23rd

Fiscal Period Business Report(Statement of Financial Performance)

December 1, 2016 – May 31, 2017

6-2-1 Ginza, Chuo Ward, Tokyo http://www.daiwa-office.co.jp/en/

I. Overview of Daiwa Office Investment Corporation
To Our Investors
We would like to express our deep gratitude to all our unitholders for your support of Daiwa Office Investment Corporation (DOI).
In the 23rd Fiscal Period, DOI posted operating revenues of 12,547 million yen and operating income of 6,133 million yen. Our
distribution per unit for the 23rd Fiscal Period is 10,764 yen, an increase of 69 yen from the 22nd Fiscal Period.
See page 4 for financial and management highlights
Average contract rent at the end of the 23rd Fiscal Period increased 218 yen from the end of the previous fiscal period to 19,437
yen, indicating an increase for the fifth consecutive fiscal period. Rent revisions contributed to an 18 million yen increase inmonthly contracted rents from the end of the previous fiscal period, which was an 8.1% rate of increase for average monthly rent.
Furthermore, the rate of increase for average monthly rent stood at 9.6% due to replacement of tenants, and the occupancy rate was
97.7%. We will realize sustainable internal growth through the thorough implementation of the hands-on approach that continuously
applies “Bonji-Tettei” as the code of conduct.

See page 8 for details of internal growth

During the 23rd Fiscal Period, DOI acquired Shin Kanda Mikuracho Building on December 21, 2016 (acquisition price: 1,592
million yen). DOI will continue to selectively acquire office properties centering on the five central
wards of Tokyo in an effort to further improve the value of its portfolio.
See page 12 for details of external growthIn financial matters, DOI promoted diversification of repayment dates by taking out longterm borrowings. DOI will continue striving to further strengthen its financial structure whileworking to reduce future refinancing risks.
See page 15 for details of financial conditions
DOI will continue to increase the competitiveness of its properties and aim to achieve
its medium- to long-term goal of continuous growth through the utilization of
investment capacity from capital increase, etc., while increasing long-term EPS (netincome after deducting gain on sales of properties). We wish for the continued
success of our unitholders and ask for your continued support of DOI.

Yoshimi Murakami Executive Director of Daiwa Office Investment Corporation
Table of Contents

I. Overview of Daiwa Office Investment Corporation
To Our Investors……………………………………………… 2

II. Asset Management Report…………………………… 17
III. Balance Sheets… ……………………………………… 22

Characteristics and Strategies of
Daiwa Office Investment Corporation ………………………… 3
Financial and Management Highlights………………………… 4

IV. Statements of Income and Retained Earnings…… 24
V. Statements of Changes in Net Assets……………… 25

Overview of Portfolio (portfolio list)…………………………… 5
Overview of Portfolio (portfolio distribution)…………………… 6
Internal Growth Measures… ………………………………… 8External Growth Measures…………………………………… 12
Financial Conditions… ……………………………………… 15
Description of Asset Manager………………………………… 16

2

VI. Statements of Cash Flows… ………………………… 26
VII. Notes to Financial Statements……………………… 27
VIII. Independent Auditor’s Report… …………………… 41
IX. Investor Information… ………………………………… 42

Characteristics and Strategies of Daiwa Office Investment Corporation

Characteristics of Daiwa Office Investment Corporation

Office Specialized
REIT

REIT Focused on the Five
Central Wards of Tokyo

Effective application of operational knowhow specialized in officebuildings

Places priority on owning office buildings in favorable locations forwhich there is high demand

Office buildings 100.0%

Major Regional Cities 3.1%
Greater Tokyo

Five Central
Wards of Tokyo

88.6%

8.3%

Based on acquisition price(Note) Please note that the percentages in the above graphs are as of May 31, 2017.

Growth Strategies
Activities for solid growth・Continue acquiringproperties

Achievement of a 500 billion yen asset size

・Leverage borrowing
capacity

Keep the medium- to long-term, upper-limit
LTV target range within 40%~50%(billion yen)
500

400

Investment inselectively-chosencompetitive properties
387.5

413.2

500.0
467.7

469.3

445.7 458.3

300

Establishment of stable revenue base・Property management
activities

Continuation of “Bonji-Tettei”
Thorough implementation of hands-on
approach
Further strengthen relations with tenants

・Maintain andimprove property
value

Capture tenant needs by reinforcing ties withproperty managers
Strategic renewals and lease-up activities

・Financial activities

Reduce refinancing risk by extending
borrowing periods and diversifying
repayment dates

Distribution per Unit

200

100

0
Fiscal period Fiscal period Fiscal period Fiscal period Fiscal period Fiscal period Medium-term
ended
ended
ended
ended
ended
ended
goal
November 2014 May 2015 November 2015 May 2016 November 2016 May 2017

Fiscal period ended May 2017
(23rd Fiscal Period)

Fiscal period ending November 2017
(Note) The forecasts on distribution are calculated based(24th Fiscal Period)on certain assumptions and may vary due tochanges in the status and other factors. Moreover,the forecasts set forth herein should not be
construed as a guarantee of distribution amounts.

Fiscal period ending May 2018
(25th Fiscal Period)

10,764 yen
10,770 yen
10,800 yen(Actual)(Forecast)(Forecast)

I. Overview of Daiwa Office Investment Corporation

3

Financial and Management Highlights
Steady increase of distributions due to progress in internal growth■ Operating Revenues■ Operating Income■ Net Income(Million yen)
13,000(Million yen)
7,000(Million yen)
6,000

10,00011,837

12,363

12,853

12,547

10,387

6,143

6,108

5,614

5,000

5,250

6,133

5,359

4,031

4,770

7,000

5,324

4,688

4,000

3,000

2,000

4,000

0

0

0

19th Period 20th Period 21st Period 22nd Period 23rd Period

19th Period 20th Period 21st Period 22nd Period 23rd Period

19th Period 20th Period 21st Period 22nd Period 23rd Period■ Changes in Rental Revenues

External growth (acquisition/full contribution from properties sold) (Note 1)
External growth (acquisition/during-the-period contribution from properties sold) (Note 2)
Internal growth (increase/decrease of rents of existing properties)
27
115(Million yen)
11,000227

267

10,000
9,000

511

7,000

282

148
215

349

8,000

-42

117

154

839

176

14

12

229

64

6,000
0
18th Period

19th Period

20th Period

21st Period

22nd Period■ Distribution per Unit
(Yen)
12,000

Forecast from one year earlier

Forecast from six months earlier

Actual dividends
10,000
8,000

7,570
7,820
8,256

6,550
7,200
7,478

7,300
7,540
7,621

16th Period

17th Period

5,500
6,250
6,542

9,000
9,350
9,688

8,328
8,700
9,142

23rd Period(Note 1) Amount obtained by subtracting rents andcommon area fees income in the previous
fiscal period of properties sold in theprevious fiscal period from the amount ofrents and common area fees income
increased compared to the previous period
due to full year contribution from properties
acquired in the previous fiscal period.
(Note 2) Amount obtained by subtracting rents andcommon area fees income decreased in
the current fiscal period due to sales ofproperties in the current fiscal period fromthe amount of rents and common area fees
income increased in the current fiscal
period due to acquisition of properties in
the current fiscal period.

10,8009,750
9,850
10,5089,900
10,55010,695

10,56010,70010,764

10,71010,77021st Period

22nd Period

23rd Period

24th Period 25th Period

6,000
4,000
2,000
0
15th Period

18th Period

19th Period

20th Period

23rd Period

22nd Period

21st Period

20th Period

19th Period(May 2017)(November 2016)(May 2016)(November 2015)(May 2015)

Operating revenues (Million yen)

12,547

12,85312,363

11,837

10,387

Operating income (Million yen)

6,133

6,143

6,108

5,614

4,770

Ordinary income (Million yen)

5,360

5,325

5,326

4,689

4,032

Net income (Million yen)

5,359

5,324

5,250

4,688

4,031

Total number of units issued (Units)497,869

497,869

484,000

484,000

441,000
505,566

Net assets per unit (Yen)

515,317515,230

511,818

511,777

Distribution per unit (Yen)

10,764

10,695

10,508

9,688

9,142

Total assets (Million yen)

483,730

483,450

476,690

460,705432,232

42.2

42.3

43.3

41.7

44.3

54

53

50

50

47

Asset size (Billion yen)

469.3

467.7

458.3

445.7

413.2

Total rentable area (m2)

338,436.22

336,722.04

328,027.44

325,313.01

288,833.07

97.7

97.7

98.7

98.3

97.3

Loan-to-value (LTV) (Based on total asset value) (%)
Number of investment properties

Occupancy rate (%)(Note) Distribution per unit for the 22nd fiscal period is calculated by dividing the amount obtained by subtracting provision for reserve for reduction entry (164 million yen) from unappropriated retained earnings by the
total number of investment units issued.

4Overview of Portfolio (Portfolio list)(As of May 31, 2017)
Property Name

Address

Appraisal
Execution Acquisition
Rentable Structure andPrice
Value at End
Area (m2) No. of Floors Completion of Major
of Period
Share(Note 2)
(Note 3)
Repairs mm yen (%) (mm yen) (Note 4)

Ownership TypeLand

Building

PML (%)

Five Central Wards of Tokyo (Note 1)
Ginza, Chuo-ku, Tokyo
1 Daiwa Ginza
Ginza, Chuo-ku, Tokyo
2 Daiwa Ginza Annex
Shibaura, Minato-ku, Tokyo
3 Daiwa Shibaura
Minami Aoyama, Minato-ku, Tokyo
4 Daiwa Minami-Aoyama
Sarugakucho, Chiyoda-ku, Tokyo
5 Daiwa Sarugakucho
Hamamatsucho, Minato-ku, Tokyo
6 Daiwa A Hamamatsucho
Jingumae, Shibuya-ku, Tokyo
7 Daiwa Jingumae
Shibadaimon, Minato-ku, Tokyo
8 Daiwa Shibadaimon
Misakicho, Chiyoda-ku, Tokyo
9 Daiwa Misakicho
Shinbashi, Minato-ku, Tokyo
10 Daiwa Shimbashi 510
Tsukiji, Chuo-ku, Tokyo
11 Daiwa Tsukijiekimae
Tsukiji, Chuo-ku, Tokyo
12 Daiwa Tsukiji
Tsukishima, Chuo-ku, Tokyo
13 Daiwa Tsukishima
14 Daiwa Nihonbashi Horidomecho Nihombashi-Horidomecho, Chuo-ku, Tokyo
Azabudai, Minato-ku, Tokyo
15 Daiwa Azabudai
Hatchobori, Chuo-ku, Tokyo
16 Daiwa Kyobashi
Kojimachi, Chiyoda-ku, Tokyo
17 Daiwa Kojimachi 4-chome
Shinbashi, Minato-ku, Tokyo
18 Daiwa Onarimon
19 Shinjuku Maynds Tower (Note 5) Yoyogi, Shibuya-ku, Tokyo
Udagawacho, Shibuya-ku, Tokyo
20 SHIBUYA EDGE
Nihombashi-Odenmacho, Chuo-ku, Tokyo
21 Daiwa Kodenmacho
Kanda-Jimbocho, Chiyoda-ku, Tokyo
22 Daiwa Jimbocho
Nishi-Shimbashi, Minato-ku, Tokyo
23 Daiwa Nishi-Shimbashi
Nihombashi-Kayabacho, Chuo-ku, Tokyo
24 Daiwa Kayabacho Building
Kanda-Jimbocho, Chiyoda-ku, Tokyo
25 Daiwa Jinbocho 3-chome
Maruyamacho, Shibuya-ku, Tokyo
26 E SPACE TOWER
27 Daiwa Nihonbashi Hongokucho Nihombashi Hongokucho, Chuo-ku, Tokyo
Shinjuku, Shinjuku-ku, Tokyo
28 shinyon curumu
Akasaka, Minato-ku, Tokyo
29 Daiwa Akasaka
Shibuya, Shibuya-ku, Tokyo
30 Daiwa Shibuya Miyamasuzaka
Minami Azabu, Minato-ku, Tokyo
31 Daiwa Azabu Terrace (Note 6)
Ebisu, Shibuya-ku, Tokyo
32 Daiwa Ebisu 4-chome
Okubo, Shinjuku-ku, Tokyo
33 LAQUAS Higashi Shinjuku
Jingumae, Shibuya-ku, Tokyo
34 Daiwa Aoyama (Note 6)
Shinsen-cho, Shibuya-ku, Tokyo
35 Shinsen Place
Nanpeidaicho, Shibuya-ku, Tokyo
36 Glass City Shibuya
Nihonbashi Hakozakicho, Chuo-ku, Tokyo
37 Daiwa River Gate (Note 6)
Hatchobori, Chuo-ku, Tokyo
38 Daiwa Hatchobori ekimae
39 Daiwa Hatchobori ekimae West Hatchobori, Chuo-ku, Tokyo
Nishishinjuku, Shinjuku-ku, Tokyo
40 Nikko Building
Nihonbashi Koami-cho, Chuo-ku, Tokyo
41 Kirin Nihonbashi Building
42 Daiwa Higashi-nihonbashi (Note 6) Higashi Nihonbashi, Chuo-ku, Tokyo
Daikanyamacho, Shibuya-ku, Tokyo
43 Square Daikanyama Building
Nishishinjuku, Shinjuku-ku, Tokyo
44 Shinjuku West Building
45 Shin Kanda Mikuracho Building Kanda Mikura-cho, Chiyoda-ku, Tokyo

8,170.23 SRC B3/12F July 1963
2,032.11 SRC B3/8F Aug. 1972
9,619.67 SRC B1/12F Oct. 1987
2,715.54 S SRC B2/5F Sept. 1990
3,657.43
SRC 8F
June 1985
3,663.38 SRC B2/10F July 1993
2,198.61 RC B1/4F
Dec. 1997
2,386.48 SRC RC B1/7F Nov. 1996
2,137.53
S 8F
July 1996
2,641.56 SRC B1/8F
Apr. 1974
2,659.59
SRC 10F
Jan. 1996
1,487.44 SRC B1/7F Jan. 1990
8,425.69
S 5F
July 1996
2,850.81 SRC B2/7F
Apr. 1993
1,697.88 SRC B2/9F
Apr. 1984
3,265.83 SRC B1/8F Oct. 1974
2,690.90 SRC B2/9F Oct. 1987
11,614.92
SRC 9F
Apr. 1973
45,543.97 S SRC B3/34F Sept. 1995
2,480.65 RC B1/9F
Aug. 2006
2,379.31
SRC 8F
Mar. 1985
3,164.26
S B1/8F
Mar. 1997
4,815.84 SRC B1/10F July 1993
5,899.11 S SRC B1/8F Apr. 2010
2,889.34
S 9F
Feb. 2010
13,960.87 S SRC B1/15F Oct. 2002
2,143.08
S 8F
May 2010
6,751.31 S RC B2/11F Jan. 2012
8,739.17 SRC B2/7F Sept. 1990
6,327.95 S B1/12F
Dec. 1988
13,234.39 S RC B1/6F Sept. 2009
2,885.64 SRC B1/9F Dec. 1997
7,498.33
S10F
Aug. 2010
4,424.48 S RC B1/7F Nov. 2001
2,811.35 RC B1/9F
Sept. 2001
8,566.73 S SRC B1/11F Feb. 2004
32,063.06 S SRC RC B2/20F Feb. 1994
2,622.42 S SRC B1/10F Feb. 2006
1,723.15 SRC B1/9F Feb. 1996
6,967.61 SRC RC S B2/11F Aug. 1991
5,630.17 S SRC 7F
Feb. 1999
5,015.88
S 7F
Mar. 2008
1,588.35
S 6F
Mar. 2001
1,120.58
RC 4F
Mar. 1989
1,720.83 SRC S B1/7F Jan. 1991
276,883.43

