Business Report for the 5th Fiscal Period(May 1, 2008 – October 31, 2008)

Pursuing
Defensive Stability
in an Unstable Global Market

5th Fiscal Period

Performance Highlights
Category

5th Fiscal Period
Performance

5th Fiscal Period Forecast(announced on JUNE 13, 2008)

4th Fiscal Period
Performance		184 days		

184 days		

182 days

Operating income¥

2,651 million¥

2,622 million¥

2,353 million

Ordinary income¥

1,994 million¥

1,938 million¥

1,842 million

Net income¥

1,993 million¥

1,937 million¥

1,841 million

		155,000 units		155,000 units		155,000 units¥

12,863¥

12,500¥11,884		

14 properties		

14 properties		

13 properties¥ 189,441 million

		-Period of asset management

Number of investment units
Dividend per unit
Portfolio size
Appraised value of portfolio¥ 188,035 million

Key Differences between Forecast and Performance
Operating income was¥29 million higher✣ Cost reductions were achieved through efficient maintenance and repairs and rigorous expense negotiations✣ Costs were reduced through effective use of general management costs and negotiations over those expenses
Ordinary income rose

¥56 million over forecast✣ Reduced payments on borrowings by partially repaying short-term loans in advance✣ Eliminated interest burden on security deposit for Ito-Yokado Higashi-Narashino Store through an early lump sum
payment

Achievements

During Fifth Fiscal Period

External Growth: Acquired 1 residential property for ¥5,160 million✣ Ecology Toyosu Procentury acquired for ¥5,160 million, raising the portfolio size to ¥162,347 million

Internal Growth: Revised rents upward on 8 of 12 lease renewals✣ Took advantage of lease renewals to successfully raise rents at Akasaka Oji Building, Kanda Park Plaza and otherproperties for about ¥18 million in new income per fiscal period✣ Renewed lease for Sagamihara Shopping Center at same level

Financial Strategy: Reduced interest burden through effective use of cash reserves✣ Repaid ¥1,000 million of borrowings in advance✣ Early repayment of ¥1,150 million security deposit to Ito-Yokado for its Ito-Yokado Higashi-Narashino StoreDividend: TOP REIT is paying a dividend of ¥12,863 for the Fifth Fiscal Period✣ This increase of ¥979 was achieved through additional revenues from 3 properties acquired during the FourthFiscal Period and Ecology Toyosu Procentury

Business Report for 5th Fiscal Period Speaking to You
L e t t e r f r o m t h e Pr e s i d e n t

Pursuing Defensive Stability intrends. The subprime loan problem

an Unstable Global Market

that surfaced in the summer of 2007

Management, to which TOP REIT entrusts

generated widespread financial turmoil,

the management of its assets, will work

even leading to bankruptcies of major

to fully realize “defensive stability” by

U.S. investment banks. Its impact has

conducting prudent asset management

also reached many Japanese financial

that strengthens the trust of unitholders

institutions and companies, once again

and by achieving solid results.

I am pleased to be able to provide an
overview on the management performanceof TOP REIT, Inc. (TOP REIT) for its Fifth
Fiscal Period (May 1, 2008 - October 31,2008) and an update on developments
and strategies pertaining to it.

severe circumstances, TOP REIT Assetleading to an increase in the numberof bankruptcies in Japan. J-REITs are no

TOP REIT Enjoys the Full Support

Amid the murmurings of a worldwide

exception and cannot escape the harshrecession, a heightened sense ofrealities of this financial crisis. The industry

responsibility for prudent management

has seen the sponsor of a J-REIT go

The impact of the difficult circumstances

bankrupt and an investment corporation

has been keenly apparent in financing,

file for civil rehabilitation. Given thewith the interest spreads on loans from

impact of the recession, the credit crunch

financial institutions to various REITs

grew among us, and we have recommitted
ourselves to realizing the interests ofunitholders.

of Financial Institutions

and other factors, it is anticipated thatgrowing and some REITs having difficulty

The Japanese economy has secured an

the J-REIT industry will continue to faceobtaining refinancing. In terms ofintegral role within the ever continuing

difficulties, including changes in sponsor

financing, therefore, it is vital for us torapid globalization of the global economy.

companies, drops in occupancy rates ofminimize financing costs. Since listing,This has made it impossible to isolate

owned assets, decreases in rents and the

TOP REIT has been blessed with strong

the Japanese economy from global

withdrawal of major tenants. Under suchsupport from Sumitomo Trust & Banking,[ CONTENTS ]1 5th Fiscal Period Performance Highlights

11 Portfolio List

1 Achievements During Fifth Fiscal Period

12 Internal Growth

2 Speaking to You: Letter from the President

13 Residential & Retail Strategies

6 Sponsors: Keys to Achieving Product Growth Today

14 Financial Strategy

8 External Growth

16 Top REIT Asset Management, Inc. – The Asset Manager

8 5th Fiscal Period Acquisition

17 IR Schedule

9 Portfolio

Business Report for 5th Fiscal Period Defensive Stability Achieved

one of its sponsors, as well as the three

The properties it develops include thosemega banks and two other trust banks.

we would like to incorporate into TOP

through Stable Revenues andMoreover, Development Bank of Japan

REIT’s future portfolio. The other sponsor,

Financial Supportand Dai-ichi Mutual Life Insurance began

Oji Real Estate, is a member of the Oji

to provide their support in June 2007. TOP

Paper Group and is mainly engaged in

REIT will continue to maintain this bankoffice buildings and residential properties

support structure as its core strategy. The

as a comprehensive developer. Somefact that Sumitomo Trust & Banking serves
as a sponsor not only provides TOP REIT
with a major strength, but also represents
a unique characteristic of the investment
corporation.

