Semiannual Report

11th Fiscal Period
May 1, 2010 – October 31, 2010

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

KDX HIRAKAWACHOKYODO (HONCHO)KDX TORANOMONKDX SHINJUKUKDX HAR UMI

HIEI KUDAN-KITA

KYODO (GINZA)KDX KOJIMACHIKENEDIX-REIT
Is Poised for GrowthChallenge Breeds Opportunity.

Unitholders’ Information

KENEDIX Realty Investment Corporation (KENEDIXKenedix Realty Investment Corporation

REIT) successfully weathered one of the most turbulent periods in memory.

General Breakdown of Unitholders

Fiscal Periods: Six months ending April 30 and October 31
Individuals and others:
20,266 units
8.7%

Stock Listing: Real Estate Investment Trust Market of
the Tokyo Stock Exchange (Security Code: 8972)

KENEDIX-REIT emerged from adversity with renewedability to grow its dynamic portfolio. Over the medium
to long term, KENEDIX-REIT is targeting 400 billion yen
in assets while maintaining sustainable yields.

Strategy, Stability and Service
will drive this growth.

Transfer Agent: The Chuo Mitsui Trust and Banking
Company, Limited
2-8-4 Izumi, Suginami-ku, Tokyo 168-0063, Japan
Auditor: Ernst & Young ShinNihon LLC

Foreign corporations andindividuals: 93,412 units
40.0%

Financial institutions(including securities
companies): 115,505 units
49.5%
Other domestic corporations: 4,367 units
1.9%
Note: Figures are rounded to the first decimal place.

IR Schedule (11th and 12th periods)

October2010

DecemberJanuary
2011

April

June

July

End of 11th Period

Performance for11th Period is announced

Distributions forthe 11th Period are paid

End of 12th Period

Performance for12th Period is announced

Distributions forthe 12th Period are paid

Top Ten Unitholders (As of October 31, 2010)
Name

Contents

Units Held

Share of Outstanding UnitsJapan Trustee Services Bank, Ltd. (Trust Account)

35,46415.18%

Message from the CEO

2

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

27,132

11.61%An Overview of Newly Acquired and Sold Properties

5

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

26,951

11.53%The Master Trust Bank of Japan, Ltd. (Trust Account)

11,6795.00%

The Bank of New York, Treaty JASDEC Account

7,934

3.39%

BNP PARIBAS SECURITIES SERVICES LUXEMBOURG/JASDEC/HENDERSON HHF SICAV

6,700

2.86%

State Street Bank and Trust Company 505025

4,305

1.84%

Deutsche Securities Inc.

3,598

1.54%

The Chase Manhattan Bank, N.A. London Secs Lending Omnibus Account

3,439

1.47%

Special Features
Growth Driver: STRATEGY
Growth Driver: STABILITY
Growth Driver: SERVICE

680State Street Bank and Trust Company 505223

Corporate Governance

B

KENEDIX-REIT Portfolio Table

C

Financial Section

D

Unit Price Performance

Unitholders’ Information

S

Trading Volume

Disclaimer
This semiannual report includes translations of certain documents originally filed and made available in Japan in accordance with the Financial Instruments and Exchange Act of Japan. This
English-language semiannual report has been prepared solely for the convenience of readers outside Japan and is not intended to constitute a document for an offer to sell, or seeking an offer
to buy, any securities of KENEDIX-REIT.
English terms for Japanese legal, accounting, tax and business concepts used herein may not be precisely identical to the concept of the equivalent Japanese terms. With respect to any andall terms herein, including without limitation, financial statements, if there exist any discrepancies in the meaning or interpretation thereof between the original Japanese documents and English
translation contained herein, the original Japanese documents will always govern the meaning and interpretation.
Neither KENEDIX-REIT, Kenedix REIT Management, Inc. nor any of their respective directors, officers, employees, partners, unitholders, agents, affiliates nor their advisors shall be responsible or liable for the completeness, appropriateness, or accuracy of English translations or the selection of the portion(s) of any document(s) translated into English.
The financial statements of KENEDIX-REIT have been prepared in accordance with generally accepted accounting principles in Japan (Japanese GAAP), which may materially differ in certain
respects from the generally accepted accounting principles of other jurisdictions.
This semiannual report contains forward-looking statements. These statements appear in a number of places in this semiannual report and include statements regarding the intent, belief,
or current and future expectations of KENEDIX-REIT or Kenedix REIT Management, Inc. with respect to its business, financial condition and results of operations. In some cases, you can identify 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 othersimilar terminology. These statements are not guarantees of future performance and are subject to various risks and uncertainties. Actual results, performance or achievements, or those of theindustries in which we operate, may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. In addition, theseforward-looking statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise and involve known 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 are only valid as of the date of the information published herein. We disclaim any obligation to update or, except in the limited circumstances
required by the Tokyo Stock Exchange, announce publicly any revisions to any of the forward-looking statements contained in these documents.

Total

3,115

1.33%

130,31755.79%

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

Closing Price(units)(yen)

20,000 •• 1,000,000

11,000 •• 900,000

8,000 •

• 800,000

7,000 •

• 700,000

6,000 •

• 600,000

5,000 •

• 500,000

4,000 •

• 400,000

3,000 •

• 300,000

2,000 •

• 200,000

1,000 •

• 100,000

0•

•0
July

2005

Oct.

Apr.

2006

Oct.

Apr.

2007

Oct.

Apr.

2008

Oct.

Apr.

2009

Oct.

Apr.

Oct.

2010

Kenedix Realty Investment Corporation Semiannual Report| 29

Operating Revenues

yen billion

Operating Income

8,358

3,835

million yen

8,456

8,204

7,921

8,067

million yen

4,144

8,358

3,463

7th Period

8th Period

9th Period

10th Period

11th Period(Ended Oct. 31, 2008) (Ended Apr. 30, 2009) (Ended Oct. 31, 2009) (Ended Apr. 30, 2010) (Ended Oct. 31, 2010)

Net Income

yen billion

7th Period

9th Period

11th Period

yen billion

10,881

yen

2,567

2,607

12,172

2,102

8th Period

9th Period

10th Period

11th Period(Ended Oct. 31, 2008) (Ended Apr. 30, 2009) (Ended Oct. 31, 2009) (Ended Apr. 30, 2010) (Ended Oct. 31, 2010)

Total Assets

yen billion

7th Period

8th Period

10,511

10,993

10,881

9th Period

10th Period

11th Period(Ended Oct. 31, 2008) (Ended Apr. 30, 2009) (Ended Oct. 31, 2009) (Ended Apr. 30, 2010) (Ended Oct. 31, 2010)

Unitholders’ Equity Ratio Unitholders’ Equity

251,08054.1

million yen

7th Period

10th Period

15,6182,434

239,648

3,835

Distribution per Unitmillion yen

3,123

8th Period

3,738
3,213

(Ended Oct. 31, 2008) (Ended Apr. 30, 2009) (Ended Oct. 31, 2009) (Ended Apr. 30, 2010) (Ended Oct. 31, 2010)

2,607
7th Period

yen billion

238,745

8th Period

236,320

9th Period

251,566

10th Period

251,08011th Period

%

53.4%

53.4%

53.8%

53.9%

54.1%

128,087

127,398

127,067

135,689

135,732

million yen

million yen

million yen

million yen

million yen

7th Period

8th Period

9th Period

10th Period

11th Period(As of Oct. 31, 2008) (As of Apr. 30, 2009) (As of Oct. 31, 2009) (As of Apr. 30, 2010) (As of Oct. 31, 2010)(As of Oct. 31, 2008) (As of Apr. 30, 2009) (As of Oct. 31, 2009) (As of Apr. 30, 2010) (As of Oct. 31, 2010)

Interest-Bearing Debt Ratio Interest-Bearing Debt

Occupancy Ratio

40.9

93.6

%

41.2%

41.4%

41.1%

40.9%

40.9%

98,75098,75097,220102,968

102,567

million yen

million yen

million yen

million yen

million yen

7th Period

8th Period

9th Period

10th Period

11th Period(As of Oct. 31, 2008) (As of Apr. 30, 2009) (As of Oct. 31, 2009) (As of Apr. 30, 2010) (As of Oct. 31, 2010)

yen billion

%

95.6%

95.7%

94.7%

94.4%

93.6%

7th Period

8th Period

9th Period

10th Period

11th Period(As of Oct. 31, 2008) (As of Apr. 30, 2009) (As of Oct. 31, 2009) (As of Apr. 30, 2010) (As of Oct. 31, 2010)

Kenedix Realty Investment Corporation Semiannual Report| 1Message from the CEO

Dear Investors,
Always staying a step ahead of its competitors, KENEDIX-REIT is targeting portfolio
expansion and stable growth in dividends
to its investors. Both will be achieved byaccurately identifying the second wave ofgrowth and moving toward reaching 400
billion yen (100 buildings) in assets.

Japanese Real Estate Market Entering Recovery PhaseThe Japanese real estate market is showing pronounced signs of a stable recovery. Real estate
securitization markets that include J-REITs hit a low
point in the spring of 2009. The attitude of finan-cial institutions toward real estate financing has improved
noticeably from the fourth quarter of 2009 onward. This, inturn, affected real estate markets, which in retrospect are
believed to have bottomed out in the fall of 2009.
In November 2009, KENEDIX-REIT resumed property acquisitions through public offerings in advance of its competitors.
Subsequently, other REITs followed suit and real estate prices
and availability hit bottom before beginning to recover. At
present, the real estate market is making a stable recovery, themarket capitalization rate is gradually decreasing and property
prices are rising.

TA I S U K E

M I YA J I M A

CEO and President
Kenedix REIT Management, Inc.

2 |Kenedix Realty Investment Corporation Semiannual ReportHampered by the financial crisis that has persisted oversale as the maturity periods of Commercial Mortgage-Backed

the past few years, real estate in Japan has been sold at prices

Securities (CMBSs) worth 5 trillion yen draws near. In addition,

far lower than its intrinsic value. However, when consider-while avoiding an increase in our debt ratio, we will cooperateation is given to such strengths as the size of the Japanesewith our sponsors in establishing a private placement fund forreal estate market, the stability of the legal system, a simple

the purpose of warehousing to avoid missing any opportunities

and highly transparent market structure, the depth of its ten-to acquire attractive properties. To this end, we are investigat-

ant base, and the high degree of liquidity in real estate, it ising the possibility of undertaking partial investment in this area.

clear that overselling has taken place and obvious that adjustments are needed. Amid these cyclical flows, I believe that

Aiming to Reach Assets Worth 400 Billion Yen

the investment opportunities and attractiveness of real estateover the Medium to Long Termcurrently available in Japan are immense.

wing to such active property acquisitions, as ofith an understanding of the best time toOacquire properties, we have acquired eightbuildings, over the medium to long term. For KENEDIX-REIT

mid-sized office buildings worth 26.7 billion

to own assets worth 400 billion yen will be very significant.

yen since resuming public offerings at the end

In addition to advantages including increased economies ofof 2009. KENEDIX-REIT acquired four properties totaling 8.8

scale, stabilized cash flows stemming from a diversified port-

billion yen through public offerings in late 2009, one property

folio, and an expanded capacity to respond to new acquisi-

worth 6.8 billion yen in February 2010 by undertaking newtion opportunities, such as development projects andloans, as well as two properties in Tokyo and one in Osaka

single-tenant properties, our 400 billion yen portfolio will(with a combined value of 11.1 billion yen) in November andbenefit investors by offering them increased liquidity.

