Financial Section
Contents
Report of Independent Auditors

A

Balance Sheets

B

Statements of Income and Retained Earnings /Statements of Changes in Unitholders’ Equity

C

Notes to Financial Statements

DStatements of Cash Flows (Unaudited)M

Financial Summary (Unaudited)
Historical Operating Trends
For the 8th–12th Fiscal Periods

PeriodUnit

8th Period(as of Apr. 30, 2009)

9th Period(as of Oct. 31, 2009)

10th Period(as of Apr. 30, 2010)

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

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

Operating revenues

mn yen

8,204

7,921

8,067

8,358

(Rental revenues)

mn yen

8,204

7,921

8,067

8,242

8,136

Operating expenses

mn yen

4,740

4,708

4,329

4,522

4,427

(Property-related expenses)

mn yen

3,603

3,652

3,714

3,817

3,767

Operating income

mn yen

3,463

3,213

3,738

3,835

3,709

Ordinary income

mn yen

2,435

2,103

2,568

2,608

2,346

Net income (a)mn yen

2,434

2,102

2,567

2,607

2,309

Total assets (b)mn yen238,745

236,320

251,566

251,080

261,928(-0.4)(-1.0)(+6.5)(-0.2)(+4.3)

98,75097,220102,968

102,567

112,715(Period-on-period change)

Interest-bearing debt (c)%mn yen(Period-on-period change)%

Unitholders’ equity (d)mn yen(Period-on-period change)%

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

Number of investment units issued andoutstanding (e)Unitholders’ equity per unit (d)/(e)

8,136

(0.0)

(-1.5)(+5.9)(-0.4)(+9.9)

127,398

127,067

135,689

135,732

135,505(-0.5)(-0.3)(+6.8)(+0.0)(-0.2)

124,973

124,973

133,129

133,129

133,129

%

(0.0)

(0.0)

(+6.5)

(0.0)

(0.0)

unit

200,000

200,000

233,550

233,550

233,550
580,199yen

636,990

635,335

580,987

581,170

mn yen

2,434

2,102

2,567

2,541

2,310

yen

12,172

10,511

10,993

10,881

9,891(Earnings distributed per unit)

yen

12,172

10,511

10,993

10,881

9,891(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 (2.1)

1.0 (2.1)

0.9 (1.8)

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

1.9 (3.8)

1.7 (3.3)

2.0 (3.9)

1.9 (3.8)

1.7 (3.4)

53.4

53.8

53.9

54.1

51.7

(-0.1)(+0.4)(+0.2)(+0.1)(-2.3)

41.4

41.1

40.9

40.9

43.0

Total distribution (f)Distribution per unit (f)/(e)Net assets ratio at end of period (d)/(b)(Period-on-period change)

Interest-bearing debt ratio at end of period (c)/(b)(Period-on-period change)

Payout ratio (Note 4) (f)/(a)%%%(+0.2)(-0.2)(-0.2)(-0.1)(+2.2)

100.0

100.0

99.9

97.4

100.0

Other reference
Number of properties

properties

Total leasable floor aream2

Occupancy at end of period

67

65

70

67

71

250,364.42

254,225.04

271,260.81

267,737.33

286,237.93

%

95.7

94.7

94,4

93.6

94.6

Depreciation expenses for the period

mn yen

1,429

1,451

1,477

1,440

1,406

Capital expenditures for the period

mn yen

891

400

330

312

574

Leasing NOI (Net Operating Income) (Note 5)

mn yen

6,030

5,721

5,830

5,864

5,776

FFO (Funds From Operation) (Note 6)

mn yen

4,356

3,994

4,044

3,995

3,716

yen

21,78019,973

17,318

17,106

15,914

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 8th Fiscal Period are calculated based on a period of 181 days, 184 days for the 9th Fiscal Period, 181 days for the 10th Fiscal Period, 184 days
for the 11th Period and 181 days for 12th 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 – Profit on sale of trust beneficiary interests in real estate or real estate + Loss on sale of trust beneficiary interests in real estate or real estate
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.

10 |Kenedix Realty Investment Corporation Semiannual ReportKenedix Realty Investment Corporation Semiannual Report| 11Balance Sheets
Kenedix Realty Investment Corporation
As of April 30, 2011 and October 31, 2010

