17th Period
NBF Report July – December 2009

Intelligent
Portfolio
Expansion
Nippon Building Fund Inc.
http://www.nbf-m.com/nbf_e/

PROFILE
On September 10, 2001, Nippon Building Fund Inc. (NBF) became the first Japanese real estate investment trust(J-REIT) investment corporation with its listing on the J-REIT section of the Tokyo Stock Exchange. Today, NBF has thelargest market capitalization and assets under management among J-REITs.
NBF employs funds raised through shareholder subscriptions and borrowing to invest in real estate, real estatebacked securities, trust beneficiary rights and other assets with the objective of sustainable growth in portfolio value
and stable profits on a medium-to-long-term basis. Its fiscal periods are six months long. NBF primarily invests in officebuildings in the central business districts of Tokyo, other Greater Tokyo and other cities in Japan. The Investment Trust
Law of Japan requires an external entity to manage the assets of an investment corporation; NBF entrusts asset management to Nippon Building Fund Management Ltd. (NBFM). NBF maintains a close relationship with NBFM’s major
shareholder Mitsui Fudosan Co., Ltd., and employs that company’s expertise to invest in carefully selected, high-quality
properties, with the aim of generating further asset growth.

CONTENTS

Intelligent
Portfolio
Expansion

Building on Our Strengths

2

Financial Highlights

4

To Our Shareholders

6

Feature: Intelligent Portfolio Expansion

8

A Track Record of Steady Growth and High Occupancy Rates 13
Main Properties

14

Location of Office Properties

20

Portfolio Overview

22Management Team and Management Structure

24Management’s Discussion and Analysis

28

Financial Statements

39

Appendix

53

Investment and Distribution Policies

55

Corporate Data

62

Investors’ Information

63

On the Cover

The Toranomon Kotohira Tower,
acquired in stages in 2004 and 2006,
is located in Tokyo’s convenient
Kasumigaseki and Toranomon districts,
a center of Japanese business andgovernment which historically has beena premier office building area. This is acore NBF property for which tenant
demand has remained firm, for reasons
including its proximity to government
institutions.

Building on Our Strengths

Over the 17 periods, or roughly eight and ahalf years, since its listing on the J-REIT sectionof the Tokyo Stock Exchange in September
2001, NBF has established a track record of sta-

Japan’s First andLargest J-REIT

ble profit distribution.
As a result of steady growth, NBF has built asolid position in the J-REIT market from several
perspectives, including scale advantage, portfolio scope, financial stability and level of return.
NBF will continue to make maximum use of
its strengths and competitive advantages,◆ In September 2001, NBF was listed as the first real estate
investment corporation in Japan on the J-REIT section of
the Tokyo Stock Exchange.
◆ The largest total market capitalization of any J-REIT(¥382.7 billion)*◆ The largest scale of managed assets (¥783.1 billion)*(total acquisition price)

as well as the expertise of Mitsui Fudosan Co.,
Ltd., to steadily increase value for shareholders.

High-Quality
Properties◆ Specializes in investing in office buildings◆ Possesses 61* properties, mainly large-scale officebuildings in the Tokyo Central Business Districts◆ Diversified in other Tokyo markets as well as inregional cities◆ Total rentable area of 770,150m2*◆ 898* diversified tenants

2 NBF Report July – December 2009

Stable Returns◆ Cash distribution of ¥19,672 per share for the 17th Period◆ Aims to increase distributions to shareholders
over the medium to long term
(Cash distribution per share: Yen)

NBF’s Strengths

19,67225,00019,391

20,00014,582
15,00010,0005,000
0Sound Finances◆ Ratings*■ Standard & Poor’s

Long-term Corporate: A+, Short-term Corporate: A-1■ Moody’s Issuer Rating: A1■ R & I Issuer Rating: AA

5th

Period10th

17th

Strategic Partnershipwith Mitsui Fudosan◆ Access to the expertise of Mitsui Fudosan Co., Ltd., theleading real estate company in Japan◆ LTV: 46.9%*■◆ Percentage of long-term fixed-rate debt included ininterest-bearing debt: 86.2%*■ Use of property information-gathering capabilities◆ Average years remaining on long-term fixed-rate interestbearing debt: 4.51 years*

Acquisition of properties developed by Mitsui Fudosanof Mitsui Fudosan■ Use of Mitsui Fudosan’s tenant mediation and building

management capabilities in office management◆ Total average cost: 1.68%** As of December 31, 2009

NBF Report July – December 2009 3

Financial Highlights
17th Period

16th Period

15th Period

14th Period

17th Period

from July 1, 2009 to
December 31, 2009

from January 1, 2009 toJune 30, 2009

from July 1, 2008 to
December 31, 2008

from January 1, 2008 toJune 30, 2008

from July 1, 2009 to
December 31, 2009
U.S. dollars in thousands(Note 1)

(Yen in millions, except per share data or where otherwise indicated)

Operating revenues
Income before income taxes
Net income

Note 2¥ 29,928
10,663
10,662¥ 30,761
11,803
11,802¥ 31,218
12,062
12,061¥ 30,088
12,223
12,222$ 321,529
114,560
114,549

Funds from operations
Net operating income
from property leasing activities
Total amount of cash distribution

Note 3

15,944

17,157

17,417

16,630171,297

Note 3(a)20,124
10,66221,005
11,802

21,346
12,061

20,318
12,222

216,195
114,549(b)Note 3

782,311337,875
396,83846.9%

783,793
338,500
397,97847.0%

766,249
318,500
398,23745.5%

725,627
280,500
398,39842.8%

8,404,720
3,629,942
4,263,410(c)(b) / (c)(a) / (c)542,000
732,173
19,672542,000
734,276
21,775542,000
734,753
22,252542,000
735,050
22,5497,866
211

Note 329,41731,65432,13431,066316

Total assets
Interest-bearing debt
Net assets
LTV (Loan to value)
Total number ofcommon shares issued (shares)
Net assets per share (Yen/$)Distribution per share (Yen/$)Funds from operations
per share (Yen/$)Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥93.08 = U.S.$1.00, the approximate exchange rate on December 31, 2009.
2. Operating revenues do not include consumption taxes.
3. Funds from operations: Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization
Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation and amortization
Loan to value: (Interest-bearing debt + Deposits under management) / Total assets
Funds from operations per share: (Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization) /Weighted average number of common shares issued and outstanding during the period

Portfolio Highlights (As of December 31, 2009)
Regional Allocation

Average Age(Average age of properties weighted byacquisition price of each property)

5 years or less

Other Cities*¥90,931 million(11.6%)
Other Greater*Tokyo¥189,180 million(24.2%)

11.1%
Total
acquisition
price¥783,189

years

Between 5
and 10 years
16.6%

millionTokyo CBDs*¥503,078 million(64.2%)* Tokyo CBDs (Central Business Districts): The 9 central wards of Tokyo, comprising Chiyoda, Minato,Chuo, Shinjuku, Shinagawa, Shibuya, Toshima, Bunkyo and Meguro
Other Greater Tokyo: The other 14 wards of Tokyo, and neighboring cities
Other Cities: Principal regional cities

4 NBF Report July – December 2009

15.37

Over 10 years
72.3%

Operating revenues / Net income

Funds from operations per share

Net operating income fromproperty leasing activities(Yen in millions)(Yen in millions)(Yen)

35,00025,00040,00030,00020,00030,00025,00020,00015,00015,00010,00020,00010,00010,000

5,000
5,000

0

13th
Period14th
Period15th
Period16th
Period0

17thPeriod13th
Period14th
Period15th
Period16th
Period0

17thPeriod14th
Period13th
Period15th
Period16th
Period17th
PeriodOperating revenues
Net income

Total assets

LTV

Net assets per share /Distribution per share(Yen in millions)

(%)

(Yen)

800,00050

750,000

25,000700,000

48

700,000

20,000600,000

46

500,000

650,000

15,0004442600,000

10,00040

550,000

5,000

400,000
300,000

00Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31,
2007
2008
2008
2009 2009

(Yen)

0

Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31,
2007
2008
2008
2009 200913th
Period14th
Period15th
Period16th
Period17th
Period0

Net assets per share (left scale)
Distribution per share (right scale)

Property Concentration Risk Diversification

Tenant Risk Diversification(Ratio of total acquisition price of top 3 properties
to total acquisition price)(Top 10 tenants’ share of total floor space)

Top 9 tenants’ share(excluding Mitsui Fudosan Co., Ltd.)(e220.5%

Top 3 properties
19.0%

19.0%

Other properties
81.0%

43.8%
(20.5%)

TTop 10 tenants’ share(i(including Mitsui Fudosan Co., Ltd.)
443.8%NBF Report July – December 2009 5

To Our Shareholders

NBF aims for steady distributions toshareholders over the medium-to-longterm by generating well-balanced internaland external growth based on its soundfinancial strategy.

Koichi Nishiyama
Executive Director of Nippon Building Fund Inc.
President and CEO of Nippon Building Fund Management Ltd.

Performance during the Six Months Ended December 31, 2009amount of space leased and cancel lease contracts continued as

As a result of ongoing solid management, distribu-

companies relocated, integrated and downsized their operations

tion per share was ¥19,672.

due to intensifying pressure to reduce costs in response to
weaker corporate earnings. As a result, occupancy rates and rent

During the six months ended December 31, 2009 (the “17thPeriod”), the global economic slowdown caused decreases inlevels continued to decrease.
Meanwhile, there was renewed activity in the office building

corporate profits and capital investment, and the employment

acquisition market, primarily transactions in central businesssituation rapidly deteriorated. Despite some signs of recovery

districts (CBDs), as the turmoil in the financial market eased andincluding increased exports centered on Asia, economic

real estate prices adjusted. A strong desire to invest wasconditions remained severe, with the unemployment rateparticularly evident for excellent properties in CBDs, which are

hovering at a high level.

scarce. However, the acquisition market remained sluggish due

In the office building leasing market, the move to reduce the

Performance Outlook (As of February 12, 2010)

Operating revenues
Net income
Distribution per share (Yen)

6 NBF Report July – December 2009

(Yen in millions)18th Period (Projected)
from January 1, 2010 to June 30, 2010

19th Period (Projected)
from July 1, 2010 to December 31, 2010

¥28,0548,834
16,300¥27,467
8,184
15,100to the ongoing shortage of superior, high-spec properties for saleThis includes a decrease of 4 percent from rent revisions at con-in good locations.

tract renewal and a 5 percent decrease from rent-free periods

In these conditions, NBF continued to manage its assets inand rent decreases upon re-leasing of units to new tenants.

accordance with its fundamental policy of investing in high-Based on these assumptions, NBF expects distributions per

quality office buildings that are highly competitive from various

share of ¥16,300 for the six months ending June 30, 2010 (thepoints of view and are expected to have stable cash flow from“18th Period”) and ¥15,100 per share for the six months ending

rents. In addition, NBF considered new property acquisitions, but

December 31, 2010 (the “19th Period”).

ultimately did not make any during the 17th period. As a result,
NBF’s real estate portfolio at December 31, 2009 comprised 61
properties with a total investment value of over ¥783.1 billion on

Future Management Policies

an acquisition price basis.

Under its fundamental policy of aiming for steadyOperating revenues for the six months ended December 31,

distributions over the medium-to-long term, NBF

2009 decreased ¥833 million, or 2.7 percent, compared with thewill shift from internal growth to external growth.

previous six-month period to ¥29,928 million. Behind thisdecrease was the decline in rental revenue due to higher tenant
turnover and the lower occupancy rate. Operating income
decreased ¥772 million, or 5.4 percent, to ¥13,524 million. Net
income decreased ¥1,139 million, or 9.7 percent, to ¥10,662
million. Distribution per share decreased ¥2,103 to ¥19,672.

NBF expects the operating environment to remain challenging
in 2010. However, NBF will continue to implement its
fundamental policy of providing steady distributions to shareholders over the medium-to-long term by generating wellbalanced internal and external growth based on its soundfinancial strategy.
By making the most of the advantages of the high-quality

Outlook for 2010

NBF expects the occupancy rate to bottom out
in mid-2010.
In the office building leasing market, contract cancellations

portfolio it has built up since it began asset management and theleasing capabilities of its sponsor, Mitsui Fudosan Co., Ltd., NBF
will prevent contract cancellation by strengthening tenant
relationships, bolster marketing to attract new tenants,
strategically invest in renovation to enhance competitiveness, andincreased in March and April 2009 due to corporate cost

review administrative and other costs. Moreover, with signs of

reductions. However, signs of recovery began to appear in May,change beginning to appear in the economy, NBF intends to shift

including growing demand for better offices due to factors suchfrom internal growth to external growth based on fundas lower rents and moves by tenants that have restructured to

procurement capabilities that leverage its sound fundamentals. In

find properties with better lease conditions. Accordingly, NBF

addition to turning over its existing portfolio, NBF will

expects the occupancy rate to bottom out in mid-2010.

aggressively and selectively invest in excellent properties.

In addition, NBF anticipates that asking rents will follow suit
about six months later, bottoming out at the end of 2010.
As a result, NBF expects rental revenue to decrease anannualized 8 percent over 2010. Although NBF projects anincrease of 1 percent due to the full-year contributions of newacquisitions, the outlook assumes a negative impact of 9 percent.

Koichi Nishiyama
Executive Director of Nippon Building Fund Inc.
President and CEO of Nippon Building Fund Management Ltd.

NBF Report July – December 2009 7

Feature: Intelligent Portfolio Expansion
NBF is strengthening leasing andIn the office building leasing market, occupancy
rates in the major business centers of Tokyo, Osaka

focusing on maintaining theoccupancy rate of its properties.

and Nagoya remain in a downtrend due to the economic slowdown. In particular, the occupancy rate incentral Tokyo has decreased to the 2003 level.
Annual new office space supply in the 23 wards ofTokyo is projected to be approximately 1,000,000m2.
The impact of this additional space on the supply anddemand balance will be limited for most locations.
Moreover, since May 2009, companies have begun
seeking better offices due to lower rents, and thosethat have reorganized their businesses have begun
looking for better lease conditions. As a result of theseand other factors, demand remained firm at NBF.
Taking a comprehensive view of these conditions,
NBF projects that the overall occupancy rate for its

Internal Growth:

Office Floor Space Supply inthe 23 Wards of Tokyo

Market Vacancy Rates(%)(Thousand m2)

25

2,500

20

2,000

15

NagoyaOsaka

Maintaining the Occupancy Rate

1,500

10

1,000

5

500

Tokyo
0

Dec.
2002

Dec.
2003

Dec.
2004

Dec.
2005

Dec.
2006

Dec.
2007

Dec.
Dec.
2008 2009
Source: Miki Shoji Co., Ltd.

Tokyo CBD: Chiyoda, Chuo, Minato, Shinjuku, Shibuya
Osaka CBD: Umeda, Minami-Morimachi, Yodoyabashi/Honcho, Senba, Shinsaibashi/Namba, Shin-Osaka
Nagoya CBD: Meieki, Fushimi, Sakae, Marunouchi

8 NBF Report July – December 20090

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(Proj.) (Proj.) (Proj.) (Proj.) (Proj.)

Source: Mori Building Co., Ltd.

portfolio will bottom out in mid-2010 and recover toconditions due to lower rents and business reorganiza-

95.0 percent by the end of December.

tion, and therefore anticipates that rent levels will stop

Average asking rents in Tokyo CBDs continued to

declining soon. Specifically, NBF expects rent levels todecrease substantially for new office buildings.

follow occupancy rates and bottom out in the second

However, rents were stable overall because ofhalf of 2010.

relatively steady asking rents for existing properties,

NBF will focus on maintaining the occupancy rate ofwhich make up the majority of office buildings in

its properties to minimize negative impacts on results

Tokyo.

by making the most of the advantages of its

NBF’s current portfolio is concentrated in Greater
Tokyo and has diversified rent levels. Over half of thehigh-quality portfolio and the leasing capabilities of its
sponsor, Mitsui Fudosan Co., Ltd.

properties have monthly rents of less than
¥25,000 /tsubo. These properties have exhibitedcomparatively small rent decreases. As a result, total
rent revenue is stable.
In its day-to-day leasing activities, NBF senses thatcompanies are beginning to actively seek better leaseby Strengthening Leasing

NBF Occupancy Rates

Average Asking Rents in Tokyo CBDs(%)

(Yen per tsubo )100

40,000

New buildings
NBF average for
the Tokyo, Osaka andNagoya areas

95

90

35,00030,000After bottoming out in mid-2010,
the occupancy rate is projected togradually recover.

85

Average asking rent
25,00080

20,000Existing buildings
0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010
(proj)

0

Jun.
2006

Dec.
2006

Jun.
2007

Dec.
2007

Jun.
2008

Dec.
Jun.
Dec.
2008 2009 2009
Source: Miki Shoji Co., Ltd.

NBF Report July – December 2009 9

Recognizing the current economic
environment as an opportunity toacquire properties, NBF will
selectively invest in those withclear advantages.

the seller, however, we changed the acquisition date to
January 2011 and the acquisition price to ¥10,400
million from ¥11,175 million. In addition, in March 2010
NBF sold two smaller properties: the NBF Ebisu-Minami
Building and the NBF Hakata Gion Building.
Past results show that NBF has expanded its assets
under management during the recovery since the IT
bubble burst in 2003. This has contributed to sub-

NBF recognizes that financial conditions are in theprocess of recovery, and that this presents an opportu-

sequent internal growth and increased distributions.
Currently, occupancy rates and asking rents are atnity to acquire excellent properties. Accordingly, NBF

very low levels, and GDP projections point toward awill selectively invest in outstanding assets based on its

gradual recovery in Japan’s economic fundamentals.

rigorous investment strategy while considering asset

NBF believes the time has come to begin shifting its

turnover. NBF concluded a contract to acquire the NBF

orientation from internal growth to external growth,

Ueno Building in August 2008, and planned to com-and will therefore focus on acquiring excellent

plete the acquisition in April 2010. After discussions withproperties.