Aggressive Property Acquisitions Keep
KENEDIX-REIT a Step Ahead of Its Competitors

W

December 2010, KENEDIX-REIT had extended its
portfolio to 70 properties, totaling 244.4 billion
yen. We are aiming to build up a portfolio ofassets worth 400 billion yen, mainly consisting of 100 office

December 2010, respectively, by undertaking new loans.
Astutely identifying changing trends in real estate mar-

Displaying KENEDIX-REIT’s Unique

kets, KENEDIX-REIT was able to get a step ahead of its com-

Property Management Strengths

petitors based on its specialized strategy related to mid-sized

he occupancy ratio of KENEDIX-REIT’s portfolio,

cessful in making purchases. Against this backdrop, we haveTestablished a vastly superior position in terms of our property

decrease in rent levels have subsided.

office buildings in the Tokyo Metropolitan Area. Althoughmany market players appear to be interested in acquiringproperties, the fact remains that only a few have been suc-information-gathering and pricing capabilities.

which bottomed out at 92.4% in July 2009, hadrecovered to 93.6% as of October 31, 2010. The
turnover ratio for office buildings, which rose

above 10%, fell to 8.4%, while market trends toward a
In terms of the management of mid-sized office buildings,

Turning to acquisition pipelines, KENEDIX-REIT now has

Kenedix REIT Management has completely taken over ouraccess to an abundance of quality property information thanks

property management operations, one of our strengths.

to having ITOCHU Corporation as one of its sponsors. At theThanks to Kenedix REIT Management having taken over all

same time, we are focusing on expanding a proprietary net-

leasing activities and transactions with building maintenancework that is not sponsor-reliant. Consequently, in terms of thecompanies, we are able to build stronger tenant relations that

acquisition price, over three-quarters of our acquisitions wereprecisely respond to their needs.

or will be accounted for by sources other than those of the

In particular, we undertake regular customer satisfaction

Kenedix Group in the 10th, 11th and 12th Fiscal Periods. We

surveys that target all tenants. As we ascertain tenants’

will actively collect information on properties coming up for

intentions and desires, we are making a conscious effort to
Kenedix Realty Investment Corporation Semiannual Report| 3pinpoint and respond to tenant needs. In this manner, proper-

number of participating banks, a rise in loan amounts, and aty management and customer satisfaction surveys are being

shift from amortization to lump-sum payments—in contrast

used as tools to bolster tenant relations. Through these activi-

to the property acquisitions that took place in February 2010.

ties, we are working to maintain stable cash flows.

Moreover, the 3-month Tibor spread for interest rates onloans has declined from a basis that exceeded 200 basis point

Proactive Investments Focusing on Energy ConservationWe made efforts to maintain internal cash

to approximately 150 basis point. This is very beneficial for
maintaining stable distributions.

reserves by refraining from commencing new
construction during the financial crisis, and in

Leading the Market

2010 resumed investing with the intention of

by Independent Strategies and Expertise

initiating a facilities renewal program and improving our competitiveness. In addition to routine construction, KENEDIXREIT is bolstering its environmental responsiveness inaccordance with the revised Energy Conservation Law.
We expect to successfully reduce energy consumption(equivalent to the corresponding amount of oil) by over 5%
over a five-year period while working to control costs. To thatT

he foremost strength of Kenedix REIT Management
is its orientation toward becoming an “autonomous J-REIT.” Rather than undertake management
operations that focus only on the wishes of sponsors,

we make quick, unimpeded decisions based on what must be
done to maximize value for investors.
We are confident in our management capabilities based

end, we will undertake facility renewals in areas including air-on our experience as a group with specialized skills thatconditioning systems while construction costs remain low, fol-

boasts a wealth of achievements, as well as on our ability tolowing these with the introduction of new lighting fixtures

make autonomous decisions that enables us to take defensive

when LED prices decline. In addition, we will reduce construc-or aggressive actions as needed. Consequently, we have beention expenses by utilizing our strengths from having special-able to survive as an emerging REIT in the severe conditions

ized in mid-sized office buildings and by maximizingthat have prevailed over the past few years and by undertak-

economies of scale. Through such actions, we will do ouring public offerings ahead of REITs sponsored by large corpo-

utmost to control capital expenditures while working torations. Taking advantage of its management capabilities,

reduce energy consumption to the maximum extent possible.

KENEDIX-REIT will pursue management operations that utilize

Thanks to a forecast 13.8% reduction in energy consumption

its freedom to engage in independent investment while mak-at the KDX Shin-Yokohama Building, our proactive measures

ing appropriate judgments concerning market conditions.

in this area are beginning to be recognized. Such recognition

The market for mid-sized office buildings is highly inefficient,includes being selected by the Ministry of Land, Infrastructure,in the sense that investors do not know enough about it toTransport and Tourism as a building that prominently pro-make informed decisions. Adding the fact that the market

motes improvements in energy consumption.

players mainly consist of individuals and small- and mediumsized businesses, this market has plenty of room to develop.

Maintaining a Solid Financial Foundation
to Achieve Further GrowthT

As we ceaselessly work to realize unparalleled management operations as a unique REIT specializing in mid-sizedurning to financial management, being mindful of

office buildings, I believe that it is our mission to convey todiversifying repayment dates, extending borrowing

the wider world the attractiveness of mid-sized office build-periods, and the fixing of interest rates and diversi-

ings in the Tokyo Metropolitan Area.

fying procurement methods has remained our fun-damental strategy since KENEDIX-REIT was first listed. We

January 2011

also take actions that avoid excessive financial pressures by
diversifying our funding sources.
With regard to the attitude of banks towards lending in
relation to property acquisitions that occurred in November

Taisuke Miyajima

2010, there has been a major improvement in borrowing pro-CEO and President

visions—including extended maturity dates, an increase in the

Kenedix REIT Management, Inc.

4 |Kenedix Realty Investment Corporation Semiannual ReportAn Overview of Newly Acquired and Sold Properties

Proactive Property Acquisition Targeting 400 Billion Yen
in Assets
KENEDIX-REIT employs a flexible property acquisition strategy

External Growth as a Generator of Stable Distributions

Improving the quality of the portfolio by replacing relatively small
office buildings and residential properties with superior office buildingsthat it adjusts to real estate market conditions. Given this, we
believe that we are now at an appropriate time to acquire propNew Properties

erties. To this end, since November 2009 we have been improv-

Buy

ing the quality of our portfolio through the resumption ofproperty acquisitions, keeping pace with the recovery that is tak-

KENEDIX-REIT Properties

ing place in the market. By the end of the 11th Fiscal Period we
had acquired five mid-sized office buildings.
Furthermore, KENEDIX-REIT acquired a total of three officebuildings (two mid-sized office buildings in Tokyo and one highly
profitable office building in Osaka) in November and December

Sell2010, respectively. To this end, Kenedix-REIT extended the worth

Small office buildings
and residential propertiesof its assets to 244.4 billion yen as of December 2010.

Newly Acquired Properties (During 12th Period)
KYODO BUILDING (Ginza No.8)

KYODO BUILDING (Honcho 1chome)

KDX KOBAYASHI-DOSHOMACHI BUILDING

Location: Chuo-ku, Tokyo
Gross Floor Area: 4,724.62m2
Acquisition Price: 4,300 million yen
Appraisal Value: 4,520 million yen(as of October 1, 2010)
Acquisition Date: November 12, 2010

Location: Chuo-ku, Tokyo
Gross Floor Area: 5,110.45m2
Acquisition Price: 4,000 million yen
Appraisal Value: 4,330 million yen(as of October 1, 2010)
Acquisition Date: November 12, 2010

Location: Chuo-ku, Osaka
Gross Floor Area: 10,723.83m2
Acquisition Price: 2,870 million yen
Appraisal Value: 2,970 million yen(as of October 1, 2010)
Acquisition Date: December 1, 2010

Properties Sold (During 11th Period)
KDX SHINJUKU-GYOEN BUILDING (office building)

COURT SHIN-OKACHIMACHI (residential property)

Sales Price: 1,710 million yen
Date Sold: September 30, 2010

Sales Price : 790 million yen
Date Sold: October 27, 2010

Kenedix Realty Investment Corporation Semiannual Report| 5Special Features

Growth Driver: S T R AT EG Y

We Are the Only REIT Focused on

Mid-Sized Office Build
KENEDIX-REIT Is Poised for Growthwith its strategic focus on mid-sized officebuildings that deliver strong, sustainable
yields, especially in Tokyo Metropolitan
Area. KENEDIX-REIT evaluates each investment decision critically, only investing
when the asset meets its exacting criteria.
Koju Komatsu
General Manager of the Investment
Management Division (CIO)
Kenedix REIT Management, Inc.

Tokyo
Metropolitan
Area (excluding
Tokyo 23 wards):
8 properties
24.8 billion yen
Tokyo" Central Tokyo*: 37 properties
139.4 billion yen

Metropolitan Area:
54 Properties* Central Tokyo consists of Chiyoda, Chuo, Minato, Shibuya and Shinjuku wards.

187.5 billion
yen" Tokyo (excluding Central Tokyo): 9 properties
23.3 billion yen

Tokyo (23 wards):
46 properties
162.7 billion yen

Other Regional Areas: Miyagi Prefecture

1 property: 2.1 billion yen
Other Regional Areas: Niigata Prefecture

1 property: 1.3 billion yen
Other Regional Areas: Osaka and Kyoto Prefectures

6 properties: 19.2 billion yen

Other Regional Areas: Aichi Prefecture

1 property: 7.5 billion yen

Tokyo
Metropolitan Area

Other Regional Areas: Fukuoka Prefecture

1 property: 4.9 billion yen

Did You Know?
The Tokyo Metropolitan Area is the world’s biggest,with 36 million people** living in Tokyoand Kanagawa, Chiba, and Saitama prefectures.
** Source: United Nations World Urbanization Prospects: City Population 2010

6 |Kenedix Realty Investment Corporation Semiannual Report

Note: Information available as of December 13, 2010

ings in Tokyo Metropolitan Area

84.2% 93.4%
of our office building portfolio
is located in the Tokyo
Metropolitan Area.

K

ENEDIX-REIT has developed into a unique market
player in Japan, having implemented a strategy
that specifically targets mid-sized office buildingsin the Tokyo Metropolitan Area.