Subtotal
Greater Tokyo Area (Note 1)
Higashi-Ikebukuro, Toshima-ku, Tokyo
4,461.47 SRC S B1/9F June 1993
46 Daiwa Higashi-Ikebukuro
Kita-Shinagawa, Shinagawa-ku, Tokyo
6,548.17 SRC B1/11F July 1991
47 Daiwa Shinagawa North
Osaki, Shinagawa-ku, Tokyo
1,786.06 S RC B1/6F Sept. 2007
48 Daiwa Osaki 3-chome
Kamiooka Nishi, Konan-ku, Yokohama City, Kanagawa 2,630.30 S SRC B3/7F May 201149 Daiwa Kamiooka
Kamiogi, Suginami-ku, Tokyo
17,778.14 S SRC B2/18F June 1993
50 Integral Tower
Meguro, Meguro-ku, Tokyo
3,519.50 S SRC B2/14F July 200951 Daiwa Meguro Square (Note 6)
Ogikubo, Suginami-ku, Tokyo
3,849.63 SRC B1/7F Nov. 1990
52 Daiwa Ogikubo (Note 6)
Subtotal
40,573.27
Major Regional Cities (Note 1)
Meieki-Minami, Nakamura-ku, Nagoya City, Aichi
7,461.90
S 12F
Dec. 2007
53 Daiwa Meieki
Awaji-cho, Chuo-ku, Osaka City, Osaka
13,517.62 S SRC B1/16F Feb. 2008
54 Daiwa Kitahama (Note 6)
Subtotal
20,979.52
Total
338,436.22

simple and17,100 Feeleasehold
Fee simple
3,560 Fee simple
Fee simple
7,680 Fee simple
Fee simple
4,520 Fee simple
Fee simple
3,550 Fee simple
Fee simple
Compartmentalized
3,460 Fee simple
ownership
2,460 Fee simple
Fee simple
3,040 Fee simple
Fee simple
2,790 Fee simple
Fee simple
2,530 Fee simple
Fee simple
1,720 Fee simple
Fee simple
1,490 Fee simple
Fee simple
9,570 Fee simple
Fee simple
2,590 Fee simple
Fee simple
1,890 Fee simple
Fee simple
3,390 Fee simple Compartmentalized
ownership (100%)
2,820 Fee simple Compartmentalized
ownership (100%)
13,800 Fee simple Compartmentalized
ownership (100%)
125,000 Co-ownership Co-ownership
5,050 Fee simple
Fee simple
simple and2,200 Feeleasehold
Fee simple
3,530 Fee simple
Fee simple
6,350 Fee simple
Fee simple
7,880 Fee simple
Fee simple
4,760 Fee simple
Fee simple
33,300 Fee simple
Fee simple
2,320 Fee simple
Fee simple
14,800 Right of site Compartmentalized
ownership (100%)
13,200 Fee simple
Fee simple
8,740 Fee simple
Fee simple
16,100 Fee simple
Fee simple
5,420 Fee simple
Fee simple
10,400 Fee simple Compartmentalized
ownership (100%)
12,000 Fee simple
Fee simple
6,520 Fee simple
Fee simple
18,300 Fee simple
Fee simple
30,100 Fee simple
Fee simple
3,220 Fee simple
Fee simple
1,820 Fee simple
Fee simple
14,900 Fee simple
Fee simple
8,290 Fee simple
Fee simple
6,750 Fee simple
Fee simple
2,530 Fee simple
Fee simple
1,200 Fee simple
Fee simple
Compartmentalized
1,700 Fee simple ownership (100%)
454,340

4.53
3.97
3.82
9.19
7.14
3.79
13.33
3.72
4.24
5.51
4.23
4.98
4.87
4.68
6.64
4.51
6.19
3.89
2.03
1.56
4.19
5.05
3.76
4.50
5.33
3.11
3.80
4.44
7.14
5.64
2.67
2.44
4.46
4.42
6.21
1.61
1.76
5.89
7.03
4.32
5.76
4.37
6.21
8.28
6.01

0.6
1.6
0.4
0.4
3.2
1.2
0.8
8.3

3,690
6,020
2,320
2,700
19,2006,550
4,390
44,870Fee simple
Fee simple
Fee simple
Fee simple
Fee simple
Fee simple
Fee simple

Compartmentalized
ownership (100%)

3.55
7.19
6.14
6.29
1.18
1.68
6.41

5,300 1.1
9,481 2.0
14,781 3.1
469,341 100.0

7,750
11,60019,350518,560

Fee simple
Fee simple

Fee simple
Fee simple

10.31
3.48

2003
2003

14,100 3.0
3,050 0.6
8,265 1.8
4,550 1.0
3,190 0.7
2,865 0.62,800 0.6
2,578 0.5
2,346 0.5
2006
2,080 0.4
1,560 0.3
1,240 0.3
7,840 1.7
2,520 0.51,600 0.3
2005
3,460 0.7
2,910 0.6
2003 13,860 3.0
133,800 28.5
5,900 1.3
2,460 0.5
4,150 0.95,000 1.1
5,600 1.2
3,550 0.8
24,000 5.1
1,721 0.4
9,650 2.1
9,200 2.0
7,000 1.5
14,000 3.0
4,135 0.98,450 1.89,800 2.1
4,800 1.0
16,000 3.4
28,000 6.0
2,871 0.6
1,647 0.4
13,710 2.9
8,180 1.7
6,370 1.4
2,280 0.5
942 0.2
1,592 0.3
415,622 88.6
2,958
7,710
1,650
2,000
15,2205,600
3,800
38,938

Fee simple
Fee simple
Fee simple
Fee simple
Fee simple
Fee simple(Note 1) The Five Central Wards of Tokyo are Chiyoda, Chuo, Minato, Shinjuku and Shibuya Wards (or ku). The Greater Tokyo Area is Tokyo (excluding the Five Central Wards), and Kanagawa, Chiba and Saitama Prefectures.
Major Regional Cities are the Osaka area (Osaka, Kyoto and Hyogo prefectures), Nagoya area (Aichi, Mie and Gifu prefectures) and ordinance designated cities and core cities set forth in the Local Autonomy Act.
(Note 2) The Rentable Area is indicated as of May 31, 2017 (end of 23rd Fiscal Period).
(Note 3) Structure acronyms are S for steel, RC for reinforced concrete and SRC for steel-reinforced concrete.
(Note 4) The values entered in the Appraisal Value at End of Period column are the appraisal values in the real estate appraisal reports with a pricing point of May 31, 2017 (end of 23rd Fiscal Period).
(Note 5) The entrusted real estate corresponding to trust beneficiary interests that DOI owns regarding Shinjuku Maynds Tower is a co-ownership interest equal to 6/7 of the entire property. The figure shown for the Rentable
Area is the figure equivalent to 6/7 of the total rentable area of the entire building.
(Note 6) Concerning the names of properties, DOI changed River Gate to Daiwa River Gate, Heiwa Higashi-nihonbashi Building to Daiwa Higashi-nihonbashi, Meguro Place Tower to Daiwa Meguro Square, Ogikubo TM
Building to Daiwa Ogikubo and Kitahama Grand Building to Daiwa Kitahama on April 1, 2017; Concept Aoyama to Daiwa Aoyama on May 1, 2017; and Azabu Green Terrace to Daiwa Azabu Terrace on June 1, 2017.

I. Overview of Daiwa Office Investment Corporation

5Overview of Portfolio (Portfolio distribution)
DOI concentrates its investment in the Five Central Wards of Tokyo (Chiyoda, Chuo, Minato, Shinjuku and Shibuya)
Shibuya-ku

7 Daiwa Jingumae

20 SHIBUYA EDGE

30 Daiwa Shibuya Miyamasuzaka

32 Daiwa Ebisu 4-chome

46 Daiwa Higashi-Ikebukuro

Ikebukuro Sta.
46

19 Shinjuku Maynds Tower

26 E SPACE TOWER

50

34 Daiwa Aoyama

Suginami-ku

35 Shinsen Place

36 Glass City Shibuya

43 Square Daikanyama Building

Nakano Sta.

52 Ogikubo Sta.
50 Integral Tower

Toshimaku

33
HigashiShinjuku Sta.

Shinjuku-ku

Shinjuku-ku
44
40

Shinjuku Sta.
28

19

Yotsuya Sta.

Honancho Sta.
52 Daiwa Ogikubo

Tokyo Metro
Ginza Line
Marunouchi Line
Hibiya Line
Tozai Line
Chiyoda Line
Yurakucho Line
Hanzomon Line
Namboku Line
Fukutoshin Line

Toei Subway

28 shinyon curumu

33 LAQUAS Higashi Shinjuku

40 Nikko Building

44 Shinjuku West Building

Shibuya-ku

Minato-ku

34

20
26
3 Daiwa Shibaura

4 Daiwa Minami-Aoyama

35

6 Daiwa A Hamamatsucho

36

ine
hi L
Tos
n
e
Den
yu
Tok

Lin
e
To
kyu
To
yok
o

JR

8 Daiwa Shibadaimon

10 Daiwa Shimbashi 510

30
Shibuya Sta.
43

Naka-meguro Sta.

6

32
Ebisu Sta.

15 Daiwa Azabudai

51

Main investment area:
Five Central Wards ofTokyo
Focused investmentarea: Greater Tokyo
Major Regional Cities

Gaienmae Sta.

4

Omotesando Sta.

Oedo Line
Asakusa Line
Mita Line
Shinjuku Line
Yamanote Line
Saikyo Line
Chuo Line
Sobu Line
Keiyo Line
Yokosuka Lineand
Sobu Rapid Line

Aoyamaitchome Sta.

7

18 Daiwa Onarimon

23 Daiwa Nishi-Shimbashi

29 Daiwa Akasaka

31 Daiwa Azabu Terrace

51 Daiwa Meguro Square

Meguro Sta.

Osaki Sta.
48

(As of May 31, 2017)

Chuo-ku

1 Daiwa Ginza

37 Daiwa River Gate

2 Daiwa Ginza Annex

11 Daiwa Tsukijiekimae

12 Daiwa Tsukiji

13 Daiwa Tsukishima

14 Daiwa Nihonbashi Horidomecho

16 Daiwa Kyobashi

21 Daiwa Kodenmacho

24 Daiwa Kayabacho Building

Asakusa Sta.
Oshiage Sta.

Suidobashi Sta.

9

Akihabara Sta.

5

Kinshicho Sta.

25 22

Kudanshita Sta.

27 Daiwa Nihonbashi Hongokucho 38 Daiwa Hatchobori ekimae

39 Daiwa Hatchobori ekimae West

42
45

27

21

14

Otemachi Sta.

Chiyoda-ku

17

Ningyocho Sta.
Nihombashi Sta.

Tokyo Sta.
Akasakamitsuke Sta.

Hibiya Sta.

Akasaka Sta.

12

Toranomon Sta.

29

Shimbashi Sta.
23
10
18

Shibakoen Sta.

Chuo-ku

41

16

39 38

Ginza Sta.

12

6

15

24 Suitengumae37

41 Kirin Nihonbashi Building 42 Daiwa Higashi-nihonbashi

Sta.

Chiyoda-ku

Hatchobori
Sta.

11

Tsukishima Sta.

13
5 Daiwa Sarugakucho

9 Daiwa Misakicho

17 Daiwa Kojimachi 4-chome

22 Daiwa Jimbocho

25 Daiwa Jinbocho 3-chome

45 Shin Kanda Mikuracho Building

53 Daiwa Meieki

54 Daiwa Kitahama

8

Minato-ku
31

3

ShinagawaSta.

47

Shinagawaku

47 Daiwa Shinagawa North

48 Daiwa Osaki 3-chome

54 53

49

49 Daiwa Kamiooka

I. Overview of Daiwa Office Investment Corporation

7

Internal Growth Measures
Realizing rent increases upon contract renewal and tenant replacement while working to heighten tenant satisfaction

Office Market Trends
Further improvements in vacancy rate are observed and rent levels are showing signs of recovery.

■ Office Building Rental Market of Tokyo(Yen/tsubo)
24,000■ Office Building Rental Market of 23 Wards of Tokyo
(%)
10.0

Average rents of existing buildings (left axis)
Vacancy rate of existing buildings (right axis)

22,000(Tsubo)400,000

8.0

20,0006.0

18,68618,00014,000300,000

7.5

200,000

6.0

100,000

4.5

0
0

3.0

4.0

2.87 2.0

16,000(%)
Floor area of new supplies (Small and medium-sized buildings) 9.0

Floor area of new supplies (Large buildings)
Floor area of new demands

1.5-100,000
Vacancy rate

-200,0000.0

Predicted figures

Vacancy rate (Forecast as of June 2016)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20172001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

(Source) Miki Shoji(Source) CBRE “Mid-term Office Market Outlook 2017~2021”■ Occupancy Rate

■ Rate of New Leases and Cancellations*

(%)
100.0

(%)
20.0
97.7
95.9

95.0

96.4

95.4

95.0

96.3 96.4

97.2 97.3

98.3 98.7

97.7 97.7 97.6
96.8 97.2

13.4

96.5

10.0

94.3

9.8

7.2 7.4
3.9

3.2

-3.9

-3.4
-3.9

8.2

3.3

5.7

4.4

6.1 6.2
2.0

4.3

1.8

2.9 3.8 4.4

0.0

92.8
92.4
90.0

85.7

85.0

0.0

Occupancy rate (actual)
Occupancy rate (forecast)Occupancy rate (forecast)(as of disclosure in January 2017)

-10.0

-5.9

-5.3
-7.3 -6.3-12.0

End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of
7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 25th
Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period-6.1 -5.7

Rate of new leases
Rate of cancellations

-14.7

-20.0

-2.4 -1.7 -1.6

-2.8

-3.8 -3.6 -4.9

1.5
-2.3

Expected rate of new leases
Expected rate of cancellations

End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of
7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 25th
Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period* Transition of rate of new leases and cancellation areas to the total rentable area.

