15th

Fiscal Period
SEMIANNUAL REPORTMay 1, 2012–October 31, 2012

TSE 8972

Contents

Kenedix Realty Investment Corporation (KENEDIX-REIT) is a Japanese real estate

02
06

investment trust (J-REIT) listed on the Tokyo Stock Exchange (8972). Founded in
May 2005, KENEDIX-REIT aims to be the No. 1 J-REIT focusing on mid-sized officeInterview with the CEO and President
Excelling in the Mid-sized Office Building Market

buildings in the Tokyo Metropolitan Area. Over the medium- to long-term,
KENEDIX-REIT is targeting a 400 billion yen portfolio.

12
14
15

KENEDIX-REIT is “Securing Quality and Value” for both investors and tenants
through External Growth, Internal Growth and a stable Financial Strategy.
KENEDIX-REIT acquires quality properties in sought-after locations, upgrades thebuildings with strategic renovations to raise their appeal and energy efficiency, andExternal Growth

6

Internal Growth8

Financial Strategy

0

KENEDIX-REIT Portfolio
Corporate Governance
Financial Section
Report of Independent Auditors

maintains a conservative financial strategy as a foundation for sustainable growth.

Balance Sheets

KENEDIX-REIT remains committed to delivering stable returns to unitholders andF

G

Statements of Income and Retained Earnings

superior service to tenants.

H

Statements of Changes in Net Assets
Notes to Financial Statements

I

Statements of Cash Flows (Unaudited)

KENEDIX-REIT

Securing

Operating Revenues(Million yen)

Operating Income

10,212
9,044
8,358(Million yen)

3,835

8,136

(Million yen)

3,052

4,516

4,425

3,009

2,607

3,709

S

Unitholders’ InformationisQuality and Value by…
Distribution per Unit

(Yen)

Total Assets(Million yen)

10,881
9,891

4,086

9,090

Net Income

31

H

2,540

9,596

9,364

9,557
251,080

261,928

303,284

306,734

274,973

2,309

11th Period

12th Period

13th Period

14th Period

15th Period

11th Period

12th Period

13th Period

14th Period

15th Period

11th Period

12th Period

13th Period

14th Period

15th Period

11th Period

12th Period

13th Period

14th Period

15th Period

11th Period

12th Period

13th Period

14th Period

15th Period(EndedOct. 31, 2010)(EndedApr. 30, 2011)(EndedOct. 31, 2011)(EndedApr. 30, 2012)(EndedOct. 31, 2012)(EndedOct. 31, 2010)(EndedApr. 30, 2011)(EndedOct. 31, 2011)(EndedApr. 30, 2012)(EndedOct. 31, 2012)(EndedOct. 31, 2010)(EndedApr. 30, 2011)(EndedOct. 31, 2011)(EndedApr. 30, 2012)(EndedOct. 31, 2012)(EndedOct. 31, 2010)(EndedApr. 30, 2011)(EndedOct. 31, 2011)(EndedApr. 30, 2012)(EndedOct. 31, 2012)(EndedOct. 31, 2010)(EndedApr. 30, 2011)(EndedOct. 31, 2011)(EndedApr. 30, 2012)(EndedOct. 31, 2012)

Unitholders’ Equity Ratio /Unitholders’ Equity
54.1%

Interest-Bearing Debt Ratio (LTV Ratio) /Interest-Bearing Debt

54.6%
51.7%

49.5%

49.0%

40.9%

45.3%

43.0%

45.8%

Occupancy Ratio

93.6%

94.6%

Portfolio Size

94.7%

95.4%

(Million yen)

95.5%

293,128

286,86640.3%
233,281

246,456

Leasing NOI (Net Operating Income)

255,546

5,864

5,776

(Million yen)

6,384

6,416

5,980

135,732

135,505150,272

150,063

150,389

102,567

112,715

110,914137,372

140,581

million yen

million yen

million yen

million yen

million yen

million yen

million yen

million yen

million yen

million yen

11th Period

12th Period

13th Period

14th Period

15th Period

11th Period

12th Period

13th Period

14th Period

15th Period

11th Period

12th Period

13th Period

14th Period

15th Period

11th Period

12th Period

13th Period

14th Period

15th Period

11th Period

12th Period

13th Period

14th Period

15th Period(EndedOct. 31, 2010)(EndedApr. 30, 2011)(EndedOct. 31, 2011)(EndedApr. 30, 2012)(EndedOct. 31, 2012)(EndedOct. 31, 2010)(EndedApr. 30, 2011)(EndedOct. 31, 2011)(EndedApr. 30, 2012)(EndedOct. 31, 2012)(EndedOct. 31, 2010)(EndedApr. 30, 2011)(EndedOct. 31, 2011)(EndedApr. 30, 2012)(EndedOct. 31, 2012)(EndedOct. 31, 2010)(EndedApr. 30, 2011)(EndedOct. 31, 2011)(EndedApr. 30, 2012)(EndedOct. 31, 2012)(EndedOct. 31, 2010)(EndedApr. 30, 2011)(EndedOct. 31, 2011)(EndedApr. 30, 2012)(EndedOct. 31, 2012)

Kenedix Realty Investment Corporation Semiannual Report| 01

Interview with the CEO and President

byfinancing environment. Many people believe the market has hit bottom and Japan’s
megabanks are offering very attractive financing terms, including non-recourse loans.
As you might expect, not all players are disciplined. Some companies are buying

1. Strengthening Focus on Mid-sized Office Buildings
2. Maintaining High Occupancy
3. Improving Leasing Conditions
4. Preserving and Increasing the Value of Our Buildings
5. Making Use of Our Stable Financial Foundation

properties at excessive valuations.

Q

Question 3

Answer 3

From the perspective of external

During the fiscal period under review (ended October 2012), we acquiredA

growth and improving portfolio

three mid-sized office buildings in the Tokyo Metropolitan Area. The lump-sum

quality, could you please discussdeal was brokered by Kenedix, Inc. A certain private fund actually wanted toproperty dispositions andsell four buildings at once, but only three met our criteria. So we acquired

acquisitions?

three buildings and the Kenedix Group took care of the remaining one. Bycollaborating with Kenedix, Inc., we obtained a very reasonable deal.
Acquiring the buildings individually would have been much more expensive.
Moreover, the actual NOI (weighted average) of the buildings is 6.9%, whichis quite high.
During the fiscal period under review, we sold the KDX Omori Building, Gradito
Kawaguchi, a residential property, and the Kanazawa Nikko Building,* a mixed-use
building. Selling the latter two buildings strengthens our core focus. The decision tosell the KDX Omori Building was based on a comprehensive analysis of the building’s
long-term prospects and an attractive offer. We intend to continue to conduct
replacement of assets to enhance the quality of the portfolio.
* Actual disposition took place on November 1, 2012 (the first day of the 16th Fiscal Period) for the
Kanazawa Nikko Building.

Q

Question 1

Answer 1

Can you give us an overview of

The Investment Corporation has conducted investment and management

guidelines and the company name,intends to promote investment primarily in office buildings.

the changes to the managementA

focusing on mid-sized office buildings in the Tokyo Metropolitan Area, andQ

Answer 4

Could you tell us about your

We continue our policy of maintaining a conservative interest-bearing debt

acquisition capacity?

ratio (LTV ratio). Our LTV ratio stands at 45.8%. We could allow this to riseto 47%, which would be our all-time high, yielding additional investment
capacity. By also mobilizing cash reserves, we would have roughly 5 billion

which took place during the fiscal
period under review?

A

Question 4

In line with this policy, in September 2012, the name of the asset management

yen for investment. We might also combine this with proceeds from property

company was changed from Kenedix REIT Management to Kenedix Office Partners

dispositions.

and the Management Guidelines were modified. These changes highlight our focusQ

on office buildings. The main revision of the guidelines was an increase in the

We mainly used the proceeds from the two property dispositions during the fiscal

investment ratio target for office buildings from “50%-100%” to “80%-100%.”

period under review for the early redemption of high-cost borrowings. This reduces

Office buildings comprise over 90% of our portfolio, so now our name and man-our ongoing costs. Some of the gains were used as voluntary retained earnings. Thisagement guidelines reflect this reality. “Partners” also reflects our dual role as areserve for reduction entry provides protection in the event of unexpected damage

good partner with unitholders and with tenants.

or loss. The gains didn’t significantly bump up our cash position.

A

Question 2

Answer 2

Can you tell us about the mid-sized

We get constant information on buying and selling opportunities due to ouroffice market?

track record of continuous property acquisition over the past three years, theQ

A

Question 5

Answer 5

What’s the state of the office building

Many say recovery in mid-sized office buildings lags large office buildings by about

leasing market?

six to twelve months. Rather, the polarization between competitive properties andextensive network we have built over years of acquisitions, and the network

non-competitive properties is growing more pronounced across all classes. I reallyof our sponsor, Kenedix, Inc.

don’t perceive a lag between large office buildings (Classes S and A) and mid-sized
office buildings, the so-called Class B buildings KENEDIX-REIT focuses on. Indeed

02 |This gives us an edge, but competition is intensifying. We see more players, including

the recovery is more robust among our high-quality mid-sized office buildings thanprivate equity and foreign funds, entering the market, encouraged by the favorable

mediocre Class A buildings. People generally speak about Class S, A and B buildings

Kenedix Realty Investment Corporation Semiannual Report

Kenedix Realty Investment Corporation Semiannual Report| 03

in that order, but these designations are based on floor size, not quality. More

About 200 people have come to see the building, with specific inquiries from overnumerous, mid-sized office buildings vary widely. Bad buildings can be really bad,

10 parties from industries spanning IT, telecommunications, and manufacturing as

but these aren’t our buildings. Within the mid-sized office building market, wewell as financial institutions. We aren’t worried about leasing this building. The

succeed in differentiating ourselves on quality.

location is excellent and the overall office building market is recovering. Rather, I
think the issue is under what terms and timing. We are planning to lease the building

Building Categories1

Floor Plate (Tsubo)2

Total Floor Area (Tsubo)2

to multiple tenants, but we haven’t ruled out the possibility of leasing it to a single

Class S

500 or more

20,000 or moretenant at this moment. Rental revenues from the KDX Nihonbashi Kabutocho

Class A200 or more

10,000 or more

Building are not included in our earnings forecasts for the 16th Fiscal Period, but

Class B

Less than 200

Less than 10,000

we aim to secure leasing revenues from the 17th Fiscal Period onward.

Notes: 1. Standard for Tokyo. Specifications vary by market.
2. Tsubo = Approximately 3.3 square meters

Q

A

periods?

period for office buildings, up 1.8 percentage points compared to the previous

Question 6
What’s happening in terms ofoccupancy, rents and rent-freeAnswer 6

Q

A

Question 9

Answer 9

Please tell us about the distribution

The forecasted distribution for the 16th Fiscal Period is 8,880 yen per unit,

situation.

up 380 yen from the forecast of 8,500 yen which was announced in October

The overall occupancy ratio is very high: 95.5% across the portfolio at the2012. On the surface, this is lower than the distribution for the 15th Fiscal

end of the fiscal period under review and 94.3% on average during the

Period of 9,557 yen per unit.
Over the past two years, we maintained a distribution of 9,000 yen per unit or morefiscal period.

by making use of gains from property sales. Similarly, the gain on sale of the
Six-months ago I mentioned improving leasing rates and rental terms. The average

Kanazawa Nikko Building will be used to raise the upcoming distribution to 8,880

rent-free period is shorter. Within the Tokyo Metropolitan Area, the figure stands

yen. The gain on sale was not included in the forecast of 8,500 yen which was

at 3.9 months on average during the 15th Fiscal Period.* So the total downtime

announced in October 2012. In fact, the level of the upcoming distribution, exclud-from lease termination to receiving rent (downtime period + rent-free period) is also

ing the gain on sale, is not low compared to the past.
I will try to maximize distributions. Over the medium term, the distribution may

becoming shorter, as you can see on pages 8-9, which translates into higher rentbased occupancy ratios and increased rental revenues.

increase significantly depending on our success in leasing the KDX Nihonbashi* Compared to the average of 6.0 months during the 14th Fiscal Period. Also the average downtime

Kabutocho Building. We will aim for distributions on the level of 9,000 yen per unit.

decreased from 5.1 months to 3.0 months over the same period.

