Asset Management Report for 24th Period(Semi-Annual Report for 24th Period)
From January 1, 2018 to June 30, 2018

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)1

I. Greetings
To Our Unitholders
We would like to express our sincere gratitude for your continued support of Japan Excellent, Inc. (JEI) and Japan
Excellent Asset Management Co., Ltd.
We hereby report the financial results of JEI for the 24th period (from January 1, 2018 to June 30, 2018).
During the 24th period, we implemented asset replacement by acquiring two properties from Dai-ichi Life Insurance, thesponsor, and transferring Ebina Prime Tower, in order to improve unrealized profit and enhance the profitability of theportfolio.
In addition, we worked to attract new tenants while prioritizing the increase of the rent level and conclude upward rent
revisions, promoting an increase of rental revenues. The occupancy rate remained at a high level with the period-end
occupancy rate marking a record high of 99.6%.
Furthermore, we successfully realized extending the average remaining period of interest-bearing debt while at the sametime lowering the average interest rate by issuing JEI’s longest-ever (15-year) super long-term investment corporation
bonds and refinancing borrowings.
As a result, JEI recorded operating revenue of 10,535 million yen, operating income of 4,025 million yen and net incomeof 3,339 million yen. Distribution per unit increased by 130 yen from the previous period to 2,800 yen.
In July 2018, JEI acquired co-ownership interest in AKASAKA INTERCITY AIR, a large, cutting-edge building
developed by Nippon Steel Kowa Real Estate, the sponsor, and completed in August, 2017.

About Future Asset Management
The real estate transaction market is expected to see real estate transaction prices remaining high, backed by thecontinuing favorable fund procurement environment, strong appetite for investment by market participants and otherfactors. In the office building transaction market, the vacancy rate and rent levels are expected to continue to improve forthe time being supported by strong office demand. On the other hand, market trends must be watched more carefully as
an increase in supply of office space is expected especially in central Tokyo.
With this perspective, JEI will continue with growth through investment in prime real estate as well as asset replacement
utilizing also the sponsor pipeline, with an aim to expand its asset size and improve profitability over the medium to longterm. Furthermore, JEI will endeavor to enhance profitability of the entire portfolio by not only maintaining the level ofoccupancy rate but also by improving the rent level based on market trends and proactively implementing renovation
work to maintain and improve competitiveness going forward. In terms of finance, JEI will strive to conduct stablefinancial management by working to reduce financing costs, while continuing to follow the basic policy of fixing interest
rates of loans, extending borrowing periods and diversifying maturity dates.
In addition, JEI remains committed to strict adherence to the Financial Instruments and Exchange Act and other laws andregulations to promote compliance, as well as to accurate and easy-to-understand disclosure of the status of ouroperations to our unitholders.
We kindly ask for your continued understanding and support.

Hidehiko Ogawa
Executive Director, Japan Excellent, Inc.
President, Japan Excellent Asset Management Co., Ltd.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

2II. Asset Management Report

1. Outline of asset management operation(1) Operating results and financial position of the Investment Corporation
Fiscal period
Operating revenue(Rental revenues)
Operating expenses(Property operating expenses)
Operating income
Ordinary income
Net income
Total assets(Period-on-period change)
Net assets(Period-on-period change)
Unitholders’ capital
Total outstanding investment
units
Net assets per unit
Net income per unit (Note 1)
Total distribution
Distribution per unit
(Profit distribution per unit)(Distribution in excess ofearnings per unit)
Return on assets (Note 2)(Annualized rate)
Return on equity (Note 3)(Annualized rate)
Capital ratio (Note 4)(Period-on-period change)
Payout ratio (Note 5)
Number of investment
properties
Number of tenants
Total leasable space (Note 6, 7)
Occupancy rate
Depreciation
Capital expenditure
Net operating income (NOI)(Note 8)Funds from operation (FFO) per
unit (Note 9)
FFO multiples (Note 10)
Debt service coverage ratio(DSCR) (Note 11)
Interest-bearing debt
Loan-to-value (Note 12)
Number of days in operation(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(%)(Millions ofyen)(%)(Millions ofyen)

20th Period,
January 1,
2016 to June30, 2016

21st Period
22nd Period
23rd Period
24th Period
July 1, 2016 to January 1, 2017
July 1, 2017
January 1, 2018
December 31,
to Juneto December 31,
to June201630, 2017
2017
30, 2018

10,223

10,653

10,642

11,085

10,535(10,223)(10,653)(10,642)(10,806)(10,535)

6,240

6,431

6,488

6,565

6,509

(5,655)(5,849)(5,890)(5,931)(5,754)

3,982

4,221

4,154

4,519

4,025

3,113

3,407

3,460

3,701

3,340

3,112

3,406

3,459

3,700

3,339

283,653

296,081

297,177

282,197

285,008(-0.3)

(4.4)

(0.4)

(-5.0)(1.0)

137,808

143,640

143,693

143,933

143,786(-0.0)

(4.2)

(0.0)

(0.2)

(-0.1)

134,434

139,972

139,972

139,972

139,972(units)

1,264,450

1,305,700

1,305,700

1,305,700

1,305,700(yen)

108,987

110,010110,050

110,234

110,122(yen)(Millions of
yen)
(yen)

2,461

2,614

2,649

2,833

2,557

3,113

3,406

3,460

3,486

3,655

2,462

2,609

2,650

2,670

2,800

(yen)

(2,462)(2,609)(2,650)(2,670)(2,800)

(yen)

(－)

(－)

(－)

(－)

(－)

(%)

1.1

1.2

1.2

1.3

1.2

(%)

(2.2)

(2.3)

(2.4)

(2.5)

(2.4)

(%)

2.3

2.4

2.4

2.6

2.3

(%)

(4.5)

(4.8)

(4.9)

(5.1)

(4.7)

(%)

48.6
(0.1)

48.5
(-0.1)

48.4(-0.2)

51.0

(%)

(2.7)

50.5
(-0.6)

(%)

100.0

100.0

100.0

94.2

109.5

(properties)

30

31

31

29

30

(tenants)
(m2)

228

237

242

243

202

356,884

362,305362,292

356,854341,247(%)(Millions ofyen)(Millions of
yen)

99.1

99.0

99.4

99.1

99.6

1,899

1,956

1,967

1,972

1,926

729

1,294

1,056

1,092

867

(Millions of
yen)

6,467

6,760

6,719

6,847

6,707

(yen)

3,964

4,107

4,156

4,131

4,159

(times)

17.6

18.2

14.9

16.0

17.0

(times)

8.2

9.4

10.7

10.7

11.1

131,900

137,900

137,900

122,500

126,500

46.5

46.6

46.4

43.4

44.4

182

184

181

184

181

(Millions ofyen)(%)(days)

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)3

(Note 1) Net income per unit is calculated by dividing the net income by the weighted-average number of units outstanding during
the six months period.
(Note 2) Return on assets = Ordinary income / [(Period beginning total assets) + (Period end total assets) / 2] × 100(Note 3) Return on equity = Net income / [(Period beginning net assets) + (Period end net assets)/ 2] × 100(Note 4) Capital ratio = Period end net assets / Period end total assets × 100(Note 5) Payout ratio = (Distribution per unit (not including distribution in excess of earnings per unit) / Net income per unit) × 100(Figures are rounded to the first decimal place.)
The payout ratio for the 21st period is calculated with the following formula as new investment units were issued.
Payout ratio = Total distributions (not including distribution in excess of earnings) / Net income) × 100(Note 6) For properties with joint ownership, a figure obtained by multiplying the leasable space of the entire property by theownership ratio is indicated as JEI’s leasable space. The same shall apply hereinafter.
(Note 7) Spaces are rounded to the nearest specified unit. The same applies hereinafter.
(Note 8) NOI = Rental revenues – Property operating expenses + Depreciation(Note 9) FFO per unit = (Net income + Depreciation – Gain on sale of real estate + Loss on sale of real estate) / Total number ofoutstanding investment units (the figure is rounded down to the whole number).
(Note 10) FFO multiples = Period end investment unit price / Annualized FFO per unit
(Note 11) DSCR = Net income before interest and taxes + Depreciation / (Interest expenses + Interest expense on investment
corporation bonds)(Note 12) Loan-to-value = Period end interest-bearing debt / Period end total assets × 100

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

4

(2) Asset Management Development

Japan Excellent, Inc. (JEI) was founded on February 20, 2006 under the Law Concerning Investment Trusts andInvestment Corporations of Japan (hereinafter referred to the “Investment Trust Law”). On March 15, 2006, it
completed the corporate registration to the Kanto Finance Bureau (registration number 52, issued by the Head of
the Kanto Local Finance Bureau) and listed on the Real Estate Investment Trust Section of the Tokyo Stock
Exchange (Securities Code: 8987) on June 27, 2006. Since the listing, JEI has continued investment management
primarily in office buildings with the aim of maintaining sound corporate growth and stable revenues from themedium- to long-term perspectives. On June 30, 2018, JEI settled its twenty-fourth period.
1) Business conditions and results
Despite some uncertainties stemming from the U.S.-China trade friction, the Japanese economy during the24th period continued to be on a recovery trend following the previous period and against the backdrop offavorable and expanding European and U.S. economies, solid consumer spending and corporate investment
appetites fostered by a growing sense of labor shortage.
As to the interest rate environment in Japan, although U.S. interest rates have shown an upward trend, thelong-term interest rate in Japan remains at a low level due to the continuation of the monetary policy of the
Bank of Japan.
In the real estate transaction market, transaction yields were at low level amid the continuing favorable fundprocurement environment, and real estate transaction prices remain high. Market participation of overseas
investors, private funds, private REITs and general companies, etc. is also continuing. In light of suchenvironment for the transaction market, JEI implemented asset replacement which involves transfer of owned
properties and acquisition of new properties with an aim to improve the portfolio.
In the office building leasing market, tenant needs for floor area increase in the same building, relocation for
expansion and better location, etc. continue to be apparent, and vacancy rates and asking rent levels are
improving. JEI has conducted leasing activities emphasizing rent levels and has further strengthened efforts
for upward rent revisions to suit the value of properties for current contracts by ensuring to seize opportunities
for upward rent revision. As to new contracts, JEI has conducted leasing activities while setting higher rent
levels based on market trends. As a result, both the increased amount of monthly rent and period-end
occupancy rate (Note 1) for existing properties reached new record highs at 27 million yen and 99.6%,
respectively.
The total number of properties owned and managed by JEI at the end of the current period was 30 with totalacquisition price of 266.9 billion yen and total leasable space of 341,247.30 m2 (103,227.31 tsubo).
2) Fund procurement highlights
During the 24th period, out of 7 billion yen of redemption funds for investment corporation bonds maturingin November 2018, JEI procured 4 billion yen in April in advance, considering interest rate trends andsituations of the market for issuing investment corporation bonds. JEI issued 2 billion yen of super long-term
investment corporation bonds (15 years; interest rate: 0.95%) for the first time as well as 2 billion yen of 5year bonds (interest rate: 0.24%) at the same time.
Moreover, JEI refinanced a total of 14 billion yen in loans that matured in June (average borrowing period:
5.4 years; average interest rate: 0.99%) with loans with an average borrowing period of 6.9 years and an
average interest rate of 0.65%.
As a result of the above, as of the end of the 24th period the average remaining period of interest-bearing
debt (Note 2) was 4.8 years (extended by 0.4 years from the end of the previous period) and the period-end
average interest-bearing debt interest rate (Note 3) was 0.80% (down 0.05% from the end of the previous
period) and the total assets loan-to-value ratio (total assets-based LTV) was 44.4% (up 1.0% from the end of
the previous period).
In addition, JEI continues to have commitment lines of 14.0 billion yen to reduce refinancing risk, enhancestability for fund procurement, etc.
The ratings granted to JEI by the following rating agencies are shown below:

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)5

(Ratings as of June 30, 2018)
Credit rating agency

Issuer rating (outlook)

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

Long-term issuer rating
AA- (Stable)
Issuer rating
A+ (Stable)
Issuer rating
A3 (Stable)

Moody’s Japan

Individual debt issue rating(Note 4)AA−A+―3) Financial results and distribution highlights
As a result of the above management, JEI posted 10,535 million yen in operating revenue, 4,025 million yen
in operating income, 3,340 million yen in ordinary income and 3,339 million yen in net income for the period
under review.
Considering distributions in the period under review, JEI determined to distribute the entirety ofunappropriated retained earnings (except for the portion of less than one yen per unit) to be eligible for special
provisions of the tax system on investment corporations (Section 67-15 of the Special Taxation MeasuresLaw), that allows JEI to deduct the amount of profit distribution from its taxable income, after reversing partof reduction entry (316,498,238 yen) and adding the amount to the unappropriated retained earnings.
Accordingly, distribution per unit for the period was 2,800 yen.
(Note 1) Occupancy rate is a percentage of total leased space to total leasable space of each real estate or real estate intrust.
(Note 2) Average remaining period of interest-bearing debt is calculated by applying at the end of the period aweighted average of the remaining period until the repayment date or redemption date of borrowings andinvestment corporation bonds to the balance of each interest-bearing debt, for all interest-bearing debt.
(Note 3) Period-end average interest-bearing debt interest rate is calculated by applying a weighted average of interestat the end of the current period to the balance of each interest-bearing debt, for all interest-bearing debt.
(Note 4) The rating of JCR is for the 4th series unsecured investment corporation bonds, 5th series unsecured
investment corporation bonds, 6th series unsecured investment corporation bonds, 7th series unsecured
investment corporation bonds, 8th series unsecured investment corporation bonds, 9th series unsecured
investment corporation bonds, 10th series unsecured investment corporation bonds, 11th series unsecured
investment corporation bonds, 12th series unsecured investment corporation bonds and 13th series unsecured
investment corporation bonds. The rating of R&I is for the 4th series unsecured investment corporation bonds.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

6

(3) Capital Increase

JEI had no changes in the total number of outstanding investment units for the period under review. The outline of
the changes in the total number of outstanding investment units and unitholders’ capital until the end of the period
under review are as follows:
Unitholders’ capital
Capital transaction (units)
Capital transaction
Remarks
Paid-up Date
(Millions of yen)
ChangeFebruary 20, 2006
June 26, 2006
July 21, 2006
July 11, 2007
August 8, 2007
January 31, 2011
February 28, 2011
January 30, 2013
February 27, 2013
January 1, 2014
January 27, 2014
February 26, 2014
July 13, 2015
August 12, 2015
July 11, 2016
August 10, 2016

