Asset Management Report for 10th Period(Semi-Annual Report for 10th Period)
From January 1, 2011 to June 30, 2011

I. Greetings
To Our Unitholders
We would like to express our sincere appreciation for your continued support of Japan Excellent, Inc.
(JEI) and Japan Excellent Asset Management Co., Ltd.

We hereby extend our heartfelt sympathies for people affected by the Great East Japan Earthquake,praying for the restoration of the affected areas as early as possible.

We have announced our financial results for the tenth period started January 1, 2011 and ended June 30 of2011.
JEI recorded total revenues of 7,337 million yen and net income of 2,313 million yen. Distribution perunit marked 12,000 yen as expected in our forecast at the beginning of the period.
JEI resumed property acquisitions in the previous period. During the current period, we acquired an officebuilding from Sekisui House, Ltd., one of our sponsors. It also acquired MID Kyobashi Building in theeleventh term and has a plan to acquire No. 35 Kowa Building.

About Future Asset Management
In the real estate investment market, sale and purchase transactions temporarily slowed down due to theeffect of the Great East Japan Earthquake. However, investment needs are expected to be maintained as
the financing environment is easing. On the other hand, the supply of quality office buildings remains andis expected to be limited for some time. Based on this recognition, Japan Excellent, Inc. (JEI) willcontinue to pursue new investment opportunities aggressively.
In financing, we will continue to ensure stable and sound financial operation through diversifying thesources of financing including the issuance of investment corporation bonds, lengthening borrowing spans,converting floating-rate debts to fixed-rate debts, and diversifying maturity dates.
JEI will continue, as before, to promote our compliance system through strict conformance with the
Financial Instruments and Exchange Act and other applicable laws and regulations. In addition, we willbe always paying attention to provide information about our financial conditions and asset management
performance to our unitholders in an accurate and straightforward manner.

Chifumi Toda
Executive Director, Japan Excellent, Inc.
President, Japan Excellent Asset Management Co., Ltd.

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
2II. Asset Management Report
1. Outline of Asset Management Operation(1) Operating results and financial position of the Investment Corporation
6th period

7th period

8th period

9th period

10th period

Fiscal period

From January 1,

From July 1, 2009

From January 1,

From July 1, 2010

From January 1,

Accounting term2009

to December 31,

2010

to December 31,

2011

to June 30, 20092009

to June 30, 20102010

to June 30, 2011

Revenues(Millions of yen)

7,544

7,494

7,302

7,094

7,337

(Rental revenues)(Millions of yen)

7,544

7,494

7,302

7,094

7,034

Operating expenses(Millions of yen)

4,266

4,145

4,050

4,040

4,117

(Property operating expenses)(Millions of yen)

3,720

3,577

3,516

3,494

3,555

Operating income(Millions of yen)

3,278

3,349

3,252

3,053

3,220

Ordinary income(Millions of yen)

2,443

2,486

2,367

2,219

2,362

Net income(Millions of yen)

2,442

2,485

2,366

2,218

2,313

Total assets(Millions of yen)

195,145

195,040

194,710

199,186

209,142(Period-on-period change)(%)

Net assets(Millions of yen)(–0.4)(–0.1)(–0.1)

(2.2)

(4.9)

89,36389,45089,38989,272

104,366(Period-on-period change)(%)(–0.7)

(0.1)

(0.0)

(–0.1)(16.9)

Unitholders’ capital(Millions of yen)

87,08387,08387,08387,083102,052

Outstanding investment units(Units)154,550

154,550

154,550

154,550

188,650

Net assets per unit

(Yen)

578,215

578,780

578,387

577,629553,227

Net income per unit (Note 1)(Yen)

15,802

16,084

15,314

14,353

12,677

Total distribution(Millions of yen)

2,442

2,485

2,366

2,218

2,263

Distribution per unit

(Yen)

15,802

16,085

15,315

14,353

12,000(Profit distribution per unit)(Yen)

15,802

16,085

15,315

14,353

12,000

(Yen)

(–)

(–)

(–)

(–)

(–)

(Distribution in excess ofearnings per unit)
Return on assets (Note 2)(Annualized rate)
Return on equity (Note 3)(Annualized rate)

(%)

(%)

1.2

1.3

1.2

1.1

1.2

(2.5)

(2.5)

(2.5)

(2.2)

(2.3)

2.7

2.8

2.6

2.5

2.4

(5.5)

(5.5)

(5.3)

(4.9)

(4.8)

Capital ratio (Note 4)

(%)

45.8

45.9

45.9

44.8

49.9

(Period-on-period change)(%)(–0.1)

(0.1)

(0.0)

(–1.1)(5.1)

Payout ratio (Note 5)

(%)

99.9

100.0

100.0

99.9

97.8

Number of investment properties(Properties)

18

18

18

19

19

Number of tenants(Tenants)

126

126

124

108

109

Total leasable space

2

(m )

220,521220,521220,474

228,177

234,547

Occupancy rate

(%)

98.5

97.0

97.4

91.7

92.4

Depreciation(Millions of yen)

990

990

992

993

1,080

Capital expenditure(Millions of yen)

267

134

248

328

347

(Millions of yen)

4,814

4,907

4,778

4,593

4,559

(Yen)

22,211

22,494

21,737

20,78016,391

Net operating income (NOI)(Note 6)
Funds from operation (FFO) per
unit (Note 7)

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
3

FFO multiples (Note 8)
Debt service coverage ratio(DSCR) (Note 9)(Times)

9.1

9.2

9.6

13.0

12.2

(Times)

4.5

4.5

4.4

4.3

4.5

95,50095,50095,500100,400

95,500Interest-bearing debt

(Millions of yen)

Loan-to-value (Note 10)

(%)

48.9

49.0

49.0

50.4

45.7

Number of days in operation(Days)

181

184

181

184

181

(Note 1) Net income per unit is calculated by dividing net income by the weighted-average number ofunits outstanding during the six months period.
(Note 2) Return on assets = Ordinary income / [(Period beginning total assets) + (Period end total
assets) / 2]  100 (The ratio is rounded to one decimal place.)(Note 3) Return on equity = Net income / [(Period beginning net assets) + (Period end net assets) / 2] 
100 (The ratio is rounded to one decimal place.)(Note 4) Capital ratio = Period end net assets / Period end total assets  100 (The ratio is rounded to one
decimal place.)(Note 5) Payout ratio = Total distribution / Net income  100 (The ratio is rounded down to one
decimal place.)(Note 6) NOI = Rental revenues – Property operating expenses + Depreciation(Note 7) FFO per unit = (Net income + Depreciation – Gain on sale of real estate + Loss on sale of realestate) / Number of outstanding investment units (The figure is rounded down to the whole
number.)(Note 8) FFO multiples = Period end investment unit price / Annualized FFO per unit (The rate isrounded down to one decimal place.)(Note 9) DSCR = Net income before interest and taxes / (Interest expenses + Interest expense on
investment corporation bonds) (The ratio is rounded to one decimal place.)(Note 10) Loan-to-value = Period end interest-bearing debt / Period end total assets  100 (The ratio isrounded to one decimal place.)

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
4

(2) Asset management development
Japan Excellent, Inc. (JEI) was founded on February 20, 2006 in accordance with the Law
Concerning Investment Trusts and Investment Corporations of Japan (hereinafter referred to as
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, we have continued investment
management primarily in office buildings with the aim to maintain sound corporate growth andstable revenues based on the medium- and long-term perspectives. On June 30, 2011, we settled
our tenth period.

1) Business Conditions and Results
The domestic economy was moving in a slightly upbeat trend since last year on the back ofstrong economic growth led by China and emerging markets in the Asian region. However, itturned to a tentative downturn in the productivity and export of private companies due to theimpact of the Great East Japan Earthquake occurred on March 11, 2011, casting concerns overthe economic uncertainty thereafter.
In the office leasing market, office relocations went stagnant tentatively during the immediate
post-earthquake period, yet as they have reaffirmed the importance of risk diversification
strategies based on their business continuity plans, a move to relocate to an office building
highly equipped with quake-resistant and fire prevention features is observed in addition to theconventional relocation needs for better location or cost reduction. In the Tokyo metropolitanarea, while vacancy rates are slightly improving even after the occurrence of the earthquake, themarket rent level remains unfavorable although a sign for an upturn is seen in certain areas.
Osaka and Nagoya areas show a relatively solid supply and demand recently and indicate an
improved vacancy rate in certain areas, while the market rent level continued sliding.
Amid these harsh business conditions, JEI managed to increase the occupancy rate of its overall
holding properties to 92.4 percent from 91.7 percent of the previous period as of the end of thecurrent period, as a result of our focused efforts in new leasing activities and preventing tenant
departures through closely working with our property management companies and office leasing
intermediaries.
As for the property management and operation, JEI strived for improving building
functionalities in conjunction with renovation of facilities and worked on implementing
measures for improving tenant satisfaction and our service level. In addition, JEI was committed
to efficient building operation by performing cost reduction in commissioned service fees
including facility maintenance fees.
In the real estate investment market, improvement in the fund-raising environment retrieved
investors’ interest in acquisitions and stimulated market transactions and capital increase
Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
5through public offering of REITs. Under these circumstances, JEI acquired Daiba Garden City
Building on February 4, 2011.
On the other hand, in the immediate aftermath of the Great East Japan Earthquake a number ofdeals were postponed or cancelled and investors, especially those of overseas, reacted carefully
to watch the subsequent impact. Sellers also seemed to tend to take a wait-and-see stance.

2) Fund Raising Highlight
As for its fund-raising activities during the period, on February 24, 2011, JEI completed
payments of short-term loan of 4.9 billion yen (provided by Mitsubishi UFJ Trust and Banking
Corporation and Mizuho Corporate Bank, Ltd. on December 24, 2010 for the purpose ofproperty acquisitions) ahead of the maturity date, taking out the proceeds from capital increase
through public offering on January 31, 2011.
In refinancing of long-term loan of 27.5 billion yen (composed of 15 billion yen of 2.7-year
floating interest loan, 9.5 billion yen of 5-year floating interest loan (fixed rate was achieved for6.25 billion yen through interest rate swaps), and 3 billion yen of 5-year fixed interest loan), JEI
managed to enter into long-term loans in the same amount (composed of 11.5 billion yen of 3.5year floating interest loan, 13 billion yen of 5-year floating interest loan and 3 billion yen of 7year fixed interest loan) and promoted lengthening of interest bearing debts and diversificationof maturity dates. For the 13 billion yen of 5-year floating interest loan discussed above, we
promoted the conversion of floating-rate debts to fixed-rate debts through interest rate swaps.
As a result, as of the end of the period, the average remaining debt maturity of interest bearing
debts became 3.16 years, long-term borrowing ratio was 100.0 percent, fixed rate ratio was 57.6
percent and weighted average interest rate for loans purchased recorded 1.40 percent.
Outstanding interest bearing debts totaled 95.5 billion yen, composed of 78.5 billion yen of
long-term loan (including 7 billion yen of long-term loan with the maturity of less than oneyear) and 17 billion yen of investment corporation bonds (loan to value ratio for the total assets
was 45.7 percent as of the end of the period).

JEI has registered the issuance of investment corporation bonds for the purpose of dynamic
arrangement of long-term funds as follows:(Bond Issuance Registration Highlight)
Type

Estimated amount ofissuance

Scheduled period for issuance

Investment corporationbond

100 billion yen

From January 7, 2010 to January 6, 2012

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
6

The balance of the estimated amount of issuance is 83 billion yen. [(Estimated amount of issuance: 100
billion yen) – (Total amount issued: 17 billion yen) = Balance: 83 billion yen]
The ratings for JEI provided by the following rating agencies are shown below:(Ratings as of July 7, 2011)

Issuer rating (outlook)
Individual debt issue rating

Moody’s Japan

Rating and Investment
Information, Inc. (R&I)

A3 (Stable)(Note 1)

AA- (Stable)-

AA-(Note 2)

(Note 1) On July 7, 2011, the rating was upgraded from Negative to Stable.
(Note 2) Rating for unsecured investment corporation bonds (No.1 and No.2).

3) Financial Results and Distribution Highlight
As a result of the above investments, JEI recorded 7,337 million yen in total revenues, 3,220
million yen in operating income, 2,362 million yen in ordinary income, 47 million yen in
extraordinary loss on damages relating to the Great East Japan Earthquake, and 2,313 million
yen in net income for the period under review.
As for distributions, JEI determined to retain part of retained earnings at the end of period as
reserve for advanced depreciation, applying Special Measure Concerning Taxation for Advance
Acquisition of Land, etc. During the Period from Calendar year 2009 to 2010 (Section 66.2 of
the Special Taxation Measures Law).
JEI also determined to distribute most of the remaining balance of retained earnings at the endof period after deducting the reserve for advanced depreciation stipulated in Section 66.2 of theSpecial Taxation Measures Law (rounding down the amount of distribution per investment unit
to the nearest yen), with the intent to apply the special treatment of income taxes under theSpecial Taxation Measures Law (Section 67.15 of the Special Taxation Measures Law). As aresult, JEI determined the amount of distribution per investment unit to be 12,000 yen.

