8 th Fiscal Period
November 1, 2008 - April 30, 2009

Semiannual Report
http://www.kdx-reit.com/eng/Investment Highlights
for the eighth Fiscal Period
General Breakdown of Unitholders

Kenedix Realty Investment Corporation (KENEDIX-REIT)
is issuing a cash distribution of 12,172 yen per unit to

212.8

unitholders (shareholders) as a distribution for
operations during the Eighth Fiscal Period running

197.0

from November 1, 2008 to April 30, 2009.
Note: T he amounts are rounded to the nearest 100 million yen

175.0
146.7
44.4

222.0
12.7

12.7

12.3

16.0

69.1

CentralUrban Retail

12.3

Office16.0

16.0

Individuals and others

80,314 units: 40.2%

81,920 units: 41.0%

9,968 units: 5.0%

10,720 units: 5.4%

98,863 units: 49.4%

91,126 units: 45.6%

84,966 units: 42.5%

10,855 units: 5.4%

16,234 units: 8.1%

21,592 units: 10.8%

Name
Goldman Sachs International
NikkoCiti Trust and Banking Corporation (investment trust account)
The Master Trust Bank of Japan, Ltd. (trust account)
Japan Trustee Services Bank, Ltd. (trust account)
The Nomura Trust and Banking Co., Ltd. (investment trust account)
Trust & Custody Services Bank, Ltd. (securities investment trust account)
Deutsche Bank AG London-PB Non-Treaty Clients 613
Morgan Stanley & Company, Inc.
The Chase Manhattan Bank N.A. London Secs Lending Omnibus Account
Sumitomo Mitsui Banking Corporation
Total

193.9

184.0

115.9

12.3

Other domestic corporations

End of 8th Period(200,000 units)
90,772 units: 45.4%

2,670 units: 1.3%

Top Ten Unitholders (as of April 30, 2009)

137.9

12.3

Foreign corporations and individuals

End of 7th Period(200,000 units)

Note: Figures are rounded to the first decimal place.

43.0

20.7

18.9

Residential

43.0

16.0

81.4

12.7

Financial institutions(including securities companies)

196.9(billion yen)

End of 6th Period(200,000 units)

218.9

86.2

Units Held
25,317
17,023
15,76915,386
10,698
9,344
8,431
5,339
3,388
3,002
113,697

Share of Outstanding Units
12.65%
8.51%
7.88%
7.69%
5.34%
4.67%
4.21%
2.66%
1.69%
1.50%
56.84%

Note: Ratios are rounded down to the second decimal place.

48.2

37.7
End of
1st Period
2005/10End of
2nd Period
2006/04

End of
3rd Period

Operating Revenues

2006/10End of
4th Period

End of
5th Period

2007/04

8,204

2007/10mn yenPeriod-on-period decrease of 299 million yen in capital gains
from sales

Net Income

2,434

mn yenAdjusted total without property sales would be 2,926 million yen for the
Eighth Fiscal Period and 2,823 million yen for the Seventh Fiscal Period

Distribution

12,172yen

per Unit

Total Unitholders’ Equity

1 ❘ Kenedix Realty Investment Corporation

127,398mn yenEnd of
6th Period
2008/04

End of
7th Period
2008/10

IR Schedule

End of
8th Period
2009/04

table of contents
Investment Highlights for the Eighth Fiscal Period

1

Q&A with the CEO

2

Q&A with the General Managerof the Financial Planning Division

5

Financial Strategy and Developments

7

Q&A with the General Managerof the Investment Management Division

8

KDX Nagoya Sakae Building

9

Description of Portfolio

10

Q&A with the General Managerof the Property Management Division

11

Proactive Portfolio Management Generates Results

12

The Mid-Sized Office Strategy

13

Asset Management Company

14

KENEDIX-REIT Portfolio Table

15

Financial Summary

17

Financial Statements

18

APRIL

JUNE

JULY

OCTOBERDECEMBERJANUARY

End offiscal period

Performance for
period ending in
April is announced

Distributions arepaid for the period
ending in April

End offiscal period

Performance for
period ending in
October is announced

Distributions arepaid for the period
ending in October

Information is regularly disclosed throughout the year via press releases and the website at 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 Japanese terms. WITh respect to any andall 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 and interpretation.
None of KENEDIX-REIT, KENEDIX REIT Management, Inc. nor any of their respective directors, officers, employees, partners, unitholders, agents, affiliates nor their advisors 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 REIT Management, Inc. with respect to its business, financial condition and results of operations. In some cases, you can identify forwardlooking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or the negative of these terms or other similarterminology. 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, these forward-looking
statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise and involve known and unknown 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.

Kenedix Realty Investment Corporation ❘ 34

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peakingYou

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Q&A with the CEO

PROPORTION OF FLOATING-RATE DEBT
VS. FIXED-RATE DEBT (as of April 30, 2009)
Floating interest rate debt
¥15.5bn: 15.7%

Transforming STABLITIY
into a Path to GROWTH- That Half-Step Ahead The global economy continued to experience tough times overthe past six months. What are your thoughts on this?
Q

I am concerned by its impact on Japan. And naturally
globalization has brought about many similarities in the timing of
events such as the rising and falling of capital markets. Nonetheless,there are differences in the nature of economies and in the financial
conditions of the firms that comprise individual economies. ManyJapanese firms have posted deficits or enormous drops in profits;
however, unique to Japan is the fact that this has not had anexcessively negative impact on the balance sheets of said firms.
Japanese firms have developed resilience to bad times, which is one
reason behind their insistence on having strong capital reserves.
A

Naturally, I cannot say that these negative factors don’t concern me.
However, real estate is essentially a local business. We are well-versed
in our portfolio, which we are confident is ideal for surviving the times
due to its historically proven low volatility, our solid relations with

Fixed interest rate debt
¥83.25bn: 84.3%

Average interest rate Note

1.84%

Average life

2.5 years

Proportion of long-term debt

89.9%

Note: The average interest rate above does not include
upfront fees. The average interest rate including
upfront fees is 2.03%. "Fixed interest rate debt"
includes borrowings that were converted to fixedfrom floating through interest rate swaps.

DEBT BALANCE BY MATURITY PERIOD(as of April 30, 2009)

Short-term borrowings¥10bn: 10.1%
Current portion of
long-term borrowings¥9bn: 9.1%

Long-term borrowings andinvestment corporation bonds¥79.75bn: 80.8%

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We have a provenportfolio withdiverse tenants,
little volatility andstrong occupancy– characteristics ofthe mid-sized officebuilding market andsuccess.

tenants and our many experts on staff knowledgeable in the diverse
factors of successful real estate management. Of course, the financing
aspect of a J-REIT makes us susceptible to the whims of the debt andequity markets, which the industry had mistakenly thought we were
insulated from. Still, I am proud of the long-term, fixed-interest ratefinancing strategy we have maintained since our IPO and the strengthof this strategy is evident in our refinancing prowess and the lengths
and diffusion of our repayment dates. There are obviously loans
remaining that have to be refinanced, but we feel that this will beaccomplished with little stress.
Are you stating that your focus is no longer on refinancing?

Q

A If we are unable to acquire properties in this market, I would
question the meaning of our existence as a J-REIT. Cap rates areclimbing and creating an even greater yield gap, sellers are willing tosell and excellent properties are available that would further optimize
our portfolio. This supply can be absorbed by J-REITs and thus bringstability to the market. We did not have any acquisitions in our Eighth
Fiscal Period, but we acquired a building in Sakae, Nagoya, in theNinth Fiscal Period that clearly shows a change in our strategy.

We had acquired the land in April 2008 and had a forward commitment on the building, but despite an earlier
agreed to price we were able to negotiate the price down significantly, representing a clear footprint in the modal
shift of KENEDIX-REIT from stabilization to prudent growth. We seek to fund further acquisitions through equity
rather than debt, and thus secure a less expensive route to growth with no “maturing” of the capital.
Q

What were the portfolio management highlights in the Eighth Fiscal Period?

We assimilated the funds for the acquisition of the Sakae property in the Ninth Fiscal Period by disposing of
non-core properties in the KENEDIX-REIT portfolio. These included KDX Hakata Building in Kyushu, whichallowed us to further concentrate our presence in the Tokyo Metropolitan Area, and KDX Koishikawa Building,which was our smallest building and was outside our investment policy parameters.
A

These changes to our portfolio along with cost cutting through consolidation of building maintenance companies,
contracting with new electricity providers, reductions in trust fees, maintenance and repair fees has dramaticallylowered expenses. We have also successfully leased out the KDX Jimbocho Building, a building that had 0%
occupancy less than a year ago – leading to increased occupancy in this economy. All these point to excellent
portfolio management, a requisite strength of a J-REIT.

Past Policies
Marketenvironment

Low leverage
Rising cap rate of offices

Financial crisis

Theme

Acquisition/saleof properties• Increase in asset scale
focused on mid-sized
office buildings• Concentrate investment inTokyo Metropolitan Area

Increase financial stability =“Provision and reserves”

Steps for growth• Sale of non-core properties(residentials, central urban retails,
regional offices) to reduceleverage• Keep the cost of new acquisitions
within the range of properties sold

• Acquisition of core properties
with new funds raised• Greater focus on investing
mainly in mid-sized officebuildings in Tokyo
Metropolitan Area

Short-term measures• Diversify maturities• Extend duration• Diversity funding methods

Financial

Managementof existing
properties

Future Policies

Current Policies

Proceedto thenext step• Diversify maturities• Extend average life
• Conservative leverage control• Maintain stable cash flow from properties = Trust in the cash flow from mid-sized office buildings• Cost reduction, CS survey = On-site focused management by proprietary PMs• As a result, KENEDIX-REIT successfully managed to maintain 95% occupancy

Growth measures• Raise new funds whenchanges to the market
environment are perceived• Flexible fund raising
Stability of
cash flow

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These achievements, along with the successful refinancing during the Eighth Fiscal Period, are not easy evenin good times. How were you able to accomplish these?
Q

First, it was possible because of our first class team of professionals, a few of whom will be introduced in thefollowing pages. We have the experience and developed networks of these professionals at our disposal.
Additionally, we have a proven portfolio with diverse tenants, little volatility and strong occupancy –characteristics of the mid-sized office building market and success.
AQ

Why do you believe so profusely in the J-REIT model?

Three strengths of J-REITs are the constant liquidity of investment units through the market, the constanttransparency based on strict governance and the simple structure. The J-REIT, with these strengths and theability to attract capital, will certainly outstrip other real estate funds to become the leading player of property
acquisition. We have placed an emphasis on disclosure and governance since our IPO so that our investors cansee their investment at work and be assured that their investment is being well managed. Our ability to invest ourinvestors’ capital in a transparent manner when property cap rates are high is a potent weapon. Additionally,
since leverage is kept low, below 42% in our case, the investment is quite reliable. The present phenomenon of adisparity between market value and transaction value, is when J-REITs should buy.
AQ

Is this why you are shifting your focus to equity driven growth?

