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

Second Half of 2014

NBF Report(27th Period – July to December 2014)

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) to list on the J-REIT section of the Tokyo
Stock Exchange. Today, NBF has the largest market
capitalization and assets under management among
J-REITs.
NBF employs funds raised through unitholder
subscriptions and borrowings to invest in real estate,real estate-backed securities, trust beneficiary rights
and other assets with the objective of sustainablegrowth in portfolio value and stable profits on a
medium-to-long-term basis. NBF primarily invests inoffice buildings in the central business districts ofTokyo, other Greater Tokyo and other cities in Japan.
Going forward, NBF will continue its steadymanagement for the high quality and growth befitting
the number one J-REIT.

Contents
Introduction..............................................................2
A Track Record of Steady Growth ............................4
To Our Unitholders ...................................................6
CIO and CFO Message ............................................8
Strategies ...............................................................10
Performance Highlights ..........................................12
Portfolio Overview ..................................................14
Location of Office Properties .................................15
Major Assets ..........................................................16
Management Team and Management Structure .....18
Investment and Distribution Policies ......................24
Management’s Discussion and Analysis ................31
Financial Statements ..............................................41
Notes to Financial Statements ...............................45
Independent Auditor’s Report ................................55
Corporate Data ......................................................56
Investors’ Information ............................................57

NBF Report July – December 2014 1 1Introduction(As of December 31, 2014)

NBF is an office-specialized J-REIT, sponsored by Mitsui Fudosan Co., Ltd.

NBF Policies
STRATEGIES
Portfolio Strategy• Make aggressive acquisitions andflexible dispositions• Focus on highly competitive officebuildings, primarily in Tokyo CBDs
• Expand assets• Use the Mitsui Fudosan Grouppipeline

Leasing Strategy• Use the sales capabilities of the
Mitsui Fudosan Group for leasing
and tenant retention• Maintain a high occupancy rate

Financial Strategy• Maintain a conservative loan-to-value(LTV) ratio of 36-46% and a long-term
fixed-rate interest-bearing debt ratioof 90% or higher to enable flexible
financing and acquisitions• Diversify debt to reduce financial
risk

Property Management Strategy• Use the comprehensive capabilitiesof the Mitsui Fudosan Group• Maintain and increase asset value
through strategic investment• Use NBF’s exclusive PM company
to deliver high-quality management

2

NBF ReReporportt July
July – Dec
D emb
ember
e 201
2014
4

Increase Unitholder Value• Stable mid-to-long-term growth in distribution per unit (DPU)• Expansion of net asset value (NAV) per unit

FEATURES
Portfolio Quality

Financial Fundamentals

Focused investment in highly competitive
prime office buildings
Ratio of investment in 5 wardsof central Tokyo(Share of investment in 23 wards of Tokyo

Sound LTV control
LTV (Interest-bearing debt to asset* ratio)

51.5%
78.0%)(Acquisition price basis)

High occupancy rate
Average occupancy rateduring the period*(2H/2014 (27th Period))

Appraisal value
Unrealized gain ratio

Diversified long-term fixed-rate debt
Long-term fixed-rateinterest-bearing debt ratio
Average maturity

97.6%

Size

97.7%
4.29 years(Long-term interest-bearing debt)

Maintain high credit ratings

8.5%*Average occupancy rate during the period: weighted average of month-end occupancy rate on a floor space basis

41.9%

JCR

AA+ R&I AA S&P A+*Book value basis

Sponsor

The largest J-REIT¥1,023.0 billion
Market cap¥852.8 billion
Properties
73
Total rentable area
1.07 million m
Total assets*

Property acquisition pipeline from the
Mitsui Fudosan Group
Leverage the comprehensive strengthsof the Mitsui Fudosan Group
Leasing capabilities
Property management capabilities

2*Book value basis

NBF
BF Re
Report July – DecembRepor
em er 20143

A Track Record of Steady Growth(Yen)
1,000,000

Historical Unit Price & Distribution per Unit (Adjusted retroactively for the two-for-one investment unit split effective January 1, 2014)
Unit price (left scale)

750,000

Distribution per unit (left scale)
500,000
250,000〜
12,000

9,513

10,000

8,126

8,000

8,645
7,683

8,001

9,695

9,612

9,904

10,064

Jun. 30,
2006

Dec. 31,2006

Jun. 30,
2007

Dec. 31,
2007

98.7

98.4

674.3

674.3

6,743

6,743

6,743

6,743

6,743

6,743

8,446

7,291

8,523
7,592

6,000
May 23,2001

Dec. 31,2001

Jun. 30,
2002

Dec. 31,2002

Jun. 30,
2003

Dec. 31,2003

Jun. 30,
2004

Dec. 31,2004

Jun. 30,
2005

Dec. 31,
2005(Investment commencement date)

Asset Scale ( Total Acquisition Price ) & Average Occupancy Rate during the Period 1
98.3

98.3

23 wards of Tokyo

624.8

624.8

5 wards of central Tokyo (incl. in above)

6,248

6,248

6,248

6,248

6,248

6,248

97.1

(Yen in billions)

97.3
95.5

1,200

96.9

97.0

97.2

97.9

95.1
92.4

1,100
1,000
900

Average occupancy rate during
the period (right scale)

800

Managed Assets by Area
700

(left scale)

600

539.3

Greater Tokyo
500

5,393

Other cities

393.8

400
300
200
100
0

2,265
192.1

2,265
226.5
2,265

2,265

2,265

2,265

246.0
2,460
2,460

2,460

260.2
2,602
2,602

336.1

3,938
3,938

276.0

285.6

3,361

2,760

2,856

3,361

2,760

2,856

414.1

5,393

4,141
4,141

5,393
2,602

2,760

2,856

3,361

3,938

4,141

22

24

26

28

29

33

43

43

47

52

55

55

56

56

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

May 23,2001

Dec. 31,2001

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(Investment commencement date)Notes:
1. Average occupancy rate during the period: weighted average of month-end occupancy rate on a floor space basis
2. Data uses the new geographical categories introduced on June 30, 2014.

NBF Report July – December 2014

11,274

11,126 10,887
9,836
8,562

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

8,427
7,747

7,569

7,600

7,740

7,877

Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Dec. 31,2012

Jun. 30,
2013

97.5

97.8

8,645

8,152
7,681

Dec. 31,2013

Jun. 30,
2014

Dec. 31,
2014

(%)

97.3

96.8

95.5

95.4
93.4

93.3

96.7

96.8

97.1

97.0

97.6

93.9

100

95

1,066.4 1,050.8 1,074.4 1,074.4

870.2

892.8

90

921.6

837.1
762.3
725.2
7,623

7,252

783.1

783.1

779.5

7,831

7,831

7,795

7,831

7,831

7,795

7,623

8,431

7,252

7,252

7,623

779.5

7,831

7,831

7,795

8,431

58

60

61

61

59

59

64

64

67

68

74

71

73

73

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Dec. 31,2012

Jun. 30,
2013

Dec. 31,2013

Jun. 30,
2014

Dec. 31,2014

NBF Report July – December 2014

To Our Unitholders

Kenichi Tanaka
President and CEO of Nippon Building Fund Management Ltd.

Continued improvement in both theJapanese economy and real estate market
During the six months ended December 31, 2014

decision to postpone a further consumption tax
increase, the economy basically continued torecover moderately, with evidence of improvement in(the “27th Period”), the real GDP growth rate in

consumer spending and capital investment reflect-

Japan was contrary to expectations from July to

ing improved corporate earnings and a better

September, and continued to contract as it had in

employment environment.

the previous three months. Consumer spending was

The recovery of the Japanese economy is expected

weak following the consumption tax increase, andto become more pronounced with definite upward

companies took a cautious approach to production.

revision in corporate performance and broadly based

During the second half of the 27th Period, following

wage growth. At the same time, we need to keep ana decision by the Bank of Japan to implement

eye on the possible impact of higher interest rates if

additional monetary easing and the government’s

the United States raises interest rates.

Average Vacancy Rates for Tokyo, Osaka and Nagoya CBDs

Average Market and Asking Rents for Tokyo CBDs(%)

(Yen per tsubo*)o40,00015
Nagoya CBDs

35,000

Osaka CBDs
10

5

Tokyo CBDs

7.92

30,0007.53

25,0005.47

20,000

New buildings

26,973

Average asking rent

16,953
Existing buildings

15,000
0

Dec.
2002

Dec.
2003

Dec.
2004

Dec.
2005

Dec.
2006

Dec.
2007

Dec.
2008

Dec.
2009

Dec.
2010

Dec.
2011

Dec.
2012

Source: Miki Shoji Co., Ltd.
Tokyo CBDs: Chiyoda-ku, Chuo-ku, Minato-ku, Shinjuku-ku, Shibuya-ku
Osaka CBDs: Umeda area, Minamimorimachi area, Yodoyabashi & Honmachi areas,
Funaba area, Shinsaibashi & Nanba areas, Shin Osaka area
Nagoya CBDs: Nagoya Station area, Fushimi area, Sakae area, Marunouchi area

6

NBF Report July – December 2014

Dec.
2013

Dec.
2014

0

16,771

Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*tsuboo = 3.3m2
Source: Miki Shoji Co., Ltd.

driven only by the expectation of higher rent as in

In the office building leasing market, the supply of
new office buildings is stable. Backed by improved

the past to one driven by improvement in revenues

corporate results and expanding employment, tenantsfrom actual rent gains.

add space or move to larger offices. These are among
the factors supporting continued improvement in the

Steady internal growth and a selectively
positive stance for new acquisitions

supply-demand balance. Under these conditions,market asking rents continue to edge up.

Given the ongoing trend toward improvement in

Investment demand in office building transactions

the office building leasing market, we forecast thatremained strong, backed by a favorable fund procure-the trend toward lower revenues from existing

ment environment and heightened expectations forproperties in our portfolio since the financial crisis

improvement in office leasing market conditions overwill end. During the second half of 2015, rent

the medium-term resulting from economic growth.

revisions will be a key factor driving steady recov-

Looking ahead, the real estate market’s current

ery with an expected uptrend in period-on-period

trend of rising asking rents is expected to continue.

revenues. Contract cancellations by particular

We are assuming that improvement in the officetenants may result in revenue fluctuations, but weleasing market will continue to be moderate andintend to achieve internal growth based on expec-

steady as the mismatch between supply andtations of a shift to upward rent revisions.

demand in particular areas and rent bands subsides.
Many pundits are saying that rising prices andIncreasing unitholder value

other factors show that the office building transaction
market is overheating. However, ultra large-scale

NBF will continue to focus on increasingtransactions were largely over in 2014 and theunitholder value by taking full advantage of its

market appears to have calmed down, althoughfeatures and strengths to achieve medium-to-long-prices remained high in Tokyo central businessterm growth in distribution per unit and expansion of

districts. We are seeing a transition from a market

net asset value per unit.

Large-scale Ofﬁce Building Supply and Demand in the 23 Wards of Tokyo(Thousand tsubo)o

Forecast

600

400

200

0

-400

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

SupplyDemandSource: Sanko Estate Co., Ltd.
Notes: Area supply is the total area available for rent in newly constructed buildings
Area demand (net absorption) = Area completed and available for rent at the beginning of the period + Newly supplied area
(area available for rent in buildings completed during the period) - Area completed and available for rent at the end of the period

NBF Report July – December 20147

CIO and CFO Message

Koji Matsufuji
CIO and CFO of Nippon Building Fund Management Ltd.

We forecast a shift to period-on-period
growth from rent revisions for existing
properties during the second half of 2015.

supply in Tokyo central business districts in 2012.
Revenue declines then narrowed again, and we expect
them to essentially end in the second half of 2015.
For reference, 20 percent of rent revision negotiations

In the past, revenues decreased at an annualized
rate of more than 10 percent in the second half ofwith tenants in the second half of 2014 resulted in2010 following the financial crisis. The rate ofrent increases. Most rents were essentiallydecrease subsequently leveled out, but worsened

unchanged, with very few rent reductions.
As a result, we expect that the long stretch ofagain due to the impact of a surge in office building

NBF’s Occupancy Rate during the Period and Percentage of
Floor Space of Tenants Moving in and Out(%)
15

Forecast

93.3 93.9

95.4

5.3

4.1

3.0

2.8

2.7

2.2

3.3

2.5

3.0

3.1

2.9

2.9

0

-2.2 -2.8 -3.0
-2.3 -2.7 -2.1 -2.6 -1.8
-3.4 -3.2 -3.0

-5

(%)

(%)

100

8

90

4

80

0

70

-4

60

-8

50

-12

Forecast

96.7 96.8 97.5 97.8 97.1 97.0 97.6 97.7 97.8

10

5

Breakdown of Change in Revenues from Leasing at
Existing Properties

-6.0
-10

1H/’10 2H/’10 1H/’11 2H/’11 1H/’12 2H/’12 1H/’13 2H/’13 1H/’14 2H/’14 1H/’15 2H/’15
18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th 29th
Period Period Period Period Period Period Period Period Period Period Period Period
Average occupancy rate during the period (right scale)1■ Percentage of floor space of tenants moving in (left scale)2■ Percentage of floor space of tenants moving out (left scale)3Notes :
1. Average occupancy rate during the period: weighted average of month-end occupancy rate on a floor
space basis
2. The percentage of floor space of tenants moving in divided by average of total rentable area at the endof each month
3. The percentage of floor space of tenants moving out divided by average of total rentable area at theend of each month

8

NBF Report July – December 2014

1H/’10 2H/’10 1H/’11 2H/’11 1H/’12 2H/’12 1H/’13 2H/’13 1H/’14 2H/’14 1H/’15 2H/’15
18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th 29th
Period Period Period Period Period Period Period Period Period Period Period Period■ Percentage change in revenues at existing properties

Replacement
Rent revisionrevenue declines at existing properties will largely beover in 2015. Driving this will be a shift to upward

We secure acquisition capacity while
maintaining a solid financial base.

rent revisions. Basically, the positive effect of thisWe continue to practice conservative financial

shift will support internal growth, despite the desta-

management and maintain a financial base thatbilizing factor of tenant turnover.

allows us to respond to changes in financial market
conditions and property acquisition opportunities.

Selectively positive investment will sustain
growth.
As for external growth, we forecast that the fundprocurement environment will remain favorable andthat the real estate transactions will remain active,
backed by expectations of improvement in the officeleasing market over the medium-to-long term.
In this environment, NBF is investing selectively.
This includes the decision to acquire the
KANDASUDACHO i-Mark Building in June 2015 with

We keep the LTV ratio within a target range of 36 to
46 percent to maintain a constant level of acquisition
capacity. Our LTV was 41.9 percent as of December
31, 2014, and we have a borrowing capacity of
approximately ¥78.0 billion within an LTV of 46
percent. NBF intends to use this acquisition capacity
to generate further growth. We also acquired a longterm issuer rating of AA+ from Japan Credit Rating
Agency, Ltd., and concentrated on maintaining
sound finances.

an expected acquisition price of ¥5,960 million andan NOI yield of 5 percent.

Planned Acquisition in June 2015
KANDASUDACHO i-Mark Building
Location

Kandasudacho, Chiyoda-ku, Tokyo

Completion dateJuly 30, 2013

Contract date

January 28, 2015

Acquisition dateJune 30, 2015

Acquisition price¥5,960 million

Appraisal value(At time of acquisition)¥7,300 million

NOI yield

5.0%

Share

100%

SellerShimizu Corporation

NBF Report July – December 20149

Strategies
Portfolio

For further information, click here to jump
to the relevant page on NBF's website.