External Growth:Strengthening the Portfolio through Selective Investment
Occupancy Rate, Real GDP and Acquisition Price
(%)

(%)

NBF occupancy rate (left scale)

100

3.0
0

95
90

Market occupancy rate* (left scale)Real GDP (right scale)

-6.0

85

■ Bursting of IT bubble■ “2003 Problem” foroffice leasing■ Recovery from bursting of IT bubble■ Economic growth■ Subprime
loan crisis■ Financial crisis■ Economic crisis■ Recovery from crisis■ Hope for economic recovery■ Real estate market gradually recovers

billi )
(Yen in billions)

800
600

-3.0

Acquisition price400
200
0 Dec.

• Selected investment
for future growth• Enhancement of portfolio

Jun.
Dec.
Jun.
Dec.
Jun.
Dec. Jun.
Dec.
Jun.
Dec.
Jun.
Dec.
Jun.
Dec.
Jun.
Dec.
Jun.
Dec.
Jun.
Dec.
2001 2002
2002 2003
2003 2004 2004 2005 2005 2006
2006 2007 2007 2008 2008 2009 20092010 2010 2011 2011
(Proj.) (Proj.) (Proj.) (Proj.)
2*Tokyo 23 wards; floor area over 10,000m
Source: Market occupancy rate: Mori Building Co., Ltd.; Real GDP: Cabinet Office, Government of Japan; Projections for October 2009 - March 2011: Japan Center for Economic Research

10 NBF Report July – December 2009

Feature: Intelligent Portfolio Expansion▼▼ ▼60 NBF Ueno Building●
Acquisition date:

April 30, 2010 (scheduled)

January 31, 2011 (scheduled)

Acquisition price:¥11,175 million

Site area:

2,405.22m2 (NBF share: approx. 78%)

¥10,400 million

Floor area of building: 15,949.26m2 (NBF share: approx. 78%)
Structure:

13 floors above ground, 2 floors below

Location:24-11, Higashi-Ueno 4-chome, Taito-ku, Tokyo▼

Planned Acquisitionin the 20th Period

Note: Acquisition date and acquisition
price changed as of April 8, 2010.

NBF Report July – December 2009 11

Feature: Intelligent Portfolio Expansion

NBF steadfastly adheres to soundfinancial management policies.

fixed-rate debt to total interest-bearing liabilities of 80
to 90 percent. At the end of the 17th Period, this ratio
was 86.2 percent.
The funding spread has been in a downtrend since

Factors such as the announcement in October 2009

the financial crisis of 2008.

of the first J-REIT public offering in one year and three

Furthermore, in addition to diversifying maturities

months indicate that the financial environment for J-

of interest-bearing debt, NBF took strict measures to

REITs is on an improving trend. In January 2010, NBF

reduce refinancing risk, including establishing a total

was the first J-REIT in one year and eight months tocommitment line of ¥50.0 billion and diversifying

issue investment corporation bonds.

credit sources among a large number of lending

The loan-to-value ratio (LTV) at the end of the 17th
Period was 46.9 percent, within the target range of 40

institutions (26 financial institutions, the most fora J-REIT).
These solid initiatives have earned NBF high ratings

to 50 percent (maximum 60 percent).
NBF is also working to procure long-term fixed-ratefrom rating agencies.

loans, and has set a target ratio for long-term

Financial Strategy:
Firmly Maintain Solid Financial Management Policies
Diversified Maturities ofInterest-Bearing Debt

Stable Financial Track Record(%)(Yen in billions)Long-term fixed-rate
debt ratio

100.0

80

80.0

Short-term loans
Bonds
Long-term debt

60

60.0

LTV

40

40.0
20
20.0

0.0 Jun.
2006

Dec.
2006

Jun.
2007

Dec.
2007

Jun.
2008

Dec.
2008

Jun.
2009

Dec.
2009

0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
(As of December 31, 2009)

12 NBF Report July – December 2009

A Track Record of Steady Growth and High Occupancy Rates

Occupancy rate (%)

100.0

96.9

97.7

97.5

98.1

98.1

98.7

97.8

99.0

98.6

97.4

96.8

95.4

94.8

90.0
Total rentable area (m2)

750,701

Acquisition priceTokyo CBDs
Acquisition price(Yen in billions)

Other Greater Tokyo

800

Other Cities

763,658 770,270 770,150

800,000

692,222670,249 670,513

700,000

692,286

783.1

783.1

762.3
725.2

Occupancy rate

700

578,243674.3

Total rentable area
624.8

600,000

674.3

624.8

488,323
460,901600

500,000

539.3

419,511500

400,000

393.8

400

414.1
300,000

336.1
300

247,687
200,000
200

192.1

100,000

100

22

43

43

47

52

55

55

56

56

58

60

61

61

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

May 23,
Jun. 30,
2001
2004(Investment commencement date)

Dec. 31,2004

Jun. 30,
2005

Dec. 31,2005

Jun. 30,
2006

Dec. 31,2006

Jun. 30,
2007

Dec. 31,2007

Jun. 30,
2008

Dec. 31,
2008

0

0

Jun. 30,
Dec. 31,2009
2009(As of December 31, 2009)

NBF Report July – December 2009 13

Main Properties

1 NBF Hibiya Building●

2 Nishi-Shinjuku Mitsui Building (top right)●
3 Shiba NBF Tower (right)●

14 NBF Report July – December 2009

5 NBF Minami-Aoyama Building
●

(top)

7 Toranomon Kotohira Tower●(bottom)

4 NBF Platinum Tower (top)●
6 Gate City Ohsaki (bottom)●

NBF Report July – December 2009 15

9 Nakameguro GT Tower (left)●
14 NBF Toranomon Building (below)●

12 Shinjuku Mitsui Building No. 2●

10 Mitsuiseimei Ochanomizu Building●

16 NBF Report July – December 2009

Main Properties

17 NBF Alliance (below)●

31 Nakanosakaue Sunbright Twin (bottom)●

19 Shibuya Garden Front (top)●23 NBF Akasaka Sanno Square (bottom)●

NBF Report July – December 2009 17

34 Shin-Kawasaki Mitsui Building (top)●35 Yokohama ST Building (bottom)●
32 NBF Toyosu Canal Front (top) /●33 NBF Toyosu Garden Front (bottom)●

18 NBF Report July – December 2009

Main Properties

50 ●55 Aqua Dojima NBF Tower, Aqua Dojima East●

40 S-ino Omiya North Wing (top left)●
51 Shinanobashi Mitsui Building (left)●

NBF Report July – December 2009 19

Location of Office Properties
As of December 31, 2009 (excluding properties sold in the 18th period)

Tokyo CBDs
1 NBF HIbiya Building
2 Nishi-Shinjuku Mitsui Building
3 Shiba NBF Tower
4 NBF Platinum Tower
5 NBF Minami-Aoyama Building
6 Gate City Ohsaki
7 Toranomon Kotohira Tower
8 NBF Nihonbashi Muromachi Center Building
9 Nakameguro GT Tower
10 Mitsuiseimei Ochanomizu Building
11 NBF Ginza Street Building
12 Shinjuku Mitsui Building No. 2
13 GSK Building
14 NBF Toranomon Building
15 Kowa Nishi-Shinbashi Building B
16 Nippon Steel Building No. 2
17 NBF Alliance
18 Yotsuya Medical Building
19 Shibuya Garden Front
20 NBF Shibuya East
21 NBF Shibakouen Building
22 NBF Takanawa Building
23 NBF Akasaka Sanno Square
24 NBF Shibakouen Daimon Street Building
25 Sumitomo Densetsu Building
26 NBF Higashi-Ginza Square
27 NBF Ogawamachi Building
28 NBF Ikebukuro Tower

Kita-ku

Arakawa-ku

29 28

Toshima-ku
Taito-ku

Bunkyo-ku

Nakano-ku

60

31

Sumida-ku
10

Shinjuku-ku

227

Chiyoda-ku

12

8

18
Imperial
Palace

13

19 20

14
15

7

5
17

Minato-ku

Setagaya-ku

21
9

4

Chuo-ku
Koto-ku

1

23

Shibuya-ku

29 NBF Ikebukuro City Building
30 NBF Sudacho Verde Building

30

11

26

3

16

33 32

24

22
25

Tokyo Bay

Meguro-ku
6

Shinagawa-ku

Other Greater Tokyo
31 Nakanosakaue Sunbright Twin
32 NBF Toyosu Canal Front
33 NBF Toyosu Garden Front
60 NBF Ueno Building(Scheduled for acquisition in January 2011)

8 NBF Nihonbashi●

16 Nippon Steel Building No. 2●

Muromachi Center Building

20 NBF Report July – December 200918 Yotsuya Medical Building●

26 NBF Higashi-Ginza Square●

21 NBF Shibakouen●

Building

Other Greater TokyoTOCHIGI

34 Shin-Kawasaki Mitsui Building
35 Yokohama ST Building
36 Parale Mitsui Building
37 NBF Atsugi Building
38 Tsukuba Mitsui Building
39 NBF Utsunomiya Building
40 S-ino Omiya North Wing
41 NBF Urawa Building
42 NBF Shin-Urayasu Tower
43 NBF Matsudo Building

38

UTSUNOMIYA

39

IBARAKITo Omiya40

SAITAMA
41

TOKYO

43

CHIBA
60

31

33 32

42

Other Cities
Tokyo Bay

34

44 Sapporo L-Plaza

36

45 NBF Sapporo Minami Nijo Building
46 NBF Sendai Honcho Building

35

37

47 NBF Unix Building

44 45

48 NBF Niigata Telecom Building

KANAGAWA

49 NBF Nagoya Hirokoji Building
50 Aqua Dojima NBF Tower
51 Shinanobashi Mitsui Building48

52 Sun Mullion NBF Tower

46
47

53 Sakaisuji-Honmachi Center Building
54 NBF Sakai-Higashi Building
55 Aqua Dojima East

56

49

56 NBF Shijo Karasuma Building

58 57
59

36 Parale Mitsui Building●

42 NBF Shin-Urayasu Tower●

44 Sapporo L-Plaza●

50 51 52 53

57 NBF Hiroshima Tatemachi Building

54 55

58 Hiroshima Fukuromachi Building
59 NBF Kumamoto Building

52 Sun Mullion NBF Tower●

53 Sakaisuji-Honmachi●

Center Building

NBF Report July – December 2009 21

Portfolio Overview
NBF’s properties as of December 31, 2009 are as follows (excluding properties sold in the 18th period):
Investment
Type

Name of Building

Type of Ownership

Percentageof OwnershipYear Built

Acquisition
Price

(%)

Book Value(Yen in millions)Tokyo CBDs
1 NBF Hibiya Building
Trust●
2 Nishi-Shinjuku Mitsui Building
Ownership●
3 Shiba NBF Tower
Trust●
4 NBF Platinum Tower
Trust●
5 NBF Minami-Aoyama Building
Ownership●
6 Gate City Ohsaki
Ownership●
7 Toranomon Kotohira Tower
Ownership●
8 NBF Nihonbashi Muromachi Center Building
Trust●
9 Nakameguro GT Tower
Ownership●
10 Mitsuiseimei Ochanomizu Building
Ownership●
11 NBF Ginza Street Building
Trust●
12 Shinjuku Mitsui Building No. 2
Trust●
13 GSK Building
Trust●
14 NBF Toranomon Building
Trust●
15 Kowa Nishi-Shinbashi Building B
Trust●
16 Nippon Steel Building No. 2
Ownership●
17 NBF Alliance
Trust●
18 Yotsuya Medical Building
Trust●
19 Shibuya Garden Front
Ownership●
20 NBF Shibuya East
Ownership●
21 NBF Shibakouen Building
Ownership●
22 NBF Takanawa Building
Trust●
23 NBF Akasaka Sanno Square
Trust●
24 NBF Shibakouen Daimon Street Building
Trust●
25 Sumitomo Densetsu Building
Trust●
26 NBF Higashi-Ginza Square
Trust●
27 NBF Ogawamachi Building
Ownership●
28 NBF Ikebukuro Tower
Trust●
29 NBF Ikebukuro City Building
Trust●
30 NBF Sudacho Verde Building
Ownership●■ NBF Ebisu-Minami Building
Ownership

Fee simple
Comparted ownershipFee simple
Fee simple
Fee simple
Comparted ownership
Comparted ownershipFee simple
Comparted ownershipFee simple
Fee simple
Fee simple
Fee simple
Fee simple
Co-ownership of comparted ownershipFee simple
Fee simple
Fee simple
Co-ownershipFee simple
Fee simple
Fee simple
Fee simple
Co-ownership of comparted ownershipFee simple
Fee simple
Comparted ownershipFee simple
Fee simple
Fee simple
Fee simple

100.0
85.1
100.0
100.0
100.0
12.9
100.0
100.0
93.1
100.0
100.0
100.0
100.0
100.0
83.0
100.0
100.0
100.0
50.0
100.0
100.0
100.0
100.0
87.0
100.0
100.0
83.8
100.0
100.0
100.0
100.0

1984
1999
1986
2005
1995
1999
2004
1986
2002
2009
1990
1983
1990
1963
1994
1989
1989
2004
2003
1992
1990
1987
1989
1991
1991
2005
1986
1993
1993
1988
1991

63,50044,90332,00031,00031,00030,10024,54323,94523,856
20,84017,00016,285
15,616
13,337
13,217
12,614
9,126
8,800
8,700
8,000
6,770
6,667
6,250
6,100
5,365
5,200
4,940
4,695
4,428
3,280
1,000

64,40935,83130,13829,89931,771
24,237
20,677
24,294
21,182
21,54917,605
15,843
13,736
13,515
11,892
11,431
9,488
8,405
8,171
8,214
6,641
6,229
6,243
6,297
4,733
4,913
5,043
4,591
4,397
3,356
1,004

81.0 Note 4
100.0
100.0
35.0
75.0
97.5
100.0
100.0
100.0
100.0
100.0
100.0
100.0

1996
2004
2007
1989
1987
1990
1991
1990
1996
2004
1990
1990
1992

40,75035,20025,01820,30013,529
3,800
2,300
8,876
2,435
16,8162,000
15,7002,455

38,88633,13424,962
18,63012,586
3,273
2,117
7,257
2,502
15,416
1,904
15,802
2,254

46.2
100.0
100.0
100.0
100.0
100.0
100.0
99.0
100.0
49.3
100.0
23.7
100.0
100.0
10.4
100.0
100.0

2003
1990
1987
1994
1989
2000
1996
1982
1996
1991
1991
1993
1991
1991
2002
1993
2008

4,404
1,870
3,566
4,029
3,958
7,232
17,81014,40010,500
6,500
2,227
1,914
1,627
2,930
835
2,629
4,500
783,189

3,942
1,704
3,610
3,182
3,690
7,171
16,581
11,592
8,517
6,225
1,968
1,789
1,402
2,921
718
2,278
4,523
736,271

Other Greater Tokyo
31 Nakanosakaue Sunbright Twin●
32 NBF Toyosu Canal Front●
33 NBF Toyosu Garden Front●
34 Shin-Kawasaki Mitsui Building●
35 Yokohama ST Building●
36 Parale Mitsui Building●
37 NBF Atsugi Building●
38 Tsukuba Mitsui Building●
39 NBF Utsunomiya Building●
40 S-ino Omiya North Wing●
41 NBF Urawa Building●
42 NBF Shin-Urayasu Tower●
43 NBF Matsudo Building●

Ownership/Trust Co-ownership of comparted ownership
Trust
Fee simple
Ownership
Fee simple
Ownership
Co-ownership
Trust
Co-ownership
Ownership
Co-ownership of comparted ownership
Ownership
Fee simple
Trust
Fee simple
Ownership
Fee simple
Ownership
Fee simple
Ownership
Fee simple
Ownership
Fee simple
Ownership
Fee simple

Other Cities
44 Sapporo L-Plaza●
45 NBF Sapporo Minami Nijo Building●
46 NBF Sendai Honcho Building●
47 NBF Unix Building●
48 NBF Niigata Telecom Building●
49 NBF Nagoya Hirokoji Building●
50 Aqua Dojima NBF Tower●
51 Shinanobashi Mitsui Building●
52 Sun Mullion NBF Tower●
53 Sakaisuji-Honmachi Center Building●
54 NBF Sakai-Higashi Building●
55 Aqua Dojima East●
56 NBF Shijo Karasuma Building●
57 NBF Hiroshima Tatemachi Building●
58 Hiroshima Fukuromachi Building●■ NBF Hakata Gion Building
59 NBF Kumamoto Building●
Total

Ownership
Trust
Trust
Trust
Trust
Ownership
Trust
Ownership
Trust
Ownership
Trust
Trust
Trust
Ownership
Ownership
Trust
OwnershipComparted ownershipFee simple
Fee simple
Fee simple
Fee simple
Fee simple
Fee simple
Co-ownershipFee simple
Co-ownership of comparted ownershipFee simple
Co-ownership of comparted ownershipFee simple
Fee simple
Co-ownership of comparted ownershipFee simple
Fee simple

Notes: 1. Percentage of total revenues is the ratio of revenue from each office property to total revenues from all office properties.
2. Consent for disclosure was not obtained from tenants from whom rent revenue accounts for more than 80% of total rent revenue for the property. However, relevant figures are included in the total.
3. Figures stated above are based on NBF‘s ownership interest.