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
7

(3) Capital increase
On January 31, 2011, JEI carried out an additional capital increase through public offering ofinvestment units (31,000 units). On February 28, 2011, JEI issued additional investment units(3,100 units) through third-party allocation as a result of the exercise of a greenshoe option by
Mizuho Securities Co., Ltd. (lead underwriter in the public offering) to raise funds of 14,969
million yen in total. The outline of the changes is as follows:
Paid-up date

Capital transaction

ChangeFebruary 20, 2006

Private placement
for corporation

June 26, 2006

Public offering

July 21, 2006

Unitholders’ capital(Millions of yen)

Outstanding investment units(Units)Balance

ChangeRemarks

Balance

400

400

200

200

(Note 1)

128,000

128,400

64,23064,430(Note 2)

Allocation of
investment units toa third party

6,400

134,800

3,211

67,641(Note 3)

July 11, 2007

Public offering

19,000

153,800

18,702

86,344(Note 4)

August 8, 2007

Allocation of
investment units toa third party

750

154,550738

87,083(Note 5)January 31, 2011

Public offering

31,000185,550

13,608100,691(Note 6)

February 28, 2011

Allocation of
investment units toa third party

3,100

188,650

1,360

102,052(Note 7)(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 a price of 520,000 yen per unit (subscription price of
501,800 yen per unit) through a public offering in order to raise funds for purchasing newproperties which were acquired at the time of the listing.
(Note 3) New investment units were issued at a price of 501,800 yen per unit through an allocation of
investment units to a third party in order to apply to certain part of funds for new property
acquisitions.
(Note 4) New investment units were issued at a price of 1,019,200 yen per unit (subscription price of984,360 yen per unit) through a public offering in order to refund certain part of debts
procured to acquire properties in the second period.
(Note 5) New investment units were issued at a price of 984,360 yen per unit through an allocation of
investment units to a third party in order to refund certain part of debts procured to acquire
properties in the second period.
(Note 6) New investment units were issued at a price of 454,930 yen per unit (subscription price of
438,984 yen per unit) through a public offering in order to refund certain short-term loans
procured to acquire properties in the ninth period and to raise funds to acquire a new property
which was acquired in the tenth period.
(Note 7) New investment units were issued at a price of 438,984 yen per unit through an allocation of
investment units to a third party in order to refund the short-term loans procured to acquire
new properties in the ninth period and to raise funds to acquire a new property which was
acquired in the tenth period.

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
8[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 the Real Estate Investment Trust Section of the Tokyo Stock Exchange during
each period are as follows:

Investment unit
market priceFiscal period(Closing date)

6th period(June 2009)

7th period(December 2009)

8th period(June 2010)

9th period(December 2010)

10th period(June 2011)

Highest (Yen)413,000

490,000

496,500

570,000

543,000

Lowest (Yen)

298,000

388,000

386,500

397,000

363,500(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.

(4) Distributions paid
The distributions for the tenth fiscal period were determined to be 12,000 yen per unit. The
Investment Corporation has determined to distribute most of retained earnings at the end of
period, less reserve for advanced depreciation stipulated in Section 66.2 of the Special Taxation
Measures Law, rounding down the portion less than 1 yen of distribution per investment unit,
with the intent to apply the special treatment of income taxes under the Special Taxation
Measures Law (Section 67.15 of the Special Taxation Measures Law) in which the amountequivalent to distributions from profits is deducted from taxable corporate income as adeductible expense and the special treatment for advance acquisition of land, etc. during theperiod from 2009 to 2010 (Section 66.2 of the Special Taxation Measures Law).
Fiscal period

6th period

7th period

8th period

9th period

10th period

Accounting term

From January 1,
2009
to June 30, 2009

From July 1, 2009
to December 31,
2009

From January 1,
2010
to June 30, 2010

From July 1, 2010
to December 31,
2010

From January 1,
2011
to June 30, 2011

2,442,271

2,486,006

2,366,962

2,218,333

2,314,032

72

69

29

76

50,232

2,442,199

2,485,936

2,366,933

2,218,256

2,263,800(15,802)(16,085)(15,315)(14,353)(12,000)

2,442,199

2,485,936

2,366,933

2,218,256

2,263,800(15,802)(16,085)(15,315)(14,353)(12,000)

–

–

–

–

–

(–)

(–)

(–)

(–)

(–)

Retained earnings at the endof period (Thousands of yen)
Retained earnings(Thousands of yen)
Total profit distributions(Thousands of yen)(Distributions per unit) (Yen)
Total profit distributions(Thousands of yen)
(Profit distribution per unit)(Yen)
Total refund of investment
equity(Refund of investment per
unit)

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
9(5) Policy and issues on future investment management
1) Outlook for Investment Environment
An impact of power shortage triggered by the deferred restart of nuclear power stations islikely to pose more time towards an economic upturn than initial assumption. On the other
hand, as the devastated supply chains have restored, a v-shaped growth can be expected given
the potential demand associated with the earthquake restoration. However, a fundamental
turnaround generated by buoyant exports is not expected to come anytime soon due to theongoing financial restraints in China to control inflation and the economic downturn inWestern markets.
In the office leasing market in the Tokyo metropolitan area, the vacancy rate is moving at aslightly upbeat trend on the back of office relocation needs based on the business continuity
plans after the Great East Japan Earthquake. As for the rent level in the market, there is no signof immediate overturn from the ongoing weakened conditions except for a few specific areas.
In Osaka and Nagoya areas, amid extended trend in moderate supply and demand due toscheduled supply of major office buildings, a drastic revitalization of the market is expected tocome even later.
In the real estate investment market, improvement in fund-raising conditions and investor
needs are likely to continue and transactions may gradually pick up if further revitalization in
the office leasing market and adjusted pricing are successfully developed. We will have toclosely watch the impact and trend in the real estate leasing and investment markets generated
by the Great East Japan Earthquake and Fukushima No. 1 nuclear power plant accident.

2) Policy and Issues on Future Investment Management
Amid a consistently softened office leasing market, in order to hold back a potential decline in
the profits from our overall portfolio to the minimum level JEI will strive to maintain stable
occupancy and rent level in the medium- and long-term perspective through promoting closer
relationship with our property management companies, proactively acting to fill vacancies as
early as possible, retaining tenancies and further reinforcing effective building management
operation that enhances existing tenant satisfactions. We will consistently implement
additional strategic investment plans to maintain the asset value and improve competitive
position of our properties on a medium- to long-term basis.
For external growth, we will plan and implement well-balanced investments based on the size,
profitability and target area to increase asset size and earn stable profits from our portfolio on a
medium- to long-term basis. To this end, we will continue enhancing further interaction andcollaboration with sponsor companies, have our asset management companies to cultivate andrefine property information sources, and seek business opportunities with efforts to proactively
gain access to market information.
As for the financial environment, we recognize that the fund-raising environment in the real
Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
10

estate investment industry are generally favorable. Based on this perspective, we willconsistently work on stable financial operation through diversifying lenders including
issuance of investment corporation bonds, separating maturity dates, lengthening borrowing
spans, and converting floating-rate debts to fixed-rate debts.

(6) Subsequent events
1) Conclusion of purchase option agreement
On August 12, 2011, JEI concluded a purchase option agreement for the following asset underpurchase option.

<Overview of the asset under purchase option>(1) Asset under purchase option

Trust beneficiary interest in real estate (Note1)(2) Property nameNo. 35 Kowa Building(3) Location

1-14-14 Akasaka, Minato-ku, Tokyo(4) Exercise price (Note 2)

8,280,000,000 yen(5) Date of execution of purchase option agreement

August 12, 2011(6) Expiration date of purchase option exercise period

October 3, 2011(7) Scheduled acquisition date

October 3, 2011 (Note 3)(8) Seller under purchase option

Kowa Real Estate Co., Ltd.

(9) Funding for acquisition

Cash in hand and debt financing subject to the exercise ofpurchase option(10) Method of settlement

To be settled in full when the acquisition is made after the
exercise of purchase option.

(Note 1) The Seller (under the purchase option) currently owns No. 35 Kowa Building in theform of direct ownership in real estate. JEI entered into a Purchase Option Agreement
for Trust Beneficiary Interests in Real Estate (hereinafter, “Purchase Option
Agreement”) pertaining to No. 35 Kowa Building dated August 12, 2011 with the Seller.
Under the Purchase Option Agreement, JEI is entitled to decide, at its absolute
discretion, whether to acquire No. 35 Kowa Building by exercising the purchase option.
However, JEI is required to exercise the purchase option pertaining to No. 35 Kowa
Building under the Purchase Option Agreement if it is negotiated and agreed between
the Seller and a trust bank (which shall be the trust bank agreed by JEI separately in areasonable manner and is hereinafter referred to as the “Trustee;” as of the date of thisrelease, Mitsubishi UFJ Trust and Banking Corporation is contemplated to be theTrustee) that a real estate management/disposition trust will be established for No. 35
Kowa Building (hereinafter, “establishment of real estate trust”). If the purchase option
under the Purchase Option Agreement is exercised, JEI will acquire trust beneficiaryinterests in No. 35 Kowa Building. JEI will be able to double-check the status of legal
and other compliance of No. 35 Kowa Building as the property is subject to thevalidation required for the establishment of real estate trust conducted by the Trustee,
who is an expert of real estate trusts. With regard to and throughout the process of theestablishment of real estate trust, JEI will remain an independent third party. It has been
agreed between JEI and the Seller that if the process of the establishment of real estate
trust is not completed by the expiration date of the purchase option under the Purchase
Option Agreement, which is October 3, 2011, they will negotiate the acquisition of No.
35 Kowa Building by JEI in good faith.
Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
11

(Note 2) The exercise price for the sale and purchase of trust beneficiary interest, which does notinclude costs related to the acquisition, JEI’s share of the real estate tax and city
planning tax, and consumption taxes.
(Note 3) Only if the purchase option under the Purchase Option Agreement is exercised.

2) Conclusion of purchase agreement for trust beneficiary interest in real estate
On August 12, 2011, JEI concluded a purchase agreement for trust beneficiary interest in realestate pertaining to the property to be acquired as follows:<Overview of the asset to be acquired>(1) Property to be acquired

Trust beneficiary interest in real estate(2) Property name

MID Kyobashi Building(3) Location

2-2-48 Kata-machi, Miyakojima-ku, Osaka-shi, Osaka(4) Acquisition price (Note)

3,308,000,000 yen(5) Date of execution of purchase agreement

August 12, 2011(6) Scheduled handover date

September 1, 2011(7) Seller

Liverpool Asset TMK(Note) The acquisition price for the sale and purchase of trust beneficiary interest, which does
not include costs related to the acquisition, JEI’s share of the real estate tax and city
planning tax, and consumption taxes.

3) Debt financing
On August 12, 2011, JEI concluded the following revolving loan agreement to finance in partthe acquisition of No. 35 Kowa Building including the acquisition price and related costs.
(1) Lenders

Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Sumitomo Mitsui Banking Corporation
Aozora Bank, Ltd.

(2) Amount borrowed

8,300,000,000 yen(3) Interest rate

To be decided(4) Scheduled drawdown date

October 3, 2011(5) Interest payment date

October 31, 2011, November 29, 2011(6) Principal repayment dateNovember 29, 2011(7) Principal repayment method

To be repaid in full on the principal repayment date (early repayment permitted)(8) Collateral

Unsecured and unguaranteed

4) Other
The Purchase Option Agreement for No. 35 Kowa Building referred to in 1) above falls underthe “forward commitment by investment corporations(Note)” defined in the “Comprehensive
Guidelines for Supervision of Financial Instruments Business Operators, etc.” established by
the Financial Services Agency (last amended in April 2011). Under this Purchase Option
Agreement, JEI is entitled to a purchase option and only upon exercise of this option, a valid
Purchase Agreement will be executed (provided, however, that JEI will be required to exercise
the purchase option in the case of establishment of real estate trust). It is provided that if there is
Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)12

a breach of the provisions of the Purchase Option Agreement by JEI or the Seller after thepurchase options is exercised and the Purchase Agreement is executed, the non-breaching party
may cancel said Purchase Agreement and claim the penalty payment equivalent to 20% of thepurchase price from the breaching party. After the careful examination of the amount required
to acquire No. 35 Kowa Building, the likelihood of establishment of real estate trust, the time
period from the exercise of purchase option to the handover, and the method of funding for theacquisition, JEI decided to enter into the Purchase Option Agreement under the terms andconditions described above in order to acquire No. 35 Kowa Building based on the judgmentthat the acquisition will contribute to the enhancement of the investor value.
(Note) This means any postdated purchase agreement under which the payment and thedelivery of the target property shall be made after a lapse of one month or more after the
execution of such agreement or any other similar agreement.

