19 th Period
NBF Report July – December 2010

Profile
On September 10, 2001, Nippon Building Fund Inc. (NBF) became
the first Japanese real estate investment trust (J-REIT) investment
corporation with a listing 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 andborrowing to invest in real estate, real estate-backed securities, trust
beneficiary rights and other assets with the objective of sustainable growthin portfolio value and stable profits on a medium-to-long-term basis. Its
fiscal periods are six months long. NBF primarily invests in office buildingsin the central business districts of Tokyo, other Greater Tokyo and other
cities in Japan. The Investment Trust Law of Japan requires an external
entity to manage the assets of an investment corporation; NBF entrusts
asset management to Nippon Building Fund Management Ltd. (NBFM).
NBF maintains a close relationship with NBFM’s major shareholder
Mitsui Fudosan Co., Ltd., and employs that company’s expertise to invest
in carefully selected, high-quality properties, with the aim of generating
further asset growth.

Contents
Building on Our Strengths ............................................................................................. 2
Financial Highlights....................................................................................................... 4
A High Occupancy Rate, Stable Returns and Steady Growth .......................................... 5
To Our Unitholders ........................................................................................................ 6
Moving Ahead
External Growth ...................................................................................................... 8Internal Growth ....................................................................................................... 10
Financial Strategy .................................................................................................... 12
Planned New Acquisitions ............................................................................................. 14
Location of Office Properties ......................................................................................... 18
Portfolio Overview......................................................................................................... 20
Management Team and Management Structure ............................................................ 22
Management’s Discussion and Analysis......................................................................... 26
Financial Statements ..................................................................................................... 37
Appendix....................................................................................................................... 57
Investment and Distribution Policies.............................................................................. 59
Corporate Data.............................................................................................................. 66
Investors’ Information ................................................................................................... 67

Moving Ahead
The occupancy rate of NBF’s properties is improving.
Our strategy is to add to our high-quality portfolio through selective investment.

NBF Report July – December 2010 1

Building on Our Strengths
Over the 19 periods, or roughly nine and half a years, since its listing on the J-REIT section of theTokyo Stock Exchange in September 2001, NBF has established a track record of stable profit distribution.
As a result of steady growth, NBF has built a solid position in the J-REIT market from several
perspectives, including scale advantage, portfolio quality, financial stability and level of return.
NBF will continue to make maximum use of its strengths and competitive advantages, as well as
the expertise of Mitsui Fudosan Co., Ltd., to steadily increase value for unitholders.

NBF’s Strengths
Japan’s First andLargest J-REIT◆ In September 2001, NBF was listed as the first real estate
investment corporation in Japan on the J-REIT section of
the Tokyo Stock Exchange.
◆ The largest total market capitalization of any J-REIT(¥451.5 billion)*◆ The largest scale of managed assets (¥779.6 billion)*(total acquisition price)

2 NBF Report July – December 2010

High-Quality
Properties◆ Specializes in investing in office buildings◆ Possesses 59* properties, mainly large-scale officebuildings in the Tokyo central business districts◆ Diversified in other Tokyo markets as well as inregional cities◆ Total rentable area of 762,983m2*◆ 952* diversified tenants

Stable Returns◆ Cash distribution of ¥15,495 per unit for the 19th Period◆ Aims to increase distributions to unitholders
over the medium to long term
Cash distribution per unit
(Yen)
25,00022,252
19,391

20,00015,495

14,582
15,00010,0005,000
0Sound Finances◆ Ratings*■ Standard & Poor’s

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

5th
Period10th
Period15th
PeriodStrategic Partnershipwith Mitsui Fudosan◆ Access to the expertise of Mitsui Fudosan Co., Ltd., theleading real estate company in Japan◆ LTV: 46.3%*■ Acquisition of properties developed by Mitsui Fudosan◆ Percentage of long-term fixed-rate debt included ininterest-bearing debt: 85.0%*■ Use of property information-gathering capabilities◆ Average years remaining on long-term fixed-rate interestbearing debt: 3.90 years*

19th
Periodof Mitsui Fudosan■ Use of Mitsui Fudosan’s tenant mediation and building

management capabilities in office management◆ Total average cost: 1.75%** As of December 31, 2010

NBF Report July – December 2010 3

Financial Highlights

19th Period

18th Period

17th Period

16th Period

19th Period

from July 1, 2010 to
December 31, 2010

from January 1, 2010 toJune 30, 2010

from July 1, 2009 to
December 31, 2009

from January 1, 2009 toJune 30, 2009

from July 1, 2010 to
December 31, 2010
U.S. dollars in thousands
except per unit data (Note 1)(Yen in millions, except per unit data or where otherwise indicated)

Operating revenues¥ 27,314¥ 28,341¥ 29,928¥ 30,761$ 334,447

Income before income taxes

8,400

9,283

10,663

11,803102,850

Net income

8,399

9,282

10,662

11,802

102,835

Note 3

13,57014,354

15,944

17,157

166,155

Net operating income
from property leasing activities Note 3

17,661

18,445

20,12421,005216,247

Total amount of cash distribution (a)

8,398

9,282

10,662

11,802

102,832

Total assets

765,203774,379

782,311

783,7939,369,450

Interest-bearing debt

325,125

333,500

337,875

338,500

3,980,960

394,575

395,458

396,838

397,978

4,831,325

Funds from operations

Note 2

Net assets(b)

LTV (Loan to value)

Note 3

Total number ofunits issued (units)(c) Note 4542,000

542,000

542,000

542,000

Net assets per unit (Yen/$)(b) / (c)727,996

729,626

732,173734,276

8,914

Distribution per unit (Yen/$)(a) / (c)15,495

17,125

19,672

21,775190

Funds from operations
per unit (Yen/$)Note 325,03626,48329,41731,654

307

46.3%

46.8%

46.9%

47.0%

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥81.67 = U.S.$1.00, the approximate exchange rate on December 31, 2010.
2. Operating revenues do not include consumption taxes.
3. 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
Loan to value: (Interest-bearing debt + Deposits under management) / Total assets
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
4. The Company issued an additional 36,500 units in January and February 2011.

Operating revenues

Net income(Yen in millions)(Yen in millions)(Yen)

35,00015,00025,00030,00020,00025,00010,00015,00020,00015,00010,0005,000

10,000

5,000

5,000
0

Distribution per unit

15th 16th 17th 18th 19th
Period Period Period Period Period

4 NBF Report July – December 20100

15th 16th 17th 18th 19th
Period Period Period Period Period

0

15th 16th 17th 18th 19th
Period Period Period Period Period

A High Occupancy Rate, Stable Returns and Steady GrowthDistribution per unit
(Yen)

25,00022,54919,391

20,00016,893

17,04698.1

98.1

19,22419,80922,252

21,775

20,12919,672
17,125
15,49515,00010,000Occupancy rate
(%)

100.0

98.7

96.9

97.8

99.0

98.6

97.4

96.8

95.4

95.0

96.6
94.8

94.5

90.0

Acquisition price(Yen in billions)*After planned acquisitions in 20th Period and 21st Period.

900873.4*

Tokyo CBDs
800

Other Greater Tokyo

783.1

783.1

779.5

779.6

61

61

59

(65*)
59

762.3

Other Cities

725.2

700

674.3

674.3

56

624.8

624.8

55

55

56

600
539.3
500
414.1
400

300

200

192.1

100

22
0

47

52

58

60

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

May 23,
2001

Jun. 30,
2005

Dec. 31,2005

Jun. 30,
2006

Dec. 31,2006

Jun. 30,
2007

Dec. 31,2007

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,
2010(Investment commencement date)(As of March 31, 2011)

NBF Report July – December 2010 5

To Our Unitholders
NBF’s occupancy rate is improving.
Going forward, we will aggressively
and selectively invest in high-quality
properties.

Performance during the Six Months Ended
December 31, 2010

Although NBF’s occupancy rate is improving,
operating revenues and income decreased
due to the impact of tenant rent revisions.
Meanwhile, we have set a course for new
growth by deciding to acquire sevenproperties in 2011. (As of March 31, 2011)
During the six months ended December 31,
2010 (the “19th Period”), tenant relocations andother cost-cutting measures reached the end of acycle in the office building leasing market of Tokyo
central business districts (CBDs). Against a
backdrop of downward adjustment of rents, newoccupancies and moves to increase floor spacepicked up and contract cancellations decreased,
particularly for large-scale, high-quality properties
in Tokyo CBDs. In this environment, NBF’s overall
occupancy rate at the end of 19th Period improved
2.1 percentage points compared with six months
earlier to 96.6 percent.
Transactions were noted in the office building
acquisition market, particularly in CBDs, due tofactors including improvement in the capital

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

Performance Outlook (As of February 14, 2011)

Operating revenues
Net income
Distribution per unit (Yen)
Occupancy rate (End of period)

6 NBF Report July – December 2010

(Yen in millions)

20th Period (Projected)
from January 1, 2011 to June 30, 2011

21st Period (Projected)
from July 1, 2011 to December 31, 2011

¥28,067
8,735
15,10096.7%¥29,112
8,735
15,10096.8%

procurement environment and progress inin rents, we foresee rent levels truly bottoming out

adjustments to real estate prices.

in mid-2011 or later. Please note that the largest

While our occupancy rate recovered, rental

earthquake in Japan’s recorded history occurred off

revenues decreased due to the impact of revisions

the Pacific coast of the Tohoku region on March 11,

of existing tenants’ rents. In addition, NBF recorded

2011, causing massive damage in various areas. As

a gain on sale of investment properties in theof March 31, 2011, the full breadth of theprevious period. As a result, operating revenues

earthquake’s impact on economic activity is unclear,decreased ¥1,026 million, or 3.6 percent, to

but we believe it will be necessary to pay close¥27,314 million, operating income decreased ¥853

attention to its impact on the office building leasing

million, or 7.0 percent, to ¥11,319 million and net

market, the real estate acquisition market, the fundincome decreased ¥883 million, or 9.5 percent, toprocurement environment, and other areas.

¥8,399 million. Distribution per unit decreased¥1,630 to ¥15,495.
Although we did not acquire any new properties

Based on this reasoning, NBF forecasts
distributions per unit of ¥15,100 for the six months
ending June 30, 2011 (the 20th Period) andduring the 19th Period, based on the market¥15,100 for the six months ending December 31,

recovery trend, we decided in January 2011 to2011 (the 21st Period).

acquire five properties (including additional

We expect the challenging operating environment

acquisitions) in addition to the NBF Ueno Building,to continue in 2011, but there is no change to ourfor which the purchase contract had already beenbasic policy of aiming for steady distributions toconcluded. We also issued new units for part of theunitholders over the medium-to-long term bycapital required to acquire these six properties

generating well-balanced internal and external(acquisition cost: ¥57.55 billion). Further, ingrowth based on our sound financial strategies.

February 2011 we decided to expand the scale andBy making the most of the advantages of theenhance the quality of our portfolio by acquiringhigh-quality portfolio we have built up since wethe Mitsubishi Heavy Industries Head Office Building

began asset management and the leasing(planned acquisition cost: ¥36.30 billion).

capabilities of our sponsor, Mitsui Fudosan Co.,
Ltd., we will work to prevent contract cancellations
by strengthening tenant relationships and bolster

Performance Outlook for 2011 andFuture Management Policies

marketing to attract new tenants. Further, we will

We believe we will be able to secure a recovery
in rent levels during the year. However, we
will continue to aggressively and selectively
invest in high-quality properties.

high-quality properties, including reshuffling our

NBF recognizes that its occupancy rate has
generally bottomed out. Due to emerging signs ofrecovery such as the narrowing range of decreases

continue to aggressively and selectively invest in
portfolio, based on fund procurement capabilities
that leverage our sound financial base.

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

NBF Report July – December 2010 7

Moving Ahead
At the start of 2011, we mademoves to add seven properties
to our portfolio. (As of March 31, 2011)

The occupancy rate of NBF’s portfolio is improving as
occupancy rates in general have started to bottom out.
At the same time, although information on transactions in the office building acquisition market is scarce,
sales have been taking place, mainly in Tokyo CBDs, as
the capital procurement environment improves for industry players and real estate prices undergo adjustment.
Based on these conditions, NBF decided to carry out
equity financing totaling approximately ¥29 billion in
January 2011 (during the 20th Period) in order toacquire five properties in addition to the NBF Ueno
Building, for which it had already concluded a contract(total estimated acquisition cost for the six properties:¥57.55 billion).

External Growth
Overview of Property Acquisitions (Planned)
Acquisitions from Sponsors

Acquisitions from Other Sources

Acquired from Mitsui Fudosan orfunds operated by Mitsui FudosanRiver City M-SQUARE¥13,350 million

Mitsubishi Heavy Industries Head Office Building¥36,300 million

Nihonbashi Kabuto-cho M-SQUARE¥ 4,850 million

NBF Ueno Building¥10,400 million

Hakata Gion M-SQUARE¥ 8,000 million

Chofu South Gate Building¥ 9,320 million

Acquired from Sumitomo Life Insurance Company
Gate City Ohsaki (Additional Acquisition)¥11,631 million
Total acquisitions: ¥93,851 million

8 NBF Report July – December 2010

These six properties are characterized by newness,

and-lease-back agreement. The property is locatedtenant stability and high yields. Their weighted-

near the east exit of Shinagawa Station, a businessaverage NOI yield by acquisition price is 5.2 percent,area that is relatively newly developed but extremely

higher than the 4.5 percent NOI yield of NBF’sconvenient because the station is close to Haneda

current portfolio.