In thousands of yen

ASSETS
Current assets:
Cash and bank deposits (Notes 6 and 15)
Rental receivables
Consumption tax refundable
Other current assets (Note 9)
Total current assets
Property and equipment, at cost (Notes 4, 6, 14 and 16):Land
Buildings and structures (Note 7)
Machinery and equipment
Tools, furniture and fixtures
Less—accumulated depreciation
Net property and equipment
Other assets:
Ground leasehold (Notes 14 and 16)
Corporate bond issuance costs
Unit issuance costs
Other assets (Notes 6, 14 and 16)
Total assets
LIABILITIES AND NET ASSETS
Liabilities
Current liabilities:
Trade and other payables
Current portion of corporate bonds (Notes 5 and 15)
Short-term debt and current portion of long-term debt (Notes 5, 6 and 15)
Deposits received
Rents received in advance
Provision for loss due to disaster
Other current liabilities
Total current liabilities
Corporate bonds (Notes 5 and 15)
Long-term debt (Notes 5, 6 and 15)
Leasehold and security deposits received
Total liabilities
Net Assets (Note 10)
Unitholders' equity
Unitholders' capital
Units authorized: 2,000,000 units
Units issued and outstanding: 233,550 units
As of April 30, 2011 and October 31, 2010, respectively
Surplus
Voluntary retained earnings
Reserve for reduction entry
Retained earnings
Total surplus
Total unitholders’ equity
Valuation, transaction adjustment and others
Unrealized gain from deferred hedge transactions
Total net assets
Total liabilities and net assets
See accompanying notes to the financial statements.

12 |Kenedix Realty Investment Corporation Semiannual Report

As of April 30, 2011

As of October 31, 2010

¥ 13,794,963
186,413
310,485
60,39014,352,251¥ 16,245,674
208,479—
74,717
16,528,870

171,111,081
85,658,330
1,308,858
401,538(12,653,540)
245,826,267

163,047,282
80,067,548
1,276,061
366,696(11,318,857)
233,438,730

360,204
22,20625,136
1,342,835¥261,928,899

285,350
27,98833,515
765,604¥251,080,057¥

617,497
9,000,000
36,160,000
16,243
1,872,708
30,932244,82247,942,202
3,000,000
64,555,500
10,925,583¥126,423,285¥¥133,129,755¥133,129,755

65,7962,310,063
2,375,859
135,505,614—
2,607,122
2,607,122
135,736,877—
135,505,614¥261,928,899(4,502)
135,732,375¥251,080,057

711,485—
41,550,000
7,159
1,166,896—
445,572
43,881,112
12,000,000
49,017,000
10,449,570¥115,347,682

Statements of Income and Retained Earnings
Kenedix Realty Investment Corporation
For the period from November 1, 2010 to April 30, 2011 and the period from May 1, 2010 to October 31, 2010

In thousands of yen
From November 1, 2010 to April 30, 2011

From May 1, 2010 to October 31, 2010

¥8,136,917—
8,136,917¥8,242,200
116,397
8,358,597

3,767,178—
448,106
79,591132,133
4,427,008¥3,709,909

3,817,752
64,349458,034
80,061
102,747
4,522,943¥3,835,654¥1,048,723
303,479
8,380
5,782(3,193)
1,363,170
2,346,739¥ 993,950
211,796
8,379
5,878
7,595
1,227,598
2,608,056

26,230—35,36026,2302,311,379
1,384
2,309,995
68
2,310,063——
2,608,056
999
2,607,057
65¥2,607,122

Operating revenues:
Rental revenues (Notes 12 and 14)
Profit on sale of real estate (Note 12)
Total operating revenues
Operating expenses:
Property-related expenses (Notes 12 and 14)
Loss on sale of real estate (Note 12)
Asset management fees
Administrative service and custodian fees
Other operating expenses
Total operating expenses
Operating income
Non-operating expenses:
Interest expense
Financing-related expenses
Amortization of unit issuance costs
Amortization of corporate bond issuance costs
Others, net
Total non-operating expenses
Ordinary income
Extraordinary income
Subsidy
Extraordinary losses
Loss on disaster
Loss on reduction of fixed assets
Income before income taxes
Income taxes (Note 9)
Net income
Retained earnings at the beginning of period
Retained earnings at the end of period
See accompanying notes to the financial statements.

Statements of Changes in Unitholders’ Equity
Kenedix Realty Investment Corporation
For the period from November 1, 2010 to April 30, 2011 and the period from May 1, 2010 to October 31, 2010

In thousands of yen
Valuation, Transaction
Adjustments andOthersUnitholders’ Equity
SurplusRetainedearnings

Total
SurplusTotal
unitholders’equityUnrealized gainfrom deferredhedgetransactions

Total

—

¥2,567,480¥2,567,480¥135,697,235¥(7,596)¥135,689,639———(2,567,415)
2,607,057—(2,567,415)
2,607,057—(2,567,415)
2,607,057
—

—
—
3,094

(2,567,415)
2,607,057
3,094

—
—

39,642¥2,607,122

39,642¥2,607,122

39,642¥135,736,877

3,094¥(4,502)42,736¥135,732,375

—
—
—
—

65,796———(65,796)(2,541,258)
2,309,995——(2,541,258)
2,309,995——(2,541,258)
2,309,995
—