2. Outline of the Investment Corporation(1) Investment unit
Fiscal period

7th period
9th period
6th period
8th period
10th period
As of December 31,
As of December 31,
As of June 30, 2009
As of June 30, 2010
As of June 30, 2011
2009
2010

Number of units
authorized

2,000,000 units

2,000,000 units

2,000,000 units

2,000,000 units

2,000,000 units

154,550 units

154,550 units

154,550 units

154,550 units

188,650 units

Unitholders’ capital

87,083 million yen

87,083 million yen

87,083 million yen

87,083 million yen 102,052 million yen

Number of unitholders

4,817 individuals

4,734 individuals

5,469 individuals

5,495 individuals

7,411 individuals

Number of units
owned(Units)Ratio of number ofunits owned to
outstanding
investment units(%)

1-8-11 Harumi, Chuo-ku, Tokyo

35,34518.74

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

15,722

8.33

Harumi Island Toriton Square Office Tower Z, 18-12 Harumi, Chuo-ku, Tokyo

14,863

7.88

Kowa Real Estate Co., Ltd.

1-15-5 Minami-Aoyama, Minato-ku, Tokyo

14,312

7.59

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

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

8,435

4.47

Number of units issued
and outstanding(2) Unitholders
Major unitholders as of June 30, 2011 are as follows:

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

Address

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
13

NOMURA BANK(LUXEMBOURG) S.A.

Batiment A, 33, Rue de Gasperich, L-5826,
Luxembourg

4,872

2.58

North Pacific Bank, LTD.

3-7 Odori-Nishi, Chuo-ku, Sapporo-shi, Hokkaido

4,590

2.43

The Dai-ichi Life Insurance
Company, Limited

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

4,132

2.19

The Chugoku Bank, LTD.

1-15-20 Marunouchi, Kita-ku, Okayama-shi,
Okayama

3,641

1.93

Sekisui House, Ltd.

1-1-88 Oyodonaka, Kita-ku, Osaka-shi, Osaka

2,091

1.11

AIG Edison Life Insurance Company
GA Equity PIMJ

4-1-3 Ohira, Sumida-ku, Tokyo

2,091

1.11

110,094

58.36

Total

(Note) Ratio of number of units owned to outstanding investment units is rounded to two decimal places.

(3) Officers
1) Directors and accounting auditor
Post

Name

Executive
Director
Supervisory
Director
Supervisory
Director
Supervisory
Director
Accounting
Auditor

Major additional post

Chifumi Toda

President and Director, Japan Excellent AssetManagement Co., Ltd.

Makoto Sakagami

Makoto Sakagami Certified Public Accounting Office

Tsuyoshi Nagahama

Advisor, Anderson, Mori & Tomotsune

Shunichi Maekawa

Professor, Faculty of Real Estate, Meikai University

Ernst & Young ShinNihon
LLC

Compensation or fee forthe six months ended
June 30, 2011
(Thousands of yen)
–

6,540

18,200(Note 2)–

(Note 1) There is no investment unit of JEI held by the Executive Director nor the Supervisory
Directors. Although Supervisory Directors may have additional post in other company thanlisted above, there is no conflict of interests between those companies including listed above
and JEI.
(Note 2) The total compensation shown above is an estimated amount and includes fees for English
financial statement audit and for the preparation of a comfort letter and other services inrelation to the issuance of new investment units in January 2011.

2) Policy on dismissal and discontinuation of re-election of accounting auditor
The board of directors deliberate dismissal of accounting auditor in accordance with theprovisions 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
agentsOur asset management company, asset custodian and administrative agents as of June 30, 2011
are as follows:
Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
14

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 andinstitution operation)

Mizuho Trust & Banking Co., Ltd.

Administrative agent(Investment corporation bonds)

Mizuho Corporate Bank, Ltd.

3. Investment Portfolio of the Investment Corporation(1) Investment portfolio by area
9th period(As of December 31, 2010)
Classification

Use

Real estate property(Note3)Area

10th period(As of June 30, 2011)

Acquisition price Investment ratio Acquisition price Investment ratio(Millions of yen) in portfolio (%) (Millions of yen) in portfolio (%)(Note 1)
(Note 2)
(Note 1)
(Note 2)

Area II (Note 4)

4,221

2.1

4,309

2.0

Area I (Note 4)

99,32349.9

106,116

50.7

Area II (Note 4)

7,548

3.8

7,508

3.6

Area III (Note 4)

73,961

37.1

73,521

35.2

Total

185,05492.9

191,455

91.5

Deposits in bank and other assets

14,132

7.1

17,687

8.5

Total assets

199,186

100.0

209,142

100.0

Trust beneficiaryinterest in real estate(Note 3)

Offices(Note 1) Acquisition price is based on the amounts accounted for in the balance sheets as of the closing date(amounts of real estate and trust beneficiary interest in real estate are based on the book value after
adjusting depreciations).
(Note 2) Investment ratio in portfolio is rounded to one decimal place.
(Note 3) Leasehold rights held combined with buildings and other structures are indicated in real estate property
and trust beneficiary interest in real estate at the combined amount.
(Note 4) 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.)
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

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
15

(2) Major property
The principal properties (top ten properties in net book value) held by JEI as of June 30, 2011 are as
follows:
Ratio of rental
Leased floor
Leasable space
Occupancy
revenue to total
Net book value
space
Name of real property(m2)
rate (%)
rental revenues(Millions of yen)(m2)
(Note 1)
(Note 3)(%)(Note 2)
(Note 4)
Kowa Kawasaki Nishiguchi
30,87538,332.15
32,799.03
85.6
13.0
Building

Major use

Akasaka Garden City

22,932

8,769.53

7,215.53

82.3

7.3

Offices

Omori Bellport D

22,06025,828.29

25,740.33

99.7

14.5

Offices

AKASAKA INTERCITY

17,577

5,622.98

4,715.80

83.9

4.4

Offices

13,191

25,217.28

25,217.28

100.0

11.4

Offices

11,045

12,122.85

12,122.85

100.0

3.9

Offices

10,396

18,612.72

18,612.72

100.0(Note 5)

Offices

9,223

11,749.30

11,749.30

100.0

5.3

Offices

8,205

6,411.26

6,411.26

100.0

4.2

Offices

7,508

10,601.70

10,291.32

97.1

3.2

Offices

153,016

163,268.06

154,875.42

94.9

74.2

–

Musashikosugi Tower
Place
Daiba Garden City
Building
Kowa Kawasaki
Higashiguchi Building
Shiba 2-Chome Building
JEI Hamamatsucho
Building
JEI Nishi-Honmachi
Building
Total(Note 1) Leasable space refers to space available for lease of which ownership is attributable to JEI as
of June 30, 2011 and is rounded to two decimal places. If the property is a joint ownershipproperty, the value is obtained after multiplying the total leasable space of the shared realestate by the percentage of the interest owned by JEI.
(Note 2) Leased floor space refers to space with lease agreements with end tenants as of June 30, 2011
and is rounded to two decimal places. If the property is a joint ownership property, the value isobtained after multiplying the total leased floor space of the shared real estate by thepercentage of the interest owned by JEI. The leased floor space of end tenants who terminatedtheir lease agreement but not yet removed as of the end of period is included in the leased floor
space. This also applies to the calculations of occupancy rate in (Note 3) below and the total
number of tenants in (Note 1) in (3) Portfolio ownership breakdown.
(Note 3) Occupancy rate is a percentage of total leased floor space to total leasable space as of June 30,
2011 and rounded to one decimal place.
(Note 4) Ratio of rental revenue to total rental revenues is rounded to one decimal place.
(Note 5) The value of this property is undisclosed because the consent from the end tenants has notbeen obtained.

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
16

Offices(3) Portfolio ownership breakdown
Real estate properties and their forms of ownership as of June 30, 2011 are as follows:
PropertyNo.

Name of real property

Location (Displayed 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-4

No. 32 Kowa Building

5-2-32 Minami-Azabu, Minato-ku, Tokyo

I-6

No. 28 Kowa Building

2-20-1 Nishi-Gotanda, Shinagawa-ku, Tokyo

I-7

Akasaka Garden City

4-15-1 Akasaka, 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

Appraisal value
at the end of
Net book value
Form of ownership
period(Millions of yen)
(Millions of yen)
(Note)
Trust beneficiaryinterest in real
24,48022,060estateTrust beneficiaryinterest in real
10,6009,223
estateTrust beneficiaryinterest in real
8,370
8,205
estateTrust beneficiaryinterest in real
6,934
7,408
estateTrust beneficiaryinterest in real
2,750
2,813
estateTrust beneficiaryinterest in real
18,00022,932
estateTrust beneficiaryinterest in real
12,90017,577
estateTrust beneficiaryinterest in real
5,090
4,850
estateTrust beneficiaryinterest in real
11,47011,045
estateArea I

100,594

106,116

II-1

NHK Nagoya Housou Center
Building

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

Real estate

4,410

4,309

II-2

JEI Nishi-Honmachi Building

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

Trust beneficiaryinterest in realestate

4,390

7,508

8,800

11,817

16,30013,191

8,330

10,396

4,990

5,265

4,930

4,113

1,520

1,007

2,140

2,412

3,960

6,258

25,40030,875

Area III

67,57073,521

Total

176,964

191,455

Area II
III-1

Musashikosugi Tower Place

1-403 Kosugi-machi, Nakahara-ku, Kawasakishi, Kanagawa

III-2

Kowa Kawasaki Higashiguchi
Building

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-6

No. 44 Kowa Building

1-2-7 Higashiyama, Meguro-ku, Tokyo

III-7

JEI Ryogoku Building

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

III-8

Ebina Prime Tower

2-9-50 Chuo, Ebina-shi, Kanagawa

III-9

Kowa Kawasaki Nishiguchi Building

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

Trust beneficiaryinterest in realestateTrust beneficiaryinterest in realestateTrust beneficiaryinterest in realestateTrust beneficiaryinterest in realestateTrust beneficiaryinterest in realestateTrust beneficiaryinterest in realestateTrust beneficiaryinterest in realestateTrust beneficiaryinterest in realestateAsset Management Report for 10th Period (Semi-Annual Report for 10th Period)17

(Note) Appraisal value at the end of period indicates the appraisal value described in the real estateappraisal report prepared by a real estate appraiser belonging to Japan Real Estate Institute,
Chuo Real Estate Appraisal Co., Ltd., and Japan Valuers Co., Ltd. as of June 30, 2011 based on
the articles of incorporation of JEI and the regulations stipulated by the Investment Trusts
Association, Japan. When there is a joint ownership property in the current portfolio, its value isobtained after multiplying the total value of the shared real estate by the percentage of theinterest owned by JEI or the trustee.

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)18

9th period
From July 1, 2010 to December 31, 2010
Property No.

