Gearing up for
New Growth

10th Period

NAF Report | September 2010 – February 2011
http://www.naf-r.jp/english/index.html

Profile
Nippon Accommodations Fund Inc. (“NAF”) was incorporated as an investment
corporation on October 12, 2005 with an initial investment by Mitsui FudosanCo., Ltd. (“Mitsui Fudosan”), and was listed on the Tokyo Stock Exchange on
August 4, 2006 with assets of more than ¥100 billion. NAF invests inaccommodation assets* located mainly in the 23 wards of Tokyo. The
Investment Trust and Investment Corporation Act of Japan requires aninvestment corporation to be managed by an external entity. NAF’s assets aremanaged by Mitsui Fudosan Accommodations Fund Management Co., Ltd.
(“MFAFM”), a 100 percent subsidiary of Mitsui Fudosan.
*	Accommodation assets in this report are defined as rental apartments, corporate housing, dormitories/student apartments, serviced apartments andsenior residences. They do not include hotel properties.

Contents
NAF Snapshot.. ................................................. 1
NAF’s Two Core Strategies.. ............................... 2
To Our Stakeholders.. ........................................ 4
Portfolio Strategy............................................. 6
Topics.............................................................. 8
Portfolio Summary............................................ 10
Management‘s Discussion and Analysis............. 12
Financial Statements.. ....................................... 20
Notes to Financial Statements........................... 24
Independent Auditors’ Report.. .......................... 34

Facts and Figures
Rental Apartment
Investment Characteristics.. ............................
Corporate Structure and Governance.. .............
Primary Related Corporations.........................
Portfolio Policy...............................................
Corporate Data..............................................
Status of Unitholders.. ....................................

1
3
6
8
11
12

NAF Snapshot(As of February 28, 2011)

Profitability

96.5%

An occupancy rate of 96.5 percent

5.2%¥14,086

Net operating income (NOI) yield* of 5.2 percent

Distribution per unit of ¥14,086 for the 10th Period

Outstanding Portfolio¥186,976 million

Portfolio of 63 superior properties with a totalacquisition price of ¥186,976 million

288,353.68m2 / 6,464 units

6,464 units with a total rentable area of 288,353.68m2

90.0%

90.0 percent of portfolio located in the 23 wards of Tokyo

Financial Stability

A2, AA–, A+

Rated A2 by Moody’s; AA– by Rating and Investment Information;
and A+ (Long-term) and A-1 (Short-term) by Standard & Poor’s

54.6%

LTV (Loan-to-Value) ratio of 54.6 percent,ratio of long-term debt of 83.3 percent* Weighted average of annual NOI yield on the acquisition value of each property

Asset Growth (Acquisition Price Basis) / Occupancy Rate / Distribution per Unit
250,000 (Yen in millions)
100 Occupancy rate (%)

97.2

97.2

96.9

96.2

96.0

96.5

94.4

(Yen) 50,000

96.5

95.5

217,662200,000
80

Assets under management (left scale)
Distribution per unit (right scale)

180,027

150,000
60

100,000
40

140,001
August 2006:
Listed on the REIT
section of the Tokyo
Stock Exchange

108,2340038,98640,000186,976

30,000140,001

123,246

101,385
17,871

12,75050,00020

140,001

186,976

20,00014,366

14,461

14,587

13,626

14,567

13,74814,086

13,00010,00041,036 8,871

0Establishment March 31,
2006

February 28, August 31, February 29, August 31, February 28, August 31, February 28, August 31, February 28, August 31,
2011
2007
2007
2008
2008
2009
2009
2010
2010
2011
(Forecast)

NAF Report September 2010 – February 20111

NAF’s Two Core Strategies

1. Utilization of the Mitsui Fudosan Group■ Full and active use of the Mitsui Fudosan Group’s value chain from planning and development tomanagement and operation■ Access to investment opportunities through Mitsui Fudosan’s properties and its Group’s extensive

real estate information network
Operation, Planning/
Development of Accommodation Business

Mitsui Real Estate Sales

Market Research/
Analysis

REIT Management

Feedbackto Planning/
Development

Site Acquisition

Comprehensive
operating system
conducted by the
Mitsui Fudosan GroupManagement/
Operation

Provision of
Property Information

Planning and
DesignConstruction
Management/
SupervisionMarket Research / Analysis
Analysis of supply and demand trends using statistical
data, occupancy surveys of new properties and fixed
property observation. Examination of micro market
characteristics and needs based on representative data,
real estate brokers’ opinions, and historical occupancy
and rental data.

Site Acquisition
Development of site acquisition strategy based on
macro market and potential demand trends. An
extensive site information database supports property
development capabilities of all types from smallbuildings to complexes and large development
projects.

Leasing

Planning and Design
Property
Management

Property
Property
Management
Management

Residential Building
Maintenance

Residential
Building
Residential
Building
Maintenance
Maintenance2

InitialLeasing/
InitialLeasing/
TenantBrokerage
TenantBrokerage

Targeting of customers and development of property
concepts according to purpose, number of residents,
family structure and lifestyle. Strategic planning covers
specifications, grades and tastes suitable for target
demographics
and concepts, as well as design, safety,
Initial Leasing/
TenantBrokerageand maintenance.
function,
operation

Management / Operation

Leasing

Construction Management / Supervision

Working to understand tenant needs, and using the
feedback obtained in reinvestment and development.
The decision to reinvest in renewal and renovation isbased on appropriate investment return analysis. Valueadded services take advantage of economies of scale.

The leasing process includes individual planevaluation; discussions on living environment,competitive landscape and other conditions; and setting
rents. Other activities include creating a framework forconveying product appeal, using leasing specialists andmanaging a leasing agency network.

Management of the design and construction processusing real estate development expertise gained fromtenant feedback. Quality control includes a rental
apartment construction and design checklist, andfrequent on-site meetings and checks by professionals inconstruction, structures and facilities.

Nippon Accommodations Fund Inc.

2. Investment in Accommodation Assets■ Accommodation assets: newly developed residential properties created in response to ongoingsocial and lifestyle changes■ Objective: to maximize the value of accommodation assets by providing accommodations thatsatisfy diverse tenant needs

Real Estate for Living Accommodations

Serviced apartments

HotelsService provided

Senior residences
Corporate
housing/
Dormitories/
Student
apartments

Rentalapartments

Houses built for retail sale

Accommodation assets

High

Low
Short

Length of time/stayLong

Real estate for living accommodations is classified in relation to two axes,“length of time/stay” and “service provided.” Accommodation assets are defined as rental apartments,
corporate housing, dormitories/student apartments, serviced apartments and senior residences.

NAF Report September 2010 – February 20113

To Our Stakeholders

Aiming to increase unitholder
value, we are gearing up our
growth strategy and working
to make new progress.
During the six months ended February 28, 2011
(the “10th Period”), Japan’s economy shifted fromrecession to recovery due to factors including
improved corporate earnings and an upturn in capital
investment. However, various factors, including a highunemployment rate, continued to pose challenges. In
the residential rental market, near-term demand forrental housing is expected to remain steady in the 23
wa r d s o f To k y o, w h e r e N A F h a s c o n c e n t ra t e dapproximately 90 percent of its portfolio investment,
as well as in the centers of other major cities. Factors
behind this include the continuing influx of people
from other regions and growth in the number ofhouseholds because of an increase in the number ofs i n g l e - a n d t w o - p e r s o n h o u s e h o l d s. D e m a n d i s
e x p e c t e d t o e x c e e d su p p l y a s r e n t a l a p ar t m e n t
construction starts remain at a low level.
In this environment, Mitsui Fudosan Housing Lease
Co., Ltd., the master property management company,
and Mitsui Fudosan Accommodations FundManagement Co., Ltd., NAF’s asset managementcompany, conducted collaborative management andother activities. As a result, the occupancy rate for
NAF’s overall portfolio as of February 28, 2011
remained at a high level of 96.5 percent. Distribution
per unit was ¥14,086. This report presents the results
and operational status of NAF for the 10th Period.

4

Nippon Accommodations Fund Inc.

			

10th Period (Actual)

11th Period (Forecast)

12th Period (Forecast)			(Ended February 28, 2011)(Ending August 31, 2011)(Ending February 29, 2012)

Total revenues¥6,180 million¥7,461 million¥7,456 million

Operating income¥2,944 million¥3,332 million¥3,402 million

Net income¥2,200 million¥2,531 million¥2,648 million

Total assets

192,360 million——

LTV (Loan-to-value) ratio

54.6%

—

—

Distribution per unit (Yen)¥14,086¥13,000¥13,600

Assets under management
		Acquisition price basis¥186,976 million¥217,662 million¥217,662 million

		

Number of properties

63

82

82

Note: The above forecasts were announced on April 18, 2011.

After the close of the 10th Period, NAF issued newinvestment units through a public offering and a third-

Nippon Accommodations Fund Inc.
Management Team

party allocation in March 2011, and used the capitalprocured to help finance the acquisition of 19
properties. NAF will continue working to earn the trustof stakeholders, and requests their continued support
and cooperation.
May 2011

From left:	Michihiko Takabe, Yuji Yokoyama, Kosei Murakami,
Takeo Tomita, Hiroyuki Sodeyama

Kosei Murakami
Executive Director of Nippon Accommodations Fund Inc.
President and CEO of Mitsui Fudosan
Accommodations Fund Management Co., Ltd.

Yuji Yokoyama

Executive Director

Kosei Murakami

Executive Director

Takeo Tomita

Supervisory Director(Attorney at Law)

Michihiko Takabe

Supervisory Director(Attorney at Law)

Hiroyuki Sodeyama

Supervisory Director(Certified Public Accountant,Certified Public Tax Accountant)

NAF Report September 2010 – February 20115

Portfolio Strategy

Steady Portfolio Expansion
NAF has steadily expanded its portfolio, primarily by acquiring properties in the Park Axis series. NAF’s
portfolio as of August 31, 2011, the end of the 11th Period, is forecast to consist of 82 properties valued at¥217,662 million on an acquisition price basis.

Other
Accommodation
Assets250,000 Assets under management (Yen in millions)

217,662200,000

180,027
150,000

186,976

186,976

140,001
August 2006:
Listed on the REIT
section of the Tokyo
Stock Exchange

100,000

50,000101,385
Shibaura
IslandAir Tower

38,98641,036

Establishment

March 31,
2006

Okawabata
Apartment
Communities

OkawabApartmCommunOkawabApartmCommun0Units

February 28,
2007

August 31, February 28, August 31,
2010
2009
2010

February 28, August 31,
2011
2011
(Forecast)

2,761

4,256

6,464

6,214

6,464

8,519

A Portfolio Mainly Composed of Large-Scale Properties in the 23 Wards of Tokyo
Portfolio by Location

Portfolio by Acquisition Price

Portfolio by Property Age

Greater Greater GreaterOther Major
Other
Cities:
Major
Other
10%
Cities:
Major
10%
Cities: 10%
Tokyo: 3%
Tokyo: 3%
Tokyo: 3%

Less thanLess
1 year:than5%
Less
1 yearthLess thanLess than
Less
than
More thanMore
thanMore than¥2 billion:¥2 billion:¥2¥10billion:
3 Central3 Central3 Central¥10 billion:
billion:¥10 billion:
29%
Wards Wards Wards
21% 29%21% 29%21%(45 properties)(45 properties)(45(2properties)
Tokyo:of38%
Tokyo: 38% (2 properties)
of Tokyo:of38%(2 properties)
properties)
23 Wards23ofWards23ofWards ofTokyo Wards
Tokyo Wards
Tokyo Wards
Tokyo: 86%
Tokyo: 86%
Tokyo:
86%
billion:– ¥10 billion:¥5 – ¥10 billion:¥5 – ¥10 ¥5
Other than
Other than
Other than
21% (6 properties)
21% (6 properties)21%¥2(6–properties)¥5 billion:¥2 – ¥5 billion:¥2 – ¥5 billion:
3 Central3 Central3 Central(21 29%properties)(21 properties)
29% (21 29%
properties)
Wards: 49%
Wards: 49%
Wards: 49%

86% in the 23 wards of Tokyo
Amount excluding
the Okawabata Apartment Communities ➤ ➤ ➤6Less thanLess thanLess than
2 years: 9%
2 years: 9%
2 years: 9%Less thanLess thanLess thanMore thanMorethan 18%
More than
3 years:
3 years: 18%
3 years: 18%
5 years: 46%
5 years: 46%
5 years: 46%
Less thanLess thanLess than
5 years: 27%
5 years: 27%
5 years: 27%

Average ¥2.8 billion per property

Average 6.6 years[ Average ¥2.4 billion per property ][ Average 4.1 years ]Large: 5%
Large: 5%
Large: 5%
More thanMore thanMore thanMore than–––¥300,000¥300,000¥300,000More thanMore than222
Notes: 1.	3 Central Wards of Tokyo includes Chiyoda, Chuo andMinato¥500,000:
wards;
GreaterTokyo¥500,000:(otherwards),
Kanagawa,
3% Tokyo
3% includes¥500,000:
1%the 231%¥500,000:3% ¥500,000:¥500,000:
1% than: 6%80m: 6%80mChiba: 6% and Saitama; Other Major Cities
80m
includes Sapporo, Sendai, Nagoya, Kyoto, Osaka, Kobe, Hiroshima and Fukuoka.
2.	Percentages for Portfolio by Location, Portfolio by Acquisition Price and Portfolio by Property Age are based on acquisition price. Average property age has been calculated using a2
2
60m2 – during the 11th Period.
– 60mfor–acquisition
weighted average based on acquisition price. Figures are based on¥200,000
the portfolio
2011,
properties60m
scheduled
Lessincluding
than
Less
thanLess– February– 28,than– as of¥200,000¥200,000
2
Family: 14%
Family: 14%
Family: 14%
Less thanLess thanLess
80m2: 12%80m2: 12%80mthan: 12%¥100,000:¥100,000:¥100,000:¥300,000:¥300,000:¥300,000:
30m2: 29%30m2: 29%30m2: 29%
26%
26%
26%
17%
17%
17%
Single: 39%
Single: 39%
Single: 39%2
2
2
Nippon Accommodations Fund Inc.
50m – 50m – 50m –60m2: 14%60m2: 14%60m2: 14%–––¥150,000¥150,000¥150,000¥200,000:¥200,000:¥200,000:¥100,000¥100,000¥100,000–––More thanMore th
5 years: 25%
5 years:

Less thanLess t
5 years: 5 yea
27%
27%

Portfolio Composition
Rental apartments have a lower earnings fluctuation risk than real estate leased for other uses. By
concentrating the majority of its portfolio in the 23 wards of Tokyo where demand for rental apartments isstrong, NAF achieves even greater earnings stability.
NAF aims for steady portfolio expansion centered on
properties in the high-quality Park Axis series planned andAdachi-ku
Itabashi-ku

developed by Mitsui Fudosan, complemented with

Kita-ku
Nerima-ku

acquisitions of properties that meet NAF’s proprietary

Katsushika-ku

Arakawa-ku
Toshima-ku
Bunkyo-ku

Taito-kustandards in the Park Cube series constructed by other

Sumida-ku

Nakano-ku
Shinjuku-ku
Suginami-ku

Edogawa-ku

Chiyoda-ku
Imperial
PalaceShibuya-ku

Minato-ku

5km

Koto-ku

10km

developers. In addition, NAF focuses investment on single
and compact apartments for which it expects highoccupancy rates, as well as on large-scale and relatively

Chuo-ku

new properties. Geographically, NAF invests mainly within
Setagaya-ku

the 23 wards of Tokyo while also acquiring carefully

Tokyo Bay
Meguro-ku

selected properties in major regional cities.