QA

growth?

service. The steady efforts of our in-house property managers, combined

Question 7
What are you doing to raise customer
satisfaction and promote internal

Answer 7

Some of our buildings are over 20 years old, but we select only the best
among them and add value to them through improvements and attentive
with frequent customer satisfaction (CS) surveys, are bearing fruit.

I believe we can secure this on a pure earnings basis, excluding the gain on sale, by
fully leasing the KDX Nihonbashi Kabutocho Building.

Q

A

Question 10

Answer 10

Lastly, do you have any special words

With our established track record, I want investors to know that our buildings arefor foreign investors?

relatively low-risk. Our properties may not be large, but they’re high quality andmarked by a distinguished level of service. We aim to become the No. 1 J-REIT in the
mid-sized office building market. Actually, I am confident that we are already No. 1,

In order to increase customer satisfaction, we dispatch in-house property managers to

but I want to firmly cement this position.

take care of the buildings and conduct CS surveys on a regular basis. Thanks to these
efforts, I believe the customers are satisfied with the site area as well as building
quality and our services. As a result, existing tenants are expanding their rental space

January 2013

within the same building. We saw 20 such cases during this fiscal period, compared to
13 cases during the previous fiscal period. In particular, expansion needs are growing
for small and medium-sized enterprises, which comprise the majority of our tenants.
This can be seen as one indication of customer satisfaction. Approximately 94% of

Naokatsu Uchida

our tenants indicate they want to continue leasing their current premises.

CEO and President

Q

A

Kenedix Office Partners, Inc.

KDX Nihonbashi Kabutocho Building?

plans to finish renovating common areas by March 2013.

Question 8
How are you preparing for the
move-out of a major tenant in the04 |Answer 8

The lease contract terminated on November 30, 2012. We already commenced
leasing activities and are simultaneously carrying out restoration work, with

Kenedix Realty Investment Corporation Semiannual Report

Kenedix Realty Investment Corporation Semiannual Report| 05

External Growth
Strengthening Focus on Mid-sized Office Buildings1.

2.

Acquired Three Office Buildings

Ratio of Office Buildings at
During the 15th Fiscal Period, KENEDIX-REIT acquired three

KENEDIX-REIT has grown rapidly through external growth, with

92.6

%

Demonstrates Strategic Focus

its total acquisition price reaching 293.1 billion yen, up 40%

office buildings in the Tokyo Metropolitan Area: the Fuchu

Overall, the portfolio increased to 293.1 billion yen during thecompared to the end of the 9th Fiscal Period (October 31,

South Building, the Kasuga Business Center Building and the15th Fiscal Period. At the end of the period, October 31, 2012,2009), and its investment totaling 84.0 billion yen over the

Nakameguro Business Center Building. The total acquisition

92.6% of the portfolio was comprised of mid-sized office

three years from the 10th Fiscal Period to the end of the 15thvalue was 10.8 billion yen. Together, the three mid-sized officebuildings, with 57.5% of these located in Central Tokyo andFiscal Period (October 31, 2012). During that same time frame,buildings boast an actual NOI (weighted average) of 6.9%.

23.1% in the surrounding Tokyo Metropolitan Area.

annual net operating income (NOI) increased by 4.6 billion

We also disposed of one office building and one non-core

yen, an impressive 53% improvement. External growth is one

property for a total of 5.06 billion yen. This reshuffling further

We focus on mid-sized office buildings, which account for theway we improve the profitability and quality of the portfolio.

enhanced our portfolio quality.

lion’s share of office rental demand in the Tokyo Metropolitan

We are very strategic when it comes to property acquisitions.

Area, according to research by CB Richard Ellis (CBRE). In Tokyo,
over 92.2% of offices have fewer than 30 employees, whereas
offices with more than 100 employees account for just 1.6%

Portfolio Breakdown by Property Type
Residential Properties
2.8%
Central Urban
Retail Properties
4.2%
Office Buildings
92.8%(As of November 30, 2012)

Portfolio Breakdown by Region (office buildings)

Other Regional Areas
19.2%
Other Tokyo
Metropolitan Area
23.1%

Central
Tokyo
57.5%

of the market, according to the same source. In the world’s
largest metropolitan area, public transportation is indispensablein getting workers to their offices. Over 82% of our officetrain or subway station. This makes them highly desirable.

Notes: 1. The above percentages are calculated using the acquisition prices rounded down to
the first decimal place.
2. Central Tokyo refers to the Tokyo central 5 wards: Chiyoda, Chuo, Minato, Shibuya
and Shinjuku wards.

buildings are situated within a five-minute walk of the nearest
A83 Fuchu South Building

A84 Kasuga BusinessCenter Building(As of November 30, 2012)

A85 Nakameguro BusinessCenter Building

Properties Acquired During the 15th Fiscal Period
Property Name

Fuchu South Building

Kasuga Business Center
Building

Nakameguro BusinessCenter Building

Total of 3 Properties

3.

4.

Location

Fuchu-shi, Tokyo

Bunkyo-ku, Tokyo

Meguro-ku, Tokyo—

Focusing on High Quality Mid-sized Office Buildings

Balancing External Growth with Internal Growth

Gross Floor Area

16,647.00m2

6,444.31m2

3,455.90m2

26,547.21m2

Mid-sized office buildings are somewhat misleadingly catego-

As more players enter the rebounding mid-sized office build-Year Built

March 1996

June 1992

October 1985—

Acquisition Price

6,120 million yen

2,800 million yen

1,880 million yen

10,800 million yen

rized as Class B or Grade B office buildings, based on theiring market, there may be fewer opportunities for acquisitions.
We follow stringent criteria and will not buy properties at

Appraisal Value at Acquisition

6,550 million yen

2,970 million yen

2,220 million yen

11,740 million yen

size, but this does not mean they rank lower in terms ofDifference between Acquisition
Price and Appraisal Value

-6.6%

-5.7%

-15.3%-8.0%

quality. KENEDIX-REIT focuses on high-quality mid-sized officeexcessive valuations. Fortunately, we have a robust network so

SellerThird Party

Third Party

Third Party—buildings. From a prospective tenant’s viewpoint, some of ourwe often hear about opportunities, including the purchase of

Actual NOI (Note 1)

420 million yen

178 million yen

149 million yen

748 million yen

buildings are superior in terms of quality, convenience andequity stakes linked to real estate, that others miss. Going

Actual NOI/Acquisition Price

6.9%

6.4%

8.0%

6.9%

attractiveness. For this, we conduct customer satisfaction

forward, external growth will continue to play a role in our

Appraisal NOI (Note 2)

389 million yen

168 million yen

130 million yen

688 million yen

Appraisal NOI/Acquisition Price

6.4%

6.0%

6.9%

6.4%

surveys on a regular basis to grasp and better meet customer

growth story, but the acquisition pace may slow as we comedemand.

to rely more heavily on portfolio reshuffling and internal

Notes: 1. Actual NOI shows the net operating income (annualized) estimated based on the operating income and operating expenses (after property tax and city planning tax) of relevant
properties under the existing contracts with tenants as of September 21, 2012.
2. Appraisal NOI is the net operating income (annualized) calculated on the direct capitalization method. This is stated in the appraisal report released at the time of acquisition.
3. Actual NOI and Appraisal NOI are rounded down to the nearest million yen and percentages are rounded to the first decimal place.

Portfolio Growth(by acquisition price)(Billion yen)Re-growth period

300

293.1

growth amid a more competitive property market.
Portfolio Breakdown by Distance from the Nearest Station(office buildings)
7-10 min (8%)

1 min (19%)

Stable period

250

6 min (9%)
200

 Office Buildings
 Central Urban Retail Properties
 Residential Properties

Growth period
150

2 min (22%)

100
50
0

82% locatedwithin 5-minutes
by foot

3 min (19%)
End of 1st(2005/10)

End of 5th(2007/10)

End of 10th(2010/4)

End of 15th
(2012/10)

4 min (15%)
5 min (5%)

Notes: 1. The figures for the 14th and 15th Fiscal Periods include 645 million yen for the Kanazawa Nikko Building, which was sold on November 1, 2012.
2. Figures are rounded down to the nearest million yen.

06 |Kenedix Realty Investment Corporation Semiannual Report

Note: As of the end of the 15th Fiscal Period.

Kenedix Realty Investment Corporation Semiannual Report| 07Internal Growth
Maintaining High Occupancy

Preserving and Increasing the Value of Our Buildings

1.

2.

Enhancing Portfolio Quality through Internal Growth

Occupancy Ratio

95.5

%

4.

5.

Surpassing the Market Average in Central Tokyo:

Portfolio PML

4.89

% and

KENEDIX-REIT has grown dramatically since its founding, andacross the portfolio

Rents and Occupancy

Public Safety

internal growth is playing an increasingly important role.

During the 15th Fiscal Period (ended October 2012), the average

In the five wards of Central Tokyo, KENEDIX-REIT commands

All 84 (as of the end of the 15th Fiscal Period) of our proper-

Unsurpassed know-how provides ripe opportunities to improve

occupancy ratio was 94.3% for office buildings, up 1.8% fromhigher than market leasing rates, collecting an averageties meet the latest earthquake resistance standards or possess

occupancy, rents, and terms. Meanwhile, the economies ofthe previous fiscal period. At the end of the 15th Fiscal Period

17,312 yen per tsubo against the market average of 16,628

equivalent quality. The probable maximum loss (PML) ratio of

scale help us reduce costs.

the ratio reached 95.5% across the portfolio. Maintaining highyen. In addition, at 95.3% our occupancy ratio for central

our portfolio currently stands at 4.89%.

occupancy helps secure the profitability of the existing portfolio.

Tokyo beats the market average of 91.3%.

We do this through attentive property management, superior

KENEDIX-REIT is installing automated external defibrillators

The KDX Nihonbashi Kabutocho Building is already under-(AEDs) in its office buildings as a basic public service. Also,

service and strategic building renovations to maintain andgoing renovation, but we aim to rapidly secure new tenants

wireless LAN service is being introduced to building lobbies.

improve asset value.

based on its appealing location and building specifications.

This will be freely available to the public during emergencies

To achieve internal growth, we will continue aiming forand disasters.

stable occupancy and the improvement of leasing conditions.
relationships with existing tenants. And we will continue to6.

increase revenue yields by shortening the vacancy and rent-free

Environmental Initiatives

periods. As KENEDIX-REIT grows in scope, such internal growth

In terms of environmental performance, we have reduced unit

will become an increasingly important value driver.

energy consumption by 6.5% across the portfolio over the

We will work to reduce move-outs by strengthening our

Improving Leasing Conditions

3.
Rent-Free Period Fell to

3.9

monthspast three years. We will continue implementing energy saving
Downtime Period and Rent-free Period (Tokyo Metropolitan Area)

in the Tokyo Metropolitan Area

Clearly we are doing many things right when it comes to our

Downtime Period

(%)

11.1
6.0

5.7

5.1

13th Period
2011/1014th Period
2012/4

3.0

0.0

15.0

14.6

Downtime Period

10.0

6.2

renewal narrowing from 21.2% in the 14th Fiscal Period to
15.7% in the 15th Fiscal Period.

08 |Kenedix Realty Investment Corporation Semiannual Report

Benchmark (GRESB).

