TSE 8972

Realizing
Boundless
Growth21st

Fiscal Period
SEMIANNUAL REPORTMay 1, 2015–October 31, 2015

OVERVIEW

Kenedix Office Investment Corporation is a J-REIT with a focus on invest-

ments in mid-sized office buildings in the Tokyo Metropolitan Area, which,in July 2015, celebrated ten years since it was listed on the Tokyo Stock

Exchange (8972). Through steady expansion of asset scale, its portfolio has
grown from 31 properties with a total acquisition price of 69.1 billion yen
when it commenced operations, to 97 properties with a total acquisition
price of 388.3 billion yen in October 2015, asserting its position as theNo.1 J-REIT that focuses on mid-sized office buildings.

01
OUR STRATEGYA New Stage for
New Value

Enhance
profitability,
earnings stability
and financial
position

Going forward, the Investment Corporation will continue striving to develop
its solid portfolio by improving portfolio quality through asset reshuffle
and other initiatives, while endeavoring to implement stablefinancial operations.

ACHIEVEMENTInternal growth

Steadily ensured a rise in the number of properties with increased revenues
Rent revenues from existing properties demonstrate an upward trend
Rent gap with market rent
being filled on overall average
21st fiscal period:0

Unit rent for new tenants
period over period:%

Change in rent level at timeof rent revision in 21st fiscal period:

3.3


%


+



1.107

+

mn yen/monthExternal growth

POSITIONING

Investment and management, primarily of
mid-sized office buildings, in the Tokyo
Metropolitan Area
1. Large number of properties
Possible to select outstanding properties
from a large selection
2. High liquidity
Possible to create flexible and responsive
investment strategies
3. Large tenant base
Stable rental incomes can be expected

Improved portfolio quality through asset reshuffle
Secured gains from property dispositions and increased retained earnings
Asset size# of properties

388.3

bn yen97Balance of reserve for
reduction entry
properties



1.54

bn yenEnd of 21st fiscal period

Financial strategy
Promoted financial strategy to stabilize financial position over the long term
Cost of interest-bearing debt

1.39


−0.06%
period over period

Average remaining period tomaturity
%

4.3



+0.2 years
period over period

years

LTV

Appraisal profit

42.8

±0%
period over period

%

10.9

bn yen
1.9 bn yen
End of 20th fiscal period
End of 21st fiscal period

02

03

DIRECTION
Accelerate increases
in rent revenuesS eek to increase rent per unit for new
tenants and improve actual occupancy rate
Promote negotiation on rent revision andprevention of rent reduction
Allocate Capex more efficiently andstrategicallyContinue selective investment
and property reshuffle ontinue selective investment in the
C
Tokyo Metropolitan Area
Acquire properties meeting our criteria
through diversified acquisition methods
Proactively promote asset reshuffle

Continue strengthening
financial positionL ower the average interest rate and further extend the average remaining period
to maturity
Respond quickly and flexibly to acquisition opportunities, maintaining the conservative LTV level

Kenedix Office Investment Corporation Semiannual Report1TOP MESSAGE

TOP MESSAGE

Enhancing Our Possibilities,
Entering Our New Growth StageIn July 2015, we celebrated our 10th anniversary of listing on the REIT Market of the Tokyo Stock
Exchange. Over the years, we have sharpened our focus to mainly invest in mid-sized officebuildings in the Tokyo Metropolitan Area. Starting with 31 properties (total acquisition price of

69.1 billion yen), we have steadily expanded our portfolio size to 97 properties (total acquisition
price of 388.3 billion yen). We have also managed to improve our portfolio quality through property

Naokatsu Uchida
Executive Director
Kenedix Office Investment Corporation2

Kenedix Office Investment Corporation Semiannual Report01

reshuffles. As the No. 1 J-REIT that focuses on mid-sized office buildings, we will continue with
our strategy, balancing external and internal growth, backed by sound financial management.

Gradual Establishment of Measures during 21st Fiscal
Period to Target Future Growth
In the 21st fiscal period (ended October 31, 2015), we focused our efforts on the gradual establishment of
measures to target future growth over the next period and beyond. Taking into account the overheating trendof the real estate transaction market, and, with the goal of assembling assets geared toward improved
profitability, we have been carefully selecting new properties in which to invest while selling off others, rather
than haphazardly pursuing the rapid expansion of our asset portfolio. As a result, we acquired two mid-sized
office buildings and sold two existing assets, one regional property, and one small-scale urban property.
Following these acquisitions and dispositions, our portfolio at the end of the period (October 31, 2015) stoodat 97 properties with a total acquisition price of 388.3 billion yen.
In the office rental market, asking rents are increasing, particularly for buildings in central Tokyo. Rental
revenue is therefore trending steadily upward, as unit rents for properties owned by the Investment
Corporation are higher for new tenants moving in than those who have moved out, and we have negotiatedupward rent revisions with existing tenants.
From a financial perspective, we maintained the course of the previous period, extending borrowing
periods and realizing a decrease in average interest rate. We continued to promote steady financial management with a long-term view and at the end of the period (October 31, 2015), the loan-to-value (LTV) ratio
had been maintained at a conservative 42.8%. We also added Mie Bank as a new lender in an effort tofurther expand and diversify our sources of funding.
The dividend for the period (October 31, 2015) was 10,300 yen as originally forecast, distributed after
allocating a portion of income from property sales to retained earnings as a reserve for reduction entry. Ourbasic policy is to use this reserve when circumstances arise such as temporary reductions in revenue orwhen one-off expenses or losses are incurred. Going forward, we will continue to aspire toward the realization of stable, sustained dividend growth.

Kenedix Office Investment Corporation Semiannual Report3TOP MESSAGE

02
4

Aiming to Secure Stable Earnings and Uphold Sustained
Growth of Our Investment Assets
Active dealings remain in the office building transaction market due to a large appetite for real estate investment from both domestic and foreign investors. The competition for acquisitions is fierce, and opportunities
to acquire properties at prices justifiable over the medium-to-long term are scarce. Against this backdrop,
the Investment Corporation is working hard to seek out and secure prospects for acquisition by leveraging
various methods of investment.
The strength of the Investment Corporation lies in its ability to continuously secure opportunities forproperty acquisition by leveraging the independent network provided by the asset management company
and the support line of sponsor company, in addition to the various solutions it employs to process information it has acquired. Our expertise in judging opportunities and the management know-how we have accumulated over 10 years of dealing in mid-sized office buildings are valuable strengths in building a portfolio torealize stable revenue and growth going forward.
In managing our portfolio assets, we are working to enhance earnings from rental income through theprovision of office environments that garner high customer satisfaction. This is based on our philosophy of“a tenant-oriented approach will lead to revenues and growth.” Hard elements such as air-conditioning andcommon areas including restrooms are important to realizing this, as are soft elements, including security
and disaster management. By enhancing property value and raising tenant satisfaction in these ways, we
are working diligently to justify increased rents to our customers.
In financial operations, we intend to strengthen our financial base and, through the maintenance of aconservative LTV ratio, support our property acquisition capacity going forward. A secure backing is also
necessary to ensure stable financial operations over the long term, and, to this end, we aim to continuebuilding firm and trusting relationships with financial institutions.

Kenedix Office Investment Corporation Semiannual Report

03

Steadily Implementing Measures to Tackle theLong-Term Market Environment
The J-REIT market is shaped by the influence of various elements and factors arising in areas such as realestate and financial markets, and we believe that it is important to demonstrate managerial flexibility while
accurately anticipating changes in external environments.
Concerning new supply of office buildings, a large supply comparable with that of 2012 is expected tomaterialize in 2018 and 2019 over two consecutive years, which will mainly comprise large-sized buildings.
New supply of small- and mid-sized office buildings continues to be limited, solidifying the trend toward an
aging market. The ratio of buildings constructed under former earthquake resistance standards is high, andin locations that lack competitiveness, there are scattered examples of property revival for new applications,such as housing and more recently, hotels.
Effective management and updated facilities, in addition to factors such as location and building
specifications, are important to ensure that our mid-sized office buildings are chosen by tenants. We
intend to win out among the competition in mid-sized office buildings by conducting fine-tuned building
management that reflects portfolio-level property management and an inclination toward elevatedtenant satisfaction.
Going forward, the Investment Corporation aspires to meet the expectations of investors as the No. 1
owner of mid-sized office buildings and fulfill its social mission to offer mid-sized office buildings that represent raised environmental value through initiatives such as reducing energy consumption.

Kenedix Office Investment Corporation Semiannual Report5SPECIAL 1

INTERNAL GROWTH

Steadily pushing forward with upward rent revisions as unit rents for
new tenants exceed those of tenants who have moved out
In the office rental market, asking rents are increasing, particularly for

Despite occupancy rates falling temporarily below the 95% level due to a key tenant moving out,
Occupancy rate of properties subjected to proactive leasing activities has been steadily improving
Meanwhile, the occupancy rate improvement of properties subjected

The average occupancy rate for office buildings during the 21st fiscal

In addition, the average portfolio rent gap for office buildings ownedbuildings located in central Tokyo. For properties owned by the Investmentby the Investment Corporation was filled at the 21st fiscal period end. We

Corporation, we actively made efforts to negotiate upward rent revisions

believe that filling this gap helps us to actively make upward rent revisions

with tenants who were renewing their leases, primarily those tenants

and raise rent levels at the time new tenants move in. Going forward, we

whose unit rents were below the market level. In doing so, we achieved

will continue to pay attention to the trend of tenants with unit rents that

period (ended October 2015) reached 95.5%. However, due to the impact

to proactive leasing activities such as the KDX Higashi-Shinagawa

favorable results in upward rent revisions and exceeded our 20th fiscal

deviate greatly from market levels. At the same time, we will work toof a key tenant moving out of the KDX Iidabashi Square, the occupancy

Building and the KDX Kawasaki-Ekimae Hon-cho Building has steadily

period performance in both the number of upward rent revisions and theincrease rent revenues by actively carrying out negations to increase unit

rate fell to 94.7% at the 21st fiscal period-end, dropping 1.7 points

progressed due to accurate leasing activities that consider on the special

difference in rent increases and decreases. Moreover, unit rents for new

rents and making focused efforts to provide an office environment thatcompared to the 20th fiscal period (ended April 2015).

characteristics of each property. Accordingly, the occupancy rate for thesetenants moving in reached a higher level than the unit rents of tenants

offers a high-level of customer satisfaction.

(Excluding the KDX Iidabashi Square, the occupancy rate for office build-properties has been maintained and improved.

who have moved out. As such, rent revenues are trending steadily upward.

ings at the end of the fiscal period under review was 95.7%.)
Occupancy rate performance of office buildings (Note)
Occupancy rate (contracted area based)

Change in rent per unit upon rent revision (based on monthly rent) (Note)

Actual occupancy rate (excl. free rent area)

Increase in rent(%)

(thousand yen)

100.0

6,000

95.9

95.6

95.4

5.7%
90.0

91.6

95.2%

End of 17th fiscal period(2013/10)

19th fiscal period

94.8%

End of 18th fiscal period(2014/4)

20th fiscal period

2,000

2,101

End of 19th fiscal period(2014/10)

End of 20th fiscal period(2015/4)–2,000KDX Kawasaki-Ekimae Hon-cho Building
June 30, 2015
100%
Space leased (Note 3)
1,550.82 tsubo

Jan. 31, 2016 (estimate)
100%
Space vacated (Note 3)
1,550.31 tsubo–1,688–5.0

Change in occupancy—
Difference—

Dec. 31, 2015
94.9%
Space vacated507.43 tsubo

Mar. 31, 2016 (estimate)
100%
Space vacated1,820.73 tsubo

Change in occupancy+14.5%
Difference+2,064.37 tsuboS uccessfully improved the occupancy rate, which was expected to fall to the 70%
level as of the end of Sep. 2015, by meeting various demands of the tenants
Plan for 100% occupancy rate at the end of Mar. 2016 due to the conclusion of
the lease agreements–3,789–3,350Kenedix Office Investment Corporation Semiannual Report

–9.0%

–15.0

19th fiscal period(2014/10)

20th fiscal period(2015/4)–10.2%–20.0

21st fiscal period(2015/10)–30.0

22nd fiscal period(2016/4)
Confirmed

Note: D ifference in monthly rent per unit before and after rent revision, is calculated separately for eachtenant. Numbers are rounded to the nearest thousand yen. The data for 22nd fiscal period(2016/4) confirmed is based on rent revision confirmed as of Dec 1, 2015.

–24.0%
17th fiscal period 18th fiscal period 19th fiscal period 20th fiscal period 21st fiscal period(2013/10)(2014/4)(2014/10)(2015/4)(2015/10)

Note: R ent per unit for new tenants is calculated as the weighted average rent per unit of new tenants,
based on areas where the rents of the new tenants are comparable with those of the moved-out
tenants. Rent per unit for moved-out tenants is calculated as the weighted average rent of
moved-out tenants for the same areas.

 ccupancy rate successfully recovered to 94.9% by leveraging our leasingO
expertise in the Kayabacho-area, although the occupancy rate was expected tofall to 61.4% due to submission of cancellation notice as a time of acquisition

Status of rent revision (based on leased area) (Note)

Upon acquisition (Jan. 31, 2015) Jan. 31, 2016 (estimate)
84.8%
98.3%
Space leased
Space vacated560.21 tsubo
58.48 tsubo

Change in occupancy+13.5%
Difference+501.73 tsubo

No change
(273)
85.8%

Increase(11)
3.4%

Decrease
(10)
10.8%

No change
(252)
82.8%

Increase
(27)
12.2%

Decrease(6)
5.0%

S uccessfully improved the occupancy rate by leveraging our abundant leasing
experience in the Nagoya area
Promoted value-upgrading works such as the renovation of rest rooms, etc. The
building is expected to be almost fully occupied as of the end of January 2016

Upon acquisition (Sep. 30, 2014)
73.3%
Space leased
207.17 tsubo

Oct. 31, 201582.3%
Space vacated98.67 tsubo

Change in occupancy+9.0%
Difference+108.50 tsubo

S teadily improving occupancy rate by matching leasing needs from small/mediumsized tenants with office floors that can be flexibly divided and leased separately
Expect occupancy rate to improve to 90.5% as of Apr. 30, 2016 with applicationfor vacant space from a potential tenant

Notes: 1. “Space leased” and “Space vacated” on this page indicate the accumulated leased/vacated space based on the same period for the calculation of “Change in occupancy”.
2. Estimated occupancy rates on this page are based on leasable areas as of Oct. 31, 2015 and lease agreements contracted as of Jan. 18, 2016.
3. As a result of re-calculating leasable area, there is a difference between space leased and vacated.
4. KDO owns 25% co-ownership of this building. Figures shown in the table are for the whole property.