Airport, which now offers international flights, and is a

LTV following the acquisitions is 46.5 percent,shinkansen stop. We expect it to produce stable earn-

increasing the property acquisition potential before

ings and contribute to the portfolio over the medium-

reaching the target LTV limit of 50 percent to about

to-long term as a core NBF property.
In the future, we plan to continue to selectively¥60 billion.
In February 2011, we decided to employ some ofinvest in high-quality properties.

that potential to acquire the Mitsubishi Heavy
Industries Head Office Building (planned acquisition
price: ¥36.30 billion). The seller, Mitsubishi Heavy
Industries, will lease all the office floors under a sales-

Occupancy Rate, Real GDP and Acquisition Price
(%)

(%)

NBF occupancy rate (left scale)

100

3.0
0

95
90

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

-3.0
-6.0

85

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

billi )
(Yen in billions)

900

Acquisition price600• Selected investment
for future growth• Enhancement of portfolio

300
0 Dec.

Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec.
2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010

*Tokyo 23 wards; floor area over 10,000m2

Jun. Dec. Jun. Dec.
2011 2011 2012 2012
(Proj.) (Proj.) (Proj.) (Proj.)

Source: Market occupancy rate: Mori Building Co., Ltd.; Real GDP: Cabinet Office, Government of Japan; Projections for October 2010 - March 2013: Japan Center for Economic Research

NBF Report July – December 2010 9

In the office building leasing market, NBF views vacancy

We recognize that therates in the major business districts of Tokyo, Osaka andoccupancy rate has bottomed

Nagoya as having peaked in the second half of 2010.

out. We expect rent levels to

Under these conditions, contract cancellations within thebottom out in mid-2011.

during the 17th and 18th Periods, have decreased recently

NBF portfolio, which exceeded an annualized 10 percent
to the 4 to 5 percent level due to rapid recovery in the

We aim to improve earnings bysecond half of the year. As a result, the occupancy rate

strengthening leasing activities.

bottomed out at 94.5 percent in June 2010 and recovered
to 96.6 percent as of December 31, 2010.
NBF expects the recovery trend in its occupancy rate tocontinue going forward and forecasts rates of 96.7 percent for the six months ending June 30, 2011 (the 20th
Period) and 96.8 percent for the six months ending

Internal GrowthMarket Vacancy Rates inCentral Business Districts (CBDs)

NBF Contract Cancellation Rate andOccupancy Rate

(%)

(%)

(%)

20

15

100

NBF Occupancy Rate
15

(right scale)

Nagoya

Osaka

12.91

10

95

11.88
10

94.5

NBF Contract Cancellation Rate

8.91

(left scale)Tokyo

96.6 96.7 96.8

5.7

5

90

5

2.3 2.4 1.9

0 Dec.
2002

Dec.
2003

Dec.
2004

Dec.
2005

Dec.
2006

Dec.
2007

Dec.
Dec.
Dec.
2008 2009 2010
Source: Miki Shoji Co., Ltd.

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

10 NBF Report July – December 2010

0 Dec.

Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec.
2007 2008 2008 2009 2009 2010 2010 2011 2011
(Proj.)(Proj.)

85

Moving Ahead

However, based on the current economic environment

December 31, 2011 (the 21st Period).
In addition, despite the attention being paid to future

NBF expects rent levels for existing buildings to gradually

supply problems for large-scale office buildings in the 23

decrease. Specifically, we expect rental revenues to decline

wards of Tokyo, we anticipate limited impact as ourapproximately 3 percent over the next year due to lower

large-scale office buildings supply approximately one mil-rents as lease contracts are renewed.

lion square meters of floor place on average and,With tenants beginning to aggressively seek better

depending on the area, are at standards that make themproperties as they realize that rent levels have decreased,fully capable of absorbing the effects of the recovering

NBF expects rent levels to bottom out in mid-2011 andJapanese economy.

then trend upward.

Asking rents for new properties in the major business

Based on these conditions, NBF aims to improve earn-

districts of Tokyo decreased significantly, but average rent

ings by continuing to make the most of the advantages oflevels were comparatively stable as average asking rents

its high-quality portfolio and the leasing capabilities of its

were steady for existing buildings, which make up most ofsponsor, Mitsui Fudosan Co., Ltd. in order to maintain andour portfolio in Tokyo.

improve its occupancy rate.

Office Floor Space Supply inthe 23 Wards of Tokyo

Average Asking Rents in Tokyo CBDs

(Thousand m2)(Yen per tsubo )2,500

40,000

New buildings
2,000

35,0001,500

30,0001,000

25,000500

20,000

Average asking rent
22,739

Existing buildings02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(Proj.) (Proj.) (Proj.) (Proj.) (Proj.)

Source: Mori Building Co., Ltd.

0

Jun.
2007

Dec.
2007

Jun.
2008

Dec.
2008

Jun.
2009

17,585
17,447

Dec.
Jun.
Dec.
2009 2010 2010
Source: Miki Shoji Co., Ltd.

NBF Report July – December 2010 11

We are issuing new units for the
first time in about three years.

The fund procurement environment for J-REITs has
substantially improved with the establishment of apublic-private fund in September 2009 and the October

There is no change in our poli-2010 decision by the Bank of Japan to purchase invest-

cies for building a strong finan-

NBF issued additional units in January 2011 for partcial base through conservative
financial management.

ment units and investment corporation bonds.
of the capital required to acquire new properties inorder to create new growth, and raised approximately¥29 billion.
NBF will build a stable financial base by continuing
its conservative financial management.
We have maintained a sound financial condition,with a loan-to-value (LTV) ratio of 46.3 percent at theend of the 19th Period (the target is set at 40 to 50

Financial Strategy
Diversified Maturities ofInterest-Bearing Debt

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

100.0

80

92.6

Short-term loans
Bonds
Long-term debt

85.0

80.0

60

60.0

LTV

46.8

46.3

40

40.0
20
20.0

0.0 Jun.
2007

Dec.
2007

Jun.
2008

Dec.
2008

Jun.
2009

Dec.
2009

Jun.
2010

Dec.
2010

0

2011

2012

2013

2014

2015

2016

2017

2018

2019

(As of December 31, 2010)

12 NBF Report July – December 2010

Moving Ahead

percent, with a maximum of 60 percent) and a soundgood relationships with Mitsui Fudosan and otherfinancial situation. We also kept the ratio of long-termsponsors, we maintain a good standing with Japanese

fixed-rate debt to total interest-bearing debt at the highlenders, have a trusted financial structure, and arelevel of 85.0 percent (target set at 80 to 90 percent).

decreasing the spreads on our long-term debt.

Further, despite considerable improvement in the

These steady efforts have been well received, and wehave obtained top ratings from credit rating agencies.

fund procurement environment, we have prepared forBy maintaining conservative financial management

any unlikely occurrence by reducing our refinancing
risk through measures including diversifying maturi-

in order to build a more stable financial base, NBF

ties of interest-bearing debt, establishing a total com-works to ensure its ability to procure funds flexibly somitment line of ¥50.0 billion, and diversifying credit

it can respond as necessary to opportunities tosources among lending institutions (26 financial insti-

acquire high-quality properties.

tutions, the most for a J-REIT).
Due to our high-quality portfolio and stable performance as the number-one J-REIT, as well as our

Add-on Equity Offering

Number of Units Offered

Primary units offered

34,000 units

Overallotment

2,500 units

Total

36,500 units

Total Offering Size

¥28,939 million

Launch Date

January 11, 2011

Pricing Date

January 19, 2011

Closing Date

January 26 / February 22, 2011

NBF Report July – December 2010 13

Planned New Acquisitions

62 Mitsubishi Heavy Industries Head Office Building●
Location:

16-5, Konan 2-chome, Minato-ku, Tokyo

Completion date:

April 1, 2003

Acquisition date:

September 1, 2011 (scheduled)

Acquisition price:¥36,300 million

14 NBF Report July – December 2010

6 Gate City Ohsaki (Additional Acquisition)●
Location:

11-1, 2, 6, Osaki 1-chome, Shinagawa-ku, Tokyo

Completion date:

January 6, 1999

Acquisition date:

March 31, 2011

Acquisition price:¥11,631 million

NBF Report July – December 2010 15

60 River City M-SQUARE●
Location:

1-6, Tsukuda 2-chome, Chuo-ku, Tokyo

Completion date:

January 15, 2010

Acquisition date:February 28, 2011

Acquisition price:¥13,350 million

61 Nihonbashi Kabuto-cho M-SQUARE●
Location:

1-4, Nihonbashi Kabutocho, Chuo-ku, Tokyo

Completion date:June 15, 2009

Acquisition date:February 28, 2011

Acquisition price:¥4,850 million

16 NBF Report July – December 2010

Planned New Acquisitions

63 NBF Ueno Building●
Location:24-11, Higashi-Ueno 4-chome, Taito-ku, Tokyo

Completion date:

January 5, 2010

Acquisition date:

January 31, 2011

Acquisition price:¥10,400 million

64 Chofu South Gate Building●
Location:48-26, Kojimacho 2-chome, Chofu city, Tokyo

Completion date:

October 26, 2007

Acquisition date:

April 15, 2011

Acquisition price:¥9,320 million

65 Hakata Gion M-SQUARE●
Location:

2-1, Reisenmachi, Hakata-ku, Fukuoka City,
Fukuoka Prefecture

Completion date:June 25, 2009

Acquisition date:February 28, 2011

Acquisition price:¥8,000 million

NBF Report July – December 2010 17

Location of Office Properties(As of December 31, 2010)

Tokyo CBDs
1
2
3
4
5
6

NBF HIbiya Building
Nishi-Shinjuku Mitsui Building
Shiba NBF Tower
NBF Platinum Tower
NBF Minami-Aoyama Building
Gate City Ohsaki(Additional acquisition in March 2011)
7 Toranomon Kotohira Tower
8 NBF Nihonbashi Muromachi Center Building
9 Nakameguro GT Tower
10 Mitsuiseimei Ochanomizu Building
11 NBF Ginza Street Building
12 Shinjuku Mitsui Building No. 2
13 GSK Building
14 NBF Toranomon Building
15 Kowa Nishi-Shinbashi Building B
16 Nippon Steel Building No. 2
17 NBF Alliance
18 Yotsuya Medical Building
19 Shibuya Garden Front
20 NBF Shibuya East
21 NBF Shibakouen Building
22 NBF Takanawa Building
23 NBF Akasaka Sanno Square
24 NBF Shibakouen Daimon Street Building
25 Sumitomo Densetsu Building
26 NBF Higashi-Ginza Square
27 NBF Ogawamachi Building
28 NBF Ikebukuro Tower
29 NBF Ikebukuro City Building
30 NBF Sudacho Verde Building
60 River City M-SQUARE(Acquired in February 2011)
61 Nihonbashi Kabuto-cho M-SQUARE(Acquired in February 2011)62 Mitsubishi Heavy Industries Head Office Building(Scheduled for acquisition in September 2011)

1 NBF Hibiya Building●

Kita-kuToshima-ku
Taito-ku

Bunkyo-ku

Nakano-ku

63

31

Sumida-ku
10

Shinjuku-ku

2

27

30

Chiyoda-ku

12

8

18
Imperial
Palace

13

7 14
15

5
17
19 20

Minato-ku

Setagaya-ku
4

Koto-ku
11

26

16
60

3

33 32

24

21
9

61

Chuo-ku

1

23

Shibuya-ku

2 Nishi-Shinjuku Mitsui Building●

18 NBF Report July – December 2010

Arakawa-ku

29 28

22
25
62

Tokyo Bay

Meguro-ku
6

Shinagawa-ku

3 Shiba NBF Tower●

4 NBF Platinum Tower●

5 NBF Minami-Aoyama Building●Other Greater Tokyo
31 Nakanosakaue Sunbright Twin
32 NBF Toyosu Canal Front
33 NBF Toyosu Garden Front
34 Shin-Kawasaki Mitsui Building
35 Yokohama ST Building
36 Parale Mitsui Building
37 NBF Atsugi Building
38 Tsukuba Mitsui Building
39 NBF Utsunomiya Building
40 S-ino Omiya North Wing
41 NBF Urawa Building
42 NBF Shin-Urayasu Tower
43 NBF Matsudo Building
63 NBF Ueno Building(Acquired in January 2011)
64 Chofu South Gate Building(Acquired in April 2011)TOCHIGI38

UTSUNOMIYA

39

IBARAKITo Omiya

SAITAMA

40

41

TOKYO

43

CHIBA
63

31

33 32

64

42

Other Cities
Tokyo Bay

34

44 Sapporo L-Plaza
45 NBF Sapporo Minami Nijo Building

36
35

37

46 NBF Sendai Honcho Building
47 NBF Unix Building

44 45

48 NBF Niigata Telecom Building

KANAGAWA

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

52 Sun Mullion NBF Tower

46
47

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

56

49

56 NBF Shijo Karasuma Building

58 57
65

50 51 52 53

59

54 55

57 NBF Hiroshima Tatemachi Building
58 Hiroshima Fukuromachi Building
59 NBF Kumamoto Building
65 Hakata Gion M-SQUARE(Acquired in March 2011)

31 Nakanosakaue●

Sunbright Twin

32 NBF Toyosu Canal Front●

33 NBF Toyosu Garden Front●

50 ●55 Aqua Dojima NBF Tower,●

Aqua Dojima East

51 Shinanobashi Mitsui Building●

NBF Report July – December 2010 19

Portfolio Overview
NBF’s properties as of December 31, 2010 are as follows:
Investment
Type

Name of Building

Type of Ownership

Percentageof OwnershipYear Built

Acquisition
Price

(%)

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

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

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

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

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

64,53635,37429,66829,34731,657
23,902
20,351
24,302
20,614
21,336
17,594
15,992
13,62913,434
11,757
11,248
9,465
8,292
8,060
8,147
6,554
6,401
6,290
6,319
4,687
4,836
5,121
4,636
4,347
3,333

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

81.0
100.0
100.0
35.0
75.0
97.5
100.0
100.0
100.0
100.0
100.0
100.0
100.0

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

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

38,22232,567
24,653
18,46812,482
3,272
2,099
7,106
2,438
15,134
1,912
15,780
2,227