A further strength of TOP REIT lies in its
stable revenues and financial stability.
Its large-scale flagship properties – theNEC Head Office Building, Harumi Islandof its properties also appear appropriate

Triton Square Office Towers Y and Z

for inclusion in TOP REIT’s portfolio. We
expect the two sponsors to provide TOP

and the Akasaka Oji Building – occupy

REIT with some excellent properties in the

64.4% of its portfolio, and they house

future.

headquarters of major corporations
such as NEC Corporation (head office),
Sumitomo Metal Industries (Tokyo head

Furthermore, the other two sponsors,which are well-known and boast strong
credit, constitute another strength of TOP
REIT. The sponsors serve as property
pipelines, help to formulate strategies,
supply qualified human resources andprovide a variety of other support. Nippon
Steel City Produce belongs to the Nippon
Steel Group and conducts development

TOP REIT Portfolio Features “Stable
Revenues” and “Financial Stability”

office), Japan Trustee Services Bank (head✣B oastin arge-scale Flagship
Properties; Reduced Risk of Revenue
Fluctuations throughLong-term Lease Contracts at Fixed
Rents with Major TenantsMoreover, stable revenues are ensured✣  inancial Stability through Robust
Bank Support

at the time of acquisition (such as theby the high proportion of properties
producing fixed rents through long-termlease contracts concluded with tenants
NEC Head Office Building, the Harumi
Island Triton Square Office Tower Z andof office, retail and residential properties.

Breakdown of Flagship Properties in Portfolio

office) and Sony Computer Entertainment.

Breakdown of Fixed Rents in Portfolio

NEC Head Office Building

NEC Head Office Building

25.8%

25.9%

Other

35.6%

Share of4 flagshipproperties

64.4%

Other
Harumi Island Triton Square Office Tower Y

20.3%

Share oflong-term
fixed rents

55.8% 44.2%

Harumi Island Triton Square Office Tower Z

9.3%

Other fixed rents

9.0%

Harumi Island Triton Square Office Tower Z
Akasaka Oji Building

6.0%

12.3%

*The above graph shows the share of rents that became fixed upon acquisition of the property andrenewal of rent agreements.

*The above graph is based on acquisition prices.

Top REIT's Strong Team of Lenders✣T he Sumitomo Trust and Banking, Co., Ltd.
✣M
 izuho Corporate Bank, Ltd.
✣S
 umitomo-Mitsui Banking Corporation✣T he Bank of Tokyo-Mitsubishi UFJ, Ltd.
✣T he Chuo Mitsui Trust and Banking Company,
Limited✣M
 itsubishi UFJ Trust and Banking Corporation✣D evelopment Bank of Japan Inc.
✣T he Dai-ichi Mutual Life Insurance Company

Business Report for 5th Fiscal Period Musashiurawa Shopping Square), as wellcomprise the defensive stability of TOP

robust property pipeline, with Sumitomoas Ito-Yokado Higashi-Narashino StoreREIT will again be highly evaluated.

Trust & Banking serving as the broker.

whose rent was fixed at the time of leaserenewal. Combined, the rents from theseproperties comprise approximately 44.0%
of the total rents for the entire portfolio.
We have also successfully maintained the

The acquisition was made without taking
out any new loans; we effectively used

Property with High 97~98%

cash reserves as well as security deposits

Occupancy Acquired bydeposited from tenants at other properties

Effectively Utilizing Funds

where Sumitomo Trust & Banking is theadvantageous position of TOP REIT in

Acquired in the Fifth Fiscal Period,

financing through the strong bank support

Ecology Toyosu Procentury is an attractive

the trustee, TOP REIT was able to use thestructure comprised of Sumitomo Trust &residential property in an excellent location.

cash reserves obtained through the release

Banking, one of the sponsors, and otherToyosu is a highly promising area withof the deposits. The property has also

powerful financial institutions, as well as

office buildings being developed by such

maintained a robust occupancy level ofthe sponsorship of companies that arecompanies as Mitsubishi Estate and Dai-ichi

approximately 97~98% upon acquisition.

members of the highly renowned Nippon

Mutual Life Insurance. The property is

Steel and Oji Paper Groups. TOP REIT has

a four-minute walk from Toyosu Station,

constructed an extremely stable financial

which provides direct access to Ginza,

foundation, presently having a 76.0% ratio

Yurakucho and other central parts of Tokyoof fixed-rate interest borrowings and an

by subway. Moreover, a major advantage

88.7% ratio of long-term borrowings toof the property is that about half of its

TOP REIT has set its targeted portfolio

overall borrowings. We will continue tounits are leased to corporate customers.