Compared with large-sized office buildings there are

numerous mid-sized office buildings in the Tokyo
Metropolitan Area, and because of the many tenants andstable demand their rent fluctuation rates are not as high.
Owing to these advantages as well as a stable market
that is relatively resistant to economic downturns, mid-sized
office buildings benefit from both stable occupancy ratios
and leasing business income, which are major strengths.
Utilizing these strengths, 84.2% of KENEDIX-REIT’s office
portfolio currently consists of properties acquired in theTokyo Metropolitan Area. Pivotal in this, KENEDIX-REIT is
working to maintain and improve a stable leasing Net
Operating Income (NOI) ratio for the remaining 15% of its
office portfolio, which is situated in favorable locations inlarge regional cities, by undertaking diversified investments inoffice buildings that feature high leasing NOI ratios.
Portfolio Breakdown by Usage (Entire Portfolio)
Central Urban
Retail Properties
5.0%

Residential
Properties
3.8%
Office Buildings
91.0%

of companies in Tokyo are small
and medium sized, ensuring
stable tenant demand for
mid-sized office buildings.
he Tokyo Metropolitan Area is the world’s biggestTurban area, with approximately 36 million people
living in Tokyo and the adjacent prefectures of
Kanagawa, Chiba and Saitama. Despite a decline inJapan’s total population, this area is still growing. With Tokyo’s
gross metropolitan product (GMP) expected to retain its leading
position until 2025, this market is anticipated to enjoy stabledemand in the years ahead as a center of the global economy.
Moreover, according to a survey conducted by the Tokyo
Metropolitan Government in 2006, 93.4% of businesses
located in Tokyo have fewer than 29 employees. Based on
this, mid-sized office buildings located in Tokyo feature stabledemand compared with larger buildings due to having
extremely high numbers of potential tenants and property
liquidity levels. Consequently, the cyclical demand that exists
in the Tokyo Metropolitan Area is high in spite of current
economic conditions.
Fully utilizing the advantages of mid-sized office buildings, KENEDIX-REIT is working to expand its assets andestablish a stable earnings foundation with the aim of reaching a portfolio consisting of 100 buildings worth 400 billion
yen. As a REIT that boasts a staff of skilled professionals, specializes in mid-sized office buildings in the Tokyo
Metropolitan Area, and is bolstered by achievements that it

Portfolio Breakdown by Area (Office Buildings)
Other Regional Areas
15.7%
35.0 billion yen

has accumulated since being listed, KENEDIX-REIT willachieve these initiatives by engaging in management opera-

Tokyo Metropolitan Area
84.2%
187.5 billion yen

tions that are a step ahead of its competitors.
Notes: 1. Acquisition prices are rounded to the nearest 100 million yen.
2. Ratios indicate the total acquisition price for properties in each area in proportion
to the total acquisition price for all properties combined.
3. Figures are rounded down to the first decimal place.

Kenedix Realty Investment Corporation Semiannual Report| 7Special Features

Growth Driver: S TAB ILITY

Our Diversification Generates StabKENEDIX-REIT Is Poised for Growth

Masahiko Tajima

with diversified sources of funding andDirector and General Manager,
Financial Planning Division
Kenedix REIT Management, Inc.

stable occupancy across a portfolio of
70 properties located primarily in theTokyo Metropolitan Area.

64

Buildings

Consequently, KENEDIX-REIT minimizes investment risks byfully spreading investments among a number of buildings.

The volume generates scalemerits such as cost-cutting andrisk hedging

K

Strengthening Sponsorships and Information Pipelines
In 2009, ITOCHU Corporation was accepted as a new sponsor. Consequently, KENEDIX-REIT is able to maximize the useof its property information pipelines as well as those of its
sponsors, Kenedix, Inc. and ITOCHU Corporation.

ENEDIX-REIT strives to maximize obtainableeconomies of scale by undertaking management

Furthermore, we plan to acquire prime properties by fully

operations that concentrate on mid-sized officeutilizing our property acquisition sources, including proprietarybuildings. We already own 64 office buildings in

networks. In order to acquire superior properties, we will also

this category and can therefore achieve economies of scale

investigate the establishment of a warehousing fund with ourby consigning renovation and maintenance work for a num-sponsors and the feasibility of undertaking tokumei-kumiai

ber of properties to a single outside contractor. In terms of(Japanese silent partnership) contributions. Consequently,

individual buildings, investment risks exist, although we canwe aim to diversify property acquisition routes and, in turn,enjoy higher yields for mid-sized office buildings.

achieve stable growth by obtaining preferential negotiatingrights for properties in the fund.

Portfolio Growth(billion yen)

(%)

400
96.6
94.9

95.3

96.9

95.9

400
95.9

95.6

95.7

billion yen
94.7

320

94.4

93.6

95

100

Occupancy ratio

properties

77

72

68

240
Number ofproperties

100

69

67

65

70

67

Portfolio size

90

95.0%

64

85

160
31
35

80

0

1st Period

2nd Period80

3rd Period

4th Period

5th Period

6th Period

7th Period

8th Period

9th Period

10th Period

11th Period(as of Oct. 31, 2005) (as of Apr. 30, 2006) (as of Oct. 31, 2006) (as of Apr. 30, 2007) (as of Oct. 31, 2007) (as of Apr. 30, 2008) (as of Oct. 31, 2008) (as of Apr. 30, 2009) (as of Oct. 31, 2009) (as of Apr. 30, 2010) (as of Oct. 31, 2010)8 |Kenedix Realty Investment Corporation Semiannual Report

75
Targetle GrowthDiversification of Debt Maturities(As of December 13, 2010)

Breakdown of Lenders(As of December 13, 2010)
Mitsui Sumitomo Insurance 1.0%
Norinchukin Bank 4.0%
Resona Bank 5.3%
Mitsubishi UFJ Trust and Banking 7.2%
Bank of Tokyo-Mitsubishi UFJ 11.8%(billion yen)

25

Short-term borrowings
Investment corporation bonds

20

Sumitomo Mitsui
Banking Corporation
23.3%

9.00
15
18.80

Long-term borrowings

10

Development Bankof Japan 16.5%

12.03

11.74

5
6.65

Chuo Mitsui Trustand Banking16.4%

0

Aozora Bank 14.5%

1.80

3.50

1.00

2010
2H

2011
1H

2011
2H

2012
1H

10.43

8.77
3.77
2012
2H

2013
1H

2013
2H

3.91

5.16

2014
1H

2014
2H

1.50

3.00

2015
1H

2015
2H

5.00
2016
1H

3.00
2016
2H

3.00
2017
1H

2017
2H

Notes: 1. Shows debt amounts that mature in each period (rounded to the second decimal place)
2. 1H is April 1 to September 30; 2H is October 1 to March 31 of the following year. These are different fromthe fiscal periods of the Investment Corporation (e.g. 2010, 2H is October 1, 2010 to March 31, 2011)40.9%

and obtaining asset-backed funding—and achieve external
growth through property acquisition based on stable financial management. By setting our sights in this way, the LTV

Conservative, low LTV realizes
a sound and stable foundation

S

ratio at the end of the period under review was at the 41%
level. Such actions are intended to facilitate agile fund procurement to take advantage of future property acquisitionince being listed, KENEDIX-REIT has worked toopportunities. We are achieving growth through externalbuild a sound and stable financial foundation. In

acquisitions by continuing to focus on diversified procure-order to realize stable financial management, wement methods. At the same time, we are committed to gen-have endeavored to minimize refinancing risks as

erating stable distributions for our investors.

part of our basic policy to stagger repayment dates, extend

Borrowing provisions, which worsened following theloan periods, fix interest rates and employ a wide array offinancial crisis, have been on a recovery track since the end

procurement methods. Basically KENEDIX-REIT limits its Loanof 2009. KENEDIX-REIT is working to establish stable finan-

to value (LTV) ratio to 45% so as to smoothly procure assets

cial management operations by taking advantage of exten-

when the opportunity arises to acquire properties. We aim tosions to average loan periods, lowered interest rate levels on

employ a diverse array of procurement methods—includingloans and improved borrowing provisions. In terms of prop-

issuing corporation bonds, implementing public offerings

erty acquired in November 2010, loan conditions have recovered compared with those in February 2010 since borrowing
provisions have improved significantly; lending periods have

Changes in LTV Ratio

been extended to seven years (compared with five years in(%)

February 2010); and the number of banks offering loans has

50.0
47.0

45.6

Maintaining a conservative, low LTV ratio

45.0
41.2

41.4

41.1

40.9

40.9

We will strive to improve borrowing conditions by building favorable relationships with financial institutions through

40.0
38.7
35.0

expanded from four to six.

closer communication, affecting positive changes in borrow-

38.9

37.5

ing provisions and using a variety of procurement methods.

35.3

30.0
1st
Period2nd
3rd
Period Period

4th
5th
Period Period

6thPeriod7th
8th
Period Period

9thPeriod10th
Period11th
PeriodNote: LTV = Total debt ÷ total assets

Kenedix Realty Investment Corporation Semiannual Report| 9Special Features

Growth Driver: S E R V IC E

Our Focus on Service and Pro
KENEDIX-REIT Is Poised for Growth
due to its unrelenting attention to service
and property management. We are so
dedicated that we enlisted market
research specialist J.D. Power Asia Pacificto gauge customer (tenant) satisfaction(CS) by survey and are taking new steps
based on its results.
CS Survey of Tenant Lease Continuation Intentions
Wishing to continue lease
Considering lease continuation
Do not want to continue leaseAs yet undecided

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

93.3%

Personalized service helps
maintain high occupancy ratio
for office buildingsS

Tending to not continue lease2009 survey(392 tenants)
0

20

40

60

80

100
(%)

91.6% of tenants intended to continue their leases

Overall Customer (Tenant) Satisfaction
SatisfiedMore or less satisfied
Dissatisfied
Unknown

Neither satisfied nor dissatisfied

Slightly dissatisfied

2009 survey(2,841 samples)
0

20

40

60

80

100
(%)

Compared with the CS survey conducted in 2007, the number of tenants who
declared themselves to be “satisfied” or “slightly satisfied” increased by 4.6%.

Market Vacancies: KENEDIX-REIT versus the Market(%)

10

Market Average

8.9%

8
6

4.7%

taying ahead of leasing market trends, KENEDIXREIT has been working to maintain stable cash
flows—and upholding its principle of not engaging
in rent increase negotiations—since November

2008 based on a management policy that prioritizes themaintenance of occupancy ratios. Behind this measure is the

4
2

KENEDIX-REIT(Office buildings in Central Tokyo)
Oct.

Apr.

2008

2009

Oct.

Apr.

Oct.

2010

Note: The average market vacancy ratio for Tokyo’s business district (five central wards) provided by Miki Shoji. Covers both existing and new buildings
Source: Prepared by the Kenedix REIT Management based on data provided by Miki Shojiintention to respond to risks associated with turnover rates

contrast, KENEDIX-REIT achieved the very low vacancy ratio ofcaused by the recession. In turn, we can rapidly identify

4.7% for office buildings located in this area.

trends in leasing markets for office buildings as well as tenant

KENEDIX-REIT collected tenant feedback through CS

needs. We will also maintain occupancy ratio at high levels

surveys conducted by J.D. Power Asia Pacific in 2009.

amid slumping leasing markets by as far as is possible attract-

Having gained an understanding of both the strengths anding new tenants. With a steady occupancy ratio of 93.3% forweaknesses of each building’s intangible and tangible aspects,

the office building portfolio as of October 31, 2010, we have

we are working to improve the situation. Based on the three

secured a stable source of earnings. In terms of vacancy

CS surveys conducted to date, we have made efforts toratios, market vacancy ratios for office buildings in Tokyo’s

maintain and improve occupancy ratios by undertaking

central five wards stood at 8.9% as of October 31, 2010. In

appropriate renovations and providing appropriate services.

10 |Kenedix Realty Investment Corporation Semiannual Reportperty Management
Contributes to Stable Occupancy

633

Office End Tenants

Tenant diversity contributes tostable occupancy
End Tenants of Office Buildings (by Sector)(As of October 31, 2010)
Mining 0.2% (1)Construction 5.1% (32)

Individuals 4.4% (28)Manufacturing 12.5% (79)Transport andcommunications 3.5% (22)Real estate 3.8% (24)%Energy reduction target in
the next five years

K

ENEDIX-REIT is actively implementing capital
expenditures to increase the competitiveness of
its properties, improve the value of its assets andconform to the revised Energy Conservation Law.