Shinagawa-ku

than5%
1
Less thanLess
1 year:5%
thanLess
1 year:
NAF has also begun investing in accommodation

Other
Major10%
Cities: 10%
Greater Greater GreaterOther Major
Cities:
10%
Other
Major
Cities:Tokyo: 3%
Tokyo: 3%
Tokyo: 3%

Less thanLess thanLess thanassets* other than rental apartments.
Rental apartments
Less
than
Less thanLess than
More
than
More thanMore than
2 years: 9%
2 years: 9%
2 years: 9%
assets ¥2 billion:¥2 billion:¥2 billion:
3 Central3 Central3 Central Other accommodation
Le
Mo
More thanMore than¥10 billion:¥10 billion:¥10
billion:Wards Wards Wards
52y
5 years: 25%
5 years: 25%
21% 29% 29%
21%
21% 29%
Less
than
Less
than
Less
than
(45
(45 properties)
Tokyo: 38% (2 properties)
of Tokyo:of38%
Tokyo:of38%*N(45
AFproperties)
defines accommodationasapartments, dormitories/(2properties)
properties)(2 properties)
More
thanrental
More thanMoreassets
than
3 years: 18%
3 years:18%
3 years: 18%
student apartments,5 serviced
apartments,
senior residences and corporate
5 years: 46%
years: 46%
5 years:46%
23 Wards23ofWards23ofWards of
Tokyo
Tokyo Wards
Tokyo Wards
68
L
Less thanLess thanLe
Tokyo: 86%
Tokyo:Wards
86%
Tokyo: 86%– ¥10 billion:¥5 – ¥10 billion:
billion:¥5 – ¥10 ¥5
housing.
Other than
Other than
Other than
5 years: 5 years: 35
Less thanLess thanLess than21%¥2
(6–properties)
21% (6 properties)
21% (6 properties)¥2 – ¥5 billion:¥5 billion:¥2 – ¥5 billion:
3 Central
3 Central
Note:
Portfolio
as 3ofCentral
February 28, 2011, including properties scheduled
for(21 29%
27%
27% 225 years: 27%
5 years: 27%
5 years: 27%(21 properties)
29%
properties)(2129%
properties)
Wards: the
49%11th Period.
Wards:
49%
Wards: during49%
acquisition
Ota-kuA Balanced Mix of Properties Centered on Single and Compact Units
Portfolio by Category
Large: 5%
Large: 5%
Large: 5%

Portfolio by Monthly Rent–
¥300,000–¥300,000¥300,000–
3%¥500,000:¥500,000:
3% ¥500,000:
3%

Family: 14%
Family: 14%
Family: 14%
Single: 39%
Single: 39%
Single: 39%

Compact:Compact:
42% Compact:
42% 42%

Portfolio by Unit Area

More thanMore thanMore thanMore thanMore thanMore than
1%2: 6%80m2: 6%80m2: 6%¥500,000:¥500,000:
1% ¥500,000:
1% 80mLess– thanLess than¥200,000–¥200,000¥200,000– thanLess¥100,000:¥100,000:¥100,000:¥300,000:¥300,000:¥300,000:
26%
26% 26%17%17% 17%–¥150,000–¥150,000¥150,000–¥200,000:¥200,000:¥200,000:¥100,000–¥100,000–¥100,000–21% ¥150,000:
21%
21% ¥150,000:
32% ¥150,000:
32% 32%60m2 – 60m2 – 60m2 –2
Less
Less thanLess than80mthan: 12%80m2: 12%80m2: 12%30m2: 29%30m2: 29%30m2: 29%22
2
50m – 50m – 50m –60m2: 14%60m2: 14%60m2: 14%2
– 2 –30m2 – 30m2 –40m
40m2 – 40m2 –30m
2
2 40m2: 24%
: 24%
50m
: 15% 40m2: 24%
50m2: 15%50m2:40m
15%

Percentage of single andcompact units: 82%

Average ¥151 thousand per unit

Average 43.7m2 per unit

[ 87% ][ Average ¥140 thousand per unit ][ Average 40.9m2 per unit ]3.	Percentages for Portfolio by Category, Portfolio by Monthly Rent and Portfolio by Unit Area are unit-based, excluding retail units. Figures are based on the portfolio as of February
28, 2011, including properties scheduled for acquisition during the 11th Period.
4. Totals may exceed 100 percent due to rounding.

NAF Report September 2010 – February 20117

Topics

19 Newly Acquired Properties
Rental Apartments

Other Accommodation Assets(Yen in millions)

Name of property

Acquisition pricePark Axis Kamata Ichibankan

1,069Park Axis Taito Negishi
Park Axis Komagome(Yen in millions)

Acquisition date

Name of property

672
1,389

Park Axis Itabashi Honcho
Nibankan

1,859

Shibaura Island Air Tower

7,905

Park Axis Yokohama Idogaya
Park Axis Chiba Shinmachi

March 1, 2011

Dormy Ashiya

928

Kawaijuku Kyoto Gakushin Ryo

991

Sundai Horikawa Ryo

916

Dormitory Rakuhoku

374

Rikkyo University International
Dormitory (RUID) Shiki

1,478

1,419

Dormy Naka Itabashi

1,041

1,679

Philosophia Nishidai

1,249

Dormy Musashi Kosugi

1,152

Total

8,129

Grand Total

30,686Park Axis Chiba

970

Park Axis Shin Sapporo

827Park Axis Esaka Hiroshibacho

2,369Park Axis Utsubo Koen

2,399

Total

22,557

April 1, 2011

March 1, 2011

Shibaura Island Air Tower
NAF invests in large-scale properties with the conviction that ample
shared facilities that fully satisfy tenant needs and the visibility of theseproperties maintain stable operating performance and asset value.
Exemplifying Mitsui Fudosan’s strength in developing large-scale properties,
Shibaura Island Air Tower consists of rental apartments (Air Tower) and retailstores (Air Terrace).
Air Tower Entrance
Bloom Homes
Bloom Tower(Senior residences, etc.) (Rental apartments)
Grove Tower(Condominiums)

Cape Tower (Condominiums)

Fitness club

8

Nippon Accommodations Fund Inc.

Acquisition price

Public facilities(Child-care facility, etc.)

Air Tower(Rental apartments)
Air Terrace

Platanus Park
Assets acquired

Acquisition date

March 1, 2011

Park Axis Series
NAF has steadily increased assets under management asa source of stable earnings, primarily by acquiring properties
in the Park Axis series of rental apartments developed by
Mitsui Fudosan. In the 11th Period, NAF newly acquired 10
Park Axis properties comprising 865 units. Including these
11th Period acquisitions, the Park Axis series accounts for 65
percent of NAF’s 82-property portfolio.
Park Axis Komagome

Park Axis Esaka Hiroshibacho

Rikkyo University International
Dormitory (RUID) Shiki

Philosophia Nishidai

Other Accommodation Assets
Having stabilized its earnings base by expanding the scaleof assets under management, and recognizing that certain
categories of the market for investment in other accommodation
assets have matured, NAF acquired eight dormitory andcorporate housing properties in the 11th Period. NAF has set
a near-term limit of 10 percent (acquisition price basis) for
the ratio of other accommodation assets to its overall
portfolio.

Issuance of New Investment Units
Moving to generate external growth through the acquisition of new properties, NAF issued new investment units
through a public offering and a third-party allocation in March 2011 after carefully considering issues including the current
loan-to-value (LTV) ratio, market trends and distribution levels following the issuance of new investment units. As a result,capital increased to ¥103,235 million and the total number of units issued and outstanding increased to 194,711. NAF
used the capital procured to help finance the acquisition of 19 properties in the 11th Period.
(1) Issuance of new investment units by public offering(2) Issuance of new investment units by third-party allocation

Number of units issued

Number of units issued

Issue priceTotal issue priceAmount paid in (issue value)

37,500 units¥593,872 per unit
¥22,270 million¥574,380 per unit

Total amount paid in (issue value)¥21,539 million

Payment date

March 1, 2011

1,033 units

Amount paid in (issue value)
Total amount paid in (issue value)
Payment date
Allottee¥574,380 per unit
¥593 million
March 28, 2011
Nomura Securities Co., Ltd.

NAF Report September 2010 – February 20119

Portfolio Summary(As of February 28, 2011, including properties scheduled for acquisition during the 11th Period (numbers in red and green).)No. Name

Location		

Chuo-ku, Tokyo				

Okawabata Apartment Communities

Acquisition Price (Note 1)(Yen in millions)

29,696

Portfolio Share Rentable Area
(%)

13.6

Rentable Units(sq. m.)		

43,812.41

(%)

544

		

River Point Tower						

4.5

		

Park Side Wings						

7.9

		

Pier West House						

7.0

		

Park Axis Gakugei Daigaku

Setagaya-ku, Tokyo

1,760

0.8

2,437.66

64

7.6

		

Park Axis Shibuya Jinnan

Shibuya-ku, Tokyo

3,230

1.5

2,766.62

75

6.8

		

Park Axis Aoyama Kotto DoriMinato-ku, Tokyo

1,730

0.8

1,537.24

40

7.0

		

Park Axis Kagurazaka Stage

Shinjuku-ku, Tokyo

1,400

0.6

1,891.05

59

7.5

		

Park Axis Shirokanedai

Minato-ku, Tokyo

5,140

2.4

4,704.44

99

8.7

		

Park Axis Bunkyo Stage

Bunkyo-ku, Tokyo

4,440

2.0

6,078.93

154

6.5

		

Park Axis Tsukishima

Chuo-ku, Tokyo

930

0.4

1,383.99

30

6.8

		

Park Axis Otsuka

Toshima-ku, Tokyo

1,655

0.8

2,606.37

52

6.4

		

Park Axis Minami Azabu

Minato-ku, Tokyo

3,939

1.8

3,938.14

64

7.4

		

Park Axis Shibuya

Shibuya-ku, Tokyo

1,283

0.6

1,094.28

20

7.9

		

Park Axis Nihonbashi Stage

Chuo-ku, Tokyo

7,558

3.5

10,025.40

184 Residential, 1 Retail, etc.

7.5

		

Park Axis Hamamatsucho

Minato-ku, Tokyo

2,025

0.9

2,426.45

80

7.1

		

Park Axis Hongo no Mori

Bunkyo-ku, Tokyo

2,910

1.3

3,317.94

86 Residential, 1 Retail, etc.

8.8

		

Park Axis Tameike Sanno

Minato-ku, Tokyo

2,860

1.3

2,710.69

70

8.2

		

Park Axis Roppongi Hinokicho Koen

Minato-ku, Tokyo

2,170

1.0

2,054.46

46

9.2

		

Park Axis Ochanomizu Stage

Bunkyo-ku, Tokyo

9,710

4.5

12,025.25

324

7.2

		

Park Axis Okachimachi

Taito-ku, Tokyo

1,070

0.5

1,621.73

42

6.8

		

Park Cube Hongo

Bunkyo-ku, Tokyo

1,760

0.8

2,160.12

60

8.2

		

Park Cube Kanda

Chiyoda-ku, Tokyo

2,454

1.1

3,194.59

95

8.9

		

Park Cube Ichigaya

Shinjuku-ku, Tokyo

1,794

0.8

2,127.50

51

6.8

		

Park Cube Asakusa Tawaramachi

Taito-ku, Tokyo

2,508

1.2

4,012.68

76

8.8

		

Park Cube Ueno

Taito-ku, Tokyo

2,233

1.0

3,041.61

91

7.5

		

Park Cube Ikebukuro Kanamecho

Toshima-ku, Tokyo

1,609

0.7

1,886.82

65

8.1

		

Park Axis Meguro Honcho

Meguro-ku, Tokyo

1,810

0.8

1,884.77

60

8.5

		

Park Axis Shin Itabashi

Itabashi-ku, Tokyo

3,430

1.6

4,395.99

152 7.3 East, 7.5 West		Park Axis Akihabara

Chiyoda-ku, Tokyo

1,200

0.6

1,346.07

41

7.4

		

Park Axis Toyocho

Koto-ku, Tokyo

3,950

1.8

5,412.40

140

10.8

		

Park Axis Takinogawa

Kita-ku, Tokyo

1,820

0.8

2,924.75

48 Residential, 1 Retail, etc.

5.8

		

Park Axis Asakusabashi

Taito-ku, Tokyo

2,717

1.2

3,400.78

78 Residential, 1 Retail, etc.

8.9

		

Park Axis Nihonbashi Hamacho

Chuo-ku, Tokyo

5,540

2.5

6,999.83

118

8.1

		

Park Cube Yoyogi Tomigaya

Shibuya-ku, Tokyo

1,975

0.9

1,929.10

38

7.4

		

Park Axis Monzen Nakacho

Koto-ku, Tokyo

1,700

0.8

1,886.39

55

10.1

		

Park Cube Itabashi Honcho

Itabashi-ku, Tokyo

4,170

1.9

5,317.07

165 Residential, 1 Retail, etc.

8.1

		

Park Cube Gakugei Daigaku

Meguro-ku, Tokyo

910

0.4

957.88

24

6.8

		

Park Cube Oimachi

Shinagawa-ku, Tokyo

1,440

0.7

1,511.12

65

10.0

		

Park Axis Nishigahara

Kita-ku, Tokyo

840

0.4

1,435.83

46

7.7

		

Park Axis Kinshicho

Sumida-ku, Tokyo

1,448

0.7

2,288.13

65

10.7

		

Park Axis Tatsumi Stage

Koto-ku, Tokyo

7,464

3.4

16,474.06

299 Residential, 1 Retail, etc.

10.0

		

Park Axis Kameido

Koto-ku, Tokyo

2,359

1.1

3,986.78

118

11.0

		

Park Axis Honancho

Nakano-ku, Tokyo

745

0.3

1,231.08

31

8.0

		

Park Axis Itabashi

Kita-ku, Tokyo

1,448

0.7

2,567.96

64

9.1

		

Park Axis Oshiage

Sumida-ku, Tokyo

1,193

0.5

2,121.29

57 Residential, 1 Retail, etc.

10.5

		

Park Axis Takadanobaba

Toshima-ku, Tokyo

1,222

0.6

1,463.25

36 Residential, 1 Retail, etc.

7.9

Notes: 1. Acquisition Price does not include acquisition-related expenses, property tax (to be capitalized) and consumption tax (not refundable for residential properties).
		 Amounts are rounded to the nearest million.
2. PML = Probable maximum loss

10

PML (Note 2)

Nippon Accommodations Fund Inc.

No. Name

Location

Rentable Units

PML (Note 2)		Park Axis Toyosu

Koto-ku, Tokyo

14,3006.6

25,537.94

401 Residential, 2 Retail, etc.

7.8

		

Park Axis Hatchobori

Chuo-ku, Tokyo

1,760

		

Park Axis Itabashi Honcho

Itabashi-ku, Tokyo

987

0.8

2,416.29

63 Residential, 1 Retail, etc.

9.1

0.5

2,048.31

66

		Park Axis Sumiyoshi

Sumida-ku, Tokyo

9.2

1,006

0.5

1,785.72

60

11.4

		

Park Cube Yotsuya Sanchome		Park Cube Hatchobori

Shinjuku-ku, Tokyo

2,749

1.3

3,599.82

130

8.7

Chuo-ku, Tokyo

4,200

1.9

5,191.86

118 Residential, 2 Retail, etc.

8.2

		
		

Park Axis Kamata Ichibankan

Ota-ku, Tokyo

1,069

0.5

1,721.28

63

9.5Park Axis Taito Negishi

Taito-ku, Tokyo

672

0.3

1,283.13

40

10.5

		

Park Axis Komagome

Toshima-ku, Tokyo

1,389

0.6

1,979.51

39 Residential, 1 Retail, etc.

8.5

		

Park Axis Itabashi Honcho Nibankan

Itabashi-ku, Tokyo

1,859

0.9

3,661.58

99

7.7

		

Shibaura Island Air Tower (Note 4)

Minato-ku, Tokyo

7,905

3.6

17,646.33

270 Residential, 2 Retail, etc.

				Acquisition Price (Note 1)(Yen in millions)Portfolio Share Rentable Area(%)(sq. m.)		

(%)

		

Air Tower						

2.3

		

Air Terrace						

8.7Tokyo 23 Wards Total		

181,140

83.2

259,262.67 5,520 Residential, 16 Retail, etc.