size over the medium to long term tostably operate TOP REIT by maintaining

We intend to manage this property as abe about ¥210 billion. This will reduce

the ratio of long-term borrowings at

stable revenue source by further increasing

the percentage of the NEC Head Officearound 70~80%. The stability in revenues

contracts with corporate customers, as the

Building to less than 20% of the entire

and financial operations has been highly

Toyosu area is expected to see increased

portfolio; thus mitigating risks associatedregarded by financial institutions andoffice space due to office developmentswith over concentration on certain

rating agencies. Under the circumstancesthat are coming online there. The

properties. Looking ahead, the balanceof the financial and real estate markets,

property is also environmentally-friendlyof supply and demand in the real estate

which are expected to become moreas a condominium that is equipped withmarket is expected to change as operating

difficult, we are confident that the stableenergy-saving exterior thermal insulation.

companies and real estate investment

revenues and financial stability that

TOP REIT acquired the property through its

funds are increasingly pressed to selltrustee. As a result of discussions with

Aiming for a ¥210 Billion
Portfolio by Carefully
Selecting ¥10 Billion Properties

History of Portfolio Development
OfficeRetailResidential

Medium- tolong-term
portfolio target

Other

2,000

210

billion
yen

1,500

13

14

157.187

162.347properties

1,000

7

properties

500

104.386
billionyen

8

properties

113.28611

11

130.846130.846

properties
billionyenproperties

billionyenproperties
billionyen

Office buildings

73%

billionyenbillionyen

Retail, etc

0

27%

IPO

End of
1st FP

End of
2nd FP

End of
3rd FP

End of
4th FP

End of
5th FP

Ecology Toyosu Procentury

Business Report for 5th Fiscal Period their properties due to concerns overand though some difficulties are expected

rent at Sagamihara Shopping Center

the recession, the impact of the credit

under the current severe environment, we

unchanged despite conspicuous drops

crunch and other negative factors, which

will continue to negotiate in an effort towill in turn lead to downward pressure

in sales throughout the retail industry,raise rents closer to market levels.

on property prices. TOP REIT views thissituation as an opportunity to acquire
excellent assets. Presently, TOP REIT’s
borrowings total ¥82 billion, with a loan-

but to also allow TOP REIT to refund the
security deposit on the Ito-Yokado Higashi-

Refund of security deposit to
Positively Impact Dividends

Narashino Store in a lump sum ahead ofschedule. This arrangement enables TOP

to-value (LTV) ratio of 47.3% against total

We have kept you informed concerning

REIT to reduce its interest burden by about

assets. This means that, since TOP REIT has

TOP REIT’s negotiations with Ito-Yokado.

set an operational LTV ceiling of at around¥75 million and positively impacts the

In February 2007, Ito-Yokado notified us of

50%, there is capacity to additionally

their early cancellation of the lease contract

borrow approximately ¥10 billion.

for the Ito-Yokado Higashi-Narashino

Finally, we have decided to pay a dividend

Currently, we are carefully searching for

Store, but an agreement was reachedof ¥12,863 per unit for the Fifth Fiscal

properties valued at around ¥10 billion asin August 2007 in which Ito-Yokado

candidates for acquisition. Our focus is

Period, surpassing the forecast value

agreed to continue as a tenant with someon office buildings in central Tokyo due to(¥12,500) announed with the result of thededuction in rent. Futhermore, TOP REIT

consideration of tenants and the supply-

continued to negotiate with Ito-Yokado

demand balance.

concerning the early refund of the security

Internal growth is another key focus in adeposit for the store while bearing 2%

tight economy and our internal growthinterest per year.

measures include cost reduction, effective
use of space and rent negotiations. Of
these, we are currently placing special
emphasis on negotiating upward revisions
to rents. Although some people viewthat rents have already peaked, we willcontinue to negotiate for rental increases
while striving to maintain good relations

On the other hand, the rent at Sagamihara
Shopping Center, at which Ito-Yokado isFourth Fiscal Period. We also anticipate
delivering this level of dividends for the
Sixth Fiscal Period. We thank you for yourcontinued support and understanding as
we continue to manage TOP REIT in thebest interests of our unitholders.

also a tenant, came up for revision. We
conducted negotiations to increase therent but were not successful, partly due
to the drop in general consumption sincespring 2007.

with tenants. Rent negotiations at some of

However, we successfully reached an

the large-scale properties are drawing near,agreement with Ito-Yokado to leave the

Ito-Yokado Higashi-Narashino Store

dividends paid to investors.

Nobuhito Endo
Executive Officer
TOP REIT, Inc.
President and Representative Director
TOP REIT Asset Management Co., Ltd.

Sagamihara Shopping Center

Business Report for 5th Fiscal Period Sponsors

Keys to Achieving Product Growth TodayTOP REIT is able to apply the skills of its asset management staff at Top REIT AssetManagement, Inc. (TRAM) to achieving prudent growth that enables defensive stability.
It is additionally, however, the prowess of its three sponsors and the collaborative
agreements with them that provide TOP REIT with robust property pipelines,
warehousing, property management and other vital value-add management services.
The three sponsors are Nippon Steel City Produce, Inc., Oji Real Estate Co., Ltd. and
The Sumitomo Trust & Banking Co., Ltd.