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

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

4,404
1,870
3,566
4,029
3,958
7,232
17,81014,40010,500
6,500
2,227
1,914
1,627
2,930
835
4,500
779,560

3,824
1,705
3,547
3,121
3,647
7,061
16,32011,435
8,239
6,161
1,957
1,749
1,380
2,882
698
4,509
725,823

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

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

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

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

20 NBF Report July – December 2010

Revenue

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

77
1
29
6
8
1
1
13
1
1
1
47
1
14
2
2
9
1
1
3
7
6
6
6
1
8
1
12
11
0

1,326
1,224
1,008
1,559
398
1,029
864
846
953
Note 2
Note 2644
Note 2541
Note 2
Note 2
310
254
Note 2
187
335
315
215
131
Note 2
252
192
220
188
Note 2

4.9
4.5
3.7
5.7
1.5
3.8
3.2
3.1
3.5
Note 2
Note 22.4
Note 22.0
Note 2
Note 21.1
0.9
Note 2
0.7
1.2
1.2
0.8
0.5
Note 2
0.9
0.7
0.8
0.7
Note 2

100.0
98.7
100.0
100.0
93.1
100.0
79.2
94.3
100.0
98.3
94.6
92.9
93.0

9
9
4
1
87
1
13
61
39
35
13
40
23

1,046
1,126
993
865
651
317
102
441
127
758
104
561
133

3.8
4.1
3.6
3.2
2.4
1.2
0.4
1.6
0.5
2.8
0.4
2.1
0.5

100.0
100.0
87.6
91.5
96.4
87.3
91.0
100.0
96.9
78.2
91.1
63.4
78.6
87.3
95.4
98.3
96.6

12
4
9
47
33
20
43
1
30
37
20
15
13
26
15
15
952

324
108
172
263
207
205
678
608
404
254
113
82
67
131
38
173
27,314

1.2
0.4
0.6
1.0
0.8
0.7
2.5
2.2
1.5
0.9
0.4
0.3
0.2
0.5
0.1
0.6
100.0

Appraisal Value

Rentable
Area

Leased Area at
End of Period

Occupancy Rate at
End of Period(Yen in millions)

(m2)

(m2)

(%)

55,90047,70027,20050,40016,90028,80030,60026,90022,10014,70014,50014,90021,10016,50016,20013,79010,4007,340
13,600
6,540
8,200
7,170
7,260
4,390
5,550
7,210
5,470
5,020
4,900
3,040

27,57632,96824,72833,503
9,619
20,70916,84816,30621,4236,627
3,440
14,874
20,426
10,067
10,08817,338
4,043
7,450
8,258
4,993
7,087
10,458
5,258
3,428
5,991
4,871
4,805
5,652
5,127
2,971

25,25732,96824,35833,5038,900
20,70916,848
16,22621,4236,627
3,440
14,79820,426
10,00910,061
17,338
4,043
7,450
8,258
4,635
7,087
10,458
5,258
2,936
5,991
4,871
4,805
5,488
5,127
0

91.6
100.0
98.5
100.0
92.5
100.0
100.0
99.5
100.0
100.0
100.0
99.5
100.0
99.4
99.7
100.0
100.0
100.0
100.0
92.8
100.0
100.0
100.0
85.6
100.0
100.0
100.0
97.1
100.0
0.0

30,50035,70028,700
16,10014,500
3,500
2,100
7,320
2,090
18,7001,770
11,5002,280

32,082
36,63828,30027,924
20,03012,545
5,242
16,767
6,160
20,6983,455
22,7694,770

32,08236,15428,30027,924
18,65012,545
4,153
15,812
6,160
20,344
3,270
21,163
4,437

6,390
1,580
3,110
3,290
3,010
7,450
18,40013,400
8,180
6,560
1,640
1,800
1,260
2,560
808
3,700
772,178

11,396
5,351
7,539
13,414
10,208
9,883
21,917
25,237
14,954
11,438
5,308
3,243
3,932
5,612
1,309
7,934
762,983

11,3965,351
6,602
12,272
9,837
8,625
19,93525,237
14,490
8,943
4,834
2,055
3,091
4,900
1,249
7,801
736,908

Total Number ofTenants at
End of Period

NBF Report July – December 2010 21

Management Team and Management Structure(As of March 31, 2011)

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

Nippon Building Fund Inc.

articles of incorporation. Decisions on substantive matters such as
Nippon Building Fund Inc. is an investment corporation established with the objective of investing in assets, primarily Designated
Assets as defined by the Investment Trust Law of Japan. NBF entrusts
management of its assets to Nippon Building Fund Management
Ltd., which is an asset management company.

changes in the articles of incorporation require the attendance ofunitholders that control a simple majority of total units issued andoutstanding, and a two-thirds majority of the voting rights of such
unitholders. In addition, any change in the asset management policies and standards, which are stipulated by NBF’s articles of incorpo-

NBF’s primary investment objective is to achieve sustainableration, requires an extraordinary resolution of unitholders as outlined

growth in portfolio value and stable profits on a medium-to-long-

above.

term basis. NBF achieves this objective by investing in real estate
consisting of buildings primarily used for offices with their underlying
land located in the central business districts (CBDs) of Tokyo, other

Executive Directors, Supervisory Directors and theBoard of Directors

Greater Tokyo and other cities in Japan. NBF also invests in securities,

NBF’s articles of incorporation stipulate that NBF must havebeneficiary certificates representing beneficial interests in trusts andone or more executive directors and three or fewer supervisory

other assets backed by office properties.

directors (but the number of supervisory directors must always
be at least one greater than the number of executive directors).

General Meeting of Unitholders

As of March 31, 2011, NBF had two executive directors and three
supervisory directors.

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

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

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

which convenes at least once every two years, in principle. The seventhings related to the operations of NBF.
Supervisory directors are responsible for supervising execution by

General Meeting of Unitholders convened on March 10, 2011. The
date of the next General Meeting of Unitholders has not been set.

the executive directors.

The General Meeting of Unitholders adopts or vetoes resolutions

The Board of Directors consists of the executive and supervisoryon the basis of a simple majority of the voting rights of unitholders indirectors. Its responsibilities include authorizing business execution

General Meeting ofUnitholders

Asset Custody

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

Asset Custody
Entrustment

NIPPON BUILDING FUND Inc. (NBF)
OfficeManagement
Entrustment

Board of Directors

AssetManagement
Entrustment
Borrowings /Bonds and
Notes
Debt
Service

Liabilities
Investment

Real Estate, etc.
Rent, etc.

22 NBF Report July – December 2010

AssetsUnitholders’EquityQualified Institutional
Investors / Bondholders
Independent Auditors
KPMG AZSA LLC

NBF Office Management Co., Ltd.
Office Management

NIPPON BUILDINGFUND MANAGEMENT Ltd. (NBFM)

Investment

Unitholder

Distribution

Unitholder

TradingManagement Team

Seated from left:

Tsutomu Nishikawa
Koichi Nishiyama
Standing from left:

Sadao Kamiyama
Hatsuo Komatsu
Yoshiyuki Hirai
Name

Executive Directors

Supervisory Directors

Background Summary

Tsutomu Nishikawa Appointed Executive Director of NBF in March 2011 after serving as an executive officer of
Mitsui Fudosan Co., Ltd.
Representative Director of Nippon Building Fund Management Ltd. Executive Director of
Koichi Nishiyama
NBF since August 2001.
Hatsuo Komatsu
Attorney. Appointed Supervisory Director of NBF in March 2007.
Sadao Kamiyama
Certified Public Accountant. Certified Public Tax Accountant. Appointed Supervisory Director
of NBF in March 2007.
Yoshiyuki Hirai
Appointed Supervisory Director of NBF in March 2009. Real Estate Appraiser.

and supervising the performance of the executive directors.

The terms of office of executive directors and supervisory direc-

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

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

executive directors and supervisory directors selected to fill a vacancy

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

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

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

substitute supervisory director were elected at the General Meeting

tive and supervisory directors in attendance for such decisions.

of Unitholders held on March 10, 2011, and assumed office on
March 17, 2011.

NBF Report July – December 2010 23

Management Structure

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

General Meeting of Shareholders
AuditorCompliance Committee

Board of Directors
Executive Board

Matters Entrusted to
Nippon Building Fund Management Ltd.

Risk Management BoardCEOAs the asset management company required by the Investment

Investment
Review Board

Accounting Auditor

Trust Law of Japan, Nippon Building Fund Management Ltd. manages
NBF’s assets in accordance with the asset management objectives andCompliance
Officer

Investment & FinanceGroup

Corporate OperationGroup

policies stipulated by NBF’s articles of incorporation. In addition, in
accordance with the manager of general administration contract designating Nippon Building Fund Management Ltd. as the institutional

Real EstateManagement
Team

Real Estate
Investment
Team

Research
Team

Financial
Team

Fund
Operation
Teammanager of NBF’s assets, Nippon Building Fund Management Ltd. also

Corporate
Risk
Planning &Management
Administration & Compliance
Team
Team

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

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

the Investment & Finance Group and the Corporate Operation
Group also serve as directors, and oversee their respective divisions
under the direction and oversight of the president. Corporate audi-

Management Structure of
Nippon Building Fund Management Ltd.

tors conduct accounting audits and operational audits of Nippon

The Board of Directors makes decisions on the basic management

Building Fund Management Ltd. The Compliance Officer oversees

policies of Nippon Building Fund Management Ltd. and oversees

compliance for the asset management company and is responsible

execution of the duties of the representative director. The president,

for internal administration in connection with internal audits at the

who is the representative director, supervises and executes theasset management company.

Nippon Building Fund Management Ltd. Management Team
Name

Title

Career Summary

Koichi Nishiyama

President and CEO
and Representative
Director

April 1974
April 2000
Sept. 2000

Yasushi Akimoto

Director, Head ofInvestment &Finance Group

April 1983
April 1998
April 2006
April 2008

Hiroshi Yabuki

Director and COO

Masato Shikata
Fukuhisa Kumada

Aug. 2001

Joined Mitsui Fudosan Co., Ltd.
Manager of Building Fund Office, Building Division of Mitsui Fudosan
Became President and Representative Director of MF Asset Management Co., Ltd.
(now Nippon Building Fund Management Ltd.) (current position)
Became Executive Director of NBF (current position)

April 2011

Joined Mitsui Fudosan Co., Ltd.
Seconded to Daiichi Engei Co., Ltd. under the supervision of Personnel Department of Mitsui Fudosan
Head of Group under Business Promotion Section, Building Department of Mitsui Fudosan
Seconded to Nippon Building Fund Management Ltd. under the supervision of Personnel Department of
Mitsui Fudosan (current position)
Became Director of Nippon Building Fund Management Ltd. (current position)

April 1984
April 2004
Oct. 2008
Feb. 2010

Joined Sumitomo Life Insurance Company
Head of Niigata Branch Office of Sumitomo Life Insurance
Head of Real Estate Department, Real Estate Operating Office of Sumitomo Life Insurance
Became Director of Nippon Building Fund Management Ltd. (current position)

Director (Part-time)

April 2009

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

Director (Part-time)

Sept. 2010

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

Noriaki Moromachi

Corporate Auditor(Part-time)

April 2003

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

Toru Suzuki

Corporate Auditor(Part-time)

April 2008

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

24 NBF Report July – December 2010

Management Team and Management Structure

Compliance Initiatives

guidelines for management, acquisition and sale of assets; financial
guidelines for fund procurement and management policies; account-

The management of NBF and Nippon Building Fund Management
Ltd. conduct honest and appropriate business activities while main-ing guidelines for tax accounting and dividend distribution policies;and guidelines on transactions with potential conflicts of interest.

taining rigorous compliance by adhering to all relevant laws and regulations, based on a high level of corporate ethics.
The bylaws of NBF’s Board of Directors stipulate that Board of
Directors meetings are to be held at least once every three months. In

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

Fundamental Policy on Conflict of Interest Transactions

practice, NBF holds such meetings once a month. At Board meetings,

Nippon Building Fund Management Ltd. is constantly aware of its

executive directors report on the execution of their duties and super-

accountability to NBF and NBF’s unitholders with regard to any trans-visory directors ensure that oversight and check-and-balance systems

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

are functioning properly.

Building Fund Management Ltd. and its related corporations or cus-

Nippon Building Fund Management Ltd. views compliance as a

tomers may conflict. Nippon Building Fund Management Ltd. follows

management strategy, with a fundamental compliance policy ofvoluntary rules stipulated in laws and internal bylaws to proactively

conducting operations honestly and fairly while maintaining a rigor-

prevent conflicts of interest.

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

All decisions made in executing the management of NBF’s assets

Specifically, Nippon Building Fund Management Ltd. has establishedare subject to the approval of the president, and are made after goinga Compliance Committee, consisting of the Compliance Officer, thethrough discussions by the Investment Review Board and Executive

president, the head of the Investment & Finance Group, the head ofBoard of Nippon Building Fund Management Ltd. Sponsor companies

the Corporate Operation Group and an outside committee member.

are not permitted to intervene in the decision-making process.

Initiatives to enhance awareness of and adherence to compliance■include the establishment of Compliance Rules and a Compliance

Voluntary Rules for Conflict of Interest Transactions
Stipulated in Internal Bylaws

Manual. In addition, a Compliance Program is formulated each year

Nippon Building Fund Management Ltd. has set voluntary rules into verify the progress of the execution plan for that year and identify

its internal bylaws to address transactions with parties, including

any problem areas.

sponsor companies that have interests in Nippon Building FundManagement Ltd.

