Semi-annual Report for the 3rd Period(From April 1, 2016 to September 30, 2016)

From the Executive Director

Thanks to your support, Kenedix Retail REIT Corporation (“KRR”) has reported its results ofoperations for the third fiscal period (from April 1, 2016 to September 30, 2016).
We became the first J-REIT to focus primarily on neighborhood, community and other shopping
centers that cater to the day-to-day needs of local area customers upon our listing in February 2015.
Japanese consumers tend to shop frequently, often daily, for day-to-day necessities, and purchasesmaller amounts on each trip. This reflects longstanding consumer tastes in Japan for eating fresh or
convenience foods prepared daily and storing less at home. Moreover, Japan is undergoing
unprecedented demographic changes that, we believe, are influencing the nature of local retailmarkets. In particular, the aging of the Japanese population and the increased concentration of
populations in urban areas have resulted in shrinkage of retail trade areas for shopping centers. We
have also observed an increase in market share of specialty stores as consumer tastes change.
Accordingly, we expect continued high demand for such local shopping centers for daily needs
because of their convenience. We believe these shopping centers provide ample investment
opportunities, and hence our selective investments contribute further increase in unitholder’s value.
At the end of the third fiscal period, our portfolio, consisted of 40 properties for 158,766 million yen
in acquisition price, has almost doubled in size in 14 months since we acquired 18 shopping centerswith acquisition price of 80,843 million yen upon our listing. We acquired seven shopping centers
for daily needs in connection with public offering at the beginning of the third fiscal period.
As a result, operating revenue totaled 6,374 million yen, operating income was 2,973 million yen,ordinary income was 2,519 million yen and net income was 2,518 million yen for the third fiscal
period. The distribution to unitholders was 5,974 yen per unit, including 86 yen distribution per unit
in excess of retained earnings.
Going into the fourth fiscal period, we acquired one property, increasing the portfolio size to160,136 million yen in acquisition price with 41 properties.
In addition, the extensive support from our Sponsor and the Alliance Companies has beenstrengthened by a new alliance agreement with ITOCHU Corporation signed in August 2016.
We dedicate ourselves to the maximization of unitholder value by continuing implementation of our
growth strategy.
We respectfully look forward to your continued support.

Akihiro Asano
Executive Director, Kenedix Retail REIT Corporation
Director and COO, Head of Retail REIT Division,
Kenedix Real Estate Fund Management, Inc.

Financial Highlights

For 3rd fiscal period (April 1, 2016 to September 30, 2016)
Distribution per unit
(Includes distribution in excess of earnings per unit: 86 yen)

Forecast DPU for 4th fiscal period(Includes distribution in excess of earnings per unit: 13 yen)

JPY 5,974
JPY 6,040

Operating revenue

JPY 6,374 mn

Operating income

JPY 2,973 mn

Net income

JPY 2,518 mn

Total assets

JPY 179,360 mn

Total net assets

JPY 96,739 mn

Net assets per unit

JPY 228,996

Number of properties / tenants
Occupancy rate at the end of period

40 properties / 405 tenants
99.7 %

contents
I. Overview of KRR
From the Executive Director
Financial Highlights
Key Characteristics
Sponsor Support
Major growth strategy
Environmental initiatives
Steady growth in AUM
Assets acquired in 3rd and 4th fiscal period
Portfolio map as of November 1, 2016
Portfolio List as of November 1, 2016
Close-up KRR Vol.3
Summary of investment unit

II. Asset Management Report
Overview of Asset Management
Profile of KRR
Status on Investment Properties
Capital Expenditures
Expenses and Liabilities
Acquisition and Disposition
Accounting
Others1

Key Characteristics

Focus on shopping centers for daily needs
1. The only J-REIT to focus on shopping centers for daily needs

We are the only listed J-REIT to focus on neighborhood, community and other shopping centers for dailyneeds. We seek to generate both long-term stable cash flow and profitability growth.

Large

Large-scale suburban retailproperties• RSC (Regional Shopping Center)• GMS (General Merchandise Storeon a stand-alone basis )• Outlet malls

Core investment targets

Urban retail properties
featuring high-end

Neighborhood, community andother shopping centers for daily needs
Property size

• Brand shops

NSC

Neighborhood
Shopping
Centers

Small

Shopping
centers with asupermarket
as an anchor orcore tenant

Supermarkets

SM

Community
Shopping
Centers

CSC

Urban
Station-Front
Shopping
Centers

SS

Stand-alone
stores thatprimarily provide
groceries

Larger shopping
centers than
NSC, with asupermarket as
an anchor orcore tenant

Shopping centersin theImmediatevicinity of anurban public
transportation
stationSpecialty storessuch as drug stores,
convenience stores,
health clubs orelectronic appliancestores3-10km

1-10kmSpecialty Stores

The majority of portfolio
properties of other listed
retail-focused J-REITs consistof large-scale suburban retailproperties and urban retailproperties featuring high-end
brand shops

Retail trade area in radius (approximate)

3-5km

3km

High

5-10kmFrequency of customer visits

Low

Characteristics of shopping centers for daily needs
Located within residential districts or adjacent to major roads or streets, which provide daily goods and services

1. Retail trade area••

Approximately 1 to 10 kilometer radius (generally 3 to 5 kilometer radius)
Customers predominantly from local areas

2. Operational features••

Accommodate certain daily local retail needs
Strong customer traffic on both weekdays and weekends

3. Tenant composition•

Various specialty stores to meet a range of day-to-day needs such as groceries,
clothing and other daily goods and services

Note: The size of property, frequency of customer visits and retail trade areas referenced above have been defined by us based on general characteristics of shopping centers for dailyneeds.

2

2. Ample investment opportunities in shopping centers for daily needs

Our market opportunity and investment focus–Shopping centers for daily needs

Ample investment opportunities from the perspective of consumer spending,demographics and number of properties
Tenants with high demand from consumers

Properties located in areas with highpopulation density

Ample investment opportunities

Share of frequently purchased items fordaily needs as a % of total household
expenditure on consumer products% of Japan's total population
living in suburban areas within the four
major metropolitan areas% of medium- or small-sized retail facilities
in "retail property opening applications"

Based on a survey conducted by the Statistics Bureau of the Ministry ofInternal Affairs and Communications in 2014.

Based on a survey conducted by the Statistics Bureau of the Ministryof Internal Affairs and Communications in 2015.

Based on the number of applications submitted to develop new retailproperties with a total floor area of 10,000 m 2 or less.

55.4%

92.3%

77.2%

3. Convenient shopping experience at shopping centers for daily needs

We expect continued high demand for shopping centers for daily needs because of theirconvenience. In particular, we anticipate that such demand will increase as the Japanese
population ages.
Large ground parking lot

Low-rise facility

Unicus Iba

Easy access by foot or bicycle

Sunny Noma

Life Kameido

4. Background for increasing presence of NSC

We believe that the presence of shopping centers for daily needs will continue to increase due toshrinkage of retail trade areas and diversification of consumer tastes. We also believe these social
structure changes are caused by the aging of society and concentration of population into major
metropolitan areas of Japan.
Increasing presence of NSC

Shrinking retail trade area

Further aging of the population
Concentrated population in major metropolitan areas

Increase in demand for specialty stores

Diversification of consumer needs3

Sponsor support
1. Leveraging extensive support from Sponsor and Alliance Companies

We have strong support from our Sponsor, Kenedix, Inc. as well as our Alliance Companies for bothinternal and external growth. With their support, we have access to a large and diverse pipeline ofacquisition opportunities as well as a variety of technical expertise.

Note: Kenedix, Inc., the asset manager of the retail property development fund jointly created by ITOCHU Corporation (“Kenedix – ITOCHU Fund”), agrees to provide preferential
access to potential acquisition opportunities regarding the fund, to KRR and KFM.

2. Alliance agreement with ITOCHU Corporation

ITOCHU Corporation (“ITOCHU”) became our
new Alliance Company in August 2016, joining
Sumitomo Mitsui Finance and Leasing Co., Ltd.,
Nippon Commercial Development Co., Ltd.
and P&D Consulting Co., Ltd.
Kenedix, Inc. and ITOCHU Corporation also
agreed to jointly create a retail property
development fund and to provide us
preferential access to potential acquisition
opportunities regarding the fund. Kenedix –ITOCHU Fund has already begun to develop its
first project.

1st project
Location: Kanagawa Pref.

Expected to open
in autumn 20174

Major growth strategy
1. Property expansion of Unicus Ina

We seek to enhance profitability and value of our assets through building expansions. The second
expansion project, a restaurant building, is under development at Unicus Ina.

12%

Improve profitability
NOI yield (return on investment)

Rendering(Note 2)

Estimated increase in NOI

12.9 mn

Total construction cost

107 mnEnhance asset value
Increase in appraisal value+240 mn
Appraisal value

4,660 mn

Aerial photographAppraisal value

4,420 mn
Schedule (Note 3)

July 2016:
Application for building approval
PlannedConstruction site

September 2016:
Begin building construction
January 2017 (planned):
Completion & delivery of building

Note 1: These figures (except the total construction cost) are those at the time of the decision of property expansion, and may change, including total construction cost.
Note 2: We cannot guarantee that the building extension will be completed as scheduled; the construction may be cancelled or delayed in the future.
Note 3: This rendering may differ from the actual building to be completed.

2. Preferential access to potential acquisition opportunities

We seek to achieve external growth by selectively acquiring properties managed or developed by
the Kenedix Group, our Sponsor, and taking advantage of preferential negotiation rights forproperties owned by our Alliance Companies.
Example of properties under
Examples of properties owned
development by sponsor
by our Alliance Companies
NSC
Kawamachi Yahagi Mall
Location: Chiba, Chiba

Expected to openin spring 2017

NSC

NSC

Expected to openin spring 2017

Totsuka-Fukaya Shopping Center (Land) Unicus Urawamisono (Land)
Location: Yokohama, Kanagawa
Location: Saitama, Saitama

Note: The illustrations above are completion images based on design drawings and may differ from the actual buildings after completion.

5

Environmental initiatives
We proactively participate in local-community-enlivening activities and take environmental initiatives.
1. GRESB Real Estate Assessment

We have been awarded a “Green Star” rating at our firstparticipation in the GRESB Real Estate Assessment in 2016,as its efforts for improving sustainability performance were
evaluated,
receivinghighevaluationonboth“implementation and measurement” and “management andpolicy”.
GRESB is an annual benchmark assessment which measuresenvironmental, social, and governance (ESG) considerationsin the real estate sector.
2. DBJ Green Building Certification

We received DBJ Green Building Certification for four of its properties (Blumer HAT Kobe, Roseo
Mito, Ashico Town Ashikaga and Passaggio Nishiarai) from the Development Bank of Japan Inc. in
September 2016. Our DBJ Green Building Certification accumulated to nine properties.

Blumer
HAT Kobe

Ashico Town
Ashikaga

Roseo Mito

Passaggio
Nishiarai

3. Help enliven local communities

We seek to enhance the medium to long-term asset value of our retail properties by attracting
tenants engaged in service businesses and holding local events at its properties to enliven the local
community.

Yoshikawa Marche(Unicus Yoshikawa)

Roseo Festival(Roseo Mito)

6

Steady growth in AUM
Upon continuous acquisition of assets, the total asset amount of our portfolio by acquisition pricebecome 158.7 billion yen, which nearly doubled from the time of our IPO. In addition, we haveenhanced earnings stability through portfolio diversification and increase in liquidity of units by
issuance of new units and expansion of market capitalization.

AUM growth (based on acquisition price)
SponsorAlliance Companies
External Sources(AUM)(JPY bn)
250

200

27.1

158.7

1.3

160.1

Properties
acquired in
3rd fiscal
periodEnd of 3rd
fiscal period

Propertyacquired in
Nov. 2016

After
acquisition in
Nov. 2016

150
39.7

100
80.8

131.6

91.8

50

0

Properties
acquired
upon IPO

End of 1st
fiscal period(as o f Sep. 30, 2015)(as o f Mar. 31, 2015)

Properties
acquired in
2nd fiscal
periodEnd of 2nd
fiscal period(as o f Mar. 31, 2016)(as o f Se p. 30, 2016)

Aiming forsteady growthof asset value
going forward

Our core strengths for external growth
Ample external growth
opportunities

The only J-REIT to focus
on neighborhood,community and othershopping centers fordaily needs

Multiple acquisition
channels

Differentiated acquisition
methods

7

Assets acquired in 3rd and 4th fiscal period
Assets acquired in 3rd fiscal period
第3期取得資産概要

SM

Supermarket

Life Kameido

A grocery supermarket located in one of the most densely populated retail trade areas in Tokyo,
with 71,000 residents within a 1 km radius
Acquisition price

JPY 1,450 mn

Location

Koto ward, Tokyo

Land area

2,185.63m2

Gross floor area

2,929.58m2

Core tenant

Life Corporation

Appraisal NOI

JPY 65 mn

Appraisal NOI yield

4.5%

 Located in one of the most populatedtrade areas, with 71,000 residents within a
1 km radius. "Kameido Residence", alarge-scale condominium consisting ofapprox. 700 residential units is in theneighborhood
 Highly accessible by car due to its location
along the National Route 14

NSC

Neighborhood
Shopping Center

P-1 Plaza Tenno

An NSC located in a large scale retail area in northeast Hamamatsu where road-side retail facilities concentrate
Acquisition price

JPY 4,010 mn

Location

Hamamatsu, Shizuoka

Land area

36,218.55m2

Gross floor area

14,467.54m2

Core tenant

Kyorindo Co., Ltd.

Appraisal NOI

JPY 227 mn

Appraisal NOI yield

5.7%

 An NSC located in a large-scale retail area
in northeast Hamamatsu where road-side
retail facilities concentrate. Houses tenants
such as a local supermarket, a drug store,a relaxation spa, a footwear shop and asoftware rental shop
 Faces a main road and benefits fromgood car traffic. The retail stores surrounda large parking lot capable of holding 595
vehicles, making it highly convenient forcustomers visiting by car

8Assets acquired in 3rd fiscal periodSS

Specialty store

Homecenter Kohnan Sunadabashi

A retail property consisting of a large home and garden store and a large sporting goods store, located in anorthern urban area of Nagoya City
Acquisition price

JPY 7,140 mn

Location

Nagoya, Aichi

Land area

15,118.47m2

Gross floor area

20,329.07m2

Core tenant

Kohnan Shoji Co., Ltd.

Appraisal NOI

JPY 368 mn

Appraisal NOI yield

5.2%

 A retail property consisting of Kohnan, a home and garden store chain operating 300
shops nationwide and a large sporting goods store, located in a northern urban areaof Nagoya City

NSC

Neighborhood
Shopping Center

Nakamachidai Tokyu StoreSS

Specialty Store

Central Wellness Club
Nagatsuta Minamidai

A station-front NSC in an area with high population
growth and easy access to central Tokyo

Roadside SS located in an area with high population
growth, housing a health club as its core tenant

Urban
Solala Plaza
Station-Front
A retail building directly accessible by a pedestrian
walkway from Sendai Station

NSC

Neighborhood
Shopping Center

Million Town Tsukaguchi (Land)

A newly opened NSC located in a retail area as a part of the largescale redevelopment project in front of JR Tsukaguchi Station

Assets acquired in 4th fiscal periodSS

Specialty StoreNSC

Neighborhood
Shopping Center

K’s Denki Shin-Moriyama(Land)

Yumemachi Narashinodai
Mall (bridge fund property)

Land on which an electronic
retail store resides. Locatedin a high population growtharea facing a trunk road withheavy car traffic with easy
car accessA relatively new NSC locatedin a high-population-growtharea with a highly competitive
grocery supermarket as thecore tenant

9Portfolio map as of November 1, 2016

NSC
SM
CSC
Urban
Station-Front SC
SS

N-5

K's Denki
Shin-Moriyama (Land)

NEW

Location(by acquisition price)

Shopping centers fordaily needs

Ordinancedesignated cities,
core cities and other
areas
19.0%
Fukuoka area
0.9%
Greater
Nagoya area
8.7%

Types of retail property(by acquisition price)Tokyo
Metropolitan
area
43.8%

4 major
Metropolitan
areas

81.0%

CSC
9.3%

100

SM
7.1%

SS
13.8%

%

NSC
46.1%

Urban
Station-Front
23.7%
Greater
Osaka area
27.6%

10

T-1 Fululu Garden Yachiyo

Daikanyama

T-5 Unicus Ina

Super Viva Home

T-10 Shonan-Fujisawa (Land)

Gourmet City

T-15 Tokyu Store

Central Square

O-3 Center Omihachiman

Hankyu Oasis

O-8 Kishiwadakamori (Land)

N-2 Nishi

Valor Ichinomiya-

N-3 Tomita (Land)

R-2 K’s Denki Aomori Honten

R-3 Aomori-Chuo

R-7 Solala Plaza

R-8 P-1 Plaza Tennno

T-2 MONA Shin-Urayasu

T-3 Passaggio Nishiarai

T-4 Address Dixsept

T-6 Kita-Kaname

T-7 Unicus Yoshikawa

T-8 Renaissance Fujimidai

Sports Club

T-9 Iwatsuki (Land)

T-11 Unicus Kamisato (Land)

T-12 Unicus Konosu (Land)

T-13 Minamihonjuku (Land)

Inageya Yokohama

T-14 Chiba-Chuo

T-16 Nagatsuta Minamidai

T-17 Life Kameido

O-1 Blumer Maitamon

O-2 Takadono (Land)

O-4 Blumer HAT Kobe

O-5 Carino Esaka

O-6 COMBOX Komyoike

O-7 Hirakatadeguchi

O-9 Life Nishi-Tengachaya

O-10 Tsukaguchi (Land)

N-1 Nakagawa Tomita (Land)

N-4 Sunadabashi

F-1 Sunny Noma

R-1 Roseo Mito

R-4 Ashico Town Ashikaga

R-5 Shinden-Higashi

Yorktown

Central Wellness Club

Homecenter Kohnan

Million Town

Yorktown

Kahma Home Center

KasumiR-6 Technopark Sakura

K’s Denki

Nakamachidai

Piago Kahma Home

WelciaK’s Denki Nakagawa

Super Sports Xebio

11

Portfolio List as of November 1, 2016
Total
acquisition price

Weighted averageoccupancy rate

Number of
Tenants¥160,136 mn

99.7 %

406

No.

Name of property

Location
Acquisition price Occupancy rate Number of(city / ward, prefecture)(JPY mn)(%) (Note 1)
tenants (Note 2)

T-1 Fululu Garden Yachiyo

Yachiyo, Chiba

14,848

99.6

49

T-2 MONA Shin-Urayasu

Urayasu, Chiba

8,063

95.6

71

T-3 Passaggio Nishiarai

Adachi ward, Tokyo

5,850

98.1

41

T-4 Daikanyama Address Dixsept

Shibuya ward, Tokyo

5,390

98.2

26

T-5 Unicus Ina

Kitaadachi-gun, Saitama

4,379

100.0

1

T-6 Yorktown Kita-Kaname

Hiratsuka, Kanagawa

4,000

100.0

1

T-7 Unicus Yoshikawa

Yoshikawa, Saitama

3,600

100.0

11

T-8 Sports Club Renaissance Fujimidai

Nerima ward, Tokyo

2,586

100.0

1

T-9 Super Viva Home Iwatsuki (Land)

Saitama, Saitama

4,815

100.0

1

T-10 K’s Denki Shonan-Fujisawa (Land)

Fujisawa, Kanagawa

3,169

100.0

1

T-11 Unicus Kamisato (Land)

Kodama-gun, Saitama

3,000

100.0

1

T-12 Unicus Konosu (Land)

Konosu, Saitama

1,700

100.0

1

T-13 Inageya Yokohama Minamihonjuku (Land)

Yokohama, Kanagawa

1,442

100.0

1

T-14 Gourmet City Chiba-Chuo

Chiba, Chiba

760

100.0

1

T-15 Nakamachidai Tokyu Store

Yokohama, Kanagawa

3,360

100.0

1

T-16 Central Wellness Club Nagatsuta Minamidai

Yokohama, Kanagawa

1,724

100.0

2

T-17 Life Kameido

Koto ward, Tokyo

1,450

100.0

1

O-1 Blumer Maitamon

Kobe, Hyogo

8,389

99.1

49

O-2 Central Square Takadono (Land)

Osaka, Osaka

2,685

100.0

1

O-3 Piago Kahma Home Center Omihachiman

Omihachiman, Shiga

2,140

100.0

2

O-4 Blumer HAT Kobe

Kobe, Hyogo

11,00099.1

41

O-5 Carino Esaka

Suita, Osaka

6,555

99.1

30

O-6 COMBOX Komyoike

Izumi, Osaka

6,450

100.0

1

O-7 Hankyu Oasis Hirakatadeguchi

Hirakata, Osaka

1,280

100.0

1

O-8 Welcia Kishiwadakamori (Land)

Kishiwada, Osaka

487

100.0

1

O-9 Life Nishi-Tengachaya
OMillion Town Tsukaguchi (Land)
10
N-1 Kahma Home Center Nakagawa Tomita (Land)

Osaka, Osaka

1,505

100.0

1

Amagasaki, Hyogo

3,723

100.0

1

Nagoya, Aichi

2,311

100.0

1

N-2 Valor Ichinomiya-Nishi

Ichinomiya, Aichi

2,174

100.0

1

N-3 K's Denki Nakagawa Tomita (Land)

Nagoya, Aichi

889

100.0

1

N-4 Homecenter Kohnan Sunadabashi

Nagoya, Aichi

7,140

100.0

1

F-1 Sunny Noma

Fukuoka, Fukuoka

1,497

100.0

1

R-1 Roseo Mito

Mito, Ibaraki

10,046

99.7

22

R-2 K's Denki Aomori Honten

Aomori, Aomori

1,469

100.0

1

R-3 Super Sports Xebio Aomori-Chuo

Aomori, Aomori

898

100.0

1

R-4 Ashico Town Ashikaga

Ashikaga, Tochigi

4,180

99.1

26

R-5 Yorktown Shinden-Higashi

Sendai, Miyagi

3,252

100.0

2

R-6 Kasumi Technopark Sakura

Tsukuba, Ibaraki

830

100.0

1

R-7 Solala Plaza

Sendai, Miyagi

5,720

100.0

1

R-8 P-1 Plaza Tennno

Hamamatsu, Shizuoka

4,010

100.0

7

158,766

99.7

405

1,370

100.0

1

1,370

100.0

1

160,13699.7

406

Total of assets acquired by the end of 3rd period
N-5 K’s Denki Shin-Moriyama (Land)

Nagoya, Aichi

Total of assets acquired in November, 2016
Total
Note 1: "Occupancy rate" is as of September 30, 2016.
Note 2: "Number of tenants" indicates the number of end-tenants as of September 30, 2016.

