Investment
Invincible Corporation

Audited Financial Statements
for the 26th Fiscal Period(from January 1, 2016 to June 30, 2016)

INDEX TO FINANCIAL STATEMENTS
Page

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

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

Balance Sheet as of June 30, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 4

Statement of Income and Retained Earnings for the six months ended June 30, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 6

Statement of Changes in Net Assets for the six months ended June 30, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 7

Statement of Cash Flows for the six months ended June 30, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 9

Notes to Financial Statements as of and for the six months ended June 30, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 10

Greetings from Naoki Fukuda, Executive Director of Invincible Investment Corporation
and President & CEO of Consonant Investment Management Co., Ltd.
I would like to take this opportunity to express my sincere gratitude to all investors in 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 26th
fiscal period (covering the period from January 1, 2016 to June 30, 2016; the “Reporting Period”).
As described below, INV achieved robust results for the Reporting Period, despite changes in the
hotel macro environment such as the sharp yen appreciation.
In March of this year, we conducted our third global public offering (the “Capital Increase”) in three
years that raised JPY 37.9 billion in funds (including third-party allotment). The proceeds from the
Capital Increase were used together with new loans to acquire four hotels and one residential
property in March 2016. In total INV completed three separate property acquisitions to maintain its
external growth strategy during the Reporting Period, with a total acquisition price of JPY 92.8
billion. As a result, the total value of the assets under management (AUM) as of June 30, 2016 was
JPY 266.6 billion (of which, hotels accounted for JPY 181.0 billion), sustaining a strong track recordof external growth in which AUM increased by 53.4% compared to the end of the previous fiscal
period (based on acquisition price).
The hotel portfolio maintained solid internal growth; the average daily rate (the “ADR”) across theentire portfolio increased 8.5% and net operating income (the “NOI”) increased 11.0% compared tothe same period in the previous year, respectively, despite the temporary decline in room demand
experienced as a result of the effects of the Kumamoto Earthquake in April, and the day
configuration for the Golden Week holidays in May. In addition, INV achieved consistently strong
internal growth in its residential portfolio, a core asset class alongside hotels, with increases in boththe average occupancy rate and the average rent per tsubo (1 tsubo = 3.3 square meters), and NOI
increased by 5.1% compared to the same period in the previous year for the same properties thatwere owned as of the end of 2014.
With respect to financial operations, INV introduced five new financial institutions as lenders,
including Development Bank of Japan Inc., to further strengthen its lender formation. INV also
executed interest rate swap agreements of JPY 99.1 billion in order to improve its financial stability
by fixing the interest rate on 69.8% of its existing borrowings.
As a result of the efforts mentioned above, operating revenues increased by 64.0% over the same
period in the previous year to JPY 8,158 million, net income increased by 90.1% to JPY 4,363
million, and the distribution per unit (the “DPU”) increased by 37.9% to JPY 1,186.
INV renewed the Memorandum of Understanding (the “MOU”) with Fortress-related special
purpose companies, concerning preferential negotiation rights regarding 22 hotels and 9 residential
properties, thereby securing a pipeline of assets in which the hotel room count is comparable to thetotal number of hotel rooms owned by INV. Going forward, we seek to promote the acquisition of
hotels and residential properties to build a portfolio that demonstrates both growth and stability by
utilizing this extensive Sponsor pipeline. Moreover, with respect to INV’s internal growth, we willcontinue our efforts to maximize revenue from the hotel portfolio, which is expected to achieve
steady growth in the medium to long-term. For the residential properties, we will continue ourefforts in the rent increase program to maximize NOI by taking advantage of a portfolio consisting

1

2

3

INVINCIBLE INVESTMENT CORPORATIONBALANCE SHEETAs of June 30, 2016
As of
June30,2016

December31,
2015

June 30,2016(in thousands of
U.S. dollars)(in thousands of yen)

ASSETS
Current assets:
Cash and bank deposits (Notes 6 and 15) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥7,885,398

Cash and bank deposits in trust (Notes 6 and 15) ∙∙∙∙∙∙∙∙∙

5,933,582¥

11,322,762
5,441,316$

110,025

Accounts receivable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

124

201

1

Rental receivables ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

1,069,352

1,375,846

13,369Prepaid expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

241,931394,524

3,833

Consumption taxes receivable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

928,025

2,672,787

25,972

52,874

Other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

35

35

0

Allowance for doubtful accounts ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(2,494)(2,764)(26)

Total current assets ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

16,055,955

21,204,709

206,051

Buildings, at cost ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

85,91485,914834

Buildings and accompanying facilities, at cost ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

38,862

38,862377

Structures, at cost ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

2,779

2,779

27

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

711,834

711,834

6,917

Buildings in trust, at cost ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Buildings and accompanying
facilities in trust, at cost ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

65,882,282

101,837,752

989,580

15,364,500

23,193,164

225,373

Structures in trust, at cost ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

327,632

336,691

3,271

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

401,404

500,608

4,864

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

88,435,785

135,384,518

1,315,562

Non‐current assets:
Property and equipment (Notes 7 and 8):

Construction in progress in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐

46,368450Subtotal ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Less: Accumulated depreciation ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

171,250,996(7,836,243)

262,138,495(9,492,518)

2,547,259(92,240)

Total property and equipment, net ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

163,414,753

252,645,976

2,455,018

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

5,836,789

8,871,542

86,206

Other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

15

‐

‐

Total intangible assets ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

5,836,804

8,871,542

86,206

Guarantee deposits ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

39,518613,9145,965

Long‐term prepaid expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

533,409729,351

7,087

Other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

38,42940,640394

Total investments and other assets ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

611,357

1,383,905

13,447

Total non‐current assets ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

169,862,915

262,901,424

2,554,673

TOTAL ASSETS ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥185,918,871

Intangible assets:

Investments and other assets:¥

284,106,133$

2,760,7244

As ofJune30,2016

December31,
2015

June 30,2016(in thousands of
U.S. dollars)(in thousands of yen)

LIABILITIESCurrent liabilities:
Accounts payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Short‐term loans payable(Notes 9 and 15) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

136,766¥

188,362$

1,830

1,080,000

3,498,000

33,990Accounts payable‐other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

47,597

8,957,286

87,040Accrued expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

134,010

186,571

1,812

Income taxes payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

564

605

5

Advances received ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

473,164

507,135

4,927

Deposits received ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

23,04321,072

204

Total current liabilities ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

1,895,146

13,359,034

129,812Long‐term loans payable (Notes 9 and 15) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Tenant leasehold and security deposits in trust(Note 15) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

90,619,000

138,419,000

1,345,049

1,617,867

2,035,843

19,782Tenant leasehold and security deposits (Note 15) ∙∙∙∙∙

28,663

28,663278

Derivatives liabilities(Note 16)∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐

227,532

2,210

Non‐current liabilities:

Asset retirement obligations(Note 17)∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐

31,050301

Total non‐current liabilities ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

92,265,530

140,742,089

1,367,623

TOTAL LIABILITIES ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

94,160,677

154,101,123

1,497,435

82,465,438

120,367,271

1,169,636

NET ASSETS (Note 10)
Unitholders’ equity:
Unitholders’ capital ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Surplus:Capital surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

6,264,432

6,264,432

60,872

Deduction of capital surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐(763,290)(7,417)

Capital surplus (net)∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

6,264,432

5,501,141

53,455

Voluntary retained earnings
Reserve for temporary differences adjustment(Note 5)∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

‐

708

6

Voluntary retained earnings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

‐

708

6

Retained earnings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

3,028,323

4,363,420

42,400Total surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

9,292,755

9,865,270

95,863

Total unitholders’ equity ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

91,758,194

130,232,542

1,265,499

Valuation and translation adjustments:
Deferred gains or losses on hedges ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐(227,532)(2,210)Total valuation and translation adjustments ∙∙∙∙∙∙∙∙∙∙∙∙‐(227,532)(2,210)TOTAL NET ASSETS ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙TOTAL LIABILITIES AND NET ASSETS ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