• Make aggressive acquisitions and flexible dispositions• Focus on highly competitive office buildings, primarily in Tokyo CBDs
• Expand assets• Use the Mitsui Fudosan Group pipeline

Investment by Region

NBF’s J-REIT Market Share(As of December 31, 2014)(As of December 31, 2014)

Other Cities¥133.1 billion(12.4%)

23 Wards of Tokyo¥838.1 billion(78.0%)

Total Acquisitions by Seller(Yen in billions)

Other(infrastructure, seniors)(3.9%)
Hotels (3.2%)

1,200
362.8

8.5%

800

219.7

Logistics (10.2%)

Housing(17.4%)¥1,074.4 billion
73 properties
Other
Greater Tokyo¥103.0 billion(9.6%)

Total
acquisition
price¥12,633.7
billion400

Office47.0%

0Retail facilities(18.4%)

5 Wards of Central Tokyo¥552.9 billion (51.5%)

Approx.
60%*

1H/’1222nd
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period2H/’1427th
PeriodAcquired from Mitsui Fudosan and funds that it manages
Acquired through Mitsui Fudosan brokerage

Source: Asset management companies, compiled from publicly
available information

Not acquired from Mitsui Fudosan or one of the funds it manages
Properties acquired when NBF began managing properties*Ratio to total acquisitions since the initial public offering in September 2001

Leasing• Use the sales capabilities of the Mitsui Fudosan Group for leasing andtenant retention• Maintain a high occupancy rate

Average Occupancy Rate and Total Rentable Area
(10,000m2 )

(%)

180

100
96.8

95

96.7

95.5
93.3

90

10

91.2

97.6
94.3

91.0

76.3

76.3

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

Dec.
2009

Jun.
2010

Dec.
2010

NBF Report July – December 2014

91.1

91.5

120
105.6

82.8
77.0

90.8

Jun.
2011

150

92.2

91.0

NBF’s average occupancy rate (left scale)Market average occupancy rate (Tokyo business districts; left scale)
NBF’s total rentable floor area (right scale)
77.0

0

97.0

93.3
91.2

92.2

76.4

97.1

93.9

93.7

85

97.8

95.4
93.4

95.8

96.8

97.5

86.1

Dec.
2011

89.3

91.4

Jun.
2012

Dec.
2012

103.8

107.4

107.4

90

Jun.
2013

Dec.
2013

Jun.
2014

Dec.
2014

0

Property
Management• Use the comprehensive capabilities of the Mitsui Fudosan Group• Maintain and increase asset value through strategic investment• Use NBF’s exclusive PM company to deliver high-quality management

Property Management Structuret'PSNVMBUFBOEFYFDVUFNBOBHFNFOUBOEPQFSBUJPOQMBOTt'PSNVMBUFBOEFYFDVUFMBSHFTDBMFSFQBJSQMBOTt"QQSPWBMGPSNBKPSJTTVFTQQK/JQQPO#VJMEJOH'VOE.BOBHFNFOU[AM exclusive to NBF]

Cooperation
C
Co
ti n
/#'0GmDF.BOBHFNFOU[PM exclusive to NBF]t/FXUFOBOUMFBTJOHHt1SPWJEFTNBOBHFNFOUBOEPQFSBUJPOFYQFSUJTFBOEPQFSBUJOHTZTUFNTt0WFSBMMNBOBHFNFOUPGTVCMFBTFEQSPQFSUJFT

Financialt0WFSBMMQSPQFSUZNBOBHFNFOUFYDMVEJOHTVCMFBTFEQSPQFSUJFT
MM QSPQFSUZ NBOBHFNFOU FYDMVEJOH
TVCMFBTFE QSPQFS
t3FTQPOETUPFYJTUJOHUFOBOUT
t6OJmFEBENJOJTUSBUJPOPGNBOBHFNFOUJOGPSNBUJPOGPSBMMPQFSBUJOHQSPQFSUJFT• Maintain a conservative LTV of 36-46% and a long-term fixed-rateinterest-bearing debt ratio of 90% or higher to enable flexible financing
and acquisitions• Diversify debt to reduce financial risk

LTV and Long-Term Fixed-Rate Interest-Bearing Debt Ratio

Debt Maturity Schedule(%)(Yen in billions)70

Long-term ﬁxed-rate interest-bearing debt ratio: 90% or higher

100
97.7
80

94.2

92.2

95.0

94.7

99.6

96.4

97.7

60

Long-term debt
Investment corporation bonds
Short-term debt
Funds procured in 2H/2014 (27th Period)

50

60

40

LTV: 36-46%
40

30
42.6

44.2

42.9

44.4

45.2

43.8

43.1

41.9

20

20
10
0

0
1H/’1120th
Period2H/’11
21st
Period1H/’1222nd
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period2H/’1427th
Period2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
(Calendar year)(As of December 31, 2014)

NBF Report July – December 201411

Performance Highlights

Total Operating Revenues

NOI from Property Leasing Activities1 and NOI Yield2(Yen in millions)(Yen in millions)

Profits from dispositions included in total operating revenues.
Figures in parentheses are total operating revenues excluding
profits from dispositions.

40,00035,00035,720(33,622)30,00030,244

37,135(34,845)

34,80622,036
19,857

4.68

4.60

4.67

4.51

4.47

4
2
0

0
1H/'13
1H/'12
2H/'12
2H/'13
1H/'14
2H/'1422nd Period 23rd Period 24th Period 25th Period 26th Period 27th Period

Total Assets
Profits from dispositions included in net income.
Figures in parentheses are net income excluding profits
from dispositions.

(Yen in billions)
1,100
1,048.0

14,00012,941

12,000(10,844)
9,489

13,277(11,273)(10,869)

1,022.8

1,040.6

1,023.0

1,000

12,771

10,846

900

9,657

899.1
871.1

800

8,000

0

1H/'12
2H/'12
1H/'13
2H/'13
1H/'14
2H/'1422nd Period 23rd Period 24th Period 25th Period 26th Period 27th Period

DPU3

Jun. 30,
2012

Dec. 31,2012

Jun. 30,
2013

Dec. 31,2013

Jun. 30,
2014

Dec. 31,2014

NAV per Unit3
Profits from dispositions included in DPU (after provision to the reserve foradvanced depreciation).
Figures in parentheses are DPU excluding profits from
dispositions (after provision to the reserve for advanced depreciation).

(Yen)
10,000
9,000
7,740

7,877

8,427
(7,835)

8,645(8,145)

8,152(7,697)(Yen)
450,000
421,123400,000

389,796389,663

Jun. 30,
2012

Dec. 31,2012

400,890

430,707407,432

7,681

7,000

350,000

6,000
300,000

5,000
0

1H/'12
2H/'12
1H/'13
2H/'13
1H/'14
2H/'1422nd Period 23rd Period 24th Period 25th Period 26th Period 27th Period

0Jun. 30,
2013

Notes: 1. NOI from property leasing activities does not include such items as gain or loss on sale of investment properties.
2. NOI yield = NOI from properties held at beginning of period/Period-end book value of properties held at beginning of period
3. Figures for Periods 22 through 25 are adjusted for the two-for-one investment unit split. Figures are rounded down to the nearest yen.

12

8
6

4.77

15,000

1H/'12
2H/'12
1H/'13
2H/'13
1H/'14
2H/'1422nd Period 23rd Period 24th Period 25th Period 26th Period 27th Period

16,0008,000

22,220

5,000(Yen in millions)022,482

10,000Net Income

10,00022,864(%)

20,107

31,53025,000025,00020,00036,562(34,659)

NOI from Property Leasing Activities (left scale)NOI Yield (right scale)

NBF Report July – December 2014

Dec. 31,2013

Jun. 30,
2014

Dec. 31,2014

Sustainability Initiatives
NBF is aware of its corporate social responsibility and continuously strives to reduce its impact on the environment
to help achieve a sustainable society.
● Environmental Friendliness (Reduced environmental loading and greater tenant comfort)

Increasing Tenant Satisfaction with Improvements That Conserve Energy and Water
Common area

Air conditioning

Toilets(Installation of LED lighting)(Installation of high-efficiency air conditioning)(Installation of facilities to conserve water)(Gate City Ohsaki)(Yokohama ST Bldg.)(Aqua Dojima East)● Harmony with Society (Relationships with tenants and communities)

Disaster and BCP Measures
Work to strengthen emergency
power generators

Installation of seismometers

Installation of satellite phones(NBF Shinkawa Bldg.)(Yotsuya Medical Bldg.)(Nakanoshima Central Tower)

Tenant participation in disaster
preparedness drills

Recreation for Tenants andCommunities
NBF Concerts
Performances at 10 locations throughout
Japan promote communication withtenants and communities.
(NBF Unix Bldg.)(Yokohama ST Bldg.)

NBF Report July – December 201413

Portfolio Overview
Property Name
1 NBF Osaki Bldg.
●
2 NBF Hibiya Bldg.
●
3 Gate City Ohsaki●
4 Nishi-Shinjuku Mitsui Bldg.
●
5 Nakanosakaue Sunbright Twin●
6 Mitsubishi Heavy Industries Head Office Bldg.
●
7 NBF Toyosu Canal Front●
8 Shiba NBF Tower●
9 NBF Platinum Tower●
10 NBF Minami-Aoyama Bldg.
●
11 NBF COMODIO Shiodome●
12 NBF Toyosu Garden Front●
13 Toranomon Kotohira Tower●
14 Nakameguro GT Tower●
15 Celestine Shiba Mitsui Bldg.
●
16 NBF Ochanomizu Bldg.
●
17 NBF Shibuya Garden Front●
18 NBF Ginza Street Bldg.
●
19 Shinjuku Mitsui Bldg. No.2●
20 GSK Bldg.
●
21 River City M-SQUARE●
22 NBF Toranomon Bldg.
●
23 Kowa Nishi-Shinbashi Bldg. B●
24 NBF Shinkawa Bldg.
●
25 Shinbashi M-SQUARE●
26 NBF Ueno Bldg.
●
27 NBF ALLIANCE●
28 Yotsuya Medical Bldg.
●
29 NBF Ikebukuro East●
30 Higashi Gotanda Square●
31 NBF Shibuya East●
32 NBF Shibakouen Bldg.
●
33 NBF Takanawa Bldg.
●
34 NBF Akasaka Sanno Square●
35 NBF Shibakouen Daimon Street Bldg.
●
36 Sumitomo Densetsu Bldg.
●
37 NBF Higashi-Ginza Square●
38 Panasonic Tokyo Shiodome Bldg.
●
39 NBF Ogawamachi Bldg.
●
40 Nihonbashi Kabuto-cho M-SQUARE●
41 NBF Ikebukuro Tower●
42 NBF Ikebukuro City Bldg.
●
43 Ryukakusan Bldg.
●
44 Jingumae M-SQUARE●

23 Wards of Tokyo Total
45 Chofu South Gate Bldg.
●
46 Shin-Kawasaki Mitsui Bldg.
●
47 Yokohama ST Bldg.
●
48 Parale Mitsui Bldg.
●
49 NBF Atsugi Bldg.
●
50 Tsukuba Mitsui Bldg.
●
51 NBF Utsunomiya Bldg.
●
52 S-ino Omiya North Wing●
53 NBF Urawa Bldg.
●
54 NBF Shin-Urayasu Tower●
55 NBF Matsudo Bldg.
●
Greater Tokyo Total
56 Sapporo L-Plaza●
57 NBF Sapporo Minami Nijo Bldg.
●
58 NBF Sendai Honcho Bldg.
●
59 NBF Unix Bldg.
●
60 NBF Niigata Telecom Bldg.
●
61 Sumitomo Mitsui Banking Nagoya Bldg.
●
62 NBF Nagoya Hirokoji Bldg.
●
63 Aqua Dojima NBF Tower●
64 Nakanoshima Central Tower●
65 Shinanobashi Mitsui Bldg.
●
66 Sakaisuji-Honmachi Center Bldg.
●
67 Sun Mullion NBF Tower●
68 Aqua Dojima East●
69 NBF Hiroshima Tatemachi Bldg.
●
70 Hiroshima Fukuromachi Bldg.
●
71 NBF Matsuyama Nichigin-mae Bldg.
●
72 Hakata Gion M-SQUARE●
73 NBF Kumamoto Bldg.
●
Other Cities Total
Total

14

NBF Report July – December 2014

For further information, click here to jump
to the relevant page on NBF's website.

(As of December 31, 2014)

Acquisition Price(Yen in millions)Book Value(Yen in millions)Appraisal Value(Yen in millions)

Total Rentable Area(m2)

Total Leased Area(m2)

66,66063,50057,28145,14540,75036,30035,20032,00031,00031,00028,80025,01824,54323,85622,50020,84020,26917,00016,285
14,434
13,35013,337
13,217
12,614
11,90010,400
9,126
8,800
8,630
8,350
8,000
6,770
6,667
6,250
6,100
5,365
5,200
5,075
4,940
4,850
4,695
4,428
4,050
3,700
838,196
9,320
25,82013,529
3,800
2,300
8,875
2,435
16,8162,000
15,7002,455
103,051
4,404
1,870
3,566
4,028
3,957
14,9007,232
17,81014,90014,40012,70010,500
1,914
2,930
2,215
3,310
8,000
4,500
133,138
1,074,386

67,81064,18149,64033,85936,841
36,39730,521
27,74727,35831,54628,323
23,412
19,12918,57322,607
20,49419,19017,54816,287
11,968
12,684
13,116
11,274
11,342
11,920
9,775
9,398
7,956
8,800
8,075
8,005
6,297
6,470
6,276
6,259
4,839
4,553
5,070
5,110
4,680
4,399
4,187
4,453
3,680
782,074
8,670
22,902
12,403
3,179
2,191
6,915
2,224
14,142
1,856
15,596
2,289
92,371
3,387
1,646
3,401
2,966
3,487
14,787
6,551
16,02615,02010,811
12,208
7,496
1,702
2,756
1,958
3,263
7,372
4,119
118,964
993,41176,30053,30060,60041,40030,10044,80034,20027,50056,70017,20030,80027,90031,20020,30023,70012,20026,40015,20016,20017,40015,00016,00013,60013,51012,9008,590
11,300
7,420
9,330
7,950
6,190
7,600
6,830
6,410
4,180
5,430
7,100
5,550
5,520
5,130
5,120
4,830
4,260
3,720
856,870
9,760
21,10014,200
3,620
2,080
7,290
2,220
19,700
1,880
9,960
2,200
94,010
6,760
1,300
2,800
3,350
2,950
15,6006,840
16,60015,80013,90012,400
6,940
1,410
2,330
2,230
3,550
8,830
3,790
127,380
1,078,260

74,42527,576
41,86033,33832,02135,641
36,63824,72833,503
9,631
20,53828,28916,84821,423
16,915
6,627
16,5163,440
14,874
20,426
16,232
10,067
10,08817,307
5,392
8,504
4,033
7,481
11,073
6,166
4,999
7,084
10,458
5,258
3,428
5,991
4,871
4,577
4,805
3,298
5,631
5,127
5,332
7,232
689,690
13,762
39,83720,047
12,545
5,242
16,720
6,160
20,6983,455
22,803
4,770
166,037
11,396
5,351
7,514
13,267
10,20817,658
9,873
21,917
17,36725,31423,23014,954
3,245
5,567
3,927
5,997
14,3287,931
219,043
1,074,771

74,42527,361
39,96733,32032,02135,64136,29024,72833,503
9,102
20,53828,28916,84820,53315,065
6,296
16,5163,440
14,646
20,426
16,232
9,969
10,08817,307
5,392
8,504
4,033
5,560
11,073
4,479
4,999
7,084
10,047
5,258
3,428
5,991
4,871
4,577
4,805
3,298
5,631
5,127
5,332
6,813
678,850
13,76239,755
19,942
12,187
5,242
16,377
6,160
18,797
3,455
20,3754,770
160,821
11,396
5,351
7,305
12,865
9,902
17,658
9,635
21,33917,09323,88922,025
14,954
3,021
5,496
3,842
5,666
14,328
7,931
213,696
1,053,366

Occupancy Rate(%)

Total Numberof Tenants

100.0
99.2
95.5
99.9
100.0
100.0
99.0
100.0
100.0
94.5
100.0
100.0
100.0
95.8
89.1
95.0
100.0
100.0
98.5
100.0
100.0
99.0
100.0
100.0
100.0
100.0
100.0
74.3
100.0
72.6
100.0
100.0
96.1
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
94.2
98.4
100.0
99.8
99.5
97.1
100.0
97.9
100.0
90.8
100.0
89.4
100.0
96.9
100.0
100.0
97.2
97.0
97.0
100.0
97.6
97.4
98.4
94.4
94.8
100.0
93.1
98.7
97.8
94.5
100.0
100.0
97.6
98.0

1
96
78
35
17
11
9
34
6
10
15
5
24
18
6
5
1
1
46
1
8
15
20
37
7
5
7
37
20
6
4
19
12
6
8
1
8
1
15
2
17
11
9
8
702
1
20
94
35
19
64
40
41
13
49
26
402
14
3
9
51
33
12
23
43
20
56
53
29
20
32
11
21
16
18
464
1,568

Location of Office Properties
Kita-ku
42

Toshima-ku

Investment by Region
Arakawa-ku

41
29

Other Cities

12.4%

Taito-ku

Bunkyo-ku

Nakano-ku

Greater Tokyo

26
5

Shinjuku-ku

19

16

Imperial
PalaceSetagaya-ku

10
27

37

24
21

11
8
32 35

9

Meguro-ku

18

Minato-ku

14

33

51.5%

40

Chuo-ku

Koto-ku

2
34
22 25
13
23 38

44

17 31

5 Wards ofCentral Tokyo

43

39

Chiyoda-ku

28
20

Shibuya-ku

9.6%

Sumida-ku

4

For further information, click here to jump
to the relevant page on NBF's website.

