Relationshipwith theCompany

Investment
managementbusiness

¥

0.1

‐

Seller of realestate trust
beneficiaryrightsPayment of accounts
payable¥ 8,800,548

Accounts
payable‐other‐

Minato‐ku,
Tokyo

Hotel
managementbusiness¥

10‐

Lease holder
and operator of
hotel

Rental Revenues¥ 1,040,790

Rentalreceivables¥ 92,474

Minato‐ku,
Tokyo

Hotel
managementbusiness¥ 100‐

Lease holder
and operator of
hotel

Rental Revenues¥ 4,043,845

Rentalreceivables¥ 1,146,414

Company
nameLocation

Ginga
TMK(2)

Minato‐ku,
Tokyo

Naqua Hotel& Resorts
Management
Co., Ltd.(2)Mystays HotelManagement
Co., Ltd(2)BusinessAmounts (1)Type of transactions

Amounts(1)Balancesheet
account(in thousands ofyen)(in thousands ofyen)

Notes:(1)

Consumption taxes are not included in the transaction amount, but are included in the balance at the end of period.

(2)

Ginga TMK, Naqua Hotel & Resorts Management Co., Ltd and Mystays Hotel Management., Co. Ltd has no relationship to be stated, but they receive investment throughfunds that are managed by FIG, an affiliate of Calliope. Accordingly, we treat Ginga TMK, Naqua Hotel & Resorts Management Co., Ltd and Mystays Hotel Management.,
Co. Ltd as a related party.

(3)

Calliope holds 609,942 units (holding ratio: 16.6%) of the issued investment units of the Company.

For the six months ended June 30, 2017
Share capital
Type ofrelated‐party

Interested
party of the
Asset
Manager

Transactions for the period(inthousandsof U.S.
dollars)

Votinginterest intheCompany

Relationshipwith theCompany

Company
nameLocation

Business

SakuraTMK(3)

Minato‐ku,
Tokyo

Investment
managementbusiness

¥

0.1

$

0

‐

Seller of real estate
trust beneficiaryrightsMomo
TMK(3)

Minato‐ku,
Tokyo

Investment
managementbusiness

¥

0.1

$

0

‐

Seller of real estate
trust beneficiaryrights

Septentrio2
TMK(3)

Minato‐ku,
Tokyo

Investment
managementbusiness

¥

0.1

$

0

‐

Seller of real estate
trust beneficiaryrightsNaqua Hotel& Resorts
Management
Co., Ltd.(3)Minato‐ku,
Tokyo

Hotel
managementbusiness

¥

10

$

89

‐

Lease holder andoperator of hotel

Mystays
HotelManagement
Co., Ltd.(3)Minato‐ku,
Tokyo

Hotel
managementbusiness

¥ 100

$

893

‐

Lease holder andoperator of hotel(inmillionsof yen)Balance at the end of period

Amounts (1)Amounts(1)(inthousandsof yen)(inthousandsof U.S.
dollars)

Balancesheet
account¥ 21,879,000$ 195,418‐¥ 2,683,000$ 23,963‐‐‐¥ 8,000,000$ 71,454‐‐‐

RentalRevenues¥ 549,169$ 4,905

Rentalreceivables¥ 198,247$ 1,770

RentalRevenues¥ 3,852,826$ 34,412

Rentalreceivables¥ 1,043,190$ 9,317

Type oftransactions

Acquisition ofreal estate
trust
beneficiaryrights(2)(5)Acquisition ofreal estate
trust
beneficiaryrights(2)(5)Acquisition ofreal estate
trust
beneficiaryrights(2)(5)(inthousandsof yen)(in thousandsof U.S.
dollars)‐‐

Notes:(1)(2)

Consumption taxes are not included in the transaction amount, but are included in the balance at the end of periods.
Terms and conditions are decided pursuant to the Asset Managerʹs Regulations on Transactions with Sponsor‐related Persons and the Management Manual regarding
Transactions with Sponsor‐related Persons.

(3)

The seller, Sakura TMK, Momo TMK, Septentrio2 TMK, Naqua Hotel & Resorts Management Co., Ltd and Mystays Hotel Management, Co. Ltd has no relationship to bestated, but they receive investment through funds that are managed by FIG, ans affiliate of Calliope. Accordingly, we treat Sakura TMK, Momo TMK, Septentrio2 TMK,
Naqua Hotel & Resorts Management Co,. Ltd and Mystays Hotel Management, Co. Ltd as a related party.