12

Close-up KRR
Vol. 3

R-1

NSC Neighborhood Shopping Center

NSC for Daily Needs of Local Communities, Adjacent to the Ibaraki Prefectural Government Office
Roseo Mito is a neighborhood shopping center (NSC)that was constructed as part of a land readjustment
project adjacent to the Ibaraki Prefectural Government
Office. This project took place in association with the
March 1999 relocation of the prefectural government
office to its current site. Roseo Mito opened in April
2009 as a shopping center providing amenity andconvenience to nearby residents.
The population and number of households in the
trade area served by Roseo Mito have both increased
since its completion. There are many families withyoung children in the area, and people in their 30s andchildren under the age of 10 account for the largest
age groups in the area. The average income offamilies in the trade area is above the national average.
Roseo Mito consists of several buildings. At the main
entrance to the shopping center on the south sidealong a major road is a Super Viva Home store, whichis the largest home and garden store in the city of
Mito and draws large numbers of customers. There isalso a café with a drive-through window and a sushi
restaurant that is popular among families. In the centerof the shopping center, there are a grocery store
operated by Maruto, which has many stores in Ibaraki
Prefecture, a well-known sporting goods store in thisregion, a 100-yen shop, a specialty discount store andclothing stores. The stores sell merchandise for the
daily needs of nearby residents. The NSC also has
service providers, such as a well-equipped fitness club,a nursery school, a wedding hall that is highly popularwith locals, an exam preparation school, a beauty
parlor and a chiropractor, to meet the requirements of
the local communities.

In addition, KRR expanded the NSC and constructed a
new building within the shopping center in November
2015. The new building is leased to a company that
operates a large number of chain stores in Ibaraki
Prefecture offering secondhand goods. This property
expansion represents one of KRR’s strategies toachieve internal growth.
Roseo Mito is distinguished most of all by its close ties
with the daily activities and needs of the local
communities, which is an important feature of KRR.
Every weekend, the shopping center hosts
performances by local artists. The Roseo Festival takes
place twice each year, where events include dancing
by elementary school students who take lessons at the
shopping center’s fitness club and performances by
individuals designated by the city as “Mito Promotional
Performers”, drawing large numbers of people.
In recognition of these activities, Roseo Mito wasawarded DBJ (Development Bank of Japan) Green
Building Certification (three-star rank) in June 2016 as
a property with excellent environment and social
awareness. KRR will continue to put effort into making
the facility more attractive by focusing on daily needsin order to make the NSC a frequent destination for
local area customers.
Acquisition price

JPY 10,046 mn

Land area

73,940.62m2

Gross floor area

30,495.90m2

Core tenant

LIXIL Viva
Corporation

13

Summary of investment unit

(Unit)
100,000(Yen)
320,000

40,000
Unit price

TSE REIT index

Volume300,000

35,000280,000

30,000260,000

25,000240,000

20,000220,000

15,000200,000

10,000180,000

5,000

160,000

0
Feb.
10,
2015

End
of
Feb.

End
of
Mar.

End
of
Apr.

End
of
May

End
of
Jun.

End
of
Jul.

End
of
Aug.

End
of
Sep.

End
of
Oct.

End
of
Nov.

End
of
Dec.

End of EndJan.
of2016 Feb.

End
of
Mar.

End
of
Apr.

End
of
May

End
of
Jun.

End
of
Jul.

End
of
Aug.

End
of
Sep.

End
of
Oct.

Note: TSE REIT Index adjusted to KRR's closing unit price of JPY 266,100 as of February 10, 2015.

As of September 30, 2016

Ownership ratio
by investor type
Brokerage firms
3 , 9 7 2 units(0.9%)

Foreigninvestors
1 6 1 , 9 0 9 units(38.3%)

Number of unitholders
by investor type

Individuals
and others
4 1 , 0 5 1 units(9.7%)

Financial
institutions
92(0.9%)

422,450
units

Financial
institutions
1 9 9 , 9 1 4 units(47.3%)
Other domestic
corporations
1 5 , 6 0 4 units(3.7%)

Foreign investors
199(1.9%)
Other domestic
corporations263(2.5%)

Brokerage firms
21(0.2%)

10,618

Individuals
and others
10,043(94.6%)

14

II. ASSET MANAGEMENT REPORT
Overview of Asset Management(1) Trends in Key Indicators
1st period

2nd period

3rd period(From October 3, 2014
to September 30, 2015)(From October 1, 2015
to March 31, 2016)(From April 1, 2016
to September 30, 2016)

Millions of Yen

5,103

5,541

6,374

Millions of Yen

5,103

5,541

6,374

Millions of Yen

2,639

2,715

3,400

Millions of Yen

2,246

2,235

2,860

Operating income

Millions of Yen

2,463

2,826

2,973

Ordinary income

Millions of Yen

1,939

2,428

2,519

Net income

Millions of Yen

1,933

2,427

2,518

Total assets

Millions of Yen

108,382

150,009179,360(-)(+38.4)(+19.6)

59,79080,03496,739(-)(+33.9)(+20.9)Fiscal period
Operating revenues
Of which, Property-related revenues
Property-related expenses
Of which, Property-related expenses[Period-on-period changes]
Total net assets%
Millions of Yen[Period-on-period changes]
Unitholders’ capital
Number of investment units issued andoutstanding
Net assets per unit
(Note 2)%Millions of Yen

57,85777,606

94,256

Units

260,750

355,250

422,450

Yen

229,301

225,291

228,996

Millions of Yen

1,933

2,432

2,523

Distributions per unit

Yen

7,414

6,846

5,974

Of which, Distributions of earnings
Of which, Distributions in excess ofretained earnings
Ordinary Income to Total Assets (Note 3)

Yen

7,414

6,834

5,888

Yen

-

12

86

Distributions[Annualized] (Note 4)%

Return on Net Assets (Note 5)

2.0

1.9

1.5

(3.1)

(3.7)

(3.1)

3.3

3.5

2.8

(5.2)

(6.9)

(5.7)

55.2

53.4

53.9

(-)

(-1.8)(+0.6)

Days

363

183

183

%

100.0

100.0

98.8

19

33

40

m2

306,225.83

609,026.59

674,491.03

321

389

405

%

99.6

99.6

99.7

Depreciation expense

Millions of Yen

560

565

714

Capital expenditures

Millions of Yen

133

530

264

Rental NOI (Net Operating Income) (Note 9)

Millions of Yen

3,417

3,871

4,228

FFO (Funds from Operation) (Note 10)

Millions of Yen

2,548

3,058

3,315

[Annualized] (Note 4)%

Net Assets to Total Assets (Note 6)[Period-on-period changes]
Operating days
Payout Ratio(Note 7)%

Number of properties
Leasable area
Number of tenants (Note 8)
Occupancy ratio(Note 11)

FFO per unit
Yen
9,772
8,609
7,847
Note 1: Figures above are rounded down for monetary amounts and rounded off for ratios.
Note 2: Distributions in excess of earnings for the allowance for temporary difference adjustments are not considered.
Note 3: Ordinary Income to Total Assets = Ordinary Income /{(Total assets at beginning of period + Total assets at end of period) / 2} × 100
Total assets at beginning of period above is the total assets on February 10, 2015, when the actual operation began.
Note 4: For the 1st period, annualized as if the operation began from February 10, 2015, when the actual operation began.
Note 5: Return on Net Assets = Net income /{( Net assets at beginning of period + Net assets at end of period) / 2} × 100
Net Assets at beginning of period above is the total assets on February 10, 2015, when the actual operation began.
Note 6: Net Assets to Total Assets = Net assets at end of period / Total assets at end of period × 100
Note 7: Payout Ratio = Total Distibutions (excluding excess of earnings) / Net income × 100
When calculated as follows, the payout ratio is 100.2% for the fiscal period ended March 31, 2016 and 100.2% for the fiscal period ended
September 30, 2016.
Payout Ratio = Total Distributions (including excess of earnings) / Net income × 100
Note 8: As for building tenants, if a tenant leases multiple spaces in a building, each space is counted as one tenant. In a pass-through-type master
lease, the number of end-tenants is shown in parentheses. In a sublease-type master lease, the number of master lessee is shown.
Note 9: Rental NOI = Property-related revenues - Property-related expenses + Depreciation expenses
Note 10: FFO = Net income + Depreciation + Amortization - Gain on sale of property + Loss on sale of property
Note 11: FFO per unit = FFO / Number of investment units issued and outstanding15

(2) Status of Asset Management(Overview of the Period ended September 30, 2016)i) Transition of KRR
KRR was established on October 3, 2014, under the Act on Investment Trusts and Investment Corporations of Japan (the“Investment Trust Act”). On October 30, 2014, KRR was registered with the Director-General of the Kanto Local Finance
Bureau (registration number: Director-General of the Kanto Local Finance Bureau No. 97). KRR was listed on the Real
Estate Investment Trust Securities (“J-REIT”) Market of Tokyo Stock Exchange, Inc. (the “Tokyo Stock Exchange”)(Securities code: 3453) on February 10, 2015. Subsequently, KRR raised funds through public offerings, including aninternational offering. As a result, the number of investment units issued at the end of the period ended September 30, 2016
was 422,450 units.
KRR seeks to invest primarily in neighborhood, community and other shopping centers that cater to the day-to-day needsof local area customers and have stable demand from retailers and customers, in order to provide stable investment returns
over the long term. Sponsored by Kenedix, Inc., a leading, independent real estate asset management company, KRR
entrusts its asset management and investment operations to Kenedix Real Estate Fund Management, Inc. (“KFM”), withthe following strategies.
Note: For KRR’s management purposes and ease of classification, KRR defines neighborhood, community and other shopping centers for daily needs asretail properties that generally have the following characteristics:
a. Retail trade area of approximately a one to ten kilometer radius (and generally, a three to five kilometer radius), with customers predominantly
from local areas surrounding the retail property
b. Operational capacity to accommodate certain daily local retail needs and strong customer traffic on both weekdays and weekends
c. Composed of various specialty stores to meet a range of day-to-day needs such as groceries, clothing and other daily goods and servicesii) Investment Environment
There were signs of a moderate economic rebound in Japan with recoveries in employment and income environment. RealGDP growth (2nd preliminary estimate) in the second quarter of 2016 was positive 0.7% on an annualized basis, indicating
positive figures for two consecutive quarters. However, uncertainty in economy remains due to economic slowdown indeveloping countries, appreciation of yen and movements regarding Brexit.
As for Japan’s retail market, disparities among the retail market are seen as general merchandize stores (“GMS”) are
reported to be struggling, but supermarkets and drugstores are performing relatively well, although there were some effectsof bad weather.
The financial environment remained unstable due to global market events such as economic slowdown in China and UK
decision of Brexit, and appreciation of yen. In addition, although decline in interest rates following the introduction ofnegative interest rate policy by the Bank of Japan in January 2016 temporarily pushed the TSE REIT Index up, the market
got weak as expectation of additional monetary easing receded with concerns over side effects of negative interest rate
policy. On the other hand, in the real estate market, J-REITs continue to purchase a substantial number of properties
because of monetary easing and brisk equity raising activities by J-REITs.

16iii) Management Performance(A) Acquisition of Assets
KRR acquired and started the operations of the following trust beneficiary interests in real estate (one property acquired on
April 20, 2016 with acquisition price of 1,724 million yen, five properties acquired on April 21, 2016 with acquisition priceof 21,393 million yen and one property acquired on April 22, 2016 with acquisition price 4,010 million yen). As a result,the portfolio at the end of the period under review (September 30, 2016) consists 40 properties with the total acquisition
price of 158,766 million yen.
Property
number
T-15

Property
Type

Property name(Note 1)

Location(City or Ward,
Prefecture)

AcquisitionPrice(million yen)

Acquisition Date

(Note 2)NSC

Nakamachidai Tokyu Store

Yokohama, Kanagawa

3,360

April 21, 2016

T-16

SS

Central Wellness Club
Nagatsuta Minamidai

Yokohama, Kanagawa

1,724

April 20, 2016

T-17

SM

Life Kameido

Koto ward, Tokyo

1,450

April 21, 2016

O-10

NSC

Million Town Tsukaguchi (Land)

Amagasaki, Hyogo

3,723

April 21, 2016

N-4

SS

Homecenter Kohnan Sunadabashi

Nagoya, Aichi

7,140

April 21, 2016

R-7

Urban Station-Front SC

Solala Plaza

Sendai, Miyagi

5,720

April 21, 2016

R-8

NSC

P-1 Plaza Tenno

Hamamatsu, Shizuoka

4,010

April 22, 2016

Total

27,127Note 1: Properties are categorized into the following five types of shopping centers for daily needs: NSC (Neighborhood Shopping Center), SM(Supermarket), CSC (Community Shopping Center), Urban Station-Front SC (Urban Station-Front Shopping Center) and SS (Specialty Store).
KRR categorizes these properties generally into five separate groups as follows.
Type of shopping centers for daily needs

Features

Trade area

NSC (Neighborhood Shopping Centers)

Shopping centers with a supermarket as an anchor or core tenant andseveral specialty store tenants

three to fivekilometer

SM (Supermarkets)

Stand-alone stores that primarily provide groceries, with a retail trade area

three kilometer

CSC (Community Shopping Centers)

Larger shopping centers than NSC, which have a supermarket as an anchor
or core tenant in addition to specialty store tenants

five to ten
kilometer

Urban Station-Front Shopping Centers

Shopping centers that are located in the immediate vicinity of an urban
public transportation station, which take advantage of stable foot traffic

three to ten
kilometer

Single- or multiple-tenant shopping centers that specialize in a single type
one to tenof merchandise or service, such as drug stores, convenience stores,healthkilometerclubs or electronic appliance stores
Note 2: “Acquisition price” represents the purchase price of each trust beneficiary interest specified in purchase agreement in relation to the acquisitionof each property (excluding acquisition costs, adjustment in property tax and city-planning tax, and consumption tax; and rounded down to thenearest one million yen).
SS (Specialty Stores)

17

(B) Management and Operation of Assets
KFM provides property management services for all of the properties owned by KRR at the end of the period under review(September 30, 2016). By using the same company for both asset management and property management services, KRR
aims to build stronger relationships with tenants and increase returns from its portfolio. Furthermore, by implementing
retail property management that better reflects the needs of KRR’s tenants, KRR strives to accumulate know-how andimprove tenant satisfaction. KRR invests primarily in neighborhood and community shopping centers that cater to the
day-to-day needs of customers. The portfolio is diversified in terms of properties, tenants and other characteristics with agoal to generate consistent long-term cash flows. At the same time, a portion of the rent includes sales-linked rent to
explore the upside potential (Note 1) for rental income. By using these measures, KRR aims to pursue a portfolio that achieves
both stability and growth.
As of the end of the period under review, portfolio as a whole performed well with an overall occupancy ratio of 99.7%.
Furthermore, the portfolio is diversified in terms of tenants as there are 405 end-tenants (Note 2) in KRR’s retail properties.
Note 1:
Note 2:“Upside potential” represents feasibility of rental income growth.
The number of end-tenants is the sum of the number of end-tenants in a pass-through-type master lease and the number of master leassees ina sub-lease-type master lease.

(C) Financing
When financing to acquire properties, KRR seeks to achieve the proper balance between financial stability and the cost of
the funds with the objectives to achieve stable medium- to long-term returns and consistent growth of assets undermanagement.
(Equity Finance)
In the fiscal period under review, KRR sold a total of 64,000 newly issued units offered in Japan and overseas on April 20,
2016, and raised 15,856 million yen to acquire properties. In addition, 3,200 units were issued through third-party
allotment on May 18, 2016, raising 792 million yen that was used to prepay a portion of borrowing for acquisition ofproperties. Due to these activities, unitholders’ capital increased to 94,256 million yen as of September 30, 2016.
(Debt Finance)
During the fiscal period under review, KRR borrowed for the acquisition of properties and used the proceeds from theissuance of newly issued units through third-party allotment for the early repayment of debt. Consequently, debt totaled
69,300 million yen at the end of the fiscal period under review (September 30, 2016).
When undertaking borrowings, KRR seeks to mitigate refinancing risks, by spreading out repayment dates and lengthening
borrowing periods. On the other hand, KRR partially borrowed short-term loans from the point of flexibility under thefinancing strategy, also controlling financing cost. KRR uses swaps to fix the interest payments to hedge against the risk ofa rise in interest rates.
The below are borrowings at the end of the fiscal period.
SeriesLender

6-A-1 SumitomoMitsui Banking Corporation

Amount(in thousandsof yen)4,140,000

6-A-2 Mizuho Bank, Ltd.

360,000

6-B-1 Mizuho Bank, Ltd.

710,000

Interest rate

JBA 1-month JPY
TIBOR + 0.45%

0.36800%(Note 2)6-B-2 Sumitomo Mitsui Trust Bank, Ltd.

Drawdown
date(Note 1)

April 21, 2016

April 21,2017

April 21, 2016

September 30,
2019

620,000

Repayment
methodRemarks

September 30,
2024
Full on
Unsecured/
0.76031%
September 30,
maturity
Unguaranteed
6-D Development Bank of Japan Inc.
890,000
April 21, 2016
(Note 3)2024
0.93200%
April 21,
6-E Sumitomo Mitsui Banking Corporation
2,670,000
April
21,
2016
(Note 2)
2026
6-F
JBA 1-month JPY
April 21,800,000
April 21, 2016
(Note 4) Sumitomo Mitsui Banking Corporation
TIBOR + 0.45%
2017
JBA 1-month JPY
April 21,
7-A The Bank of Tokyo-Mitsubishi UFJ, Ltd. 1,070,000
April 22, 2016
TIBOR + 0.45%
2017
0.88800%
October 31,
890,000
April
22,
2016
7-B The Bank of Tokyo-Mitsubishi UFJ, Ltd.
(Note 2)2025
Note 1: The repayment date will be the following business day in case such date falls on a day that is not a business day or the preceding business
day in case such date falls in the next calendar month.
Note 2: These borrowings are floating interest rates. However, KRR has entered into interest rate swap agreements to hedge the risks of interest
rate volatility. These rates are the interest rates including the effect of the swaps (i.e., fixed interest rates).
Note 3: These borrowings are fixed rates.
Note 4: As for Series 6-F, there was no balance as of September 30, 2016 as it was prepaid in full on May 31, 2016. The repayment of Series 6-F
was funded by net proceeds from the sale of new investment units through a third-party allotment with a May 18, 2016 payment date.
6-C

Sumitomo Mitsui Trust Bank, Ltd.

450,000

0.80300%

Repayment
date(Note 2)

April 21, 2016

As a result, the average remaining years to maturity is 4.6 years, the weighted average interest rate is 1.00%, the long-term
debt ratio is 82.6% and the LTV ratio (Note), is 42.5%.
Note:

The LTV ratio, or loan-to-value ratio, is the ratio of the total amount of borrowings, corporate bonds and tenant leasehold and security
deposits (net of amounts reserved for return of tenant leasehold and security deposits), to the total assets minus amounts reserved for
return of tenant leasehold and security deposits.