Risk Management System

The voluntary rules require the Investment Division, which initiates

NBF and Nippon Building Fund Management Ltd. have estab-the transaction, as well as the Compliance Department, the Assetlished the following risk management system to avoid and minimize

Management Examination Meeting and other units to protect NBF’srisks related to investments.

managed assets and profits by fully examining the transaction con-■

NBF

tents according to the voluntary rules set in the internal bylaws in

NBF’s Risk Management Regulations define risk management poli-

the event of a transaction in which the interests of Nippon Building

cies and procedures. The Risk Management Board convenes once

Fund Management Ltd. and parties that have interests in Nippon

every three months and undertakes deliberation, monitoring and other

Building Fund Management Ltd. may conflict with the interests ofinitiatives to ensure that the entrusted asset manager is conducting its

NBF. These rules are designed from the standpoint of accountability

duties with due care in good faith in a manner consistent with its fidu-

to NBF and its unitholders.

ciary duty to the conservation and maintenance of entrusted assets.
■

In examining the transaction contents, Nippon Building Fund

Nippon Building Fund Management Ltd.

Management Ltd. solicits the opinions of attorneys, certified tax

Nippon Building Fund Management Ltd. formulates aaccountants and other third-party experts as needed. In addition,

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

when purchasing real estate or other assets from parties that have

Policy and an Annual Management Plan to follow in managing

interests in Nippon Building Fund Management Ltd., the purchase

NBF’s assets. In addition, Nippon Building Fund Management Ltd. hasprice is strictly set, in principle no higher than the appraised value

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

according to a real estate appraiser with no vested interest.

The Asset Management Guidelines consist of management

NBF Report July – December 2010 25

Management’s Discussion and Analysis
Summary of Selected Financial Data
19th Period
from July 1, 2010 to
December 31, 2010

18th Period
from January 1, 2010 toJune 30, 2010

17th Period
from July 1, 2009 to
December 31, 2009

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

Operating revenues
Note 2
Revenue from property leasing activities
Gain on sale of investment property
Operating expenses
Rental expenses
Loss on sale of investment property
Income before income taxes
Net income(a)Funds from operations
Note 3
Net operating income from property leasing activities Note 3
Total amount of cash distribution(b)
Depreciation and amortization
Capital expenditures
Total assets(c)Interest-bearing debt
Net assets(d)Total number of units issued (units)(e) Note 4
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)
LTV (Loan to value)
Note 3
Capital ratio(d) / (c)Payout ratio(b) / (a) Note 5
Number of days
Number of investment properties
Note 6
Number of tenants
Note 6
Total rentable area (m2)Occupancy rate
Note 6¥ 27,314
27,314—
15,995
14,824
—
8,400
8,399
13,57017,661
8,398
5,171
1,769
765,203
325,125
394,575
542,000
727,996
15,49525,0361.1%(2.2%)
2.1%(4.3%)
46.3%
51.6%
100.0%
184
59
952
762,983
96.6%¥ 28,341
28,035306
16,16914,828
140
9,283
9,282
14,354
18,445
9,282
5,239
1,478
774,379
333,500
395,458
542,000
729,626
17,12526,483
1.2%(2.4%)
2.3%(4.7%)
46.8%
51.1%
100.0%
181
59
910
763,000
94.5%¥ 29,928
29,928—16,40415,086—
10,663
10,662
15,944
20,124
10,662
5,282
1,407
782,311337,875
396,838
542,000
732,173
19,672
29,4171.4%(2.7%)
2.7%(5.4%)
46.9%
50.7%
100.0%
184
61
898
770,150
94.8%

19th Period
from July 1, 2010 to
December 31, 2010
U.S. dollars in thousands
except per unit data (Note 1)$ 334,447
334,447—
195,856
181,520—
102,850
102,835
166,155
216,247
102,832
63,32021,6609,369,450
3,980,960
4,831,325
8,914
190
307

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥81.67 = U.S. $1.00, the approximate exchange rate on December 31, 2010.
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: Income before income taxes / (Initial total assets + Total assets at end of period) ÷ 2
ROE: Net income / (Initial net assets + Net assets at end of period) ÷ 2
Loan to value: (Interest-bearing debt + Deposits under management) / Total assets
4. The Company issued an additional 36,500 units in January and February 2011.
5. Payout ratio figures are calculated to one decimal place only.
6. Number of investment properties means units generally perceived to be one office building. Number of tenants means gross number of tenants by building. Occupancy rate is the ratio of grossleased area to total rentable area at the end of the period.

26 NBF Report July – December 2010

Operating Environment and Results
During the six months ended December 31, 2010 (the “19th Period”), exports gradually increased, mainly to Asia, and capital
investment, employment conditions and personal consumption showed signs of recovery. However, a lull in Japan’s economic turnaround appeared toward the end of the period due to the strengthening yen and other factors, and economic conditions remained
severe, with a persistently high unemployment rate.
In the office building leasing market, the occupancy rate declined further for small and medium-sized buildings and remained low
in regional cities due to an ongoing trend toward rationalization through office consolidation and relocation and other methods toincrease management efficiency. On the other hand, the continued downward revision of rents has resulted in a trend toward new
occupancies and increases in floor space rented. In particular, it appears that occupancy rates have bottomed out for high-quality
large-scale properties in central business districts.
In the real estate acquisition market, improvements in the fund procurement environment and adjustment of property prices led
to an increase in transactions, mainly in central business districts.
Under these conditions, NBF continued to manage its assets in accordance with its basic policy of investing in high-quality officebuildings that are highly competitive in terms of their location, size, facilities and infrastructure and are expected to have stable cash
flow from rents. Deliberation concerning properties did not result in new acquisitions in the 19th Period.
NBF systematically conducted property management, renovations and new construction to further increase tenant satisfaction.
NBF also worked to secure stable rental revenue by maintaining a sound grasp of the market, setting appropriate rents for new tenants and revising rents for tenants renewing their lease contracts.
As a result of these efforts, NBF’s real estate portfolio as of December 31, 2010 totaled 59 properties. Total investment on an
acquisition price basis was ¥779.6 billion. Total rentable area was 762,983m2 (230,802 tsubo). The occupancy rate increased 2.1
percentage points from June 30, 2010 to 96.6 percent. Tenants totaled 952.

Occupancy rate

Total investment(Yen in billions)

(%)

900

100

800

98

700

96

600
94

500
400

92

300

90

200
100
0

0
Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

NBF Report July – December 2010 27

Overview of Performance
Operating revenues for the six months ended December 31, 2010 decreased ¥1,026 million, or 3.6 percent, compared with the previous six-month period to ¥27,314 million. Operating income decreased ¥853 million, or 7.0 percent, to ¥11,318 million. Net income
decreased ¥883 million, or 9.5 percent, to ¥8,398 million. Distribution per unit decreased ¥1,630 to ¥15,495. The main factors were adecrease in rental revenue due to reasons including revisions of existing tenants’ rents, and the absence of gain on sale of investment
properties recorded in the previous six-month period.

(Yen in millions)Operating income from property
leasing activities

35,000(Yen in millions)Operating revenues

20,00030,00025,00015,00020,00010,00015,00010,000

5,000

5,000
0

15th
Period16th
Period17th
Period18th
Period019thPeriod15th
Period16th
Period17th
Period18th
Period19th
PeriodDistribution for the Current Period
Distribution per unit for the current period was ¥15,495. NBF expects to distribute almost all retained earnings at thecurrent period end to be eligible for special tax treatment (Special Taxation Measures Law of Japan Article 67-15) that allows NBF
to deduct its cash dividends of profits from taxable income.
For the six months ended
December 31, 2010

For the six months ended
June 30, 2010

For the six months ended
December 31, 2009

(Yen in thousands, except per unit amounts)

Retained earnings
Undistributed earnings
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)¥8,398,598
308
8,398,290
15,495
8,398,290
15,495——¥9,281,802
52
9,281,750
17,1259,281,750
17,125——¥10,662,478
254
10,662,224
19,672
10,662,224
19,672——

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

Distribution per unit

Total amount of cash distribution(Yen)(Yen in millions)

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

5,000
0

0

15th

16th

17th

18th

19th

PeriodPeriodPeriodPeriodPeriod28 NBF Report July – December 2010

15th
Period16th
Period17th
Period18th
Period19th
PeriodManagement’s Discussion and Analysis

Changes in Assets, Liabilities and Net Assets
Assets
As of December 31, 2010, total assets decreased ¥9,176 million to ¥765,203 million compared with June 30, 2010. Returnon average total assets (ROA) for the six months ended December 31, 2010 decreased to 1.09 percent from 1.19 percent forthe previous six-month period.
Current assets decreased ¥5,863 million to ¥34,630 million compared with June 30, 2010. Investment properties decreased¥3,395 million to ¥725,837 million compared with June 30, 2010.

Liabilities
Current liabilities increased ¥24,589 million to ¥57,539 million compared with June 30, 2010, primarily because of an increasein long-term debt due within one year compared with June 30, 2010.
Long-term debt decreased ¥32,375 million to ¥276,375 million compared with June 30, 2010.
As a result, total interest-bearing liabilities decreased ¥8,375 million to ¥325,125 million compared to June 30, 2010.
However, the ratio of long-term fixed-rate debt (less amounts due within one year) to total interest-bearing liabilities decreased to85.0 percent as of December 31, 2010 from 92.6 percent as of June 30, 2010. The loan-to-value ratio, calculated as the ratio ofinterest-bearing liabilities plus deposits under management to total assets, decreased to 46.3 percent as of December 31, 2010
from 46.8 percent as of June 30, 2010.
In addition, NBF worked to diversify funding sources. In January 2009, NBF updated a shelf registration to publicly offer up to¥200 billion in bonds.

Net Assets
Net assets decreased ¥883 million to ¥394,575 million compared with June 30, 2010.

Net assets

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

800,000

400,000

300,000

600,000

200,000
400,000
100,000

00Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

Funding
Balance of Paid-in Capital
NBF was established on March 16, 2001 with initial paid-in capital of ¥100 million. NBF began investing activities in May 2001
after ¥98,800 million was raised through private placements. As of December 31, 2010, NBF had issued 542,000 units out of
2,000,000 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 the Investment 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 of units authorized and issued by NBF.

NBF Report July – December 2010 29

Issue date

Units issued and outstanding
Increase
Balance(Units)Remarks

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

200

200

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

4,000

Paid-in capital
Increase

Balance

Notes(Yen in millions)

¥

100

¥

100

Note 1

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

Note 2
Note 3Note 4

364,700

2,942

210,679

Note 558,00080,000422,700
502,700

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

508,000

5,236

346,446

Note 831,800539,800

37,159383,605

Note 92,200

542,000

2,571

386,176

Note 10Notes: 1. NBF was established with initial capital of ¥500,000 per 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.

Market Price of Units
High/Low (closing price) of units on the TSE:
For the six months ended
December 31, 2010

For the six months ended
June 30, 2010
(Yen)

For the six months ended
December 31, 2009

¥850,000
702,000¥815,000
704,000¥895,000
679,000

High
Low

Borrowings
Borrowings from financial institutions as of December 31, 2010 are shown below.
Short-term loans
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

Repayment
method

0.6%
0.6%
0.6%
0.6%
0.6%
0.8%
0.8%

January 31, 2011
January 31, 2011
January 31, 2011
February 28, 2011
February 28, 2011
April 28, 2011
June 30, 2011

Bulletpayment

Use of
funds

Notes

(Note 4)

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

The Gunma Bank, Ltd.
Shinkin Central BankTHE KAGOSHIMA BANK, LTD.
The Joyo Bank, Ltd.
THE SHIZUOKA BANK, LTD.
The Yamaguchi Bank, Ltd.
The Chugoku Bank, Limited¥2,000
1,000
1,000
1,000
1,000
1,000
1,000

Total short-term loans¥8,00030 NBF Report July – December 2010

Management’s Discussion and Analysis

Long-term loans
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

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

November 28, 2014
September 11, 2015
September 27, 2017
February 15, 2016
May 30, 2018
April 28, 2019
August 30, 2019
July 19, 2011
May 23, 2018
May 23, 2016
July 16, 2014
February 3, 2016
April 30, 2013
June 27, 2013
December 28, 2012
April 28, 2014
June 30, 2014
June 1, 2011
September 11, 2015
May 30, 2016
February 13, 2012
March 30, 2012
November 1, 2012
December 13, 2013
May 30, 2013
May 29, 2014
March 30, 2011
December 30, 2011
September 30, 2013
September 30, 2014
September 30, 2013
April 27, 2012
July 31, 2014
September 30, 2014
March 4, 2016
February 7, 2012
July 31, 2013
December 21, 2011
April 27, 2012
May 23, 2012
June 27, 2013
December 30, 2011
September 9, 2011
October 30, 2015
March 30, 2012
October 31, 2014
October 4, 2013
February 3, 2015
December 2, 2013
June 26, 2014
March 30, 2015
July 12, 2012
April 1, 2015
October 19, 2018

Repayment
methodUse of
funds

Notes

(Yen in millions)¥ 4,000
10,00010,00010,00010,0004,625
9,500
Sumitomo Life Insurance Company
5,000
7,000
5,000
5,000
3,000
Sumitomo Mitsui Banking Corporation
5,000
5,000
4,000
6,000
1,000
Zenkyoren
1,000(The National Mutual Insurance
10,000Federation of Agricultural Cooperatives) 10,000
MITSUI LIFE INSURANCE COMPANY, LIMITED 2,000
4,000
2,000
3,000
2,000
3,000
The Chuo Mitsui Trust and Banking
5,000
Co., LIMITED
10,000
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
8,000
4,000
The Sumitomo Trust and
5,000Banking Company, Limited
7,000
Mitsubishi UFJ Trust and
3,000
Banking Corporation
1,000
7,000
Mizuho Corporate Bank, Ltd.
2,000
8,000
Meiji Yasuda Life Insurance Company
3,000
4,000
1,000
Shinkin Central Bank
4,000
3,000
Resona Bank, Limited.
3,000
3,000
DAIDO LIFE INSURANCE COMPANY
1,000
1,000
1,000
2,000
The Hachijuni Bank, Ltd.
1,000
2,000
1,000
THE BANK OF FUKUOKA, Ltd.
4,000
Nippon Life Insurance Company
2,000
2,000
Development Bank of Japan Inc.