(As of December 31, 2014)

23 Wards of Tokyo

12 7

78.0%

15
36

30

56
57

Tokyo Bay

6
3

1

Shinagawa-ku

23 Wards of Tokyo

44 Properties : ¥838.2 billion
58
60

59

69 70

72

72

71

Tochigi

73
63 64 65 66 67 68

61
62

Utsunomiya

50

Ibaraki

51

Saitama52
To Omiya

53

Other Cities

18 Properties : ¥133.1 billion

55

Tokyo

Chiba
45

54

Kanagawa
49

Tokyo Bay

46

48

47

Greater Tokyo

11 Properties : ¥103.1 billion
NBF Report July – December 201415

Major Assets(As of December 31, 2014) (Building numbers correspond to those on pages 14 and 15.)

23 Wards of Tokyo
1 NBF Osaki Bldg.

2 NBF Hibiya Bldg.

7 NBF Toyosu Canal Front

3 Gate City Ohsaki

16

NBF Report July – December 2014

Greater Tokyo
46 Shin-Kawasaki Mitsui Bldg.

52 S-ino Omiya North Wing

Other Cities
64 Nakanoshima Central Tower

72 Hakata Gion M-SQUARENBF Report July – December 201417

Management Team and Management Structure(As of April 31, 2014)

Nippon Building Fund Inc. (NBF) is an investment corporation that takes a medium-to-long-term
perspective with the aim of generating steady asset growth and stable profits. NBF continues to do
its utmost for investors.

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

resolutions on the basis of a simple majority of the voting

established with the objective of investing in assets, primarilyrights of unitholders in attendance, unless otherwise stipu-

Designated Assets as defined by the Investment Trust Law oflated by laws, regulations or NBF’s articles of incorporation.

Japan. NBF entrusts the management of its assets to

Decisions on substantive matters such as changes in the

Nippon Building Fund Management Ltd., which is an asset

articles of incorporation require the attendance ofmanagement company.

unitholders that control a simple majority of total units issued

NBF’s primary investment objective is to achieve sustain-

and outstanding, and a two-thirds majority of the voting

able growth in portfolio value and stable profits on arights of such unitholders. In addition, any change in themedium-to-long-term basis. NBF achieves this objective byasset management policies and standards, which are stipu-

investing in real estate consisting of buildings primarily used

lated by NBF’s articles of incorporation, requires an extraor-

for offices with their underlying land located in the central

dinary resolution of unitholders as outlined above.

business districts (CBDs) of Tokyo, other Greater Tokyo andother cities in Japan. NBF also invests in securities, beneficiary certificates representing beneficial interests in trusts

Executive Directors, Supervisory Directors andthe Board of Directors
NBF’s articles of incorporation stipulate that NBF mustand other assets backed by office properties.

have one or more executive directors and four or fewer

General Meeting of Unitholders

supervisory directors, but the number of supervisory direc-

Specific matters pertaining to NBF that are subject to thetors must always be at least one greater than the number of

Investment Trust Law of Japan or the Company’s articles ofexecutive directors. As of March 12, 2015, NBF had one

incorporation are decided by resolution of the General

executive director and three supervisory directors.

Meeting of Unitholders, which convenes at least once every

NBF’s executive director is responsible for business

two years, in principle. The ninth General Meeting ofexecution and has authority for all judicial and extrajudicial

Unitholders convened on March 12, 2015. The date of theproceedings related to the operations of NBF. Supervisorynext General Meeting of Unitholders has not been set.

directors are responsible for supervising execution by the

The General Meeting of Unitholders adopts or vetoes

Asset Management Company
Nippon Building FundManagement Ltd.
Mitsui Fudosan Co., Ltd.

executive director.

Entrusting AssetManagement Services

Entrusting Asset
Custody Services
Entrusting
Accounting Services

Entrusting Office
Management Services
NIPPON BUILDING FUND Inc.

Entrusting Tax
Services

Subcontracting
Accounting Auditor

NBF Office Management Co., Ltd.

General Meeting of Unitholders

Providing Office
Management
Services

Principal and Interest
Payment
Investment
Rent, etc.

Real Estate, etc.

18

NBF Report July – December 2014

Borrowings/Issue ofBonds and Notes

Board of Directors

Investment
Distribution

Sumitomo Mitsui Trust Bank, Ltd.
Heiseikaikeisha Tax Co.
PricewaterhouseCoopers Co., Ltd.
KPMG AZSA LLC
Qualiﬁed Institutional Investors / Bondholders
Securities Markets
Investors
Trading

Investors

Management Team and Management StructureManagement Team

From left: Yutaka Fukaya, Yoshiki Kageyama, Tetsuro Tsugawa, Hakaru Goto

Name

Career Summary

Executive Director

Yoshiki Kageyama

Supervisory Directors

Tetsuro Tsugawa
Yutaka Fukaya
Hakaru Goto

Appointed Executive Director of NBF in March 2015 after serving as a standing auditor of
Mitsui Fudosan Realty Co., Ltd.
Reappointed Supervisory Director of NBF in March 2015. Attorney.
Reappointed Supervisory Director of NBF in March 2015. Certified Public Accountant and Certified Public Tax Accountant.
Appointed Supervisory Director of NBF in March 2015. Real Estate Appraiser.

The Board of Directors consists of the executive and

The terms of office of the executive director and supervi-

supervisory directors. Its responsibilities include authorizingsory directors are two years from the time they assume

business execution and supervising the performance of theoffice. The terms of executive directors and supervisory

executive director. Resolutions by the Board of Directors

directors selected to fill a vacancy or to increase the number

require a simple majority with more than half of the membersof directors expire at the same time as the remaining terms ofof the Board in attendance.

their predecessors or the current directors.

The bylaws of NBF’s Board of Directors stipulate that

A new executive director was elected with the consent ofexecutive and supervisory directors may not participate inunitholders at the General Meeting of Unitholders held on

decisions in which they have a vested interest. Executive andMarch 12, 2015. Two of the three supervisory directors weresupervisory directors with such financial interest shall not bereelected and one new supervisory director was elected at theincluded in the number of executive and supervisory directors

same time, and assumed office on March 17, 2015.

in attendance for such decisions.

NBF Report July – December 201419

Nippon Building Fund Management Ltd.
NBF entrusts asset management to Nippon Building Fund Management Ltd. under an asset management agreement.

Matters Entrusted to Nippon Building Fund Management Ltd.
As the asset management company required by the

Nippon Building Fund Management Ltd. as the institutional

Investment Trust Law of Japan, Nippon Building Fundmanager of NBF’s assets, Nippon Building Fund Management

Management Ltd. manages NBF’s assets in accordance with

Ltd. executes certain responsibilities in connection with thethe asset management objectives and policies stipulated byoperation of the General Meeting of Shareholders and the

NBF’s articles of incorporation. In addition, in accordance with

Board of Directors as manager of general administration.

the manager of general administration contract designating

History of NBFM
NBFM is an Asset Management Company which is alimited liability company duly established under the laws ofJapan. Major events in the history of NBFM are as follows.
September 19, 2000

Established

November 17, 2000

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

January 29, 2001

Obtained approval as a discretionary transaction agent under the Building Lots and Building Transactions Law

February 15, 2001

Registered as a general real estate investment advisor under the Real Estate Investment Advisor Registration Regulations

March 7, 2001

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 Fund Management 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, 2014)
Numberof Shares Owned

Percent

An outline of the financial condition of NBFM is as follows.

Mitsui Fudosan Co., Ltd.

4,257

43.0%

Outline of principal assets and liabilities for the most recent

Sumitomo Life Insurance Company

3,465

35.0

fiscal year:

Sumitomo Mitsui Trust Bank, Limited

495

5.0

As of March 31, 2014

Sumitomo Mitsui Banking Corporation

495

5.0

Total Assets¥2,410Daido Life Insurance Company

297

3.0

Total Liabilities

462

Mitsui Sumitomo Insurance Co., Ltd.

297

3.0

Total Net Assets

1,948

Mitsui Life Insurance Company Limited

297

3.0

Britel Fund Trustees Limited

297

3.0

9,900

100.0%

Name

Total

20

Outline of Financial Condition

NBF Report July – December 2014

(Yen in millions)

Management Team and Management StructureManagement Structure (As of April 1, 2015)
General Meeting of Unitholders
AuditorBoard of Directors

Compliance Committee

Executive Board
Risk Management Board
CEOInvestment
Review Board

Accounting Auditor

Compliance
Officer

Real EstateManagement
Team

Investment & FinanceGroup

Real Estate
Investment
Team

Research
Team

Corporate Operation
Group

FinancialTeam

Corporate
Planning &Administration
Team

Risk
Management& ComplianceTeam& Finance Group and the Corporate Operation Group also

Management Structure of
Nippon Building Fund Management Ltd.

serve as directors, and oversee their respective divisions under

The Board of Directors makes decisions on the basic

the direction and oversight of the president. Corporate auditors

management policies of Nippon Building Fund Management

conduct accounting audits and operational audits of Nippon

Ltd. and oversees execution of the duties of the representa-

Building Fund Management Ltd. The Compliance Officer

tive director. The president, who is the representative direc-

oversees compliance for the asset management company andtor, supervises and executes the operations of Nippon

is responsible for internal administration in connection with

Building Fund Management Ltd. The heads of the Investment

internal audits at the asset management company.

Nippon Building Fund Management Ltd. Management Team (As of April 1, 2015)
Name

Title

Career Summary

Kenichi Tanaka

President and CEO

Apr. 1982
Apr. 2007
Apr. 2010

Koji Matsufuji

Director, Chief
Investment Officer,
Chief Financial Officer

Apr. 2012
Apr. 1987
Apr. 2005
Apr. 2006
Apr. 2007
Apr. 2010
Apr. 2013

Joined Mitsui Fudosan Co., Ltd.
General Manager, Operating Administration Department of Mitsui Fudosan Co., Ltd.
General Manager, Residential Leasing Business Department, Accommodations Business Division of
Mitsui Fudosan Co., Ltd.
Appointed President and CEO of Nippon Building Fund Management Ltd. (current position)
Joined Mitsui Fudosan Co., Ltd.
Manager, PM-II, Kansai Branch of Mitsui Fudosan Building Management Co., Ltd.
Associate General Manager, Kansai Branch of Mitsui Fudosan Building Management Co., Ltd.
Executive Manager, Development Planning Group, Regional Development Department, Retail Properties Division of
Mitsui Fudosan Co., Ltd.
General Manager of Business Promotion Department of NBF Office Management Co., Ltd.
Appointed Director, Chief Investment Officer and Chief Financial Officer of Nippon Building Fund Management Ltd.
(current position)

Masahiko Misao

Director, Chief
Operating Officer

Apr. 1980
Apr. 2003
Mar. 2008
Apr. 2012

Joined Sumitomo Life Insurance Company
General Manager, Real Property Department of Sumitomo Life Insurance Company
Director and General Manager, Commercial Operation Department, Shinagawa Intercity Management Co., Ltd.
Appointed Director and Chief Operating Officer of Nippon Building Fund Management Ltd. (current position)

Hiromu Yamanaka

Director (Part-time)

Apr. 2013

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

Hiroshi Yabuki

Director (Part-time)

Apr. 2013

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

Yoichi Kunikane

Auditor (Part-time)

Apr. 2015

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

Kenshi Ueda

Auditor (Part-time)

Apr. 2013

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

NBF Report July – December 201421

Compliance Initiatives
The management of NBF and Nippon Building Fund

Nippon Building Fund Management Ltd.
Nippon Building Fund Management Ltd. formulates aManagement Ltd. conduct honest and appropriate business

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

activities while maintaining rigorous compliance by adhering toManagement Policy and an Annual Management Plan to

all relevant laws and regulations, based on a high level of corpo-

follow in managing NBF’s assets. In addition, Nippon Building

rate ethics.

Fund Management Ltd. has set Asset Management

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

Guidelines as a set of standards to follow.

of Directors’ meetings are to be held at least once every three
At Board meetings, the executive director reports on the execu-

Policy and Management System for
Dealing with Conflict of Interest Transactions

tion of his duties and supervisory directors ensure that oversightFundamental Policy on Conflict of Interest Transactions

months. In practice, NBF holds such meetings once a month.

and check-and-balance systems are functioning properly.
Nippon Building Fund Management Ltd. views compliance

Nippon Building Fund Management Ltd. is constantly
aware of its accountability to NBF and NBF’s unitholders withas a management strategy, with a fundamental complianceregard to any transactions in which the interests of NBF andpolicy of conducting operations honestly and fairly while

the interests of Nippon Building Fund Management Ltd. andmaintaining a rigorous compliance system based on a high level

its related corporations or customers may conflict. Nipponof corporate ethics. Specifically, Nippon Building Fund

Building Fund Management Ltd. follows voluntary rules stipu-

Management Ltd. has established a Compliance Committee,

lated in laws and internal bylaws to proactively prevent

consisting of the Compliance Officer, the president, the head ofconflicts of interest.

the Investment & Finance Group, the head of the Corporate

All decisions made in executing the management of NBF’s

Operation Group and an outside committee member. Initiatives

assets are subject to the approval of the president, and are

to enhance awareness of and adherence to compliance include

made after going through discussions by the Investment

the establishment of Compliance Rules and a Compliance

Review Board and Executive Board of Nippon Building Fund

Manual. In addition, a Compliance Program is formulated eachManagement Ltd. Sponsor companies are not permitted toyear to verify the progress of the execution plan for that year

intervene in the decision-making process.

and identify any problem areas.

Risk Management System
NBF and Nippon Building Fund Management Ltd. haveestablished the following risk management system to avoid
and minimize risks related to investments.

Voluntary Rules for Conflict of Interest Transactions Stipulated inInternal Bylaws
Nippon Building Fund Management Ltd. has set voluntaryrules in its internal bylaws to address transactions withparties, including sponsor companies that have interests in
Nippon Building Fund Management Ltd.

NBF
NBF’s Risk Management Regulations define risk manage-

The voluntary rules require the Investment Division, which
initiates the transaction, as well as the Compliancement policies and procedures. The Risk Management Board

Department, the Asset Management Examination Meeting andconvenes once every three months and undertakes delibera-other units to protect NBF’s managed assets and profits bytion, monitoring and other initiatives to ensure that the

fully examining the transaction contents according to theentrusted asset managers are conducting their duties with duevoluntary rules set in the internal bylaws in the event of acare in good faith in a manner consistent with its fiduciary dutytransaction in which the interests of Nippon Building Fundto the conservation and maintenance of entrusted assets.