		Park Cube Keio Hachioji

Hachioji-shi, Tokyo

991

0.5

2,814.32

52

7.1

		

Park Cube Keio Hachioji II

Hachioji-shi, Tokyo

1,130

0.5

3,082.32

47 Residential, 1 Retail, etc.

7.6

		

Park Axis Nishi Funabashi

Funabashi-shi, Chiba

1,020

0.5

2,074.35

55

7.9

		

Park Axis Yokohama Idogaya

Yokohama-shi, Kanagawa

1,419

0.7

2,706.59

99 Residential, 1 Retail, etc.

11.4

		

Park Axis Chiba Shinmachi

Chiba-shi, Chiba

1,679

0.8

3,318.15

77 Residential, 7 Retail, etc.

11.1

		

Park Axis Chiba

Chiba-shi, Chiba

970

0.4

2,270.32

91

7.8

Greater Tokyo Total (Note 3)		

7,209

3.3

16,266.05

421 Residential, 9 Retail, etc.

		

2,440

1.1

5,565.13

169

4.1Park Axis Meieki Minami

Nagoya-shi, Aichi

		Park Axis Marunouchi

Nagoya-shi, Aichi

1,920

0.9

3,821.75

98 Residential, 1 Retail, etc.

6.1

		

Park Axis Ropponmatsu

Fukuoka-shi, Fukuoka

1,515

0.7

3,473.67

111 Residential, 1 Retail, etc.

2.2

		

Park Axis Hakataeki Minami

Fukuoka-shi, Fukuoka

1,890

0.9

4,668.29

176 Residential, 1 Retail, etc.

3.1

		

Park Axis Naka Gofukumachi

Fukuoka-shi, Fukuoka

742

0.3

2,707.88

112

2.8

		

Park Axis Shirakabe

Nagoya-shi, Aichi

1,547

0.7

4,735.89

86

6.1

		

Park Axis Sendai

Sendai-shi, Miyagi

2,320

1.1

8,843.17

204

5.7

		

Park Axis Hakata Minoshima

Fukuoka-shi, Fukuoka

960

0.4

3,461.85

112

2.9

		

Park Axis Takamiya Higashi

Fukuoka-shi, Fukuoka

605

0.3

2,289.21

70

2.3

		

Park Axis Sapporo Shokubutsuen Mae Sapporo-shi, Hokkaido

1,650

0.8

7,845.01

146

2.4

		

Park Axis Shin Sapporo

Sapporo-shi, Hokkaido

827

0.4

3,729.05

84 Residential, 1 Retail, etc.

2.5

		

Park Axis Esaka Hiroshibacho

Suita-shi, Osaka

2,369

1.1

4,309.24

130

11.2

		

Park Axis Utsubo Koen

Osaka-shi, Osaka

4,952.45

133

13.1

Other Major Cities Total		
Rental Apartments Total		

2,399

1.1

21,184
209,533

9.7
96.3

60,402.59 1,631 Residential, 4 Retail, etc.
335,931.31 7,572 Residential, 29 Retail, etc.

		

Dormy Ashiya

Ashiya-shi, Hyogo

928

0.4

2,826.00

140

10.0

		

Kawaijuku Kyoto Gakushin Ryo

Kyoto-shi, Kyoto

991

0.5

2,785.40

134

5.5

		

Sundai Horikawa Ryo

Kyoto-shi, Kyoto

916

0.4

2,043.32

113

6.9

		

Dormitory Rakuhoku

Kyoto-shi, Kyoto

374

0.2

1,035.00

69

6.5

		

Rikkyo University International		

Dormitory (RUID) Shiki

Shiki-shi, Saitama

1,478

0.7

2,293.20

126

5.4

		

Dormy Naka Itabashi

Itabashi-ku, Tokyo

1,041

0.5

1,911.00

105

7.1

		

Philosophia Nishidai

Itabashi-ku, Tokyo

1,249

0.6

2,184.00

120

8.3

1,152
8,129

0.5
3.7

1,996.47
17,074.39

111
918

8.3

217,662100.0

353,005.70

8,519

Kawasaki-shi, Kanagawa
		 Dormy Musashi Kosugi
Other Accommodation Assets Total		
Grand Total		

3. Greater Tokyo includes Tokyo (other than the 23 wards), Kanagawa, Chiba and Saitama.
4. Rentable units and rentable area for Shibaura Island Tower are calculated by multiplying NAF’s equity share (31%) by the property’s total rentable units (871 residential, 7retail, etc.) and total rentable area (56,923.63m2) and rounding to the nearest unit and one-hundredth of a square meter, respectively.

NAF Report September 2010 – February 201111

Management’s Discussion and Analysis

Summary of Selected Financial Data
Yen in millions

U.S. dollars in thousands(Except per unit data or
where otherwise indicated)

10th Period

9th Period(Note 1)
(Except per unit data)

8th Period

10th Period

September 1, 2010
to February 28, 2011

March 1, 2010 toAugust 31, 2010

September 1, 2009
to February 28, 2010

¥ 6,180
5,948
232
—
3,236
2,201
2,200

¥ 6,218
5,907
311
—
3,322
2,148
2,147

¥ 5,919
5,133
230
556
2,909
2,276
2,275

3,451
4,839
2,200
1,252
76

3,388
4,770
2,147
1,241
145

2,780
4,179
2,275
1,061
94

42,23559,222
26,924
15,322930

Total assets (c)Interest-bearing debt
Total net assets (d)192,360
105,000
83,303

192,479
105,000
83,250186,429
99,00083,3782,354,179
1,285,032
1,019,496

Total number of common units issued (units) (e)Net assets per unit (Yen/$) (d) / (e)Distribution per unit (Yen/$) (b) / (e)Funds from operations per unit (Yen/$) (Note 3)

156,178
533,383
14,08622,099156,178
533,045
13,74821,692

156,178
533,863
14,567
17,7996,527.76
172.39270.46

ROA (Note 4)(Annual rate)
ROE (Note 4)(Annual rate)
LTV (Loan-to-value) ratio (Note 3)
Capital ratio (d) / (c)Payout ratio (b) / (a) (Note 5)
Number of days in period

1.1%(2.3%)
2.6%(5.3%)
54.6%
43.3%
100.0%
181

1.1%(2.2%)
2.6%(5.1%)
54.6%
43.3%
100.0%
184

1.4%(2.8%)
3.1%(6.3%)
53.1%
44.7%
100.0%
181

Number of investment properties (Note 6)
Total rentable area (m2)
Average occupancy rate at end of period (Note 6)

63
288,35496.5%

63288,35495.5%

61
279,562
96.5%

Total revenues (Note 2)
Rental revenues
Other revenues related to property leasing
Gain on sale of investment properties
Operating expenses
Income before income taxes
Net income (a)Funds from operations (Note 3)
Net operating income from property leasing activities (Note 3)
Total amount of cash distribution (b)Depreciation and amortization
Capital expenditures

September 1, 2010
to February 28, 2011$

75,63372,794
2,839—
39,60326,937
26,924

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥81.71 = U.S.$1.00, the approximate exchange rate on February 28, 2011.
2. Total revenues do not include consumption tax.
3. Funds from operations: Net income + Depreciation and amortization – Gain on sale of investment properties
Net operating income from property leasing activities: (Revenues from property leasing – Rental expenses) + Depreciation and amortization
Funds from operations per unit: (Net income + Depreciation and amortization – Gain on sale of investment properties) ÷ Total number of units issued and outstanding at end of period
LTV ratio: Interest-bearing debt ÷ Total assets
4. ROA: Income before income taxes ÷ {(Initial total assets + Total assets at end of period) ÷ 2}
ROE: Net income ÷ {(Initial net assets + Net assets at end of period) ÷ 2}
The figures in parentheses are annualized based on the number of actual days in each period.
Annual equivalent amounts for the period ended February 28, 2011: Amount for the period ÷ Actual days in the period (181) x 365 days
Annual equivalent amounts for the period ended August 31, 2010: Amount for the period ÷ Actual days in the period (184) x 365 days
Annual equivalent amounts for the period ended February 28, 2010: Amount for the period ÷ Actual days in the period (181) x 365 days
Net assets and total assets used in calculating ROA and ROE are the respective beginning-of-period and period-end averages.
5. Payout ratio figures are calculated to one decimal place only.
6. Number of investment properties means properties generally perceived to be one residential building. Average occupancy rate at end of period is the ratio of gross leased area to total rentable areaat the end of the period.

12

Nippon Accommodations Fund Inc.

Overview
Investment Environment and Operating Performance
During the 10th Period, the six months ended February 28, 2011, Japan’s economy shifted from recession to recovery due to factors
including improved corporate earnings and an upturn in capital investment. However, various factors, including a high unemployment
rate, continued to pose challenges. Looking forward, the economic recovery is expected to continue as overseas economies improve andvarious government policies take effect, although the impact of the Great East Japan Earthquake is a concern.
In the residential rental market, although rents have continued to fall since the financial crisis, particularly at high-priced properties,
decreases have become incrementally smaller. In addition, near-term demand for rental housing is expected to remain steady in the 23
wards of Tokyo, where NAF has concentrated approximately 90 percent of its portfolio investment, as well as in the centers of othermajor cities. Factors behind this include the continuing influx of people from other regions and growth in the number of households
because of an increase in the number of single- and two-person households. Demand is expected to exceed supply as rental apartment
construction starts remain at a low level.
In the real estate investment and trading market, individuals and some businesses actively acquired properties, and private funds
appeared to be acquiring properties as well. In the J-REIT market, several investment corporations resumed property acquisitions. In
addition, asset replacement was conducted through mergers. As a result of these and other factors, the real estate investment and trading market trended toward recovery, while signs of decreasing capitalization rates became apparent.
No new properties were acquired during the 10th period. NAF’s asset portfolio as of February 28, 2011 consisted of 63 properties
valued at ¥186,976 million on an acquisition price basis, unchanged from the end of the previous period.
Mitsui Fudosan Housing Lease Co., Ltd., the master property management company (hereinafter “Master PM”), and Mitsui Fudosan
Accommodations Fund Management Co., Ltd. (hereinafter “MFAFM”), NAF’s asset management company, collaborate with the aim of
implementing effective management and operations at properties held by NAF in accordance with regional characteristics and the individual features of each property. Activities include rapid management and operations by the Master PM applying the portfolio management system, tenant recruiting suited to the circumstances of individual properties, streamlining of management cost reduction efforts,
interior renovations at Okawabata Apartment Communities, one of NAF’s principal properties, and provision of tenant services that meetvarious needs in accordance with the results of resident questionnaires. As a result of these activities, the occupancy rate for NAF’s overall portfolio as of February 28, 2011 remained at a high level of 96.5 percent.
As a result of the above, for the 10th Period, NAF recorded total revenues of ¥6,180 million, operating income of ¥2,944 million,
income before income taxes of ¥2,201 million and net income of ¥2,200 million.

Changes in Assets, Liabilities and Net Assets
Total assets as of February 28, 2011 were essentially unchanged, decreasing ¥119 million from August 31, 2010 to ¥192,360 million.
Total current assets increased ¥968 million to ¥5,181 million and total investment properties decreased ¥1,073 million to ¥187,056 million compared with August 31, 2010 as a result of normal depreciation.
During the 10th Period, while taking into account market trends and interest rate levels, NAF raised the ratio of long-term loans tototal interest-bearing debt and refinanced existing loans. As a result, interest-bearing debt as of February 28, 2011 was ¥105,000 million,
unchanged from August 31, 2010. The ratio of long-term debt to total interest-bearing debt was 83.3 percent, compared with 78.6 percent as of August 31, 2010. Excluding long-term loans due within one year, the ratio was 72.4 percent. The loan-to-value ratio, calculated
as interest-bearing debt divided by total assets at the end of the period, was 54.6 percent, unchanged from August 31, 2010.
Net assets totaled ¥83,303 million as of February 28, 2011. Unitholders’ capital was unchanged at ¥81,103 million, and retained earnings increased to ¥2,200 million from ¥2,147 million as of August 31, 2010.

NAF Report September 2010 – February 201113

Distributions to Unitholders
NAF determines the amount of cash distributions such that they exceed 90 percent of NAF’s retained earnings available for dividends
as set forth in Article 67-15 of the Special Taxation Measures Law of Japan. For the 10th Period, cash distributions totaled¥2,199,923,308, or ¥14,086 per unit.
Yen in thousands, except per unit amounts

10th Period

9th Period

8th Period

September 1, 2010
to February 28, 2011

March 1, 2010
to August 31, 2010

September 1, 2009
to February 28, 2010

Retained earnings
Undistributed earnings¥2,199,961
38¥2,147,193
58¥2,275,058
13

Total cash distribution(Per unit)
Distribution of retained earnings(Per unit)
Cash distribution in excess of retained earnings(Per unit)

2,199,923
14,086
2,199,923
14,086——

2,147,135
13,7482,147,135
13,748——2,275,045
14,5672,275,045
14,567——

Note: The above cash distributions were paid after the close of the period.

Funding
Balance of Paid-in Capital
NAF was established on October 12, 2005 with initial paid-in capital of ¥100 million. NAF began investing activities on November 29,
2005 after ¥21,140 million was raised through private placement. As of February 28, 2011, NAF had issued 156,178 investment units outof 2,000,000 total authorized units. NAF’s investment units were listed on the J-REIT section of the Tokyo Stock Exchange in August 2006
upon the completion of a public offering. As the Investment Trust and Investment Corporation Act of Japan does not contain any provision
for the issue of more than one class of units, NAF’s investment units comprise the sole class of units authorized and issued by NAF.
Units outstanding
Issue date

Remarks

Increase

Balance(Units)

October 12, 2005
November 29, 2005
August 3, 2006
September 4, 2006
November 4, 2009
December 1, 2009

Initial capital (private)
Private placement
Public offering
Third party allocation
Public offering
Third party allocation200
42,28067,2003,800
42,000698

Paid-in capital
Increase

200
42,480109,680
113,480
155,480
156,178¥ 100
21,14037,612
2,127
19,795329

Notes: 1. NAF was established with initial capital of ¥500,000 per unit.
2. Follow-on private offering at ¥500,000 per unit to raise funds for acquisition of investment properties.
3. Public offering of new units for ¥580,000 per unit (excluding underwriting fee: ¥559,700) to fund property acquisition.
4. Additional issue of new units (third party allocation) for ¥559,700 per unit undertaken pursuant to the public offering in Note 3.
5. Public offering of new units for ¥487,910 per unit (excluding underwriting fee: ¥471,311) to fund property acquisition.
6. Additional issue of new units (third party allocation) for ¥471,311 per unit undertaken pursuant to the public offering in Note 5.

14

Nippon Accommodations Fund Inc.

Balance

Notes(Yen in millions)¥ 100
21,24058,85260,97980,774
81,103Note 1
Note 2
Note 3Note 4Note 5Note 6

Management’s Discussion and Analysis

Market Price of Units
High/Low (closing price) of units on the Tokyo Stock Exchange:
10th Period
September 1, 2010 to
February 28, 2011

9th Period
March 1, 2010 toAugust 31, 2010

8th Period
September 1, 2009 to
February 28, 2010

7th Period
March 1, 2009 toAugust 31, 2009

6th Period
September 1, 2008 to
February 28, 2009

(Yen)

(Yen)

(Yen)

(Yen)

(Yen)

High

¥639,000¥492,500¥526,000¥515,000¥538,000Low

464,500

438,000

443,000

361,000

371,000

Borrowings
Borrowings by financial institution as of February 28, 2011 are shown below.
Short-term loans
LenderSumitomo Mitsui Banking
Corporation
The Hachijuni Bank, Ltd.
Mitsubishi UFJ Trust andBanking Corporation
The 77 Bank, Ltd.
The Chuo Mitsui Trust andBanking Company, Limited
The Bank of Fukuoka, Ltd.
Total short-term loans(Yen in millions)

Balance

Interest rate
(Note 1)

Date of maturity(Note 2)

¥ 5,000

0.6%

March 14, 2011

1,000

0.6%

April 25, 2011

5,000

0.6%

March 10, 2011

1,000

0.6%

April 28, 2011

3,500

0.6%

March 14, 2011

2,000
¥17,500

0.6%

March 15, 2011

Repayment
methodBulletpayment

Use offunds(Note 3)

Notes

Unsecured/unguaranteed/pari passu(Note 4)
Fixed rate

NAF Report September 2010 – February 201115

Long-term loans
LenderSumitomo Mitsui Banking
Corporation

The Chuo Mitsui Trust andBanking Company, Limited
The Sumitomo Trust andBanking Co., Ltd.
The Bank of Tokyo-Mitsubishi
UFJ, Ltd.
Nippon Life Insurance Company

Development Bank of Japan Inc.