6

Change in occupancy–5.1%
Difference–66.50 tsubo

KDX Hiroshima Building

KDX Toyosu Grand Square (Note 4)

–5.3%

–10.0

–25.0

KDX Sakura-dori BuildingS uccessfully concluded a leasing contract with a new tenant that the existing
tenant introduced to us without downtime and under more favorable leasing
terms, although the existing tenant currently occupying the whole building
submitted a cancellation notice at the end of June 2015

July 31, 201585.5%
Space leased
3,885.10 tsubo

Upon acquisition (March 2015)
100%
Space leased
440.93 tsubo

3.3%

0.0

–2,395–6,000Pentel BuildingA ttracted the tenant planning to move out of KDX Ochanomizu Bldg. into thisproperty by leveraging the relationship with the tenant
Flexibly responded to various tenant needs such as floor partitions

12,612

13,1075.0
End of 21st fiscal period(2015/10)

Recovery and Improvement in the Occupancy Rate for Properties subjected to proactive leasing activities
Change in occupancy+31.7%
Difference+682.39 tsubo

14,60914,067
13,12015,092

Change in rent per unit

–4,527

Dec. 31, 2015
88.4%
Space vacated716.16 tsubo

14,602

10,000

–370

95.5%

–4,000June 30, 2014
56.7%
Space leased
1,398.55 tsubo

13,8600Note: O ccupancy rate (contracted area based) is calculated by dividing the contract based leased area by leasable area and actual occupancy rate (excl. free rent area) is calculated by dividing the leased area subtracting
the free rent area by leasable area. The figures are rounded to the first decimal place. Average occupancy rate of office buildings during fiscal period is a simple average of month-end occupancy rates of owned
office buildings during each period. Furthermore, the estimated average occupancy rate for 22nd fiscal period (2016/4) is the assumed figure used in the earnings forecast.

KDX Higashi-Shinagawa Building

13,851

12,000

1,107

21st fiscal period

95.9%

16,000

3,502

1,176

18th fiscal period

18,51314,000

Office properties: Average occupancy rate during fiscal period

Rent per unit for moved-out tenants

18,000
4,000

90.5

89.9

85.0

80.0

20,000

5,235

4.2%

92.9
91.7

Historical rent per unit and % change upon tenant replacement (Note)
Rent per unit for new tenants(yen/tsubo)

4,865

94.7
3.5%

3.8%

4.2%

Increased rent – decreased rent

22nd fiscal period(estimate) 95.9%

96.4

95.0

Decrease in rent

20th fiscal
period (15/4)
294

21st fiscal
period (15/10)
285

Note: S tatus of rent revisions (increase/decrease/no change) by percentage is based on leased area with respect tocontracts that are renewed or revised during relevant fiscal period. Numbers are rounded to the first decimal place.
The numbers in brackets show the number of cases.

Kenedix Office Investment Corporation Semiannual Report7

SPECIAL 2

Portfolio growth (based on total acquisition price) (Note 1)

EXTERNAL GROWTH(bn yen)(# of properties)

97

500

388.3

400

80

Effectively conducting asset reshuffle to improve both the scale and quality of our portfolio

300

Taking into account the overcompetition of the real-estate transaction

By using proceeds from sales of properties and cash on hand effec-

200

31

40

market and, with the goal of assembling assets geared toward improved

tively in asset reshuffle, we have been able to realize a net increase in Net

100

69.1

20

profitability, in the fiscal period ended October 31, 2015 we carefully

Operating Income (NOI) without raising the loan-to-value ratio (LTV ratio).

selected new properties in which to invest while selling off others, rather

We also managed to boost the proportion of our portfolio that lies withinthan haphazardly pursuing the rapid expansion of our asset portfolio.

the Tokyo central 5 wards while reducing the average age of the proper-

In property acquisitions, we acquired two mid-sized office buildings(Hamamatsucho Center Building and Shin Osaka Center Building), whichties that we own. Furthermore, we are also managing to increase retained
earnings by securing gains from sales.

are within close proximity to terminal rail stations and meet our criteria. We

end of the fiscal period (October 31, 2015) stood at 97 properties with a

Building), and one small-scale urban property (KDX Nogizaka Building).

total acquisition price of 388.3 billion yen.

Property acquisitions

Effect ofasset reshuffle

Disposition determinations based on building age,tenant concentration, future profitability, etc.

Hamamatsucho Center Building

Nagoya Nikko Shoken Building(Acquired on Sep. 1, 2015)• High accessibility− 2-minute walk from Hamamatsucho
and Daimon stations• Our abundant knowhow in
Hamamatsucho area
− Owning 3 office buildings in this area

(sold on Aug. 28, 2015)• Risks in terms of future profitability− Heavy dependence on the largest tenant
and a significant rent gap against themarket rent
− 41 years of building age and mounting
investments in retaining the property’s
competitiveness• Replacement with KDX Sakura-dori
Building− Risks diversified through rejuvenation ofbuilding age and increase of tenants

Portfolio size expansion
and net increase in NOI (Note 1)
Portfolio size: +3,300 mn yen
Net increase in portfolio NOI: +200 mn yen

Central Tokyo

Rejuvenation of building age(Acquired on Sep. 1, 2015)• Accessible from Shin Osaka station via
pedestrian deck− 3-minute walk from the station• Advantage in leasing− High visibility from the station− Flexible floor plans

Growth of retained earnings throughgains from property dispositions
Gains from sale of 2 properties: 295 mn yen
Increase in reserve for reduction entry: 394 mn yen

Office Bldg. (other)
7.8%

Office Bldg.
%

End of 21stfiscal period(2015/10)

92.1

Other
0.7%

Note: Portfolio breakdown by asset type based on acquisition price (truncated to the first decimal place).

Kenedix Office Investment Corporation Semiannual Report

9th fiscal 10th fiscal 11th fiscal 12th fiscal 13th fiscal 14th fiscal 15th fiscal 16th fiscal 17th fiscal 18th fiscal 19th fiscal 20th fiscal 21st fiscal
periodperiodperiodperiodperiodperiodperiodperiodperiodperiodperiodperiodperiod(2009/10) (2010/4) (2010/10) (2011/4) (2011/10) (2012/4) (2012/10) (2013/4) (2013/10) (2014/4) (2014/10) (2015/4) (2015/10)

Other (left axis) (Note 2)0# of properties (right axis)

opportunities to acquire properties at prices justifiable over the medium- toactive situation due to a large appetite for real-estate investment fromlong-term have been scarce. As a result, we are now focusing instead on

both domestic and foreign investors.

improving the quality of our existing portfolio, in addition to asset reshuffle.

Other regional areas
18.5%
End of 21stfiscal period(2015/10)

Central Tokyo
54.9%

Tokyo
Metropolitan Area

Going forward, the Investment Corporation will continue to strive

there were three consecutive periods where we raised capital throughtoward the realization of property acquisitions that reflect our current

public offerings and proactively expanded the scale of our portfolio.

policies by leveraging various methods of investment.

However, over 2015, the competition to acquire properties was fierce, andActive expansion of portfolio size throughpublic offerings for 3 consecutive periods
Acq: 3 properties(13.9 bn yen)
Disp: 1 property(1.6 bn yen)

Acq: 8 properties(35.1 bn yen) (Note 1)
Disp: 3 properties(3.8 bn yen)Portfolio quality improvement
through more active asset reshuffle
Acq: 7 properties(38.1 bn yen)
Disp: 2 properties(4.3 bn yen)

Acq: 7 properties(21.7 bn yen)
Disp: 4 properties(6.6 bn yen)

Acq: 2 properties(8.5 bn yen)
Disp: 2 properties(5.2 bn yen)

385.0
15.1

388.3

369.9

(bn yen)
400
370

310

5,760 mn yen
4,865 mn yen
118.4%Breakdown by region (based on acquisition price) (Note)

Other Tokyo
Metropolitan Area
26.4%
Office Bldg.
(mid-sized)
84.2%

8th fiscal
period(2009/4)

The office building transaction market is continuously in the midst of an

336.1

Central Tokyo

Notes: 1. Portfolio size expansion indicates the difference between the total acquisition price of the properties acquired and that of the properties sold. Net increase in NOI indicates the difference between the total
estimated NOI of the properties acquired upon acquisition and the total annualized actual NOI in 21st fiscal period for the properties sold.
2. Rejuvenation of building age indicates the difference between the weighted average building age of the properties acquired (based on acquisition price) and that of properties sold (based on disposition price).
3. Appraisal values on acquisition or disposition.

Residential
1.3%

7th fiscal
period(2008/10)

Central urban retail (left axis)

340

Total disposition priceTotal appraisal value (Note 3)
Total disposition price/Total appraisal value

8,500 mn yen
8,670 mn yen
98.0%

Central urban retail
5.7%

Residential (left axis)

6th fiscal
period(2008/4)

Realizing improved profitability and stability and a reinforced financial base through dynamic
acquisition/disposition of properties that anticipate movement in the markets(sold on Oct. 29, 2015)• Diminished competitiveness as an officebuilding− Located in the neighborhood where thenumber of office buildings is limited− Irregular floor shape• A higher percentage of unrealized losses− Appraisal loss at sales of 35%

Increased central Tokyo share

Breakdown by asset type (based on acquisition price) (Note)

Office (left axis)

5th fiscal
period(2007/10)

Notes: 1. Figures are truncated to the nearest 100 million yen. Figures in this material are truncated to the nearest unit unless otherwise stated.
2. “Other” properties include Kanazawa Nikko Building for 14th fiscal period (2012/4) and 15th fiscal period (2012/10), and Shinjuku 6chome Building (Land) for 18th fiscal period (2014/4) onward.

KDX Nogizaka Building

Further focus on
Tokyo Metropolitan Area

Other regional area
Total acquisition priceTotal appraisal value (Note 3)
Total acquisition price/Total appraisal value

Other regional area

Lowered to about 12 years (Note 2)

Shin Osaka Center Building

1st fiscal 2nd fiscal 3rd fiscal 4th fiscal
periodperiodperiodperiod(2005/10) (2006/4) (2006/10) (2007/4)

If we look back over the last two years we can see that, up to 2014,

Property dispositions

Selected investments based on locational advantages andtenant demand060

As a result of these acquisitions and dispositions, our portfolio at thealso sold two properties – one regional property (Nagoya Nikko Shoken

Asset reshuffle in 21st fiscal period (2015/10)

8

100

304.8
12.3

3.3

33.8

31.3
Net increase in portfolio size

End of 17th fiscal period(2013/10)

End of 18th fiscal period(2014/4)

End of 19th fiscal period(2014/10)

End of 20th fiscal period(2015/4)

End of 21st fiscal period(2015/10)

Achievement in 2 years

Number of properties
owned (Note 1)
Number of tenants ofoffice buildings (Note 2)

85

89

94

97

97

+12

865

886

1,004

1,075

1,090

+225

Enhanced portfolio
stability throughdiversification

NOI yield

4.2%

4.4%

4.4%

4.5%

4.5%

+0.3%

Improved portfolio
profitability+0.9 bn yen+1.6 bn yen+2.7 bn yen+2.3 bn yen+0.6 bn yen+8.1 bn yen–22.8 bn yen–16.4 bn yen–7.3 bn yen+1.9 bn yen+10.9 bn yen+33.7 bn yen

0.96 bn yen

0.64 bn yen

0.64 bn yen

1.15 bn yen

1.54 bn yen+0.58 bn yen

Change in appraisal
profit/loss due to propertytransactions (Note 3)
Appraisal profit/loss of
portfolio (Note 4)
Reserve for reduction
entry

Strengthened
financial baseNotes: 1. 1 of the 8 properties acquired in the 18th fiscal period (2014/4) is the additional portion in KDX Shinbashi Building, and is counted together with the existing portion as 1 property in calculation of the number ofproperties owned.
2. End-tenants’ leasing spaces in multiple buildings or multiple areas in the same building are counted as 1 tenant in calculating the number of tenants of office buildings.
3. C hange in appraisal profit/loss due to property transactions is calculated by adding the difference between the appraisal value and the acquisition price of properties acquired and subtracting the difference
between the appraisal value and the book value of the properties disposed of.
4. Appraisal profit/loss of portfolio is calculated as the difference between the total appraisal value and total book value of the properties owned as of the end of each period.

81.4%

Note: Portfolio breakdown by region based on acquisition price (truncated to the first decimal place).

Kenedix Office Investment Corporation Semiannual Report9SPECIAL 3

BUSINESS RESULTS

FINANCIAL STRATEGY
Extending the average remaining term to maturity of interest-bearing debt
while realizing a reduction in financial costs

Operating Revenues

The average remaining term to maturity of interest-bearing debt at the

average interest rate for the end of the previous fiscal period (ended April

end of the 21st fiscal period (ended October 31, 2015) was 4.3 years.

30, 2015) was 1.45%. We have therefore realized a reduction of 0.06%.

Operating Income

13,7402015) was 4.1 years. We have therefore realized an extension of 0.2

the 22nd fiscal period is a relatively high 2.18%. We are continuously

years. Moreover, the average interest rate for interest-bearing debt at theaiming to realize further reductions in financial cost through refinancing.

end of the 21st fiscal period (ended October 31, 2015) was 1.39%. The

Maintaining conservative financial operations and expanding bank formation

12,92814,13010,895

9,819

4,240

17th fiscal period
18th fiscal period
19th fiscal period
20th fiscal period
21st fiscal period(Ended Oct. 31, 2013) (Ended Apr. 30, 2014) (Ended Oct. 31, 2014) (Ended Apr. 30, 2015) (Ended Oct. 31, 2015)(ended October 31, 2015) stood at a conservative 42.8%, the same as

We have also added Mie Bank as a new lender. As a result, wethat recorded for the previous fiscal period (ended April 30, 2015). If we

expanded lender formation to 15 financial institutions, realizing further

allow the LTV ratio to rise to 45.0%, we will have an investment capacity

expansion and diversification of our sources of funding.