In particular, we are systematically implementing specificenergy-saving measures per property that are centered on

Public sector (other)
0.3% (2)Service 39.3% (249)5More Than

Wholesale, retail andfood service 24.5% (155)

air-conditioning systems and lighting fixtures, which accountfor 80% of total energy usage. We began an energy conservation check and measured the effectiveness of the attri-

Finance andinsurance 6.5% (41)butes of each property from the 11th Fiscal Period, ended
October 31, 2010, onward. Based on these results, from that

ENEDIX-REIT is taking steps to establish a tenant

period we have started to undertake measures for individual

base that is engaged in a diverse array of busi-

properties, primarily air-conditioning unit upgrades. Moving

nesses by maximizing the characteristics of mid-forward, we will deploy motion sensors and upgrade trans-

sized office buildings and economies of scale.

formers and fans, and also introduce LED-based systems. We

Through such actions, we are able to spread and minimize

expect to reduce energy consumption by more than 5% in 5

risks in such areas as turnover by not relying on particular

years. KENEDIX-REIT aims to significantly decrease construc-types of clients or businesses categories.

tion costs by using economies of scale with 70 propertiesK

As of October 31, 2010, the number of end tenants rose

worth 244.4 billion yen and by undertaking block bidding forto 633 in 61 office buildings, spanning a broad array of busi-

multiple properties. We will work to save energy to the maxi-

ness categories that include the service industry (approxi-

mum extent possible while minimizing capital expenditures.

mately 40%); the wholesale, retail and food service (24.5%);
followed by manufacturing (12.5%).
With the ratio of our largest end tenant standing at

Five-Year Energy Reduction Plan(%)

0

2.1%* and the top three standing at only 5.5%*, we are-1

not reliant on our top end tenants to any great extent. As-2such, we are working to build an exceptionally balanced situation through our end tenants. We will work to spread andminimize risks primarily related to tenant turnover and, inturn, ensure stable income.
* The above percentages represent the proportion of KENEDIX-REIT’s overall portfolio
accounted for by top-end office building tenants (based on total leased floor area).

FY2010FY2011FY2012FY2013

FY2014

Environmental responsiveness at each property
centered on air-conditioning system upgrades
Upgrade high-brightness guidance lighting,introduce motion sensors-3

Install LED lighting fixtures incommunal-use areas, etc.

-4-5Expect to reach energy reduction target of more than
5% by the end of fiscal 2014 (19th Fiscal Period)-6

Kenedix Realty Investment Corporation Semiannual Report| 11Corporate GovernanceWith the aim of becoming an “autonomous

Corporate Governance System of

J-REIT,” KENEDIX-REIT endeavors to build a cor-

Kenedix REIT Management

porate governance system that fosters highly

Kenedix REIT Management endeavors to control the various risks
related to investment management by drafting managementtransparent asset management operations andguidelines and adhering to fundamental investment management

fair transactions.

concepts, including investment policies, transaction rules withinterested parties, and investment allotment and disclosure policies.

Ensuring management independence and transparency is

Furthermore, based on a review conducted by theextremely important in undertaking fair transactions and is indis-

Compliance Officer, important items that include transactions

pensable for promoting sound management practices. In order towith interested parties are subject to strict protocols that involve

remain in compliance with each legal regulation and realize asset

deliberations and resolutions undertaken by the AMC and the

management operations that are fair and highly transparent,

Compliance Committee (which includes one outside lawyer).

KENEDIX-REIT and Kenedix REIT Management are mindful of the

Final decisions regarding such transactions are made by the Board

following items, shown in the chart below. In particular, theof Directors.

Compliance Officer and the Asset Management Committee(AMC) function as two integral aspects of the decision-making

AMC’s Role in Advancing Decision Making

process, ensuring compliance with rules and regulations that

On a weekly basis, AMC members receive reports on tenant

govern J-REITs, organization-wide support and the implementa-

movements and plans, discuss measures to deal with negativetion of decisions.

movements, receive proposals on renovations and other improvements, and deliberate and approve property acquisition and dis-

Corporate Governance System of KENEDIX-REIT

positions. While each division takes action to fulfill its respective

KENEDIX-REIT has established a Board of Directors—a meeting ofareas of responsibility, the process of discussion and approval vets

which is held on a regular basis—that is fully capable of under-

issues and ensures a flow of communication that is logical andtaking operating decisions and functioning as a body that super-

meaningful to the decision-making process.

vises the executive officers. Through the functions of the Board of
Directors, KENEDIX-REIT works to grasp and oversee the status of
Kenedix REIT Management’s business operations.
Decision Making at Kenedix REIT Management
쎲 The Compliance Officer previews the REIT’s major pending decisions to ensure that no transactions are detrimental to the interests of investors, that the rules for deals with interested
parties are obeyed and that the deals are implemented in accordance with established guidelines. The Compliance Officer also works to ensure that service providers are in compliancewith the rules and regulations that govern J-REITs.
Preview

Deliberation and Resolution

Deliberation and Resolution

Resolution or Reporting

Creation of management guidelines

Corresponding
Division왘Compliance
Officer왘

Asset Management
Committee(AMC)

Approval for transactions with interested parties

Compliance
Committee(including 1 outside lawyer)

Approval for transactions outside ofmanagement guidelines

Resolution
Boardof
Directors왘ReportingApproval for transactions that follow management guidelines,
excluding those with interested parties

쎲 AMC is the crux of cross-organizational management and communication. Attendees of theregular weekly meetings comprise leaders and managers, and meetings affiliated with property or other material decisions are attended by the CEO and President of Kenedix REITManagement, the General Manager of the Financial Planning Division (CFO), the General
Manager of the Investment Management Division (CIO), the General Manager of the Property
Management Division and the Compliance Officer.

Meetings of Committees in Each Fiscal Period
1st Period 2nd Period 3rd Period 4th Period 5th Period 6th Period 7th Period 8th Period 9th Period 10th Period 11th Period

Compliance Committee

7

7

7

8

6

8

9

8

8

10

7

Asset Management Committee

21

35

39

39

38

38

52

44

36

39

32

Kenedix REIT Management Board of Directors

9

7

9

8

9

7

10

8

10

12

11

KENEDIX-REIT Board of Directors

11

7

7

9

7

7

7

8

8

8

8

12 |

Kenedix Realty Investment Corporation Semiannual Report

KENEDIX-REIT Portfolio Table
End of 11th Fiscal Period (As of October 31, 2010)

No.

Collateralized
AssetsProperty Name

A-1*
KDX Nihonbashi 313 Building
A-2
KDX Hirakawacho 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
FIK Minami Aoyama
A-8*
Kanda Kihara Building
A-13
KDX Kojimachi Building
A-14*
KDX Funabashi Building
A-15*
KDX Hamacho Building
A-16*
Toshin 24 Building
A-17
Ebisu East 438 Building
A-18*
KDX Omori Building
A-19*
KDX Hamamatsucho Building
A-20*
KDX Kayabacho Building
A-21
KDX Shinbashi Building
A-22*
KDX Shin-Yokohama Building
A-23
KDX Yotsuya Building
A-26*
KDX Kiba Building
A-27*
KDX Kajicho Building
A-28
KDX Nogizaka Building
A-29*
KDX Higashi-Shinjuku Building
A-30*
KDX Nishi-Gotanda Building
A-31*
KDX Monzen-Nakacho Building
OfficeA-32*
KDX Shiba-Daimon Building(Tokyo Metropolitan
A-33
KDX Okachimachi Building
Area)
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 (Note 2)
A-48*
KDX Kawasaki-Ekimae Hon-cho Building
A-49*
Nissou Dai-17 Building
A-50*
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-12
Portus Center Building
A-24*
KDX Minami Semba Dai-1 Building
A-25*
KDX Minami Semba Dai-2 Building
A-36
KDX Niigata Building
A-42*
Karasuma Building
Office(Other Regional Areas) A-44*
KDX Sendai Building
A-53*
KDX Hakata-Minami Building
A-54
KDX Kitahama Building
A-58
KDX Nagoya Sakae Building
Office Subtotal (61 properties)
B-3
Court Mejiro
B-18*
Venus Hibarigaoka
B-19*
Residence Charmante Tsukishima
Residential
B-34
Gradito Kawaguchi
Residential Subtotal (4 properties)
C-1*
Frame Jinnan-zaka
KDX Yoyogi Building
Central Urban Retail C-2
Central Urban Retail Subtotal (2 properties)

Total (67 properties)

Location
Chuo-ku, Tokyo
Chiyoda-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
Chuo-ku, Tokyo
Yokohama, Kanagawa
Shibuya-ku, Tokyo
Ohta-ku, Tokyo
Minato-ku, Tokyo
Chuo-ku, Tokyo
Minato-ku, Tokyo
Yokohama, Kanagawa
Shinjuku-ku, Tokyo
Koto-ku, Tokyo
Chiyoda-ku, Tokyo
Minato-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
Yokohama, 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
Sakai, Osaka
Osaka, Osaka
Osaka, Osaka
Niigata, Niigata
Kyoto, Kyoto
Sendai, Miyagi
Fukuoka, Fukuoka
Osaka, Osaka
Nagoya, Aichi
Shinjuku-ku, Tokyo
Sapporo, Hokkaido
Chuo-ku, Tokyo
Kawaguchi, Saitama
Shibuya-ku, Tokyo
Shibuya-ku, Tokyo

Acquisition Price(mn yen)Year Built(Note 1)

5,940
5,180
4,450
3,680
2,533
2,450
2,270
1,950
5,950
2,252
2,300
5,300
4,640
3,500
3,460
2,780
2,690
2,520
1,950
1,580
2,350
1,065
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
2,710
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
5,570
1,610
1,560
1,305
5,400
2,100
4,900
2,220
7,550
211,461
1,250
1,800
5,353
1,038
9,441
9,900
2,479
12,379233,281

Apr. 1974
Mar. 1988
Jan. 1987
Jun. 1993
Aug. 1992
Nov. 1985
Nov. 1988
May 1993
May 1994
Apr. 1989
Sep. 1993
Sep. 1984
Jan. 1992
Oct. 1990
Sep. 1999
Oct. 1987
Feb. 1992
Sep. 1990
Oct. 1989
Oct. 1992
Mar. 1990
May 1991
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
Jul. 1991
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
Sep. 1993
Mar. 1993
Sep. 1993
Jul. 1983
Oct. 1982
Feb. 1984
Jun. 1973
Jul. 1994
Apr. 2009
Avg. 21.1 years
Mar. 1997
Mar. 1989
Jan. 2004
Feb. 2006
Avg.10.3 years
Mar. 2005
Aug. 1991
Avg. 8.3 years
Avg. 20.0 years

Occupancy
Ratio
100.0%
100.0%
100.0%
100.0%
96.5%
100.0%
100.0%
100.0%
91.9%
98.5%
93.9%
72.7%
83.4%
100.0%
100.0%
100.0%
100.0%
74.0%
100.0%
100.0%
84.2%
78.1%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
96.4%
100.0%
87.6%
100.0%
95.4%
100.0%
65.1%
85.3%
100.0%
100.0%
94.9%
91.3%
93.0%
86.9%
100.0%
94.4%
85.7%
100.0%
98.2%
100.0%
100.0%
77.1%
75.0%
93.7%
93.9%
83.1%
100.0%
65.4%
93.2%
98.7%
80.6%
96.4%
90.3%
93.3%
95.2%
92.4%
100.0%
100.0%
95.6%
100.0%
94.8%
98.9%
93.6%

Notes: 1. The Year Built refers to the date of construction completion recorded in the land register. The average age subtotal and total data are calculated using the weighted-average based on
acquisition prices as of October 31, 2010, and are rounded down to the first decimal place.
2. Stating from disclosures pertaining to the fiscal period under review, A-47 KDX Shin-Yokohama 381 Building (existing tower) and A-65 KDX Shin-Yokohama 381 Building Annex Tower
are indicated collectively as one property.
3. The completion date of the existing tower is shown for the completion date of KDX Shin-Yokohama 381 Building. Upon calculating the weighed-average portfolio age, the completion
date (April 2009) for the KDX Shin-Yokohama 381 Building Annex Tower is not considered.
4. Amounts indicated have been rounded down.