Rental Business Status■ Average Contract Rent and Market Rent

■ Attribution Analysis/Monthly Contract Rent*(Yen/tsubo)
30,000(Million yen)100

27,000

90

1,950

80

1,905
1,900

78.85 80.16
81.41
79.53

24,00021,00070

19,105 19,437
18,00015,00018,73819,219Average contract rent*
Unit rent index(Period-on-period comparison, right axis)**

60

+18

Decrease due torent revisions

Increase due torent revisions

0

Increase due to
new leases–70
Decrease due totenants’cancellations

+3

1,935

Increase due to
new acquisition

1,850

1,800

50
1,750
40

12,000End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of
4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd
Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period(Note) Average contract rent of the existing 53 properties at the end of May 2017 is 19,456 yen (amount ofchange from the previous period: +237 yen)
* Average contract rent is average monthly contracted rent with tenants at the end of each fiscal period.
** Unit rent index is the earning rate of unit rent of individual properties indexed with the 7th Fiscal Period as
100.

8

+79

2,000

1,700
End of 22nd FP
monthly contract rent

End of 23rd FP
monthly contract rent

* Monthly contact rent is the total of final rent from tenants contracting at the end of the Fiscal Period.
Monthly contract rent for Shinjuku Maynds Tower was adjusted to 6/7 of the total.

Status of Contract Renewal/New Lease■ Area of which Contract Ended/Will End In and Afterthe Fiscal Period Ended May 2017 (23rd fiscal period)(Based on rentable area)■ Changes in Ratios of Areas with Rent Increase/Decrease/
Unchanged and Cancellation upon Contract Renewal
23rd Period

(%)
30.0

22nd Period

Scheduled
25.0

23.9

25.2

23.4

20.0

17.4

17.2

48.8

15.0

10.0

5.0

42.6

23rd Period

24th Period

25th Period

26th Period

21st Period■ Changes in Rent Increase/Decrease Rate of Contract
Renewal Tenants (Sections)

5.0

4.5

0.0

0.0

5.0
1.0

2.5

-5.2 -6.5-5.0-7.0 -10.2

-10.0

-7.0

9.8
4.3

-4.9

5.2
5.2
0.0

9.0
9.0

7.3
7.2

0.0

6.1
6.1
0.0

49.0

0.7

37.5

61.1

1.4

26.5

70.8

2.7

18th Period 4.8

8.6

66.7

19.9

17th Period

8.5

16th Period

10.0 4.6

77.1

8.2

15th Period

14.4

70.3

12.3

7.9*

14.1*

57.4

3.1

18.9
0.0

12.1

67.3
20.0

Decrease

40.0

13.8

60.0
Unchanged

Increase

80.0
Cancellation

100.0
（%）

* Of the increase in the 17th FP, 14.1% is due to some tenants switching from sublease agreements tomaster lease agreements and 7.9% is due to negotiations with tenants.

8.1
8.1

0.0

(Thousand yen)
80,00060,000-15.0
Increase rate

35,34532,1889.8

12.5

29,97029,203

9.6
7.2

Rent increase/decrease rate

14th
15th
16th
17th
18th
19th
20th 21st 22nd 23rd
Period Period Period Period Period Period Period Period Period Period(Note 1) “Increase rate” and “Decrease rate” indicate the simple average of rent increase/decrease against
contract rents before renewals for lease contracts whose contract renewal periods have arrived in
the above periods and whose rent renewals have been agreed, rounded to the first decimal place.
(Note 2) Figures for “Rent increase/decrease rate” are obtained by dividing the total of contract rents after
renewal for lease contracts whose contract renewals have been agreed by the total of contract rents
before renewal, rounded to the fist decimal place.

（%）
25.0

59,04255,05452,58046,14214.0

20,000Decrease rate

75,943
69,262

New tenant (left axis)
Previous tenant (left axis)
Increase/decrease rate (right axis)

40,000

-22.7
-22.7
-25.0

50.1

19th Period

-5.1

-20.0

3.9

■ Increase/Decrease in Monthly Rent due to New Lease andIncrease/Decrease Rate (Compared to the previous tenant
for the same section)

(%)
15.0
10.0

53.4

20th Period

27th Period(Note) The ratio of areas of which lease contracts are scheduled to be renewed in each fiscal period to thetotal rentable area (330,807.45m2) as of the end of May 2017 is indicated.

6.6

0.2

14th Period

0.0

44.4

2.6
0

0.0

19th Period

20th Period

21st Period

22nd Period

23rd Period(Note) “New tenant” refers to the tenant who concluded a new lease contract in the respective fiscal period,and “Previous tenant” refers to the tenant, for the same section for which the new tenant concluded alease contract, which had been under a lease contract immediately before the new tenant.

Improvement in Financial Standing■ Monthly Rent Increase Due to Contract Renewal/New Lease(Financial Standing)(Thousand yen/month)
30,00025,000Contract Renewal

25,528

New Lease

6,680

20,00015,00014,376

10,000

9,020

6,438

5,000

3,157
5,862

0

7,938

14,246766
13,47912,7473,988
8,759■ Increase in Dividend Resource Due to Improved Financial Standing
19th
20th
21st
22nd
23rd
Period Period Period Period Period

Percentage of Total Rent 6-month
conversion
Revenue (rents andcommon area fees) (Note 1) 12-month
conversion

0.7%

1.0%

0.8%

0.7%

1.4%

1.3%

2.0%

1.7%

1.5%

2.8%

1.5%

2.1%

1.8%

1.5%

2.9%

3.0%

4.3%

3.6%

2.9%

5.8%

18,847Growth rate of dividend
resource (Note 2)

6-monthconversion
12-monthconversion

19th Period
20th Period
21st Period
22nd Period
23rd Period(Note 1) The figures are calculated by dividing the amount obtained by multiplying the total of net increase in monthly rents due to contract renewal and new lease by 6, by rents and common area fees income in the immediately
prior fiscal period, rounded to the first decimal place.
(Note 2) The figures are calculated by dividing the amount obtained by multiplying the total of net increase in monthly rents due to contract renewal and new lease by 6, by net income in the immediately prior fiscal period, rounded
to the first decimal place.

I. Overview of Daiwa Office Investment Corporation

9

Internal Growth Measures“Bonji-Tettei”
Continuous internal growth and maximization of asset value through “Bonji-Tettei”“Bonji-Tettei”
Accurate grasp of present
situations◦Accurate understanding of the leasing market◦Capturing needs of occupying tenants◦ In-depth understanding of property features

Activities for internal growth◦Information gathering from brokers◦Regular visits to tenants/conducting tenantsatisfaction surveys◦ Periodical property examination◦ Rigorous budgeting

Realization of internal growth◦Maintenance of a stable occupancy rate by promptly filling vacancies◦Realization of stable management through solid relationship with tenants◦Securing revenue through systematic management

Aims to maximize asset value
Office Management Team
(7 members)

Aims to maximize asset value
through the organization of theinvestment corporation’s portfolio
by assigning personnel in charge
and specialist groups to each
property

Hiroshi Udagawa Takafumi Ushiku Kotaro Ishii

Jun Arai

Chie Kamimura

Yuuki Kobatake

Jun Iwasaki

Asset management
Asset management
Asset management
Asset management
Asset management
Asset management
Asset management
work history:
work history:
work history:
work history:
work history:
work history:
work history: 7 months
10 years 10 months
12 years 8 months
11 years 1 month
11 years 1 month
10 years 11 months
4 years 7 months

Investment Planning Team

Middle office work: Budget and performance management for the portfolio

Construction Management
Team (3 members)

Engineering: Formulation and implementation of construction planning for assets(3 members)(Note) “Asset Management work history” is the number of years engaged in the relevant work (as of end of May 2017) and does not indicate the number of years employed at the asset management company.

Occupancy Status of Properties Subject to Leasing Improvement in the Fiscal Period Ended May 2017 (23rd FP)■ Daiwa Tsukishima (Acquisition price: 7,840 million yen)

■ Daiwa Aoyama (Acquisition price: 9,800 million yen)

100.0(%)

100.0(%)

100.0

100.0
88.9

78.2

69.5

91.4

85.9

85.9

50.0

80.0
0.0

’16/8

43.3
37.8

13.2

’16/5

100.0
84.7

100.0(%)

90.0

56.7

50.0

■ Shin Kanda Mikuracho Building (Acquisition price: 1,592 million yen)

100.0

70.0
’16/11

’17/2

’17/5

• Secured the property’s competitive advantage byconducting large-scale renovation and successfully
concluded a contract with higher unit rent than before.
• Successfully expanded the customer-base and gained
quality customers through continuous follow-up by wellestablished brokers as well as by holding property
viewings and briefings for brokers and such.

’16/5

0.0

71.4
’17/5

’16/11 ’17/1 ’17/3 ’17/5 ’17/7 ’17/9• As a result of expanding areas subject to sales
improvement and conducting building-to-building sales
activities in order to take advantage of the demand in
the Shibuya area where vacancy rates were low, thenumber of referred cases increased dramatically. Also
100
successfully concluded a contract with a higher unit rent
than that for the previous tenant.
• Attracting customers is progressing smoothly for one
floor, where tenants are being sought.

’16/8’16/11’17/2• Held a property viewing soon after acquiring theproperty in December 2016, appealing to the sentimentthat the rent is inexpensive despite the property being
accessible for Otemachi, Nihonbashi, etc. as well as
having good transport accessibility.
• 100
Was able to conclude contracts mainly with manufacturers
and wholesalers at an early stage under favorable termsby meeting demand for branch offices from local small and90
medium-sizedcompanies, etc. with low-cost beautification
measures. Scheduled to operate at full occupancy.

50

80

Properties Subject to Leasing Improvement in the Fiscal Period ending November 2017 (24th FP)■ Daiwa River Gate (Acquisition price: 28,000 million yen)
• Will showcase the features of theproperty, including the size andsuperior quality, to companies ina broader range of industries andsizes in addition to affiliates ofmajor companies, etc.
• Aim for early conclusion ofcontracts for vacant spaces byfurther enhancing competitivenessof the property through renovationof common areas, etc. and also by
making stronger presentation for agreater number of brokers in wider
areas through utilization ofadvertisement media.

100■ Daiwa Shibaura (Acquisition price: 8.265 million yen)
• By capitalizing on the property’s
features of having a distinct
advantage in size and grade
when compared with othernearby properties while offering
excellent access to central Tokyo,
aim to attract companies, etc.
seeking offices not only in areas
nearby but also in wider areas.
• Meeting demand for office spacefrom a wider area by visiting
more brokers more frequently
while considering partitioning
the advertised floor.

70■ Daiwa Higashi-Ikebukuro (Acquisition price: 2,958 million yen)
• By capitalizing on the location
being able to expect solid
demand for a business base orbranch office of major companies
headquartered along the JR Lines
and Yurakucho Line, aim toconclude contracts before thecancellation dates.
• Aim to secure tenants byshowcasing the strength ofleasing under terms that are
relatively inexpensive comparedwith districts in central
Ikebukuro.

100
75
50
25
0

Measures to Increase Portfolio Value■ Strategic Renewal Work■ Installation of LED Lighting

Daiwa Akasaka

Shinjuku Maynds Tower

Restroom
BeforeAfter

Promoting installation of LED lighting capitalizing on the green leasing
agreement

Shinsen Place

Daiwa Hatchobori ekimae West

Common/exclusive areas

Common areas

Daiwa River Gate
Common areas
BeforeAfter■ Revitalization of Basement Retail Floors
Shinjuku Maynds Tower
GolfTEC by GDO
BeforeAfter

Golf school provided by GDO(Golf Digest Online) Groupthrough introduction of thelesson system and know-how of
GolfTEC, the largest golf lesson
chain in the U.S.

Environmental Efforts■ Progress in Introduction of Green Leasing at Shinjuku Maynds Tower
As part of measures to protect the environment and raise tenant satisfaction, the Investment
Corporation has taken initiatives in which it concludes green leasing agreements withtenants and promotes installation of LED lighting in areas exclusively occupied by thetenants at Shinjuku Maynds Tower since 2014. Around 70% of areas exclusively occupiedby the tenants are expected to have LED lighting in the fiscal period ending November 2017.

Benefits for Tenants•Reduction of utility charges and maintenancecosts•Improvement of working environment in offices•Contribution to corporate social responsibility(CSR)•Enhancement of the company’s image

Benefits for the Investment
Corporation•Reduction of maintenance costs•Enhancement of property value by making
energy-saving investments•Receiving green lease fees

■ Continuous Efforts on Sustainability

Ratio of Areas with LED Lighting Installed*(%) 80.0

Shinjuku Maynds Tower

70.0

67.5

60.0
50.0
40.0

33.9

30.0
20.0
10.0
0.0

18.2
3.4

3.4

6.9

10.3

18th 19th 20th 21st 22nd 23rd 24th
Period Period Period Period Period Period Period* Forecast figure is indicated for the 24th FP

Daiwa Real Estate Asset Management holds a sustainability committee meeting as needed to discuss sustainability-related topics, and has continuously made efforts onsustainability, such as acquisition of a GRESB Real Estate Assessment rating in addition to introduction of green leasing and installation of LED lighting.

■ Inclusion in MSCI Japan ESG Select Leaders Index
Daiwa Office Investment Corporation was included in the “MSCI Japan ESG Select Leaders Index”(*) provided by MSCI on July 3,
2017.
* The index is comprised of companies in the MSCI Japan IMI Top 500 Index that have a high “Environmental”, “Social” and “Governance” (ESG) profile relative to their sector peers.
It has been selected by the Government Pension Investment Fund (GPIF) as one of ESG indices used when undertaking passive investment.

I. Overview of Daiwa Office Investment Corporation

11

External Growth Measures
Investment in selectively-chosen, high-quality competitive properties even in a harsher acquisition environment

Current Portfolio and Acquisition Policy
DOI will invest in competitive properties based on in-depth data analysis upon careful selection from among the vast information on properties obtained
through diverse sourcing.
■ Distribution Chart of Portfolio Properties■ Acquisition Policy* Distance to station is indicated by calculating 80m as
one minute

Building age (Years)
60• Place priority on the Five Central Wards of Tokyo and equivalent areas.
• Thoroughly select properties in view of actual demand toward location (distance tostation, station power, crowd attraction, surrounding environment), building specs, etc.

55

• Target properties to improve stability and profitability of our existing portfolio.

50

Properties acquired in the 23rd FP
Properties acquired after sponsor change
Properties acquired before sponsor change• Invest in buildings with an age of less than 25 years.
45■ Sale Policy

40• Consider replacement of properties if necessary through sale in light of properties’
future competitiveness, profitability, etc.