22 NBF Report July – December 2009

Revenue

Percentage ofTotal Revenues(Yen in millions)(Note 1)
(%)

59
1
25
6
7
1
1
12
1
1
1
38
1
13
2
2
9
1
1
4
7
4
6
7
1
8
1
12
11
2
3

1,541
1,423
1,166
1,532
623
1,117
966
928
1,071
Note 2
Note 2611
Note 2565
Note 2
Note 2295
257
Note 2
223
337
354
233
188
Note 2
251
196
229
199
Note 2
63

5.2
4.8
3.9
5.1
2.1
3.7
3.2
3.1
3.6
Note 2
Note 22.0
Note 2
1.9
Note 2
Note 21.0
0.9
Note 2
0.7
1.1
1.2
0.8
0.6
Note 2
0.8
0.7
0.8
0.7
Note 2
0.2

99.9
96.3
100
100
93.6
100
75.0
83.9
80.1
99.1
100
86.6
98.2

8
9
3
1
84
1
14
59
32
34
14
35
23

1,280
1,131
1,158
952
735
309
112
476
121
800
108
584
136

4.3
3.8
3.9
3.2
2.5
1.0
0.4
1.6
0.4
2.7
0.4
2.0
0.5

100
100
97.9
91.4
93.8
84.3
86.4
100
80.4
90.6
86.9
68.2
84.2
90.0
95.4
88.3
81.6
94.8

12
4
9
49
32
12
41
1
25
39
19
16
14
25
15
7
13
898

321
111
204
283
189
294
751
635
387
316
112
81
76
148
40
145
162
29,928

1.1
0.4
0.7
1.0
0.6
1.0
2.5
2.1
1.3
1.1
0.4
0.3
0.3
0.5
0.1
0.5
0.5
100.0

Appraisal Value

Rentable
Area

Leased Area at
End of Period

Occupancy Rate at
End of Period(Yen in millions)

(m2)

(m2)

(%)

60,00049,40029,10052,50020,50030,90031,30028,10025,60015,10014,50016,70022,90016,60018,10014,01010,4007,600
13,900
6,900
8,350
7,260
7,420
5,280
6,200
7,330
5,690
5,120
4,970
3,390
1,400

27,64032,96824,72833,503
9,619
20,713
16,84816,30621,4236,627
3,440
14,921
20,426
10,123
10,08817,338
4,043
7,450
8,258
4,993
7,087
10,458
5,258
3,433
5,991
4,871
4,805
5,652
5,127
2,971
1,595

20,19532,96823,99133,503
8,791
20,713
16,84816,30621,4236,627
3,440
12,40020,426
10,00910,061
17,338
4,043
7,450
8,258
4,993
7,087
10,458
4,091
3,433
5,991
4,871
4,805
5,380
4,996
2,810
1,595

73.1
100
97.0
100
91.4
100
100
100
100
100
100
83.1
100
98.9
99.7
100
100
100
100
100
100
100
77.8
100
100
100
100
95.2
97.4
94.6
100

33,00036,90030,40016,70016,300
3,780
2,110
7,940
2,260
20,1002,130
11,6002,270

32,082
36,63828,33027,924
19,981
12,545
5,230
16,755
6,197
20,6983,455
22,7894,770

32,04635,27228,33027,924
18,69812,545
3,922
14,065
4,961
20,5193,455
19,731
4,686

6,390
1,590
3,290
3,420
3,120
7,970
20,20013,700
8,830
7,150
1,740
2,020
1,390
2,800
816
2,280
3,690
822,406

11,396
5,351
7,539
13,39010,2109,890
21,917
25,237
14,954
11,438
5,308
3,243
3,931
5,612
1,309
5,416
7,913
770,150

11,396
5,351
7,381
12,234
9,577
8,334
18,94325,237
12,022
10,365
4,612
2,212
3,309
5,050
1,249
4,784
6,459
729,971

Total Number ofTenants at
End of Period

4. This figure does not include the Nakanosakaue Sunbright Annex, in which NBF has 50.3% ownership interest.
5. Properties marked ■ were sold in March 2010.

NBF Report July – December 2009 23

Management Team and Management Structure(As of December 31, 2009)

Nippon Building Fund Inc. (NBF) is an investment corporation that takes a medium-to-long-term perspective withthe aim of generating steady asset growth and stable profits. NBF believes that fair, transparent management iscentral to increasing return on investment.
in attendance, unless otherwise stipulated by laws, regulations or

Nippon Building Fund Inc.
Nippon Building Fund Inc. is an investment corporation estab-

NBF’s articles of incorporation. Decisions on substantive matters such

lished with the objective of investing in assets, primarily Designatedas changes in the articles of incorporation require the attendance ofAssets as defined by the Investment Trust Law of Japan. NBF entrusts

shareholders that control a simple majority of total shares issued andmanagement of its assets to Nippon Building Fund Management

outstanding, and a two-thirds majority of the voting rights of suchLtd., which is an asset management company.

shareholders. In addition, any change in the asset management poli-

NBF’s primary investment objective is to achieve sustainablecies and standards, which are stipulated by NBF’s articles of incorpo-

growth in portfolio value and stable profits on a medium-to-long-ration, requires an extraordinary resolution of shareholders as out-term basis. NBF achieves this objective by investing in real estate

lined above.

consisting of buildings primarily used for offices with their underlying
land located in the central business districts (CBDs) of Tokyo, other

Executive Directors, Supervisory Directors and theGreater Tokyo and other cities in Japan. NBF also invests in securities,

Board of Directors
NBF’s articles of incorporation stipulate that NBF must have one or

beneficiary certificates representing beneficial interests in trusts andmore executive directors and four or fewer supervisory directors (butother assets backed by office properties.

the number of supervisory directors must always be at least one
greater than the number of executive directors). As of December 31,

General Meeting of Shareholders

2009, NBF had two executive directors and four supervisory directors.

Specific matters pertaining to NBF that are subject to theInvestment Trust Law of Japan or the Company’s articles of incorpora-

NBF’s executive directors are responsible for business execution. Intion are decided by resolution of the General Meeting of Shareholders,

addition, they have authority for all judicial and extrajudicial proceed-

which convenes at least once every two years, in principle. The sixth

ings related to the operations of NBF.
Supervisory directors are responsible for supervising execution by

General Meeting of Shareholders convened on March 12, 2009. The
date of the next General Meeting of Shareholders has not been set.

the executive directors.

The General Meeting of Shareholders adopts or vetoes resolutions

The Board of Directors consists of the executive and supervisoryon the basis of a simple majority of the voting rights of shareholders

directors. Its responsibilities include authorizing business execution

General Meeting of
Shareholders

Asset Custody

The Chuo Mitsui Trustand Banking Co., Ltd.
Mitsui Fudosan Co., Ltd.

Asset Custody
Entrustment

NIPPON BUILDING FUND Inc. (NBF)
OfficeManagement
Entrustment

Board of Directors

AssetManagement
Entrustment
Borrowings /Bonds and
Notes
Debt
Service

Liabilities
Investment

Real Estate, etc.
Rent, etc.

24 NBF Report July – December 2009

AssetsShareholders’EquityQualified Institutional
Investors / Bondholders
Independent Auditors
KPMG AZSA & Co.

NBF Office Management Co., Ltd.
Office Management

NIPPON BUILDINGFUND MANAGEMENT Ltd. (NBFM)

Investment

Shareholder

Distribution

Shareholder

TradingManagement Team

Seated from left:

Sadafumi Abe
Koichi Nishiyama
Standing from left:

Sadao Kamiyama
Hideo Fukazawa
Hatsuo Komatsu
Yoshiyuki Hirai

Executive Directors

Name

Background Summary

Sadafumi Abe

Appointed Executive Director of NBF in March 2005 after serving as Corporate Auditor of
Mitsui Fudosan Co., Ltd.
Representative Director of Nippon Building Fund Management Ltd. Executive Director of
NBF since August 2001.
Appointed Supervisory Director of NBF in March 2005 after serving as a deputy director of
the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), and director of theGovernment Housing Loan Corporation.
Attorney. Appointed Supervisory Director of NBF in March 2007.
Certified Public Accountant. Certified Public Tax Accountant. Appointed Supervisory Director
of NBF in March 2007.
Appointed Supervisory Director of NBF in March 2009. Real Estate Appraiser.

Koichi Nishiyama
Supervisory Directors Hideo Fukazawa

Hatsuo Komatsu
Sadao Kamiyama
Yoshiyuki Hirai

and supervising the performance of the executive directors.

The terms of office of executive directors and supervisory direc-

Resolutions by the Board of Directors require a simple majority withtors are two years from the time they assume office. The terms of

more than half of the members of the Board in attendance.

executive directors and supervisory directors selected to fill a vacancy

The bylaws of NBF’s Board of Directors stipulate that executive

or to increase the number of directors expire at the same time as theand supervisory directors may not participate in decisions in which

remaining terms of their predecessors or the current directors. Boththey have a vested interest. Executive and supervisory directors withof the two executive directors and all four supervisory directors weresuch financial interest shall not be included in the number of execu-

elected at the General Meeting of Shareholders held on March 12,

tive and supervisory directors in attendance for such decisions.

2009, and assumed office on March 17, 2009.

NBF Report July – December 2009 25

Management Structure

Nippon Building Fund Management Ltd.
NBF entrusts asset management to Nippon Building Fund

General Meeting of Shareholders

Management Ltd. under an asset management agreement.
Auditor

Matters Entrusted toCompliance Committee

Nippon Building Fund Management Ltd.

Risk Management Board

Board of Directors
Executive Board

As the asset management company required by the Investment

CEO

Investment
Review Board

Accounting Auditor

Trust Law of Japan, Nippon Building Fund Management Ltd. manages
NBF’s assets in accordance with the asset management objectives andpolicies stipulated by NBF’s articles of incorporation. In addition, in

Compliance
Officer

Investment & FinanceGroup

Corporate OperationGroupaccordance with the manager of general administration contract designating Nippon Building Fund Management Ltd. as the institutional
manager of NBF’s assets, Nippon Building Fund Management Ltd. also

Real EstateManagement
Team

Real Estate
Investment
Team

Research
Team

Financial
Team

Fund
Operation
Team

Corporate
Risk
Planning &Management
Administration & Compliance
Team
Team

executes certain responsibilities in connection with the operation of
the General Meeting of Shareholders and the Board of Directors as

operations of Nippon Building Fund Management Ltd. The heads ofmanager of general administration.

the Investment & Finance Group and the Corporate Operation
Group also serve as directors, and oversee their respective divisions

Management Structure ofunder the direction and oversight of the president. Corporate audi-

Nippon Building Fund Management Ltd.

tors conduct accounting audits and operational audits of Nippon

The Board of Directors makes decisions on the basic manage-

Building Fund Management Ltd. The Compliance Officer oversees

ment policies of Nippon Building Fund Management Ltd. and over-compliance for the asset management company and is responsible

sees execution of the duties of the representative director. The presi-

for internal administration in connection with internal audits at thedent, who is the representative director, supervises and executes theasset management company.

Nippon Building Fund Management Ltd. Management Team
Name

Title

Career Summary

Koichi Nishiyama

President and CEO
and Representative
Director

April 1974
April 2000
Sept. 2000

Yasushi Nakayama

Director, Head ofInvestment& Finance Group

Hiroshi Yabuki

Director and COO

Hideharu Matsumoto Director (Part-time)
Masato Shikata
Director (Part-time)
Noriaki Moromachi
Corporate Auditor(Part-time)
Corporate Auditor
Toru Suzuki(Part-time)

26 NBF Report July – December 2009

Aug. 2001
April 1981
April 2001
April 2006
April 2007
April 1984
April 2004
Oct. 2008
Feb. 2010
March2009
April 2009
April 2003

Joined Mitsui Fudosan Co., Ltd.
Manager of Building Fund Office, Building Division of Mitsui Fudosan
President and representative director of MF Asset Management Co., Ltd.
(now Nippon Building Fund Management Ltd.) (current position)
Became Executive Director of NBF (current position)
Joined Mitsui Fudosan Co., Ltd.
Head of Building Business Division, Building Department of Mitsui Fudosan
Manager of Building Department, Chiyoda Development Division of Mitsui Fudosan
Became Director of Nippon Building Fund Management Ltd. (current position)
Joined Sumitomo Life Insurance Company
Head of Niigata Branch Office of Sumitomo Life Insurance
Head of Real Estate Department, Real Estate Operating Office of Sumitomo Life Insurance
Became Director of Nippon Building Fund Management Ltd. (current position)
Became Director of Nippon Building Fund Management Ltd. (current position)
Became Director of Nippon Building Fund Management Ltd. (current position)
Became Auditor of Nippon Building Fund Management Ltd. (current position)

April 2008

Became Auditor of Nippon Building Fund Management Ltd. (current position)

Management Team and Management Structure

Compliance Initiatives
The management of NBF and Nippon Building Fund Management

guidelines for management, acquisition and sale of assets; financial
guidelines for fund procurement and management policies; account-Ltd. conduct honest and appropriate business activities while main-ing guidelines for tax accounting and dividend distribution policies;

taining rigorous compliance by adhering to all relevant laws and reg-and guidelines on transactions with potential conflicts of interest.

ulations, based on a high level of corporate ethics.
The bylaws of NBF’s Board of Directors stipulate that Board of
Directors meetings are to be held at least once every three months. In
practice, NBF holds such meetings once a month. At Board meetings,

Policy and Management System for
Dealing with Conflict of Interest Transactions■

Fundamental Policy on Conflict of Interest Transactions

Nippon Building Fund Management Ltd. is constantly aware of its

executive directors report on the execution of their duties and supervisory directors ensure that oversight and check-and-balance systems

accountability to NBF and NBF’s shareholders with regard to any

are functioning properly.

transactions in which the interests of NBF and the interests of Nippon

Nippon Building Fund Management Ltd. views compliance as a

Building Fund Management Ltd. and its related corporations or cus-management strategy, with a fundamental compliance policy of

tomers may conflict. Nippon Building Fund Management Ltd. follows

conducting operations honestly and fairly while maintaining a rigor-

voluntary rules stipulated in laws and internal bylaws to proactively

ous compliance system based on a high level of corporate ethics.

prevent conflicts of interest.

Specifically, Nippon Building Fund Management Ltd. has establishedAll decisions made in executing the management of NBF’s assets

a Compliance Committee, consisting of the Compliance Officer, theare subject to the approval of the president, and are made after goingpresident, the head of the Investment & Finance Group, the head ofthrough discussions by the Investment Review Board and Executive

the Corporate Operation Group and an outside committee member.

Board of Nippon Building Fund Management Ltd. Sponsor companies

Initiatives to enhance awareness of and adherence to complianceare not permitted to intervene in the decision-making process.

include the establishment of Compliance Rules and a Compliance
Manual. In addition, a Compliance Program is formulated each year
to verify the progress of the execution plan for that year and identify
any problem areas.

■

Voluntary Rules for Conflict of Interest Transactions
Stipulated in Internal Bylaws

Nippon Building Fund Management Ltd. has set voluntary rules in
its internal bylaws to address transactions with parties, including
sponsor companies that have interests in Nippon Building Fund

Risk Management System
NBF and Nippon Building Fund Management Ltd. have estab-Management Ltd.
The voluntary rules require the Investment Division, which initiates

lished the following risk management system to avoid and minimize

the transaction, as well as the Compliance Department, the Assetrisks related to investments.

Management Examination Meeting and other units to protect NBF’s■

NBF

managed assets and profits by fully examining the transaction con-

NBF’s Risk Management Regulations define risk management poli-tents according to the voluntary rules set in the internal bylaws incies and procedures. The Risk Management Board convenes oncethe event of a transaction in which the interests of Nippon Building

every three months and undertakes deliberation, monitoring and other

Fund Management Ltd. and parties that have interests in Nippon

initiatives to ensure that the entrusted asset manager is conducting its

Building Fund Management Ltd. may conflict with the interests ofduties with due care in good faith in a manner consistent with its fidu-

NBF. These rules are designed from the standpoint of accountability

ciary duty to the conservation and maintenance of entrusted assets.

to NBF and its shareholders.

■

Nippon Building Fund Management Ltd.

Nippon Building Fund Management Ltd. formulates a

In examining the transaction contents, Nippon Building FundManagement Ltd. solicits the opinions of attorneys, certified tax

Management Policy, a Medium-to-Long-Term Asset Management

accountants and other third-party experts as needed. In addition,

Policy and an Annual Management Plan to follow in managing

when purchasing real estate or other assets from parties that have

NBF’s assets. In addition, Nippon Building Fund Management Ltd. hasinterests in Nippon Building Fund Management Ltd., the purchase

set Asset Management Guidelines as a set of standards to follow.

price is strictly set, in principle no higher than the appraised value

The Asset Management Guidelines consist of management

according to a real estate appraiser with no vested interest.

NBF Report July – December 2009 27

Management’s Discussion and Analysis

Summary of Selected Financial Data
17th Period
from July 1, 2009 to
December 31, 2009

16th Period
from January 1, 2009 toJune 30, 2009

15th Period
from July 1, 2008 to
December 31, 2008

(Yen in millions, except per share data or where otherwise indicated)

Operating revenues
Note 2
Revenue from property leasing activities
Gain on sale of investment properties
Operating expenses
Rental expenses
Income before income taxes
Net income(a)Funds from operations
Note 3
Net operating income from property leasing activities Note 3
Total amount of cash distribution(b)
Depreciation and amortization
Capital expenditures
Total assets(c)Interest-bearing debt
Net assets(d)Total number of common shares issued (shares)(e)
Net assets per share (Yen/$)(d) / (e)Distribution per share (Yen/$)(b) / (e)Funds from operations per share (Yen/$)Note 3
ROA
Note 3(Annual rate)
ROE
Note 3(Annual rate)
LTV (Loan to value)
Note 3
Capital ratio(d) / (c)Payout ratio(b) / (a) Note 4
Number of days
Number of investment properties
Note 5
Number of tenants
Note 5
Total rentable area (m2)Occupancy rate
Note 5¥ 29,928
29,928—16,40415,086
10,663
10,662
15,944
20,124
10,662
5,282
1,407
782,311337,875
396,838
542,000
732,173
19,672
29,4171.4%(2.7%)
2.7%(5.4%)
46.9%
50.7%
100.0%
184
61
898
770,150
94.8%¥ 30,761
30,761—
16,464
15,111
11,803
11,802
17,15721,005
11,802
5,355
836
783,793
338,500
397,978
542,000
734,276
21,77531,654
1.5%(3.1%)
3.0%(6.0%)
47.0%
50.8%
100.0%
18161
926
770,270
95.4%¥ 31,218
31,218—
16,627
15,22812,062
12,061
17,417
21,346
12,0615,356
2,146
766,249
318,500
398,237
542,000
734,753
22,252
32,134
1.6%(3.2%)
3.0%(6.1%)
45.5%
52.0%
99.9%
184
60
946
763,658
96.8%

17th Period
from July 1, 2009 to
December 31, 2009
U.S. dollars in thousands
except per share data (Note 1)$ 321,529
321,529—
176,239
162,083
114,560
114,549
171,297
216,195
114,549
56,748
15,1058,404,720
3,629,942
4,263,410
7,866
211
316

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥93.08 = U.S. $1.00, the approximate exchange rate on December 31, 2009.
2. Operating revenues do not include consumption tax.
3. All valuations are calculated through the following formulas. The figures in parentheses after ROA and ROE are annualized based on the six-month figures for the period.
Funds from operations: Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization
Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation and amortization
Funds from operations per share: (Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization) / Weighted average
number of common shares issued and outstanding during the period.
ROA: Income before income taxes / (Initial total assets + Total assets at end of period) ÷ 2
ROE: Net income / (Initial net assets + Net assets at end of period) ÷ 2
LTV: (Interest-bearing debt + Deposits under management) / Total assets
4. Payout ratio figures are calculated to one decimal place only.
5. Number of investment properties means units generally perceived to be one office building. Number of tenants means gross number of tenants by building. Occupancy rate is the ratio of grossleased area to total rentable area at the end of the period.