18(Credit Ratings)
The status of the credit ratings as of September 30, 2016 is as follows.
Credit Rating Agency
Japan Credit Rating Agency, Ltd. (JCR)

Details of the Ratings
Long-Term Issuer Rating

A (Outlook: Stable)(Shelf Registration)
KRR filed a shelf registration statement for investment corporation bonds (excluding short-term investment corporation
bonds) on September 29, 2016. Details are as follows.
Planned Issue Amount

100,000,000,000 yen

Planned Issuance Period

October 7, 2016 to October 6, 2018

Use of Funds

Acquisition funds for specified assets (as defined in Article 2, Paragraph 1 of the Investment TrustLaw), repayment funds for borrowings, repayment funds for investment corporation bonds(including short-term investment corporation bonds), refund funds for lease and guarantee
deposits, funds to pay for repairs and maintenance, working capital, etc.

iv) Results of Operations
For this period, revenue was 6,374 million yen, operating income was 2,973 million yen, ordinary income was 2,519
million yen and net income was 2,518 million yen.
Furthermore, in accordance with the distribution policy in the KRR Articles of Incorporation, KRR made a distribution(excluding excess of earnings) of 2,487,385,600 yen which is almost equivalent to the earnings as defined in Article 136-1
of Act of Investment Trust and Investment Corporations for the fiscal period. Cash distributions are paid in accordancewith Article 67-15 of the Special Taxation Measures Law (Law No. 26 of 1957, including subsequent amendments).
Consequently, the distribution per unit (including the distributions in excess of earnings) was 5,888 yen.
Furthermore, in accordance with the policy for “Distribution of Money in Excess of Profits” as stated in the KRR Articles
of Incorporation, KRR made a distribution in excess of earnings for the 36,330,700 yen allowance for temporary
adjustment (as defined in Article 2-2-30 of the Ordinance on Accountings of Investment Corporations (Cabinet Office
Ordinance No.47 of 2006, including subsequent amendments.)) for the purpose of reflecting the effect on distributions of
the difference in earnings calculated under Japanese GAAP and Japanese tax laws in association with the amortization of
fixed-term land lease rights (as defined in Article 2-2-30 (a) of the Ordinance on Accountings of Investment Corporations)and the item deducted from net asset (as defined in Article 2-2-30 (b) of the Ordinance on Accountings of Investment
Corporations) in association with deferred losses on hedges. This resulted in a distribution in excess of earnings per unit of
86 yen.
Consequently, the distribution per unit for the fiscal period, including this excess distribution, was 5,974 yen (of which the
distribution in excess of earnings per unit was 86 yen).

19

(3) Changes in Investment Units Issued and Outstanding
Changes in the number of investment units issued and outstanding and unitholders’ capital since its corporation aresummarized in the following table.
Date

Type of issue

Notes
Increase

October 3, 2014

Private placement forincorporation

February 9, 2015

Unitholders’ Capital(in million yen)

Total Number of Units Issued
and Outstanding (units)
Balance

Increase

Balance

750

750

150

150

(Note 1)

Public offering

254,250

255,000

56,43056,580(Note 2)

March 11, 2015

Capital increase throughthird-party allocation

5,750

260,750

1,276

57,857(Note 3)October 1, 2015

Public offering

88,750349,500

18,54776,404(Note 4)

October 21, 2015

Capital increase throughthird-party allocation

5,750

355,250

1,201

77,606(Note 5)

April 20, 2016

Public offering

64,000419,250

15,856

93,463(Note 6)

Capital increase through
3,200
422,450
792
94,256third-party allocation
Issued at issue price of 200,000 yen per unit for incorporation.
Issued at issue price of 230,000 yen per unit (issue amount of 221,950 yen per unit) for acquisition of new properties.
Issued at issue amount of 221,950 yen per unit for repayment of borrowings.
Issued at issue price of 216,543 yen per unit (issue amount of 208,991 yen per unit) for acquisition of new properties.
Issued at issue amount of 208,991 yen per unit for repayment of borrowings.
Issued at issue price of 256,717 yen per unit (issue amount of 247,764 yen per unit) for acquisition of new properties.
Issued at issue amount of 247,764 yen per unit for repayment of borrowings.

May 18, 2016
Note 1:
Note 2:
Note 3:Note 4:Note 5:Note 6:Note 7:(Note 7)(Changes in Unit Price at Tokyo Stock Exchange)
The highest and lowest closing prices of the investment units listed on J-REIT section of the Tokyo Stock Exchange foreach period are as follows.
Fiscal period
For the fiscal period
ended

1st period

2nd period

3rd period

September 30, 2015

March 31, 2016

September 30, 2016

Highest

JPY 309,500

JPY 282,700

JPY 296,100

LowestJPY 224,500

JPY 226,800

JPY 240,000

,

,

,

20

(4) Distributions
The distribution of earnings for the third period is 5,888 yen per unit. In order to maintain KRR’s favorable tax treatment,
which is available to J-REITs under Article 67-15 of the Special Taxation Measures Act, KRR intends to distribute most of
KRR’s retained earnings.
Furthermore, KRR made a distribution in excess of earnings for the allowance for temporary adjustment for the purpose ofreflecting the effect on distributions of the difference in earnings calculated under Japanese GAAP and Japanese tax laws inassociation with the amortization of fixed-term land lease rights and the item deducted from net asset in association withdeferred losses on hedges. This resulted in a distribution in excess of earnings per unit of 86 yen.
Consequently, the distribution per unit for the fiscal period, including the excess distribution, was 5,974 yen (of which the
distribution in excess of earnings per unit was 86 yen).
(in thousands of yen)
Fiscal period
For the fiscal period ended
Unappropriated retained
earnings
Retained earnings carriedforward

1st period
September 30, 2015

2nd period
March 31, 2016

3rd period
September 30, 2016

1,933,270

2,427,985

2,518,80270

206

31,417

Total distributions

1,933,200

2,432,041

2,523,716[Distributions per unit][7,414 yen]

[6,846 yen]

[5,974 yen]

1,933,200

2,427,778

2,487,385[7,414 yen]

[6,834 yen]

[5,888 yen]

－

4,263

36,330[－][12 yen][86 yen]－

4,263

36,330[Distributions per unit][－][12 yen][86 yen]Total distributions in excessof earnings from theunitholders’ capital for tax
purposes－－－[Distributions per unit]

[－]

[－]

[－]

Of which, distributions ofearnings
Distributions of earnings perunits
Of which, distributions inexcess of retained earnings
Distributions in excess ofretained earnings per units
Total distributions in excessof earnings for the allowancefor temporary adjustment

21

(5) Management Policy and Issues to be Addressedi) Outlook for Asset Management
The Japanese economy is expected to continue to recover at a moderate pace. However, attention should be paid touncertainties about the overseas economy and politics regarding the economic slowdown in China, movements regarding
Brexit, the direction of U.S. financial policies, the inauguration of the new U.S. President, etc. Attention also needs to be
paid to changes in domestic economic environment, such as appreciation of yen and effects of “Quantitative andQualitative Monetary Easing with Yield Curve Control” including the negative interest rate policy.
As for Japan’s retail sector environment, disparities among the retail market are seen as general merchandize stores (GMS)
are reported to be struggling, but supermarkets and drugstores are performing well, and KRR anticipates that this trend tocontinue.
In the real estate trading market, KRR anticipates the high level of transaction volume to continue because of the strong
appetite of J-REITs and other investors to acquire properties. The Bank of Japan’s monetary easing measures will help
provide continuous supply of adequate funds in the real estate market. However, investors should also keep in mind the riskof changes in banks’ lending attitude towards real estate sector, as amount of banks’ outstanding loans towards real estate
sector reached new highs.
From a medium to long-term perspective, to generate a steady stream of rental revenue, consistently increase KRR’s assets
and establish a suitable financial position, KRR will continue to manage assets based on the following policies.
(A) Investment Strategy for New Properties and Disposition Policy
KRR receives a variety of support from many sources in order to achieve steady growth of KRR’s assets and increase thevalue of KRR’s assets. One source is the Kenedix Group, including Kenedix, Inc., the parent company of KFM (Note 1). KRR
also receives support from KRR’s Alliance Companies: Sumitomo Mitsui Finance and Leasing Co., Ltd., Nippon
Commercial Development Co., Ltd., P&D Consulting Co., Ltd., and ITOCHU Corporation (Note 2). KRR is implementing a
growth strategy that takes full advantage of the external growth opportunities created by the large and diverse acquisition
pipeline made possible by the support of these companies.
When acquiring properties, KRR makes decisions based on all applicable factors with emphasis on four parameters: theretail property’s attractiveness, its location, the property’s profitability and the tenant mix. By using this selection process
results, KRR invests in retail properties with a competitive edge, and good prospects for consistent rental revenue andgrowth in asset value. KRR also invests in land ownership interests underlying retail properties. Regarding land-only
properties, KRR makes these investments after examining the terms of the land leasing agreement, the characteristics of thetenant, the asset value of the land, and the proportion of land-only properties in KRR’s portfolio. KRR may also consider
making an equity investment in a tokumei kumiai (silent partnership) for the acquisition of preferential negotiation rights
and opportunities for additional revenues, provided that KRR is given an opportunity to acquire them in the future.
Regarding disposition of a portfolio property, KRR makes decisions based primarily on the significance of these properties
in the context of the portfolio. This is assessed by comprehensive evaluation of the outlook for future profitability
and asset value determined based on its current profitability and market trends.
Note 1: The Kenedix Group consists of Kenedix, Inc. and its subsidiaries and affiliates.
Note 2: KRR newly entered into an alliance agreement with ITOCHU Corporation on August 10, 2016.

(B) Management Strategy for Existing Properties
KRR is committed to building a portfolio that can pursue both stability and growth. KRR believes that implementing
integrated asset and property management services makes it possible to properly manage retail properties and pursue
internal growth. Furthermore, this integrated management framework facilitates activities to enliven local communities
where KRR’s properties are located, enabling KRR to aim for medium to long-term growth in asset value.
To accomplish these goals, KFM oversees properties owned by KRR while placing priority on the following themes.
・“One-stop” asset management and property management services
・Continuously implementing a retail property management cycle through KRR’s in-house property management
services
・Pursuit of internal growth through management of retail properties
・Directing investments and management policies to enliven local communities in the medium to long-term“One-stop” asset management and property management services
KRR plans to use the integrated asset management and property management services of KFM for strengthening
relationships with tenants and making the portfolio more profitable.
Continuously implementing a retail property management cycle through KRR’s in-house property management services
KFM provides property management services for all of KRR’s properties for the purposes of performing retail property
management that better reflects the needs of the tenants as well as accumulating know-how and improving tenantsatisfaction. Specifically, KRR uses direct contact with tenant companies at KRR’s properties in order to strengthen tenant
relationships and make properties more profitable. To this end, KRR maintains periodic communication with tenants and22perform questionnaire surveys to customers for monitoring of market conditions, so that KRR can identify the needs oftenants and the customers visiting their sites. This process makes it possible to find issues that stand in the way ofachieving greater satisfaction for tenants and their customers. Once KRR has discovered points that require attention, KRR
takes actions that take full advantage of the resources and knowledge regarding retail properties within the Kenedix Group.
Solutions include measures such as the effectively utilizing capital expenditures, optimizing tenant mix, realizing growth inasset value by pursuing property expansions, and cutting costs, to improve tenant satisfaction and acquire more know-how.
Pursuit of internal growth through management of retail properties
KRR seeks to use the proper management of retail properties to achieve the goals of consistent revenue, higher profitability
and growth in asset value.
i. Effectively utilize capital expenditure
KRR will use proper and well-timed capital expenditures to increase the satisfaction of tenants and make KRR’s
properties more competitive.
ii. Optimize tenant mix
KRR will constantly work on attracting new tenants that are highly appealing to shoppers and replace tenants with others,
optimizing tenant composition, in order to seek stable revenue and higher profitability by attracting more customers.
iii. Realize growth in asset value by pursuing property expansions
KRR will use the extensive knowledge involving retail properties of the Kenedix Group and KRR’s Alliance Companies
to utilize the underutilized space (Note) at properties and expand properties. These measures will take into account thecompetitive position of each property, the effect on KRR’s financial position and other factors. By increasing space thatcan be leased, KRR aims to increase revenue and asset value.
Note:

The underutilized space is defined as the area that is calculated by multiplying the floor space ratio, or the ratio of total area of the building to
the site area, which is prescribed in Article 52 of the Building Standards Act (Act No.201 of 1950, including subsequent amendments.) andapplied to each retail property in accordance with the Building Standards Act, City Planning Act (Act No.100 of 1968, including subsequent
amendments.) and other laws and regulations, by the land area that is allowed to be used as a retail property site, and subtracting from thisfigure the actual gross floor area of the building.

Directing investments and management policies to enliven local communities in the medium to long-term
At KRR’s retail properties, KRR seek tenants that provide services, hold community involved events and use othermeasures to help enliven the local communities where KRR’s properties are located. KRR believe these activities willcontribute to the medium to long-term growth in the asset value of these properties.
(C) Financing
KRR will establish a suitable financial foundation by examining numerous financing methods and selecting the optimum
ones. These decisions will reflect interest rates and other elements of the financial environment. KRR’s goal is to selectfinancing methods that result in the optimum balance between financial stability and the financing cost.
(D) Disclosure of Information
KRR’s policy concerning disclosure activities is to use extensive investor relations activities to distribute a broad range of
information to investors and other related parties as well as to announce information as soon and as accurately as possible.
KRR uses TDnet (Timely Disclosure network) and press releases to meet the timely-disclosure requirements of the Tokyo
Stock Exchange. In addition, KRR proactively posts information on KRR’s website (http://www.krr-reit.com/en/).
(E) Conflicts of Interest
In addition to managing the assets of KRR, KFM provides asset management services to other investment corporations andreal estate funds. KFM uses a “preferential right for acquisition opportunities” system for the property acquisition process.
KFM has a pipeline committee, which includes a compliance officer, and operates in accordance with rules. This system isstructured to prevent improper allocation of acquisition opportunities as well as conflicts of interest among the REIT andfunds managed by KFM. Through these measures, KFM is taking suitable actions regarding conflicts of interest.

23

(6) Important Subsequent Events
Not applicable

24

(Reference Material)(A) Acquisition of Assets
KRR acquired an asset (acquisition price of 1,370 million yen).
“Acquisition price” represents the amount specified in the sale and purchase agreement for the trust beneficiary interests,
exclusive of the various expenses (acquisition expenses, property tax, city planning tax, consumption tax, etc.) required in
the acquisition of the following assets.
Property Property
number
type
N-5

SS

Property nameLocation

K’s Denki Shin-Moriyama (Land) Nagoya, Aichi
Total

-

SellerAcquisition price(million yen)Appraisal value(million yen)

Acquisition date

Nippon Commercial
Development Co., Ltd.

1,370

1,410 November 1, 2016

-

1,370

1,410

-

KRR also acquired a silent partnership equity interest (Acquisition price: 100,000 thousand yen) of JRP8 G.K., which
acquired trust beneficiary interest of Yumemachi Narashinodai Mall, to secure flexible growth opportunities in the future
as well as opportunities for additional revenues on October 31, 2016. Kenedix, Inc. acquired the rest of the silent
partnership equity interest of JRP8 G.K. Consequently, JRP8 G.K. is deemed a related party under the Investment Trust
Law.
(B) Asset under Construction
A new building with approximately 397.98 m2 gross floor area (Note 1) (hereinafter the “restaurant building”) is being
constructed on the underutilized site of Unicus Ina, a property owned by KRR. KRR expects the total construction cost for
the restaurant building (Note 2) to be approximately 90 million yen and plans to complete the construction by mid-January
2017.
Note 1: “Gross floor area” indicates the gross floor area written on verification notice of building construction on August 29, 2016.
Note 2: “Total construction cost” indicates the estimate cost of the construction cost (excluding consumption taxes) as of September 30, 2016, provided
the construction contract and the design and supervision consignment contract etc. that have signed. The total construction cost may change dueto the change of the construction plan, etc.

25

(C) Financing
KRR borrowed funds on October 3, 2016 for the repayment of the borrowings that the repayment date came.
Series8(Note 2)

Note 1:
Note 2:

LenderAmount(in thousandsof yen)Interest rate

Drawdown
date

Repayment
date(Note 1)

Repayment
methodRemarks

JBA 1-month
October 3,
Full on
Unsecured /October 3,
JPY
2016
2017
maturity
Unguaranteed
TIBOR + 0.45%
The repayment date will be the following business day in case such date falls on a day that is not a business day or the preceding business day in casesuch date falls in the next calendar month.
The balance as of October 31, 2016 was 3,900,000 thousand yen as 600,000 thousand yen was prepaid on October 31, 2016. The repayment was madeusing part of funds raised by investment corporation bonds with a payment date of October 31, 2016.
Sumitomo Mitsui Banking Corporation

4,500,000(D) Issuance of Investment Corporation Bonds
KRR decided to issue investment corporation bonds adopted at the board of directors’ meeting held on September 29, 2016
and the payment was completed on October 31, 2016. The details are provided as follows.
Kenedix Retail REIT Corporation 1st Series Unsecured Investment Corporation Bonds (Ranking pari passu
among the specified investment corporation bonds) (The aforementioned investment corporation bonds shallhereafter be referred to as the “1st Series Bonds.”)
Name of investment
corporation bonds

Total amount of thebondsInterest rate
Payment date
Collateral / Guarantee

Redemption method
and maturity

Kenedix Retail REIT Corporation 2nd Series Unsecured Investment Corporation Bonds (Ranking pari passu
among the specified investment corporation bonds) (The aforementioned investment corporation bonds shallhereafter be referred to as the “2nd Series Bonds.”)
Hereafter, in the “(D) Issuance of Investment Corporation Bonds”, the 1st Series Bonds and the 2nd Series
Bonds will collectively be referred to as the “Investment Corporation Bonds.” There will be no particularmention as to which bond, if the item is common to both the 1st Series Bonds and the 2nd Series Bonds.
Total amount: 2.0 billion yen
Breakdown: 1st Series Bonds: 1.0 billion yen
2nd Series Bonds: 1.0 billion yen
1st Series Bonds: 0.200% per annum
2nd Series Bonds: 0.600% per annum
October 31, 2016
No collateral or guarantee is applicable, and no assets are specifically reserved as collateral for theInvestment Corporation Bonds.
1st Series Bonds: Friday, October 29, 2021
2nd Series Bonds: Friday, October 30, 2026
The Investment Corporation Bonds may be purchased and cancelled at any time after the payment date,
except for the case of service regulations and other rules that the statutory or depository otherwise stipulates.
If the maturity date of the Investment Corporation Bonds falls on the bank holiday, the payment will be
brought forward to the previous bank business day.

Ratings

A (Japan Credit Rating Agency, Ltd.)Fiscal agent, issuing
agent and paying agent

Sumitomo Mitsui Trust Bank, Ltd.

Use of funds

Total amount raised (approximate net balance) was 1,980 million yen. 1,380 million yen was used for theacquisition of K's Denki Shin-Moriyama (Land) on November 1, 2016 and certain related costs pertaining to
the acquisition, and 600 million yen was used for partial prepayment of borrowings with drawdown date ofOctober 3, 2016.

26

Profile of KRR(1) Status of Unitholders’ Capital
1st period
2nd period
3rd period(From October 3, 2014 to (From October 1, 2015 to (From April 1, 2016 to
September 30, 2016)
September 30, 2015)
March 31, 2016)

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

5,000,000 units

5,000,000 units

5,000,000 units

260,750 units

355,250 units

422,450 units

Unitholders’ capital

57,857 million yen

77,606 million yen

94,256 million yen

Number of unitholders

8,954

10,876

10,618(2) Matters Concerning Investment Units
The following is a list of major unitholders as of September 30, 2016.
Name

Location

Number of units
held(Units)Ratio to total
number of units issued
and outstanding (%)(Note)

JAPAN TRUSTEE SERVICES BANK, LTD.
(Trust Acct.)

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

80,441

19.04

THE MASTER TRUST BANK OF JAPAN, LTD.
(Trust Acct.)

2-11-3, Hamamatsucho, Minato-ku, Tokyo

34,8208.24

TRUST & CUSTODY SERVICE BANK, LTD.
(Securities Investment Trust Acct.)

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

29,456

6.97

JP MORGAN CHASE BANK 385628

Shinagawa Intercity Tower A
2-15-1, Kohnan, Minato-ku, Tokyo
Standing proxy: Mizuho Bank, Ltd.

16,318

3.86

THE NOMURA TRUST AND BANKING CO.,LTD. (Investment Trust Acct.)

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

16,036

3.79

12,501

2.95

12,150

2.87

7,029

1.66

6,453

1.52

5,798

1.37

221,002

52.31

THE BANK OF NEW YORK MELLON SA/NV 10
THE BANK OF NEW YORK,NON-TREATY JASDEC ACCOUNTSTATE STREET BANK AND TRUSTCOMPANYSIX SIS LTD.
STATE STREET BANK AND TRUSTCOMPANY 505223

2-7-1 Marunouchi, Chiyoda-ku, Tokyo
Standing proxy: The Bank of Tokyo Mitsubishi
UFJ, Ltd.
2-7-1 Marunouchi, Chiyoda-ku, Tokyo
Standing proxy: The Bank of Tokyo Mitsubishi
UFJ, Ltd.
3-11-1, Nihonbashi, Chuo-ku, Tokyo Standing
proxy: The Hong Kong and Shanghai Banking
Corporation Ltd.
2-7-1 Marunouchi, Chiyoda-ku, Tokyo
Standing proxy: The Bank of Tokyo Mitsubishi
UFJ, Ltd.
Shinagawa Intercity Tower A
2-15-1, Kohnan, Minato-ku, Tokyo
Standing proxy: Mizuho Bank, Ltd.