—
—
—
4,052

—
(2,541,258)
2,309,995
4,502—¥133,129,755

65,796¥65,796(297,059)¥2,310,063(231,263)¥2,375,859(231,263)¥135,505,614

4,502
—

(226,761)¥135,505,614

Unitholders’capitalBalance as of April 30, 2010
Changes during the fiscal period
Payments of dividends
Net income
Interest-rate swap
Total changes during
the fiscal period
Balance as of October 31, 2010
Changes during the fiscal period
Provision of reserve for
reduction entry
Payments of dividends
Net income
Interest-rate swap
Total changes during
the fiscal period
Balance as of April 30, 2011

Voluntary retained
earnings
Reserve for
reduction entry¥133,129,755

¥

—
—
—
—
¥133,129,755¥¥

See accompanying notes to the financial statements.
Kenedix Realty Investment Corporation Semiannual Report| 13Notes to Financial Statements
Kenedix Realty Investment Corporation
For the period from November 1, 2010 to April 30, 2011 and the period from May 1, 2010 to October 31, 2010

1.

ORGANIZATION AND BASIS OF PRESENTATIONORGANIZATION
Kenedix Realty Investment Corporation (”the Investment Corporation”) was established on May 6, 2005 under the Law concerning
Investment Trusts and Investment Corporations of Japan (“the Investment Trust Law”). On July 21, 2005, the Investment Corporation
was listed on the Real Estate Investment Trust Market of the Tokyo Stock Exchange with a total of 75,400 investment units issued andoutstanding. (Securities Code: 8972). Subsequently, the Investment Corporation raised funds through public offerings including two
global offerings. The Investment Corporation also undertook an additional issue of 33,550 investment units through a public offering inJapan on November 16, 2009. Consequently, as of April 30, 2011, the end of the twelfth fiscal period, the number of investment units
issued and outstanding totaled 233,550 units.
The Investment Corporation is externally managed by Kenedix REIT Management, Inc. (“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 adynamic and flexible investment stance that accurately reflects its environment and market trends, and endeavors to ensure a timely
response to each and every opportunity. The Investment Corporation endeavors to develop a diversified investment portfolio named“KENEDIX Selection,” adopting a three-point investment criteria based on property type, area and size.
During the period ended April 30, 2011, the Investment Corporation acquired four office buildings (total acquisition price of ¥13,175
million), two in the Tokyo metropolitan area and two in other regional areas. As of April 30, 2011, the Investment Corporation had total
unitholders’ capital of ¥133,130 million with 233,550 investment units outstanding. The Investment Corporation owned a portfolio of
71 properties with a total acquisition price of ¥246,457 million containing a total leasable area of 286,237.93 m2. The occupancy ratio
was approximately 94.6%. The portfolio of 71 properties consists of 65 office buildings, 4 residential properties and 2 central urban
retail properties. 59 properties are located in the Tokyo metropolitan area and 12 properties are located in other regional areas.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust Law ofJapan, the Japanese Corporation Law, the Financial Instruments and Exchange Law of Japan and related regulations, and in conformity
with accounting principles and practices generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to theapplication and disclosure requirements of the International Financial Reporting Standards or accounting principles generally accepted in
the United States of America.
The accompanying financial statements are a basically translation of the audited financial statements that were prepared for Japanese
domestic purposes from the accounts and records maintained by the Investment Corporation and filed with the Kanto Local Finance
Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Law. In preparing the accompanying financial
statements, relevant notes have been added and certain reclassifications have been made from the financial statements issued domestically in order to present them in a form that is more familiar to readers outside Japan. The Investment Corporation’s fiscal period is a
six-month period which ends at the end of April and October of each year, respectively. The Investment Corporation does not prepare
consolidated financial statements because it has no subsidiaries.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CORPORATE BONDS(A) 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 useful lives of the assets ranging as stated below:
From November 1, 2010 to April 30, 2011