Private placement
for incorporation
Public offering
Allocation of
investment units toa third party
Public offering
Allocation of
investment units toa third party
Public offering
Allocation of
investment units toa third party
Public offering
Allocation of
investment units toa third party
Split of investment
unit
Public offering
Allocation of
investment units toa third party
Public offering
Allocation of
investment units toa third party
Public offering
Allocation of
investment units toa third party

Balance

ChangeBalance

400

400

200

200

(Note 1)

128,000

128,400

64,23064,430(Note 2)6,400

134,800

3,211

67,641(Note 3)19,000

153,800

18,702

86,344(Note 4)

750

154,550738

87,083(Note 5)31,000185,550

13,608100,691(Note 6)

3,100

188,650

1,360

102,052(Note 7)33,000221,650

14,408116,460(Note 8)3,300

224,950

1,440

117,901(Note 9)899,800

1,124,750–

117,901(Note 10)80,0001,204,750

9,135

127,036(Note 11)8,000

1,212,750

913

127,950(Note 12)47,0001,259,750

5,894

133,845(Note 13)4,700

1,264,450

589

134,434(Note 14)37,5001,301,950

5,034

139,469(Note 15)3,750

1,305,700

503

139,972(Note 16)

(Note 1) JEI was incorporated through private placement at a price of 500,000 yen per unit.
(Note 2) New investment units were issued at an offer price of 520,000 yen per unit (issue price of 501,800 yen per unit) through apublic offering in order to fund acquisition of new properties which were acquired at the time of the listing.
(Note 3) New investment units were issued at an issue price of 501,800 yen per unit through an allocation of investment units to athird party in order to partially fund new property acquisitions.
(Note 4) New investment units were issued at an offer price of 1,019,200 yen per unit (issue price of 984,360 yen per unit) through apublic offering in order to partially repay debts procured to acquire properties.
(Note 5) New investment units were issued at an issue price of 984,360 yen per unit through an allocation of investment units to athird party in order to partially repay debts procured to acquire properties.
(Note 6) New investment units were issued at an offer price of 454,930 yen per unit (issue price of 438,984 yen per unit) through apublic offering in order to repay short-term loans procured to acquire properties and to fund acquisition of a new property.
which was acquired.
(Note 7) New investment units were issued at an issue price of 438,984 yen per unit through an allocation of investment units to athird party in order to repay short-term loans procured to acquire new properties and to fund acquisition of a new property.
(Note 8) New investment units were issued at an offer price of 451,425 yen per unit (issue price of 436,609 yen per unit) through apublic offering in order to fund acquisition of new properties.
(Note 9) New investment units were issued at an issue price of 436,609 yen per unit through an allocation of investment units to athird party in order to fund acquisition of properties.
(Note 10) With December 31, 2013 as the record date, JEI implemented a 5-for-1 split of its investment units held by Unitholders
stated or recorded on that date’s final unitholder registry with January 1, 2014 as the effective date.
(Note 11) New investment units were issued at an offer price of 118,072 yen per unit (issue price of 114,196 yen per unit) through apublic offering in order to fund acquisition of new properties.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)7

(Note 12) New investment units were issued at an issue price of 114,196 yen per unit through an allocation of investment units to athird party in order to partially fund future acquisitions of specified assets or repayment of loans and redemption of
investment corporation bonds.
(Note 13) New investment units were issued at an offer price of 129,675 yen per unit (issue price of 125,419 yen per unit) through apublic offering in order to partially repay debts procured to acquire properties.
(Note 14) New investment units were issued at an issue price of 125,419 yen per unit through an allocation of investment units to athird party in order to partially fund future acquisitions of specified assets or partially fund repayment of loans.
(Note 15) New investment units were issued at an offer price of 138,742 yen per unit (issue price of 134,259 yen per unit) through apublic offering in order to partially repay debts procured to acquire properties.
(Note 16) New investment units were issued at an issue price of 134,259 yen per unit through an allocation of investment units to athird party in order to partially fund future acquisitions of specified assets or partially fund repayment of loans.
(Note 17) At JEI, there exist no investment units held by JEI (investment units without voting rights provided in Article 308-2 of the
Corporate Law which will be applied mutatis mutandis pursuant to Article 94 of the Investment Trust Law) or cross-heldinvestment units (investment units without voting rights provided in Article 160 of the Investment Trust Enforcement
Ordinance) as of the end of 24th period.

[Market price of the investment securities]
The period-on-period fluctuations in the highest and lowest (closing) prices of JEI’s investment units listed on theReal Estate Investment Trust Section of the Tokyo Stock Exchange during each period is as follows:
21st period
23rd period
Fiscal period
22nd period
24th period
20th period(December(December
Investment
(June
2017)
(June
2018)
(June 2016)(closing date)
2016)
2017)
unit market
Highest (yen)161,000
149,200
147,200
137,200
147,400
price
Lowest (yen)123,200
132,900
125,100
121,100
131,400(Note)The highest and lowest prices of investment units refer to the closing prices on the Real Estate Investment Trust Section of
the Tokyo Stock Exchange.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)8

(4) Distributions Paid

Considering distributions in the period under review, JEI determined to distribute the entirety of unappropriatedretained earnings (except for the portion of less than one yen per unit) to be eligible for special provisions of the tax
system on investment corporations (Section 67-15 of the Special Taxation Measures Law) which allows for JEI to
deduct the amount of profit distribution from its taxable income upon reversing part of reduction entry(316,498,238 yen) and adding the amount to unappropriated retained earnings. Accordingly, distribution per unit
for the period was 2,800 yen.
Fiscal period

Accounting period
Unappropriated retained
earnings at end of period(Thousands of yen)
Retained income(Thousands of yen)
Total cash distribution
amount (Thousands of yen)
(Cash distributions perunit) (yen)Of which, total profit
distributions (Thousands ofyen)(Profit distribution per unit)(yen)
Of which, total refund ofinvestment equity(Refund of investment
equity per unit)
Of total refund ofinvestment equity, total
distribution amount fromreserve for temporary
difference adjustments(Of refund of investment
equity per unit, distribution
amount per unit fromreserve for temporary
difference adjustments)
Of total refund ofinvestment equity, total
distribution amount from
distribution reducing
unitholders’ capital for tax
purpose(Of refund of investment
equity per unit,
distribution amount perunit from distribution
reducing unitholders’capital for tax purpose)

20th period

21st period

22nd period

23rd period

24th period

January 1, 2016 to July 1, 2016 to January 1, 2017 to July 1, 2017 to January 1, 2018 toJune 30, 2016 December 31, 2016 June 30, 2017 December 31, 2017 June 30, 2018
3,113,717

3,406,981

3,460,111

3,700,279

3,339,461

641

409

6

214,060－

3,113,075

3,406,571

3,460,105

3,486,219

3,655,960(2,462)(2,609)(2,650)(2,670)(2,800)3,113,075

3,406,571

3,460,105

3,486,219

3,655,960(2,462)(2,609)(2,650)(2,670)(2,800)

－

－

－

－

－

(－ )

(－ )

(－ )

(－ )

(－ )

－

－

－

－

－

(－ )

(－ )

(－ )

(－ )

(－ )

－

－

－

－

－

(－ )

(－ )

(－ )

(－ )

(－ )

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

9(5) Policy and Issues on Future Investment Management

1) Outlook for investment environment
In the real estate market, although transaction yields are believed to be drawing closer to the level where room forfurther lowering is scarce, real estate transaction prices are expected to remain high backed by factors such as thefavorable fund procurement environment and vigorous appetite for investment by market participants.
In the office building leasing market, the asking rent level is forecasted to rise moderately, centering on competitive
buildings for the time being, as office demand is strong. Going forward, focusing on market trends seems necessary
as increase in the amount of office floor supply is expected mainly in central Tokyo.
2) Policy and issues on future investment management
For external growth, JEI will continue striving for acquisition of competitive properties, including through thereplacement of assets, by means of well-balanced investments based on size and target area, to increase asset size
and improve portfolio quality over the medium to long term. JEI will continue enhancing further interaction andcollaboration with sponsor companies and have the asset management company newly cultivate and refine property
information sources in an effort to promptly gain access to market information on disposition of properties andthereby keep seizing the right business opportunities.
For internal growth, JEI will continue to make efforts to capture the needs of existing tenants in a timely manner byfurther strengthening finely-tuned relationships. JEI will aim to enhance earnings of the entire portfolio by
continuously making additional strategic investments in order to maintain asset value and improve property
competitiveness over the medium to long term while setting new rents based on market trends as well as promoting
upward rent revisions to realize rents that are more suitable for the property value, along with the aforementioned
initiatives.
Regarding financial operations, while fund procurement for long-term and with fixed interest rates will remain as its
basic policies, JEI will consistently work on stable and sound financial operations.

(6) Subsequent Events
None(Reference Material)
1. Acquisition of an Asset (AKASAKA INTERCITY AIR)JEI concluded the trust beneficiary interest in real estate transaction agreement on June 27, 2018 and received theproperty on July 2, 2018 as described below.
(Overview of acquired asset)
Acquired asset
Name of asset
Location
Acquisition price (Note)
Date of conclusion of agreement
Acquisition dateSellerTrust beneficiary interest in real estate (quasi co-ownership)
AKASAKA INTERCITY AIR
1-8-1 Akasaka, Minato-ku, Tokyo
6,590,000,000 yen
June 27, 2018
July 2, 2018
Nippon Steel Kowa Real Estate Co., Ltd.

(Note) Acquisition price is the acquisition value of trust beneficiary interest, excluding acquisitionrelated expenses, JEI’s share of real estate tax and city planning tax or consumption tax.

2. Issuance of Investment Corporation Bonds (Green Bonds)
JEI decided on the issuance of investment corporation bonds (Green Bonds) on August 3, 2018 as described below.
(Overview of investment corporation bonds)
Name of investment corporation bonds
14th Series Unsecured Investment Corporation Bonds
Total amount of investment corporation
4 billion yen
bonds issued
Interest rate
0.630% per annum
Offering dateAugust 3, 2018
Payment dateAugust 10, 2018
Redemption method and redemption date The entire amount will be redeemed on August 10, 2028
Collateral
Unsecured/ Unguaranteed
Asset Management Report for 24th period (Semi-Annual Report for 24th Period)10

2. Outline of the Investment Corporation(1) Investment units

20th
As of June 30,
2016

Fiscal period
Total number of units
authorized
Total number of units
issued and outstanding

21st
As of December
31, 2016

22nd
As of June 30,
2017

23rd
As of December
31, 2017

24th
As of June 30,
2018

10,000,000 units

10,000,000 units

10,000,000 units

10,000,000 units

10,000,000 units

1,264,450 units

1,305,700 units

1,305,700 units

1,305,700 units

1,305,700 units

Unitholders’ capital

134,434 million yen 139,972 million yen 139,972 million yen

139,972 million yen 139,972 million yen

Number of unitholders

7,686 individuals

7,680 individuals

7,189 individuals

Number ofunits held
(Units)Ratio of number ofunits held tooutstanding
investment units(%)

Japan Trustee Services Bank, Ltd.
1-8-11 Harumi, Chuo-ku, Tokyo(Trust Account)

329,034

25.20

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

2-11-3 Hamamatsu-cho, Minato-ku, Tokyo

179,937

13.78

Nippon Steel Kowa Real EstateCo., Ltd.

1-8-1 Akasaka, Minato-ku, Tokyo

71,560

5.48

Harumi Island Triton Square Office Tower Z,
1-8-12 Harumi, Chuo-ku, Tokyo

65,381

5.01

2-2-2 Otemachi, Chiyoda-ku, Tokyo

52,914

4.05

The Dai-ichi Life Insurance
Company, Limited

1-13-1 Yuraku-cho, Chiyoda-ku, Tokyo

20,6601.58

DFA INTERNATIONAL REALESTATE SECURITIESPORTFOLIO

6300 BEE CAVE ROAD, BUILDING ONE
AUSTIN TX 78746 US

17,393

1.33

STATE STREET BANK WEST
CLIENT - TREATY 505234

1776 HERITAGE DRIVE, NORTHQUINCY, MA 02171, U.S.A.

17,329

1.33

STATE STREET BANK AND
TRUST COMPANY 505012

ONE LINCOLN STREET, BOSTON MA
USA 02111

15,8241.21

14,317

1.10

784,34960.07

7,850 individuals

8,086 individuals(2) Unitholders
Major unitholders as of June 30, 2018 are as follows:
Name

Trust & Custody Services Bank,
Ltd. (Securities Investment Trust
Account)
The Nomura Trust and Banking
Co., Ltd. (Investment Trust
Account)

Address

STATE STREET BANK - WEST
1776 HERITAGE DRIVE, NORTHPENSION FUND CLIENTS QUINCY, MA 02171, U.S.A．
EXEMPT 505233
Total

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

11

(3) Officers
1) Directors and accounting auditor

Compensation or fee forthe six months ended
June 30, 2018
(Thousands of yen)

Post

Name

Executive
Director

Hidehiko Ogawa

President, Japan Excellent Asset Management
Co., Ltd.

Supervisory
Director

Tsuyoshi Nagahama

Advisor, Anderson, Mori & Tomotsune

Shunichi Maekawa

Professor, Sugiyama Jogakuen University, Schoolof Modern Management

Eiji Takagi

Eiji Takagi Certified Public Accounting Office

Supervisory
Director
Supervisory
Director
Accounting
AuditorErnst & Young
ShinNihon LLC (Note 2)

Major additional post

–

6,540

14,700(Note 3)–(Note 1) There are no investment units of JEI held by either the Executive Director or the Supervisory Directors. Although
Supervisory Directors may have additional posts in companies other than those listed above, there is no conflict of interests
between those companies, including those listed above, and JEI.
(Note 2) The Japanese name of Ernst & Young ShinNihon LLC was changed on July 1, 2018 (English name remains unchanged.)(Note 3) The total amount of compensation or fee shown above is an estimated amount and includes the amount paid ascompensation for auditing during the 24th period (11,000 thousand yen), the fee for the English financial statements audit
and the preparation of a comfort letter upon the issuance of the 12th Series Unsecured Investment Corporation Bonds and13th Series Unsecured Investment Corporation Bonds in April 2018.

2) Policy on dismissal and discontinuation of re-election of accounting auditor
The board of directors of JEI shall deliberate dismissal of accounting auditor in accordance with the provisions
set out in the Investment Trust Law, and deliberate discontinuation of re-election based on circumstances in all
respects.
(4) Name of Asset Management Company, Asset Custodian and Administrative Agents
JEI’s asset management company, asset custodian and administrative agents as of June 30, 2018 are as follows:
Classification

Name

Asset management company

Japan Excellent Asset Management Co., Ltd.