Name of real property

10th period
From January 1, 2011 to June 30, 2011

Total numberof tenants (Atthe end of
period)(Note 1)

Occupancy
rate (At theend ofperiod)(%)

Rentalrevenues (Forthe period)(Millions ofyen)

Ratio ofrentalrevenue tototal rental
revenues(%)(Note 2)

Total numberof tenants (Atthe end of
period)(Note 1)

Occupancy
rate (At theend ofperiod)(%)

Rentalrevenues (Forthe period)(Millions ofyen)

Ratio ofrentalrevenue tototal rental
revenues(%)(Note 2)

I-1

Omori Bellport D

1

94.9

1,024

14.4

1

99.7

1,020

14.5

I-2

Shiba 2-Chome Building

2

99.2

368

5.2

2

100.0

373

5.3

I-3

JEI Hamamatsucho
Building

1

100.0

297

4.2

1

100.0

295

4.2

I-4

No. 32 Kowa Building

1

84.1

235

3.3

1

96.4

277

3.9

I-5

No. 36 Kowa Building(Note 4)1100.0(Note 3)(Note 3)––(Note 3)(Note 3)

I-6

No. 28 Kowa Building

1

89.6

148

2.1

1

95.3

138

2.0

I-7

Akasaka Garden City

1

100.0

565

8.0

1

82.3

516

7.3

13

91.9

326

4.6

12

83.9

306

4.4

1

100.0

8

0.1

1

100.0

197

2.8

–

–

–

–

1

100.0

276

3.9

Area I

22

95.7

3,183

44.9

21

96.6

3,418

48.6

II-1

NHK Nagoya Housou
Center Building

33

90.6

307

4.3

31

89.4

297

4.2

II-2

JEI Nishi-Honmachi
Building

1

94.6

240

3.4

1

97.1

227

3.2

Area II

34

92.7

548

7.7

32

93.6

524

7.5

34

100.0

827

11.7

36

100.0

799

11.4

1

100.0

(Note 3)(Note 3)1100.0(Note 3)(Note 3)

I-8
I-9
I-10

III-1
III-2

AKASAKA
INTERCITY
Kowa Shirokanedai
Building
Daiba Garden City
Building

Musashikosugi Tower
Place
Kowa Kawasaki
Higashiguchi Building

III-3

JEI Hongo Building

1

100.0

177

2.5

1

100.0

172

2.5

III-5

Kawasaki Nisshincho
Building

1

100.0

225

3.2

1

100.0

225

3.2

III-6

No. 44 Kowa Building

1

99.1

93

1.3

1

99.1

90

1.3

III-7

JEI Ryogoku Building

1

100.0

111

1.6

1

98.1

106

1.5

III-8

Ebina Prime Tower

12

67.7

406

5.7

14

69.0

295

4.2

III-9

Kowa Kawasaki
Nishiguchi Building

1

84.8

999

14.1

1

85.6

912

13.0

Area III

52

88.9

3,362

47.4

56

89.4

3,091

43.9

Total

108

91.7

7,094

100.0

109

92.4

7,034

100.0

(Note 1) Total number of tenants indicates total number of tenants in each property as of the end ofeach period. A property entered into a master lease agreement is counted as one tenant. A
tenant who has multiple tenancies in one property is counted as one tenant. A tenant who has
tenancies in multiple properties is counted as one tenant for each property.
(Note 2) Ratio of rental revenue to total rental revenues is rounded to one decimal place.
(Note 3) The value of this property is undisclosed because the consent from the end tenants has notbeen obtained.
(Note 4) No. 36 Kowa Building was sold on February 4, 2011.

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
19

(4) Other assets
1) Contract amount and fair value of specified transactions and foreignexchange forwards transactions
Fair value(Thousands of yen)
(Note 2)Contract amount (Thousands of yen) (Note 1)
Classification

Type
More than one year
Interest rate swap
contracts with floatingrate to fixed-rate interest

Over-the-countertransaction

13,000,000–

13,000,000(Note 1) Contract amount of swap is calculated based on notional principal.
(Note 2) Fair value is omitted for presentation because over-the-counter transactions meet requirements
for special accounting under the Accounting Standard for Financial Instruments.

4. Capital Expenditures for Holding Properties(1) Scheduled capital expenditures
The following table shows major planned capital expenditures associated with planned
maintenance and repair for the properties held by JEI as of June 30, 2011. The values below
include those to be expensed for accounting purposes.

Name of real
property

Location

PurposeNHK Nagoya
Housou Center
Building

Air-conditioning system
Higashi-ku, Nagoya-shi renewal construction(3rd term)

Kowa Shirokanedai
Building

Minato-ku, Tokyo

Bathroom renewal
construction

JEI Hamamatsucho
Building

Minato-ku, Tokyo

Air-conditioning system
renewal construction(1st term)

Scheduled term

From December
2010
to December 2011
From September
2010
to August 2011
From September
2011
to November 2011

Estimated construction costs(Millions of yen)
Payment
for the six Total of
Totalmonthsadvanceended June payment
30, 2011
110

–

–

104

–

–

91

–

–

(2) Capital expenditures for the six months ended June 30, 2011
The following table shows constructions completed during the period and to be expensed ascapital expenditure pertaining to our portfolio held as of June 30, 2011. During the period, theamount of constructions completed totaled 440 million yen, composed of 347 million yen of
capital expenditure and 92 million yen of maintenance and repair classified as an expense for thesix months ended June 30, 2011.
Name of real property

Location

Kowa Kawasaki Nishiguchi
Building

Saiwai-ku, Kawasakishi, Kanagawa

PurposeAutomatic fire alarm system
renewal construction

Amounts paid
(Millions ofyen)

Scheduled term
From October 2010
to June 2011

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
20

92NHK Nagoya Housou Center
Building

Higashi-ku, Nagoya-shi

Air-conditioning system
renewal construction (2nd term)

From October 2010
to June 2011

58

Crime prevention andmonitoring system renewal
construction

From September 2010
to June 2011

36

–

160

Other constructions
Total

347

(3) Reserved funds for long-term maintenance and repair plan
JEI has reserved funds for maintenance and repair as below to appropriate for future expenditureson large-scale maintenance and repair, taking out from depreciation and other excess cash flow
based on our long-term maintenance and repair plan developed for each property.
(Millions of yen)
6 period
7 period
8 period
9th period
10th period
From January 1, From July 1, 2009 From January 1, From July 1, 2010 From January 1,
2009
to December 31,
2010
to December 31,
2011
to June 30, 20092009
to June 30, 20102010
to June 30, 2011
th

Item

Reserved funds at the beginning of
period

th

th

254

254

254

254

259

Increase

–

–

–

5

5

Decrease

–

–

–

–

13

254

254

254

259

251

Reserved funds at the end of period

5. Expenses and Liabilities(1) Expenses associated with asset management(Thousands of yen)th

Accountth

9 period
From July 1, 2010
to December 31, 201010 period
From January 1, 2011
to June 30, 2011(a) Asset management fees

416,479

428,085(b) Custodian fees

14,92915,243(c) Administrative service fees

29,597

29,058(d) Compensation for directors

6,540

6,540

(e) Accounting auditor fees

11,50011,500(f) Other

67,26370,894546,310561,321

Total

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
21

(2) Borrowings
Borrowings by each financing source as of the end of the 10th period (ended June 30, 2011) are as follows:
Classification

Borrowingdate

LenderMitsubishi UFJ Trust and Banking
Short-term Corporation
loans
Mizuho Corporate Bank, Ltd.

December24, 2010

Balance at theBalance at the
beginning of
end of period
period(Thousands of(Thousands of
yen)
yen)
3,000,000––

1,900,000–

Subtotal

4,900,000–

Mizuho Corporate Bank, Ltd.

5,000,000–

3,500,000–

Mitsubishi UFJ Trust and Banking
Corporation

June 29,2006

1,000,000–

The Dai-ichi Life Insurance Company,
Limited3,000,000–

Mizuho Corporate Bank, Ltd.

6,000,000–

4,000,000–

3,000,000–

Resona Bank, Ltd.

Mitsubishi UFJ Trust and Banking
Corporation
Long-term
Sumitomo Mitsui Banking Corporation
debt due
within one
Mizuho Trust & Banking Co., Ltd.
year

October 24,
2008–

Aozora Bank, Ltd.

1,615,384

1,615,384

The Chuo Mitsui Trust and Banking
Company, Limited

1,615,384

1,615,384

1,615,384

1,615,384

1,076,923

1,076,923

538,461

538,461

538,461

538,461

34,500,000

7,000,000

2,300,000

2,300,000

2,200,000

2,200,000

2,000,000

2,000,000

500,000

500,000

2,500,000

2,500,000

1,500,000

1,500,000

2,000,000

2,000,000

Sumitomo Mitsui Banking Corporation

June 29,
2009

Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking
Corporation
Subtotal
Mitsubishi UFJ Trust and Banking
Corporation
Sumitomo Mitsui Banking Corporation
The Norinchukin Bank

July 31,
2007

Resona Bank, Ltd.
Mizuho Corporate Bank, Ltd.
Mizuho Trust & Banking Co., Ltd.
Long-term Sompo Japan Insurance Inc.
debt
Tokio Marine & Nichido Fire
(Note 4)
Insurance Co., Ltd.
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking
Corporation

July 31,2007

October 24,
2008

Mitsubishi UFJ Trust and Banking
Corporation
Mizuho Trust & Banking Co., Ltd.

June 29,2010

Remarks

For
March 24,
Unsecuredacquisition
2011
Lump-sumandof real(Note 3)
unguaranteed
estate

–

–

–

–

–

For
acquisitionof realestate––UseJune 29,2011––

Unsecured
andunguaranteedFor
repaymentof otherborrowing

1.34000

November29, 2011

1.34000

–

–

–

–

0.69000
Foracquisitionof realestateJuly 31,2012

1.96907(Note 2)

Unsecured
andunguaranteed

Lump-sum

The Norinchukin Bank
Mizuho Corporate Bank, Ltd.

Maturity Repayment
date
methodLump-sum
2,000,000

Mizuho Trust & Banking Co., Ltd.

Averageinterest rate(%)
(Note 1)1,000,000

1,000,000

6,000,000

6,000,000
1.04000

1,000,000

1,000,000

3,100,000

3,100,000

1,800,000

1,800,000
1.09000

1,800,000

1,800,000

1,300,000

1,300,000

June 28,2013

December27, 2013

For
repaymentof otherborrowing

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)22Balance at theBalance at the
beginning of
Borrowing
end of period
perioddate(Thousands of(Thousands of
yen)
yen)

Classification
Lender
The Dai-ichi Life Insurance Company,
LimitedAverageinterest rate(%)
(Note 1)Maturity Repayment
date
method2.25875(Note 2) July 31,
2014
2.28417(Note 2)Use

RemarksForacquisitionof realestate2,000,000

2,000,000

2,000,000

2,000,000–

4,000,000–

3,900,000–

2,400,000–

1,200,000

3,000,000

3,000,000

2,000,000

2,000,000–

4,600,000–

4,400,000–

4,000,000

6,000,000

6,000,000–

3,000,000

Subtotal

44,000,000

71,500,000

1.39270

–

–

–

–

Total

83,400,000

78,500,000

1.38800

–

–

–

–

Development Bank of Japan Inc.

July 31,2007

Mitsubishi UFJ Trust and Banking
Corporation
Mizuho Corporate Bank, Ltd.

June 29,2011

Mizuho Trust & Banking Co., Ltd.

Resona Bank, Ltd.
Long-term The Dai-ichi Life Insurance Company,
debt
Limited
October 24,(Note 4)2008
Development Bank of Japan Inc.
Mitsubishi UFJ Trust and Banking
Corporation
June 29,2011

Mizuho Corporate Bank, Ltd.
Sumitomo Mitsui Banking Corporation

NovemberDevelopment Bank of Japan Inc.
30, 2010
The Dai-ichi Life Insurance Company, June 29,
Limited2011

0.99103

December29, 2014

2.27344 June 30,(Note 2)2015

Lump-sumFor
repaymentof otherborrowing

Unsecured
andunguaranteed

1.36375 June 29,(Note 2)
2016

1.73875 November(Note 2) 30, 2017
1.65125 June 29,(Note 2)
2018

(Note 1) The average interest rates are calculated using a weighted-average of the loan balance at theend of period by multiplying the interest rate of each loan agreement as of period-end,
rounding to five decimal places. Borrowings hedged by interest rate swaps to avoid interest
rate fluctuation risk are calculated using a weighted-average rate adjusting the effect of theinterest rate swaps.
(Note 2) The loans are fixed-rate loans.
(Note 3) The loan was prepaid on February 24, 2011.
(Note 4) The following table shows the total long-term debt maturing each year after the balance sheet
date (excluding the portion due within one year).
(Thousands of yen)Classification
Long-term debt

1 to 2 years
21,000,000

2 to 3 years
8,000,000

3 to 4 years
20,500,000

4 to 5 years
13,000,000

Over 5 years
9,000,000

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
23

(3) Investment corporation bonds
Investment corporation bonds issued as of June 30, 2011 are as follows:

Issue

1st series unsecured
investment corporationbonds
2nd series unsecured
investment corporation
bonds

Issuance date

Balance at the
beginning of
period(Thousands ofyen)

Balance at theend of period(Thousands ofyen)Interest rate
(Note 1)(%)

Maturity date

Repayment
methodUse

Remarks

March 11,2010

12,000,000

12,000,000

1.52000

March 11,2014

Lump-sum(Note 2)

(Note 3)June 28, 2010

5,000,000

5,000,000

1.29000 June 26, 2015

Lump-sum(Note 2)

(Note 3)17,000,000

17,000,000

1.45235

Total(Note 1) The interest rate indicated in the total column is calculated using a weighted-average of thebalance at the end of period by multiplying the loan interest rate of each investment
corporation bond, rounding to five decimal places.
(Note 2) The funds were appropriated to repayments of borrowings.
(Note 3) The bonds are with special pari passu conditions among specified investment corporation
bonds.