Nippon Steel City Produce [Nippon steel group]
Nippon Steel City Produce (NSCP) is a vital member of the Nippon Steel Group, Japan’s largest steel producer. The
Nippon Steel Group has 323 consolidated subsidiaries and affiliates as of March 2008, and NSCP’s role in the group
includes the revitalization of real estate properties, the redevelopment of vast sites owned by the company and in
urbanized areas and the development of business such as condominium sales to restore property values.
NSCP has been a key player in the recently completed landmark PFI project Kasumigaseki Commongate and theongoing Osaka Kita Yard project. NSCP also developed ROCMON, a new multi-use Roppongi destination. NSCP
provides TOP REIT with key staff and real estate solutions expertise among other services.

Oji Real Estate [oji paper group]
Oji Real Estate (ORE) is a member of the Oji Paper Group, Japan’s largest paper manufacturing company with 304
consolidated subsidiaries and affiliates as of March 2008. ORE takes the central role in developing idle land andproviding real estate solutions for land owned by the Oji Paper Group, the largest corporate land owner by area inJapan. The company is active in developing the Maison Verte series of condominiums along with providing property
management and leasing for offices, residences and retail properties throughout Japan. ORE, which dispatchedexpert staff to TOP REIT, boasts strengths in asset management, property management and other services.

The Sumitomo Trust & Banking Co., Ltd.
The Sumitomo Trust & Banking Co., Ltd. (STB) is well-known for its exemplary combination of banking, trust andreal estate services. The Group provides wholesale and retail banking with a special business focus on real estateand pensions and has 44 consolidated subsidiaries and affiliates. The bank boasts a BIS Capital Adequacy Ratio of
11.42% as of September 2008 and enjoys an A+ rating for long-term debt and deposits as of November 20, 2008.
The company provides talented staff and expansive real estate services including everything from trust services toinvestment and solutions consulting, brokering, REIT administrative services, appraisal services, asset management
and real estate financing.

Business Report for 5th Fiscal Period Robust Support of TOP REIT
The following chart outlines the robust support provided by the three sponsors to TOP REIT and Top REIT Asset Management.

Asset Management

Optimal Utilization of Sponsor Strengths

Pipeline support
agreement

Agreement on providing
warehousing support

The Sumitomo
Trust & Banking
Nippon SteelCity Produce(Nippon Steel Group)

Oji Real Estate(Oji Paper Group)

Provision ofreal estate
investment
opportunities

Provision of
information
on properties
owned ordeveloped bysponsors or
their groups

Pipeline Function
Sponsors provide information
on available third party andsponsor group properties to
TOP REIT

Originationof structures
for acquiringproperties

Investment
andfinancing of
SPCs

Warehousing Function
Sponsors provide a temporary
ownership function for realestate to TOP REIT, enabling it
to secure blue chip properties
in advanceReal estate
operation andmanagementthat utilizes
the expertiseand riskmanagement
capabilities ofthe sponsors

Leasing
activities that
apply theinformationon leasing
demandpossessed bysponsorgroupsSponsors provide value-add
property and othermanagement services

Business Report for 5th Fiscal Period External Growth

Prudently Growing in a Difficult Environment
TOP REIT has achieved stable, yet prudent growth as it aims to be a diversified REIT centeredon office buildings in Central Tokyo with a medium- to long-term perspective.
Property
Characteristics
Type

OfficeRetailGrowth asset

Growth asset
Stable asset

Residential Stable asset

Present Investment
PolicyProactive investment✣ Proactively consider
properties primarily inCentral Tokyo

TargetLocation Focused:✣ Mainly central six wards of Tokyo

Investment share

Importance placed on leasing
competitiveness:✣ 100 tsubos plus per floor✣ Good quality specs

157.5 billion yen✣ Careful selection
and consideration ofprimarily multi-use
properties

Focus on areas appealing totenants:✣ Properties around terminal stations
and multiple tenant properties✣ Focus on concentrated retail areasand steady trade areas✣ Consider properties
primarily in Tokyo

Emphasis on convenience:✣ Proximity to the closest station andCentral Tokyo✣ Lifestyle convenience and living
environment

75%

Investment target

Investment share

25%

Investment target

52.5 billion yen

5th Fiscal Period Acquisition

Ecology Toyosu Procentury✣ TOP
REIT acquired this residential property in Koto Ward, Tokyofor 5.16 billion yen.
✣T
 he property is a 4-minute walk from Toyosu Station on the
Yurakucho Subway Line, only 10 minutes from Central Tokyo.
✣T he property is in a growing area and roughly half of the leases
are corporate leases.
Address

8-8-4 Toyosu, Koto Ward, TokyoUnits

224 units, ranging in size from studios to 2-bedroom units

Floors1 basement floor, 9 floors above ground

Completed January 2005

Business Report for 5th Fiscal Period Portfolio

Top REIT Remains Committed to Building a Strong, Diversified Portfolio
Centered on the Tokyo Area