Kenedix Realty Investment Corporation Semiannual Report| 13

Financial Section
Contents
Report of Independent Auditors

E

Balance Sheets

F

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

G

Notes to Financial Statements

H

Statements of Cash Flows (Unaudited)Q

Financial Summary (Unaudited)
Historical Operating Trends
For the 7th–11th Fiscal Periods

PeriodUnit

7th Period(as of Oct. 31, 2008)

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

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

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

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

Operating revenues

mn yen

8,456

8,204

7,921

8,067

8,358

(Rental revenues)

mn yen

8,156

8,204

7,921

8,067

8,242

Operating expenses

mn yen

4,311

4,740

4,708

4,329

4,522

(Property-related expenses)

mn yen

3,678

3,603

3,652

3,714

3,817

Operating income

mn yen

4,144

3,463

3,213

3,738

3,835

Ordinary income

mn yen

3,124

2,435

2,103

2,568

2,608

Net income (a)mn yen

3,123

2,434

2,102

2,567

2,607

Total assets (b)mn yen239,648

238,745

236,320

251,566

251,080(Period-on-period change)

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

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

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

Number of investment units issued andoutstanding (e)Unitholders’ equity per unit (d)/(e)(+4.0)(-0.4)(-1.0)(+6.5)(-0.2)

98,75098,75097,220102,968

102,567(+10.0)(0.0)(-1.5)(+5.9)(-0.4)

128,087

127,398

127,067

135,689

135,732(-0.2)(-0.5)(-0.3)(+6.8)(-0.0)

124,973

124,973

124,973

133,129

133,129

%

(0.0)

(0.0)

(0.0)

(+6.5)

(0.0)

unit

200,000

200,000

200,000

233,550

233,550
581,170yen

640,437

636,990

635,335

580,987

mn yen

3,123

2,434

2,102

2,567

2,541

Distribution per unit (f)/(e)yen

15,618

12,172

10,511

10,993

10,881(Earnings distributed per unit)

yen

15,618

12,172

10,511

10,993

10,881(Distribution in excess of earnings per unit)

yen

—

—

—

—

—

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

1.3 (2.6)

1.0 (2.1)

0.9 (1.8)

1.1 (2.1)

1.0 (2.1)%

2.4 (4.8)

1.9 (3.8)

1.7 (3.3)

2.0 (3.9)

1.9 (3.8)

53.4

53.4

53.8

53.9

54.1

(-2.2)(-0.1)(+0.4)(+0.2)(+0.1)

41.2

41.4

41.1

40.9

40.9

Total distribution (f)Return on unitholders’ equity (annualized)(Notes 2 and 3)

Unitholders’ equity 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)%%%(+2.3)(+0.2)(-0.2)(-0.2)(-0.1)

99.9

100.0

100.0

99.9

97.4

Other reference
Number of properties

properties

Total leasable floor aream2

Occupancy at end of period
Depreciation expenses for the period

69

67

65

70

67

256,214.30

250,364.42

254,225.04

271,260.81

267,737.33

%

95.6

95.7

94.7

94,4

93.6

mn yen

1,445

1,429

1,451

1,477

1,440

Capital expenditures for the period

mn yen

1,105

891

400

330

312

Leasing NOI (Net Operating Income) (Note 5)

mn yen

5,923

6,030

5,721

5,830

5,864

FFO (Funds From Operation) (Note 6)

mn yen

4,269

4,356

3,994

4,044

3,995

yen

21,34521,78019,973

17,318

17,106

FFO per unit (Note 7)

Notes: 1. Return on assets = Ordinary income/(Total assets at beginning of period + Total assets at end of period)/2 x 100
2. Annualized values for the 7th Fiscal Period are calculated based on a period of 184 days, 181 days for the 8th Fiscal Period, 184 days for the 9th Fiscal Period, 181 days
for the 10th Fiscal Period and 184 days for the 11th Period.
3. Return on unitholders’ equity = Net income/(Total unitholders’ equity at beginning of period + Total unitholders’ equity at end of period)/2 x 100
4. Payout ratio is rounded down to the first decimal place.
5. Leasing NOI = Rental revenues – Rental expenses + Depreciation expenses for the period
6. FFO = Net income + Depreciation expenses for the period – Profit on sale of trust beneficiary interests in real estate or real estate + Loss on sale of trust beneficiary interests in real estate or real estate
7. FFO per unit = FFO/Number of investment units issued and outstanding (figures below ¥1 rounded down)
8. Where applicable, figures are rounded down to the nearest million.

14 |Kenedix Realty Investment Corporation Semiannual ReportKenedix Realty Investment Corporation Semiannual Report| 15

Balance Sheets
Kenedix Realty Investment Corporation
As of October 31, 2010 and April 30, 2010

In thousands of yen
As of October 31, 2010

As of April 30, 2010

¥ 16,245,674¥ 13,297,791

208,479

151,363

ASSETS
Current assets:
Cash and bank deposits
Rental receivables
Consumption tax refundable—

48,30874,717

83,141

16,528,870

13,580,603

Land

163,047,282

164,462,798

Buildings and structures

80,067,548

80,958,715

Machinery and equipment

1,276,061

1,264,468

Tools, furniture and fixtures

366,696

340,770

Other current assets
Total current assets
Property and equipment, at cost:Less-accumulated depreciation(11,318,857)(10,108,997)

233,438,730

236,917,754

Ground leasehold

285,350

285,350

Corporate bond issuance costs

27,98833,865

Net property and equipment
Other assets:

Unit issuance costs

33,51541,893

Other assets

765,604

707,019¥251,080,057¥251,566,484¥¥

Total assets
LIABILITIES AND UNITHOLDERS’ EQUITY
Liabilities
Current liabilities:
Trade and other payables
Short-term debt
Deposits received
Rents received in advance
Other current liabilities

711,485
41,550,000

549,294
37,050,000

7,159

17,054

1,166,896

1,245,403

445,572

179,264

43,881,112

39,041,015

Corporate bonds

12,000,000

12,000,000

Long-term debt

49,017,000

53,918,500

Leasehold and security deposits received

10,449,570

10,917,330¥115,347,682¥115,876,845¥133,129,755¥133,129,755

2,607,122

2,567,480

Total current liabilities

Total liabilities
Unitholders’ equity
Unitholders’ capital
Units authorized: 2,000,000 units
Units issued and outstanding: 233,550 units
As of October 31, 2010 and April 30, 2010, respectively
Retained earnings
Unrealized gain from deferred hedge transactions
Total unitholders’ equity
Total liabilities and unitholders’ equity
See accompanying notes to the financial statements.

16 |Kenedix Realty Investment Corporation Semiannual Report(4,502)(7,596)

135,732,375

135,689,639¥251,080,057¥251,566,484

Statements of Income and Retained Earnings
Kenedix Realty Investment Corporation
For the period from November 1, 2009 to April 30, 2010 and the period from May 1, 2010 to October 31, 2010

In thousands of yen
From May 1, 2010
to October 31, 2010

From November 1, 2009
to April 30, 2010

¥8,242,200¥8,067,448

116,397—

8,358,597

8,067,448

Property-related expenses

3,817,752

3,714,418

Loss on sale of real estate

64,349—Asset management fees

458,034

433,915

Operating revenues:
Rental revenues
Profit on sale of real estate
Total operating revenues
Operating expenses:

Administrative service and custodian fees

80,061

77,229Other operating expenses

102,747

103,530

Total operating expenses
Operating income

4,522,943

4,329,092¥3,835,654¥3,738,356¥ 993,950¥ 932,081

211,796

210,091

Non-operating expenses:
Interest expense
Financing-related expenses
Amortization of organization costs

—

5,090

Amortization of unit issuance costs

8,379

32,063

Amortization of corporate bond issuance costs

5,878

5,782

Others, net

7,595(15,122)2,608,056

2,568,371

Income taxes

Income before income taxes

999

940

Net income

2,607,057

2,567,431

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

65

49¥2,607,122¥2,567,480

See accompanying notes to the financial statements.

Statements of Changes in Unitholders’ Equity
Kenedix Realty Investment Corporation
For the period from November 1, 2009 to April 30, 2010 and the period from May 1, 2010 to October 31, 2010

In thousands of yen
Unitholders’ Equity

Balance as of October 31, 2009

Unitholders’capitalRetainedearnings

Unrealized gainfrom deferred hedgetransactions

Total¥124,973,750¥2,102,249¥(8,830)¥127,067,169

Changes during the fiscal period
New unit issuance

8,156,005——

8,156,005

Payment of dividends—(2,102,200)—(2,102,200)

Net income—

2,567,431—

2,567,431

Interest-rate swap

—

—

1,234

1,234

Total changes during the fiscal period

8,156,005

465,2311,234

8,622,470¥133,129,755¥2,567,480¥(7,596)¥135,689,639

—

—

—

—

Payment of dividends—(2,567,415)—(2,567,415)

Net income—

2,607,057—

2,607,057

Interest-rate swap

—

—

3,094

3,094

—

39,642

3,094

42,736¥133,129,755¥2,607,122¥(4,502)¥135,732,375

Balance as of April 30, 2010
Changes during the fiscal period
New unit issuanceTotal changes during the fiscal period
Balance as of October 31, 2010
See accompanying notes to the financial statements.

Kenedix Realty Investment Corporation Semiannual Report| 17Notes to Financial Statements
Kenedix Realty Investment Corporation
For the period from November 1, 2009 to April 30, 2010 and the period from May 1, 2010 to October 31, 2010

1.