35
30

■ Number of Properties Reviewed for Acquisition(cases)
500
400

200

264

28

100

100

356

300

300

0

* Number of gross proposals (cases)

Number of properties reviewed (left axis)
Number of properties reviewed
416
in detail (right axis)

393

296

17

15

289
26

23

344

15

288

60
40

18

19

15th Fiscal 16th Fiscal 17th Fiscal 18th Fiscal 19th Fiscal 20th Fiscal 21st Fiscal 22nd Fiscal 23rd Fiscal
PeriodPeriodPeriodPeriodPeriodPeriodPeriodPeriodPeriod

9th Period
Daiwa Jimbocho

10th Period
Daiwa
Daiwa Kudan
Nishi-Shimbashi

10

20

5

0

0

Property Acquisitions after Sponsor ChangeTime of acquisition

20

80

31
12

Shin Kanda Mikuracho Building

25

0

1

2

3

4

5

6

7

11
8
9
10
Distance to station (minutes)

Total acquisition price: 244,199 million yen

11th Period
Daiwa
Daiwa
Kayabacho Building Jinbocho 3-chome

12th Period
E SPACE TOWER

13th Period
Daiwa Nihonbashi
Hongokucho

14th Period
Daiwa
Osaki 3-chome

Property
nameAcquisition price

Chiyoda Ward, Tokyo
4,150 million yen

Minato Ward, Tokyo
5,000 million yen

Chiyoda Ward, Tokyo
4,000 million yen

Chuo Ward, Tokyo
5,600 million yen

Chiyoda Ward, Tokyo
3,550 million yen

Shibuya Ward, Tokyo
24,000 million yen

Chuo Ward, Tokyo
1,721 million yen

Shinagawa Ward, Tokyo
1,650 million yen

Seller

ORIX JREIT Inc.

Japan Core Asset 2 YK
(Note 1)

Shining Nova No. 5 B(SPC)

Daiwa Property Co.,Ltd.

Tokyu Land Corporation Endeavor Realty FundYK (Note 1)

Tosei Corporation

MCR Six GK

Acquisition
dateMar. 10, 2010

Aug. 13, 2010

Sept. 2, 2010

Mar. 25, 2011

Mar. 29, 2011

July 8, 2011

May 11, 2012

Sept. 18, 2012

shinyon curumu

Daiwa Meieki

Daiwa Kamiooka

Daiwa Shibuya
Dougenzaka

Daiwa Akasaka

Daiwa Shibuya
Miyamasuzaka

Integral Tower

Shinjuku Ward, Tokyo
9,650 million yen

Nagoya City, Aichi
5,300 million yen

Yokohama City, Kanagawa
2,000 million yen

Shibuya Ward, Tokyo
4,500 million yen

Minato Ward, Tokyo
9,200 million yen

Shibuya Ward, Tokyo
7,000 million yen

Suginami Ward, Tokyo
15,220 million yen

SellerTwo domestic industrial
companies

Domestic special
purpose company

Shimizu Corporation

Domestic special
purpose company

Hakuba Capital 1 TMK(Note 1)E Buildings Limited
Liability Company

Ogikubo Building YK(Note 1)

Acquisition
dateDec. 3, 2012
Apr. 12, 2013

Feb. 1, 2013

Mar. 1, 2013

July 3, 2013

Aug. 9, 2013

Sept. 27, 2013

May 29, 2014

Area

15th Period

Time of acquisition

16th Period

17th Period

Property
nameArea
Acquisition price(Note 1) “YK” stands for limited liability company and “TMK” (tokutei mokuteki kaisha) stands for special purpose company.
(Note 2) The sum of i) the total acquisition price from the time of the above sponsor change on December 21, 2016 and ii) prices for additional acquisition of owned properties or of the site in owned properties during the same period, is 244,619 million yen.

12

Changes in Asset Size and Trading Performance
Aim to achieve medium-term goal of an asset size of 500 billion yen by utilizing acquisition capability earned through capital increase
80.0 (%)(Billion yen) 550
Total Acquisition Price

LTV (based on total assets) (right axis)

500

Investment for competitive
properties after thorough selection

445.7

450

458.3

469.3

413.2

400
350

313.2

311.3

300
250

500.0
467.7

278.1

269.1

265.0

314.9

332.0

287.3
34.2

34.0

34.4

37.5

60.0

387.5

364.0

352.7

50.0

44.3

43.0

40.6

41.7

40.2

43.3

Acquisition properties

42.3

42.2
40.0

Acquisition properties• Daiwa River Gate
• Daiwa HigashiDaiwa Hatchobori ekimaenihonbashi• Daiwa Azabu Terrace •• Daiwa Hatchobori ekimae• Square Daikanyama• Daiwa Kitahama
25.5
Acquisition properties
25.3
West
Building
Acquisition property • Daiwa Shibuya Dougenzaka• Shinjuku West Building150• Daiwa Ogikubo• Daiwa Akasaka
Acquisition properties
Acquisition property• Daiwa Osaki• Daiwa Shibuya Miyamasuzaka
Acquisition properties
3-chome• Daiwa Nishi-Shimbashi • E SPACE TOWER• Daiwa Ebisu 4-chome• Daiwa Kudan
Acquisition property
100• LAQUAS Higashi Shinjuku Acquisition properties• Nikko Building• Shin Kanda• Daiwa Aoyama
Acquisition properties
Acquisition property• Kirin Nihonbashi
Mikuracho Building• Shinsen Place
Acquisition property
Acquisition properties
Acquisition property• shinyon curumu• Integral Tower
Building
•
Glass
City
Shibuya50• Daiwa Jimbocho• Daiwa Kayabacho• Daiwa Nihonbashi • Daiwa Meieki• Daiwa Meguro Square• Daiwa Kamiooka• Daiwa Jinbocho 3-chome Hongokucho

28.1

200

70.0

Acquisition properties

28.9

30.0

20.0

10.0

0.0
8th
9th
10th
11th
12th
13th
14th
15th
16th
17th
18th
19th
20th
21st
22nd
23rd
MediumFiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period term goal

18th Period

19th Period

20th Period

Daiwa Azabu Terrace

Daiwa Kitahama

Daiwa
Ebisu 4-chome

LAQUAS Higashi
Shinjuku

Daiwa Aoyama

Shinsen Place

Glass City Shibuya

Daiwa
Meguro Square

Daiwa River Gate

Minato Ward, Tokyo
14,000 million yen

Osaka City, Osaka
9,481 million yen

Shibuya Ward, Tokyo
4,135 million yen

Shinjuku Ward, Tokyo
8,450 million yen

Shibuya Ward, Tokyo
9,800 million yen

Shibuya Ward, Tokyo
4,800 million yen

Shibuya Ward, Tokyo
16,000 million yen

Meguro Ward, Tokyo
5,600 million yen

Chuo Ward, Tokyo
28,000 million yen

Azabu Green Terrace
GK

GK North Beach

Domestic industrial
company

Higashi Shinjuku
Building TMK (Note 1)

Domestic special
purpose company

Domestic special
purpose company

Glass City TMK(Note 1)

Meguro Place TMK(Note 1)Thames TMK (Note 1)

July 4, 2014

Aug. 1, 2014

Dec. 1, 2014

Dec. 3, 2014

Mar. 2, 2015

Mar. 2, 2015

May 1, 2015

May 1, 2015

June 2, 2015

20th Period
Daiwa
Daiwa Hatchobori
Hatchobori ekimaeekimae West

21st Period
Kirin Nihonbashi
Building

Nikko Building

22nd Period
Daiwa
Square Daikanyama
Shinjuku West
Higashi-nihonbashi
Building
Building

Daiwa Ogikubo

23rd Period
Shin Kanda
Mikuracho Building

Chuo Ward, Tokyo
2,871 million yen

Chuo Ward, Tokyo
1,647 million yen

Shinjuku Ward, Tokyo
13,710 million yen

Chuo Ward, Tokyo
8,180 million yen

Chuo Ward, Tokyo
6,370 million yen

Shibuya Ward, Tokyo
2,280 million yen

Shinjuku Ward, Tokyo Suginami Ward, Tokyo Chiyoda Ward, Tokyo
942 million yen
3,800 million yen
1,592 million yen

Domestic industrial
company

Domestic industrial
company

Overseas company

Kirin Beer Marketing

Domestic special
purpose company

Hulic

GK TC1GK TC1OH Real EstateManagement

Sept. 11, 2015

Sept. 11, 2015

Mar. 29, 2016

May 26, 2016

June 1, 2016

June 29, 2016

July 21, 2016

July 21, 2016

Dec. 21, 2016

(Note 3) Total acquisition price above includes acquisition prices of Daiwa Shibuya Dougenzaka divested in the 21st fiscal period and Daiwa Kudan divested in the 22nd fiscal period.

I. Overview of Daiwa Office Investment Corporation

13

External Growth Measures

Trading Performance in 23rd and 24th Fiscal Periods■ 23rd Fiscal Period

Shin Kanda Mikuracho Building [Acquired on December 21, 2016]
etro

oM
Toky

JR C
huo
Line
JR Y
JR K amanoteeihin
LToho ine /
ku L
ine

Kanda
Station

a Lin
Hibiy
e

Kanda
Station

Toky
tro G
o Me

Shin Kanda Mikuracho Building

inza

Kodenmacho
Station

Line

obu

JR S

Line

Shin-Nihonbashi Station

Mitsukoshimae Station

Location

Kanda Mikuracho, Chiyoda-ku, Tokyo

Site Area

365.65m2

Structure/Floor

SRC/S B1/7F

Total Floor Area

2,167.76m2

Acquisition Price

1,592 million yen

Appraisal Value

1,680 million yen (as of December 1, 2016)

Construction Date

January 1991

Occupancy Rate

43.4% (as of December 21, 2016)

Number of Tenants

3 (as of December 21, 2016)• Located a five-minute walk from Kanda Station on the JR Yamanote/Keihin Tohoku/Chuo Lines and the Tokyo Metro Ginza Line and a four-minute
walk from Shin-Nihonbashi Station on the JR Sobu Line.
• Located a seven-minute walk from Mitsukoshimae Station on the Tokyo Metro Ginza/Hanzomon Lines and Kodenmacho Station on the Tokyo Metro
Hibiya Line, and Iwamotocho Station on the Toei Shinjuku Line.
• Rectangular-shaped (regular-shaped) rental space with no pillars with highly flexible layout, so efficient use is possible.

■ 24th Fiscal Period

JR
Yok
Tok
oha
yu
Toy
ma
oko
Lin
e/
Lin
Tok
e
aid
oM
ain
Ke
iky
Lin
uM
e
ain
Lin
e

CONCURRED Yokohama (Silent partnership equity interest) [Acquired on June 1, 2017]

CONCURRED
Yokohama

BAY QUARTERYOKOHAMA
Yokohama
Takashimaya
Sogo

JR
Lin Negisehi

Yokohama Station

Location

3-1 Kinko-cho, Kanagawa-ku, Yokohama-shi, Kanagawa

Site Area

7,140.99m2 (entire Property)

Structure/Floor

S/SRC B1/20F

Total Floor Area

53,772.50m2 (entire Property)

Appraisal Value

39,100 million yen (as of March 31, 2017)(75% of quasi co-ownership with trust beneficial
interest)

Construction Date

February 2008

Occupancy Rate

100% (entire Property) (as of March 31, 2017)

Number of Tenants

34 (entire Property) (as of March 31, 2017)• Located a five-minute walk from Yokohama Station where twelve lines are available such as JR Tokaido Line, JR Yokosuka Line, JR Keihin Tohoku
Line, JR Negishi Line, JR Yokohama Line, Tokyu Toyoko Line, Minato Mirai Line, Keikyu Line, Sotetsu Line and Yokohama Municipal Blue Line.
• The area around the Yokohama-East exit where the Property is located has better quality office buildings compared to the Yokohama-West exit area.
In comparison with the Minato Mirai area, the transport accessibility is highly valued as Yokohama Station can be used.
• A leasable area of approximately 550 tsubos per floor is secured for office use on a standard floor. It provides a minimum office space of 30 tsubos
allowing flexible building management according to market conditions and tenants’ demand.

■ Obtained Preferential Negotiation Rights Following Acquisition of Silent Partnership Equity Interest• Acquired 10% (3,920 million yen) of silent partnership equity interest in“Godo kaisha Yokohama Office Management” which holds 75% ofownership with trust beneficial interest in CONCURRED Yokohama• The remaining 90% was acquired by a subsidiary of Daiwa Securities Group
Inc., the sponsor. Was granted preferential negotiation rights for acquiring
trust beneficial interest (period: until July 31, 2018, acquisition price: 38.1
billion yen) due to the joint acquisition of equity interest realized by the
support of the group.

14

Asset Name

Godo kaisha Yokohama Office Management Silent
Partnership Equity Interest

Type of Asset

Equity interest in silent partnership that invests in trust
beneficial interest in domestic real estate

Real Estate in Trust

CONCURRED Yokohama

Acquisition Price

3,920 million yen(10% of total investment amount in the silent partnership)

Date of Acquisition June 1, 2017of Equity Interest

Financial Conditions
Reduce refinancing risk by extending borrowing periods and diversifying repayment dates

Status of Interest-Bearing Liabilities (As of May 31, 2017)
During the 23rd Fiscal Period, DOI refinanced matured existing loans (17.7 billion yen), successfully diversifying repayment dates.
DOI will continue to focus on stable financial management.
■ Interest-Bearing Liabilities■ Change in Remaining Years at Time of
Procurement of Interest-Bearing Liabilities
70.0 (%) (Years) 10.0

(Billion yen) 280
Interest-bearing liabilities (left axis)

240

60.0

LTV (based on acquisition price) (Note) (right axis)

200

50.0

Medium-to-long term, upper-limit LTV target range

160

40.0

9.0
8.0
7.0
6.0
5.0

10.0

Average years remaining at the period end (right axis)
Average remaining years at the time ofprocurement during the 23rd Fiscal Period(left axis)

5.0 (Years)
4.5

4.3
4.1
4.0
7.7
3.5
7.3

Average remaining years at the time ofprocurement during the23rd Fiscal Period (excluding
short-term borrowings)(left axis)

3.0
2.5

120

30.0

4.0

2.0

80

20.0

3.0

1.5

2.0
40

10.0

0

0.0
End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of
7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd
Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period

2.4

1.0
0.0

1.0
0.5
0.0

9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd
Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period(Note) LTV (based on acquisition price): Total interest-bearing liabilities / Total acquisition price of properties(Note) Dotted line indicates average remaining years at the time of procurement during
the 23rd Fiscal Period excluding short-term borrowings.