Yes. We realigned ourportfolio when other players
8th period
Going Forward
were not concerned about
Existing properties: stable cash flow
Existing properties: stable cash flow
the market. We were theProperty
first to emphasize that it was
Propertyacquisition
Financialacquisitionof utmost importance toFinancialsecure an optimal portfolio
and that we would consider
selling properties at a loss if
Higher priority on financial stability
Maintain balance between
due to current financial contraction
property acquisition and financials
it contributed to a compreMarket environment outlook
hensive improvement. We
intend to continue toReal estate market
Financial market● Increase in number of property sales and transactions● Recovery of debt liquidity
improve our management● Attractive property yields● Lower implied cap rate requirement forcapacity for mid-sized office● Opportunities for acquisition of new properties
REITs
buildings, exercising thesame type of debt control
that we have practiced since our IPO, while at the same time focusing on equity rather than debt as the main
source of property acquisition capital. We are taking that half step ahead on our path to prudent growth based ona sound balance between acquisitions and financing.
A

We are doing this because we perceive a recovery coming in debt liquidity, more favorable government measuresand more realistic demands on J-REIT returns emerging in the capital markets along with more transactions andexcellent acquisition opportunities in the real estate market.
Don’t get me wrong. We have dealt with headaches, such as our sponsor selling its stake in the J-REIT, the poor
economy and a couple of properties with poor occupancy, but this has resulted in increased transparency, strict
governance, greater occupancy and more resiliency at the end of the Eighth
Fiscal Period – these are the cornerstones for future growth.

Taisuke Miyajima
CEO and President
Kenedix REIT Management, Inc.
Miyajima entered Kenedix, Inc. after serving in the Capital Markets Department of Mitsubishi UFJ Trustand Banking in its Los Angeles Branch. He worked in real estate investment advisory for seven years,
after which he transferred employment to serve as CEO and President of Kenedix REIT Management,
Inc. and Executive Director of KENEDIX-REIT.

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Q&A with the General Manager of the Financial Planning Division

You

Proving a Well Executed Policy
Q The majority of press on J-REITs over the past year has been shouting about refinancing and the inability of
J-REITs to gain refinancing. KENEDIX-REIT has continually stayed out of this fray. Why is this?
A Business comes in cycles. Asset managers of J-REITs are thrust into a predicament where our performanceis judged every six months. Obviously, we knew this from the beginning and this is not a complaint. However,this subconsciously compels us to always look at the short-term window. But, as stated above, business comes incycles. Since our IPO we have insisted on long-term financing and fixed interest rates. This did raise our financing
costs slightly, but none of our bonds mature until 2012 and 2017, and our latest refinancing has loans maturing
after 2015. Additionally, our team of supporting banks includes core banks of the Japanese system, and our low
leverage and straightforward disclosure has been integral to their continued financing for our J-REIT. When we
first implemented our long-term strategy, it was either ignored or viewed poorly, but now I believe it is understood.
Q Your CEO, Taisuke Miyajima, has talked about a modal shift towards growth driven by equity and several
acquisitions when the timing and deal is right. What have you done to prepare for this?
A We previously filed a shelf registration for 100 billion yen of investment units and took the steps to renew thedeadline for said potential issuance. We additionally processed a shelf registration for the issuance of 100 billion
yen in new investment bonds during the Eighth Fiscal Period. We may seem contrarian at first glance, but I don’t
see KENEDIX-REIT issuing bonds in the near future though we have arranged for the flexibility to issue
investment units and bonds on our timetable any time in the future. Potentially such a move would drive down
our LTV, presently at only 41.4%, and further enhance our appeal among financial institutions as a recipient of
future financing.
Q

What are your thoughts regarding Moody’s downgrading of KENEDIX-REIT?

A First, it is important to note that we are rated by both Moody’s Investors Services (“Moody’s”) and Japan
Credit Rating Agency (“JCR”). Moody’s downgraded us to Ba1 (negative), but JCR has kept us at A+ (negative).
One of the reasons given for downgrading was that we had started discussions with lenders to convert portfolio
properties into collateral for loans and thus our unsecured bonds may become subordinated to the loans. We will

Amount of debt maturing in each 6 months (as of April 30, 2009)
Investment corporation bonds

9.00
Long-term borrowings

7.03

Borrowings from Development Bank of Japan

18.53
11.53
Short-term borrowings(billion yen)

12.28

6.38

2.00

0.03
2009
1H

9.97

8.00

2009
2H

2010
1H

2010
2H

2011
1H

2011
2H

2012
1H

3.00

3.00

2012
2H

2013
1H

5.00
2013
2H

2014
1H

2014
2H

2015
1H

2015
2H

2016
1H

3.00
2016
2H

Notes: 1. Shows debt amounts that mature in each period
2.	1H is from Apr. 1 to Sep. 30 and 2H is from Oct. 1 to Mar. 31 of the following year, and are not indentical with the fiscal periods of KENEDIX-REIT(e.g. 2009 1H is from Apr. 1 to Sept. 30, 2009)
3. Balance of borrowings from Development Bank of Japan (excluding divided repaymet amount) shown in

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continue to brief Moody’s to gain their understanding about our portfolio strength, which is being demonstrated toa greater extent with each passing day, as well as the low LTV we maintain of 41.4%.
Q

What were the achievements and issues of your refinancing during the Eighth Fiscal Period?

A In the Eighth Fiscal Period, KENEDIX-REIT executed multiple refinancing of loans. The diversification of
the maturity dates is shown on page 7. Although the cost of financing did go up, we were able to achieve all thefinancing needed and to keep the identical short-term to long-term financing ratio and fixed to floating ratio as
shown in the table on page 2. In refinancing, the balances of Sumitomo Mitsui Banking Corporation andDevelopment Bank of Japan Inc. were increased, while those of less important lenders were eliminated. This
served to further strengthen our team of supporting banks. The other large development was the collateralizationof debt. About 70% of our portfolio has been offered in a collateral pool to financial institutions, with theremaining properties under an unsecured status. Accordingly, we have secured medium- and long-term (2-3 year)
period borrowings and more stability in our financial transactions, while at the same time maintaining portfolio
liquidity.
Q

What are your thoughts on the modal shift to equity driven growth?

A I welcome this shift. Our strategy to date has been proven by our track record of strong growth, conservative
LTV and the support of financial institutions. My role is to ensure investors that we maintain our conservative
LTV, even at a lower level, and that any capital raising we do in the form of equity is done with utmost
consideration given to our investment unit holders. I am convinced, however, that this is the common goal of the
management at Kenedix REIT Management, Inc.

Masahiko Tajima

Tajima served in Chuo Mitsui Trust and Banking for
twelve years where he worked in business planningand securitization. He joined Kenedix, Inc. in May
2005 after four years in the structured financedepartment at Sumitomo Life Insurance Company.

Director and General Manager
Financial Planning Division
Kenedix REIT Management, Inc.

balance of borrowings by borrowing providers(billion yen)

7th period 8th period Difference
Sumitomo Mitsui Banking Corporation

18.95

19.45

+0.5

Chuo Mitsui Trust and Banking

14.5

14.5

-

Development Bank of Japan

11.0

12.0

+1.0

breakdown of borrowing providers(as of April 30, 2009)
Stable financing through good
relationships with financial institutions,especially megabanks, trust banks andDevelopment Bank of Japan

Aozora Bank

12.0

12.0

-

Bank of Tokyo Mitsubishi UFJ

9.8

9.8

-

Mitsubishi UFJ Trust and Banking

7.2

7.2

-

Mitsui Sumitomo Insurance

1.2%

Resona Bank

4.3

4.3

-

Norinchukin Bank

4.0

4.0

-

Citibank

2.5

2.5

-

Mitsui Sumitomo Insurance

1.7

1.0

-0.7

Chiba Bank

0.8

0.0

-0.8

86.75

86.75

-

Total

Sumitomo Mitsui
Banking Corporation

22.4%

Citibank

2.9%

Norinchukin Bank

4.6%

Chuo Mitsui
Trust and Banking

16.7%

Resona Bankchange in ltv

5.0%
Note: LTV = Total debt÷Total assets

Mitsubishi UFJ
Trust and Banking

50%

41.2

40%

1st

period

41.4

38.9

38.7

37.5

30%

8.3%

47.0

45.6

11.3%

35.3

2nd

period3rd

period4th

period5th

periodBank of Tokyo
Mitsubishi UFJ

6thperiod7th

period8th

periodAozora Bank

13.8%

Development Bankof Japan

13.8%

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Financial Strategy and Developments

KENEDIX-REIT has been resolute since its IPO in following a long-term, fixed interest rate financing policy as ameans to be free from daily concerns over refinancing. This strategy has helped placed it above the hectic frayof the past year with various J-REITs repeatedly rushing to refinance and allowed KENEDIX-REIT to pursue abeneficial financing strategy built on its strong core of supporting banks.
As of the end of the Eighth Fiscal Period, KENEDIX-REIT has outstanding interest-bearing debt of 98.75 billion
yen, which breaks down into 10.0 billion yen in short-term borrowings, 76.75 billion yen in long-term borrowings
and 12 billion yen in bonds. It is important to note that while some J-REITs took out bonds of 3 years or less,
KENEDIX-REIT took out 5- and 10-year maturities, freeing it from any redemption obligation for the bonds until
2012 and 2017.
Furthermore, KENEDIX-REIT has prepared itself for possible acquisitions by renewing a 2-year shelf registrationof investment corporation bonds totaling 100 billion yen, and a 2-year shelf registration of investment units for a
primary offering of 100 billion yen and secondary offering of 15 billion yen. This provides KENEDIX-REIT withgreat flexibility regarding the timing of acquisitions.
There was a major shift in the refinancing of 21.5
billion yen in loans that was implemented in the Eighth
Fiscal Period. At the behest of financial institutions
and following repeated negotiations, KENEDIX-REIT
collateralized about 70% of its assets on an appraisal
basis, with about 30% left uncollateralized. This
gives KENEDIX-REIT flexibility in management anddisposition, secures cash on hand and minimizes any
impact on bond debt. The figures portray the broadachievements and maturities following refinancing.

flexible fund raising through shelf registration
Investment Unit
Certificate

Summaryof Shelf
Registration

Investment
Corporation
Bond

Primary

Secondary

Planned issue
amount¥100 bn¥100 bn¥15 bnPlannedissuance period

2 years from2009/2

2 years from 2 years from2009/5
2009/5

Impact of Refinancing on Maturities
Repayments after posting collateral
Borrowings before posting collateral

9.5(billion yen)

0.03
2009
1H

2.5

3.0
2.5

2.0

11.23

11.53

2009
2H

2010
1H

13.58

16.03

Investment corporation bond

3.5
6.47

2010
2H

2011
1H

Borrowings after posting collateral

9.0

Borrowings from DBJ

1.0
2.0
3.38

3.0

3.0

2012
1H

2012
2H

2013
1H

2011
2H

Note: The debt amount maturing in each period with 1H corresponding to April – September and 2H corresponding to October – March

Post-Collateralization Developments (April 2009)

Collateralization of Portfolio (April 2009)
Uncollateralized

Collateralized

No. of properties

27 properties

40 properties

Total appraisal value¥60 bn (27.8%)¥156.3 bn (72.2%)

Size(Avg. appraisal value)¥2,225 mn/property¥3.909 mn/property

Area(Appraisal value)Tokyo Metropolitan Area
Other Regional Areas¥53.8 bn
¥6.1 bn

Tokyo Metropolitan Area ¥135.2 bn
Other Regional Areas¥21.1 bn

Type
(Appraisal value)

OfficeResidential
Central urban retail¥53.0 bn¥5.0 bn¥1.9 bn

OfficeResidential
Central urban retail¥139.2 bn¥6.2 bn¥10.9 bn

Extension of
average life

Prepayment of existing debt andrefinancing to long-term borrowings(¥3.5 bn); temporal advantage
prioritized over funding costs.