(Note 2)
(Note 3)

Bulletpayment(Note 4)

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

NBF Report July – December 2010 31

Lender

Balance

Averageinterest rate (%)

Due on(Note 1)

Repayment
method

1.7%
2.1%
2.0%
1.7%
1.1%
1.9%

December 15, 2014
July 11, 2014
August 31, 2015
May 29, 2014
December 28, 2012
April 30, 2014

Use of
funds

Notes

(Yen in millions)

TAIYO LIFE INSURANCE COMPANY

The Chugoku Bank, Limited
The Yamanashi Chuo Bank, Ltd.
The Iyo Bank, LTD.

Total long-term loans
Total borrowings (Note 6)

1,000
2,000
1,000
2,000
1,000
1,000
¥247,125¥255,125

Bulletpayment(Note 4)

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

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.
5. A special agreement attached to “Loan Agreement” entered into between NBF and each financial institution provides that the above borrowings from all financial
institutions rank pari passu to each other.
6. The total amount of long-term 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
to be 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¥32,750¥42,750¥36,750¥29,750

NBF Bonds
Issue date

Balance as ofJune 30, 2010
(Yen in millions)

CouponNo. 3 Unsecured Bonds
No. 5 Unsecured Bonds

June 12, 2003
September 22, 2004

¥10,000
10,000

2.00%
1.60%

No. 7 Unsecured Bonds

November 9, 2005

10,0001.85%

No. 8 Unsecured Bonds
No. 9 Unsecured Bonds
No. 10 Unsecured Bonds
No. 11 Unsecured Bonds

March 7, 2007
May 24, 2007
May 24, 2007
January 28, 2010

10,00010,00010,00010,000

1.48%
1.74%
2.04%
1.23%

Issue

Total (Note 6)

MaturitydateJune 12, 2018
September 22,
2011
November 9,
2015
March 7, 2012
May 23, 2014
May 24, 2017
January 28, 2015

Redemption

Use ofproceeds

Notes

Bullet payment
Bullet payment

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

Bullet payment

Note 1 Notes 3 and 5

Bullet payment
Bullet payment
Bullet payment
Bullet payment

Note 1
Note 1
Note 1
Note 1

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

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

Investment
corporation bonds

Within 1 year

1 to 2 years

2 to 3 years

3 to 4 years

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

Others
NBF had security deposits totaling ¥36,637 million as of December 31, 2010.

32 NBF Report July – December 2010

Management’s Discussion and Analysis

Capital Expenditures
1. Planning
As of December 31, 2010, NBF is planning the following capital expenditures for the renovation of its properties. The amounts
below include repairs and maintenance costs that will be expensed as incurred. Moreover, in addition to a steady program of
expenditures for construction, repair and renovation of facilities, a program of renewal construction is being implemented in order
to increase competitive power in the market as well as to increase the level of tenant satisfaction based on the results of tenantsatisfaction surveys and neighboring competitive building specification surveys, etc.

Name of property

Yokohama ST Bldg.

Objective

Estimated
duration

Total amounts

Estimated amounts
Payment for thecurrent period(from July 1, 2010
to December 31, 2010)(Yen in millions)

Cumulative
amount paid

¥228

¥—

¥—

Renovation of disasterprevention equipment(2nd stage)

From July 2011
to December 2011

Shinjuku Mitsui Bldg.
No. 2

Renovation of heating
equipment (2nd stage)

From January 2011
to May 2011

174

—

—

Shinjuku Mitsui Bldg.
No. 2

Renovation of air conditioning(4th to 6th floors)

From January 2011
to April 2011

119

—

—

NBF Takanawa Bldg.

Renovation of air conditioning(4th stage)

From July 2011
to December 2011

106

—

—

Parale Mitsui Bldg.

Renovation of air conditioning
automatic control equipment

From October 2011
to December 2011

78

—

—

NBF Atsugi Bldg.

Renovation of air conditioning(2nd, 3rd floor)

From April 2011
to May 2011

55

—

—

NBF Ogawamachi Bldg.

Renovation of air conditioning(5th stage)

From September 2011
to December 2011

53

—

—

NBF Atsugi Bldg.

Renovation of air conditioning(4th, 5th floor)

From April 2011
to May 2011

36

—

—

NBF Atsugi Bldg.

Renovation of air conditioning(6th, 7th floor)

From July 2011
to September 2011

35

—

—

NBF Report July – December 2010 33

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NBF posted ¥1,769 million in capital expenditures together with ¥718 million for repairs and maintenance expenses.
Name of property

Shinjuku Mitsui Bldg. No. 2

Objective

PeriodExpenditure(Yen in millions)Renovation of refrigeration system (1st stage),renovation of gas flue damper, renovation of fire
safety equipment, etc.

¥ 266

Renovation of security system, renovation of air
conditioning, leasehold improvement of 1st floor
lobby, etc.

187

Shiba NBF Tower

Renovation of refrigerator, renovation of smoking
room, renovation of office floor blinds, etc.

138

NBF Takanawa Bldg.

Renovation of air conditioning (2nd stage),renovation of restroom (2nd stage), renovation ofrooftop transformer (2nd stage), etc.

72

NBF Hibiya Bldg.

From July 2010
to December 2010

NBF Kumamoto Bldg.

Leasehold improvement, construction of electric
equipment, construction of security equipment, etc.

NBF Ogawamachi Bldg.

Renovation of air conditioning (3rd stage), renovationof gondola, renovation of room window, etc.

63

NBF Ikebukuro Tower

Renovation of air conditioning (4th stage), renovationof refrigerant pipe, renovation of air supply andexhaust fans (4th stage), etc.

60

Renovation of mechanical parking, construction of
restroom vanity automatic faucet, construction of
restroom jet towel, etc.

38

Asset preservation construction and other renewal
construction to improve tenant satisfaction.

875

NBF Unix Bldg.

Other buildings

Total

70

¥1,7693. Cash Reserve for Capital Improvements
NBF accumulates cash reserves from cash flows to prepare for large-scale mid-term to long-term capital improvements andrepairs and maintenance that will be conducted in accordance with NBF’s business plan for each property.
As of December 31, 2010

As of June 30, 2010
(Yen in millions)

Reserve balance at the beginning of the period
Amount accumulated in the current period
Withdrawal from reserves in the current period
Amount carried forward¥1,3981,690
1,906¥1,182¥1,2732,751
2,626¥1,398Notes: 1. The reserve figures represent only the amount of reserves attributable to NBF’s ownership interest; the amount of reserves attributable to other owners has been
excluded.
2. In addition to the above reserves, there are other reserves set up, based on maintenance needs and contracts with organizations responsible for management ofproperties, for the purpose of retaining funds to be used for future repair and maintenance. This reserve is not included in the above reserves and accumulated to¥4,344 million as of December 31, 2010.

34 NBF Report July – December 2010

Management’s Discussion and Analysis

Expenses regarding Entrustment, etc.
The following table sets forth the breakdown of entrustment fees, etc. paid by NBF.
For the six months ended
December 31, 2010

For the six months ended
June 30, 2010
(Yen in millions)

For the six months ended
December 31, 2009

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

¥ 943
37

¥ 988
37

¥1,078
37

44
19
13
115

45
19
13
99

47
19
13
124

Total

¥1,171¥1,201¥1,318Item

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 2010 35

Management’s Discussion and Analysis

3. Transactions with Related Parties and Transactions with Major Shareholders of AssetManagement Company(1) Ongoing Transactions
None. (No purchases, or sales or other transactions involving interested parties.)(2) Fees Paid for the Period from July 1, 2010 to December 31, 2010
Description of transactions with related parties (Note 1)
Category

Total fees paid(A)
(Yen in millions)

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

¥1,120

Leasing related service fees

74

2,671

Amount ofpayment (B)(Yen in millions)

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

¥1,084
32
442
351
145
124
11
1
18
11
0

B/A

96.8%
2.8%
16.5%
13.1%
5.4%
4.7%
0.4%
0.1%
23.9%
15.5%
0.4%

Notes: 1. “Related parties” are defined as related parties of asset management companies under asset management agreement with NBF as defined in Article 123 of Order for
Enforcement of the Law Concerning Investment Trusts and Investment Corporations, and Article 26, Section 27 of the Regulations regarding management report of theInvestment trusts and Investment corporations set by the Investment Trusts Association, Japan. “Major shareholders” are the major shareholders of asset managementcompanies as defined in Article 29, Section 4, Paragraph 2 of the Financial Instruments and Exchange Law. During the period from July 1, 2010 to December 31, 2010,transactions with and fees paid to, Mitsui Fudosan Co., Ltd., NBF Office Management Co., Ltd., First Facilities Co., Ltd., First Facilities West Co., Ltd., Mitsui Fudosan
Building Management Co., Ltd., First Facilities Yokohama Co., Ltd., Mitsui Fudosan Housing Lease Co., Ltd., and Mitsui Real Estate Sales Co., Ltd. who meet either ofthe said definitions, are as described above.
2. Properties that have not entrusted office management businesses through such means as master leasing by Mitsui Fudosan Co., Ltd. (10 properties: Nishi-Shinjuku
Mitsui Bldg., Gate City Ohsaki, Nakameguro GT Tower, Toranomon Kotohira Tower, NBF Ogawamachi Bldg., Shin-Kawasaki Mitsui Bldg., Parale Mitsui Bldg.,
Shinanobashi Mitsui Bldg., Sakaisuji-Honmachi Center Bldg. and Yotsuya Medical Bldg.) have entrusted them to NBF Office Management Co., Ltd. as business representative of the property owners or lessors.
3. In addition to the above fees paid, the following have been paid to related parties for repair and maintenance work.
(Yen in millions)First Facilities Co., Ltd.
Mitsui Fudosan Building Management Co., Ltd.
Mitsui Fudosan Co., Ltd.
First Facilities West Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
Mitsui Real Estate Sales Co., Ltd.
Mitsui Home Linkage Co., Ltd.

36 NBF Report July – December 2010

¥744
216
168
81
17
0
0

Financial
Statements

NBF Report July – December 2010

NBF Report July – December 2010 37

Balance Sheets
NIPPON BUILDING FUND INC.
As of December 31, 2010 and June 30, 2010

As of
December 31, 2010

As ofJune 30, 2010
(Yen in millions)

AssetsCurrent Assets:
Cash and cash equivalents (Note 4)
Tenant receivables
Other current assets
Total current assets
Investment Properties:
Land including trust accounts (Note 5)
Buildings and improvements including trust accounts (Note 5)
Other tangible assets (Note 5)
Less: accumulated depreciation (Note 5)
Leasehold rights in trust accounts and other intangible assets
Total investment properties, net
Other Assets
Total Assets
Liabilities
Current Liabilities:
Short-term loans (Note 4, 7)
Long-term debt due within one year (Note 4, 7)
Accounts payable
Rents received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term Debt (Note 4, 7)
Tenant Security Deposits Including Trust Accounts (Note 4)
Other Liabilities
Total Liabilities
Net Assets (Note 6)
Unitholders’ Equity
Unitholders’ capital
Units authorized: 2,000,000 units
Units issued and outstanding: 542,000 units
Retained earnings
Total Net Assets
Total Liabilities and Net Assets
The accompanying notes to financial statements are an integral part of these balance sheets.

38 NBF Report July – December 2010

¥ 33,668
281
681
34,630¥ 39,600
302
591
40,493

473,463
278,4818,624(70,385)
35,654
725,837
4,736¥765,203

473,463
276,923
8,408(65,217)35,655729,232
4,654¥774,379¥ 8,000
40,750
3,779
3,348
1,662
57,539276,375
36,637
77
370,628¥ 16,000
8,750
3,022
3,376
1,802
32,950308,750
37,151
70
378,921386,176

386,176

8,399
394,575¥765,203

9,282
395,458¥774,379

Statements of Income
NIPPON BUILDING FUND INC.
For the six months ended December 31, 2010, June 30, 2010 and December 31, 2009

For the six months ended
December 31, 2010

For the six months ended
June 30, 2010
(Yen in millions)

For the six months ended
December 31, 2009

¥24,747
2,567—
27,314¥25,5832,452
306
28,341¥26,986
2,942—
29,928

3,776
2,621
718
32
2,506
5,171
—
943
228
15,995
11,319

3,798
2,648
883
36
2,224
5,239
140
988
213
16,16912,172

4,033
2,535
739
37
2,460
5,282
—
1,078
240
16,404
13,5247

8

7(2,888)
(5)
(33)
8,400
8,400
(1)
¥ 8,399(2,862)
(5)
(30)
9,283
9,283
(1)
¥ 9,282(2,798)(27)(43)
10,663
10,663(1)¥10,662

Operating Revenues and Expenses
Operating Revenues:
Rental (Note 8)
Other revenues related to property leasing (Note 8)
Gain on sale of investment properties (Note 9)
Total Operating Revenues
Operating Expenses:
Property management fees (Note 8)
Real estate taxes (Note 8)
Repairs and maintenance (Note 8)
Insurance (Note 8)
Other rental expenses (Note 8)
Depreciation and amortization (Note 8)
Loss on sale of investment property (Note 9)
Asset management fees
Other operating expenses
Total Operating Expenses
Operating Income
Non-Operating Revenues and Expenses
Non-Operating Revenues:
Interest income
Non-Operating Expenses:
Interest expense
Amortization of bond issue costs
Other non-operating expenses, net
Ordinary Income
Income before Income Taxes
Current and deferred income taxes (Note 10)
Net Income
The accompanying notes to financial statements are an integral part of these statements.