28 NBF Report July – December 2009

Management’s Discussion and Analysis

Operating Environment and Results
During the six months ended December 31, 2009 (the “17th Period”), the worldwide economic slowdown had an impact on
Japan’s economy, with declines in corporate profits and capital investment leading to rapid deterioration in employment conditions.
Although there was an increase in exports, mainly to Asia, and other signs of a turnaround in some sectors, economic conditions
remained severe, with a persistently high unemployment rate.
In the office building leasing market, the occupancy rate decreased further and rents continued to fall as a result of ongoing
trends that led to reductions in rented floor space and contract cancellations. These trends included rising pressure to reduce costs in
response to weaker corporate earnings, office consolidation and relocation, and cutbacks in occupied space.
In the real estate acquisition market, the impact of the turmoil in financial markets gradually subsided, with further adjustments
to property prices. As a result, the number of transactions began to pick up, mainly in central business districts, and investment
demand was particularly strong for high-quality, large-scale properties in central business districts, which are considered extremely
scarce. However, the acquisition market remains weak, and the number of properties for sale with excellent specifications in superior
locations remains low.
Under these conditions, NBF continued to manage its assets in accordance with its basic policy of investing in high-quality officebuildings that are highly competitive in terms of their location, size, facilities and infrastructure and are expected to have stable cash
flow from rents. Deliberation concerning properties did not result in new acquisitions in the 17th Period.
For its portfolio properties, NBF conducted property management, scheduled renovations and new construction to increasetenant satisfaction. NBF also worked to secure stable rental revenue by maintaining a sound grasp of the market, setting appropriate
rents for new tenants and revising rents for existing tenants who renewed their lease contracts.
As a result of these efforts, NBF’s real estate portfolio as of December 31, 2009 totaled 61 properties. Total investment on an
acquisition price basis was ¥783.1 billion. Total rentable area was 770,150 m2 (232,969 tsubo). The occupancy rate declined 0.6
percentage points from June 30, 2009 to 94.8 percent. Tenants totaled 898.

Occupancy rate

Total investment(%)(Yen in billions)

900

100

800

98

700

96

600
500

94

400

92

300

90

200
100
0

0
Dec. 31,2007

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Dec. 31,2007

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

NBF Report July – December 2009 29

Overview of Performance
As a result of this management, operating revenues for the six months ended December 31, 2009 decreased ¥833 million, or 2.7
percent, compared with the previous six-month period to ¥29,928 million. Operating income decreased ¥773 million, or 5.7 percent, to¥13,524 million. Net income decreased ¥1,139 million, or 9.7 percent, to ¥10,662 million. Distribution per share decreased ¥2,103 to¥19,672. Main factors were a decrease in rental revenue due to tenant interchange and a decline in the occupancy rate, and anincrease in interest expense due mainly to an increase in long-term debt.

Operating revenues

Operating income from property
leasing activities(Yen in millions)(Yen in millions)

35,00020,00030,00025,00015,00020,00010,00015,00010,000

5,000

5,000
0

13th
Period14th
Period15th
Period16th
Period0

17thPeriod13th
Period14th
Period15th
Period16th
Period17th
PeriodDistribution for the Current Period
Distribution per share for the current period was ¥19,672. NBF expects to distribute almost all retained earnings at thecurrent period end to be eligible for special tax treatment (Special Taxation Measures Law of Japan Article 67-15) that allows NBF
to deduct its cash dividends of profits from taxable income.
For the six months ended
December 31, 2009

For the six months ended
June 30, 2009

For the six months ended
December 31, 2008

(Yen in thousands, except per share amounts)

Retained earnings
Undistributed earnings
Total cash distribution(Cash distribution per share)
Distribution of accumulated earnings(Distribution of accumulated earnings per share)
Cash distribution in excess of accumulated earnings(Per share)¥10,662,478
254
10,662,224
19,672
10,662,224
19,672——¥11,802,315
265
11,802,050
21,775
11,802,050
21,775——¥12,060,900
316
12,060,584
22,252
12,060,584
22,252——

Note: Above cash distributions were paid after the period end.

Total cash distribution

Distribution per share(Yen)(Yen in millions)

25,00012,50020,00010,00015,0007,500
10,000
5,000
5,000
0

0

13th

14th

15th

16th

17th

PeriodPeriodPeriodPeriodPeriod30 NBF Report July – December 200913th
Period14th
Period15th
Period16th
Period17th
PeriodManagement’s Discussion and Analysis

Changes in Assets, Liabilities and Net Assets
Assets
As of December 31, 2009, total assets decreased ¥1,482 million to ¥782,311 million compared with June 30, 2009. Returnon average total assets (ROA) for the six months ended December 31, 2009 decreased to 1.36 percent from 1.51 percent for theprevious six-month period.
Current assets increased ¥2,318 million to ¥41,585 million compared with June 30, 2009. Investment properties decreased¥3,850 million to ¥736,242 million compared with June 30, 2009.

Liabilities
Current liabilities decreased ¥42,314 million to ¥55,433 million compared with June 30, 2009, primarily because of adecrease in short-term loans and long-term debt due within one year compared with June 30, 2009.
Long-term debt increased ¥42,375 million to ¥291,125 million compared with June 30, 2009.
As a result, total interest-bearing liabilities decreased ¥625 million to ¥337,875 million compared to June 30, 2009. However,
the ratio of long-term fixed-rate debt (less amounts due within one year) to total interest-bearing liabilities increased to 86.2
percent as of December 31, 2009 from 73.5 percent as of June 30, 2009. The loan-to-value ratio, calculated as the ratio ofinterest-bearing liabilities plus deposits under management to total assets, decreased to 46.9 percent as of December 31, 2009
from 47.0 percent as of June 30, 2009.
In addition, NBF worked to diversify funding sources. In January 2009, NBF updated a shelf registration to publicly offer up to¥200 billion in bonds.

Net Assets
Net assets decreased ¥1,140 million to ¥396,838 million compared with June 30, 2009.

Net assets

Total assets(Yen in millions)(Yen in millions)

800,000

400,000

300,000

600,000

200,000

400,000
100,000

00Dec. 31,2007

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Dec. 31,2007

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Funding
Balance of Paid-in Capital
NBF was established on March 16, 2001 with initial paid-in capital of ¥100 million. NBF began investing activities in May 2001
after ¥98,800 million was raised through private placements. As of December 31, 2009, NBF had issued 542,000 common shares outof 2,000,000 total authorized shares. NBF’s common shares were listed on the J-REIT section of the Tokyo Stock Exchange in
September 2001 upon the completion of a public offering. As the Investment Trust Law of Japan does not contain any provision for
the issue of more than one class of shares, NBF’s common shares comprise the sole class of shares authorized and issued by NBF.

NBF Report July – December 2009 31

Issue dateCommon shares outstanding
Increase
Balance(Shares)

Remarks

Initial capital(private)
May 23, 2001
Private placement
September 8, 2001 Public offering
July 14, 2004
Public offering
Third party
August 11, 2004
allocation
August 10, 2005
Public offering
March 16, 2006
Public offering
Third party
March 29, 2006
allocation
February 4, 2008 Public offering
Third party
March 4, 2008
allocation
March 16, 2001

200

200

197,600
82,90080,000197,800
280,700
360,700

4,000

Paid-in capital
Increase

Balance

Notes(Yen in millions)

¥

100

¥

100

Note 1

98,80049,99958,83898,900148,899
207,737

Note 2
Note 3Note 4

364,700

2,942

210,679

Note 558,00080,000422,700
502,700

51,491
79,040262,170
341,210Note 6Note 75,300

508,000

5,236

346,446

Note 831,800539,800

37,159383,605

Note 92,200

542,000

2,571

386,176

Note 10Notes: 1. NBF was established with initial capital of ¥500,000 per share.
2. Follow-on private offering at ¥500,000 per share to raise funds for acquisition of 22 properties.
3. Public offering of new shares for ¥625,000 per share (excluding underwriting fee: ¥603,125) to repay debt and to fund property acquisition.
4. Public offering of new shares for ¥759,500 per share (excluding underwriting fee: ¥735,475) to repay debt, etc.
5. Additional issue of new shares (third party allocation) for ¥735,475 per share undertaken pursuant to the public offering in Note 4.
6. Public offering of new shares for ¥916,300 per share (excluding underwriting fee: ¥887,782) to repay debt and to fund property acquisition.
7. Public offering of new shares for ¥1,019,200 per share (excluding underwriting fee: ¥988,000) to repay debt and to fund property acquisition.
8. Additional issue of new shares (third party allocation) for ¥988,000 per share undertaken pursuant to the public offering in Note 7.
9. Public offering of new shares for ¥1,205,400 per share (excluding underwriting fee: ¥1,168,500) to repay debt and to fund property acquisition.
10. Additional issue of new shares (third party allocation) for ¥1,168,500 per share undertaken pursuant to the public offering in Note 9.

Market Price of Shares
High/Low (closing price) of shares on the TSE:
For the six months ended
December 31, 2009

For the six months ended
June 30, 2009(Yen)

For the six months ended
December 31, 2008

¥895,000
679,000¥993,000
739,000¥1,330,000
689,000

High
Low

Borrowings
Borrowings from financial institutions as of December 31, 2009 are shown below.
Short-term loans
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

Repayment
methodUse of
funds

Notes

Bulletpayment(Note 4)

Unsecured/unguaranteed/pari passu,
See (Note 5)(Yen in millions)

The Chuo Mitsui
Trust and Banking Co., LIMITEDThe Sumitomo Trust andBanking Company, Limited
Shinkin Central BankThe Gunma Bank, Ltd.
THE KAGOSHIMA BANK, LTD.
The Joyo Bank, Ltd.
THE SHIZUOKA BANK, LTD.
The Yamaguchi Bank, Ltd.
The Chugoku Bank, Limited

Total short-term loans

32 NBF Report July – December 2009

¥ 8,000

0.6%

January 29, 2010

5,000
4,000
2,000
1,000
1,000
1,000
1,000
1,000

0.9%
0.8%
0.8%
0.8%
0.8%
0.8%
0.9%
0.9%

April 30, 2010
January 29, 2010
January 29, 2010
January 29, 2010
February 26, 2010
February 26, 2010
April 30, 2010
June 30, 2010

¥24,000

Management’s Discussion and Analysis

Long-term debt
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

1.8%
1.5%
1.8%
2.0%
2.4%
2.2%
2.2%
2.1%
1.2%
2.1%
1.9%
1.7%
1.5%
1.8%
1.5%
1.9%
1.8%
1.7%
1.5%
2.3%
1.7%
1.8%
1.6%
1.6%
2.0%
1.9%
1.6%
1.4%
1.6%
1.6%
1.6%
1.8%
2.1%
2.2%
2.2%
1.2%
1.5%
1.7%
1.8%
1.4%
1.3%
2.0%
1.2%
1.8%
2.0%
1.4%
1.2%
1.7%
2.1%
2.0%
0.8%
1.1%
1.9%

November 28, 2014
September 11, 2015
September 27, 2017
February 15, 2016
May 30, 2018
April 28, 2019
August 30, 2019
July 19, 2011
February 3, 2010
May 23, 2018
May 23, 2016
July 16, 2014
April 30, 2013
June 27, 2013
December 28, 2012
April 28, 2014
June 30, 2014
June 1, 2011
September 11, 2015
May 30, 2016
February 13, 2012
March 30, 2012
November 1, 2012
December 13, 2013
May 30, 2013
May 29, 2014
March 30, 2011
December 30, 2011
September 30, 2013
April 27, 2012
September 30, 2013
September 30, 2014
December 21, 2011
April 27, 2012
May 23, 2012
February 26, 2010
February 7, 2012
July 31, 2013
June 27, 2013
December 30, 2011
September 9, 2011
October 30, 2015
February 3, 2010
March 30, 2012
October 31, 2014
October 4, 2013
February 12, 2010
December 15, 2014
July 11, 2014
August 31, 2015
April 1, 2010
October 19, 2010
July 12, 2012

Repayment
methodUse of
funds

Notes

(Yen in millions)¥ 4,000
10,00010,00010,00010,000
4,875
10,000Sumitomo Life Insurance Company
5,000
3,000
7,000
5,000
5,000
Sumitomo Mitsui Banking Corporation
5,000
5,000
4,000
6,000
1,000
Zenkyoren
1,000(The National Mutual Insurance
10,000Federation of Agricultural Cooperatives) 10,000
MITSUI LIFE INSURANCE COMPANY, LIMITED 2,000
4,000
2,000
3,000
2,000
3,000
The Chuo Mitsui Trust and Banking
5,000
Co., LIMITED
10,000The Sumitomo Trust and
5,000Banking Company, Limited
7,000
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
8,000
4,000
Meiji Yasuda Life Insurance Company
3,000
4,000
1,000
2,000
Mizuho Corporate Bank, Ltd.
2,000
8,000
Shinkin Central Bank
4,000
3,000
Resona Bank, Limited.
3,000
3,000
DAIDO LIFE INSURANCE COMPANY
2,000
1,000
1,000
1,000
TAIYO LIFE INSURANCE COMPANY
1,000
1,000
2,000
1,000
Nippon Life Insurance Company
2,000
2,000
THE BANK OF FUKUOKA, Ltd.
4,000
Development Bank of Japan Inc.

(Note 2)
(Note 3)

Bulletpayment(Note 4)

Unsecured/unguaranteed/pari passu,
See (Note 5)
Fixed rate

NBF Report July – December 2009 33

Lender

Balance

Averageinterest rate (%)

Due on(Note 1)

Repayment
method

1.4%
1.8%
1.8%
1.8%
1.8%
1.7%
1.9%
1.1%

December 2, 2013
June 26, 2014
March 30, 2015
July 31, 2014
September 30, 2014
May 29, 2014
April 30, 2014
December 28, 2012

Use of
funds

Notes

(Yen in millions)

The Hachijuni Bank, Ltd.

Mitsubishi UFJ Trust andBanking Corporation
The Chugoku Bank, Limited
The Iyo Bank, LTD.
The Yamanashi Chuo Bank, Ltd.

Total long-term debt
Total borrowings (Note 6)

1,000
2,000
1,000
3,000
1,000
2,000
1,000
1,000
¥243,875¥267,875

Bulletpayment(Note 4)

Unsecured/unguaranteed/pari passu,
See (Note 5)
Fixed rate

Notes: 1. With respect to the date of drawdown and date of repayment in case of more than one short-term loan from the same lender, the earliest date of repayment for all suchloans coming due is given.
2. Scheduled for repayment of ¥125 million at six-month intervals and ¥2,625 million at the final maturity date.
3. Scheduled for repayment of ¥250 million at six-month intervals and ¥5,250 million at the final maturity date.
4. Use of funds for the above includes acquisition of real estate or beneficiary interests, repayment of borrowings and working capital.
5. A special agreement attached to “Loan Agreement” entered into between NBF and each financial institution provides that the above borrowings from all financial
institutions rank pari passu to each other.
6. The total amount of long-term borrowings (i.e. excluding those expected to be repaid within one year) repayable within 5 years of the date of the balance sheet andexpected to be repaid by specific year(s) is as follows.
(Yen in millions)

Amount Borrowed

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥30,750¥32,750¥42,750¥36,750

NBF Bonds
Issue date

Balance as ofDecember 31, 2009
(Yen in millions)

CouponNo. 3 Unsecured Bonds
No. 5 Unsecured Bonds

June 12, 2003
September 22, 2004

¥10,000
10,000

2.00%
1.60%

No. 6 Unsecured Bonds
No. 7 Unsecured Bonds

March 9, 2005
November 9, 2005

10,00010,000

0.80%
1.85%

No. 8 Unsecured Bonds
No. 9 Unsecured Bonds
No. 10 Unsecured Bonds

March 7, 2007
May 24, 2007
May 24, 2007

10,00010,00010,000

1.48%
1.74%
2.04%

Issue

Total (Note 6)

MaturitydateJune 12, 2018
September 22,
2011
March 9, 2010
November 9,
2015
March 7, 2012
May 23, 2014
May 24, 2017

Redemption

Use ofproceeds

Notes

Bullet payment
Bullet payment

Note 1 Notes 2 and 4
Note 1 Notes 2 and 4

Bullet payment
Bullet payment

Note 1 Notes 3 and 5
Note 1 Notes 3 and 5

Bullet payment
Bullet payment
Bullet payment

Note 1 Notes 3 and 5
Note 1 Notes 3 and 5
Note 1 Notes 3 and 5¥70,000

Notes: 1. Use of funds includes acquisition of real estate, etc., repayment of borrowings and working capital.
2. These bonds are only issued to qualified institutional investors.
3. Rank pari passu with all other publicly and privately issued bonds.
4. Subject to provision of collateral and financial restrictions pursuant to material decline in credit rating.
5. Subject to provision of collateral restrictions.
6. The total amount of bonds repayable within 5 years of the date of the balance sheet and expected to be repaid by specific year(s) is as follows.
(Yen in millions)

Amount Borrowed

Within 1 year

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥10,000¥10,000¥10,000—¥10,000

Others
NBF had security deposits totaling ¥38,846 million as of December 31, 2009.