Management Ltd. and parties that have interests in Nippon
Building Fund Management Ltd. may conflict with the interests of NBF. These rules are designed from the standpoint ofaccountability to NBF and its unitholders.
In examining the transaction contents, Nippon Building

NBF Report July – December 2014

Management Team and Management Structure

Fund Management Ltd. solicits the opinions of attorneys,

units of Real Estate, etc., the acquisition price of each item, andcertified tax accountants and other third-party experts asin the event of merger, the appraised value of Real Estate, etc.

needed. In addition, when purchasing real estate or othersucceeded by NBF at the time of the merger, provided, however,assets from parties that have interests in Nippon Buildingthat national consumption tax, regional consumption tax andFund Management Ltd., the purchase price is strictly set, in

miscellaneous costs of acquisition are excluded) multiplied byprinciple no higher than the appraised value according to a

the following percentage rates will, in principle, be payable,

real estate appraiser with no vested interest.

provided, however, that with the approval of the directors of NBF,
compensation may be calculated using different rates not

Asset Management Fee Structure

exceeding the following rates.

Operation●

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

0.5%

●

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

0.2%

Nippon Building Fund Management Ltd. undertakes asset
management of NBF pursuant to an Asset Management
Entrustment Agreement based on an entrustment from NBF inaccordance with the Articles of Incorporation of NBF and the●

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

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

Investment Objects and Policies set forth therein. In addition,
Nippon Building Fund Management Ltd. undertakes
management of the general affairs of the general meeting ofunitholders 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
the amount of the revenue arising from Real Estate, etc. as
calculated on each closing date (provided, however, thatrevenues from the sale of Real Estate, etc. and other Managed
Assets will be excluded) will be payable.

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 the amount of income before income taxes remaining after
such loss has been covered) prior to deduction of Management
Fees 2 as calculated on each closing date will be payable.

Management Fees 3
In the event that Real Estate, etc. is newly acquired (in theevent of merger, succession of status by merger), compensationequivalent to the total amount of the acquisition price of said
Real Estate, etc. (meaning the acquisition price of both land andbuildings, in the event of the simultaneous acquisition of multiple

NBF Report July – December 201423

Investment and Distribution Policies
Investment Policies of NBF

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

Area Analysis

Tokyo CBDs■

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.

achieves this objective by investing in real estate consisting of buildings■

Relatively high liquidity at the time of sale.

primarily used for offices with their underlying land located in the Tokyo

Other Greater Tokyo■

central business districts (hereinafter “CBDs”), Other Greater Tokyo andBasic special characteristics are between
those of Tokyo CBDs and Other Cities.

representing beneficial interests in trusts (hereinafter “beneficiary

Neighboring cities (see Note 1
below) such as Musashino,
Tachikawa, Yokohama, Kawasaki,
Chiba, Kashiwa, Saitama, etc.

certificates”) and other assets backed by office properties (collectively

Total of above two areas: 70% or more

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

Other Cities in Japan as well as securities, beneficiary certificates

23 wards of Tokyo with a focus
on the 5 central wards of
Chiyoda, Chuo, Minato,
Shinjuku and Shibuya

hereinafter “Real Estate, etc.”) (“Investment Objectives and Policies,”
Articles of Incorporation). (Reference to laws, legal documents, etc. usedas the basis or sources hereof are set forth in parenthesis herein.)

B. Investment Strategy
Nippon Building Fund Management Ltd. (“NBFM”), based on the

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.

investment strategy of NBF set forth below, invests and manages the

Total of above area: 30% or lessassets of NBF. NBFM has established asset management guidelines

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 macroeconomic
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).

based on the Articles of Incorporation of NBF and in accordance with theinvestment strategy of NBF.

(1) Strategy for Creation of the Portfolio
The goal of the portfolio is to generate steady growth and stableprofits on a medium-to-long-term basis. The selection criteria ofinvestment assets is based on the composition of investment assets in theportfolio and on consideration of a quantitative proportion of the officestock located in the various regions of Japan.

Area 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% or(2) Acquisition Strategya) Ratio of Real Estate Assets
NBF will maintain a ratio of 75% or more with respect to the“Designated Real Estate Ratio” (“Investment Objectives and Policies,”
Articles of Incorporation). As of June 30, 2014, 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).

less 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).

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 ofmeasures responding to risks of deterioration and obsolescence,
insurability and so forth of the relevant office properties (or Beneficiary
Certificates backed by such office properties) (“Investment Objectives andPolicies,” Articles of Incorporation). The details of the relevant criteria are

24

NBF Report July – December 2014

NBF. For this purpose, “leased/leasable assets” shall mean property with

set forth in the following table.
Though such consideration will involve the study of the criteria included

respect to which the construction of the building has been completed

in the following table, it is possible that when NBF acquires or intends toand such building is leased or leasable. Properties which are owned byacquire operating assets, not all of the following criteria will be satisfied.

NBF and have become operational at some point shall be deemed

Item“leasable” thereafter (including such cases as reconstruction or large-

Scale of building

Points to be reviewed■

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

■

Desired total net rentable area is 1,650m2(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

■

●

●

Tenancy characteristics■

Environmental:
condition of land, etc.

■

scale renovation of a building) (“Investment Objectives and Policies,”
Articles of Incorporation).

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

Building design and floor plan suitable
for leasing, with divisibility, adequate
ceiling height, electrical service, HVAC
equipment, etc.

growth of operating profits on a medium-to-long-term basis by planning

Ensure 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.).

increasing occupancy rates, extending the term of leases and rendering

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.

NBF is entitled to establish reserves for long-term renovations required

Appropriate measures regarding demands fordivision of co-owned interests or the sale ofa co-owner’s interest, etc.

to maintain and improve asset value and competitive ability throughinvestment in facilities and by expanding income (increasing rents, etc.,
them more 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).
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).

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

a) Reserves for Long-Term Renovations

Absence of harmful substances suchas asbestos (or countermeasures can be
implemented for any such substances), nonexistence of soil pollution, etc.

renovations, repairs and tenant improvements will be determined based on

From the reserves set forth above, a portion corresponding torenovation plans for each building.

b) Measures to Avoid Reductions and Fluctuations inc) Uncompleted or Unleasable Properties
In principle, NBF acquires Real Estate, etc. which are leased/leasable

Operating Income
In order to avoid large-scale reductions and fluctuations in operating

assets at the time of closing. NBF may acquire a property which is notincome due to fire damage, withdrawal of tenants and so forth, efforts,

yet leasable at the time of closing based on consideration of the impact

such as area diversification and obtaining adequate fire and casualty

on NBF’s asset management activities after taking into account theinsurance, etc., will be exerted.

investment amount, the date of completion or of becoming leasable,
estimated revenue and so forth, provided, however, that the contract
amount of any such unleasable asset combined with the total contract
amount of previously acquired unleasable assets (but excluding
unleasable assets which thereafter become operational) will not exceed
10% of the total assets indicated on the most recent balance sheet ofc) 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

NBF Report July – December 201425

obsolescence of real estate and predicted costs thereof as well as thedisseminate fair and unbiased information to all its investors without

composition of the portfolio, etc. Sell/hold studies will be periodicallydelay. In addition to conducting disclosure in the style required by theundertaken with respect to all operating properties (“Investment

Investment Trust and Investment Corporation Law of Japan, the Financial

Objectives and Policies,” Articles of Incorporation).

Instruments and Exchange Law of Japan, the Tokyo Stock Exchange, theInvestment Trusts Association and other laws and organizations, NBF also

(4) Financial Policies

voluntarily discloses information it deems necessary for investora) Issuance of Unitsdecision-making.

NBF may issue units in order to undertake acquisition and renovation andso forth of assets and to provide allowance for funds required for working
capital as well as for the repayment of debt (including security deposits, borrowings and repayment of obligations regarding NBF bonds, etc.).

a) Appraisal Value, etc.
In the event that NBF undertakes asset valuation for the purpose of
disclosure in Performance Information Reports, etc. using methods andstandards different from those it has set forth, (a) the disclosure valueb) Debt Financing
NBF may raise capital (including use of the call loan market) and issue

to be used for real estate, real estate leasehold rights and superficies
will, in principle, be the appraised valuation provided by a certified real

bonds in order to undertake acquisition and renovation and so forth of

estate appraiser, and (b) the disclosure value to be used for beneficiary

assets and to provide allowance for funds required for working capital as

certificates, equity interests of tokumei kumiai and equity interests ofwell as for the repayment of debt (including security deposits, borrowings

partnerships for which respective assets are real estate, real estate

and repayment of obligations regarding NBF bonds, etc.) (“Investment

leasehold rights or superficies will be the calculated value of equity

Objectives and Policies,” Articles of Incorporation).

interests of each based on the value of their respective assets as

Borrowings are limited to those from Qualified Institutional Investors as

determined in (a) plus the fair value of any financial assets as

specified in the Financial Instruments and Exchange Law of Japan, in

determined in conformity with generally accepted accounting principles,case capital is borrowed. Further, the total limit on all such borrowings

less trust and total tokumei kumiai liabilities (Articles of Incorporation).

and issues of NBF bonds will be ¥1,000,000 million. When undertaking

The appraisal value of property with respect to the periodborrowings or when issuing NBF bonds, NBF may provide operating

commencing on the acquisition thereof and ending on the date ofassets as collateral (Article 15 of the Articles of Incorporation).

disclosure of such value with respect to the next following closure of
NBF’s accounting term shall be the acquisition price of the said propertyc) Loan-to-Value Ratio
The ratio of the total amount of borrowings and issues of NBF bonds
to the total amount of assets of NBF (loan-to-value ratio) is envisioned to(excluding miscellaneous acquisition costs, fixed assets tax, cityplanning tax and consumption tax) as stated in the sale and purchase
contract, etc. for the said property.

be limited to 56%, but may temporarily exceed 56% when acquiringcertain assets, etc. (medium-to-long-term operating asset management
policy and annual management plan established by the AssetManagement 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).

Investment Objectives of NBF
Investment Restrictions in Articles ofIncorporation
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.

(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

26

NBF Report July – December 2014

A. Principal Investment Objectives among
Designated Assets
NBF will principally invest in the below-listed Designated Assets with

Investment and Distribution Policies

the objective of assuring steady growth and stable profits from theManaged Assets.
(1) Real estate, real estate leasehold interests and superficies(2) Beneficiary Certificates backed by real estate, real estate leasehold
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 toB. 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) Bank deposits(2) Certificates of deposit issued by Japanese legal entities(3) Call loans(4) Japanese government bonds, notes and bills (meaning those

those the assets of which are primarily invested and Managed Assets

specified in Article 2.1.1 of the Financial Instruments and Exchange

principally referred to in paragraphs (1) and (2) above)

Law of Japan)(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
specified in Article 2.2.5 of the Financial Instruments and Exchange
Law of Japan)(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 tothose the assets of which are primarily invested and Managed Assets
principally referred to in paragraphs (1) and (2) above)(6) Special Purpose Beneficiary Certificates (meaning those specified in
Article 2.1.13 of the Financial Instruments and Exchange Law ofJapan, provided, however, that this is limited to those the assets ofwhich are primarily invested and Managed Assets principally referred
to in paragraphs (1) and (2) above)(7) Beneficiary Certificates of investment trusts (meaning those specified
in Article 2.1.10 of the Financial Instruments and Exchange Law ofJapan, provided, however, that this is limited to those the assets of(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 2.1.4 of the Financial Instruments and Exchange
Law of Japan, provided, however, that this is limited to asset-backed
securities principally referred to in paragraphs (1) and (2) of section
A above)(8) Monetary claims (limited to those claims that are deemed
Designated Assets under the Investment Trust Law of Japan otherthan those referred to in section A and above)(9) Securities (other than those listed in section A and above)(10) Rights to financial derivative transactions (limited to those specified in
Article 2.20 of the Financial Instruments and Exchange Law of Japan)(11) Renewable energy power generation facilities (meaning those specified
in Article 3.11 of the Order for Enforcement of the Investment Trust Act(Cabinet Order No. 480 of 2000, including amendments thereto)which are primarily invested and Managed Assets principally referred
to in paragraphs (1) and (2) above)(8) Investment Securities (meaning those specified in Article 2.1.11 of the
Financial Instruments and Exchange Law of Japan, provided, however,that this is limited to those the assets of which are primarily invested
and Managed Assets principally referred to in paragraphs (1) and (2)above)(9) Beneficiary Certificates of Money Trust (limited to those the trust
assets of which are primarily invested and Managed Assets referred to

C. Assets Other than Designated Assets
NBF may, in the course of efficiently managing funds or in other cases
as necessary, invest in the following assets.
(1) Equity interests of partnerships, excluding assets in section A,
paragraph (4)(2) Easements(3) Trademark rights(4) Copyrights

in paragraph (1), (3) or (4) above, provided, however, that those that

(5) Chattels

are deemed securities are excluded)(6) Emission credits (including emission credits for greenhouse gases) orother similar carbon dioxide equivalent quotas based on the Act on
Promotion of Global Warming Countermeasures of Japan (Act No. 117
of 1998, including subsequent revisions)(7) Requisite ancillary rights to Designated Assets referred to in
section A

NBF Report July – December 201427

D. In the event that securities with “rights to
be indicated on securities” as specified
in Article 2.2 of the Financial Instruments
and Exchange Law of Japan are notissued, such rights shall be deemed
securities to which sections A through C
above are applicable.

B. Distribution in Excess of Earnings
A registered investment corporation is allowed to distribute cash to its
unitholders in excess of the Distributable Amount under the Financial
Instruments and Exchange Law of Japan, although the Investment Trusts
Association of Japan has established rules such that a corporate-style
J-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 theDistributable Amount in the following cases, provided, however, that the
maximum amount of such distributions will be the amount set forth in theDistribution Policies of NBF

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

A. Distributions of Profits
A registered investment corporation may deduct its cash dividends of(1) Amount determined by NBF as being eligible for the requirements ofprofits from taxable income under Japanese tax regulations if it distributes to

Article 39.32.3 of the Special Taxation Treatment for Investment

its unitholders in excess of 90% of its taxable income and complies with

Corporations, in case of the Distributable Amount being less than theother organizational and operational requirements. NBF intends to make divi-

Taxable Income Available for Dividends.

dend 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).

(2) Amount determined by NBF not in excess of the amount of depreciation
for the current term less the amount of appropriate reserves for the current
term, if NBF determines it appropriate considering trends in macroeconomic(1) NBF’s earnings available for distributions are based on accounting ofenvironments, real estate markets and leasing markets.

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(3) Amount determined by NBF if NBF determines it appropriate for reducing its tax burden.

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

As for cash distributions in excess of profits, as long as the current

total expenses, capital surplus reserves and estimated or equivalent vari-

Japanese taxation treatment applicable to NBF’s unitholders in Japan toances) calculated on each closing date.

whom such distributions are paid requires them to calculate capital gainor loss at the time of each distribution, NBF will not make distributions in(2) The amount of cash distributions will be determined by NBF, suchexcess of profits.

amount being in excess of 90% of earnings available for dividends of NBF

Notwithstanding the above, NBF may make distributions in excess of

set forth in Article 67.15 of the Special Taxation Measures Law of Japanprofits in accordance with the distribution policies stated above in order to(hereinafter “Distributable Earnings”), provided, however, that the maxi-

meet “Requirement for Deduction from Taxable Income of Dividends of

mum amount of distributions will be the Distributable Amount. NBF has

Profit, etc.,” and if such distributions in excess of profits are deemed

the right to allow for long-term reserve for renovations, reserve for pay-necessary by the Board of Directors of NBF.

ables, reserve for cash distributions and other reserves and allowances
similar thereto which are deemed necessary for maintaining or enhancing
the assets of NBF.

C. Method of Distributions
Distributions will be made in cash, in principle, within three months
from the closing date, to such unitholders or registered pledgees as are(3) Earnings retained and not allocated to cash distributions or other-

listed or recorded in the latest Unitholder Registry as of the closing date,wise available for distribution as of the closing date will be managed inin proportion to the number of units owned by or pledged to them (Article

accordance with “Investment Objectives and Policies” in the Articles

14.3 of the Articles of Incorporation).

of Incorporation.
28

NBF Report July – December 2014

Investment and Distribution Policies

D. Prescription for Cash Distributions, etc.
NBF will be discharged from the obligation to pay distributions ofprofits three calendar years from the date of commencing payment.