Refinancing to diversify
Diversification
maturities (6 months, 1 year,of maturity
2 years, 2.5 years and 3 years)
Increased cash on hand by
selling uncollateralized
Additional
cash on hand properties (KDX Hakata Building
and KDX Koishikawa Building)

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Q&A with the General Manager of the Investment Management Division

You

Insight into the Investment Strategy of KENEDIX-REIT
Q

Please discuss the two properties you sold during the Eighth Fiscal Period.

There were really three reasons behind selling these properties: the first was to raise capital for acquisitions,the second was to enable us to buy the Sakae property with our own capital, and the third was that theseproperties did not match our current investment standards – KDX Hakata Building is a local property and KDX
Koishikawa Building is valued at less than 1 billion yen.
A

Q

What factors are essential for constructing an ideal portfolio?

A You need a portfolio that provides stable cash flow preferably located in the central five wards of Tokyo
where properties tend to demonstrate lower volatility and appraisal values have more resilience.

Q

What are the most essential elements for an effective acquisitions team?

The acquisitions team needs to have both the ability to research and the ability to source information.
It must always have a grasp on what is happening in the market and remain motivated even in “slow” times.
A

Q

What do you look for when investing in a property?

The building must be in compliance with all legal regulations. This is obvious, but sometimes trying.
Furthermore, it must be located in the central five wards of Tokyo and provide stable cashflow.
A

You acquired the KDX Nagoya Sakae Building in the Ninth Fiscal Period. Does this signify or represent a
strategic change?
Q

The property provides excellent quality to our portfolio, and the price was successfully renegotiated down
despite being a forward commitment. We did have to abandon the master lease term as a part of the agreement.
We are ready to move with our strategy and staff in place. All we need is for the capital markets to come in line.
However, rest assured that our growth will be prudent and we will not drive in neutral.
A

Kenji Ajitani
Director and General Manager
Investment Management Division
Kenedix REIT Management, Inc.

Ajitani joined Kenedix, Inc. in April 2003 after serving for ten
years at Sojitz Corporation in its Construction Department.
After nearly one year at Kenedix, Inc., Ajitani was assigned
to Kenedix Advisors Co., Ltd. where he served for three anda half years. Ajitani was then assigned to his current post at
Kenedix REIT Management, Inc. in June 2007.

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KDX Nagoya Sakae Building
9th Fiscal Period Acquisition

KENEDIX-REIT committed to buying this excellent office building in Sakae, Nagoya by first acquiring the landprior to construction of the building. The building is rated A- under CASBEE Nagoya (Japanese equivalent ofLEED) and features strong anti-seismic features, a roof top garden and modern security system. The terms of theacquisition were also lowered to reflect the change in the business environment.

KDX Nagoya Sakae Building❙ Location
4-chome Sakae, Naka-ku, Nagoya-shi❙ Site area
1,192.22m2❙ GFA
9,594.00m2❙ Year built
April 2009
❙ Number of stories 11F❙ Acquisition price Land:¥4,000 mn
Building: ¥3,550 mn•• 3 minute walk from "Sakae" Station on the Subway
Higashiyama Line, Meijo Line and Meitetsu Seto
Line•• Located along flourishing "Hirokoji-dori"•• Typical floor area of about 200 tsubo with a ceilingheight of 2.8m•• Eco-conscious design with environment control
equipment (free air conditioning, perimeter fan
system + full-height glass, and daylight sensor for
luminance control)•• Security system (using non-contact IC cards)

Following the Commitment: Negotiating to Reflect the Times
6th period

7th period

8th period

April 2008

9th period

April 2009

●April 25, 2008
● Land acquired● Concluded Building
Acquisition Agreement

May June●Completion of construction●July 1, 2009
Building acquired●2 office buildings sold●Amended agreement concluded●Widening financial crisis

Specifications
Seismic Isolation Structure

July

Amendments to Building Acquisition Agreement
Rooftop Garden

Before amendment

KDX Nagoya Sakae Building

Name of property
Acquisition price•• Seismic isolation
structure to mitigate
earthquake risks•• A new office building
constructed by
Takenaka Corporation•• Rooftop garden to
realize a high levelof environmental
designFixed rent

After amendment¥4,325 mn¥3,550 mn

Master lease agreementwith guaranteed fixed rent

None•• CASBEE Nagoya:
A-rated9 ❘ Kenedix Realty Investment Corporation

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Description of Portfolio

KENEDIX-REIT is completely committed to building the optimal portfolio for investors and focuses its strategy
on mid-sized office buildings, which show little volatility in dire economic times.

Portfolio Breakdown by Usage(as of end of 8th period))

GEOGRAPHIC CONCENTRATION OF OFFICE PORTFOLIO(as of end of 8th period)

The KENEDIX-REIT portfolio is dominated by welllocated mid-sized office buildings.

KENEDIX-REIT further concentrated the portfolioin Tokyo through the sale of a Fukuoka property anda small Tokyo property. This creates a portfolio of
properties committed to weathering the storm.

Residential

5.8%

Other Regional Areas

Central Urban Retail14.7%

28.6 bn yen

5.6%

Other Tokyo Metropolitan
Area

41.3 bn yen
21.3%

OfficeCentral Tokyo

88.5%

123.9 bn yen
63.9%

PRACTICING WHAT YOU PREACH
KENEDIX-REIT said it would concentrate on office buildings in the Tokyo
Metropolitan Area with a value of at least 1.0 billion yen. During the Eighth Fiscal
Period the KDX Hakata Building in Fukuoka and the KDX Koishikawa Building, thesmallest building in Tokyo, were sold to further optimize the portfolio in the Tokyo
Metropolitan Area.

Sold
S OLD

0.67 bn yen in Tokyo● KDX Koishikawa Building

Sold
S OLD

K U OK A
FU

-0.67

-2.0

TOKYO

bn yenbn yen2.0 bn yen in Fukuoka● KDX Hakata Building(as of end of 8th Period)

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S

peaking
Diligently Working to Maintain Occupancy andtoLease Out Buildings
Q&A with the General Manager of the Property Management Division

Qchanges in occupancy ratio for office buildings (by region)

What is Asset Management?

A Asset management consists of the total
responsibility of managing assets. The asset
manager has the final responsibility for thebudget, whereas the property manager is
responsible for the actual site of the building.
The asset manager verifies what the property
manager does. The asset manager makes
decisions and establishes strategies, while theproperty manager implements them and works
to achieve the goals. The asset manager
provides direction on leasing.
Q

Central Tokyo 97.0%

100%

90%

Other Tokyo Metropolitan Area 95.6%
Other Regional Areas 92.4%

80%
05
/0
05 7
/1
0
06
/0
1
06
/0
4
06
/0
7
06
/1
0
07
/0
1
07
/0
4
07
/0
7
07
/1
0
08
/0
1
08
/0
4
08
/0
7
08
/1
0
09
/0
1
09
/0
4

You

What is key to maintaining occupancy?

A We place a lot of emphasis on customer (tenant) satisfaction. We have indirectly obtained 3,189 samples
from tenants and we are committed to finding ways to improve satisfaction. We find that being tenant-oriented
and having a strong relationship helps maintain high occupancy and high retention. We also find that good
relationships lead to higher rents. These also lead to easier negotiations for both parties.
Q

What is your position concerning rents?

A Until one year ago we had been proactively negotiating for rent increases to try to bring our rents up tomarket levels. However, from about a year ago, tenants began to not request greater floor space and started
seeking greater energy efficiency. CEO Miyajima and our leadership decided then that we would not negotiate up
rents. As a result of this and our efforts to maintain good relationships, we have found that requests to leave
during these hard times have matched the levels of good times, giving us consistent performance.
Q

What was key to leasing out the KDX Jimbocho Building?

As you know, we renovated the KDX Jimbocho Building, which began with zero occupancy. Following therenovations several factors backed by frequent and diligent site viewings and good relationships with brokers
contributed to our successful leasing out of the property. The excellent location in front of Jimbocho Station was
also a positive influence, along with the renovations that included installing new fixtures and brighter, cleaner
restrooms for potential tenants. Our pursuit of good relationships with both brokers and tenants is definitely wellreceived by the market.
A

Q

What are the challenges and advantages of the KDX Nagoya Sakae Building?

A KENEDIX-REIT acquired the KDX Nagoya Sakae Building during the Ninth Fiscal Period following a long
period of forward commitment. The property was transferred to KENEDIX-REIT with 80% vacancy; however, it isa unique, new and high spec building in the traditional center of Sakae, rather than just one of several buildings inother areas in Nagoya. We have shown the building to several brokers and they have liked the appearance, quality
and solid cutting-edge anti-seismic measures. We are convinced that its distinct presence in the area will help us
to apply proactive site visits and other measures to successfully lease out the property in the next year.

Masashi Ohwa
Director and General Manager
Property Management Division
Kenedix REIT Management, Inc.

Ohwa joined Kenedix, Inc. in June 2004 after working for nearlya decade at Asahi Urban Development Corporation and otherreal estate companies. After one year at Kenedix, Inc., he was
assigned to the position of Executive Officer and General Managerof the REIT Management Division of Kenedix Advisors Co., Ltd.
Ohwa served in this position for two years before being assigned
to his current position at Kenedix REIT Management, Inc.

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Proactive Portfolio Management
Generates Results

KENEDIX-REIT prides itself on never being complacent and always working to improve returns for investors.
Results are achieved through a variety of carefully crafted measures.
One of KENEDIX-REIT’s focuses has been the reduction of operating expenses. Efforts described in the figure
below have contributed to savings equivalent to 27,900,000 yen per year. Key reductions have been achieved intrust fees, building repair and maintenance costs via competitive bids and other measures.
KENEDIX-REIT has successfully maintained an occupancy of 95%+ through relationships with tenants, brokers
and proactively conducting customer satisfaction surveys. Relationships have proven to be of particularimportance with existing tenants and brokers.
KENEDIX-REIT is also able to maintain high occupancy because we are committed to leasing up our properties.
We have taken the KDX Jimbocho Building in the Eighth Fiscal Period, and KDX Toranomon Building and KDX
Nishi-Gotanda Building earlier, from 0-20% occupancy up to nearly 100% occupancy. It took 12 months to fully
lease the KDX Jimbocho Building in the Eighth Fiscal Period. However, these efforts are achieved through theprovision of information to our broker network, private previews and such active efforts including the proper
handling of inquiries.