90
End of 6th(2008/4)

End of 8th(2009/4)

End of 10th(2010/4)

End of 12th
(2011/4)

End of 14th End of 15th
(2012/4)(2012/10)

Rents for Office Buildings:
KENEDIX-REIT Versus the Market(yen/tsubo)

24,00022,000

8.9
4.2

5.0

 The Market Average

20,00018,00016,62817,312

16,00014,000

9.4
6.9

periods compared with new tenants. In order to improve cus-a result, rents are firming, with the reduction upon contract

91.3%

92

 KENEDIX-REIT Averagecontracts (on an area basis) during the fiscal period underbasis and take care of property management on our own. As

Rent-free Period

5.2

building. Such cases accounted for nearly 25% of new leasing

tomer satisfaction (CS), we conduct CS surveys on a regularefforts have won Kenedix Office Partners a “Green Star” rating,the highest rating of the Global Real Estate Sustainability

94

13.1

On another promising note, we saw a marked increase inreview. These tenants pay higher rents with shorter rent-free

15th Period
2012/1095.3%

96Downtime Period and Rent-free Period (Office Portfolio)

months to 6.9 months in the Tokyo Metropolitan Area and fromexisting tenants expanding their rental space within the same

6.9
3.9

5.0

Altogether, the total downtime (downtime period + rent-free

13.1 months to 8.9 months across the entire office portfolio.

from Sumitomo Mitsui Banking Corporation (SMBC) and the98

Development Bank of Japan (DBJ). Moreover, these extensive
5.7

is especially important when it comes to bridging the gap

period) before we again receive leasing revenue fell from 11.1

buildings have received Green Building Assessment Loans

10.0

months to 4.2 months across the entire office portfolio. Thisbetween the occupancy ratio and rent-based occupancy ratio.

conditioning systems and LED lighting systems. Some of our

100

11.4

rent-free period improved significantly, falling from 6.0 months
to 3.9 months in the Tokyo Metropolitan Area and from 6.2

and environmental initiatives, such as high-efficiency air

KENEDIX-REIT Office Portfolio Occupancy
The Market (Average Office Building Occupancy)

Rent-free Period

15.0

existing clients…and also when it comes to finding new
tenants. In addition to the shorter vacancy period, the initial

Central Tokyo Occupancy: KENEDIX-REIT Versus the Market

12,0004.7

0.0
13th Period
2011/1014th Period
2012/415th Period
2012/10Notes: 1. Downtime period refers to the period from the cancellation date of the previous
tenant’s contract until the start date of a contract with a new tenant for the floor
area. Rent-free period refers to the period from the start date of contract until thestart date of contracted full rent. Above figures are monthly averages and are
expressed in terms of months by dividing by 30 days.
2. The analysis is based on office floors on the 2nd floor or above and excludes buildings that were newly acquired during the relevant fiscal periods.

10,000End of 6th(2008/4)

End of 7th(2008/10)

End of 8th(2009/4)

End of 9th(2009/10)

End of 10th End of 11th End of 12th End of 13th End of 14th End of 15th
(2010/4)(2010/10)(2011/4)(2011/10)(2012/4)(2012/10)

Note: Based on buildings in the Tokyo central 5 wards. Kenedix Office Partners created the chart using data provided by Miki Shoji, whose figures cover both existing and new buildings. Standard
floor plans were used to calculate the KENEDIX-REIT office portfolio occupancy and rents.

Kenedix Realty Investment Corporation Semiannual Report| 09

Financial Strategy
Making Use of Our Stable Financial Foundation

1.
Maintaininga Conservative LTV Ratio at

45.8

Diversification of Debt Maturities(as of October 31, 2012)(Billion yen)%

Financial strategy provides the stable foundation underlying

45.8% at the end of the fiscal period under review (ended

KENEDIX-REIT. Over time, our steady financial strategy has

October 2012). A conservative LTV ratio maintains financial

proven remarkably resilient. The heart of this strategy is a con-stability and preserves funding flexibility.

 Borrowing
 Investment Corporation Bonds
 New Finance in the 15th Period Refinance in the 15th Period

25
20

20.61

Repayment
17.5

17.51

15

2.50
15.80

4.50

10

1.50
5

8.41

13.14

7.21

7.00

0
15th
Periodservative interest-bearing debt ratio (LTV ratio), which stood at

16th
Period17th
Period18th
Period19th
Period20th
Period21stPeriod

4.00

4.00

14.50

22nd
Period23rd
Period

3.00

7.00

0.50

1.50

3.00

2.50

2.40

24th
Period25th
Period26th
Period27th
Period28th
PeriodNotes: The chart illustrates total debt amounts that mature in each period, including principal repayment based on contract (rounded to the second decimal place).

2.
Minimizing Financing Costs and Extending Maturities
Our top priority is to reduce financing costs while maintaining
financial stability. Therefore, we continue to focus on loweringborrowing interest rates as well as on diversifying debt maturities and extending the average life of our borrowings. In the3.

Changes in Average Interest Rate /Average Life of Interest-Bearing Debt
Average Life
Average Interest Rate (Upfront fees included)

(%)

2.20

2.14

6

2.21

2.17

2.10

increased to 2.7 years (up from 2.5 years in the previous fiscal

5

2.02

fiscal period under review, the average interest rate dropped to
1.96% from 2.02% while the average life of our borrowings

1.96%

2.00
1.90

period). Also, we reduced the portion of floating-rate debt.

1.80

Fixed-rate debt of 121.1 billion yen now accounts for 86.1%

1.70

of our total debt, up from 79.3%. Altogether, we procured

1.60
11th Period
2010/1017.5 billion yen through refinancing and 7.0 billion yen through12th Period
2011/413th Period
2011/104

2.7 years 3

2.5

2.3

2.2

1.8

Diversifying Our Financing Bases(yrs)

14th Period
2012/4

During the 16th Fiscal Period, we seek to continue working tobalance of borrowings and may start transactions with new

reduce financing costs and extend and diversify maturities.

lenders with whom we determine a long-term relationship can

In terms of lenders, we have established good relationships

be established.
In addition to borrowings, KENEDIX-REIT had issued a total

with 10 banks and intend to continue to build good trackrecords with them. We are also working to expand our lenderof 6.0 billion yen in investment corporation bonds as of the2base in consideration of future growth. In addition, we may

end of the 15th Fiscal Period. Japan Credit Rating has assigned

1

increase our balance of borrowings in a well-proportioned

a credit rating of A to these bonds, with a positive outlook.

0

manner with lenders with whom we have a relatively small

15th Period
2012/10

Breakdown of Lenders

new financing. In the process, we were able to diversify debt

Borrowing Amounts (Billion yen)maturities. The 15th Fiscal Period further increased the financial

Bank

Mizuho Bank (1.5%)

efficiency and stability of KENEDIX-REIT.
Changes in the Interest-Bearing
Debt Ratio (LTV Ratio)

Resona Bank (5.4%)
Mitsubishi UFJ Trust and Banking(6.8%)

(%)

50

47.0%

45.6%

45.3% 45.8%

45

43.0%
41.2% 41.4% 41.1% 40.9% 40.9%

40.3%

38.9%

40

35

Bank of Tokyo
Mitsubishi UFJ(12.1%)

37.5%

38.7%

Sumitomo Mitsui Trust Bank
(13.2%)

35.3%
30
End of
1st period
2005/10End of
3rd period
2006/10End of
5th period
2007/10End of
7th period
2008/10End of
9th period
2009/10End of11th period
2010/10End of13th period
2011/10End of15th period
2012/10Mizuho Trust & Banking(0.7%)
Bank of Fukuoka (0.4%)
Sumitomo Mitsui
Banking Corporation(25.4%)Development
Bank of Japan(19.9%)

Aozora Bank (14.6%)

As of
As of
Apr. 30, 2012 Oct. 31, 2012

ChangeSumitomo Mitsui Banking
Corporation

32.0

34.2

+2.2

2 Development Bank of Japan

26.7

26.7

0

3 Aozora Bank

19.7

19.7

0

4 Sumitomo Mitsui Trust Bank

17.7

17.7

0

5 Bank of Tokyo Mitsubishi UFJ

16.3

16.3

0

6 Mitsubishi UFJ Trust and Banking

9.2

9.2

0

1

7 Resona Bank

7.3

7.3

0

8 Mizuho Bank

1.0

2.0

+1.0
0

9 Mizuho Trust & Banking

1.0

1.0

10 Bank of Fukuoka

0.5

0.5

0

Total

131.4

134.6

+3.2

Note: Figures are rounded to the first decimal place.

Note: Interest bearing debt ratio = Interest-bearing debt at end of period/Total assets

Proportion of Fixed-rate Debt vs Floating-rate Debt

Floating Rate
¥19.5 billion(13.9%)
Fixed Rate
¥121.1 billion(86.1%)

Debt Balance by Maturity
Short-term Borrowings¥5.7 billion(4.1%)

Current Portion ofLong-term Borrowings¥15.9 billion(11.3%)
Long-term Borrowings andInvestment Corporation Bonds¥119.0 billion(84.6%)

Note: Figures are rounded to the first decimal place.

10 |Kenedix Realty Investment Corporation Semiannual Report

Kenedix Realty Investment Corporation Semiannual Report| 11

KENEDIX-REIT Portfolio (As of October 31, 2012)

A13 KDX Kojimachi Building

No.

Office(TokyoMetropolitan
Area)

12 |

A15 KDX Hamacho Building

A30 KDX Nishi-Gotanda
Building

Property Name

A33 KDX Okachimachi
Building
Location

A40 Toranomon Toyo Building

A46 Hiei Kudan-Kita Building

Acquisition PriceYear Built(mn yen)(Note 1)

Occupancy
Ratio

No.

A59 KDX Iwamoto-cho
Building

A67 KDX Ginza 1chome
Building

Property Name

A75 KDX Nihonbashi
Kabutocho Building
Location

A42 Karasuma Building

Acquisition PriceYear Built(mn yen)(Note 1)

Occupancy
Ratio

A01

KDX Nihonbashi 313 Building

Chuo-ku, Tokyo

5,940

Apr. 1974

100.0%A66

KDX Shinjuku Building

Shinjuku-ku, Tokyo

6,800

May 1993

100.0%

A03

Higashi-Kayabacho Yuraku Building

Chuo-ku, Tokyo

4,450

Jan. 1987

89.1%

A67

KDX Ginza 1chome Building

Chuo-ku, Tokyo

4,300

Nov. 1991

100.0%A04

KDX Hatchobori Building

Chuo-ku, Tokyo

3,680

Jun. 1993

100.0%A68

KDX Nihonbashi Honcho Building

Chuo-ku, Tokyo

4,000

Jan. 1984

100.0%A05

KDX Nakano-Sakaue Building

Nakano-ku, Tokyo

2,533

Aug. 1992

100.0%A71

KDX Iidabashi Building

Shinjuku-ku, Tokyo

4,670

Mar. 1990

100.0%

A06

Harajuku F.F. Building

Shibuya-ku, Tokyo

2,450

Nov. 1985

100.0%A72

KDX Higashi-Shinagawa Building

Shinagawa-ku, Tokyo

4,590

Jan. 1993

100.0%A07

FIK Minami Aoyama

Minato-ku, Tokyo

2,270

Nov. 1988

88.4%

A73

KDX Hakozaki Building

Chuo-ku, Tokyo

2,710

Nov. 1993

100.0%

A08

Kanda Kihara Building

Chiyoda-ku, Tokyo

1,950

May 1993

100.0%A74

KDX Shin-Nihonbashi Building

Chuo-ku, Tokyo

2,300

Nov. 2002

100.0%A13

KDX Kojimachi Building

Chiyoda-ku, Tokyo

5,950

May 1994

100.0%A75

KDX Nihonbashi Kabutocho Building (Note 3)