Net Income

financial management with an eye on both risks and opportunities.

has been maintained at a high level of 95.7% in order to hedge against

Status of fixed interest rate and terms of debt (as of the end of the
21st fiscal period (2015/10) (Note)

Average remaining period to maturity and interest rate (Note)
Weighted average remaining period to maturity (right axis)
Weighted average interest rate (incl. up-front fee) (left axis)(year)

2.00

5.0

1.65%
1.60

2.3 years

3.1 years

1.45%

1.39%

End of 19th fiscal
period (2014/10)

2,831

2,885

4,564

3,569

17th fiscal period
18th fiscal period
19th fiscal period
20th fiscal period
21st fiscal period(Ended Oct. 31, 2013) (Ended Apr. 30, 2014) (Ended Oct. 31, 2014) (Ended Apr. 30, 2015) (Ended Oct. 31, 2015)

Total Assets

9,302

9,638

10,060yen

11,363

10,30017th fiscal period
18th fiscal period
19th fiscal period
20th fiscal period
21st fiscal period(Ended Oct. 31, 2013) (Ended Apr. 30, 2014) (Ended Oct. 31, 2014) (Ended Apr. 30, 2015) (Ended Oct. 31, 2015)

End of 20th fiscal
period (2015/4)

Fixed interest rate
¥166.6 bn
95.7%

Long-term borrowing
and corporate bonds¥140.8 bn
80.9%0

End of 21st fiscal
period (2015/10)

Note: Average remaining period to maturity and interest rate are weighted averages based on outstanding debts at the end of each fiscal period (Average remaining period to maturities and interest rate
are rounded to the first and second decimal places respectively).

Net Assets Ratio & Unitholders’ Equity

407,2172.0

1.0

End of 18th fiscal
period (2014/4)

Current portion of longterm borrowings andcorporate bonds¥30.8 bn
17.7%

3.0

1.20

End of 17th fiscal
period (2013/10)

Short-termborrowings¥2.5 bn
1.4%

10,300

4.0

1.40

1.00

Floating interest rate
¥7.5 bn
4.3%

4.3 years

3.6 years

1.46%

17th fiscal period
18th fiscal period
19th fiscal period
20th fiscal period
21st fiscal period(Ended Oct. 31, 2013) (Ended Apr. 30, 2014) (Ended Oct. 31, 2014) (Ended Apr. 30, 2015) (Ended Oct. 31, 2015)

million yen
5,110

4.1 years

4,283

5,940

5,028

Distribution per Unit

4,564

Going forward, we will continue with our policy of maintaining soundof approximately 16 billion yen. Moreover, the ratio of fixed interest debt

1.77%

6,537

13,740

the risk of rising interest rates in the future.

The loan-to-value ratio (LTV ratio) at the end of the 21st fiscal period

1.80

million yen

The average interest rate for long-term interest-bearing debt due for

The average term at the end of the previous fiscal period (ended April 30,

(%)

5,940

million yen

316,753

355,167

388,169

million yen

407,799407,217

Note: Fixed interest rate includes borrowings that are fixed through interest rate swap but excludes thosethat are hedged by interest rate cap (numbers are rounded to the first decimal place).

Net Assets Ratio
47.6%

47.9%

46.6%

150,781

170,109180,844

million yen

17th fiscal period
18th fiscal period
19th fiscal period
20th fiscal period
21st fiscal period(Ended Oct. 31, 2013) (Ended Apr. 30, 2014) (Ended Oct. 31, 2014) (Ended Apr. 30, 2015) (Ended Oct. 31, 2015)

Historical LTV level (Note)

52.0

million yen

million yen

%

52.0%

52.0%

211,951

211,914million yen

407

million yen

17th fiscal period
18th fiscal period
19th fiscal period
20th fiscal period
21st fiscal period(Ended Oct. 31, 2013) (Ended Apr. 30, 2014) (Ended Oct. 31, 2014) (Ended Apr. 30, 2015) (Ended Oct. 31, 2015)(%)

LTV Ratio & Interest-Bearing Debt

52.0

47.0%

48.0

45.6%

45.3%

45.8% 46.2%

47.5% 47.2%

48.4%

41.2% 41.4% 41.1% 40.9% 40.9%
40.0

36.0

42.8%

37.5%

47.5%

47.2%

48.4%

150,558

167,746

187,685

End of 1st
fiscal period(2005/10)

End of 3rd
fiscal period(2006/10)

94.9

%

42.8%

42.8%

174,600

174,100

95.8%

96.0%

95.6%

%
96.5%

94.9%

38.9%

38.7%

End of 5th
fiscal period(2007/10)

million yen

End of 7th
fiscal period(2008/10)

End of 9th
fiscal period(2009/10)

End of 11th
fiscal period(2010/10)

End of 13th
fiscal period(2011/10)

Note: LTV = the balance of interest-bearing debt / total assets, as of the end of the relevant fiscal period (rounded to the first decimal place)

10

42.8

40.3%

35.3%
32.0

LTV Ratio

42.8%

43.0%

44.0

Portfolio Occupancy Rate

Kenedix Office Investment Corporation Semiannual Report

End of 15th
fiscal period(2012/10)

End of 17th
fiscal period(2013/10)

End of 19th
fiscal period(2014/10)

End of 21stfiscal period(2015/10)

million yen

million yen

million yen

million yen

17th fiscal period
18th fiscal period
19th fiscal period
20th fiscal period
21st fiscal period(Ended Oct. 31, 2013) (Ended Apr. 30, 2014) (Ended Oct. 31, 2014) (Ended Apr. 30, 2015) (Ended Oct. 31, 2015)

17th fiscal period
18th fiscal period
19th fiscal period
20th fiscal period
21st fiscal period(Ended Oct. 31, 2013) (Ended Apr. 30, 2014) (Ended Oct. 31, 2014) (Ended Apr. 30, 2015) (Ended Oct. 31, 2015)

Kenedix Office Investment Corporation Semiannual Report

11

PORTFOLIO (As of October 31, 2015)

The properties acquired during the 21st fiscal period are marked with red boxes.

No.

Property Name

Location

Acquisition
Price (mn yen)
(Note 1)

Office(Tokyo Metropolitan
Area)

12

A-1 KDX Nihonbashi 313 Building
A-3 Higashi-Kayabacho Yuraku Building
A-4 KDX Hatchobori Building
A-5 KDX Nakano-Sakaue Building
A-6 Harajuku F.F. Building
A-7 KDX Minami Aoyama Building
A-8 Kanda Kihara Building
A-13 KDX Kojimachi Building
A-14 KDX Funabashi Building
A-16 Toshin 24 Building
A-17 KDX Ebisu Building
A-19 KDX Hamamatsucho Building
A-20 KDX Kayabacho Building
A-21 KDX Shinbashi Building
A-22 KDX Shin-Yokohama Building
A-26 KDX Kiba Building
A-27 KDX Kajicho Building
A-29 KDX Higashi-Shinjuku Building
A-30 KDX Nishi-Gotanda Building
A-31 KDX Monzen-Nakacho Building
A-32 KDX Shiba-Daimon Building
A-33 KDX Okachimachi Building
A-34 KDX Hon-Atsugi Building
A-35 KDX Hachioji Building
A-37 KDX Ochanomizu Building
A-38 KDX Nishi-Shinjuku Building
A-39 KDX Toranomon Building
A-40 Toranomon Toyo Building
A-41 KDX Shinjuku 286 Building
A-45 KDX Roppongi 228 Building
A-46 Hiei Kudan-Kita Building
A-47 KDX Shin-Yokohama 381 Building
A-48 KDX Kawasaki-Ekimae Hon-cho Building
A-50 KDX Ikejiri-Oohashi Building
A-51 KDX Hamacho Nakanohashi Building
A-52 KDX Kanda Misaki-cho Building
A-55 Shin-toshin Maruzen Building
A-56 KDX Jimbocho Building
A-57 KDX Gobancho Building
A-59 KDX Iwamoto-cho Building
A-60 KDX Harumi Building
A-61 KDX Hamamatsucho Dai-2 Building
A-62 Koishikawa TG Building
A-63 Gotanda TG Building
A-64 KDX Nihonbashi 216 Building
A-66 KDX Shinjuku Building
A-67 KDX Ginza 1chome Building
A-68 KDX Nihonbashi Honcho Building
A-71 KDX Iidabashi Building
A-72 KDX Higashi-Shinagawa Building
A-73 KDX Hakozaki Building
A-74 KDX Shin-Nihonbashi Building
A-75 KDX Nihonbashi Kabutocho Building
A-78 KDX Tachikawa Ekimae Building
A-83 KDX Fuchu Building

Kenedix Office Investment Corporation Semiannual Report

Chuo-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Nakano-ku, Tokyo
Shibuya-ku, Tokyo
Minato-ku, Tokyo
Chiyoda-ku, Tokyo
Chiyoda-ku, Tokyo
Funabashi, Chiba
Yokohama, Kanagawa
Shibuya-ku, Tokyo
Minato-ku, Tokyo
Chuo-ku, Tokyo
Minato-ku, Tokyo
Yokohama, Kanagawa
Koto-ku, Tokyo
Chiyoda-ku, Tokyo
Shinjuku-ku, Tokyo
Shinagawa-ku, Tokyo
Koto-ku, Tokyo
Minato-ku, Tokyo
Taito-ku, Tokyo
Atsugi, Kanagawa
Hachioji, Tokyo
Chiyoda-ku, Tokyo
Shinjuku-ku, Tokyo
Minato-ku, Tokyo
Minato-ku, Tokyo
Shinjuku-ku, Tokyo
Minato-ku, Tokyo
Chiyoda-ku, Tokyo
Yokohama, Kanagawa
Kawasaki, Kanagawa
Meguro-ku, Tokyo
Chuo-ku, Tokyo
Chiyoda-ku, Tokyo
Shinjuku-ku, Tokyo
Chiyoda-ku, Tokyo
Chiyoda-ku, Tokyo
Chiyoda-ku, Tokyo
Chuo-ku, Tokyo
Minato-ku, Tokyo
Bunkyo-ku, Tokyo
Shinagawa-ku, Tokyo
Chuo-ku, Tokyo
Shinjuku-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Shinjuku-ku, Tokyo
Shinagawa-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Tachikawa, Tokyo
Fuchu, Tokyo

5,940
4,450
3,680
2,533
2,450
2,270
1,950
5,950
2,252
5,300
4,640
3,460
2,780
3,728
2,520
1,580
2,350
2,950
4,200
1,400
6,090
2,000
1,305
1,155
6,400
1,500
4,400
9,850
2,300
3,300
7,600
5,800
3,760
2,400
2,310
1,380
2,110
2,760
1,951
1,864
10,250
2,200
3,080
2,620
2,010
6,800
4,300
4,000
4,670
4,590
2,710
2,300
11,2701,267
6,120Year Built(Note 2)

Apr. 1974
Jan. 1987
Jun. 1993
Aug. 1992
Nov. 1985
Nov. 1988
May 1993
May 1994
Apr. 1989
Sep. 1984
Jan. 1992
Sep. 1999
Oct. 1987
Feb. 1992
Sep. 1990
Oct. 1992
Mar. 1990
Jan. 1990
Nov. 1992
Sep. 1986
Jul. 1986
Jun. 1988
May 1995
Dec. 1985
Aug. 1982
Oct. 1992
Apr. 1988
Aug. 1962
Aug. 1989
Apr. 1989
Mar. 1988
Mar. 1988
Feb. 1985
Sep. 1988
Sep. 1988
Oct. 1992
Jul. 1990
May 1994
Aug. 2000
Mar. 2008
Feb. 2008
Apr. 1992
Nov. 1989
Apr. 1988
Oct. 2006
May 1993
Nov. 1991
Jan. 1984
Mar. 1990
Jan. 1993
Nov. 1993
Nov. 2002
Nov. 1998
Feb. 1990
Mar. 1996

Occupancy
Rate

No.

Property Name

Location(Note 3)100.0%
100.0%
100.0%
94.8%
100.0%
100.0%
100.0%
100.0%
95.6%
100.0%
100.0%
100.0%
100.0%
100.0%
83.3%
76.1%
93.5%
87.3%
100.0%
84.3%
100.0%
100.0%
96.7%
72.7%
96.4%
100.0%
100.0%
90.5%
100.0%
100.0%
100.0%
96.3%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
88.5%
100.0%
100.0%
65.4%
100.0%
100.0%
51.0%
100.0%
100.0%
100.0%
100.0%
99.1%

Acquisition
Price (mn yen)
(Note 1)

Office(Other Regional
Areas)

Residential
Central Urban
RetailOther

Investment
Security

A-84 KDX Kasuga Building
A-85 KDX Nakameguro Building
A-86 KDX Omiya Building
A-87 Itopia Nihonbashi SA Building
A-88 KDX Shinjuku 6chome Building
A-89 KDX Takanawadai Building
A-90 KDX Ikebukuro Building
A-91 KDX Mita Building
A-92 KDX Akihabara Building
A-93 KDX Iidabashi Square
A-94 KDX Musashi-Kosugi Building
A-95 KDX Toyosu Grand Square (Note 4)
A-96 KDX Takadanobaba Building
A-99 KDX Ikebukuro West Building
A-101 KDX Yokohama Building
A-102 KDX Yokohama Nishiguchi Building
A-103 KDX Shin-Yokohama 214 Building
A-105 KDX BUREX Toranomon
A-107 35 Sankyo Building (Note 5)
A-108 Pentel Building
A-109 Hamamatsucho Center Building
A-12 Portus Center Building
A-42 Karasuma Building (Note 5)
A-44 KDX Sendai Building
A-53 KDX Hakata-Minami Building
A-54 KDX Kitahama Building
A-58 KDX Nagoya Sakae Building
A-69 KDX Kobayashi-Doshomachi Building
A-70 KDX Sapporo Building
A-79 KDX Nagoya Ekimae Building
A-82 KDX Higashi Umeda Building
A-97 KDX Utsunomiya Building
A-98 KDX Hiroshima Building
A-100 Senri Life Science Center Building
A-104 KDX Minami-Honmachi Building
A-106 KDX Sakura-dori Building
A-110 Shin Osaka Center Building
Office Subtotal (92 properties)
B-19 Residence Charmante Tsukishima
Residential Subtotal (1 property)
C-1 Frame Jinnan-zaka
C-2 KDX Yoyogi Building
C-4 Ginza 4chome Tower
Central Urban Retail Subtotal (3 properties)
D-2 Shinjuku 6chome Building (Land)
Other Subtotal (1 property)
Total (97 properties)
G.K. KRF 43 Silent Partnership Equity Interest

Bunkyo-ku, Tokyo
Meguro-ku, Tokyo
Saitama, Saitama
Chuo-ku, Tokyo
Shinjuku-ku, Tokyo
Minato-ku, Tokyo
Toshima-ku, Tokyo
Minato-ku, Tokyo
Chiyoda-ku, Tokyo
Shinjuku-ku, Tokyo
Kawasaki, Kanagawa
Koto-ku, Tokyo
Toshima-ku, Tokyo
Toshima-ku, Tokyo
Yokohama, Kanagawa
Yokohama, Kanagawa
Yokohama, Kanagawa
Minato-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Minato-ku, Tokyo
Sakai, Osaka
Kyoto, Kyoto
Sendai, Miyagi
Fukuoka, Fukuoka
Osaka, Osaka
Nagoya, Aichi
Osaka, Osaka
Sapporo, Hokkaido
Nagoya, Aichi
Osaka, Osaka
Utsunomiya, Tochigi
Hiroshima, Hiroshima
Toyonaka, Osaka
Osaka, Osaka
Nagoya, Aichi
Osaka, Osaka
Chuo-ku, Tokyo
Shibuya-ku, Tokyo
Shibuya-ku, Tokyo
Chuo-ku, Tokyo
Shinjuku-ku, Tokyo