■ Diversification of Repayment Dates■ Balance of Borrowings by Financial Institution(Million yen)
18,000Investment corporation bond

16,00014,00012,00010,000
8,000
6,000
4,000
2,000
0
23rd 24th 25th 26th 27th 28th 29th 30th 31st 32nd 33rd 34th 35th 36th 37th 38th 39th 40th 41st 42nd
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period■ Ratio of Fixed- to
Floating-Rate Borrowings■ Ratio of Long- to
Short-Term Liabilities

End of 23rd
Fiscal Period 17.4%

End of 23rd
Fiscal Period

82.6%

10.0
%

90.0%

Fixed interest rates

Long-term loans payable

Floating interest rates

Short-term loans payable andcurrent portion of long-termloans payable■ Status of Rating
Rating agency

Rating and Investment Information, Inc. (R&I)
Japan Credit Rating Agency, Ltd. (JCR)

Financial institution

Sumitomo Mitsui Banking Corporation
Sumitomo Mitsui Trust Bank
Development Bank of Japan
Mizuho Bank
The Bank of Tokyo-Mitsubishi UFJ
Shinsei Bank
Resona Bank
Mitsubishi UFJ Trust and Banking
Mizuho Trust and Banking
The Bank of Fukuoka
Kansai Urban Banking Corporation
Aozora Bank
Nishi-Nippon City BankORIX Bank Corporation
The Gunma Bank
The 77 Bank
The Musashino Bank
Tokio Marine & Nichido Fire Insurance
The Yamaguchi Bank
The Higashi-Nippon Bank
Nippon Life Insurance Company
The Kagawa Bank
The Hiroshima Bank
Taiyo Life Insurance Company
Fukoku Mutual Life Insurance
Investment Corporation Bonds
Total

Balance (mm yen)

41,40024,85021,75019,40016,00014,00012,500
8,500
6,000
5,500
5,000
3,000
3,000
2,500
2,500
2,000
2,000
2,000
2,000
1,500
1,300
1,000
1,000
300
200
5,100
204,300

Target rating

RatingRating outlook

Issuer rating

A+

StableLong-term issuer rating

AA−

Stable

Share

20.3%
12.2%
10.6%
9.5%
7.8%
6.9%
6.1%
4.2%
2.9%
2.7%
2.4%
1.5%
1.5%
1.2%
1.2%
1.0%
1.0%
1.0%
1.0%
0.7%
0.6%
0.5%
0.5%
0.1%
0.1%
2.5%
100.0%I. Overview of Daiwa Office Investment Corporation

15

Description of Asset Manager

Organization of Asset Manager (As of June 30, 2017)■ Description■ Directors and Auditors

Company Name
Address
Established
Paid-in Capital
President
Board of Directors
No. of Employees
Registration of Financial
Instruments Business Operator
Building Lots and Buildings
Transaction Business License
Discretionary Agent for Real
Estate Transaction Approval
Association MembershipDaiwa Real Estate Asset Management Co., Ltd.
6-2-1 Ginza, Chuo-ku, Tokyo
October 21, 2004
200 million yen
Akira Yamanouchi
10
Executive directors: 5; Executive auditors: 1
Non-executive directors: 2; Non-executive auditors: 2
66 (excluding dispatched employees)
Registration No. 355 (Financial Instruments), Director-General,
Kanto Local Finance Bureau (Kinsho)
License No. (3)-83920, Governor of Tokyo
License No. 34, Minister of Land, Infrastructure, Transport andTourism
Member of The Investment Trusts Association, Japan
Member of Japan Investment Advisers Association
Member of Type II Financial Instruments Firms Association

President and Representative Director
Vice President and Representative
Director
Vice President and Representative
Director
Director
Director
Director (non-executive)
Director (non-executive)
Auditor (executive)
Auditor (non-executive)
Auditor (non-executive)■ Organizational
Chart

Akira Yamanouchi
Yuji Shinotsuka
Yoshiki Nishigaki
Toshio Fukushima
Hajime Imbe
Mikita Komatsu
Naoya Otani
Tamaki Shibayama
Morimasa Matsuda
Shinji Kiso

Shareholders’ Meeting
Corporate Auditors
Board of Directors

Compliance Committee

Compliance Officer

Investment Committee（*）
President andRepresentative Director
Acquisition and Asset Management Division
Acquisition
Department
OfficeInvestment Team
Residential
Investment Team
Healthcare
Investment Team

Origination
Department

Private Fund Division

Asset Management
Department
OfficeManagement Team
Residential
Management Team
Healthcare
Management Team
Investment
Planning Team
Construction
Management Team

Private FundManagement Department

Internal Control Office

Corporate Division
Customer Relations
Department

Administration
Department

Finance
Department

Corporate Planning
Department

Finance Team
Accounting TeamManagement Team

* Set up separately for each
investment corporation

Structure
Asset Manager
General Administrator
related to the operation of theadministrative instruments
Daiwa Real Estate AssetManagement Co., Ltd④①

Investment Corporation②

General Administrator
Asset Custodian
Sumitomo Mitsui Trust Bank, Limited

General Meeting of Unitholders
Officers
Executive Director: Yoshimi Murakami
Supervisory Director: Takayuki Hiraishi
Supervisory Director: Hiroshi Sakuma

Supporting Company

Accounting Auditor

Daiwa Securities Group Inc.

KPMG AZSA LLC① Asset management contract/General administration affairs contract related to operationof administrative instruments② General administrative affairs contract/Asset custodian contract③ Unitholder register, etc. management contract/Special account management contract③⑤

Manager of Unitholder
Registry, etc.
Special Account Management
Institution
Sumitomo Mitsui Trust Bank, Limited

General Administrator(Investment Corporation Bonds)
Sumitomo Mitsui Banking Corporation
Resona Bank, Ltd.

④ Sponsor support agreement⑤ Fiscal agency agreement(Note) The specified affiliated juridical person (meaning a specified affiliated juridical person as provided in Article 12, Paragraph 3 of the Cabinet Office Ordinance on Disclosure of Information, etc. on Specified
Securities (Ordinance of the Ministry of Finance No. 22 of 1993; including amendments thereto)) of DOI is Daiwa Securities Group Inc. Daiwa Securities Group Inc. is the Asset Management Company’s parent
company (meaning a parent company as stipulated in Article 8, Paragraph 3 of the Ordinance on Terminology, Forms and Preparation Methods of Financial Statements, etc. (Ordinance of the Ministry of Finance
No. 59 of 1963; including amendments thereto))16II. Asset Management Report
1. Management Status and Other Performance Highlights Data
Fiscal Period

23rd Period 22nd Period 21st Period 20th Period 19th Period

Dec. 1, 2016 From June 1, 2016 From Dec. 1, 2015 From June 1, 2015 From Dec. 1, 2014
( FromTo May 31,2017 )( To Nov. 30, 2016 )( To May 31, 2016 )( To Nov. 30, 2015 )( To May 31, 2015 )(1) Operating Performance(Millions of yen, except per unit data or where otherwise indicated)
Operating revenues
12,547
12,85312,363
11,838
10,387
Rental revenues
12,513
12,687
11,948
11,777
10,112
Operating expenses
6,414
6,710
6,255
6,223
5,617
Property-related expenses
5,151
5,433
5,014
5,026
4,487
Operating income
6,133
6,143
6,108
5,615
4,770
Ordinary income
5,360
5,325
5,327
4,690
4,032
Net income
5,359
5,325
5,250
4,689
4,032
(2) Properties, etc. (as of end of period)
Total assets
483,731483,451476,690
460,706
432,233[period-on-period percentage changes][+0.1%][+1.4%][+3.5%][+6.6%][+8.2%]
Interest-bearing liabilities
204,300
204,300
206,300
192,300
191,300
Net assets
256,561
256,517
247,720
247,700
222,955[period-on-period percentage changes][+0.0%][+3.6%][+0.0%][+11.1%][+0.2%]
Unitholders’ capital
251,552
251,552
243,404
243,404
219,156(3) Distributions
Total distribution amount
5,359
5,325
5,086
4,689
4,032
Dividend payout
100.0%
100.0%
96.9%
100.0%
100.0%(4) Per Unit Information
Total number of units issued (units)497,869
497,869
484,000
484,000
441,000
Net assets per unit (yen)515,318
515,231511,819
511,778505,566
Distribution per unit (yen)10,764
10,695
10,5089,688
9,142
Distribution amount from earnings per unit (yen)10,764
10,695
10,5089,688
9,142
Distribution amount in excess of earnings per unit (yen)
–
–
–
–
–
(5) Financial Indicators
1.1%
1.1%
1.1%
1.1%
1.0%
ROA
Notes 2and3[annual rate][2.2%][2.2%][2.3%][2.1%][1.9%]
2.1%
2.1%
2.1%
2.0%
1.8%
ROE
Notes 3and 4[annual rate][4.2%][4.2%][4.2%][4.0%][3.6%]
Capital ratio
53.0%
53.1%
52.0%
53.8%
51.6%
[period-on-period percentage changes][−0.0%][+1.1%][−1.8%][+2.2%][−4.1%]LTV (loan to value)
42.2%
42.3%
43.3%
41.7%
44.3%
Note 5
Property leasing cash flows (NOI)
9,133
9,004
8,660
8,455
7,180
(6) Other Referential Information
Number of investment properties
54
53
50
50
47
Note 6
577
558
543
558
450
Number of tenants
338,436.22 336,722.04 328,027.44 325,313.01 288,833.07
Total rentable area (m2)
Note
7
97.7%
97.7%
98.7%
98.3%
97.3%
Occupancy rate
Depreciation
1,771
1,750
1,726
1,704
1,554
Capital expenditures
824
993
517
1,087
905
(Note 1)
(Note 2)
(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)

Operating revenues, etc. do not include consumption taxes, etc.
ROA: Ordinary income ÷ [(Total assets at beginning of period + Total assets at end of period) ÷ 2] × 100
Figures for the 19th Fiscal Period are the annualized figures calculated based on 182 days of management.
Figures for the 20th Fiscal Period are the annualized figures calculated based on 183 days of management.
Figures for the 21st Fiscal Period are the annualized figures calculated based on 183 days of management.
Figures for the 22nd Fiscal Period are the annualized figures calculated based on 183 days of management.
Figures for the 23rd Fiscal Period are the annualized figures calculated based on 182 days of management.
ROE: Net income ÷ [(Net assets at beginning of period + Net assets at end of period) ÷ 2] × 100
Property leasing cash flows (NOI): Rental revenues − Property-related expenses + Depreciation
Number of tenants is the number of end tenants. When there is a tenant occupying multiple buildings, the concerned tenant iscounted and stated for each individual building.
Occupancy rate: Total leased area ÷ Total rentable area

II. Asset Management Report17

2. Developments in Asset Management in the Fiscal Period under Review(1) Brief History of the Investment Corporation
Daiwa Office Investment Corporation (the former DA Office Investment Corporation; hereinafter referred
to as “DOI”) was established on July 11, 2005 in accordance with the Act on Investment Trusts andInvestment Corporations (Act No. 198 of 1951; including amendments thereto) with Daiwa Real Estate AssetManagement Co., Ltd. (former name K.K. daVinci Select) (the “Asset Manager”) as the organizer. After its
establishment, DOI implemented an additional issuance of investment units through a public offering (99,600
units) on October 18, 2005 and then listed on the Tokyo Stock Exchange, Inc. (TSE) Real Estate Investment
Trust Section (stock code: 8976) on the following day.
Though initial assets under management were 79,573 million yen (sum total of acquisition price),
subsequent activities, such as additional acquisition of properties and replacement of portfolio properties,
resulted in the assets under management amounting to 469,342 million yen as of the last day of May 2017.
DOI strives to secure stable revenue and sustained growth of the investment assets based on a clear
portfolio development policy of specializing in investment in office buildings, with a particular focus on
investment in a total floor area of more than about 2,000m2 situated in downtown Tokyo, as well as throughdedicated efforts to heighten tenant satisfaction levels.
(2) Investment Environment and Management Performance(A) Investment Environment (from December 2016 to May 2017)
The Japanese economy during the fiscal period under review continued to show a modest recovery
trend with real GDP growth rate (Second Preliminary Estimates) for January to March 2017 at an annual
rate of 1.0%, recording a positive figure for five consecutive quarters under the ongoing quantitative/
qualitative monetary easing policy by the Bank of Japan.
In the office building leasing market in central Tokyo, with new supply having settled down, the vacancy
rate took a turn after peaking in June 2013, dropping to 3.41% at the end of May 2017. Led by
improvement in the vacancy rate for existing large buildings, the overall vacancy rate that includes smallto medium-sized buildings also continues to be on an improving trend. The drop in the vacancy rate has
led to an increase in office rent in some areas, and the market as a whole continues to see increase inrent, albeit slight.
For the office building transaction market, an appetite for property acquisitions continued to be strong
among real estate companies, funds (including J-REITs) and oversea investors with the continuing
proactive lending attitude by financial institutions backed by the forecast of an increase in property prices
in accordance with expectations for economic recovery.
(B) Management Performance
In view of increasing the long-term EPS (EPS (net income per unit) after deducting gain on sales ofproperties) over the medium to long term, DOI continued to work on “external growth,” which aims toboost revenue through acquisition of properties, and “internal growth,” which aims to maximize income
generating from owned properties.
Concerning external growth, DOI acquired “Shin Kanda Mikura-cho Building” (acquisition price: 1,592
million yen) in December 2016. As a result, DOI’s assets under management as of the end of the 23rd
Fiscal Period (May 31, 2017) totaled 54 properties, the sum total of acquisition prices of which amounted
to 469,342 million yen.
Concerning internal growth, while the trend of the office leasing market was recovering, DOI conducted
proactive leasing, such as capturing needs for floor expansion within the same property throughstrengthening relationships with existing tenants and reinforcing collaboration with leasing brokers andproperty managers. Consequently, the occupancy rate as of the end of the 23rd Fiscal Period (May 31,2017) was 97.7%.

18

(3) Overview of Capital Procurement(A) Procurement of Capital for Repayment of Borrowings(a) In the 23rd Fiscal Period, DOI made the following borrowings to fund the repayment of borrowings thatwere due for repayment.
・A total amount of 1,700 million yen was borrowed from Development Bank of Japan Inc. on May 10,2017 to fund the repayment of the same amount borrowed from the bank due the same day.
・A total amount of 6,500 million yen was borrowed from Development Bank of Japan Inc. on May 22,2017 to fund the repayment of the same amount borrowed from the bank due the same day.
・A total amount of 9,500 million yen was borrowed from Sumitomo Mitsui Banking Corporation,
Sumitomo Mitsui Trust Bank, Limited and Mizuho Trust & Banking Co., Ltd. on May 31, 2017 tofund the repayment of the same amount borrowed from the respective banks due the same day.
Furthermore, in the 23rd Fiscal Period, DOI concluded an interest-rate swap agreement for the
total borrowing of 13,000 million yen with floating interest rates in order to offset the risks of thepossible increase of the interest rate in the future.
(B) Status of Interest-Bearing Liabilities at End of the Fiscal Period under Review
As a result of the above, the balance of interest-bearing liabilities outstanding as of the end of the 23rd
Fiscal Period (May 31, 2017) stood at 204,300 million yen (short-term debt: 1,000 million yen; long-term
debt: 198,200 million yen; investment corporation bonds: 5,100 million yen). The balance of the current
portion of long-term debt stood at 19,400 million yen.
The average remaining period of interest-bearing liabilities as of the end of the 23rd Fiscal Period stands at
4.3 years.
(4) Capital Expenditures during the 23rd Fiscal Period
The following summarizes the primary construction work that constitutes capital expenditures implemented
during the 23rd Fiscal Period. Capital expenditures for the 23rd Fiscal Period amounted to 824 million yen
and, when combined with the 316 million yen in repair expenses charged to the 23rd Fiscal Period expenses,
totals 1,140 million yen in construction work were implemented.
Name of real estate
properties(Location)
Daiwa Ogikubo(Suginami-ku, Tokyo)
Daiwa Akasaka(Minato-ku, Tokyo)
Daiwa Shibadaimon(Minato-ku, Tokyo)

Purpose

PeriodUpgrading of air-conditioning equipment

From: Mar. 2017
To: May. 2017
From: Feb. 2017
To: May 2017
From: Mar. 2017
To: May 2017
From: Dec. 2016
To: May 2017

Repair work of mechanical parking facility
Upgrading of individual air-conditioning
equipment

Other
Total

Construction
amount paid
(million yen)
69
44
42
669
824

II. Asset Management Report19(5) Overview of Financial Performance and Distributions
As a result of the management described above, DOI posted financial performance for the 23rd Fiscal Periodof 12,547 million yen in operating revenue, 6,133 million yen in operating income, 5,360 million yen in ordinary
income and 5,359 million yen in net income.
Concerning distributions, it is planned that the amount equivalent to distributions from earnings would be
included in the amount of tax-deductible expenses based on application of special provisions for taxation of
corporation tax (Article 67-15 of the Act on Special Measures Concerning Taxation (Act No. 26 of 1957;
including amendments thereto) (the “Special Taxation Measures Act”)). Accordingly, DOI decided to distributealmost the entire amount of unappropriated retained earnings (excluding fractions of the distribution amount perunit that are less than 1 yen), and declared a distribution amount per unit of 10,764 yen.