Chuo-ku, Tokyo

11,270Nov. 1998

100.0%A14

KDX Funabashi Building

Funabashi, Chiba

2,252

Apr. 1989

100.0%

A76

Ikebukuro Nikko Building

Toshima-ku, Tokyo

1,653

Mar. 1986

100.0%A15

KDX Hamacho Building

Chuo-ku, Tokyo

2,300

Sep. 1993

100.0%

A77

Kabutocho Nikko Building II

Chuo-ku, Tokyo

1,280

Oct. 2001

100.0%

A16

Toshin 24 Building

Yokohama, Kanagawa

5,300

Sep. 1984

100.0%

A78

Tachikawa Ekimae Building

Tachikawa, Tokyo

1,267

Feb. 1990

100.0%A17

KDX Ebisu Building

Shibuya-ku, Tokyo

4,640

Jan. 1992

100.0%

A83

Fuchu South Building

Fuchu, Tokyo

6,120

Mar. 1996

98.2%

A19

KDX Hamamatsucho Building

Minato-ku, Tokyo

3,460

Sep. 1999

100.0%A84

Kasuga Business Center Building

Bunkyo-ku, Tokyo

2,800

Jun. 1992

95.7%

A20

KDX Kayabacho Building

Chuo-ku, Tokyo

2,780

Oct. 1987

100.0%

A85

Nakameguro Business Center Building

Meguro-ku, Tokyo

1,880

Oct. 1985

100.0%A21

KDX Shinbashi Building

Minato-ku, Tokyo

2,690

Feb. 1992

100.0%

A12

Portus Center Building

Sakai, Osaka

5,570

Sep. 1993

89.5%

A22

KDX Shin-Yokohama Building

Yokohama, Kanagawa

2,520

Sep. 1990

95.4%

A24

KDX Minami Semba Dai-1 Building

Osaka, Osaka

1,610

Mar. 1993

77.7%

A23

KDX Yotsuya Building

Shinjuku-ku, Tokyo

1,950

Oct. 1989

100.0%A25

KDX Minami Semba Dai-2 Building

Osaka, Osaka

1,560

Sep. 1993

100.0%A26

KDX Kiba Building

Koto-ku, Tokyo

1,580

Oct. 1992

100.0%A36

KDX Niigata Building

Niigata, Niigata

1,305

Jul. 1983

67.5%

A27

KDX Kajicho Building

Chiyoda-ku, Tokyo

2,350

Mar. 1990

100.0%

A42

Karasuma Building

Kyoto, Kyoto

5,400

Oct. 1982

99.2%

A28

KDX Nogizaka Building

Minato-ku, Tokyo

1,065

May 1991

78.1%

A44

KDX Sendai Building

Sendai, Miyagi

2,100

Feb. 1984

93.8%

A29

KDX Higashi-Shinjuku Building

Shinjuku-ku, Tokyo

2,950

Jan. 1990

100.0%A53

KDX Hakata-Minami Building

Fukuoka, Fukuoka

4,900

Jun. 1973

93.3%

A30

KDX Nishi-Gotanda Building

Shinagawa-ku, Tokyo

4,200

Nov. 1992

100.0%

OfficeA54

KDX Kitahama Building

Osaka, Osaka

2,220

Jul. 1994

92.8%

100.0%(Other Regional
Areas)A58

KDX Nagoya Sakae Building

Nagoya, Aichi

7,550

Apr. 2009100.0%

Sep. 1986

Office(TokyoMetropolitan
Area)

A31

KDX Monzen-Nakacho Building

Koto-ku, Tokyo

1,400

A32

KDX Shiba-Daimon Building

Minato-ku, Tokyo

6,090

Jul. 1986

82.8%

A69

KDX Kobayashi-Doshomachi Building

Osaka, Osaka

2,870

Jul. 2009

91.3%

A33

KDX Okachimachi Building

Taito-ku, Tokyo

2,000

Jun. 1988

100.0%

A70

Kitananajo SIA Building

Sapporo, Hokkaido

2,005

Oct. 1989

100.0%A34

KDX Hon-Atsugi Building

Atsugi, Kanagawa

1,305

May 1995

86.0%

A79

Nagoya Ekimae Sakura-dori Building

Nagoya, Aichi

7,327

Apr. 1986

93.8%

A35

KDX Hachioji Building

Hachioji, Tokyo

1,155

Dec. 1985

100.0%

A80

Nagoya Nikko Shoken Building

Nagoya, Aichi

4,158

Aug. 1974

98.0%

A37

KDX Ochanomizu Building

Chiyoda-ku, Tokyo

6,400

Aug. 1982

90.1%

A81

Sendai Nikko Building

Sendai, Miyagi

950

Mar. 1989

75.4%

A38

KDX Nishi-Shinjuku Building

Shinjuku-ku, Tokyo

1,500

Oct. 1992

100.0%

A82

View Flex Umeda Building

Osaka, Osaka

2,770

Jul. 2009

95.5%

A39

KDX Toranomon Building

Minato-ku, Tokyo

4,400

Apr. 1988

100.0%

Office Subtotal (78 properties)

271,700

Avg. 22.3 years

95.2%

A40

Toranomon Toyo Building

Minato-ku, Tokyo

9,850

Aug. 1962

96.9%

Mar. 1997

100.0%A41

KDX Shinjuku 286 Building

Shinjuku-ku, Tokyo

2,300

Aug. 1989

100.0%(Tokyo Metropolitan Area) B19

100.0%A45

KDX Roppongi 228 Building

Minato-ku, Tokyo

3,300

Apr. 1989

54.4%

B18

A46

Hiei Kudan-Kita Building

Chiyoda-ku, Tokyo

7,600

Mar. 1988

100.0%A47

KDX Shin-Yokohama 381 Building (Note 2)

Yokohama, Kanagawa

5,800

Mar. 1988

91.7%

A48

KDX Kawasaki-Ekimae Hon-cho Building

Kawasaki, Kanagawa

3,760

Feb. 1985

100.0%

A49

Nissou Dai-17 Building

Yokohama, Kanagawa

2,710

Jul. 1991

86.4%

A50

Ikejiri-Oohashi Building

Meguro-ku, Tokyo

2,400

Sep. 1988

100.0%A51

KDX Hamacho Nakanohashi Building

Chuo-ku, Tokyo

2,310

Sep. 1988

100.0%A52

KDX Kanda Misaki-cho Building

Chiyoda-ku, Tokyo

1,380

Oct. 1992

100.0%

A55

Shin-toshin Maruzen Building

Shinjuku-ku, Tokyo

2,110

Jul. 1990

100.0%A56

KDX Jimbocho Building

Chiyoda-ku, Tokyo

2,760

May 1994

100.0%A57

KDX Gobancho Building

Chiyoda-ku, Tokyo

1,951

Aug. 2000

100.0%A59

KDX Iwamoto-cho Building

Chiyoda-ku, Tokyo

1,864

Mar. 2008

100.0%A60

KDX Harumi Building

Chuo-ku, Tokyo

10,250Feb. 2008

70.3%

A61

KDX Hamamatsucho Dai-2 Building

Minato-ku, Tokyo

2,200

Apr. 1992

87.6%

A62

Koishikawa TG Building

Bunkyo-ku, Tokyo

3,080

Nov. 1989

100.0%

A63

Gotanda TG Building

Shinagawa-ku, Tokyo

2,620

Apr. 1988

100.0%A64

KDX Nihonbashi 216 Building

Chuo-ku, Tokyo

2,010

Oct. 2006

100.0%

Kenedix Realty Investment Corporation Semiannual Report

Residential
Residential

B03

Court Mejiro

Shinjuku-ku, Tokyo

1,250

Residence Charmante Tsukishima

Chuo-ku, Tokyo

5,353

Jan. 2004

Venus Hibarigaoka

Sapporo, Hokkaido

1,800

Mar. 1989

96.1%

8,403

Avg. 13.0 years

97.8%(Other Regional Areas) Residential Subtotal (3 properties)

Central Urban
RetailC01

Frame Jinnan-zaka

Shibuya-ku, Tokyo

9,900

Mar. 2005

100.0%C02

KDX Yoyogi Building

Shibuya-ku, Tokyo

2,479

Aug. 1991

100.0%

12,379Avg. 10.3 years

100.0%

645

Mar. 1989

100.0%

645

Avg. 23.6 years

100.0%

293,128

Avg. 21.5 years

95.5%

891

Jun. 1992(Tokyo Metropolitan Area) Central Urban Retail Subtotal (2 properties)

Others

D01

Kanazawa Nikko Building (Note 4)

Kanazawa, Ishikawa(Other Regional Areas) Others Subtotal (1 property)
Total (84 properties)

Investment Security

Senri Property TMK Preferred Securities

Toyonaka, Osaka

Notes: 1. The year built refers to the date of construction completion recorded in the land register. The average age subtotal and total data are calculated using the weighted-average based on
acquisition prices as of October 31, 2012, and are rounded down to the first decimal place.
2. KDX Shin-Yokohama 381 Building and KDX Shin-Yokohama 381 Building Annex Tower are indicated collectively as one property. Year of construction of existing tower is shown. Upon
calculating the weighted-average portfolio age, the completion date (April 2009) for the KDX Shin-Yokohama 381 Building Annex Tower is not considered.
3. As of October 31, 2012, the Kabutocho Nikko Building. The name was changed to the KDX Nihonbashi Kabutocho Building effective from December 1, 2012.
4. Kanazawa Nikko Building was sold on November 1, 2012.
5. Amounts indicated have been rounded down.

Kenedix Realty Investment Corporation Semiannual Report| 13

Corporate Governance

Financial Section
Corporate Governance System of Kenedix OfficePartners

Contents

KENEDIX-REIT endeavors to build a corporate gover-Independent Auditor’s ReportFnance system that fosters highly transparent asset

Kenedix Office Partners endeavors to control the various risks

Balance Sheets

management operations and fair transactions.

G

related to investment management by preparing management

Statements of Income and Retained Earnings

H

Statements of Changes in Net Assets

H

Notes to Financial Statements

I

Statements of Cash Flows (Unaudited)

S

With the aim of becoming an “autonomous J-REIT,”

guidelines and adhering to fundamental investment management
Ensuring management independence and transparency isconcepts, including investment policies, transaction rules withextremely important in undertaking fair transactions and indis-

interested parties, and policies of distribution and disclosure.

pensable for promoting sound management practices. In order toFurthermore, based on a review conducted by the Compliancecomply with each legal regulation and realize asset management

Officer, important items that include transactions with interested

operations that are fair and highly transparent, Kenedix Officeparties are subject to strict protocols that involve deliberations andPartners, the asset management company of KENEDIX-REIT, is

resolutions undertaken by the Asset Management Committee

mindful of the following items, shown in the chart below. In par-(AMC) and the Compliance Committee (whose members include

ticular, the Compliance Officer and the Compliance Committee

one outside lawyer). Final decisions regarding such transactions

function as two integral aspects of the corporate governance sys-

are made by the Board of Directors.

Financial Summary (Unaudited)
Historical Operating Trends
For the 11th–15th Fiscal Periods

Periodtem, ensuring compliance with rules and regulations that govern
J-REITs, organization-wide support and implementation.

Unit

11th Period(as of Oct. 31, 2010)

12th Period(as of Apr. 30, 2011)

13th Period(as of Oct. 31, 2011)

14th Period(as of Apr. 30, 2012)

15th Period(as of Oct. 31, 2012)

AMC’s Role in Advancing Decision Making

Operating revenues

mn yen

8,358

8,136

9,044

9,090

10,212On a weekly basis, AMC members receive reports on tenant(Rental revenues)

mn yen

8,242

8,136

8,498

9,090

9,617

Operating expenses

mn yen

4,522

4,427

4,618

5,004

5,696

(Property-related expenses)

mn yen

3,817

3,767

3,961

4,284

4,822
4,516

Corporate Governance System of KENEDIX-REIT

movements and plans, discuss measures to deal with negative

KENEDIX-REIT has established a Board of Directors—a meeting of

movements, receive proposals on renovations and other improve-

Operating income

mn yen

3,835

3,709

4,425

4,086

ments, and deliberate and approve property acquisitions and dis-Ordinary income

mn yen

2,608

2,346

3,040

2,551

3,011

Net income (a)mn yen

2,607

2,309

3,052

2,540

3,009

Total assets (b)mn yen251,080

261,928

274,973

303,284

306,734(-0.2)(+4.3)(+5.0)(+10.3)(+1.1)

102,567

112,715

110,914137,372

140,581

which is held on a regular basis—that is fully capable of undertaking operating decisions and functioning as a body that supervises

positions. While each division takes action to fulfill its respective

the executive officer. Through the functions of the Board ofareas of responsibility, the process of discussion and approval vets

Directors, KENEDIX-REIT grasps and oversees the status ofissues and ensures a flow of communication that is logical and

Kenedix Office Partners’ business operations.

meaningful to the decision-making process.