Shinjuku-ku, Tokyo

Year Built(Note 2)

2,800
1,880
2,020
2,200
1,900
5,250
3,900
3,180
2,600
4,350
12,000
8,666
3,650
1,934
7,210
2,750
2,200
1,750
3,600
3,350
3,950
5,570
5,400
2,100
4,900
2,220
7,550
2,870
2,005
7,327
2,770
2,350
1,300
13,000
2,200
5,900
4,550
357,958
5,353
5,353
9,900
2,479
9,800
22,1792,880
2,880
388,371

Jun. 1992
Oct. 1985
Apr. 1993
Jul. 1995
Mar. 1990
Oct. 1985
Mar. 2009
Mar. 1993
Dec. 1973
Jan. 1994
May 2013
Apr. 2008
Oct. 1988
Jul. 1988
Mar. 1994
Oct. 1988
Nov. 1989
Jul. 2011
Aug. 1991
Nov. 1990
Dec. 1985
Sep. 1993
Oct. 1982
Feb. 1984
Jun. 1973
Jul. 1994
Apr. 2009
Jul. 2009
Oct. 1989
Apr. 1986
Jul. 2009
Feb. 1999
Jan. 1990
Jun. 1992
Dec. 2009
Aug. 1992
May 1992
Avg. 23.4 years
Jan. 2004
Avg. 11.8 years
Mar. 2005
Aug. 1991
Nov. 2008
Avg. 10.4 years——
Avg. 22.5 years

1,107

Dec. 1979

Occupancy
Rate(Note 3)100.0%
100.0%
100.0%
100.0%
90.2%
100.0%
100.0%
87.5%
100.0%
0.0%
100.0%
80.8%
100.0%
100.0%
98.2%
100.0%
83.0%
100.0%
100.0%
88.9%
100.0%
95.9%
99.2%
100.0%
88.7%
92.8%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
82.3%
97.3%
100.0%
94.6%
96.6%
94.7%
100.0%
100.0%
95.2%
100.0%
100.0%
98.1%
100.0%
100.0%
94.9%

Notes: 1. Acquisition price is the purchase price of the trust beneficiary interests, etc. acquired by KDO only.
2. Year built shows the completion date recorded in the land register book. The average value shown in the subtotal section is the weighted average number calculated based on acquisition price with a base date ofOctober 31, 2015. Figures are truncated to the first decimal place.
3. O ccupancy rate is calculated by dividing leased floor area as of October 31, 2015, by leasable floor area and is rounded to the first decimal place. The figure of Shinjuku 6chome Building (Land) is calculated
based on the total leasable area indicated in the land lease agreement.
4. Acquisition price of KDX Toyosu Grand Square is calculated based on the 25% co-ownership of the property.
5. Effective from February 1, 2016, 35 Sankyo Building and Karasuma Building will be renamed KDX Ginza East Building and KDX Karasuma Building, respectively.

Kenedix Office Investment Corporation Semiannual Report

13

MANAGEMENT TEAMCORPORATE GOVERNANCE(As of October 31, 2015)

Investment and Management Decision-making System
As the asset management company, Kenedix Real Estate Fund Management (KFM) creates guidelines governing our asset management.
These Asset Management Guidelines (AMGs) define our investment policy, rules concerning transactions with related parties, distribution
policy and disclosure policy.
The structure of the decision-making process is outlined below.

Decision-making Process

3 Hikaru Teramoto

1 Naokatsu Uchida

Uchida1 Naokatsu
Director and COO, General Manager of Office REIT Division•	Worked for Mitsubishi UFJ Trust and Banking Corporation for approximately 17 years(Real Estate Division, Real Estate Project Origination Division)•	After working for Joint Asset Management Co., Ltd. as CEO, joined Kenedix OfficePartners, Inc. and was a member of the Financial Planning Division for approximately
two years

2 Keisuke Sato

4 Tetsushi Ichikawa

Teramoto
3 Hikaru
General Manager of Planning Dept., Office REIT Division•	After working for Sakura Bank for six years, worked at Sakura Securities,
Daiwa Securities SMBC, and Goldman Sachs in investment banking businessfor ten years•	Joined Kenedix Office Partners, Inc. after having worked for Goldman Sachs Realty Japan•	Appointed CEO and President of Kenedix Office Partners, Inc. on February 2, 2012

•	Appointed General Manager of Financial Planning Division, Kenedix Office Partners,
Inc. on August 1, 2012

•	Appointed Director and COO, General Manager of Office REIT Division on
October 1, 2013

•	Appointed General Manager of Planning Dept., Office REIT Division on
October 1, 2013

Sato
2 Keisuke
General Manager of Investment Management Dept., Office REIT Division

Ichikawa
4 Tetsushi
General Manager of Finance & Accounting Dept.

•	Worked for Tokyu Land Corporation for approximately nine years (Urban Business Division)•	Worked for Sumitomo Mitsui Trust Bank for 15 years (Engaged in real estate finance, etc.)•	Joined Kenedix, Inc. after having worked for JPMorgan Securities Japan Co. Ltd.,
Prudential Real Estate Investors (Japan) K.K.
•	Property appraiser•	Joined Kenedix after having engaged in real estate investment banking and having
served as director responsible for asset management business at
Touchstone Capital Securities•	Appointed General Manager of Investment Management Division, Kenedix OfficePartners, Inc. on August 1, 2012

•	Appointed General Manager of Finance & Accounting Dept. on October 1, 2013 after
serving as General Manager of Finance Group for Kenedix Residential Partners•	Appointed General Manager of Investment Management Dept., Office REIT Division
on October 1, 2013

Proposal

Preview

Deliberation and
Resolution

Deliberation and
Resolution

Each Department(each REIT Div.)

Compliance Officer(common)Compliance
Committee (common)

Asset Management
Committee(each REIT Div.)

ReportBoard of Directors(common)

1. Investment Policy

Acquisition and Sale of Properties

The Investment Management Department of Office REIT Division proposes

The Investment Management Department of Office REIT Division selects

any revision of the AMGs to the Compliance Officer. After review, theproperties for possible acquisition according to an agreed-upon process.

Officer advances the revisions to the Compliance Committee where theyThe Investment Management Department first proposes property acquisi-

are deliberated and resolved. Lastly, the Office REIT Division Assettions to the Compliance Officer. When the Officer concludes there are no

Management Committee (OAMC) deliberates and reaches resolution on

conflicts or other issues, the Officer then forwards the proposal to thethe revisions.

OAMC for final review and resolution.

The AMGs may be revised to reflect changes in investment condi-

In the event that the Compliance Officer identifies such issues astions and our investment policy, as well as other reasons such as changes

related-party transactions, potential regulatory conflicts or other cases thein the legal or regulatory environment. Whenever the AMGs are changed,

Officer deems to require closer scrutiny, the proposal must be submitted

the General Manager of Office REIT Division must report each revision tofor review and resolution by the Compliance Committee before proceed-

the Board of Directors.

ing to the OAMC for final review and resolution. After a related-party
transaction is approved, the Compliance Officer must report this transac-

2. Decision-making Process on Asset Management
Asset Management Plans
Relevant departments of Office REIT Division may propose property
management plans to the Compliance Officer. After review by the Officer,
the plans are deliberated and resolved by the Compliance Committee.
Following that OAMC deliberates and reaches resolution on these plans.

tion to the Board of Directors.
The Investment Management Department of Office REIT Division also
proposes property sales or disposals to the Compliance Officer, who reviews
the proposal and, when necessary, forwards it to the Compliance Committee.
In the absence of conflicts or other issues, the Compliance Officer may
send the proposal directly to the OAMC for final review and resolution.

Each time a new property management plan is approved or revised, the General
Manager of Office REIT Division must report this to the Board of Directors.

Environmental Initiatives
KFM undertakes investment management operations in accordance with the following environmental policies:
1. Compliance with Environmental Laws and Regulations
2. Promotion of Energy Conservation Measures
3. Reduction of Environmental Burden
4. Disclosure of Environmental Information
5. Environmental Education
Thanks to continuous efforts, we have won a range of certifications, including the highest ranked Green Star
rating from the Global Real Estate Sustainability Benchmark (GRESB) surveys for four consecutive years.

14

Kenedix Office Investment Corporation Semiannual Report

Kenedix Office Investment Corporation Semiannual Report

15

FINANCIAL SECTION
Contents
Independent Auditor’s Report

17

Balance Sheets

18

Statements of Income and Retained Earnings

19

Statements of Changes in Net Assets

19Statements of Cash Flows20

Notes to Financial Statements

21

Financial Summary (Unaudited)
Historical Operating Trends
For the 17th–21st Fiscal Periods
PeriodOperating revenues(Rental revenues)
Operating expenses(Property-related expenses)
Operating income
Ordinary income
Net income (a)Total assets (b)(Period-on-period change)

Interest-bearing debt (c)(Period-on-period change)

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

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

Number of investment units issued and outstanding (e)Unitholders’ equity per unit (d)/(e)Total distribution (f)Distribution per unit (f)/(e)(Earnings distributed per unit)(Distribution in excess of earnings per unit)
Return on assets (annualized) (Notes 1 and 2)
Return on net assets (annualized) (Notes 2 and 3)
Net assets ratio at end of period (d)/(b)(Period-on-period change)

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

Payout ratio (Note 4) (f)/(a)Other references
Number of properties
Total leasable floor area
Occupancy ratio at end of period
Depreciation expenses for the period
Capital expenditures for the period
Leasing NOI (Net Operating Income) (Note 5)
FFO (Funds From Operation) (Note 6)
FFO per unit (Note 7)

%

unit
yen
mn yen
yen
yen
yen
%
%
%
%
%
propertiesm2%
mn yenmn yenmn yenmn yenyen

17th Period

18th Period

19th Period

20th Period

21st Period(as of Oct. 31, 2013)(as of Apr. 30, 2014)(as of Oct. 31, 2014)(as of Apr. 30, 2015)(as of Oct. 31, 2015)

9,819
9,501
5,578
4,845
4,240
2,832
2,831
316,753

10,895
10,330
6,611
5,047
4,283
2,887
2,885
355,167

12,928
11,295
7,899
5,557
5,028
3,570
3,569
388,169

14,13012,836
7,593
6,377
6,537
5,111
5,110
407,799

13,74013,226
7,800
6,668
5,940
4,565
4,564
407,217(+2.8)(+12.1)(+9.3)(+5.1)(–0.1)

150,558

167,746

187,685

174,600

174,100(+5.8)(+11.4)(+11.9)(–7.0)(–0.3)

150,781

170,109180,844

211,951

211,914(+0.1)(+12.8)(+6.3)(+17.2)(–0.0)

147,153

166,261

176,632

206,199

206,199(0.0)(+13.0)(+6.2)(+16.7)(0.0)

286,550
526,195
2,665
9,302
9,302
—
0.9 (1.8)
1.9 (3.7)
47.6

332,540
511,546
3,205
9,638
9,638
—
0.9 (1.7)
1.8 (3.6)
47.9

355,010509,407
3,571
10,06010,060—1.0 (1.9)
2.0 (4.0)
46.6

404,885
523,484
4,600
11,363
11,363—
1.3 (2.6)
2.6 (5.2)
52.0

404,885
523,394
4,170
10,30010,300—1.1 (2.2)
2.2 (4.3)
52.0(–1.3)(+0.3)(–1.3)(+5.4)(+0.1)

47.5

47.2

48.4

42.8

42.8

(+1.3)(–0.3)(+1.1)(–5.5)(–0.1)

94.1

111.0

100.0

90.0

91.3

85
358,517.31
95.8
1,696
894
6,352
4,293
14,984

89386,659.01
96.0
1,826
711
7,109
5,031
15,13094
437,233.24
95.6
2,022
550
7,760
7,116
20,04597453,999.44
96.5
2,221
329
8,680
6,909
17,065

97453,681.06
94.9
2,218
469
8,775
6,487
16,023notes: 1. Return on assets = Ordinary income/{(Total assets at beginning of period + Total assets at end of period)/2} × 100
2. Annualized values for the 17th Fiscal Period are calculated based on a period of 184 days, 181 days for the 18th Fiscal Period, 184 days for the 19th Fiscal Period, 181 days for the 20th Fiscal Period and 184
days for the 21st Fiscal Period.
3. Return on net assets = Net income/{(Total net assets at beginning of period + Total net assets at end of period)/2} × 100
4. Payout ratio is rounded down to the first decimal place.
5. Leasing NOI = Rental revenues – Rental expenses + Depreciation expenses for the period
6. FFO = Net income + Depreciation expenses for the period – Gain on sale of real estate property + Loss on sale of real estate property
7. FFO per unit = FFO/Number of investment units issued and outstanding (figures below ¥1 rounded down)
8. Where applicable, figures are rounded down to the nearest million.

16

Kenedix Office Investment Corporation Semiannual Report

Kenedix Office Investment Corporation Semiannual Report17Balance Sheets

Statements of Income and Retained Earnings

Kenedix Office Investment Corporation
As of October 31, 2015 and April 30, 2015

Kenedix Office Investment Corporation
For the period from May 1, 2015 to October 31, 2015 and the period from November 1, 2014 to April 30, 2015
In thousands of yen
As of October 31, 2015

In thousands of yen
As of April 30, 2015

ASSETS¥ 22,587,773¥ 24,601,157

Rental receivables

338,287

321,915

Other current assets (Note 8)

97,212

176,000

23,023,272

25,099,072

Land

271,537,963

269,158,456

Buildings and structures (Note 6)

132,688,163

131,523,414

Machinery and equipment

1,905,006

1,890,733

Tools, furniture and fixtures

503,925484,345    Total current assets
Property and equipment, at cost: (Notes 4 and 15)

Construction in progress

—

1,785

Less-accumulated depreciation(25,521,651)(23,506,928)    Net property and equipment

381,113,406

379,551,805

Ground leasehold (Note 15)353,234

354,009

Investment securities (Note 13)

1,100,235

1,076,656

Corporate bond issuance costs

34,102

39,414

Unit issuance costs

167,122

223,603

Other assets (Note 15)

1,426,091

1,454,528¥407,217,462¥407,799,087

Other assets:   Total assets
LIABILITIES AND NET ASSETS
Liabilities¥  1,372,165¥  1,390,897

33,300,000

35,800,000

46,84057,472

Rents received in advance

1,958,661

2,108,001

Other current liabilities

497,937

355,338    Total current liabilities

37,175,603

39,711,708

Corporate bonds (Notes 5 and 13)

8,300,000

8,300,000

Long-term debt (Notes 5 and 13)

132,500,000

130,500,000

Leasehold and security deposits received

17,327,076

17,336,230

Short-term debt and current portion of long-term debt (Notes 5 and 13)
Deposits received   Total liabilities

Rental revenues (Note 11)¥13,226,032¥12,836,807

Gain on sale of real estate property (Note 11)461,366

709,633

Dividends income

53,278583,910

13,740,676

14,130,350   Total operating revenues
Operating expenses:
Property-related expenses (Note 11)

6,668,992

6,377,605

Loss on sale of real estate property (Note 11)

165,691

287,720

Asset management fees

753,003

740,454

Administrative service and custodian fees

78,53876,528Other operating expenses

134,223

110,841   Total operating expenses

7,800,447

7,593,148

Operating income

5,940,229

6,537,202

Non-operating expenses:
Interest expense

1,058,112

1,086,470

Financing-related expenses

220,018

244,331

Amortization of unit issuance costs

56,481

56,481

Amortization of corporate bond issuance costs

5,312

5,225

Others, net

34,701

32,980   Total non-operating expenses

1,374,624

1,425,487

Ordinary income

4,565,605

5,111,715

Income before income taxes

4,565,605

5,111,715

1,263

1,323

Income taxes (Note 8)

Current liabilities:
Trade and other payables

195,302,679

Net income
Retained earnings at the end of period

4,564,342

5,110,392¥ 4,564,342¥ 5,110,392

See accompanying notes to the financial statements.