Objectives among Designated Assets,” paragraphs (1) and (2).
The real estate held by such funds may not include any real estate
located outside of Japan (Articles of Incorporation).

Interest will not accrue on unpaid distributions (Article 14.4 of the
Articles of Incorporation).

(5) Compliance with Laws and Regulations
The Managed Assets of NBF will be managed in compliance with the
Financial Instruments and Exchange Law of Japan and related regulations, the rules stipulated by the Investment Trusts Association (asInvestment Restrictions

amended), as well as “Investment Objectives and Policies” of the Articles
of Incorporation.

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

B. Compliance with the Financial
Instruments and Exchange Law and theInvestment 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(1) Pursuant to Article 198.1 of the Investment Trust Law of Japan, aand Policies,” Articles of Incorporation).

registered 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 isprohibited from performing certain acts related to the business ofmanaging the assets of said investment corporation. As a result, aninvestment corporation is subject to certain investment restrictions (all(3) Concentration of Investment
There is no limitation on concentration of investment. See “Investment

references in parentheses below are to the provisions of the Financial
Instruments and Exchange Law of Japan, except where stated other-

Policies of NBF, B. Investment Strategy, (1) Strategy for Creation of thewise) besides restrictions applied to a registered investment

Portfolio.”

corporation. NBF will naturally comply with such investment restrictions,a general overview of which follows.

(4) Investment Objectives
NBF does not invest aggressively in the Monetary Claims andSecurities referred to in “Investment Objectives, B. Other Investment
Objectives among Designated Assets.” Rather, NBF takes into accounttheir stability and liquidity based on the extent of their relationship with
Designated Assets referred to in “Investment Objectives, A. Principal
Investment Objectives among Designated Assets.” NBF invests in rights tofinancial derivatives transactions solely to hedge against risks, including
risks of fluctuation in interest rates for debt (“Investment Objectives andPolicies,” Articles of Incorporation).
Moreover, investment in other funds (investment securities orBeneficiary Certificates) is limited mainly to those the assets of which arereferred to in “Investment Objectives of NBF, A. Principal Investmenta) Internal Transactions (§ 42.2.1)

Transactions between an asset management company and its directors or officers are prohibited except for certain cases specified in Article
128 of the government ordinance regarding the Financial Instruments andExchange Law that are considered unlikely to result in failure to protect
the interests of unitholders, damage fair transactions or discredit thefinancial instruments business.
b) Reciprocal Transactions with Managed Assets (§ 42.2.2)

Transactions between asset management companies of investment
corporation assets are prohibited except for certain cases specified in theprovisions of the government ordinance regarding the Financial

NBF Report July – December 201429

Investment and Distribution Policies

Instruments and Exchange Law of Japan that are considered unlikely to(b) entities that hold more than 50/100 of the total amount of invest-

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

ment securities representing underlying managed assets issued inactions or discredit the financial instruments business.

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 managedc) Transactions for the Benefit of Third Parties (§ 42.2.3)

assets and such rights)

An asset management company may not undertake transactions in(viii) Other activities prohibited by Cabinet Office Ordinance 130

certain financial instruments, indices or options based on fluctuations in theprice, index, value, or amount of consideration related to transactions in theassets of an investment corporation, without a legally valid reason, with theobjective of benefiting a third party other than NBF or said investment.
d) Transactions Harmful to the Interests of NBF (§ 42.2.4)

An asset management company may not undertake transactions that

(2) Limitation on Acquisition of the Same Issueof Units (§ 194 of the Investment Trust Law)
An investment corporation may not acquire the same units issued by acorporation in excess of 50/100 of total number of said issued and outstanding units.

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 Units andAcceptance of Pledge (§ 80.1 of the Investment
Trust Law)
An investment corporation may not acquire units issued by itself, ore) Other Transactions Defined by Cabinet
Office Ordinances

accept them for the purpose of pledge, unless it acquires units issued by

In addition to the above, the following activities are prohibited

itself in the following cases:(§42.2.7 of the Financial Instruments and Exchange Law, Cabinet Office●when acquired from another investment corporation as the surviving
entity of a merger;●

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

Ordinance §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 theinvestment corporation(iii)

Transactions for the benefit of third parties that are not necessary
according to investment management policies, the financial condition ofassets under management, or market conditions

(iv)
(v)

(4) Restriction on Acquisition of Parent
Corporation’s Units by Subsidiary Corporation(§ 81.1.2)
An investment corporation (subsidiary), a majority of the units of which

Asset management that introduces unfair restrictions or other limitations
from external entities

is owned by another investment corporation (parent), may not acquire the

The sale or purchase of investment securities, or similar transactions,units of such parent investment corporation except in the following cases:

with the objective of unfairly inflating transaction amounts or artificially●when acquired from another investment corporation as the surviving
entity of a merger; or●

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

inflating 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 said underwriter differ from the planned amounts(a) foreign entities including corporations for their own account (asstipulated by Cabinet Office Ordinance §126.3)
30

NBF Report July – December 2014

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.

Management’s Discussion and Analysis
Summary of Selected Financial Data

27th Period
from July 1, 2014 toDecember 31, 2014

26th Period
from January 1, 2014 toJune 30, 2014

25th Period
from July 1, 2013 to
December 31, 2013

Yen in millions, except per unit data or where otherwise indicatedOperating revenues
Note 2
Revenues from property leasing
Gain on sale of investment properties
Operating expenses
Rental expenses
Loss on sale of investment property
Ordinary income
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 units issued (Units)*(e)
Net assets per unit (Yen/$)*(d) / (e)Distribution per unit (Yen/$)*(b) / (e)Funds from operations per unit (Yen/$)*Note 3
ROA
Note 3(Annual rate)
ROE
Note 3(Annual rate)
Loan to value (LTV)
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 (Average)
Note 5¥34,80634,806—21,182
19,749—10,847
10,84618,00922,22010,846
7,163
2,329
1,022,952
428,125534,156
1,412,000
378,297
7,681
12,7541.1%(2.1%)
2.0%
4.1%
41.9%
52.2%
99.9%
184
73
1,568
1,074,771
97.6%¥

36,562
34,6591,903
20,763
19,254—
12,772
12,771
17,94622,482
11,5117,077
1,646
1,040,572
448,500
534,821
1,412,000
378,768
8,152
12,8181.2%(2.5%)
2.4%(4.8%)
43.1%
51.4%
90.1%
181
73
1,546
1,074,857
97.0%¥

37,13534,8452,290
20,737
18,910286
13,27813,277
18,203
22,864
11,965
6,930
1,981
1,022,812
447,875
519,198
692,000
750,286
17,29026,304
1.3%(2.6%)
2.6%(5.1%)
43.8%
50.8%
90.1%
184
71
1,481
1,038,549
97.1%

27th Period
from July 1, 2014 toDecember 31, 2014
U.S. dollars in thousands
except per unit data (Note 1)$290,415
290,415—
176,737
164,785—
90,50790,497150,264
185,397
90,49359,767
19,4338,535,265
3,572,174
4,456,874
3,156
64
106

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥119.85 = U.S.$1.00, the approximate exchange rate on December 31, 2014.
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 and Loss on sale 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 unit: (Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization) / Weighted average number of units issued
and outstanding during the period
ROA: Ordinary income / (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 / 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, end-tenant basis,is the ratio of gross leased area to total rentable area at the end of the period.
* Effective January 1, 2014, NBF implemented a 2-for-1 unit split of the units held by unitholders registered on the register of unitholders as of December 31, 2013.

NBF Report July – December 201431

Operating Environment and Results
During the six months ended December 31, 2014 (the “27th Period”), the real GDP growth rate in Japan was contrary to expectations from Julyto September, and continued to contract as it had in the previous three months. Consumer spending was weak following the consumption tax
increase, and companies took a cautious approach to production. During the second half of the 27th Period, following a decision by the Bank ofJapan to implement additional monetary easing, and the government’s decision to postpone a further consumption tax increase, the economy
basically continued to recover moderately supported with evidence of improvement in consumer spending and capital investment reflecting
improved corporate earnings and a better employment environment.
The underlying recovery of the Japanese economy is expected to become more pronounced with definite upward revision in corporate
performance and broadly based wage growth. Issues of concern that require attention include the impact of an economic downturn overseas as aresult of lower oil prices and the risk of higher interest rates if the United States raises interest rates.
In the office building leasing market, the supply-demand balance improved and the vacancy rate in Tokyo central business districts (CBDs)
decreased marginally because the supply of properties was stable and an increasing number of tenants added space or moved to larger offices. In
addition, asking rent in Tokyo CBDs continued to trend narrowly upward because of tighter supply and demand. With no major increase in the
supply of new properties forecast from 2015 onward, vacancy rates should continue to decrease and rents should continue to rise moderately as aresult of projected firm demand for office space driven by improving corporate results.
In the office building transaction market, investor interest remained strong backed by a favorable fund procurement environment and expectationsof medium-term improvement in the office building leasing market resulting from real economic growth.
Given these conditions, competition to acquire properties has intensified and sales prices have clearly risen. Driven by ongoing favorable
conditions in the fund procurement environment, it is forecast that investor demand in Japan and overseas will continue to drive active sales
transactions and rising sales prices.
Under these conditions, NBF will continue to manage its assets in accordance with its basic policy of investing in high-quality office buildings thatare highly competitive in terms of location, size and facilities, and are expected to generate stable cash flow from rents. For properties already in its
portfolio, NBF systematically conducts property management, renovations and new construction to further raise tenant satisfaction. NBF also works
to secure stable revenues from property leasing by setting appropriate rents for new tenants and revising rents for tenants renewing their lease
contracts while keeping abreast of market trends.
NBF’s real estate portfolio as of December 31, 2014 consisted of 73 properties. Total investment on an acquisition price basis was ¥1,074.4
billion. Total rentable area was 1,074,771 m2. The average occupancy rate during the period was 97.6 percent, a 0.6 percentage point increase from
June 30, 2014 and the total number of tenants was 1,568.

Average Occupancy Rate during the Period

Total Investment(Yen in billions)

(%)

1,200

100

1,000

1,066.4

1,050.8

1,074.4

1,074.4

98

921.6

800

96

600

94

2H/’1223rd
Period1H/’1324th
Period97.1

97.0

2H/’1325th
Period1H/’1426th
Period

97.6

90

200

32

97.8

92

400

0

97.5

0
Dec. 31,2012

Jun. 30,
2013

Dec. 31,2013

NBF Report July – December 2014

Jun. 30,
2014

Dec. 31,2014

2H/’1427th
PeriodManagement’s Discussion and Analysis

Overview of Performance
During the 27th Period, operating revenues decreased ¥1,755 million, or 4.8 percent, to ¥34,806 million, operating income from property
leasing activities decreased ¥348 million, or 2.3 percent, to ¥15,057 million, operating income decreased ¥2,174 million, or 13.8 percent, to¥13,624 million, ordinary income decreased ¥1,925 million, or 15.1 percent, to ¥10,847 million, and net income decreased ¥1,925 million, or
15.1 percent, to ¥10,846 million. Distribution per unit was ¥7,681.

(Yen in millions)Operating Income from Property
Leasing Activities

40,000(Yen in millions)

Total Operating Revenues

20,00030,00015,00020,00010,00010,00005,000
02H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period2H/’1427th
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period2H/’1427th
PeriodDistribution for the Current Period
Distribution per unit for the current period was ¥7,681. NBF expects to distribute almost all retained earnings at the current period end to beeligible for special tax treatment (Special Taxation Measures Law of Japan Article 67-15) that allows NBF to deduct its cash dividends of profits fromtaxable income.
For the six months ended
December 31, 2014

For the six months ended
June 30, 2014

For the six months ended
December 31, 2013

(Yen in thousands, except per unit amounts)

Retained earnings
Undistributed earnings
Reserve for advanced depreciation
Total cash distribution(Cash distribution per unit)
Distribution of accumulated earnings(Distribution of accumulated earnings per unit)
Cash distribution in excess of accumulated earnings(Per unit)¥10,846,081
509—
10,845,572
7,681
10,845,572
7,681
—
—

¥12,771,238—
1,260,614
11,510,624
8,152
11,510,624
8,152
—
—

¥13,276,613—
1,311,933
11,964,680
17,29011,964,680
17,290——Notes: 1. Above cash distributions were paid after the period end.
2. Effective January 1, 2014, NBF implemented a 2-for-1 unit split of its investment units.

Distribution per Unit

Total Amount of Cash Distribution(Yen)(Yen in millions)

10,00014,00012,0008,000

10,000
8,000

6,000

6,000
4,000

4,000

2,000

0
2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period2H/’1427th
Period02H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period1H/’1427th
PeriodAdjusted for the investment unit split. Rounded down to the nearest yen.

NBF Report July – December 201433

Changes in Assets, Liabilities and Net Assets
Assets
As of December 31, 2014, total assets decreased by ¥17,620 million to ¥1,022,952 million compared with June 30, 2014. Return on average
total assets (ROA) for the six months ended December 31, 2014 decreased to 1.05 percent from 1.24 percent for the previous six-month period.
Current assets decreased by ¥13,069 million to ¥22,398 million compared with June 30, 2014. Investment properties decreased by ¥4,653
million to ¥993,425 million compared with June 30, 2014.

Liabilities
Current liabilities increased by ¥8,672 million to ¥71,654 million compared with June 30, 2014, primarily because of an increase in long-term
debt due within one year compared with June 30, 2014.
Long-term debt decreased by ¥25,375 million to ¥370,375 million compared with June 30, 2014.
As a result, total interest-bearing liabilities decreased by ¥20,375 million to ¥428,125 million compared with June 30, 2014. The ratio of longterm debt (for which the redemption period at the time of contract or issuance is more than one year) to total interest-bearing liabilities increased to
98.4 percent as of December 31, 2014 from 96.4 percent as of June 30, 2014.
The loan-to-value ratio, calculated as the ratio of interest-bearing liabilities to total assets, decreased to 41.9 percent as of December 31, 2014
from 43.1 percent as of June 30, 2014.
In addition, NBF worked to diversify funding sources. In January 2015, NBF updated a shelf registration to publicly offer up to ¥200 billion inbonds, as a shelf registration that NBF updated in January 2013 has expired.

Net assets
Net assets decreased by ¥665 million to ¥534,156 million compared with June 30, 2014.

Total Assets

Net Assets(Yen in millions)(Yen in millions)

1,100,000

600,000
500,000

1,000,000

400,000
300,000

900,000

200,000
800,000

100,000
0

0
2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period2H/’1427th
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period2H/’1427th
PeriodFunding
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, 2014, NBF had issued 1,412,000 units out of 4,000,000 total authorized units.
NBF’s units were listed on the J-REIT section of the Tokyo Stock Exchange in September 2001 upon the completion of a public offering. As theInvestment Trust Law of Japan does not contain any provision for the issue of more than one class of units, NBF’s units comprise the sole class ofunits authorized and issued by NBF.