3. Outlook for the Next Fiscal Period(1) Investment Environment
The Japanese economy going forward is expected to see a moderate economic recovery through solid
trends in personal spending against the backdrop of favorable employment environment and the improved
income environment while various economic measures centering on the public works projects promoted by
the current administration and the monetary easing policy implemented by Bank of Japan continue. However,factors, such as policies to be set out by the U.S. President Donald Trump, the downward swing of theChinese economy, upset in emerging markets accompanying the U.S. “exit strategy,” “risk off” due togeopolitical risks and political risks, the Brexit negotiations and deleveraging by European financial
institutions, have potential risks of disrupting the Japanese real economy and financial environment, and arethus thought to require attention.
In the Tokyo office building leasing market, factors such as improvement in employment are stimulating
demand, as a result, the vacancy rate is dropping. Improvement in corporate performance is forecasted toincrease demand for office floor space and rent is expected to improve as a consequence. In the officebuilding transaction market, backed by the favorable financing environment and expectations of rent rising,among other factors, property acquisition appetite among investors overseas, real estate companies andfunds (including J-REITs) is thought to remain stronger.
(2) Future Management Policy and Tasks(A) Strategy for Managing Existing Properties
Despite such office leasing market conditions as described above, the tenant side is, as it has been,
also expected to become more heavily selective with properties in terms of software such as crime/
disaster prevention measures and operations/management on top of location and building specifications.
Consequently, DOI will carry out operational management under the following policy with an aim toenhance the competitiveness of existing properties and thereby increase the normal EPS over the medium
to long term.
(a) Maintain and raise occupancy rates
Concerning existing tenants, strive to reduce vacancy risks by improving the quality of buildings,
equipment and management system. In addition, concerning new tenants, strive to maintain and raiseoccupancy rates through the provision of services that are of higher satisfaction levels than competing
properties through proactive participation in the market.
(b) Maintain and raise profitability
Aim to secure stable revenue over the medium to long term through further strengthening good
relationships with existing tenants, as well as proactively tapping the needs of new tenants bydiscerning the market environment.
(c) Lower operational management costs
Strive to lower operational management costs based on maintaining office environments of hightenant satisfaction levels by implementing efficient operational management and reviewing systematicconstruction work by optimally leveraging the economies of scale achieved from proactively realizing
external growth.

20(B) Strategy for New Property Investments
DOI will invest in office buildings that have a total floor area of about 2,000m2 or more based on various
external growth strategies, while maintaining a balance with the asset acquisition environment andfinancing situation. In principle, considerations will focus on Tokyo as the investment target area, but DOI
will also consider investing in competitive properties in cities other than Tokyo from a viewpoint ofterritorially-distributed investments.
As pipeline support, in addition to expanding its own information-sourcing channels, DOI will continue tosearch for properties that meet its investment criteria by proactively gathering real estate transaction
market information through greater collaboration with the Asset Manager and Sponsor Group and utilizing
the Group’s extensive network of clients, partners, etc.
Furthermore, in the 23rd Fiscal Period, DOI acquired “Shin Kanda Mikura-cho Building,” which is locatedin Tokyo. DOI believes that acquisition of these properties will contribute to further stabilization andenhancement of the portfolio. DOI will continue to strive to acquire properties in line with the investment
strategy described above.
(C) Financial Strategy
DOI will conduct disciplined financial management of the following basic content.
(a) Control leverage by keeping the ratio of interest-bearing liabilities to total assets (LTV) within the rangeof 40% to 50% at maximum, taking into consideration also the real LTV, etc., as a principle.
(b) Diversify repayment deadlines, targeting 30.0 billion yen as the maximum amount of interest-bearing
liabilities that shall become due during any single fiscal period as a principle.
(c) Aim to have long-term loans account for at least 70% of total loans as a principle.
(d) Achieve diversification of lenders, which shall mainly be Japanese financial institutions.
(e) Pursuant to its fund management rules, maintain stability in its financial standing by managing
necessary funds, such as the amount equivalent to distributions paid, separately from working capital.
(D) Schedule of Capital Expenditures
The following are the principal capital expenditures arising from renovation construction work, etc.
currently planned for existing portfolio properties. Please note that the expected construction amountincludes portions that are expensed as a separate account item of accounting costs.
Expected construction amount(million yen)
Name of real estate
properties(Location)

PurposeScheduled
implementation
periodTotalamountAmountpaid
duringcurrent
periodTotalamountalreadypaid

Daiwa Akasaka(Minato-ku, Tokyo)

Upgrading of air-conditioning
system

From: Nov. 2016
To: Jun. 2018

1,091

327

–

Integral Tower(Suginami-ku, Tokyo)

Upgrading of air-conditioning
system

From: Mar. 2017
To: Apr. 2018

935

277

–

Shinjuku Maynds Tower Remodeling of gray water facility(Shibuya-ku, Tokyo)

From: J u l . 2017
To: Nov. 2017

84

–

–

Shinjuku Maynds Tower Changing lighting in exclusive(Shibuya-ku, Tokyo)
areas to LED (green leasing)From: Aug. 2017
To: Nov. 2017

60

–

–

II. Asset Management Report21III. Balance Sheets
As of May 31, 2017 and November 30, 2016

(Thousands of yen)

As of
May 31, 2017

As ofNovember 30, 2016

AssetsCurrent Assets:
Cash and cash equivalents (Notes 3 and 4)

19,978,416

20,667,865

145,154

145,235–

55,305

371,845

369,096

Deferred tax assets (Note 13)

2,087

12

Other current assets

44,308

16,773

Total Current Assets

20,541,810

21,254,286

Land

12,302,227

12,302,227

Buildings and structures

3,259,478

3,219,522

Tools, furniture and fixtures

19,953

19,126

Construction in progress

773

2,661

Land in trust accounts

360,772,888

359,306,652

Buildings and structures in trust accounts

105,619,653

104,787,007

Machinery and equipment in trust accounts

968,629886,637

Tools, furniture and fixtures in trust accounts

242,358

228,556

Construction in progress in trust accounts

741,404

399,430–

4,337(24,904,309)(23,137,885)

2,398,276

2,398,276

306,884

306,884

461,728,214

460,723,430

488

542

113,684

113,684

Long-term prepaid expenses

1,071,191

1,074,159

Deferred tax assets (Note 13)

159,767

165,910

Derivative assets (Note 4)

50,50880,483

Deferred investment corporation bond issuance costs

23,543

26,482Others41,754

11,944

1,460,935

1,473,204

483,730,959

483,450,920

Tenant receivables
Consumption taxes receivable
Prepaid expenses

Investment Properties, at cost (Notes 5 and 6):

Other tangible fixed assets in trust accounts
Less: accumulated depreciation
Leasehold rights
Leasehold rights in trust accounts
Total Investment Properties, net
Other Assets:
TrademarkLease and guarantee deposits in trust

Total Other Assets
Total Assets
The accompanying notes are an integral part of these financial statements.

22

(Thousands of yen)

As of
May 31, 2017

As ofNovember 30, 2016

Liabilities
Current Liabilities:
Accounts payable

1,394,961

1,996,737

Short-term debt (Notes 4 and 9)

1,000,000

1,000,000

Long-term debt due within one year (Notes 4 and 9)

19,400,000

28,250,000

457,360

456,273

943

831

Accrued consumption taxes

336,451

89,141

Rent received in advance

2,040,617

2,028,281

Other current liabilities

571,467

264,660

Total Current Liabilities

25,201,799

34,085,923

5,100,000

5,100,000

Long-term debt (Notes 4 and 9)

178,800,000

169,950,000

Tenant security deposits including trust accounts (Note 4)

17,272,308

16,952,100

Derivative liabilities (Note 4)

796,227

845,574

Total Long-Term Liabilities

201,968,535

192,847,674

227,170,334

226,933,597

251,551,759

251,551,759

164,163

164,1635,359,285

5,324,776

257,075,207

257,040,698

Deferred gains or losses on hedges(514,582)(523,375)

Total valuation and translation adjustments(514,582)(523,375)

Total Net Assets

256,560,625

256,517,323

Total Liabilities and Net Assets

483,730,959

483,450,920

Accounts payable – other
Income taxes payable

Long-Term Liabilities:
Investment corporation bonds (Notes 4 and 9)

Total Liabilities

Net Assets (Notes 8 and 14)
Unitholders’ Equity:
Unitholders’ capital
Units authorized: 2,000,000 units
Units issued and outstanding: 497,869 units as of May 31,2017 and November 30, 2016
Reserve for reduction entry
Retained earnings
Total Unitholders’ Equity
Valuation and translation adjustments

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

III. Balance Sheets

23

IV. Statements of Income and Retained Earnings
For the fiscal periods ended May 31, 2017 and November 30, 2016

(Thousands of yen)

For the fiscal periods
ended May 31, 2017
Operating Revenues:
Rental revenues (Note 7)
Other revenues related to property leasing (Note 7)
Gain on sale of investment properties (Note 11)
Total Operating Revenues
Operating Expenses:
Property-related expenses (Note 7)
Asset management fees
Asset custody fees
Administrative service fees
Trust fees
Directors’ compensation
Other operating expenses
Total Operating Expenses
Operating Income
Non-Operating Revenues:
Interest income
Reversal of distribution payable
Other non-operating revenues
Total Non-Operating Revenues
Non-Operating Expenses:
Interest expense
Interest expense on investment corporation bonds
Borrowing expenses
New investment units issuance costs
Other non-operating expenses
Total Non-Operating Expenses

For the fiscal periods
ended November 30, 2016

12,513,019
33,996–

12,687,269
63,616102,139

12,547,015

12,853,024

5,151,042
1,034,063
24,10475,572

5,433,014
1,043,441
24,15982,492

18,606
7,200
103,259

18,936
6,300
101,197

6,413,846
6,133,169

6,709,539
6,143,485

140
603
6,549

45
624
10,357

7,292

11,026587,969
16,892
170,991–
4,434

603,225
16,708173,072
31,3394,738

780,286

829,082

Ordinary Income
Income Before Income Taxes
Income taxes – current
Income taxes – deferred

5,360,175
5,360,175

5,325,429
5,325,429

964
(6)

837
6

Total Income Taxes (Note 13)
Net Income
Retained Earnings Brought Forward

958
5,359,217
68
5,359,285

843
5,324,586
190
5,324,776

Retained Earnings at End of Period

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

24

IV. Statements of Income and Retained Earnings

V. Statements of Changes in Net Assets
For the fiscal periods ended May 31, 2017 and November 30, 2016
Number of
Units(Units)Balance as of May
31, 2016
Issuance of new
investment units
Provision of reserve
for reduction entry
Cash distributions
declared
Net income
Net changes of
items other thanunitholders’ equity
Balance as ofNovember 30, 2016
Cash distributions
declared
Net income(Thousands of yen)

Unitholders’ Equity
Reserve forUnitholders’
Retained
Reduction
CapitalEarnings
Entry

Deferred Gains
or Losses on
HedgesTotal Net
Assets484,000

243,403,874－

5,250,226(933,915)

247,720,185

13,8698,147,885－－－

8,147,885－－

164,163(164,163)

－

－

－

－

－

(5,085,873)－(5,085,873)

－

－

－

5,324,586－

5,324,586

－

－

－

－

410,540

410,540

497,869

251,551,759

164,1635,324,776(523,375)

256,517,323

－

－

－

(5,324,708)－(5,324,708)

－

－

－

5,359,217－

5,359,217

8,793

8,793

(514,582)

256,560,625

Net changes of
items other than－－－－unitholders’ equity
Balance as of May
497,869 251,551,759
164,1635,359,285
31, 2017
The accompanying notes are an integral part of these financial statements.

V. Statements of Changes in Net Assets

25VI. Statements of Cash Flows
For the fiscal periods ended May 31, 2017 and November 30, 2016

(Thousands of yen)

For the fiscal periods
ended
May 31, 2017

For the fiscal periods
ended
November 30, 2016

Income before income taxes

5,360,175

5,325,429

Depreciation and amortization

1,772,265

1,750,179

Amortization of bond issuance costs

2,938

2,954

New investment units issuance costs–

31,339604,862

619,933

81

29,608(183,224)

382,297

Increase (decrease) in rent received in advance

12,336(23,447)

Decrease in investment properties due to sale–

3,795,174(604,769)(620,025)

Decrease (increase) in consumption taxes receivable

55,305(55,305)

Other, net

490,262(81,115)7,510,231

11,157,021(3,195,342)(14,558,212)–(82,008)

961,685

1,152,741(641,476)(1,070,907)(2,875,133)(14,558,386)

Proceeds from short-term debt

1,000,000

8,000,000

Repayments of short-term debt

(1,000,000)(7,000,000)

Proceeds from long-term debt

16,700,000

1,500,000

Repayments of long-term debt

(16,700,000)(4,500,000)–

8,116,546(5,324,547)(5,085,534)(5,324,547)

1,031,012(689,449)(2,370,353)

Cash and Cash Equivalents at Beginning of Period

20,667,865

23,038,218

Cash and Cash Equivalents at End of Period (Note 3)

19,978,416

20,667,865

Cash Flows from Operating Activities:

Interest expense
Decrease in tenant receivables(Decrease) increase in accounts payable

Interest payments

Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases of investment properties
including trust accounts
Payments for purchases of intangible assets
Proceeds from tenant security deposits including trust
accounts
Refunds of tenant security deposits including trust
accounts
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:

Proceeds from issuance of new investment units
Distributions paid
Net Cash Provided by (Used in) Financing Activities
Net Change in Cash and Cash Equivalents

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

26

VI. Statements of Cash Flows

VII. Notes to Financial Statements
For the fiscal periods ended May 31, 2017 and November 30, 2016

Note 1 – Organization and Basis of Presentation
Organization
Daiwa Office Investment Corporation (the former DA Office Investment Corporation; hereinafter referred to as“DOI”) was established on July 11, 2005 as an investment corporation under the Act on Investment Trusts andInvestment Corporations (Act No. 198 of 1951, including subsequent revisions, hereinafter referred to as the“Investment Trust Act”) by the founder (the former daVinci Select; now, Daiwa Real Estate Asset Management(hereinafter referred to as the “Asset Manager”)).
DOI is an externally managed real estate fund, established as an investment corporation. The Asset Manager,
as DOI’s asset management company, is engaged in acquiring, managing, leasing, and renovating officeproperties. Daiwa Securities Group Inc. currently owns 100% of the shares of the Asset Manager.
On October 18, 2005, DOI had raised approximately 49,498,710 thousand yen through an initial public offeringof units. Those units were listed on the J-REIT section of the Tokyo Stock Exchange.
As of May 31, 2017, DOI had ownership or trust beneficiary interests in 54 office properties with approximately
338,436m2 of rentable office space and had leased office space to 577 tenants engaged in a variety ofbusinesses. The occupancy rate for the office properties was approximately 97.7%.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in theInvestment Trust Act, the Financial Instruments and Exchange Act and their related accounting regulations, andin conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different incertain respects as to application and disclosure requirements of International Financial Reporting Standards or
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been reformatted and translated into English from the financial
statements of DOI prepared in 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 Act. In preparing theaccompanying financial statements, relevant notes have been expanded and certain reclassifications have been
made from the Japanese GAAP financial statements. Certain supplementary information included in the statutory
Japanese GAAP financial statements, but not required for fair presentation, is not presented in theaccompanying financial statements.
DOI maintains its accounting records in Japanese yen.
DOI’s fiscal period is a six-month period ending at the end of May and November of each year.