Statements of Changes in Net Assets
Kenedix Office Investment Corporation
For the period from May 1, 2015 to October 31, 2015 and the period from November 1, 2014 to April 30, 2015
In thousands of yen
Unitholders’ equity

195,847,938

SurplusNet Assets

Voluntary retained
earnings

Unitholders’ equity
Unitholders’ capital

From November 1, 2014
to April 30, 2015

Operating revenues:

Current assets:
Cash and bank deposits (Notes 3 and 13)

From May 1, 2015
to October 31, 2015

206,199,946

206,199,946   Units authorized: 2,000,000 units

Balance as of October 31, 2014   Units issued and outstanding: 404,885 units

Unitholders’ capital

Reserve for
reduction entry

Retained earnings

Total surplus

Totalunitholders’equityTotal¥176,632,550¥  642,566¥ 3,569,645¥ 4,212,211¥180,844,761¥180,844,761
29,567,396

Changes during the fiscal period   As of October 31, 2015 and April 30, 2015, respectively

New unit issuance

29,567,396

—

—

—

29,567,396

Surplus

Reversal of reserve for reduction entry—(1,755)

1,755

—

—

—

Payments of dividends——(3,571,400)(3,571,400)(3,571,400)(3,571,400)

Voluntary retained earnings   Reserve for reduction entry
Retained earnings
Total surplus
Total unitholders’ equity

1,150,495

640,8114,564,342

5,110,392

Net income    Total changes during the fiscal period

5,714,837

5,751,203

Balance as of April 30, 2015

211,914,783

211,951,149

Changes during the fiscal period——

5,110,392

5,110,392

5,110,392

5,110,392

29,567,396(1,755)

1,540,747

1,538,992

31,106,388

31,106,388¥206,199,946¥  640,811¥ 5,110,392¥ 5,751,203¥211,951,149¥211,951,149   Total net assets (Note 9)

211,914,783

211,951,149

Provision of reserve for reduction entry—

509,684(509,684)———   Total liabilities and net assets¥407,217,462¥407,799,087

Payments of dividends——(4,600,708)(4,600,708)(4,600,708)(4,600,708)

Net income——

4,564,342

4,564,342

4,564,342

4,564,342—

509,684(546,050)(36,366)(36,366)(36,366)¥206,199,946¥1,150,495¥ 4,564,342¥ 5,714,837¥211,914,783¥211,914,783

See accompanying notes to the financial statements.

    Total changes during the fiscal period
Balance as of October 31, 2015
See accompanying notes to the financial statements.

18

Kenedix Office Investment Corporation Semiannual Report

Kenedix Office Investment Corporation Semiannual Report19Statements of Cash Flows

Notes to Financial Statements

Kenedix Office Investment Corporation
For the period from May 1, 2015 to October 31, 2015 and the period from November 1, 2014 to April 30, 2015

Kenedix Office Investment Corporation
For the period from May 1, 2015 to October 31, 2015 and the period from November 1, 2014 to April 30, 2015
In thousands of yen
From May 1, 2015
to October 31, 2015

From November 1, 2014
to April 30, 2015¥  4,565,605¥  5,111,715

CASH FLOWS FROM OPERATING ACTIVITIES:
Income before income taxes Adjustments to reconcile income before income taxes to
net cash provided by (used in) operating activities:   Depreciation and amortization

2,494,805

2,520,961  Interest income

(738)

(772)

  Interest expense

1,058,112

1,086,470

Changes in assets and liabilities:  Rental receivables(16,372)(28,754)—752,671   Accrued consumption tax

159,196248,360   Trade and other payables

41,052

223,597   Rents received in advance(149,339)

239,132   Property and equipment due to sale

5,309,142

6,200,424   Consumption tax refundable  Others, net(145,670)

97,348    Subtotal

13,315,793

16,451,152

Interest income received

738

772

(1,070,731)(1,109,425)

(925)

(904)

12,244,875

15,341,595

Purchases of property and equipment(9,078,473)(22,545,378)

Proceeds from investment securities—

1,602,482

Proceeds from leasehold and security deposits received

1,100,651

1,599,129

Payments of leasehold and security deposits received(1,180,848)(663,116)

Cash payments of interest expense
Cash payments of income taxes
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:Payments of restricted bank deposits(59,130)(88,482)

Proceeds from restricted bank deposits

108,411

1,475,886

Others, net
Net cash provided by (used in) investing activities—

937(9,109,389)(18,618,542)

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

1,000,000

1,500,000

Payments of short-term debt

(1,500,000)(14,400,000)

Proceeds from long-term debt

14,500,000

15,450,000

Payments of long-term debt

(14,500,000)(15,635,000)—

29,451,732

Proceeds from issuance of investment units
Payment of dividends(4,599,589)(3,571,135)

Net cash provided by (used in) financing activities(5,099,589)

12,795,597

Net change in cash and cash equivalents(1,964,103)

9,518,650

Cash and cash equivalents at the beginning of period

23,724,684

14,206,034¥ 21,760,581¥ 23,724,684

Cash and cash equivalents at the end of period (Note 3)
See accompanying notes to the financial statements.

1.

ORGANIZATION AND BASIS OF PRESENTATIONORGANIZATION
Kenedix Office 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 and operation of selected office buildings, residential and retail properties in Japan, with a focus on mid-sized
office buildings in the Tokyo Metropolitan Area. The Investment Corporation was incorporated on May 6, 2005 as an investment corporation under the Law
Concerning Investment Trusts and Investment Corporations of Japan, or the Investment Trust Law. On July 21, 2005, the Investment Corporation was listed on
the Real Estate Investment Trust Market of the Tokyo Stock Exchange with a total of 75,400 investment units issued and outstanding (Securities Code: 8972).
Subsequently, the Investment Corporation raised funds through seven public offerings and other means including global offerings. Pursuant to the Investment
Trust Law, the Investment Corporation is externally managed by a registered asset management company, Kenedix Real Estate Fund Management, Inc. (“the AssetManagement Company”), a subsidiary of Kenedix, Inc. (“Kenedix”). In concert with the Asset Management Company, the Investment Corporation strives to maximize
cash distribution to investors by securing stable earnings and sustainable investment growth. To this end, the Investment Corporation adopts a dynamic and flexible
investment stance that accurately reflects its environment and market trends, and endeavors to ensure a timely response to each and every opportunity.
During the period ended April 30, 2015, the Investment Corporation acquired seven office buildings (KDX Yokohama Nishiguchi Building: acquisition price of¥2,750 million, KDX Shin-Yokohama 214 Building: acquisition price of ¥2,200 million, KDX Minami-Honmachi Building: acquisition price of ¥2,200 million,
BUREX Toranomon: acquisition price of ¥1,750 million, KDX Sakura-dori Building: acquisition price of ¥5,900 million, KDX Ginza East Building (Note): acquisition priceof ¥3,600 million and Pentel Building: acquisition price of ¥3,350 million) and sold KDX Minami Semba Dai-2 Building (initial acquisition price of ¥1,560 million), KDX
Hamacho Building (initial acquisition price of ¥2,300 million), Venus Hibarigaoka (initial acquisition price of ¥1,800 million) and Sendai Nikko Building (initial acquisition price of ¥950 million) (with a total combined disposition price of ¥6,792 million). Furthermore, the preferred equity securities (Toyonaka Property TMK) have beenrefunded in full.
During the period ended October 31, 2015, the Investment Corporation acquired one office building (Hamamatsucho Center Building: acquisition price of ¥3,950
million) located in the Tokyo Metropolitan Area, one office building (Shin Osaka Center Building: acquisition price of ¥4,550 million) located in Other Regional Areas,and sold Nagoya Nikko Shoken Building (initial acquisition price of ¥4,158 million) and KDX Nogizaka Building (initial acquisition price of ¥1,065 million) (with a total
combined disposition price of ¥5,760 million).
At the end of the twentieth and twenty-first fiscal periods, the Investment Corporation had total unitholders’ capital of ¥206,200 million with 404,885 investment
units outstanding, respectively. The Investment Corporation owned a portfolio of 97 properties (consisting of 92 office buildings, one residential property, three central
urban retail properties and one other property) with total acquisition prices of ¥385,094 million and ¥388,371 million at the end of the twentieth and twenty-firstfiscal periods, respectively. The occupancy ratios were approximately 96.5% and 94.9% at the end of the twentieth and twenty-first fiscal periods, respectively.
Note: The property name of 35 Sankyo Building will be changed to KDX Ginza East Building on February 1, 2016.

BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust Act of Japan, the JapaneseCorporation Law, the Financial Instruments and Exchange Law of Japan and related regulations, and in conformity with accounting principles and practices generally
accepted in Japan (“Japanese GAAP”), which are different in certain respects as to the application and disclosure requirements of the International Financial
Reporting Standards or accounting principles generally accepted in the United States of America.
The accompanying financial statements are basically a translation of the audited financial statements that were prepared for Japanese domestic purposes fromthe accounts and records maintained by the Investment Corporation and filed with the Kanto Local Finance Bureau of the Ministry of Finance as required by the
Financial Instruments and Exchange Law. In preparing the accompanying financial statements, relevant notes have been added and certain reclassifications havebeen made to the financial statements issued domestically in order to present them in a form that is more familiar to readers outside Japan. The Investment
Corporation’s fiscal period is a six-month period that ends at the end of April and the end of October each year. The Investment Corporation does not prepare consolidated financial statements because it has no subsidiaries.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(A) SECURITIESNon-marketable securities classified as other securities are carried at cost. Cost of securities sold is determined by the moving average method. Concerning silent
partnership (tokumei kumiai, “TK”) interests, the method of incorporating the amount of equity equivalent to the portion that corresponds to the net gain or loss of the
TK is adopted.
(B) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and equipment is calculated on a straight-line basis over the estimated useful lives of the assets
ranging as stated below:

20

Kenedix Office Investment Corporation Semiannual Report

From May 1, 2015
to October 31, 2015

From November 1, 2014
to April 30, 2015

Buildings and structures

2–49 years

2–49 years

Machinery and equipment

3–17 years

3–17 years

Tools, furniture and fixtures

3–20 years

3–20 years

Kenedix Office Investment Corporation Semiannual Report21(C) UNIT ISSUANCE COSTS
Unit issuance costs are amortized over a period of three years under the straight-line method.

3.

CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following as of October 31, 2015 and April 30, 2015:(D) CORPORATE BOND ISSUANCE COSTS
Corporate bond issuance costs are amortized over a maturity period under the straight-line method.

In thousands of yen
As of October 31, 2015

As of April 30, 2015

¥22,587,773¥24,601,157

Cash and bank deposits(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 in trust arerecorded in the relevant balance sheets and statements of income and retained earnings.
(F) GROUND LEASEHOLD
Fixed term leaseholds on the building and special agreements on buildings sales are amortized over a contractual period of 48 years and 9 months under thestraight-line method.
(G) REVENUE RECOGNITION
Operating revenues consist of rental revenues including base rents, common area charges, and other operating revenues, which include 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. Reimbursements from tenants including utility charge
reimbursements are recorded on a gross basis and such amounts are recorded both as revenues and expenses during the fiscal period.
(H) TAXES ON PROPERTY AND EQUIPMENT
Property-related taxes including property taxes, city planning taxes and depreciable property taxes are imposed on properties on a calendar year basis. These taxes
are generally charged to operating expenses for the period, for the portion of such taxes corresponding to the said period. Under Japanese tax rules, the seller ofproperty at the time of disposal 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 dateof 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
costs of the related properties. Capitalized property-related taxes amounted to ¥13,308 thousand and ¥116,101 thousand as of October 31, 2015 and April 30,
2015, respectively. In subsequent calendar years, such property-related taxes are charged as operating expenses in the fiscal period to which the installments ofsuch taxes correspond.

Restricted bank deposits (Note)
Cash and cash equivalents

SCHEDULE OF PROPERTY AND EQUIPMENT
In millions of yen
As of October 31, 2015
Acquisition costs

Book value

Acquisition costs

Accumulated
depreciation

Book valueLand¥271,538¥    —¥271,538¥269,158¥    —¥269,158

132,688

24,428108,260

131,523

22,486109,037

Machinery and equipment

1,905

835

1,070

1,891

777

1,114

Tools, furniture and fixtures

504

259

245

484

243

241

Construction in progress

—

—

—

2

—

2

¥406,635¥25,522¥381,113¥403,058¥23,507¥379,552  Total5.

SHORT-TERM DEBT, LONG-TERM DEBT AND CORPORATE BONDS
The following summarizes short-term debt, long-term debt and corporate bonds outstanding as of October 31, 2015:
Classification

Current portion of long-term debt

(L) 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 andwith insignificant risk of market value fluctuation, with maturities of three months or less from the date of purchase.