(4)

Calliope holds 609,942 units(holding ratio: 15.8%) of the issued investment units of the Company.

(5)

The transaction amount exclude adjusted amount of real property tax and city planning tax, as well as consumption tax and local consumption tax.
Acquisition of real estate trust beneficiary rights are relating to below
Acquisition cost(in thousands of yen)

Acquisition cost(in thousands of US dollars)
195,418

Property No.

Property nameSeller

A105

Royal Parks Tower Minami‐Senju

Sakura TMK

A106Royal Parks Seasir Minami‐Senju

Momo TMK

2,683,000

23,963

D49

Hotel MyStays Premier Hamamatsucho

Septentrio2 TMK

8,000,000

71,454

21,879,00030

Property name

Property No.

Acquisition cost(in thousands of yen)SellerTotal

32,562,000

Acquisition cost(in thousands of US dollars)
290,836(b) Board of Directors and Major Individual Unitholders
For the six months ended December 31, 2016

Type ofrelated‐party

Directors
and close
relatives

Name

Naoki
FukudaVotinginterest intheCompany

Business / Occupation

Executive officer of theCompany andmanagement director ofConsonant Investment
Management Co., Ltd.

‐

Transactions for the period

Balance at the end of period

Amounts (3)(in thousands of yen)
Payment of the assets management
fee to Consonant Investment
Management Co., Ltd.(1)Payment of institution
management fee to Consonant
Investment Management Co.,
Ltd.(2)¥

Amounts (3)Balance sheet
account

Type of transactions(in thousands ofyen)

250,000

Accruedexpenses¥ 135,000

600

Accruedexpenses

¥

¥

324

Notes:(1)

Naoki Fukuda serves as a representative of the Asset Manager and the asset management fee is established in the Articles of Incorporation of the Company.

(2)

Naoki Fukuda serves as a representative of Asset Manager and the fee is established in the “Administrative Agency Agreement for Organizational Management” which wasagreed between the Asset Manager and the Company.

(3)

Consumption taxes are not included in the transaction amount, but are included in the balance at the end of period.

For the six months ended June 30, 2017
Transactions for the period
Type ofrelated‐party

Directors
and close
relatives

Name

Naoki
FukudaBusiness / Occupation

Votinginterest intheCompany

Executive officer of theCompany andmanagement director ofConsonant Investment
Management Co., Ltd.

‐Balance at the end of period

Amounts (3)Type of transactions

Payment of the assets
management fee toConsonant Investment
Management Co.,
Ltd.(1)
Payment of institution
management fee toConsonant Investment
Management Co.,
Ltd.(2)

Amounts (3)(inthousands ofyen)(in thousandsof U.S.
dollars)¥

253,256

$

2,262

¥

600

$

5

Balancesheet
account(inthousandsof yen)(inthousandsof U.S.
dollars)

Accruedexpenses¥ 135,000

$

1,205

Accruedexpenses

¥

$

2

324

Notes:(1)

Naoki Fukuda serves as a representative of the Asset Manager and the asset management fee is established in the Articles of Incorporation of the Company.

(2)

Naoki Fukuda serves as a representative of Asset Manager and the fee is established in the “Administrative Agency Agreement for Organizational Management” which was(3)Consumption taxes are not included in the transaction amount, but are included in the balance at the end of period.

agreed between the Asset Manager and the Company.

31

20. Per Unit Information
The following table shows net asset value per unit as of December 31, 2016 and June 30, 2017 and net income per unit for the six months
then ended. Net income per unit is calculated by dividing the net income attributable to unitholders by the weighted average number ofunits outstanding during the six‐month period. The Company has no potentially dilutive units.
As of / For the six months ended
June 30,
2017

December 31,
2016

(Yen)

June 30,
2017(U.S. dollars)

Net asset value per unit ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥35,762¥36,019$321

Net income per unit ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥

1,477

¥

1,241

$

11

Weighted average number of units ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

3,675,824

3,788,254‐

21．Subsequent Events(a) Sales of assets
The Company decided to sell 2 properties as shown in the following table on July 25, 2017 and Sales has been closed on July 31, 2017.