Asset custodian

Mizuho Trust & Banking Co., Ltd.

Administrative agent(Transfer agent and other administrative work for accounting Mizuho Trust & Banking Co., Ltd.
and institution operation)
Administrative agent(Investment corporation bonds)

Mizuho Bank, Ltd.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)12

3. Investment Portfolio of the Investment Corporation(1) Investment Portfolio by Area
Area
(Note 1)23rd Period(As of December 31, 2017)24th Period(As of June 30, 2018)

Total
acquisition
price (Millionsof yen)(Note 2)

Investment
ratio inportfolio (%)

Total
acquisition
price (Millionsof yen)(Note 2)

Investment
ratio inportfolio (%)

Area I

11,032

3.9

11,045

3.9

Area II

5,583

2.0

5,626

2.0

Area I

93,492

33.1

93,21032.7

Area II

9,057

3.2

9,004

3.2

Area III

100,44135.6

95,051

33.4

Area IV

18,747

6.6

21,425

7.5

OthersTrust beneficiary (commercial
facilities, Area I
interest in realresidence,
estateetc.)

17,918

6.3

17,817

6.3

Total

256,27290.8

253,18088.8

Deposits in bank and other assets

25,9259.2

31,827

11.2

Total assets

282,197100.0

285,008

100.0

Classification

Use

Real estate
property

Trust beneficiaryinterest in realestateOfficebuilding(Note 1) Areas are classified as follows:
Area I: Six central wards of Tokyo (Chiyoda, Chuo, Minato, Shinjuku, Shinagawa and Shibuya)
Area II: Central Osaka (Umeda, Dojima, Nakanoshima, Yodoyabashi, Honmachi, etc.), Central Nagoya (Meieki, Fushimi,
Sakae, etc.) and Central Fukuoka (Tenjin, Hakata-ekimae, etc.).
*Central Osaka refers to the areas within about a 10-minute walk from JR Osaka Station, Umeda Station (Hankyu
Railway, Hanshin Electric Railway, and Osaka Metro), Yodoyabashi Station (Osaka Metro) or Honmachi Station(Osaka Metro), respectively. Central Nagoya refers to the areas within about a 10-minute walk from Nagoya
Station (JR, Nagoya City Subway, and Nagoya Railroad), Fushimi Station (Nagoya City Subway), or Sakae
Station (Nagoya City Subway and Nagoya Railroad), respectively. Central Fukuoka refers to the areas within
about a 10-minute walk from Hakata Station (JR and Fukuoka City Subway), Tenjin Station (Fukuoka City
Subway) and Nishitetsu Fukuoka Station (Nishi-Nippon Railroad), respectively. They are, however, not always
in line with administrative districts.
Area III: Tokyo other than Area I, and its vicinity (Kanagawa, Saitama, and Chiba)
Area IV: Areas in Osaka, Nagoya and Fukuoka other than Area II, and other government designated cities.
The same applies hereinafter.
(Note 2) Total acquisition price is based on the amounts accounted for in the balance sheets as of the settlement date (amounts of realestate property and trust beneficiary interest in real estate are based on the book value after depreciations).

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

13

(2) Major Property

The principal properties (top ten properties in net book value) owned by JEI as of June 30, 2018 are as follows.
Ratio of rental
Book value
Leasable space Leased space Occupancy revenue to total
Name
Major use
(Millions ofrate (%)(m ) (Note 1)(m ) (Note 2)
rental revenues(Note 3)yen)(%)
Kowa Kawasaki
Office29,18838,375.65
38,375.65
100.0
9.0
Nishiguchi Buildingbuilding
OfficeAKASAKA INTERCITY
27,065
11,021.03
11,021.03
100.0
5.4
building
Nisseki Yokohama
Office23,70340,440.73
39,938.39
98.8
10.7
Buildingbuilding
OfficeOmori Bellport D
21,04725,801.66
25,801.66
100.0
8.9
building
Other(commercial
HAMARIKYU
17,817
19,718.11
19,718.11
100.0
7.0 facilities,
INTERCITY
residence,etc.)
Musashikosugi Tower
Office12,63925,043.93
25,043.93
100.0
7.7
Place
building
OfficeMansard Daikanyama
11,3655,420.80
5,420.80
100.0
2.8
building
Kowa Nishi-Shimbashi
Office11,045
8,949.04
8,949.04
100.0(Note 4)
Buildingbuilding
Daiba Garden City
Office9,896
12,122.85
12,122.85
100.0
3.2
Buildingbuilding
Kowa Kawasaki
Office9,414
18,612.72
18,612.72
100.0(Note 4)
Higashiguchi Buildingbuilding
2

Total

173,185

205,506.52

2

205,004.18

99.8

－

－

(Note 1) Leasable space refers to space available for lease of which ownership is attributable to JEI as of June 30, 2018. For
properties with joint ownership, the value is obtained by multiplying the total leasable space of the shared property by thepercentage of the interest owned by JEI, regarding the figure as JEI’s leasable space.
(Note 2) Leased space refers to space with lease contracts or master lease agreements that guarantee a certain amount of fixed rent
payment concluded with end tenants as of June 30, 2018. For properties with joint ownership, the value is obtained bymultiplying the total leased space of the property by the percentage of the co-ownership interest owned by JEI, regarding thefigure as JEI’s leased space. For properties which are used for profit by the master lease company, leased space refers to the
portion used and the figures indicate space which can be reasonably calculated based on the lease agreement on the masterleasing. The leased space of end tenants who terminated their lease arrangement but have not yet moved out as of the end of
period is included in the leased space. This also applies to any figure which is calculated based on “leased space” in thisdocument.
(Note 3) Occupancy rate is a percentage of total leased space to total leasable space as of June 30, 2018.
(Note 4) The values of Kowa Kawasaki Higashiguchi Building are not disclosed as consent on disclosure from the end tenants havenot been obtained.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

14

(3) Portfolio Ownership Breakdown

Real estate properties and their forms of ownership as of June 30, 2018 are as follows:
Property
No.

Property nameLocation (Residential address)

Ⅰ-1

Omori Bellport D

6-26-3 Minami-Oi, Shinagawa-ku, Tokyo

Ⅰ-2

Shiba 2-Chome Building

2-6-1 Shiba, Minato-ku, Tokyo

Ⅰ-3

JEI Hamamatsucho Building

2-2-12 Hamamatsu-cho, Minato-ku, Tokyo

Ⅰ-8

AKASAKA INTERCITY

1-11-44 Akasaka, Minato-ku, Tokyo

Ⅰ-9

Kowa Shirokanedai Building

3-19-1 Shirokanedai, Minato-ku, Tokyo

I-10

Daiba Garden City Building

2-3-5 Daiba, Minato-ku, Tokyo

Ⅰ-12

HAMARIKYU INTERCITY

1-9-1 and 15 Kaigan, Minato-ku, Tokyo

Ⅰ-13

Shintomicho Building

3-10-9 Irifune, Chuo-ku, Tokyo

Ⅰ-14

Kowa Nishi-Shimbashi Building

2-1-1 Nishi-Shimbashi, Minato-ku, Tokyo

Ⅰ-15

Mansard Daikanyama

10-1 Sarugakucho, Shibuya-ku, Tokyo

NHK Nagoya Housou-Center
Building

Area I
1-13-3 Higashi-Sakura, Higashi-ku,
Nagoya-shi, Aichi

Ⅱ-2

JEI Nishi-Honmachi Building

1-3-15 Awaza, Nishi-ku, Osaka-shi, Osaka

Ⅱ-3

Osaka Kogin Building (Land with
Leasehold Interest)

4-1-1 Koraibashi, Chuo-ku, Osaka-shi, Osaka

Ⅲ-1

Musashikosugi Tower Place

Ⅲ-2

Kowa Kawasaki Higashiguchi
Building

Area II
1-403 Kosugi-machi, Nakahara-ku,
Kawasaki-shi, Kanagawa
1-53 Nisshin-cho, Kawasaki-ku, Kawasaki-shi,
Kanagawa

Ⅲ-3

JEI Hongo Building

2-38-16 Hongo, Bunkyo-ku, Tokyo

Ⅲ-5

Kawasaki Nisshincho Building

7-1 Nisshin-cho, Kawasaki-ku, Kawasaki-shi,
Kanagawa

Ⅲ-7

JEI RYOGOKU BUILDING

3-25-5 Ryogoku, Sumida-ku, Tokyo

Ⅲ-9

Kowa Kawasaki Nishiguchi Building

66-2 Horikawa-cho, Saiwai-ku, Kawasaki-shi,
Kanagawa

Ⅲ-10

Pacific Square Sengoku

2-29-24 Hon-Komagome, Bunkyo-ku, Tokyo

Ⅲ-11

Core City Tachikawa

2-37-7 Akebono-cho, Tachikawa-shi, Tokyo

Ⅱ-1

1-1-8 Sakuragi-cho, Naka-ku, Yokohama-shi,
Kanagawa
4-59 Bentendori, Naka-ku, Yokohama-shi,
Kanagawa
Area III
2-2-48 Kata-machi, Tsushima-ku, Osaka-shi,Osaka
14-4 Hacchobori, Naka-ku, Hiroshima-shi,
Hiroshima
1-1-2 Kitananajonishi, Kita-ku, Sapporo-shi,
Hokkaido

Ⅲ-12

Nisseki Yokohama Building

Ⅲ-13

Yokohama Bentendori Dai-ichi
Seimei Building

Ⅳ-2

JEI Kyobashi Building

Ⅳ-3

JEI Hiroshima Hacchobori Building

Ⅳ-4

SE Sapporo Building

Ⅳ-5

Aoba-dori Plaza

3-2-1 Chuo, Aoba-ku, Sendai-shi, Miyagi

Ⅳ-6

Daiwa Minami-morimachi Building

2-6, 2-chome Kita Tenjinbashi, Kita-ku,
Osaka-shi, Osaka

Ⅳ-7

JEI Naha Building

2-8-1 Kumoji, Naha-shi, Okinawa

IV-8

Hiroshima Dai-ichi Seimei OS
Building

1-2-21 Matoba-cho Minami-ku,
Hiroshima-shi, Hiroshima
Area IV

Form of ownership
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Real estate
Trust beneficiaryinterest in real estate
Real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate

Total

Appraisal value
at end of period Net book value(Millions of yen) (Millions of yen)
(Note)
25,90021,047

12,300

9,126

7,950

8,189

27,50027,065

5,090

4,748

11,0009,896

23,60017,817

2,070

1,769

12,50011,045

12,90011,365140,810122,073

5,850

5,626

4,960

7,138

2,260

1,865

13,07014,631

21,10012,639

9,690

9,414

4,790

5,056

4,570

4,320

2,290

2,249

25,90029,188

1,300

1,640

8,590

6,177

28,40023,703659

660

107,289

95,051

4,250

2,899

3,460

2,600

7,960

5,213

3,880

2,195

5,170

4,251

1,720

1,419

3,000

2,844

29,44021,425

290,609

253,180(Note) Appraisal value at end of period indicates the appraisal value described in the real estate appraisal report prepared by realestate appraisers belonging to Japan Real Estate Institute, Chuo Real Estate Appraisal Co., Ltd., Japan Valuers Co., Ltd. andDaiwa Real Estate Appraisal Co., Ltd. as of June 30, 2018 pursuant to the articles of incorporation of JEI and the regulations
stipulated by the Investment Trusts Association, Japan. For properties with joint ownership in the current portfolio, the value isobtained by multiplying the total value of the shared real estate by the percentage of the interest owned by JEI or the trustee.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

15

Property
No.

I-1
Ⅰ-2
Ⅰ-3
Ⅰ-8
Ⅰ-9
I-10
Ⅰ-12
Ⅰ-13
Ⅰ-14
Ⅰ-15
Ⅱ-1
Ⅱ-2
Ⅱ-3

Ⅲ-1
Ⅲ-2
Ⅲ-3
Ⅲ-5
Ⅲ-7
Ⅲ-8
Ⅲ-9
Ⅲ-10
Ⅲ-11
Ⅲ-12
Ⅲ-13
Ⅳ-2
Ⅳ-3
Ⅳ-4
Ⅳ-5
Ⅳ-6
Ⅳ-7
IV-8

Property name

Omori Bellport D
Shiba 2-Chome Building
JEI Hamamatsucho
Building
AKASAKA
INTERCITY
Kowa Shirokanedai
Building
Daiba Garden City
Building
HAMARIKYUINTERCITY
Shintomicho Building
Kowa Nishi-Shimbashi
Building
Mansard Daikanyama
Area I
NHK Nagoya HousouCenter Building
JEI Nishi-Honmachi
Building
Osaka Kogin Building(Land with Leasehold
Interest)
Area II
Musashikosugi Tower
Place
Kowa Kawasaki
Higashiguchi Building
JEI Hongo Building
Kawasaki Nisshincho
Building
JEI Ryogoku Building
Ebina Prime Tower(Note 3)
Kowa Kawasaki
Nishiguchi Building
Pacific Square Sengoku
Core City Tachikawa
Nisseki Yokohama
Building
Yokohama BentendoriDai-ichi Seimei Building
Area IIIJEI Kyobashi Building
JEI Hiroshima
Hacchobori Building
SE Sapporo Building
Aoba-dori Plaza
Daiwa Minamimorimachi Building
JEI Naha Building
Hiroshima Dai-ichi
Seimei OS Building
Area IV
Total

23rd Period
July 1, 2017 to December 31, 2017
Ratio of
Total number
Occupancy Rental revenue
rentalofrate (At end(Interim)
revenue totenantsof period)(Millions of
total rental(At end(%)yen)
revenuesof period)(Note 1)
(%)
1
100.0
937
8.7
2
99.2
158
1.5

24th Period
January 1, 2018 to June 30, 2018

1
2

100.0
98.4

937
368

Ratio ofrentalrevenue tototal rental
revenues
(%)
8.9
3.5

Total numberoftenants(At endof period)

Occupancy Rental revenue
rate (At end(Interim)of period)(Millions of
(%)
yen)

(Note 1)

1

100.0

226

2.1

1

100.0

228

2.2

13

98.6

587

5.4

14

100.0

572

5.4

1

100.0

179

1.7

1

95.5

168

1.6

1

100.0

334

3.1

1

100.0

335

3.2

1

99.2

734

6.8

1

100.0

736

7.0

11

100.0

71

0.7

11

100.0

71

0.7

5

100.0

(Note 2)

(Note 2)5100.0(Note 2)

(Note 2)