Reducing Operating Costs
Reduction in building
maintenance expenses
by consolidating BMs

Cost reduction bychanging
electric power supplier

Reduction of trust fees

Increased efficiency throughcollective outsourcing (collective
management) by area

Additional change for 11 properties(out of 67 properties, provider
changed for 42 properties)

Reduction of trust fees by reviewing
the office work flow

Reduction by ¥11 mn/year

Reduction by ¥2 mn/year

Reduction by ¥14.7 mn/year

1.3%

0.4%

16.0%

reduction

reduction

reduction¥27.9 mn (annualized) cost reduction achieved during the 8th Period

Reduction of repairs andmaintenance costs
Reduction in maintenance costs aslarge-scale renovations have cycled
out

26.5%
reduction¥50 mn reduction(compared tothe previous period)

Changes in depreciation and actual construction costs & budget
1,392
1,357

1,430

1,445

1,302

1,294

1,429

1,455

1,446

20%

1,030
50%

651

5th

period6th

period7th

period8th

period9th

periodbudget

58%

549

10th

Construction cost / budget
Depreciation

KENEDIX-REIT will also continue to reduce valueup construction costs significantly as most work
has been completed to date. KENEDIX-REIT
will continue to actively fill properties by flexibly
responding to tenant needs so that vacancy periods
can be shortened and occupancy raised whilesufficiently conducting all necessary maintenanceconstruction.

periodbudget(as of June 22, 2009)

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The Mid-Sized Office Strategy

KENEDIX-REIT changed its portfolio focus toTokyo mid-sized office buildings approximately fivefiscal periods ago. The strategy has borne well for
the REIT and the portfolio has demonstrated its
resilience with little volatility despite dealing withthe current downward pressure on rents.

The mere volume of mid-sized office buildings inTokyo and Japan ensures liquidity even in toughtimes and the ability to attract tenants at affordable
rents and appropriate sizes. The potential tenantbase is abundant and diversified, providing a stable
cash flow and a hedge against bad times.

Average Rents for 8th Fiscal Period (office)

Breakdown of Offices by Employees per Office (Tokyo)

7th

Period100 employees and above

8th

PeriodChange(per tsubo/monthly)
Central Tokyo¥20,500¥20,400

1.6%

1-9 employees

77.7%

30-99 employees

5.0%
-0.8%
12-29 employees

Other Tokyo
MetropolitanArea¥14,400¥14,100-1.6%

Other Regional
Areas¥11,100¥11,000-1.0%

Total for Office¥17,600¥17,400

-1.0%

15.7%
Ratio of offices with
1-29 employees

93.4%

Note: F igures show the total of weighted-average rent for each property
based on floor area divided by the number of properties in each area(rounded down to the nearest hundred yen). The total for office shows theaverage rent for 57 office buildings (properties sold in the 8th Period are
excluded)

The above factors combined with our measures toenhance existing properties and introduce blue-chipproperties in the portfolio are proof positive that
KENEDIX-REIT is diligently taking steps to optimize
its portfolio.

Source: Kenedix REIT Management, Inc. based on Tokyo office statistics report
as of 2006 (MPHPT Statistics Bureau)

The Diverse Sectors Provide Robust Defenses
Against Poor Economic Times (office)Individuals: 24 tenants

4.2%
Government (others): 2 tenants

Number of End Tenants Proves Strong Weapon(office)No. of tenants

595 tenants

Ratio of largest end-tenant

2.2%

Ratio of top 3 end-tenants

5.5%(No. of properties)

Potentially strong
demand for
mid-sized
office buildings
by tenants

0.3%

Construction: 29 tenants

5.1%
Manufacturing: 80 tenants

14.0%

Service: 221 tenants

38.6%(57 properties)

Note: T he above ratio shows the ratio of top end tenants within the entire
portfolio (based on leased area)(as of April 30, 2009)

Telecom: 15 tenants

2.6%
Real Estate: 22 tenants

3.8%

Wholesale,retail & food: 143 tenants

25.0%
Financial: 36 tenants

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Asset management company

KENEDIX-REIT is convinced that transparent and robust decision-making based on a strong philosophy adhered
to throughout the asset management company is essential for the REIT to optimize returns for investors. In thatlight, Kenedix REIT Management closely observes the following decision making flow to prevent conflicts ofinterest, and does so based on the management philosophy outlined below. Closely adhered tenets are what set
us apart and make it advantageous for investors to invest in KENEDIX-REIT.

Decision-Making at Kenedix REIT Management
Preview

Deliberation and Resolution Resolution or Reporting

Deliberation and Resolution

Creation of management guidelines
Creation ofasset administration plan, etc.
Corresponding
Division

Compliance
OfficerApproval for transactions withinterested parties

Asset
Management
Committee

Resolution
Boardof
Directors

Compliance
Committee

Approval for transactions outsideof management guidelines
ReportingApproval for transactions that follow
management guidelines excluding
those with interested parties

Management Philosophy at Kenedix REIT Management
Pursue optimal portfolio
management for securing
stable medium- andlong-term profits

Implement a stable
and low-cost fundprocurement strategy

Promote mutual
ongoing communication
with investors

Ensure strict compliancewith regulatory laws
and regulations❙ Develop an investment
portfolio with a stablebalance between risk
and return❙ Maintain and enhance a
structure and network
conducive to stable andflexible fund procurement❙ Ensure timely,transparent, accurate
and reliable information
disclosure❙ Pursue comprehensive
and thoroughcompliance procedures❙ Pursue consistent andcontinuous property
acquisition at a fair priceand based on acomprehensive pipeline❙ Pursue continuous
low-cost fundprocurement❙ Maintain a mutualcommunication structure
between investors andmanagement❙ Enhance portfolio
profitability and value

1❙ Cultivate new fundprocurement sources
and methods

2❙ Maintain and enhance arisk management structure

3

4

Kenedix REIT Management organizational chart
Shareholders' Meeting
Auditors
Board of Directors
Compliance Officer
Asset Management Committee

Compliance Committee

CEO and President
Investment Management
Division

Property Management
Division

Financial Planning
Division

Business Administration
Division

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KENEDIX-REIT Portfolio Table (End of Eighth Fiscal Period)
Collaterized
AssetsNo.

A
Office

A-1
A-2
A-3
A-4
A-5
A-6
A-7
A-8
A-9
A-12
A-13
A-14
A-15
A-16
A-17
A-18
A-19
A-20
A-21
A-22
A-23
A-24
A-25
A-26
A-27
A-28
A-29
A-30
A-31
A-32
A-33
A-34
A-35
A-36
A-37
A-38
A-39
A-40
A-41
A-42
A-44
A-45
A-46
A-47
A-48
A-49
A-50
A-51
A-52
A-53
A-54
A-55
A-56
A-57
A-58
A-59
A-60
A-61

B

B-3

Residential

B-4

■

■

■
■

■

■

■
■
■

■
■
■

■

■
■
■
■

■
■
■
■

■

■

■
■
■
■
■

■

■
■
■
■

■

■
■

■

B-5
B-18

■

B-19

■

B-25
B-34

C

C-1

CentralUrban Retail

C-2■

Property Name

Location

KDX Nihonbashi 313 Building
Chuo Ward, Tokyo
KDX Hirakawacho Building
Chiyoda Ward, Tokyo
Higashi-Kayabacho Yuraku Building
Chuo Ward, Tokyo
KDX Hatchobori Building
Chuo Ward, TokyoKDX Nakano-Sakaue Building
Nakano Ward, Tokyo
Harajuku F.F. Building
Shibuya Ward, Tokyo
FIK Minami Aoyama
Minato Ward, Tokyo
Kanda Kihara Building
Chiyoda Ward, TokyoKDX Shinjuku-Gyoen Building
Shinjuku Ward, Tokyo
Portus Center Building
Sakai, Osaka
KDX Kojimachi Building
Chiyoda Ward, TokyoKDX Funabashi Building
Funabashi, Chiba
KDX Hamacho Building
Chuo Ward, Tokyo
Toshin 24 Building
Yokohama, Kanagawa
Ebisu East 438 Building
Shibuya Ward, TokyoKDX Omori Building
Ota Ward, Tokyo
KDX Hamamatsucho Building
Minato Ward, TokyoKDX Kayabacho Building
Chuo Ward, TokyoKDX Shinbashi Building
Minato Ward, TokyoKDX Shin-Yokohama Building
Yokohama, Kanagawa
KDX Yotsuya Building
Shinjuku Ward, Tokyo
KDX Minami Semba Dai-1 Building
Osaka, Osaka
KDX Minami Semba Dai-2 Building
Osaka, Osaka
KDX Kiba Building
Koto Ward, TokyoKDX Kajicho Building
Chiyoda Ward, TokyoKDX Nogizaka Building
Minato Ward, Tokyo
KDX Higashi-Shinjuku Building
Shinjuku Ward, TokyoKDX Nishi-Gotanda Building
Shinagawa Ward, Tokyo
KDX Monzen-Nakacho Building
Koto Ward, TokyoKDX Shiba-Daimon Building
Minato Ward, TokyoKDX Okachimachi Building
Taito Ward, Tokyo
KDX Hon-Atsugi Building
Atsugi, Kanagawa
KDX Hachioji Building
Hachioji, TokyoKDX Niigata Building
Niigata, Niigata
KDX Ochanomizu Building
Chiyoda Ward, TokyoKDX Nishi-Shinjuku Building
Shinjuku Ward, TokyoKDX Toranomon Building
Minato Ward, Tokyo
Toranomon Toyo Building
Minato Ward, TokyoKDX Shinjuku 286 Building
Shinjuku Ward, Tokyo
Karasuma Building
Kyoto, Kyoto
KDX Sendai Building
Sendai, Miyagi
KDX Roppongi 228 Building
Minato Ward, Tokyo
Hiei Kudan-Kita Building
Chiyoda Ward, TokyoKDX Shin-Yokohama 381 Building
Yokohama, Kanagawa
KDX Kawasaki-Ekimae Hon-cho Building
Kawasaki, Kanagawa
Nissou Dai-17 Building
Yokohama, Kanagawa
Ikejiri-Oohashi Building
Meguro Ward, Tokyo
KDX Hamacho Nakanohashi Building
Chuo Ward, TokyoKDX Kanda Misaki-cho Building
Chiyoda Ward, Tokyo
KDX Hakata-Minami Building
Fukuoka, Fukuoka
KDX Kitahama Building
Osaka, Osaka
Shin-toshin Maruzen Building
Shinjuku Ward, TokyoKDX Jimbocho Building
Chiyoda Ward, TokyoKDX Gobancho Building
Chiyoda Ward, TokyoKDX Nagoya Sakae Building (Land) (Note 1)
Nagoya, Aichi
KDX Iwamoto-cho Building
Chiyoda Ward, Tokyo
KDX Harumi Building
Chuo Ward, Tokyo
KDX Hamamatsucho Dai-2 Building
Minato Ward, Tokyo
Office Subtotal (58 Properties)
Court Mejiro
Shinjuku Ward, Tokyo
Apartments Motoazabu (Note 2)
Minato Ward, Tokyo
Apartments Wakamatsu-Kawada
Shinjuku Ward, Tokyo
Venus Hibarigaoka
Sapporo, Hokkaido
Residence Charmante Tsukishima
Chuo Ward, Tokyo
Court Shin-Okachimachi
Taito Ward, Tokyo
Gradito Kawaguchi
Kawaguchi, Saitama
Residential Subtotal (7 properties)
Frame Jinnan-zaka
Shibuya Ward, TokyoKDX Yoyogi Building
Shibuya Ward, Tokyo
Central Urban Retail Subtotal (2 properties)