From May 1, 2010 to October 31, 2010

Buildings and structures

2-49 years

2-49 years

Machinery and equipment

3-17 years

3-17 years

Tools, furniture and fixtures

3-20 years

3-20 years

14 |Kenedix Realty Investment Corporation Semiannual Report(B) UNIT ISSUANCE COSTS
Unit issuance costs are amortized over a period of three years under the straight-line method.
(C) CORPORATE BOND ISSUANCE COSTS
Corporate bond issuance costs are amortized over a loan period under the straight-line method.
(D) ACCOUNTING TREATMENT OF TRUST BENEFICIARY INTERESTS IN REAL ESTATE
For trust beneficiary interests in real estate, which are commonly utilized in the ownership of commercial properties in Japan, all assets
and liabilities within trust are recorded in the relevant balance sheets and statements of income and retained earnings.
(E) LEASEHOLD RIGHTS
Fixed term leasehold with special agreement on buildings sales, and the building are amortized over a contractual period of forty-eight
years and nine months under the straight-line method.
(F) PROVISION FOR LOSS DUE TO DISASTER
For cost of repairs on impaired fixed assets due to the massive earthquake off the east coast of Japan, the amount reasonably estimableat the end of period is recognized as “provision for loss due to disaster” under current liability.
(G) REVENUE RECOGNITION
Operating revenues consist of rental revenues including base rents and common area charges, and other operating revenues including
utility charge reimbursements, parking space rental revenues and other miscellaneous revenues. Rental revenues are generally recognizedon an accrual basis over the life of each lease. Utility charge reimbursements are recognized when earned and their amounts can be reasonably estimated. Reimbursements from tenants including utility charge reimbursements are recorded on a gross basis and suchamounts are recorded both as revenues and expenses during the fiscal period, 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 calendar year basis. These taxes are generally charged to operating expenses for the period, for the portion of such taxes corresponding tosaid 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
for these accrued property-related tax liabilities.
When the Investment Corporation purchases properties, it typically allocates the portion of the property-related taxes related to theperiod 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 capitalized as part of the acquisition costs of the related properties. Capitalized property-related taxes amounted
to ¥23,704 thousand and ¥52,548 thousand as of April 30, 2011 and October 31, 2010, respectively. In subsequent calendar years, suchproperty-related taxes are charged as operating expenses in the fiscal period to which the installments of such taxes correspond.
(I) INCOME TAXES
Deferred tax assets and liabilities are computed based on the difference between the financial statements and income tax bases of assets
and liabilities using the statutory tax rates.
(J) CONSUMPTION TAXES
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes. Non-deductible consumption taxes
applicable to the acquisition of assets are included in the cost of acquisition for each asset.
(K) DERIVATIVE FINANCIAL INSTRUMENTS
The Investment Corporation utilizes interest-rate swap agreements as derivative financial instruments only for the purpose of hedging its
exposure to changes in interest rates. The Investment Corporation deferred recognition of gains or losses resulting from changes in fairvalue of interest-rate swap agreements because its interest-rate swap agreements met the criteria for deferral hedge accounting.
However, the Investment Corporation adopted special treatment for interest-swap agreements if its interest-rate swap agreements met
the criteria for hedge accounting under this treatment, whereby the net amount to be paid or received under the interest-rate swap
contract is added to or deducted from the interest on the assets or liabilities for which the swap contract was executed. The hedge
effectiveness for interest-rate swap contracts is assessed each fiscal period except for those that meet the criteria of special treatment.
(L) ROUNDING OF AMOUNTS PRESENTED
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 in the accompanying financial statements do not necessarily agree with the sums of the individual amounts.

Kenedix Realty Investment Corporation Semiannual Report

| 15

3.

ADDITIONAL INFORMATIONThe Investment Corporation concluded an agreement dated June 30, 2011 to sell the KDX Hirakawacho Building on April 5, 2011.
Property Name

KDX Hirakawacho Building

Type of Specified Asset

Trust beneficiary interest in real estate

Location

1-4-12 Hirakawacho, Chiyoda-ku, Tokyo

Transferee

Sanshin Co., Ltd.

Planned Sales Price¥5,800,000 thousand

The aforementioned planned sales price excludes sales costs, adjusted amounts for property and city-planning tax, consumption tax,
regional consumption tax, etc.
Profit on sale of real estate is estimated to be ¥535 million for the thirteenth fiscal period.

4.

SCHEDULE OF PROPERTY
In millions of yen
As of April 30, 2011

Land

Acquisition
costs

Accumulated
depreciation¥171,111¥

As of October 31, 2010
Book
value

Acquisition
costs

Accumulated
depreciation

¥

Book
value

—

¥171,111¥163,047—¥163,047

Buildings and structures

85,658

11,98373,67580,068

10,71469,354

Machinery and equipment

1,309

497

812

1,276

452

824

Tools, furniture and fixtures

402

174

228

367

153

214

¥258,480¥12,654¥245,826¥244,758¥11,319¥233,439

Total

5.

SHORT-TERM AND LONG-TERM DEBT

The following summarizes short-term debt, long-term debt and corporate bonds outstanding as of April 30, 2011:
Classification

Short-term debt

Current portion of long-term debt

SubtotalLong-term debt

16 |Drawdown date

Repayment date

Weighted-averageinterest rate

July 30, 2010
October 29, 2010
January 31, 2011
March 25, 2011
April 18, 2011
July 14, 2006
July 31, 2008
February 29, 2008
September 1, 2008
March 31, 2008
March 31, 2008
April 30, 2009
October 26, 2010
May 1, 2008
December 1, 2006
January 10, 2008
February 27, 2009
April 2, 2007
April 30, 2009

July 31, 2011
October 31, 2011
January 31, 2012
March 23, 2012
November 30, 2011
July 13, 2011
July 31, 2011
August 31, 2011
September 1, 2011
September 30, 2011
September 30, 2011
October 31, 2011
October 31, 2011
November 1, 2011
November 30, 2011
January 10, 2012
February 29, 2012
April 2, 2012
April 27, 2012