91,758,194¥

185,918,871

130,005,009¥

284,106,133

1,263,288$

2,760,724

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, 2016
For the six months ended
December31,
2015

June30,2016

June 30,2016(in thousands of U.S.
dollars)(in thousands of yen)

Operating revenue
Rental revenue－real estate (Note 12) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥6,863,775

Total operating revenue ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

6,863,775¥

8,158,220

8,158,220$

79,27579,275

2,178,165

2,697,986

26,216

Operating expenses
Property related expenses (Note 12) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Directors’ compensation ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

4,800

4,800

46

Asset management fees ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

180,000

250,000

2,429

Asset custody fees ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

6,794

9,128

88

Administrative service fees ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

25,17024,010233

Provision of allowance for doubtful accounts ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

58

269

2

Other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

99,677

98,120953

Total operating expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

2,494,667

3,084,315

29,970Operating income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

4,369,108

5,073,905

49,304

Non‐operating income
Interest income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

814

1,316

12

Interest on tax refund∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

936

1,372

13

Other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

454

213

2

Total non‐operating income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

2,205

2,902

28

Non‐operating expenses
Interest expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

296,892

295,1852,868

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

982,261

280,326

2,723

Investment unit issuance costs ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

138,866

137,270

1,333

Total non‐operating expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

1,418,020

712,782

6,926

Ordinary income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

2,953,293

4,364,025

42,406

Income before income taxes ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

2,953,293

4,364,025

42,406

Current ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

605

605

5

Deferred ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

‐

‐

‐

Total income taxes ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

605

605

5

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

2,952,688

4,363,420

42,400Retained earnings brought forward ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

75,634‐‐

Income taxes (Note 13):

Unappropriated retained earnings (Note 10) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

3,028,323¥

4,363,420$

42,400

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, 2016
Unitholdersʹ equity
Surplus
Unitholdersʹ

Capital surplus

capitalCapitalsurplus

Deduction ofcapital surplus

Voluntary reserve
Reserve fortemporary
Voluntarydifferences
reserveadjustment

Capitalsurplus(Net)(in thousands ofyen)

Balance as of June 30, 2015 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥53,096,413

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

29,369,025¥

6,264,432¥

6,264,432¥‐¥

6,264,432¥

6,264,432

¥

‐

¥

‐

Dividends from surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙Net income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙Net Changes other than unitholders’ equity∙∙∙∙∙∙∙∙∙∙∙
Total changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

29,369,025

Balance as of December 31, 2015 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥82,465,438

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

37,901,832‐‐¥

Dividends in excess of retained earnings∙∙∙∙∙∙∙∙∙∙∙‐‐(763,290)(763,290)

‐

‐

‐
¥

‐

Reservation for temporary difference
adjustment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
‐

‐

‐
¥

708

‐

708

Dividends from surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙Net income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙Net Changes other than unitholders’ equity∙∙∙∙∙∙∙∙∙∙∙
Total changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

37,901,832

Balance as of June 30, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥120,367,271‐¥(763,290)

6,264,432¥(763,290)(763,290)¥

Unitholdersʹ equity
SurplusRetained earnings

¥

708

708
¥

708

Valuation and translation adjustments
Total unitholdersʹ
equityTotal surplus

708

5,501,141

Deferred gains orlosses on hedges

Total valuation andtranslation
adjustments

Total net assets(in thousands of yen)

Balance as of June 30, 2015 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥2,370,704¥

8,635,136¥

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

61,731,550

¥

‐

¥

‐

¥

61,731,550

29,369,025

29,369,025

Dividends from surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(2,295,069)(2,295,069)(2,295,069)(2,295,069)

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

2,952,688

2,952,688

2,952,688

2,952,688

Net Changes other than unitholders’ equity∙∙∙∙∙∙∙∙∙
Total changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

657,618

Balance as of December 31, 2015 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥3,028,323

657,618¥

9,292,755

30,026,643¥

Changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Issuance of new investment units ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Dividends in excess of retained earnings∙∙∙∙∙∙∙∙∙

91,758,194

¥

‐

‐

‐

‐

‐

30,026,643

‐

¥

‐

¥

91,758,194

37,901,832

37,901,832(763,290)(763,290)(763,290)

Reservation for temporary difference
adjustment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

(708)

‐

‐

‐

Dividends from surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(3,027,614)(3,027,614)(3,027,614)(3,027,614)

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

4,363,420

4,363,420

4,363,420

4,363,420

Net Changes other than unitholders’ equity∙∙∙∙∙∙∙∙∙
Total changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

1,335,097

Balance as of June 30, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥4,363,420

572,515¥

9,865,270

38,474,348¥

130,232,542¥(227,532)(227,532)(227,532)(227,532)(227,532)

38,246,815(227,532)¥(227,532)¥

130,005,009

7

Unitholdersʹ equity
Surplus
Unitholdersʹ
Voluntary reserve

Capital surplus
capitalCapitalsurplus

Deduction ofcapital surplus

Reserve fortemporarydifferences
adjustment

Capitalsurplus(Net)

Voluntary
reserve(in thousands of U.S. dollars)

Balance as of December 31, 2015 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ $801,335

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

368,300$

60,872$$

Dividends in excess of retained earnings∙∙∙∙∙∙∙∙∙∙∙

60,872(7,417)(7,417)

‐

‐

$

‐

Reservation for temporary difference
adjustment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
‐

‐

$

‐

6

6

Dividends from surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙Net income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙Net Changes other than unitholders’ equity∙∙∙∙∙∙∙∙∙∙∙
Total changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

368,300

Balance as of June 30, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ $1,169,636(7,417)$60,872$(7,417)

Unitholdersʹ equity
SurplusRetainedearnings(7,417)$

6

53,445

$

6

6
$

6

Valuation and translation adjustments

Total surplus

Total unitholdersʹ
equity$$Deferred gains orlosses on hedges

Total valuation andtranslation
adjustments

Total net assets$$(in thousands of U.S. dollars)

Balance as of December 31, 2015 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ $29,42690,299Changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Issuance of new investment units ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Dividends in excess of retained earnings∙∙∙∙∙∙∙∙∙(7,417)

891,635$‐‐

891,635

368,300

368,300(7,417)(7,417)

Reservation for temporary difference
adjustment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

(6)

‐

‐

‐

Dividends from surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(29,420)(29,420)(29,420)(29,420)

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

42,40042,40042,40042,400Net Changes other than unitholders’ equity∙∙∙∙∙∙∙∙∙(2,210)Total changes during the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

12,973

Balance as of June 30, 2016 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ $42,4005,563$

95,863373,864$

1,265,499(2,210)(2,210)$(2,210)(2,210)(2,210)$(2,210)371,653$

1,263,288

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

8

INVINCIBLE INVESTMENT CORPORATIONSTATEMENT OF CASH FLOWSFor the six months ended June 30, 2016
For the six months ended
December31,
2015

June30,2016

June 30,2016(in thousands of
U.S. dollars)(in thousands of yen)

Cash flows from operating activities:
Income before income taxes ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥
Depreciation and amortization ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

2,953,293
1,275,744

Investment unit issuance costs ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

138,866

137,270

1,333

Loan‐related costs ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Interest income ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Interest expenses ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Changes in assets and liabilities
Increase (decrease) in allowance for doubtful accounts ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Decrease (increase) in rental receivables ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

982,261(814)
296,892

280,326(1,316)295,185

2,723
(12)
2,868

58
(431,538)

269(306,493)