The Hachijuni Bank, Ltd.

Mizuho Corporate Bank, Ltd.
The Chugoku Bank, Limited
Shinsei Bank, Limited
Shinkin Central Bank
The Bank of Fukuoka, Ltd.
Mitsubishi UFJ Trust andBanking Corporation
Total long-term loans
Total borrowings(Yen in millions)

Balance

Interest rate
(Note 1)

Date of maturity(Note 2)

¥ 5,500
2,000
4,000
5,000
2,000
2,000
3,000

1.6%
1.6%
1.7%
0.7% (Note 5)
1.6%
1.7%
0.7% (Note 5)

March 22, 2011
November 29, 2013
May 30, 2014
November 30, 2015
November 29, 2013
May 30, 2014
November 30, 2015

3,000

1.8%

November 30, 2012

2,000

1.6%

March 5, 2015

2,000
1,000
3,000
3,000
5,000
5,000
1,000
1,000
1,000
1,000
2,000
2,000
2,000
1,000
3,000
3,000
2,000
1,000

1.3%
1.5%
2.1%
2.2%
2.1%
1.2%
1.5%
1.5%
1.2%
1.6%
1.6%
1.6%
1.6%
1.6%
1.7%
1.6%
1.6%
1.4%

February 28, 2017
February 28, 2018
April 11, 2012
April 11, 2013
August 6, 2013
October 18, 2017
September 14, 2012
May 31, 2013
April 11, 2014
April 19, 2011
October 12, 2011
November 29, 2013
April 19, 2011
April 19, 2011
October 12, 2012
November 29, 2013
October 31, 2012
July 8, 2013

3,000

1.7%

May 30, 2014

Repayment
methodBulletpayment

Use of
funds

Notes

(Note 3)

Unsecured/unguaranteed/pari passu(Note 4)

¥70,500¥88,000

Notes: 1. The interest rate is presented by loan from each lending institution and is rounded to the nearest tenth. The weighted average interest rate is presented for the outstanding balance of short-term borrowings if the institution has provided more than one short-term loan.
2. The earliest maturity of short-term borrowings is presented if the institution has provided more than one short-term loan.
3. Use of the proceeds of debt financing included purchase of property or real estate trust beneficiary interests, refinancing of other borrowings, and operating expenses.
4. The loan agreements between NAF and each financial institution stipulate that the above borrowings from all financial institutions rank pari passu to each other.
5. From February 28, 2011 to March 30, 2011.
6. The expected annual maturities of long-term borrowings within five years (excluding maturities within one year) of the balance sheet date are as follows.
(Yen in millions)

Amount16

Nippon Accommodations Fund Inc.

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥12,000¥19,000¥10,000¥10,000

Management’s Discussion and Analysis

Bonds
Issue

Issue date

Balance as ofFebruary 28, 2011
(Yen in millions)

Coupon¥10,000

1.7%

7,000

1.2%

No. 1 unsecured November 15,
bonds
2007
No. 2 unsecured
July 30,
bonds
2010
Total

Maturitydate

Redemption

Use ofproceeds

Notes

November 14,
2014
July 29,2016

Bulletpayment

Note 1

Note 2¥17,000

Notes: 1. Use of proceeds includes repayment of borrowings.
2. This bond is only issued to rank pari passu with other bonds issued.

Capital Expenditures
1. Planned
NAF is planning the following capital expenditures for the renovation of its properties. The amounts below include repairs and maintenancecosts that will be expensed as incurred. Moreover, in addition to a steady program of expenditures for construction, repair and renovationof facilities, a program of renewal construction is being implemented in order to increase competitive power in the market as well as toincrease the level of tenant satisfaction.
Estimated amounts
Name of property

Objective

Estimated duration

Total amounts

Payment for thecurrent period(September 1, 2010
to February 28, 2011)

Cumulative
amount paid

(Yen in millions)Okawabata
Apartment
Communities,
Other Properties

Renovation of common use areas,
etc.

From March 2011
to August 2011

¥45

¥—

¥—

Renewal of common use areaequipment, etc.

From March 2011
to August 2011

17

—

—

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NAF posted ¥76 million in capital expenditures together
with ¥189 million for repairs and maintenance expenses.
Name of property

Objective

Expenditure

Period(Yen in millions)Okawabata Apartment
Communities

Expansion of bicycle parking lot, replacementof bicycle rack

From July 2010
to November 2010¥11

Okawabata Apartment
Communities, Other Properties

Renovation of rentable areas, etc.

From September 2010
to February 201135

Other Properties

Renewal of common use area equipment, etc.,
other construction

From September 2010
to February 2011

30

Total

¥76

NAF Report September 2010 – February 201117

3. Cash Reserve for Capital Improvements
NAF accumulates a cash reserve from cash flows to prepare for large-scale mid-term to long-term capital improvements and repairs andmaintenance that will be conducted in accordance with NAF’s business plan for each property.
Yen in millions
As of February 28, 2011

As of August 31, 2010

As of February 28, 2010

¥704
23
77
¥650

¥590
250
136
¥704

¥529
165
104
¥590

Reserve balance at the beginning of the period
Amount accumulated in the current period
Withdrawal from reserves in the current period
Amount carried forward

Expenses regarding Entrustment, etc.
The following table sets forth the breakdown of entrustment fees, etc. paid by NAF.
Yen in millions

10th Period

Item

Asset management fees
Asset custody fees
Agent fees (stock transfer, accounting and administrative)
Directors’ remuneration
Auditor’s fees
Other expenses
Total

Related Party Transactions(1) Transactions
None applicable

18

Nippon Accommodations Fund Inc.

9th Period

8th Period

September 1, 2010
to February 28, 2011

March 1, 2010
to August 31, 2010

September 1, 2009
to February 28, 2010

¥441
9
26
8
13
146

¥440
9
28
8
14
136

¥433
7
22
10
14
177

¥644

¥634

¥664

Management’s Discussion and Analysis(2) Fees Paid for the Period from September 1, 2010 to February 28, 2011
Description of transactions with related parties (Note 1)
Category

Total fees paid (A)(Yen in millions)

Paid toAmount ofpayment (B)

B/A(Note 2)

(Yen in millions)

Property management fees

¥426

Mitsui Fudosan Housing Lease Co., Ltd.

¥426

100.0%

Building management fees

227

Mitsui Fudosan Housing Lease Co., Ltd.

227

100.0%RESIDENT FIRST CO., LTD.

23

17.8%

Mitsui Rehouse Tokyo Co., Ltd.

2

1.2%

MITSUI HOME ESTATE CO., LTD.

1

0.5%

Mitsui Real Estate Sales Kyusyu Co., Ltd.

1

0.4%

Mitsui Real Estate Sales Sapporo Co., Ltd.

0

0.4%

Mitsui Real Estate Sales Tohoku Co., Ltd.

0

0.3%

Mitsui Rehouse Nagoya Co., Ltd.

0

0.0%

Leasing related service fees

128(3) Other Payments to Related Parties
None applicable
Notes: 1. “Related parties” means parties defined in the government ordinance regarding the Investment Trust and Investment Corporation Act of Japan, principally, parties
related to an asset management company.
2. Figures indicate percentages of total price.

NAF Report September 2010 – February 201119

Financial Statements

Balance Sheets
Nippon Accommodations Fund Inc.
As of February 28, 2011 and August 31, 2010

U.S. dollars in thousands

Yen in millions

10th Period

AssetsCurrent assets:
Cash and cash equivalents
Rent receivables
Consumption tax receivables and other current assets
Total current assets
Investment properties (Note 4):
Land including trust accounts
Depreciable property andimprovements including trust accounts
Accumulated depreciation
Total investment properties
Other assets
Total Assets(Note 1)

9th Period

10th Period

As of February 28, 2011

As of August 31, 2010

As of February 28, 2011

¥ 4,178
874
129
5,181

¥ 3,339
847
27
4,213

119,580

119,559

1,463,468

75,787(8,311)
187,056
123¥192,360

75,629(7,060)188,128
138¥192,479

927,512(101,713)
2,289,267
1,505$2,354,179¥ 17,500
11,500
521
1,008
369
30,898¥ 22,500
20,500703
983
380
45,066$ 214,172
140,7426,376
12,336
4,516
378,142

59,00017,0002,159
78,159¥109,057

45,00017,0002,163
64,163¥109,229

722,066
208,053
26,423
956,541$1,334,684

81,1032,200¥ 83,303¥192,360

81,103
2,147¥ 83,250¥192,479

992,571
26,924$1,019,496$2,354,179$

51,132
10,696
1,579
63,407

Liabilities and Net Assets
Liabilities
Current liabilities:
Short-term loans (Note 5)Long-term loans due within one year (Note 5)
Accounts payable
Rent received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term liabilities:
Long-term loans (Note 5)
Bonds (Note 5)
Tenant security deposits
Total long-term liabilities
Total Liabilities
Net Assets
Unitholders’ capital (Note 6)
Retained earnings
Total Net Assets
Total Liabilities and Net Assets
The accompanying notes to financial statements are an integral part of these statements.

20

Nippon Accommodations Fund Inc.

Statements of Income
Nippon Accommodations Fund Inc.
September 1, 2010 to February 28, 2011, March 1, 2010 to August 31, 2010 and September 1, 2009 to February 28, 2010

U.S. dollars in thousands

Yen in millions

10th Period

Revenues (Notes 7 and 8):
RentalOther revenues related to property leasing
Gain on sale of investment properties
Total Revenues
Operating Expenses (Note 7):
Property management fees
Real estate taxes and insurance
Repairs and maintenance
Other rental expenses
Depreciation and amortization
Asset management fees
Other expenses
Total Operating Expenses
Operating Income
Interest and other income
Interest expense
New investment unit issue costs
Other expenses
Income before Income Taxes
Current and deferred income taxes (Note 9)
Net Income

9th Period(Note 1)

8th Period

10th Period

September 1, 2010
to February 28, 2011

March 1, 2010 toAugust 31, 2010

September 1, 2009
to February 28, 2010

September 1, 2010
to February 28, 2011

¥5,948232—
6,180¥5,907311—
6,218¥5,133
230
556
5,919

$72,794
2,839—
75,633

674
245
189
233
1,252
441
202
3,236
2,944
4
(738)
—
(9)
2,201
1
¥2,200

707
246
255
239
1,241
440
194
3,322
2,896
6
(748)
—
(6)
2,148
1
¥2,147

590
176
207
211
1,061
433
231
2,909
3,010
3
(666)
(64)
(7)
2,276
1
¥2,275

8,249
2,998
2,313
2,852
15,3225,397
2,472
39,60336,03049(9,032)—(110)
26,937
12$26,924

The accompanying notes to financial statements are an integral part of these statements.

NAF Report September 2010 – February 201121

Statements of Changes in Net Assets
Nippon Accommodations Fund Inc.
For the period from September 1, 2009 to February 28, 2011

Yen in millions

Balance as of August 31, 2009
Cash distribution declaredIssuance of new units through public offering as ofNovember 4, 2009
Issuance of new units through allocation to a third party
as of December 1, 2009
Net income
Balance as of February 28, 2010
Cash distribution declared
Net income
Balance as of August 31, 2010
Cash distribution declared
Net income
Balance as of February 28, 2011

Number of
Units

Unitholders’CapitalRetained
Earnings

Total

113,480¥60,979¥ 1,546¥62,525——(1,546)(1,546)42,00019,795—

19,795

698
—

329
—

—
2,275

329
2,275

156,178

81,1032,275

83,378————(2,275)2,147(2,275)2,147

156,178

81,103

2,147

83,250————(2,147)2,200(2,147)2,200

156,178¥81,103¥ 2,200¥83,303

U.S. dollars in thousands (Note 1)

Balance as of August 31, 2009
Cash distribution declaredIssuance of new units through public offering as ofNovember 4, 2009
Issuance of new units through allocation to a third party
as of December 1, 2009
Net income
Balance as of February 28, 2010
Cash distribution declared
Net income
Balance as of August 31, 2010
Cash distribution declared
Net income
Balance as of February 28, 2011
The accompanying notes to financial statements are an integral part of these statements.

22

Nippon Accommodations Fund Inc.

Number of
Units

Unitholders’CapitalRetained
Earnings

113,480$746,286$ 18,921$ 765,206——(18,921)(18,921)42,000242,259—242,259

698
—

4,026
—

—
27,842

4,026
27,842

156,178

992,571

27,842

1,020,414

—
—

—
—

(27,842)
26,276(27,842)
26,276

156,178

992,571

26,276

1,018,847

—
—

—
—

(26,276)
26,924(26,276)
26,924

156,178$992,571$ 26,924$1,019,496

Total

Financial Statements

Statements of Cash Flows
Nippon Accommodations Fund Inc.
September 1, 2010 to February 28, 2011, March 1, 2010 to August 31, 2010 and September 1, 2009 to February 28, 2010

U.S. dollars in thousands

Yen in millions

10th Period

September 1, 2010
to February 28, 2011

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
New investment unit issue costs
Amortization of bond issue costs
Interest expense(Increase) Decrease in rent receivables
Increase (Decrease) in accounts payable
Increase (Decrease) in rents received
in advance
Decrease in investment properties
due to sale
Cash payments of interest expense(Increase) Decrease in consumption tax
refund receivable
Other, net¥

Net Cash Provided by (Used in) Financing Activities
Net Change in Cash and Cash Equivalents
Cash and Cash Equivalents at the Beginningof the Period
Cash and Cash Equivalents at the Endof the Period

September 1, 2010
to February 28, 2011

25

19

266

306

—
(757)

—
(718)

2,543
(655)

—
(9,264)

—
(86)
3,171

142
11
3,663

(142)
11
6,049

—
(1,053)38,808

(179)
247
(251)
(2)
(185)

(7,689)
336
(291)
(8)
(7,652)(44,022)
822
(257)
(3)
(43,460)(2,191)
3,023(3,072)(24)(2,264)99,000(104,000)
16,000(11,000)———(2,147)(2,147)
839

124,500(127,500)
3,000(1,000)
7,000
(40)
—
(2,269)
3,691
(298)

94,000(92,000)
20,000(4,000)——20,060(1,546)36,514(897)

1,211,602(1,272,794)
195,814(134,622)———(26,276)(26,276)
10,268

3,339

3,637

4,534

40,864

3,339¥ 3,637

Net Cash Used in Investing Activities

¥

4,178

¥

September 1, 2009 to
February 28, 2010

10th Period¥ 2,276
1,061
64
4
666
(240)
195

Cash Flows from Investing Activities:
Payments for purchases ofinvestment properties
Proceeds from tenant security deposits
Payments for tenant security deposits
Other, net
Cash Flows from Financing Activities:
Proceeds from short-term loans
Repayment of short-term loans
Proceeds from long-term loans
Repayment of long-term loans
Proceeds from bonds
Payments for bond issue costs
Proceeds from issuance of investment units
Payment of distribution

March 1, 2010
to August 31, 2010

(Note 1)

8th Period

2,148
1,241
—
5
748
(8)
75

Net Cash Provided by Operating Activities

2,201
1,252
—
7
738
(27)
(182)

9th Period

¥

$

$

26,937
15,322
—
86
9,032
(330)
(2,227)

51,132

The accompanying notes to financial statements are an integral part of these statements.

NAF Report September 2010 – February 201123

Notes to Financial Statements
Nippon Accommodations Fund Inc.
September 1, 2010 to February 28, 2011, March 1, 2010 to August 31, 2010 and September 1, 2009 to February 28, 2010

Note 1

Organization and Basis of Presentation

Organization
Nippon Accommodations Fund Inc. (hereinafter “NAF”) was formed on October 12, 2005 as an investment corporation under theInvestment Trust and Investment Corporation Act of Japan with Mitsui Fudosan Accommodations Fund Management Co., Ltd. (hereinafter“MFAFM”) acting as a sponsor. Registration with the Kanto Local Finance Bureau of the Ministry of Finance was completed on November
11, 2005 and NAF started acquisition of properties on November 30, 2005.
NAF is an externally managed real estate fund, formed as an investment corporation. MFAFM, as NAF’s asset management company, isengaged in acquiring, managing, leasing, and renovating accommodation assets. MFAFM is a 100% subsidiary of Mitsui Fudosan Co., Ltd.
On August 3, 2006, NAF had raised approximately ¥40,000 million through an initial public offering of investment units. Those investment units are listed on the J-REIT section of the Tokyo Stock Exchange.
As of February 28, 2011, NAF had ownership or beneficiary interests in 63 properties containing approximately 288,354 square metersof rentable space. As of February 28, 2011, NAF had leased approximately 278,233 square meters to tenants. The occupancy rate for theproperties was approximately 96.5%.

Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust andInvestment Corporation Act of Japan and the Financial Instruments and Exchange Law of Japan and its related accounting regulations, and in
conformity with accounting principles generally accepted in Japan (hereinafter “Japanese GAAP”), which are different in certain respects as toapplication and disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements have been restructured and translated into English from the financial statements of NAF preparedin accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Financial
Instruments and Exchange Law. Some supplementary information included in the statutory Japanese language financial statements, but notrequired for fair presentation, is not presented in the accompanying financial statements. NAF does not prepare consolidated financial statements, as NAF has no subsidiaries.
The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using theapproximate exchange rate on February 28, 2011, which was ¥81.71 to U.S. $1. The convenience translation should not be construed as representation that the Japanese yen amounts have been, or could in future be, converted into U.S. dollars at this or any other rate of exchange.

Note 2

Summary of Significant Accounting Policies

Cash and Cash Equivalents
NAF considers all highly liquid investments with original maturity of three months or less to be cash and cash equivalents.

Investment Properties
Investment properties are recorded at cost, which includes the allocated purchase price and related costs and expenses for acquisitionof the properties and the beneficiary interests of properties in trust. Property and equipment balances are depreciated using the straightline method over the estimated useful lives. The estimated useful lives of the principal investment properties (including assets held in trust)
are as follows:

24

Buildings and improvements

2-47 years

Structures

3-60 years

Machinery and equipment

7-45 years

Tools, furniture and fixtures

2-15 years

Nippon Accommodations Fund Inc.

Costs related to the renovation, construction and improvement of properties are capitalized. Expenditures for repairs and maintenancewhich do not add to the value or prolong the useful life of a property, are expensed as incurred.

Deferred Assets
New unit issue costs are charged to income when incurred.
Bond issue costs are amortized over the period of the bonds under the straight-line method.

Income Taxes
Income taxes are accounted for on the basis of income for financial statement purposes. The tax effect of temporary differences
between the amounts of assets and liabilities for financial statements and for income tax purposes is recognized as deferred taxes.

Real Estate Taxes
NAF-owned properties are subject to taxes including property tax, city planning tax and depreciable asset tax. Taxes for each fiscal
period are charged to income on an accrual basis.
The owner of properties is registered in a record maintained by the local government in each jurisdiction, and the taxes are imposed on
the owner registered in the record, as of January 1, based on the assessment made by the local government.
When the property is purchased before January 1 of any given calendar year, these taxes for the previous year are imposed on the seller. The Company pays the seller the corresponding tax amounts for the period from the property’s transfer date to December 31 of theprevious year as part of the purchase prices of each property, and capitalizes these amounts as the cost of the property. There was no capitalized property tax for the period ended February 28, 2011.

Accounting Treatment of Beneficiary Interests in Trust Assets including Real Estate
For trust beneficiary interests in real estate, all assets and liabilities associated with assets in trust as well as all income generated andexpenses incurred from assets in trust are recorded in the relevant balance sheet and income statement accounts.

Note 3

Change in Accounting Policy

Adoption of Accounting Standard for Asset Retirement Obligations
Effective from the period ended February 28, 2011, NAF adopted the ”Accounting Standard for Asset Retirement Obligations”(Accounting Standards Board of Japan (”ASBJ”) Statement No. 18 issued on March 31, 2008) and the ”Guidance on Accounting Standard for
Asset Retirement Obligations” (ASBJ Guidance No. 21 issued on March 31, 2008). This did not affect earnings as NAF had no applicable
asset retirement obligations.

NAF Report September 2010 – February 201125

Note 4

Schedule of Investment Properties

Investment properties as of February 28, 2011 and August 31, 2010 consisted of the following:
Yen in millions

As of February 28, 2011
Acquisition
costs

Accumulated
depreciation

As of August 31, 2010

Book value

Acquisition
costs

—
—

¥ 74,445
45,134¥ 74,425
45,134

119,580—

119,580

Buildings and improvements
Buildings and improvements in trust

52,134
19,248(4,315)(2,844)

Building and improvements
including those in trust total
Structures
Machinery and equipment
Tools, furniture and fixtures
Construction in process
Structures in trust
Machinery and equipment in trust
Tools, furniture and fixtures in trust
Construction in process in trust

71,382
1,131
1,186
689
—
896
178
317
9

Other investment properties total

Land
Land in trust¥ 74,445
45,134

Land including trust total

Total

Note 5¥

Accumulated
depreciation¥

Book value——¥ 74,425
45,134

119,559—

119,559

47,81916,40452,04019,187(3,545)(2,538)48,495
16,648(7,159)
(199)
(223)
(324)
—
(150)
(53)
(204)
—

64,223
932
963
365
—
746
125
113
9

71,226
1,131
1,186
689
—
896
178
314
10

(6,083)
(164)
(169)
(274)
—
(135)
(44)
(190)
—

65,143
966
1,017
415
—
761
134
124
10

4,406

(1,152)

3,253

4,403

(976)

3,426

¥195,367¥(8,311)¥187,056¥195,188¥(7,060)¥188,128

Short-Term Loans and Long-Term Debt

Short-term loans consist of short-term borrowings under loan agreements. The annual interest rates on short-term loans outstanding
are fixed rates and as of February 28, 2011 and August 31, 2010 ranged from 0.58% to 0.62% and from 0.66% to 0.77%, respectively.
Long-term debt consists of the following:
Yen in millions

Unsecured loans due 2011 to 2018 principallyfrom banks and insurance companies withinterest rates mainly ranging from 0.7% to 2.2%
1.7% unsecured bonds due 2014
1.2% unsecured bonds due 2016

As of February 28, 2011

As of August 31, 2010

¥70,500
10,0007,000¥65,500
10,0007,000¥87,500¥82,500

The annual maturities of long-term loans as of February 28, 2011 were as follows:
Yen in millions

2011
2012
2013
2014
Thereafter
26

Nippon Accommodations Fund Inc.

¥11,500
12,00019,00010,00018,000Notes to Financial Statements

Note 6Unitholders’ Capital

Total number of common units authorized
Total number of common units issued and outstanding

As of February 28, 2011

As of August 31, 2010

As of February 28, 2010

2,000,000
156,1782,000,000
156,1782,000,000
156,178

NAF shall maintain minimum net assets of at least ¥50 million as required by the Investment Trust and Investment Corporation Act of Japan.

Note 7

Rental Revenues and Expenses

Rental revenues and expenses for the periods ended February 28, 2011, August 31, 2010 and February 28, 2010 were as follows:
Yen in millions

10th Period

Revenues from Property Leasing:
Rental:Rental revenues
Facility charge
Subtotal
Other revenues related to property leasing:
Income from leasing rights, etc.
Miscellaneous income
Subtotal

9th Period

8th Period

September 1, 2010
to February 28, 2011

March 1, 2010
to August 31, 2010

September 1, 2009
to February 28, 2010

¥5,752
196¥5,713
194¥4,977
156

5,948

5,907

5,133

163
69

234
77

179
51

232

311

230

Total revenues from property leasing

6,180

6,218

5,363

Rental Expenses:
Property management fees
Repairs and maintenanceReal estate taxes
Trust fees
Utilities
Insurance
Depreciation and amortization
Leasing-related service fees, etc.
Other rental expenses

674
189
233
9
68
12
1,252
127
28

707
255
233
9
66
13
1,241
129
35

590
207
166
9
50
10
1,061
122
30

2,592

2,688

2,245

¥3,588¥3,530¥3,118

Total rental expenses
Operating Income from Property Leasing Activities

Note 8

Breakdown of Gain on Sale of Investment Properties

Gain on sale of investment properties for the period ended February 28, 2010 was as follows:
Yen in millions

Park Axis Ichigaya
Revenues from sale of investment properties
Cost of investment properties
Other sales expenses
Gain on sale of investment properties¥3,100
2,543
1
¥ 556

NAF Report September 2010 – February 201127

Note 9

Income Taxes

NAF is subject to income taxes in Japan. The effective tax rates on NAF’s income based on applicable Japanese tax law were 0.04%,
0.05% and 0.04% for the periods ended February 28, 2011, August 31, 2010 and February 28, 2010, respectively. The following tablesummarizes the significant differences between the statutory tax rates and NAF’s effective tax rates for financial statement purposes.

10th Period

Statutory effective tax rate
Deductible distributions paid
Others
Effective tax rate

9th Period

8th Period

September 1, 2010
to February 28, 2011

March 1, 2010
to August 31, 2010

September 1, 2009
to February 28, 201039.33%(39.31)
0.03

39.33%(39.31)
0.03

39.33%(39.31)
0.03

0.04%

0.05%

0.04%

The tax effects of significant temporary differences that resulted in net deferred tax assets or liabilities as of February 28, 2011,
August 31, 2010 and February 28, 2010 were as follows:
Yen in thousands
As of February 28, 2011

As of August 31, 2010

As of February 28, 2010

Deferred tax assets:
Enterprise taxes

¥ 18

¥ 21

¥ 19

Total deferred tax assets
Deferred tax liabilities

18
—

21
—

19
—

Net Deferred Tax Assets

¥ 18

¥ 21

¥ 19

NAF was established as an investment corporation under the Investment Trust and Investment Corporation Act of Japan, and as longas an investment corporation distributes to its unitholders at least 90% of earnings available for dividends for a period and otherrequirements prescribed in Japanese tax regulations are met, the investment corporation is allowed to deduct the total amount of distributions paid in calculating its taxable income under Japanese tax regulations.

Note 10Per Unit Information

Information about earnings per unit for the periods ended February 28, 2011, August 31, 2010 and February 28, 2010 and net
assets per unit as of February 28, 2011, August 31, 2010 and February 28, 2010 was as follows.
The computation of earnings per unit is based on the weighted average number of common units outstanding during the period.
The computation of net assets per unit is based on the number of common units outstanding at each period end.
Yen

10th Period

Earnings per Unit:
Net income
Weighted average number ofcommon units outstanding

Net Assets per Unit

28

Nippon Accommodations Fund Inc.

9th Period

8th Period

September 1, 2010
to February 28, 2011

March 1, 2010
to August 31, 2010

September 1, 2009
to February 28, 2010

¥14,085¥13,748¥16,137

156,178

156,178

140,976

As of February 28, 2011

As of August 31, 2010

As of February 28, 2010

¥533,383¥533,045¥533,863

Notes to Financial Statements

Note 11

Transactions with Related Parties(September 1, 2010 – February 28, 2011)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Affiliates: None applicable(3) Sister Companies: None applicable(4) Directors and Major Individual Unitholders: None applicable(March 1, 2010 – August 31, 2010)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Affiliates: None applicable(3) Sister Companies: None applicable(4) Directors and Major Individual Unitholders
Classification

Name

Director and/or
close relative

Nobuyuki Nakai(Note 1)

Principal businessor occupation

Executive Directorof NAF and
President & CEOof MFAFM(Note 1)Nature oftransaction
Payment of asset
management fee to
MFAFM (Note 2)
Payment for the provision ofgeneral administration
relating to organizational
management to MFAFM (Note 4)

Amount oftransaction

Account(Yen in millions)¥27(Notes 3 and 5)¥0(Note 5)

Balance at endof period(Yen in millions)

—

—

—

—

Notes: 1. Nobuyuki Nakai resigned from his position as Executive Director of NAF and President & CEO of MFAFM effective March 31, 2010.
2. Nobuyuki Nakai entered into this transaction as a representative of MFAFM, and this amount is subject to the conditions set forth in the by-laws of NAF.
3. The asset management fee is the management fee related to the March 30, 2010 acquisition of Park Cube Yotsuya Sanchome included in its book value.
4. Nobuyuki Nakai entered into this transaction as a representative of MFAFM, and this amount is set forth in the “General Administration Agreement relating toOrganizational Management” concluded between NAF and MFAFM.
5. Consumption taxes are not included in transaction amounts.

Note 12Financial Instruments

Effective from the period ended August 31, 2010, NAF adopted the revised Accounting Standard, “Accounting Standard for Financial
Instruments” (ASBJ Statement No. 10 revised on March 10, 2008) and the “Guidance on Disclosures about Fair Value of Financial
Instruments” (ASBJ Guidance No. 19 issued on March 10, 2008). This standard and guidance require companies to disclose fair value andcertain other information of financial instruments as follows.
(September 1, 2010 – February 28, 2011)

1. Status of Financial Instruments(1) Policy for Financial Instruments
NAF raises funds for acquisition of assets and other uses through bank loans, issuance of bonds and new unit issues.
NAF may enter into derivative transactions solely for the purpose of hedging interest rate risk. Currently, NAF is not engaged inany derivative transactions. NAF strives for efficiency in its funding plans and has an operating policy of minimizing surplus funds.
(2) Financial Instruments, Their Risks and Risk Management System
Funds from loans and bonds are primarily used for acquiring assets and to repay interest-bearing debt. NAF manages associatedliquidity and interest rate fluctuation risk in ways such as diversifying its credit sources and maturities, and by mainly using fixedrate loans.

NAF Report September 2010 – February 201129

(3) Supplemental Explanation regarding Fair Values of Financial Instruments
The fair value of financial instruments is based on their observable market value, if available. When there is no observable market value available, fair value is based on a price that is reasonably estimated. Since various factors are reflected in estimating thefair value, different assumptions and factors could result in a different value.

2. Estimated Fair Value of Financial Instruments
Book value, fair value and the difference between the two as of February 28, 2011 are as follows. The financial instruments for which
it is very difficult to estimate the fair value are excluded from the following table (See Note 2, below).
Yen in millions
Book value

Fair value

Difference

Assets(1) Cash and cash equivalents
Total¥ 4,178¥ 4,178¥ 4,178¥ 4,178¥¥

Liabilities(1) Short-term loans(2) Long-term loans due within one year
(3) Bonds(4) Long-term loans
Total¥ 17,500
11,50017,00059,000¥105,000¥ 17,500
11,58917,211
59,848¥106,148

¥

—
—

—
89
211
848
¥1,148Notes: 1. Methods to estimate fair value of financial instruments
Assets:(1) Cash and cash equivalents
Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are settled within a short-term period.
Liabilities:(1) Short-term loans
Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are settled within a short-term period.
(2) Long-term loans due within one year and (4) Long-term loans
Fair values of fixed-rate instruments are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if similar new loans were entered into. Fair values of variable-rate instruments are considered to be their book values because these instruments reflect market interest rates overshort time periods.
(3) Bonds
Fair values of bonds are based on observable market value.
2. Financial instruments for which it is very difficult to estimate the fair value
Yen in millions
Book value

Tenant security deposits¥2,159Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and the actual deposit period is not estimable as leases may becancelled, renewed or re-signed even if a lease term is set in the lease contract, making a reasonable estimate of future cash flows difficult.
3. Redemption schedule for monetary claims with maturity dates after February 28, 2011
Yen in millions
Due within
one year

Cash and cash equivalents¥4,178

4. Repayment schedule for loans and bonds due after February 28, 2011
Yen in millions
Due within
one year

Short-term loans
Bonds
Long-term loans
Total

30

Nippon Accommodations Fund Inc.