ORGANIZATION AND BASIS OF PRESENTATIONORGANIZATION
Kenedix Realty Investment Corporation (“the Investment Corporation”) was established on May 6, 2005 under the Law Concerning
Investment Trusts and Investment Corporations of Japan (“the Investment Trust Law”). On July 21, 2005, the Investment Corporation
was listed on the Real Estate Investment Trust Market of the Tokyo Stock Exchange with a total of 75,400 investment units issued andoutstanding. (Securities Code: 8972). Subsequently, the Investment Corporation raised funds through public offerings including two
global offerings. The Investment Corporation also undertook an additional issue of 33,550 investment units through a public offering inJapan on November 16, 2009. Consequently, as of October 31, 2010, the end of the 11th fiscal period, the number of investment units
issued and outstanding totaled 233,550 units.
The Investment Corporation is externally managed by Kenedix REIT Management, Inc. (“the Asset Management Company”) as its
asset management company. In concert with the Asset Management Company, the Investment Corporation strives to maximize cash
distribution to investors by securing stable earnings and sustainable investment growth. To this end, the Investment Corporation adopts
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. The Investment Corporation endeavors to develop a diversified investment portfolio named“KENEDIX Selection,” adopting a three-point investment criteria based on property type, area and size.
During the period ended October 31, 2010, the Investment Corporation sold an office building (initial acquisition price of ¥1,610 million), and a residential property (initial acquisition price of ¥878 million) in the Tokyo metropolitan area. At October 31, 2010, theInvestment Corporation had total unitholders’ capital of ¥133,130 million with 233,550 investment units outstanding. The Investment
Corporation owned a portfolio of 67 properties with a total acquisition price of ¥233,282 million containing a total leasable area of
267,737.33m2. The occupancy ratio was approximately 93.6%. A portfolio of 67 properties consists of 61 office buildings, 4 residential
properties and 2 central urban retail properties. 57 properties are located in the Tokyo metropolitan area and 10 properties are located inother regional areas.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust Law ofJapan, the Japanese Corporation Law, the Financial Instruments and Exchange Law of Japan and related regulations, and in conformity
with accounting principles and practices generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to theapplication and disclosure requirements of the International Financial Reporting Standards or accounting principles generally accepted in
the United States of America.
The accompanying financial statements are basically a translation of the audited financial statements that were prepared for Japanese
domestic purposes from the accounts and records maintained by the Investment Corporation and filed with the Kanto Local Finance
Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Law. In preparing the accompanying financial
statements, relevant notes have been added and certain reclassifications have been made from the financial statements issued domestically in order to present them in a form that is more familiar to readers outside Japan. The Investment Corporation’s fiscal period is a sixmonth period which ends at the end of April and October of each year, respectively. The Investment Corporation does not prepare
consolidated financial statements because it has no subsidiaries.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(A) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and equipment is calculated on a straight-line basis over the estimated useful lives of the assets ranging as stated below:
From May 1, 2010 to October 31, 2010

From November 1, 2009 to April 30, 2010

Buildings and structures

2-49 years

2-49 years

Machinery and equipment

3-17 years

3-17 years

Tools, furniture and fixtures

3-20 years

3-20 years

18 |Kenedix Realty Investment Corporation Semiannual Report(B) ORGANIZATION COSTS
Organization costs are amortized over a period of five years, comprised of ten fiscal periods, with an equal amount amortized in eachfiscal period.
(C) UNIT ISSUANCE COSTS
Unit issuance costs are amortized over a period of three years under the straight-line method.
(D) CORPORATE BOND ISSUANCE COSTS
Corporate bond issuance costs are amortized over a loan period under the straight-line method.
(E) ACCOUNTING TREATMENT OF TRUST BENEFICIARY INTERESTS IN REAL ESTATE
For trust beneficiary interests in real estate, which are commonly utilized in the ownership of commercial properties in Japan, all assets
and liabilities within trust are recorded in the relevant balance sheet and income statement accounts.
(F) REVENUE RECOGNITION
Operating revenues consist of rental revenues including base rents and common area charges, and other operating revenues including
utility charge reimbursements, parking space rental revenues and other miscellaneous revenues. Rental revenues are generally recognizedon an accrual basis over the life of each lease. Utility charge reimbursements are recognized when earned and their amounts can be reasonably estimated. Reimbursements from tenants including utility charge reimbursements are recorded on a gross basis and suchamounts are recorded both as revenue and an expense during the fiscal period, respectively.
(G) TAXES ON PROPERTY AND EQUIPMENT
Property-related taxes including property taxes, city planning taxes and depreciable property taxes are imposed on properties on a calendar year basis. These taxes are generally charged to operating expenses for the period, for the portion of such taxes corresponding tosaid period. Under the Japanese tax rule, the seller of the property at the time of disposal is liable for these taxes on the property fromthe date of disposal to the end of the calendar year in which the property is disposed. The seller, however, is reimbursed by the purchaser
for these accrued property-related tax liabilities.
When the Investment Corporation purchases properties, it typically allocates the portion of the property-related taxes related to theperiod following the purchase date of each property through the end of the calendar year. The amounts of those allocated portions of
the property-related taxes are capitalized as part of the acquisition costs of the related properties. In subsequent calendar years, suchproperty-related taxes are charged as operating expenses in the fiscal period to which the installments of such taxes correspond.
(H) INCOME TAXES
Deferred tax assets and liabilities are computed based on the difference between the financial statements and income tax bases of assets
and liabilities using the statutory tax rates.
(I) DERIVATIVE FINANCIAL INSTRUMENTS
The Investment Corporation utilizes interest-rate swap agreements as derivative financial instruments only for the purpose of hedging its
exposure to changes in interest rates. The Investment Corporation deferred recognition of gains or losses resulting from changes in fairvalue of interest-rate swap agreements because its interest-rate swap agreements met the criteria for deferral hedging accounting.
However, the Investment Corporation adopted special treatment for interest-swap agreements if its interest-rate swap agreement met
the criteria for hedging accounting under this treatment, whereby the net amount to be paid or received under the interest-rate swap
contract is added to or deducted from the interest on the assets or liabilities for which the swap contract was executed.
(J) ROUNDING OF AMOUNTS PRESENTED
Amounts have been truncated in the Japanese financial statements prepared in accordance with Japanese GAAP and filed with regulatory authorities in Japan, whereas amounts have been rounded to the nearest million in the accompanying financial statements. Totals
shown in the accompanying financial statements do not necessarily agree with the sums of the individual amounts.

3.

ACCOUNTING CHANGES(A) ACCOUNTING STANDARD FOR ASSET RETIREMENT OBLIGATIONS
From the fiscal period under review, the Investment Corporation has applied “Accounting Standard for Asset Retirement Obligations”(Accounting Standards Board of Japan (ASBJ) Statement No. 18; March 31, 2008) and “Guidance on Accounting Standard for Asset
Retirement Obligations” (ASBJ Guidance No. 21; March 31, 2008). This does not impact profit/loss.

Kenedix Realty Investment Corporation Semiannual Report| 19

(B) ACCOUNTING METHOD FOR PROPERTY TAX
Under the accounting method adopted for property-related taxes, including property taxes, city planning taxes and depreciable property
taxes, for owned real estate, of the assessment and decision tax amount, the amount of taxes to be paid in the fiscal period underreview used to be charged to rental expenses (expenses related to rent business). As of the fiscal period under review, the Investment
Corporation changed the accounting method to one under which, of the assessment and decision tax amount, the amount of taxes corresponding to the fiscal period under review is charged to rental expenses (expenses related to rent business).
The recent increase in real estate and other acquisitions has increased the financial significance of the amount of property taxes, etc.
charged to expenses. The change in accounting method is thus being made to more appropriately allocate expenses because thedescribed circumstances are expected to persist.
As a result, compared to the accounting method adopted prior to the change, operating expenses increase by ¥67,895 thousand andoperating income, ordinary income and net income each decrease by said amount.

4.

SCHEDULE OF PROPERTY
In millions of yen
As of October 31, 2010

Land

Acquisition
costs

Accumulated
depreciation¥163,047¥

As of April 30, 2010
Book
value

Acquisition
costs

Accumulated
depreciation

¥

Book
value

—

¥163,047¥164,463—¥164,463

Buildings and structures

80,068

10,71469,35480,9599,573

71,386

Machinery and equipment

1,276

452

824

1,264

399

865

Tools, furniture and fixtures

367

153

214

341

137

204

¥244,758¥11,319¥233,439¥247,027¥10,109¥236,918

Total

5.

SHORT-TERM AND LONG-TERM DEBT

The following summarizes short-term and long-term debt outstanding as of October 31, 2010:
Classification

Short-term debt

Drawdown date

Repayment date

Weighted-averageinterest rate

January 29, 2010
February 26, 2010
April 30, 2010
April 30, 2010
July 30, 2010
October 29, 2010
July 31, 2008
February 29, 2008
June 30, 2008
September 22, 2008
July 15, 2008
September 30, 2008
April 17, 2007
May 1, 2006
April 30, 2009
April 30, 2009
July 14, 2006
July 31, 2008
February 29, 2008
September 1, 2008
March 31, 2008
March 31, 2008
April 30, 2009
October 26, 2010

January 29, 2011
February 28, 2011
April 28, 2011
April 30, 2011
July 31, 2011
October 31, 2011
January 31, 2011
February 28, 2011
February 28, 2011
March 22, 2011
March 31, 2011
March 31, 2011
April 16, 2011
April 30, 2011
April 28, 2011
April 30, 2011
July 13, 2011
July 31, 2011
August 31, 2011
September 1, 2011
September 30, 2011
September 30, 2011
October 31, 2011
October 31, 2011

1.29%
1.59%
1.39%
1.39%
1.18%
1.14%
1.87%
1.37%
1.99%
1.71%
1.87%
1.82%
1.65%
2.20%
2.23%
2.23%
2.15%
1.99%
1.43%
1.78%
1.61%
1.56%
2.29%
1.25%

Subtotal

20 |Kenedix Realty Investment Corporation Semiannual Report

Balance(In millions of yen)

¥

1,300
500
1,000
1,000
1,500
1,000
3,500
2,000
1,000
1,250
2,000
2,000
1,500
2,500
1,500
1,000
1,000
3,500
1,500
1,000
3,000
2,000
3,500
1,500
¥ 41,550

Classification

Long-term debt

Subtotal
Corporate bonds

Drawdown date

Repayment date

Weighted-averageinterest rate

May 1, 2006
September 1, 2006
December 1, 2006
April 2, 2007
January 10, 2008
May 1, 2008
June 30, 2008
June 30, 2008
February 27, 2009
February 27, 2009
April 30, 2009
October 26, 2009
October 30, 2009
December 8, 2009
January 13, 2010
January 29, 2010
February 18, 2010
February 18, 2010
April 2, 2010
July 30, 2010
July 30, 2010
July 30, 2010
October 29, 2010
October 29, 2010

April 30, 2016
August 31, 2013
November 30, 2011
April 2, 2012
January 10, 2012
November 1, 2011
June 30, 2012
December 28, 2012
February 29, 2012
August 31, 2012
April 27, 2012
October 26, 2013
October 30, 2013
December 8, 2012
January 15, 2013
January 30, 2015
February 18, 2013
February 18, 2015
April 2, 2015
July 31, 2013
January 31, 2014
July 31, 2014
October 31, 2012
October 31, 2013

2.73%
2.12%
1.96%
1.88%
1.50%
1.91%
2.15%
2.26%
2.07%
2.04%
2.29%
2.42%
2.45%
1.67%
1.90%
2.17%
1.90%
2.19%
2.22%
1.49%
1.66%
1.73%
1.45%
1.46%

March 15, 2007
March 15, 2007

March 15, 2012
March 15, 2017

1.74%
2.37%

Balance(In millions of yen)

¥

5,000
3,000
2,500
2,000
2,500
1,000
1,500
3,000
470
940
2,000
960
1,920
500
1,000
1,152
1,500
5,225
1,950
500
3,700
3,700
2,500
500
¥ 49,017
9,000
3,000
¥ 12,000¥102,567

Subtotal
Total

6.