VII. Notes to Financial Statements

27

Note 2 – Summary of Significant Accounting Policies(a) Cash and Cash Equivalents
Cash and cash equivalents consist of cash, demand deposits, and short-term investments which are highly
liquid, readily convertible to cash and with insignificant risk of market value fluctuation, with maturities of threemonths or less from the date of acquisition.
(b) Investment Properties
Investment properties are recorded at cost, which includes the allocated purchase price, related costs andexpenses for acquisition of the office properties and the trust beneficiary interests in trust. Investment property
balances are depreciated using the straight-line method over the estimated useful lives as follows:
As of May 31, 2017
As of November 30, 2016
Buildings and structures
2-64 years
2-64 years
Machinery and equipment
7-23 years
7-23 years
Tools, furniture and fixtures
5-15 years
5-15 years
Cost related to the renovation, construction improvement of properties is capitalized. Expenditures for repairs andmaintenance which do not add to the value or prolong the useful life of property, are expensed as incurred.
(c) Deferred Investment Corporation Bond Issuance Costs
Deferred investment corporation bond issuance costs are amortized on a straight-line basis over the respective
terms of the bonds.
(d) New Investment Units Issuance Costs
The issuance costs of new investment units are expensed when incurred.
(e) Income Taxes
Deferred tax assets and liabilities are computed based on the difference between the financial statements andincome tax bases of assets and liabilities using the statutory rate.
(f) Real Estate Taxes
Investment properties are subject to various taxes, such as property taxes and city planning taxes. Owners of theproperties are registered by records maintained in each jurisdiction by the local government. The taxes are imposedon the registered record owner as of January 1 of each year, based on an assessment made by the local government.
When a property is purchased within the calendar year, the taxes for the corresponding calendar year are imposedon the seller. DOI pays the seller the corresponding amount of the taxes for the period from property acquisition dateto December 31 of the calendar year and capitalizes these amounts as acquisition costs of the property, rather than
expensing them. In subsequent calendar years, such taxes on investment properties are charged as operating
expenses in each fiscal period.
The following is a summary of capitalized real estate taxes.

(Thousands of yen)

Capitalized real estate taxes

For the fiscal periods ended
May 31, 2017188

For the fiscal periods ended
November 30, 2016
39,921(g) Consumption Taxes
Consumption taxes are excluded from transaction amounts. Generally, consumption taxes paid are offset against thebalance of consumption taxes withheld. As such, the excess of payments over amounts withheld is included in thecurrent assets while the excess of amounts withheld over payments is included in the current liabilities. Non-deductible
consumption taxes relating to investment properties are amortized equally over five years.
(h) Hedge Accounting
DOI enters into derivative transactions for the purpose of hedging risks in the Articles of Incorporation of DOI in
accordance with its general risk management policy. DOI uses interest-rate swaps as hedging instruments in order tohedge the risk of interest rate fluctuations related to borrowings. Pursuant to Japanese GAAP, DOI applies the special
accounting treatment to interest-rate swaps which qualify for hedge accounting and meet specific criteria. Under the
special accounting treatment, the related differentials paid or received under such swap contracts can be recognized
and included in interest expense or income of the hedged assets or liabilities, and the interest-rate swaps are notrequired to be measured at fair value separately. The assessment of hedge effectiveness has been made each fiscal
period except for interest-rate swaps which meet the special criteria.

28

(i) Revenue Recognition
Operating revenues consist of rental revenues including base rents and common area charges, and other operating
revenues such as utility charge reimbursements, parking space rental revenues and other income. Rental revenues
are generally recognized on an accrual basis over the life of each lease. Utility charge reimbursements are recognizedwhen earned and their amounts can be reasonably estimated.
(j) Accounting Treatment of Trust Beneficiary Interests in Real Estate
For trust beneficiary interests in real estate, all assets and liabilities with respect to assets in trust, as well as all
income generated and expenses incurred with respect to assets in trust, are recorded in the relevant balance sheet
and income statement accounts of the accompanying financial statements.

Note 3 – Cash and Cash Equivalents
Cash and cash equivalents stated on the accompanying balance sheets and statements of cash flows as of
May 31, 2017 and November 30, 2016 consisted of the following:(Thousands of yen)

Cash and deposits
Cash and deposits in trust
Cash and cash equivalents

As of May 31, 201718,280,634
1,697,782
19,978,416

As of November 30, 2016
19,070,683
1,597,182
20,667,865

Note 4 – Financial Instruments(a) Qualitative Information for Financial Instruments
Policy for Financial Instrument Transactions
DOI raises funds through borrowings, issuance of investment corporation bonds and issuance of investment units
for acquisition and renovation of investment properties, cash distributions of dividends and repayment of bankborrowings. In financing through interest-bearing debt, DOI raises funds with longer term, fixed-rate and welldiversified maturities to secure stable financing capacity and avoid potential risk of rising interest rates.
Surplus funds are managed considering risk and liquidity, by investing in highly liquid monetary assets and securities(in principle, deposits).
DOI enters into derivative transactions only for the purpose of hedging interest rate risks arising from liabilities.
Nature and Extent of Risks arising from Financial Instruments and Risk Management
Proceeds from borrowings and investment corporation bonds are used mainly to acquire investment properties andrepay or redeem outstanding borrowings and bonds. These borrowings and bonds are exposed to liquidity risk. Suchrisk is managed in ways such as maintaining the LTV ratio at low levels, diversifying maturities, keeping the ratio of
long-term debt to total debt at high levels, and diversifying lenders. For the floating-rate borrowings exposed to therisk of future interest rate fluctuations, DOI uses derivative transactions (interest-rate swap) as hedging instruments, inorder to avoid interest rate fluctuations and to fix the amount of interest payments for floating-rate borrowings.
DOI evaluates the effectiveness of hedges by the correlation between the change in aggregated amount of cash
flow of the hedging instruments and the change in aggregated amount of cash flow of the hedged items. The
assessment of hedge effectiveness is omitted for the interest-rate swaps which meet the specific criteria under the
special accounting treatment.
Derivative transactions are executed and monitored in compliance with the rules and procedures set forth in the risk
management policy of DOI.
Tenant security deposits including trust accounts are exposed to liquidity risk arising from refunding deposits in theevent of vacating of properties by tenants. Such risk is managed by reserving some parts of the funds.
Bank deposits are used for investing DOI’s surplus funds. These bank deposits are exposed to credit risks such as
bankruptcy of the depository financial institutions. DOI manages credit risk by investing only in short-term deposit andsetting a minimum credit rating requirement for the depository financial institutions (excluding deposits for settlement
purposes).
Supplemental Explanation regarding Fair Value of Financial Instruments
The fair value of financial instruments is based on their quoted market price. When there is no quoted market priceavailable, fair value is reasonably estimated. Since certain assumptions and factors are reflected in estimating the fairvalue, different assumptions and factors could result in a different value. Also, the contractual amounts of derivativetransactions do not represent the market risk involved in these derivative transactions.
VII. Notes to Financial Statements

29

(b) Estimated Fair Value of Financial Instruments
Book value, fair value and difference between the two as of May 31, 2017 and November 30, 2016 were as follows:(Thousands of yen)

As of May 31, 2017

As of November 30, 2016

AssetsBook value

Fair value

DifferenceBook value

Fair value

Difference

Cash and cash
equivalents
Total

19,978,416

19,978,416–

20,667,865

20,667,865–

19,978,416

19,978,416–

20,667,865

20,667,865–

1,000,000

1,000,000–

1,000,000

1,000,000–

19,400,000

19,422,668

22,66828,250,000

28,320,007

70,007

5,100,000

5,178,750

78,7505,100,000

5,184,930

84,930Long-term debt

178,800,000

178,786,895(13,105)

169,950,000

170,032,843

82,843

Total

204,300,000

204,388,313

88,313204,300,000

204,537,780

237,780(752,224)(752,224)–(765,091)(765,091)–

Liabilities
Short-term debt
Long-term debt
due within one
year
Investment
corporation bonds

Derivativetransactions (*)(*) The value of assets and liabilities arising from derivatives is shown at net value and with the amount in parenthesis indicating the net liability
position.

The financial instruments whose fair value is deemed extremely difficult to determine are excluded from theabove table (See Note 2 below).
Notes:
1. Methods to estimate fair value of financial instruments and derivative transactions
Assets:(1) Cash and cash equivalents
Due to the short maturities, the book value of these assets is deemed a reasonable approximation of the fairvalue.
Liabilities:(1) Short-term debt, long-term debt due within one year and long-term debt
For short-term debt and long-term debt with floating interest rates, their fair value and book value are nearly
identical and there are no significant changes in DOI’s credit risk after borrowing. Therefore, for these items, theirbook value is assumed as their fair value. For short-term debt and long-term debt with fixed interest rates, theirfair value is calculated based on the present value of principle and interest cash flows discounted at the current
interest rate which is estimated to be applied if similar new debt is entered into. However, the fair value of certain
floating-rate long-term debt that qualifies for the special treatment of interest-rate swaps is calculated based on
the present value of principle and interest cash flows which are processed as a single unit with the interest-rate
swap.
(2) Investment corporation bonds
The fair value of investment corporation bonds is based on their quoted market price.

30

Derivative Transactions:
The Company applies the hedge accounting for all derivative transactions. Contractual amount and fair value
were as follows:(Thousands of yen)Hedge
accounting method

Type ofderivativetransaction

Hedged item

As of May 31, 2017
Contracted amount
Fair value (*1)
Due after one year
Total

Deferral hedge
accounting
methodInterest-rate swap
Receive floating/
Pay fixed

Long-term debt

112,600,000

110,100,000(752,224)

Special treatment
for interest-rate
swapsInterest-rate swap
Receive floating/
Pay fixed

Long-term debt

19,850,000

9,000,000– (*2)

132,450,000

119,100,000(752,224)(Thousands of yen)Hedge
accounting method

Type ofderivativetransaction

Hedged item

As of November 30, 2016
Contracted amount
Fair value (*1)
Due after one year
Total

Deferral hedge
accounting
methodInterest-rate swap
Receive floating/
Pay fixed

Long-term debt

99,600,000

99,600,000(765,091)

Special treatment
for interest-rate
swapsInterest-rate swap
Receive floating/
Pay fixed

Long-term debt

28,350,000

14,350,000– (*2)

127,950,000

113,950,000(765,091)(*1) The fair value is provided by financial institutions.
(*2) Fair values of interest-rate swaps with the special treatment are included in fair values of related long-term debt as the interest-rate swaps areprocessed as a single unit with the hedged long-term debt.

2. Financial instruments whose fair value is deemed extremely difficult to determine
Tenant security deposits including trust accounts (with a book value of 17,272,308 thousand yen as of May 31,2017 and 16,952,100 thousand yen as of November 30, 2016) that have been deposited by tenants were
excluded from the scope of fair value disclosure because they are not marketable, and the actual deposit period
is not estimable, which in turn makes it difficult to reasonably estimate the future cash flows.

VII. Notes to Financial Statements

31

3. Redemption schedule for monetary claims(Thousands of yen)

As of May 31, 2017

Cash and cash equivalents
Total

Due after
Due after
Due after
Due after
one to two two to three three to four four to five
years
years
years
years
19,978,416––––
19,978,416––––
Due within
one year

Due after
five years––(Thousands of yen)

As of November 30, 2016

Cash and cash equivalents
Total

Due after
Due after
Due after
Due after
one to two two to three three to four four to five
years
years
years
years
20,667,865––––
20,667,865––––
Due within
one year

Due after
five years––

4. Redemption schedule for short-term debt, investment corporation bonds and long-term debt
(Thousands of yen)

As of May 31, 2017

Short-term debt
Investment corporation bonds
Long-term debt
Total

Due within
one year

Due after
Due after
Due after
Due after
one to two two to three three to four four to five
years
years
years
years

Due after
five years

1,000,000
–
–
–
–
–
–
– 3,000,000–– 2,100,000
19,400,000 21,500,000 25,000,000 33,300,000 21,500,000 77,500,000
20,400,000 21,500,000 28,000,000 33,300,000 21,500,000 79,600,000(Thousands of yen)

As of November 30, 2016

Short-term debt
Investment corporation bonds
Long-term debt
Total

32

Due within
one year

Due after
Due after
Due after
Due after
one to two two to three three to four four to five
years
years
years
years

Due after
five years

1,000,000
–
–
–
–
–
–
– 3,000,000–– 2,100,000
28,250,000 17,350,000 22,000,000 31,600,000 24,200,000 74,800,000
29,250,000 17,350,000 25,000,000 31,600,000 24,200,000 76,900,000Note 5 – Tangible Fixed Assets of Investment Properties
Investment properties as of May 31, 2017 and November 30, 2016 consisted of the following:
As of May 31, 2017

(Thousands of yen)

As of November 30, 2016

Acquisition
cost

Accumulated
depreciation

Book value

Acquisition
cost

Accumulated
depreciation

Book valueLand

12,302,227–

12,302,227

12,302,227–

12,302,227

Buildings andstructures

3,259,478(1,985,971)

1,273,507

3,219,522(1,895,482)

1,324,040

Tools, furnitureand fixtures

19,953(10,790)

9,163

19,126(10,007)

9,119

Construction inprogress

773

–

773

2,661

–

2,661

Land in trust
accounts

360,772,888–

360,772,888

359,306,652–

359,306,652

Buildings andstructuresin trust accounts

105,619,653(22,354,668)

83,264,985

104,787,007(20,718,843)

84,068,164

Machinery andequipmentin trust accounts

968,629(441,667)

526,962886,637(411,720)

474,917

Tools, furnitureand fixturesin trust accounts

242,358(111,213)

131,145

228,556(97,496)

131,060

Construction inprogressin trust accounts

741,404–

741,404

399,430–

399,430

Other tangible
fixed assets
in trust accounts

–

–

–

4,337

(4,337)–

483,927,363(24,904,309)

459,023,054

481,156,155(23,137,885)

458,018,270

Total

VII. Notes to Financial Statements

33

Note 6 – Fair Value of Investment and Rental Properties
The book value, net changes in the book value and the fair value of the investment and rental properties wereas follows:(Thousands of yen)

For the fiscal periods ended
May 31, 2017

For the fiscal periods ended
November 30, 2016

460,321,339

451,114,325

664,698

9,207,014

Balance at end of period

460,986,037

460,321,339

Fair value (Note 3)

518,560,000

505,430,000

Book value: (Note 1)
Balance at beginning of period
Change during the period (Note 2)(Note)
1. The book value represents the acquisition cost less accumulated depreciation.
2. Significant changes
For the fiscal period ended May 31, 2017, the major reason for the increase is the acquisition of “Shin Kanda Mikuracho Building” (1,592,000
thousand yen). The major reason for the decrease is depreciation (1,770,761 thousand yen).
For the fiscal period ended November 30, 2016, the major reason for the increase is the acquisition of four assets (13,392,000 thousand yen). The
major reasons for the decrease are the sale of “Daiwa Kudan Building” (3,795,174 thousand yen) and depreciation (1,749,716 thousand yen).
3. The fair values as of May 31, 2017 and November 30, 2016 were determined by the sum of appraisal values provided by external real estateappraisers.