CentralTokyo

Keisei Ueno
Takadanobaba

BUNKYOWARDSHINJUKU
WARD

NakanoAsakusa
Ueno
Oshiage

Akihabara
KameidoOak plaza

NAKANO
WARD

Kanda

Shinjuku

Kinshicho

CHIYODAWARDTokyoSHIBUYA
WARD
Akasaka Oji
Building

Kanda Park Plaza

Shimbashi

MINATO
WARD

Shibuya
Shimokitazawa

Hamamatsucho

SETAGAYA
WARD

Ecology Toyosu
Procentury

CHUO
WARD

ToyosuShiba-Koen
Building

Sangenjaya

Shinkiba

Sengakuji

MEGURO
WARD
MeguroNEC Head Office
Building

Shinagawa

GotandaFukasawa House
Towers H&I

Harumi Island
Triton Square OfficeTowers Y and Z

Top REIT boasts a diversified portfolio built around Central Tokyo office properties
Diversification of Assets in Portfolio

100%

11.5%

80%
60%
40%

2.0%

Other
RetailRetail

18.4%

Residential 8.1%
Retail19.3%
Office88.5%

Office

81.6%

Office

70.6%

1.6%

Other

Residential 6.8%
Retail

16.1%

Office

75.5%

1.6%

Other

Residential 9.7%
Retail

15.5%

Office

73.1%

20%
0%
IPO

End of
1st FP

End of
2nd/3rd FP

End of
4th FP

End of
5th FP

Business Report for 5th Fiscal Period tokyometropolitan
area
Musashiurawa
Shopping Square

SAITAMA

CHIBA

TOKYO

Faret East Building

Ito-Yokado HigashiNarashino StoreKANAGAWA

Sagamihara Shopping
CenterTotal acquisitions

Kansai¥162,347 million
Umeda

Appraised value (as of 10/31/08)

KyobashiOsaka¥189,441 million

Yodoyabashi

Properties

14

Kintetsu Nanba

Rentable area

Nanba

283,622.23m2

Nittetsu Honmachi
Building

PML

2.3%

Geographic Area

100%

Osaka 1.1%
Metropolitan
Tokyo 13.0%

80%
60%
40%

Central Tokyo

Osaka 1.0%
Metropolitan
Tokyo

19.8%

Osaka 0.8%
Metropolitan
Tokyo

28.6%

86.0%

Central Tokyo

79.2%

Central Tokyo

IPO

End of
1st FP

End of
2nd/3rd FP

70.6%

Osaka 0.7%
Metropolitan
Tokyo

Osaka 0.7%
Metropolitan
Tokyo

24.2%

26.6%

Central Tokyo

Central Tokyo

End of
4th FP

End of
5th FP

75.1%

72.8%

20%
0%

Business Report for 5th Fiscal Period 10

Portfolio list
The diversified portfolio of Top REIT largely comprises properties in the Central Tokyo Area.

72.8% of the portfolio isAcomprised of office buildings in Central
Tokyo – the geographic driver of thePortfolio Data

Japanese economy

Asset Class

Acquisition
Value(million yen)Appraised Valueat End of Period(million yen)

Investment
Breakdown(%)

NEC Head Office Building

41,95055,000

25.8

Harumi Island Triton Square OfficeTower Y

33,00044,300

20.3

Akasaka Oji Building

9,660

15,800

6.0

Kanda Park Plaza

5,156

5,651

3.2

Shiba-Koen Building

5,770

5,270

3.6

Harumi Island Triton Square OfficeTower Z

20,00019,600

12.3

TokyoMetropolitan
Area

Faret East Building

2,091

3,300

1.3

Kansai Area

Nittetsu Honmachi Building

1,100

1,800

0.7

118,727

150,72173.1

Sagamihara Shopping Center

12,00011,900

7.4

Ito-Yokado Higashi-Narashino
Store

8,900

5,542

5.5

Musashiurawa Shopping Square

4,335

4,190

2.7

Subtotal (3 properties)

25,235

21,632

15.5

Tokyo
Metropolitan
Area

Fukasawa House Towers H & I

10,6359,410

6.6

Ecology Toyosu Procentury

5,160

5,070

3.2

Subtotal (2 properties)

15,795

14,480

9.7

Central Tokyo

2,590

2,608

1.6

Subtotal (1 property)

2,590

2,608

1.6

Total

162,347

189,441

100.0

Area

Property NameCentral Tokyo

OfficeSubtotal (8 properties)

RetailResidential

Other

Tokyo
Metropolitan
Area

OAK PLAZA

Note: Investment Breakdown indicates the proportion of each property’s acquisition value to the total acquisition value of all properties.

Business Report for 5th Fiscal Period 11

Internal Growth

Diligent Efforts and Clear Strategies Lead to Consistent Performance
TOP REIT believes that the securing of long-term earnings is the key to delivering steady revenues to its investors.
TOP REIT achieves this by concluding long-term leases with its exemplary tenants and by introducing fixed rents, thus
avoiding the risk of rents falling. Presently, fixed, long-term rents account for 52.2% of the total portfolio, but this willgrow to 73.6% when Harumi Island Triton Square Office Tower Y contracts are added in the Sixth Fiscal Period.