1.14%
1.14%
1.09%
1.43%
1.38%
2.15%
1.99%
1.43%
1.78%
1.61%
1.56%
2.24%
1.24%
1.91%
1.96%
1.50%
2.07%
1.88%
2.24%

May 1, 2006
September 1, 2006
June 30, 2008
June 30, 2008
February 27, 2009
October 26, 2009
October 30, 2009
December 8, 2009
January 13, 2010
January 29, 2010

April 30, 2016
August 31, 2013
June 30, 2012
December 28, 2012
August 31, 2012
October 26, 2013
October 30, 2013
December 8, 2012
January 15, 2013
January 30, 2015

2.73%
2.12%
2.15%
2.26%
2.04%
2.42%
2.45%
1.67%
1.90%
2.17%

Kenedix Realty Investment Corporation Semiannual Report

Balance(In millions of yen)

¥

1,500
1,000
2,700
2,000
1,500
1,000
3,500
1,500
1,000
3,000
2,000
3,500
1,500
1,000
2,500
2,500
460
2,000
2,000
¥ 36,160¥ 5,000
3,000
1,500
3,000
920
940
1,880
500
1,000
1,128

Classification

Long-term debt

Subtotal
Current portion of corporate bonds
Corporate bonds
Subtotal
Total

6.

Drawdown date

Repayment date

Weighted-averageinterest rate

Balance(In millions of yen)February 18, 2010
February 18, 2010
April 2, 2010
July 30, 2010
July 30, 2010
July 30, 2010
October 29, 2010
October 29, 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
March 31, 2011
April 28, 2011
April 28, 2011
April 28, 2011

February 18, 2013
February 18, 2015
April 2, 2015
July 31, 2013
January 31, 2014
July 31, 2014
October 31, 2012
October 31, 2013
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
September 30, 2013
January 29, 2016
March 31, 2016
April 30, 2013
October 31, 2015
January 29, 2016

1.90%
2.19%
2.22%
1.49%
1.66%
1.73%
1.45%
1.46%
1.58%
1.79%
2.02%
1.37%
1.47%
2.21%
1.57%
1.94%
1.91%
1.95%
1.63%
1.53%
1.91%
1.39%
1.50%
1.86%
1.89%

March 15, 2007
March 15, 2007

March 15, 2012
March 15, 2017

1.74%
2.37%

1,500
5,088
1,900
500
3,700
3,700
2,500
500
2,700
2,000
2,300
800
1,000
700
1,300
800
3,000
500
2,700
2,000
2,000
1,000
1,000
1,500
1,000
¥ 64,556
9,000
3,000
¥ 12,000¥112,716

ASSETS PLEDGED AS COLLATERAL AND SECURED LOANS PAYABLE(As of April 30, 2011)

Assets pledged as collateralIn thousands of yen

Cash and bank deposits

¥

Land

127,680,740

Buildings and structures

54,309,842

Machinery and equipment

507,811

Tools, furniture and fixtures

135,035

5,090,463

Other assets

909

Total

¥187,724,800

Secured loans payable:
Short-term debt

¥ 36,160,000

Long-term debt

64,555,500

Total

7.

¥100,715,500

REDUCTION ENTRY

The amount of reduction entry of property and equipment acquired by government subsidy.
Yen
From November 1, 2010
to April 30, 2011

Buildings and structures¥26,230

Kenedix Realty Investment Corporation Semiannual Report

| 17

8.

PER UNIT INFORMATION
Yen
From November 1, 2010 to April 30, 2011

From May 1, 2010 to October 31, 2010

Net income per unit

¥

9,891

¥ 11,163

Net asset value per unit

¥580,200¥581,171

Weighted average number of units (units)

233,550

230,550

Net income per unit after adjusting for residual units is not included because there were no residual investment units.

9.

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 approximately 100% of its
distributable income in the form of cash distributions totaling ¥2,310 million and ¥2,541 million for the periods ended April 30, 2011
and October 31, 2010. Such distributions were treated as deductible distributions for purposes of corporate income taxes. The effective
tax rate on the Investment Corporation’s income was 0.06% and 0.04% for the periods ended April 30, 2011 and October 31, 2010.
The following summarizes the significant difference between the statutory tax rate and the effective tax rate:
From November 1, 2010 to April 30, 2011

From May 1, 2010 to October 31, 2010

Statutory tax rate

39.33%

39.33%

Deductible cash distributions(39.31)(38.32)

Other

0.04

(0.97)

Effective tax rate

0.06%

0.04%

The significant components of deferred tax assets and liabilities as of April 30, 2011 and October 31, 2010 were as follows:
In thousands of yen
As of April 30, 2011

As of October 31, 2010

Deferred tax assets:
Enterprise tax payable¥ 39

Amortization of leasehold rights

254—

Unrealized loss from deferred hedge transactions

—

2,918

Subtotal deferred tax assets¥293¥2,929Valuation allowance254—

Total deferred tax assets¥ 39¥2,92910.