¥17,500—
11,500¥29,000

Due after
one to two years¥——
12,000¥12,000

Due after
two to three years¥——
19,000¥19,000

Due after
three to four years¥—
10,00010,000¥20,000

Due after
four to five years¥——
10,000¥10,000

Due after
five years

¥

—
7,000
8,000
¥15,000

Notes to Financial Statements(March 1, 2010 – August 31, 2010)

1. Status of Financial Instruments
Same as above.

2. Estimated Fair Value of Financial Instruments
Book value, fair value and the difference between the two as of August 31, 2010 are as follows. The financial instruments for which it isvery difficult to estimate the fair value are excluded from the following table (See Note 2, below).
Yen in millions
Book value

Fair value

Assets(1) Cash and cash equivalents
Total

Difference¥ 3,339¥ 3,339¥ 3,339¥ 3,339¥¥

Liabilities(1) Short-term loans(2) Long-term loans due within one year
(3) Bonds(4) Long-term loans
Total¥ 22,500
20,50017,00045,000¥105,000¥ 22,500
20,646
17,322
46,065¥106,533

¥

—
—

—
146
322
1,065
¥1,533

Notes: 1. Methods to estimate fair value of financial instruments
Assets:(1) Cash and cash equivalents
Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are settled within a short-term period.
Liabilities:(1) Short-term loans
Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are settled within a short-term period.
(2) Long-term loans due within one year and (4) Long-term loans
Fair values of these instruments are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if similar new loans were entered into.
(3) Bonds
Fair values of bonds are based on observable market value.
2. Financial instruments for which it is very difficult to estimate the fair value
Yen in millions
Book value

Tenant security deposits¥2,163

Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and the actual deposit period is not estimable as leases may becancelled, renewed or re-signed even if a lease term is set in the lease contract, making a reasonable estimate of future cash flows difficult.
3. Redemption schedule for monetary claims with maturity dates after August 31, 2010
Yen in millions
Due within
one year

Cash and cash equivalents¥3,339

4. Repayment schedule for loans and bonds due after August 31, 2010
Yen in millions
Due within
one year

Short-term loans
Bonds
Long-term loans
Total¥22,500—
20,500¥43,000

Due after
one to two years

¥

—
—
5,000
¥5,000Due after
two to three years¥——
19,000¥19,000

Due after
three to four years¥——
19,000¥19,000

Due after
four to five years¥—
10,0002,000¥12,000

Due after
five years

¥

—
7,000
—
¥7,000

NAF Report September 2010 – February 201131

Note 13

Investment and Rental Properties

Effective from the period ended August 31, 2010, NAF adopted the “Accounting Standard for Disclosures about Fair Value ofInvestment and Rental Property” (ASBJ Statement No. 20 issued on November 28, 2008) and the “Guidance on Accounting Standard forDisclosures about Fair Value of Investment and Rental Property” (ASBJ Guidance No. 23 issued on November 28, 2008). This standard
and guidance require companies to disclose fair value and certain other information of investment and rental property as follows.
(September 1, 2010 – February 28, 2011)
NAF owns rental properties (including land) located in Tokyo and other areas. The book value, net changes in the book value and the fairvalue of the investment and rental properties are as follows.
Yen in millions
As of August 31, 2010

Book value
Change during the 10th Period

As of February 28, 2011

Fair value
As of February 28, 2011

¥188,119¥(1,072)¥187,047¥176,068

Notes: 1. “Book value” shown here is the acquisition cost inclusive of acquisition expenses less accumulated depreciation and excluding construction in process.
2. In “Change during the 10th Period,” the main factor decreasing book value was depreciation.
3. “Fair value as of February 28, 2011” is based on appraisals provided by independent real estate appraisers.

Information about profit and loss from investment and rental properties for the period ended February 28, 2011 is disclosed in Note 7(Rental Revenues and Expenses).
(March 1, 2010 – August 31, 2010)
NAF owns rental properties (including land) located in Tokyo and other areas. The book value, net changes in the book value and the fairvalue of the investment and rental properties are as follows.
Yen in millions
As of February 28, 2010

Book value
Change during the 9th Period

As of August 31, 2010

Fair value
As of August 31, 2010

¥181,656¥6,463¥188,119¥177,572

Notes: 1. “Book value” shown here is the acquisition cost inclusive of acquisition expenses less accumulated depreciation and excluding construction in process.
2. In “Change during the 9th Period,” the main factor increasing book value was the acquisition of Park Cube Yotsuya Sanchome and Park Cube Hatchobori for ¥7,372 million.
The main factor decreasing book value was depreciation.
3. “Fair value as of August 31, 2010” is based on appraisals provided by independent real estate appraisers.

Information about profit and loss from investment and rental properties for the period ended August 31, 2010 is disclosed in Note 7(Rental Revenues and Expenses).

Note 14Segment Information

Effective from the period ended February 28, 2011, NAF adopted the “Accounting Standard for Disclosures about Segments of anEnterprise and Related Information” (ASBJ Statement No. 17, revised on March 27, 2009) and the “Guidance on the Accounting Standard
for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Guidance No. 20, issued on March 21, 2008).
(September 1, 2010 – February 28, 2011)

1. Segment Information
Segment information has been omitted as NAF has only one segment, which is real estate leasing business.

32

Nippon Accommodations Fund Inc.

Notes to Financial Statements

2. Related Information(1) Information by Products and Services
Disclosure of this information has been omitted as NAF has a single product/service line that accounts for more than 90% of total revenues.
(2) Information by Geographic Areas
1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total revenues.
2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the book value of
total investment properties.
(3) Information on Major Tenants
TenantOperating revenues(Yen in millions)

Mitsui Fudosan Housing Lease Co., Ltd.
Mitsui Fudosan Co., Ltd.

¥5,265916

Related segment

Real estate leasing business
Real estate leasing business

Disclosure of the segment information for previous periods has been omitted as NAF has only one segment of the real estate leasing
business.

Note 15Significant Subsequent Events

Issuance of New Investment Units
Concerning the issuances of new investment units that were resolved at the Board of Directors’ Meetings held on February 10, 2011 andFebruary 22, 2011, payment relating to the issuance of new investment units by public offering was completed on March 1, 2011, and payment
relating to the issuance of new investment units by third-party allocation was completed on March 28, 2011. The details are provided below.
As a result, total unitholders’ capital was ¥103,235,321,618 and the total number of investment units issued was 194,711 units.
A. Issuance of new investment units by public offering(1) Method of offering(2) Number of new investment units issued(3) Issue price(4) Total amount of issue price(5) Amount paid in (issue value)(6) Total amount paid in (issue value)(7) Payment datePublic offering
37,500 units¥593,872 per unit
¥22,270,200,000¥574,380 per unit
¥21,539,250,000
March 1, 2011

B. Issuance of new investment units by third-party allocation(1) Method of offering(2) Number of new investment units issued(3) Amount paid in (issue value)(4) Total amount paid in (issue value)(5) Payment date(6) Allottee

Third-party allocation
1,033 units¥574,380 per unit
¥593,334,540
March 28, 2011
Nomura Securities Co., Ltd.

C. Use of the procured funds
The funds procured through this public offering and third-party allocation shall be allocated for part of the acquisition of new specified
properties to be purchased by NAF.

NAF Report September 2010 – February 201133

Independent Auditors’ Report

To the Board of Directors of
Nippon Accommodations Fund Inc.:
We have audited the accompanying balance sheets of Nippon Accommodations Fund Inc. (a Japanese Real Estate
Investment Trust) as of February 28, 2011, and August 31, 2010, and the related statements of income, changes in
net assets and cash flows for each of the periods from September 1, 2010 to February 28, 2011, from March 1, 2010
to August 31, 2010, and from September 1, 2009 to February 28, 2010, expressed in Japanese yen. These financial
statements are the responsibility of the Company’s management. Our responsibility is to independently express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial positionof Nippon Accommodations Fund Inc. as of February 28, 2011, and August 31, 2010, and the results of theiroperations and their cash flows for each of the periods from September 1, 2010 to February 28, 2011, from March 1,
2010 to August 31, 2010, and from September 1, 2009 to February 28, 2010, in conformity with accounting principles
generally accepted in Japan.
Without qualifying our opinion, we draw attention to Note 15 to the financial statements, which states that Nippon
Accommodations Fund Inc. has issued new investment units.
The U.S. dollar amounts in the accompanying financial statements with respect to the period ended February 28, 2011are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts
and, in our opinion, such translation has been made on the basis described in Note 1 to the financial statements.

Tokyo, JapanMay 20, 2011
KPMG AZSA LLC, a limited liability audit corporation incorporated under
the Japanese Certified Public Accountants Law and a member firm of the
KPMG network of independent member firms affiliated with KPMGInternational Cooperative (“KPMG International”), a Swiss entity.

34

Nippon Accommodations Fund Inc.

Facts and Figures

Contents
Rental Apartment Investment Characteristics .... 1
Corporate Structure and Governance................. 3
Primary Related Corporations ............................ 6
Portfolio Policy................................................... 8
Corporate Data .................................................. 11
Status of Unitholders ......................................... 12

Rental Apartment Investment Characteristics

Rental apartments have a lower earnings fluctuation risk than real estate leased for other uses. By
concentrating investment in the 23 wards of Tokyo where demand for rental housing is high and developing
a portfolio with high market competitiveness and asset value, NAF will stably increase earnings.
1. Net Migration into Tokyo (23 Wards)(People)In-migration

Net in-migration

Out-migration

Residential Rental Market Trends
in the 23 Wards of Tokyo

400,000

Population and Number of Households
In the 23 wards of Tokyo, where most of NAF’s assets

200,000

under management are located, the population influx is0continuing, reflecting an increasing desire in recent years tolive closer to work and the progressive concentration of-200,000-400,000

economic activities in Tokyo. Graph 1 shows migration trends
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: “Report on Internal Migration in Japan,” Statistics Bureau, Ministry of Internal Affairs andCommunicationsin the 23 wards of Tokyo as well as net in-migration. Inmigration has continued to exceed out-migration since 1996,
indicating stable demand for residential rental housing inhighly convenient areas.

2. Projected Number of Households and Population (Tokyo 23 Wards)(Thousands of households)
4,500

4,323

4,025
3,475

1995

8,490

3,763
8,135

8,689

9,000
8,767

Increase of 520,000 residents over 10 years
6.6% increase

2000

2005

2010

2015

greater rate than the population as households divide into
smaller units, among other factors. Graph 2 shows the
projected number of households and population for the 23

4,453

Increase of 550,000 households over 10 years
15.8% increase

7,968

3,000

9,500

Number of households (left scale)
Population (right scale)

4,000

3,500

(Thousands of people)

Moreover, the number of households is increasing at a

8,500
8,000

wards of Tokyo. The number of households increased by 550
thousand over the decade from 1995 to 2005. This 15.8
percent increase was more than double the 6.6 percent
increase in population during the same period. Thisdifference implies growth in the number of single and two-

7,500

person households, a trend that is projected to continue
through 2015.

Sources: Population censuses conducted in 1995, 2000 and 2005 by the Statistics Bureau, Ministryof Internal Affairs and Communications
For number of households from 2006, “Household Projections for Tokyo,” March 2009,
Tokyo Metropolitan Government, Statistics Division Bureau of General Affairs
For population from 2006, “Population Projections by Municipality” (as of December 2008),
National Institute of Population and Social Security Researchfrom the growing number of single and two-person

3. Rental Apartment Construction Starts (Tokyo 23 Wards)

comprise the majority of NAF’s portfolio.

(Units)
50,00039,08430,76530,00022,075 21,878

25,603

23,831

25,88833,101construction starts in the 23 wards of Tokyo. Construction

31,880starts increased more or less steadily until 2006, but

26,512
21,71817,054decreased significantly following changes in the building
authorization procedure resulting from revisions in 2007 to
the Building Standards Law (Law No. 201 of 1950 as1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: “Housing Construction Statistics,” Information Security, Research and Statistics Division,
Policy Bureau, Ministry of Land, Infrastructure, Transport and Tourism

1

60m 2 with two or fewer bedrooms) apartments, which

Graph 3 shows the number of rental apartment

43,371

10,0000households for single and compact (rentable area under

Rental Housing Stock

40,00020,000Due to the above factors, MFAFM projects solid demand

Nippon Accommodations Fund Inc.

amended). The number of construction starts in 2009 stalledat about the same level as 1999.

Rental housing stock volume for the 23 wards of Tokyo isshown in Graph 4. Stock increased by 146 thousand units to
2,093 thousand in 2008 from 1,947 thousand in 2003 with
the increase in demand due to the population influx into
Tokyo. However, the overall increase was moderate

4. Rental Housing Stock Volume and Composition (Tokyo 23 Wards)(Thousands of units)
2,500

Other
Private apartments
Private condominiums

2,000

1,975
5.6%
8.8%

1,947
4.9%
8.0%

number of households. On closer analysis, the ratio of

1,500

25.9%

20.1%

company housing, private apartments and public housing

1,000

13.9%

500

45.8%

51.0%

1998

2003

compared with the concurrent increases in population anddecreased, whereas the ratio of private condominiums
increased in response to the needs of potential occupants.

0

Stability of Residential Rent
Graph 5 shows relative rents for non-wooden residential

Company housing
Public housing

2,093 (+146)
4.1% (-0.8%)
7.4% (-0.6%) Figures in parentheses
15.6% (-4.5%) represent comparison
with 2003.
14.7% (-1.3%)

16.0%
58.3% (+7.3%)

2008

Source: “Housing and Land Survey,” Statistics Bureau, Ministry of Internal Affairs andCommunications

units over 30m2 in the 23 wards of Tokyo and offices inGreater Tokyo, with 1989 levels set as 100. Residential rent
has remained relatively stable in comparison to office rent.
Rental housing is a necessary expense in the same way as
clothing and food. Therefore, residential rent is considered

5. Residential and Office Rents(Index: 1989 = 100)150
130

economic conditions and asset value, with relatively low risk

120

of change.
In addition, rental housing enables a more diversified

110
100
90

portfolio in terms of number of properties and tenants due to80

its relatively small scale in comparison to office buildings and70

other properties. Investment in rental housing of this nature
is perfectly matched with NAF’s core strategy of securing

Office rent (Greater Tokyo)
Residential rent
(Tokyo, non-wooden, over 30m2)

140

stable because it is generally unaffected by fluctuations in

19891992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Source: “Annual Report: Consumer Price Index,” Cabinet Office, Ministry of Internal Affairs andCommunications, and “Service Price Index for the Private Sector,” Bank of Japan

stable revenues. Furthermore, new properties are scarce,
comprising a limited share of rental housing stock. Suchproperties, which make up the majority of NAF’s investment
portfolio, ensure market competitiveness and asset value.

Common Practices in Japan’s Rental Apartment Market
Contract Validity Period

Commission Fee

Leases in Japan are generally two-year contracts, which can be
renewed by paying an extension fee (usually one month’s rent).

A commission fee is paid to the leasing agent; by regulation, it
cannot exceed one month’s rent.

Security Deposit

Guarantor/Joint Surety

The tenant must pay a security deposit in advance to the landlord to
insure against future unpaid rent and/or damages. Generally, it isequal to two months’ rent and is typically refunded when moving
out (a cleaning and/or repair fee may be deducted prior to refund).

A guarantor is required when signing a lease contract. The
guarantor must have an income sufficient to cover the rent if thetenant cannot pay and/or the cost of repairs to the apartment if thetenant causes any damage.

Key Money
The tenant pays key money to the landlord prior to signing a lease
contract. It is equivalent to two months’ rent and is not refunded.

Facts and Figures2

Corporate Structure and GovernanceNippon Accommodations Fund Inc. has structured systems for compliance and risk management andoperates fairly and transparently with the aim of increasing investor value.

Real Estate Investment Trust (“REIT”) Structure
Nippon Accommodations Fund Inc. (“NAF”) is an investment
corporation established with the objective of investing in assets,
primarily Designated Assets as defined under the Investment Trustand Investment Corporation Act of Japan. NAF was established on
October 12, 2005, with Mitsui Fudosan Accommodations FundManagement Co., Ltd. (the “REIT Management Company” or“MFAFM”) as its asset management company.
NAF has entrusted management of all of its assets to the REITManagement Company, which is the asset management company
required under the Investment Trust and Investment Corporation
Act of Japan. Operating in accordance with the REIT Management
Agreement concluded on October 13, 2005 (as amended), the
REIT Management Company manages NAF’s assets according to
NAF’s asset management and administration policies and the asset
management guidelines embodied in the internal regulations of
the REIT Management Company. The asset management
guidelines take current investment conditions into account andfollow NAF’s basic operating principle of taking a medium-tolong-term perspective in managing assets to secure stableearnings and steadily increase assets under management.
These guidelines may change in the future in response to changes

in the external investment environment and the status of NAF’s
assets under management.
In addition, the REIT Management Company has concluded
contracts with other companies in the Mitsui Fudosan Group topromote smooth, effective management of NAF’s assets. An
Agreement on Provision of Real Estate Information/Advisory
Service with Mitsui Fudosan Co., Ltd. provides information
regarding real estate owned or developed by Mitsui Fudosan’s
Accommodations Business Division, and other managementadvisory information. Each of (i) a Memorandum on Provision ofReal Estate Brokerage Information with Mitsui Fudosan Real
Estate Sales Co., Ltd. and (ii) an Agreement on Provision of Real
Estate Information with Mitsui Fudosan Residential Co., Ltd.
provides access to certain real estate property information. A Basic
Agreement on Property Management with Mitsui Fudosan
Housing Lease Co., Ltd., the master property managementcompany to which NAF has entrusted property management
services of all its properties, is fundamental to NAF’s policy ofoutsourcing such property management services required inmanaging real estate.