8
44

85.3
98.9

294
-

2.7
-

10
47

100.0
99.6

292
-

2.8
-

35

96.4

353

3.3

36

98.9

363

3.5

1

96.9

210

2.0

1

96.9

208

2.0

1

100.0

83

0.8

1

100.0

88

0.8

37

97.0

-

-

38

98.2

-

-

40

100.0

812

7.5

40

100.0

806

7.7

1

100.0

(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)

1

100.0

195

1.8

1

100.0

208

2.0

1

100.0

107

1.0

1

100.0

107

1.0

38

99.7

442

4.1

-

-

390

3.7

1

97.4

939

8.7

1

100.0

951

9.0

10
1

100.0
100.0

55
311

0.5
2.9

1
1

100.0
100.0

55
318

0.5
3.0

1

99.7

1,149

10.6

1

98.8

1,125

10.7

-

-

-

-

1

100.0

3

0.0

95
1

99.3
100.0

182

1.7

49
1

99.7
100.0

179

1.7

1

100.0

148

1.4

1

100.0

147

1.4

1
53

100.0
99.4

368
191

3.4
1.8

1
53

100.0
99.4

384
191

3.6
1.8

10

100.0

198

1.8

10

100.0

197

1.9

1

100.0

80

0.7

1

100.0

79

0.8

-

-

-

-

1

100.0

12

0.1

67
243

99.9
99.1

10,806

100.0

68
202

99.9
99.6

10,535100.0(Note 1) Total number of tenants indicates the total number of tenants in each property as of the end of each period. For properties forwhich master lease agreements have been concluded, the number of tenants is counted as one per property. When a tenant
has multiple tenancies in the same property, it is counted as one tenant, and when in multiple properties, it is counted as
multiple tenants. As for Osaka Kogin Building (Land with Leasehold Interest), total number of tenants is counted as one
based on the lease agreement for the leased land. Pacific Square Sengoku changed to a master lease agreement on May 1,
2018.
(Note 2) Rental revenue (interim) and ratio of rental revenue to total rental revenues for Kowa Nishi-Shimbashi Building, Kowa
Kawasaki Higashiguchi Building and JEI Hongo Building are not disclosed as consents on disclosure of rents from the end
tenants have not been obtained.
(Note 3) JEI completed sales of Ebina Prime Tower on June 15, 2018.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

16

(4) Securities Portfolio
None(5) Renewable power generation facility
None(6) Right to operate public facilityNone(7) Other Assets
1) Contract amount and fair value of specified transactions and foreign exchange forwards transactions
Fair value
Contract amount (Thousands of yen) (Note 1)(Thousands of yen)
(Note 2)
Classification
Type
Over one year

Over-the-countertransaction

Interest rate swap
transactions
Floating interest ratereceivable
Fixed interest rate
payable46,140,000

38,640,000–(Note 1) Contract amount of swap transactions is calculated based on notional principal.
(Note 2) Fair value is omitted for presentation as over-the-counter transactions meet requirements for special accounting under the
Accounting Standard for Financial Instruments.

(8) Status of JEI’s properties by country and region
None for JEI’s properties in countries or regions other than Japan.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)17

4. Capital Expenditures for Owned Properties(1) Scheduled Capital Expenditures

The following table shows major items of scheduled capital expenditures for repairs and maintenance planned
for the properties owned by JEI as of the end of the 24th period (ended June 30, 2018). The values below
include portions to be expensed for accounting purposes.

Property nameLocation

PurposeSchedule term

Estimated construction costs(Millions of yen)
Payment
for the six
Total ofmonthsTotal
advanceended
payment
June 30,
2018

Kowa Kawasaki
Higashiguchi Building

Kawasaki-shi,
Kanagawa

Renovation of airconditioning systems(Phase 1)

From July 2018
To December 2018

150

－

－

JEI Naha Building

Naha-shi, Okinawa

Renovation of exterior
wall

From February 2018
To July 2018

97

－

－

Musashikosugi Tower
Place

Kawasaki-shi,
Kanagawa

Renewal of central
monitoring equipment(Phase 2/2)

From April 2018
To December 2018

94

－

－

Kowa Kawasaki
Nishiguchi Building

Kawasaki-shi,
Kanagawa

Renovation of elevators(Phase 2)

From June 2017
To December 2018

77

－

－

Hiroshima Dai-ichi
Seimei OS Building

Hiroshima-shi,
Hiroshima

Renovation of
exterior wall tiles

From September 2018
To December 2018

70

Core City Tachikawa

Tachikawa-shi, Tokyo prevention equipment

From May 2018
To November 201830

Renewal of disaster(receivers)(2) Capital Expenditures for the Six Months Ended June 30, 2018

The following table shows constructions conducted by JEI during the period ended June 2018 and expensed ascapital expenditures. Capital expenditures for the period ended June 2018 were 867 million yen and, whencombined with repairs and maintenance costs of 160 million yen classified as expenses in the period underreview, the amount of constructions completed totaled 1,027 million yen.

Property nameLocation

PurposeScheduled term

Amounts
Paid (Millions of yen)

Kowa Kawasaki
Nishiguchi Building

Kawasaki-shi,
Kanagawa

Renovation of air-conditioning From November 2017
systems (Phase 1/4)
To June 2018

225

Kowa Kawasaki
Nishiguchi Building

Kawasaki-shi,
Kanagawa

Renovation of elevators(Phase 1)

From December 2017
To June 201885

NHK Nagoya
Housou-Center
Building

Nagoya-shi, Aichi

Renovation ofbathrooms/kitchens (Phase 1/2)

From October 2017
To March 2018

71

Musashikosugi Tower
Place

Kawasaki-shi,
Kanagawa

Renewal of central monitoring
equipment (Phase 1/2)

From October 2017
To March 201865

HAMARIKYUINTERCITY

Minato-ku, Tokyo

Repair of common spacelighting

From March 2018
To June 201838

NHK Nagoya
Housou-Center
Building

Nagoya-shi, Aichi

Renewal of security cameras

From September 2017
To March 2018

32

–

348

Other constructions
Total

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

867

18

(3) Reserved Funds for Long-term Repairs and Maintenance Plans

Based on the long-term repairs and maintenance plans developed for each property, JEI has set aside thefollowing cash reserves, derived from depreciation and other excess cash flows, in order to fund large-scale
repairs, maintenance and other construction.
(Unit: Millions of yen)Item

20th Period
22nd Period
24th Period
21st Period
23rd Period
July 1, 2016 toJuly 1, 2017 to January 1, 2018 toJanuary 1, 2016
January 1, 2017
to June 30, 2016 December 31, 2016 to June 30, 2017 December 31, 2017 June 30, 2018

Reserved funds at
beginning of period

310

436

450

546

289

Increase

619

675

468

484

636

Decrease

492

662

371

742

667

Reserved funds at theend of period

436

450

546

289

258

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

19

5. Expenses and Liabilities(1) Expenses Associated with Asset Management(Unit: Thousands of yen)
23rd Period
July 1, 2017
to December 31, 2017

Account

24th Period
January 1, 2018
to June 30, 2018(a) Asset management fees

457,509431,747(b) Custodian fees

22,102

21,053(c) Administrative service fees

41,804

39,666(d) Compensation for directors

6,540

6,540

(e) Accounting auditor fees

11,00011,000(f) Other

95,51080,383

634,466

590,391

Total(2) Borrowings

Borrowings by each financing source as of the end of the 24th period (ended June 30, 2018) are as follows:
Classification
Lender (Note 3)

Short-term
Mizuho Bank, Ltd.
loans

Drawdown
dateAugust 10,2017

Balance atBalance at end of Average
beginning ofinterest rate
periodperiod(Thousands of(%)(Thousands ofyen)(Note 1)yen)

900,000

900,000

900,000

900,000

3,000,000－

Mizuho Bank, Ltd.

5,000,000－

MUFG Bank, Ltd.

2,000,000－

1,100,000－

1,000,000－

1,000,000－

700,000－

200,000－

Sub Total
The Dai-ichi Life Insurance
Company Limited

Sumitomo Mitsui Banking
Corporation
Shinkin Central Bank

June 29,2011

June 28,
2013

The Norinchukin Bank
The Bank of Fukuoka, Ltd.

Long-termloans due Resona Bank, Ltd.
within one
Mizuho Bank, Ltd.
year

The Norinchukin BankMUFG Bank, Ltd.
Mizuho Trust & Banking Co., Ltd.
Mizuho Bank, Ltd.

March 11,2014

850,000

850,000

1,450,000

1,450,000

850,000

850,000

600,000

600,000－

850,000

The Norinchukin Bank－

1,450,000

MUFG Bank, Ltd.

－

850,000

Mizuho Trust & Banking Co., Ltd.

－

600,000

17,750,000

7,500,000

Sub Total

Maturity
date

Repayment
methodUse

0.26469

July 31, Lump- Acquisition ofreal estate
2018
sum

1.65125(Note 2)June 29,2018

0.81225(Note 2)June 30,
2018

Lumpsum
0.74500(Note 2)

November
1, 2018

0.77500(Note 2)

March 8,2019

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

Remarks

Unsecured
andunguaranteed

Repayment of Unsecured
existing
andborrowing unguaranteed20

Classification
Lender (Note 3)

Drawdown
date

Mizuho Bank, Ltd.
The Norinchukin BankMUFG Bank, Ltd.

March 11,2014

Mizuho Trust & Banking Co., Ltd.
Nippon Life Insurance Company
Development Bank of Japan Inc.

December
12, 2016
January 31,
2012

Mizuho Bank, Ltd.
Sumitomo Mitsui Banking
Corporation
Mizuho Trust & Banking Co., Ltd.

June 28,
2013

MUFG Bank, Ltd.
The Dai-ichi Life Insurance
Company Limited

MUFG Bank, Ltd.

December27, 2013

Mizuho Trust & Banking Co., Ltd.

Longterm
loans

850,000－

1,450,000－

850,000－

600,000－

1,000,000

1,000,000

2,000,000

2,000,000

500,000

500,000

1,000,000

1,000,000

600,000

600,000

500,000

500,000

1,000,000

Mizuho Bank, Ltd.
The Norinchukin Bank

Balance atBalance at end of
beginning of
Averageperiodperiodinterest rate
(Thousands of(Thousands of(%) (Note 1)
yen)
yen)

1,000,000

675,000

675,000

1,162,500

1,162,500

675,000

675,000

0.77500(Note 2)

March 8,2019

0.25000(Note 2)1.60000(Note 2)

December
12, 2019

1.31261(Note 2)487,500

Development Bank of Japan Inc.

2,000,000

2,000,000

1.60750(Note 2)

The Dai-ichi Life Insurance
Company Limited

July 31,2014

2,000,000

2,000,000

0.98834(Note 2)520,000

520,000

540,000

540,000

1,080,000

1,080,000

Sumitomo Mitsui Trust Bank Limited

1,620,000

1,620,000

Mizuho Bank, Ltd.

1,950,000

1,950,000

MUFG Bank, Ltd.

2,000,000

2,000,000

1,200,000

1,200,000

600,000

600,000

2,000,000

2,000,000

1,000,000

1,000,000

2,000,000

2,000,000

500,000

500,000

Sumitomo Mitsui Banking
Corporation

Mizuho Trust & Banking Co., Ltd.
Resona Bank, Ltd.
Sompo Japan Nipponkoa Insurance
Inc.
Tokio Marine & Nichido Fire
Insurance Co., Ltd.
Development Bank of Japan Inc.
Sompo Japan Nipponkoa Insurance
Inc.
Tokio Marine & Nichido Fire
Insurance Co., Ltd.
Mizuho Bank, Ltd.
MUFG Bank, Ltd.
Mizuho Trust & Banking Co., Ltd.

November29, 2016

December29, 2014

January 31,
2017
July 31,2014
November30, 2017

December29, 2014

Resona Bank, Ltd.
Development Bank of Japan Inc.

June 30,
2015

The Dai-ichi Life Insurance
Company Limited

June 29,2018

0.41132

Remarks

January 31,
2020

June 30,
2021

LumpNovember sum
29, 2021

0.81875(Note 2)

December30, 2021

0.35000(Note 2)January 31,
2022

1.15417(Note 2)June 30,2022

0.35000(Note 2)

November30, 2022

0.93625(Note 2)

December30, 2022

500,000

500,000

1,950,000

1,950,000

2,000,000

2,000,000

1,200,000

1,200,000

600,000

600,000

2,000,000

2,000,000

1.20250(Note 2)3,000,000

0.46000(Note 2)－Use

1.00000(Note 2)487,500

MUFG Bank, Ltd.

Repayment
method

1.36400(Note 2)June 28,
2013

Mizuho Bank, Ltd.

Maturitydate

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

Repayment Unsecured
andof existing
borrowing unguaranteed

June 30,
2023

21

Classification
Lender (Note 3)

Drawdown
date

Mizuho Bank, Ltd.

420,000

420,000

MUFG Bank, Ltd.
Sumitomo Mitsui Banking
Corporation

250,000

250,000

140,000

140,000

1,560,000

1,560,000

1,500,000

1,500,000

Resona Bank, Ltd.

500,000

500,000

Aozora Bank, Ltd.

750,000

750,000

Mizuho Trust & Banking Co., Ltd.
The Norinchukin Bank

November30, 2015

The Bank of Fukuoka, Ltd.

150,000

150,000

1,000,000

1,000,000

3,500,000

3,500,000

500,000

500,000

500,000

500,000

3,500,000

3,500,000

Mizuho Bank, Ltd.

870,000

870,000

MUFG Bank, Ltd.

590,000

590,000

350,000

350,000

1,560,000

1,560,000

1,000,000

1,000,000

Aozora Bank, Ltd.

750,000

750,000

The Bank of Fukuoka, Ltd.

MUFG Bank, Ltd.
Sumitomo Mitsui Banking
Corporation
Resona Bank, Ltd.
Aozora Bank, Ltd.

November30, 2017

Development Bank of Japan Inc.

Sumitomo Mitsui Banking
Corporation
Mizuho Trust & Banking Co., Ltd.
Longterm
loans

Balance atBalance at end of Average
beginning ofinterest rate
periodperiod(Thousands of(%)(Thousands ofyen)(Note 1)yen)

Resona Bank, Ltd.

November30, 2015

150,000

150,000

Mizuho Bank, Ltd.

－3,700,000

MUFG Bank, Ltd.

－

1,000,000－

400,000－

1,000,000

Shinkin Central Bank－

1,000,000

The Bank of Fukuoka, Ltd.

－

700,000

Sumitomo Mitsui Banking
Corporation
The Norinchukin Bank

June 29,
2018

Resona Bank, Ltd.

－

200,000

Mizuho Bank, Ltd.

2,200,000

2,200,000

MUFG Bank, Ltd.