¥

11

NET ASSETSThe Investment Corporation issues only non-par value units in accordance with the Investment Trust Law. 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
required by the Investment Trust Law.

11.

RELATED-PARTY TRANSACTIONS(A) TRANSACTIONS WITH KENEDIX REIT MANAGEMENT, INC.
Kenedix REIT Management, 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 REIT Management, Inc. property management fees in accordance with the terms of its Property Management Agreements. For these services, the Investment Corporation
paid ¥314 million to Kenedix REIT Management, Inc.

18 |Kenedix Realty Investment Corporation Semiannual Report(B) TRANSACTION WITH GODO KAISHA KRF 15
Godo Kaisha KRF 15 is a wholly owned subsidiary of Kenedix. On December 1, 2010, the Investment Corporation acquired a property(“KDX Kobayashi-Doshomachi Building”) from Godo Kaisha KRF 15 for ¥2,870 million. The purchase price of this property was determined based on an independently appraised value at the time of acquisition.

12.

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

Rental and other operating revenues and property-related expenses for the periods from November 1, 2010 to April 30, 2011 and fromMay 1, 2010 to October 31, 2010 consist of the following:
In thousands of yen
From November 1, 2010 to April 30, 2011

From May 1, 2010 to October 31, 2010

Rental revenues¥5,908,063¥5,861,094

Common area charges

1,300,172

1,298,267

7,208,235

7,159,361

Parking space rental revenues

250,325

242,537

Utility charge reimbursement

583,965

742,082

Miscellaneous

94,392

98,220Subtotal

928,682

1,082,839

Total rental and other operating revenues¥8,136,917¥8,242,200

Property management fees and facility management fees

¥ 811,787¥ 804,755

Depreciation

1,406,895

1,440,312

Utilities

561,061

634,221Taxes

643,179

648,653

Insurance

16,20916,135

Repairs and maintenance

123,949

149,673

Trust fees

42,317

41,817

Loss on retirement of fixed assets

5,403

1,144

156,378

81,042¥3,767,178¥3,817,752¥

Rental and other operating revenues:

Subtotal
Others:OthersTotal property-related expenses
Profit on sale of real estate:
Revenue from sale of investment properties—¥1,710,000

Cost of investment properties—

1,569,751

Other sales expenses—

23,852¥—¥ 116,397¥

Profit on sale of real estate
Loss on sale of real estate:
Revenue from sale of investment properties—¥ 790,000

Cost of investment properties—

836,434

Other sales expenses—

Loss on sale of real estate

13.

¥

17,915—¥64,349LEASES

The Investment Corporation, as lessor, has entered into leases whose fixed monthly rents are due in advance with lease term of generally
two years for office buildings and residential properties and with lease terms ranging from two to ten years for retail properties. The future
minimum rental revenues under existing non-cancelable operating leases as of April 30, 2011 and October 31, 2010 are as follows:
In thousands of yen
As of April 30, 2011

As of October 31, 2010

Due within one year

¥1,008,045¥1,178,139

Due after one year

5,892,331

7,068,298

Total¥6,900,376¥8,246,437

Kenedix Realty Investment Corporation Semiannual Report

| 19

14.

PROPERTY INFORMATION

Details of the property portfolio as of April 30, 2011 were as follows:
Central Urban
Retail Properties

Type

Office Buildings

Location

Tokyo
Metropolitan Area

Other Regional
Areas

Tokyo
Metropolitan Area

Other Regional
Areas

Tokyo
Metropolitan Area

54

11

3

1

2

Acquisition price¥187,546¥37,090¥7,641¥1,800¥12,380

Percentage of total acquisition costs

76.10%

15.05%

3.10%

0.73%

5.02%

Net book value¥188,538

36,151

7,262

1,852

12,384

Appraisal value at year end¥173,334

29,202

6,368

1,400

11,470Percentage of total appraisal value

78.16%

13.17%

2.87%

0.63%

5.17%

Number of properties

Residential Properties

Property information(In millions of yen)

Financial results for the period from November 1, 2010 to April 30, 2011
(In thousands of yen)

Rental and other operating revenues¥6,147,778¥1,317,184¥230,676¥93,184¥348,095

Rental revenues

5,470,677

1,125,899

209,782

82,208319,669

Other revenues

677,101

191,285

20,894

10,97628,426

1,698,433

497,651

59,35936,052

68,788Property management fees

571,761

186,309

22,191

8,205

23,321

Taxes

478,761

120,328

15,4988,331

20,261

Utilities

417,826

118,837

2,339

2,085

19,974

Repairs and maintenance

97,838

10,598

7,591

6,664

1,258

Insurance

9,982

4,930

578

448

271

122,265

56,649

11,162

10,3193,703

4,449,345

819,533

171,317

57,132

279,307927,003

324,473

66,75523,09865,565

3,522,342

495,060

104,562

34,034

213,742

Property-related expenses

Trust fees and other expenses
NOI (Net Operating Income)Depreciation expenses
Operating income from property leasing activities
Capital expenditures