(4) Short-term investment corporation bonds
JEI has no outstanding short-term investment corporation bonds as of June 30, 2011.

6. Condition of Investment Transactions(1) Transactions of property and asset-backed securities, etc.
(Millions of yen)
Acquisition
Type of assets

Name of real property
Acquisition date

Trust beneficiaryinterest in realestateTrust beneficiaryinterest in realestateDaiba Garden City
Building

February 4, 2011

No. 36 Kowa
Building

Transfer

Acquisition
priceTransfer date
(Note 1)
11,000–––11,000Transferamount(Note 1)

Net book
value

Gain (loss)
on transfer(Note 2)–––February 4,
2011

4,300

3,995

302

–

4,300

3,995

302

–

(Note 1) The acquisition price and transfer amount indicate each contracted amount of the property ineach purchase agreement or trust beneficiary interest transfer agreement excluding related
expenses (brokerage fee, taxes, etc.).
(Note 2) Gain (loss) on transfer indicates the amount of transfer deducting the net book value and othercosts to sell.

(2) Transactions of other assets
Other assets than property or asset-backed securities, etc. above are mainly bank deposits andbank deposits in trust.

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)
24

(3) Research for specified assets value, etc.
1) Real estate, etc.
Acquisitionor transfer
Acquisition
Transfer

Property nameDaiba Garden
City Building
No. 36 Kowa
Building

Type of assets
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate

Acquisition or transfer
date(Millions of yen)
Acquisition or
Research value oftransfer pricespecified asset(Note 2)February 4, 2011

11,00011,300February 4, 2011

4,300

3,949

–

15,30015,249Total(Note 1) The research for specified asset value, etc. shown above was conducted by Ernst & Young
ShinNihon LLC at the time of acquisition or transfer in accordance with the Japanese Instituteof Certified Public Accountants (JICPA) Industry Audit Committee Report No. 23, “Price
Research of Specified Assets Held by Investment Trusts and Investment Corporations.” In
addition, JEI received a research report containing matters necessary for the identification of
the property, such as the location and the lot number of the property.
(Note 2) The acquisition or transfer price indicates each contracted amount of the property in eachpurchase agreement or trust beneficiary interest transfer agreement excluding related expenses(brokerage fee, taxes, etc.), rounding to the million yen.

2) OtherTransactions of JEI that are subject to research for specified asset value, etc. under
Section 201 of the Investment Trust Law other than those listed in 1) Real estate, etc.
above are researched and reported by Ernst & Young ShinNihon LLC.
One interest rate swap contract was subject to the research during the period fromJanuary 1, 2011 to June 30, 2011 and we have received the related research report from
Ernst & Young ShinNihon LLC. In the research, Ernst & Young ShinNihon LLC is
supposed to report on the name of counterparty, currency, contractual interest rate,transaction term and other matters pertaining to the subject interest rate swap contract.

(4) Transactions with interested parties and major shareholders
1) Transactions
Acquisition price or disposal amountClassification
Acquisition priceTotal amount

Disposal amount

11,000 million yen

4,300 million yen

Acquisition price from interested parties
and major shareholders
11,000 million yen

Disposal amount to interested parties
and major shareholders
4,300 million yen

Breakdown for transactions with interested parties and major shareholders
Sekisui House, Ltd.
Kowa Real Estate Co., Ltd.
Total

11,000 million yen (100.0%)–
11,000 million yen (100.0%)–
4,300 million yen (100.0%)
4,300 million yen (100.0%)

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)25

(Note) Above transactions indicate transactions made with interested parties and major shareholders forthe six months ended June 30, 2011. “Interested parties” means the interested parties related tothe asset management company of JEI as prescribed in Section 26, Paragraph 1, Item 27 of theRegulations for Management Reports Concerning Investment Trusts and Investment
Corporations of the Investment Trusts Association, Japan. “Major shareholders” means the major
shareholders as defined in Section 29-4, Paragraph 2 of the Financial Instruments and ExchangeAct.

2) Amounts of fees paid and other expenses

Classification

Total amount paid (A)(Thousands of yen)
Breakdown of transactions with interested parties andmajor shareholders
Paid to

Property management costs
and fees (Note 2)

1,040,756

Total

1,040,756

B/A

Amount paid (B)Kowa Real Estate Co., Ltd.

368,756

35.4%

Sekisui House, Ltd.

48,2294.6%

416,98640.1%–(Note 1) Figures indicate fees paid to interested parties and major shareholders of asset managementcompanies with whom JEI had transactions during the six months ended June 2011.
(Note 2) Property management costs and fees include construction management fees that were notexpensed but capitalized in property management fees and expenses.
(Note 3) The amounts do not include consumption tax and other taxes.

(5) Transactions with asset management companies concerning the additional
businesses of the asset management companies
The Asset Management Company (Japan Excellent Asset Management Co., Ltd.) does not run
any additional businesses classified in the type I financial instruments business, type II financial
instruments business, building lots and buildings transaction business, or real estate specified
joint enterprise and did not have applicable transactions.

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 valuation method
No changes were made during the period.

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)26

8. Others(1) Investment trust beneficiary certificates incorporated by JEI
Not applicable during the period.

(2) Scheduled meetings
1) Unitholders’ meeting
Not applicable during the period.

2) Board of directors meeting
Outline of major contracts to be entered into or revised which were approved by the board of
directors of JEI during the six months ended June 30, 2011 is as follows:
Approval date

Approved agenda

January 13, 2011

Conclusion of an agreement for theentrustment of general administrative
duties concerning the offering ofinvestment units

February 14, 2011

Entrusting administrative duties
concerning investment corporation bonds

June 30, 2011

Entrusting administrative duties
concerning investment corporation bonds

Description
In relation to the planned issuance of new
investment units, the board of directors
appointed Mizuho Securities Co., Ltd.,
Mitsubishi UFJ Morgan Stanley Securities Co.,
Ltd., and Mito Securities Co., Ltd. as generaladministrators for the offering of investment
units.
The board of directors made a comprehensive
resolution on the issuance of investment
corporation bonds for the period fromFebruary 15, 2011 to January 6, 2012.
In addition, it selected and approved respective
general administrators for “subscription of
investment corporation bonds” and“acceptance of claims for exercising the rights
and other inquiries from creditors of theInvestment Corporation Bonds and otheradministrative duties concerning investment
corporation bonds during the fiscal period,”
and assigned decisions on all other necessary
matters to the Executive Director.
With regard to the comprehensive resolution on
the issuance of investment corporation bonds
passed at the board of directors meeting held on
February 14, 2011, the board of directors
approved to add a candidate generaladministrator for “subscription of investment
corporation bonds.”(3) Other
Figures less than unit indicated in each statement have been rounded down for amounts androunded for ratio unless otherwise indicated in this Report.

Asset Management Report for 10th Period (Semi-Annual Report for 10th Period)27

Financial Statements
Japan Excellent, Inc.
For the six-month periods ended
June 30, 2011 and December 31, 2010
with Report of Independent Auditors

Japan Excellent, Inc.
Balance Sheets
As of June 30, 2011 and December 31, 2010

As of
As of
June 30,
December 31,
2011
2010
(Thousands of yen)

As ofJune 30,
2011(U.S. dollars)(Note 2)

AssetsCurrent assets:
Cash and cash equivalents including trust accounts(Notes 4 and 5)
Rental receivables
Consumption taxes refundable
Other current assets
Total current assets¥ 16,496,792
375,348
193,373
114,170
17,179,683¥ 13,151,936
432,986–
135,607
13,720,529$ 204,345,249
4,649,427
2,395,304
1,414,219
212,804,199

Property and equipment (Note 7):
Buildings and building improvements
Machinery and equipment
Furniture and fixtures
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
Less: accumulated depreciation
Net property and equipment

3,492,109
265
833
14,50872,203,216
416,916
74,837
115,651,435(8,964,177)
182,889,942

3,364,688
265
662
13,40466,005,514
414,193
70,485
114,629,601(8,009,258)
176,489,554

43,256,643
3,284
10,312
179,714894,378,987
5,164,326
927,009
1,432,570,723(111,038,978)2,265,452,020

1,185,045
7,380,017
15,181
362,835
61,01568,427
9,072,520

1,185,045
7,380,017
15,182
262,394
70,862
63,066
8,976,566

14,679,114
91,416,038
188,055
4,494,422
755,795
847,604
112,381,028¥ 209,142,145¥ 199,186,649$ 2,590,637,247

Investments and other assets:
Leasehold rights
Leasehold rights for trust accounts
Security deposits
Long-term prepaid expenses
Investment corporation bond issuance costs
Other assets
Total investments and other assets

Total assets

The accompanying notes are an integral part of these financial statements.
30

As of
As ofJune 30,
December 31,
2011
2010
(Thousands of yen)
Liabilities
Current liabilities:
Accounts payable – trade
Short-term loans (Notes 5 and 8)
Long-term debt due within one year (Notes 5 and 8)
Accounts payable – other
Unpaid consumption taxes
Derivative liabilities
Provision for loss on disaster
Other current liabilities
Total current liabilities¥

583,196–
7,000,000
342,674––
16,430257,942
8,200,242¥

584,349
4,900,000
34,500,000
356,104
4,816
28,770–252,234
40,626,273

As ofJune 30,
2011(U.S. dollars)(Note 2)$

7,224,036–
86,708,782
4,244,691––
203,517
3,195,120
101,576,146

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

17,000,000
71,500,000
421,646
7,653,840
96,575,486
104,775,728

17,000,000
44,000,000
428,246
7,859,538
69,287,784
109,914,057

210,578,472
885,668,277
5,222,917
94,807,871
1,196,277,537
1,297,853,683

Net asses (Note 10):Unitholders’ equity:
Unitholders’ capital:
Units authorized: 2,000,000 units
Units issued and outstanding:
188,650 units as of June 30, 2011 and
154,550 units as of December 31, 2010
Retained earnings
Total unitholders’ equity

102,052,384
2,314,033
104,366,417

87,083,030
2,218,333
89,301,363

1,264,119,713
28,663,851
1,292,783,564

Valuation and translation adjustments:
Unrealized loss on deferred hedge transactions (Note 5)
Total valuation and translation adjustments
Total net assets
Total liabilities and net assets––
104,366,417¥ 209,142,145(28,771)(28,771)
89,272,592¥ 199,186,649––
1,292,783,564$ 2,590,637,247

The accompanying notes are an integral part of these financial statements.
31

Japan Excellent, Inc.
Statements of Income and Retained Earnings
For the periods from January 1, 2011 to June 30, 2011
and from July 1, 2010 to December 31, 2010

For the period For the period
from January 1,
from July 1,
2011 to2010 toJune 30,
December 31,
2011
2010
(Thousands of yen)

For the period
from January 1,
2011 toJune 30,
2011(U.S. dollars)(Note 2)

Revenues:
Rental revenues (Note 13)
Other (Note 13)
Gain on sale of real estate (Note 14)
Total revenues¥6,565,051
469,836
302,618
7,337,505¥6,506,591
587,425–
7,094,016$81,321,085
5,819,847
3,748,511
90,889,443

Operating expenses:
Property operating expenses (Note 13)
Asset management fees
Custodian fees
Administrative service fees
Compensation for directors
Other
Total operating expenses
Operating income

3,555,973
428,085
15,24329,0596,540
82,394
4,117,294
3,220,211

3,494,167
416,479
14,93029,5986,540
78,763
4,040,477
3,053,539

44,047,727
5,302,676
188,815359,951
81,011
1,020,615
51,000,795
39,888,648

1,798
5,201

2,907
1,019

22,27164,418Other income:Interest income
Other
Other expenses:
Interest expense
Loan arrangement fees
New unit issuance costs
Interest expense on investment corporation bonds
Amortization of investment corporation bond issuance
costs
Other
Ordinary income

541,561
146,481
43,953
122,359546,315
157,256–
124,541

6,708,302
1,814,453
544,439
1,515,657

9,846
129
2,362,881

9,846
128
2,219,379

121,966
1,592
29,268,928

Extraordinary losses:
Loss on disaster
Income before income taxes

47,9332,314,948–
2,219,379

593,745
28,675,183

Income taxes (Note 12):Current
Deferred
Net income
Retained earnings at beginning of period
Retained earnings at end of period

987
52,313,956
77¥2,314,033

1,081
(5)
2,218,303
30¥2,218,333

12,22757
28,662,899
952$28,663,851

The accompanying notes are an integral part of these financial statements.
32

Japan Excellent, Inc.
Statements of Changes in Net Assets
For the periods from January 1, 2011 to June 30, 2011
and from July 1, 2010 to December 31, 2010