1,750,000

1,750,000

1,100,000

1,100,000

850,000

850,000

500,000

500,000

1,300,000

1,300,000－

1,300,000－

1,000,000－

700,000

Sub Total

67, 850,000

78, 100, 000

Total

86,500,000

86,500,000

Sumitomo Mitsui Banking
Corporation
The Norinchukin Bank

September
29, 2017

Aozora Bank, Ltd.
Development Bank of Japan Inc.
Mizuho Bank, Ltd.
MUFG Bank, Ltd.
Sumitomo Mitsui Banking
Corporation

June 29,2018

Maturity
date

Repayment
methodUse

Remarks

0.84375(Note 2)
November30, 2023

0.64801(Note 2)0.68431(Note 2)

May 31,2024

0.96275(Note 2)

November30, 2024
Repayment
Lumpof existingsum
borrowing

0.67400(Note 2)June 30,2025

0.83441(Note 2)

March 31,2026

0.83071(Note 2)September
30, 2026

0.79100(Note 2)

December30, 2026(Note 1) Average interest rate is calculated by applying a weighted average to the loan balance during the period.
Borrowings hedged by interest rate swaps to avoid interest rate fluctuation risk are calculated by applying aweighted average rate in consideration of the effect of the interest rate swaps.
(Note 2) Loans are fixed-rate loans (including loans with fixed-rate interest using interest rate swaps).
(Note 3) Lending business, etc. for domestic corporations by Mitsubishi UFJ Trust and Banking Corporation weresucceeded to MUFG Bank, Ltd. on April 16, 2018.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

22

Unsecured
andunguaranteed(3) Investment Corporation Bonds

The outstanding investment corporation bonds issued by JEI as of June 30, 2018 are as follows:
Issue

Balance at
beginning of period
Issuance date(Thousands ofyen)

4th series unsecured
November 4,
investment corporation
2011
bonds
5th series unsecured
Novemberinvestment corporation
25, 2013
bonds
6th series unsecured
investment corporation
bonds
March 10,2014
7th series unsecured
investment corporation
bonds
8th series unsecured
September 9,
investment corporation
2015
bonds
9th series unsecured
October 27,
investment corporation
2016
bonds
10th series unsecured
Decemberinvestment corporation 20, 2016bonds
11th series unsecured
April 25,
investment corporation
2017
bonds
12th series unsecured
investment corporation
bonds
April 20,2018
13th series unsecured
investment corporation
bonds
Total

(Note 1)
(Note 2)
(Note 3)(Note 4)(Note 5)2,000,000

Balance at endof period(Thousands ofyen)Interest rate(%)

2,000,000

1.40000

Maturity date

Repayment
methodUse

November 2,
2018(Note 1)

(Note 2)5,000,000

5,000,000

0.46000

5,000,000

5,000,000

0.46000

March 11,2019

8,000,000

8,000,000

1.13000

March 11,2024

1.03000

September 9,2025(Note 2)

Remarks(Note 3)5,000,000

5,000,000

Lump-sum(Note 5)2,000,000

2,000,000

0.45000

October 27,
2026

2,000,000

2,000,000

0.39000

December 20,
2023(Note 4)7,000,000

7,000,000

0.65000

April 23,2027

(Note 2)－2,000,000

0.24000

April 20,2023

0.95000

April 20,2033

(Note 4)－2,000,000

36,000,000

40,000,000

The funds were used for acquiring new properties.
The funds were used for repaying existing borrowings.
The funds are used for redeeming existing investment corporation bonds and repaying existing borrowings.
The funds are used for redeeming existing investment corporation bonds.
The bonds are with special pari passu conditions among specified investment corporation bonds.

(4) Short-Term Investment Corporation Bonds
None(5) Subscription Rights for New Investment Units
None

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)23

6. Condition of Investment Transactions(1) Transactions of Property, Asset-Backed Securities, etc. and Infrastructure Assets,etc. and Infrastructure Related Assets(Millions of yen)
Acquisition
Type of assets

Property nameAcquisitiondate

Acquisition
Transfer date
price
(Note 1)

Trust beneficiaryinterest in real estate

Hiroshima Dai-ichi
June 15, 2018
Seimei OS Building
Yokohama Bentendori
Trust beneficiary
Dai-ichi Seimei
June 15, 2018
interest in real estate
Building
Trust beneficiary
Ebina Prime Tower－
interest in real estate
Total

Transfer
Net book
value(Note 2)Gain (loss)
on transfer(Note 3)

2,780

－

－

－

－

640

－

－

－

－

－ June 15, 2018

5,600

5,670

5,600

5,670

-165

3,420

－

Transfer
price(Note 1)－

(Note 1) The acquisition price and the transfer price indicate the amounts excluding related expenses (brokerage fee,taxes, etc.) required for the acquisition or the transfer, thus are the purchase amounts of real estate stated in thetrust beneficiary interest purchase agreements.
(Note 2) Net book value at the time of transfer is indicated.
(Note 3) Gain (loss) on transfer indicates the amount obtained by subtracting book value and other sales-related
expenses from the transfer price.

-165(2) Transactions of Other Assets
None(3) Appraisal and Research for Specified Asset Value, etc.
1) Real estate, etc.
Acquisition orTransfer

Name of property

Type of assets

Acquisition/transfer date

Acquisition/
Appraisaltransfer priceValue(millions of(millions of
yen)
yen)

Appraiser

Appraisal
Date(Note)

Trust
Hiroshima Dai-ichi beneficiary
Japan Real
Acquisition
June 15, 2018
2,780
3,000 Estate Institute
Seimei OS Building interest in realestateTrust
Yokohama
beneficiary
Japan Real
Acquisition Bentendori Dai-ichi
June 15, 2018640
659 Estate Instituteinterest in real
Seimei Building
estateTrustbeneficiary
Japan RealTransfer
Ebina Prime Tower
June 15, 2018
5,600
4,340 Estate Instituteinterest in realestate(Note) The acquisition/transfer price is the purchase/sales price of the property stated in the purchase agreement(excluding the amount equivalent to consumption taxes, etc.).

April 1,2018
April 1,2018
April 1,20182) Others
Of the transactions of JEI that are subject to research for specified asset value and other particulars
under Article 201 of the Investment Trust Law, those other than what are described in 1) Real estate,etc. is researched and reported by Ernst & Young ShinNihon LLC.
Two interest rate swap contracts were subject to the research during the period from January 1, 2018
to June 30, 2018 and we have received the consensus report on procedure operation results from Ernst& Young ShinNihon LLC. Concerning the interest rate swap contracts, Ernst & Young ShinNihon
LLC was requested to report on the name of counterparty, quantity, contractual figures, transaction
term and other matters pertaining to the over-the-counter derivative transactions.
This research is not part of the audit of financial statements and will not provide a guarantee of theAsset Management Report for 24th period (Semi-Annual Report for 24th Period)

24adequacy of prices and the internal control system.

(4) Transactions with Interested Parties
1) Transactions
Acquisition price or disposal amountClassification

Acquisition priceTotal amount

Disposal amount

3,420 million yen

5,600 million yen

3,420 million yen (100.0%)- million yen (-%)

3,420 million yen (100.0%)- million yen (-%)

Breakdown for transactions with interested parties
The Dai-ichi Life Insurance Company
Limited
Total(Note) Interested parties refers to the interested parties of the asset management company, which has concluded an asset
management agreement with JEI as prescribed in Article 123 of the Investment Trust Enforcement Order and Section
26, Paragraph 1, Item 27 of the Regulations for Management Reports Concerning Investment Trusts and Investment
Corporations of the Investment Trusts Association, Japan.

2) Amounts of fees paid and other expenses

Classification

Property management
costs and fees

Total amount paid (A)(Unit: Thousands of yen)

Breakdown of transactions with interested parties
Paid toNippon Steel Kowa Real
Estate Co., Ltd.
Kowa Real Estate Facilities,
1,476,177 Co., Ltd.
Nippon Steel Community
Service Co., Ltd.

Total

1,476,177–

Amount paid (B)B/A

251,36317.0%

287,916

19.5%

74

0.0%

539,354

36.5%(Note 1) Figures indicate fees paid to interested parties of asset management companies with whom JEI had transactions
during the six months ended June 30, 2018.
(Note 2) Other than the Total amount paid indicated above, the following payments were made for maintenance and repair
work, etc. which were ordered to interested parties during the period.
Nippon Steel Kowa Real Estate Co., Ltd.
14,502 thousand yen
Kowa Real Estate Facilities Co., Ltd.
221,401 thousand yen(5) Transactions with Asset Management Company Concerning the Additional
Businesses of the Asset Management Company

The Asset Management Company (Japan Excellent Asset Management Co., Ltd.) does not conduct
any additional business falling under the categories of the type I financial instruments business, type II
financial instruments business, building lots and buildings transaction business, or real estate specified
joint enterprise, and had no applicable transactions.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)25

7. Accounting(1) Assets, Liabilities, Principal, and Profit and Loss

For assets, liabilities, principal, and profit and loss, please refer to the attached Balance Sheets,Statements of Income and Retained Earnings, Statements of Changes in Net Assets, Notes toFinancial Statements and Distribution Information.

(2) Change in Depreciation Calculation Method
No changes were made during the period.

(3) Change in Asset and Infrastructure Assets, etc. Valuation Method
No changes were made during the period

8. Others(1) Notice1) General unitholders’ meeting
There were no applicable items during the period.

2) Board of directors meeting
Major issues related to the execution and modification of major contracts approved by the board of
directors of JEI during the six months ended June 30, 2018 are summarized below.
Approval dateFebruary 15, 2018

Approved agenda

Description

Entrustment of general administrative
duties concerning investment
corporation bonds

The board of directors
made acomprehensive resolution on investment
corporation bonds to be issued in the period
from February 15, 2018 to February 14,
2019. The board of directors approved therespective candidate general administrator
for “administrative duties concerning
offering of investment corporation bonds”
and “administrative duties concerning
acceptance of claims for exercise of rights
and other inquiries from creditors of theinvestment
corporation,
and
other
administrative duties concerning investment
corporation bonds during the period,” andassigned decisions on all other necessary
matters to the Executive Director.

(2) Disclosure of Investment Trust Beneficiary Certificates Incorporated by JEIThere were no applicable items during the period.

(3) Disclosure of Juridical Persons Owning Overseas Real Estate and Status of the
Owned Real Estate
There were no applicable items during the period.

(4) Other

Unless otherwise stated, monetary amounts have been rounded down and percentage figures havebeen rounded off to the nearest indicated unit in this Report.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

26

9.

Risk Factors

An investment in JEI’s units involves significant risks. The principal risks with respect to investment in
JEI are as follows.
The principal risks with respect to investment in JEI are as follows:• any adverse conditions in the Japanese economy could adversely affect JEI;• JEI may not be able to acquire properties to execute its growth and investment strategy in a manner thatis accretive to earnings;• illiquidity in the real estate market may limit JEI’s ability to grow or adjust its portfolio;• the past experience of the Asset Management Company in the Japanese real estate market is not anindicator or guarantee of the future results;• JEI’s reliance on the Core Sponsors, the Asset Management Company and third party service providers
could have a material adverse effect on its business;• there are potential conflicts of interest between JEI and the Core Sponsors as well as the AssetManagement Company;• JEI’s revenues largely comprise leasing revenues from the portfolio properties, which may be
negatively affected by factors including vacancies, decreases in rent, and late or missed payments bytenants;• JEI invests primarily in office properties, the market for which may be affected by macro-economic
trends and other forces which JEI cannot control;• JEI faces significant competition in seeking tenants and it may be difficult to find replacement tenants;• increases in prevailing market interest rates may increase JEI’s interest expense and may result in a
decline in the market price of JEI’s units;• JEI may suffer large losses if any of its properties incurs damage from a natural or man-made disastersuch as an earthquake, fire, flood, tsunami or typhoon;• due to the concentration of JEI’s portfolio in the Tokyo metropolitan area, JEI’s business is highly
susceptible to circumstances and developments that may adversely impact that area;• any inability to obtain financing for future acquisitions could adversely affect the growth of JEI’s
portfolio;• JEI’s failure to satisfy a complex series of requirements pursuant to Japanese tax regulations would
disqualify JEI from certain taxation benefits and significantly reduce the cash distributions to theunitholders; and• the ownership rights in some of JEI’s properties may be declared invalid or limited.
In addition, JEI is subject to the following risks:• risks related to increasing operating costs;• risks related to JEI’s dependence on the efforts of the Asset Management Company’s key personnel;• risks related to the restrictive covenants under debt financing arrangements;• risks related to entering into forward commitment contracts;• risks related to third party leasehold interests in the land underlying JEI’s properties;• risks related to holding property in the form of stratified ownership (kubun shoyū) interests or coownership interests (kyōyū-mochibun);• risks related to properties not in operation (including properties under development);• risks related to the defective title, design, construction or other defects or problems in the properties;• risks related to suffering impairment losses relating to the properties;• risks related to decreases in tenant leasehold deposits and/or security deposits;• risks related to tenants’ default as a result of financial difficulty or insolvency;• risks related to the insolvency of master lessees;• risks related to relying on expert appraisals and engineering, environmental and seismic reports as wellas industry and market data;• risks related to the presence of hazardous or toxic substances in JEI’s properties, or the failure toproperly remediate such substances;• risks related to strict environmental liability for the properties;• risks related to potential amendment of applicable administrative laws and local ordinances;• risks related to holding interests in Japanese anonymous association (tokumei kumiai);• risks related to holding properties through trust beneficiary interests;
Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

27

•
•
•
•
•

risks related to JEI’s tight supervision by regulatory authorities and compliance with applicable rules
and regulations;risks related to the possibility that tax authorities may disagree with the Asset Management Company’s
interpretations of the Japanese tax laws and regulations;risks related to being unable to benefit from reductions in certain real estate taxes enjoyed by qualified
J-REITs;risks related to changes in Japanese tax laws; andthe risk of dilution as a result of further issuances of units.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)28

Financial Statements
Japan Excellent, Inc.
For the six-month periods ended
June 30, 2018 and December 31, 2017with Independent Auditor’s Report

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

29

ごEY
Building a betterworking world

Ernst & Young ShinNihon LLC
Hibiya Mitsui Tower, Tokyo Midtown Hib1ya
1-1-2 Yurakucho, Chiyoda-ku
Tokyo 100-0006, Japan

Tel: +81 3 3503 1100

Fax: +81 3 3503 1197

www.eyJapan JP

Independent Auditor's Report

The Board of Directors
Japan Excellent, Inc.
We have audited the accompanying financial statements ofJapan Excellent, Inc., which comprise the balance
sheet as at June 30, 2018, and the related statements of income and retained earnings, changes in net assets,
and cash flows for the six-month period then ended and a summary of significant accounting policies andother explanatory information, all expressed in Japanese yen.
Managements Responsibiliりfor the Financial Statements
Management is responsible for the preparation and fair presentation ofthese financial statements in accordancewith accounting principles generally accepted in Japan, and for designing and operating such internal control
as management determines is necessary to enable the preparation and fair presentation of the financial
statements that are free from material misstatement, whether due to fraud or error.
Auditor:S Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in Japan. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements arefree from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor's judgment, including the assessmentof the risks of material misstatement of the financial statements, whether due to fraud or error. The purposeof an audit of the financial statements is not to express an opinion on the effectiveness of the entity's
internal control, but in making these risk assessments the auditor considers internal controls relevant to theentity's preparation and fair presentation of the financial statements in order to design audit procedures thatare appropriate in the circumstances. An audit also includes evaluating the appropriateness of account�ng
policies used and the reasonableness of accounting estimates made by management, as well as evaluatmg
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
OpinionIn our opinion, the financial statements refen囀ed to above present fairly, in all material respects, the financial
position ofJapan Excellent, Inc. as at June 30, 2018, and its financial performance and cash flows for thesix-month period then ended in conformity with accounting principles generally accepted in Japan.