Total

Acquisition Price(mn yen)Site Area(m2)

Floor Area
(m2)

5,940
5,180
4,450
3,680
2,533
2,450
2,270
1,950
1,610
5,570
5,950
2,252
2,300
5,300
4,640
3,500
3,460
2,780
2,690
2,520
1,950
1,610
1,560
1,580
2,350
1,065
2,950
4,200
1,400
6,090
2,000
1,305
1,155
1,305
6,400
1,500
4,400
9,850
2,300
5,400
2,100
3,300
7,600
4,700
3,760
2,710
2,400
2,310
1,380
4,900
2,220
2,110
2,760
1,951
4,000
1,864
10,2502,200

1,047.72
1,013.85
773.43992.201,235.16
699.67369.47410.18383.63
13,936.63
612.17
1,180.41
554.801,287.16
724.22
1,123.93
504.26617.17536.11705.00996.65715.44606.45922.77526.43409.36
1,340.97
684.41580.991,182.40
239.72724.62460.62
1,110.56
1,515.28
626.06288.20869.01421.701,788.67
987.78408.86
1,844.83
911.24
1,968.13
629.00834.79462.29314.54
1,826.25
751.92457.64465.92335.701,192.22
266.862,230.69
368.288,613.09
8,002.97
5,916.48
4,800.43
6,399.42
3,812.44
1,926.98
2,393.94
2,594.88
79,827.08
5,323.81
5,970.12
4,133.47
8,483.17
4,394.58
7,334.77
3,592.38
3,804.86
3,960.22
6,180.51
3,329.68
4,236.59
3,315.93
2,820.64
3,147.70
1,695.07
7,885.40
5,192.87
2,668.91
7,824.03
1,882.00
3,603.63
2,821.21
6,810.29
7,720.08
2,017.63
2,277.38
8,346.83
3,432.04
12,632.68
5,918.30
2,235.30
11,425.31
7,673.67
7,420.87
4,016.61
3,482.96
3,280.41
1,536.60
13,238.16
4,652.96
3,439.37
3,292.13
1,893.11
9,594.00
1,618.65
12,694.32
2,478.90

193.91160,974.42

371,017.82

1,250

1,581.91

3,326.07

1,210

639.41

1,685.14

1,180

412.42

1,858.51

1,800

8,595.00

14,976.25

5,353

4,252.86

18,115.39

878

311.22

1,494.55

1,038

423.94

1,705.38

12,70916,216.76

43,161.29

9,900

1,240.51

6,302.58

2,479

228.74

1,269.06

12,3791,469.25

7,571.64

218,999

78,660.43

421,750.75

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Rental NOI Returns (annualized)
Completion Date

Acquisition Date

Occupancy

Apr. 1974
Mar. 1988
Jan. 1987
Jun. 1993
Aug. 1992
Nov. 1985
Nov. 1988
May 1993
Jun. 1992
Sep. 1993
May 1994
Apr. 1989
Sep. 1993
Sep. 1984
Jan. 1992
Oct. 1990
Sep. 1999
Oct. 1987
Feb. 1992
Sep. 1990
Oct. 1989
Mar. 1993
Sep. 1993
Oct. 1992
Mar. 1990
May 1991
Jan. 1990
Nov. 1992
Sep. 1986
Jul. 1986
Jun. 1988
May 1995
Dec. 1985
Jul. 1983
Aug. 1982
Oct. 1992
Apr. 1988
Aug. 1962
Aug. 1989
Oct. 1982
Feb. 1984
Apr. 1989
Mar. 1988
Mar. 1988
Feb. 1985
Jul. 1991
Sep. 1988
Sep. 1988
Oct. 1992
Jun. 1973
Jul. 1994
Jul. 1990
May 1994
Aug. 2000
Mar. 2008
Feb. 2008
Apr. 1992

Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Sep. 2005
Nov. 2005
Mar. 2006
Mar. 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
Jun. 2006
Jul. 2006
Jul. 2006
Sep. 2006
Dec. 2006
Jan. 2007
Mar. 2007
Mar. 2007
Mar. 2007
Mar. 2007
Mar. 2007
Apr. 2007
Apr. 2007
Apr. 2007
Jun. 2007
Jun. 2007
Jun. 2007
Jun. 2007
Jan. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Mar. 2008
Mar. 2008
Apr. 2008
May 2008
Jun. 2008
Sep. 2008

100.0%
100.0%
100.0%
100.0%
92.3%
100.0%
100.0%
100.0%
100.0%
93.4%
88.6%
100.0%
100.0%
100.0%
83.4%
94.5%
87.7%
100.0%
100.0%
93.1%
100.0%
96.9%
88.1%
100.0%
100.0%
87.7%
97.0%
91.9%
100.0%
100.0%
100.0%
100.0%
85.6%
73.2%
100.0%
100.0%
78.6%
100.0%
100.0%
93.0%
91.2%
65.2%
100.0%
92.1%
100.0%
100.0%
82.6%
100.0%
100.0%
95.8%
100.0%
64.3%
100.0%
100.0%
100.0%
100.0%
100.0%

Mar. 1997

Aug. 2005

96.1%

Jan. 2004

Aug. 2005

84.6%

Feb. 2004

Aug. 2005

85.1%

Mar. 1989

Dec. 2005

98.9%

Jan. 2004

May 2006

100.0%

Oct. 2005

May 2006

96.5%

Feb. 2006

Jun. 2006

100.0%

Mar. 2005

Aug. 2005

96.0%

Aug. 1991

Sep. 2005

75.9%

KENEDIX-REIT maintains steady performance overmultiple fiscal periods through proactive portfolio
management.
5thPeriod6th
Period7th
Period8th
Period

8th Period before Adjustment
for Property and City Taxes

Office5.5% 5.6% 5.3% 5.5%

5.6%

CentralUrban Retail

5.1% 4.3% 4.8% 4.7%

4.7%

Residential

5.3% 5.3% 5.3% 5.2%

5.2%

Total

5.4% 5.5% 5.3% 5.4%

5.5%

Note: Each of the figures represent the values after adjustment of property and city
taxes

composition of office portfolio (by acquisition price)
Over ¥10 bn (1 property)¥10.2 bn
¥7.5 bn to 10 bn(2 properties)¥1 bn to 2.5 bn(28 properties)¥17.4 bn

¥52.4 bn

¥5 bn to 7.5 bn(8 properties)¥2.5 bn to 5 bn
(18 properties)¥45.8 bn

¥63.9 bn

Note: The chart above is for 57 office buildings excluding the KDX Nagoya Sakae
Building

Summary of Appraised Values at End of eighth
Fiscal Period
The realignment of the KENEDIX-REIT portfolio to
office buildings has proven to be a prudent decision
with appraisal declines less than those of residential
properties.

(million yen)

Office➀ Acquisition
193,911Price➁ Book Value
196,934➂ End of Period
Appraised
192,295
Value➃ Difference fromAcquisition-1,616
Price (➂-➀)
Percentage
-0.8%
➃/➀
➄ Difference
from Book-4,639
Value (➂-➁)
Percentage
-2.4%
➄/➁

CentralUrban Retail Residential

Total

12,37912,709218,999

12,62012,627

222,182

12,88011,278

216,453

501-1,431-2,546

4.0%-11.3%-1.2%

259-1,349-5,7292.1%-10.7%-2.6%

Notes: 1. We acquired the building portion of KDX Nagoya Sakae Building (A-58) on July 1, 2009
2. We sold Apartments Motoazabu (B-4) on June 23, 2009
3. Amounts indicated have been rounded down

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Financial Summary

Historical Operating Trends for the Fourth – Eighth Fiscal Periods

Periodunit

4th Period
5th Period
6th Period
7th Period
8th Period(as of Apr. 30, 2007) (as of Oct. 31, 2007) (as of Apr. 30, 2008) (as of Oct. 31, 2008) (as of Apr. 30, 2009)

Operating revenues

mn yen

5,778

7,208

8,582

8,456

8,204

(Rental revenues)

mn yen

5,647

7,208

7,630

8,156

8,204

Operating expenses

mn yen

3,091

3,737

4,517

4,311

4,740

(Property-related expenses)

mn yen

2,607

3,205

3,447

3,678

3,603

Operating income

mn yen

2,686

3,470

4,065

4,144

3,463

Ordinary income

mn yen

2,148

2,793

3,343

3,124

2,435

Net income (a)mn yen

2,148

2,792

3,342

3,123

2,434

Total assets (b)mn yen188,400

213,763

230,520

239,648

238,745

Interest-bearing debt (c)mn yen88,50075,50089,75098,75098,750Unitholders’ equity (d)mn yen90,877

127,761

128,314

128,087

127,398

Unitholders’ capitalmn yen88,729124,973

124,973

124,973

124,973

unit

157,000

200,000

200,000

200,000

200,000yen

578,839

638,809641,570

640,437

636,990mn yen

2,148

2,792

3,342

3,123

2,434

Distribution per unit (f)/(e)yen

13,682

13,96016,711

15,618

12,172

(Earnings distributed per unit)

yen

13,682

13,96016,711

15,618

12,172(Distribution in excess ofearnings per unit)

yen

-

-

-

-

-

Return on assets (annualized)%

1.2 (2.5)

1.4 (2.8)

1.5 (3.0)

1.3 (2.6)

1.0 (2.1)

 eturn on unitholders’ equity
R(annualized) (Notes 2 and 3)%

2.4 (4.8)

2.6 (5.1)

2.6 (5.2)

2.4 (4.8)

1.9 (3.8)

 nitholders’ equity ratio atU
end of period (d)/(b)

%

48.2

59.8

55.7

53.4

53.4

(-8.5)(+11.5)(-4.1)(-2.2)(-0.1)

%

47.0

35.3

38.9

41.2

41.4

(+8.3)(-11.7)(+3.6)(+2.3)(+0.2)

%

100.0

99.9

99.9

99.9

100.0

(Period-on-period change)(Period-on-period change)(Period-on-period change)(Period-on-period change) umber of investment unitsN
issued and outstanding (e)Unitholders’ equity per unit(d)/(e)Total distribution (f)(Notes 1 and 2)