513,946

54,697

—

—

6,058

NCF (Net Cash Flow)

3,935,399

764,836

171,317

57,132

273,249

A breakdown of property-type as of April 30, 2011 was as follows:
Class of assets

Property type

Area

Property and equipment

Office Buildings

Tokyo Metropolitan Area
Other Regional Areas

Subtotal
Residential Properties

Total

Percentage of total assets¥188,538

72.0%

36,151

13.8%

224,689

85.8%

Tokyo Metropolitan Area

7,262

2.8%

Other Regional Areas

1,852

0.7%

9,114

3.5%

Tokyo Metropolitan Area

12,384

4.7%¥246,187

94.0%

Subtotal
Central Urban Retail Properties

Balance at the end of period(In millions of yen)

Bank deposits and other assets¥15,742

6.0%

Total assets

261,929100.0%

Total liabilities

126,423

48.3%

Net assets¥135,506

51.7%

20 |

Kenedix Realty Investment Corporation Semiannual Report

15.

FINANCIAL INSTRUMENTS

Twelfth Fiscal Period (November 1, 2010 to April 30, 2011)(A) OVERVIEW(1) POLICY FOR FINANCIAL INSTRUMENTS
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
Debt and corporate bonds are used primarily for procuring funds necessary for the acquisition of properties and have a redemption dateof 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.
Interest-rate swap transactions are used as derivative financial instruments. Utilizing interest-rate swap transactions, the Investment
Corporation fixes its interest expense for long-term debt bearing interest at a variable rate. With regard to hedge accounting methods,
hedging instruments and hedged items, hedge policy, and the assessment of the effectiveness of hedging activities, please see 2. (K)Derivative Financial Instruments.
(3) RISK MANAGEMENT FOR FINANCIAL INSTRUMENTS(a) Monitoring of market risk (the risks arising from fluctuations in interest rates and others)
The Investment Corporation uses interest-rate swap transactions in order to minimize risk arising from fluctuations in interest rates onfunds procured.
(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
Although loans and other liabilities are subject to liquidity risk, the Investment Corporation reduces such risk by spreading out payment
due dates and by using diversified fund procurement methods. Liquidity risk is also managed by such means as regularly checking thebalance of cash reserves.
(4) SUPPLEMENTARY EXPLANATION OF THE ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available,
fair value is reasonably estimated. Since various assumptions and factors are reflected in estimating the fair value, different assumptions
and factors could result in a different fair value.
(B) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments on the balance sheets as of April 30, 2011 and estimated fair value are shown in the following table.
In thousands of yen
Carrying value

Estimated fair value햲 Cash and bank deposits¥ 13,794,963¥ 13,794,963¥

Subtotal¥ 13,794,963¥ 13,794,963¥

햲 Short-term debt

8,700,000

8,700,000—

햳 Corporate bonds(including current portion of long-term debt)

12,000,000

11,737,200(262,800)

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

92,015,500

91,186,358(829,142)¥112,715,500¥111,623,558¥(1,091,942)

—

—

—

Subtotal
Derivative Transactions (*)

Difference——(*) The value of assets and liabilities arising from derivatives in shown at net value and with the amount in parentheses representing net liability position
Note 1: Methods to determine the estimated fair value of financial instruments and other matters related to securities and derivative transactions

ASSETS햲 Cash and bank deposits
Since these items are settled in a short period of time, their carrying value approximates fair value.
LIABILITIES햲 Short-term debt
Since these items are settled in a short period of time, their carrying value approximates fair value.
Kenedix Realty Investment Corporation Semiannual Report| 21햳 Corporate bonds
The fair value of corporate bonds is based on quoted market prices.
햴 Long-term debt
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 a variable rate, which is subject tofixed interest rates resulting from interest-rate swaps and special treatment applied to said swaps, is based on the present value of thetotal of principal and interest, which is handled together with applicable interest-rate swaps, discounted by the interest rate to be
applied if similar loans were entered into.
DERIVATIVE TRANSACTIONS(1) ITEMS THAT ARE NOT APPLIED TO HEDGE ACCOUNTING
Not applicable(2) ITEMS THAT ARE APPLIED TO HEDGE ACCOUNTING

Hedge accounting
methodContracted amount(In thousands of yen)Type of derivativetransaction

Maturing after 1 year

Hedged items

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

Long-term debt

Total

¥10,000,000¥1,000000¥10,000,000¥1,000,000

Fair value
Calculation method for(In thousands of yen) 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.
Note 2: Redemption schedule for receivables
Due in 1 year or less
(In thousands of yen)

Cash and bank deposits¥13,794,963

Total¥13,794,963

Note 3: Redemption schedule for debt and corporate bonds
In thousands of yen
Due within 1 year
or less

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

Short-term debt

¥ 8,700,000

¥

¥

¥

¥

Corporate bonds

9,000,000

—

—

—

—

3,000,000

Long-term debt

27,460,000

11,920,000

17,320,000

14,515,500

17,800,000

3,000,000

16.