NBF Report July – December 2014

Management’s Discussion and Analysis

Issue date

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
January 26, 2011 Public offering
Third party
February 22, 2011
allocation
January 25, 2012 Public offering
Third party
February 21, 2012
allocation
January 23, 2013 Public offering
Third party
January 31, 2013
allocation
January 1, 2014
Unit split
March 19, 2014
Public offering
Third
party
March 28, 2014
allocation

Units issued and outstanding
Increase
Balance(Units)200

200

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

4,000

Paid-in capital
Increase

Balance

Notes(Yen in millions)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 1034,000576,000

26,957413,133

Note 112,500

578,500

1,982

415,115

Note 1230,000608,500

18,172433,287

Note 134,500

613,000

2,726

436,013

Note 1474,000687,000

63,973499,986

Note 155,000

692,000

4,323

504,309

Note 16

692,000
26,5001,384,000
1,410,500—
14,022504,309518,331

Note 17
Note 18

1,500

1,412,000

794

519,125

Note 19

March 16, 2001

¥

100

¥

Notes: 1. NBF was established with initial capital of ¥500,000 per unit.
2. Follow-on private offering at ¥500,000 per unit to raise funds for acquisition of 22 properties.
3. Public offering of new units for ¥625,000 per unit (excluding underwriting fee: ¥603,125) to repay debt and to fund property acquisition.
4. Public offering of new units for ¥759,500 per unit (excluding underwriting fee: ¥735,475) to repay debt, etc.
5. Additional issue of new units (third party allocation) for ¥735,475 per unit undertaken pursuant to the public offering in Note 4.
6. Public offering of new units for ¥916,300 per unit (excluding underwriting fee: ¥887,782) to repay debt and to fund property acquisition.
7. Public offering of new units for ¥1,019,200 per unit (excluding underwriting fee: ¥988,000) to repay debt and to fund property acquisition.
8. Additional issue of new units (third party allocation) for ¥988,000 per unit undertaken pursuant to the public offering in Note 7.
9. Public offering of new units for ¥1,205,400 per unit (excluding underwriting fee: ¥1,168,500) to repay debt and to fund property acquisition.
10. Additional issue of new units (third party allocation) for ¥1,168,500 per unit undertaken pursuant to the public offering in Note 9.
11. Public offering of new units for ¥818,025 per unit (excluding underwriting fee: ¥792,855) to repay debt and to fund property acquisition.
12. Additional issue of new units (third party allocation) for ¥792,855 per unit undertaken pursuant to the public offering in Note 11.
13. Public offering of new units for ¥624,975 per unit (excluding underwriting fee: ¥605,745) to repay debt and to fund property acquisition.
14. Additional issue of new units (third party allocation) for ¥605,745 per unit undertaken pursuant to the public offering in Note 13.
15. Public offering of new units for ¥891,800 per unit (excluding underwriting fee: ¥864,500) to repay debt and to fund property acquisition.
16. Additional issue of new units (third party allocation) for ¥864,500 per unit undertaken pursuant to the public offering in Note 15.
17. Effective January 1, 2014, NBF implemented a 2-for-1 unit split of its investment units.
18. Public offering of new units for ¥545,860 per unit (excluding underwriting fee: ¥529,150) to repay debt and to fund property acquisition.
19. Additional issue of new units (third party allocation) for ¥529,150 per unit undertaken pursuant to the public offering in Note 18.

Market Price of Units
High/Low (closing price) of units on the TSE:

High
Low

For the six months ended
December 31, 2014

For the six months ended
June 30, 2014
(Yen)

For the six months ended
December 31, 2013

¥622,000
546,000¥609,000
523,000¥623,000
533,000

Note: As of January 1, 2014 NBF implemented a 2-for-1 unit split of its investment units. The above prices before ex-date (December 26, 2013) have been adjusted to reflect the split
for comparative purposes, dividing the price by two.

NBF Report July – December 201435

Borrowings
Borrowings from financial institutions as of December 31, 2014 are shown below.
Short-term loans
LenderAverageinterest rate (%)

Due on(Note 1)

Repayment
methodUse of
funds

Notes

0.2%
0.2%
0.2%
0.2%

January 30, 2015
January 30, 2015
January 30, 2015
January 30, 2015

Bulletpayment(Note 4)

Unsecured/unguaranteed/paripassu, See (Note 5)

Averageinterest rate (%)

Due on(Note 1)

Repayment
methodUse of
funds

Notes

¥ 10,000
10,00010,00010,0003,625
7,500
10,000

1.5%
1.8%
2.0%
2.4%
2.2%
2.2%
1.3%

September 11, 2015
September 27, 2017
February 15, 2016
May 30, 2018
April 28, 2019
August 30, 2019
July 2, 2023

7,000
15,00015,00010,000
5,000

1.5%
1.1%
0.8%
0.7%
1.0%
0.2%
(Note 6)
1.2%
0.7%
0.9%
1.1%
1.0%
0.8%
0.6%
1.0%
1.1%
1.0%
1.0%
0.5%
0.3%
1.2%
1.1%
1.2%
1.9%
2.1%
1.8%
1.0%
0.5%
1.5%
2.3%
1.0%
0.9%
1.1%
0.9%
1.2%
1.0%
1.5%
1.0%
1.4%
1.3%
1.3%
0.9%

March 4, 2016
March 1, 2019
July 31, 2020
February 26, 2021
June 30, 2021

(Note 4)

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

Balance(Yen in millions)

Shinsei Bank, Limited
Mizuho Bank, Ltd.
Resona Bank, Limited.
The Norinchukin Bank
Total short-term loans¥3,000
2,000
1,000
1,000
¥7,000Long-term loans
LenderBalance(Yen in millions)

Development Bank of Japan Inc.

Mitsubishi UFJ Trust andBanking Corporation

3,000
Mizuho Bank, Ltd.

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Sumitomo Mitsui Banking Corporation

Sumitomo Mitsui Trust Bank, Limited
Sumitomo Life Insurance Company

Zenkyoren (National Mutual Insurance
Federation of Agricultural Cooperatives)
Mizuho Trust & Banking Co., Ltd.
MITSUI LIFE INSURANCE COMPANY LIMITED

Nippon Life Insurance Company

36

NBF Report July – December 2014

7,000
2,000
10,000
8,000
4,000
5,000
10,0007,000
4,000
10,000
5,000
6,000
1,000
10,00010,000
5,000
5,000
7,000
3,000
5,000
5,000
10,00010,00010,000
4,000
2,000
2,000
2,000
2,000
2,000
2,000
2,000
2,000
2,000
3,000

(Note 2)
(Note 3)

July 31, 2019
November 30, 2018
February 7, 2017
February 28, 2022
July 29, 2022
June 1, 2017
July 2, 2019
February 28, 2020
May 29, 2020
December 30, 2022
February 28, 2023
April 28, 2023
April 28, 2020
June 30, 2017
June 1, 2018
December 30, 2019
March 5, 2021
May 23, 2016
May 23, 2018
February 3, 2016
July 19, 2017
July 16, 2021
September 11, 2015
May 30, 2016
February 28, 2023
September 30, 2022
February 13, 2020
March 29, 2019
March 30, 2021
November 1, 2022
May 30, 2025
December 13, 2023
April 1, 2015
October 19, 2018
May 31, 2019
September 30, 2022

Bulletpayment

Management’s Discussion and Analysis

LenderBalance

Averageinterest rate (%)

Due on(Note 1)

Repayment
methodUse of
funds

Notes

1.0%
0.6%
0.5%
2.0%
1.0%
1.0%
1.0%
0.7%
2.0%
1.0%
1.0%
0.5%
0.7%
1.0%
1.0%
0.6%
0.7%
0.6%
0.5%
1.6%
0.9%
0.7%
1.8%
0.6%
0.5%
0.9%
1.1%
1.1%
1.3%
0.7%
0.6%
0.4%
0.7%
0.6%
1.5%

June 1, 2017
June 30, 2017
July 12, 2017
October 30, 2015
June 1, 2017
March 8, 2019
June 1, 2017
December 30, 2016
August 31, 2015
July 2, 2021
May 29, 2020
July 9, 2021
September 30, 2020
February 25, 2016
May 29, 2020
May 28, 2021
March 3, 2017
June 30, 2017
April 27, 2018
February 3, 2015
March 29, 2019
October 2, 2020
March 30, 2015
December 2, 2020
June 26, 2020
January 4, 2017
May 1, 2019
September 4, 2020
April 27, 2022
March 3, 2017
March 27, 2020
December 28, 2015
May 31, 2018
April 30, 2021
May 30, 2025

Bulletpayment(Note 4)

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

(Yen in millions)

THE BANK OF FUKUOKA, Ltd.
Resona Bank, Limited.
Shinkin Central BankTAIYO LIFE INSURANCE COMPANY

The Norinchukin BankThe Chugoku Bank, Limited
The Daishi Bank, Ltd.
DAIDO LIFE INSURANCE COMPANY
The Hachijuni Bank, Ltd.
The Yamaguchi Bank, Ltd.
Meiji Yasuda Life Insurance Company
The Joyo Bank, Ltd.
The Yamanashi Chuo Bank, Ltd.
The Gunma Bank, Ltd.
The Iyo Bank, LTD.
Shinsei Bank, Limited
Total long-term loans
Total borrowings (Note 7)

2,000
2,000
4,000
3,000
1,000
3,000
3,000
3,000
1,000
1,000
1,000
2,000
5,000
2,000
1,000
2,000
2,000
2,000
1,000
2,000
1,000
1,000
1,000
1,000
2,000
1,000
1,000
1,000
3,000
1,000
1,000
1,000
1,000
1,000
1,000
¥361,125¥368,125

Notes: 1. With respect to the date of repayment in case of more than one short-term loan from the same lender, the earliest date of repayment for all such loans 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, etc.
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. This loan is a floating rate loan. Other long-term loans are all fixed rate loans.
7. The total amount of long-term loans (i.e. excluding those expected to be repaid within one year) repayable within 5 years of the date of the balance sheet and expected tobe repaid by specific year(s) is as follows.
(Yen in millions)Long-term loans

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥40,750¥40,750¥38,750¥50,125

NBF Bonds
Issue

Issue date

No. 3 Unsecured Bonds
No. 7 Unsecured Bonds
No. 10 Unsecured Bonds
No. 11 Unsecured Bonds
No. 12 Unsecured Bonds
No. 13 Unsecured Bonds
Total (Note 6)

June 12, 2003
November 9, 2005
May 24, 2007
January 28, 2010
September 15, 2011
June 26, 2013

Balance as ofDecember 31, 2014
(Yen in millions)¥10,000
10,00010,00010,00010,00010,000¥60,000

CouponMaturitydate

Redemption

Use ofproceeds

Notes

2.00%
1.85%
2.04%
1.23%
0.64%
1.17%

June 12, 2018
November 9, 2015
May 24, 2017
January 28, 2015
September 15, 2016
June 26, 2023

Bullet payment
Bullet payment
Bullet payment
Bullet payment
Bullet payment
Bullet payment

Note 1
Note 1
Note 1
Note 1
Note 1
Note 1

Notes 2 and 4
Notes 3 and 5
Notes 3 and 5
Notes 3 and 5
Notes 3 and 5
Notes 3 and 5

NBF Report July – December 201437

Notes: 1. Use of funds includes acquisition of real estate, repayment of borrowings and investment corporation bonds, etc.
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)

Investment
corporation bonds

Within 1 year

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥20,000¥10,000¥10,000¥10,000—

Others
NBF has security deposits totaling ¥46,693 million as of December 31, 2014.

Capital Expenditures
1. Planning
As of December 31, 2014, 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 toincrease 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 Shinkawa Bldg.

Estimated
duration

Renovation of power generation From October 2014 to June 2015
facilities (West Building)
NBF Shibuya East
Renovation of air conditioning From April 2015 to October 2015
NBF Ikebukuro East
Renovation of air conditioning From November 2014 to July 2015
Tsukuba Mitsui Bldg.
Renovation of air conditioning From July 2015 to December 2015
Tsukuba Mitsui Bldg.
Renovation of air conditioning From November 2014 to June 2015
Yokohama ST Bldg.
Renovation of air conditioning From January 2015 to June 2015
Aqua Dojima NBF Tower Renovation of air conditioning From January 2015 to June 2015
Aqua Dojima NBF Tower Renovation of air conditioning From September 2015 to December 2015
NBF Ikebukuro East
Renovation of air conditioning From November 2014 to March 2015
GSK Bldg.
Renovation of exterior
From September 2014 to March 2015
(A front road)
NBF Shinkawa Bldg.
Renovation of air conditioning From February 2015 to June 2015
(East Building)
NBF Shinkawa Bldg.
Renovation of air conditioning From July 2015 to December 2015
(East Building)
NBF Shinkawa Bldg.
Renovation of air conditioning From February 2015 to June 2015
(West Building)
Nishi-Shinjuku Mitsui Bldg. Renovation of security system From September 2014 to March 2015
NBF Shinkawa Bldg.
Renovation of air conditioning From July 2015 to December 2015
(West Building)
NBF Hibiya Bldg.
Renovation of fire alarm system From February 2015 to November 2015
Yokohama ST Bldg.
Renovation of air conditioning From July 2015 to December 2015
NBF Matsudo Bldg.
Renovation of air conditioning From November 2014 to June 2015
Aqua Dojima East
Renovation of air conditioning From December 2015 to December 2015

38

NBF Report July – December 2014

Total
amounts

Estimated amounts
Payment for thecurrent period
Cumulative(from July 1, 2014 to amount paid
December 31, 2014)(Yen in millions)

¥334

¥—

¥—

300
285
264
256
253
230
227
160
158

—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—

140

—

—

140

—

—

133

—

—

132
118

—
—

—
—

—

—

—

—

109
108
87
21

Management’s Discussion and Analysis

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NBF posted ¥2,329 million in capital expenditures
together with ¥571 million for repairs and maintenance expenses.
Name of property

NBF Shinkawa Bldg.
Tsukuba Mitsui Bldg.
Aqua Dojima NBF Tower
Yokohama ST Bldg.
NBF Matsudo Bldg.
Aqua Dojima East
Other buildings

Objective

Expenditure(Yen in millions)

PeriodRenovation of power generation facilities (East Building), renovation of air
conditioning (East Building), renovation of air conditioning (West Building), etc.
Renovation of air conditioning, waterproofing work, leasehold improvement, etc.
Renovation of air conditioning, renovation of mechanical parking lot facilities
of water leakages, renovation of lighting equipment at planting parts, etc.
Renovation of air conditioning, leasehold improvement, renovation of wattFrom July 2014hour meter, etc.
to December 2014
Renovation of air conditioning, renovation of power generation facilities in
the control room, renovation of surveillance camera, etc.
Renovation of restroom, renovation of car parking tower, renovation ofelevator, etc.
Asset preservation construction and other renewal construction to improvetenant satisfaction , etc.

¥ 727
513
157
118
57
22
735
¥2,329

Total

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, 2014

For the six months ended
June 30, 2014

Item

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

For the six months ended
December 31, 2013

(Yen in millions)¥1,206
50
49
13
14
101
¥1,433¥1,261
48
49
13
14
124
¥1,509¥1,282
50
48
13
14
134
¥1,541

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 201439

Management’s Discussion and Analysis

3. Transactions with Related Parties of Asset Management Company(1) Ongoing Transactions
None. (No purchases, or sales or other transactions involving related parties.)
2) Fees Paid for the Period from July 1, 2014 to December 31, 2014
Description of transactions with related parties (Note 1)
Category

Total fees paid(A)
(Yen in millions)

Office management fees, etc. (Note 4)¥1,409Property maintenance fees

3,646

Leasing related service fees

98

Paid toMitsui Fudosan Co., Ltd.
NBF Office Management Co., Ltd.
Mitsui Fudosan 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 Fudosan Co., Ltd.
NBF Office Management Co., Ltd.
Mitsui Fudosan Realty Co., Ltd.

Amount ofpayment (B)(Yen in millions)

B/A
(%)

¥1,371
38
601
466
240
223
2
31
17
10

97.3%
2.7
16.5
12.8
6.6
6.1
0.1
32.0
17.6
9.7

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. During the period from July 1, 2014 to December 31, 2014, transactions
with and fees paid to, Mitsui Fudosan Co., Ltd., NBF Office Management Co., Ltd., Mitsui Fudosan Facilities Co., Ltd., Mitsui Fudosan Building Management Co., Ltd., First
Facilities West Co., Ltd., Mitsui Fudosan Housing Lease Co., Ltd. and Mitsui Fudosan Realty Co., Ltd. which meet either of the said definitions, are as described above.
2. In terms of properties for which NBF has not entrusted office management businesses to Mitsui Fudosan Co., Ltd. due to its master leasing (12 properties: Gate City Ohsaki,
Nishi-Shinjuku Mitsui Bldg., Toranomon Kotohira Tower, Nakameguro GT Tower, Celestine Shiba Mitsui Bldg., Yotsuya Medical Bldg., Higashi Gotanda Square, PanasonicTokyo Shiodome Bldg., NBF Ogawamachi Bldg., Shin-Kawasaki Mitsui Bldg., Parale Mitsui Bldg. and Shinanobashi Mitsui Bldg.), NBF has 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, etc.
(Yen in millions)

Mitsui Fudosan Co., Ltd.
Mitsui Fudosan Facilities Co., Ltd.
First Facilities West Co., Ltd.
Mitsui Fudosan Building Management Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
Harajuku-no-mori Co., Ltd.
MITSUI Designtec Co., Ltd.
Mitsui Fudosan Realty Co., Ltd.
Mitsui Home Linkage Co., Ltd.