�g 紗？必止1
September 19, 2018
Tokyo,JapanA

member firm of Ernst & Young Global Limited

30

Japan Excellent, Inc.
Balance Sheets
As of June 30, 2018 and December 31, 2017
As ofJune 30, 2018

As ofDecember 31, 2017

(Thousands of yen)
AssetsCurrent assets:
Cash and cash equivalents including trust accounts(Notes 4 and 5)
Rental receivables
Consumption taxes refundable
Prepaid expenses and other current assets
Total current assets

29,258,892
394,487
82,710259,546
29,995,637

23,591,162
456,268－
191,862
24,239,293

Property and equipment (Note 7) :Buildings and building improvements
Machinery and equipment
Furniture and fixtures
Land
Construction in progress
Buildings and building improvements for trust accounts
Machinery and equipment for trust accounts
Furniture and fixtures for trust accounts
Land for trust accounts
Construction in progress for trust accounts
Less: accumulated depreciation
Net property and equipment

7,053,880
6,253
48,213
9,292,709
14,169113,626,364
826,418
227,219
141,532,889
105,704(28,661,403)
244,072,419

6,949,821
6,253
12,2709,272,487
12,606
116,764,611
815,194
225,151
141,454,273
99,194(28,447,970)
247,163,894

Intangible assets:
Leasehold rights
Brand and trademark
Leasehold rights for trust accounts
Other intangible assets for trust accounts
Total intangible assets

1,721,607
63
7,382,016
4,572
9,108,260

1,721,607
88
7,382,016
4,710
9,108,423

Investments and other assets:
Security deposits
Long-term prepaid expenses
Other assets
Total investments and other assets

15,181
877,064
786,630
1,678,876

15,181
796,524
738,882
1,550,588

153,193
153,193
285,008,387

135,216
135,216
282,197,416

Deferred assets:
Investment corporation bond issuance costs
Total deferred assets
Total assets

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)31

As of
As ofJune 30, 2018
December 31, 2017
(Thousands of yen)
Liabilities
Current liabilities:
Accounts payable – trade
Short-term loans (Notes 5 and 8)
Investment corporation bonds due within one year
(Notes 5 and 9)
Long-term debt due within one year
(Notes 5 and 8)
Accounts payable – otherAccrued expenses
Accrued corporation taxes
Accrued consumption taxes
Advances received
Other current liabilities
Total current liabilities
Long-term liabilities:
Investment corporation bonds (Notes 5 and 9)
Long-term debt (Notes 5 and 8)
Security deposits from tenants (Note 5)
Security deposits from tenants for trust accounts (Note 5)
Total long-term liabilities
Total liabilities
Net assets (Note 10)
Unitholders’ equity:
Unitholders’ capital
Surplus
Voluntary reserve
Reserve for advanced depreciation of non-current assets
Retained earnings
Total surplus
Total unitholders’ equity
Total net assets
Total liabilities and net assets

1,154,693
900,000

1,627,141
900,000

12,000,000

7,000,000

7,500,000
423,558
146,440
880－
83,308－22,208,883

17,750,000
445,675
144,768977
677,350
79,326
028,625,240

28,000,000
78,100,000
1,104,337

29,000,000
67,850,000
1,084,728

11,808,282
119,012,619
141,221,503

11,703,805
109,638,534
138,263,774

139,972,885

139,972,885

474,537
3,339,461
3,813,999
143,786,884
143,786,884
285,008,387

260,476
3,700,279
3,960,756
143,933,641
143,933,641
282,197,416

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

32

Japan Excellent, Inc.
Statements of Income and Retained Earnings
For the periods from January 1, 2018 to June 30, 2018
and from July 1, 2017 to December 31, 2017

For the period
from January 1, 2018
to June 30, 2018

For the period
from July 1, 2017
to December 31, 2017

(Thousands of yen)
Revenues (Notes 13 and 14) :Rental business revenues
Other
Gain on sales of real estate properties
Total revenues
Operating expenses (Notes 13 and 14) :Property operating expenses
Loss on sales of real estate properties
Asset management fees
Custodian fees
Administrative service fees
Compensation for directors
Other
Total operating expenses
Operating income
Other income:Interest income
Other
Other expenses:
Interest expense
Loan arrangement fees
Interest expense on investment corporation bonds
Amortization of investment corporation bond issuance costs
Other
Ordinary income
Income before income taxes
Income taxes (Note 12) :Current
Deferred
Net income
Retained earnings at beginning of period
Retained earnings at end of period

9,692,018
843,357－
10,535,375

9,851,628
954,398
279,042
11,085,069

5,754,046
165,344431,747
21,05339,666
6,540
91,3836,509,782
4,025,593

5,931,137－
457,509
22,10241,804
6,540
106,510
6,565,603
4,519,465

121
773

105
658

376,796
145,278
142,530
15,557
5,959
3,340,365
3,340,365

442,384
221,464
140,286
14,570271
3,701,251
3,701,251

899
4
3,339,461－
3,339,461

993(14)
3,700,272
6
3,700,279

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

33

Japan Excellent, Inc.
Statements of Changes in Net Assets
For the periods from January 1, 2018 to June 30, 2018
and from July 1, 2017 to December 31, 2017
For the period from January 1, 2018 to June 30, 2018
Net assets
Unitholders’ equity
SurplusNumber ofunits in issue
Balance as ofDecember 31, 2017
Changes during
the fiscal period:
Provision ofreserve for
reduction entry
Distributions fromretained earnings
Net income
Total changes
during the fiscal
periodBalance as ofJune 30, 2018

Unitholders’capitalVoluntary
reserve
Reserve foradvanceddepreciation of
non-current
assetsRetainedearnings

Total surplus

Totalunitholders’equityTotal net
assets(Thousands of yen)
1,305,700

139,972,885

260,476

3,700,279

3,960,756

143,933,641

143,933,641－－

214,060(214,060)

－

－
－

－

－

－

－

(3,486,219)(3,486,219)(3,486,219)(3,486,219)

－

－

－

3,339,461

3,339,461

3,339,461

3,339,461－－

214,060(360,817)(146,757)(146,757)(146,757)

1,305,700

139,972,885

474,537

3,339,461

3,813,999

143,786,884

143,786,884

For the period from July 1, 2017 to December 31, 2017
Net assets
Unitholders’ equity
SurplusNumber ofunits in issue
Balance as ofJune 30, 2017
Changes during
the fiscal period:
Distributions fromretained earnings
Net income
Total changes
during the fiscal
periodBalance as ofDecember 31, 2017

Unitholders’capitalVoluntary
reserve
Reserve foradvanceddepreciation of
non-current
assetsRetainedearnings

Total surplus

Totalunitholders’equityTotal net
assets(Thousands of yen)
1,305,700

139,972,885

260,476

3,460,111

3,720,588

143,693,473

143,693,473

－

－

－

(3,460,105)(3,460,105)(3,460,105)(3,460,105)

－

－

－

3,700,272

3,700,272

3,700,272

3,700,272－－－

240,167

240,167

240,167

240,167

1,305,700

139,972,885

260,476

3,700,279

3,960,756

143,933,641

143,933,641

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

34

Japan Excellent, Inc.
Statements of Cash Flows
For the periods from January 1, 2018 to June 30, 2018
and from July 1, 2017 to December 31, 2017
For the period
For the period
from July 1, 2017from January 1, 2018
to December 31, 2017
to June 30, 2018
(Thousands of yen)
Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Amortization of investment corporation bond issuance costs
Interest income
Interest expense
Decrease (increase) in rental receivables
Decrease (increase) in consumption taxes refundable
Decrease (increase) in prepaid expense
Increase (decrease) in accounts payable – trade
Increase (decrease) in accounts payable – other
Increase (decrease) in unpaid consumption taxes
Increase (decrease) in advances received
Decrease (increase) in long-term prepaid expenses
Decrease in property and equipment for trust accounts due to sale
Other, net
SubtotalInterest received
Interest paid
Income taxes paid
Net cash provided by operating activities

3,340,365
1,926,111
15,557(121)
519,327
61,780(82,710)(60,839)(121,402)(21,986)(677,350)
3,982(80,540)
5,670,803(54,304)
10,438,673
121(517,654)(996)
9,920,143

3,701,251
1,972,950
14,570(105)
582,670
29,853－
1,540(103,534)
6,463
387,463(4,559)(167,553)
24,108,013(358,243)
30,170,782
105(571,039)(694)
29,599,154

Cash flows from investing activities
Purchases of property and equipment
Purchases of property and equipment for trust accounts
Proceeds from security deposits from tenants
Payments for security deposits to tenants
Proceeds from security deposits in trust accounts from tenants
Payments for security deposits in trust accounts to tenants
Net cash used in investing activities(164,045)(4,693,342)
41,208(21,600)
694,141(589,664)(4,733,302)(7,267,725)(1,680,016)
395,152(33,522)656,954(1,401,829)(9,330,987)

Cash flows from financing activities
Proceeds from short-term loans
Repayment for short-term loans
Proceeds from long-term debt
Repayment for long-term debt
Proceeds from issuance of investment corporation bonds
Distributions to unitholders
Net cash provided by (used in) financing activities－－
14,000,000(14,000,000)
3,966,464(3,485,575)
480,889

10,600,000(9,700,000)
17,700,000(34,000,000)－(3,459,034)(18,859,034)

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 4)

5,667,730
23,591,162
29,258,892

1,409,132
22,182,030
23,591,162

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

35

Japan Excellent, Inc.
Notes to Financial Statements
For the periods from January 1, 2018 to June 30, 2018
and from July 1, 2017 to December 31, 2017

1. Organization
Japan Excellent, Inc. (hereinafter, “JEI”), established on February 20, 2006 under the Law
Concerning Investment Trusts and Investment Corporations of Japan (the “Investment Trust Law”),
is a real estate investment corporation which primarily invests in office buildings.
JEI is externally managed by a licensed asset management company, Japan Excellent AssetManagement (“JEAM”). JEAM was originally owned 45% by NIPPON STEEL KOWA REALESTATE CO., LTD., 20% by The Dai-ichi Life Insurance Company, Limited, 15% by Sekisui
House, Co., LTD., and 20% by other corporations. Due to the transfer of ownership by Sekisui
House, Co., LTD., on May 12, 2014, ownership interests of 9% and 6% were each acquired by
NIPPON STEEL KOWA REAL ESTATE CO., LTD., and The Dai-ichi Life Insurance Company,
Limited, respectively.
JEI was listed on the Tokyo Stock Exchange on June 27, 2006. As of June 30, 2018, JEI held 30
properties with 341,247.30 square meters of total leasable space and had leases with 202 tenants
excluding residential tenants.
2. Basis of Presentation
JEI maintains its accounting records and prepares its financial statements in accordance withaccounting principles generally accepted in Japan (“Japanese GAAP”), including provisions set forthin the Investment Trust Law, the Corporation Law of Japan, the Financial Instruments and Exchange
Law of Japan and related regulations, which are different in certain respects as to the application anddisclosure requirements of International Financial Reporting Standards.
The accompanying financial statements are a translation of the financial statements of JEI, whichwere prepared in accordance with Japanese GAAP and presented in the securities report of JEI filedwith the Kanto Local Finance Bureau. In preparing the accompanying financial statements, certain
reclassifications and modifications have been made for the convenience of readers outside Japan. In
addition, the notes to the financial statements include information that might not be required underJapanese GAAP but is presented here in as additional information.
The amounts have been rounded down to the nearest thousand yen in the accompanying financial
statements in accordance with the financial statements originally prepared in Japanese and filed withthe regulatory authorities in Japan.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)36

3. Summary of Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits with banks and short-term investments
which are highly liquid, readily convertible into cash with an insignificant risk of price fluctuation
and with an original maturity of three months or less.
Property and equipment including trust accounts and trademark rights
Depreciation is computed by the straight-line method over the estimated useful lives of therespective assets as follows:
Buildings and building improvements
Machinery and equipment
Furniture and fixtures

2 – 60 years
6 – 16 years
3 – 15 years

Amortization of trademark rights is computed using the straight-line method over a period of 10
years.
Deferred assets
Investment corporation bond issuance costs are amortized using the straight-line method over theamortization periods.
Income taxes
Income taxes are accounted for on the basis of taxable income for financial statement purposes. The
asset and liability method is used to recognize deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts and the tax bases ofassets and liabilities.
Consumption taxes
Consumption taxes received and paid are not included in the accompanying statements of income
and retained earnings. Consumption tax related to properties, which has not been deducted, isincluded in the cost of the properties.
Property-related taxes
Principally, property-related taxes including property taxes, urban planning taxes and depreciable
property taxes are imposed on a calendar-year basis and are expensed as property and other taxes(refer to Note 13).