Total
Note: “Ratio to total number of units issued and outstanding” is rounded down to the second decimal place.

27

(3) Matters Concerning Directors and auditori) Executive Director, Supervisory Director, and Independent Auditor as of September 30, 2016 are as follows.
Position

Name

Executive Director Akihiro Asano

Supervisory
Director

Total amount of fees
paid during the period(thousand yen)

Other concurrent title

Director and COO, General Manager of the Retail REIT Division, KFM

Yoshiyuki Wada

Representative partner, Grant Thornton Taiyo LLC
Auditor, Zero Co., Ltd.
Outside director, Forval Telecom, Inc.
Director, Waseda Senior High School
Director, Career Design Center Co.,Ltd.
Director, LIXIL VIVA CORPORATION

Mai Ishiwatari

Partner, Shiroyama-Tower Law Office
Executive director, Cocone Corporation

Yoshitoshi Yasu

Yoshitoshi Yasu Certified Public Accountant / Tax Accountant Office
Auditor of YOKU MOKU Holdings Co., Ltd.
Auditor of YOKU MOKU Co., Ltd.
Auditor of YOKU MOKU Crea Co., Ltd.
Auditor of Fujiricoh Trading Co., Ltd.
Auditor of CLOVER Inc.
Auditor of Kabou-isshin Co., Ltd.
Outside Auditor of Looop Inc.

1,500

750

1,500

(Note 1)

Independent
Auditor－Ernst & Young ShinNihon LLC

750

26,300(Note 2)

Note 1: Although supervisory directors are concurrently officers in corporations other than the ones stated above, there are no conflicts of interest
between KRR and any other corporations, including those stated above. Yoshiyuki Wada resigned as supervisory director on June 30, 2016
and Yoshitoshi Yasu was appointed as new supervisory director on July 1, 2016. Other concurrent titles of Yoshiyuki Wada are as of June 30,
2016.
Note 2: Compensation for the Accounting Auditor includes payments for procedures for which an agreement has been reached involving the issuanceof new investment units, which is a service not prescribed in Article 2 (1) of the Certified Public Accountants Act of Japan (Act No. 103,
1948).

ii) Policy on Decisions to Terminate or not Reappoint the Accounting Auditor
The KRR Board of Directors will consider the termination of the Accounting Auditor pursuant to the provisions of theInvestment Trust Act of Japan. The directors will also consider not reappointing the Accounting Auditor after examining
the quality of audits, compensation for auditing and other applicable items.
(4) Asset Manager, the Custodian and Administrators
Asset manager, the custodian and administrators as of September 30, 2016 are as follows.
Operational Role

Name

Asset Manager

KFM

Asset Custodian

Mizuho Trust & Banking Co., Ltd.

Unitholders’ Register Agent

Mizuho Trust & Banking Co., Ltd.

General Administrator

Mizuho Trust & Banking Co., Ltd.

28

Status on Investment Properties(1) Component of Assets
Second fiscal period
as of March 31, 2016
Type ofspecified asset

Third fiscal period
as of September 30, 2016

Areas

Property type

(Note 1)

Total amount held
(Millions of yen)

Total amount held
(Millions of yen)

Ratio (%)
(Note 3)(Note 2)

Ratio (%)
(Note 3)(Note 2)

Tokyo metropolitan
area

64,43443.0

71,15939.7

Greater Osaka area

41,49927.7

45,117

25.2

Greater Nagoya area

5,444

3.6

12,636

7.0

Fukuoka area

1,513

1.0

1,499

0.8

Ordinance-designatedcities, core cities andother areas

21,12514.1

30,995

17.3

－

－

－

－

Total of trust beneficiary interests in real estate

134,01689.3

161,408

90.0

Bank deposits and other assets

15,992

10.7

17,951

10.0

Total assets

150,009100.0

179,360

100.0

Trust
beneficiaryinterest in realestateNeighborhood,community andother shopping
centers for daily
needs

Other retailproperties－

Note 1: “Areas” are categorized to the Tokyo metropolitan area, the Greater Osaka area, the Greater Nagoya area, the Fukuoka area and Ordinance-designatedcities, core cities and other areas. References to “Tokyo metropolitan area” are to the area that consists of Tokyo, Kanagawa, Saitama and Chiba
prefectures. References to the “Greater Osaka area” are to the area that consists of Osaka, Kyoto, Hyogo, Nara and Shiga prefectures. References tothe “Greater Nagoya area” are to the area that consists of Aichi, Gifu and Mie prefectures. References to the “Fukuoka area” are to the area thatconsists of Fukuoka prefecture. “Ordinance-designated cities, core cities and other areas” refers to cities designated by government ordinance, whichhave populations of 500,000 persons or more, core cities, which have populations of 200,000 persons or more, and to other areas with a population
fewer than 200,000 persons, which KRR believes will have suitable customer traffic from surrounding areas.
Note 2: “Total Amount Held” is the amount allocated in the balance sheets as of September 30, 2016 (figures are on a net book value basis after deducting
depreciation), and is rounded down to the nearest million.
Note 3: “Ratio” is the ratio of the amount allocated in the balance sheets to the total assets rounded to the nearest tenth.

29

(2) Major Assets Owned
The following are major assets owned (the 10 largest properties by book value) by KRR as of September 30, 2016.
Property
number

Property nameBook value(in millions)Leasable area(m2)

Leased area(m2)

(Note 1)

(Note 2)

Occupancy
rate(%)(Note 3)

Ratio tototal rental
revenue(%)

Primary use(Note 4)

T-1

Fululu Garden Yachiyo

14,984

77,057.56

76,751.87

99.6

11.6

RetailO-4Blumer HAT Kobe

11,53824,185.02

23,968.51

99.1

7.7

RetailR-1

Roseo Mito

10,07948,296.15

48,161.79

99.7

5.9

RetailO-1

Blumer Maitamon

8,465

30,037.11

29,757.73

99.1

8.0

Retail

T-2

MONA Shin-Urayasu

8,373

9,568.31

9,145.66

95.6

7.8

RetailN-4

Homecenter Kohnan Sunadabashi

7,206

20,329.07

20,329.07

100.0(Note 5)RetailO-5Carino Esaka

6,587

7,540.58

7,474.92

99.1

4.6

RetailO-6

COMBOX Komyoike

6,469

25,530.44

25,530.44

100.0

3.5

Retail

T-3

Passaggio Nishiarai

5,915

10,546.25

10,342.77

98.1

5.1

Retail－－R-7

Solala Plaza
Total

Note 1:
Note 2:

Note 3:Note 4:Note 5:

5,761(Note 5)85,382(Note 5)－(Note 5)－(Note 5)

－

－

100.0

(Note 5)

99.4

(Note 5)Retail－“Leasable area” is equivalent to gross floor area of space that KRR considers to be available for lease in each property, rounded to the nearest
tenth. For land-only properties, leasable area is equivalent to land area as described in the property registry.
“Leased area” indicates the total leased area based on the lease agreements for each property as of September 30, 2016. As for leaseagreements of buildings, the leased area of warehouses and land are excluded. As for pass-through type master leases (the master lease inwhich rent received by the lessor is in principle the same amount as the rent received by the master lessee from end-tenants), the leased area
based on the lease agreements between the master lessee and the end-tenants as of September 30, 2016 is shown. As for sublease type master
leases (the master lease in which a fixed amount of rent is received from the master lessee.), the leased area to the master lessee is shown.
“Occupancy rate” is calculated by dividing leased area by leasable area as of September 30, 2016, rounded to the nearest tenth.
“Ratio to total rental revenue” is calculated by rental revenue each property divided by total rental revenue.
KRR has not obtained consent from the tenant(s) to release this information.

30

(3) Overview of the Portfolio[Overview of Assets Owned]
The following summarizes the real estate or the real estate properties in trust owned by KRR as of September 30, 2016.
Area(Note1)

Property
number
T-1
T-2
T-3
T-4

T

Propertytype

Property name(Note 2)CSC
Urban
Station-Front SC
Urban
Station-Front SC
Urban
Station-Front SC

Location(City or Ward,
Prefecure)

Fululu Garden Yachiyo

Yachiyo, Chiba

MONA Shin-Urayasu

Urayasu, Chiba

Passaggio Nishiarai

Adachi ward, Tokyo

Daikanyama Address
Dixsept

Shibuya ward, Tokyo

NSC

Unicus Ina

Kitaadachi-gun, Saitama

T-6

NSC

Yorktown Kita-Kaname

Hiratsuka, Kanagawa

T-7

NSC

Unicus Yoshikawa

Yoshikawa, Saitama

T-8

SS

T-9

NSC

T-10

SS

T-11

NSC

Unicus Kamisato (Land)

Kodama-gun, Saitama

T-12

NSC

Unicus Konosu (Land)

Konosu, Saitama

T-13

SM

T-14

SM

T-15

NSC

T-16

SS

T-17

SM

Life Kameido

Koto ward, Tokyo

O-1

NSC

Blumer Maitamon

Kobe, Hyogo

O-2

SM

O-3

NSC

O-4

NSC

O
O-6
O-7
O-8

Book value(in millions)(Note 3)

T-5

O-5

Ownership
form

Sports Club
Renaissance Fujimidai
Super Viva Home
Iwatsuki (Land)
K’s Denki
Shonan-Fujisawa (Land)

Inageya Yokohama
Minamihonjuku (Land)
Gourmet City
Chiba-Chuo
Nakamachidai
Tokyu Store
Central Wellness Club
Nagatsuta Minamidai

Central Square
Takadono (Land)
Piago Kahma Home
Center Omihachiman
Blumer HAT Kobe

Urban
Carino Esaka
Station-Front SC
Urban
COMBOX Komyoike
Station-Front SC
Hankyu Oasis
SM
Hirakatadeguchi
Welcia Kishiwadakamori
SS(Land)

Nerima ward, Tokyo
Saitama, Saitama
Fujisawa, Kanagawa

Yokohama, Kanagawa
Chiba, Chiba
Yokohama, Kanagawa
Yokohama, Kanagawa

Osaka, Osaka
Omihachiman, Shiga
Kobe, Hyogo
Suita, Osaka
Izumi, Osaka
Hirakata, Osaka
Kishiwada, Osaka

O-9

SM

Life Nishi-Tengachaya

Osaka, Osaka

O-10

NSC

Million Town
Tsukaguchi (Land)

Amagasaki, Hyogo

Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate

Evaluation value(in millions)(Note 4)

14,984

15,200

8,373

8,560

5,915

6,370

5,431

5,740

4,394

4,510

3,998

4,300

3,637

3,800

2,576

2,720

4,890

5,280

3,210

3,440

3,043

3,010

1,726

1,740

1,462

1,460

779

799

3,493

3,780

1,802

1,900

1,473

1,500

8,465

8,990

2,727

2,930

2,157

2,440

11,538

11,600

6,587

6,590

6,469

6,940

1,327

1,310

497

500

1,572

1,650

3,772

3,810

31

Area
(Note1)

Property
number

Property
type(Note 2)

Kahma Home Center
Nagoya, Aichi
Nakagawa Tomita (Land)

N-2

NSC

Valor Ichinomiya-Nishi
K’s Denki
Nakagawa Tomita (Land)
Homecenter Kohnan
Sunadabashi

SS

N-4

SS

F-1

SM

Sunny Noma

Fukuoka, Fukuoka

R-1

NSC

Roseo Mito

Mito, Ibaraki

R-2

SS

R-3

SS

R-4

NSC

R-5

NSC

R-7
R-8

SM

K’s Denki Aomori
HontenSuper Sports Xebio
Aomori-Chuo
Ashico Town Ashikaga
Yorktown
Shinden-Higashi
Kasumi Technopark
SakuraUrban
Solala Plaza
Station-Front SC
NSC

Note 3:Note 4:

Nagoya, Aichi
Nagoya, Aichi

Aomori, Aomori
Aomori, Aomori
Ashikaga, Tochigi
Sendai, Miyagi
Tsukuba, Ibaraki
Sendai, Miyagi

P-1 Plaza Tenno
Total

Note 2:Ichinomiya, Aichi

N-3

R-6

Ownership
form(Note 3)SS

R

Note 1:

Location(City or Ward,
Prefecure)

N-1

N

F

Property nameHamamatsu, Shizuoka

Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estateBook value(in millions)

Evaluation value(in millions)(Note 4)

2,351

2,540

2,170

2,280

907

960

7,206

7,220

1,499

1,520

10,07910,900

1,486

1,550

903

924

4,370

5,060

3,342

3,310

856

861

5,761

5,910

4,193

4,260

161,443

168,164“T” “O” “N” “F” and “R” hereinafter refers to Tokyo metropolitan area, the Greater Osaka area, the Greater Nagoya area, the Fukuoka area andOrdinance-designated cities, core cities and other areas, respectively.
Properties hereinafter are categorized into the following five types of retail properties for daily needs: NSC (Neighborhood Shopping Center), SM(Supermarket), CSC (Community Shopping Center), Urban Station-Front SC (Urban Station-Front Shopping Center) and SS (Specialty Store).
“Location” indicates the residential address. For those without a residential address, the building or land address on the registry (one of theaddresses for those that have multiple addresses) is shown.
“Evaluation value” shows the appraisal value stated on the real estate appraisal report created by the real estate appraisers of Daiwa Real EstateAppraisal Co., Ltd., Japan Real Estate Institute and The Tanizawa Sōgō Appraisal Co., Ltd. in accordance with the methods and standards for asset
valuation as stipulated in the KRR Articles of Incorporation as well as the regulations as stipulated by The Investment Trusts Association, Japan.

32

[Earnings Performance for the Individual Properties]
Second fiscal period
as of March 31, 2016
Area

Property
number

Property
type

T-1

CSC

T-2
T-3
T-4

Urban
Station-Front SC
Urban
Station-Front SC
Urban
Station-Front SC

48

99.4

741

13.4

49

99.6

736

11.6

MONA Shin-Urayasu

1(72)

96.1

503

9.1

1(71)

95.6

497

7.8

Passaggio Nishiarai

1(40)

98.3

309

5.6

1(41)

98.1

326

5.1

Daikanyama Address
Dixsept

1(27)

98.7

263

4.8

1(26)

98.2

268

4.2

2.4

1

100.0

131

2.1

NSC

Unicus Ina

1

100.0

132

T-6

NSC

Yorktown KitaKaname

1

100.0

－

－

100.0

－

(Note 3)

1－(Note 3)(Note 3)(Note 3)

T-7

NSC

Unicus Yoshikawa

1(10)

99.2

138

2.5

1(11)

100.0

130

2.0

T-8

SS

1

100.0

1

100.0

T-9

NSC

1

100.0

1

100.0

T-10

SS

T-11

NSC

T-12

NSC

T-13

SM

T-14

SM

T-15

NSC

T-16

SS

T-17

SM

O-1

NSC

O-2

SM

O-3
O-4
O-5
O-6
O-7
O-8
O-9
O-10
N-1
N

Fululu Garden
YachiyoRentalRatio toRentalRatio toNumberNumber
Occupancy revenue total rental
Occupancy revenue total rentalof tenantsof tenants
rate (%) (millions) revenue
rate (%) (millions) revenue(Note 1)
(Note 1)
(Note 2)
(Note 2)
(%)
(%)

T-5

T

O

Property nameThird fiscal period
as of September 30, 2016

N-2
N-3

NSC
NSC

Sports Club
Renaissance Fujimidai
Super Viva Home
Iwatsuki (Land)
K’s Denki
Shonan-Fujisawa(Land)
Unicus Kamisato(Land)
Unicus Konosu (Land)
Inageya Yokohama
Minamihonjuku(Land)
Gourmet City
Chiba-Chuo
Nakamachidai Tokyu
Store
Central Wellness Club
Nagatsuta Minamidai－－(Note 3)(Note 3)

1

100.0

1

100.0

72

1

100.0

41

1

100.0
－

100.0

1.3

1

100.0

72

1.1

0.7

1

100.0

41

0.7

－

1

100.0

1

100.0

(Note 3)－－(Note 3)(Note 3)

100.0

53

0.8

1

100.0

－

－

(Note 3)(Note 3)

8.8

49

99.1

510

8.0

－

－

1

100.0

(Note 3)(Note 3)2100.0(Note 3)

100.0

－

－

－

－

1

100.0

－

－

－

－

2

Life Kameido

－

－

－

－

Blumer Maitamon

48

99.5

487

1

100.0

Blumer HAT Kobe

Urban
Carino Esaka
Station-Front SC
Urban
COMBOX Komyoike
Station-Front SC
Hankyu Oasis
SM
Hirakatadeguchi
WelciaSS
Kishiwadakamori(Land)
Life
SM
Nishi-Tengachaya
Million Town
NSC
Tsukaguchi (Land)
Kahma Home Center
SS
Nakagawa Tomita(Land)
Valor IchinomiyaNSC
Nishi
K’s Denki
SS
Nakagawa Tomita(Land)－(Note 3)

1

1

Central Square
Takadono (Land)
Piago Kahma Home
Center Omihachiman－(Note 3)－－(Note 3)(Note 3)

99.1

491

7.7

1(30)

99.1

295

4.6

1

100.0

226

3.5

1

100.0

1

100.0

2

100.0

1(40)

98.7

491

8.9

1(41)

1(30)

99.1

302

5.5

1

100.0

225

4.1

1

100.0
－

－

(Note 3)(Note 3)－－(Note 3)(Note 3)

100.0

44

0.7

1

100.0

－

－

(Note 3)(Note 3)

1

100.0

1

100.0

1

100.0

1

100.0

1

100.0

17

0.3

1

－

－

－

－

1

100.0

1

100.0

1

100.0

－

－

(Note 3)(Note 3)－－(Note 3)(Note 3)33

Second fiscal period
Third fiscal period
as of March 31, 2016as of September 30, 2016
RentalRatio toRentalRatio toNumberNumber
Occupancy revenue total rental
Occupancy revenue total rentalof tenantsof tenants
rate (%) (millions) revenue
rate (%) (millions) revenue(Note 1)
(Note 1)
(Note 2)
(Note 2)
(%)
(%)
－
－
1
100.0
－
－
－
－
(Note 3)(Note 3)Area

Property
number

Propertytype

Property name

N

N-4

SS

Homecenter Kohnan
Sunadabashi

－

－

－

－

F

F-1

SM

Sunny Noma

1

100.0

(Note 3)(Note 3)1100.0(Note 3)(Note 3)

R-1

NSC

Roseo Mito

1(23)

100.0

371

6.7

1(22)

99.7

378

5.9

R-2

SS

1

100.0

－

－

1

100.0

(Note 3)(Note 3)

1

100.0

4.7

1(26)

99.1

－

－

2

100.0

(Note 3)(Note 3)

1

100.0

R-3

SS

R-4

NSC

R-5

NSC

R

R-6
R-7

SM

K’s Denki Aomori
HontenSuper Sports Xebio
Aomori-Chuo
Ashico Town
Ashikaga
Yorktown
Shinden-Higashi
Kasumi Technopark
SakuraUrban
Solala Plaza
Station-Front SC

R-8

NSC

P-1 Plaza Tenno

Total
Note 1:

Note 2:
Note 3:

1

100.0

1(26)

99.1

2

100.0

260

－

－

(Note 3)(Note 3)

278

4.4

－

－

(Note 3)(Note 3)

100.0

127

2.0

99.7

6,374

100.0

1

100.0

－

－

－

－

1

100.0

－

－

－

－

7

389

99.6

5,541

100.0

405

Number of tenants is based upon the number of lease agreements with respect to the building(s) (or land in the case of land-only properties withleasehold interest) on each such property used mainly as stores and offices, as of September 30, 2016. Where one lessee leases more than one
section of the property, the lessee is counted as a tenant for each section leased within the property. Where pass-through type master leaseagreements are entered into, the number of master lessees is with the number of end-tenants indicated in parentheses. Where sublease type master
lease agreements are entered into, the indicated, number of master lessee is shown. The “Total” of “Number of tenants” shows the total number oftenants. As for pass-through type master leases, the number of end-tenants is used for calculation. As for sublease type master leases, the number ofmaster lessee is used for calculation.
Rental revenue is based on total rental and other operating revenues of each property.
KRR has not obtained consent from the tenant(s) to release this information.

(4) Specified Transaction
As of September 30, 2016, the contract amount and fair value of the outstanding transaction under the specified transaction
account of KRR are as follows.
Contract amount (million yen)
(Note 1)Type

Due after one year

Fair value(million yen)
(Note 2) (Note 3)(Note 1)OTC

Interest rate swaps:
Receive floating / pay fix

50,24050,240

(31)

Total

－

50,24050,240(31)

Note 1: The contract amount of interest rate swaps is based on its notional principal.
Note 2: For the financial reporting purpose, the transaction is not measured at fair value but accounted for under special treatment for interest
rate swaps based on “Accounting Standards for Financial Instruments” under Japanese GAAP.
Note 3: Based on the amount provided by counterparty financial institutions.

(5) Other Assets
Real estate or beneficiary rights of real estate in trust owned by KRR are disclosed in “(3) Overview of the Portfolio”. KRR
has no other specified assets.
(6) Asset in Geographic Area
KRR owns no asset in specified area other than Japan.