40

NBF Report July – December 2014

¥279
271
235
189
9
4
0
0
0

Financial Statements
Balance Sheets
NIPPON BUILDING FUND INC.
As of December 31, 2014 and June 30, 2014
As ofDecember 31, 2014

As ofJune 30, 2014
(Yen in millions)

AssetsCurrent Assets:
Cash and cash equivalents (Note 3)
Tenant receivables
Other current assets
Total current assets
Investment Properties:
Land including trust accounts (Notes 4,13)
Buildings and improvements including trust accounts (Notes 4,13)
Other tangible assets (Notes 4,13)
Less: accumulated depreciation (Notes 4,13)
Leasehold rights in trust accounts and other intangible assets (Note 13)
Total investment properties, net
Other Assets
Total Assets
Liabilities
Current Liabilities:
Short-term loans (Notes 3, 6)
Long-term debt due within one year (Notes 3, 6)
Accounts payable
Rents received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term Debt (Notes 3, 6)
Tenant Security Deposits Including Trust Accounts (Note 3)
Other Liabilities
Total Liabilities
Net Assets (Note 5)
Unitholders’ Equity
Unitholders’ capital
Units authorized: 4,000,000 units
Units issued and outstanding: 1,412,000 units
Retained earnings
Total Net Assets
Total Liabilities and Net Assets¥

21,439366
593
22,398¥34,334397
736
35,467663,314400,638
12,643(119,032)
35,862
993,4257,129¥1,022,952

663,301
398,310
12,577(111,882)
35,772
998,078
7,027¥1,040,572

¥

¥

7,000
50,750
6,109
4,629
3,166
71,654
370,375
46,693
74
488,796

16,00036,750
4,159
4,510
1,563
62,982395,750
46,237782
505,751

519,125

519,125

15,031
534,156¥1,022,952

15,696534,821¥1,040,572

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

NBF Report July – December 201441

Statements of Income
NIPPON BUILDING FUND INC.
For the six months ended December 31, 2014, June 30, 2014 and December 31, 2013
For the six months ended
December 31, 2014

For the six months ended
June 30, 2014
(Yen in millions)

For the six months ended
December 31, 2013

¥31,457¥31,536¥31,424

3,349

3,123

3,421

—

1,903

2,290

34,80636,562

37,135

Property management fees (Note 7)

5,024

4,891

4,950

Real estate taxes (Note 7)

3,231

3,260

2,786

571

719

739

Operating Revenues and Expenses
Operating Revenues:
Rental (Note 7)
Other revenues related to property leasing (Note 7)
Gain on sale of investment properties (Note 8)
Total Operating Revenues
Operating Expenses:

Repairs and maintenance (Note 7)

40

39

39

Other rental expenses (Note 7)

3,720

3,268

3,466

Depreciation and amortization (Note 7)

7,163

7,077

6,930

—

—

286

Asset management fees

1,206

1,261

1,282

Other operating expenses

227

248

259

Total Operating Expenses

21,182

20,763

20,737

Operating Income

13,624

15,79916,3984

4

4(2,726)(2,938)(3,080)

Amortization of bond issuance costs

(14)

(14)

(13)

New investment units issuance costs

—

(35)

—

Other non-operating expenses, net

(41)

(44)

(31)

Ordinary Income

10,847

12,772

13,278

Income before Income Taxes

10,847

12,772

13,278Insurance (Note 7)

Loss on sale of investment property (Note 8)

Non-Operating Revenues and Expenses
Non-Operating Revenues:
Interest income
Non-Operating Expenses:
Interest expense

Current and deferred income taxes (Note 9)
Net Income
The accompanying notes to financial statements are an integral part of these statements.

42

NBF Report July – December 2014

(1)

(1)

(1)

¥10,846¥12,771¥13,277

Financial Statements

Statements of Changes in Net Assets
NIPPON BUILDING FUND INC.
For the six months ended December 31, 2014, June 30, 2014 and December 31, 2013

Number of
Units

Unitholders’Capital(Yen in millions)
Retained
Earnings

Total

692,000¥504,309¥ 13,275¥517,584

Cash dividends declared——(11,663)(11,663)

Net income——

13,277

13,277

Balance as of December 31, 2013

692,000

504,309

14,889519,198

Unit split of its investment units as of January 1, 2014

692,000

—

—

—

—

—

(11,964)(11,964)Issuance of new units through public offering as of March 19, 2014

26,50014,022—

14,022Issuance of new units through allocation toa third party as of March 28, 2014

1,500

794

—

794

—

—

12,771

12,771

1,412,000

519,125

15,696534,821

Cash dividends declared——(11,511)(11,511)Net income——

10,846

10,846

1,412,000¥519,125¥ 15,031¥534,156

BBalance as of June 30, 2013

Cash dividends declared

Net income
Balance as of June 30, 2014

Balance as of December 31, 2014
The accompanying notes to financial statements are an integral part of these statements.

NBF Report July – December 201443

Financial Statements

Statements of Cash FlowsNIPPON BUILDING FUND INC.
For the six months ended December 31, 2014, June 30, 2014 and December 31, 2013

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Amortization of bond issuance costs
Interest expense(Increase) Decrease in tenant receivables
Increase (Decrease) in accounts payable
Increase (Decrease) in rents received in advance
Decrease in investment properties due to sale
Cash payments of interest expense(Increase) Decrease in consumption tax
refund receivable
Others, net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases of investment properties
Payments for purchases of intangible assets
Proceeds from tenant security deposits
Payments for tenant security deposits
Payments for security deposits paid to lessors
Others, net
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Net proceeds from (repayment of) short-term loans
Proceeds from long-term debt
Repayment of long-term debt
Proceeds from issuance of new units
Payments for bond issuance costs
Payment of dividends
Net Cash (Used in) Provided by 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
he accompanying notes to financial statements are an integral part of these statements.

44

NBF Report July – December 2014

For the six months ended
December 31, 2014

For the six months ended
June 30, 2014
(Yen in millions)

For the six months ended
December 31, 2013

¥ 10,847
7,163
14
2,726
31
2,031
119
—
(2,899)¥ 12,772
7,077
14
2,938
(48)
(295)
237
1,182
(2,897)¥ 13,278
6,930
13
3,080
51
(383)
(119)
15,382(3,221)140
1,079
21,251(140)(495)
20,345

1,875
1,274
38,160(2,435)(97)
2,178(1,723)(6)(179)(2,262)(26,770)(7)
4,994(3,119)(878)(184)(25,964)(2,109)(75)
1,588(3,536)(4)(237)(4,373)(9,000)10,000(21,375)——(11,509)(31,884)(12,895)
34,334¥ 21,439

14,00012,000(25,375)
14,781—(11,963)3,443(2,176)36,510¥ 34,334(23,000)
24,000(26,375)—(3)(11,659)(37,037)(3,250)39,760¥ 36,510

Notes to Financial Statements
NIPPON BUILDING FUND INC.
For the six months ended December 31, 2014, June 30, 2014 and December 31, 2013

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.,
Sumitomo Mitsui Trust Bank, Limited., 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 officeproperties on May 23, 2001.
NBF is an externally managed real estate fund, formed as an investment corporation. NBFM, as NBF’s asset management company, isengaged 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 units. Those units are listedon the J-REIT section of the Tokyo Stock Exchange.
As of December 31, 2014, NBF had ownership or beneficiary interests in 73 office properties containing approximately 1,074,771
square meters of rentable office space. As of December 31, 2014, NBF had leased office space to 1,189 tenants engaged in a variety ofbusinesses. The occupancy rate for the office properties was approximately 99.0%.

Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust Law ofJapan and the Japanese Financial Instruments and Exchange Law and their related accounting regulations, and in conformity withaccounting principles generally accepted in Japan (hereinafter “Japanese GAAP”), which are different in certain respects as to applicationand 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 requiredby 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 acquisition of
the office properties and the beneficiary interests of properties in trust. Property and equipment balances are depreciated using thestraight-line method over the estimated useful lives. The estimated useful lives of the principal tangible fixed assets (including assets heldin trust) are as follows:

Buildings and improvements including trust accounts
Buildings and improvements
Other tangible assets
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 maintenancewhich do not add to the value or prolong the useful life of a property, are expensed when incurred.

Investment Corporation Bond Issuance Costs
Deferred investment corporation bond issuance costs are amortized using the straight-line method over the respective terms of the bonds.

NBF Report July – December 201445

New Investment Units Issuance Costs
The issuance costs of new investment units are expensed when incurred.

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 the endof the calendar year as part of the acquisition cost of the relevant property. No capitalized real estate taxes were incurred for the period
ended December 31, 2014. Capitalized real estate taxes amounted to ¥160 million for the period ended June 30, 2014 and ¥2 million forthe period ended December 31, 2013.

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 sheet and income statement accounts.

Note 3Financial Instruments

Status of Financial Instruments
Policy for Financial Instruments
NBF procures funds for acquisition of assets and repayment of debt, which includes repayment of tenant security deposits, loans andinvestment corporation bonds, through issuance of new investment units, bank loans and issuance of investment corporation bonds, withthe aim of ensuring steady asset growth and stable earnings from a mid- and long-term angle.
As a general rule NBF invests surplus funds in deposits considering safety of the investments.
NBF may enter into derivative transactions solely for the purpose of reducing interest rate risks and other risks arising from liabilities.
NBF does not engage in speculative transactions. Currently NBF is not engaged in any derivative transactions.

Financial Instruments, Their Risks and Risk Management System
Deposits are used for investment of NBF’s surplus funds. These deposits are exposed to credit risks such as bankruptcy of thedepository financial institutions. NBF limits credit risk by using only short-term deposits in financial institutions with high credit ratings.
Proceeds from loans and investment corporation bonds are used mainly to acquire real estate properties and repay outstanding loans
and bonds. While these loans and bonds are exposed to liquidity risk, such risk is managed in the following ways such as diversifying themeans of funding and lending institutions, dispersing repayment dates, establishing committed credit line, keeping sufficient liquidity in
hand, and monitoring cash flows projected monthly.
Floating rate loans are exposed to interest-rate fluctuation. NBF limits the impact of such risks by maintaining the ratio of interestbearing liabilities to total assets low and the level of long-term fixed-rate debt high.
Tenant security deposits are exposed to liquidity risk arising from vacating of properties by tenants due to the termination of contract.
NBF manages this risk by monitoring forecasted cash flows on a monthly basis to ensure it has sufficient funds.

Supplemental Explanation regarding Fair Values of Financial Instruments
The fair value of financial instruments is based on their observable market value, if available. When there is no observable market value
available, fair value is based on a price that is reasonably estimated. Since various factors are reflected in estimating the fair value, different
assumptions and factors could result in a different value.

46

NBF Report July – December 2014

Notes to Financial Statements

Estimated Fair Value of Financial Instruments
Book value, fair value and difference between the two as of December 31, 2014 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from the following table (See Note 2. below).
(Yen in millions)

Assets(1) Cash and cash equivalents
Total
Liabilities(1) Short-term loans(2) Long-term debt due within one year
(3) Long-term debt
Total

Book value

Fair value

Difference¥ 21,439¥ 21,439¥ 21,439¥ 21,439¥¥¥ 7,000
50,750370,375¥428,125¥ 7,000
51,141
383,441¥441,582

¥

—
—

—
391
13,066¥13,457

Notes: 1. Methods to Estimate Fair Value of Financial Instruments
Assets:(1) Cash and cash equivalents
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are settled within ashort term period.
Liabilities:(1) Short-term loans
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are settled within ashort term period.
(2) Long-term debt due within one year
Long-term debt due within one year which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)(1) Investment corporation bonds(2) Long-term loans
Total

Book value¥20,000
30,750¥50,750

Fair value¥20,156
30,985¥51,141

Difference
¥156
235
¥391

1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is no observable market value available, fair values are calculated basedon the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into consideration the remaining term of the investment
corporation bonds and their credit risk.
2) Long-term loans
Fair values of floating rate long-term loans are based on the book values because the market interest rates are reflected within a short term period and the book values are considered to approximate fair values. Fair values of fixed rate long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if similar new loans were entered into.
(3) Long-term debt
Long-term debt which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)(1) Investment corporation bonds(2) Long-term loans
Total

Book value¥ 40,000
330,375¥370,375

Fair value¥ 41,661
341,780¥383,441

Difference¥ 1,661
11,405¥13,066

1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is no observable market value available, fair values are calculated basedon the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into consideration the remaining term of the investment
corporation bonds and their credit risk.
2) Long-term loans
Fair values of floating rate long-term loans are based on the book values because the market interest rates are reflected within a short term period and the book values are considered to approximate fair values. Fair values of fixed rate long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if similar new loans were entered into.

NBF Report July – December 201447

Book value, fair value and difference between the two as of June 30, 2014 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from the following table (See Note 2. below).
(Yen in millions)

Assets(1) Cash and cash equivalents
Total
Liabilities(1) Short-term loans(2) Long-term debt due within one year
(3) Long-term debt
Total

Book value

Fair value

Difference¥ 34,334¥ 34,334¥ 34,334¥ 34,334¥¥¥ 16,000
36,750395,750¥448,500¥ 16,000
36,924
407,951¥460,875

¥

—
—

—
174
12,201¥12,375

Notes: 1. Methods to Estimate Fair Value of Financial Instruments
Assets:(1) Cash and cash equivalents
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are settled within ashort term period.
Liabilities:(1) Short-term loans
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are settled within ashort term period.
(2) Long-term debt due within one year
Long-term debt due within one year which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)Book value¥10,000
26,750¥36,750(1) Investment corporation bonds(2) Long-term loans
Total

Fair value¥10,061
26,863¥36,924

Difference
¥ 61
113
¥174

1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is no observable market value available, fair values are calculated basedon the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into consideration the remaining term of the investment
corporation bonds and their credit risk.
2) Long-term loans
Fair values of long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if similar new loans
were entered into.
(3) Long-term debt
Long-term debt which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)Book value¥ 50,000
345,750¥395,750(1) Investment corporation bonds(2) Long-term loans
Total

Fair value¥ 51,841
356,110¥407,951

Difference¥ 1,841
10,360¥12,201

1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is no observable market value available, fair values are calculated basedon the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into consideration the remaining term of the investment
corporation bonds and their credit risk.
2) Long-term loans
Fair values of long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if similar new loans
were entered into.
2. Financial Instruments for Which It Is Very Difficult to Estimate the Fair Value.
(Yen in millions)
As of December 31, 2014

As of June 30, 2014

¥46,693¥46,237

Tenant security deposits including trust accounts

Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and actual deposit period is not estimable as leases may be cancelled, renewed or
re-signed even if a lease term is set in the lease contract, that makes a reasonable estimate of future cash flows difficult.
3. Redemption Schedule for Monetary Claims as of December 31, 2014
(Yen in millions)Due within
one year
Cash and cash equivalents¥21,439

Due after
one to two years—

Due after two
to three years

Due after three
to four years

Due after four
to five years

Due after five
years

—

—

—

—

Due after two
to three years

Due after three
to four years

Due after four
to five years

Due after five
years

—

—

—

—

Redemption Schedule for Monetary Claims as of June 30, 2014
(Yen in millions)Due within
one year
Cash and cash equivalents

48

NBF Report July – December 2014

¥34,334

Due after
one to two years—

Notes to Financial Statements

4. Repayment Schedule for Loans and Investment Corporation Bonds as of December 31, 2014
(Yen in millions)Due within
one year
Short-term loans¥ 7,000