LINE OF CREDIT

The Investment Corporation has established a credit commitment line with a lender. The borrowing under the commitment line agreement is ¥2 billion. The Investment Corporation had an outstanding balance of ¥2 billion as of October 31, 2010.
The commitment period of the commitment line agreement concluded with The Bank of Tokyo-Mitsubishi UFJ, Ltd. has already
expired. Furthermore, the expiration date of the commitment line agreement is March 31, 2011, set in the memorandum of understanding executed on September 26, 2008. However, since the commitment period has already expired, the Investment Corporation cannot
undertake new borrowings.

7.

ASSETS PLEDGED AS COLLATERAL AND SECURED LOANS PAYABLE(As of October 31, 2010)

Assets pledged as collateralIn thousands of yen

Cash and bank deposits

¥

Land

117,541,230

Buildings and structures

50,772,873

Machinery and equipment

518,878

Tools, furniture and fixtures

132,263

Other assets
Total

5,084,003

1,027¥174,050,274

Secured loans payable:
Short-term debt
Long-term debt
Total

¥ 41,550,000
49,017,000¥ 90,567,000

Kenedix Realty Investment Corporation Semiannual Report

| 21

8.

PER UNIT INFORMATIONThe net asset value per unit as of October 31, 2010 and April 30, 2010 was ¥581,170 and ¥580,987. Net income per unit as of October
31, 2010 and April 30, 2010 was ¥11,162 and ¥11,125.
The weighted-average number of units outstanding of 233,550 and 230,770 was used for the computation of the amount of net
income per unit as of October 31, 2010 and April 30, 2010.

9.

INCOME TAXESThe Investment Corporation is subject to corporate income taxes at a regular statutory rate of approximately 40%. However, theInvestment Corporation may deduct from its taxable income amounts distributed to its unitholders, provided the requirements are met
under the Special Taxation Measure Law of Japan. Under this law, the Investment Corporation must meet a number of tax requirements,
including a requirement that it currently distribute in excess of 90% of its net income for the fiscal period in order to be able to deduct
such amounts. If the Investment Corporation does not satisfy all of the requirements, the entire taxable income of the Investment
Corporation will be subject to regular corporate income taxes. Since the Investment Corporation distributed approximately 100% of its
distributable income in the form of cash distributions totaling ¥2,541 million and ¥2,567 million for the periods ended October 31, 2010
and April 30, 2010. Such distributions were treated as deductible distributions for purposes of corporate income taxes. The effective tax
rate on the Investment Corporation’s income was 0.04% and 0.04% for the periods ended October 31, 2010 and April 30, 2010. The
following summarizes the significant difference between the statutory tax rate and the effective tax rate:
From May 1, 2010 to October 31, 2010

From November 1, 2009 to April 30, 2010

Statutory tax rate

39.33 %

39.33 %

Deductible cash distributions(38.32)(39.32)

Other(0.97)

0.03

Effective tax rate

0.04 %

0.04 %

10.

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

11.

RELATED-PARTY TRANSACTIONSTRANSACTIONS WITH KENEDIX REIT MANAGEMENT, INC.
Kenedix REIT Management, Inc., a consolidated subsidiary of Kenedix, Inc., provides the Investment Corporation with property management services and related services. For these services, the Investment Corporation pays Kenedix REIT Management, Inc. property management fees in accordance with the terms of its Property Management Agreements. For these services, the Investment Corporation
paid ¥305 million to Kenedix REIT Management, Inc.

22 |Kenedix Realty Investment Corporation Semiannual Report

12.

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

Rental and other operating revenues and property-related expenses for the periods from May 1, 2010 to October 31, 2010 and from
November 1, 2009 to April 30, 2010 consist of the following:
In thousands of yen
From May 1, 2010 to October 31, 2010

From November 1, 2009 to April 30, 2010

Rental revenues¥5,861,094¥5,882,594

Common area charges

1,298,267

1,267,521

7,159,361

7,150,115

Parking space rental revenues

242,537

243,319

Utility charge reimbursement

742,082

560,259

Miscellaneous

98,220113,755

Rental and other operating revenues:

Subtotal
Others:

1,082,839

917,333

Total rental and other operating revenues

Subtotal¥8,242,200¥8,067,448

Property management fees and facility management fees

¥ 804,755¥ 801,877

Depreciation

1,440,312

1,477,410

Utilities

634,221508,338

Taxes

648,653648,231

Insurance

16,135

16,759Repairs and maintenance

149,673

110,725

Trust fees

41,817

41,579Loss on retirement of fixed assets

1,144

12,537

Others81,042

96,962¥3,817,752¥3,714,418

Revenue from sale of investment properties¥1,710,000¥

Cost of investment properties

1,569,751

Total property-related expenses
Profit on sale of real estate:

Other sales expenses
Profit on sale of real estate——

23,852—¥ 116,397¥¥ 790,000¥—

Loss on sale of real estate:
Revenue from sale of investment properties
Cost of investment properties

836,434

Other sales expenses
Loss on sale of real estate

13.

17,915¥———64,349¥—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 office buildings and residential properties and with lease terms ranging from two to ten years for retail properties. The future
minimum rental revenues under existing non-cancelable operating leases as of October 31, 2010 and April 30, 2010 are as follows:
In thousands of yen
As of October 31, 2010

As of April 30, 2010

Due within 1 year

¥1,178,139¥1,285,413

Due after 1 year

7,068,298

7,940,847

Total¥8,246,437¥9,226,260

Kenedix Realty Investment Corporation Semiannual Report

| 23

14.

PROPERTY INFORMATION

Details of the property portfolio as of October, 2010 were as follows:
Central Urban
Retail Properties

Type

Office Buildings

Location

Tokyo
Metropolitan Area

Other Regional
Areas

Tokyo
Metropolitan Area

Other Regional
Areas

Tokyo
Metropolitan Area

52

9

3

1

2

Acquisition price¥179,246¥32,215¥7,641¥1,800¥12,380

Percentage of total acquisition costs

76.84%

13.81%

3.28%

0.77%

5.30%

Net book value

180,587

31,491

7,329

1,875

12,443

Appraisal value at year end¥165,730

24,408

6,389

1,420

11,650Percentage of total appraisal value

79.07%

11.64%

3.05%

0.68%

5.56%

Number of properties

Residential Properties

Property information(In millions of yen)

Financial results for the period from May 1, 2010 to October 31, 2010
(In thousands of yen)

Rental and other operating revenues¥6,378,493¥1,154,145¥266,225¥89,429¥353,908

Rental revenues

5,568,259

950,658

242,298

80,484

317,662

Other revenues

810,234

203,487

23,927

8,945

36,246

1,758,085

441,41157,52347,29973,122

Property management fees

576,950

171,280

24,3808,422

23,723

Taxes

488,736

113,968

17,324

8,360

20,265

Utilities

488,046

116,486

2,828

1,921

24,940

Repairs and maintenance

106,974

14,166

7,294

20,806433

Insurance

10,051

4,674

651

459

300

Property-related expenses

Trust fees and other expenses
NOI (Net Operating Income)

87,32820,837

5,046

7,331

3,461

4,620,408

712,734

208,70242,130280,786

946,885

328,082

76,291

22,887

66,167

3,673,523

384,652

132,411

19,243

214,619

Depreciation expenses
Operating income from property leasing activities
Capital expenditures

253,688

33,312

331

22,022

3,165

NCF (Net Cash Flow)

4,366,720

679,422

208,371

20,108277,621A breakdown of property-type as of October, 2010 was as follows:
Class of assets

Property type

Area

Property and equipment

Office Buildings

Tokyo Metropolitan Area
Other Regional Areas

Subtotal
Residential Properties

Total

Percentage of total assets¥180,586

71.9%

31,491

12.6%

212,077

84.5%

Tokyo Metropolitan Area

7,329

2.9%

Other Regional Areas

1,876

0.8%

9,205

3.7%

Tokyo Metropolitan Area

12,4434.9%¥233,725

93.1%

Subtotal
Central Urban Retail Properties

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

Bank deposits and other assets¥ 17,355

6.9%

Total assets

251,080

100.0%

Total liabilities

115,348

45.9%

Net assets¥135,732

54.1%

15.

FINANCIAL INSTRUMENTS

11th Fiscal Period (May 1, 2010 to October 31, 2010)(A) OVERVIEW(1) POLICY FOR FINANCIAL INSTRUMENTS
The Investment Corporation procures essential funds for acquiring properties and undertaking the repayment of loans primarily throughbank loans and the issuance of corporate bonds and new investment units. The Investment Corporation uses derivatives for the purpose of

24 |Kenedix Realty Investment Corporation Semiannual Reporthedging its exposure to changes in interest rates and does not enter into derivatives for speculative or trading purposes. Management of
surplus funds is undertaken in a prudent manner that considers fully such factors as safety, liquidity, interest rate conditions and cash flows.
(2) TYPES OF FINANCIAL INSTRUMENTS AND RELATED RISK
Debt and corporate bonds are used primarily for procuring funds necessary for the acquisition of properties and have a redemption dateof a maximum of six years following the accounting date. Although a certain portion of said liabilities are subject to interest rate fluctuation risk, the Investment Corporation utilizes derivatives (interest-rate swap transactions) in order to reduce such risk.
Interest-rate swap transactions are used as derivative financial instruments. Utilizing interest-rate swap transactions, the Investment
Corporation fixes its interest expense for long-term debt bearing interest at a variable rate. With regard to hedge accounting methods,
hedging instruments and hedged items, hedge policy, and the assessment of the effectiveness of hedging activities, please see Note 2,(I) “Derivative Financial Instruments.”(3) RISK MANAGEMENT FOR FINANCIAL INSTRUMENTS(a) Monitoring of market risk (the risks arising from fluctuations in interest rates and others)
The Investment Corporation uses interest-rate swap transactions in order to minimize risk arising from fluctuations in interest rates onfunds procured.
(b) Monitoring of liquidity risk (the risk that the Investment Corporation may not be able to meet its obligations on scheduled due dates) associated with funds procurement
Although loans and other liabilities are subject to liquidity risk, the Investment Corporation reduces such risk by spreading out payment
due dates and by using diversified fund procurement methods. Liquidity risk is also managed by such means as regularly checking thebalance of cash reserves.
(4) SUPPLEMENTARY EXPLANATION OF THE ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available,
fair value is reasonably estimated. Since various assumptions and factors are reflected in estimating the fair value, different assumptions
and factors could result in a different fair value.
(B) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments on the balance sheets as of October 31, 2010 and estimated fair value are shown in the following table.
In thousands of yen
Carrying value

Estimated fair value

Difference햲 Cash and bank deposits¥ 16,245,674¥ 16,245,674¥

Total assets¥ 16,245,674¥ 16,245,674¥

햲 Short-term debt

6,300,000

6,300,000—

햳 Corporate bonds

12,000,000

11,700,300(299,700)

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

84,267,000

83,766,880(500,120)¥102,567,000¥101,767,180¥(799,820)¥¥

Total liabilities——

Derivative Transactions (*)
Items that are not applied to hedge accounting
Items that are applied to hedge accounting
Total derivative transactions—(7,421)¥(7,421)

—

¥

—

¥

—

(7,421)¥(7,421)—(*) The value of assets and liabilities arising from derivatives in shown at net value and with the amount in parentheses representing net liability position
Note 1: Methods to determine the estimated fair value of financial instruments and other matters related to securities and derivative transactions

ASSETS햲 Cash and bank deposits
Since these items are settled in a short period of time, their carrying value approximates fair value.
LIABILITIES햲 Short-term debt
Since these items are settled in a short period of time, their carrying value approximates fair value.