2(2,978)Decrease (increase) in consumption taxes receivable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Increase (decrease) in accounts payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
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 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(611,612)(25,114)
1,989(9,097)52,504
12,9354,131
4,640,500
814(328,496)(583)(1,744,762)
7,056
884,265
38,57733,971(14,615)(34,907)5,615,604
1,316(297,081)(564)(16,954)
68
8,592
374
330
(142)
(339)
54,56812(2,886)(5)¥4,364,025
1,676,751$

42,406
16,293

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

4,312,234

5,319,276

51,688Cash flows from investing activities:
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 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(37,422,498)(5,836,789)
239,098(40,738)(31,694)(2,211)(82,786,898)(3,055,031)(56,280)
474,368(574,396)(2,211)(804,459)(29,686)
(546)
4,609
(5,581)(21)

Net cash used in investing activities ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(43,092,621)(86,000,448)(835,686)

Cash flows from financing activities:
Proceeds from short‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Repayments of short‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Proceeds from long‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Repayments of long‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Repayments of long‐term loans payable in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Payments for loan‐related costs ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Payments of distributions of earnings∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Payments of distributions in excess of retained earnings∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Proceeds from issuance of investment units ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

1,401,000(321,000)
90,619,000(62,341,000)(9,960,000)(1,250,432)(2,292,901)‐
29,230,158

3,498,000(1,080,000)
47,800,000‐‐(594,356)(3,014,523)(763,290)
37,780,441

33,990(10,494)
464,483‐‐(5,775)(29,292)(7,417)367,121

Net cash provided by financing activities ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

45,084,824

83,626,270

812,615

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

6,304,437
7,514,543

2,945,097
13,818,981

28,618134,282

Cash and cash equivalents at end of period (Note 6) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

13,818,981¥

16,764,078$

162,900

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, 2016

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.

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, 2016

Buildings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

77 years

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

8‐24

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

7‐18

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

2‐67

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.
(h) Impairment of Fixed Assets

11

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.
Taxes on property and equipment capitalized as part of the acquisition cost of properties amounted to ¥176,385 (US$1,713) thousand forthe six months ended June 30, 2016.

3. Notes on Change in Presentation Method“Payment of tenant leasehold and security deposits,” which was included in “Other, net” under “Cash flows from investing activities”
in the previous fiscal period, is presented separately, starting from the fiscal period under review, due to greater quantitative materiality.
As a result, in the statement of cash flows for the previous fiscal period, the minus JPY 2,211 thousand that was presented in “Other, net”
under “Cash flows from investing activities” is reclassified as “Payment of tenant leasehold and security deposits”.

12

4. 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 ¥102.91 = US$1,
the effective rate of exchange prevailing at June 30, 2016. The inclusion of such U.S. dollar amounts associated with the fiscal six months
ended June 30, 2016 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.

5. Reserve for temporary differences adjustment
JPY 708 thousand reserve for temporary differences adjustment will be reversed as the part of distributions of earnings in following fiscal
period.

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,
2015

June30,2016(in thousands of
U.S. dollars)(in thousands of yen)

Cash and bank deposits ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥7,885,398

Cash and bank deposits in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

5,933,582

Cash and cash equivalents ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥13,818,981¥

June 30,
2016

11,322,762$

110,025$

162,900

5,441,316¥

16,764,078

52,87413

7. Property and Equipment
The following tables show the summary of movement in property and equipment for the six months ended June 30, 2016.
At costBeginning balance

Increase

Endingbalance

Decrease

Accumulated
depreciation

Depreciation forthe period

Net property andequipment(in thousands of yen)

Buildings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

85,914‐

Buildings and accompanying facilities ∙∙∙∙∙

38,862‐‐

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

2,779

‐

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

711,834

‐

¥

¥

‐

¥

85,914

9,948

¥

¥

541

75,965¥38,862

21,375781

17,487

‐

2,779

1,401

65

1,377

‐

711,834‐‐

711,834‐

101,837,752

5,539,382

1,028,835

96,298,370

23,193,164

3,592,722

586,659

19,600,442

65,882,282

35,955,469

15,364,500

7,828,663

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

327,632

9,059‐

336,691

147,949

9,908

188,742

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

401,404

99,203‐500,608

179,738

29,665

320,869

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

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

88,435,785

46,948,733‐

135,384,518‐‐

135,384,518

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

5,836,789

3,055,031‐

8,891,821

20,27820,2788,871,542

Construction in progress in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐

46,368‐46,368‐‐

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

177,087,786

93,942,530

¥

¥

‐

¥

271,030,316¥

9,512,797¥

1,636,736

46,368
261,517,518¥

At costBeginningbalance

Increase

Endingbalance

Decrease

Accumulated
depreciation

Depreciation forthe period

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

Buildings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙$

834

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

377

‐

‐

377

207

7

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

27

‐

‐

27

13

0

13

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

6,917

‐

‐

6,917

‐

‐

6,917

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

640,193349,387‐

989,580

53,827

9,997

935,753

149,300

76,072

225,373

34,911

5,700

190,461

$

‐

$

‐

$

‐

834

96

$

$

5

738

$

169

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

3,183

88

‐

3,271

1,437

96

1,834

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

3,900

963

‐

4,864

1,746

288

3,117

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

859,350456,211‐1,315,562‐‐

1,315,562

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

56,717

29,686‐

86,403

197

197

86,206

Construction in progress in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

‐

450

‐

450

‐

‐

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

1,720,802$

912,861$‐$

2,633,663

92,438$$16,293450$

2,541,225

Increases in the net book values are mainly due to the acquisition of 13 properties (¥90,804,000 thousand) as shown below and capitalized expenditures.
Property name

Property No.

Acquisition cost(in thousands of yen)

Acquisition cost(in thousands of U.S. dollars)

A103

Royal Parks Momozaka

2,910,000

28,277

A104

Royal Parks Shinden

5,024,000

48,819D38

Hotel Mystays Shinsaibashi

3,160,000

30,706

D39

Comfort Hotel Kurosaki

1,148,000

11,155

D40

Comfort Hotel Maebashi

1,128,000

10,961

D41

Comfort Hotel Tsubame‐Sanjo

1,010,000

9,814

D42

Comfort Hotel Kitami

851,000

8,269

D43

Hotel Mystays Gotanda Station

24,674,000

239,762

D44

Hotel Epinard Nasu

20,981,000

203,877

D45

Hotel MyStays Fukuoka Tenjin

8,059,000

78,311

D46

Hotel MyStays Hamamatsucho

7,959,000

77,339D47

Hotel MyStays Kanazawa

13,761,000

133,718

D48

Takamatsu Tokyu REI Hotel
Total

2,139,000

20,78592,804,000

901,797

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, 2015 and June 30, 2016.