Note 7 – Rental Revenues and Expenses
Rental revenues and expenses for the fiscal periods ended May 31, 2017 and November 30, 2016 were as
follows:(Thousands of yen)

For the fiscal periods ended
May 31, 2017

For the fiscal periods ended
November 30, 2016

12,513,019

12,687,269

33,996

63,616

12,547,015

12,750,885

Consignment expenses

980,113

942,415

Utilities expenses

985,941

1,068,009

Taxes and dues

1,034,434

1,045,891

Insurance expenses

14,657

17,056

Repair expenses

316,201

456,738

1,770,761

1,749,716

48,935

153,189

Total rental expenses

5,151,042

5,433,014

Income from property leasing

7,395,973

7,317,871

Revenues from property leasing:
Rental revenues
Other revenues related to property leasing
Total revenues from property leasing
Rental expenses:

Depreciation
Other

34

Note 8 – Net Assets
DOI issues non-par value units in accordance with the Investment Trust Act and all of the amounts issued aredesignated as stated capital. DOI maintains a minimum of 50 million yen of net assets as required by theInvestment Trust Act.

Note 9 – Short-Term Debt, Long-Term Debt Due Within One Year, Long-Term Debt andInvestment Corporation Bonds
Short-term debt, long-term debt due within one year, long-term debt and investment corporation bonds as of
May 31, 2017 and November 30, 2016 consisted of the following:(Thousands of yen)

As of May 31, 2017
Unsecured loans due 2017 to 2026, principallyfrom banks and insurance companies with interest
rates mainly ranging from 0.2% to 1.0%

As of November 30, 2016

199,200,000

199,200,000

0.4% unsecured bond due 2019

3,000,000

3,000,000

1.0% unsecured bond due 2024

2,100,000

2,100,000

204,300,000

204,300,000

Total(Note) The interest rates presented are daily weighted average interest rates. As for long-term debts which were hedged by interest-rate swaps for the
purpose of avoiding interest rate fluctuation risk, the swapped interest rates are used to calculate daily weighted average interest rates.

The annual maturities of short-term debt, long-term debt and investment corporation bonds as of May 31, 2017
were as follows:(Thousands of yen)

Due within
one year

Due after
Due after
Due after
Due after
after five
one to two two to three three to four four to five Dueyears
years
years
years
years

Short-term debt, long-term debt
20,400,000 21,500,000 28,000,000 33,300,000 21,500,000 79,600,000
and investment corporation bonds

VII. Notes to Financial Statements

35

Note 10 – Leases
As Lessor
The future minimum rental revenues under existing non-cancelable operating leases as of May 31, 2017 andNovember 30, 2016 were as follows:(Thousands of yen)

As of May 31, 2017

As of November 30, 2016

Due within one year

9,789,129

9,765,206

Due after one year

17,052,791

16,105,193

Total

26,841,920

25,870,399

Note 11 – Gain on Sale of Investment Properties
No investment properties were sold during the fiscal period ended May 31, 2017.
Gain on sale of investment properties for the fiscal period ended November 30, 2016 was as follows:(Thousands of yen)

For the fiscal period
ended November 30, 2016
Daiwa Kudan Building:
Proceeds from sale of investment property

4,048,485

Cost of selling investment property(3,795,174)

Other expenses related to sale(151,172)

Gain on sale of investment property

102,139

Note 12 – Reduction of Investment Properties Purchased with Government Subsidies
Government subsidies of 32,898 thousand yen were deducted from the acquisition cost of the buildings intrust as of May 31, 2017 and November 30, 2016.

36

Note 13 – Income Taxes
DOI is subject to Japanese corporate income taxes on all of its taxable income. However, DOI may deduct theamount distributed to its unitholders from its taxable income when certain requirements, including a requirement
to distribute in excess of 90% of distributable profit for the fiscal period, are met under the Special Taxation
Measure Act of Japan. If DOI does not satisfy all of the requirements as specified in the Act, the entire taxable
income of DOI will be subject to regular corporate income taxes in Japan.
DOI has made distribution in excess of 90% of its distributable profit for each fiscal period in order to be able
to deduct such amount from taxable income.
The following table summarizes the significant difference between the statutory tax rate and DOI’s effective tax
rate for financial statement purposes.
(%)

For the fiscal periods ended
May 31, 2017

For the fiscal periods ended
November 30, 2016

Statutory tax rate

31.74

31.74

Deductible cash distributions(31.73)(31.74)

Others0.01

0.02

Effective tax rate

0.02

0.02

The significant components of deferred tax assets and liabilities as of May 31, 2017 and November 30, 2016
were as follows:(Thousands of yen)

As of May 31, 2017

As of November 30, 2016

Deferred tax assets:
Accrued enterprise tax

17

12

253,598

267,141

253,615

267,153

Reserve for reduction entry

75,80675,806

Deferred gains on hedges

15,95525,425

Total deferred tax liabilities

91,761

101,231

Net deferred tax assets

161,854

165,922

Deferred losses on hedges
Total deferred tax assets
Deferred tax liabilities:

VII. Notes to Financial Statements

37

Note 14 – Per Unit Information
Information about earnings per unit for the fiscal periods ended May 31, 2017 and November 30, 2016 and net
assets per unit as of May 31, 2017 and November 30, 2016 were as follows:(Yen)

For the fiscal periods ended
May 31, 2017

For the fiscal periods ended
November 30, 2016

10,764.31

10,800.73

497,869

492,984

Earnings per Unit:
Net income per unit
Weighted average number of units outstanding (units)(Yen)

As of May 31, 2017
Net Assets per Unit

515,318

As of November 30, 2016
515,231

The computation of earnings per unit is based on the weighted average number of units outstanding during theperiod. The computation of net assets per unit is based on the number of units outstanding at each period end
as stated on the balance sheets.
The diluted net income per unit is not stated as there are no diluted investment units.
There is no amount that is not available to ordinary unitholders.

38Note 15 – Distribution Information
DOI’s Articles of Incorporation stipulate that DOI is required to make cash distribution in excess of 90% of
distributable profit as defined in the Special Taxation Measure Act of Japan for each fiscal period. Therefore, thetotal amount of dividends that DOI has determined to pay out is 5,359,061,916 yen for the fiscal period ended
May 31, 2017 and 5,324,708,955 yen for the fiscal period ended November 30, 2016 that are the largest integral
multiple of 497,869, the number of units outstanding as of May 31, 2017 and November 30, 2016, after
deducting provision of reserve for reduction entry as stipulated in Article 66-2 of the Special Taxation Measure
Act of Japan. Furthermore, DOI does not pay out dividends that exceed accounting profits as outlined in Article
32-2 of DOI’s Articles of Incorporation.
(Yen)

For the fiscal periods ended
May 31, 2017

For the fiscal periods ended
November 30, 2016

Ⅰ Unappropriated retained earnings

5,359,285,070

5,324,776,691

Ⅱ Cash distributions declared

5,359,061,916

5,324,708,955

223,154

67,736

Ⅲ Retained earnings brought forward

Cash distributions are declared by the board of directors after the end of each period. Such distributions arepayable to unitholders of record at the end of each period. Information of cash distributions per unit and theboard of directors meeting dates when the distributions were proposed and approved were as follows:(Yen)

Cash distributions per unit
Board of directors meeting dates

For the fiscal periods ended
May 31, 2017

For the fiscal periods ended
November 30, 2016

10,764

10,695

July 18, 2017

January 20, 2017

VII. Notes to Financial Statements

39

Note 16 – Related-Party Transactions
Not applicable.

Note 17 – Segment Information
For the fiscal periods ended May 31, 2017 and November 30, 2016
Segment Information
Segment information has been omitted as DOI has only one segment, which is property leasing business.
Related Information
Information about Products and Services
Disclosure of this information has been omitted as operating revenues to external customers for a single
product/service category account for more than 90% of the operating revenues on the statements of income
and retained earnings.
Information about Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as domestic operating revenues account for more than 90% of
total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as domestic investment properties account for more than 90%of the book value of the total investment properties.
Information about Major Tenants
Disclosure of this information has been omitted as there is no tenant that accounts for 10% or more of theoperating revenues recorded in the statements of income and retained earnings.

Note 18 – Significant Subsequent Events
Not applicable.

40

VIII. Independent Auditor’s Report

VIII. Independent Auditor’s Report41

IX. Investor Information
History of Investment Unit Price(Yen) 900,000

18,000 (Units)
Investment unit price (left axis)

800,000

Trading volume (right axis)

16,000700,000

14,000600,000

12,000500,000

10,000400,000

8,000

300,000

6,000

200,000

4,000

100,000

2,000

0

0

2015
June July

Aug. Sept. Oct.

Nov.

2016
Dec. Jan.

Feb.

Mar.

Apr.

May

June

July

Aug. Sept. Oct.

Nov.

2017
Dec. Jan.

Feb.

Mar.

Apr.

May

Overview of Investment Units and Unitholders (As of May 31, 2017)■ No. of Investment Units by Investor Type
23rd
Fiscal Period

Individuals/others
20,992 units (4.2%)

Financial institutions
195,705 units (39.3%)■ No. of Unitholders
by Investor Type
Foreigners 85,322 units (17.1%)

Total: 497,869 units
Other domestic corporations 191,614 units (38.5%)

22nd
Fiscal Period

Individuals/others
22,035 units (4.4%)

Financial institutions
218,952 units (44.0%)

Securities firms 4,236 units (0.9%)

Foreigners 61,792 units (12.4%)

Total: 497,869 units
Other domestic corporations 191,428 units (38.4%)

Name of Investor

1. Daiwa Investment Management Inc.

128,905 25.89%

2. Japan Trustee Services Bank, Ltd. (Trust Account)

61,797 12.41%

3. Daiwa Securities Group Inc.

59,321 11.91%

5. The Master Trust Bank of Japan, Ltd. (Trust Account)
The Nomura Trust and Banking Co., Ltd.
6.
(Investment Trust Account)

9.31%

45,953

9.23%

Other domestic
corporations

155(1.7%)

Foreigners

227(2.6%)

Securities firms

15(0.2%)

Total

8,859

July 18, 2017 : Announcement of financial results
23rd Fiscal Period
August 9, 2017 : Sending of Japanese version Business
Report for 23rd Fiscal Period(Statement of Financial Performance)
August 10, 2017 : Start paying distributions for23rd Fiscal Period

12,039End offiscal period

Feb.
Jan.

July

2.42%

End offiscal period

Nov.

7,436

1.49%

8. CBLDN STICHTING PENSIOEN FONDS METAAL EN TECHNIEK

6,756

1.36%

BNP PARIBAS SECURITIES SERVICESSYDNEY/JASDEC/AUSTRALIAN RESIDENTS

5,050

1.01%

STATE STREET BANK - WEST PENSION
10.
FUND CLIENTS - EXEMPT 505233

4,252

0.85%

(Note) The percentage share figures are rounded to the second decimal place

42

100(1.1%)

May

46,353

7. STATE STREET BANK AND TRUST COMPANY 505012

9.

Financial institutions

IR Calendar
Number ofPercentage
Units Owned
Share(Units)Trust & Custody Services Bank, Ltd.
(Securities Investment Trust Account)

8,362(94.4%)

Securities firms 3,662 units (0.7%)

Top Ten Unitholders (As of May 31, 2017)4.

Individuals/others

Aug.

January 2018 : Announcement of financial results for
24th Fiscal Period
February 2018 : Sending of Japanese version Business
Report for 24th Fiscal Period(Statement of Financial Performance)
February 2018 : Start paying distributions for
24th Fiscal Period

Investor Memo
End of fiscal period

May 31 and November 30 of each year

General Meeting of Unitholders

Held at least once every two years

Date for finalizing Unitholders with voting rights
for the General Meeting of Unitholders

Date publicly announced beforehand

Reference date for finalizing payment of
distributions

May 31 and November 30 of each year
(distributions are paid within three months of this reference date)

Listed financial instruments exchangeTokyo Stock Exchange (securities code: 8976)

Newspaper in which notice is posted

Nikkei Inc.

Manager of Unitholder Registry, etc.

Sumitomo Mitsui Trust Bank, Limited, 1-4-1 Marunouchi, Chiyoda-ku, Tokyo 100-8233

Office handling administrative affairs

Transfer Agency Department of Sumitomo Mitsui Trust Bank, Limited, 2-8-4 Izumi, Suginami-ku, Tokyo 1680063 Phone 0120-782-031 (toll-free in Japan)

Service counter

Head Office and All branches of the Sumitomo Mitsui Trust Bank nationwide

Provision of Information via Website
Daiwa Office Investment Corporation conducts information distribution via its website as an important tool for IR activities. DOI also provides an
e-mail delivery service, “IR mail Delivery Service,” which informs the subscribers of updates in website content such as press releaseannouncements via e-mail free of charge. The website will be continually enhanced and enriched so that the current situation and future
strategies of DOI are clearly communicated.

Daiwa Office Investment Corporation

http://www.daiwa-office.co.jp/en/

Important information is
distributed via e-mail. Please
access and follow the simple
steps if you wish to receive
our IR mail Delivery Service.

IX. Investor Information

43

The Daiwa Office Investment Corporation logo symbolizes hospitality with an open door and the desire to be a brightand open investment corporation. We will continue to aim to be a highly-transparent investment corporation that isfurther cherished and trusted by our investors and tenants.