—

—

—

—

Due after
5 years¥—

INVESTMENT AND RENTAL PROPERTIES

Twelfth Fiscal Period (November 1, 2010 to April 30, 2011)
The Investment Corporation owns real estate for rental purposes mainly in the Tokyo metropolitan area for the purpose of generating
rental revenues.
The carrying value in the balance sheets and corresponding fair value of those properties are as follows:
Carrying value (In thousands of yen)
As of October 31, 2010

Net change

As of April 30, 2011

Fair value as of April 30, 2011
(In thousands of yen)

¥233,725,108¥12,462,272¥246,187,380¥222,664,000

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. Exceptionally, the fair value of KDX Hirakawacho Building is basedon the planned sales price of ¥5,800 million under the sale and purchase agreement dated April 5, 2011.
3. Among changes in the amount of real estate for rental purposes that occurred during the fiscal period under review, principal increases were the acquisitionof four properties totaling ¥13,298,227 thousand, and depreciation amounting to ¥1,406,895 thousand.

Income and loss in the fiscal period ended April 30, 2011 for real estate for rental purposes is listed in the Note “12,BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUES AND PROPERTY-RELATED EXPENSES”.

22 |Kenedix Realty Investment Corporation Semiannual ReportStatements of Cash Flows (Unaudited)
Kenedix Realty Investment Corporation
For the period from November 1, 2010 to April 30, 2011 and the period from May 1, 2010 to October 31, 2010

In thousands of yen
From November 1, 2010
to April 30, 2011

From May 1, 2010
to October 31, 2010

¥ 2,311,379¥ 2,608,056

Depreciation and amortization

1,634,424

1,645,691

Interest expense

1,048,723

993,950

Loss on retirement of fixed assets

5,403

1,144

Loss on disaster

35,360—Subsidy(26,230)—

Loss on reduction of fixed assets

26,230—CASH FLOWS FROM OPERATING ACTIVITIES:
Income before income taxes
Adjustments to reconcile income before income taxes to
net cash provided by operating activities:

Changes in assets and liabilities:
Rental receivables

22,067(57,116)

Consumption tax refundable(310,485)

48,308

Accrued consumption tax(230,841)

264,791

Trade and other payables(33,748)

73,500Rents received in advance

705,812(78,507)—2,406,185

Property and equipment due to sale
Others, net(628,713)(254,016)

Subtotal

4,559,381

7,651,986(1,011,751)(987,326)

Cash payments of interest expense
Cash payments of income taxes

(633)

(640)

¥ 3,546,997¥ 6,664,020(13,803,598)(366,918)(75,499)—

Proceeds from leasehold and security deposits received

1,011,848

337,128

Payments of leasehold and security deposits(122,709)—

Payments of leasehold and security deposits received(615,156)(719,407)

Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Purchase of intangible assets

Payments of time deposits(74,000)—

Payments of restricted bank deposits(134,900)(13,667)

Proceeds from restricted bank deposits
Net cash used in investing activities

112,588¥(13,701,426)

146,978¥(615,886)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt

6,200,000

2,500,000

Payment of short-term debt

(3,800,000)(5,000,000)

Proceeds from long-term debt

26,300,000

12,400,000

Payment of long-term debt

(18,551,500)(10,301,500)

Payment of dividends(2,541,094)(2,565,441)

7,607,406(2,966,941)

Net cash (used in) provided by financing activities
Net change in cash and cash equivalents(2,547,023)

3,081,193

Cash and cash equivalents at the beginning of period

15,367,050

12,285,857¥ 12,820,027¥15,367,050

Cash and cash equivalents at the end of period
See related notes.

Kenedix Realty Investment Corporation Semiannual Report| 23

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (UNAUDITED)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 thedate of purchase.
CASH AND CASH EQUIVALENTS (UNAUDITED)Cash and cash equivalents consisted of the following as of April 30, 2011 and October 31, 2010:
In thousands of yen

Cash and bank deposits

As of April 30, 2011

As of October 31, 2010

¥13,794,963¥16,245,674

Restricted bank deposits held in trust (Note 1)(510,936)(488,624)

More than 3-month fixed deposits (Note 2)(464,000)(390,000)¥12,820,027¥15,367,050

Cash and cash equivalents

Notes: 1. Restricted bank deposits held in trust are retained for repayment of tenant leasehold and security deposits.
2. More than 3-month fixed deposits are fixed deposits which have deposit terms of more than 3 months.

24 |Kenedix Realty Investment Corporation Semiannual Report