Kenedix Realty Investment Corporation Semiannual Report| 25햳 Corporate bonds
The fair value of corporate bonds is based on quoted market prices.
햴 Long-term debt
The fair value of long-term debt is based on the present value of the total of principal and interest discounted by the interest rate to be
applied if similar new loans were entered into. The fair value of long-term debt bearing interest at a variable rate, which is subject tofixed interest rates resulting from interest-rate swaps and special treatment applied to said swaps, is based on the present value of thetotal of principal and interest, which is handled together with applicable interest-rate swaps, discounted by the interest rate to be
applied if similar loans were entered into.
DERIVATIVE TRANSACTIONS(1) ITEMS THAT ARE NOT APPLIED TO HEDGE ACCOUNTING
Not applicable(2) ITEMS THAT ARE APPLIED TO HEDGE ACCOUNTING

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

Maturing after 1 year

Hedged items

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

Interest-rate swaps:
Accounting method,
Receive/floating andin principle
pay/fixed

Long-term debt

¥ 1,500,000—¥(7,421)

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

Long-term debt

14,000,000¥4,500,000*¥15,500,000¥4,500,000¥(7,421)

Total

Based on the amountprovided by counterparty
financial institutions* Special treatment of interest-rate swaps is reported at the fair value of applicable long-term debt. This is because such swaps are handled together with hedged
long-term debt.
Note 2: Redemption schedule for receivables
Due in 1 year or less
(In thousands of yen)

Cash and bank deposits¥16,245,674

Total¥16,245,674

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

Due after 1 year
through 2 years

Due after 2 years
through 3 years

Short-term debt

¥ 6,300,000

¥

¥

—

¥

Corporate bonds—

9,000,000———

3,000,000

Long-term debt

35,250,000

15,410,000

12,880,000

7,400,000

8,327,000

5,000,000

16.

—

—

Due after 3 years
through 4 years¥—

Due after 4 years
through 5 years¥

Due after
5 years—

INVESTMENT AND RENTAL PROPERTIES

11th Fiscal Period (May 1, 2010 to October 31, 2010)
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 sheet and corresponding fair value of those properties are as follows:
Carrying value (In thousands of yen)
As of April 30, 2010

Net change

As of October 31, 2010

Fair value as of October 31, 2010
(In thousands of yen)

¥237,204,250¥(3,479,142)¥233,725,108¥209,597,000

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 were the sales of
two properties totaling ¥2,406,185 thousand, and depreciation amounting to ¥1,440,312 thousand.

Income and loss in the fiscal period ended October 31, 2010 for real estate for rental purposes is listed in Note 12,“BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUES AND PROPERTY-RELATED EXPENSES.”

26 |Kenedix Realty Investment Corporation Semiannual ReportStatements of Cash Flows (Unaudited)
Kenedix Realty Investment Corporation
For the period from November 1, 2009 to April 30, 2010 and the period from May 1, 2010 to October 31, 2010

In thousands of yen
From May 1, 2010
to October 31, 2010

From November 1, 2009
to April 30, 2010

¥ 2,608,056¥ 2,568,371

1,645,691

1,672,685

993,950932,081

1,144

12,537(57,116)

32,705

CASH FLOWS FROM OPERATING ACTIVITIESIncome before income taxes
Adjustments to reconcile income before income taxes to
net cash provided by operating activities:
Depreciation and amortization
Interest expense
Loss on retirement of fixed assets
Changes in assets and liabilities:
Rental receivables
Consumption tax refundable

48,30887,756

Accrued consumption tax

264,791(30,679)

Trade and other payables

73,500(4,781)

Rents received in advance(78,507)

111,665

2,406,185—

Property and equipment due to sale
Others, net(254,016)(331,498)

Subtotal

7,651,986

5,050,842(987,326)(905,953)

(640)

(752)

¥ 6,664,020¥ 4,144,137

Purchases of property and equipment(366,918)(16,241,402)

Proceeds from leasehold and security deposits received

337,128

1,436,443

Payments of leasehold and security deposits received(719,407)(664,470)—

1,000,000

Payments of restricted bank deposits(13,667)(165,814)

Proceeds from restricted bank deposits

146,978

66,354

Cash payments of interest expense
Cash payments of income taxes
Net cash provided by operating activities
CASH FLOW FROM INVESTING ACTIVITIES

Proceeds from withdrawal of time deposits

Others, net
Net cash used in investing activities

¥

—

330

(615,886)¥(14,568,559)

2,500,000

3,800,000

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term debt
Payment of short-term debt

(5,000,000)(5,000,000)

Proceeds from long-term debt

12,400,000

11,700,000

Payment of long-term debt

(10,301,500)(4,751,500)—

8,105,733

Proceeds from issuance of investment units
Payment of dividends
Net cash (used in) provided by financing activities(2,565,441)(2,101,910)(2,966,941)¥ 11,752,323

Net change in cash and cash equivalents

3,081,193

1,327,901

Cash and cash equivalents at the beginning of period

12,285,857

10,957,956¥15,367,050¥ 12,285,857

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

Kenedix Realty Investment Corporation Semiannual Report| 27

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (UNAUDITED)CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, deposits placed with banks and short-term investments which are highly liquid,readily convertible to cash and with insignificant risk of market value fluctuation, with maturities of three months or less from thedate of purchase.
CASH AND CASH EQUIVALENTS (UNAUDITED)Cash and cash equivalents consisted of the following as of October 31, 2010 and April 30, 2010:
In thousands of yen

Cash and bank deposits

As of October 31, 2010

As of April 30, 2010¥16,245,674¥13,297,791

Restricted bank deposits held in trust (Note 1).

(488,624)(621,934)

More than 3-month fixed deposits (Note 2) .

(390,000)(390,000)¥15,367,050¥12,285,857

Cash and cash equivalents

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

28 |Kenedix Realty Investment Corporation Semiannual ReportChallenge Breeds Opportunity.

Unitholders’ Information

KENEDIX Realty Investment Corporation (KENEDIXKenedix Realty Investment Corporation

REIT) successfully weathered one of the most turbulent periods in memory.

General Breakdown of Unitholders

Fiscal Periods: Six months ending April 30 and October 31
Individuals and others:
20,266 units
8.7%

Stock Listing: Real Estate Investment Trust Market of
the Tokyo Stock Exchange (Security Code: 8972)

KENEDIX-REIT emerged from adversity with renewedability to grow its dynamic portfolio. Over the medium
to long term, KENEDIX-REIT is targeting 400 billion yen
in assets while maintaining sustainable yields.

Strategy, Stability and Service
will drive this growth.

Transfer Agent: The Chuo Mitsui Trust and Banking
Company, Limited
2-8-4 Izumi, Suginami-ku, Tokyo 168-0063, Japan
Auditor: Ernst & Young ShinNihon LLC

Foreign corporations andindividuals: 93,412 units
40.0%

Financial institutions(including securities
companies): 115,505 units
49.5%
Other domestic corporations: 4,367 units
1.9%
Note: Figures are rounded to the first decimal place.

IR Schedule (11th and 12th periods)

October2010

DecemberJanuary
2011

April

June

July

End of 11th Period

Performance for11th Period is announced

Distributions forthe 11th Period are paid

End of 12th Period

Performance for12th Period is announced

Distributions forthe 12th Period are paid

Top Ten Unitholders (As of October 31, 2010)
Name

Contents

Units Held

Share of Outstanding UnitsJapan Trustee Services Bank, Ltd. (Trust Account)

35,46415.18%

Message from the CEO

2

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

27,132

11.61%An Overview of Newly Acquired and Sold Properties

5

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

26,951

11.53%The Master Trust Bank of Japan, Ltd. (Trust Account)

11,6795.00%

The Bank of New York, Treaty JASDEC Account

7,934

3.39%

BNP PARIBAS SECURITIES SERVICES LUXEMBOURG/JASDEC/HENDERSON HHF SICAV

6,700

2.86%

State Street Bank and Trust Company 505025

4,305

1.84%

Deutsche Securities Inc.

3,598

1.54%

The Chase Manhattan Bank, N.A. London Secs Lending Omnibus Account

3,439

1.47%

Special Features
Growth Driver: STRATEGY
Growth Driver: STABILITY
Growth Driver: SERVICE

680State Street Bank and Trust Company 505223

Corporate Governance

B

KENEDIX-REIT Portfolio Table

C

Financial Section

D

Unit Price Performance

Unitholders’ Information

S

Trading Volume

Disclaimer
This semiannual report includes translations of certain documents originally filed and made available in Japan in accordance with the Financial Instruments and Exchange Act of Japan. This
English-language semiannual report has been prepared solely for the convenience of readers outside Japan and is not intended to constitute a document for an offer to sell, or seeking an offer
to buy, any securities of KENEDIX-REIT.
English terms for Japanese legal, accounting, tax and business concepts used herein may not be precisely identical to the concept of the equivalent Japanese terms. With respect to any andall terms herein, including without limitation, financial statements, if there exist any discrepancies in the meaning or interpretation thereof between the original Japanese documents and English
translation contained herein, the original Japanese documents will always govern the meaning and interpretation.
Neither KENEDIX-REIT, Kenedix REIT Management, Inc. nor any of their respective directors, officers, employees, partners, unitholders, agents, affiliates nor their advisors shall be responsible or liable for the completeness, appropriateness, or accuracy of English translations or the selection of the portion(s) of any document(s) translated into English.
The financial statements of KENEDIX-REIT have been prepared in accordance with generally accepted accounting principles in Japan (Japanese GAAP), which may materially differ in certain
respects from the generally accepted accounting principles of other jurisdictions.
This semiannual report contains forward-looking statements. These statements appear in a number of places in this semiannual report and include statements regarding the intent, belief,
or current and future expectations of KENEDIX-REIT or Kenedix REIT Management, Inc. with respect to its business, financial condition and results of operations. In some cases, you can identify 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 othersimilar terminology. These statements are not guarantees of future performance and are subject to various risks and uncertainties. Actual results, performance or achievements, or those of theindustries in which we operate, may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. In addition, theseforward-looking statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise and involve known 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 are only valid as of the date of the information published herein. We disclaim any obligation to update or, except in the limited circumstances
required by the Tokyo Stock Exchange, announce publicly any revisions to any of the forward-looking statements contained in these documents.

Total

3,115

1.33%

130,31755.79%

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

Closing Price(units)(yen)

20,000 •• 1,000,000

11,000 •• 900,000

8,000 •

• 800,000

7,000 •

• 700,000

6,000 •

• 600,000

5,000 •

• 500,000

4,000 •

• 400,000

3,000 •

• 300,000

2,000 •

• 200,000

1,000 •

• 100,000

0•

•0
July

2005

Oct.

Apr.

2006

Oct.

Apr.

2007

Oct.

Apr.

2008

Oct.

Apr.

2009

Oct.

Apr.

Oct.

2010

Kenedix Realty Investment Corporation Semiannual Report| 29

Semiannual Report

11th Fiscal Period
May 1, 2010 – October 31, 2010

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

KDX HIRAKAWACHOKYODO (HONCHO)KDX TORANOMONKDX SHINJUKUKDX HAR UMI

HIEI KUDAN-KITA

KYODO (GINZA)KDX KOJIMACHIKENEDIX-REIT
Is Poised for Growth