34 NBF Report July – December 2009

Management’s Discussion and Analysis

Capital Expenditures
1. Planning
As of December 31, 2009, NBF is planning the following capital expenditures for the renovation of its properties. The amounts
below include repairs and maintenance costs that will be expensed as incurred. Moreover, in addition to a steady program of
expenditures for construction, repair and renovation of facilities, a program of renewal construction is being implemented in order
to increase competitive power in the market as well as to increase the level of tenant satisfaction based on the results of tenantsatisfaction surveys and neighboring competitive building specification surveys, etc.

Name of property

Objective

NBF Hibiya Bldg.

Install security system

NBF Takanawa Bldg.

Renovation of
air conditioning (1st stage)
Renovation of
air conditioning (2nd stage)
Renovation of
air conditioning
Renovation of
HVAC equipment (3rd stage)
Renovation of
HVAC equipment (4th stage)
Renovation of lighting
equipment (2nd stage)
Renovation of hot andchilled water generator
Renovation of exterior(Northwest)
Renovation of exterior(Southeast)

NBF Takanawa Bldg.
NBF Ogawamachi Bldg.
NBF Ikebukuro Tower
NBF Ikebukuro Tower
Parale Mitsui Bldg.
NBF Sapporo
Minami Nijo Bldg.
NBF Urawa Bldg.
NBF Urawa Bldg.

Estimated
duration

From April 2010
to September 2010
From February 2010
to June 2010
From July 2010
to December 2010
From September 2010
to December 2010
From March 2010
to May 2010
From September 2010
to November 2010
From January 2010
to March 2010
From May 2010
to May 2010
From August 2010
to September 2010
From January 2010
to April 2010

Total amounts

Estimated amounts
Payment for thecurrent period(from July 1, 2009
to December 31, 2009)(Yen in millions)

Cumulative
amount paid

¥140

¥—

¥—

108

—

—

78

—

—

72

—

—

57

—

—

55

—

—

34

—

—

22

—

—

21

—

—

20

—

—

NBF Report July – December 2009 35

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NBF posted ¥1,407 million in capital expenditures together with ¥739 million for repairs and maintenance expenses.
Name of property

NBF Nihonbashi Muromachi
Center Bldg.
NBF Ogawamachi Bldg.
NBF Hibiya Bldg.

NBF Ikebukuro Tower

NBF Unix Bldg.

Parale Mitsui Bldg.

NBF Niigata Telecom Bldg.

NBF Utsunomiya Bldg.

Other buildings

Objective

PeriodTenant restoration construction work, leasehold
improvements, replacement of motors and blower
bearings in all HVAC units (2nd Period)
Renovation of air conditioning (1st stage), renovationof washlets, renovation of hand dryers
Tenant restoration construction work, leasehold
improvements, HVAC intake control construction(2nd Period)
Renovation of HVAC equipment (2nd stage),renovation of air supply and exhaust fans
(2nd Period), renovation of fence in planted area,
construction of new fence for dry area
Renovation of central monitoring facilities, renovationof rooftop transformer, renovation of refrigeration unit
control
Renovation of lighting equipment (1st stage),
replacement of air conditioning humidifier elements,
leasehold improvements
Repair of chiller for air-cooling heat pump number
one, OA floor work on 3rd, 5th and 9th floors, tenant
restoration construction work
Replacement of electrical equipment components
in air-conditioning room, renovation of central
monitoring facilities, renovation of lounge
Asset preservation construction and other renewal
construction to improve tenant satisfaction.

Expenditure(Yen in millions)

¥ 214
113
103

63
From July 2009
to December 2009

47

45

45

36
741

Total

¥1,407

3. Cash Reserve for Capital Improvements
NBF accumulates cash reserves from cash flows to prepare for large-scale mid-term to long-term capital improvements andrepairs and maintenance that will be conducted in accordance with NBF’s business plan for each property.
As of December 31, 2009

As of June 30, 2009
(Yen in millions)

Reserve balance at the beginning of the period
Amount accumulated in the current period
Withdrawal from reserves in the current period
Amount carried forward¥1,5581,715
2,000¥1,273

¥ 856
2,877
2,175
¥1,558Notes: 1. The reserve figures represent only the amount of reserves attributable to NBF’s ownership interest; the amount of reserves attributable to other owners has been
excluded.
2. In addition to the above reserves, there are other reserves set up, based on maintenance needs and contracts with organizations responsible for management of properties, for the purpose of retaining funds to be used for future repair and maintenance. This reserve is not included in the above reserves and accumulated to ¥4,114 million as of December 31, 2009.

36 NBF Report July – December 2009

Management’s Discussion and Analysis

Expenses regarding Entrustment, etc.
The following table sets forth the breakdown of entrustment fees, etc. paid by NBF.
For the six months ended
December 31, 2009

For the six months ended
June 30, 2009
(Yen in millions)

For the six months ended
December 31, 2008

¥1,07837¥1,13436¥1,154
34

47
19
13
124
¥1,318

51
19
13
100
¥1,353

51
19
13
128
¥1,399Item

Asset management fees
Asset custody fees
Agent fees (stock transfer, accounting andadministrative)
Directors’ remuneration
Auditor’s fees
Other expenses
Total

Note: In addition to the amounts stated above, there are asset management fees of ¥72 million for the period from January 1, 2009 to June 30, 2009 related to acquisition of investment properties which were booked on each property acquired. There were no such expenses during the period from July 1, 2009 to December 31, 2009.

Trading Activities during the Current Period
1. Trading of Real Estate and Real Estate Held in TrustNone.

2. Trading of Other Assets Including Total Amount and Transactions
Other major assets besides real estate and real estate held in trust stated above consist mostly of bank deposits or bankdeposits included in assets held in trust.

NBF Report July – December 2009 37

Management’s Discussion and Analysis

3. Transactions with Related Parties and Transactions with Major Shareholders of AssetManagement Company(1) Ongoing Transactions
None. (No purchases, or sales or other transactions involving interested parties.)(2) Fees Paid for the Period from July 1, 2009 to December 31, 2009
Description of transactions with related parties (Note 1)
Category

Total fees paid(A)
(Yen in millions)

Office management fees, etc.
(Note 2)
Property maintenance fees

¥1,230

Leasing related service fees

181

2,787

Paid toMitsui Fudosan Co., Ltd.
NBF Office Management Co., Ltd.
First Facilities Co., Ltd.
Mitsui Fudosan Co., Ltd.
First Facilities West Co., Ltd.
Mitsui Fudosan Building Management Co., Ltd.
First Facilities Yokohama Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
Mitsui Fudosan Co., Ltd.
NBF Office Management Co., Ltd.
Mitsui Real Estate Sales Co., Ltd.

Amount ofpayment (B)(Yen in millions)

B/A(Note 3)

¥1,192
32
427
333
125
109
11
0
126
7
5

96.9%
2.6%
15.3%
11.9%
4.5%
3.9%
0.4%
0.0%
70.0%
4.1%
2.8%

Notes: 1. “Related parties” are defined as related parties of asset management companies under asset management agreement with NBF as defined in Article 123 of Order for
Enforcement of the Law Concerning Investment Trusts and Investment Corporations, and Article 26, Section 27 of the Regulations regarding management report of theInvestment trusts and Investment corporations set by the Investment Trusts Association, Japan. “Major shareholders” are the major shareholders of asset managementcompanies as defined in Article 29, Section 4, Paragraph 2 of the Financial Instruments and Exchange Law. During the period from July 1, 2009 to December 31, 2009,transactions with and fees paid to, Mitsui Fudosan Co., Ltd., NBF Office Management Co., Ltd., First Facilities Co., Ltd., First Facilities West Co., Ltd., Mitsui Fudosan
Building Management Co., Ltd., First Facilities Yokohama Co., Ltd., Mitsui Fudosan Housing Lease Co., Ltd., and Mitsui Real Estate Sales Co., Ltd. who meet either ofthe said definitions, are as described above.
2. Properties that have not entrusted office management businesses through such means as master leasing by Mitsui Fudosan Co., Ltd. (10 properties: Nishi-Shinjuku
Mitsui Bldg., Gate City Ohsaki, Nakameguro GT Tower, Toranomon Kotohira Tower, NBF Ogawamachi Bldg., Shin-Kawasaki Mitsui Bldg., Parale Mitsui Bldg.,
Shinanobashi Mitsui Bldg., Sakaisuji-Honmachi Center Bldg. and Yotsuya Medical Bldg.) have entrusted them to NBF Office Management Co., Ltd. as business representative of the property owners or lessors.
3. In addition to the above fees paid, the following have been paid to related parties for repair and maintenance work.
(Yen in millions)First Facilities Co., Ltd.
Mitsui Fudosan Co., Ltd.
Mitsui Fudosan Building Management Co., Ltd.
First Facilities West Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
Mitsui Home Linkage Co., Ltd.
Mitsui Real Estate Sales Co., Ltd.
MITSUI Designtec Co., Ltd.

38 NBF Report July – December 2009

¥382
229
217
84
1
1
0
0

Financial
Statements
NBF Report July – December 2009

NBF Report July – December 2009 39

Balance Sheets
NIPPON BUILDING FUND INC.
As of December 31, 2009 and June 30, 2009

As of
December 31, 2009

As ofJune 30, 2009
(Yen in millions)

AssetsCurrent Assets:
Cash and cash equivalents
Tenant receivables
Other current assets
Total current assets
Investment Properties:
Land including trust accounts (Note 4)
Buildings and improvements including trust accounts (Note 4)
Other tangible assets (Note 4)
Less: accumulated depreciation (Note 4)
Leasehold rights in trust accounts and other intangible assets
Total investment properties, net
Other Assets
Total Assets
Liabilities
Current Liabilities:
Short-term loans (Note 6)Long-term debt due within one year (Note 6)
Accounts payable
Rents received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term Debt (Note 6)
Tenant Security Deposits
Other Liabilities
Total Liabilities
Net Assets (Note 5)
Shareholders’ Equity
Common shares, non-par value
Shares authorized: 2,000,000 shares
Shares issued and outstanding: 542,000 shares
Retained earnings
Total Net Assets
Total Liabilities and Net Assets
The accompanying notes to financial statements are an integral part of these balance sheets.

40 NBF Report July – December 2009

¥ 40,731
295
559
41,585¥ 38,121
653
493
39,267475,670
277,1318,301(60,517)35,657736,2424,484¥782,311

475,660
275,8308,183(55,240)
35,659740,092
4,434¥783,793¥ 24,000
22,750
3,219
3,536
1,928
55,433291,125
38,846
69
385,473¥ 51,500
38,250
2,911
3,614
1,472
97,747
248,750
39,24969
385,815

386,176

386,176

10,662396,838¥782,311

11,802397,978¥783,793

Statements of Income
NIPPON BUILDING FUND INC.
For the six months ended December 31, 2009, June 30, 2009 and December 31, 2008

For the six months ended
December 31, 2009

For the six months ended
June 30, 2009
(Yen in millions)

For the six months ended
December 31, 2008

¥26,986
2,942
29,928¥27,903
2,858
30,761¥28,069
3,149
31,218

4,033
2,535
37
739
2,460
5,282
1,078
240
16,404
13,524

3,973
2,557
36
669
2,521
5,355
1,134
219
16,464
14,297

4,030
2,247
37
829
2,729
5,356
1,154
245
16,627
14,5917

22

36(2,798)(27)(43)
10,663(2,527)(27)(32)
11,733(2,447)(27)(91)
12,062—
10,663(1)¥10,66270
11,803(1)¥11,802—
12,062(1)¥12,061

Operating Revenues and Expenses
Operating Revenues:
Rental (Note 7)
Other revenues related to property leasing (Note 7)
Total Operating Revenues
Operating Expenses:
Property management fees (Note 7)
Real estate taxes (Note 7)
Insurance (Note 7)
Repairs and maintenance (Note 7)
Other rental expenses (Note 7)
Depreciation and amortization (Note 7)
Asset management fees
Other operating expenses
Total Operating Expenses
Operating Income
Non-Operating Revenues and Expenses
Non-Operating Revenues:
Interest income
Non-Operating Expenses:
Interest expense
Amortization of bond issue costs
Other non-operating expenses, net
Ordinary Income
Extraordinary Income:
Adjustment of depreciation for prior periods (Note 3)
Income before Income Taxes
Current and deferred income taxes (Note 8)
Net Income
The accompanying notes to financial statements are an integral part of these statements.

NBF Report July – December 2009 41

Statements of Changes in Net Assets
NIPPON BUILDING FUND INC.
For the six months ended December 31, 2009, June 30, 2009 and December 31, 2008

(Yen in millions)

Balance as of June 30, 2008
Cash dividends declared
Net income
Balance as of December 31, 2008
Cash dividends declared
Net income
Balance as of June 30, 2009
Cash dividends declared
Net income
Balance as of December 31, 2009
The accompanying notes to financial statements are an integral part of these statements.

42 NBF Report July – December 2009

Number ofCommonSharesCommonSharesRetained
Earnings

Total

542,000¥386,176¥ 12,222¥398,398————(12,222)
12,061(12,222)
12,061

542,000

386,176

12,061

398,237————(12,061)
11,802(12,061)
11,802542,000

386,176

11,802397,978————(11,802)
10,662(11,802)
10,662542,000¥386,176¥ 10,662¥396,838

Statements of Cash FlowsNIPPON BUILDING FUND INC.
For the six months ended December 31, 2009, June 30, 2009 and December 31, 2008

For the six months ended
December 31, 2009

For the six months ended
June 30, 2009
(Yen in millions)

For the six months ended
December 31, 2008

¥ 10,663
5,282
27
2,798
—
358
308
(78)
(2,636)——236
16,958¥ 11,803
5,355
27
2,527
70
(241)
(1,108)(160)(2,459)—540(463)
15,751¥ 12,062
5,356
27
2,447
—
49
901
171
(2,385)510—908
20,046(1,435)3,324(3,727)(3)(80)(1,921)(22,565)
1,531(2,000)(9)(107)(23,150)(40,374)
3,133(2,296)(10)(28)(39,575)(27,500)
45,000(18,125)(11,802)(12,427)2,610
38,121¥ 40,731(5,000)27,000(2,000)(12,056)
7,944
545
37,576¥ 38,121

20,00026,000(8,000)(12,219)
25,781
6,252
31,324¥ 37,576

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Amortization of bond issue costs
Interest expense
Adjustment of depreciation for prior periods(Increase) Decrease in tenant receivables
Increase (Decrease) in accounts payable
Increase (Decrease) in rents received in advanceCash payments of interest expense(Increase) Decrease in consumption tax refund receivable
Proceeds from a settlement
Other, net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases of investment properties
Proceeds from tenant security deposits
Payments for tenant security deposits
Payments for security deposits paid to lessors
Payments for purchases of other assets
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Proceeds from (Repayment of) short-term loans, net
Proceeds from long-term debt
Repayment of long-term debt
Payment of dividends
Net Cash Provided by (Used in) Financing Activities
Net Change in Cash and Cash Equivalents
Cash and Cash Equivalents at the Beginning of Period
Cash and Cash Equivalents at the End of Period
The accompanying notes to financial statements are an integral part of these statements.

NBF Report July – December 2009 43

Notes to Financial Statements
NIPPON BUILDING FUND INC.
For the six months ended December 31, 2009, June 30, 2009 and December 31, 2008

Note 1 – Organization and Basis of Presentation
Organization
Nippon Building Fund Inc. (hereinafter “NBF”) was formed on March 16, 2001 as an investment corporation under the Law
Concerning Investment Trusts and Investment Corporations of Japan (hereinafter the Investment Trust Law of Japan) with Mitsui
Fudosan Co., Ltd., The Chuo Mitsui Trust and Banking Co., Ltd., and Nippon Building Fund Management Ltd. (hereinafter “NBFM”)
acting as sponsors. Registration with the Kanto Local Finance Bureau of the Ministry of Finance was completed on May 10, 2001 and
NBF started acquisition of office properties on May 23, 2001.
NBF is an externally managed real estate fund, formed as an investment corporation. NBFM, as NBF’s asset management company,
is engaged in acquiring, managing, leasing, and renovating office properties. Mitsui Fudosan Co., Ltd. currently owns 43% of NBFM
while Sumitomo Life Insurance Company owns 35% and the remaining 22% is mainly owned by financial institutions.
On September 10, 2001, NBF had raised approximately ¥50,000 million through an initial public offering of common shares.
Those common shares are listed on the J-REIT section of the Tokyo Stock Exchange.
As of December 31, 2009, NBF had ownership or beneficiary interests in 61 office properties containing approximately 770,150
square meters of rentable office space. As of December 31, 2009, NBF had leased office space to 898 tenants engaged in a varietyof businesses. The occupancy rate for the office properties was approximately 94.8%.

Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust
Law of Japan and the Japanese Financial Instruments and Exchange Law and their related accounting regulations, and in conformity
with accounting principles generally accepted in Japan (hereinafter “Japanese GAAP”), which are different in certain respects as toapplication and disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements have been restructured and translated into English from the financial statements of NBF
prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as
required by the Financial Instruments and Exchange Law. Some supplementary information included in the statutory Japanese language financial statements, but not required for fair presentation, is not presented in the accompanying financial statements. NBF
does not prepare consolidated financial statements, as NBF has no subsidiaries.