%
%
%

%

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

Payout ratio (Note 4) (f)/(a)(+17.5)(+42.7)(-0.1)(0.0)(+13.5)(-14.7)(+40.6)(+40.8)(+7.8)(+18.9)(+0.4)(0.0)(+4.0)(+10.0)(-0.2)(0.0)(-0.4)(0.0)(-0.5)(0.0)

Other reference
72

77

68

69

67

Total leasable floor aream

2

223,322.77

248,653.07

248,625.52

256,214.30

250,364.42

Occupancy at end of period

%

95.9

96.9

95.9

95.6

95.7

mn yen

1,243

1,392

1,430

1,445

1,429

Number of properties

Properties

 epreciation expenses for theDperiodCapital expenditures for theperiodLeasing NOI (net operating
income) (Note 5)

mn yen

1,132

1,238

1,152

1,105

891

mn yen

4,283

5,394

5,612

5,923

6,030

FFO (funds from operation)

mn yen

3,261

4,184

4,259

4,269

4,356

yen

20,772

20,92021,297

21,34521,780(Note 6)

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 x 100
2. Annualized values for the Fourth Fiscal Period are calculated based on a period of 181 days, 184 days for the Fifth Fiscal Period, 182 days for the Sixth Fiscal
Period, 184 days for the Seventh Fiscal Period and 181 days for the Eighth Fiscal Period
3. Return on unitholders’ equity = Net income/(Total unitholders’ equity at beginning of period + Total unitholders’ equity at end of period)/2 x 100
4. Payout ratio is rounded down to the first decimal
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)

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Financial
Statements
8th Fiscal Period
From November 1, 2008 to April 30, 2009
Report of Independent Auditors
Balance Sheets
Statements of Income and Retained Earnings
Statements of Changes of Unitholders’ Equity
Notes to Financial Statements
Statements of Cash Flows and Related Notes (Unaudited)

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BALANCE SHEETs
As of April 30, 2009 and October 31, 2008

In thousands of yen
As of April 30, 2009

As of October 31, 2008

AssetsCurrent assets:
Cash and bank deposits¥

Rental receivables
Consumption tax refundable

15,608,085¥

13,029,801

260,568

187,278-

180,365

73,324

67,696

15,941,977

13,465,141

Land

153,829,839

155,906,794

Buildings and structures

74,328,940

74,546,241

Machinery and equipment

901,145905,705

Tools, furniture and fixtures

379,847

382,011(7,543,943)(6,230,362)

221,895,828

225,510,389

Ground leasehold

285,350

285,350

Organization costs

10,17915,269Corporate bond issuance costs

45,52551,306

Unit issuance costs

47,36888,837

Other assets

518,783

232,306

Other current assets
Total current assets
Property and equipment, at cost:Less-accumulated depreciation
Net property and equipment
Other assets:

Total assets¥

238,745,010¥

614,834¥

239,648,598

Liabilities and Unitholders' Equity
Liabilities
Current liabilities:
Trade and other payables¥

19,000,000

Short-term debt
Deposits received
Rents received in advance728,71124,000,000

68,644

6,411

1,173,618

1,238,195

416,183

177,80921,273,279

26,151,126

Corporate bonds

12,000,000

12,000,000

Long-term debt

67,750,000

62,750,000

Leasehold and security deposits received

10,306,968

10,643,623

Other current liabilities
Total current liabilities

16,665

Other liabilities
Total liabilities

16,272¥

111,346,912¥

111,561,020¥

124,973,750¥

124,973,750

Unitholders' equity
Unitholders' capital
Units authorized:2,000,000units
Units issued and outstanding:200,000units
As of April 30, 2009 and October 31, 2008, respectively
2,434,458(10,110)Retained earnings
Unrealized gain from deferred hedge transactions

127,398,098

Total unitholders' equity
Total liabilities and unitholders' equity

3,123,699(9,872)¥

238,745,010

128,087,577¥

239,648,598

See notes to financial statements

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STATEMENTS OF INCOME AND RETAINED EARNINGSFor the period from May 1, 2008 to October 31, 2008, and the period from November 1, 2008 to April 30, 2009

In thousands of yen
From November 1, 2008
to April 30, 2009

From May 1, 2008
to October 31, 2008

Operating Revenues:
Rental revenues¥

8,204,122¥

8,156,517-

299,7178,204,122

8,456,234

Property-related expenses

3,603,207

3,678,720

Loss on sale of real estate

492,463-

Asset management fees

434,811442,470

Administrative service and custodian fees

78,432

74,276

Other operating expenses

132,023

116,030

4,740,936

4,311,495

Profit on sale of real estate
Total operating revenues
Operating Expenses:

Total operating expenses
Operating income¥

3,463,186¥

4,144,738¥

858,419¥803,790

Non-Operating Expenses:
Interest expense

107,828

145,680

Amortization of organization costs

5,089

5,090

Amortization of unit issuance costs

41,46941,469Amortization of corporate bond issuance costs

5,782

5,878

Others, net

9,270

18,4252,435,329

3,124,407

970

793

2,434,359

3,123,614

99

85

Financing related expense

Income before income taxes
Income taxes
Net income
Retained earnings at the beginning of period
Retained earnings at the end of period¥

2,434,458¥

3,123,699

See notes to financial statements

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Statements of Changes OF Unitholders’ Equity
For the period from May 1, 2008 to October 31, 2008 and the period from November 1, 2008 to April 30, 2009

In thousands of yen
Unitholders' Equity
Unitholders'
capitalBalance as of May 1, 2008¥

124,973,750

Retainedearnings¥

3,342,285

Unrealized
gain fromdeferred hedgetransactions¥(1,873)

Total¥

128,314,162

Changes during the fiscal period
New unit issuance

-

-

-

-

Payment of dividends-(3,342,200)-(3,342,200)

Net income-

3,123,614-

3,123,614

Interest-rate swap--

(7,998)(7,998)-(218,586)(7,998)(226,584)

Total changes
during the fiscal period
Balance as of October 31, 2008¥

124,973,750¥

3,123,699¥(9,872)¥

128,087,577

Changes during the fiscal period
New unit issuance

-

-

-

-

Payment of dividends-(3,123,600)-(3,123,600)

Net income-

2,434,359-

2,434,359

Interest-rate swap

-

-

(238)

(238)

-

(689,241)(238)(689,479)

Total changes
during the fiscal period
Balance as of April 30, 2009¥

124,973,750¥

2,434,458¥(10,110)¥

127,398,098

See notes to financial statements

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Notes to Financial Statements
For the period from May 1, 2008 to October 31, 2008, and the period from November 1, 2008 to April 30, 2009

1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Kenedix Realty Investment Corporation (“the Investment Corporation”) is a real estate investment corporation
whose units are listed on the Tokyo Stock Exchange. The Investment Corporation is engaged in ownership andoperation of selected office buildings, residential and retail properties in Japan. The Investment Corporation
was incorporated as an investment corporation under the Law Concerning Investment Trusts and Investment
Corporations of Japan, or the Investment Trust Law. Pursuant to this law, the Investment Corporation isexternally managed by a registered asset management company, Kenedix REIT Management, Inc. ("the AssetManagement Company"), a subsidiary of Kenedix, Inc. (“Kenedix”).
On May 6, 2005, the Investment Corporation was originally formed with ¥200 million of initial capital contributions
from Kenedix, the Asset Management Company and their executives and employees. On July 20, 2005, theInvestment Corporation raised ¥41,869 million of equity capital through an initial public offering of 75,000
investment units and was listed on the J-REIT section of the Tokyo Stock Exchange on the following day.
On August 1, 2005, 29 properties with an aggregate purchase price of ¥61,083 million were acquired with additional
debt proceeds of ¥23,000 million and substantial operations of the Investment Corporation were commenced fromthat date.
On August 16, 2005, the Investment Corporation completed third-party allotment of 3,970 investment units,
generating an additional ¥2,216 million. Subsequent to that, the Investment Corporation acquired 2 additional
properties in September, 2005. During the period ended April 30, 2006, the Investment Corporation acquired 4
additional properties by utilizing internal cash and bank borrowings.
On May 1, 2006, the Investment Corporation raised ¥42,172 million of equity capital through a public offering of
73,660 investment units and 26 properties with an aggregate purchase price of ¥58,033 million were acquired withadditional debt proceeds of ¥16,000 million.
On May 26, 2006, the Investment Corporation completed third-party allotment of 3,970 investment units,
generating an additional ¥2,273 million. During the period ended October 31, 2006, the Investment Corporation
sold 2 properties and acquired 5 properties.
On March 15, 2007, the Investment Corporation issued corporate bonds. Their total amount is ¥12,000 million andterms are five years and ten years.
On February 1, 2008, the Investment Corporation sold 23 residential properties (initial total acquisition price of¥30,343 million) to a wholly owned subsidiary of Kenedix and acquired 9 office buildings (total acquisition price of¥31,980 million) from a wholly owned subsidiary of Kenedix. In addition, the Investment Corporation acquired 5
office buildings (total acquisition price of ¥14,121 million), during the period ended April 30, 2008.
During the period ended October 31, 2008, the Investment Corporation acquired 3 properties by utilizing internal
cash and bank borrowings, and sold 2 properties.
During the period ended April 30, 2009, the Investment Corporation sold 2 properties. As of April 30, 2009,
the Investment Corporation had total unitholders’ capital of ¥124,974 million with 200,000 investment units
outstanding. The Investment Corporation owned a portfolio of 67 properties with total acquisition price of¥218,999 million containing total leasable area of 250,364m2. The occupancy ratio was 95.7%. The portfolio of
67 properties consists of 58 office buildings, 7 residential properties and 2 central urban retail properties; 57
properties are located in the Tokyo Metropolitan Area and 10 properties are located in Other Regional Areas.

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Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in theInvestment Trust Law of Japan, the Japanese Corporation Law, the Financial Instruments and Exchange Law ofJapan and related regulations, and in conformity with accounting principles and practices generally acceptedin Japan (“Japanese GAAP”), which are different in certain respects as to the application and disclosure
requirements of International Financial Reporting Standards or accounting principles generally accepted in the
United States of America.
The accompanying financial statements are basically a translation of the audited financial statements thatwere prepared for Japanese domestic purposes from the accounts and records maintained by the Investment
Corporation. 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 ina 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(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, 2008 to April 30, 2009

From May 1, 2008 to October 31, 2008

Buildings and structures

2-49 years

2-49 years

Machinery and equipment

3-17 years

3-17 years

Tools, furniture and fixtures

3-20years

3-20 years(b) Organization Costs
Organization costs are amortized over a period of five years, comprised of ten fiscal periods, with an equal amountamortized in each fiscal period.

(c) Unit Issuance Costs
Unit issuance costs are amortized over a period of three years under the straight-line method.

(d) Corporate Bond Issuance Costs
Corporate bond issuance costs are amortized over a loan period under the straight-line method.

(e) 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 sheet and income
statement accounts.