[ Ito-Yokado ]Overcoming Adversity to
Build a Strong Relationship
TOP REIT also believes in constructing
strong relations with blue chip tenants.
These include NEC (25.6% of theportfolio), Nippon Steel City Produce(5.0%), Sumitomo Metal Industries(4.2%) and Obayashi Corporation(3.9%). Ito-Yokado actually serves asa tenant on 39.7% of the portfolio,
making it the largest tenant. Thus,
maintaining this relationship is vitally
important for TOP-REIT.

agreed to a fixed rent until the end of

repayment of security deposit for theits lease that was in fact a reduction

Higashi-Narashino Store. This wasin rent but also agreed to introduce

agreed to and about 75 million yen

a sales-based rent on top of the fixedin interest payments over the next six

rent in the future. Having overcome

years were avoided. Thus, TOP REIT

this difficulty, TOP REIT set about towas able to solidify the relationshiparrange for the early repayment ofwith Ito-Yokado while securing

the security deposit it had received

stronger returns for TOP REIT’s

from Ito-Yokado that it was repaying

investors.

on a payment schedule with aninterest rate of 2% per annum. TOP
REIT proposed early repayment to

Improving Tenant

avoid the interest payments but Ito-satisfacion by prioritizing

Yokado initially refused. Fortunately

the tenant

for TOP-REIT, negotiations on the rent✣D iscerning tenant needs andat the Sagamihara Shopping Center

reflecting them in property

In February 2007, Ito-Yokado notified

had commenced. Ito-Yokado was

TOP REIT that it wanted to terminate

objecting to an increase in rents due

the lease on its Higashi-Narashino

to the slump in consumption they had

Store early. TOP REIT immediately

been experiencing since early 2008.

began negotiations to avoid this and

TOP REIT responded by proposing

are secured by building goodin August of the same year Ito-Yokadothat the rents remain at present levels

relationships with exemplary

rescinded the termination request,

in exchange for the early lump sum

tenants.

management maintains and raises
asset value.
✣S teady, long-term revenues

History of Occupancy (Overall Portfolio)

TOP-REIT has delivered high occupancies steadily since listing
Overall leasable area: m2
300,000

99.8

Occupancy

99.9

99.7

261,671

261,671

99.5

99.6

99.5

99.3

99.4

99.4

99.5

100.0

276,833

250,000
229,231200,000
150,000

99.5

283,622

178,104

90.0

100,000
50,0000Mar. 2006(IPO)

Oct. 2006
End of
1st FP

Apr. 2007
End of
2nd FP

Oct. 2007
End of
3rd FP

Apr. 2008
End of
4th FPMay 2008

Jun. 2008

Jul. 2008

Aug. 2008

Sep. 2008

Oct. 2008
End of
5th FP

80.0

Business Report for 5th Fiscal Period 12

Residential & retail Strategies

Residential Strategy✣ TOP REIT will continue to negotiate for rent increases✣ TOP REIT is also dedicated to maintaining earnings with

with new tenants when previous tenants leave. In thehigh occupancy, achieving 93.0% at Fukasawa Housecase of Fukasawa House H & I Towers, TOP REIT has

H & I Towers and 97.4% at Ecology Toyosu Procentury

successfully raised rent on average by 3.1%, 1.2%, 1.6%

at the end of the 5th Fiscal Period.

and 0.5% respectively during the 2nd, 3rd, 4th and5th Fiscal Periods.

Office: Rent Revision Record (as of end of 5th Fiscal Period)/Revision Schedule (million yen)

TOP REIT is proactively negotiating rents upon lease renewals to bring them up to market levels(million yen)Monthly rent before revision
Monthly rent after revision

2nd period
increased
rent record

250

Revision Record

0.1%

200
150
100

4th period
increased
rent record

1st period
increased
rent record

3rd period
increased
rent record

0.2%
50
0

Revision record =14.9%

5th period
increased
rent record

4th FP

5th FP

Monthly rent increase amount (end of fiscal period)
Monthly rent before revision (end of fiscal period)(%)

Revision Schedule

7.8%

9.1%
1st FP

2nd FP

3rd FP

6th FP

7th FP

8th FP

9th FP

5th Fiscal Period Record✣ Rent negotiations were held with 12 tenants during the✣R ent Revisions in 6th Fiscal Period: TOP REIT is presently

5th Fiscal Period and 8 agreed to an increasenegotiating with tenants of Harumi Island Triton Square(4 agreed to present levels)

Office Tower Y concerning rent revisions✣ Achieved an increase in rent of 18 million yen per fiscal
periodBusiness Report for 5th Fiscal Period 13

Financial Strategy

A Conservative Strategy that Enables Prudent yet Dynamic Measures
TOP REIT is committed to a

LTV. This is instrumental in providing

Sound Financial Policy

conservative financial strategy thatfor the dynamic and flexible financialdelivers flexibility and dynamism to✣ Committed to risk-averse
financial operations

our acquisition and management✣ Divergent debt maturities

capacity for borrowing additional

strategy. Efforts to ensure a flexible,

funds even in today’s climate.

dynamic financial platform include✣ Mitigating measures against
future interest rate fluctuations

steps to lessen the negative impact✣ Multiple financing channels

from floating interest rates, spreading✣ Solid relationships withprominent lenders

of debt maturities, conservative
LTV levels and the constructing of

platform and has lead to a ¥10 billion

All of the charts below are madepossible by exemplary bank support asshown in the table on the next page.