Note 2 – Summary of Significant Accounting Policies
Cash and Cash Equivalents
NBF considers all highly liquid investments with original maturity of three months or less to be cash and cash equivalents.

Investment Properties
Investment properties are recorded at cost, which includes the allocated purchase price, related costs and expenses for acquisitionof the office properties and the beneficiary interests of properties in trust. Property and equipment balances are depreciated using
the straight-line method over the estimated useful lives. The estimated useful lives of the principal tangible fixed assets (including
assets held in trust) are as follows:

Buildings and improvements
Structures
Machinery and equipment
Tools, furniture and fixtures

2-50 years
2-50 years
2-17 years
2-19 years

Costs related to the renovation, construction and improvement of properties are capitalized. Expenditures for repairs and maintenance which do not add to the value or prolong the useful life of a property, are expensed as incurred.

44 NBF Report July – December 2009

Bond Issue Costs
Deferred bond issue costs are amortized using the straight-line method over three years.

Income Taxes
Income taxes are accounted for on the basis of income for financial statement purposes. The tax effect of temporary differences
between the amounts of assets and liabilities for financial statements and for income tax purposes is recognized as deferred taxes.

Real Estate Taxes
Real estate taxes are imposed on properties on a calendar year basis and expensed when incurred. In terms of newly purchased
properties, NBF capitalizes a portion of the real estate taxes that relate to a period from the purchase date of each property until theend of the calendar year as part of the acquisition cost of the relevant property. NBF incurred no capitalized real estate taxes for theperiod ended December 31, 2009. Capitalized real estate taxes amounted to ¥12 million for the period ended June 30, 2009 and¥68 million for the period ended December 31, 2008.

Revenue Recognition
NBF operates office properties that are rented to tenants on lease terms of generally two years, with monthly payments due inadvance. Rental and other property income is recorded when due from tenants and is recognized monthly as it is earned. Common
area charges provided for in tenant leases are recognized as income when earned and their amounts can be reasonably estimated.

Accounting Treatment of Beneficiary Interests in Trust Assets including Real Estate
For trust beneficiary interests in real estate, all accounts of assets and liabilities within assets in trust as well as all income generated
and expenses incurred from assets in trust are recorded in the relevant balance sheets and income statement accounts.

Reclassifications
Certain reclassifications have been made to prior periods’ financial statements to conform with the presentation used for theperiod ended December 31, 2009.

NBF Report July – December 2009 45

Note 3 – Additional Information for the Six Months Ended June 30, 2009
With respect to a 35% co-ownership interest in the Shin-Kawasaki Mitsui Building (henceforth “the Property”) acquired on
March 31, 2006, certain differences of opinion concerning the interpretation of the Sale and Purchase Agreement thereof arose
between NBF and Mitsui Fudosan Co., Ltd., the seller. NBF therefore filed a petition for reconciliation with the Tokyo District Court on
March 28, 2008. The aforementioned differences were settled through the reconciliation process on February 27, 2009, and NBF
received a settlement amount of ¥567 million on April 30, 2009.
Based on the management judgment that it is reasonable to treat the settlement amount of ¥540 million (after consumption
taxes and other items) as a reduction of the original acquisition cost, NBF has written down the book value of the Property by¥471 million, and recorded ¥70 million at extraordinary income as an adjustment of depreciation for prior periods.

Note 4 – Schedule of Tangible Assets of Investment Properties
Tangible assets as of December 31, 2009 and June 30, 2009 consisted of the following:
As of December 31, 2009

As of June 30, 2009
(Yen in millions)

Acquisition
Costs

Accumulated
Depreciation

Book Value

Acquisition
Costs

Land
Land in trust
Land including trust total¥219,238
256,432
475,670¥———¥219,238
256,432
475,670¥219,228
256,432
475,660

Buildings and improvements
Buildings and improvements in trust

142,085
135,046(21,960)(35,469)

120,125
99,577

Buildings and improvements
including those in trust
Structures
Machinery and equipment
Tools, furniture and fixtures
Structures in trust
Machinery and equipment in trust
Tools, furniture and fixtures in trust
Construction in process

277,131
2,236
1,103
755
1,899
1,345
951
12

(57,429)
(716)
(403)
(291)
(538)
(653)
(487)
—

8,301
¥761,102

Other tangible assets total
Total

46 NBF Report July – December 2009

Accumulated
Depreciation¥

Book Value———¥219,228
256,432
475,660

141,542
134,288(19,456)(32,994)

122,086
101,294

219,702
1,520
700
464
1,361
692
464
12

275,830
2,232
1,100
744
1,889
1,339
867
12

(52,450)
(643)
(357)
(251)
(488)
(611)
(440)
—

223,380
1,589
743
493
1,401
728
427
12

(3,088)

5,213

8,183

(2,790)5,393¥(60,517)¥700,585¥759,673¥(55,240)¥704,433

Notes to Financial Statements

Note 5 – Net Assets
NBF issues only non-par value shares in accordance with the Investment Trust Law of Japan and all of the issue prices of newshares are designated as stated capital. NBF maintains at least ¥50 million as the minimum net assets as required by the Investment
Trust Law of Japan.

Note 6 – Short-Term Loans and Long-Term Debt
Short-term loans consist of short-term notes and short-term borrowings under loan agreements. The annual interest rates on
short-term loans outstanding are floating rates and on December 31, 2009 and June 30, 2009 ranged from 0.58% to 0.95% andfrom 0.53% to 1.01%, respectively. Long-term debt is at fixed rates and as of December 31, 2009 and June 30, 2009 consisted of
the following:

As of December 31, 2009

As of June 30, 2009
(Yen in millions)

Unsecured loans due 2010 to 2019 principally from banks and insurancecompanies with interest rates mainly ranging from 0.8% to 2.4%
1.04% unsecured bonds due 2009 (Note 1)
0.80% unsecured bonds due 2010 (Note 2)
1.60% unsecured bonds due 2011 (Note 1)
1.48% unsecured bonds due 2012 (Note 2)
1.74% unsecured bonds due 2014 (Note 2)
1.85% unsecured bonds due 2015 (Note 2)
2.04% unsecured bonds due 2017 (Note 2)
2.00% unsecured bonds due 2018 (Note 1)
Less: amount due within one year

¥243,875—
10,00010,00010,00010,00010,00010,00010,000¥207,000
10,00010,00010,00010,00010,00010,00010,00010,000313,875

287,000

22,75038,250¥291,125¥248,750

Notes: 1. Subject to provision of collateral and financial restrictions pursuant to material decline in credit rating.
2. Subject to provision of collateral restrictions.

The annual maturities of long-term debt as of December 31, 2009 were as follows:(Yen in millions)Due after one to two years
Due after two to three years
Due after three to four years
Due after four to five years
After five years¥ 40,750
42,75042,75046,750118,125

During the period ended December 31, 2009, NBF obtained committed credit lines of ¥50 billion with certain financial institutions to reduce refinancing risk. The unused amount of such committed credit lines was ¥50 billion on December 31, 2009.

NBF Report July – December 2009 47

Note 7 – Rental Revenues and Expenses
Rental revenues and expenses for the periods ended December 31, 2009, June 30, 2009 and December 31, 2008 were as follows:

Revenues from Property Leasing:
Rental:Rental revenues
Common area charges
OthersSubtotal
Other revenues related to property leasing:
Parking lots
Facility charge
Incidental income
Cancellation fees
Miscellaneous income
Subtotal
Total revenues from property leasing
Rental Expenses:
Property management fees
Real estate taxes
Repairs and maintenanceInsurance
Other rental expenses
Depreciation and amortization
Total rental expenses
Operating Income from Property
Leasing Activities

For the six months ended
December 31, 2009

For the six months ended
June 30, 2009
(Yen in millions)

For the six months ended
December 31, 2008

¥24,022
2,844
120
26,986¥24,804
2,974
125
27,903¥24,8833,060
126
28,069

557
139
1,766
439
41
2,942
29,928

588
151
1,695
345
79
2,858
30,761

599
147
2,032
324
47
3,149
31,218

4,033
2,535
739
37
2,460
5,282
15,086

3,973
2,557
669
36
2,521
5,355
15,111

4,030
2,247
829
37
2,729
5,356
15,228¥14,842¥15,650¥15,990

Note 8 – Income Taxes
NBF is subject to income taxes in Japan. The effective tax rate on NBF’s income based on applicable Japanese tax law was estimatedas 0.01% for the periods ended December 31, 2009, June 30, 2009 and December 31, 2008. The following table summarizes thesignificant differences between the statutory tax rates and NBF’s effective tax rates for financial statement purposes.

Statutory tax rate (Note 1)
Deductible dividends
Others
Effective tax rate

48 NBF Report July – December 2009

For the six months ended
December 31, 2009

For the six months ended
June 30, 2009

For the six months ended
December 31, 200839.33%(39.33)0.01
0.01%

39.33%(39.33)0.01
0.01%

39.39%(39.39)0.01
0.01%

Notes to Financial Statements

NBF was established as an investment corporation under the Investment Trust Law of Japan, and as long as an investment
corporation distributes to its shareholders at least 90% of earnings available for dividends for a period and other requirements
prescribed in Japanese tax regulations are met, the investment corporation is allowed to deduct total amount of dividends incalculating its taxable income under Japanese tax regulations.
Note 1. The statutory tax rate was revised due to change in corporate business tax rate and creation of local corporate special tax, which is effective for fiscal years beginning on
or after October 1, 2008.

Note 9 – Per Share Information
Information about earnings per share for the periods ended December 31, 2009, June 30, 2009 and December 31, 2008 and net
assets per share as of December 31, 2009, June 30, 2009 and December 31, 2008 were as follows.
The computation of earnings per share is based on the weighted average number of common shares outstanding during the period.
The computation of net assets per share is based on the number of common shares outstanding at each period end.

Earnings per Share of Common Shares:
Net income
Weighted average number ofcommon shares outstanding

Net Assets per Share

For the six months ended
December 31, 2009

For the six months ended
June 30, 2009(Yen)

For the six months ended
December 31, 2008

¥19,671¥21,774¥22,252542,000

542,000

542,000

As of December 31, 2009

As of June 30, 2009

As of December 31, 2008

¥732,173¥734,276¥734,753

Note 10 – Leases
As Lessor
NBF leases some of its investment properties to outside parties under non-cancelable operating leases. As of December 31, 2009
and June 30, 2009 future minimum rental revenues under the non-cancelable operating leases are as follows:
As of December 31, 2009
As of June 30, 2009
(Yen in millions)Due within one year
Due after one year
Total

¥15,032
21,371¥36,403¥11,932
13,024¥24,956

NBF Report July – December 2009 49

Note 11 – Transactions with Related Parties(July 1, 2009 - December 31, 2009)(1) Parent Company and Major Corporate Shareholders
None applicable.
(2) Affiliates
None applicable.
(3) Sister Companies
None applicable.
(4) Directors and Major Individual Shareholders
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

Payment of asset
management fees to
Executive Director of
NBFM (Note 1)
NBF and
Payment for the provision
President & CEO of general administrationof NBFM
services relating toorganizational management to NBFM (Note 2)

Amount oftransaction
Yen in millions

Account

Balance at
end of period
Yen in millions¥1,078(Note 3)

Accounts
payable¥321(Note 3)¥2
(Note 3)

Accounts
payable¥1(Note 3)

Notes: 1. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and this amount is subject to the conditions set forth in the by-laws of NBF.
2. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and this amount is set forth in the “General Administration Agreement relating toOrganizational Management” concluded between NBF and NBFM.
3. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

(January 1, 2009 - June 30, 2009)(1) Parent Company and Major Corporate Shareholders
None applicable.
(2) Affiliates
None applicable.
(3) Sister Companies
None applicable.
(4) Directors and Major Individual Shareholders
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

Payment of asset
management fees to
Executive Director of
NBFM (Note 1)
NBF and
Payment for the provision
President & CEO of general administrationof NBFM
services relating toorganizational management to NBFM (Note 3)

Amount oftransaction
Yen in millions

Account

Balance at
end of period
Yen in millions¥1,206(Notes 2 and 4)

Accounts
payable¥386(Note 4)

¥7(Note 4)

Accounts
payable¥1(Note 4)

Notes: 1. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and this amount is subject to the conditions set forth in the by-laws of NBF.
2. The amount of asset management fees includes ¥72 million for management related to acquisition of properties included in the book value of each investment property, etc.
3. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and this amount is set forth in the “General Administration Agreement relating
to Organizational Management” concluded between NBF and NBFM.
4. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

50 NBF Report July – December 2009

Notes to Financial Statements

Note 12 – Significant Subsequent Events
On January 28, 2010, NBF issued unsecured bonds as described below through a public offering, pursuant to a comprehensive resolution concerning issuance of domestic unsecured bonds adopted by its Board of Directors on October 22, 2009.

No. 11 Unsecured Bonds
1. Name: Number 11 Unsecured Investment Corporation Bonds (with pari passu conditions among specified Investment Corporation
Bonds)
2. Total Issue Amount: ¥10 billion
3. Issue Price: ¥100 with a par value of ¥100
4. Redemption Value: ¥100 with a par value of ¥100
5. Interest Rate: 1.23%
6. Collateral and Guarantee: Unsecured and unguaranteed
7. Redemption: The redemption date for the total amount of principal is January 28, 2015. The unsecured bonds may be redeemed at
the option of NBF at any time from the day immediately after the issuance date unless otherwise determined by the book-entry
transfer agent.
8. Interest Payment Dates: January 28 and July 28 each year.
9. Use of Proceeds: Repayment of borrowings, etc.

NBF Report July – December 2009 51

Independent Auditors’ Report

To the Board of Directors of
Nippon Building Fund Inc.:

We have audited the accompanying balance sheets of Nippon Building Fund Inc. (a Japanese Real Estate
Investment Trust) as of December 31, 2009 and June 30, 2009, and the related statements of income,changes in net assets and cash flows for each of the six months ended December 31, 2009, June 30,
2009 and December 31, 2008 expressed in Japanese yen. These financial statements are the responsibility of the Company’s management. Our responsibility is to independently express an opinion on thesefinancial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of Nippon Building Fund Inc. as of December 31, 2009 and June 30, 2009, and theresults of its operations and its cash flows for each of the six months ended December 31, 2009, June30, 2009 and December 31, 2008 in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to Note 12 to the financial statements, which statesthat Nippon Building Fund Inc. issued unsecured bonds.

Tokyo, Japan
March 29, 2010

52 NBF Report July – December 2009

Appendix
Major Interested Parties
Nippon Building Fund Management Ltd. (Asset Management Company and Administrative Agent
regarding the Management of Institutions, herein “NBFM”)
NBFM, as Asset Management Company provided for in theManagement Fees 3
In the event that Real Estate, etc. is newly acquired, compensation

Investment Trust Law of Japan, performs management of NBF’s
assets and undertakes management of the institutions of NBF. As ofequivalent to the total amount of the acquisition price of said Real

December 31, 2009, NBFM has been entrusted as an asset manage-

Estate, etc. (meaning the acquisition price of both land and buildings,

ment company only by NBF.

and in the event of the simultaneous acquisition of multiple units of

As of the same date, NBFM has paid-in capital of ¥495 million.

Real Estate, etc., the acquisition price of each item, provided,

There is no capital relationship with NBF. Koichi Nishiyama, President

however, that national consumption tax, regional consumption tax& CEO of NBFM, is concurrently an executive director of NBF.

and miscellaneous costs of acquisition are excluded) multiplied by thefollowing percentage rates will, in principle, be payable, provided,

Operation■■

however, that with the approval of the directors of NBF, compensa-

Undertakes asset management of NBF pursuant to an Assettion will be calculated within the scope decided up to the following

Management Entrustment Agreement based on an entrustment

maximum rates.

from NBF in accordance with the Articles of Incorporation of NBF●

The portion up to and including ¥10,000 million .......................... 0.5%

and the Investment Objects and Policies set forth therein.

●

The portion exceeding ¥10,000 million up to andincluding ¥30,000 million ............................................................ 0.2%●

The portion exceeding ¥30,000 million up to andincluding ¥50,000 million ............................................................ 0.05%●

The portion exceeding ¥50,000 million ........................................ nothing

Undertakes management of the general affairs of the general
meeting of shareholders and the Board of Directors as
Administrative Agent regarding the Management of Institutions
based on an entrustment from NBF and pursuant to an Agreement
for General Administration Regarding the Management ofInstitutions.

Fees for the Asset Management Operation
Management Fees 1
The amount equivalent to 2.5% effective from July 1, 2003 of theamount of the revenue arising from Real Estate, etc. as calculated oneach closing date (provided, however, that revenues from the sale ofReal Estate, etc. and other Managed Assets will be excluded) will bepayable.

Management Fees 2
The amount equivalent to 3% of income before income tax (provided, however, that in the event a loss is carried forward, then theamount of income before income taxes remaining after such loss has
been covered) prior to deduction of Management Fees 2 as calculatedon each closing date will be payable.

NBF Report July – December 2009 53

Appendix

History of NBFM

Directors and Staff

NBFM is an Asset Management Company which is a limited

As of March 30, 2010, the directors and corporate auditors of

liability company duly established under the laws of Japan. Major

NBFM are as follows. The staff other than directors and auditors ofevents in the history of NBFM are as follows.

NBFM is comprised of 17 persons.