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)37

3. Summary of Significant Accounting Policies (continued)
JEI capitalizes the property-related taxes allocated to the sellers of properties to JEI at the time ofacquisition of such properties including trust accounts. The capitalized amount for the period from
July 1, 2017 to December 31, 2017 was \24,555 thousand. The capitalized amount for the period
from January 1, 2018 to June 30, 2018 was ¥18,581 thousand.
Revenue recognition
Rental revenues are generally recognized on an accrual basis over the life of each lease.
Derivatives and hedge accounting
JEI utilizes interest-rate swap agreements as derivative financial instruments solely for the purposeof hedging its exposure against fluctuation risk in interest rates. JEI has therefore entered into certain
interest-rate swap contracts in order to hedge the risk of variable rates for its long-term debt
obligations.
Each corresponding interest-rate swap is not required to be re-measured to fair value, because it
meets the criteria for the special hedge accounting treatment under Japanese GAAP, which JEIapplies to each interest-rate swap agreement.
Under this special hedge accounting treatment, the differentials paid or received under the swap
agreements are recognized and included in interest expense of the hedged loans, and the interest-rate
swaps are not required to be measured at fair value separately. For interest-rate swaps that meet the
specific criteria for the special accounting treatment, assessments of hedge effectiveness are not
performed.
Properties in trust accounts
All assets and liabilities held in trust, for which real estate in possession of JEI was entrusted, and all
earnings and expenses resulting from such trust, are properly reflected in the accompanying balance
sheets and statements of income and retained earnings, respectively.
4. Cash and Cash Equivalents
Cash and cash equivalents including trust accounts in the accompanying balance sheets and cash andcash equivalents in the accompanying statements of cash flows at June 30, 2018 and December 31,
2017 consisted of the following:

Cash and cash deposits
Cash and deposits in trust
Cash and cash equivalents including trust accounts

As of
As of
June 30, 2018
December 31, 2017
(Thousands of yen)
13,652,251
7,486,725
15,606,641
16,104,436
29,258,892
23,591,162

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

38

5. Financial Instruments
For the periods from January 1, 2018 to June 30, 2018 and from July 1, 2017 to December 31,
2017
Overview(1) Policy for Financial Instruments
JEI borrows from banks, issues investment corporation bonds and issues investment units to
procure funds required to grow its assets under management and to repay liabilities, based on
the financial policy set forth by JEAM and the JEI’s Annual Funding Procurement Plan. When
procuring funds by means of interest-bearing debt, matters such as seeking longer durations andmaturities, securing fixed interest rates over the entire term of the instrument in order to benefit
from the recent favorable financial environment with low interest rates, and diversifying
maturity dates are taken into consideration to achieve a more stable financial situation and avoid
the risk of future interest rate hikes. Surplus funds may be invested in deposits and safe, liquid
financial assets and investment securities, but are, in principle, placed in fixed-rate term deposits.
Derivative transactions are used solely for the purpose of hedging against the risk offluctuations in interest rates of borrowings and investment corporation bonds.
(2) Types of Financial Instruments, Related Risks and Risk Management System(a) Market Risks (Interest rate fluctuation risk)
Borrowings and investment corporation bonds are primarily used to acquire properties or torefinance existing borrowings or bonds. Some of such debt were floating rate instruments
and thus were exposed to the risk of interest rate fluctuations. Based on interest rate
forecasts developed through constant financial market monitoring activities, JEI has
concentrated on hedging against the risk of interest rate fluctuations principally using
interest-rate swaps, through which a floating interest rate is swapped for a fixed interest
rate, which finally led to 96.3% of existing borrowings being covered by a fixed interest
rate swap for the entire maturity as of June 30, 2018. To reduce credit risk, derivativetransactions (interest-rate swaps) are entered into exclusively with counterparties that are
financial institutions with high credit ratings. For hedging accounting methods, hedging
instruments, hedged items, hedging policies and methods for evaluation of the effectivenessof hedging activities, see “Derivatives and hedge accounting” under Summary of
Significant Accounting Policies.
(b) Liquidity Risk (Risk of being unable to procure funds required for repayments)
Borrowings and investment corporation bonds are exposed to liquidity risk. This risk is
reduced through diversification of maturity dates and funding sources, and arrangement ofcommitment line agreements (as described in Note 8, “Short-Term Loans and Long-Term
Debt,” there is no balance outstanding under the facility agreements as of June 30, 2018).
Liquidity risk is also mitigated through the constant management of liquidity on hand.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

39

5. Financial Instruments (continued)(3) Supplementary Explanation of the Estimated Fair Value of Financial Instruments
The fair value of financial instruments is based on their quoted market price, if available. When
there is no quoted market price available, fair value is reasonably estimated. Since various
assumptions and factors are reflected in estimating the fair value, different assumptions andfactors could result in a different fair value.
Fair value of financial instruments
The following are carrying values and fair values as of June 30, 2018 and December 31, 2017 offinancial instruments and the differences between them. When fair value is extremely difficult toascertain, it is excluded from the following table (Note B).
As of June 30, 2018
As of December 31, 2017
Carrying
Fair value
Fair value
Difference
Difference
value(Note A)
(Note A)
(Thousands of yen)
7,486,725
7,486,725
13,652,251
13,652,251－－
16,104,436
16,104,436
15,606,641
15,606,641－－
29,258,892
29,258,892－
23,591,162
23,591,162－
900,000
900,000－
900,000
900,000－

Carryingvalue(1) Cash and cash deposits(2) Cash and deposits in trust
Total assets(3) Short-term loans (Note C)(4) Investment corporation bonds
due within one year (Note C)(5) Long-term debt
due within one year (Note C)(6) Investment corporation bonds(Note C)
(7) Long-term debt (Note C)
Total liabilities(8) Derivative transactions *12,000,000

12,023,611

23,6117,000,000

7,034,020

34,0207,500,000

7,522,761

22,761

17,750,000

17,819,871

69,871

28,000,000
78,100,000
126,500,000

28,400,170
79,230,238
128,076,780

400,170
1,130,238
1,576,780

29,000,000
67,850,000
122,500,000

29,453,940
68,994,628
124,202,459

453,940
1,144,628
1,702,459

－

－

－

－

－

－

* The value of assets and liabilities arising from derivative transactions is shown at net value.

(Note A)
Methods for calculating the fair value of financial instruments and matters related to derivatives
transactions
Assets(1) Cash and cash deposits and(2) Cash and deposits in trust
Carrying value approximates fair value because of the short maturities of these instruments.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)40

5. Financial Instruments (continued)
Liabilities(3) Short-term loans
Carrying value approximates fair value because of the short maturities of these instruments.
(5) Long-term debt due within one year and(7) Long-term debt
Where floating rates apply, book value is generally considered appropriate as fair value. The fairvalue of such liabilities is considered to approximate book value, since floating rates reflectmarket interest rates within a short period of time.
If the loan is part of long-term debt, in the case of floating-rate debt hedged by an interest-rate
swap, the fair value is calculated in a similar manner using the total principal and interest
amount, treated in combination with the interest-rate swap, given that the interest-rate swap issubject to the special treatment of interest-rate swaps under Japanese GAAP.
The fair value of long-term fixed-rate debt and long-term fixed-rate debt due within one year are
calculated by applying a reasonably assumed interest rate as a discount rate, which was
determined to be applicable for the borrowings under similar conditions.
(4) Investment corporation bonds due within one year and(6) Investment corporation bonds
The fair value of investment corporation bonds issued by JEI is based on quoted market prices.
(8) Derivative transactions
Please refer to Note 16, “Derivative Transactions.”(Note B)・Financial instruments for which fair value is deemed extremely difficult to determine
The fair values of security deposits from tenants and security deposits from tenants for trust
accounts are as follows:① Security deposits from tenants*② Security deposits from tenants for trust accounts*

As of
As of
June 30, 2018
December 31, 2017
(Thousands of yen)
1,104,337
1,084,728
11,808,282
11,703,805* Security deposits from tenants and security deposits for trust accounts from tenants in leased properties are notsubject to fair value disclosure, since such deposits have no market price. Furthermore, due to their characteristics,
it is extremely difficult to estimate the fair value of security deposits in advance because of the uncertainty of thetiming when the tenant vacates. As a result, it is therefore impossible to rationally estimate the exact cash flowfrom such security deposits.

5. Financial Instruments (continued)
Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

41

・The scheduled redemption amounts of financial assets after the balance sheet dateCash and cash deposits
Cash and deposits in trust
Total

Cash and cash deposits
Cash and deposits in trust
Total

1 year or less

1 to 2 years

13,652,251
15,606,641
29,258,892－－－

1 year or less

1 to 2 years

7,486,725
16,104,436
23,591,162－－－

As of June 30, 2018
2 to 3 years
3 to 4 years(Thousands of yen)
－
－
－
－
－
－
As of December 31, 2017
2 to 3 years
3 to 4 years(Thousands of yen)
－
－
－
－
－
－

4 to 5 years

Over 5 years

－
－
－

－
－
－

4 to 5 years

Over 5 years

－
－
－

－
－
－

(Note C)The scheduled redemption amounts of borrowings, investment corporation bonds and other interestbearing debt after the balance sheet date

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

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

As of June 30, 2018
2 to 3 years
3 to 4 years(Thousands of yen)－－

1 year or less

1 to 2 years

900,000－

12,000,000－－

7,500,000－－
20,400,000－－
9,600,000
9,600,000－－
4,000,000
4,000,000

4 to 5 years

Over 5 years

－

－

－

－

－

－
－
14,510,000
14,510,000－
2,000,000
11,750,000
13,750,000－
26,000,000
38,240,000
64,240,000

4 to 5 years

Over 5 years－－

As of December 31, 2017
2 to 3 years
3 to 4 years(Thousands of yen)－－

1 year or less

1 to 2 years

900,000－

7,000,000

－

－

－

－

－

17,750,000－－
25,650,000－
5,000,000
4,750,000
9,750,000－－
8,600,000
8,600,000－－
13,510,000
13,510,000－－
11,750,000
11,750,000－
24,000,000
29,240,000
53,240,000

6. Investment and Rental Property
Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

42

For the periods from January 1, 2018 to June 30, 2018 and from July 1, 2017 to December 31,
2017
JEI owns rental office buildings and other properties in Tokyo and other regions for the purpose ofgenerating rental income. The following is the carrying value and fair value as of June 30, 2018 andDecember 31, 2017 for such real estate for lease.
Carrying value
As of
Change during period
As ofJanuary 1, 2018(*1)
June 30, 2018
(Thousands of yen)
256,272,229(3,091,612)
253,180,617
Carrying value
Change during period
As of
As of
(*2)
July 1, 2017
December 31, 2017
(Thousands of yen)
273,139,525(16,867,295)
256,272,229

Fair value
As ofJune 30, 2018
290,609,000

Fair value
As ofDecember 31, 2017284,560,000

A) Carrying value represents the acquisition cost less accumulated depreciation.
B) Details of change during period:(*1) The decrease of \3,091,612 thousand during the period is mainly due to an increase of¥2,850,787 thousand related to the acquisition of Hiroshima Dai-ichi Seimei OS Building, anincrease of ¥661,190 thousand related to the acquisition of Yokohama Bentendori Dai-ichi
Seimei Building, and a decrease of ¥5,670,803 thousand related to the transfer of Ebina Prime
Tower, a decrease of \1,926,086 thousand for depreciation costs.
(*2) The decrease of ¥16,867,295 thousand during the period is mainly due to an increase of¥7,262,043 thousand related to the acquisition of Kowa Nishi-Shimbashi Building (Additional
acquisition of ownership interest, etc.), an increase of ¥898,762 thousand related to theacquisition of Akasaka Garden City (Additional acquisition of co- ownership interest), and adecrease of ¥23,106,531 thousand related to the transfer of Akasaka Garden City, a decreaseof \1,972,924 thousand for depreciation costs, and a decrease of ¥1,001,482 thousand related
to the transfer of No.44 Kowa Building.
C) Fair value
Fair value as of June 30, 2018 and December 31, 2017 is appraisal value provided by third-party realestate appraisers.

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)43

7. Property and Equipment
Property and equipment at June 30, 2018 and December 31, 2017 consisted of the following:
As of June 30, 2018

Buildings and building
improvements
Machinery and equipment
Furniture and fixtures
Land
Construction in progress
Buildings and building
improvements for trust
accounts
Machinery and equipment
for trust accounts
Furniture and fixtures
for trust accounts
Land for trust accounts
Construction in progress
for trust accounts
Total

As of December 31, 2017

Acquisition
cost

Accumulated
depreciation

Net
Acquisition
book value
cost(Thousands of yen)

Accumulated
depreciation

Netbook value

7,053,880
6,253
48,213
9,292,709
14,169(1,453,757)(2,817)(8,098)－－5,600,122
3,435
40,114
9,292,709
14,1696,949,821
6,253
12,2709,272,487
12,606(1,351,554)(2,536)(5,685)－－5,598,267
3,716
6,584
9,272,487
12,606113,626,364(26,649,265)

86,977,099

116,764,611(26,568,337)

90,196,274

826,418(418,788)

407,629

815,194(398,497)

416,697

227,219
141,532,889(128,675)－

98,544
141,532,889

225,151
141,454,273(121,358)－

103,792
141,454,273

105,704
272,733,823－(28,661,403)

105,704
244,072,419

99,194
275,611,864－(28,447,970)

99,194
247,163,894

8. Short-Term Loans and Long-Term Debt
Short-term loans and long-term debt as of June 30, 2018 and December 31, 2017 consisted of thefollowing:

Short-term loans:
Unsecured loans from a bank due on July 31, 2018
SubtotalLong-term debt due within one year:
Unsecured loans from an insurance company due on
June 29, 2018

As of June 30, 2018
Weighted-averageAmountinterest rate (*1)
(Thousands of yen)
0.26469%

900,000
900,000

0.25952%－

1.65125% (*2)

3,000,000

1.65125% (*2)－

0.81225% (*2)

11,000,000

0.81225% (*2)

Unsecured loans from banks due on November 1, 2018

3,750,000

0.74500% (*2)

3,750,000

0.74500% (*2)

Unsecured loans from banks due on March 8, 2019
Subtotal

3,750,000
7,500,000

0.77500% (*2)－
17,750,000－

Unsecured loans from banks due on June 30, 2018

900,000
900,000

As of December 31, 2017
Weighted-averageAmountinterest rate (*1)
(Thousands of yen)

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

44

8.