The potential impact of changes

robust bank support. The market

Maintaining a Conservativein interest rates has been reduced

has recognized the positive impact

Leverage Ratio

through a strategy focused onof these measures to grant TOP REIT

TOP REIT consistently maintains

securing long-term debt and fixing

issuer ratings of A2 (stable)* and AA-

an LTV at a conservative 40-50%

the interest rates on loans.

(stable) respectively by Moody’s

to ensure financing capabilities for

Another key element of the TOP REIT

Investors Service and Rating andforthcoming acquisitions despite thestrategy is maintaining a conservative

Investment Information.

stipulated 60% LTV policy.

*Moody’s Investors Service announced on January 15, 2009, that the issuer ratings of twelve J-REITS, including Top REIT’s A2 issuer rating, are being reviewed for possible downgrading.

Ratio of Long-term Debt
(%)
100

7.0

Ratio of Fixed Interest Debt

12.4

11.3

38.5

80
60

100.0
40

100.0

93.0

88.7

(%)
100

88.7%

End of
1st FP

End of
2nd FP

End of
3rd FP

End of
4th FP0

End of
5th FP

Spreading Out the Debt Maturity Schedule

80.9

End of
4th FP

End of
5th FP

42.4

IPO

End of
1st FP

End of
2nd FP

End of
3rd FP(borrowings + money on hand)(3 years)

26 *Capacity for additional
acquisitions

20

16.7
8.5

10

8.5

Borrowings: 82

9.3

9

5
6th
FP
(3/09)

7thFP

8th
9th 10thFP
FP
FP(3/10) (6/10) (3/11)

Capacity for additionalborrowings: approx. 9.2

LTV Ceiling
Operational target:(Scope for operations: 40~50%)

50%

Current assets: 9

15

5th
FP

76.0

Capacity to borrow additional funds= About ¥10 billion
Long-term debt:

25

0

75.1

Capacity of Additional Borrowings and Acquisitions(billion yen)
30

76.0%

24.0

Ratio offixed rateinterest
borrowings

64.1

20

IPO

24.9

57.6

100.0
40

20
0

19.1

60

87.6

61.5

35.9

80

Ratio oflong-term
debt as ofend of 5th
Period.

4
11th
FP

12th
FP

13th 14th
FPFP(6/12) (3/13)

15th
FP

16th
FP

17th
FP
(6/14)*TOP REIT is currently negotiating the refinancing of the 26 billion yen in debt maturing in the
6th Fiscal Period with lenders (as of February 25, 2009).

Fixed assets: 164.2

47.3%

Others: 7.1

Net Assets: 84.1
(billion yen)

End of period LTV
As of end of 5th Period:(billion yen)

Ratio of interest-bearing debt
to total assets

47.3%

Short-term debt:

Business Report for 5th Fiscal Period 14

Debt Composition as of October 31, 2008

LenderSumitomo Trust

Term-end
Interest Rate
Balance(end of 10/08)(billion yen)

Date of
Borrowing

Date ofMaturity

Remaining
Period(Duration)

Collateral

6.7

1.15%
(Floating)March 19, 2008 March 18, 2009

5 Months

Unsecured

2.6

1.15%
(Floating)March 27, 2008 March 27, 2009

5 Months

Unsecured

9.3

1.15% (Avg.)

5.2

1.20%
(Floating)

Sumitomo Trust
Mizuho CB

Short-term
Debt

SMBC
Tokyo Mitsubishi UFJ
Mitsubishi UFJ Trust
Subtotal
Sumitomo Trust
Mizuho CB

Long-term
Debt due
within one
year

Term
Loan 1SMBC
Tokyo Mitsubishi UFJ
Chuo Mitsui Trust

Term
Loan 2

5.5

Mitsubishi UFJ Trust

6.0

Subtotal

16.7

Term
Loan 3

March 3, 2006

March 3, 2009

4 Months

Unsecured

March 3, 2006

March 3, 2011

2 Years &4 Months

Unsecured

1.60%(Fixed)June 29, 2007

June 30, 2010

1 Year &8 Months

Unsecured

1.95%(Fixed)June 29, 2007

June 29, 2012

3 Years &8 Months

Unsecured

June 29, 2007

June 30, 2014

5 Years &8 Months

Unsecured

March 27, 2008 March 26, 2010

1 Year &5 Months

Unsecured

March 27, 2008 March 27, 2013

4 Years &5 Months

Unsecured

1.39%(Fixed)5.2
Same asTerm Loan 1

1.30%(Floating)