Kenedix Office Investment Corporation Semiannual Report

As of April 30, 2015

Accumulated
depreciation

Buildings and structures(K) DERIVATIVE FINANCIAL INSTRUMENTS
The Investment Corporation utilizes interest-rate swap and interest-rate cap contracts as derivative financial instruments only for the purpose of hedging its exposure
to changes in interest rates. The Investment Corporation deferred recognition of gains or losses resulting from changes in fair value of interest-rate swap and interest-rate cap contracts because these contracts met the criteria for deferral hedging accounting. However, the Investment Corporation adopted special treatment forinterest-swap and interest-rate cap contracts if they met the criteria for hedging accounting under this treatment, whereby the net amount to be paid or received
under the interest-rate swap and interest-rate cap contract is added to or deducted from the interest on the assets or liabilities for which the swap and cap contract
was executed. The hedge effectiveness for the interest-rate swap and interest-rate cap contract is assessed each fiscal period except for those that meet the criteriaof special treatment.

22¥23,724,684

4.

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

(M) ROUNDING OF AMOUNTS PRESENTED
Amounts have been truncated in the Japanese financial statements prepared in accordance with Japanese GAAP and filed with regulatory authorities in Japan,
whereas amounts have been rounded to the nearest million in the accompanying financial statements. Totals shown in the accompanying financial statements do notnecessarily agree with the sums of the individual amounts.

(876,473)¥21,760,581

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

Short-term debt(I) INCOME TAXES
Deferred tax assets and liabilities are computed based on the difference between the financial statements and income tax bases of assets and liabilities using thestatutory tax rates.

(827,192)

Subtotal

Drawdown date

Last
repayment date

Weighted-averageinterest rate

Balance(In millions of yen)

April 2, 2015

March 31, 20160.53%¥  1,500

July 31, 2015

July 31, 2016

0.53%

1,000

November 12, 2010

November 12, 2015

1.79%

1,200

November 12, 2010

November 12, 2015

1.79%

800

December 1, 2010

November 12, 2015

1.32%

800

December 1, 2010

November 12, 2015

1.32%

200

January 31, 2011

January 29, 2016

1.94%

800

February 28, 2011

January 29, 2016

1.95%

500

March 31, 2011

January 29, 2016

1.91%

2,000

April 28, 2011

January 29, 2016

1.89%

1,000

January 10, 2012

January 29, 2016

1.27%

2,500

February 18, 2013

February 18, 2016

0.84%

1,500

March 31, 2011

March 31, 2016

1.22%

1,000

May 1, 2006

April 30, 2016

2.73%

5,000

April 30, 2013

April 30, 2016

0.67%

1,000

July 31, 2013

July 29, 2016

0.57%

1,500

December 26, 2011

October 31, 2016

1.44%

2,500

December 26, 2011

October 31, 2016

1.42%

2,500

December 26, 2011

October 31, 2016

1.44%

2,000

October 31, 2012

October 31, 2016

1.06%

2,500

October 31, 2012

October 31, 2016

1.05%

1,500
¥ 33,300

Kenedix Office Investment Corporation Semiannual Report23Classification

Long-term debt

24

Kenedix Office Investment Corporation Semiannual Report

Drawdown date

Last
repayment date

Weighted-averageinterest rate

Balance(In millions of yen)Classification

Drawdown date

Last
repayment date

Weighted-averageinterest rate

Balance(In millions of yen)¥  2,000

November 12, 2010

November 12, 20172.02%¥  2,300

July 10, 2014

July 10, 2021

0.90%

December 1, 2010

November 12, 2017

2.21%

700

July 10, 2014

July 10, 2021

0.90%

500

March 28, 2012

March 28, 2017

1.36%

500

July 14, 2014

July 31, 2019

0.68%

1,000

March 28, 2012

March 28, 2019

1.77%

1,400

July 31, 2014

July 31, 2019

0.62%

1,000

March 28, 2012

March 28, 2019

1.77%

1,000

July 31, 2014

July 31, 2020

0.74%

2,700

June 29, 2012

June 30, 2017

1.29%

1,500

July 31, 2014

October 31, 2020

0.76%

300

September 21, 2012

September 21, 2017

1.16%

5,000

July 31, 2014

July 31, 2022

1.01%

2,200

September 21, 2012

September 21, 2017

1.16%

1,000

August 29, 2014

July 31, 2019

0.65%

1,000

September 21, 2012

September 21, 2017

1.16%

1,000

September 1, 2014

August 31, 2021

0.89%

800

October 31, 2012

October 31, 2017

1.10%

2,500

September 1, 2014

August 31, 2021

0.89%

500

October 31, 2012

October 31, 2018

1.25%

2,500

September 3, 2014

August 31, 2022

0.98%

1,000

Long-term debt

December 10, 2012

December 12, 2016

0.98%

500

September 3, 2014

August 31, 2022

0.98%

950

December 28, 2012

December 28, 2016

1.01%

2,000

September 22, 2014

September 30, 2020

0.80%

2,700

December 28, 2012

December 28, 2017

1.09%

500

September 30, 2014

September 30, 2021

0.89%

1,000

December 28, 2012

December 29, 2017

1.09%

500

October 31, 2014

October 31, 2021

0.80%

3,000

January 15, 2013

January 15, 2017

0.97%

1,000

October 31, 2014

October 31, 2023

1.07%

2,000

March 26, 2013

March 26, 2018

1.04%

1,000

October 31, 2014

October 31, 2023

1.13%

1,500

March 26, 2013

March 26, 2018

1.04%

1,000

October 31, 2014

October 31, 2023

1.07%

1,000

July 31, 2013

July 31, 2018

0.67%

500

October 31, 2014

October 31, 2024

1.26%

2,000

August 19, 2013

August 19, 2018

0.95%

1,000

October 31, 2014

October 31, 2024

1.26%

1,000

August 19, 2013

August 19, 2018

0.95%

1,000

January 30, 2015

January 31, 2021

0.71%

1,500

August 19, 2013

August 19, 2018

0.95%

500

January 30, 2015

January 31, 2025

1.16%

1,500

August 19, 2013

August 19, 2018

0.97%

500

February 18, 2015

February 28, 2022

0.91%

1,250

August 19, 2013

August 19, 2018

0.95%

500

February 18, 2015

February 28, 2022

0.91%

350

August 30, 2013

August 31, 2018

1.08%

700

February 18, 2015

February 29, 2024

1.16%

1,700

August 30, 2013

August 31, 2018

1.08%

500

February 18, 2015

February 28, 2025

1.31%

1,250

August 30, 2013

August 31, 2018

1.08%

300

February 27, 2015

February 28, 2025

1.15%

2,100

August 30, 2013

August 31, 2020

1.42%

1,500

March 12, 2015

February 28, 2025

1.22%

1,000

September 30, 2013

September 30, 2019

1.06%

1,800

March 31, 2015

March 31, 2025

1.27%

2,500

September 30, 2013

September 30, 2019

1.06%

900

April 30, 2015

April 30, 2022

0.83%

2,300

October 31, 2013

October 31, 2018

0.89%

500

August 31, 2015

August 31, 2022

0.87%

500

November 12, 2013

November 12, 2018

0.82%

1,000

August 31, 2015

August 31, 2022

0.87%

500

November 12, 2013

November 12, 2020

1.07%

2,000

August 31, 2015

August 31, 2022

0.87%

500

November 12, 2013

November 12, 2020

1.07%

500

August 31, 2015

August 31, 2022

0.87%

500

November 29, 2013

November 30, 2018

0.84%

200

August 31, 2015

August 31, 2022

0.87%

500

November 29, 2013

November 30, 2020

1.12%

1,000

August 31, 2015

August 31, 2022

0.87%

500

November 29, 2013

November 30, 2020

1.12%

900

September 30, 2015

September 30, 2024

1.06%

2,000

January 10, 2014

January 31, 2021

1.21%

1,300

October 30, 2015

October 31, 2024

0.99%

1,000

January 31, 2014

January 31, 2017

0.67%

1,200

October 30, 2015

October 30, 2025

1.11%

1,500

January 31, 2014

January 31, 2020

0.93%

3,700

October 30, 2015

October 30, 2025

1.11%

2,000

January 31, 2014

January 31, 2021

1.13%

2,300

October 30, 2015

October 30, 2025

1.11%

2,500

March 12, 2014

March 12, 2018

0.75%

2,250

October 30, 2015

October 30, 2025

1.12%

March 12, 2014

March 31, 2019

0.78%

450

SubtotalMarch 12, 2014

March 12, 2020

0.92%

1,800

Corporate bonds

March 15, 2007

March 15, 20172.37%¥  3,000March 12, 2014

March 12, 2023

1.36%

1,800

March 8, 2012

September 8, 2017

2.00%

1,500

March 20, 2014

March 12, 2020

0.91%

3,000

September 12, 2013

September 12, 2018

1.00%

1,800

March 20, 2014

September 20, 2021

1.01%

4,000

July 25, 2014

July 25, 2024

1.18%

March 20, 2014

March 20, 2022

1.20%

3,000

Subtotal¥  8,300

March 20, 2014

March 12, 2023

1.35%

2,000

  Total¥174,100

March 31, 2014

March 31, 2019

0.76%

2,500

April 22, 2014

October 31, 2020

0.95%

2,900

July 10, 2014

July 10, 2019

0.64%

500

2,500
¥132,500

2,000

Kenedix Office Investment Corporation Semiannual Report25

The following summarizes short-term debt, long-term debt and corporate bonds outstanding as of April 30, 2015:
Classification

Short-term debt

Current portion of long-term debt

Last
repayment date

Weighted-averageinterest rate

Balance(In millions of yen)

26

Kenedix Office Investment Corporation Semiannual Report

Long-term debt

Drawdown date

Last
repayment date

Weighted-averageinterest rate

Balance(In millions of yen)August 19, 2013

August 19, 20180.95%¥    500

May 30, 2014

May 29, 2015

0.53%¥    500

August 30, 2013

August 31, 2018

1.08%

700

July 31, 2014

July 31, 2015

0.48%

1,000

August 30, 2013

August 31, 2018

1.08%

500

April 2, 2015

March 31, 2016

0.53%

1,500

August 30, 2013

August 31, 2018

1.08%

300

February 28, 2011

August 31, 2015

1.91%

3,000

August 30, 2013

August 31, 2020

1.42%

1,500

March 30, 2012

September 30, 2015

1.21%

2,000

September 30, 2013

September 30, 2019

1.06%

1,800

April 27, 2012

October 30, 2015

1.27%

1,000

September 30, 2013

September 30, 2019

1.06%

900

April 28, 2011

October 31, 2015

1.86%

1,500

October 31, 2013

October 31, 2018

0.89%

500

December 26, 2011

October 31, 2015

1.34%

2,500

November 12, 2013

November 12, 2018

0.82%

1,000

December 26, 2011

October 31, 2015

1.32%

2,500

November 12, 2013

November 12, 2020

1.07%

2,000

December 26, 2011

October 31, 2015

1.34%

2,000

November 12, 2013

November 12, 2020

1.07%

500

November 12, 2010

November 12, 2015

1.79%

1,200

November 29, 2013

November 30, 2018

0.84%

200

November 12, 2010

November 12, 2015

1.79%

800

November 29, 2013

November 30, 2020

1.12%

1,000

December 1, 2010

November 12, 2015

1.38%

800

November 29, 2013

November 30, 2020

1.12%

900

December 1, 2010

November 12, 2015

1.38%

200

January 10, 2014

January 31, 2021

1.21%

1,300

January 31, 2011

January 29, 2016

1.94%

800

January 31, 2014

January 31, 2017

0.67%

1,200

February 28, 2011

January 29, 2016

1.95%

500

January 31, 2014

January 31, 2020

0.93%

3,700

March 31, 2011

January 29, 2016

1.91%

2,000

January 31, 2014

January 31, 2021

1.13%

2,300

April 28, 2011

January 29, 2016

1.89%

1,000

March 12, 2014

March 12, 2018

0.75%

2,250

Drawdown date

January 10, 2012

January 29, 2016

1.27%

2,500

March 12, 2014

March 31, 2019

0.78%

450

February 18, 2013

February 18, 2016

0.84%

1,500

March 12, 2014

March 12, 2020

0.92%

1,800

March 31, 2011

March 31, 2016

1.24%

1,000

March 12, 2014

March 12, 2023

1.36%

1,800

May 1, 2006

April 30, 2016

2.73%

5,000

March 20, 2014

March 12, 2020

0.91%

3,000

April 30, 2013

April 30, 2016

0.68%

1,000

March 20, 2014

September 20, 2021

1.01%

4,000

¥ 35,800

March 20, 2014

March 20, 2022

1.20%

3,000

SubtotalLong-term debt

Classification

November 12, 2010

November 12, 20172.02%¥  2,300

March 20, 2014

March 12, 2023

1.35%

2,000

December 1, 2010

November 12, 2017

2.21%

700

March 31, 2014

March 31, 2019

0.76%

2,500

December 26, 2011

October 31, 2016

1.44%

2,500

April 22, 2014

October 31, 2020

0.95%

2,900

December 26, 2011

October 31, 2016

1.42%

2,500

July 10, 2014

July 10, 2019

0.64%

500

December 26, 2011

October 31, 2016

1.44%

2,000

July 10, 2014

July 10, 2021

0.90%

2,000

March 28, 2012

March 28, 2017

1.36%

500

July 10, 2014

July 10, 2021

0.90%

500

March 28, 2012

March 28, 2019

1.77%

1,400

July 14, 2014

July 31, 2019

0.68%

1,000

March 28, 2012

March 28, 2019

1.77%

1,000

July 31, 2014

July 31, 2019

0.62%

1,000

June 29, 2012

June 30, 2017

1.29%

1,500

July 31, 2014

July 31, 2020

0.74%

2,700

September 21, 2012

September 21, 2017

1.16%

5,000

July 31, 2014

October 31, 2020

0.76%

300

September 21, 2012

September 21, 2017

1.16%

1,000

July 31, 2014

July 31, 2022

1.01%

2,200

September 21, 2012

September 21, 2017

1.16%

1,000

August 29, 2014

July 31, 2019

0.65%

1,000

October 31, 2012

October 31, 2016

1.06%

2,500

September 1, 2014

August 31, 2021

0.89%

800

October 31, 2012

October 31, 2016

1.05%

1,500

September 1, 2014

August 31, 2021

0.89%

500

October 31, 2012

October 31, 2017

1.10%

2,500

September 3, 2014

August 31, 2022

0.98%

1,000

October 31, 2012

October 31, 2018

1.25%

2,500

September 3, 2014

August 31, 2022

0.98%

950

December 10, 2012

December 12, 2016

0.98%

500

September 22, 2014

September 30, 2020

0.80%

2,700

December 28, 2012

December 28, 2016

1.01%

2,000

September 30, 2014

September 30, 2021

0.89%

1,000

December 28, 2012

December 28, 2017

1.09%

500

October 31, 2014

October 31, 2021

0.80%

3,000

December 28, 2012

December 29, 2017

1.09%

500

October 31, 2014

October 31, 2023

1.07%

2,000

January 15, 2013

January 15, 2017

0.97%

1,000

October 31, 2014

October 31, 2023

1.13%

1,500

March 26, 2013

March 26, 2018

1.04%

1,000

October 31, 2014

October 31, 2023

1.07%

1,000

March 26, 2013

March 26, 2018

1.04%

1,000

October 31, 2014

October 31, 2024

1.26%

2,000

July 31, 2013

July 29, 2016

0.58%

1,500

October 31, 2014

October 31, 2024

1.26%

1,000

July 31, 2013

July 31, 2018

0.68%

500

January 30, 2015

January 31, 2021

0.71%

1,500

August 19, 2013

August 19, 2018

0.95%

1,000

January 30, 2015

January 31, 2025

1.16%

1,500

August 19, 2013

August 19, 2018

0.95%

1,000

February 18, 2015

February 28, 2022

0.91%

1,250

August 19, 2013

August 19, 2018

0.95%

500

February 18, 2015

February 28, 2022

0.91%

350

August 19, 2013

August 19, 2018

0.97%

500

February 18, 2015

February 29, 2024

1.16%

1,700

Kenedix Office Investment Corporation Semiannual Report27Classification

Long-term debt

Drawdown date

Last
repayment date

Weighted-averageinterest rate

Balance(In millions of yen)February 18, 2015

February 28, 2025

1.31%¥  1,250

February 27, 2015

February 28, 2025

1.15%

2,100

March 12, 2015

February 28, 2025

1.22%

1,000

March 31, 2015

March 31, 2025

1.27%

2,500

April 30, 2015

April 30, 2022

0.83%

2,300

Subtotal
Corporate bonds¥130,500
March 15, 2007

March 15, 20172.37%¥  3,000March 8, 2012

September 8, 2017

2.00%

1,500

September 12, 2013

September 12, 2018

1.00%

1,800

July 25, 2014

July 25, 2024

1.18%

2,000

8.