Number ofunits inissue
Balance as of June 30, 2010
Changes during the fiscal period:
Distributions from retained
earnings
Net income
Changes in unrealized loss ondeferred hedge transactions
Total changes during the fiscal
periodBalance as of December 31, 2010

¥87,083,030¥ 2,366,963¥89,449,993¥(60,222)¥(60,222)¥89,389,771

–
–

–
–

(2,366,933)
2,218,303(2,366,933)
2,218,303

–
–

–
–

(2,366,933)
2,218,303

–

–

–

–

31,451

31,451

31,451–
154,550–¥87,083,030(148,630)¥ 2,218,333(148,630)¥89,301,363

31,451¥(28,771)

31,451¥(28,771)(117,179)¥89,272,592

For the period from January 1, 2011 to June 30, 2011
Net assets
Valuation and translation
Unitholders’ equity
adjustments
Unrealized
loss on
Total
Total
deferredvaluation andUnitholders’
Retained
unitholders’hedgetranslation
capitalearnings
equitytransactions
adjustments(Thousands of yen)Total
net assets

154,550¥ 87,083,030¥ 2,218,333¥ 89,301,363¥(28,771)¥(28,771)¥ 89,272,592

34,10014,969,354–

14,969,354––

14,969,354

–
–

–
–

(2,218,256)
2,313,956(2,218,256)
2,313,956

–
–

–
–

(2,218,256)
2,313,956

–

–

–

–

28,771

28,771

28,771

34,100188,650

14,969,354¥102,052,384

95,700¥ 2,314,033

15,065,054¥104,366,417

28,771–

15,093,825¥104,366,417

Number ofunits inissue
Balance as of December 31, 2010
Changes during the fiscal period:
Issuance of new units
Distributions from retained
earnings
Net income
Changes in unrealized loss ondeferred hedge transactions
Total changes during the fiscal
periodBalance as of June 30, 2011

Total
net assets

154,550

Number ofunits inissue
Balance as of December 31, 2010
Changes during the fiscal period:
Issuance of new units
Distributions from retained
earnings
Net income
Changes in unrealized loss ondeferred hedge transactions
Total changes during the fiscal
periodBalance as of June 30, 2011

For the period from July 1, 2010 to December 31, 2010
Net assets
Valuation and translation
Unitholders’ equity
adjustments
Unrealized
loss on
Total
Total
deferredvaluation andUnitholders’
Retained
unitholders’hedgetranslation
capitalearnings
equitytransactions
adjustments(Thousands of yen)¥

28,771–¥For the period from January 1, 2011 to June 30, 2011
Net assets
Valuation and translation
Unitholders’ equity
adjustments
Unrealized
loss on
Total
Total
deferredvaluation andUnitholders’
Retained
unitholders’hedgetranslation
capitalearnings
equitytransactions
adjustments(U.S. dollars) (Note 2)

154,550$1,078,694,785$ 27,478,422 $1,106,173,207

34,100185,424,928

–

–
–

–
–

–

–

34,100188,650

185,424,928$1,264,119,713

Total
net assets$(356,378)$(356,378)$1,105,816,829

185,424,928––

185,424,928(27,477,470)
28,662,899(27,477,470)
28,662,899

–
–

–
–

(27,477,470)
28,662,899––

356,378

356,378

356,378

356,378–

186,966,735$1,292,783,564

1,185,429
186,610,357$ 28,663,851 $1,292,783,564$

356,378–$

The accompanying notes are an integral part of these financial statements.
33

Japan Excellent, Inc.
Statements of Cash Flows
For the periods from January 1, 2011 to June 30, 2011
and from July 1, 2010 to December 31, 2010
For the period For the period
from January 1,
from July 1,
2011 to2010 toJune 30,
December 31,
2011
2010
(Thousands of yen)
Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Amortization of investment corporation bond issuance costs
Increase in provision for loss on disasterNew unit issuance costs
Interest income
Interest expense
Decrease in rental receivables
Increase in consumption taxes refundable
Decrease (increase) in prepaid expenses
Increase (decrease) in accounts payable – trade
Increase (decrease) in accounts payable – other
Decrease in unpaid consumption taxes
Increase in advances received(Increase) decrease 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¥

2,314,948
1,080,842
9,846
16,43043,953(1,798)663,920
57,638(193,373)
17,72544,862
9,192(4,816)33,366(100,440)¥

2,219,379
993,261
9,846––(2,907)
670,856
31,147–(26,490)(36,115)(1,918)(56,700)
3,724
142,098

For the period
from January 1,
2011 toJune 30,
2011(U.S. dollars)(Note 2)$

28,675,183
13,388,356
121,966
203,517544,439(22,271)
8,223,959
713,964(2,395,305)
219,556555,707
113,857(59,659)
413,308(1,244,148)

3,995,580(24,333)
7,963,542
1,798(691,629)(950)
7,272,761–
7,002
3,953,183
2,907(666,192)(1,111)
3,288,787

49,493,126(301,405)
98,644,150
22,271(8,567,194)(11,762)
90,087,465(130,421)(11,394,014)
8,804(15,404)(9,935)(7,443,973)
2,030(15,988)(1,615,515)(141,137,297)
109,053(190,809)

701,662(907,360)(11,736,733)

502,489(855,657)(7,821,034)

8,691,465(11,239,444)(145,382,547)

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
Issuance of new units
Payments for new unit issuance costs
Distributions to unitholders
Net cash provided by financing activities–(4,900,000)
27,500,000(27,500,000)
14,969,355(43,953)(2,216,574)
7,808,828

4,900,000–
6,000,000(6,000,000)––(2,365,676)
2,534,324–(60,696,148)
340,641,645(340,641,645)
185,424,928(544,439)(27,456,630)
96,727,711

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

3,344,856
13,151,936¥ 16,496,792(1,997,923)
15,149,859¥ 13,151,936

41,432,629
162,912,620$ 204,345,249

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 from tenants for trust
accounts
Payments for security deposits to tenants for trust accounts
Net cash used in investing activities

The accompanying notes are an integral part of these financial statements.
34

Japan Excellent, Inc.
Notes to Financial Statements
For the periods from January 1, 2011 to June 30, 2011
and from July 1, 2010 to December 31, 2010

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 TrustLaw”), 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 is owned 45% by Kowa Real Estate Co., Ltd., 20% by The
Dai-ichi Life Insurance Company, Limited, 15% by Sekisui House, Ltd. and 20% by othercorporations.
JEI was listed on the Tokyo Stock Exchange on June 27, 2006. As of June 30, 2011, JEI held
19 properties with 234,547 square meters of total leasable space and had leases with 109
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 forth in 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 and disclosure requirements of International Financial ReportingStandards.
The accompanying financial statements are a translation of the financial statements of JEI,
which were prepared in accordance with Japanese GAAP and presented in the securities
report of JEI filed with the Kanto Local Finance Bureau. In preparing the accompanying
financial statements, certain reclassifications and modifications have been made for theconvenience of readers outside Japan. In addition, the notes to the financial statements include
information that might not be required under Japanese GAAP but is presented herein as
additional information. Amounts have been rounded to the nearest thousand yen in theaccompanying financial statements and in the notes thereto, whereas amounts were truncatedin the Japanese financial statements prepared in accordance with Japanese GAAP.
Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The
rate of ¥80.73 = U.S.$1.00, the foreign exchange rate prevailing on June 30, 2011, has beenused for translation. The inclusion of such amounts is not intended to imply that Japanese yen
have been or could be readily converted, realized or settled into U.S. dollars at that or any
other rate.

35

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 ofprice 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
Building improvements
Machinery and equipment
Furniture and fixtures

2 – 59 years
2 – 59 years
7 – 16 years
4 – 10 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
the amortization periods.
New unit issuance costs are charged to income as incurred.
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 of assets and liabilities.
Consumption taxes
Consumption taxes received and paid are not included in the accompanying statements ofincome and retained earnings. Consumption tax related to properties, which has not been
deducted, is included in the cost of the properties.
Property-related taxes
Principally, property-related taxes including property taxes, urban planning taxes anddepreciable property taxes are imposed on a calendar-year basis and are expensed as property
and other taxes (refer to Note 13).
JEI capitalizes the property-related taxes allocated to the sellers of properties to JEI at thetime of acquisition of such properties including trust accounts. The capitalized amounts forthe periods from January 1, 2011 to June 30, 2011 and from July 1, 2010 to December 31,
2010 were ¥66,033 thousand ($817,954) and ¥3,012 thousand, respectively.

36

3.

Summary of Significant Accounting Policies (continued)

Provision for loss on disaster
Provision for loss on disaster is recorded at the amount estimated as of June 30, 2011 toprovide for possible repair and recovery costs arising from the Great East Japan Earthquake.
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
purpose of hedging its exposure to fluctuation in interest rates. JEI has entered into certain
interest-rate swap contracts to hedge variable rates for its long-term debt obligations.
The corresponding interest-rate swap meets the criteria for the special hedge accounting
treatment under Japanese GAAP, and it is therefore not recorded at fair value.
The amounts paid or received via the swap transaction are recognized as interest adjustments.
An assessment of hedge effectiveness is omitted accordingly.
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 theaccompanying 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 andcash and cash equivalents in the accompanying statements of cash flows at June 30, 2011 andDecember 31, 2010 consisted of the following:
As of
As of
June 30,
December 31,
2011
2010
(Thousands of yen)
Cash and cash deposits
Cash in trust and deposits in trust
Cash and cash equivalents including
trust accounts

As ofJune 30,
2011(U.S. dollars)¥ 5,560,049
10,936,743¥ 2,290,294
10,861,642$ 68,872,151
135,473,098¥16,496,792¥13,151,936$204,345,249

37

5.

Financial Instruments

For the periods from January 1, 2011 to June 30, 2011 and from July 1, 2010 to
December 31, 2010
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 Company’s Annual Funds
Procurement Plan. When procuring funds by means of interest-bearing debt, matters suchas seeking longer durations and maturities, securing fixed 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 indeposits. Derivative transactions are used solely for the purpose of hedging against therisk of fluctuations in interest rates of borrowings and the like.
(2) Types of Financial Instruments, Related Risks and Risk Management System(a) Market Risks (Interest Rate Fluctuation Risks)Borrowings and investment corporation bonds are primarily used to acquire
properties or to refinance existing borrowings. Some of such debt are floating rate
instruments and thus are exposed to the risk of interest rate fluctuations. Based oninterest rate forecasts developed through constant monitoring activities, JEI hedges
against the risk of interest rate fluctuations using derivative transactions(interest-rate swaps), which swap a floating interest rate for a fixed interest rate. To
reduce credit risk, derivative transactions (interest-rate swaps) are entered into
exclusively with counterparties that are financial institutions having a high credit
rating. For hedging accounting methods, hedging instruments, hedged items,
hedging policies and methods for evaluation the effectiveness of hedging activities,
see “Derivatives and hedge accounting” under Summary of Significant Accounting
Policies.
(b) Liquidity Risk (the risk of being unable to procure funds required for repayments)
Borrowings and investment corporation bonds are exposed to liquidity risk. This risk
is reduced by diversifying maturity dates and funding sources, and liquidity risk ismanaged through the constant management of liquidity on hand.
(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. Sincevarious assumptions and factors are reflected in estimating the fair value, different
assumptions and factors could result in a different fair value.

38

5.

Financial Instruments (continued)

Fair value of financial instruments
The following are carrying values and fair values as of June 30, 2011 and December 31, 2010of financial instruments and the differences between them. When fair value is difficult toascertain, it is excluded from the following table (Note 2).
As of June 30, 2011

As of December 31, 2010

Carrying value

Fair value(1) Cash and cash deposits(2) Cash in trust and deposits
in trust
Total assets¥ 5,560,049¥ 5,560,049¥–

10,936,743¥ 16,496,792

10,936,743¥ 16,496,792¥––(3) Short-term loans(4) Long-term debt due
within one year(5) Investment corporation
bonds(6) Long-term debt
Total liabilities

¥

–

¥

(7) Derivative transactions *¥–Difference
Carrying value(Thousands of yen)

As of June 30, 2011

Fair value

Difference

Carrying value

Fair value(U.S. dollars)

Difference¥ 2,290,294¥ 2,290,294¥

10,861,642¥ 13,151,936

10,861,642¥ 13,151,936

–

$

$

–
–

135,473,098$ 204,345,249

¥
¥

–

$

68,872,151

$

–

$

–
–

–

$

–

–

¥ 4,900,000¥ 4,900,000

7,000,000

7,000,000–

34,500,000

34,513,981

13,981

86,708,782

86,708,782–

17,000,000
71,500,000¥ 95,500,000

17,187,400
71,710,990¥ 95,898,390

187,400
210,990¥ 398,390

17,000,000
44,000,000¥100,400,000

17,198,200
44,388,284¥101,000,465

198,200
388,284¥ 600,465

210,578,472
885,668,277$1,182,955,531

212,899,789
888,281,800$1,187,890,371

2,321,317
2,613,523$ 4,934,840

¥

¥

¥

–

¥

¥

–

¥

–

(28,771)(28,771)–$–

68,872,151

135,473,098$ 204,345,249

–

$

$

–

$

–

* The value of assets and liabilities arising from derivatives is shown at net value, with the amount inparentheses representing net liability position.