Independent Auditor

Asset Custodian

The Chuo Mitsui Trust andBanking Company, Limited
Transfer Agent

The Chuo Mitsui Trust andBanking Company, Limited
General Administrative Agents(Bond Administration)

The Chuo Mitsui Trust andBanking Company, Limited
Sumitomo Mitsui Banking
Corporation
Property Information Provider

Mitsui Real Estate
Sales Co., Ltd.

KPMG AZSA LLC

Asset Custody
Agreement

Transfer Agency
Service Agreement/
Agreement regarding
Management ofSpecial Accounts

REIT

Nippon Accommodations
Fund Inc.
(TSE 3226)

Financial Agency
Agreement

Memorandum on
Provision of Real Estate
Brokerage Information

Agreement on Provisionof Real Estate Information

3

Nippon Accommodations Fund Inc.

Fiscal Administrative
Service Agreement(Tax Return Filing)

General Administrative Agent(Accounting)

HEISEIKAIKEISHA TAX Co.
General Administrative Agent(Tax Return Filing)

Zeirishi-Hojin
PricewaterhouseCoopers

REIT Management Agreement andGeneral Administrative Service Agreement
REIT Management Company

Mitsui Fudosan
Accommodations FundManagement Co., Ltd.

Basic Agreement
on Property
Management

Agreement on Provision ofReal Estate Information/Advisory Service
Master Property
Management Company

Real Estate Information Provider

Mitsui Fudosan
Residential Co., Ltd.

General Administrative
Service Agreement(Accounting)

Real Estate Information/Advisory

Mitsui Fudosan Co., Ltd.

Mitsui Fudosan
Housing Lease Co., Ltd.

Corporate Structure
General Meeting of Unitholders
In accordance with the Investment Trust and Investment
Corporation Act of Japan and NAF’s Articles of Incorporation, NAF
convenes a General Meeting of Unitholders within the 23 wardsof Tokyo, generally once every two years. The General Meeting ofUnitholders adopts or vetoes ordinary resolutions on the basis of asimple majority of the voting rights of unitholders in attendance.
Decisions on substantive resolutions such as changes in the
Articles of Incorporation require the attendance of unitholders
holding at least a simple majority of total units issued andoutstanding, and a vote of two-thirds majority of the voting rights
of such unitholders. The asset management policies and standards
are stipulated by NAF’s Articles of Incorporation.

Executive Directors, Supervisory Directors,
Independent Auditor and the Board of Directors
NAF’s Articles of Incorporation stipulate that NAF must haveone or more executive directors, and two or more supervisory
directors (but always equal to the number of executive directors
plus at least one additional supervisory director). NAF’s
independent auditor is KPMG AZSA LLC.
NAF’s executive directors are responsible for businessexecution. In addition, they have authority for all judicial andextrajudicial proceedings related to the operations of NAF.

Compliance Initiatives
The REIT Management Company, MFAFM, assumes full
responsibility for compliance in order to structure an appropriate
asset management system for NAF. A Chief Compliance Officer(CCO) of MFAFM has been appointed to supervise compliancewith laws, regulations and internal rules on the part of the REITManagement Company.
The CCO is responsible for internal audits at the REITManagement Company. The Chief Executive Officer (CEO) may
also appoint other employees of MFAFM to participate as needed
in internal audits, based on the recommendations of the CCO.
MFAFM’s entire organization and all personnel within it are
subject to internal audits. As a rule, internal audits are conducted
on a regular basis in accordance with the compliance program,but the CEO may initiate extraordinary audits.

Supervisory directors are responsible for supervising businessexecution by the executive directors.
The Board of Directors acts in accordance with the Investment
Trust and Investment Corporation Act of Japan and NAF’s Articles
of Incorporation and other internal rules in exercising their
responsibility to supervise the performance of the executive
directors. In accordance with the current Articles of Incorporation,
the Board of Directors passes or vetoes resolutions on the basis ofa simple majority of executive and supervisory directors on the
Board who are in attendance and are able to vote. Executive andsupervisory directors having special interest in a resolution areprohibited from participating in related decisions.
The independent auditors are elected at the General Meetingof Unitholders. They audit financial and accounting documents
including NAF’s financial statements. In addition, they are charged
with reporting to supervisory directors any unlawful acts ormaterial violations of laws, regulations or NAF’s Articles ofIncorporation that executive directors may commit in the course of
their duties. The independent auditors also perform other duties
as required by laws and regulations.

Corporate Governance Structure of MFAFM
General Meeting of Stockholders
AuditorBoard of Directors
Compliance Committee

CCO
CEO

Investment Committee

Financial
Division

Investment
Division
CIO

Investment,
Research &Strategy Team

CFO

Asset
Management
Team

FinancialTeam

Corporate
Operation
Team

Facts and Figures4Corporate Structure and Governance

Investment Risk Management System
NAF itself is responsible for complying with the Investment
Trust and Investment Corporation Act of Japan and related laws
and regulations in managing risks. In addition, the REITManagement Company has established appropriate internal
rules. In conjunction with appropriate organizational systems,
NAF is providing education and implementing other measures toenhance the culture of compliance among officers and employeesof MFAFM.
NAF’s Board of Directors convenes as needed at least once
every three months, and resolves important matters and reportson the status of business execution in accordance with laws,
regulations and internal rules for such Board of Directors.
Independent supervisory directors supervise business execution.

Moreover, supervisory directors can obtain as needed reports on
operations and financial condition from the REIT Management
Company and from NAF’s asset custodian, The Chuo Mitsui Trustand Banking Company, Limited. Independent supervisory directors
can also conduct required investigations.
The REIT Management Company formulates and revises anannual management plan that is the blueprint for management
and administration policies that comply with the asset
management guidelines. This annual plan and compliance withthe asset management guidelines serve to eliminate or minimize
risk. In addition, the REIT Management Company has establishedinternal risk management regulations and a department that
focuses on managing each type of risk appropriately.

Restrictions on Related-Party Transactions
Laws and regulations prohibit the REIT Management
Company from conducting specified transactions with relatedparties. In the case of a transaction with a potential conflict ofinterest between an entity specified under the Investment Trustand Investment Corporation Act of Japan and its ordinances andits asset management company, in principle the REITManagement Company must prepare a brief describing thetransaction and deliver it to NAF and other entities specified by5

Nippon Accommodations Fund Inc.

the Investment Trust and Investment Corporation Act of Japanand its ordinances.
With the objective of enhancing returns for NAF’s unitholders,the REIT Management Company’s internal regulations specify
rules for handling related-party transactions. The REITManagement Company has established standards and procedures
for related-party transactions and executes appropriate asset
management for NAF by eliminating conflicts of interest.

Primary Related Corporations

Overview of the Roles of Primary Related Corporations
The following outlines the contractual relationship between NAF and its REIT management company, and the contractual relationship between NAF’s REIT
management company and primary related corporations.
Role

Name

Overview of Relevant Operations

REIT managementcompany and generaladministrative agent

Mitsui Fudosan
Accommodations FundManagement Co., Ltd.
(MFAFM)

MFAFM serves as the company entrusted with asset management as required under the Investment Trustand Investment Corporation Act of Japan (Article 198, Paragraph 1) and under a REIT Management
Agreement entered into between MFAFM and NAF on October 13, 2005 (as amended). Under thisagreement, MFAFM undertakes asset management of NAF in accordance with the asset management
guidelines of MFAFM and the Articles of Incorporation of NAF. Under the above agreement, MFAFM is
entrusted with (1) management of assets owned by NAF; (2) fund procurement to be conducted by NAF;
(3) reporting on the condition of assets owned by NAF; (4) formulating management plans for assets of
NAF; and (5) any other matters related to the above items listed in (1) through (4) that NAF may require.
In addition, pursuant to Article 117 of the Investment Trust and Investment Corporation Act of Japan,
MFAFM undertakes management of (1) the Board of Directors; (2) the General Meeting ofUnitholders; and (3) any other matters related to the above items listed in (1) and (2) that NAF may
require, as General Administrative Agent based on a General Administrative Service Agreement dated
March 1, 2006. The matters entrusted to the Transfer Agent pursuant to the Agreement between NAF
and the Transfer Agent are not included in the above matters set forth in (1) and (2).

Real estate information/
advisory service provider

Mitsui Fudosan Co., Ltd.

Mitsui Fudosan provides real estate sales information, real estate management information, and otherservices to MFAFM under an Agreement on Provision of Real Estate Information/Advisory Service that
MFAFM entered into with Mitsui Fudosan on February 23, 2006.

Real estate
information provider

Mitsui Fudosan
Residential Co., Ltd.

Mitsui Fudosan Residential provides real estate sales information to MFAFM under an Agreement on
Provision of Real Estate Information that MFAFM entered into with Mitsui Fudosan Residential on
September 26, 2007.

Property information
providerMitsui Real Estate
Sales Co., Ltd.

Mitsui Real Estate Sales provides real estate brokerage information and other services to MFAFM
under a Memorandum on Provision of Real Estate Brokerage Information that MFAFM entered intowith Mitsui Real Estate Sales on March 31, 2006.

Master property
management company

Mitsui Fudosan
Housing Lease Co., Ltd.

In principle, MFAFM will entrust to Mitsui Fudosan Housing Lease as master property managementcompany, all property management services required for real estate of NAF, under a Basic Agreement
on Property Management between MFAFM and Mitsui Fudosan Housing Lease dated March 31, 2006.

Mitsui Fudosan Accommodations Fund Management Co., Ltd.
REIT Management Company and General Administrative Agent
MFAFM, as a REIT management company provided for in theInvestment Trust and Investment Corporation Act of Japan, performs
management of NAF’s assets and undertakes management of theinstitutions of NAF.
MFAFM has no capital relationship with NAF.

NAF pays asset management fees to MFAFM, in accordance with the
REIT Management Agreement concluded with MFAFM. These fees comprise items 1 to 4 below, with the method of calculation and payment
dates as follows.

Operation

Management Fees 1■ Undertakes asset management of NAF pursuant to a REITManagement Agreement based on an entrustment from NAF in accordance with the Articles of Incorporation of NAF and the Investment
Objects and Policies set forth therein.
■ Undertakes management of the general affairs of the general

meeting of unitholders and the Board of Directors of NAF as General
Administrative Agent based on an entrustment from NAF andpursuant to a General Administrative Service Agreement.

Fees for the Asset Management Operation

The amount equivalent to 5% of the amount of the revenue arisingfrom Real Estate, etc. as calculated on each closing date (excluding revenues from the sale of Real Estate, etc. and other Managed Assets) will
be payable. Management Fees 1 are paid without delay after definite settlement of accounts.
Management Fees 2
The amount equivalent to 5% of income before income tax prior todeduction of Management Fees 1 and 2 as calculated on each closing
date will be payable. Management Fees 2 are paid without delay after
definite settlement of accounts.

Facts and Figures6

Primary Related Corporations

Management Fees 3

Management Fees 4

In the event that Real Estate, etc. is newly acquired, compensationequivalent to 1% (0.5% if it is acquired from Related Parties) of the total
amount of the acquisition price of said Real Estate, etc. (excluding consumption tax, local consumption tax, and acquisition costs) will bepayable. Management Fees 3 are paid at or before the end of the next
month after the month of the acquisition date.

In the event that Real Estate, etc. is sold, compensation equivalent to
1% (0.5% if it is sold to Related Parties) of the total amount of the sales
price of said Real Estate, etc. (excluding consumption tax, local consumption tax) will be payable. Management Fees 4 are paid at or before theend of the next month after the month of the sales date.

Mitsui Fudosan Co., Ltd.
Real Estate Information and Advisory Service Provider
Pursuant to an Agreement on Provision of Real Estate Information/
Advisory Service, Mitsui Fudosan provides to MFAFM a diverse array of
support services that employ the information and expertise of Mitsui
Fudosan in the area of real estate management and administration.
In order to receive such services, MFAFM provides Mitsui Fudosan
with acquisition guidelines included in asset management guidelines.

Provision of Information on Real Estate and Other
Assets Owned or Developed by Mitsui Fudosan
In case Mitsui Fudosan initiates selling activities of real estate or realestate-related assets which it owns or is developing under its
Accommodations Business Division, and is consistent with MFAFM’s asset
management guidelines, Mitsui Fudosan notifies MFAFM, in principle,
before or at the same time as it notifies any third party of such sales,
unless such notification cannot be made due to lack of consent of third
parties or for any other unavoidable reasons.
When MFAFM receives such notification and provides written notification that it will consider the purchase of such real estate or assets, Mitsui
Fudosan deals with NAF as a prospective purchaser on a pari passu basiswith regard to any third party interested in purchasing such estate orother assets.

Provision of Third-Party Real Estate Sales Information
Regardless of whether Mitsui Fudosan has originated or isbrokering the sale, Mitsui Fudosan’s Accommodations Business Division inprinciple notifies MFAFM of information concerning available real estateor real estate-related assets owned by third parties, when such real estateor assets are consistent with MFAFM’s asset management guidelines,
unless such notification cannot be made due to lack of consent of third
parties or for any other unavoidable reasons, or Mitsui Fudosan itself
intends to acquire such real estate or assets with the objective of development or ownership.

Note: “Real estate management information” means thefollowing information.
(a) Information regarding medium-to-long-term trends relevant to
the operating environment of the real estate leasing market in
Japan including economic trends, population dynamics, and trends
in housing stock(b) Trends in new supply of residential properties for lease (including
property summaries, level of rent and initial leasing conditions), recent
lease contracts entered for specific residential properties, area marketing surveys, financial data for other real estate investment corporations, income and expense data for specific properties, and real estateleasing market trends including vacancy rate and rent trends(c) Other information related to items (a) or (b) above that MFAFM
requests, as needed

Provision of Advisory Services
MFAFM has entrusted the following activities to Mitsui Fudosan.
(a) Support services for the acquisition of real estate or real estate-related
assets (including due diligence prior to such acquisition, review of relevant building plans and conditions of construction)(b) Advice regarding the management and administration of real estate orreal estate-related assets which NAF owns or is considering acquiring
Such advice includes, but is not limited to (i) advice and support inconnection with the management and administration of the long-term
maintenance plan for buildings and facilities and deliberations on andpreparation of related budgets and plans; (ii) advice and support in connection with the investigation or review of the plan and estimated costs
for maintenance and renovation to be conducted in connection with realestate or real estate-related assets; and (iii) advice and support in connection with large-scale repair projects to be executed in respect of realestate or real estate-related assets.

Provision of Real Estate Management Information
Mitsui Fudosan will provide in writing upon request by MFAFM and at
least once per calendar year real estate management information (seenote below) drawn from information that its Accommodations Business
Division supervises if MFAFM deems such information necessary for its
business and Mitsui Fudosan agrees to such provision.

7

Nippon Accommodations Fund Inc.

Operation Fees
MFAFM will provide the compensation as separately discussed andagreed with Mitsui Fudosan under this agreement.

Portfolio Policy

Portfolio Structure Policies
Set forth below are the portfolio structure policies and investment
standards for individual properties for the REIT Management Company
and its internal regulations that serve as asset management guidelines.

When considering individual investments, NAF studies regional
characteristics and tenant needs. NAF then deploys this information toinvest in properties with suitable residential plans and characteristics.

1. Investment Areas

2. Investment Standards

NAF emphasizes Greater Tokyo and other major cities in Japan ininvesting in accommodation assets. By region, at least 80 percent of
NAF’s assets are located in the 23 wards of Tokyo.

The REIT Management Company identifies potential investments anddecides whether or not to invest in assets on the basis of the asset
management guidelines summarized in the table below.