INCOME TAXESThe Investment Corporation is subject to corporate income taxes at a regular statutory rate of approximately 32%. However, the Investment Corporation may deductfrom its taxable income amounts distributed to its unitholders, provided the requirements are met under the Special Taxation Measures Law of Japan. Under this law,the Investment Corporation must meet a number of tax requirements, including a requirement that it currently distribute in excess of 90% of its net income for the
fiscal period in order to be able to deduct such amounts. If the Investment Corporation does not satisfy all of the requirements, the entire taxable income of theInvestment Corporation will be subject to regular corporate income taxes. The Investment Corporation distributed in excess of 90% of its distributable income in theform of cash distributions totaling ¥4,170 million (deducting ¥394 million as the provision of reserve for reduction entry) and ¥4,601 million (deducting ¥510 million
as the provision of reserve for reduction entry) for the periods ended October 31, 2015, and April 30, 2015. Therefore such distributions were treated as deductible
distributions for purposes of corporate income taxes. The effective tax rate on the Investment Corporation’s income was 0.03% for the fiscal periods ended October
31, 2015 and April 30, 2015. The following table summarizes the significant differences between the statutory tax rate and the effective tax rate:
From May 1, 2015
to October 31, 2015

From November 1, 2014
to April 30, 2015

Subtotal¥  8,300

Statutory tax rate

32.31%

34.15%  Total¥174,600

Deductible cash distributions(29.51)(30.74)

Provision of reserve for reduction entry(2.79)(3.41)

Others0.02

0.03

Effective tax rate

0.03%

0.03%

6.

REDUCTION ENTRY
The amount of reduction entry of property and equipment acquired by government subsidy

The significant components of deferred tax assets and liabilities as of October 31, 2015 and April 30, 2015 were as follows:
In thousands of yen

In thousands of yen
As of October 31, 2015

Buildings and structures

7.

As of April 30, 2015

¥26,230¥26,230PER UNIT INFORMATIONAs of October 31, 2015

As of April 30, 2015

Enterprise tax payable¥   32¥   33

Amortization of leasehold rights

2,460

2,210

Subtotal deferred tax assets

2,492

2,243

Valuation allowance

2,460

2,210

Total deferred tax assets¥   32¥   33

Deferred tax assets:

Yen
From May 1, 2015
to October 31, 2015

From November 1, 2014
to April 30, 2015

Net asset value per unit

¥523,395¥523,485

Net income per unit

¥ 11,273¥ 12,860

Weighted average number of units (units)404,885

397,394

The weighted average number of units outstanding of 404,885 as of October 31, 2015 and 397,394 as of April 30, 2015 was used for the computation of theamount of net income per unit. Net income per unit after adjusting for residual units is not included because there were no residual investment units.

28

Kenedix Office Investment Corporation Semiannual Report

9.

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

Kenedix Office Investment Corporation Semiannual Report

29

10.

12.

RELATED-PARTY TRANSACTIONS
1. PARENT COMPANY, CORPORATE UNITHOLDERS AND OTHER
Twenty-first Fiscal Period (May 1, 2015 to October 31, 2015) and Twentieth Fiscal Period (November 1, 2014 to April 30, 2015): Not applicable

LEASES
The Investment Corporation, as lessor, has entered into leases whose fixed monthly rents are due in advance with lease terms of generally two years for officebuildings and residential properties and with lease terms ranging from two to ten years for retail properties. The future minimum rental revenues under existing
non-cancelable operating leases as of October 31, 2015 and April 30, 2015 are as follows:

2. AFFILIATED COMPANIES AND OTHER
Twenty-first Fiscal Period (May 1, 2015 to October 31, 2015) and Twentieth Fiscal Period (November 1, 2014 to April 30, 2015): Not applicable

In thousands of yen

3. FELLOW SUBSIDIARY COMPANIES AND OTHER
Twenty-first Fiscal Period (May 1, 2015 to October 31, 2015) and Twentieth Fiscal Period (November 1, 2014 to April 30, 2015): Not applicable

As of October 31, 2015

As of April 30, 2015

Due within one year

¥ 1,759,328¥ 2,246,302

Due after one year

9,540,266

10,202,936¥11,299,594¥12,449,238  Total

4. DIRECTORS, INDIVIDUAL UNITHOLDERS AND OTHER
Twenty-first Fiscal Period (May 1, 2015 to October 31, 2015) and Twentieth Fiscal Period (November 1, 2014 to April 30, 2015): Not applicable13.

 REAKDOWN OF RENTAL AND OTHER OPERATING REVENUES, PROPERTY-RELATED EXPENSES,B
GAIN AND LOSS ON SALE OF REAL ESTATE PROPERTY
Rental and other operating revenues, property-related expenses, gain and loss on sale of real estate property for the periods from May 1, 2015 to October 31, 2015
and from November 1, 2014 to April 30, 2015 consist of the following:

11.

In thousands of yen
From May 1, 2015
to October 31, 2015

From November 1, 2014
to April 30, 2015

¥ 9,124,877¥ 9,075,126

1,981,677

1,983,917

11,106,554

11,059,043

FINANCIAL INSTRUMENTS
Twenty-first Fiscal Period (May 1, 2015 to October 31, 2015)(A) OVERVIEW(1) POLICY FOR FINANCIAL INSTRUMENTS
The Investment Corporation procures essential funds for acquiring properties and undertaking the repayment of loans primarily through bank loans and the issuanceof corporate bonds and new investment units. The Investment Corporation uses derivatives for the purpose of hedging its exposure to changes in interest rates anddoes not enter into derivatives for speculative or trading purposes. Management of surplus funds is undertaken in a prudent manner that considers fully such factors
as safety, liquidity, interest rate conditions and cash flows.

Rental and other operating revenues:
Rental revenues
Common area charges   Subtotal
Others:Parking space rental revenues

472,738

471,152

Utility charge reimbursement

1,131,096

1,019,055

Miscellaneous

515,644

287,557   Subtotal

2,119,478

1,777,764     Total rental and other operating revenues

13,226,032

12,836,807

Property-related expenses:
Property management fees and facility management fees

1,261,503

1,241,711

Depreciation

2,218,871

2,221,037

Utilities

1,232,969

1,208,553

Taxes

1,097,079

957,213

Insurance

18,325

18,294437,406

Repairs and maintenance

497,904

Trust fees

52,43945,464

Others289,902247,927

6,668,992

6,377,605

Revenue from sale of investment property

4,800,000

5,742,169

Cost of investment property

4,214,661

4,892,161

123,973

140,375

461,366

709,633

960,000

1,050,000

1,094,481

1,308,263    Total property-related expenses
Gain on sale of real estate property:

Other sales expenses     Gain on sale of real estate property(2) TYPES OF FINANCIAL INSTRUMENTS AND RELATED RISK
Investment securities, which are Japanese silent partnership (tokumei kumiai, “TK”) interests, are exposed to credit risk of the issuer and risk of fluctuation of value of
its property.
Debt and corporate bonds are used primarily for procuring funds necessary for the acquisition of properties and have a redemption date of a maximum of approximately ten years following the accounting date. Although a certain portion of said liabilities are subject to interest rate fluctuation risk, the Investment Corporation
utilizes derivatives (interest-rate swap and interest-rate cap transactions) in order to reduce such risk.
Interest-rate swap and interest-rate cap transactions are used as derivative financial instruments. Utilizing interest-rate swap and interest-rate cap transaction, theInvestment Corporation fixes its interest expense for long-term debt bearing interest at a variable rate. With regard to hedge accounting methods, hedging instruments and hedged items, hedge policy, and the assessment of the effectiveness of hedging activities, please see Note 2 (K) “Derivative Financial Instruments”.
(3) RISK MANAGEMENT FOR FINANCIAL INSTRUMENTS(a) Monitoring of market risk (the risks arising from fluctuations in interest rates and others)
The Investment Corporation uses interest-rate swap and interest-rate cap transactions in order to minimize risk arising from fluctuations in interest rates on funds
procured. The Investment Corporation periodically reviews the value of the property and financial condition of the issuer with regard to investment securities.
(b) Monitoring of liquidity risk (the risk that the Investment Corporation may not be able to meet its obligations on scheduled due dates) associated withprocurement of funds
Although loans and other liabilities are subject to liquidity risk, the Investment Corporation reduces such risk by spreading out payment due dates and by using
diversified fund procurement methods. Liquidity risk is also managed by such means as regularly checking the balance of cash reserves.
(4) SUPPLEMENTARY EXPLANATION OF THE ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available, fair value is reasonably
estimated. Since various assumptions and factors are reflected in estimating the fair value, different assumptions and factors could result in a different fair value.

Loss on sale of real estate property:
Revenue from sale of investment property
Cost of investment property
Other sales expenses     Loss on sale of real estate property

30

Kenedix Office Investment Corporation Semiannual Report

31,21029,457¥  165,691¥  287,720

Kenedix Office Investment Corporation Semiannual Report31

(B) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments on the balance sheet as of October 31, 2015 and estimated fair value are shown in the following table. The following table
does not include financial instruments for which it is extremely difficult to determine the fair value (Refer to *2 below).
In thousands of yen
Carrying value

Estimated fair value

Difference¥ 22,587,773¥ 22,587,773¥          —

   Subtotal

22,587,773

22,587,773—① Short-term debt

2,500,000

2,500,000—

8,300,000

8,474,360

174,360

163,300,000

163,761,383

461,383¥174,100,000¥174,735,743¥635,743———① Cash and bank deposits② Corporate bonds(including current portion of corporate bonds)③ Long-term debt(including current portion of long-term debt)   Subtotal
Derivative transactions (*)(*) The value of assets and liabilities arising from derivatives is shown at net value and with the amount in parentheses representing net liability position.

*1: METHODS TO DETERMINE THE ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS AND
OTHER MATTERS RELATED TO SECURITIES AND DERIVATIVE TRANSACTIONSLIABILITIES① Short-term debt
Since these items are settled in a short period of time, their carrying value approximates fair value.
② Corporate bonds
The fair value of corporate bonds is based on quoted market prices.
③ Long-term debt
The fair value of long-term debt is based on the present value of the total of principal and interest discounted by the interest rate to be applied if similar new loans
were entered into. The fair value of long-term debt bearing interest at a variable rate, which is subject to fixed interest rates resulting from interest-rate swaps andspecial treatment applied to said swaps, is based on the present value of the total of principal and interest, which is handled together with the applicable interest-rate
swaps, discounted by the interest rate to be applied if similar loans were entered into.
DERIVATIVE TRANSACTIONS
Please refer to Note 14 “DERIVATIVE TRANSACTIONS”.

(2) TYPES OF FINANCIAL INSTRUMENTS AND RELATED RISK
Investment securities, which are Japanese silent partnership (tokumei kumiai, “TK”) interests, are exposed to credit risk of the issuer and risk of fluctuation of value of
its property.
Debt and corporate bonds are used primarily for procuring funds necessary for the acquisition of properties and have a redemption date of a maximum of approximately ten years following the accounting date. Although a certain portion of said liabilities are subject to interest rate fluctuation risk, the Investment Corporation
utilizes derivatives (interest-rate swap and interest-rate cap transactions) in order to reduce such risk.
Interest-rate swap and interest-rate cap transactions are used as derivative financial instruments. Utilizing interest-rate swap and interest-rate cap transactions,the Investment Corporation fixes its interest expense for long-term debt bearing interest at a variable rate. With regard to hedge accounting methods, hedging instruments and hedged items, hedge policy, and the assessment of the effectiveness of hedging activities, please see Note 2 (K) “Derivative Financial Instruments”.

(b) Monitoring of liquidity risk (the risk that the Investment Corporation may not be able to meet its obligations on scheduled due dates) associatedwith funds procurement
Although loans and other liabilities are subject to liquidity risk, the Investment Corporation reduces such risk by spreading out payment due dates and by using
diversified fund procurement methods. Liquidity risk is also managed by such means as regularly checking the balance of cash reserves.
(4) SUPPLEMENTARY EXPLANATION OF THE ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available, fair value is reasonably
estimated. Since various assumptions and factors are reflected in estimating the fair value, different assumptions and factors could result in a different fair value.
(B) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments on the balance sheet as of April 30, 2015 and estimated fair value are shown in the following table. The following table
does not include financial instruments for which it is extremely difficult to determine the fair value (Refer to *2 below).
In thousands of yen
Carrying value

Estimated fair value

Difference¥ 24,601,157¥ 24,601,157¥     —   Subtotal

24,601,157

24,601,157—① Short-term debt

3,000,000

3,000,000—

8,300,000

8,500,380

200,380

163,300,000

163,418,891

118,891¥174,600,000¥174,919,271¥319,271———① Cash and bank deposits*2: FINANCIAL INSTRUMENTS FOR WHICH IT IS EXTREMELY DIFFICULT TO DETERMINE THE FAIR VALUE
Carrying value(In thousands of yen)

Investment securities(A) OVERVIEW(1) POLICY FOR FINANCIAL INSTRUMENTS
The Investment Corporation procures essential funds for acquiring properties and undertaking the repayment of loans primarily through bank loans and the issuanceof corporate bonds and new investment units. The Investment Corporation uses derivatives for the purpose of hedging its exposure to changes in interest rates anddoes not enter into derivatives for speculative or trading purposes. Management of surplus funds is undertaken in a prudent manner that considers fully such factors
as safety, liquidity, interest rate conditions and cash flows.