34

Capital Expenditures(1) Planned Capital Expenditures
The table below shows major capital expenditures (Note) for renovations, repairs and other projects that are planned for the
fourth fiscal period ending March 31, 2017. These expenditures are for real estate owned by KRR and real estate in trusts
in which KRR owns trust beneficiary rights. These planned projects may include some expenditure that will be recorded as
expenses rather than capital expenditures for accounting purposes.
Property
number

Property nameLocation

PurposeT-6

Yorktown
Kita-Kaname

Hiratsuka,
Kanagawa

Roof waterproof

O-5

Carino Esaka

Suita, Osaka

Elevator and escalator renewal

T-2

MONA
Shin-Urayasu

Urayasu, Chiba

PMAC replacement

T-5

Unicus Ina

Kitaadachi-gun,
Saitama

Exterior wall painting

Planned amount of capital expenditure(Millions of yen)
Payment for Total amountTotal
the period
already paid

Schedule
From October 2016
to March 2017
From October 2016
to March 2017

67

－

－

59

－

－

From October 2016
to March 2017

51

－

－

From October 2016
to March 2017

46

－

－

LED installation to common
From October 2016
41
－
－
area
to March 2017
Note: The construction of a new restaurant building in Unicus Ina is not including in the above list because it involves an acquisition of a new building. Please
see Overview of Asset Management, (Reference Material), (B) Asset under construction for details.
O-1

Blumer Maitamon

Kobe, Hyogo(2) Capital Expenditures during the Period under Review
The table below shows major capital expenditures for renovations, repairs and other projects in the period under review.
The amount of capital expenditures in the period under review was 264 million yen. There were also expenditures of 150
million yen that were recorded as repair expenses. In total KRR spent 415 million yen on the projects.
Property
number

Property nameLocation

PurposeSchedule

Capital expenditure(Millions of yen)

T-2

MONA
Shin-Urayasu

Urayasu, Chiba

Replacement of water generator androoftop piping

From January 2016
to May 2016

89

T-2

MONA
Shin-Urayasu

Urayasu, Chiba

Reparement of shutter

From June 2016
to August 2016

20

O-1

Blumer Maitamon

Kobe, Hyogo

Common area refurbishment

From April 2016
to April 2016

20

T-2

MONA
Shin-Urayasu

Urayasu, Chiba

Reparement of cooling tower

From March 2016
to June 2016

19

R-1

Roseo Mito

Mito, Ibaraki

Singboard and exterior wall painting

From July 2016
to September 2016

13

Other

101

Total

264

(3) Reserved Amount for Long-Term Repairs, Maintenance and Renovation Plans
Not applicable35

Expenses and Liabilities(1) Expenses related to Asset Management
2nd period(From October 1, 2015
to March 31, 2016)
Asset management fees (Note)(in thousands of yen)
3rd period(From April 1, 2016
to September 30, 2016)

405,144438,769

Asset custody fees

4,658

6,375

Administrative service fees

16,454

21,792

Directors' compensation

4,500

4,500

Other operating expenses

48,444

69,052479,202

540,489

Total

Note: The amount of asset management fees capitalized in addition to the amount above are 394,250 thousand yen for the 2nd period and 271,270 thousand yen
for the 3rd period.

36

(2) Status of Borrowings
Borrowings on a financial institution basis as of September 30, 2016 are as follows.
Increase during
the period(Thousands ofyen)

Decrease during
the period(Thousands ofyen)

Balance at theend of period(Thousands ofyen)

Sumitomo M itsui Banking Corporation

2,050,000--

2,050,000

0.539

October 2, 2016

Sumitomo M itsui Banking Corporation

2,450,000--

2,450,000

0.539

October 2, 2016

Sumitomo M itsui Banking Corporation

450,000--

450,000

The Bank of Tokyo-M itsubishi UFJ, Ltd.

450,000--

450,000

M izuho Bank, Ltd.

400,000--

400,000
0.489

February 10, 2017

Resona Bank, Ltd.

250,000--

250,000

Aozora Bank, Ltd.

250,000--

250,000

Sumitomo M itsui Trust Bank, Ltd.

Classification

Balance at the
beginning of
period(Thousands ofyen)

LenderAverageinterest rate
(Note 2)
(Note 3)(％)

Short-Term Loans Payable

200,000--

200,000

Sumitomo M itsui Banking Corporation-

4,140,000-

4,140,000

M izuho Bank, Ltd.

-

360,000-

360,000

Sumitomo M itsui Banking Corporation（Note 7）-

800,000

800,000

The Bank of Tokyo-M itsubishi UFJ, Ltd.

-1,070,000-

6,500,000

6,370,000

800,000

12,070,000

Sumitomo M itsui Banking Corporation

2,300,000--

2,300,000

The Bank of Tokyo-M itsubishi UFJ, Ltd.

800,000--

800,000

M izuho Bank, Ltd.

400,000--

400,000

Sub Total

M izuho Trust & Banking Co., Ltd.

Long-Term Loans Payable

0.484

April 21, 2017

-

0.488

April 21, 2017

1,070,000

0.484

April 21, 2017

0.545

February 10, 2018

0.751

February 10, 2020

0.865

February 10, 2021

350,000--

350,000

Sumitomo M itsui Banking Corporation

2,400,000--

2,400,000

The Bank of Tokyo-M itsubishi UFJ, Ltd.

800,000--

800,000

M itsubishi UFJ Trust and Banking Corporation

800,000--

800,000

Sumitomo M itsui Trust Bank, Ltd.

550,000--

550,000

Aozora Bank, Ltd.

500,000--

500,000

Resona Bank, Ltd.

500,000--

500,000

The Gunma Bank, Ltd.

400,000--

400,000

The M usashino Bank, Ltd.

400,000--

400,000

M izuho Bank, Ltd.

350,000--

350,000

M izuho Trust & Banking Co., Ltd.

300,000--

300,000

Sumitomo M itsui Banking Corporation

3,000,000--

3,000,000

The Bank of Tokyo-M itsubishi UFJ, Ltd.

700,000--

700,000

Sumitomo M itsui Trust Bank, Ltd.

500,000--

500,000

Aozora Bank, Ltd.

450,000--

450,000

Resona Bank, Ltd.

450,000--

450,000

M izuho Bank, Ltd.

Payment due date
（Note 4）400,000--

400,000

Sumitomo M itsui Banking Corporation

2,600,000--

2,600,000

The Bank of Tokyo-M itsubishi UFJ, Ltd.

800,000--

800,000

Sumitomo M itsui Trust Bank, Ltd.

600,000--

600,000

Aozora Bank, Ltd.

400,000--

400,000

M izuho Trust & Banking Co., Ltd.

400,000--

400,000

M izuho Bank, Ltd.

300,000--

300,000

Resona Bank, Ltd.

300,000--

300,000

Development Bank of Japan Inc.（Note 6）

1,500,000--

Development Bank of Japan Inc.（Note 6）

1,600,000-

Sumitomo M itsui Banking Corporation

4,600,000

The Bank of Tokyo-M itsubishi UFJ, Ltd.

0.978

February 10, 2022

1,500,000

0.925

February 10, 2021-

1,600,000

1.033

February 10, 2022--

4,600,000

1.366

April 16, 2025

750,000--

750,000

Aozora Bank, Ltd.

500,000--

500,000

M izuho Bank, Ltd.

400,000--

400,000
0.534

M arch 31, 2019

Sumitomo M itsui Trust Bank, Ltd.

200,000--

200,000

Resona Bank, Ltd.

200,000--

200,000

The M usashino Bank, Ltd.

150,000--

150,000

Use

Remarks(Note 5)

Unsecured/Non-guaranteed(Note 5)

Unsecured/Non-guaranteed37

Classification

LenderThe Bank of Tokyo-M itsubishi UFJ, Ltd.

Balance at the
beginning of
period(Thousands ofyen)

Increase during
the period(Thousands ofyen)

Decrease during
the period(Thousands ofyen)

Balance at theend of period(Thousands ofyen)

Averageinterest rate
(Note 2)
(Note 3)(％)

Payment due date
（Note 4）Long-Term Loans Payable

1,000,000--

1,000,000

Sumitomo M itsui Trust Bank, Ltd.

600,000--

600,000

M izuho Bank, Ltd.

400,000--

400,000

Resona Bank, Ltd.

400,000--

400,000

M izuho Trust & Banking Co., Ltd.

400,000--

400,000

M itsubishi UFJ Trust and Banking Corporation

400,000--

400,000

Development Bank of Japan Inc.（Note 6）

1,500,000--

1,500,000

Sumitomo M itsui Banking Corporation

1,850,000--

1,850,000

The Bank of Tokyo-M itsubishi UFJ, Ltd.

550,000--

550,000

Sumitomo M itsui Trust Bank, Ltd.

500,000--

500,000

Resona Bank, Ltd.

300,000--

300,000

The M usashino Bank, Ltd.

250,000--

250,000

M itsubishi UFJ Trust and Banking Corporation

450,000--

450,000

Resona Bank, Ltd.

200,000--

200,000

The M usashino Bank, Ltd.

150,000--

150,000

Development Bank of Japan Inc.（Note 6）

1,500,000--

1,500,000

Sumitomo M itsui Banking Corporation

3,000,000--

3,000,000

M izuho Bank, Ltd.

1,150,000--

1,150,000

The Bank of Tokyo-M itsubishi UFJ, Ltd.

1,000,000--

1,000,000

M izuho Trust & Banking Co., Ltd.

700,000--

700,000

Sumitomo M itsui Trust Bank, Ltd.

650,000--

650,000

Resona Bank, Ltd.

500,000--

500,000

Sumitomo M itsui Banking Corporation

1,500,000--

1,500,000

The Bank of Tokyo-M itsubishi UFJ, Ltd.

400,000--

400,000

M izuho Bank, Ltd.

-

710,000-

710,000

Sumitomo M itsui Trust Bank, Ltd.

-620,000-

620,000

Sumitomo M itsui Trust Bank, Ltd.

-

450,000-

450,000

0.803 September 30, 2024

Development Bank of Japan Inc.（Note 6）-

890,000-

890,000

0.760 September 30, 2024

Sumitomo M itsui Banking Corporation-

2,670,000-

2,670,000

0.932

April 21, 2026

The Bank of Tokyo-M itsubishi UFJ, Ltd.

-

890,000-

890,000

0.888

October 31, 2025

0.975

M arch 31, 2023

0.994

M arch 31, 2023

0.545

M arch 31, 2019

0.987

M arch 31, 2023

1.013

M arch 31, 2023

1.110

M arch 31, 2024

1.243

April 16, 2025

Use

Remarks(Note 5)

Unsecured/Non-guaranteed

0.368 September 30, 2019

Sub Total
Total

51,000,000

6,230,000-

57,230,000

57,500,000

12,600,000

800,000

69,300,000

Note 1: Annual repayments of long-term loans payable (except for current portion of long-term loans payable) scheduled after the balance sheet date are as follows:(Thousands of yen)
Due after 1 year
through 2 years
Long-term loans payable

3,850,000

Due after 2 years
through 3 years
6,980,000

Due after 3 years
through 4 years
7,000,000

Due after 4 years
through 5 years
7,000,000

Due after 5 years
32,400,000

Note 2: All debts except for the following Note 6 are borrowings at a floating rate.
Note 3: Average interest rates are the weighted average during the period and figures are rounded to the nearest third decimal place. Also, with regard to borrowings for which interest rate swap transactions were
implemented in order to hedge the interest rate volatility risk, the weighted average interest rates taking into consideration the effects of the interest rate swaps are indicated.
Note 4: All the repayment methods of debt financing except for the following Note 7 are lump-sum repayments on the due date.
Note 5: All debts were used as the funds for acquiring real estate properties or trust beneficiary interest in real estate (additional expenses are included) and repayment of debts.
Note 6: Borrowings at a fixed rate.
Note 7: Prepayment was made on May 31, 2016.

38

(3) Status of Investment Corporation Bonds
Not applicable(4) Status of Short-Term Investment Corporation Bonds
Not applicable(5) Status of Subscription Rights to New Investment Units
Not applicable39

Acquisition and Disposition(1) Acquisition and Disposition of Real Estate Properties & Asset-Backed Securities and Infrastructure &Infrastructure Related Assets
Acquisition
Ownership
form

Property
number

Property nameAcquisition Date

Disposition

Acquisition price(in millions)(Note)

Disposition
Disposition
Book value Gain / Loss
price
Date
(in millions) (in millions)(in millions)

Trust beneficiaryinterest in real estate

T-15

Nakamachidai
Tokyu Store

April 21, 2016

3,360

－

－

－

－

Trust beneficiaryinterest in real estate

T-16

Central Wellness Club
Nagatsuta Minamidai

April 20, 2016

1,724

－

－

－

－

Trust beneficiaryinterest in real estate

T-17

Life Kameido

April 21, 2016

1,450

－

－

－

－

Trust beneficiaryinterest in real estate

O-10

Million Town
Tsukaguchi (Land)

April 21, 2016

3,723

－

－

－

－

Trust beneficiaryinterest in real estate

N-4

Homecenter Kohnan
Sunadabashi

April 21, 2016

7,140

－

－

－

－

Trust beneficiaryinterest in real estate

R-7

Solala Plaza

April 21, 2016

5,720

－

－

－

－

Trust beneficiaryinterest in real estate

R-8

P-1 Plaza Tenno

April 22, 2016

4,010

－

－

－

－

27,127

－

－

－

－

Total
Note :“Acquisition price” represents the purchase price of each trust beneficiary interest specified in purchase agreement in relation to the acquisition ofeach property (excluding acquisition costs, adjustment in property tax and city-planning tax, and consumption tax; and rounded down to the nearest
one million yen).

(2) Acquisition and Disposition of Other Assets
Other assets except real estate properties and asset-backed securities mentioned above mostly consist of cash and deposits
and cash and deposits in trust.

40

(3) Appraisal Values of Specific Assetsi) Real estate
Acquisition Ownership Property/Disposition
form
number

Property nameAcquisition Date

Acquisition Appraisal
price
value
(in millions) (in millions)(Note 1)Trust
beneficiary
Acquisition interest inreal estateAppraiser

Evaluation date

(Note 2)

T-15

Nakamachidai
Tokyu Store

April 21, 2016

3,360

3,780

Daiwa Real EstateAppraisal Co., Ltd.

Feb.1, 2016

T-16

Central Wellness Club
Nagatsuta Minamidai

April 20, 2016

1,724

1,880

Daiwa Real EstateAppraisal Co., Ltd.

Feb.1, 2016

T-17

Life Kameido

April 21, 2016

1,450

1,500

Daiwa Real EstateAppraisal Co., Ltd.

Feb.1, 2016

O-10

Million Town
Tsukaguchi (Land)

April 21, 2016

3,723

3,730

The Tanizawa Sōgō
Appraisal Co., Ltd.

Feb.1, 2016

N-4

Homecenter Kohnan
Sunadabashi

April 21, 2016

7,140

7,220

Daiwa Real EstateAppraisal Co., Ltd.

Nov.1, 2015

R-7

Solala Plaza

April 21, 2016

5,720

5,740

Japan Real Estate
Institute

Feb.1, 2016

Japan Real EstateFeb.1, 2016
Institute
Note 1: “Acquisition price” represents the purchase amount (excluding acquisition costs and consumption taxes) of each property or beneficiary right of realestate in trust as stated in the Sales and Purchase Agreement.
Note 2: “Appraisal value” of specific assets above was calculated in accordance with the guideline of “Real Estate Appraisal Standards, Chapter 3,
Appraisal of Securitized Real Estate.”
R-8

P-1 Plaza Tenno

April 22, 2016

4,010

4,230

ii) Others
With regard to transactions and contracts entered by KRR whose values shall be investigated based on the Article 201 of the
Act on Investment Trusts and Investment Corporations, Ernst & Young ShinNihon LLC performs an investigation oftransactions other than those stated in “(1) Real Estate” above. For the period from April 1, 2016 to September 30, 2016, thetransactions subject to such investigation were five interest rate swap transactions, for which KRR received a report from
Ernst & Young ShinNihon LLC.

41

(4) Related-party transactioni) Transactions
Transaction price (in millions)Purchase
Total amountSale

27,127-

Transactions with related-party
G.K. KRF60

1,450(5.3%)-(-%)

JRP6 G.K.

7,140(26.3%)-(-%)

G.K. FOX Investment

5,720(21.1%)

-

(-%)

Total

14,310(52.8%)-(-%)ii) Amounts of fees paid
Not applicableNote:

A related party, etc. is defined as a related party, etc. of the asset manager having an asset management agreement with KRR as prescribed in
Article 123 of the Order for Enforcement of the Act on Investment Trusts and Investment Corporations of Japan and in Article 26-27 of theRegulations for Asset Investment Reports by Investment Trusts and Investment Corporations of the Investment Trusts Association, Japan.

(5) Status on Transactions with Asset Manager in connection with Concurrent Business Conducted by the AssetManager
No transaction business with Asset Manager, KFM, regarding to the Type II Financial Instruments Business, and Building
Lots and Buildings Transaction Business. Furthermore, KFM does not concurrently engage in any of Type I Financial
Instruments Business, Real Estate Specified Joint Business.

42

Accounting(1) Status on Assets, Liabilities, Principals, and Income and Losses
Please refer to the “Balance Sheets”, “Statements of Income and Retained Earnings”, “Statements of Changes in Net Assets”
and “Notes to Financial Statements” presented later in this report.
(2) Change in Calculation of Depreciation
Not applicable(3) Change in Valuation of Real Estate Properties and Infrastructure Assets
Not applicable(4) Status of Beneficiary Certificates of Investment Trust Established by Selfi) Acquisition of Beneficiary Certificates of Investment Trust Established by Self
Not applicableii) Ownership of Beneficiary Certificates of Investment Trust Established by Self
Not applicable(5) Disclosure of Companies Owning Real Estate Overseas
Not applicable(6) Disclosure of Real Estate Owned by Companies Owning Real Estate Overseas
Not applicable43

Others(1) Noticei) General Meeting of Unitholders
The First General Meetings of Unitholders was held on June 13, 2016.
The following summarizes an overview of the matters approved in the First General Meeting of Unitholders.
AgendaAgenda No. 1:
Changes to the Articles ofIncorporation

Agenda No. 2:
Election of One (1) Executive
Director
Agenda No. 3:
Election of One (1) Alternate
Executive Director
Agenda No. 4:
Election of Two (2) Supervisory
Directors
Agenda No. 5:
Election of One (1) Alternate
Supervisory Director

Summary
The changes of the Articles of Incorporation are as follows.
(1) The revision of the Ordinance for Enforcement of the Act on Special Measures Concerning
Taxation (Ordinance of the Ministry of Finance No. 15 of the year 1957, including
subsequent amendments) amended the requirements of the special provisions for taxation
for investment corporations. Accordingly, provisions that are no longer relevant will bedeleted. (concerning Paragraph 5, Article 31 of the current Articles of Incorporation)(2) FY2015 Japan Tax Reform and the Ordinance on Accountings of Investment Corporations(Ordinance of the Cabinet Office No. 47 of the year 2006, including subsequent
amendments) enabled investment corporations to adjust inconsistency in treatments between
accounting and tax practices. Accordingly, a related provision will be revised and aprovision to enable the Investment Corporation to implement cash distributions in excess of
profits for the purpose of mitigating tax burdens will be revised. (concerning Article 39 (2)of the current Articles of Incorporation)(3) The revision of Ordinance for Enforcement of the Act on Investment Trusts and Investment
Corporations (Ordinance of the Prime Minister's Office No. 129 of the year 2000, including
subsequent amendments) has allowed the Investment Corporation to add contents of
entrustment of affairs related to the administrative agent. Accordingly, a related provision
will be revised to clarify possible entrustment of the new contents. (concerning Paragraph 3,
Article 41 of the current Articles of Incorporation)(4) Regarding the items that were required when the Investment Corporation was established,sections that are no longer needed will be deleted in order to simplify the Articles ofIncorporation. (concerning Article 38, Chapter 11 and Attachments 1 and 2 of the current
Articles of Incorporation)(5) In addition to the above changes, expressions will be changed and clarified, words andphrases will berevised, and other changes will be made due to consistencies with thewording of applicable laws and clarification of provisions, etc.
The agenda was approved as drafted, and Akihiro Asano was appointed as Executive Director.
The term of office of an Executive Director shall be two years, commencing July 1, 2016.
The agenda was approved as drafted, and Koichiro Nobata was appointed as Alternate Executive
Director. The period during which the resolution on the appointment of one Alternate Executive
Director remains effective shall be until June 30, 2018, when the term of office of the Executive
Director under Agenda No. 2 expires.
The agenda was approved as drafted, and Mai Ishiwatari and Yoshitoshi Yasu were appointed as
Supervisory Directors. The term of office of Supervisory Directors shall be two years
commencing July 1, 2016.
The agenda was approved as drafted, and Satoshi Hiyama was appointed as Alternate Supervisory
Director. The period during which the resolution on the appointment of one Alternate Supervisory
Director remains effective shall be until June 30, 2018, when the term of office of the Supervisory
Director under Agenda No. 4 expires.

ii) Board of Directors
The following summarizes an overview of major contracts that the Board of Directors of KRR approved to conclude or
modify for the current period.
Date
April 13, 2016

Approved items
Conclusion of an underwriting
agreement for new investment units

Summary
For the issuance of new investment units, which was approved by the
Board of Directors on March 31, 2016, KFM, SMBC Nikko Securities
Inc., Nomura Securities Co., Ltd., Daiwa Securities Co., Ltd. and UBS
Securities Japan Co., Ltd. signed an underwriting agreement.