(Note 1)
Methods for calculating the fair value of financial instruments and matters related toderivatives transactions
Assets(1) Cash and cash deposits and(2) Cash in trust and deposits in trust
Carrying value approximates fair value because of the short maturities of these
instruments.
Liabilities(3) Short-term loans,(4) Long-term debt due within one year and(6) Long-term debt
Where floating rates apply, fair value is based on book value. The fair value of suchliabilities is considered to be close to book value because floating rates reflect market
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 aninterest-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 theinterest-rate swap is subject to the special treatment of interest-rate swaps under Japanese
GAAP.
The fair value of long-term fixed-rate debt is calculated by discounting the combined
value of principal and interest of the applicable long-term debt by a reasonable rate
assuming the same amount were to be borrowed anew.

39

5.

Financial Instruments (continued)(5) Investment corporation bonds
The fair value of investment corporation bonds issued by JEI is based on quoted market
prices.
(7) Derivative transactions
Please refer to Note 16, “Derivative Transactions.”(Note 2)Financial instruments for which fair value is deemed extremely difficult to determine(1) Security deposits from tenants *(2) Security deposits from tenants
for trust accounts *

As of
As of
June 30, 2011 December 31, 2010
(Thousands of yen)

As ofJune 30, 2011
(U.S. dollars)¥ 421,646¥ 428,246$ 5,222,917¥7,653,839¥7,859,538$94,807,871* Security deposits from tenants and security deposits from tenants for trust accounts in leased properties
are not subject to fair value disclosure because such deposits have no market price. Moreover, it isdifficult to calculate the actual period of time on deposit, namely, from the time the tenant moves in until
the time the tenant vacates, and it is extremely difficult to rationally estimate cash flow.

(Note 3)
Planned redemption amounts after settlement date of financial assets

Cash and cash deposits
Cash in trust anddeposits in trust
Total

1 to 2 years¥ 5,560,049

¥

–

¥

–

¥

–

¥

–

¥

–

10,936,743¥16,496,792

¥

–
–

¥

–
–

¥

–
–

¥

–
–

¥

–
–

1 year or less

1 to 2 years

Cash and cash deposits $ 68,872,151
Cash in trust and
135,473,098
deposits in trust$204,345,249
Total

Cash and cash deposits
Cash in trust anddeposits in trust
Total

As of June 30, 2011
2 to 3 years 3 to 4 years(Thousands of yen)

1 year or less

$

–

$

–
–

1 year or less

1 to 2 years¥ 2,290,294

¥

–

¥

–
–

10,861,642¥13,151,936

As of June 30, 2011
2 to 3 years 3 to 4 years(U.S. dollars)
$

–

$

–
–

$

–

$

–
–

As of December 31, 2010
2 to 3 years 3 to 4 years(Thousands of yen)
¥

–

¥

–
–

¥

–

¥

–
–

4 to 5 years

4 to 5 years
$

–

$

–
–

4 to 5 years
¥

–

¥

–
–

Over 5 years

Over 5 years
$

–

$

–
–

Over 5 years
¥

–

¥

–
–

40

5.

Financial Instruments (continued)(Note 4)
Planned redemption amounts after settlement date of borrowings, investment corporation
bonds and other interest-bearing debt
1 year or less
Short-term loans
Long-term debt due
within one year
Investment
corporation bonds
Long-term debt
Total

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

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

6.

–

¥

1 to 2 years¥–

As of June 30, 2011
2 to 3 years
3 to 4 years(Thousands of yen)
¥

–

¥

–

4 to 5 years¥–

Over 5 years¥–

7,000,000

–

–

–

–

–

–
–
¥ 7,000,000–
21,000,000¥ 21,000,000

12,000,000
8,000,000¥ 20,000,000

5,000,000
20,500,000¥ 25,500,000–
13,000,000¥ 13,000,000–
9,000,000¥ 9,000,000

1 year or less

1 to 2 years

As of June 30, 2011
2 to 3 years
3 to 4 years(U.S. dollars)

4 to 5 years

Over 5 years

–

$

$

–

$

–

$

–

$

–

$

–

86,708,782

–

–

–

–

–

–
–
$ 86,708,782–
260,126,347$260,126,347

148,643,627
99,095,751$247,739,378

61,934,844
253,932,863$315,867,707–
161,030,596$161,030,596–
111,482,720$ 111,482,720

1 year or less

1 to 2 years

As of December 31, 2010
2 to 3 years
3 to 4 years(Thousands of yen)

4 to 5 years

Over 5 years¥ 4,900,000

¥

–

¥

–

¥

–

¥

–

¥

–

34,500,000

–

–

–

–

–

–
–
¥ 39,400,000–
14,000,000¥ 14,000,000–
15,000,000¥ 15,000,000

12,000,000
4,000,000¥ 16,000,000

5,000,000
5,000,000¥ 10,000,000–
6,000,000¥ 6,000,000

Investment and Rental Property

For the periods from January 1, 2011 to June 30, 2011 and from July 1, 2010 to
December 31, 2010
JEI owns rental office buildings and other properties in Tokyo and other regions for the
purpose of generating rental income. The following is the carrying value and fair value as ofJune 30, 2011 and December 31, 2010, for such real estate for lease.

As ofDecember 31, 2010
¥185,054,616

Carrying value
ChangeAs ofduring period (*1)
June 30, 2011
(Thousands of yen)
¥6,400,387¥191,455,003

Fair value
As ofJune 30, 2011
¥176,964,000

41

6.

Investment and Rental Property (continued)
Carrying value
ChangeAs ofduring period (*1)
June 30, 2011
(U.S. dollars)

As ofDecember 31, 2010
$2,292,265,774$79,281,398

Fair value
As ofJune 30, 2011

$2,371,547,172$2,192,047,566

Carrying value
ChangeAs ofduring period (*2)
December 31, 2010
(Thousands of yen)

As ofJune 30, 2010
¥178,434,116¥6,620,500

Fair value
As ofDecember 31, 2010

¥185,054,616¥173,780,000(Note 1)
Carrying value represents the acquisition cost less accumulated depreciation.
(Note 2)(*1) Changes during period comprise an increase of ¥11,115,110 thousand ($137,682,522)
related to the acquisition of Daiba Garden City Building and a decrease of ¥3,995,580
thousand ($49,493,126) related to the disposition of No. 36 Kowa Building and an
decrease of ¥1,080,785 thousand ($13,387,650) for depreciation costs.
(*2) Changes during period comprise an increase of ¥2,414,453 thousand related to theacquisition of No. 32 Kowa Building and an increase of ¥4,864,128 thousand related tothe acquisition of Kowa Shirokanedai Building and a decrease of ¥993,204 thousand for
depreciation costs.
(Note 3)
Fair value as of June 30, 2011 and December 31, 2010 is appraisal value provided bythird-party real estate appraisers.

7.

Property and Equipment

Property and equipment at June 30, 2011 and December 31, 2010 consisted of the following:
Acquisition
cost
Buildings and building
improvements
Machinery and equipment
Furniture and fixtures
Construction in progress
Buildings and building
improvements for trust
accounts
Machinery and equipment
for trust accounts
Furniture and fixtures fortrust accounts
Land for trust accounts
Total

¥

3,492,109
265
832
14,508

As of June 30, 2011
As of December 31, 2010
Accumulated
Net
Acquisition
AccumulatedNet
depreciation
book value
cost
depreciation
book value(Thousands of yen)¥

(383,323)
(24)
(251)
–

¥

3,108,786
241
582
14,508¥3,364,688
265
662
13,404¥(342,259)
(12)
(199)
–

¥

3,022,429
253
463
13,404As of June 30, 2011
Accumulated
Acquisition costdepreciation(U.S. dollars)$

43,256,643
3,284
10,311
179,715$(4,748,208)(296)(3,107)–

Netbook value$

38,508,435
2,988
7,204
179,715

72,203,216(8,425,877)

63,777,339

66,005,514(7,531,240)

58,474,274

894,378,987(104,371,078)

790,007,909

416,916(132,091)

284,825

414,193(118,031)

296,162

5,164,326(1,636,210)

3,528,116

74,838
115,651,434¥ 191,854,118(22,611)–¥ (8,964,177)

52,227
115,651,434¥ 182,889,942

70,485
114,629,601¥ 184,498,812(17,517)–¥ (8,009,258)

52,968
114,629,601¥ 176,489,554

927,009
1,432,570,723$2,376,490,998(280,079)–$ (111,038,978)646,930
1,432,570,723$2,265,452,020

42

8.

Short-Term Loans and Long-Term Debt

Short-term loans and long-term debt as of June 30, 2011 and December 31, 2010 consisted of
the following:
As ofJune 30, 2011
WeightedaverageAmountinterest rate
(Thousands ofyen)
Short-term loans:
Unsecured loans from banks¥
due on March 24, 2011
SubtotalLong-term debt due within
one year:
Unsecured loans from banks
due on June 29, 2011
Unsecured loans from aninsurance company due on
June 29, 2011
Unsecured loans from banks
due on June 29, 2011
Unsecured loans from banks
due on November 29, 2011
Subtotal

As ofDecember 31, 2010
WeightedaverageAmountinterest rate
(Thousands of
yen)

As of
June 30, 2011$

Amount(U.S. dollars)–––¥ 4,900,000
4,900,000

0.780000%––

9,500,000

1.43470%–––

3,000,000

1.96625%–––

15,000,000

0.94000%–

1.34000%

7,000,000
34,500,000

1.34000%

86,708,782
86,708,782

0.69000%

7,000,000

0.69000%

86,708,782

1.96907%7,000,000

1.96907%86,708,782

1.04000%

7,000,000

1.04000%

86,708,782

1.09000%

8,000,000

1.09000%

99,095,751

2.25875%

2,000,000

2.25875%

24,773,938

2.28417%2,000,000

2.28417%

24,773,938

0.99103%–2.27344%5,000,000

1.36375%–

1.73875%

6,000,000

1.65125%–
44,000,000¥ 83,400,000

7,000,000
7,000,000

Long-term debt:
Unsecured loans from banks
due on July 31, 2012
7,000,000
Unsecured loans from banks
and insurance companies
due on July 31, 2012
7,000,000
Unsecured loans from banks
due on June 28, 2013
7,000,000
Unsecured loans from banks
due on December 27, 2013
8,000,000
Unsecured loans from aninsurance company due on
July 31, 2014
2,000,000
Unsecured loans from abank due on July 31, 2014
2,000,000
Unsecured loans from banks
due on December 29, 2014
11,500,000
Unsecured loans from aninsurance company and abank due on June 30, 2015
5,000,000
Unsecured loans from banks
due on June 29, 2016
13,000,000
Unsecured loans from abank due on November 30,
2017
6,000,000
Unsecured loans from aninsurance company due on
3,000,000
June 29, 2018
Subtotal
71,500,000
Total¥ 78,500,000–
2.27344%–1.73875%–––

142,450,142
61,934,845
161,030,596
74,321,814
37,160,907
885,668,277$ 972,377,059

43

9.