September 19, 2000 Established

Name of Directors and Auditors

November 17, 2000

Obtained license as a building lots and building
transactions agent under the Building Lots andBuilding Transactions Law

Koichi Nishiyama

President & CEO (standing)

Yasushi Nakayama

Director, Head of Investment & Finance Group(standing)Obtained approval as a discretionary transaction
agent under the Building Lots and Building
Transactions Law

Hiroshi Yabuki

Director, Head of Administration Group(standing)

Masato Shikata

Director

Hideharu Matsumoto

Director

January 29, 2001

February 15, 2001

March 7, 2001

Registered as a general real estate investment advisor under the Real Estate Investment Advisor
Registration Regulations
Obtained approval as an Asset Management
Company under the Investment Trust Law of Japan

March 22, 2001

Increased capital from ¥100 million to ¥198 million

May 23, 2001

Changed name (from “MF Asset Management Co.,
Ltd.” to “Office Building Fund Management Japan
Limited”)

June 16, 2001

Increased capital from ¥198 million to ¥495 million

March 14, 2003

Changed name (from “Office Building Fund Management Japan Limited” to “Nippon Building FundManagement Ltd.”)

September 30, 2007

Registered as a financial instruments firm with the
Kanto Local Finance Bureau Chief (Financial
Instruments) No. 371

List of Shareholders (as of December 31, 2009)
Name

Numberof Shares Owned

Percent

Mitsui Fudosan Co., Ltd.

4,257

43.0%

Sumitomo Life Insurance Company

3,465

35.0

The Chuo Mitsui Trust andBanking Co., Ltd.

495

5.0

Sumitomo Mitsui Banking
Corporation

495

5.0

Daido Life Insurance Company

297

3.0

Mitsui Sumitomo InsuranceCo., Ltd.

297

3.0

Mitsui Mutual Life Insurance
Company297

3.0

Britel Fund Trustees Limited

297

3.0

9,900

100.0%Total

54 NBF Report July – December 2009

Title

Noriaki Moromachi

Corporate Auditor

Toru Suzuki

Corporate Auditor

Outline of Financial Condition
An outline of the financial condition of NBFM is as follows.
Outline of principal assets and liabilities for the most recent
fiscal year:
As of March 31, 2009

(Yen in thousands)

Total Assets¥2,143,988

Total Liabilities

460,765

Total Net Assets

1,683,223

Profit and loss for the most recent fiscal year:
Year ended March 31, 2009

(Yen in thousands)

Operating Income¥2,414,289

Ordinary Profit

1,638,901

Net Income

968,020

Investment and Distribution Policies
Investment Policies of NBF

The following table sets forth above said area diversification strategy.
Area and Allocation Ratio

A. Basic Policies
NBF’s primary investment objective is to achieve sustainable growth inportfolio value and stable profits on a medium-to-long-term basis. NBF
achieves this objective by investing in real estate consisting of buildings

Area Analysis

Tokyo CBDs
9 central wards in Tokyo:
Chiyoda, Minato, Chuo, Shinjuku,
Shinagawa, Shibuya, Toshima,
Bunkyo and Meguro

primarily used for offices with their underlying land located in the Tokyo
Central Business Districts (hereinafter “CBDs”), Other Greater Tokyo andOther Cities in Japan as well as securities, beneficiary certificates representing beneficial interests in trusts (hereinafter “Beneficiary Certificates”)
and other assets backed by office properties (collectively hereinafter “RealEstate, etc.”) (“Investment Objectives and Policies,” Articles ofIncorporation). (Reference to laws, legal documents, etc. used as the basis
or sources hereof are set forth in parenthesis herein.)

B. Investment Strategy
Nippon Building Fund Management Ltd. (“NBFM”), based on theinvestment strategy of NBF set forth below, invests and manages theassets of NBF. NBFM has established asset management guidelines basedon the Articles of Incorporation of NBF and in accordance with the investment strategy of NBF.

(1) Strategy for Creation of the Portfolio
The goal of the portfolio is to generate steady growth and stable profits

Other Greater Tokyo■

Relatively high rent levels and low vacancy
rates compared to Other Cities; also, relatively large market scale (both leasing andpurchase/sale) with high growth rates.

■

Relatively low yearly NOI yields.

■

Relatively high liquidity at the time of sales.

■

Basic special characteristics are between
those of Tokyo CBDs and Other Cities.

Other 14 wards in Tokyo andneighboring cities (see Note 1
below) such as Musashino,
Tachikawa, Yokohama, Kawasaki,
Chiba, Kashiwa, Saitama, etc.

Total of above two areas: 70% or more
Other Cities
Principal regional cities such as
Sapporo, Sendai, Niigata,
Shizuoka, Hamamatsu, Nagoya,
Kyoto, Osaka, Kobe, Okayama,
Hiroshima, Takamatsu, Fukuoka,
Kumamoto, etc.

■

Rent levels relatively low and vacancy rates
relatively high compared to Tokyo CBDs, withsome variance by each area’s characteristics;
also, relatively small market scale and low
growth rates.

■

Relatively high yearly NOI yields.

■

Relatively low liquidity at the time of sales.

Total of above area: 30% or less
Notes: 1. “Neighboring cities” refers to the metropolis of Tokyo excluding its 23 wards, andthe 6 prefectures of Kanagawa, Chiba, Saitama, Ibaraki, Gunma and Tochigi.
2. Due to unforeseeable events, such as extreme fluctuations in macro-economic
trends, financial trends, real estate market trends and so forth, it may not always be
possible to operate in accordance with each of the above criteria (“Investment
Objectives and Policies,” Articles of Incorporation).

on a medium-to-long-term basis. The selection criteria of investment
assets is based on the composition of investment assets in the portfolio(2) Acquisition Strategy

and based on consideration of a quantitative proportion of the office stocka) Ratio of Real Estate Assets

located in the various regions of Japan.

NBF will maintain ratios of 75% or more with respect to the “Designated
Real Estate Ratio” (“Investment Objectives and Policies,” Articles ofArea Diversification
The investment strategy of NBF divides the investment area into threeareas consisting of Tokyo CBDs, Other Greater Tokyo and Other Cities insuch manner that 70% or more of total investment assets (Real Estate,etc.) are allocated to Tokyo CBDs and Other Greater Tokyo and 30% orless to Other Cities. The purpose of this area diversification is to mitigate
cash flow risks such as earthquakes, risk of vacancies and so forth(“Investment Objectives and Policies,” Articles of Incorporation).

Incorporation). As of June 30, 2009, NBF satisfied the criteria.
The “Designated Real Estate Ratio” means the ratio of the total amount of
Designated Real Estate to the total amount of Designated Assets owned by NBF.
Note: Designated Real Estate includes real estate, real estate leasehold rights, superficies
and beneficiary certificates backed by real estate, land leasehold rights and superficies(as designated under Article 83.4.3.1 of the Special Taxation Measures Law of Japan).

b) Due Diligence
When investing in office properties, selections will be made throughcomprehensive research and analysis based on the forecast investment
yields resulting from the acquisition costs and their anticipated profits,
future prospects and stability of the area of location, availability of measures responding to risks of deterioration and obsolescence, insurability andso forth of the relevant office properties (or Beneficiary Certificates backed

NBF Report July – December 2009 55

by such office properties). The details of the relevant criteria are set forth inunleasable assets which thereafter become operational) will not exceed

the following table (“Investment Objectives and Policies,” Articles of

10% of the total assets indicated on the most recent balance sheet of

Incorporation).

NBF. For this purpose, “leased/leasable assets” shall mean property withThough such consideration will involve the study of the criteria included

respect to which the construction of the building has been completed andin the following table, it is possible that when NBF acquires or intends tosuch building is leased or leasable. Properties which are owned by NBF

acquire operating assets, not all of the following criteria will be satisfied.

and have become operational at some point shall be deemed “leasable”

Item

thereafter (including such cases as reconstruction or large-scale renova-

Scale of building

Points to be reviewed■■

Desired total net rentable area is 1,650m 2(approximately 500 tsubo) or more.

■

Desired standard net rentable area per floor is
330m2 (approximately 100 tsubo) or more.

Construction type andspecifications of facilities■

Earthquake resistance■

Measures regarding
status of legal title

Net rentable area, including net rentable areaof entire building and standard net rentablearea per floor.

■

●

●

tion of a building) (“Investment Objectives and Policies,” Articles ofIncorporation).

(3) Management and Disposition Policies
Regarding acquired Real Estate, etc., the goal is to obtain steady

Building design and floor plan suitable forleasing, with divisibility, adequate ceilingheight, electrical service, HVAC equipment,
etc.

growth of operating profits on a medium-to-long-term basis by planning toEnsure that construction quality exceeds
earthquake standards (meaning those required
pursuant to the Building Standards Law asamended in 1981) or standards equivalent
thereto (obtain structural appraisal/assessment (appraisal/assessment of the building
structure pursuant to the Building Standards
Law conducted by The Building Center ofJapan), etc.).

ing occupancy rates, extending the term of leases and rendering them

In cases such as co-ownership, divided
condominium ownership, a building erected
on leased land, etc. where NBF will not
obtain complete ownership of a building, thefollowing matters are appropriately treated.

monies may be received and said monies will be managed in accordance

Measures to protect security deposits, policies and measures regarding cash reserves
for long-term renovation plans.
Appropriate measures regarding demands fordivision of co-owned interests or the sale ofa co-owner’s interest, etc.

maintain and improve asset value and competitive ability through investment in facilities and by expanding income (increasing rents, etc., increasmore stable, etc.) and reducing property-related expenses.
NBF will, in principle, for the purpose of assuring stable income on a
medium-to-long-term basis, lease out all Real Estate, etc. included inoperating assets (including installation of parking lots, billboards, etc.).
When conducting such leasing, security deposits, etc. and other similar
with the requirements of the Articles of Incorporation (“Investment
Objectives and Policies,” Articles of Incorporation).
NBF is entitled to establish reserves for long-term renovations required
to maintain and enhance the value of operating properties, reserves forpayables, reserves for cash distributions and any other similar reserves,etc. (Article 14.1 (2) of the Articles of Incorporation).

Tenancy characteristics■

Acceptable creditworthiness of tenants, purposes of use by tenants, configuration, andcondition of collectibility of rents, etc.

a) Reserves for Long-Term Renovations

Environmental;
condition of land, etc.

■

Absence of harmful substances such as
asbestos (or countermeasures can be implemented for any such substances), non-existence of soil pollution, etc.

tions, repairs and tenant improvements will be determined based on reno-

From the reserves set forth above, a portion corresponding to renovavation plans for each building. As of December 31, 2009, foreseen
reserves provided from January 2010 to December 2010 are as follows:
Itemc) Uncompleted or Unleasable Properties

ReasonReserves forlong-term renovations■

Average annual amount over an approximately 10-year period based on engineering
reports■

Expenses of providing “free access floor”.

■

Expenses for other move-in construction costs(partitions, etc.)

ment amount, the date of completion or of becoming leasable, estimatedReserves for tenant improvements (reserves for future
construction expenses required
for spaces leased to tenants)

revenue and so forth, provided, however, that the contract

Total Foreseen Amount: (annual basis) ¥3,444 million

In principle, NBF acquires Real Estate, etc. which are leased/leasable
assets at the time of closing. NBF may acquire a property which is not yet
leasable at the time of closing based on consideration of the impact on
NBF’s asset management activities after taking into account the invest-

amount of any such unleasable asset combined with the total contract
amount of previously acquired unleasable assets (but excluding

56 NBF Report July – December 2009

Notes: 1. In addition to the above-mentioned amount, certain amounts are set aside as cash
reserves for renovation pursuant to the administrative rules of the buildings in which
NBF owns condominium interests, etc.

Investment and Distribution Policies

2. The amount of reserves set forth above is the total amount of reserves with respect
to the 61 properties owned by NBF as of December 31, 2009.

b) Measures to Avoid Reductions and Fluctuations in
Operating Income
In order to avoid large-scale reductions and fluctuations in operating
income due to fire damage, withdrawal of tenants and so forth, efforts,such as area diversification and obtaining adequate fire and casualty
insurances, etc., will be exerted.

c) Disposition
In disposing of individual operating properties, selections will be madethrough comprehensive research and analysis based on the forecasted
income, actual and predicted fluctuations in asset value, future prospects
and stability of the area of location, risks of deterioration and obsolescence of real estate and predicted costs thereof as well as the composition of the portfolio, etc. Sell/hold studies will be periodically undertakenwith respect to all operating properties (“Investment Objectives andPolicies,” Articles of Incorporation).

(4) Financial Policies

temporarily exceed 60% when acquiring certain assets, etc. (medium-tolong-term operating asset management policy and annual management
plan established by the Asset Management Company).

d) Derivative Transactions
NBF purchases rights in derivatives transactions solely to hedge
against risks, including risks of fluctuation in interest rates for debt, as set
out in Article 2.20 of the Financial Instruments and Exchange Law ofJapan (“Investment Objectives and Policies,” Articles of Incorporation).

(5) Disclosure Policy
NBF’s policy on disclosure is to earn recognition from society byshowing itself to be an open and transparent investment company. It also
works at all times to engender an environment in which it can disseminate fair and unbiased information to all its investors without delay. In
addition to conducting disclosure in the style required by the Investment
Trust and Investment Corporation Law of Japan, the Financial
Instruments and Exchange Law of Japan, the Tokyo Stock Exchange, theInvestment Trusts Association and other laws and organizations, NBF also
voluntarily discloses information it deems necessary for investor
decision-making.

a) Issuance of Shares
NBF may issue shares in order to undertake acquisition and renovationa) Appraisal Value, etc.

and so forth of assets and to provide allowance for funds required for

In the event that NBF undertakes asset valuation for the purpose ofworking capital as well as for the repayment of debt (including security

disclosure in Performance Information Reports, etc. using methods anddeposits, borrowings and repayment of obligations regarding NBF bonds, etc.).

standards different from those it has set forth, (a) the disclosure value tobe used for real estate, real estate leasehold rights and superficies will, inb) Debt Financing
NBF may raise capital (including use of the call loan market) and issue
bonds in order to undertake acquisition and renovation and so forth ofassets and to provide allowance for funds required for working capital aswell as for the repayment of debt (including security deposits, borrowings
and repayment of obligations regarding NBF bonds, etc.) (“Investment
Objectives and Policies,” Articles of Incorporation).
Borrowings are limited to those from Qualified Institutional Investors as
specified in the Financial Instruments and Exchange Law of Japan, incase capital is borrowed. Further, the total limit on all such borrowings
and issues of NBF bonds will be ¥1,000,000 million. When undertaking
borrowings or when issuing NBF bonds, NBF may provide operating
assets as collateral (Article 15 of the Articles of Incorporation).

c) Loan-to-Value Ratio
The ratio of the total amount of borrowings, issues of NBF bonds andlease deposits under management to the total amount of assets of NBF

principle, be the appraised valuation provided by a certified real estateappraiser and (b) the disclosure value to be used for beneficiary certificates, equity interests of tokumei kumiai and equity interests of partnerships for which respective assets are real estate, real estate leasehold
rights or superficies will be the calculated value of equity interests of eachbased on the value of their respective assets as determined in (a) plus thefair value of any financial assets as determined in conformity with generally accepted accounting principles, less trust and total tokumei kumiai
liabilities. (Articles of Incorporation).
The appraisal value of property with respect to the period commencing
on the acquisition thereof and ending on the date of disclosure of suchvalue with respect to the next following closure of NBF’s accounting term
shall be the acquisition price of the said property (excluding miscellaneous acquisition costs, fixed assets tax, city-planning tax and consumption tax) as stated in the sale and purchase contract, etc. for the said
property.

(loan-to-value ratio) is envisioned to be limited to 60%, but may

NBF Report July – December 2009 57

Investment Objectives of NBF

that this is limited to those the assets of which are primarily invested
and Managed Assets principally referred to in paragraphs (1) and (2)Investment Restrictions in Articles of Incorporation

above).

The Investment Objectives of NBF specified in the Articles ofIncorporation are as follows. Please also refer to “B. Investment Strategy”
of “Investment Policies of NBF” herein.

A. Principal Investment Objectives among
Designated Assets
NBF will principally invest in the below-listed Designated Assets withthe objective of assuring steady growth and stable profits from theManaged Assets.

(9) Beneficiary Certificates of Money Trust (limited to those the trust assetsof which are primarily invested and Managed Assets referred to inparagraph (1), (3) or (4) above, provided, however, that those that are
deemed securities are excluded).

B. Other Investment Objectives among
Designated Assets
NBF may, in the course of efficiently managing funds or in other cases
as necessary, invest in the following Designated Assets.

(1) Real estate, real estate leasehold interests and superficies.

(1) Bank deposits(2) Beneficiary Certificates backed by real estate, real estate leasehold(2) Certificates of deposit issued by Japanese legal entities

rights and superficies, including inclusive trusts consisting of funds
appurtenant to real estate.
(3) Tokumei kumiai ownership interests as defined by Article 535 of theCommercial Code of Japan (provided, however, that this is limited tothose the assets of which are primarily invested and Managed Assets
principally referred to in paragraphs (1) and (2) above).
(4) Equity interests in partnerships as defined by Article 667 of the Civil
Code of Japan (limited to leased, operating and managed partnershipassets primarily referred to in paragraphs (1) and (2) above that are(3) Call loans(4) Japanese government bonds, notes and bills (meaning those specified
in Article 2.1.1 of the Financial Instruments and Exchange Law ofJapan)(5) Regional treasury bonds, notes and bills (meaning those specified in
Article 2.1.2 of the Financial Instruments and Exchange Law of Japan)(6) Commercial paper (meaning that specified in Article 2.1.15 of the
Financial Instruments and Exchange Law of Japan)(7) Designated bonds of Special Purpose Companies (meaning thosespecified in Article 2.2.5 of the Financial Instruments and Exchange

specified in Article 2.1.4 of the Financial Instruments and Exchange

Law of Japan).

Law of Japan, provided, however, that this is limited to asset-backed(5) Preferred Investment Certificates of Special Purpose Companies(meaning those specified in Article 2.1.8 of the Financial Instruments
and Exchange Law of Japan, provided, however, that this is limited tosecurities principally referred to in paragraphs (1) and (2) of section
A above).
(8) Monetary claims (limited to those claims that are deemed

those the assets of which are primarily invested and Managed Assets

Designated Assets under the Investment Trust Law of Japan otherprincipally referred to in paragraphs (1) and (2) above).

than those referred to in section A and above).