(2) Others
In this report, any fraction is rounded down for monetary amounts and rounded off for ratios unless otherwise stated.

44

45

Financial Statements(2nd Fiscal Period: from October 1, 2015 to March 31, 2016)(3rd Fiscal Period: from April 1, 2016 to September 30, 2016)
Independent Auditor’s Report
Balance Sheets
Statements of Income and Retained Earnings
Statements of Changes in Net Assets
Statements of Cash Flows
Notes to Financial Statements

46

Kenedix Retail REIT Corporation

Balance Sheets
As of September 30, 2016 and March 31, 2016
As of September 30, 2016

As of March 31, 2016

(in thousands of yen)
AssetsCurrent assets
Cash and deposits (Notes 8 and 10)¥4,367,293¥3,882,955

Cash and deposits in trust (Notes 8 and 10)

11,615,129

10,341,252

Operating accounts receivable

206,398

192,030

Prepaid expenses

112,71233,750Consumption taxes receivable

477,707

510,522432-

16,779,673

14,960,512

Other
Total current assets
Non-current assets
Property, plant and equipment (Notes 16 and 19)
Construction in progress

35,243-42,409,745

33,894,083

Accumulated depreciation(1,707,093)(1,043,077)

Buildings in trust, net (Note 3)

40,702,651

32,851,006

1,808,630

1,584,525

Accumulated depreciation(106,872)(68,990)

Structures in trust, net (Note 3)

1,701,758

1,515,535

Machinery and equipment in trust

203,295

29,194

Accumulated depreciation(6,582)(1,720)Machinery and equipment in trust, net

196,71227,473

Buildings in trust

Structures in trust

Tools, furniture and fixtures in trust

51,81347,611

Accumulated depreciation(6,700)(3,413)Tools, furniture and fixtures in trust, net (Note 3)

45,112

44,198118,225,350

99,044,234

Land in trust (Note 3)
Construction in progress in trust
Total property, plant and equipment, net

12,015

5,583

160,918,844

133,488,032

524,576

528,555

Intangible assets (Note 19)
Leasehold right in trust (Note 16)
Other
Total intangible assets

1,883

2,164

526,460

530,719

10,00010,000Investments and other assets
Lease and guarantee deposits
Lease and guarantee deposits in trust

36,03536,015Long-term prepaid expenses

651,956

583,023

Long-term deposits

124,960

124,960

Total investments and other assets

822,951

753,998

162,268,256

134,772,750

Organization costs

30,36935,435Investment unit issuance costs

281,763

240,764

Total deferred assets

312,132

276,199¥179,360,062¥150,009,463

Total non-current assets
Deferred assets

Total assets

See accompanying notes to financial statements.

47

As of September 30, 2016

As of March 31, 2016

(in thousands of yen)
Liabilities
Current liabilities
Operating accounts payable
Short-term loans payable (Notes 10 and 20)
Accounts payable-otherAccrued expenses¥453,515¥606,400

12,070,000

6,500,000

267,670

285,470

7,108

6,520

Income taxes payable

1,081

932

Advances received

859,300

748,176

Deposits received
Total current liabilities

122,669

136,468

13,781,345

8,283,968

57,230,000

51,000,000

Non-current liabilities
Long-term loans payable (Notes 10 and 20)
Tenant leasehold and security deposits (Note 10)

2,500

-

11,518,586

10,633,432

Asset retirement obligations (Note 14)

23,19023,045

Other64,67734,382

68,838,953

61,690,859

82,620,298

69,974,828

94,256,390

77,606,649(4,263)Tenant leasehold and security deposits in trust (Notes 3 and 10)

Total non-current liabilities
Total liabilities
Net assets
Unitholders' equity
Unitholders' capital
Deduction from unitholders' capital(4,263)-

94,252,127

77,606,649

Unappropriated retained earnings

2,518,802

2,427,985

Total surplus

2,518,802

2,427,985

96,770,929

80,034,634

Deferred gains or losses on hedges(31,166)

Total valuation and translation adjustments(31,166)-

Allowance for temporary difference adjustments (Note 4)
Total deduction from unitholders' capital
Unitholders' capital, net
Surplus

Total unitholders' equity
Valuation and translation adjustments

Total net assets (Note 5)

96,739,763

80,034,634

Total liabilities and net assets¥179,360,062¥150,009,463

See accompanying notes to financial statements.

48

Kenedix Retail REIT Corporation

Statements of Income and Retained Earnings
For the period from April 1, 2016 to September 30, 2016 and the period from October 1, 2015 to March 31, 2016
From April 1, 2016

From October 1, 2015

to September 30, 2016

to March 31, 2016

(in thousands of yen)
Operating revenues
Rent revenue-real estate (Note 6)¥5,405,789

Other lease business revenue (Note 6)¥4,656,391

968,378884,665

6,374,168

5,541,057

2,860,183

2,235,833

438,769

405,144

Asset custody fees

6,375

4,658

Administrative service fees

21,792

16,454

Directors' compensation

4,500

4,500

Total operating revenues
Operating expenses
Expenses related to rent business (Note 6)
Asset management fees

Other operating expenses

69,052

48,444

Total operating expenses

3,400,673

2,715,035

2,973,494

2,826,021

Interest income

51

937

Interest on refund

251

715

Total non-operating income

303

1,652

Interest expenses

306,343

275,159

Financing-related expenses

65,78059,213

Amortization of organization costs

5,066

5,066

Operating income
Non-operating income

Non-operating expenses

Amortization of investment unit issuance costs

76,922

59,244

Total non-operating expenses

454,113398,683

Ordinary income

2,519,684

2,428,991

Income before income taxes

2,519,684

2,428,991

1,088

1,075

1,088

1,075

Income taxes
Current
Total income taxes
Net income

2,518,595

2,427,915

Retained earnings brought forward

206

70

Unappropriated retained earnings¥2,518,802¥2,427,985

See accompanying notes to financial statements.

49

Kenedix Retail REIT Corporation

Statements of Changes in Net Assets
For the period from April 1, 2016 to September 30, 2016 and the period from October 1, 2015 to March 31, 2016
Unitholders' equity
Unitholders' capital

Surplus

Deduction from unitholders'
capitalUnitholders'

Allowance for

Total

Unitholders'

capitaltemporary

deduction from

capital, netdifference

unitholders'adjustments

capitalUnappropriatedretainedearnings

Total
Total

unitholders'surplusequity¥1,933,270¥59,790,270(in thousands of yen)
Balance as of October 1,
2015¥57,857,000

¥

-

¥

-

¥57,857,000¥1,933,270

Changes of items during
the period
Issuance of new
investment units

19,749,649

19,749,649

19,749,649

Dividends fromsurplus(1,933,200)(1,933,200)(1,933,200)

Net income

2,427,915

2,427,915

2,427,915

Total changes of items
during the period

19,749,649

19,749,649

494,714494,714

20,244,364

77,606,649

77,606,649

2,427,985

2,427,985

80,034,634

16,649,740

16,649,740

Balance as of March 31,
2016 (Note 7)
Changes of items during
the period
Issuance of new
investment units

16,649,740

Dividends fromsurplus(2,427,778)(2,427,778)(2,427,778)

Distributions inexcess of earnings
from allowance fortemporary difference
adjustments(4,263)(4,263)(4,263)

Net income(4,263)2,518,595

2,518,595

2,518,595

Net changes of items
other thanunitholder’s equity
Total changes of items
during the period

16,649,740(4,263)(4,263)

16,645,477

90,81790,817

16,736,294¥94,256,390¥ (4,263)¥ (4,263)¥94,252,127¥2,518,802¥2,518,802¥96,770,929

Balance as of September
30, 2016 (Note 7)50

Valuation and translation
adjustments
Deferred gains

Total valuation

or losses on

and translation

hedgesTotal net assets

adjustments(in thousands of yen)

Balance as of October 1,
2015

¥

-

¥

-

¥59,790,270

Changes of items during
the period
Issuance of new
investment units

19,749,649

Dividends fromsurplus(1,933,200)

Net income

2,427,915

Total changes of items
during the period

20,244,364

Balance as of March 31,
2016 (Note 7)

80,034,634

Changes of items during
the period
Issuance of new
investment units

16,649,740

Dividends fromsurplus(2,427,778)

Distributions inexcess of earnings
from allowance fortemporary difference
adjustments(4,263)

Net income

2,518,595

Net changes of items
other thanunitholder’s equity(31,166)(31,166)(31,166)(31,166)(31,166)

16,705,128¥ (31,166)¥ (31,166)¥96,739,763

Total changes of items
during the period
Balance as of September
30, 2016 (Note 7)

See accompanying notes to financial statements.

51

Kenedix Retail REIT Corporation

Statements of Cash Flows
For the period from April 1, 2016 to September 30, 2016 and the period from October 1, 2015 to March 31, 2016
From April 1, 2016

From October 1, 2015

to September 30, 2016

to March 31, 2016

(in thousands of yen)
Net cash provided by (used in) operating activities
Income before income taxes¥2,519,684¥2,428,991

Depreciation and amortization

714,452

566,142

Amortization of organization costs

5,066

5,066

Amortization of investment unit issuance costs

76,922

59,244

Interest income

(51)

(937)

Interest expenses

306,343

275,159

Decrease (increase) in operating accounts receivable(14,367)(28,262)

Decrease (increase) in consumption taxes receivable

32,815

1,561,226

Decrease (increase) in prepaid expenses(78,961)(16,987)

Increase (decrease) in operating accounts payable(25,321)

94,580

Increase (decrease) in accounts payable-other(19,393)

25,738

Increase (decrease) in advances received

111,123

229,469

Increase (decrease) in deposits received(13,799)(223,486)

Decrease (increase) in long-term prepaid expenses(68,932)(164,503)

Other(4,103)36,767

Subtotal

3,541,476

4,848,21051

937(305,756)(272,051)

Interest income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities(940)(6,464)

3,234,831

4,570,631

Net cash provided by (used in) investing activities(35,243)-(28,233,179)(40,463,688)-(361,455)

Payments for lease and guarantee deposits in trust(20)(30,695)

Proceeds from tenant leasehold and security deposits

2,500

-

Repayments of tenant leasehold and security deposits in trust(314,140)(286,205)

Proceeds from tenant leasehold and security deposits in trust

1,202,094

2,185,372

Purchase of property, plant and equipment
Purchase of property, plant and equipment in trust
Purchase of intangible assets in trust

Proceeds from restricted bank deposits in trust
Net cash provided by (used in) investing activities

215,676

661,625(27,162,312)(38,295,047)

Net cash provided by (used in) financing activities
Proceeds from short-term loans payable

6,370,000

7,700,000

Payments of short-term loans payable(800,000)(3,200,000)

Proceeds from long-term loans payable

6,230,000

14,650,000

Proceeds from issuance of investment units

16,531,819

19,611,147

Payments of dividends(2,430,448)(1,931,323)

Net cash provided by (used in) financing activities

25,901,371

36,829,824

Net increase (decrease) in cash and cash equivalents

1,973,891

3,105,407

Cash and cash equivalents at the beginning of the period

11,255,410

8,150,002

Cash and cash equivalents at the end of the period (Note 8)¥13,229,301¥11,255,410

See accompanying notes to financial statements.

52

Kenedix Retail REIT Corporation

Notes to Financial Statements
For the period from April 1, 2016 to September 30, 2016 and the period from October 1, 2015 to March 31, 2016

1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Kenedix Retail REIT Corporation (“KRR”) was established on October 3, 2014, under the Act on Investment Trusts and Investment Corporationsof Japan (the “Investment Trust Act”). On October 30, 2014, KRR was registered with the Director-General of the Kanto Local Finance Bureau(registration number: Director-General of the Kanto Local Finance Bureau No. 97). KRR was listed on the Real Estate Investment Trust Securities(J-REIT) Market of Tokyo Stock Exchange, Inc. (the Tokyo Stock Exchange) (Securities code: 3453) on February 10, 2015. Subsequently, KRR
raised funds through public offerings, including international offerings. As a result, the number of investment units issued as of September 30, 2016
was 422,450 units.
KRR seeks to invest primarily in neighborhood, community and other shopping centers that cater to the day-to-day needs of local area
customers and have stable demand from retailers and customers, in order to provide stable investment returns over the long term. Sponsored by
Kenedix, Inc., a leading, independent real estate asset management company, KRR entrusts its asset management and investment operations to
Kenedix Real Estate Fund Management, Inc. (“KFM”), with the following strategies.
(Note) For management purposes and ease of classification, KRR defines neighborhood, community and other shopping centers for dailyneeds as retail properties that generally have the following characteristics:
a. Retail trade area of an approximate radius of one to ten kilometers (and generally, a radius of three to five kilometers), withcustomers predominantly from local areas surrounding the retail property
b. Operational capacity to accommodate certain daily local retail needs and strong customer traffic on both weekdays and weekends
c. Composed of various specialty stores to meet a range of day-to-day needs such as groceries, clothing and other daily goods andservices
KRR acquired trust beneficiary interests in real estate (13 properties acquired on October 2, 2015 with total acquisition price of 37,920 million
yen and one property acquired on January 21, 2016 with acquisition price 1,505 million yen). In addition, KRR completed construction of a newbuilding (acquisition price of 371 million yen) on November 26, 2015 as additional acquisition at Roseo Mito. For the period ended March 31, 2016,
the portfolio of 33 properties as a whole performed well with an overall occupancy ratio of 99.6% as of March 31, 2016.
KRR acquired trust beneficiary interests in real estate (a property acquired on April 20, 2016 with acquisition price of 1,724 million yen, 5properties acquired on April 21, 2016 with acquisition price of 21,393 million yen and a property acquired on April 22, 2016 with acquisition price
4,010 million yen). For the period ended September 30, 2016, the portfolio of 40 properties as a whole performed well with an overall occupancy
ratio of 99.7% as of September 30, 2016.
Furthermore, the portfolio was diversified in terms of tenants as there were 389 and 405 end-tenants as of March 31, 2016 and September 30,
2016 in KRR’s properties, respectively.
Basis of Presentation
KRR maintains its accounting records and prepares its financial statements in accordance with accounting principles generally accepted inJapan (Japanese GAAP), including provisions set forth in the Investment Trust Act, the Companies Act of Japan, the Financial Instruments andExchange Act of Japan and related regulations, which are different in certain respects as to the application and disclosure requirements ofInternational Financial Reporting Standards.
The accompanying financial statements are basically a translation of the financial statements of KRR, which were prepared in accordance withJapanese GAAP and were presented in the Semiannual Securities Report of KRR filed with the Kanto Local Finance Bureau. In preparing theaccompanying financial statements, certain reclassifications and modifications have been made to the financial statements issued domestically inorder to present them in a format that is more familiar to readers outside Japan. In addition, the notes to financial statements include certain
information that might not be required under Japanese GAAP but is presented herein as additional information.
KRR’s fiscal period is a six-month period which ends at the end of March or September. KRR does not prepare consolidated financial
statements because it has no subsidiaries.

53

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(A) Property, plant and Equipment (including trust assets)
Property, plant and equipment are stated at cost. Depreciation of property and equipment is calculated on a straight-line basis over theestimated useful lives of the assets ranging as stated below:

Buildings

From April 1, 2016
to September 30, 2016
2-70 years

From October 1, 2015
to March 31, 2016
2-70 years

Structures

8-59 years

8-59 years

Machinery and equipment

10-25 years

10-25 years

Tools, furniture and fixtures

4-10 years

4-10 years(B) Intangible assets (including trust assets)
Intangible assets are amortized by the straight-line method.
(C) Long-term Prepaid Expenses
Long-term prepaid expenses are amortized by the straight-line method.
(D) Organization costs
Organization costs are amortized over a period of 5 years under the straight-line method.
(E) Investment Unit Issuance Costs
Investment unit issuance costs are amortized over a period of 3 years under the straight-line method.
(F) Accounting Treatment of Trust Beneficiary Interests in Real Estate
For trust beneficiary interests in real estate, which are commonly utilized in the ownership of commercial properties in Japan, all relevant
assets and liabilities in trust are recorded on the balance sheets and the statements of income and retained earnings.
(G) Revenue Recognition
Operating revenues consist of rental revenues including base rents, common area charges and other operating revenues, which include
utility charge reimbursements, parking space rental revenues and other miscellaneous revenues. Rental revenues are generally recognizedon an accrual basis over the life of each lease. Utility charge reimbursements are recognized when earned and their amounts can bereasonably estimated. Reimbursements from tenants including utility charge reimbursements are recorded on a gross basis and suchamounts are recorded both as revenues and expenses during the fiscal period.
(H) Taxes on Property and Equipment
Property-related taxes including property taxes, city planning taxes and depreciable property taxes are imposed on properties on a calendar
year basis. These taxes are generally charged to operating expenses for the period, for the portion of such taxes corresponding to said period.
Under Japanese tax regulations, the seller of the property is liable for these taxes on the property from the date of disposal to the end of thecalendar year in which the property is disposed. The seller, however, is reimbursed by the purchaser for these accrued property-related tax
liabilities.
When KRR purchases properties, it typically allocates the portion of the property-related taxes related to the period following the purchasedate of each property through the end of the calendar year. The amounts of those allocated portions of the property-related taxes arecapitalized as part of the acquisition costs of the related properties. Capitalized property-related taxes amounted to ¥106,443 thousand and¥73,320 thousand as of September 30, 2016 and March 31, 2016, respectively.

54

(I)

Income Taxes
Deferred tax assets and liabilities are computed based on the difference between the financial statements and income tax bases of assets
and liabilities using the statutory tax rates.

(J) Consumption Taxes
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes. Non-deductible consumption taxes
applicable to the acquisition of assets are included in the cost of acquisition for each asset.
(K) Derivative Financial Instruments
KRR utilizes interest-rate swap contracts as derivative financial instruments only for the purpose of hedging its exposure to changes ininterest rates. KRR deferred recognition of gains or losses resulting from changes in fair value of interest-rate swap contracts because thesecontracts met the criteria for deferral hedge accounting. However, KRR adopted the special treatment for interest-swap contracts if they met
the criteria for hedge accounting under this treatment. An assessment of the effectiveness of hedging is omitted for interest rate swaps
because they fulfill the requirements for the special treatment.
(L) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, deposits placed with banks and short-term investments which are highly liquid, readily
convertible to cash and with insignificant risk of market value fluctuation, with maturities of three months or less from the date of purchase.
(M) Presentation of Amounts
Amounts have been truncated in the Japanese financial statements prepared in accordance with Japanese GAAP and filed with regulatory
authorities in Japan. Unless otherwise noted, amounts are rounded down and ratios are rounded off in the accompanying financial
statements. Totals shown in the accompanying financial statements do not necessarily agree with the sums of the individual amounts.

3. COLLATERAL
Assets pledged as collateral and related secured liabilities are as follows:
As of September 30, 2016

Assets pledged as collateral

As of March 31, 2016
(in thousands of yen)

Buildings in trust¥2,755,048¥2,797,203

Structures in trust

53,94755,538Tools, furniture and fixtures in trust

2,962

-

Land in trust
Total
Secured liabilities

7,811,297

7,811,297

10,623,255

10,664,039

As of September 30, 2016

Tenant leasehold and security deposits in trust
Total

As of March 31, 2016

3,468,617

3,691,291¥3,468,617¥3,691,291

4. ALLOWANCE FOR TEMPORARY DIFFERENCE ADJUSTMENTS
The following summarizes allowance for temporary difference adustments as of September 30, 2016
1. Reasons, related assets, initial amount and allowance
Related assets, etc.

Reason for allowance

Initial amount

Balance atthe beginningof the period

Allowance
during theperiodBuildings in trust,
Leasehold right in trust

Amortization ofleasehold right in trust
and the amount inexcess of depreciation

4,263

-

4,263

Reversalduring theperiodBalance atthe end of
the period
-

4,263

Reason forreversal-55

2. Method of reversal
Method of reversal
Buildings in trust,
Leasehold right in trust

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

As of March 31, 2016
Not applicable.

5. NET ASSETSKRR issues only non-par value units in accordance with the Investment Trust Act. The entire amount of the issue price of new units is designatedas stated capital. KRR is required to maintain net assets of at least ¥50 million as required by the Investment Trust Act.

6. BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUESAND PROPERTY-RELATED EXPENSES
Rental and other operating revenues and property-related expenses for the period from April 1, 2016 to September 30, 2016 and from October 1,
2015 to March 31, 2016 consist of the following:
From April 1, 2016

From October 1, 2015

to September 30, 2016

to March 31, 2016

(in thousands of yen)
Rental and other operating revenues:
Rent revenue-real estate:
Rental revenues¥4,393,233¥3,761,328

Rental revenues from limited proprietary rights of land

680,862598,355

Common area charges

331,693296,7075,405,789

4,656,391

Parking space rental revenues

163,358

162,060

Utility charge reimbursement

540,060

453,733

Miscellaneous

264,959

268,871

Subtotal

968,378884,665

6,374,168

5,541,057

Property management fees and facility management fees

684,963

637,809

Utilities

523,159495,520Taxes

482,449

216

Repairs and maintenance

150,915201,226

Insurance

12,341

10,531

Trust fees

17,294

14,499Depreciation

714,171565,861

Others274,888

310,168

Total property-related expenses

2,860,183

2,235,833

Net operating income from real estate rental business¥3,513,984¥3,305,224

Subtotal
Other lease business revenue:

Total rental and other operating revenues
Property-related expenses:
Expenses related to rent business:

56

7. UNITHOLDERS’ EQUITY
Total number of authorized investment units and total number of investment units issued and outstanding are as follows:
From April 1, 2016

From October 1, 2015

to September 30, 2016

to March 31, 2016

Total number of authorized investment units

5,000,000 units

5,000,000 units

Total number of investment units issued and outstanding

422,450 units

355,250 units

8. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following as of September 30, 2016 and March 31, 2016:
As of September 30, 2016

As of March 31, 2016

(in thousands of yen)
Cash and deposits¥4,367,293¥3,882,955

Cash and deposits in trust

11,615,129

10,341,252

Restricted bank deposits in trust *(2,753,121)(2,968,798)

Cash and cash equivalents¥13,229,301¥11,255,410*Restricted bank deposits in trust are retained for repayment of tenant leasehold and security deposits in trust.

9. LEASES(As lessee)
Future minimum lease payments under non-cancelable operating leases as of September 30, 2016 and March 31, 2016 are as follows:
As of September 30, 2016

As of March 31, 2016

(in thousands of yen)
Due within 1 year

¥10,500¥10,500

Due after 1 year

204,298

209,548

Total¥214,798¥220,048(As lessor)
Future minimum lease income under the non-cancelable operating leases as of September 30, 2016 and March 31, 2016 are as follows:
As of September 30, 2016

As of March 31, 2016

(in thousands of yen)
Due within 1 year

¥5,754,371¥4,184,868

Due after 1 year

47,304,424

37,858,429

Total¥53,058,796¥42,043,297

57

10. FINANCIAL INSTRUMENTS(A). Overview(1) Policy for financial instruments
KRR procures funds for asset acquisitions, repairs, payment of distributions, repayment of loans, etc. through loans from financial institutions,issuance of investment units and other means. With regard to the procurement of interest-bearing debts, KRR ensures that it can effectively
combine stable long-term funds with flexible short-term funds. Management of surplus funds is undertaken through various bank deposits focusing
on safety, liquidity and effectiveness. KRR uses derivatives for the purpose of hedging its exposure to changes in interest rates and other risks anddoes not enter into derivative transactions for speculative or trading purposes.
(2) Types of financial instruments and related risk
Bank deposits are for managing KRR’s surplus funds and are exposed to credit risk such as the bankruptcy of financial institutions at which funds
are deposited.
Borrowings, which are made primarily for the purpose of procuring funds for the acquisition of real estate and trust beneficiary interests in realestate and have a repayment date of a maximum of 9 years and 7 month as of September 30, 2016, the end of the second fiscal period, areexposed to liquidity risk where alternative funds may not be procured by the repayment date. Also, borrowings with floating interest rates are
exposed to interest rate fluctuation risk. Derivatives are used for the purpose of hedging interest rate fluctuation risk for a certain portion of theborrowings.
Tenant leasehold and security deposits are deposits received from tenants, which are exposed to liquidity risks when the tenants vacate theproperties.
(3) Risk management for financial instruments
a. Credit risk
While bank deposits are exposed to credit risk such as the bankruptcy of financial institutions at which funds are deposited, such risk is monitored
by deposits in non-interest bearing ordinary savings accounts or with financial institutions with credit ratings above a certain level. In utilizing
derivatives, KRR aims to mitigate counterparty risk such as by transacting with financial institutions with favorable ratings.
b. Market risk
While borrowings with floating rates are exposed to interest rate volatility risk, such risk is monitored by adjusting the rate of the balance ofborrowings with floating rates against the total borrowings according to the financial environment, interest rate forecasts by continuous monitoring,etc. and by using derivatives, etc. A risk management policy is established with regard to the execution and management of derivatives and suchtransactions are conducted based on this policy.
c.

Liquidity risk

Though borrowings are subject to liquidity risk, KRR reduces such risk by spreading out payment due dates and by diversifying financial
institutions. Liquidity risk is also managed by such means as regularly checking the balance of cash reserves.
Though tenant leasehold and security deposits are subject to liquidity risk, in principle, KRR reduces such risk by retaining funds that would
enable KRR to return necessary amounts to tenants.
(4) Supplementary explanation of the estimated fair value of financial instruments
The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available, fair value
is reasonably estimated. Since various assumptions and factors are reflected in estimating the fair value, different assumptions and factors could
result in a different fair value.
(B). Estimated Fair Value of Financial Instruments
The carrying value of financial instruments on the balance sheets and estimated fair value are shown in the following table. Items whose fairvalues are difficult to determine are not included in the following table (*2).

58As of September 30, 2016
Carrying amount

Estimated fair value

Difference(in thousands of yen)
(1) Cash and deposits¥4,367,293¥4,367,293(2) Cash and deposits in trust

11,615,129

11,615,129

-

Total

¥

-

15,982,422

15,982,422-(1) Short-term loans payable

12,070,000

12,070,000-(2) Long-term loans payable

57,230,000

57,710,245

480,245(3) Tenant leasehold and security deposits in trust

3,408,166

3,443,698

35,531

72,708,166

73,223,944

515,777¥(31,166)¥(31,166)

Total
Derivative transactions¥-

As of March 31, 2016
Carrying amount

Estimated fair value

Difference(in thousands of yen)
(1) Cash and deposits¥3,882,955¥3,882,955(2) Cash and deposits in trust

10,341,252

10,341,252

-

Total

¥

-

14,224,208

14,224,208-(1) Short-term loans payable

6,500,000

6,500,000-(2) Long-term loans payable

51,000,000

51,377,832

377,832(3) Tenant leasehold and security deposits in trust

3,509,658

3,546,858

37,20061,009,658

61,424,691

415,033

¥

¥

Total
Derivative transactions

-

-

¥

-

*1: Methods to determine the estimated fair value of financial instruments and matters related to derivative transactions
Assets(1) Cash and deposits and (2) Cash and deposits in trust
Since these items are settled in a short period of time, their carrying amount approximates fair value.
Liabilities(1) Short-term loans payable
Since these items are settled in a short period of time with floating interest rates, their carrying amount approximates fair value.
(2) Long-term loans payable
Among these items, the fair value of loans payable with fixed interest rates is calculated based on the present value, which is the total amount ofprincipal and interest discounted by the estimated interest rate to be applied in the event that KRR conducts new loans of the same type. As for thefair value of loans payable with floating interest rates, it is based on the carrying amount since market interest rates are reflected in the short term
and the fair value is believed to approximate the carrying amount as the credit standing of KRR has not changed significantly since the loans were
made. (However, the fair value of long-term loans payable subject to the special treatment for interest-rate swaps is based on the present value ofthe total of principal and interest, accounted for together with the applicable interest-rate swaps, discounted by the estimated interest rate to be
applied in the event that KRR conducts new loans payable of the same type.)(3) Tenant leasehold and security deposits in trust
The fair value is determined based on the present value of contractual cash flows discounted at the discount rate into which the period to therepayment date and the credit risk are reflected.
Derivative transactions
Please refer to Note “11. DERIVATIVE TRANSACTIONS”.

59*2: Financial instruments whose fair values are extremely difficult to determineClassification

As of September 30, 2016

As of March 31, 2016

(in thousands of yen)
Tenant leasehold and security deposits¥2,500¥Tenant leasehold and security deposits in trust

8,110,419

7,123,774

-

Total

¥8,112,919¥7,123,774

Because no quoted market price is available and it is extremely difficult to determine their fair value based on estimated future cash flows because
the repayment dates of those deposits are not certain. Therefore, these financial instruments are not included in the above quantitative
information.
*3: Redemption of monetary claims scheduled to be due after the balance sheet date
As of September 30, 2016
Due in 1 year orDue after 1 year

Due after 2 years

Due after 3 years

Due after 4 years

lessthrough 2 years

through 3 years

through 4 years

through 5 years

Due after 5 years(in thousands of yen)
Cash and deposits¥4,367,293

Cash and deposits in trust

11,615,129

Total

¥

-

¥

-

¥15,982,422

¥

-

-

¥

-

¥

¥

-

-

-

¥

-

¥

-

¥

-

¥

-

As of March 31, 2016
Due in 1 year orDue after 1 year

Due after 2 years

Due after 3 years

Due after 4 years

lessthrough 2 years

through 3 years

through 4 years

through 5 years

Due after 5 years(in thousands of yen)
Cash and deposits¥3,882,955

Cash and deposits in trust

10,341,252

Total

¥

-

¥

-

¥14,224,208

¥

-

-

¥

-

¥

-

¥

-

¥

-

¥

-

¥

-

¥

-

*4: Redemption of long-term loans payable and other interest-bearing debt scheduled to be due after the balance sheet date
As of September 30, 2016
Due in 1 year orDue after 1 year

Due after 2 years

Due after 3 years

Due after 4 years

lessthrough 2 years

through 3 years

through 4 years

through 5 years

Due after 5 years(in thousands of yen)
Short-term loans payable¥12,070,000

Long-term loans payable-

3,850,000

6,980,000

7,000,000

7,000,000

32,400,000

435,430

435,430

435,430

435,430

435,430

546,223¥12,505,430¥4,285,430¥7,415,430¥7,435,430¥7,435,430¥32,946,223

Due in 1 year orDue after 1 year

Due after 2 years

Due after 3 years

Due after 4 years

lessthrough 2 years

through 3 years

through 4 years

through 5 years

Tenant leasehold and security
deposits in trust
Total

¥

-

¥

-

¥

-

¥

-

¥

-

As of March 31, 2016
Due after 5 years(in thousands of yen)
Short-term loans payable¥6,500,000

Long-term loans payable-

3,850,000

5,650,000

7,000,000

7,000,000

27,500,000

435,430

435,430

435,430

435,430

435,430

763,938¥6,935,430¥4,285,430¥6,085,430¥7,435,430¥7,435,430¥28,263,938

Tenant leasehold and security
deposits in trust
Total

¥

-

¥

-

¥

-

¥

-

¥

-

60

11. DERIVATIVE TRANSACTIONS
The contract amount and the fair value of interest-rate swap transactions as of September 30, 2016 are shown in the following table.
(1)

Transactions not subject to hedge accounting
Not applicable(2)

Transactions subject to hedge accounting

Hedge
accounting
methodPrinciple
methodSpecialtreatment ofinterest-rate
swaps

Type of derivativetransactions
Interest rate swap
transaction:
Receive/floating andpay/fixed
Interest rate swap
transaction:
Receive/floating andpay/fixed

Hedged items
Long-term loans
payableLong-term loans
payableContract amount(in thousands of yen)
Maturing after 1
year
5,340,000

5,340,000

44,900,000

44,900,000

Fair value(in thousands of yen)

(31,166)

Calculation method for
applicable fair value
Based on the amountprovided by counterparty
financial institutions*-*Interest rate swaps for which the special treatment is applied are accounted for together with the underlying hedged item. As a result, their fairvalue is included in the fair value of the hedged long-term loans payable.（Please refer to Note “10. FINANCIAL INSTRUMENTS” (*1) Methods todetermine the estimated fair value of financial instruments and matters related to derivative transactions; Liabilities (2) Long-term loans payable.）
The contract amount and the fair value of interest-rate swap transactions as of March 31, 2016 are shown in the following table.
(1)

Transactions not subject to hedge accounting
Not applicable(2)

Transactions subject to hedge accounting

Hedge
accounting
methodType of derivativetransactions

Specialtreatment ofinterest-rate
swapsInterest rate swap
transaction:
Receive/floating andpay/fixed

Hedged items
Long-term loans
payableContract amount(in thousands of yen)
Maturing after 1
year¥44,900,000¥44,900,000

Fair value(in thousands of yen)Calculation method for
applicable fair value*-*Interest rate swaps for which the special treatment is applied are accounted for together with the underlying hedged item. As a result, their fairvalue is included in the fair value of the hedged long-term loans payable.（Please refer to Note “10. FINANCIAL INSTRUMENTS” (*1) Methods todetermine the estimated fair value of financial instruments and matters related to derivative transactions; Liabilities (2) Long-term loans payable.）

12. RELATED PARTY TRANSACTIONS
1．Parent Company, major corporate unitholders and other
3rd Fiscal Period (April 1, 2016 to September 30, 2016) and 2nd Fiscal Period (October 1, 2015 to March 31, 2016): Not applicable
2．Affiliated companies and other
3rd Fiscal Period (April 1, 2016 to September 30, 2016) and 2nd Fiscal Period (October 1, 2015 to March 31, 2016): Not applicable
3．Fellow subsidiary companies and other
3rd Fiscal Period (April 1, 2016 to September 30, 2016) and 2nd Fiscal Period (October 1, 2015 to March 31, 2016): Not applicable
4．Directors, major individual unitholders and other
3rd Fiscal Period (April 1, 2016 to September 30, 2016) and 2nd Fiscal Period (October 1, 2015 to March 31, 2016): Not applicable61

13. INCOME TAXESKRR is subject to corporate income taxes at a regular statutory rate of approximately 32%. However, KRR may deduct from its taxable income
amounts distributed to its unitholders, provided the requirements under the Special Taxation Measures Law of Japan are met, including arequirement that it currently distributes in excess of 90% of its net income for the fiscal period in order to be able to deduct such amounts. If KRR
does not satisfy all of the requirements, the entire taxable income of KRR will be subject to regular corporate income taxes. Since KRR distributed
in excess of 90% of its distributable income in the form of cash distributions totaling ¥2,523 million and ¥2,432 million for the periods ended
September 30, 2016 and March 31, 2016, respectively, the distributions were treated as deductible distributions for purposes of corporate income
taxes. The effective tax rates on KRR’s income were 0.04% and 0.04% for the periods ended September 30, 2016 and March 31, 2016,
respectively. The following table summarizes the significant differences between the statutory tax rate and the effective tax rate:
As of September 30, 2016

As of March 31, 2016

Statutory tax rate

31.74%

32.31%

Deductible cash distributions(31.79)(32.35)

Others0.09

0.08

Effective tax rate

0.04%

0.04%

The significant components of deferred tax assets and liabilities:
As of September 30, 2016

As of March 31, 2016

(in thousands of yen)
Deferred tax assets:
Enterprise tax payable

¥

23

¥

22

Amortization of leasehold right in trust

4,189

2,932

Depreciation

1,508

1,055

Asset retirement obligations

7,325

7,280

Deferred gains or losses on hedges

9,845

-

Subtotal deferred tax assets

22,892

11,290

Valuation allowance(22,892)(11,290)¥¥

Total deferred tax assets--

14. ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations reported on balance sheets
1. Summary of the asset retirement obligations
KRR has recognized the original state restoration obligations assumed under the fixed-term business-purpose land leasehold agreement as theasset retirement obligations in connection with Sunny Noma acquired on February 10, 2015.
2. Method of calculating asset retirement obligations
Asset retirement obligations are calculated based on a discount rate of 1.256% after the useful life has been estimated to be 22 years and twomonths based on the time period from the date of acquisition to the expiration of the agreement.
3. Changes in the amount of applicable asset retirement obligations consisted of the following
From October 1, 2015

From April 1, 2016
to September 30, 2016

to March 31, 2016

(in thousands of yen)
Balance at the beginning of the period
Accretion adjustment
Balance at the end of the period¥23,045¥22,901

144

143¥23,190¥23,04562

15. SEGMENT INFORMATION
Segment information for the period ended from April 1, 2016 to September 30, 2016 and October 1, 2015 to March 31, 2016 is as follows:(A) Segment information
Disclosure is omitted because the real estate leasing business is KRR’s sole business and it has no reportable segment information to disclose.
(B) Related information(1) Information about each product and service
Disclosure is omitted because net sales to external customers for a single product/service category account for over 90% of the operating revenue
on the statements of income and retained earnings.
(2) Information about each geographic area(a) Net sales
Disclosure is omitted because net sales to external customers in Japan account for over 90% of the operating revenue on the statements ofincome and retained earnings.
(b) Property, plant and equipment
Disclosure is omitted because the amount of property, plant and equipment located in Japan accounts for over 90% of the amount of property,
plant and equipment on the balance sheets.
(3) Information about each major customer
Disclosure is omitted because no net sales to a single external customer accounts for more than 10% of the operating revenue on the statements
of income and retained earnings.

16. INVESTMENT AND RENTAL PROPERTIESKRR owns retail properties for rental purposes mainly in the four major metropolitan areas and other regional areas of Japan.
The book value and fair value concerning the above real estate for rental purposes are as follows.
From April 1, 2016

From October 1, 2015

to September 30, 2016

to March 31, 2016

(in thousands of yen)Book value
Balance at the beginning of the period¥134,016,587¥93,575,397

Changes during the period

27,426,833

40,441,190

Balance at the end of the period

161,443,421

134,016,587¥168,164,000¥138,674,000

Fair value at the end of the period

Note 1: Book value is acquisition cost less accumulated depreciation.
Note 2: Among changes in the amount of real estate for rental purposes that occurred during the second fiscal period, the principal increase was
acquisitions of real estate trust beneficiary interests in 14 properties totaling ¥40,195,716 thousand, and the additional acquisition of realestate trust beneficiary interest amounting to ¥383,790 thousand and the principal decrease was depreciation amounting to ¥565,717
thousand and during the third fiscal period, the principal increase was the acquisitions of real estate trust beneficiary interests in 7
properties totaling ¥27,834,390 thousand and the principal decrease was depreciation amounting to ¥714,026 thousand.
Note 3: The fair value at the end of the period is the appraisal value determined by outside appraisers.
The profit or loss for the period ended September 30, 2016 and March 31, 2016 concerning investment and rental properties is included in Note “6.
BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUES AND PROPERTY-RELATED EXPENSES.”63

17. PER UNIT INFORMATION

Net asset value per unit

From April 1, 2016

From October 1, 2015

to September 30, 2016

to March 31, 2016

¥228,996¥225,291¥6,069¥6,846

Net income per unit

Net income per unit is calculated by dividing net income by the day-weighted average number of investment units outstanding during the fiscal
period ended September 30, 2016 (414,983 units) and during the fiscal period ended March 31, 2016 (354,622 units). Net income per unit after
adjusting for residual units is not included because there were no residual investment units.
The basis for calculating net income per unit is as follows:

Net income (in thousands of yen)
Net income not attributable to ordinary unitholders (in thousands of yen)
Net income attributable to ordinary unitholders (in thousands of yen)
Weighted average number of units during the period (units)

From April 1, 2016

From October 1, 2015

to September 30, 2016

to March 31, 2016

¥2,518,595¥2,427,915--¥2,518,595¥2,427,915

414,983

354,622

18. SIGNIFICANT SUBSEQUENT EVENTS
Not applicable.

6419. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following as of September 30, 2016:
Type of asset

Balance atthe beginningof the period

Increaseduring theperiodDecreaseduring theperiodBalance atthe end of theperiodDepreciation
Accumulated
depreciation

Depreciation
for theperiodNetbalance atthe end of
the period

Remarks(in thousands of yen)
Construction inprogress-¥35,243-

Buildings in trust
Structures in trust

Subtotal

Machinery andProperty,plant andequipment

equipment in trust

¥

¥

-

¥35,243

35,243-35,24333,894,083

8,515,661-

1,584,525

224,105-

29,194

174,101

47,611¥-¥-¥35,243--

35,24342,409,745

1,707,093

664,015

40,702,651

1,808,630

106,872

37,882

1,701,758-

203,295

6,582

4,862

196,7124,201-

51,813

6,700

3,287

45,112

99,044,234

19,181,116-

118,225,350--

118,225,350

5,583

6,616

185

12,015--12,015

134,605,233

28,105,802

185

162,710,850

1,827,249

710,047

160,883,601

134,605,233

28,141,045

185

162,746,093

1,827,249

710,047

160,918,844

537,838--

537,838

13,261

3,978

524,576*

Tools, furnitureand fixtures intrust
Land in trust
Construction inprogress in trust
Subtotal

Total
Intangible
assetsLeasehold rightin trust
Other

Total

2,809
¥540,648

¥

-

¥

-

2,809

926

280

1,883

-

¥540,648¥14,188¥4,259¥526,460**The amount of increase during the period is primarily attributable to the acquisition of the real estate properties.
Property, plant and equipment consists of the following as of March 31, 2016:
Type of asset

Balance atthe beginningof the period

Increaseduring theperiodDecreaseduring theperiodBalance atthe end of theperiodDepreciation
Accumulated
depreciation

Depreciation
for theperiodNetbalance atthe end of
the period

Remarks(in thousands of yen)
Construction inprogress¥96,745

Subtotal-¥96,745

96,745-96,745----

Buildings in trust

25,766,439

8,127,644-

33,894,083

1,043,077

524,792

32,851,006

Structures in trust

1,118,727

465,797-

1,584,525

68,99033,915

1,515,535

29,194--29,1941,720

850

27,473

26,211

21,400-47,611

3,413

2,181

44,19866,910,436

32,133,798-

99,044,234--

99,044,234

12,025

185

6,627

5,583

-

-

5,583

93,863,035

40,748,825

6,627

134,605,233

1,117,201

561,739

133,488,032

93,959,781

40,748,825

103,373

134,605,233

1,117,201

561,739

133,488,032

176,383

361,455-

537,838

9,283

3,978

528,555

2,809

-

-

2,809

645

280

2,164

¥179,192¥361,455-¥540,648¥9,928¥4,259¥530,719

Machinery andProperty,plant andequipment

equipment in trust

¥

¥

-

¥

-

¥

-

¥

-

*

Tools, furnitureand fixtures intrust
Land in trust
Construction inprogress in trust
Subtotal

Total
Intangible
assets
Total

Leasehold rightin trust
Other

¥

*

*The amount of increase during the period is primarily attributable to the acquisition of the real estate properties.