Investment Corporation Bonds

Details of total investment corporation bonds outstanding as of June 30, 2011 and December
31, 2010 are summarized as follows:
As ofJune 30, 2011
WeightedaverageAmountinterest rate
(Thousands of
yen)

As of
December 31, 2010
WeightedaverageAmountinterest rate
(Thousands of
yen)

As of
June 30, 2011¥12,000,000

1.52000%¥12,000,000

1.52000%$148,643,627

5,000,000¥17,000,000

1.29000%

5,000,000¥17,000,000

1.29000%

61,934,844$210,578,471

Unsecured bond due on
March 11, 2014
Unsecured bond due on
June 26, 2015
Total

Amount(U.S. dollars)

10. Net Assets
In accordance with the Investment Trust Law, JEI issues only non-par value investment units
and maintains net assets of at least ¥50 million.
11. Per Unit Information
Net assets per unit were ¥553,227 ($6,853) as of June 30, 2011 and ¥577,629 as of December
31, 2010. Net income per unit was ¥12,677 ($157) for the period from January 1, 2011 to June30, 2011 and ¥14,353 for the period from July 1, 2010 to December 31, 2010 and wascomputed based on the weighted-average number of units outstanding during the respective
periods.
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 foreach fiscal 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, 2011 andDecember 31, 2010 are summarized as follows:
As of
As of
June 30, 2011 December 31, 2010
(Thousands of yen)
Deferred tax assets:
Accrued enterprise taxes
Unrealized loss on deferredhedge transactions
Gross deferred tax assets
Valuation reserve
Total deferred tax assets
Net deferred tax assets

As ofJune 30, 2011
(U.S. dollars)

¥19

¥

23

$230

–
19
–
19
¥19

11,316
11,339(11,316)
23
¥
23

–
230
–
230
$230
44

12. Income Taxes (continued)
A reconciliation of the differences between the statutory tax rate and the effective tax rate forthe periods from January 1, 2011 to June 30, 2011 and from July 1, 2010 to December 31,
2010 is as follows:
For the period from For the period fromJanuary 1, 2011 toJuly 1, 2010 toJune 30, 2011
December 31, 2010
Statutory tax rate
Reconciliation:
Deductible distributions paid
Other
Effective tax rate

39.33%

39.33%(38.46)0.82
0.05%(39.31)0.03
0.05%

13. Breakdown of Property Rental Business Revenues and Expenses
For the period
For the period
For the period
from January 1,
from July 1,
from January 1,
2011 to2010 to2011 toJune 30, 2011 December 31, 2010 June 30, 2011
(Thousands of yen)
(U.S. dollars)
Rental business revenues:
Rental revenues
Other
Total rental businessrevenues
Property operating expenses:
Property management costs
and fees
Utilities
Property and other taxes
Insurance
Repairs and maintenance
Depreciation
Other
Total property operating
expensesProfit¥6,565,051
469,836¥6,506,591
587,425$81,321,084
5,819,847

7,034,887

7,094,016

87,140,931

1,033,212
552,926
561,760
21,687
92,6301,080,785
212,973

1,005,851
649,690550,005
20,633
108,223
993,204
166,561

12,798,367
6,849,071
6,958,507
268,639
1,147,408
13,387,650
2,638,085

3,555,973¥3,478,914

3,494,167¥3,599,849

44,047,727$43,093,20445

14. Breakdown of Gain on Sale of Real Estate
Gain on sale of real estate for the periods from January 1, 2011 to June 30, 2011 and from
July 1, 2010 to December 31, 2010 is as follows:
For the period
For the period
For the period
from January 1,
from July 1,
from January 1,
2011 to2010 to2011 toJune 30, 2011 December 31, 2010 June 30, 2011
(Thousands of yen)
(U.S. dollars)No. 36 Kowa Building
Proceeds from sale of real estate
Cost of sale of real estate
Other related sale expenses
Gain on sale of real estate¥4,300,000
3,995,580
1,803¥ 302,617

¥

¥

–
–
–
–

$53,263,966
49,493,126
22,329$ 3,748,511

15. Leases
JEI leases properties on which rental revenues are earned. At June 30, 2011 and December 31,
2010, future lease revenues under non-cancelable operating leases are summarized as follows:

Due within one year
Due after one year
Total

As of
As of
June 30, 2011 December 31, 2010
(Thousands of yen)

As ofJune 30, 2011
(U.S. dollars)¥ 619,095
661,873¥1,280,968$ 7,668,715
8,198,596$15,867,311¥652,359
8,226¥660,585

16. Derivative Transactions
Derivative Transactions as of June 30, 2011
(1) Hedge accounting not applied
Not applicable.
(2) Hedge accounting applied
The following are the contract values or values corresponding to the principal amount as
stipulated by contract as of the settlement date for each hedge accounting method
applied.
Hedge
accounting
methodType ofderivativetransaction

Hedgeditem

SpecialInterest-rate swap
treatment ofLong-term
Receive floating,interest-rate
debt
pay fixed
swaps

Contract amount
Fair
More thanvalue
one year(Thousands of yen)
¥13,000,000¥13,000,000*

Method ofcalculating
the fair value

Contract amount
Fair
More thanvalue
one year(U.S. dollars)$161,030,596$161,030,596

Method ofcalculating
the fair value** Since the above interest-rate swap qualifies for hedge accounting and meets certain matching criteria,
the swap is not recorded at fair value on the accompanying balance sheets, as described in the summaryof significant accounting policies.
In addition, since the swap and the long-term debt hedged by the swap are accounted for as a unit, thefair value of the 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.”
46

16. Derivative Transactions (continued)
Derivative Transactions as of December 31, 2010
(1) Hedge accounting not applied
Not applicable.
(2) Hedge accounting applied
The following are the contract values or values corresponding to the principal amount as
stipulated by contract as of the settlement date for each hedge accounting method
applied.
Hedge
accounting
methodPrincipal method

Type of derivativetransaction

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

Hedged item

Interest-rate swap
Long-term debt
Receive floating, pay fixed¥6,250,000–¥(28,771)

Method ofcalculating
the fair value** Calculated based on prices provided by counterparty financial institutions.

17. Related Party Transactions
For the period from January 1, 2011 to June 30, 2011
(1) Parent company and major corporate unitholders
Not applicable.
(2) Affiliates
Not applicable.
(3) Sister companies
Not applicable.
(4) Directors and major individual unitholders
Name

Description oftransaction

Chifumi Toda

Payment of asset
management fees to
JEAM

Amount(Thousands(U.S. dollars)of yen)¥428,085$5,302,676

Account
Accounts
payableBalance at the end of period(Thousands(U.S. dollars)of yen)¥264,984$3,282,351

47

17. Related Party Transactions (continued)
For the period from July 1, 2010 to December 31, 2010
(1) Parent company and major corporate unitholders
Not applicable.
(2) Affiliates
Not applicable.
(3) Sister companies
Not applicable.
(4) Directors and major individual unitholders
Name

Description oftransaction

Chifumi Toda

Payment of asset
management fees to
JEAM

AmountAccount(Thousands of yen)
¥416,479

Accounts payable

Balance atthe end of period(Thousands of yen)
¥253,078

18. Segment Information
For the period from January 1, 2011 to June 30, 2011 and from July 1, 2010 to
December 31, 2010
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 andservices 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
Since no single external client represents 10% or more of JEI’s total operating revenues,
information about major clients has been omitted.

48

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 unappropriatedretained earnings, 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. Consequently, JEI set
income available for distributions of dividends at ¥2,263,800,000 ($28,041,620), which is the
maximum integral multiple of the 188,650 units issued among the retained earnings
remaining after deducting the amount appropriated to the reserve for advanced depreciation of
non-current assets as stipulated in Section 66.2 of the Special Taxation Measures Law. No
cash distribution exceeding the income amount set forth in Section 33.1.4 of the bylaws of JEI
shall be made.
On August 12, 2011, the Board of Directors approved a resolution to make a cash distributionof ¥12,000 ($149) per unit aggregating to ¥2,263,800,000 ($28,041,620) to unitholders ofrecord as of June 30, 2011.

20. Significant Subsequent Events(1) Purchase option agreement
On August 12, 2011, JEI entered into a purchase option agreement for the property
described below.
1. Property under purchase
option2. Property name
3. Location
4. Purchase option price
5. Date of execution ofpurchase option agreement
6. Expiration date of purchase
option7. Scheduled acquisition date
8. Seller
9. Planned funding for
acquisition
10. Method of settlement

Trust beneficiary interest in real estate (Note 1)
No. 35 Kowa Building (Note 1)
2-14-14, Akasaka, Minato-ku, Tokyo¥8,280 million ($102,564 thousand) (Note 2)
August 12, 2011
October 3, 2011
October 3, 2011 (Note 3)
Kowa Real Estate Co., Ltd. (hereinafter, the “Seller”)
Cash in hand and debt financing subject to theexercise of purchase option
The settlement is planned to be executed when theacquisition is made after the exercise of purchase
option49

20. Significant Subsequent Events (continued)(Note 1) The Seller currently owns No. 35 Kowa Building in the form of directownership in real estate. JEI has entered into a Purchase Option Agreement for
Trust Beneficiary Interest in Real Estate (hereinafter, “Purchase Option
Agreement”) pertaining to No. 35 Kowa Building dated August 12, 2011 with
the Seller. Under the Purchase Option Agreement, JEI is entitled to decide, at its
absolute discretion, whether to acquire No. 35 Kowa Building by exercising thepurchase option. However, JEI is required to exercise the purchase option
pertaining to No. 35 Kowa Building under the Purchase Option Agreement if it
is negotiated and agreed between the Seller and a trust bank (which shall be thetrust bank agreed by JEI separately in a reasonable manner and is hereinafterreferred to as the “Trustee;” as of this date, Mitsubishi UFJ Trust and Banking
Corporation is contemplated to be the Trustee) that a real estate
management/disposition trust will be established for No. 35 Kowa Building(hereinafter, “establishment of real estate trust”). If the purchase option under
the Purchase Option Agreement is exercised, JEI will acquire trust beneficiaryinterest in No. 35 Kowa Building. JEI will be able to confirm the status of legal
and other compliance issues related to No. 35 Kowa Building as the property is
subject to the validation required for the establishment of a real estate trust by
the Trustee, an expert in real estate trusts. With regard to and throughout theprocess of the establishment of real estate trust, JEI will remain an independent
third party. It has been agreed between JEI and the Seller that if the process ofthe establishment of real estate trust is not completed by the expiration date of
the purchase option under the Purchase Option Agreement, which is October 3,
2011, they will negotiate the acquisition of No. 35 Kowa Building by JEI in
good faith.
(Note 2) Purchase option price does not include fees related to the acquisition,
proportional JEI share of the applicable real estate tax and city planning tax,
and consumption tax.
(Note 3) Only if the purchase option under the Purchase Option Agreement is exercised.
(2) Acquisition of property
The following property was acquired.
1. Type of asset acquired
2. Asset
3. Location
4. Acquisition price5. Contract date
6. Delivery date
7. Seller

Trust Property
MID Kyobashi Building
2-2-48, Katamachi, Miyakojima-ku, Osaka-shi,
Osaka¥3,308 million ($40,976 thousand) (Note)
August 12, 2011
September 1, 2011
Liverpool Asset TMK(Note) Acquisition price does not include fees related to the acquisition, proportional JEI
share of the applicable real estate tax and city planning tax, and consumption tax.

50

20. Significant Subsequent Events (continued)(3) Debt financing
On August 12, 2011, JEI entered into an individual loan agreement to use as a portion of
the payment (including related expenses) for the acquisition of No. 35 Kowa Building.
1. Lenders

2. Loan amount
3. Interest rate
4. Scheduled drawdown date
5. Interest payment date
6. Principal repayment date
7. Principal repayment method
8. Collateral

Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Sumitomo Mitsui Banking Corporation
Aozora Bank, Ltd.
¥8,300 million ($102,812 thousand)To be determined
October 3, 2011
October 31, 2011, November 29, 2011
November 29, 2011
To be repaid in full on the principal repayment date(early repayment permitted)
Unsecured/Non-guaranteed(4) Other
The Purchase Option Agreement for No. 35 Kowa Building as described in (1) above
falls under forward commitment, etc. defined in the “Comprehensive Guidelines forSupervision of Financial Instruments Business Operators, etc.” established by the
Financial Services Agency (as finally amended in April 2011). Under this Purchase
Option Agreement, JEI is entitled to a purchase option and only upon exercise of thisoption, a valid purchase agreement will be executed (provided, however, that JEI will be
required to exercise the purchase option in the case of establishment of the real estate
trust). Under the Purchase Option Agreement, it is provided that if there is a breach of theprovisions of the Purchase Option Agreement by JEI or the Seller after the purchase
option is exercised and the purchase agreement is executed, the non-breaching party may
cancel said purchase agreement and claim a penalty payment equivalent to 20% of thepurchase price from the breaching party. After the careful examination of the amountrequired to acquire No. 35 Kowa Building, the likelihood of establishment of the realestate trust, the time period from the exercise of the purchase option to the handover, andthe method of funding for the acquisition, JEI has entered into the Purchase Option
Agreement under the terms and conditions described above in order to acquire No. 35
Kowa Building based on the judgment that the acquisition will contribute to theenhancement of unitholders’ value.
(Note) A forward commitment is defined in the regulations as any postdated purchaseagreement under which the payment and the delivery of the target property shallbe made after a lapse of one month or more subsequent to the execution of suchagreement or any other similar agreement.

51