Decision Making at Kenedix Office Partners

 The Compliance Officer previews the REIT’s major pending decisions to ensure that no transactions are detrimental to the interests of investors, that the rules for deals with interested
parties are obeyed and that the deals are implemented in accordance with established guidelines. The Compliance Officer also works to ensure that service providers are in compliancewith the rules and regulations that govern J-REITs.
Preview

Deliberation and Resolution

Deliberation and Resolution

Resolution or Reporting

Creation of management guidelines

Corresponding
Division ComplianceOfficerApproval for transactions outsideof management guidelines

Board
of
Directors



AMC meetings comprise leaders and managers, and meetings related to property or othermaterial decisions are attended by the CEO and President of Kenedix Office Partners, theGeneral Manager of the Financial Planning Division (CFO), the General Manager of theInvestment Management Division (CIO), the General Manager of the Property Management
Division and the Compliance Officer.

Meetings of Committees in Each Fiscal Period
1st

2nd

3rd

4th

5th

6th

7th

8th

9th

10th

11th

12th

13th

14th

Compliance Committee

7

7

7

8

6

8

9

8

8

10

7

7

8

6

7

Asset Management Committee

21

35

39

39

38

38

52

44

36

39

32

37

44

40

40

Kenedix Office Partners Board of Directors

9

7

9

8

9

7

10

8

10

12

11

9

11

9

12

KENEDIX-REIT Board of Directors

11

7

7

9

7

7

7

8

8

8

8

7

9

10

8

Kenedix Realty Investment Corporation Semiannual Reportmn yen%Unitholders’ equity (d)mn yen(-0.4)(+9.9)(-1.6)(+23.9)(+2.3)

135,732

135,505150,272

150,063

150,389(Period-on-period change)%

Unitholders’ capitalmn yen(Period-on-period change)%

Number of investment units issued andoutstanding (e)unit

233,550

233,550

286,550

286,550

286,550

Unitholders’ equity per unit (d)/(e)yen581,170

580,199

524,419

523,688524,828

Total distribution (f)(+0.0)(-0.2)(+10.9)(-0.1)(+0.2)

133,129

133,129

147,153

147,153

147,153

(0.0)

(0.0)

(+10.5)

(0.0)

(0.0)

mn yen

2,541

2,310

2,749

2,683

2,738

yen

10,881

9,891

9,596

9,364

9,557

(Earnings distributed per unit)

yen

10,881

9,891

9,596

9,364

9,557

(Distribution in excess of earnings per unit)

yen

—

—

—

—

—

Return on assets (annualized) (Notes 1 and 2)%

1.0 (2.1)

0.9 (1.8)

1.1 (2.2)

0.9 (1.8)

1.0 (2.0)

Return on net assets (annualized) (Notes 2 and 3)%

1.9 (3.8)

1.7 (3.4)

2.1 (4.2)

1.7 (3.4)

2.0 (4.0)

54.1

51.7

54.6

49.5

49.0

(+0.1)(-2.3)(+2.9)(-5.2)(-0.5)

40.9

43.0

40.3

45.3

45.8

Distribution per unit (f)/(e)Interest-bearing debt ratio at end of period (c)/(b)(Period-on-period change)

Payout ratio (Note 4) (f)/(a)%%%(-0.1)(+2.2)(-2.7)(+5.0)(+0.5)

97.4

100.0

90.0

105.6

90.9

Other references

 AMC is the crux of cross-organizational management and communication. Attendees of the

14 |

%

(Period-on-period change)(Period-on-period change)

Resolution

ReportingApproval for transactions that follow management guidelines,
excluding those with interested parties(Period)

Interest-bearing debt (c)Net assets ratio at end of period (d)/(b)Compliance
Committee(including 1 outside lawyer)

Approval for transactions withinterested parties

Asset Management
Committee(AMC)(Period-on-period change)

15th

Number of properties

properties

Total leasable floor aream2

Occupancy at end of period

67

71

74

83

84

267,737.33

286,237.93

300,016.89

340,589.96

351,153.72

%

93.6

94.6

94.7

95.4

95.5

Depreciation expenses for the period

mn yen

1,440

1,406

1,442

1,578

1,621

Capital expenditures for the period

mn yen

312

574

674

918

904

Leasing NOI (Net Operating Income) (Note 5)

mn yen

5,864

5,776

5,980

6,384

6,416

FFO (Funds From Operation) (Note 6)

mn yen

3,995

3,716

3,950

4,119

4,187

yen

17,106

15,914

13,786

14,374

14,612

FFO per unit (Note 7)

Notes: 1. Return on assets = Ordinary income/{(Total assets at beginning of period + Total assets at end of period)/2} × 100
2. Annualized values for the 11th Fiscal Period are calculated based on a period of 184 days, 181 days for the 12th Fiscal Period, 184 days for the 13th Fiscal Period,
182 days for the 14th Fiscal Period, and 184 days for the 15th Fiscal Period.
3. Return on net assets = Net income/{(Total net assets at beginning of period + Total net assets at end of period)/2} × 100
4. Payout ratio is rounded down to the first decimal place.
5. Leasing NOI = Rental revenues – Rental expenses + Depreciation expenses for the period
6. FFO = Net income + Depreciation expenses for the period – Gain on sale of real estate property + Loss on sale of real estate property
7. FFO per unit = FFO/Number of investment units issued and outstanding (figures below ¥1 rounded down)
8. Where applicable, figures are rounded down to the nearest million.

Kenedix Realty Investment Corporation Semiannual Report| 15

Balance Sheets
Kenedix Realty Investment Corporation
As of October 31, 2012 and April 30, 2012

In thousands of yen
As of October 31, 2012

As of April 30, 2012

¥ 11,513,930¥ 14,019,939

425,746

176,474

Consumption tax refundable—

220,729

Other current assets (Note 7)

79,42470,447

12,019,100

14,487,589

Land

205,933,483

201,938,266

Buildings and structures (Note 5)

100,188,719

97,166,954

Machinery and equipment

1,548,922

1,540,138

Tools, furniture and fixtures

433,305

429,679

Construction in progress

6,699

6,894

(16,448,292)(15,326,838)

291,662,836

285,755,093

Ground leasehold (Notes 11 and 13)

357,881358,655

Investment securities (Note 12)896,655

896,655

Corporate bond issuance costs

32,66939,405

Unit issuance costs

56,70983,991ASSETS
Current assets:
Cash and bank deposits (Note 12)
Rental receivables

Total current assets
Property and equipment, at cost: (Notes 3, 11 and 13)

Less-accumulated depreciation
Net property and equipment
Other assets:

Other assets (Notes 11 and 13)
Total assets

1,708,798

1,662,657¥306,734,648¥303,284,045¥¥

LIABILITIES AND NET ASSETS
Liabilities
Current liabilities:
Trade and other payables

894,162

775,125

Current portion of corporate bonds (Notes 4 and 12)

1,500,000—

Short-term debt and current portion of long-term debt (Notes 4 and 12)

19,700,000

26,580,000

Deposits received
Rents received in advance
Other current liabilities

18,96427,2491,482,863

1,887,967

328,146

220,298

23,924,135

29,490,639

Corporate bonds (Notes 4 and 12)

4,500,000

6,000,000

Long-term debt (Notes 4 and 12)

114,881,000

104,792,500

Leasehold and security deposits received

13,039,969

12,937,903

156,345,104

153,221,042

147,153,820

147,153,820

Total current liabilities

Total liabilities
Net Assets
Unitholders’ equity
Unitholders’ capital
Units authorized: 2,000,000 units
Units issued and outstanding: 286,550 units
As of October 31, 2012 and April 30, 2012, respectively
Surplus
Voluntary retained earnings
Reserve for reduction entry
Retained earnings
Total surplus
Total unitholders’ equity

225,796368,7963,009,928

2,540,387

3,235,724

2,909,183

150,389,544

150,063,003

Total net assets (Note 8)

150,389,544

150,063,003

Total liabilities and net assets¥306,734,648¥303,284,045

See accompanying notes to the financial statements.

16 |Kenedix Realty Investment Corporation Semiannual Report

Kenedix Realty Investment Corporation Semiannual Report| 17

Statements of Income and Retained Earnings

Notes to Financial Statements

Kenedix Realty Investment Corporation
For the period from May 1, 2012 to October 31, 2012 and the period from November 1, 2011 to April 30, 2012

Kenedix Realty Investment Corporation
For the period from May 1, 2012 to October 31, 2012 and the period from November 1, 2011 to April 30, 2012

In thousands of yen
From May 1, 2012 to October 31, 2012

From November 1, 2011 to April 30, 2012

Operating revenues:
Rental revenues (Notes 10 and 11)¥ 9,617,355¥9,090,653

595,516—

Gain on sale of real estate property (Note 10)
Total operating revenues

10,212,871

9,090,653

Property-related expenses (Notes 10 and 11)

4,822,166

4,284,757

Loss on sale of real estate property (Note 10)

151,823—

Asset management fees

548,085

491,073

Administrative service and custodian fees

68,53980,726

1.

ORGANIZATION AND BASIS OF PRESENTATIONORGANIZATION
Kenedix Realty Investment Corporation (”the Investment Corporation”) was established on May 6, 2005 under the Act on Investment
Trusts and Investment Corporations of Japan (“the Investment Trust Act”). On July 21, 2005, the Investment Corporation was listed on

Operating expenses:

the Real Estate Investment Trust Market of the Tokyo Stock Exchange with a total of 75,400 investment units issued and outstanding

Other operating expenses(Securities Code: 8972). Subsequently, the Investment Corporation raised funds through four public offerings and other means including
global offerings. As a result, as of October 31, 2012, the end of the fifteenth fiscal period, the number of investment units issued andoutstanding totaled 286,550 units.

105,575

147,751

5,696,188

5,004,307

4,516,683

4,086,346

1,093,771

1,058,930

a dynamic and flexible investment stance that accurately reflects its environment and market trends, and endeavors to ensure a timely

Financing-related expenses

366,756444,047

response to each and every opportunity. The Investment Corporation has partially changed the management guidelines contained in the

Amortization of unit issuance costs

27,282

27,282company regulations of the Asset Management Company as of September 1, 2012, and raised the lower limit of the investment ratio of

Amortization of corporate bond issuance costs

6,736

9,001

Others, net

10,904(4,723)

1,505,449

1,534,537

3,011,234

2,551,809

Total operating expenses
Operating income

The Investment Corporation is externally managed by Kenedix Office Partners, Inc. (Note) (“the Asset Management Company”) as its
asset management company. In concert with the Asset Management Company, the Investment Corporation strives to maximize cash
distribution to investors by securing stable earnings and sustainable investment growth. To this end, the Investment Corporation adopts

Non-operating expenses:
Interest expense

Total non-operating expenses
Ordinary income

office buildings along with changing the upper limits, etc. of the investment ratio of other types of properties. (Note: As of September 1,
2012, Kenedix REIT Management, Inc. changed the company name. Same applies below.)
During the period ended October 31, 2012, the Investment Corporation acquired three office buildings (Fuchu South Building, Kasuga
Business Center Building and Nakameguro Business Center Building: total acquisition price of ¥10,800 million) located in the Tokyo

Extraordinary losses
Litigation settlement
Income before income taxes—

10,0003,011,234

2,541,809

Income taxes (Note 7)

1,439

1,526

3,009,795

2,540,283

133

104

¥ 3,009,928¥2,540,387

Net income
Retained earnings at the beginning of period
Retained earnings at the end of period

Metropolitan Area and sold KDX Omori Building (initial acquisition price of ¥3,500 million) and Gradito Kawaguchi (initial acquisition
price of ¥1,038 million) (total sales price of ¥5,060 million). As of October 31, 2012, the Investment Corporation had total unitholders’capital of ¥147,154 million with 286,550 investment units outstanding. The balance of interest-bearing debt amounted to ¥140,581
million as of October 31, 2012, comprising ¥134,581 million in borrowings (¥128,881 million in long-term borrowings and ¥5,700 million
in short-term borrowings) and ¥6,000 million in investment corporation bonds. The Investment Corporation owned a portfolio of 84
properties with a total acquisition price of ¥293,129 million containing a total leasable area of 351,153.72m2 and preferred equity secu-

See accompanying notes to the financial statements.

rities with a total acquisition price of ¥891 million. The occupancy ratio was approximately 95.5%. A portfolio of 84 properties consistsof 78 office buildings, 3 residential properties, 2 central urban retail properties and one others. 67 properties are located in the Tokyo
Metropolitan Area and 17 properties are located in Other Regional Areas.