5.5

1.92%
(Fixed)Subtotal

16.7

Same asTerm Loan 1

8.5

Subtotal

8.5

6.0

5 Months (Avg.)

Sumitomo Trust
Mizuho CB
Term
Loan 4

SMBC
Tokyo Mitsubishi UFJ

8.5

Chuo Mitsui Trust
Mitsubishi UFJ Trust

Long-term
Debt

Term
Loan 5

Subtotal

8.5

Sumitomo Trust

2.0

2.27%
(Fixed)Development Bankof Japan

1.0

2.40%
(Fixed)Dai-ichi Mutual Life

1.0

2.40%
(Fixed)Subtotal

4.0

Sumitomo Trust
Term
Loan 6

Mizuho CB
SMBC

9.0

Tokyo Mitsubishi UFJ

1.21%(Fixed)Mitsubishi UFJ Trust
Subtotal

9.0

Sumitomo Trust
Mizuho CB
Term
Loan 7

SMBC

6.3

Tokyo Mitsubishi UFJ

1.48%(Fixed)Mitsubishi UFJ Trust
Development Bankof Japan

3.0

Subtotal

9.3

1.53%
(Fixed)Long-term Debt Total

72.7

1.59% (Avg.)

Total

82.0

1.54%
(Avg.)

2 Years &1 Month(Avg.)

Note: Interest rates are rounded to the second decimal point and the remaining periods are rounded to a whole number.
The averages for interest rates and remaining periods are weighted averages using balances as of the end of the fiscal period.

Business Report for 5th Fiscal Period 15

Top REIT Asset Management, Inc. – The Asset Manager
As is well known, the J-REIT structure differs from the U.S. REIT structure in that the REIT is notinternally managed, but is rather an “unmanned” entity that holds assets and is externally managed byan asset manager. The asset manager in most cases is solely responsible for managing said J-REIT. The
asset manager of TOP REIT is Top REIT Asset Management, Inc. (TRAM). TRAM is primarily staffed
and led by a team of experts and skilled staff seconded by its three sponsors introduced on pages 6 and
7 of this Business Report, representing another example of their broad support of TOP REIT itself. The
organizational structure of TOP REIT and TRAM and its provision of external management services arepresented in the chart below.

ADMINISTRATIVE AGENT/ASSET CUSTODIAN/
TRANSFER AGENT$Administrative Agency Agreement$Asset Custody Agreement$Transfer Agency Agreement

INVESTMENT CORPORATIONTOP REIT, Inc
General Meeting of Unitholders

The Sumitomo Trust and Banking Co., Ltd.

Board of Directors
Executive Officer: Nobuhito Endo
Supervisory Director: Yasuyuki Kuribayashi
Supervisory Director: Kunio Tsuneyama

PIPELINE SUPPORT COMPANIES$Nippon Steel City Produce, Inc.
$Oji Real Estate Co., Ltd.
Agreements Concerning
Provision of Information on Real Estate

Accounting Auditor
KPMG AZSA & Co.
Agreements Concerning
Provision of Warehousing Function$The Sumitomo Trust and Banking Co., Ltd.
Agreement Concerning Provision ofInformation on Brokeraged Real Estate

Asset Management Agreement

ASSET MANAGER

Top REIT Asset Management Co., Ltd.
General Meeting of Stockholders
AuditorAsset Management

Board of Directors
Investment and Management Committee

Risk and Compliance Committee
Representative Director and President

Investment Department

Finance Department$Formulating and executing financing plans$Formulating and executing dividend plans$Formulating portfolio management plans$Maintaining investor relationships$Researching, analyzing, appraising, etc.

$Acquiring and disposing assets, etc.

Asset Management Department$Managing assets, etc.

Planning and Administrative Department

Compliance Office$Formulating business plans$Risk management$Overseeing human resources, general affairs, etc.

$Managing compliance risk
$Conducting internal audits, etc.

Led by Skilled Staff
The team at TRAM is staffed by skilled employees withcertified individuals on staff. The following is a simple list of

broad industry knowledge as evidenced by in the number ofthe certified staff either seconded to or employed by TRAM.

Real Estate agents

19

Real estate appraisers

3

First class architect

1

Business Report for 5th Fiscal Period 16

Strategic Initiatives

Contact for inquiries

http://www.top-reit.co.jp/english/strategic/index.html
Top REIT Asset Management Co., Ltd.

About TOP REIT

[ In Japanese ]http://www.top-reit.co.jp/english/about/index.html

Tel: +81-3-3243-2181
Attn: Koji Murata

Director, General Manager, Finance Department[ In English ]E-mail: info-top@top-reit-am.co.jp

IR Schedule2009
End of 6th Fiscal Period

APRIL
MAY
JUNE

Announce performance of 6th Fiscal Period

JULY

Payment of dividend for 6th Fiscal Period

AUGUSTSEPTEMBEROCTOBEREnd of 7th Fiscal Period

NOVEMBER
DECEMBER

2010

Announce performance of 7th Fiscal Period

JANUARY

Payment of dividend for 7th Fiscal Period
FEBRUARYMARCHDISCLAIMER: Top REIT, Inc. makes no assurance or warranty with respect to the completeness or accuracy of this English translation. In the eventof any discrepancy between the Japanese original and this English translation, the Japanese original shall prevail. For complete and accurate
information, please refer to the Japanese original.

Business Report for 5th Fiscal Period 17