14

Residential
As of / For the six months ended
December 31,
June30,June 30,
2015
2016
2016
(in thousands of
U.S. dollars)(in thousands of yen)

Net book value
Balance at the beginning of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

55,269,403 ¥

60,305,706

Net increase (decrease) during period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙

5,036,303

7,968,789

77,434

Balance at the end of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

60,305,706

68,274,496

663,438

68,592,000 ¥

77,214,000

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

586,004

750,306

OfficeDecember 31,
2015

As of / For the six months ended
June30,June 30,2016
2016(in thousands of
U.S. dollars)(in thousands of yen)

Net book value
Balance at the beginning of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

8,514,702

Net increase (decrease) during period ∙∙∙∙∙∙∙(26,826)¥(17,489)(169)

Balance at the end of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

8,487,876

8,470,387

82,308Fair value ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

7,206,000¥

8,487,876

7,219,000$$

82,47870,148Retail facilities
December 31,
2015

As of / For the six months ended
June30,June 30,2016
2016(in thousands of
U.S. dollars)(in thousands of yen)

Net book value
Balance at the beginning of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

5,178,288

Net increase (decrease) during period ∙∙∙∙∙∙∙∙(44,205)¥(46,557)(452)

Balance at the end of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

5,134,083

5,087,525

49,436

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

5,830,000¥

5,134,083

5,840,000$$

49,88956,748Parking lots
December 31,
2015

As of / For the six months ended
June30,June 30,2016
2016(in thousands of
U.S. dollars)(in thousands of yen)

Net book value
Balance at the beginning of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

100,822

Net increase (decrease) during period ∙∙∙∙∙∙∙∙(1)¥

100,821(1)

0Balance at the end of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

100,821

100,820979

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

112,000¥

113,000

$

$

979

1,098

Hotel
December 31,
2015

As of / For the six months ended
June30,June 30,2016
2016(in thousands of
U.S. dollars)(in thousands of yen)

Net book value
Balance at the beginning of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

58,211,612

Net increase (decrease) during period ∙∙∙∙∙∙∙∙

37,011,441¥

84,314,865

819,306

Balance at the end of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

95,223,054

179,537,920

1,744,611

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

133,212,000¥

95,223,054

232,905,000$$

925,304

2,263,191

Total
December 31,
2015

As of / For the six months ended
June30,June 30,2016
2016(in thousands of
U.S. dollars)(in thousands of yen)

Net book value
Balance at the beginning of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

127,274,829¥

169,251,542$

1,644,655

15

Net increase (decrease) during period ∙∙∙∙∙∙∙∙

41,976,712

92,219,607

896,119

Balance at the end of period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

169,251,542

261,471,150

2,540,774

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

214,952,000¥

323,291,000$

3,141,492

Notes:
Fair value has been determined based on the appraisals or research provided by independent real estate appraisers.
For rental revenues and expenses for the six months ended December 31, 2015 and June 30, 2016, 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, 2016.

For the six months ended June 30, 2016
EndingBeginning
Increase
Classification

Name of lender

Beginning
Increase

Decreasebalancebalancebalance(in thousands of yen)EndingAveragebalanceinterest rate

Decrease
Maturity date(%) (1)(in thousands of U.S. dollars)

Use ofRemarks

proceeds

Sumitomo Mitsui
Banking Corporation

16‐May‐16
360,000‐

360,000

‐

3,498

‐

3,498

‐

0.302

(3)
Unsecured(2),(3)

The Bank ofTokyo‐Mitsubishi

unguaranteed

16‐May‐16
360,000‐

360,000

‐

3,498

‐

3,498

‐

0.302

360,000‐

360,000

‐

3,498

‐

3,498

‐

0.302

and

UFJ, Ltd. (3)Mizuho Bank, Ltd.
16‐May‐16(3)Unsecured
Sumitomo Mitsui
Short‐term

22‐Jan‐17
Trust Bank, Limited‐

498,000‐

498,000

‐

4,839

‐

4,839

(2)

and

0.276

loans

unguaranteedpayableMizuho Bank, Ltd.

30‐Mar‐17‐

604,000‐

604,000

‐

5,869

‐

5,869

0.247
Unsecured

The Bank ofTokyo‐Mitsubishi

30‐Mar‐17‐

826,000‐

826,000

‐

8,026

‐

8,026

0.247

‐

688,000‐

688,000

‐

6,685

‐

6,685

0.247

(2)

and
unguaranteed

UFJ, Ltd.
Sumitomo Mitsui
30‐Mar‐17
Trust Bank, Limited

Unsecured
Citibank Japan Ltd.

15‐Jun‐17‐882,000‐

882,000

‐

8,570

‐

8,570

(2)

and

0.252
unguaranteed

Total short‐termloans payable

1,080,000

3,498,000

1,080,000

3,498,000

10,49433,99010,49433,9905,992,000‐‐

5,992,000

58,225‐‐58,225

Sumitomo Mitsui
16‐Jul‐18
Long‐term

Banking Corporation

0.375

Unsecuredloans
payable(2)
The Bank ofandunguaranteed

Tokyo‐Mitsubishi

16‐Jul‐18
5,992,000‐‐

5,992,000

58,225‐‐58,2250.375

UFJ, Ltd.

16

Beginning

EndingIncrease

Classification

Name of lender

Beginning

Decrease

Increasebalancebalancebalance(in thousands of yen)EndingAveragebalanceinterest rate

Decrease
Maturity date(%) (1)(in thousands of U.S. dollars)

Mizuho Bank, Ltd.

Use ofRemarks

proceeds

16‐Jul‐18
5,992,000‐‐

5,992,000

58,225‐‐58,2250.375

3,330,000‐‐

3,330,000

32,358‐‐32,3580.375

3,000,000‐‐

3,000,000

29,151‐‐

29,151

0.375

Shinsei Bank,
16‐Jul‐18
Limited16‐Jul‐18

Unsecured

Citibank Japan Ltd.
(2)

andunguaranteed

Sumitomo Mitsui
16‐Jul‐18
Trust Bank, Limited

2,670,000‐‐

2,670,000

25,945‐‐25,9450.375

1,335,000‐‐

1,335,000

12,972‐‐

12,9720.375

668,000‐‐

668,000

6,491

‐

‐

6,491

0.375

5,992,000‐‐

5,992,000

58,225‐‐58,2250.480

5,992,000‐‐

5,992,000

58,225‐‐58,2250.480

5,992,000‐‐

5,992,000

58,225‐‐58,2250.480

Resona Bank,
16‐Jul‐18
Limited.
Mitsubishi UFJ Trustand Banking

16‐Jul‐18

Corporation

Sumitomo Mitsui
16‐Jul‐19
Banking Corporation

The Bank ofTokyo‐Mitsubishi

16‐Jul‐19

UFJ, Ltd.

Mizuho Bank, Ltd.

16‐Jul‐19
Unsecured

Shinsei Bank,
16‐Jul‐19
Limited3,330,000‐‐

3,330,000

32,358‐‐32,3580.480(2)Long‐term
loans

and
unguaranteed

Citibank Japan Ltd.

payable16‐Jul‐19
3,000,000‐‐

3,000,000

29,151‐‐

29,1510.480

2,670,000‐‐

2,670,000

25,945‐‐25,9450.480

1,335,000‐‐

1,335,000

12,972‐‐

12,9720.480

668,000‐‐

668,000

6,491

‐

‐

6,491

0.480

5,992,000‐‐

5,992,000

58,225‐‐58,2250.590

5,992,000‐‐

5,992,000

58,225‐‐58,2250.590

5,992,000‐‐

5,992,000

58,225‐‐58,2250.590

3,330,000‐‐

3,330,000

32,358‐‐32,3580.590

3,000,000‐‐

3,000,000

29,151‐‐

29,1510.590

2,670,000‐‐

2,670,000

25,945‐‐25,9450.590

1,335,000‐‐

1,335,000

12,972‐‐

12,9720.590

Sumitomo Mitsui
16‐Jul‐19
Trust Bank, Limited
Resona Bank,
16‐Jul‐19
Limited.
Mitsubishi UFJ Trustand Banking

16‐Jul‐19

Corporation

Sumitomo Mitsui
16‐Jul‐20
Banking Corporation

The Bank ofTokyo‐Mitsubishi

16‐Jul‐20

UFJ, Ltd.

Mizuho Bank, Ltd.

(2)

Shinsei Bank,
16‐Jul‐20
LimitedUnsecured

16‐Jul‐20

Citibank Japan Ltd.

andunguaranteed

16‐Jul‐20

Sumitomo Mitsui
16‐Jul‐20
Trust Bank, Limited
Resona Bank,
16‐Jul‐20
Limited.