NBF Report July – December 2010 39

Statements of Changes in Net Assets
NIPPON BUILDING FUND INC.
For the six months ended December 31, 2010, June 30, 2010 and December 31, 2009

(Yen in millions)

Balance as of June 30, 2009
Cash dividends declared
Net income
Balance as of December 31, 2009
Cash dividends declared
Net income
Balance as of June 30, 2010
Cash dividends declared
Net income
Balance as of December 31, 2010
The accompanying notes to financial statements are an integral part of these statements.

40 NBF Report July – December 2010

Number of
Units

Unitholders’CapitalRetained
Earnings

Total

542,000¥386,176¥ 11,802¥397,978————(11,802)
10,662(11,802)
10,662542,000

386,176

10,662396,838————(10,662)
9,282(10,662)
9,282

542,000

386,176

9,282

395,458————(9,282)
8,399(9,282)8,399

542,000¥386,176¥ 8,399¥394,575

Statements of Cash FlowsNIPPON BUILDING FUND INC.
For the six months ended December 31, 2010, June 30, 2010 and December 31, 2009

For the six months ended
December 31, 2010

For the six months ended
June 30, 2010
(Yen in millions)

For the six months ended
December 31, 2009

¥ 8,400
5,171
5
2,888
21
757
(28)
—
(2,887)(226)
14,101¥ 9,283
5,239
5
2,862
(8)
(197)
(159)
3,272
(2,815)(203)
17,279¥ 10,663
5,282
27
2,798
358
308
(78)
—
(2,636)236
16,958(1,756)
4,213(4,727)(15)(92)(2,377)(1,501)
3,408(5,103)(8)(119)(3,323)(1,435)3,324(3,727)(3)(80)(1,921)(8,000)2,000(2,375)—(9,281)(17,656)(5,932)39,600¥ 33,668(8,000)24,000(20,375)(54)(10,658)(15,087)(1,131)40,731¥ 39,600(27,500)
45,000(18,125)—(11,802)(12,427)2,610
38,121¥ 40,731

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Amortization of bond issue 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
Other, net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases of investment properties
Proceeds from tenant security deposits
Payments for tenant security deposits
Payments for security deposits paid to lessors
Other, net
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Proceeds from (Repayment of) short-term loans, net
Proceeds from long-term debt
Repayment of long-term debt
Payment for bond issue costs
Payment of dividends
Net Cash Used in Financing Activities
Net Change in Cash and Cash Equivalents
Cash and Cash Equivalents at the Beginning of Period
Cash and Cash Equivalents at the End of Period
The accompanying notes to financial statements are an integral part of these statements.

NBF Report July – December 2010 41

Notes to Financial Statements
NIPPON BUILDING FUND INC.
For the six months ended December 31, 2010, June 30, 2010 and December 31, 2009

Note 1

Organization and Basis of Presentation

Organization
Nippon Building Fund Inc. (hereinafter “NBF”) was formed on March 16, 2001 as an investment corporation under the Law
Concerning Investment Trusts and Investment Corporations of Japan (hereinafter the Investment Trust Law of Japan) with Mitsui
Fudosan Co., Ltd., The Chuo Mitsui Trust and Banking Co., Ltd., and Nippon Building Fund Management Ltd. (hereinafter “NBFM”)
acting as sponsors. Registration with the Kanto Local Finance Bureau of the Ministry of Finance was completed on May 10, 2001 and
NBF started acquisition of office properties on May 23, 2001.
NBF is an externally managed real estate fund, formed as an investment corporation. NBFM, as NBF’s asset management company,
is engaged in acquiring, managing, leasing, and renovating office properties. Mitsui Fudosan Co., Ltd. currently owns 43% of NBFM
while Sumitomo Life Insurance Company owns 35% and the remaining 22% is mainly owned by financial institutions.
On September 10, 2001, NBF had raised approximately ¥50,000 million through an initial public offering of units. Those units arelisted on the J-REIT section of the Tokyo Stock Exchange.
As of December 31, 2010, NBF had ownership or beneficiary interests in 59 office properties containing approximately 762,983
square meters of rentable office space. As of December 31, 2010, NBF had leased office space to 952 tenants engaged in a varietyof businesses. The occupancy rate for the office properties was approximately 96.6%.

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

Note 2

Summary of Significant Accounting Policies

Cash and Cash Equivalents
NBF considers all highly liquid investments with original maturity of three months or less to be cash and cash equivalents.

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

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

42 NBF Report July – December 2010

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

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

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

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

Real Estate Taxes
Real estate taxes are imposed on properties on a calendar year basis and expensed when incurred. In terms of newly purchased
properties, NBF capitalizes a portion of the real estate taxes that relate to a period from the purchase date of each property until theend of the calendar year as part of the acquisition cost of the relevant property. NBF incurred no capitalized real estate taxes for theperiods ended December 31, 2010, June 30, 2010, and December 31, 2009.

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.

Reclassifications
Certain reclassifications have been made to prior periods’ financial statements to conform with the presentation used for theperiod ended December 31, 2010.

Note 3

Change in Accounting Policy

The New Accounting Standard for Asset Retirement Obligations
Effective from the fiscal period ended December 31, 2010, NBF adopted “Accounting Standard for Asset Retirement Obligations”(Accounting Standards Board of Japan (“ASBJ”) Statement No. 18 issued on March 31, 2008) and the “Guidance on AccountingStandard for Asset Retirement Obligations” (ASBJ Guidance No. 21 issued on March 31, 2008). There was no impact on its financial
position or results of operations as a result of such adoption.

NBF Report July – December 2010 43

Note 4

Financial Instruments

Effective from the fiscal period ended June 30, 2010, NBF adopted the revised Accounting Standard, “Accounting Standard for
Financial Instruments” (ASBJ Statement No. 10 revised on March 10, 2008) and the “Guidance on Disclosures about Fair Value of
Financial Instruments” (ASBJ Guidance No. 19 revised on March 10, 2008). The standard and guidance require companies to disclose
fair value and certain other information of financial instruments as follows.

(For the six months ended December 31, 2010)

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
and investment corporation bonds, through issuance of new investment units, bank loans and issuance of investment corporation
bonds, with the 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 the safety of the investments.
NBF may enter into derivative transactions solely for the purpose of reducing interest rate risks and other risks arising fromliabilities. 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 outstandingloans and bonds. While these loans and bonds are exposed to liquidity risk, such risk is managed in ways such as diversifying themeans of funding and lending institutions, dispersing repayment dates, establishing a committed credit line, keeping sufficientliquidity in hand, and monitoring cash flows projected monthly.
Short-term loans are exposed to interest-rate fluctuation. NBF limits the impact of such risks by maintaining the debt-asset ratio
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 ofcontract. 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.

Estimated Fair Value of Financial Instruments
Book value, fair value and the difference between the two as of December 31, 2010 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from the following table (SeeNote 2. below).

44 NBF Report July – December 2010

Notes to Financial Statements(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¥ 33,668¥ 33,668¥ 33,668¥ 33,668¥¥¥ 8,000
40,750276,375¥325,125¥ 8,000
40,991
284,119¥333,110

¥

—
—

—
241
7,744
¥7,985

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 aresettled within a short 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 a short 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 is as follows.
(Yen in millions)(1) Investment corporation bonds(2) Long-term loans
Total

Book value

Fair value

Difference¥10,000
30,750¥10,060
30,931¥ 60
181¥40,750¥40,991¥2411) Investment corporation bonds
The 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 based on 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 is as follows.
(Yen in millions)(1) Investment corporation bonds(2) Long-term loans
Total

Book value

Fair value

Difference¥ 60,000
216,375¥ 61,646
222,473¥1,646
6,098¥276,375¥284,119¥7,744

1) Investment corporation bonds
The 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 based on the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into consideration theremaining 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)Book value
Tenant Security Deposits Including Trust Accounts¥36,637

Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and the actual deposit period is not estimable as leases may becancelled, renewed or re-signed even if a lease term is set in the lease contract, making a reasonable estimate of future cash flows difficult.

NBF Report July – December 2010 45

3. Redemption Schedule for Monetary Claims(Yen in millions)

Cash and cash equivalents

Due within
one year

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 fiveyears

¥33,668

—

—

—

—

—

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 fiveyears

4. Repayment Schedule for Loans and Investment Corporation Bonds(Yen in millions)Due within
one year
Short-term loans
Investment corporation bonds
Long-term loans¥ 8,000
10,00030,750¥—10,00032,750¥——42,750¥—10,00036,750¥—20,00029,750¥—20,00074,375

Total¥48,750¥42,750¥42,750¥46,750¥49,750¥94,375(For the six months ended June 30, 2010)

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
and investment corporation bonds, through issuance of new investment units, bank loans and issuance of investment corporation
bonds, with the 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 the safety of the investments.
NBF may enter into derivative transactions solely for the purpose of reducing interest rate risks and other risks arising fromliabilities. 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 outstandingloans and bonds. While these loans and bonds are exposed to liquidity risk, such risk is managed in ways such as diversifying themeans of funding and lending institutions, dispersing repayment dates, establishing a committed credit line, keeping sufficientliquidity in hand, and monitoring cash flows projected monthly.
Short-term loans are exposed to interest-rate fluctuation. NBF limits the impact of such risks by maintaining the debt-asset ratio
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 ofcontract. 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 2010

Notes to Financial Statements

Estimated Fair Value of Financial Instruments
Book value, fair value and the difference between the two as of June 30, 2010 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from the following table (SeeNote 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¥ 39,600¥ 39,600¥ 39,600¥ 39,600¥¥¥ 16,000
8,750
308,750¥333,500¥ 16,000
8,794
314,278¥339,072

¥

—
—

—
44
5,528
¥5,572

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 aresettled within a short 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 a short term period.
(2) Long-term debt due within one year
Fair values of Long-term debt due within one year are based on the present value of principal and interest cash flows discounted at the current interest rate estimatedto 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 is as follows.
(Yen in millions)(1) Investment corporation bonds(2) Long-term loans
Total

Book value

Fair value

Difference¥ 70,000
238,750¥ 71,177
243,101¥1,177
4,351¥308,750¥314,278¥5,5281) Investment corporation bonds
The 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 based on the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into consideration theremaining 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)Book value
Tenant Security Deposits Including Trust Accounts¥37,151

Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and the actual deposit period is not estimable as leases may becancelled, renewed or re-signed even if a lease term is set in the lease contract, making a reasonable estimate of future cash flows difficult.

NBF Report July – December 2010 47

3. Redemption Schedule for Monetary Claims(Yen in millions)

Cash and cash equivalents

Due within
one year

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 fiveyears

¥39,600

—

—

—

—

—

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 fiveyears

4. Repayment Schedule for Loans and Investment Corporation Bonds(Yen in millions)Due within
one year
Short-term loans
Investment corporation bonds
Long-term loans¥16,000
—
8,750

¥

—
20,00045,750¥——27,750¥—10,00041,750¥—10,00026,750¥

Total¥24,750¥65,750¥27,750¥51,750¥36,750¥126,750

Note 5—30,00096,750

Schedule of Tangible Assets of Investment Properties

Tangible assets as of December 31, 2010 and June 30, 2010 consisted of the following:
As of December 31, 2010

As of June 30, 2010
(Yen in millions)

Acquisition
costs

Land
Land in trust¥218,479
254,984¥

Accumulated
depreciation

Book value

Acquisition
costs

—
—

¥218,479
254,984¥218,479
254,984

Accumulated
depreciation¥——

Book value¥218,479
254,984

Land including trust total

473,463—

473,463

473,463—

473,463

Buildings and improvements
Buildings and improvements in trust

142,649
135,832(26,866)(39,904)

115,783
95,928142,172
134,751(24,389)(37,510)

117,783
97,241

Buildings and improvements
including those in trust

278,481(66,770)

211,711

276,923(61,899)

215,024Structures
Machinery and equipment
Tools, furniture and fixtures
Structures in trust
Machinery and equipment in trust
Tools, furniture and fixtures in trust
Construction in process

2,260
1,138
850
1,918
1,339
1,071
48

(861)
(496)
(369)
(631)
(684)
(574)
—

1,399
642
481
1,287
655
497
48

2,238
1,119
804
1,904
1,312
994
37

(788)
(449)
(331)
(582)
(641)
(527)
—

1,450
670
473
1,322
671
467
37

Other tangible assets total

8,624(3,615)

5,009

8,408

(3,318)5,090¥760,568¥(70,385)¥690,183¥758,794¥(65,217)¥693,577

Total

Note 6

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
are designated as stated capital. NBF maintains at least ¥50 million as the minimum net assets as required by the Investment Trust
Law of Japan.

48 NBF Report July – December 2010

Notes to Financial Statements

Note 7

Short-Term Loans and Long-Term Debt

Short-term loans consist of short-term notes and short-term borrowings under loan agreements. The annual interest rates on
short-term loans outstanding are floating rates and on December 31, 2010 and June 30, 2010 ranged from 0.64% to 0.75% andfrom 0.69% to 0.82%, respectively. Long-term debt is at fixed rates and as of December 31, 2010 and June 30, 2010 consisted of
the following:
As of December 31, 2010

As of June 30, 2010
(Yen in millions)

Unsecured loans due 2011 to 2019 principally from banks and insurancecompanies with interest rates mainly ranging from 1.1% to 2.4%
1.60% unsecured bonds due 2011 (Note 1)
1.48% unsecured bonds due 2012 (Note 2)
1.74% unsecured bonds due 2014 (Note 2)
1.23% unsecured bonds due 2015 (Note 2)
1.85% unsecured bonds due 2015 (Note 2)
2.04% unsecured bonds due 2017 (Note 2)
2.00% unsecured bonds due 2018 (Note 1)
Less: amount due within one year

¥247,125
10,00010,00010,00010,00010,00010,00010,000¥247,500
10,00010,00010,00010,00010,00010,00010,000317,125

317,500

40,7508,750¥276,375¥308,750

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

The annual maturities of long-term debt as of December 31, 2010 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¥42,750
42,75046,75049,75094,375

During the period ended December 31, 2010, NBF obtained committed credit lines of ¥50 billion with certain financial institutions to reduce refinancing risk. The unused amount of such committed credit lines was ¥50 billion on December 31, 2010.