Investment corporation bonds

20,000Due after
one to two years¥

Due after two
to three years—¥

10,000Due after three
to four years—¥

10,000Due after four
to five years

—

¥

—

10,000Due after five
years
¥

—

—
10,000Long-term loans

30,75040,75040,75038,75050,125160,000

Total¥57,750¥50,750¥50,750¥48,750¥50,125¥170,000

Due after two
to three years

Due after three
to four years

Due after four
to five years

Due after five
years

Repayment Schedule for Loans and Investment Corporation Bonds as of June 30, 2014
(Yen in millions)Due within
one year
Short-term loans¥16,000

Investment corporation bonds

10,000Due after
one to two years¥—¥

10,000—¥20,000—¥—10,000—¥—10,000Long-term loans

26,75062,75024,75048,75036,250173,250

Total¥52,750¥72,750¥44,750¥58,750¥36,250¥183,250

Note 4

Schedule of Tangible Assets of Investment Properties

Tangible assets as of December 31, 2014 and June 30, 2014 consisted of the following:
As of December 31, 2014

As of June 30, 2014
(Yen in millions)

Acquisition costs

Land
Land in trust
Land including trust total
Buildings and improvements
Buildings and improvements in trust
Buildings and improvements including
those in trust total
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
Other tangible assets total
Total

Note 5

Accumulated
depreciation

Book value

Acquisition costs

Accumulated
depreciation

Book value¥ 314,337
348,977
663,314
213,429
187,209¥———(51,647)(60,831)¥314,337
348,977
663,314
161,782
126,378¥ 314,324
348,977
663,301
212,213186,097¥———(48,036)(57,713)¥314,324
348,977
663,301
164,177
128,384

400,638
3,157
1,691
1,540
2,804
1,797
1,598
56
12,643¥1,076,595(112,478)(1,464)(998)(836)(1,095)(1,185)(976)—(6,554)¥(119,032)

288,160
1,693
693
704
1,709
612
622
56
6,089
¥957,563

398,310
3,148
1,675
1,507
2,800
1,777
1,589
81
12,577¥1,074,188(105,749)(1,390)(923)(770)(1,025)(1,113)(912)—(6,133)¥(111,882)

292,561
1,758
752
737
1,775
664
677
81
6,444
¥962,306

Net Assets

NBF issues only non-par value units in accordance with the Investment Trust Law of Japan and all of the issue prices of new units aredesignated 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-termloans outstanding are floating rates and on December 31, 2014 and June 30, 2014 were at 0.18% and 0.20% respectively. Long-term
debt as of December 31, 2014 and June 30, 2014 consisted of the following:

NBF Report July – December 201449

As of December 31, 2014

As of June 30, 2014
(Yen in millions)

Unsecured loans due 2015 to 2025 principally from banks and insurancecompanies with interest rates mainly ranging from 0.2% to 2.4%
1.23% unsecured bonds due 2015 (Note 1)
1.85% unsecured bonds due 2015 (Note 1)
0.64% unsecured bonds due 2016 (Note 1)
2.04% unsecured bonds due 2017 (Note 1)
2.00% unsecured bonds due 2018 (Note 2)
1.17% unsecured bonds due 2023 (Note 1)
Less: amount due within one year

¥361,125¥372,500

10,00010,00010,00010,00010,00010,000421,125
50,750¥370,375

10,00010,00010,00010,00010,00010,000432,500
36,750¥395,750

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

The annual maturities of long-term debt as of December 31, 2014 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
Due after five years¥ 50,750
50,75048,75050,125170,000

During the period ended December 31, 2014, NBF has commitment credit line contracts of ¥60 billion with several financial institutions
to reduce refinancing risk. The unused amount of such committed credit lines was ¥60 billion as of December 31, 2014.

Note 7

Rental Revenues and Expenses

Rental revenues and expenses for the periods ended December 31, 2014, June 30, 2014 and December 31, 2013 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

50

NBF Report July – December 2014

For the six months ended
December 31, 2014

For the six months ended
June 30, 2014
(Yen in millions)

For the six months ended
December 31, 2013

¥28,426
2,917
114
31,457¥28,519
2,906
111
31,536¥28,440
2,872
112
31,424

683
245
2,330
14
77
3,349
34,806

655
248
2,031
124
65
3,123
34,659

656
239
2,358
111
57
3,421
34,845

5,024
3,231
571
40
3,720
7,163
19,749¥15,057

4,891
3,260
719
39
3,268
7,077
19,254¥15,405

4,950
2,786
739
39
3,466
6,930
18,910¥15,935

Notes to Financial Statements

Note 8Gain and Loss on Sale of Investment Properties

No investment properties were sold during the periods ended December 31, 2014. Gain and loss on sale of investment properties forthe periods ended June 30, 2014 and December 31, 2013 were as follows.
For the six months ended June 30, 2014
(Yen in millions)

GSK Bldg.
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Gain on sale of investment property¥3,0851,182—¥1,903For the six months ended December 31, 2013

NBF Nihonbashi Muromachi Center Bldg. (50% quasi co-ownership)
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Gain on sale of investment property(Yen in millions)

NBF Shijo Karasuma Bldg.
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Gain on sale of investment property(Yen in millions)

NBF Sakai-Higashi Bldg.
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Loss on sale of investment property(Yen in millions)

Note 9¥14,100
11,9784¥ 2,118¥1,600
1,376
52
¥ 172

¥1,800
2,028
58
¥ 286

Income Taxes

NBF is subject to income taxes in Japan. The effective tax rate on NBF’s income was 0.01% for the periods ended December 31,
2014, June 30, 2014 and December 31, 2013. The following table summarizes the significant differences between the statutory tax rates
and NBF’s effective tax rates for financial statement purposes.

Statutory tax rate
Deductible dividends
Reserve for advanced depreciation
Others
Effective tax rate

For the six months ended
December 31, 2014

For the six months ended
June 30, 2014

For the six months ended
December 31, 201334.16%(34.15)
—
0.01
0.01%

36.59%(32.98)(3.61)
0.01
0.01%

36.59%(32.97)(3.62)
0.01
0.01%

NBF was established as an investment corporation under the Investment Trust Law of Japan, and as long as an investment corporation
distributes to its unitholders 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 in calculating its taxable income underJapanese tax regulations.

NBF Report July – December 201451

Note 10Per Unit Information

Information about earnings per unit for the periods ended December 31, 2014, June 30, 2014 and December 31, 2013 and net assets
per unit as of December 31, 2014, June 30, 2014 and December 31, 2013 were as follows.
The computation of earnings per unit is based on the weighted average number of units outstanding during the period. The computationof net assets per unit is based on the number of units outstanding at each period end.
Effective January 1, 2014, NBF implemented a 2-for-1 unit split of the units held by unitholders registered on the register of unitholders
as of December 31, 2013. Net asset value per unit and net income per unit have been adjusted to reflect the unit split as if it had beeneffective on July 1, 2013.

Earnings per Unit:
Net income per unit (Yen)
Weighted average number of units outstanding
Net Assets per Unit (Yen)

Note 11For the six months ended
December 31, 2014

For the six months ended
June 30, 2014

For the six months ended
December 31, 2013

¥7,681
1,412,000¥9,122
1,400,014¥9,592
1,384,000

As of December 31, 2014

As of June 30, 2014

As of December 31, 2013

¥378,297¥378,768¥375,143

LeasesAs Lessor
NBF leases some of its investment properties to outside parties under non-cancelable operating leases. As of December 31, 2014 andJune 30, 2014, future minimum rental revenues under the non-cancelable operating leases are as follows:
As of December 31, 2014
As of June 30, 2014
(Yen in millions)Due within one year
Due after one year
Total

¥21,830
30,807¥52,637¥22,208
30,223¥52,431

As Lessee
NBF leases some of its investment properties from outside parties under non-cancelable operating leases. As of December 31, 2014
and June 30, 2014, future minimum rental expenses under the non-cancelable operating leases are as follows:
As of December 31, 2014
As of June 30, 2014
(Yen in millions)Due within one year
Due after one year
Total

Note 12

Transactions with Related Parties(1) Parent Company and Major Corporate Unitholders(For the six months ended December 31, 2014)
None applicable.
(For the six months ended June 30, 2014)
None applicable.
(For the six months ended December 31, 2013)
None applicable.

52

NBF Report July – December 2014

¥ 0
—
¥ 0

¥ 1
—
¥ 1

Notes to Financial Statements(2) Affiliates(For the six months ended December 31, 2014)
None applicable.
(For the six months ended June 30, 2014)
None applicable.
(For the six months ended December 31, 2013)
None applicable.
(3) Sister Companies(For the six months ended December 31, 2014)
None applicable.
(For the six months ended June 30, 2014)
None applicable.
(For the six months ended December 31, 2013)
None applicable.
(4) Directors and Major Individual Unitholders(For the six months ended December 31, 2014)
None applicable.
(For the six months ended June 30, 2014)
None applicable.
(For the six months ended December 31, 2013)
None applicable

Note 13

Investment and Rental Property

NBF owns office buildings (including land) for rent in Tokyo and other areas. The carrying amounts, net changes in the carrying
amounts and the fair value of the investment and rental properties are as follows.
(Yen in millions)

Carrying amount
Balance at beginning of the Fiscal Period
Amount of increase (decrease) during current period
Balance at end of the Fiscal Period
Fair value at end of the period

For the six months ended
December 31, 2014

For the six months ended
June 30, 2014

¥ 998,044(4,633)
993,411¥1,078,260¥ 979,217
18,827
998,044¥1,069,360

Notes: 1. Carrying amounts represent acquisition cost less accumulated depreciation.
2. The major decrease in the fiscal period ended December 31, 2014 was mainly due to recognition of depreciation costs.
The major increase in the fiscal period ended June 30, 2014 was mainly due to the acquisitions of 3 properties (Sakaisuji-Honmachi Center Bldg. (Additional Acquisition), Jingumae
M-SQUARE and Nakanoshima Central Tower, ¥ 25,221 million) and the major decrease was mainly due to disposition of portion of site area of GSK Bldg. which amounted to ¥1,182 million andrecognition of depreciation costs.
3. Fair value at end of the period is based on appraisals provided by independent real estate appraisers.

Information about profit and loss from investment and rental properties is disclosed in Note 7 (Rental Revenues and Expenses).

Note 14Segment Information

Segment Information
Segment information has been omitted as NBF has only one segment, which is real estate leasing business.

Related Information(For the six months ended December 31, 2014)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for more than 90% of total
operating revenues.

NBF Report July – December 201453

Notes to Financial Statements

2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the bookvalue of total investment properties.
3. Information on Major Tenants(Yen in millions)
TenantOperating revenues

Related segment¥7,910Real estate leasing business

Mitsui Fudosan Co., Ltd.

Note: NBF leases properties to Mitsui Fudosan Co., Ltd. under a master lease agreement, and Mitsui Fudosan Co., Ltd. subleases such properties to subtenants.

(For the six months ended June 30, 2014)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for more than 90% of total
operating revenues.
2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the bookvalue of total investment properties.
3. Information on Major Tenants(Yen in millions)
TenantOperating revenues

Related segment¥8,095

Real estate leasing business

Mitsui Fudosan Co., Ltd.

Note: NBF leases properties to Mitsui Fudosan Co., Ltd. under a master lease agreement, and Mitsui Fudosan Co., Ltd. subleases such properties to subtenants.

(For the six months ended December 31, 2013)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for more than 90% of total
operating revenues.
2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the bookvalue of total investment properties.
3. Information on Major Tenants(Yen in millions)
TenantOperating revenues

Related segment¥8,208

Real estate leasing business

Mitsui Fudosan Co., Ltd.

Note: NBF leases properties to Mitsui Fudosan Co., Ltd. under a master lease agreement, and Mitsui Fudosan Co., Ltd. subleases such properties to subtenants. NBF leases other properties to Mitsui
Fudosan Co., Ltd.

Note 15Significant Subsequent Events

None applicable.

54

NBF Report July – December 2014

Independent Auditor’s Report

NBF Report July – December 201455

Corporate Data
(As of June 30, 2014)

Corporate Office38th 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

CapitalContributed capital and units issued and outstanding:¥519,124 million
1,412,000 units

Unitholders

16,049Transfer Agent

Sumitomo Mitsui Trust Bank, Ltd.
4-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8233, Japan

Business Office of the Transfer Agent

Stock Transfer Agency Department of Sumitomo Mitsui Trust Bank, Ltd.
8-4, Izumi 2-chome, Suginami-ku, Tokyo 168-0063, Japan+81-3-3323-7111

Independent Auditors

KPMG AZSA LLCAZSA 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
Tel. : +81-3-6259-8681

This document contains translations of selected information described in thetranslations or the selection of the portions of any documents translated into English. No

Securities Report (Yuka shoken hokokusho) filed on September 29, 2014 pursuant to theperson has been authorized to give any information or make any representations other

Securities Exchange Law of Japan, and the Financial Statements and the Performance

than as contained in this document in relation to the matters set out in this document,

Information Report for the period from July 1, 2014 to December 31, 2014, of Nippon

and if given or made, such information or representation must not be relied upon as

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

having been authorized by Nippon Building Fund Inc., Nippon Building FundThis English-language document was prepared solely for the convenience of andreference by overseas investors. It neither corresponds to the original Japaneseunitholders/shareholders, agents or affiliates.

documents nor is intended to constitute a disclosure document. The Japanese-

The financial statements of Nippon Building Fund Inc. have been prepared in accor-

language Securities Report and the Financial Statements and the Performancedance with generally accepted accounting principles in Japan (Japanese GAAP), which

Information Report for the aforementioned period should always be referred to as

may materially differ in certain respects from generally accepted accounting principles inoriginals of this document.

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, unitholders/shareholders, agents or affiliates will

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

be responsible or liable for the completeness, appropriateness or accuracy of English

56

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

NBF Report July – December 2014

Investors’ Information(As of December 31, 2014)

Fiscal Periods

Unitholders

Six months ending June 30 and December 31

Other domestic corporations
403 (2.5%)

Overseas investors 432 (2.7%)
Financial institutions(Including securities companies)

215 (1.4%)

Total Number of Units Issued
27th Period (From July 1, 2014 to December 31, 2014)

1,412,000 units

Total numberof unitholders:

26th Period (From January 1, 2014 to June 30, 2014)

1,412,000 units

16,049Individuals andothers69,390 (4.9%)

Other domestic
corporations
97,014 (6.9%)

Individuals and others
14,999 (93.5%)

Total numberof units:

Distribution per Unit

1,412,000

Confirmed distribution for the 27th Period
For the operating period from July 1, 2014 to December 31, 2014 (6 months)¥7,681 per unit

Financial institutions(Including securities companies)

Expected distribution for the 28th Period
For the operating period from January 1, 2015 to June 30, 2015 (6 months)

Overseas
investors
399,425(28.3%)

846,171 (59.9%)¥7,700 per unit

Top 10 Unitholders
NameJapan Trustee Services Bank, Ltd.
Trust & Custody Services Bank, Ltd.
The Master Trust Bank of Japan, Ltd.
The Nomura Trust and Banking Co., Ltd.
Mitsui Fudosan Co., Ltd.
Nomura Bank (Luxembourg) SA
State Street Bank and Trust Company 505223
Sumitomo Life Insurance Company
State Street Bank West Client-Treaty
State Street Bank - West Pension Fund - Clients Exempt

Number of Units Held

Percentage of Total

282,283
118,450
102,948
61,85747,63025,50825,202
24,512
23,19321,51720.0 %
8.4
7.3
4.4
3.4
1.8
1.8
1.7
1.6
1.5

Historical Unit Price(Yen)
1,000,000(Points)
3,000

NBF unit price (left scale)
TSE REIT Index (right scale)
TOPIX (right scale)

2,500

800,000
2,000
600,000

1,500

1,000
400,000
500
200,000
Sep. 10, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31,
2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014

0

Adjusted retroactively for the two-for-one investment unit split effective as of January 1, 2014.

NBF Report July – December 201457