Statements of Changes in Net Assets
BASIS OF PRESENTATION

Kenedix Realty Investment Corporation
For the period from May 1, 2012 to October 31, 2012 and the period from November 1, 2011 to April 30, 2012

The Investment Corporation maintains its accounting records and prepares its financial statements in accordance with accounting
principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements ofInternational Financial Reporting Standards. The financial statements are prepared in accordance with the Investment Trust Act.

In thousands of yen

The financial statements are basically a translation of the Japanese audited financial statements of the Investment Corporation. In pre-Unitholders’ Equity

paring the accompanying financial statements, certain reclassifications have been made to the financial statements issued domestically inSurplusorder to present them in a format which is familiar to readers outside Japan. Certain information in the business report and supplementary

Voluntary retained
earnings

schedule has been omitted. Additional information has been added to the Japanese audited financial statements for the convenience ofUnitholders’capitalReserve for
reduction entry

Retainedearnings

Total
surplusTotal
unitholders’equity¥147,153,820¥ 65,796¥3,052,838¥3,118,634¥150,272,454

Reversal of reserve for reduction entry—

303,000(303,000)———

Payments of dividends——(2,749,734)(2,749,734)(2,749,734)(2,749,734)
2,540,283

Balance as of October 31, 2011

readers outside Japan and this includes disclosing the prior year’s comparatives as supplemental information in the English translated

Total¥150,272,454

financial statements although the Japanese audited financial statements only need to disclose the current year’s information.

Changes during the fiscal period

Net income——

2,540,283

2,540,283

2,540,283—

303,000(512,451)(209,451)(209,451)(209,451)¥147,153,820¥368,796¥2,540,387¥2,909,183¥150,063,003¥150,063,003

Reversal of reserve for reduction entry—(143,000)

143,000———

Payments of dividends——(2,683,254)(2,683,254)(2,683,254)(2,683,254)
3,009,795

Total changes during the fiscal period
Balance as of April 30, 2012
Changes during the fiscal period

Net income——

3,009,795

3,009,795

3,009,795—(143,000)

469,541

326,541

326,541

326,541¥147,153,820¥225,796¥3,009,928¥3,235,724¥150,389,544¥150,389,544

Total changes during the fiscal period
Balance as of October 31, 2012
See accompanying notes to the financial statements.

18 |Kenedix Realty Investment Corporation Semiannual Report

Kenedix Realty Investment Corporation Semiannual Report

| 19

2.

(I) INCOME TAXES
Deferred tax assets and liabilities are computed based on the difference between the financial statements and income tax bases of assets

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

and liabilities using the statutory tax rates.

(A) SECURITIESNon-marketable securities classified as other securities are carried at cost. Cost of securities sold is determined by the moving average(J) CONSUMPTION TAXES

method.

Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes. Non-deductible consumption taxes
applicable to the acquisition of assets are included in the cost of acquisition for each asset.

(B) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and equipment is calculated on a straight-line basis over the estimated(K) DERIVATIVE FINANCIAL INSTRUMENTS

useful lives of the assets ranging as stated below:

The Investment Corporation utilizes interest-rate swap agreements as derivative financial instruments only for the purpose of hedging its

From May 1, 2012 to October 31, 2012

From November 1, 2011 to April 30, 2012

Buildings and structures

2-49 years

2-49 years

exposure to changes in interest rates. The Investment Corporation deferred recognition of gains or losses resulting from changes in fair

Machinery and equipment

3-17 years

3-17 years

value of interest-rate swap agreements because its interest-rate swap agreements met the criteria for deferral hedging accounting.

Tools, furniture and fixtures

3-20 years

3-20 years

However, the Investment Corporation adopted special treatment for interest-swap agreements if its interest-rate swap agreements met
the criteria for hedging accounting under this treatment, whereby the net amount to be paid or received under the interest-rate swap(C) UNIT ISSUANCE COSTS

contract is added to or deducted from the interest on the assets or liabilities for which the swap contract was executed. The hedge effec-

Unit issuance costs are amortized over a period of 3 years under the straight-line method.

tiveness for interest-rate swap contracts is assessed each fiscal period except for those that meet the criteria of special treatment.

(D) CORPORATE BOND ISSUANCE COSTS(L) ROUNDING OF AMOUNTS PRESENTED

Corporate bond issuance costs are amortized over a loan period under the straight-line method.

Amounts have been truncated in the Japanese financial statements prepared in accordance with Japanese GAAP and filed with regulatory
authorities in Japan, whereas amounts have been rounded to the nearest million in the accompanying financial statements. Totals shown(E) ACCOUNTING TREATMENT OF TRUST BENEFICIARY INTERESTS IN REAL ESTATEin the accompanying financial statements do not necessarily agree with the sums of the individual amounts.

For trust beneficiary interests in real estate, which are commonly utilized in the ownership of commercial properties in Japan, all assets
and liabilities within trust are recorded in the relevant balance sheets and statements of income and retained earnings.
(F) LEASEHOLD RIGHTS

3.

SCHEDULE OF PROPERTY
In millions of yen

Fixed term leasehold with special agreement on buildings sales, and the building are amortized over a contractual period of 48 years andAs of October 31, 2012

9 months under the straight-line method.

Acquisition
costs

Accumulated
depreciation

As of April 30, 2012
Book
value

Acquisition
costs

Accumulated
depreciation

¥

Book
value

Land

¥205,933¥—¥205,933¥201,938—¥201,938(G) REVENUE RECOGNITION

Buildings and structures

100,189

15,58484,605

97,167

14,52682,641

Operating revenues consist of rental revenues including base rents and common area charges, and other operating revenues including

Machinery and equipment

1,549

638

911

1,540

590

950

utility charge reimbursements, parking space rental revenues and other miscellaneous revenues. Rental revenues are generally recognizedTools, furniture and fixtures

433

226

207

430

211

219

on an accrual basis over the life of each lease. Utility charge reimbursements are recognized when earned and their amounts can be rea-

Construction in progress

7

—

7

7

—

7

sonably estimated. Reimbursements from tenants including utility charge reimbursements are recorded on a gross basis and such amounts

Total¥308,111¥16,448¥291,663¥301,082¥15,327¥285,755

are recorded both as revenues and expenses during the fiscal period, respectively.
(H) TAXES ON PROPERTY AND EQUIPMENT
Property-related taxes including property taxes, city planning taxes and depreciable property taxes are imposed on properties on a calen-

4.

SHORT-TERM DEBT, LONG-TERM DEBT AND CORPORATE BONDS

The following summarizes short-term debt, long-term debt and corporate bonds outstanding as of October 31, 2012:

dar year basis. These taxes are generally charged to operating expenses for the period, for the portion of such taxes corresponding toClassification

said period. Under the Japanese tax rule, the seller of the property at the time of disposal is liable for these taxes on the property fromthe date of disposal to the end of the calendar year in which the property is disposed. The seller, however, is reimbursed by the purchaser

Short-term debt

for these accrued property-related tax liabilities.
Current portion of long-term debt

When the Investment Corporation purchases properties, it typically allocates the portion of the property-related taxes related to the peri-

Drawdown date

Last
repayment date

Weighted-averageinterest rate

Balance(In millions of yen)

January 31, 2012
July 31, 2012

January 31, 20130.83%

¥ 1,200

July 31, 2013

0.83%

1,500

October 31, 2012

October 31, 2013

0.78%

3,000

December 8, 2009

December 8, 2012

1.67%

500

June 30, 2008

December 28, 2012

2.26%

3,000

January 13, 2010

January 15, 2013

1.90%

1,000

February 18, 2010

February 18, 2013

1.90%

1,500

property-related taxes are capitalized as part of the acquisition costs of the related properties. Capitalized property-related taxes amounted

April 28, 2011

April 30, 2013

1.50%

1,000

to ¥23,009 thousand and ¥23,881 thousand as of October 31, 2012 and April 30, 2012, respectively. In subsequent calendar years, such

July 30, 2010

July 31, 2013

1.49%

500

September 1, 2006

August 31, 2013

2.12%

3,000

od following the purchase date of each property through the end of the calendar year. The amounts of those allocated portions of theproperty-related taxes are charged as operating expenses in the fiscal period to which the installments of such taxes correspond.

Subtotal

20 |Kenedix Realty Investment Corporation Semiannual Report

March 31, 2011

September 30, 2013

1.53%

2,000

September 30, 2011

September 30, 2013

1.15%

1,000

October 29, 2010

October 31, 2013

1.46%

500
19,700Kenedix Realty Investment Corporation Semiannual Report| 21

Classification

Long-term debt

Subtotal
Corporate bonds

Drawdown date

Last
repayment date

Weighted-averageinterest rate

Balance(In millions of yen)

May 1, 2006
January 29, 2010
February 18, 2010
April 2, 2010
July 30, 2010
July 30, 2010
November 12, 2010
November 12, 2010
November 12, 2010
December 1, 2010
December 1, 2010
December 1, 2010
January 31, 2011
January 31, 2011
February 28, 2011
February 28, 2011
March 22, 2011
March 31, 2011
March 31, 2011
April 28, 2011
April 28, 2011
July 13, 2011
July 29, 2011
July 29, 2011
August 31, 2011
September 1, 2011
September 30, 2011
September 30, 2011
September 30, 2011
December 26, 2011
December 26, 2011
December 26, 2011
December 26, 2011
December 26, 2011
December 26, 2011
January 10, 2012
January 31, 2012
March 12, 2012
March 12, 2012
March 28, 2012
March 28, 2012
March 30, 2012
April 27, 2012
June 29, 2012
September 21, 2012
October 31, 2012
October 31, 2012
October 31, 2012
October 31, 2012
October 31, 2012

April 30, 2016
January 30, 2015
February 18, 2015
April 2, 2015
January 31, 2014
July 31, 2014
November 12, 2013
November 12, 2015
November 12, 2017
November 12, 2013
November 12, 2015
November 12, 2017
January 31, 2014
January 29, 2016
August 31, 2015
January 29, 2016
September 22, 2014
January 29, 2016
March 31, 2016
October 31, 2015
January 29, 2016
July 14, 2014
July 31, 2014
July 31, 2014
February 27, 2015
August 29, 2014
March 31, 2014
September 30, 2014
March 31, 2015
October 31, 2014
October 31, 2014
October 31, 2015
October 31, 2015
October 31, 2016
October 31, 2016
January 29, 2016
January 30, 2015
March 12, 2014
March 12, 2015
March 28, 2017
March 28, 2019
September 30, 2015
October 30, 2015
June 30, 2017
September 21, 2017
April 30, 2015
October 31, 2016
October 31, 2016
October 31, 2017
October 31, 2018

2.73%
2.17%
2.19%
2.22%
1.66%
1.73%
1.58%
1.79%
2.02%
1.44%
1.54%
2.21%
1.57%
1.94%
1.91%
1.95%
1.63%
1.91%
1.39%
1.86%
1.89%
1.54%
1.13%
1.40%
1.08%
1.15%
1.16%
1.27%
1.29%
1.24%
1.26%
1.34%
1.32%
1.44%
1.42%
1.27%
1.19%
1.04%
1.08%
1.36%
1.77%
1.21%
1.27%
1.29%
1.16%
1.01%
1.06%
1.05%
1.10%
1.25%

March 15, 2007
September 15, 2011
March 8, 2012

March 15, 2017
September 13, 2013
September 8, 2017

2.37%
1.59%
2.00%

5,000
1,056
4,675
1,750
3,700
3,700
2,700
2,000
2,300
800
1,000
700
1,300
800
3,000
500
2,700
2,000
1,000
1,500
1,000
1,000
3,200
300
1,500
1,000
2,500
1,000
2,500
2,500
5,000
4,500
2,500
4,500
2,500
2,500
1,500
6,300
1,000
500
2,400
2,000
1,000
1,500
7,000
2,500
2,500
1,500
2,500
2,500
114,881
3,000
1,500
1,500
6,000
¥140,581

Subtotal
Total

5.

6.