NBF Report July – December 2010 49

Note 8

Rental Revenues and Expenses

Rental revenues and expenses for the periods ended December 31, 2010, June 30, 2010 and December 31, 2009 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

Note 9For the six months ended
December 31, 2010

For the six months ended
June 30, 2010
(Yen in millions)

For the six months ended
December 31, 2009

¥22,025
2,608
114
24,747¥22,757
2,706
120
25,583¥24,022
2,844
120
26,986

531
138
1,808
46
44
2,567
27,314

534
140
1,486
228
64
2,452
28,035

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

3,776
2,621
718
32
2,506
5,171
14,824

3,798
2,648
883
36
2,224
5,239
14,828

4,033
2,535
739
37
2,460
5,282
15,086¥12,490¥13,207¥14,842Gain and Loss on Sale of Investment Properties

Gain and loss on sale of investment properties for the period ended June 30, 2010 were as follows. No investment properties weresold during the periods ended December 31, 2010 and December 31, 2009.

NBF Ebisu-Minami Building
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 Hakata Gion Building
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)

50 NBF Report July – December 2010

¥1,350
1,001
43
¥ 306
¥2,200
2,271
69
¥ 140

Notes to Financial Statements

Note 10 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,
2010, June 30, 2010 and December 31, 2009. 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 (Note 1)
Deductible dividends
Others
Effective tax rate

For the six months ended
December 31, 2010

For the six months ended
June 30, 2010

For the six months ended
December 31, 200939.33%(39.33)0.01
0.01%

39.33%(39.33)0.01
0.01%

39.33%(39.33)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 incalculating its taxable income under Japanese tax regulations.

Note 11 Per Unit Information
Information about earnings per unit for the periods ended December 31, 2010, June 30, 2010 and December 31, 2009 and net
assets per unit as of December 31, 2010, June 30, 2010 and December 31, 2009 was as follows.
The computation of earnings per unit is based on the weighted average number of units outstanding during the period. The computation of net assets per unit is based on the number of units outstanding at each period end.

Earnings per Unit:
Net income
Weighted average number of units outstanding
Net Assets per Unit

For the six months ended
December 31, 2010

For the six months ended
June 30, 2010
(Yen)

For the six months ended
December 31, 2009

¥15,495
542,000¥17,124
542,000¥19,671542,000

As of December 31, 2010

As of June 30, 2010

As of December 31, 2009

¥727,996¥729,626¥732,173

Note 12 Leases
As Lessor
NBF leases some of its investment properties to outside parties under non-cancelable operating leases. As of December 31, 2010
and June 30, 2010 future minimum rental revenues under the non-cancelable operating leases are as follows:
As of December 31, 2010
As of June 30, 2010
(Yen in millions)Due within one year
Due after one year
Total

¥19,396
28,947¥48,343¥16,699
25,892¥42,591

NBF Report July – December 2010 51

Note 13 Transactions with Related Parties(For the six months ended December 31, 2010)(1) Parent Company and Major Corporate Unitholders
None applicable.
(2) Affiliates
None applicable.
(3) Sister Companies
None applicable.
(4) Directors and Major Individual Unitholders
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

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

Amount oftransaction
Yen in millions

Account

Balance at
end of period
Yen in millions¥943(Note 3)

Accounts
payable¥241(Note 3)¥2
(Note 3)

Accounts
payable¥1(Note 3)

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

(For the six months ended June 30, 2010)(1) Parent Company and Major Corporate Unitholders
None applicable.
(2) Affiliates
None applicable.
(3) Sister Companies
None applicable.
(4) Directors and Major Individual Unitholders
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

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

Amount oftransaction
Yen in millions

Account

Balance at
end of period
Yen in millions¥988(Note 3)

Accounts
payable¥303(Note 3)¥2
(Note 3)

Accounts
payable¥1(Note 3)

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

52 NBF Report July – December 2010

Notes to Financial Statements(For the six months ended December 31, 2009)(1) Parent Company and Major Corporate Unitholders
None applicable.
(2) Affiliates
None applicable.
(3) Sister Companies
None applicable.
(4) Directors and Major Individual Unitholders
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

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

Amount oftransaction
Yen in millions

Account

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

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

Accounts
payable¥1(Note 3)

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

Note 14 Investment and Rental Property
Effective from the fiscal period ended June 30, 2010, NBF adopted the “Accounting Standard for Disclosures about Fair Valueof Investment and Rental Property” (ASBJ Statement No. 20 issued on November 28, 2008) and the “Guidance on AccountingStandard for Disclosures about Fair Value of Investment and Rental Property” (ASBJ Guidance No. 23 issued on November 28,2008). The standard and guidance require companies to disclose fair value and certain other information of investment and rental
property as follows.

(For the six months ended December 31, 2010)
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

Fair value

As of June 30, 2010

Net decrease

As of December 31, 2010

As of December 31, 2010

¥729,233¥3,410¥725,823¥772,178

Notes: 1. Carrying amounts represent acquisition cost less accumulated depreciation.
2. The major decrease in the carrying amount during the period was mainly due to recognition of depreciation costs.
3. Fair value as of December 31, 2010 is based on appraisals provided by independent real estate appraisers.

Information about profit and loss from investment and rental properties for the six months ended December 31, 2010 is disclosed
in Note 8 (Rental Revenues and Expenses) and Note 9 (Gain and Loss on Sale of Investment Properties).

NBF Report July – December 2010 53

(For the six months ended June 30, 2010)
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

Fair value

As of December 31, 2009

Net decrease

As of June 30, 2010

As of June 30, 2010

¥736,271¥7,038¥729,233¥783,560

Notes: 1. Carrying amounts represent acquisition cost less accumulated depreciation.
2. The major decrease in the carrying amount during the period was mainly due to sale of two properties (NBF Ebisu-Minami Bldg. and NBF Hakata Gion Bldg.) whichamounted to ¥3,272 million and recognition of depreciation costs.
3. Fair value as of June 30, 2010 is based on appraisals provided by independent real estate appraisers.

Information about profit and loss from investment and rental properties for the six months ended June 30, 2010 is disclosed in
Note 8 (Rental Revenues and Expenses) and Note 9 (Gain and Loss on Sale of Investment Properties).

Note 15 Segment Information
Effective from the fiscal period ended December 31, 2010, NBF adopted the “Accounting Standard for Disclosure of Segment
Information” (ASBJ Statement No. 17, revised on March 27, 2009) and the “Guidance on Accounting Standard for Disclosure of
Segment Information” (ASBJ Guidance No. 20, issued on March 21, 2008).

(For the six months ended December 31, 2010)

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

Related Information
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 book value of total investment properties.
3. Information on Major Tenants(Yen in millions)

TenantOperating revenues

Related segment

Mitsui Fudosan Co., Ltd.

¥6,306

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

Disclosure of the segment information for previous periods has been omitted as NBF has only one segment of the real estateleasing business.

54 NBF Report July – December 2010

Notes to Financial Statements

Note 16 Significant Subsequent Events
Issuance of New Units
At meetings of the Board of Directors held on January 11, 2011 and January 19, 2011, it was resolved to issue new units.
Payments for the new issuance were made on January 26, 2011 and February 22, 2011, and the new units were issued under theconditions described below.
As a result, the total amount of stated capital increased to ¥415,115 million and the number of units issued and outstanding
increased to 578,500 units.
A. Issuance of New Units through Public Offering(I) Number of units issued

34,000 units(II) Offering price per unit

¥818,025(III) Total offering price¥27,813 million(IV) Issue price per unit

¥792,855(V) Total issue price¥26,957 million(VI) Payment date

January 26, 2011

(VII) Initial date subject to distribution

January 1, 2011

B. Issuance of New Units through Public Allocation to a Third Party Allocation(I) Number of units issued

2,500 units(II) Issue price per unit

¥792,855(III) Total issue price¥1,982 million(IV) Payment dateFebruary 22, 2011

(V) Initial date subject to distribution

January 1, 2011

(VI) Allottee

Nomura Securities Co., Ltd.

NBF Report July – December 2010 55

Independent Auditors’ Report
To the Board of Directors of
Nippon Building Fund Inc.:

We have audited the accompanying balance sheets of Nippon Building Fund Inc. (a Japanese Real Estate
Investment Trust) as of December 31, 2010 and June 30, 2010, and the related statements of income,changes in net assets and cash flows for each of the six months ended December 31, 2010, June 30, 2010
and December 31, 2009 expressed in Japanese yen. These financial statements are the responsibility of
the Company’s management. Our responsibility is to independently express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of Nippon Building Fund Inc. as of December 31, 2010 and June 30, 2010, and theresults of its operations and its cash flows for each of the six months ended December 31, 2010, June 30,2010 and December 31, 2009, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to Note 16 to the financial statements, which statesthat Nippon Building Fund Inc. issued new units.

Tokyo, Japan
March 29, 2011

56 NBF Report July – December 2010

Appendix
Major Interested Parties
Nippon Building Fund Management Ltd. (Asset Management Company and Administrative Agent
regarding the Management of Institutions, herein “NBFM”)

NBFM, as Asset Management Company provided for in theManagement Fees 3
In the event that Real Estate, etc. is newly acquired, compensation

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

December 31, 2010, NBFM has been entrusted as an asset manage-

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

ment company only by NBF.

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

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

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

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

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

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

Operation■■

provided, however, that with the approval of the directors of NBF,

Undertakes asset management of NBF pursuant to an Assetcompensation may be calculated using different rates not exceeding

Management Entrustment Agreement based on an entrustment

the following rates.

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

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

and the Investment Objects and Policies set forth therein.

●

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

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

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

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

Fees for the Asset Management Operation
Management Fees 1
The amount equivalent to 2.5% effective from July 1, 2003 of theamount of the revenue arising from Real Estate, etc. as calculated oneach closing date (provided, however, that revenues from the saleof 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 theamount of income before income taxes remaining after such loss has
been covered) prior to deduction of Management Fees 2 as calculatedon each closing date will be payable.

NBF Report July – December 2010 57

Appendix

History of NBFM

Directors and Staff

NBFM is an Asset Management Company which is a limited

As of December 31, 2010, the directors and corporate auditors of

liability company duly established under the laws of Japan. Major

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

NBFM is comprised of 17 persons.

September 19, 2000 Established

Name of Directors and Auditors

November 17, 2000

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

Koichi Nishiyama

President & CEO (standing)

Yasushi Nakayama

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

Hiroshi Yabuki

Director, Head of Administration Group(standing)

Masato Shikata

Director

Hideharu Matsumoto

Director

January 29, 2001

February 15, 2001

March 7, 2001

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

March 22, 2001

Increased capital from ¥100 million to ¥198 million

May 23, 2001

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

June 16, 2001
March 14, 2003

September 30, 2007

Increased capital from ¥198 million to ¥495 million
Changed name (from “Office Building Fund Management Japan Limited” to “Nippon Building FundManagement Ltd.”)
Registered as a financial instruments firm with the
Kanto Local Finance Bureau Chief (Financial
Instruments) No. 371

List of Shareholders (As of December 31, 2010)
Numberof Shares Owned

Percent

Mitsui Fudosan Co., Ltd.

4,257

43.0%

Sumitomo Life Insurance Company

Name

3,465

35.0

The Chuo Mitsui Trust andBanking Co., Ltd.

495

5.0

Sumitomo Mitsui Banking
Corporation

495

5.0

Daido Life Insurance Company

297

3.0

Mitsui Sumitomo InsuranceCo., Ltd.

297

3.0

Mitsui Life Insurance Company
Limited297

3.0

Britel Fund Trustees Limited
Total

58 NBF Report July – December 2010

297

3.0

9,900

100.0%

Title

Noriaki Moromachi

Corporate Auditor

Toru Suzuki

Corporate Auditor

Outline of Financial Condition
An outline of the financial condition of NBFM is as follows.
Outline of principal assets and liabilities for the most recent
fiscal year:
As of March 31, 2010

(Yen in millions)

Total assets¥1,888

Total liabilities

292

Total net assets

1,596

Profit and loss for the most recent fiscal year:
Year ended March 31, 2010

(Yen in millions)Operating income¥2,253

Ordinary profit

1,491

Net income

880

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

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

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

achieves this objective by investing in real estate consisting of buildings
primarily used for offices with their underlying land located in the Tokyo

Other Greater Tokyo

central business districts (hereinafter “CBDs”), Other Greater Tokyo andOther 14 wards of Tokyo andneighboring cities (see Note 1
below) such as Musashino,
Tachikawa, Yokohama, Kawasaki,
Chiba, Kashiwa, Saitama, etc.

Other Cities in Japan as well as securities, beneficiary certificates representing beneficial interests in trusts (hereinafter “beneficiary certificates”)
and other assets backed by office properties (collectively hereinafter “RealEstate, etc.”) (“Investment Objectives and Policies,” Articles ofIncorporation). (Reference to laws, legal documents, etc. used as the basis
or sources hereof are set forth in parenthesis herein.)■

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

■

Relatively low yearly NOI yields.

■

Relatively high liquidity at the time of sale.

■

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

Total of above two areas: 70% or more
Other Cities■

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

Principal regional cities such as
Sapporo, Sendai, Niigata,
Shizuoka, Hamamatsu, Nagoya,
Kyoto, Osaka, Kobe, Okayama,
Hiroshima, Takamatsu, Fukuoka,
Kumamoto, etc.

assets of NBF. NBFM has established asset management guidelines based

Total of above area: 30% or less

B. Investment Strategy
Nippon Building Fund Management Ltd. (“NBFM”), based on theon the Articles of Incorporation of NBF and in accordance with the investment strategy of NBF.