17

Beginning

EndingIncrease

Classification

Name of lender

Beginning

Decrease

Increasebalancebalancebalance(in thousands of yen)EndingAveragebalanceinterest rate

Decrease
Maturity date(%) (1)(in thousands of U.S. dollars)

Use ofproceeds

Mitsubishi UFJ Trust
16‐Jul‐20

and Banking
668,000‐‐

668,000

6,491

‐

‐

6,491

Remarks

(2)

0.590

Corporation

Unsecured
andunguaranteed
Unsecured

Mizuho Bank, Ltd.

28‐Aug‐19
3,682,000‐‐

3,682,000

35,778‐‐35,778

(2)

and

0.480
unguaranteed

Sumitomo Mitsui
22‐Jan‐19
Trust Bank, Limited‐

3,400,000‐

3,400,000‐

33,038‐33,0380.343‐

850,000‐

850,000

‐

8,259

‐

8,259

0.343

Mitsubishi UFJ Trustand Banking

22‐Jan‐19
Unsecured

Corporation(2)
Sumitomo Mitsui

unguaranteed

22‐Jan‐21
Trust Bank, Limited‐

3,400,000‐

3,400,000‐

33,038‐33,0380.600‐

850,000‐

850,000

‐

8,259

‐

8,259

0.600

4,465,000

4,465,000‐

43,387‐43,3870.447

1,125,000

1,125,000‐

10,931‐

10,9310.447

2,181,000

2,181,000‐

21,193‐

21,1930.447

650,000

‐

6,316

‐

6,316

0.447

and

Mitsubishi UFJ Trustand Banking

22‐Jan‐21

Corporation

Mizuho Bank, Ltd.

‐30‐Mar‐19

The Bank ofLong‐termloansTokyo‐Mitsubishi‐

UFJ, Ltd.

30‐Mar‐19

payableSumitomo Mitsui‐
Trust Bank, Limited

30‐Mar‐19

Mitsubishi UFJ Trustand Banking‐

30‐Mar‐19
650,000‐

Corporation

Unsecured

Shinsei Bank,‐
Limited30‐Mar‐19
570,000‐

570,000

‐

5,538

‐

5,538

0.447

570,000‐

570,000

‐

5,538

‐

5,538

0.447

1,000,000

‐

9,717

‐

9,717

0.447

333,000

‐

3,235

‐

3,235

0.447

270,000

‐

2,623

‐

2,623

0.447

270,000

‐

2,623

‐

2,623

0.447

4,465,000‐

43,387‐43,3870.547

1,125,000‐

10,931‐

10,931

0.547

(2)

and
unguaranteed

Resona Bank,‐
Limited.

30‐Mar‐19

Development Bank‐of JapanFukuoka Bank Ltd‐
1,000,000‐‐
333,000

Shizuoka Bank Ltd‐‐

30‐Mar‐19‐
270,000

Mizuho Bank, Ltd.

30‐Mar‐19‐
270,000

Nomura Bank Ltd

30‐Mar‐19‐

30‐Mar‐19‐
4,465,000

30‐Mar‐20

The Bank ofTokyo‐Mitsubishi‐‐
1,125,000

30‐Mar‐20
UnsecuredUFJ, Ltd.
(2)
Sumitomo Mitsui‐
Trust Bank, Limited‐
2,180,000

30‐Mar‐20
2,180,000‐

21,183‐

21,1830.547

650,000

‐

6,316

‐

6,316

0.547

and
unguaranteed

Mitsubishi UFJ Trustand Banking‐‐
650,000

30‐Mar‐20

Corporation18

Beginning

EndingIncrease

Classification

Name of lender

Beginning

Decrease

Increasebalancebalancebalance(in thousands of yen)EndingAveragebalanceinterest rate

Decrease
Maturity date(%) (1)(in thousands of U.S. dollars)

Use ofRemarks

proceeds

Shinsei Bank,‐
Limited

‐570,000

30‐Mar‐20
570,000

‐

5,538

‐

5,538

0.547

570,000

‐

5,538

‐

5,538

0.547

Resona Bank,‐
Limited.

‐570,000

30‐Mar‐20
Unsecured

Fukuoka Bank Ltd‐‐
333,000

Shizuoka Bank Ltd

‐

‐

‐

3,235

‐

3,235

0.547

270,000

‐

2,623

‐

2,623

0.547

270,000

‐

2,623

‐

2,623

0.547

‐

4,465,000‐

43,387‐43,3870.647

1,125,000‐

10,931‐

10,9310.647

2,180,000‐

21,183‐

21,1830.647

650,000

‐

6,316

‐

6,316

0.647

and
unguaranteed

30‐Mar‐20‐
4,465,000(2)30‐Mar‐20‐
270,000

Mizuho Bank, Ltd.

333,000‐
270,000

Nomura Bank Ltd

30‐Mar‐20

30‐Mar‐21

The Bank ofTokyo‐Mitsubishi‐‐
1,125,000

30‐Mar‐21

UFJ, Ltd.
Sumitomo Mitsui‐
Trust Bank, Limited‐
2,180,000

30‐Mar‐21

Mitsubishi UFJ Trust
Long‐term
loans
payableand Banking‐‐
650,000

30‐Mar‐21

Corporation

Unsecured(2)

Shinsei Bank,‐
Limited

‐570,000

unguaranteed

30‐Mar‐21
570,000

‐

5,538

‐

5,538

0.647

570,000

‐

5,538

‐

5,538

0.647

333,000

‐

3,235

‐

3,235

0.647

270,000

‐

2,623

‐

2,623

0.647

270,000

‐

2,623

‐

2,623

0.647

1,000,000

‐

9,717

‐

9,717

0.452

and

Resona Bank,‐
Limited.

Fukuoka Bank Ltd‐
570,000‐‐
333,000

Shizuoka Bank Ltd

30‐Mar‐21‐

30‐Mar‐21‐
270,000

30‐Mar‐21

Nomura Trust Bank‐
Ltd

Citibank Japan Ltd.

‐
270,000‐

30‐Mar‐21‐
1,000,000

15‐Jun‐19
Unsecured

Citibank Japan Ltd.

‐‐
1,000,000

15‐Jun‐20
1,000,000

‐

9,717

‐

9,717

(2)

and

0.552
unguaranteed

Citibank Japan Ltd.

‐‐
1,000,000

15‐Jun‐21
1,000,000

‐

9,717

‐

9,717

0.652

1,000,000

‐

9,717

‐

9,717

0.434

Development Bank‐of Japan‐
1,000,000

30‐Jun‐19

Unsecured(2)

Aeon Bank Ltd‐‐
3,000,000

30‐Jun‐21
3,000,000‐

29,151‐

29,151

andunguaranteed

0.634

Total long‐term loans
payable90,619,000

47,800,000‐

138,419,000

880,565

464,483‐

1,345,049

91,699,000

51,298,000

1,080,000

141,917,000

891,060

498,474

10,494

1,379,039

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 real estate properties or properties in trust and for repayment of loans payable.

(3)

The part of principal (¥1,080 million) was repaid using the refund of consumption taxes on April 28, 2015.