(3) RISK MANAGEMENT FOR FINANCIAL INSTRUMENTS(a) Monitoring of market risk (the risks arising from fluctuations in interest rates and others)
The Investment Corporation uses interest-rate swap and interest-rate cap transactions in order to minimize risk arising from fluctuations in interest rates on funds
procured. The Investment Corporation periodically reviews the value of the property and financial condition of the issuer with regard to investment securities.

ASSETS① Cash and bank deposits
Since these items are settled in a short period of time, their carrying value approximates fair value.

Classification

Twentieth Fiscal Period (November 1, 2014 to April 30, 2015)¥1,100,235② Corporate bonds

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

(including current portion of corporate bonds)③ Long-term debt(including current portion of long-term debt)*3: REDEMPTION SCHEDULE FOR RECEIVABLES   Subtotal

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

Cash and bank deposits¥22,587,773  Total¥22,587,773

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

*4: REDEMPTION SCHEDULE FOR DEBT AND CORPORATE BONDS
In thousands of yen

32

Due within 1 year
or less

Due after 1 year
through 2 years

Due after 2 years
through 3 years

Due after 3 years
through 4 years

Due after 4 years
through 5 years

Due after
5 years

Short-term debt

¥ 2,500,000¥       —

¥       —

¥       —

¥       —

¥       —Corporate bonds—

4,500,000

1,800,000——

2,000,000

Long-term debt

¥30,800,000¥16,200,000¥16,750,000¥12,750,000¥18,600,000¥68,200,000

Kenedix Office Investment Corporation Semiannual Report

Kenedix Office Investment Corporation Semiannual Report33*1: METHODS TO DETERMINE THE ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS AND
OTHER MATTERS RELATED TO SECURITIES AND DERIVATIVE TRANSACTIONS

The following summarizes the contracted amount and the fair value of interest-rate swap and the interest-rate cap contracts as of April 30, 2015:① Hedge accounting not applied
Not applicable② Hedge accounting applied

ASSETS① Cash and bank deposits
Since these items are settled in a short period of time, their carrying value approximates fair value.

Hedge accounting
methodLIABILITIES① Short-term debt
Since these items are settled in a short period of time, their carrying value approximates fair value.
② Corporate bonds
The fair value of corporate bonds is based on quoted market prices.
③ Long-term debt
The fair value of long-term debt is based on the present value of the total of principal and interest discounted by the interest rate to be applied if similar new loans
were entered into. The fair value of long-term debt bearing interest at variable rates, which is subject to fixed interest rates resulting from interest-rate swaps andspecial treatment applied to said swaps, is based on the present value of the total of principal and interest, which is handled together with the applicable interest-rate
swaps, discounted by the interest rate to be applied if similar loans were entered into.
DERIVATIVE TRANSACTIONS
Please refer to Note 14 “DERIVATIVE TRANSACTIONS”.

Type of derivativetransactions

Maturing after 1 year

Fair value(In thousands of yen)Calculation method for
applicable fair value

Interest-rate swaps:
Receive/floating and pay/fixedLong-term debt

¥90,550,000¥86,050,000*—

Special treatment ofinterest-rate caps

Interest-rate caps transaction

Long-term debt

3,000,000

2,000,000*—¥93,550,000¥88,050,000  Total—(*) Interest-rate swaps and interest-rate caps for which the special treatment is applied are accounted for together with the underlying hedged item. As a result, their fair value is included in the fair value of the hedged
long-term debt.

15.

INVESTMENT AND RENTAL PROPERTIES
Twenty-first Fiscal Period (May 1, 2015 to October 31, 2015)
The Investment Corporation owns real estate for rental purposes mainly in the Tokyo Metropolitan Area for the purpose of generating rental revenues.
The carrying value in the balance sheets and corresponding fair value of those properties are as follows:
Carrying value (In thousands of yen)

Carrying value(In thousands of yen)

Investment securities

Contracted amount(In thousands of yen)

Special treatment ofinterest-rate swaps*2: FINANCIAL INSTRUMENTS FOR WHICH IT IS EXTREMELY DIFFICULT TO DETERMINE THE FAIR VALUEClassification

Hedged items¥1,076,656

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

As of April 30, 2015

Net change

As of October 31, 2015

Fair value As of October 31, 2015
(In thousands of yen)

¥379,905,814¥1,560,827¥381,466,641¥392,422,000

notes 1. The carrying value represents the acquisition cost less accumulated depreciation.
2. The fair value is the appraisal value or the survey value determined by outside appraisers.
3.	Among changes in the amount of real estate for rental purposes that occurred during the fiscal period under review, principal increases and decreases were the acquisition of two properties totaling ¥8,621,306
thousand, the sale of two properties totaling ¥5,309,142 thousand and depreciation amounting to ¥2,218,871 thousand.

*3: REDEMPTION SCHEDULE FOR RECEIVABLES
Income and loss in the fiscal period ended October 31, 2015 for real estate for rental purposes is listed in Note 11. “BREAKDOWN OF RENTAL AND OTHER
OPERATING REVENUES, PROPERTY-RELATED EXPENSES, GAIN AND LOSS ON SALE OF REAL ESTATE PROPERTY”.

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

Cash and bank deposits¥24,601,157  Total¥24,601,157

Twentieth Fiscal Period (November 1, 2014 to April 30, 2015)
The Investment Corporation owns real estate for rental purposes mainly in the Tokyo Metropolitan Area for the purpose of generating rental revenues.
The carrying value in the balance sheets and corresponding fair value of those properties are as follows:*4: REDEMPTION SCHEDULE FOR DEBT AND CORPORATE BONDS

Carrying Value (In thousands of yen)
As of October 31, 2014

Net change

As of April 30, 2015

Fair value As of April 30, 2015
(In thousands of yen)

¥365,835,095¥14,070,719¥379,905,814¥381,864,000

In thousands of yen

Short-term debt

Due within 1 year
or less

Due after 1 year
through 2 years

Due after 2 years
through 3 years

Due after 3 years
through 4 years

Due after 4 years
through 5 years

Due after
5 years¥ 3,000,000¥       —

¥       —

¥       —

¥       —

¥       —Corporate bonds—

3,000,000

1,500,000

1,800,000—

2,000,000

Long-term debt

¥32,800,000¥17,700,000¥19,250,000¥15,050,000¥14,700,000¥63,800,000

notes 1. The carrying value represents the acquisition cost less accumulated depreciation.
2. The fair value is the appraisal value or the survey value determined by outside appraisers.
3.	Among changes in the amount of real estate for rental purposes that occurred during the fiscal period under review, principal increases and decreases were the acquisition of seven properties totaling¥22,140,043 thousand, the sale of four properties totaling ¥6,200,424 thousand and depreciation amounting to ¥2,221,037 thousand.

Income and loss in the fiscal period ended April 30, 2015 for real estate for rental purposes is listed in Note 11. “BREAKDOWN OF RENTAL AND OTHER OPERATINGREVENUES, PROPERTY-RELATED EXPENSES, GAIN AND LOSS ON SALE OF REAL ESTATE PROPERTY”.

14.

DERIVATIVE TRANSACTIONS
The following summarizes the contracted amount and the fair value of interest-rate swap and the interest-rate cap contracts as of October 31, 2015:① Hedge accounting not applied
Not applicable② Hedge accounting applied
Hedge accounting
methodType of derivativetransactions

Hedged items

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

Fair value(In thousands of yen)Calculation method for
applicable fair value

Special treatment ofinterest-rate swaps

Interest-rate swaps:
Receive/floating and pay/fixedLong-term debt

¥ 98,050,000¥92,050,000*—

Special treatment ofinterest-rate caps

Interest-rate caps transaction

Long-term debt

3,000,000

500,000*—¥101,050,000¥92,550,000  Total—(*) Interest-rate swaps and interest-rate caps for which the special treatment is applied are accounted for together with the underlying hedged item. As a result, their fair value is included in the fair value of the hedged
long-term debt.

34

Kenedix Office Investment Corporation Semiannual Report

Kenedix Office Investment Corporation Semiannual Report

35

UNITHOLDERS’ INFORMATION

16.

SEGMENT AND RELATED INFORMATION
Twenty-first Fiscal Period (May 1, 2015 to October 31, 2015)(A) SEGMENT INFORMATION
Disclosure is omitted because the real estate leasing business is the Investment Corporation’s sole business and it has no reportable segment subject to disclosure.
(B) RELATED INFORMATION(1) INFORMATION ABOUT EACH PRODUCT AND SERVICE
Disclosure is omitted because net sales to external customers for a single product/service category account for over 90% of the operating revenue on the statementof income.

Kenedix Office Investment Corporation
Fiscal Periods:
Stock Listing:Transfer Agent:
Auditor:IR Schedule (21st and 22nd fiscal periods)(2) INFORMATION ABOUT EACH GEOGRAPHIC AREA(a) Net sales
Disclosure is omitted because net sales to external customers in Japan account for over 90% of the operating revenue on the statement of income.
(b) Property and equipment
Disclosure is omitted because the amount of property and equipment located in Japan accounts for over 90% of the amount of property and equipment on thebalance sheet.
(3) INFORMATION ABOUT EACH MAJOR CUSTOMER
Disclosure is omitted because net sales to a single external customer account for less than 10% of the operating revenue on the statement of income.
Twentieth Fiscal Period (November 1, 2014 to April 30, 2015)

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

Oct. 2015

Dec. 2015

Jan. 2016

Apr. 2016

Jun. 2016

Jul. 2016

End ofthe 21st fiscal period

Performance forthe 21st fiscal period
is announced

Distributions forthe 21st fiscal period
are paid

End ofthe 22nd fiscal period

Performance forthe 22nd fiscal period
will be announced

Distributions forthe 22nd fiscal period
will be paid

General Breakdown of Unitholders
Foreign corporations
and individuals

End of the
21st fiscal
period

37.6%

1.3%

56.3%

5,160 units

228,186 units

End of the20th fiscal
period163,866 units(B) RELATED INFORMATION(1) INFORMATION ABOUT EACH PRODUCT AND SERVICE
Disclosure is omitted because net sales to external customers for a single product/service category account for over 90% of the operating revenue on the statementof income.

Top Ten Unitholders (As of October 31, 2015)(3) INFORMATION ABOUT EACH MAJOR CUSTOMER
Disclosure is omitted because net sales to a single external customer account for less than 10% of the operating revenue on the statement of income.

1.2%

40.5%

Note: The percentage of shares are rounded to the first decimal place.

(b) Property and equipment
Disclosure is omitted because the amount of property and equipment located in Japan accounts for over 90% of the amount of property and equipment on thebalance sheet.

Financial institutions(including securities companies)

152,138 units(A) SEGMENT INFORMATION
Disclosure is omitted because the real estate leasing business is the Investment Corporation’s sole business and it has no reportable segment subject to disclosure.

(2) INFORMATION ABOUT EACH GEOGRAPHIC AREA(a) Net sales
Disclosure is omitted because net sales to external customers in Japan account for over 90% of the operating revenue on the statement of income.

Other domestic
corporations

Individuals
and others
4.8% Total
404,885 units
19,401 units
4.9% Total
404,885 units
19,794 units

53.4%

4,991 units

216,234 units

Units Held

Share of Outstanding Units(Note)

Japan Trustee Services Bank, Ltd. (Trust Account)

68,67716.96%

Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account)

59,79614.76%The Master Trust Bank of Japan, Ltd. (Trust Account)

40,88910.09%The Nomura Trust and Banking Co., Ltd. (Investment Trust Account)

19,954

4.92%

Nomura Bank (Luxembourg) S.A.

16,712

4.12%

The Bank of New York Mellon SA/NV 10

12,162

3.00%

State Street Bank and Trust Company 505223

8,669

2.14%

Goldman Sachs International

7,010

1.73%

JP Morgan Chase Bank 385174

6,664

1.64%

Name

State Street Bank and Trust Company
Total

5,642

1.39%

246,175

60.80%

Note: The percentage of shares are rounded down to the second decimal place.

17.

SUBSEQUENT EVENTS
Not applicable

Unit Price and Trading Volume• As of November 30, 2015
		 Highest price (trading price): ¥988,000 (May 31, 2007)
		 Lowest price (trading price): ¥100,300 (October 20, 2008)• Average trading volume during the 21st fiscal period (2015/10): 1,227 units(units)
20,000Kenedix Office Investment Corporation Semiannual Report

1,100

11,000

1,000

9,000

900

8,000

800

7,000

700

6,000

600

5,000

500

4,000

400

3,000

300

2,000

200

1,000

100

0

36

(thousand yen)

2005

2006

Closing Price

Trading Volume

2007

2008

2009

2010

2011

2012

2013

2014

2015

0

Kenedix Office Investment Corporation Semiannual Report37http://www.kdx-reit.com/eng/

Disclaimer:
This semiannual report includes translations of certain documents originally filed and made available in Japan in accordance with the Securities and Exchange Law of Japan.
The English language semiannual report was prepared solely for the convenience of readers outside Japan and is not intended to constitute a prospectus. This semiannual report
should not be construed as an offer or solicitation to buy or sell any securities of KENEDIX Office 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 and all terms herein,
including without limitation, financial statements, if there exist any discrepancies in the meaning or interpretation thereof between the original Japanese documents and English
translation contained herein, the original Japanese documents will always govern the meaning and interpretation.
None of KENEDIX-REIT, KENEDIX Real Estate Fund Management, Inc. nor any of their respective directors, officers, employees, partners, unitholders, agents, affiliates nor theiradvisors shall be responsible or liable for the completeness, appropriateness, or accuracy of English translations or the selection of the portion(s) of any document(s) translated
into English.
The financial statements of KENEDIX-REIT have been prepared in accordance with generally accepted accounting principles in Japan (Japanese GAAP), which may materiallydiffer 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 theintent, belief, or current and future expectations of KENEDIX-REIT or KENEDIX Real Estate Fund Management, Inc. with respect to its business, financial condition and results ofoperations. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “believe,” ”estimate,”“predict,” “potential,” or the negative of these terms or other similar terminology. These statements are not guarantees of future performance and are subject to various risks anduncertainties. 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 datathat 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 thelimited circumstances required by the Tokyo Stock Exchange, announce publicly any revisions to any of the forward-looking statements contained in these documents.