(6) Special Purpose Beneficiary Certificates (meaning those specified in(9) Securities (other than those listed in section A and above).

Article 2.1.13 of the Financial Instruments and Exchange Law of Japan,(10) Rights to financial derivative transactions (limited to those specified inprovided, however, that this is limited to those the assets of which are

Article 2.20 of the Financial Instruments and Exchange Law of Japan).

primarily invested and Managed Assets principally referred to in paragraphs (1) and (2) above).
(7) Beneficiary Certificates of investment trusts (meaning those specified

C. Assets Other than Designated Assets
NBF may, in the course of efficiently managing funds or in other casesin Article 2.1.10 of the Financial Instruments and Exchange Law ofas necessary, invest in the following assets.

Japan, provided, however, that this is limited to those the assets ofwhich are primarily invested and Managed Assets principally referred(1) Equity interests of partnerships, excluding assets in section A,
paragraph (4)to in paragraphs (1) and (2) above).

(2) Easements(8) Investment Securities (meaning those specified in Article 2.1.11 of the
Financial Instruments and Exchange Law of Japan, provided, however,

58 NBF Report July – December 2009(3) Trademark rights(4) Copyrights

Investment and Distribution Policies(5) Chattels

Instruments and Exchange Law of Japan, although the Investment Trusts(6) Requisite ancillary rights to Designated Assets referred to in

Association of Japan has established rules such that a corporate-style J-

section A

REIT may pay out the excess of retained earnings for the period up to a
maximum of 60% of depreciation for the period. NBF is entitled to makecash distributions of the amounts described below in excess of theDistribution Policies of NBF

Distributable Amount in the following cases, provided, however, that the
maximum amount of such distributions will be the amount set forth in the

A. Distributions of Profits
A registered investment corporation may deduct its cash dividends ofprofits from taxable income under Japanese tax regulations if it distributes
to its shareholders in excess of 90% of its taxable income and complies
with other organizational and operational requirements. NBF intends tomake dividend distributions that ensure that NBF satisfies those requirements.
NBF will, in principle, effect distributions in accordance with the following policies (Article 14.1 of the Articles of Incorporation).

(1) NBF’s earnings available for distributions are based on accounting of
profits prepared in accordance with the Investment Trust Law and in conformity with generally accepted accounting principles in Japan.
The distributable amount which results from operation of managed
assets of NBF (hereinafter, “Distributable Amount”) shall be the amount of
profit (the amount of net assets on the balance sheet less the amount of
total expenses, capital surplus reserves and estimated or equivalent variances) calculated on each closing date.

(2) The amount of cash distributions will be determined by NBF, suchamount being in excess of 90% of earnings available for dividends of NBF
set forth in Article 67.15 of the Special Taxation Measures Law of Japan(hereinafter “Distributable Earnings”), provided, however, that the maximum amount of distributions will be the Distributable Amount. NBF has
the right to allow for long-term reserve for renovations, reserve forpayables, reserve for cash distributions and other reserves and allowances
similar thereto which are deemed necessary for maintaining or enhancing
the assets of NBF.

(3) Earnings retained and not allocated to cash distributions or otherwise
available for distribution as of the closing date will be managed in accordance with “Investment Objectives and Policies” in the Articles ofIncorporation.

B. Distribution in Excess of Earnings
A registered investment corporation is allowed to distribute cash to its

rules of the Investment Trusts Association of Japan (Article 14.2 of the
Articles of Incorporation).

(1) Amount determined by NBF as being eligible for the requirements ofArticle 39.32.3 of the Special Taxation Treatment for Investment
Corporations, in case of the Distributable Amount being less than the
Taxable Income Available for Dividends.

(2) Amount determined by NBF not in excess of the amount of depreciation forthe current term less the amount of appropriate reserves for thecurrent term, if NBF determines it appropriate considering trends in macro economic environments, real estate markets and leasing markets.
As for cash distributions in excess of profits, as long as the current
Japanese taxation treatment applicable to NBF’s shareholders in Japan towhom such distributions are paid requires them to calculate capital gainor loss at the time of each distribution, NBF will not make distributions inexcess of profits.
Notwithstanding the above, NBF may make distributions in excess of
profits in accordance with the distribution policies stated above in order tomeet “Requirement for Deduction from Taxable Income of Dividends ofProfit, etc.,” and if such distributions in excess of profits are deemed necessary by the Board of Directors of NBF.

C. Method of Distributions
Distributions will be made in cash, in principle, within three months
from the closing date, to such shareholders or registered pledgees as arelisted or recorded in the latest Shareholder Registry as of the closing date,in proportion to the number of shares owned by or pledged to them
(Article 14.3 of the Articles of Incorporation).

D. Prescription for Cash Distributions, etc.
NBF will be discharged from the obligation to pay distributions of profits three calendar years from the date of commencing payment. Interest
will not accrue on unpaid distributions (Article 14.4 of the Articles ofIncorporation).

shareholders in excess of the Distributable Amount under the Financial

NBF Report July – December 2009 59

Investment Restrictions
A. Investment Restrictions in Articles ofIncorporation
The investment restrictions specified in the Articles of Incorporationand the applicable to NBF. Please also refer to “Investment Policies of NBF,
B. Investment Strategy” herein.

well as “Investment Objectives and Policies” of the Articles ofIncorporation.

B. Compliance with the Financial Instruments
and Exchange Law and the Investment Trust Law
of Japan
NBF is subject to restrictions on investment under the Financial
Instruments and Exchange Law and the investment Trust Law of Japan.

(1) Investment Location and Currencies

Main restrictions are as Follows.

NBF will invest neither in real estate located outside of Japan nor in
assets denominated in non-Japanese currencies (“Investment Objectives
and Policies,” Articles of Incorporation).

(1) Pursuant to Article 198.1 of the Investment Trust Law of Japan, aregistered investment corporation must entrust business related toasset management to an asset management company registered as a(2) Borrowing
See “Investment Policies of NBF, B. Investment Strategy, (4) Financial
Policies.”

financial instrument firm, but an asset management company is prohibited from performing certain acts related to the business of managing the assets of said investment corporation. As a result, an investment corporation is subject to certain investment restrictions (all refer-(3) Concentration of Investment
There is no limitation on concentration of investment. See “Investment
Policies of NBF, B. Investment Strategy, (1) Strategy for Creation of thePortfolio.”

ences in parentheses below are to the provisions of the Financial
Instruments and Exchange Law of Japan, except where stated otherwise) besides restrictions applied to a registered investment corporation. NBF will naturally comply with such investment restrictions, ageneral overview of which follows.

(4) Investment Objectives
NBF does not invest aggressively in the Monetary Claims anda) Internal Transactions (§ 42.2.1)

Securities referred to in “Investment Objectives, B. Other Investment

Transactions between an asset management company and its direc-

Objectives among Designated Assets.” Rather, NBF takes into accounttors or officers are prohibited except for certain cases specified in Article

their stability and liquidity based on the extent of their relationship with

128 of the government ordinance regarding the Financial Instruments andDesignated Assets referred to in “Investment Objectives, A. Principal

Exchange Law that are considered unlikely to result in failure to protect

Investment Objectives among Designated Assets.” NBF invests in rights tothe interests of shareholders, damage fair transactions or discredit thefinancial derivatives transactions solely to hedge against risks, including

financial instruments business.

risks of fluctuation in interest rates for debt (“Investment Objectives andPolicies,” Articles of Incorporation).
Moreover, investment in other funds (investment securities orb) Reciprocal Transactions with Managed Assets (§ 42.2.2)

Transactions between asset management companies of investment

Beneficiary Certificates) is limited mainly to those the assets of which arecorporation assets are prohibited except for certain cases specified in thereferred to in “Investment Objectives of NBF, A. Principal Investment

provisions of the government ordinance regarding the Financial

Objectives among Designated Assets,” paragraphs (1) and (2).

Instruments and Exchange Law of Japan that are considered unlikely to

The real estate held by such funds may not include any real estate

result in failure to protect the interests of shareholders, damage fair trans-

located outside of Japan (Articles of Incorporation).

actions or discredit the financial instruments business.

(5) Compliance with Laws and Regulationsc) Transactions for the Benefit of Third Parties (§ 42.2.3)

The Managed Assets of NBF will be managed in compliance with the

An asset management company may not undertake transactions in cer-

Financial Instruments and Exchange Law of Japan and related regulations,tain financial instruments, indices or options based on fluctuations in thethe rules stipulated by the Investment Trusts Association (as amended), as

price, index, value, or amount of consideration related to transactions in the

60 NBF Report July – December 2009

Investment and Distribution Policies

assets of an investment corporation, without a legally valid reason, with theobjective of benefiting a third party other than NBF or said investment.

(2) Limitation on Acquisition of the Same Issue of
Shares (§ 194 of the Investment Trust Law)
An investment corporation may not acquire the same shares issued byd) Transactions Harmful to the Interests of NBF (§ 42.2.4)

An asset management company may not undertake transactions thata corporation in excess of 50/100 of total number of said issued and outstanding shares.

are other than upon normal terms and conditions for such transactions,and further, such transactions upon said conditions would be harmful tothe interests of the investment.

(3) Restriction on Acquisition of Own Shares andAcceptance of Pledge (§ 80.1 of the Investment
Trust Law)e) Other Transactions Defined by Cabinet Office
Ordinances

In addition to the above, the following activities are prohibited (§42.2.7of the Financial Instruments and Exchange Law, Cabinet Office OrdinanceAn investment corporation may not acquire shares issued by itself, or
accept them for the purpose of pledge, unless it acquires shares issued byitself in the following cases:●

when acquired from another investment corporation as the surviving entityof a merger;●

when purchasing shares pursuant to the provisions of the Investment
Trust Law of Japan; or●when purchasing shares pursuant to a government ordinance regarding
the Investment Trust Law of Japan.

§130).
(i)

Transactions among the auditors, officers and employees of an asset
management company(ii)

Transactions for the benefit of the investment management company or
third parties that would be harmful to the interests of the investment corporation(iii) Transactions for the benefit of third parties that are not necessary
according to investment management policies, the financial condition of(4) Restriction on Acquisition of Parent Corporation’s
Shares by Subsidiary Corporation (§ 81.1.2)

assets under management, or market conditions(iv) Asset management that introduces unfair restrictions or other limitations
from external entities(v)

The sale or purchase of investment securities, or similar transactions,

An investment corporation (subsidiary), a majority of the shares of which isowned by another investment corporation (parent), may not acquire the sharesof such parent investment corporation except in the following cases:●

when acquired from another investment corporation as the surviving entityof a merger; or●

when purchasing shares pursuant to a government ordinance regarding
the Investment Trust Law of Japan.

with the objective of unfairly inflating transaction amounts or artificiallyinflating prices(vi) Transactions between third parties and their agents (excluding specifictransactions to which rights holders have agreed pursuant to advance
explanation of the rationale for the transaction)(vii) When entities as specified below engage in underwriting investment
securities or other transactions, requested tenders or acquisitions ofinvestment securities when the subject investment securities to beacquired by or the amount subscribed under the tender agreement by the

C. Other Restrictions
Subscription and Margin Trading of Securities
Pursuant to the guidelines set by its asset management company, NBF
may not subscribe to, or conduct margin trading of, securities.

said underwriter differ from the planned amounts(a) foreign entities including corporations for their own account (as stipulated by Cabinet Office Ordinance §126.3)(b) entities that hold more than 50/100 of the total amount of investment securities representing underlying managed assets issued in
the two most recent fiscal years, as defined by §2.8.1-3, §2.8.8
and §2.8.9 of the Financial Instruments and Exchange Law (limited
to investment securities that give holders rights in the said managed
assets and such rights)(viii) Other activities prohibited by Cabinet Office Ordinance 130

NBF Report July – December 2009 61

Corporate Data
(As of December 31, 2009)

Corporate Office:38th Floor, GranTokyo North Tower, 9-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-6738, Japan+81-3-6259-8681
http://www.nbf-m.com/nbf_e/

Date of Inception:

March 16, 2001

Capital:Contributed capital and common shares issued and outstanding.
¥386,176 million
542,000 shares

Shareholders:

15,612

Transfer Agent:

The Chuo Mitsui Trust and Banking Co., Ltd.
33-1, Shiba 3-chome, Minato-ku, Tokyo, 105-8574, Japan

Business Office of the Transfer Agent:

Stock Transfer Agency Department of the Chuo Mitsui Trust and Banking Co., Ltd.
8-4, Izumi 2-chome, Suginami-ku, Tokyo, 168-0063, Japan+81-3-3323-7111

Independent Auditors:

KPMG AZSA & Co.
AZSA Center Building
1-2, Tsukudo-cho, Shinjuku-ku, Tokyo, 162-8551, Japan

Investor Relations:

For further information, please contact our asset management company:
Investor Relations of Financial Department
Nippon Building Fund Management Ltd.
38th Floor, GranTokyo North Tower, 9-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-6738, Japan+81-3-6259-8681

This document contains translations of selected information described in the

No person has been authorized to give any information or make any representations

Securities Report (Yuka shoken hokokusho) filed on March 30, 2010 pursuant to theother than as contained in this document in relation to the matters set out in this docu-

Securities Exchange Law of Japan, and the Financial Statements and the Performancement, and if given or made, such information or representation must not be relied upon

Information Report for the period from July 1, 2009 to December 31, 2009, of Nippon

as having been authorized by Nippon Building Fund Inc., Nippon Building Fund

Building Fund Inc. prepared pursuant to the Investment Trust Law of Japan.

Management Ltd. or any of their respective directors, officers, employees, partners,

This English language document was prepared solely for the convenience of andreference by overseas investors and neither corresponds to the original Japanese docu-

shareholders, agents or affiliates.
The financial statements of Nippon Building Fund Inc. have been prepared inments nor is it intended to constitute a disclosure document. The Japanese language

accordance with generally accepted accounting principles in Japan (Japanese

Securities Report and the Financial Statements and the Performance Information ReportGAAP), which may materially differ in certain respects from generally accepted

for the aforementioned period should always be referred to as originals of this document.

accounting principles in other jurisdictions.

English terms for Japanese legal, accounting, tax and business concepts used

Many provisions of this document contain forward-looking statements and informa-

herein may not be precisely identical to the concept of the equivalent Japanese terms.

tion. We base these statements on our beliefs as well as our assumptions based solelyWith respect to any and all terms herein, including without limitation, financial state-on certain limited information currently available to us. Because these statements reflect

ments, if there exist any discrepancies in the meaning or interpretation thereof between

our current views concerning future events, these statements involve known andthe original Japanese documents and English statements contained herein, the original

unknown risks, uncertainties and assumptions. Our future performance could materiallyJapanese documents will always govern the meaning and interpretation. None of Nippon

differ from those set out in these forward-looking statements. We do not undertake andBuilding Fund Inc., Nippon Building Fund Management Ltd. or any of their respective

will not undertake to release revisions of forward-looking statements to reflect future

directors, officers, employees, partners, shareholders, agents or affiliates will be respon-

events or circumstances or of any other statements or information contained herein.

sible or liable for the completeness, appropriateness or accuracy of English
translations or the selection of the portion(s) of any document(s) translated into English.

62 NBF Report July – December 2009

Investors’ Information
As of December 31, 2009

Fiscal Periods

Shareholders

Six months ending June 30 and December 31

Other domestic corporations
349 (2.2%)

Overseas investors 386 (2.5%)
Financial institutions(Including securities companies)

Total Number of Common Shares Issued

174 (1.1%)

17th Period (From July 1, 2009 to December 31, 2009)

542,000 shares

16th Period (From January 1, 2009 to June 30, 2009)

542,000 shares

Individuals and others
14,703 (94.2%)

Individuals andothers37,628 (6.9%)

Total number of shareholders:

Financial
institutions

Other domestic
corporations
55,579 (10.3%)

Distributions
Expected distribution for the 18th Period (ended June 2010)
For the operating period from January 1, 2010 to June 30, 2010 (6 months)

15,612¥16,300 per share(Including
securities
companies)

Confirmed distribution for the 17th Period (ending December 2009)
For the operating period from July 1, 2009 to December 31, 2009 (6 months)

Overseas
investors
162,289(29.9%)

286,504(52.9%)¥19,672 per share

Total number of shares:

542,000

Major Shareholders
Name

Number of Shares Held

Percentage of Total

48,72843,75535,361
25,331
22,171
19,735
12,256
8,607
7,071
6,134

9.0%
8.1
6.5
4.7
4.1
3.6
2.3
1.6
1.3
1.1

Japan Trustee Services Bank, Ltd. (Trust Account)
NikkoCiti Trust and Banking Corporation (Trust Account)
Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account)
The Master Trust Bank of Japan, Ltd. (Trust Account)
The Nomura Trust and Banking Co., Ltd. (Trust Account)
Mitsui Fudosan Co., Ltd.
Sumitomo Life Insurance Company
The Chugoku Bank, Ltd.
Zenkyoren (National Mutual Insurance Federation of Agricultural Cooperatives)
American Life Insurance Company GA-L

Historical Share Price(Yen)
2,000,000(Points)
3,000

NBF share price (left scale)
TSE REIT Index (right scale)
TOPIX (right scale)
le)

2,500

1,600,000
2,000
1,200,000

1,500

1,000
800,000
500
400,000

Sep. 10, Dec. 31,
2001 2001

Jun. 30,
2002

Dec. 31,2002

Jun. 30,
2003

Dec. 31,2003

Jun. 30,
2004

Dec. 31,2004

Jun. 30,
2005

Dec. 31,2005

Jun. 30,
2006

Dec. 31,2006

Jun. 30,
2007

Dec. 31,2007

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

0

NBF Report July – December 2009 63

Nippon Building Fund Inc.
38th Floor, GranTokyo North Tower,
9-1, Marunouchi 1-chome, Chiyoda-ku,
Tokyo 100-6738, Japan

http://www.nbf-m.com/nbf_e/

Printed in Japan