19

(4)

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,
2016

June30,2016(in thousandsof yen)(in thousands of
U.S. dollars)

1‐2 years ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥

‐

$

‐

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

46,663,000

453,435

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

44,094,000

428,471

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

47,662,000

463,142

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$ 414 thousand) as required by Article 67‐4 of the Investment Trust Act.
The number of investment units authorized were 10,000,000 units as of December 31, 2015 and June 30, 2016.
The number of investment units issued and outstanding were 3,193,686 units as of December 31, 2015 and 3,675,824 June 30, 2016
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, 2015 and June 30, 2016.
For the six months ended
December 31,
2015

Unappropriated retained earnings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥Reversal of reserve for temporary difference
adjustment
Distributions in excess of retained earnings
Allowance for temporary differences
adjustment ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

June30,2016

June 30,2016(in thousands of yen)(in thousands of
U.S. dollars)

3,028,323 ¥$

4,363,420

42,400

‐

(708)

(6)

‐

(224,225)(2,178)Deduction from capital surplus ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(763,290)‐

Distributions ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(3,790,905)(4,359,527)(42,362)

Of which, distributions of earnings ∙∙∙∙∙∙∙∙∙∙Of which, allowance for adjustment of
temporary differences ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙Of which, distributions in excess of
net earnings ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(3,027,614)(4,135,302)(40,183)‐(224,225)(2,178)(763,290)

‐

‐

708

‐

‐

Voluntary reserve
Reserve for temporary
difference adjustment∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Retained earnings carried forward. ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥‐ ¥228,827$

2,223

The distributions in respect of the six months ended June 30, 2016 of ¥1,186 (US$11.5) per investment unit, amounting to a total dividendof ¥4,363,420 thousand (US$42,400 thousand), including distributions in excess of retained earnings (return of capital), was proposed andapproved at the Board of Directors meeting on August 23, 2016. These financial statements do not reflect this dividend payable.
Cash distributions per investment unit were ¥1,187 and ¥1,186 (US$11.5) for the six months ended December 31, 2015, and June 30, 2016,
respectively.

20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, 2015 and June 30,
2016 consist of the following:
For the six months ended
December 31,
2015

June30,2016

June 30,2016(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∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥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 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ ¥6,652,619
211,156
6,863,775¥

7,889,877
268,342
8,158,220$472,597
250,268
9,934
1,275,714
169,651¥

554,149
281,065
12,6691,676,736
173,364

$

5,384
2,731
123
16,293
1,684

2,178,165¥

2,697,986$

26,216

4,685,610¥

5,460,234$

53,058¥76,667
2,607
79,275$

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
December31,
2015

June30,2016(Rate)

Statutory tax rates ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

32.31 %

32.31 %

Deductible cash distributions ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(31.93)(32.31)

Increase (decrease) in valuation allowance ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(0.38)(2.72)

Other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

0.02

2.63

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

0.02 %

0.01 %(b) Deferred tax assets and liabilities consist of the following:
As ofJune30,2016

December 31,
2015

June 30,2016(in thousands of
U.S. dollars)(in thousands of yen)

Deferred tax assets:
Current:
Enterprise tax payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

489

Rental receivables (merger) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

186

¥

481
183

$

4
1

Allowance for doubtful accounts ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

806

877

8

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

1,482

1,542

14

21

Non‐current:
Buildings and other (merger) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

735,158

711,143

6,910

Land (merger) ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Deferred gains or losses on hedges ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

2,129,657

2,092,087

20,329‐72,218701

Net loss carried forward ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙
Asset retirement obligations ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

7,329,595

7,200,289

69,966

‐

9,855

95

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

10,194,411

10,085,594

98,004

Non‐current
Asset retirement obligations ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

‐

9,797

95

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

‐

9,797

95
(97,923)

Deferred tax liabilities:

Valuation allowance ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙(10,195,894)(10,077,339)

Total ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙－－Net deferred tax assets ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

－

－

¥

－
－

$

(c) Revision of the amount of deferred tax assets and liabilities by the change of income tax rate
With the “Act to partially revise the income tax Act and others“(Act No. 15 of 2016) and “Act to partially revise the income tax Act andothers “(Act No. 13 of 2016) promulgated on March 29, 2016, the effective tax rate used to calculate deferred tax assets and deferred tax
liabilities concerning temporary differences, etc. expected to be resolved in accounting periods beginning on or after April 1, 2016 waschanged from 32.31% to 31.74%.
The effects of this change are immaterial for the Company.

14. Leases(a) Lease rental revenues
The future minimum rental revenues pursuant to existing rental contracts as of December 30, 2015 and June 30, 2016 scheduled to bereceived are summarized as follows:
As of
December 31,
2015

June30,2016

June 30,2016(in thousands of yen)(in thousands of
U.S. dollars)

Due within one year ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

3,657,829$

Due over one year ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

31,055,536

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

34,713,366¥

5,988,176
50,718,568¥

56,706,745

58,188492,843$551,032(b) Lease rental expenses
The future minimum rental expenses pursuant to existing rental contracts as of December 31, 2015 and June 30, 2016 scheduled to be
paid are summarized as follows:
As of
December 31,
2015

June30,2016(in thousands of
U.S. dollars)(in thousands of yen)

Due within one year ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

112,249

Due over one year ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

2,111,914

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

2,224,164¥

June 30,
2016

244,619$

7,490,299¥

7,734,918

2,377
72,784$75,161

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

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.

22

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, 2015 and June 30, 2016.

As ofDecember 31,
2015
Carrying
amounts

June30,2016

Fair value

Carrying
amounts

Difference

June 30,
2016

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 ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

7,885,398(2) Cash and bank deposits in trust. ∙∙∙∙∙

5,933,582

Total assets ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

13,818,981¥

7,885,398－¥¥

13,818,981¥

11,322,762－

5,933,582－¥¥

11,322,762

5,441,316¥

16,764,078¥¥

16,764,078

－

$

－

5,441,316¥－

110,025$

52,874$

162,900

110,025

$

－

$

－

－

52,874$

162,900

Liabilities:(3) Short‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

1,080,000

1,080,000－

3,498,000

3,498,000－

33,99033,990－(4) Account payable ‐ other ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

－

－

－

8,957,286

8,957,286－

87,04087,040－(5) Long‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

90,619,000

90,619,000－

138,419,000

138,419,000－

1,345,049

1,345,049

Total liabilities ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

91,699,000¥

91,699,000

－

¥

¥

150,874,286¥

150,874,286

¥

－

$

1,466,079$

1,466,079

－
$

－

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 (3) Short‐term loans payable (4) Account payable ‐ otherBecause of their short maturities, the carrying amounts approximate their fair value.
(5) 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 of
December 31,
2015

June30,2016(in thousands of
U.S. dollars)(in thousands of yen)

Tenant leasehold and security deposits ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

28,663Tenant leasehold and security deposits in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙

1,617,867¥

June 30,
2016

28,663
2,035,843$

278
19,782Tenant 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.

23

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, 2015:
Cash and bank deposits ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

7,885,398

Cash and bank deposits in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

5,933,582

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

¥

‐

¥

‐

‐

¥

‐

‐

¥

‐

‐

¥

‐

‐

‐

13,818,981

¥

‐

¥

‐

¥

‐

¥

‐

¥

‐

¥

‐

¥

‐

¥

‐

¥

‐

¥

‐

¥

‐

As of June 30, 2016:
Cash and bank deposits ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

11,322,762

Cash and bank deposits in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

5,441,316

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

16,764,078‐¥

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, 2016:
Cash and bank deposits ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙$

110,025

Cash and bank deposits in trust ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

52,874

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

162,900

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, 2015:
‐

¥

‐

¥

‐

1,080,000‐

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

1,080,000¥‐¥

28,979,000¥

32,661,000¥

28,979,000¥

3,498,000

¥

‐

¥

‐

¥

‐

¥

‐

¥

‐

¥

‐

Short‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥
Long‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙

28,979,000¥

32,661,000

‐

¥

‐

28,979,000‐

As of June 30, 2016:
Short‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥
Long‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐

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

3,498,000‐¥

Within 1 year‐

46,663,000¥

1‐2 years

46,663,000

44,094,000¥

2‐3 years

44,094,000‐‐

47,662,000¥

3‐4 years

47,662,000¥

4‐5 years‐

Over 5 years(in thousands of U.S. dollars)
As of June 30, 2016:
Short‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙$

33,990Long‐term loans payable ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙‐

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

33,990

$

‐

$

$

‐

‐

$

453,435‐$

453,435‐$

428,471$428,471

‐

$

‐

$

‐

463,142$463,142‐24

16. Derivatives
Information on derivative transactions undertaken by the Company as of December 31, 2015 and June 30, 2016 is as follows. Derivative
instruments are used for hedging purposes only and are subject to hedge accounting.
As of December 31, 2015: Not applicable
As of June 30, 2016:
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

Total

Over 1
year

Total

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

99,119,000¥

99,119,000¥(227,532)$

963,161$

963,161$(2,210)¥99,119,000¥

99,119,000¥(227,532)$

963,161$

963,161$(2,210)(*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, 2015 and June 30, 2016 are as follows.
For the six month ended
December 31,
2015

June30,2016

June 30,2016(in thousands of
U.S. dollars)(in thousands of yen)

Balance at the beginning of the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥‐

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

30,868299

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

‐

182

1

Balance at the end of the period ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

‐

¥

‐

31,050

$

$

‐

301

25

18. Segment Information
Segment information for the six months ended December 31, 2015 and June 30, 2016 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, 2015 and June 30, 2016 were as follows:

For the six months ended December 31, 2015
Operating Revenues
Name of client

Related segment(in thousands of yen)

Mystays Hotel Management Co.,Ltd.

¥3,125,985

Real estate investing business

For the six months ended June 30, 2016
Operating Revenues

Operating Revenues(in thousands of yen)(in thousands of U.S. dollars)Name of client

Mystays Hotel Management Co.,Ltd.

Related segment¥3,389,166＄32,933

Real estate investing business26

19. Related‐Party Transactions(a) Parent Company and Major Corporate Unitholders
For the six months ended December 31, 2015

Type of

Voting(in millions of yen)interest

Business

Balance at the end of period

Transactions for the period

Amounts (1)Relationship with

Company
Location

related‐party

Share capital

BalanceAmounts(1)in thethe Company

nameType of transactions

Compa(in thousands of yen)sheet

(in thousands of yen)account
nySkye TMK(3)Minato‐ku

Investment

Tokyomanagement

Minato‐ku

nvestment

Tokyo

¥

0.1

‐

business
Nishi TMK(3)rights,(2)(5)Acquisition of real estate

management

trust beneficiary

trust beneficiarybusinessrightsrights,(2)(5)Seller of real estate

Acquisition of real estate

trust beneficiary

trust beneficiary

Minato‐ku

nvestment

TMK(3)

Tokyo

management

Wakusei TMK(3)Minato‐ku

nvestment

Tokyo

Suisei TMK(3)

¥

0.1

0.1

‐

‐

rightsrights,(2)(5)Seller of real estate

Acquisition of real estate

management

trust beneficiary

trust beneficiarybusinessrightsrights,(2)(5)¥

nvestment

Seller of real estate

Acquisition of real estate

management

trust beneficiary

trust beneficiarybusinessrightsrights,(2)(5)Seller of real estate

Acquisition of real estate

trust beneficiary

trust beneficiary

nvestmentTokyo

management

Zephyrus

Minato‐ku

nvestment

TMK(3)

Tokyo

¥

0.1

‐

Minato‐ku

Minato‐ku

¥

0.1

Tokyo

Manager
Aki TMK(3)

0.1

‐

‐

business

GK Valletta(3)rightsrights,(2)(5)Seller of real estate

Acquisition of real estate

management

trust beneficiary

trust beneficiarybusinessrightsrights,(2)(5)Seller of real estate

Acquisition of real estate

trust beneficiary

trust beneficiaryrightsrights,(2)(5)

Lease holder andRental Revenues.

Minato‐ku

nvestmentTokyo

management

Mystays Hotel

Minato‐ku,

HotelManagement,.

Tokyo

management

¥

¥

0.1

0.1

‐

‐

business

Co.Ltd(3)trust beneficiaryrightsRannochthe Asset

Acquisition of real estate

trust beneficiary

Seller of real estate¥business

Interested party ofSeller of real estate

¥

100

‐

¥ 7,801,000‐‐¥ 14,405,000‐‐¥ 5,707,000‐‐¥ 2,198,000‐‐¥ 2,603,000‐‐¥ 1,277,000‐‐¥ 1,237,000‐‐¥ 5,099,000‐‐¥ 3,125,985

Rentaloperator of hotel¥ 920,391

receivables

business

Notes:(1)(2)

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

(3)

The seller, Skye TMK, Nishi TMK, Rannoch TMK, Wakusei TMK, Suisei TMK , Aki TMK, Zephyrus TMK, GK Valletta and Mystays Hotel Management., Co. Ltd has no
relationship to be stated, but they receive investment through funds that are managed by FIG, an affiliate of Calliope. Accordingly, we treat Skye TMK, Nishi TMK, Rannoch
TMK, Wakusei TMK, Suisei TMK , Aki TMK, Zephyrus TMK, GK Valletta and Mystays Hotel Management., Co. Ltd as a related party.

(4)
(5)

Calliope holds 609,942 units (holding ratio: 19.09%) of the issued investment units of the Company.
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 U.S. dollars)

Property nameSeller

A100

City Court Kitaichijo

GK Valletta

1,782,000

A101

Lieto Court Mukojima

GK Valletta

1,683,000

13,954

A102

Lieto Court Nishi‐Ojima

GK Valletta

1,634,000

13,547

Property No.

14,774

D24

Hotel MyStays Haneda

Skye TMK

7,801,000

64,679D25

Hotel MyStays Kameido P1

Nishi TMK

5,594,000

46,38027

Acquisition cost(in thousands of yen)

Acquisition cost(in thousands of U.S. dollars)

Property No.

Property nameSellerD26

Hotel MyStays Ueno Iriyaguchi

Rannoch TMK

3,821,000

31,680D27

Hotel MyStays Kameido P2

Nishi TMK

3,742,000

31,025

D28

Hotel Vista Shimizu

Wakusei TMK

2,198,000

18,224

D29

Super Hotel Shinbashi/Karasumoriguchi

Suisei TMK

1,624000

13,464

D30

Flexstay Inn Higashi‐Jujo

Aki TMK

1,277,000

10,587

D31

Hotel MyStays Utsunomiya

Zephyrus TMK

1,237,000

10,256

D32

Flexstay Inn Kawasaki‐Kaizuka

Rannoch TMK

980,000

8,125

D33

Comfort Hotel Toyama

Suisei TMK

979,000

8,117

D34

Flexstay Inn Kawasaki‐Ogawacho

Rannoch TMK

906,000

7,511

D35

Flexstay Inn Ekoda

Nishi TMK

5,069,000

42,02840,327,000

334,358

Total

For the six months ended June 30, 2016

Type ofCompany

related‐party

nameLocation

Business

Balance at the end of period

Transactions for the period

Share capital
Voting(in(inmillions

thousanof yen)ds of U.S.