6520. SHORT-TERM LOANS PAYABLE AND LONG-TERM LOANS PAYABLE
The following summarizes short-term loans payable and long-term loans payable outstanding as of September 30, 2016:
Classification
LenderBalance atthe beginningof the period

Increaseduring theperiodDecreaseduring theperiodAverageinterest rate
（Note2）（Note3）

Balance atthe end of
the period(in thousands of yen)
Sumitomo Mitsui
Banking Corporation
Sumitomo Mitsui
Banking Corporation
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,Ltd.
Mizuho Bank, Ltd.
Short-termloanspayableLong-term
loans
payable--2,050,000

0.539

2,450,000--

2,450,000

0.539

450,000--

450,000

450,000--

450,000

400,000--

400,000

Resona Bank, Ltd.

250,000--

250,000

Aozora Bank, Ltd.

250,000--

250,000

Remarks

200,000--

200,000-

4,140,000-

4,140,000-

360,000-

360,000-

800,000

800,000-

1,070,000

6,500,000

0.489

October 2,
2016
October 2,
2016

February 10,2017Unsecured/(Note5)

Nonguaranteed

0.484

April 21,
2017

-

0.488

April 21,2017-

1,070,000

0.484

April 21,2017

6,370,000

800,000

12,070,000

2,300,000--

2,300,000

800,000--

800,000

0.545

February 10,
2018

400,000--

400,000

350,000--

350,000

2,400,000--

2,400,000

800,000--

800,000

800,000--

800,000

550,000--

550,000

Aozora Bank, Ltd.

500,000--

500,000

0.751

February 10,
2020

Resona Bank, Limited

500,000--

500,000

The Gunma Bank, Ltd.
The Musashino Bank,
Ltd.
Mizuho Bank, Ltd.
Mizuho Trust &Banking Co., Ltd.
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,
Ltd.
Sumitomo Mitsui Trust
Bank, LimitedAozora Bank, Ltd.

400,000--

400,000

400,000--

400,000

350,000--

350,000

300,000--

300,000

3,000,000--

3,000,000

700,000--

700,000

500,000--

500,000

450,000--

450,000

Resona Bank, Limited

450,000--

450,000

Mizuho Bank, Ltd.

400,000--

400,000

Mizuho Bank, Ltd.
Sumitomo Mitsui
Banking Corporation（Note7）The Bank ofTokyo-Mitsubishi UFJ,Ltd.
Subtotal
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,Ltd.
Mizuho Bank, Ltd.
Mizuho Trust &Banking Co., Ltd.
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,Ltd.
Mitsubishi UFJ Trustand Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited

Use

(%)

2,050,000

Sumitomo Mitsui Trust
Bank, Ltd.
Sumitomo Mitsui
Banking Corporation

Payment due
date（Note4）

Unsecured/(Note5)

Nonguaranteed

0.865

February 10,
2021

66

Classification
LenderBalance atthe beginningof the period

Increaseduring theperiodDecreaseduring theperiodBalance atthe end of
the period(in thousands of yen)
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,
Ltd.
Sumitomo Mitsui Trust
Bank, Limited

Long-term
loans
payableAverageinterest rate
（Note2）（Note3）--2,600,000

800,000--

800,000

600,000--

600,000

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

400,000--

400,000

400,000--

400,000

Resona Bank, Limited

300,000--

300,000

Mizuho Bank, Ltd.
Development Bank ofJapan Inc.（Note6）
Development Bank ofJapan Inc.（Note6）
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,Ltd.
Aozora Bank, Ltd.

300,000--

300,000

1,500,000--

1,500,000

0.925

1,600,000--

1,600,000

1.033

4,600,000--

4,600,000

1.366

750,000--

750,000

500,000--

500,000

400,000--

400,000

200,000--

200,000

200,000--

200,000

150,000--

150,000

1,000,000--

1,000,000

600,000--

600,000

400,000--

400,000

400,000--

400,000

400,000--

400,000

400,000--

400,000

1,500,000--

1,500,000

1,850,000--

1,850,000

550,000--

550,000

500,000--

500,000

300,000--

300,000

250,000--

250,000

450,000--

450,000

200,000--

200,000

Resona Bank, Limited
Mizuho Trust &Banking Co., Ltd.
Mitsubishi UFJ Trustand Banking
Corporation
Development Bank ofJapan Inc.（Note6）
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,
Ltd.
Sumitomo Mitsui Trust
Bank, Ltd.
Resona Bank, Ltd.
The Musashino Bank,Ltd.
Mitsubishi UFJ Trustand Banking
Corporation

Use

Remarks(%)

2,600,000

Mizuho Bank, Ltd.
Sumitomo Mitsui Trust
Bank, Limited
Resona Bank, Limited
The Musashino Bank,Ltd.
The Bank ofTokyo-Mitsubishi UFJ,
Ltd.
Sumitomo Mitsui Trust
Bank, Limited
Mizuho Bank, Ltd.

Payment due
date（Note4）

Resona Bank, Ltd.
The Musashino Bank,Ltd.
Development Bank ofJapan Inc.（Note6）
Sumitomo Mitsui
Banking Corporation
Mizuho Bank, Ltd.

150,000--

150,000

1,500,000--

1,500,000

3,000,000--

3,000,000

1,150,000--

1,150,000

The Bank ofTokyo-Mitsubishi UFJ,Ltd.

1,000,000--

1,000,000

0.978

0.534

February 10,2022

February 10,2021
February 10,
2022
April 16,2025

March 31,2019

Unsecured/(Note5)0.975

March 31,
2023

0.994

March 31,
2023

0.545

March 31,
2019

0.987

March 31,
2023

1.013

March 31,
2023

1.110

March 31,2024

Nonguaranteed67Classification

Balance atthe beginningof the period

LenderIncreaseduring theperiodDecreaseduring theperiodBalance atthe end of
the period(in thousands of yen)

Long-term
loans
payableMizuho Trust &Banking Co., Ltd.
Sumitomo Mitsui Trust
Bank, Ltd.
Resona Bank, Ltd.
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,Ltd.
Mizuho Bank, Ltd.
Sumitomo Mitsui Trust
Bank, Ltd.
Sumitomo Mitsui Trust
Bank, Ltd.
Development Bank ofJapan Inc.（Note6）
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,Ltd.
Subtotal

Total

Averageinterest rate
（Note2）（Note3）

Payment due
date（Note4）Use

Remarks(%)

700,000--

700,000

650,000--

650,000

500,000--

500,000

1,500,000--

1,500,000

1.110

March 31,2024

April 16,1.243
400,000--

400,000-

710,000-

710,000

2025
Unsecured/-

620,000-

620,000

0.368-

450,000-

450,000

0.803-

890,000-

890,000

0.760-

2,670,000-

2,670,000

0.932

-

890,000-

890,000

0.888

51,000,000

6,230,000-

57,230,000

57,500,000

12,600,000

800,000

69,300,000

March 31,2019

(Note5)

Nonguaranteed

September 30,
2024
September 30,
2024
April 21,2026
October 31,
2025

Note1: Annual repayments of long-term loans payable (except for current portion of long-term loans payable) scheduled after the balance sheet date are as
follows:
Due after 1 year
through 2 years
Long-term loans
payable3,850,000

Due after 2 years
through 3 years
6,980,000

Due after 3 years
through 4 years（in thousands yen）
7,000,000

Due after 4 years
through 5 years
7,000,000

Due after 5 years

32,400,000

Note2: All debts except for the following Note6 are borrowings at a floating rate.
Note3: Average interest rates are the weighted average during the period and figures are rounded to the nearest third decimal place. Also, with regard toborrowings for which interest rate swap transactions were implemented in order to hedge the interest rate volatility risk, the weighted average interest
rates taking into consideration the effects of the interest rate swaps are indicated.
Note4: All the repayment methods of debt financing except for the following Note7 are lump-sum repayments on the due date.
Note5: All debts were used as the funds for acquiring real estate properties or trust beneficiary interest in real estate (additional expenses are included) andrepayment of debts.
Note6: Borrowings at a fixed rate.
Note7: Prepayment was made on May 31, 2016.

68

The following summarizes short-term loans payable and long-term loans payable outstanding as of March 31, 2016:
Classification
LenderBalance atthe beginningof the period

Increaseduring theperiodDecreaseduring theperiodAverageinterest rate
（Note2）（Note3）

Balance atthe end of
the period(in thousands of yen)
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,Ltd.
Mizuho Bank, Ltd.

Short-termloanspayableLong-term
loans
payablePayment due
date（Note4）-450,000-

450,000-

450,000-

400,000-

400,000-

Aozora Bank, Ltd.

250,000-

250,000-

Resona Bank, Limited

250,000-

250,000-

200,000-

200,000--

2,050,000--

3,650,000

-

0.430

February 10,
2016

2,050,000

0.620

October 2,
2016

1,200,000

2,450,000

0.621

October 2,
2016

450,000-

450,000-

450,000-

450,000-

400,000-

400,000

0.535

February 10,
2017

Resona Bank, Ltd.

-

250,000-

250,000

Aozora Bank, Ltd.
Sumitomo Mitsui Trust
Bank, Ltd.
Subtotal-

250,000-

250,000-

200,000-

200,000

2,000,000

7,700,000

3,200,000

6,500,000

2,300,000--

2,300,000

800,000--

800,000

0.545

February 10,
2018

400,000--

400,000

350,000--

350,000

2,400,000--

2,400,000

800,000--

800,000

800,000--

800,000

550,000--

550,000

500,000--

500,000

0.751

February 10,
2020

Resona Bank, Limited

500,000--

500,000

The Gunma Bank, Ltd.
The Musashino Bank,
Ltd.
Mizuho Bank, Ltd.
Mizuho Trust &Banking Co., Ltd.
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,
Ltd.
Sumitomo Mitsui Trust
Bank, LimitedAozora Bank, Ltd.

400,000--

400,000

400,000--

400,000

350,000--

350,000

300,000--

300,000

3,000,000--

3,000,000

700,000--

700,000

500,000--

500,000

450,000--

450,000

Resona Bank, Limited

450,000--

450,000

Mizuho Bank, Ltd.

400,000--

400,000

Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,Ltd.
Mizuho Bank, Ltd.
Mizuho Trust &Banking Co., Ltd.
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,Ltd.
Mitsubishi UFJ Trustand Banking
Corporation
Sumitomo Mitsui Trust
Bank, LimitedAozora Bank, Ltd.

Remarks(%)

450,000

Sumitomo Mitsui Trust
Bank, Limited
Sumitomo Mitsui
Banking Corporation
Sumitomo Mitsui
Banking Corporation（Note6）
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,Ltd.
Mizuho Bank, Ltd.

Use

Unsecured/(Note5)

Nonguaranteed

Unsecured/(Note5)

Nonguaranteed

0.865

February 10,
2021

69

Classification
LenderBalance atthe beginningof the period

Increaseduring theperiodDecreaseduring theperiodBalance atthe end of
the period(in thousands of yen)
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,
Ltd.
Sumitomo Mitsui Trust
Bank, Limited

Long-term
loans
payableAverageinterest rate
（Note2）（Note3）--2,600,000

800,000--

800,000

600,000--

600,000

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

400,000--

400,000

400,000--

400,000

Resona Bank, Limited

300,000--

300,000

Mizuho Bank, Ltd.
Development Bank ofJapan Inc.（Note7）
Development Bank ofJapan Inc.（Note7）
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,Ltd.
Aozora Bank, Ltd.

300,000--

300,000

1,500,000--

1,500,000

0.925

1,600,000--

1,600,000

1.033

4,600,000--

4,600,000

1.366

750,000--

750,000

500,000--

500,000

400,000--

400,000

200,000--

200,000

200,000--

200,000

150,000--

150,000

1,000,000--

1,000,000

600,000--

600,000

400,000--

400,000

400,000--

400,000

400,000--

400,000

400,000--

400,000

1,500,000--

1,500,000-

1,850,000-

1,850,000-

550,000-

550,000-

500,000-

500,000-

300,000-

300,000-

250,000-

250,000-

450,000-

450,000-

200,000-

200,000-

150,000-

150,000-

1,500,000-

1,500,000-

3,000,000-

3,000,000-

1,150,000-

1,150,000-

1,000,000-

1,000,000

Resona Bank, Limited
Mizuho Trust &Banking Co., Ltd.
Mitsubishi UFJ Trustand Banking
Corporation
Development Bank ofJapan Inc.（Note7）
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,
Ltd.
Sumitomo Mitsui Trust
Bank, Ltd.
Resona Bank, Ltd.
The Musashino Bank,Ltd.
Mitsubishi UFJ Trustand Banking
Corporation
Resona Bank, Ltd.
The Musashino Bank,Ltd.
Development Bank ofJapan Inc.（Note7）
Sumitomo Mitsui
Banking Corporation
Mizuho Bank, Ltd.
The Bank ofTokyo-Mitsubishi UFJ,
Ltd.

Use

Remarks(%)

2,600,000

Mizuho Bank, Ltd.
Sumitomo Mitsui Trust
Bank, Limited
Resona Bank, Limited
The Musashino Bank,Ltd.
The Bank ofTokyo-Mitsubishi UFJ,
Ltd.
Sumitomo Mitsui Trust
Bank, Limited
Mizuho Bank, Ltd.

Payment due
date（Note4）

0.978

0.534

February 10,2022

February 10,2021
February 10,
2022
April 16,2025

March 31,2019

Unsecured/(Note5)0.975

March 31,
2023

0.994

March 31,
2023

0.545

March 31,
2019

0.987

March 31,
2023

1.013

March 31,
2023

1.110

March 31,2024

Nonguaranteed70Classification

Balance atthe beginningof the period

LenderIncreaseduring theperiodDecreaseduring theperiodBalance atthe end of
the period(in thousands of yen)

Long-term
loans
payableMizuho Trust &Banking Co., Ltd.
Sumitomo Mitsui Trust
Bank, Ltd.
Resona Bank, Ltd.
Sumitomo Mitsui
Banking Corporation
The Bank ofTokyo-Mitsubishi UFJ,Ltd.
Subtotal

Total

Averageinterest rate
（Note2）（Note3）

Payment due
date（Note4）700,000-

700,000-

650,000-

650,000-

500,000-

500,000-

1,500,000-

1,500,000

1.110

March 31,2024-

400,000

36,350,000
38,350,000

14,650,000-

51,000,000

22,350,000

3,200,000

57,500,000

Unsecured/(Note5)

Nonguaranteed

April 16,1.243
400,000

Remarks

(%)

-

-

Use

2025

Note1: Annual repayments of long-term loans payable (except for current portion of long-term loans payable) scheduled after the balance sheet date are as
follows:
Due after 1 year
through 2 years
Long-term loans
payable3,850,000

Due after 2 years
through 3 years

Due after 3 years
through 4 years（in thousands yen）

5,650,000

7,000,000

Due after 4 years
through 5 years
7,000,000

Due after 5 years

27,500,000

Note2: All debts except for the following Note7 are borrowings at a floating rate.
Note3: Average interest rates are the weighted average during the period and figures are rounded to the nearest third decimal place. Also, with regard toborrowings for which interest rate swap transactions were implemented in order to hedge the interest rate volatility risk, the weighted average interest
rates taking into consideration the effects of the interest rate swaps are indicated.
Note4: All the repayment methods of debt financing except for the following Note6 are lump-sum repayments on the due date.
Note5: All debts were used as the funds for acquiring real estate properties or trust beneficiary interest in real estate (additional expenses are included) andrepayment of debts.
Note6: Partial prepayment of ¥1,200,000 thousand was made on October 30, 2015.
Note7: Borrowings at a fixed rate.

7121. DISTRIBUTIONS
From April 1, 2016
to September 30, 2016

From October 1, 2015
to March 31, 2016

I. Retained earnings at the end of period¥2,518,802,609¥2,427,985,431

II. Distributions in excess of earnings¥36,330,700¥4,263,000

Of which, allowance for temporary
difference adjustments¥36,330,700¥4,263,000

III. Total distributions¥2,523,716,300¥2,432,041,500

Distributions per unit

¥5,974¥6,846¥2,487,385,600¥2,427,778,500¥5,888¥6,834

Of which, allowance for temporary
difference adjustments¥36,330,700¥4,263,000

Of which, distributions in excess ofearnings per unit (allowance fortemporary difference adjustments)

¥86

¥12

IV. Retained earnings brought forward to
the next period¥31,417,009¥206,931

Method of calculating distribution amountIn accordance with the policy described in Article 39-1
of its Articles of Incorporation, KRR determines that theamount of distribution shall exceed the amountequivalent to 90% of its distributable profit as stipulated
in Article 67-15 of the Special Taxation Measures Law
and shall be up to its profits as the maximum amount.
Following this policy, KRR has decided that it shall
distribute ¥2,487,385,600 which is almost the entire
amount of income as defined in Article 136-1 of theInvestment Trust Act. Procedures for the distribution ofamounts exceeding distributable income are outlined in
Article 39-2 of KRR’s Articles of Incorporation.
Furthermore, in accordance with the policy for“Distribution of Money in Excess of Profits” as stated in
Article 39-2 of KRR’s Articles of Incorporation, KRR
made a distribution in excess of earnings of ¥36,330,700
for allowance for temporary difference adjustments (asdefined in Article 2-2-30 of the Ordinance on Accountingsof Investment Corporations) for the purpose of reflecting
the effect on distributions of the difference in earnings
calculated under Japanese GAAP and Japanese tax
laws (as defined in Article 2-2-30 (a) of the Ordinance on
Accountings of Investment Corporations) in association
with the amortization of fixed-term land leasehold rights
and of the item deducted from net asset (as defined in
Article 2-2-30 (b) of the Ordinance on Accountings ofInvestment Corporations) in association with deferredlosses on hedges.

In accordance with the policy described in Article 39-1
of its Articles of Incorporation, KRR determines that theamount of distribution shall exceed the amountequivalent to 90% of its distributable profit as stipulated
in Article 67-15 of the Special Taxation Measures Law,and shall be up to its profits as the maximum amount.
Following this policy, KRR has decided that it shall
distribute ¥2,427,778,500 which is the maximum integral
multiple of 355,250 units issued and outstanding as the
distribution of earnings. Procedures for the distribution ofamounts exceeding distributable income are outlined in
Article 39-2 of KRR’s Articles of Incorporation.
Furthermore, in accordance with the policy for“Distribution of Money in Excess of Profits” as stated in
Article 39-2 of KRR’s Articles of Incorporation, KRR
made a distribution in excess of earnings of ¥4,263,000
for allowance for temporary difference adjustments (asdefined in Article 2-2-30 of the Ordinance on Accountingsof Investment Corporations) for the purposeof reflecting the effect on distributions of the difference inearnings calculated under Japanese GAAP andJapanese tax laws (as defined in Article 2-2-30 (a) of theOrdinance on Accountings of Investment Corporations) in
association with the amortization of fixed-term landleasehold rights.

Of which, distributions of earnings
Of which, distributions of earnings perunit

3rd Fiscal Period (From April 1, 2016 to September 30, 2016)
1. Reasons, related assets and allowance(in thousands of yen)
Related assets, etc.

Allowance for temporary
difference adjustments

ReasonBuildings in trust,
Leasehold right in trust

Amortization of leasehold right in trust and the amount in excess ofdepreciation¥5,491

Deferred gains or losses on hedges

Loss on interest-rate swaps recognized at the end of the fiscal period¥30,838

2. Method of reversal
Method of reversal
Buildings in trust,
Leasehold right in trust

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

Deferred gains or losses on hedges

Based on changes in the fair value of the hedging instruments, the corresponding amount is scheduled to be reversed.

72

2nd Fiscal Period (From October 1, 2015 to March 31, 2016)
KRR allocated an addition of ¥4,263 thousand to the allowance for temporary difference adjustments concerning the amortization of leasehold
right in trust and the amount in excess of depreciation with regard to leasehold rights in trust of Sunny Noma. KRR plans to reverse acorresponding amount when Sunny Noma is disposed.

73