PER UNIT INFORMATION
Yen
From May 1, 2012 to October 31, 2012

From November 1, 2011 to April 30, 2012

Net asset value per unit

¥524,828¥523,689

Net income per unit

¥ 10,504¥

Weighted average number of units (units)286,550

8,865
286,550

The weighted average number of units outstanding of 286,550 was used for the computation of the amount of net income per unit asof October 31, 2012 and April 30, 2012. Net income per unit after adjusting for residual units is not included because there were noresidual investment units.

7.

INCOME TAXESThe Investment Corporation is subject to corporate income taxes at a regular statutory rate of approximately 40%. However, theInvestment Corporation may deduct from its taxable income amounts distributed to its unitholders, provided the requirements are met
under the Special Taxation Measure Law of Japan. Under this law, the Investment Corporation must meet a number of tax requirements,
including a requirement that it currently distribute in excess of 90% of its net income for the fiscal period in order to be able to deduct
such amounts. If the Investment Corporation does not satisfy all of the requirements, the entire taxable income of the Investment
Corporation will be subject to regular corporate income taxes. Since the Investment Corporation distributed in excess of 90% of its distributable income in the form of cash distributions totaling ¥2,739 million (deducting ¥271 million as the provision of reserve for reduction
entry) and ¥2,683 million (including ¥143 million as the reversal of reserve for reduction entry) for the periods ended October 31, 2012
and April 30, 2012. Such distributions were treated as deductible distributions for purposes of corporate income taxes. The effective tax
rate on the Investment Corporation’s income was 0.05% and 0.06% for the periods ended October 31, 2012 and April 30, 2012. The
following summarizes the significant difference between the statutory tax rate and the effective tax rate:
As of October 31, 2012

As of April 30, 2012

Statutory tax rate

36.59%

39.33%

Deductible cash distributions(33.28)(41.52)

Provision of reserve for reduction entry(3.30)—

Others0.04

2.25

Effective tax rate

0.05%

0.06%

The significant components of deferred tax assets and liabilities as of October 31, 2012 and April 30, 2012 were as follows:
In thousands of yen
As of October 31, 2012

As of April 30, 2012

Deferred tax assets:
Enterprise tax payable¥

Amortization of leasehold rights

1,014

749

1,041

792

Subtotal deferred tax assets
Valuation allowance
Total deferred tax assets

8.

27

¥ 43

1,014

749

¥

¥ 43

27

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

REDUCTION ENTRY

required by the Investment Trust Act.

The amount of reduction entry of property and equipment acquired by government subsidy
In thousands of yen

Buildings and structures

22 |Kenedix Realty Investment Corporation Semiannual Report

As of October 31, 2012

As of April 30, 2012

¥26,230¥26,230

Kenedix Realty Investment Corporation Semiannual Report

| 23

9.

11.

RELATED-PARTY TRANSACTIONSTRANSACTIONS WITH KENEDIX OFFICE PARTNERS, INC.

PROPERTY INFORMATION

Details of the property portfolio as of October 31, 2012 were as follows:

Kenedix Office Partners, Inc., a consolidated subsidiary of Kenedix, Inc., provides the Investment Corporation with property management
services and related services. For these services, the Investment Corporation pays Kenedix Office Partners, Inc. property management feesin accordance with the terms of its Property Management Agreements. For these services, the Investment Corporation paid ¥373 million

Office Buildings

Location

Tokyo
Metropolitan Area

Other Regional
Areas

Tokyo
Metropolitan Area

63

15

2

Number of properties

to Kenedix Office Partners, Inc.

Residential
Properties

Type

Central Urban
Retail Properties

OthersOther Regional
Areas

Tokyo
Metropolitan Area

Other
Regional Areas

1

2

1

Property information

10.

(In millions of yen)

BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUES, PROPERTY-RELATED EXPENSES,

Acquisition price¥219,406¥52,295¥6,603¥1,800¥12,380¥ 645

GAIN ON SALE OF REAL ESTATE PROPERTY AND LOSS ON SALE OF REAL ESTATE PROPERTY

Percentage of total acquisition price74.85%

17.84%

2.25%

0.62%

4.22%

0.22%

Net book value

220,073

51,079

6,105

1,788

12,297679

Appraisal value

202,737

44,569

5,476

1,540

11,1501,090

Percentage of total appraisal value

76.06%

16.72%

2.05%

0.58%

4.18%

0.41%

Rental and other operating revenues, property-related expenses, gain on sale of real estate property and loss on sale of real estate property for the periods from May 1, 2012 to October 31, 2012 and from November 1, 2011 to April 30, 2012 consist of the following:
In thousands of yen
From May 1, 2012 to October 31, 2012

From November 1, 2011 to April 30, 2012

Rental and other operating revenues

Common area charges
Subtotal¥2,137,711¥199,735¥91,321¥334,010¥62,423¥6,581,677

Rental revenues

5,788,509

1,819,697

177,878

80,942

302,11354,9201,490,246

Other revenues

1,003,646

318,014

21,857

10,37931,897

7,503

2,168,805

842,926

55,99336,07978,915

18,297

Property management fees

612,441

268,714

20,154

8,170

22,5145,550

271,260

Taxes

582,622

193,399

14,376

7,622

20,276

4,928

535,832

217,783

2,506

2,049

26,547

5,376

297,443

80,735

8,863

9,982

3,218

719

8,234

5,317

388

324

199

211

132,233

76,978

9,706

7,932

6,161

1,513

NOI (Net Operating Income)

4,623,350

1,294,785

143,742

55,242

255,095

44,126¥ 911,939

Depreciation expenses

1,060,150

401,925

60,72323,12568,0187,210

1,621,151

1,578,845

Operating income from property leasing activities

3,563,200

892,860

83,01932,117

187,077

36,916790,093

663,800

Capital expenditures

604,911254,340

4,221

4,383

36,896129

724,628

NCF (Net Cash Flow)¥4,018,439¥1,040,445¥139,521¥50,859¥218,199¥43,997¥6,664,510
1,559,549
8,224,059

8,071,923

Others:Parking space rental revenues

286,632

Property-related expenses

Utility charge reimbursement

769,331621,582

Utilities

Miscellaneous

337,333

125,888

Repairs and maintenance

Subtotal
Total rental and other operating revenues
Property management fees and facility management fees
Depreciation
Utilities

1,393,296¥9,617,355¥ 937,543

1,018,730

Insurance¥9,090,653

Trust fees and other expenses

Taxes

823,223

Insurance

14,67314,084

Repairs and maintenance

400,960

165,367

Trust fees

42,68247,277

Loss on retirement of fixed assets

17,689

3,719

Others174,152

175,098¥4,822,166¥4,284,757

Total property-related expenses(In thousands of yen)

¥6,792,155

Rental and other operating revenues:
Rental revenues

Financial results for the period from May 1, 2012 to October 31, 2012

A breakdown of property-type as of October 31, 2012 was as follows:
Balance at the end of period(In millions of yen)Class of assets

Property type

Area

Property and equipment

Office Buildings

Tokyo Metropolitan Area
Other Regional Areas

Subtotal
Gain on sale of real estate property:

Residential Properties

Revenue from sale of investment property¥4,200,000

Cost of investment property

3,355,390—

249,094—

Other sales expenses
Gain on sale of real estate property¥ 595,516

¥

¥

—

—

Others

Revenue from sale of investment property¥ 860,000¥—

Cost of investment property

992,112—

Other sales expenses

19,711—

Loss on sale of real estate property

24 |Kenedix Realty Investment Corporation Semiannual Report¥ 151,823¥—

Subtotal
Total
Investment securities

16.7%

271,152

88.4%

6,105

2.0%

Other Regional Areas

1,788

0.6%

7,893

2.6%

Tokyo Metropolitan Area

12,297

4.0%

12,297

4.0%

679

0.2%

Subtotal

Loss on sale of real estate property:

71.7%

51,079

Tokyo Metropolitan Area

Subtotal
Central Urban Retail Properties

Percentage of total assets¥220,073

Other Regional Areas

679

0.2%

292,021

95.2%

897

0.3%

Bank deposits and other assets

13,817

4.5%

Total assets

306,735

100.0%

Total liabilities

156,345

51.0%

Net assets¥150,390

49.0%

Kenedix Realty Investment Corporation Semiannual Report

| 25

12.

(B) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS

The carrying value of financial instruments on the balance sheet as of October 31, 2012 and estimated fair value are shown in the fol-

Fifteenth Fiscal Period (May 1, 2012 to October 31, 2012)

lowing table. The following table does not include financial instruments for which it is extremely difficult to determine the fair value(A) OVERVIEW(Refer to note 2 below).

(1) POLICY FOR FINANCIAL INSTRUMENTS

In thousands of yen

The Investment Corporation procures essential funds for acquiring properties and undertaking the repayment of loans primarily throughbank loans and the issuance of corporate bonds and new investment units. The Investment Corporation uses derivatives for the purpose ofhedging its exposure to changes in interest rates and does not enter into derivatives for speculative or trading purposes. Management of
surplus funds is undertaken in a prudent manner that considers fully such factors as safety, liquidity, interest rate conditions and cash flows.
(2) TYPES OF FINANCIAL INSTRUMENTS AND RELATED RISK
Investment securities are preferred equity securities of TMK as set forth by the Act on Securitization of Assets and are exposed to credit
risk of the issuer and risk of fluctuation of value of its property.
Debt and corporate bonds are used primarily for procuring funds necessary for the acquisition of properties and have a redemption date

Carrying value

Estimated fair value

Difference¥ 11,513,930¥ 11,513,930¥

Subtotal

11,513,930

11,513,930—

햲 Short-term debt

5,700,000

5,700,000—

햳 Corporate bonds(including current portion of corporate bonds)

6,000,000

5,916,450(83,550)

햴 Long-term debt(including current portion of long-term debt)

128,881,000

129,110,084

229,084

Subtotal¥140,581,000¥140,726,534¥145,534———

햲 Cash and bank deposits

Derivative Transactions*—* The value of assets and liabilities arising from derivatives is shown at net value and with the amount in parentheses representing net liability position.

of a maximum of seven years following the accounting date. Although a certain portion of said liabilities are subject to interest rate fluctuation risk, the Investment Corporation utilizes derivatives (interest-rate swap transactions) in order to reduce such risk.

note 1: METHODS TO DETERMINE THE ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS AND OTHER MATTERS RELATEDInterest-rate swap transactions are used as derivative financial instruments. Utilizing interest-rate swap transactions, the Investment

TO SECURITIES AND DERIVATIVE TRANSACTIONS

Corporation fixes its interest expense for long-term debt bearing interest at a variable rate. With regard to hedge accounting methods,

ASSETS

hedging instruments and hedged items, hedge policy, and the assessment of the effectiveness of hedging activities, please see 2. (K)햲 Cash and bank deposits

Derivative Financial Instruments.

Since these items are settled in a short period of time, their carrying value approximates fair value.

(3) RISK MANAGEMENT FOR FINANCIAL INSTRUMENTS

LIABILITIES(a) Monitoring of market risk (the risks arising from fluctuations in interest rates and others)햲 Short-term debt

The Investment Corporation uses interest-rate swap transactions in order to minimize risk arising from fluctuations in interest rates on

Since these items are settled in a short period of time, their carrying value approximates fair value.

funds procured. The Investment Corporation periodically reviews the value of the property and financial condition of the issuer with

햳 Corporate bonds

regard to investment securities.

The fair value of corporate bonds is based on quoted market prices.
햴 Long-term debt(b) Monitoring of liquidity risk (the risk that the Investment Corporation may not be able to meet its obligations on scheduled
due dates) associated with funds procurement

The fair value of long-term debt is based on the present value of the total of principal and interest discounted by the interest rate to be
applied if similar new loans were entered into. The fair value of long-term debt bearing interest at variable rate, which is subject to fixed

Although loans and other liabilities are subject to liquidity risk, the Investment Corporation reduces such risk by spreading out payment

interest rates resulting from interest-rate swaps and special treatment applied to said swaps, is based on the present value of the total ofdue dates and by using diversified fund procurement methods. Liquidity risk is also managed by such means as regularly checking theprincipal and interest, which is handled together with applicable interest-rate swaps, discounted by the interest rate to be applied if similarbalance of cash reserves.

loans were entered into.