(f) 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 recognized on an accrual basis over the life of each lease. Utility charge
reimbursements are recognized when earned and their amounts can be reasonably estimated. Reimbursementsfrom tenants including utility charge reimbursements are recorded on a gross basis and such amounts arerecorded both as revenue and expense during the fiscal period, respectively.

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Notes to Financial Statements(g) Taxes on Property and Equipment
Property-related taxes including property taxes, city planning taxes and depreciable property taxes are imposedon properties on a calendar year basis. Under the Japanese tax rule, the seller of the property at the time ofdisposal is liable for these taxes on the property from the 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 the period following the purchase date of each property through the end of the calendar year. The
amounts of those allocated portions of the property-related taxes are capitalized as part of the acquisition costsof the related properties. In subsequent calendar years, such property-related taxes are charged as operating
expenses in the fiscal period in which the installments of such taxes are paid to the relevant tax authorities.

(h) Income Taxes
Deferred tax assets and liabilities are computed based on the difference between the financial statements andincome tax bases of assets and liabilities using the statutory tax rates.

(i) 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 recognitionof gains or losses resulting from changes in fair value of interest-rate swap agreements because its interest-rate
swap agreements met the criteria for deferral hedging accounting. But, 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, 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.

(j) 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 theaccompanying financial statements. Totals shown in the accompanying financial statements do not necessarily
agree with the sums of the individual amounts.

3. SCHEDULE OF PROPERTY
In millions of yen
As of April 30, 2009
Acquisition
costs

Accumulated
depreciation

As of October 31, 2008

Book value

Acquisition
costs

Accumulated
depreciation

Book value¥153,830--¥ 153,830¥155,907-¥ 155,907

74,329¥7,13367,19674,546¥5,89068,656

Machinery and equipment

901

290

611

906

241

665

Tools, furniture and fixtures

380

121

259

382

100

282

¥ 229,440¥ 7,544¥ 221,896¥ 231,740¥ 6,230¥ 225,510

Land
Buildings and structures

Total

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4. SHORT-TERM AND LONG-TERM DEBTS
The following summarizes short-term and long term debt outstanding as of April 30, 2009:(As of April 30, 2009)Classification

Short-term debt

Current portion of long-term debt

Drawdown date

Repayment date

Weighted-averageinterest rate

October 31, 2008

October 30, 20091.16%

¥ 1,500

October 31, 2008

October 31, 2009

1.52%

1,000

November 4, 2008

November 2, 2009

1.16%

1,000

December 8, 2008

December 8, 2009

1.52%

500
1,000

January 13, 2009

January 13, 2010

1.38%

February 27, 2009

February 26, 2010

1.12%

500

April 30, 2009

October 30, 2009

1.91%

2,500

April 30, 2009

April 30, 2010

1.91%

2,000

October 31, 2007

October 31, 2009

1.34%

2,000

April 25, 2008

October 25, 2009

1.56%

1,000

April 25, 2008

October 25, 2009

1.46%

1,500

April 2, 2007

April 2, 2010

1.57%

2,000

July 31, 2008

January 31, 2010

1.68%

SubtotalLong-term debt

Balance(In millions of yen)

2,500
¥ 19,000

August 1, 2005

July 31 ,2010

1.29%¥ 9,500

May 1, 2006

April 30, 2011

2.20%

2,500

May 1, 2006

April 30, 2016

2.73%

5,000

July 14, 2006

July 13, 2011

2.15%

1,000

September 1, 2006

August 31, 2013

2.12%

3,000

December 1, 2006

November 30, 2011

1.96%

2,500

April 2, 2007

April 2, 2012

1.88%

2,000

April 17, 2007

April 16, 2011

1.65%

1,500

January 10, 2008

January 10, 2012

1.50%

2,500

February 29, 2008

February 28, 2011

1.37%

2,000

February 29, 2008

August 31, 2011

1.43%

1,500

March 31, 2008

September 30, 2011

1.61%

3,000

March 31, 2008

September 30, 2011

1.56%

2,000

May 1, 2008

November 1, 2011

1.91%

1,000

June 30, 2008

February 28, 2011

1.99%

1,000

June 30, 2008

June 30, 2012

2.15%

1,500

June 30, 2008

December 28, 2012

2.26%

3,000

July 15, 2008

March 31, 2011

1.87%

2,000

July 31, 2008

January 31, 2011

1.87%

3,500

July 31, 2008

July 31, 2011

1.99%

3,500

September 1, 2008

September 1, 2011

1.78%

1,000

September 22, 2008

March 22, 2011

1.71%

1,250

September 30, 2008

March 31, 2011

1.82%

2,000

October 31, 2008

October 31, 2010

1.57%

500

February 27, 2009

February 29, 2012

2.07%

500

February 27, 2009

August 31, 2012

2.04%

1,000

April 30, 2009

April 28, 2011

2.23%

1,500

April 30, 2009

April 28, 2011

2.23%

1,000

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Notes to Financial Statements(As of April 30, 2009)Classification
Long-term debt

Repayment date

Weighted-averageinterest rate

Balance(In millions of yen)

April 30, 2009

October 31, 2011

2.51%

3,500

April 30, 2009

April 27, 2012

2.51%

Drawdown date

Subtotal
Corporate bonds

2,000¥ 67,750

March 15, 2007

March 15, 2012

1.74%

March 15, 2007

March 15, 2017

2.37%

Subtotal¥ 9,000
3,000¥ 12,000

Total¥ 98,750

5. LINE OF CREDIT
The Investment Corporation established credit commitment lines with two lenders. The total available
borrowings under the commitment line agreements are ¥5 billion yen. The Investment Corporation had an
outstanding balance of ¥5 billion yen as of April 30, 2009 and therefore fully utilized the maximum amount of thecommitment lines.
The commitment period with The Bank of Tokyo-Mitsubishi UFJ, Ltd. under the ¥2.5 billion commitmentline agreement has already expired and it matures March 31, 2011 in accordance with the memorandum of
understanding executed on September 26, 2008.
The commitment period with Citibank Japan, Ltd. under the ¥2.5 billion commitment line agreement has expired
and the maturity date has already passed without any renewal.

6. ASSETS PLEDGED AS COLLATERAL AND SECURED LOANS PAYABLE(As of April 30, 2009)

Assets pledged as collateral
Cash and bank deposits

In thousands of yen¥4,821,046

Land¥105,959,738

Buildings and structures¥49,913,721

Machinery and equipment¥548,396

Tools, furniture and fixtures¥138,626

Other assets
Total¥1,383¥161,382,910

Secured loans payable
Short-term loans debt

¥19,000,000

Long-term loans debt

¥67,750,000

Total¥86,750,000

7. PER UNIT INFORMATIONThe net asset value per unit as of April 30, 2009 and October 31, 2008 was ¥636,990 and ¥640,437. Net income perunit as of April 30, 2009 and October 31, 2008 was ¥12,171 and ¥15,618.
The number of units outstanding at end of period of 200,000 was used for the computation of the amount of net
asset value per unit as of April 30, 2009 and October 31, 2008.
The weighted average number of units outstanding of 200,000 was used for the computation of the amount of net
income per unit as of April 30, 2009 and October 31, 2008.

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8. INCOME TAXESThe Investment Corporation is subject to corporate income taxes at a regular statutory rate of approximately
40%. However, the Investment 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 thislaw, the Investment Corporation must meet a number of tax requirements, including a requirement 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 ¥2,434 million and ¥3,124
million for the periods ended April 30, 2009 and October 31, 2008. Such distributions were treated as deductible
distributions for purposes of corporate income taxes. The effective tax rate on the Investment Corporation’s
income was 0.04% and 0.03% for the periods ended April 30, 2009 and October 31, 2008. The following summarizes
the significant difference between the statutory tax rate and the effective tax rate:

Statutory tax rate

From November 1, 2008
to April 30, 200939.33%

From May 1, 2008
to October 31, 2008
39.39%(39.31%)(39.38%)

Other

0.02%

0.02%

Effective tax rate

0.04%

0.03%

Deductible cash distributions

9. UNITHOLDERS’ EQUITYThe 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 isrequired to maintain net assets of at least ¥50 million as required by the Investment Trust Law.

10. RELATED-PARTY TRANSACTIONSTransactions with Kenedix REIT Management, Inc.
Kenedix REIT Management, Inc., subsidiary of Kenedix, 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 ¥324 million to Kenedix REIT Management, Inc.

11. B
 REAKDOWN OF RENTAL AND OTHER OPERATING REVENUES AND PROPERTYRELATED EXPENSES
Rental and other operating revenues and property-related expenses for the periods from November 1, 2008 to
April 30, 2009 and from May 1, 2008 to October 31, 2008 consist of the following:
In thousands of yen
From November 1, 2008
to April 30, 2009

From May 1, 2008
to October 31, 2008

Rental and other operating revenues:¥ 5,985,836¥ 5,847,510

Common area charges

1,246,786

1,263,583

Subtotal

7,232,622

7,111,093

Rental revenues

Others:Kenedix Realty Investment Corporation ❘ 28

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Notes to Financial Statements

Parking space rental revenues

241,962250,006

Utility charge reimbursement559,130

668,719

Miscellaneous

170,408

126,700

971,500

1,045,424

Total rental and other operating revenues¥ 8,204,122¥ 8,156,517

Property management fees and facility management fees¥¥

Subtotal

799,004

792,077

1,429,329

1,445,267

Utilities

578,389

611,722Taxes

494,867

406,439

Insurance

16,533

17,035

Repairs and maintenance

138,371

188,401

Trust fees

45,27446,904

OthersDepreciation

101,440

163,023

Loss on retirement of fixed assets

-

7,853

Total property-related expenses¥ 3,603,207¥ 3,678,720

Profit on sale of real estate:¥ 5,578,810

Revenue from sale of investment properties-

Cost of investment properties

5,100,280
178,813

Other sales expenses
Profit on sale of real estate¥

299,717

Loss on sale of real estate
Revenue from sale of investment properties¥ 2,670,000

Other sales expenses
Loss on sale of real estate-

3,108,892

Cost of investment properties¥

53,571
492,463

12. LEASESThe Investment Corporation, as lessor, has entered into leases whose fixed monthly rents are due in advancewith lease term of generally two years for office buildings and residential properties and with lease term ranging
from two to ten years for retail properties. The future minimum rental revenues under existing non-cancelable
operating leases as of April 30, 2009 and October 31, 2008 are as follows:
In thousands of yen
As of April 30, 2009

As of October 31, 2008

Due within one year

¥ 1,314,069¥ 1,493,056

Due after one year

7,930,499

8,487,580¥ 9,244,568¥ 9,980,637

Total

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13. DERIVATIVES AND HEDGE ACCOUNTINGThe Investment Corporation has entered into interest-rate swap agreements with several Japanese financial
institutions to hedge its variable rate long-term debt obligations. The Investment Corporation utilizes interestrate swap agreements, which are derivative financial instruments, only for the purpose of mitigating future risksof fluctuations of interest rates, but does not enter into such transactions for speculative or trading purposes. The
Investment Corporation entered into such derivative transactions to hedge risk in accordance with its Articles ofIncorporation and the established risk management policies of the Asset Management Company.
The following summarizes the notional principal amounts and the estimated unrealized loss from interest rate
swap contracts as of April 30, 2009:
The estimated unrealized loss does not include the interest rate swap contracts that met the criteria for the
special treatment.
(As of April 30, 2009)
Type
Interest-rate swap:
Fixed rate payable and floating rate receivable