PropertyUse

numberOfficeBuilding

Parking
Lot

B08

C01

Property name

Kindai Kagaku Sha
Building

Times
Kanda-Sudacho 4thBook value

Sales price

Anticipated(JPY million)(JPY million)(JPY million)(Note 1)

(Note 2)

(Note 3)

1,201

1,361

96

gain on sales

Transferee

Undisclosed(Note 4)

Category of specified
asset

Trust beneficial interest

Wastec
100

130

23

HOLDINGSReal property

Co., Ltd.

(Note 1) The book values are anticipated amount as of July 31, 2017
(Note 2) Sales prices do not include sales-related expenses, adjustments for fixed asset taxes or city planning taxes, or national or local consumption

taxes.
(Note 3) Anticipated gain on sales are the differences between sales price and the total of book value and anticipated sales-related expenses.
(Note 4) The name of the transferee is not disclosed, as the transferee’s consent has not been obtained for disclosure.

(b)Acquisition of assets (properties)
The Company decided to acquire an additional portion of a hotel on July 25, 2017 and entered into the purchase and sales agreement on thesame date. The closing date will be October 31, 2017.
Anticipated
Use

Property
numberacquisition price
Property name

Additional
acquisition

Location(JPY million)

Sellerportion area

Category of specified
asset(Note 1)

Hotel MyStays
Hotel

D43

Gotanda Station(AdditionalAcquisition

Shinagawa‐ku,
Tokyo

1,880

1,385.46 m2

Undisclosed(Note 2)Trust beneficial interest

Portion)32

(Note 1) Anticipated acquisition price is the total of (i) purchase price set forth in the PSA, (ii) expenses with regard to the Conversion, (iii) transfer priceof the furniture, fixture and equipment (FF&E),( those (ii) and (iii) are estimated amount as of the date of the acquisition decision). The
anticipated acquisition price does not include adjustments for fixed asset taxes or city planning taxes, as well as national or local consumption
taxes.
(Note 2) The name of the seller is not disclosed, as the seller’s consent has not been obtained for disclosure.

The Company decided to acquire 4 hotel properties as shown in the following table, of which the total acquisition price is JPY 39,599
million, on September 21, 2017 and entered into the purchase and sales agreement on the same date. The closing date will be October 13, 2017.
AnticipatedUseacquisition price

Property

Property namenumberTotal
rentable

Location(JPY million)

SellerCategory of specified
asset

area

(Note 3)

HL

Hotel MyStays
Hotel

D50

Shin Osaka

Investments
Osaka, Osaka

13,06813,026.99 m2

Conference Center

Tokutei

Trust beneficial interest

Mokuteki
KaishaSeptentrio3
Hotel

D51

Hotel MyStays

Shinagawa‐ku,

Premier Omori

Tokyo

9,781

11,849.61 m2

Tokutei
Mokuteki

Trust beneficial interest

Kaisha

Monza
Hotel

D52

Beppu Kamenoi Hotel

Beppu, Oita

8,870

19,422.08 m2

Tokutei
Mokuteki

Trust beneficial interest

KaishaHotel

D53

Hotel MyStays

Sapporo,Sapporo Station Hotel

Hokkaido

Suisei Tokutei
7,880

7,267.88 m2

Mokuteki

Trust beneficial interest

Kaisha(Note 3) Acquisition prices do not include adjustments for property taxes or city planning taxes, or national or local consumption taxes; hereinafter the same.

(c)Acquisition of an asset (preferred equity interests)
The Company decided to acquire a preferred equity interests as shown in the following table on September 21, 2017 and closing date will
be October 13, 2017.
Overview of the acquisition
Asset to be acquired

Preferred equity interest, issued by Kingdom Tokutei Mokuteki Kaisha, provided in Article
2(9) of the Act on Securitization of Assets (Act No. 105 of 1998, as amended)

Number of units of preferred equity to be issued

364,200 units

Number of units of preferred equity to be acquired

178,458 units (49.0%)(ratio of interest holding)
Anticipated acquisition price (Note)

JPY 17,845 million (49.0% of the preferred equity interest)

Name of underlying asset

The Sheraton Grande Tokyo Bay Hotel (the “Underlying Asset”)

SellerKingdom Tokutei Mokuteki Kaisha

Outline of the Underlying Asset

33

Property name

The Sheraton Grande Tokyo Bay Hotel

Location

Urayasu, Chiba

SellerGranada Tokutei Mokuteki Kaisha

Total rentable area

118,186.86 m2(Note) Acquisition prices do not include national or local consumption taxes; hereinafter the same.