Short-Term Loans and Long-Term Debt (continued)

Long-term debt:
Unsecured loans from banks due on March 8, 2019
Unsecured loans from an insurance company due on
December 12, 2019－

0.77500% (*2)

3,750,000

0.77500% (*2)

1,000,000

0.25000% (*2)

1,000,000

0.25000% (*2)

Unsecured loans from a bank due on January 31, 2020

2,000,000

1.60000% (*2)

2,000,000

1.60000% (*2)

Unsecured loans from banks due on January 31, 2020
Unsecured loans from an insurance company due on
January 31, 2020

2,600,000

1.36400% (*2)

2,600,000

1.36400% (*2)

1,000,000

1.31261% (*2)

1,000,000

1.31261% (*2)

Unsecured loans from banks due on January 31, 2020

3,000,000

1.00000% (*2)

3,000,000

1.00000% (*2)

Unsecured loans from a bank due on June 30, 2021
Unsecured loans from an insurance company due on
June 30, 2021

2,000,000

1.60750% (*2)

2,000,000

1.60750% (*2)

2,000,000

0.98834% (*2)

2,000,000

0.98834% (*2)

Unsecured loans from banks due on November 29, 2021

3,760,000

0.41132%

3,760,000

0.40896%

Unsecured loans from banks due on December 30, 2021
Unsecured loans from insurance companies due on
January 31, 2022

5,750,000

0.81875% (*2)

5,750,000

0.81875% (*2)

3,000,000

0.35000% (*2)

3,000,000

0.35000% (*2)

Unsecured loans from a bank due on June 30, 2022
Unsecured loans from insurance companies due on
November 30, 2022

2,000,000

1.15417% (*2)

2,000,000

1.15417% (*2)

1,000,000

0.35000% (*2)

1,000,000

0.35000% (*2)

Unsecured loans from banks due on December 30, 2022

5,750,000

0.93625% (*2)

5,750,000

0.93625% (*2)

Unsecured loans from a bank due on June 30, 2023
Unsecured loans from an insurance company due on
June 30, 2023

2,000,000

1.20250% (*2)

2,000,000

1.20250% (*2)

3,000,000

0.46000% (*2)－－

Unsecured loans from banks due on November 30, 2023

5,270,000

0.84375% (*2)

5,270,000

0.84375% (*2)

Unsecured loans from banks due on November 30, 2023

5,500,000

0.64801% (*2)

5,500,000

0.64801% (*2)

Unsecured loans from a bank due on May 31, 2024

3,500,000

0.68431% (*2)

3,500,000

0.68431% (*2)

Unsecured loans from banks due on November 30, 2024

5,270,000

0.96275% (*2)

5,270,000

0.96275% (*2)

Unsecured loans from banks due on June 30, 2025

8,000,000

0.67400% (*2)－－

Unsecured loans from banks due on March 31, 2026

6,400,000

0.83441% (*2)

6,400,000

0.83441% (*2)

Unsecured loans from a bank due on September 30, 2026

1,300,000

0.83071% (*2)

1,300,000

0.83071% (*2)

Unsecured loans from banks due on December 30, 2026
Subtotal
Total

3,000,000
78,100,000
86,500,000

0.79100% (*2)－
67,850,000
86,500,000－(*1) The weighted-average interest rate is weighted-average figures during the period. As for the borrowings hedged by interest-rate
swaps for the purpose of mitigating interest rate fluctuation risk, the fixed interest rates after entering into the interest rate swap
transactions are used to calculate the weighted-average interest rate.
(*2) These are fixed-rate debt (incl. fixed-rate debt through each interest-rate swap agreement).

The scheduled repayment amounts of long-term debt as of June 30, 2018 are as follows:

Long-term debt

1 year or less

1 to 2 years

7,500,000

9,600,000

2 to 3 years
3 to 4 years(Thousands of yen)
4,000,000
14,510,000

4 to 5 years

Over 5 years

11,750,000

38,240,000

JEI has commitment lines of \14,000,000 thousand with three financial institutions to mitigate
refinancing risk and enhance financial stability. As of June 30, 2018, these commitment lines have
Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

45

never been utilized.
9.

Investment Corporation Bonds

Details of total investment corporation bonds outstanding as of June 30, 2018 and December 31,
2017 are summarized as follows:
As of June 30, 2018
WeightedaverageAmountinterest rate
(Thousands of yen)Unsecured bond #4
due on November 2, 2018
Unsecured bond #5
due on November 2, 2018
Unsecured bond #6
due on March 11, 2019
Unsecured bond #7
due on March 11, 2024
Unsecured bond #8
due on September 9, 2025
Unsecured bond #9
due on October 27, 2026
Unsecured bond #10
due on December 20, 2023
Unsecured bond #11
due on April 23, 2027
Unsecured bond #12
due on April 20, 2023
Unsecured bond #13
due on April 20, 2033
Total

As of December 31, 2017
WeightedaverageAmountinterest rate
(Thousands of yen)

2,000,000

1.40000%

2,000,000

1.40000%

5,000,000

0.46000%

5,000,000

0.46000%

5,000,000

0.46000%

5,000,000

0.46000%

8,000,000

1.13000%

8,000,000

1.13000%

5,000,000

1.03000%

5,000,000

1.03000%

2,000,000

0.45000%

2,000,000

0.45000%

2,000,000

0.39000%

2,000,000

0.39000%

7,000,000

0.65000%

7,000,000

0.65000%

2,000,000

0.24000%－－

2,000,000
40,000,000

0.95000%－
36,000,000－

The scheduled redemption amounts of investment corporation bonds as of June 30, 2018 are as
follows:
1 year or less

1 to 2 years

12,000,000－

Investment corporation bonds

2 to 3 years
3 to 4 years(Thousands of yen)－－

4 to 5 years

Over 5 years

2,000,000

26,000,000

10. Net Assets
In accordance with the Investment Trust Law, JEI issues only non-par value investment units andmaintains net assets of at least ¥50,000 thousand.
11. Per Unit Information
Net assets per unit as of June 30, 2018 and December 31, 2017 were calculated based on the numberof units outstanding as of each date, (1,305,700 units) and (1,305,700 units), respectively.
Net income per unit for the periods from January 1, 2018 to June 30, 2018 and July 1, 2017 to
December 31, 2017 was calculated based on the weighted-average number of units outstanding
during the corresponding periods, (1,305,700 units) and (1,305,700 units), respectively.
Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

46

11. Per Unit Information (continued)
Accordingly, net assets per unit were \110,122 as of June 30, 2018 and \110,234 as of December 31,
2017. Net income per unit was \2,557 for the period from January 1, 2018 to June 30, 2018 and\2,833 for the period from July 1, 2017 to December 31, 2017.
12. Income Taxes
JEI is subject to income taxes in Japan.
JEI’s policy is to make dividend distributions in excess of 90% of distributable income for eachfiscal period in order to meet the condition set forth in the Special Taxation Measures Law of Japan
concerning the deductibility of cash dividends paid for income tax purposes.
Details of significant components of deferred tax assets and liabilities as of June 30, 2018 andDecember 31, 2017 are summarized as follows:
As of June 30,
As of December 31,
2018
2017
(Thousands of yen)
Deferred tax assets:
Accrued enterprise taxes
Total deferred tax assets
Net deferred tax assets

14
14
14

18
18
18

A reconciliation of the differences between the statutory tax rate and the effective tax rate for theperiods from January 1, 2018 to June 30, 2018 and from July 1, 2017 to December 31, 2017 is asfollows:

Statutory tax rate
Reconciliation:
Deductible distributions paid
Provision of reserve for reduction entry
Reversal of reserve for reduction entry
Other
Effective tax rate

For the period from
For the period
January 1, 2018from July 1, 2017
to June 30, 2018
to December 31, 201731.74%
31.74%(34.74)
－
3.01
0.02
0.03%

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)(29.90)(1.84)
－
0.02
0.03%

47

13. Breakdown of Revenues and Expenses
For the period
For the period
from July 1, 2017from January 1, 2018
to December 31, 2017
to June 30, 2018
(Thousands of yen)
Revenues:
Rental business revenues
Rental revenues
Common area revenues
Other rental revenues
Subtotal
Other
Utilities revenues
Other revenues
Subtotal
Total rental revenues
Property operating expenses:
Property management costs and fees
Utilities expenses
Property and other taxes
Insurance
Repairs and maintenance
Depreciation
Other
Total property operating expenses
Profit8,123,091
1,303,409
265,516
9,692,018

8,167,243
1,414,547
269,837
9,851,628

746,159
97,198843,357
10,535,375

857,938
96,459954,398
10,806,026

1,476,177
996,702932,376
25,092
160,310
1,926,086
237,300
5,754,046
4,781,329

1,441,309
1,122,414
939,173
26,035
202,706
1,972,924
226,572
5,931,137
4,874,889

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)

48

14. Breakdown of Gain on sales of Real estate Properties
Gain on sales of real estate properties for the periods from January 1, 2018 to June 30, 2018 andfrom July 1, 2017 to December 31, 2017 is as follows:
For the period
For the period
from July 1, 2017from January 1, 2018
to December 31, 2017
to June 30, 2018
(Thousands of yen)
Akasaka Garden City
Proceeds from sale of real estate
Cost of sales of real estate
Other related sale expenses
Loss on sale of real estate

－
－
－
－

22,500,000
23,106,531
2,012
608,544

For the period
For the period
from January 1, 2018from July 1, 2017
to June 30, 2018
to December 31, 2017
(Thousands of yen)
No.44 Kowa Building
Proceeds from sale of real estate
Cost of sales of real estate
Other related sale expenses
Gain on sale of real estate

－
－
－
－

1,890,000
1,001,482
930
887,586

For the period
For the period
from January 1, 2018from July 1, 2017
to June 30, 2018
to December 31, 2017
(Thousands of yen)
Ebina Prime Tower
Proceeds from sale of real estate
Cost of sales of real estate
Other related sale expenses
Loss on sale of real estate

5,600,000
5,670,803
94,540165,344－－－－

15．Leases
JEI leases properties on which rental revenues are earned. At June 30, 2018 and December 31, 2017,
future lease revenues under non-cancelable operating leases are summarized as follows:

Due within one year
Due after one year
Total

As of June 30,
As of December 31,
2018
2017
(Thousands of yen)
470,416
462,366
816,684
849,834
1,287,100
1,312,201

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)4916. Derivative Transactions
Derivative Transactions as of June 30, 2018
(1) Transactions to which hedge accounting is not applied
Not applicable.
(2) Transactions to which hedge accounting is applied
The following are the contract values or values corresponding to the principal amount as
stipulated by contracts as of June 30, 2018 for each hedge accounting method applied.
Hedge
accounting
methodSpecialtreatment ofinterest-rate
swaps

Type of derivativetransaction
Interest-rate swap
Receive floating,pay fixed

Hedgeditem

Long-term
debt

Contract amount
Fair value
More than
one year(Thousands of yen)
46,140,000

38,640,000

Method ofcalculating
the fair value** Since the above interest-rate swap meets the criteria for the special hedge accounting treatment under Japanese
GAAP and therefore qualifies for hedge accounting, the swap is not revalued at fair value on the accompanying
balance sheets, as described in the summary of significant accounting policies.
In addition, since the swap and the long-term debt hedged by the swap are accounted for as a unit, the fair value ofthe swap is disclosed as part of the fair value of the hedged long-term debt in the fair value disclosure in Note 5,“Financial Instruments.”

Asset Management Report for 24th period (Semi-Annual Report for 24th Period)50

16. Derivative Transactions（continued）
Derivative Transactions as of December 31, 2017
(1) Transactions to which hedge accounting is not applied:
Not applicable.
(2) Transactions to which hedge accounting is applied:
The following are the contract values or values corresponding to the principal amount as
stipulated by contracts as of December 31, 2017 for each hedge accounting method applied.
Hedge
accounting
methodSpecialtreatment ofinterest-rate
swaps

Type of derivativetransaction
Interest-rate swap
Receive floating,pay fixed

Contract amount
Fair value
More than
one year(Thousands of yen)

Hedgeditem

Long-term
debt

46,140,000

31,390,000

Method ofcalculating
the fair value** Since the above interest-rate swap meets the criteria for the special hedge accounting treatment under Japanese
GAAP and therefore qualifies for hedge accounting, the swap is not revalued at fair value on the accompanying
balance sheets, as described in the summary of significant accounting policies.
In addition, since the swap and the long-term debt hedged by the swap are accounted for as a unit, the fair value ofthe swap is disclosed as part of the fair value of the hedged long-term debt in the fair value disclosure in Note 5,“Financial Instruments.”

17. Related Party Transactions
For the period from January 1, 2018 to June 30, 2018
(1) Parent Company and Major Corporate Unitholders
Not applicable.
(2) Subsidiaries and Affiliated Companies
Not applicable.
(3) Sister Companies
Not applicable.
(4) Directors and Major Individual Unitholders
Name

Description of transaction

Hidehiko
Ogawa

Payment of asset management
fees to JEAM

Amount(Thousands of yen)431,747

Account
Accounts
payableAsset Management Report for 24th period (Semi-Annual Report for 24th Period)

Balance at the end of period(Thousands of yen)352,28851

17. Related Party Transactions（continued）
For the period from July 1, 2017 to December 31, 2017
(1) Parent Company and Major Corporate Unitholders
Not applicable.
(2) Subsidiaries and Affiliated Companies
Not applicable.
(3) Sister Companies
Not applicable.
(4) Directors and Major Individual Unitholders
Name

Description of transaction

Hidehiko
Ogawa

Payment of asset management
fees to JEAM

Amount(Thousands of yen)
457,509

Account
Accounts
payableBalance at the end of period(Thousands of yen)
375,287

18. Segment Information
For the periods from January 1, 2018 to June 30, 2018 and from July 1, 2017 to December 31,
2017
Since JEI has been engaged in the real-estate leasing business as a single segment, segment
information has been omitted.
Information about products and services
Since revenues from external customers for a single segment of similar products and services
accounted for more than 90% of total operating revenues, information about products and services
has been omitted.
Information about geographic area
(1) Revenues
Since 100% of the total operating revenues were generated from external customers within
Japan, geographical breakdown of revenues has been omitted.
(2) Property and equipment
Since 100% of total property and equipment on the balance sheet are located within Japan,
geographical breakdown of such property and equipment has been omitted.
Information about major clients
Asset Management Report for 24th period (Semi-Annual Report for 24th Period)52

Since no single external client represents 10% or more of JEI’s total operating revenues, information
about major clients has been omitted.
19. Distribution Information
In accordance with Section 33.1.2 of the bylaws set forth by JEI for distributions of cash dividends,
the amount of dividends payable, which is limited by the amount of retained earnings at end of
period, shall be in excess of 90% of its distributable income for the fiscal period as set forth in
Section 67.15 of the Special Taxation Measures Law. JEI decided to recognize reversal of reserve
for reduction entry, income available for distributions of dividends amounted to ¥3,655,960,000,
which is the maximum integral multiple of the 1,305,700 units issued. No cash distribution
exceeding the income amount set forth in Section 33.1.4 of the bylaws of JEI shall be made.
On August 16, 2018, the Board of Directors approved a resolution to make a cash distribution of¥2,800 per unit aggregating to ¥3,655,960,000 to unitholders of record as of June 30, 2018.
20. Significant Subsequent Event
Not applicable.

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53