(1) Strategy for Creation of the Portfolio

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

The goal of the portfolio is to generate steady growth and stable profits
on a medium-to-long-term basis. The selection criteria of investment(2) Acquisition Strategy

assets is based on the composition of investment assets in the portfolioa) Ratio of Real Estate Assets

and on consideration of a quantitative proportion of the office stock locatedin the various regions of Japan.

NBF will maintain a ratio of 75% or more with respect to the “Designated
Real Estate Ratio” (“Investment Objectives and Policies,” Articles ofIncorporation). As of December 31, 2010, NBF satisfied the criteria.

Area Diversification
The investment strategy of NBF divides the investment area into threeareas consisting of Tokyo CBDs, Other Greater Tokyo and Other Cities in

The “Designated Real Estate Ratio” means the ratio of the total amountof Designated Real Estate to the total amount of Designated Assets
owned by NBF.

such manner that 70% or more of total investment assets (Real Estate,etc.) are allocated to Tokyo CBDs and Other Greater Tokyo and 30% orless to Other Cities. The purpose of this area diversification is to mitigate
cash flow risks such as earthquakes, risk of vacancies and so forth(“Investment Objectives and Policies,” Articles of Incorporation).

Note: Designated Real Estate includes real estate, real estate leasehold rights, superficies
and beneficiary certificates backed by real estate, land leasehold rights and superficies(as designated under Article 83.4.3.1 of the Special Taxation Measures Law of Japan).

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

NBF Report July – December 2010 59

by such office properties) (“Investment Objectives and Policies,” Articles

unleasable assets which thereafter become operational) will not exceedof Incorporation). The details of the relevant criteria are set forth in the

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

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

respect to which the construction of the building has been completed

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

scale renovation of a building) (“Investment Objectives and Policies,”■

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

■

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

■

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

Construction type andspecifications of facilities■

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 toEarthquake resistance■

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.).

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

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

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

Measures to protect security deposits, policies and measures regarding cash reserves
for long-term renovation plans.

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

Measures regarding
status of legal title

■

●

●

Articles of Incorporation).

2

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

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

Tenancy characteristics■

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

a) Reserves for Long-Term Renovations

Environmental:
condition of land, etc.

■

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

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

From the reserves set forth above, a portion corresponding to renovavation plans for each building. As of December 31, 2010, foreseen
reserves provided from January to December 2011 are as follows:
Itemc) Uncompleted or Unleasable Properties

ReasonReserves forlong-term renovations■

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

Expenses of providing “free access floor”■

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

investment amount, the date of completion or of becoming leasable,

Reserves for tenant improvements (reserves for future
construction expenses required
for spaces leased to tenants)

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

Total Foreseen Amount (annual basis): ¥3,389 million

In principle, NBF acquires Real Estate, etc. which are leased/leasable
assets at the time of closing. NBF may acquire a property which is not
yet leasable at the time of closing based on consideration of the impact
on NBF’s asset management activities after taking into account theamount of any such unleasable asset combined with the total contract
amount of previously acquired unleasable assets (but excluding

60 NBF Report July – December 2010

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

Investment and Distribution Policies

2. The amount of reserves set forth above is the total amount of reserves with respect
to the 59 properties owned by NBF as of December 31, 2010.

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

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

(4) Financial Policies

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

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

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

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

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

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

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

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

c) Loan-to-Value Ratio
The ratio of the total amount of borrowings, issues of NBF bonds
and lease deposits under management to the total amount of assets ofwill, in principle, be the appraised valuation provided by a certified realestate appraiser, and (b) the disclosure value to be used for beneficiary
certificates, equity interests of tokumei kumiai and equity interests ofpartnerships for which respective assets are real estate, real estateleasehold rights or superficies will be the calculated value of equity
interests of each based on the value of their respective assets as determined in (a) plus the fair value of any financial assets as determined inconformity with generally accepted accounting principles, less trust andtotal tokumei kumiai liabilities (Articles of Incorporation).
The appraisal value of property with respect to the period commencing on the acquisition thereof and ending on the date of disclosure ofsuch value with respect to the next following closure of NBF’s accounting term shall be the acquisition price of the said property (excluding
miscellaneous acquisition costs, fixed assets tax, city-planning tax andconsumption tax) as stated in the sale and purchase contract, etc. forthe said property.

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

NBF Report July – December 2010 61

Investment Objectives of NBF

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

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

A. Principal Investment Objectives among
Designated Assets
NBF will principally invest in the below-listed Designated Assets withthe objective of assuring steady growth and stable profits from theManaged Assets.
(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 tothose the assets of which are primarily invested and Managed Assets
principally referred to in paragraphs (1) and (2) above)(4) Equity interests in partnerships as defined by Article 667 of the Civil
Code of Japan (limited to leased, operating and managed partnership(9) Beneficiary Certificates of Money Trust (limited to those the trust assetsof which are primarily invested and Managed Assets referred to inparagraph (1), (3) or (4) above, provided, however, that those that are
deemed securities are excluded)

B. Other Investment Objectives among
Designated Assets
NBF may, in the course of efficiently managing funds or in other cases
as necessary, invest in the following Designated Assets.
(1) Bank deposits(2) Certificates of deposit issued by Japanese legal entities(3) Call loans(4) Japanese government bonds, notes and bills (meaning thosespecified in Article 2.1.1 of the Financial Instruments and Exchange
Law of Japan)(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 thoseassets primarily referred to in paragraphs (1) and (2) above that are

specified in Article 2.1.4 of the Financial Instruments and Exchange

specified in Article 2.2.5 of the Financial Instruments and Exchange

Law of Japan, provided, however, that this is limited to asset-backed

Law of Japan)

securities principally referred to in paragraphs (1) and (2) of section(5) Preferred Investment Certificates of Special Purpose Companies(meaning those specified in Article 2.1.8 of the Financial Instruments

A above)(8) Monetary claims (limited to those claims that are deemedand Exchange Law of Japan, provided, however, that this is limited to

Designated Assets under the Investment Trust Law of Japan other

those the assets of which are primarily invested and Managed Assets

than those referred to in section A and above)

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 of Japan,(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)

provided, however, that this is limited to those the assets of which areprimarily invested and Managed Assets principally referred to in paragraphs (1) and (2) above)(7) Beneficiary Certificates of investment trusts (meaning those specified

C. Assets Other than Designated Assets
NBF may, in the course of efficiently managing funds or in other cases
as necessary, invest in the following assets.

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

to in paragraphs (1) and (2) above)(3) Trademark rights

in Article 2.1.10 of the Financial Instruments and Exchange Law of(8) Investment Securities (meaning those specified in Article 2.1.11 of the
Financial Instruments and Exchange Law of Japan, provided, however,

62 NBF Report July – December 2010

(4) Copyrights

Investment and Distribution Policies(5) Chattels

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

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

section A

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

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

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

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

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

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

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

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

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

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

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

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

NBF Report July – December 2010 63

Investment Restrictions
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.

(1) Investment Location and Currencies

the rules stipulated by the Investment Trusts Association (as amended),as well as “Investment Objectives and Policies” of the Articles
of Incorporation.

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

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

(2) Borrowing
See “Investment Policies of NBF, B. Investment Strategy,(4) Financial Policies.”(3) Concentration of Investment
There is no limitation on concentration of investment. See “Investment
Policies of NBF, B. Investment Strategy, (1) Strategy for Creation of
the Portfolio.”(4) Investment Objectives
NBF does not invest aggressively in the Monetary Claims and(1) Pursuant to Article 198.1 of the Investment Trust Law of Japan, aregistered investment corporation must entrust business related toasset management to an asset management company registered as afinancial 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 (allreferences in parentheses below are to the provisions of the Financial
Instruments and Exchange Law of Japan, except where statedotherwise) besides restrictions applied to a registered investment
corporation. NBF will naturally comply with such investment restrictions,a general overview of which follows.
a) Internal Transactions (§ 42.2.1)

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

Transactions between an asset management company and its direc-

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

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

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

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

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

financial instruments business.

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

Transactions between asset management companies of investment

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

provisions of the government ordinance regarding the Financial

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

Instruments and Exchange Law of Japan that are considered unlikely to

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

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

located outside of Japan (Articles of Incorporation).

actions or discredit the financial instruments business.

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

The Managed Assets of NBF will be managed in compliance with the
Financial Instruments and Exchange Law of Japan and related regulations,

64 NBF Report July – December 2010

An asset management company may not undertake transactions in certain financial instruments, indices or options based on fluctuations in theInvestment and Distribution Policies

price, index, value, or amount of consideration related to transactions in theassets of an investment corporation, without a legally valid reason, with the(2) Limitation on Acquisition of the Same Issue ofUnits (§ 194 of the Investment Trust Law)

objective of benefiting a third party other than NBF or said investment.

An investment corporation may not acquire the same units issued by acorporation in excess of 50/100 of total number of said issued and out-d) Transactions Harmful to the Interests of NBF (§ 42.2.4)

standing units.

An asset management company may not undertake transactions thatare 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

In addition to the above, the following activities are prohibited

accept them for the purpose of pledge, unless it acquires units issued byitself in the following cases:●

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.

(§42.2.7 of the Financial Instruments and Exchange Law, Cabinet Office
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(4) Restriction on Acquisition of Parent Corporation’sUnits by Subsidiary Corporation (§ 81.1.2)

according to investment management policies, the financial condition ofassets under management, or market conditions(iv) Asset management that introduces unfair restrictions or other limitations
from external entities(v)

An investment corporation (subsidiary), a majority of the units of which
is owned by another investment corporation (parent), may not acquire theunits of such parent investment corporation except in the following cases:●

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.

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

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.

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

NBF Report July – December 2010 65

Corporate Data
(As of December 31, 2010)

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

Date of Inception:

March 16, 2001

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

Unitholders:

14,812

Transfer Agent:

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

Business Office of the Transfer Agent:

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

Independent Auditors:

KPMG AZSA 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+81-3-6259-8681

This document contains translations of selected information described in thetranslations or the selection of the portion(s) of any document(s) translated into English.

Securities Report (Yuka shoken hokokusho) filed on March 30, 2011 pursuant to theNo person has been authorized to give any information or make any representations

Securities Exchange Law of Japan, and the Financial Statements and the Performanceother than as contained in this document in relation to the matters set out in this docu-

Information Report for the period from July 1, 2010 to December 31, 2010, of Nippon

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

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

as 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 and neither corresponds to the original Japanese documents nor is intended to constitute a disclosure document. The Japanese language

Management Ltd. or any of their respective directors, officers, employees, partners,
unitholders/shareholders, agents or affiliates.
The financial statements of Nippon Building Fund Inc. have been prepared in

Securities Report and the Financial Statements and the Performance Information Reportaccordance with generally accepted accounting principles in Japan (Japanese

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

GAAP), which may materially differ in certain respects from generally accepted

English terms for Japanese legal, accounting, tax and business concepts usedherein may not be precisely identical to the concept of the equivalent Japanese terms.

accounting principles in other jurisdictions.
Many provisions of this document contain forward-looking statements and informa-With respect to any and all terms herein, including without limitation, financial state-tion. We base these statements on our beliefs as well as our assumptions based solely

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

on certain limited information currently available to us. Because these statements reflect

the original Japanese documents and English statements contained herein, the original

our current views concerning future events, these statements involve known andJapanese documents will always govern the meaning and interpretation. None of Nippon

unknown risks, uncertainties and assumptions. Our future performance could materially

Building Fund Inc., Nippon Building Fund Management Ltd. or any of their respective

differ from those set out in these forward-looking statements. We do not undertake anddirectors, officers, employees, partners, unitholders/shareholders, agents or affiliates will

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

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

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

66 NBF Report July – December 2010

Investors’ Information(As of December 31, 2010)

Fiscal Periods

Unitholders
Other domestic corporations
334 (2.2%)

Six months ending June 30 and December 31

Overseas investors 366 (2.5%)
Financial institutions(Including securities companies)

Total Number of Units Issued

179 (1.2%)

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

542,000 units

18th Period (From January 1, 2010 to June 30, 2010)

542,000 units

Distributions

Individuals and others
13,933 (94.1%)

Individuals andothers35,538 (6.6%)

Total number of unitholders:

Financial
institutions

14,812(Including
securities
companies)

Expected distribution for the 20th Period (ending June 2011)
For the operating period from January 1, 2011 to June 30, 2011 (6 months)¥15,100 per unit

308,885(57.0%)

Other domestic
corporations
43,104 (7.9%)

Overseas
investors
154,473(28.5%)

Confirmed distribution for the 19th Period (ended December 2010)
For the operating period from July 1, 2010 to December 31, 2010 (6 months)¥15,495 per unit

Total number of units:

542,000

Major Unitholders
Name

Number of Units Held

Percentage of Total

65,65653,581
40,635
19,735
17,833
12,256
9,559
7,944
7,823
7,071

12.1%
9.9
7.5
3.6
3.3
2.3
1.8
1.5
1.4
1.3

Japan Trustee Services Bank, Ltd. (Trust Account)
The Nomura Trust and Banking Co., Ltd. (Trust Account)*
Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account)
Mitsui Fudosan Co., Ltd.
The Master Trust Bank of Japan, Ltd. (Trust Account)
Sumitomo Life Insurance Company
The Chugoku Bank, Ltd.
AIG Edison Life Insurance Company GA NON DIMA
Nomura Bank (Luxembourg) SA
Zenkyoren (National Mutual Insurance Federation of Agricultural Cooperatives)* The Nomura Trust and Banking Co., Ltd. and NCT Trust and Banking Corporation merged on July 20, 2010.

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

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

2,500

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

1,500

1,000
800,000
500
400,000

0
Sep. 10,2001

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

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

NBF Report July – December 2010 67

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