Amounts(1)Amounts (1)interest
Relationship within thethe Company

Type of transactions

Compa

dollars)(in thousands(inof yen)thousands of U.S.

ny

Balancesheet(in thousands(inof yen)thousandaccounts of U.S.
dollars)

dollars)
Aki TMK(3)Minato‐ku

nvestmentTokyo

management

Minato‐ku

nvestment

Tokyo

¥

0.1

$

0

‐

business
Navaro TMK(3)Momo TMK(3)the Asset

rights,(2)(5)Acquisition of real estate

management

trust beneficiary

trust beneficiarybusinessrightsrights,(2)(5)Seller of real estate

Acquisition of real estate

trust beneficiary

trust beneficiary

Minato‐ku

nvestmentTokyo

management

¥

0.1

$

$

0

0

‐

‐

rightsrights,(2)(5)Seller of real estate

Acquisition of real estate

management

trust beneficiary

trust beneficiarybusinessrightsrights,(2)(5)Seller of real estate

Acquisition of real estate

trust beneficiary

trust beneficiary

Minato‐ku

nvestment

Tokyo

Septentrio

Minato‐ku

nvestment

TMK(3)

Tokyo

management

Septentrio２

Minato‐ku

nvestment

TMK(3)TokyoManagertrust beneficiaryrights
0.1

¥

0.1

¥

0.1

$

$

0

0

‐

‐

business
Interested party of

Acquisition of real estate

trust beneficiary

Seller of real estate¥business
Tsuki TMK(3)Seller of real estaterightsrights,(2)(5)Seller of real estate

Acquisition of real estate

management

trust beneficiary

trust beneficiarybusinessrightsrights,(2)(5)

¥

0.1

$

0

‐

Septentrio３

Minato‐ku

nvestment

Seller of real estate

Acquisition of real estate

TMK(3)

Tokyo

management

trust beneficiary

trust beneficiarybusinessrightsrights,(2)(5)Seller of real estate

Acquisition of real estate

trust beneficiary

trust beneficiary

Ginga TMK(3)Minato‐ku

nvestmentTokyo

management

Minato‐ku

nvestment

Tokyo

¥

0.1

¥

0.1

$

$

0

0

‐

‐

business
Wakusei TMK(3)rightsrights,(2)(5)Seller of real estate

Acquisition of real estate

management

trust beneficiary

trust beneficiarybusinessrightsrights,(2)(5)

Lease holder andRental Revenues.

Naqua Hotel &Minato‐ku,

Hotel

Resorts

Tokyo

management

¥

0.1

¥

10

$

$

0

0

‐

‐

¥ 3,160,000$ 30,706‐‐‐¥ 20,155,000$ 195,850‐‐‐¥ 7,934,000$ 77,096‐‐‐¥ 24,674,000$ 239,762‐‐‐¥ 12,588,600$ 122,326‐‐‐¥ 4,196,199$ 40,775‐‐‐¥ 4,196,199$ 40,775‐‐‐¥ 13,761,000$ 133,718

Account¥ 8,800,548$ 85,516‐‐¥ 220,811$ 2,145¥ 990,543$ 9,625

payable¥ 2,139,000$ 20,785¥ 627,563$ 6,098

operator of hotel‐

Rentalreceivables

business

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

Hotel
management

¥

100

$

0

‐

Lease holder andoperator of hotel

Rental Revenues.

¥ 3,389,166$ 32,933

Rentalreceivables

business

28

Notes:(1)

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

(2)

Terms and conditions are decided pursuant to the Asset Manager’s Regulations on Transactions with Sponsor‐related Persons and the Management Manual regarding(3)

The seller, Aki TMK, Navaro TMK, Momo TMK, Tsuki TMK, Septentrio TMK , Septentrio ２ TMK, Septentrio ３ TMK, Ginga TMK, Wakusei TMK, Naqua Hotel &Transactions with Sponsor‐related Persons.

Resorts Management Co., Ltd and Mystays Hotel Management., Co. Ltd has no relationship to be stated, but they receive investment through funds that are managed by FIG,
an affiliate of Calliope. Accordingly, we treat Aki TMK, Navaro TMK, Momo TMK, Tsuki TMK, Septentrio TMK , Septentrio ２ TMK, Septentrio ３ TMK, Ginga TMK,
Wakusei TMK, Naqua Hotel & Resorts Management Co., Ltd and Mystays Hotel Management., Co. Ltd as a related party.
Calliope holds 609,942 units (holding ratio: 16.6%) of the issued investment units of the Company.

(4)

The transaction amount exclude adjusted amount of real property tax and city planning tax, as well as consumption tax and local consumption tax.

(5)

Acquisition of real estate trust beneficiary rights are relating to below
Acquisition cost(in thousands of yen)SellerAcquisition cost(in thousands of U.S. dollars)

Property No.

Property name

A103

Royal Parks Momozaka

Momo TMK

2,910,000

Royal Parks Shinden

Momo TMK

5,024,000

48,819D38

Hotel Mystays Shinsaibashi

Aki TMK

3,160,000

30,706

D39

Comfort Hotel Kurosaki

Navaro TMK

1,148,000

11,155

D40

Comfort Hotel Maebashi

Navaro TMK

1,128,000

10,961

D41

Comfort Hotel Tsubame‐Sanjo

Navaro TMK

1,010,000

9,814

D42

Comfort Hotel Kitami

Navaro TMK

851,000

8,269

D43

Hotel Mystays Gotanda Station

Tsuki TMK

24,674,000

239,762

D44

Hotel Epinard Nasu

Septentrio TMK
Septentrio２ TMK
Septentrio３ TMK

20,981,000

D45

Hotel MyStays Fukuoka Tenjin

Navaro TMK

8,059,000

Hotel MyStays Hamamatsucho

Navaro TMK

7,959,000

77,339D47

Hotel MyStays Kanazawa

Ginga TMK

13,761,000

133,718

D48

Takamatsu Tokyu REI Hotel

Wakusei TMK

A104

D46

28,277

203,877

Total

78,3112,139,000

20,78592,804,000

901,797(b) Board of Directors and Major Individual Unitholders
For the six months ended December 31, 2015
VotingType ofTransactions for the periodinterest in
Name

Balance at the end of period
Amounts (3)BalanceAmounts (3)Business / Occupation

related‐party

theType of transactions(in thousands of yen)Company―

sheet

Directors andNaoki

Executive officer of the Company

Payment of the assets management

close relatives

Fukudaand management director offee to Consonant Investment

Consonant Investment

Management Co., Ltd.(1)Management Co., Ltd.

Payment of institution management
fee to Consonant Investment¥

account

180,000(in thousands of yen)Accrued¥97,200¥864

expenses¥

1,100

Accruedexpenses

Management Co., Ltd.(2)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.

29

For the six months ended June 30, 2016
Transactions for the period

Type of

Balance at the end of period
Amounts (3)VotingAmounts (3)interest in
Name

BalanceBusiness / Occupation

related‐party

theType of transactions(in thousands(in thousandsof U.S.

Company

accountof yen)

(in
(in

sheet

dollars)

thousands
thousandsof U.S.
of yen)dollars)

Directors andNaoki

Executive officer of the Company―

Payment of the assets management

close relatives

Fukudaand management director offee to Consonant Investment

Consonant Investment

Management Co., Ltd.(1)Management Co., Ltd.

Payment of institution management¥

250,000$

2, 429Accrued¥ 135,000

$

1,311

¥

$

3

expenses¥fee to Consonant Investment

600

$

5

Accrued324

expenses

Management Co., Ltd.(2)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.

30

20. Per Unit Information
The following table shows net asset value per unit as of December 31, 2015 and June 30, 2016, 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
December 31,
2015

June 30,
2016

June 30,
2016

(Yen)
Net asset value per unit ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙¥

28,731(U.S. dollars)¥

35,368$343

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

937

1,270

12

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

3,149,936

3,436,572－

21．Subsequent events(a) New borrowings
The Company borrowed a portion of the consideration on July 20, 2016 for the acquisition of 2 hotel properties acquired on June 15, 2016.
Term Loan (E)(a)Lender: The Tokyo Star Bank, Limited(b)Borrowing amount: JPY4,000 million(c)Interest rate

: One‐month JPY TIBOR + spread (0.40%, 050%, 0.60%)(d)Interest payment date

: Last business day of each month from borrowing date thorough principal maturity date, with the first interest payment date set on July 29, 2016(e)Method of principal repayment: To be repaid in full on the principal maturity date(f)Borrowing method: No secured / with no guarantee(g)Borrowing date

: July 20, 2016(h)Principal maturity date

: July 20, 2019, July 20, 2020, July 20, 202131