(4) SUPPLEMENTARY EXPLANATION OF THE ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

DERIVATIVE TRANSACTIONS

The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available,(1) ITEMS THAT ARE NOT APPLIED TO HEDGE ACCOUNTING

fair value is reasonably estimated. Since various assumptions and factors are reflected in estimating the fair value, different assumptions

Not applicableand factors could result in a different fair value.

(2) ITEMS THAT ARE APPLIED TO HEDGE ACCOUNTING

Hedge accounting
methodType of derivativetransactions

Interest-rate swaps:
Special treatment ofReceive/floating andinterest-rate swaps
pay/fixed
Total

Contracted amount(In thousands of yen)
Maturing after 1 year

Fair value(In thousands of yen)

¥21,500,000¥20,500,000*¥21,500,000¥20,500,000

Hedged items

Long-term debt

Calculation method for
applicable fair value* Special treatment of interest-rate swaps is reported at the fair value of applicable long-term debt. This is because such swaps are handled together with hedged
long-term debt.

26 |Kenedix Realty Investment Corporation Semiannual Report

Kenedix Realty Investment Corporation Semiannual Report| 27

Statements of Cash Flows (Unaudited)
Kenedix Realty Investment Corporation
For the period from May 1, 2012 to October 31, 2012 and the period from November 1, 2011 to April 30, 2012

note 2: FINANCIAL INSTRUMENTS FOR WHICH IT IS EXTREMELY DIFFICULT TO DETERMINE THE FAIR VALUEClassification

Carrying value (In thousands of yen)Preferred equity securities¥896,655

In thousands of yen

Income before income taxes

Depreciation and amortization

Due within 1 year or less
(In thousands of yen)

1,872,257(674)

1,093,771

1,058,930

Interest expense

Total¥11,513,930

Loss on retirement of fixed assets

17,6893,719—

10,000Rental receivables(249,271)(2,702)

Consumption tax refundable

220,729(220,729)

Accrued consumption tax

122,971(66,864)—

Trade and other payables

98,211(30,365)

Rents received in advance(405,105)

606,160

Property and equipment due to sale

4,349,377—

Litigation settlement
Changes in assets and liabilities:

note 4: REDEMPTION SCHEDULE FOR DEBT AND CORPORATE BONDS
In thousands of yen
Due after 1 year
through 2 years—

Due after 2 years
through 3 years¥—

Due after 3 years
through 4 years¥—

Due after 4 years
through 5 years¥—

Due after
5 years¥

Corporate bonds

1,500,000———

4,500,000—

Long-term debt

14,000,000

38,546,000

30,135,000

26,800,000

11,500,000

7,900,000

13.

1,965,534(857)¥11,513,930¥¥ 2,541,809

Interest income

Cash and bank deposits¥ 5,700,000¥ 3,011,234

Adjustments to reconcile income before income taxes to
net cash provided by operating activities:

note 3: REDEMPTION SCHEDULE FOR RECEIVABLES

Short-term debt

From November 1, 2011
to April 30, 2012

CASH FLOWS FROM OPERATING ACTIVITIES:

Because no quoted market price is available and it is extremely difficult to determine the fair value, the above financial instruments are not included in the above table.

Due within 1 year
or less

From May 1, 2012
to October 31, 2012

Others, net(374,870)(572,096)

Subtotal

9,849,413

5,199,445

Interest income received
INVESTMENT AND RENTAL PROPERTIESCash payments of interest expense

Fifteenth Fiscal Period (May 1, 2012 to October 31, 2012)

Litigation settlement paid

The Investment Corporation owns real estate for rental purposes mainly in the Tokyo Metropolitan Area for the purpose of generating

Cash payments of income taxes

rental revenues.

Net cash provided by operating activities

The carrying value in the balance sheets and corresponding fair value of those properties are as follows:
Carrying value (In thousands of yen)

857

674

(1,108,485)(1,044,716)—(10,000)(1,829)(1,352)

8,739,956

4,144,051(11,909,217)(32,830,637)

CASH FLOWS FROM INVESTING ACTIVITIES:As of April 30, 2012

Net change

As of October 31, 2012

Fair value as of October 31, 2012
(In thousands of yen)

¥286,114,419¥5,906,850¥292,021,269¥266,252,000

notes: 1. The carrying value represents the acquisition cost less accumulated depreciation.
2. The fair value is the appraisal value or the survey value determined by outside appraisers. The fair value of Kanazawa Nikko Building is based on the sales
price of ¥780,000 thousand under the sales and purchase agreement dated November 1, 2012.
3. Among changes in the amount of real estate for rental purposes that occurred during the fiscal period under review, principal increases and decreases were theacquisition of 3 properties totaling ¥10,988,507 thousand, the sale of 2 properties totaling 4,347,502 and depreciation amounting to ¥1,621,151 thousand.

Purchases of property and equipment
Purchase of investment securities(5,655)(891,000)

Proceeds from leasehold and security deposits received

1,155,231

2,494,697

Payments of leasehold and security deposits received(1,012,861)(900,339)

Payments of restricted bank deposits(597,875)(131,125)

Proceeds from restricted bank deposits

86,62840,729Others, net
Net cash used in investing activities

Income and loss in the fiscal period ended October 31, 2012 for real estate for rental purposes is listed in the Note “10.

—

(20)

(12,283,749)(32,217,695)

CASH FLOWS FROM FINANCING ACTIVITIES:BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUES, PROPERTY-RELATED EXPENSES, GAIN ON SALE OF REAL ESTATE

Proceeds from short-term debt

4,500,000

8,700,000

PROPERTY AND LOSS ON SALE OF REAL ESTATE PROPERTY”.

Payments of short-term debt

(13,500,000)(4,200,000)

Proceeds from long-term debt

20,000,000

38,700,000

Payments of long-term debt

(7,791,500)(9,241,500)

Proceeds from issuance of investment corporation bonds—

1,481,583

Redemption of investment corporation bonds—(9,000,000)

Payments of investment unit issuance costs
Payment of dividends
Net cash provided by financing activities—(28,322)(2,681,963)(2,747,109)

526,537

23,664,652

Net change in cash and cash equivalents(3,017,256)(4,408,992)

Cash and cash equivalents at the beginning of period

13,519,011

17,928,003

Cash and cash equivalents at the end of period¥ 10,501,755¥ 13,519,011

See related notes.

28 |Kenedix Realty Investment Corporation Semiannual Report

Kenedix Realty Investment Corporation Semiannual Report| 29

Unitholders’ Information

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (UNAUDITED)

Kenedix Realty Investment Corporation

CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, deposits placed with banks and short-term investments which are highly liquid, readily convertible to cash and with insignificant risk of market value fluctuation, with maturities of three months or less from the date of

Fiscal Periods:
Stock Listing:Transfer Agent:

Six months ending April 30 and October 31
Real Estate Investment Trust Market of the Tokyo Stock Exchange (Security Code: 8972)
Sumitomo Mitsui Trust Bank, Limited
1-4-1 Marunouchi, Chiyoda-ku, Tokyo Japan
Ernst & Young ShinNihon LLC

purchase.
Auditor:
CASH AND CASH EQUIVALENTS (UNAUDITED)Cash and cash equivalents consisted of the following as of October 31, 2012 and April 30, 2012:

IR Schedule (15th and 16th Fiscal Periods)

In thousands of yen

Cash and bank deposits
Restricted bank deposits (Note)
Cash and cash equivalents

As of October 31, 2012

As of April 30, 2012

¥11,513,930¥14,019,939(1,012,175)(500,928)¥10,501,755¥13,519,011

note: Restricted bank deposits are retained for repayment of tenant leasehold and security deposits.

Oct.
2012

Dec.
2012

Jan.
2013

Apr.
2013

Jun.
2013

Jul.
2013

End ofthe 15th Period

Performance forthe 15th Period isannounced

Distributions forthe 15th Period arepaid

End ofthe 16th Period

Performance forthe 16th Period isannounced

Distributions forthe 16th Period are
paid

General Breakdown of Unitholders
Foreign corporations
and individuals

Other domestic
corporations

Financial institutions(including securities companies)

Individuals
and others

48.9%

1.6%

36.7%

12.7%

140,129 units

4,672 units

105,245 units

36,504 units

End of the 15th Period
End of the 14th Period

43.4%

1.6%

43.1%

11.8%

124,469 units

4,639 units

123,531 units

33,911 units

Units Held

Share of Outstanding Units

43,096
19,10817,406
11,78911,066
8,420
7,517
6,480
5,978
5,358
136,218

15.03%
6.66%
6.07%
4.11%
3.86%
2.93%
2.62%
2.26%
2.08%
1.86%
47.53%

Note: Figures are rounded to the first decimal place.

Top Ten Unitholders (As of October 31, 2012)
Name

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)
The Master Trust Bank of Japan, Ltd. (Trust Account)
The Bank of New York, Treaty JASDEC Account
JP Morgan Chase Bank 385174
Nomura Bank (Luxembourg) S.A.
Goldman Sachs and Company Regular AccountState Street Bank and Trust Company
State Street Bank and Trust Company 505104
Total
Note: The respective shares are rounded down to the second decimal place.

Unit Price Performance(Yen)(Units)
20,000 s
11,000 s

Trading Volumes 1,000,000

Closing Prices 900,000

8,000 ss 800,000

7,000 ss 700,000

6,000 ss 600,000

5,000 ss 500,000

4,000 ss 400,000

3,000 ss 300,000

2,000 ss 200,000

1,000 ss 100,000

0s

s0
July

Oct.

2005

30 |

Kenedix Realty Investment Corporation Semiannual Report

Apr.

Oct.

2006

Apr.

Oct.

2007

Apr.

Oct.

2008

Apr.

Oct.

2009

Apr.

Oct.

2010

Oct.

Apr.

2011

Oct.

Apr.

2012

Kenedix Realty Investment Corporation Semiannual Report| 31http://www.kdx-reit.com/eng/

Disclaimer: This semiannual report includes translations of certain documents originally filed and made available in Japan in accordance with the Securities and Exchange
Law of Japan. The English language semiannual report was prepared solely for the convenience of readers outside Japan and is not intended to constitute a document for an offer to sell, or seeking an offer to buy, any securities of KENEDIX Realty Investment Corporation (KENEDIX-REIT).
English terms for Japanese legal, accounting, tax and business concepts used herein may not be precisely identical to the concept of the equivalent Japaneseterms. With respect to any and all terms herein, including without limitation, financial statements, if there exist any discrepancies in the meaning or interpretation
thereof between the original Japanese documents and English translation contained herein, the original Japanese documents will always govern the meaning andinterpretation.
None of KENEDIX-REIT, Kenedix Office Partners, Inc. nor any of their respective directors, officers, employees, partners, unitholders, agents, affiliates nor theiradvisors shall be responsible or liable for the completeness, appropriateness, or accuracy of English translations or the selection of the portion(s) of any
document(s) translated into English.
The financial statements of KENEDIX-REIT have been prepared in accordance with generally accepted accounting principles in Japan (Japanese GAAP), which
may materially differ in certain respects from generally accepted accounting principles of other jurisdictions.
This semiannual report contains forward-looking statements. These statements appear in a number of places in this semiannual report and include statements
regarding the intent, belief, or current and future expectations of KENEDIX-REIT or Kenedix Office Partners, Inc. with respect to its business, financial condition
and results of operations. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,”“anticipate,” “believe,” ”estimate,” “predict,” “potential,” or the negative of these terms or other similar terminology. These statements are not guarantees of
future performance and are subject to various risks and uncertainties. Actual results, performance or achievements, or those of the industries in which we operate, may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. In addition, theseforward-looking statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise and involve known andunknown risks and uncertainties. Accordingly, readers of this document should not interpret the forward-looking statements included herein as predictions or
representations of future events or circumstances.
Potential risks and uncertainties also include those identified and discussed in this document. Given these risks and uncertainties, readers of this document are
cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of information produced herein. We disclaim any obligation to update or, except in the limited circumstances required by the Tokyo Stock Exchange, announce publicly any revisions to any of the forward-looking statements contained in these documents.