(d)Issuance of new investment units
The Company decided on the issuance of new investment units and secondary offering of investment units at its board of directors’ meeting on
September 21, 2017. Issue price per unit and other details are scheduled to be determined at future board of directors’ meeting.

(i) Issuance of new investment units through public offering
Number of investment units: 887,959 units (Note 1)

Issue value: To be determined (Note 2)

Payment date

: October 12, 2017 (Note 3)

Use of proceeds: The Company will use the proceeds to raise a part of the funds of its acquisition of 5 hotel
properties (see “(b)Acquisition of assets (properties)”) and preferred equity
interests (see “(c)Acquisition of an asset (preferred equity interests)”)(Note 1) Number of investment units is the total of the domestic public offering and the overseas offering mainly in the U.S., European,and Asian markets.
(Note 2) The issue value will be determined on October 4, 2017 or October 5, 2017 (the “Issue price determination date”).
(Note 3) If the Issue price determination date is October 5,2017, payment date will be October 13, 2017.

(ii) Secondary offering of investment units (overallotment secondary offering)Number of investment units: 44,398 units(Note) In the offering(i), taking into consideration the level of demand and other factors in the domestic public offering, Mizuho Securities Co, Ltd.
(the domestic underwriter) may conduct the overallotment secondary offering of investment units in Japan, using units to be borrowed from aholder of investment units of the Company. The above number of investment units to be offered in the overallotment secondary offering is the
maximum number of investment units for the secondary offering. Depending on the level of demand and other factors, such number ofinvestment units to be offered may decrease, or the overallotment secondary offering itself may not take place at all.

(iii) Issuance of new investment units through third‐party allotment (Note 1)
Number of investment units (maximum): 44,398 units

Allottee: Mizuho Securities Co, Ltd.

Issue value: To be determined (Note 2)

Payment date

: November 1, 2017

Use of proceeds: The Company will use the proceeds to fund the cash reserve decreased by the acquisition of
5 hotel properties (see “(b)Acquisition of assets (properties)”) and preferred equity
interests (see “(c)Acquisition of an asset (preferred equity interests)”) or retain as
cash reserve to fund for the future acquisitions.

(Note 1) The purpose is, in relation to the overallotment secondary offering, to allow Mizuho Securities Co, Ltd. to acquire investment
units required for returning the borrowed investment units. There may be cases where there will be no subscription for whole orpart of the investment units to be issued through the third‐party allotment, resulting in a commensurate shortfall in the ultimate
number of investment units to be issued through the third‐party allotment, due to forfeiture, or there may be cases where such
issuance itself will not take place at all.

34

(Note 2) The issue value will be same as “(i) Issuance of new investment units through public offering”.

(e)New borrowing
In order to raise a part of the funds to be used for the acquisition of the 4 hotel properties to be acquired on October 13, 2017, theCompany decided on the implementation of the following borrowings at its board of directors’ meeting held on September 21, 2017 andentered into the borrowing agreement on the same date.

New Syndicate Loan (H)LenderSyndicate formed by Mizuho Bank, Ltd.

Borrowing amountJPY 22,993 million

Interest rate, etc.

Base rate (1-month JPY TIBOR)(Note) + 0.20%, 0.25%, 0.30%, 0.40%, 0.60%, 0.70%, 0.80%

Interest payment date(i) The last Japanese business day of each month before the principal maturity date,
beginning with November 30, 2017, and (ii) the principal maturity datePrincipal repayment method

Lump-sum repayment

Borrowing method

Unsecured / with no guarantee

Borrowing date

October 13, 2017

Maturity date

October 13, 2018, October 13, 2019, October 13, 2020, October 13, 2021, October 13, 2022, October 13,
2023, October 11, 2024

(Note ) The interest rate applicable for the first interest calculation period only will be two‐month JPY TIBOR (Base Rate) + spread (0.20%, 0.25%, 0.30%,

0.40%, 0.60%, 0.70%, 0.80%).

35