Notional amount

Unrealized loss

¥29,500 million¥(17 million)

14. PROPERTY INFORMATION
Details of the property portfolio as of April 30, 2009 were as follows:
Type

Office Buildings

Residential Properties

Central Urban
Retail Properties

Tokyo
Metropolitan
Area

Other Regional
Areas

Tokyo
Metropolitan
Area

Other Regional
Areas

Tokyo
Metropolitan
Area

49

9

6

1

2

¥165,246¥28,665¥10,909¥1,800¥12,380

75.45%

13.09%

4.98%

0.82%

5.65%

Net book value

168,354

28,581

10,751

1,877

12,620Appraisal value at year end

166,451

25,844

9,768

1,510

12,88076.90%

11.94%

4.51%

0.70%

5.95%

Location
Number of properties

Property information (In millions of yen)
Acquisition price
Percentage of total acquisition costs

Percentage of total appraisal value

Financial results for the period ended April 30, 2009 (In thousands of yen)
¥ 6,134,879¥ 1,269,712¥ 348,922¥ 91,072¥ 359,536

Rental revenues

5,430,893

1,080,028

316,503

80,092

325,106

Other revenues

703,986

189,685

32,42010,98034,430Rental and other operating revenues

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Notes to Financial Statements

Office Buildings

Type

Residential Properties

Central Urban
Retail Properties

Location

Tokyo
Metropolitan
Area

Other Regional
Areas

Tokyo
Metropolitan
Area

Other Regional
Areas

Tokyo
Metropolitan
Area

Property-related expenses

1,555,055

433,303

66,10847,24872,166

Property management fees

561,043

175,068

30,917

7,927

24,049Taxes

343,707107,240

16,0308,516

19,373

Utilities

446,068

105,311

4,173

2,202

20,635

Repairs and maintenance

95,432

21,6506,288

13,626

1,375

Insurance

10,038

4,808

858

496

333

Trust fees and other expenses

98,766

19,226

7,842

14,481

6,401

4,579,825

836,410

282,81443,824

287,370

964,821281,524

94,40522,65265,926

3,615,003

554,886

188,40921,172

221,445

Capital expenditures

838,487

45,629

578

838

6,440

NCF (Net Cash Flow)

3,741,337

790,781282,237

42,986

280,930

NOI (Net Operating Income)Depreciation expenses
Operating income from property leasing
activities

A breakdown of property-type as of April 30, 2009 was as follows:				
Area

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

Percentage of
total assets

Tokyo Metropolitan Area

¥168,354

70.5%

Other Regional Areas

28,581

12.0%

196,935

82.5%

Tokyo Metropolitan Area

10,751

4.5%

Other Regional Areas

1,877

0.8%

12,627

5.3%

12,6205.3%¥222,183

93.1%

Bank deposits and other assets¥ 16,562

6.9%

Total assets

238,745100.0%

Total liabilities

111,347

46.6%

Net assets¥127,398

53.4%

Class of assets

Property type
Office Buildings
Subtotal

Property andequipment

Residential Properties
Subtotal
Central Urban Retail
Properties
Total

Tokyo Metropolitan Area				

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STATEMENTS OF CASH FLOWS (Unaudited)
For the period from May 1, 2008 to October 31, 2008 and the period from November 1, 2008 to April 30, 2009

In thousands of yen
From November 1, 2008
to April 30, 2009

From November 1, 2007
to April 30, 2008¥¥

Cash Flows from Operating Activities:
Income before income taxes

2,435,329

3,124,407

Adjustments to reconcile income before income taxes
to net cash provided by operating activities:
1,571,996

1,535,995

Interest expense

858,419803,790

Interest expense

-

7,853

Rental receivables(73,290)(28,275)

Consumption tax refundable

180,365(180,365)

Accrued consumption tax

252,054(179,988)

Trade and other payables(114,984)(66,480)

Rents received in advance(64,577)

65,520Property and equipment due to sale

3,108,890

5,100,280

Others, net(320,267)(151,165)

Subtotal

7,833,935

10,031,573(872,143)(751,791)

Depreciation and amortization

Changes in assets and liabilities:

Cash payments of interest expense

(605)

(769)

6,961,187

9,279,013(923,618)(15,579,837)

Proceeds from leasehold and security deposits received

441,191

1,147,506

Payments of leasehold and security deposits received(777,846)(680,726)

Cash payments of income taxes
Net cash provided by operating activities
Cash Flow from Investing Activities:
Purchases of property and equipment(1,390,000)

-

(563)

(574,468)

Proceeds from restricted bank deposits

820,124

1,299,219

Others, net(1,178)

11,100(1,831,890)(14,377,206)

Proceeds from short-term debt

12,000,000

5,500,000

Payment of short-term debt

(7,000,000)(6,250,000)

Payments of time deposits
Payments of restricted bank deposits

Net cash used in investing activities
Cash Flows from Financing Activities:

Proceeds from long-term debt

9,500,000

22,750,000

Payment of long-term debt

(14,500,000)(13,000,000)

Payment of dividends(3,121,451)(3,340,016)

Net cash (used in) provided by financing activities(3,121,451)

5,659,984

Net change in cash and cash equivalents

2,007,846

561,791

Cash and cash equivalents at the beginning of period

11,703,649

11,141,858

Cash and cash equivalents at the end of period¥

13,711,495¥

11,703,649

See related notes

Kenedix Realty Investment Corporation ❘ 32

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STATEMENTS OF CASH FLOWS (Unaudited)

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 maturitiesof three months or less from the date of purchase.

CASH AND CASH EQUIVALENTS (Unaudited)
Cash and cash equivalents consisted of the following as of April 30, 2009 and October 31, 2008:
In thousands of yen
As of April 30, 2009
Cash and bank deposits
Restricted bank deposits held in trust(Note 1)More than 3 months fixed deposits (Note 2)
Cash and cash equivalents

As of October 31, 2008

¥ 15,608,085¥ 13,029,801(506,590)(1,326,152)(1,390,000)-¥ 13,711,495¥ 11,703,649

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

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Investment Highlights
for the eighth Fiscal Period
General Breakdown of Unitholders

Kenedix Realty Investment Corporation (KENEDIX-REIT)
is issuing a cash distribution of 12,172 yen per unit to

212.8

unitholders (shareholders) as a distribution for
operations during the Eighth Fiscal Period running

197.0

from November 1, 2008 to April 30, 2009.
Note: T he amounts are rounded to the nearest 100 million yen

175.0
146.7
44.4

222.0
12.7

12.7

12.3

16.0

69.1

CentralUrban Retail

12.3

Office16.0

16.0

Individuals and others

80,314 units: 40.2%

81,920 units: 41.0%

9,968 units: 5.0%

10,720 units: 5.4%

98,863 units: 49.4%

91,126 units: 45.6%

84,966 units: 42.5%

10,855 units: 5.4%

16,234 units: 8.1%

21,592 units: 10.8%

Name
Goldman Sachs International
NikkoCiti Trust and Banking Corporation (investment trust account)
The Master Trust Bank of Japan, Ltd. (trust account)
Japan Trustee Services Bank, Ltd. (trust account)
The Nomura Trust and Banking Co., Ltd. (investment trust account)
Trust & Custody Services Bank, Ltd. (securities investment trust account)
Deutsche Bank AG London-PB Non-Treaty Clients 613
Morgan Stanley & Company, Inc.
The Chase Manhattan Bank N.A. London Secs Lending Omnibus Account
Sumitomo Mitsui Banking Corporation
Total

193.9

184.0

115.9

12.3

Other domestic corporations

End of 8th Period(200,000 units)
90,772 units: 45.4%

2,670 units: 1.3%

Top Ten Unitholders (as of April 30, 2009)

137.9

12.3

Foreign corporations and individuals

End of 7th Period(200,000 units)

Note: Figures are rounded to the first decimal place.

43.0

20.7

18.9

Residential

43.0

16.0

81.4

12.7

Financial institutions(including securities companies)

196.9(billion yen)

End of 6th Period(200,000 units)

218.9

86.2

Units Held
25,317
17,023
15,76915,386
10,698
9,344
8,431
5,339
3,388
3,002
113,697

Share of Outstanding Units
12.65%
8.51%
7.88%
7.69%
5.34%
4.67%
4.21%
2.66%
1.69%
1.50%
56.84%

Note: Ratios are rounded down to the second decimal place.

48.2

37.7
End of
1st Period
2005/10End of
2nd Period
2006/04

End of
3rd Period

Operating Revenues

2006/10End of
4th Period

End of
5th Period

2007/04

8,204

2007/10mn yenPeriod-on-period decrease of 299 million yen in capital gains
from sales

Net Income

2,434

mn yenAdjusted total without property sales would be 2,926 million yen for the
Eighth Fiscal Period and 2,823 million yen for the Seventh Fiscal Period

Distribution

12,172yen

per Unit

Total Unitholders’ Equity

1 ❘ Kenedix Realty Investment Corporation

127,398mn yenEnd of
6th Period
2008/04

End of
7th Period
2008/10

IR Schedule

End of
8th Period
2009/04

table of contents
Investment Highlights for the Eighth Fiscal Period

1

Q&A with the CEO

2

Q&A with the General Managerof the Financial Planning Division

5

Financial Strategy and Developments

7

Q&A with the General Managerof the Investment Management Division

8

KDX Nagoya Sakae Building

9

Description of Portfolio

10

Q&A with the General Managerof the Property Management Division

11

Proactive Portfolio Management Generates Results

12

The Mid-Sized Office Strategy

13

Asset Management Company

14

KENEDIX-REIT Portfolio Table

15

Financial Summary

17

Financial Statements

18

APRIL

JUNE

JULY

OCTOBERDECEMBERJANUARY

End offiscal period

Performance for
period ending in
April is announced

Distributions arepaid for the period
ending in April

End offiscal period

Performance for
period ending in
October is announced

Distributions arepaid for the period
ending in October

Information is regularly disclosed throughout the year via press releases and the website at 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 Japanese terms. WITh respect to any andall 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 and interpretation.
None of KENEDIX-REIT, KENEDIX REIT Management, Inc. nor any of their respective directors, officers, employees, partners, unitholders, agents, affiliates nor their advisors 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 REIT Management, Inc. with respect to its business, financial condition and results of operations. In some cases, you can identify forwardlooking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or the negative of these terms or other similarterminology. 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, these forward-looking
statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise and involve known and unknown 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.

Kenedix Realty Investment Corporation ❘ 34

8 th Fiscal Period
November 1, 2008 - April 30, 2009

Semiannual Report
http://www.kdx-reit.com/eng/