ItemStandard

Investment amountIn principle, the value of each property must exceed ¥1 billion. However, NAF may invest in properties at or below ¥1 billion
after taking into account property characteristics and earning potential and certain relevant matters.

Ownership interests

In principle, NAF shall hold ownership interests of a whole property. However, NAF may invest in compartmentalized ownershipupon consideration of the specific property. NAF may also invest in leaseholds, including fixed-term leaseholds, on the basis of
consideration of earning potential, the stability of the leasehold rights and other relevant matters.

Building structure

In principle, building structures shall be reinforced concrete (RC) or steel reinforced concrete (SRC). Earthquake resistance shallconform to or substantially satisfy the New Earthquake Resistance Standards (in compliance with the 1981 revision to the
Building Standards Law (Law No. 201 of 1950), as amended, the “Building Standards Law”).

Properties under development

In principle, NAF shall acquire properties that are already producing stable rental income at the time of acquisition, and shall notinvest in land with a view to NAF’s own construction of the building thereon. However, NAF may consider contracts to acquire
uncompleted buildings that, although incomplete, are expected to carry minimum risk in respect to completion, delivery andsubsequent leasing.

3. Due Diligence Standards
NAF selects assets to invest in only after due diligence covering
economic feasibility, physical condition and legal status in accordance withthe asset management guidelines. Due diligence includes real estateappraisals and building inspection reports from third-party specialists.
Item
Economic
feasibility
studies

Physicalcondition
studies

Based on the results of such due diligence, the REIT Management
Company in principle undertakes investigation of the items listed below inorder to make investment decisions as a result of comprehensive review.

Issues InvestigatedMarket survey

1. Current residential environment in the relevant region
2. Demand and supply for rental housing in the relevant region
3. Rental housing competition trends in the relevant region
4. Markets rents in the relevant region
5. Discount rate and rate of return

Tenant survey

1. Tenant creditworthiness and rent income amount
2. Purpose of use and confirmation that tenants are not members of anti-social forces

Survey ofearnings andrelated issues

1. Current property management costs
2. Development of mid-to-long-term plan for repair and renovation expenses
3. Development of cash flow projections
4. Verification that property is consistent with portfolio strategy

Location

1. Street conditions, access to major transportation
2. Convenience and access to public facilities
3. Primarily visual confirmation of status of borders between adjacent tracts and cross-border issues
4. Living conditions including view, light, ambient noise and airflow
5. Presence of unpleasant facilities
6. Future development plans in the surrounding area

Construction,equipment andspecifications

1. Building structure, age and construction company of property and other related matters
2. Layout, ceiling height, interior specifications (including ceiling, walls and floors), materials used for the interior and exterior,
maintenance of facilities including sanitary facilities, ventilation facilities, electrical facilities, elevators and parking
3. Need for immediate repairs

Building
management

1. Status of compliance with related regulations such as the Building Standards Law, the City Planning Law, asbestos-related laws
and regulations, the Law concerning the Promotion of Expansion of Public Lands and the National Land Use Planning Law
2. Actual management status
3. Quality of the property management company and contract terms

Facts and Figures8Legalinvestigation

Antiseismic
resistance andprobable
maximum loss
(PML)

1. Antiseismic resistance that meets the New Earthquake Resistance Standards (the new earthquake resistance standards forbuildings, etc., based on the 1981 revision to the Building Standards Law) or equivalent resistance
2. Checks of the construction company, architectural firm, construction engineering company, and institution that inspected
construction; confirmation of authenticity of the structural fabrication calculation sheets
3. In principle, earthquake PML shall be below 15 percent. In deciding whether or not to purchase a building for which PML is at or
above 20 percent, consideration of additional antiseismic reinforcing work, additional earthquake insurance and other relevant
matters must be considered.

Environmental,
soil and other issues

1. Investigation of whether the building contains hazardous materials
2. Investigation of land use records and soil contamination

Rights andrelated issues

Investigation shall be conducted as to whether the previous owner had obtained the enforceable real right.
1. Issues regarding ownership interests and mortgage
2. Lease contract terms (including confirmation of area of rental units)
3. Any documentation related to confirmation of border or agreement regarding cross-border issues
4. Permission for occupancy of roads under the Traffic Law
5. Compliance with laws and regulations related to environmental preservation, such as the Nature Conservation Law and the
Urban Green Space Conservation Law
In case of complicated relation of rights, the following matters, among others, shall be investigated (the complicated relation ofrights include relationship between NAF and others if NAF does not hold the title to property or jointly holds the title).
1. (If the concerned right is leasehold) the perfection of such leasehold and the absence of any right which supersedes suchleasehold
2. The registration status of the relevant right of site; the limitation on separate transfer of such right of site from the building
thereon and the registration status of such limitation; share of such right
3. Measures to be taken to ensure the maintenance of deposits; reserve rules or measures based on long-term renovation plan
4. Existence of agreement on prohibition from division of co-ownership property and registration status of such agreement;
appropriate treatments in case of request for division of co-ownership property or sales of co-ownership share; (possible)
claims against or from other co-owners
5. Status of compartment of compartmentalized ownership
6. Security arrangements established prior to involvement of NAF and assumption of any encumbrances or obligations inconnection thereto
7. Terms of special agreement with the owner of site (or leasehold originator), other compartmentalized ownership holders,
other co-owners and any other relevant parties
8. Characteristics of owners of site (or leasehold originator), compartmentalized ownership holders, co-owners or otherrelevant parties (for example, corporations or individuals)
9. Terms of trust agreement in case the relevant rights are beneficial interests in real estate trust

Policies for Portfolio Management and Operation
1. Basic Management Policies
The REIT Management Company prepares a yearly management planfor NAF’s assets under its management for each fiscal period. This management plan covers issues such as handling of the assets and projected
capital expenditures for properties, including plans for large-scale renovation, and is subject to Investment Committee approval.
The REIT Management Company acts in accordance with this yearly
management plan in undertaking management and operation of the assets
in cooperation with the property management company. The REITManagement Company is also responsible for implementing appropriatechanges and revisions to the yearly management plan if necessitated bysignificant changes in the operating environment.

9

property management, and its operations must be organized and efficientso that it can provide consistent, high-quality services across a widely dispersed array of properties and tenants.
NAF has selected Mitsui Fudosan Housing Lease Co., Ltd. to provide
these services as its master property management company. In principle,
NAF intends to entrust property management for assets to be owned by
NAF in the future to Mitsui Fudosan Housing Lease, on the condition thatit meets the following requirements.

2. Selection and Monitoring of the Property
Management Company

1. An organizational structure that can execute property management
operations according to the management and operation specificationsof the REIT Management Company
2. The capability to accomplish smooth new tenant recruitment
3. A reasonable compensation level for property management operations
compared to the market level

The property management company is responsible for proposal andimplementation of various measures for day-to-day, on-site managementof tenants and properties. Such functions of the property managementcompany are particularly important to the management of accommodation
assets in general and rental housing in particular. Naturally, the property
management company should have specialized expertise in the business of

In addition, the REIT Management Company will periodically monitor
whether the selected property management company is maintaining its
capabilities at the level dictated by the standards for selection. As a resultof monitoring, the REIT Management Company may require improvements or may change the property management company.

Nippon Accommodations Fund Inc.

Portfolio Policy

3. Policies for Property and Casualty
Insurance Coverage

4. Basic Policies for Renovation Plans andCapital Expenditures

NAF maintains property and casualty insurance coverage, to theextent that is deemed appropriate, to address damage to property due todisasters such as fires and accidents or claims for compensatory damages
from third parties. Asset characteristics determine such coverage.
NAF comprehensively determines earthquake insurance coverage
according to cost effectiveness and the projected impact of an earthquakeon each building and on the portfolio as a whole. When earthquake PML
for specific buildings is projected above 20 percent or when the acquisition of such property causes portfolio PML to rise above 15 percent, NAF
comprehensively considers the impact from an earthquake, insurance premiums and any other relevant issues to determine whether or not to purchase earthquake insurance.

The renovation plans are strategic and require renovation and capital
expenditures in addition to routine expenses incurred by small repairs inorder to maintain and improve the market competitiveness of properties
and tenant satisfaction over the medium-to-long term.
NAF determines and revises, for each property, an annual renovation
plan in yearly management plans that are based on the established 12year medium-term renovation plans.
NAF funds a reserve for renovation according to considerations ofdepreciation expenses and renovation plans based on mid-to-long-term
portfolio management. In principle, NAF keeps capital expenditures within
the scope of the overall portfolio renovation plan.

Divestiture Policy
In principle, NAF aims to secure stable operating revenue from assets
under management through ownership over the mid-to-long term, anddoes not engage in short-term divestiture.
However, NAF decides to sell specific assets after consideration of theoverall portfolio impact based on evaluation of trends affecting the future

rental market in a given area, actual or projected increases or decreases in
asset values, risk of asset impairment, obsolescence and associated costs,
and other relevant factors.

Financial Policies
1. Issue of New Units

3. Loan-to-Value Ratio

NAF may flexibly issue additional units through an offering with theobjective of financing acquisition of assets, renovation and other capitalrequirements for operation, or to repay debt, including lease deposits,
security deposits, loans and bonds that NAF may have issued.

The ratio of interest-bearing debt to NAF’s total assets is known as
the loan-to-value (LTV) ratio. The REIT Management Company
determines the upper limit of NAF’s LTV ratio as part of its mid-to-longterm asset management plans and its yearly management plans. NAF’s
policy is to keep the LTV ratio below 60 percent, although issues
including the acquisition of assets may cause the LTV ratio to temporarily
exceed 60 percent.

2. Debt Financing
NAF may issue bonds or take on loans, including call market
funding, with the objective of financing acquisition of assets; renovation
expenses; dividend payments; working capital; or debt repayment,
including lease deposits, security deposits, loans and bonds that NAF
may have issued. NAF only borrows capital from qualified institutional
investors as defined under the relevant laws and regulations in Japan. In
addition, NAF may not take on loans or issue bonds that exceed ¥1trillion, respectively, nor may the total of loans and bonds exceed ¥1trillion. According to NAF’s current Articles of Incorporation, NAF may
use its assets under management as collateral for loans and bonds.

4. Derivatives
According to NAF’s current Articles of Incorporation, NAF limits
transactions involving financial derivatives to those with the objective ofhedging risks including the risk of change in the interest rates associatedwith debts.

Information Disclosure Policy
NAF defines itself as an open, transparent investment corporation,and has a disclosure policy for public awareness. Moreover, NAF works
to maintain an environment that encourages timely and accurate
disclosure of unbiased information to all investors. In keeping with its
name, NAF’s fundamental policy is to accommodate investors indisclosing information.

NAF discloses information in accordance with the Investment Trustand Investment Corporation Act of Japan, the Financial Instruments andExchange Law of Japan, and the rules of the Tokyo Stock Exchange andthe Investment Trusts Association, Japan. Moreover, NAF energeticallydiscloses of its own accord information that it believes is relevant toinvestment decisions.

Facts and Figures

10Corporate Data

11

Corporate office

1-1, Nihonbashi-Muromachi 2-chome, Chuo-ku, Tokyo 103-0022, Japan+81-3-3246-3677
http://www.naf-r.jp/english/index.html

Date of incorporation

October 12, 2005

Fiscal period

Six months ending February 28 (February 29 in leap years) and August 31

Unit listing

Tokyo Stock Exchange (Securities Code: 3226)

Transfer agent

The Chuo Mitsui Trust and Banking Company, Limited
33-1, Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan

Business office of the transfer agent

Stock Transfer Agency Department of
The Chuo Mitsui Trust and Banking Company, Limited
8-4, Izumi 2-chome, Suginami-ku, Tokyo 168-0063, Japan

Independent auditor

KPMG AZSA LLCAZSA Center Building
1-2, Tsukudo-cho, Shinjuku-ku, Tokyo 162-8551, Japan

Investor relations

For further information, please contact the REIT Management Company:
Mitsui Fudosan Accommodations Fund Management Co., Ltd.
1-1, Nihonbashi-Muromachi 2-chome, Chuo-ku, Tokyo 103-0022, Japan+81-3-3246-3677

Nippon Accommodations Fund Inc.

Status of Unitholders

Major Unitholders(As of February 28, 2011)

Number of Units Held

Percentage of Total*

Japan Trustee Services Bank, Ltd. (Trust Account)

28,68918.36%The Nomura Trust and Banking Co., Ltd. (Investment Account)

17,48011.19%The Master Trust Bank of Japan, Ltd. (Trust Account)

10,262

6.57%

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

9,574

6.13%

Mitsui Fudosan Co., Ltd.

6,600

4.22%

EDISON GA EQUITY PIMJ

3,805

2.43%

The Chuo Mitsui Trust and Banking Company, Limited

3,600

2.30%

Sumitomo Mitsui Banking Corporation

3,590

2.29%

American Life Insurance Company GA-L

3,147

2.01%

NOMURA BANK (Luxembourg) S.A.

2,767

1.77%

Name

*Number of units held as a percentage of total units issued and outstanding, rounded down to the nearest hundredth.

Composition and Distribution of Unitholders(As of February 28, 2011)

Individuals
and others

Financial
institutions

Other domestic
corporations

Overseas corporations
and individuals

Securities
companies

Total

Number of unitholders

5,687(94.26%)91(1.51%)

97(1.61%)

134(2.22%)

24(0.40%)

6,033(100%)

Number of units held

14,291(9.15%)

108,405(69.41%)

10,002(6.40%)

22,033(14.11%)1,447(0.93%)

156,178(100%)

Disclaimer
This document was prepared solely for the convenience of andreference by overseas investors and does not correspond to the original
Japanese documents.
This English document contains selected information including a partial
translation of the Securities Report (Yuka shoken hokokusho) filed on May
27, 2011 pursuant to the Financial Instruments and Exchange Law ofJapan, and the Financial Statements and Performance Information Reportfor the period from September 1, 2010, to February 28, 2011, of Nippon
Accommodations Fund Inc. prepared pursuant to the Investment Trust andInvestment Corporation Act of Japan. This document should not be deemeda summary of the above mentioned Securities Report and the Financial
Statements and Performance Information Report.
The contents of this document do not constitute an offer to sellor solicitation of an offer to buy or sell any securities of Nippon
Accommodations Fund Inc. or otherwise, nor is it advice or therecommendation of Nippon Accommodations Fund Inc. to enter into
any transaction.
English terms for Japanese legal, accounting, tax and businessconcepts used herein may not be precisely identical to the concept of theequivalent Japanese terms. If there exist any discrepancies in the meaning
or interpretation with respect to any and all terms herein including, without
limitation, financial statements, between the original Japanese documents
and English statements contained herein, the original Japanese documents
will always govern the meaning and interpretation. None of Nippon
Accommodations Fund Inc., Mitsui Fudosan Accommodations FundManagement Co., Ltd. or any of their respective directors, officers,
employees, partners, unitholders, agents, parent company or affiliates will
be responsible or liable for the completeness, appropriateness or accuracyof English translations contained in this document. No person has beenauthorized to give any information or make any representations other thanas contained in this document in relation to the matters set out in thisdocument, and if given or made, such information or representation mustnot be relied upon as having been authorized by Nippon Accommodations
Fund Inc., Mitsui Fudosan Accommodations Fund Management Co., Ltd. or
any of their respective directors, officers, employees, partners, unitholders,
agents, parent company or affiliates.
The financial statements of Nippon Accommodations Fund Inc. havebeen prepared in accordance with generally accepted accounting principles
in Japan (Japanese GAAP), which may materially differ in certain respects
from generally accepted accounting principles in other jurisdictions.
This document contains forward-looking statements and information.
We base these statements on our beliefs as well as our assumptions based
solely on certain limited information currently available to us. Because
these statements reflect our current views concerning future events, thesestatements involve known and unknown risks, uncertainties andassumptions. Our future performance could materially differ from those set
out in these forward-looking statements. We do not undertake and will
not undertake to release revisions of forward-looking statements to reflect
future events or circumstances or of any other statements or information
contained herein.

Facts and Figures12

Nippon Accommodations Fund Inc.
1-1, Nihonbashi-Muromachi 2-chome,
Chuo-ku, Tokyo 103-0022, Japan

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