Sensible Strategies for
Growth and Value Creation

SEMI-ANNUAL REPORTFor the 8th Period
from January 1, 2010 to June 30, 2010

Profile
Japan Excellent, Inc. (JEI) listed its
units in the real estate investment trust
market of the Tokyo Stock Exchange onJune 27, 2006, and initiated operations
on the same date. Since then, JEI has
used the support of its group ofsponsors, which are leading companies
in real estate and finance, to invest
mainly in office buildings in majorurban areas, primarily Tokyo. Over the
medium-to-long term, JEI will manage
its portfolio with the fundamental
policies of achieving steady asset
expansion and stable revenue growth.

Sensible Strategies for
Growth and Value Creation

Contents
JEI Snapshot ................................................

2

Main Properties ............................................ 14

Financial Highlights ......................................

4

Management ................................................ 18

To Our Unitholders .......................................

6

Performance Report ..................................... 20

Investment Strategy ..................................... 10

Financial Statements .................................... 27

Portfolio Map ................................................ 11

Investor Information ..................................... 44

Portfolio ........................................................ 12

Japan Excellent, Inc. 1

JEI Snapshot

Basic Strategies

Our Corporate Sponsors
Provide Stability and Flexibility
JEI’s sponsors are strong in both real estate and finance.
From the real estate industry, JEI’s core sponsors are Kowa
Real Estate Co., Ltd., The Dai-ichi Life Insurance Company,
Limited, and Sekisui House, Ltd. Kowa Real Estate has

Property market

Financial market

developed and manages many leading-edge office buildings,
mainly in the central business districts of Tokyo. Dai-ichi Life
Insurance is a leading life insurer that has invested in numerous
buildings throughout major cities in Japan, and Sekisui House is Japan’s No. 1 home builder, with a wealth ofexperience in large-scale urban development. These three sponsors give us a real advantage as a source ofproperty supply, human resources and real estate expertise.
From the financial industry, our core sponsors include Mizuho Corporate Bank, Ltd. and Mizuho Trust &Banking Co., Ltd. They are part of the Mizuho Financial Group, which is one of Japan’s three mega banking
groups. We use the comprehensive strengths of our sponsors to steadily manage operations.

Stable Operations
Centered on Metropolitan
Tokyo Office Buildings
JEI invests primarily in office buildings. All
properties in our portfolio at this time are officebuildings. We primarily invest in Tokyo, whereproperty leasing demand is strong. Currently, on
an acquisition price basis 94 percent of our portfolio
is in metropolitan Tokyo.

2 Japan Excellent, Inc.

Tokyo

18

Portfolio

properties

Sixteen of the eighteen properties in JEI’s
portfolio are in metropolitan Tokyo.

Total leasable floor space

220,474.77m

Generates stable revenues.

2

Acquisition price

181.0

billion yen

124
Occupancy rate

Profitability

97.4

Tenant leasing risk is well dispersed.

Stable at a very high level.

Distribution per unit

15,315
NOI yield

Financial
Stability

tenants

Steady portfolio expansion overthe 3 years since JEI listed on theTokyo Stock Exchange.

JEI has maintained stable distributions
since listing its investment units.

yen

5.3

JEI is securing stable returns from its
properties through efforts to generateinternal growth despite the unstable realestate market.

Ratings
JEI maintains ratings from international
rating agencies to provide high levelsof transparency.

(Moody’s/R&I)
LTV ratio

49.0

JEI’s LTV compares favorably with its
peers in the J-REIT market.

(As of June 30, 2010)
Japan Excellent, Inc. 3

Financial Highlights

8th Period

January 1, 2010 toJune 30, 2010

7th Period

6th Period

8th Period

July 1, 2009 to
January 1, 2009 to		December 31, 2009
June 30, 2009

January 1, 2010 toJune 30, 2010

Millions of yen, except per unit dataor where otherwise indicatedTotal revenues (Note 2)...................................
Operating income...........................................
Net income.....................................................

¥

7,302
3,252
2,366

¥

7,494
3,349
2,485

¥

Thousands of U.S. dollars(Note 1)

7,544
3,278
2,442

$

82,501
36,741
26,741

Funds from operations (Note 3)....................
Net operating income (NOI) (Note 3)..............
Total distribution.............................................

3,359
4,778
2,366

3,476
4,907
2,485

3,432
4,814
2,442

37,951
53,983
26,741

Total assets....................................................
Interest-bearing debt......................................
Net assets......................................................
LTV (Loan to value) ratio (Note 3)...................

194,71095,50089,38949.0%

195,040
95,50089,45049.0%

195,145
95,50089,36348.9%

2,199,874
1,078,974
1,009,939

154,550
578,387
15,315

154,550
578,780
16,085

154,550
578,215
15,802

6,537
173

21,73722,494

22,211

246

Total number of outstanding
investment units (units)...............................
Net assets per unit (Yen/$).............................
Distribution per unit (Yen/$)............................
Funds from operations
per unit (Yen/$) (Note 3)................................

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥88.51 = U.S.$1.00, the approximate exchange rate on June 30, 2010.
2. Total revenues do not include consumption taxes.
3. Funds from operations: Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization
		 Net operating income: (Rental business revenues - Property operating expenses) + Depreciation and amortization
		 Loan to value ratio: Interest-bearing debt / Total assets
		 Funds from operations per unit: (Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation
		 and amortization) / Weighted average number of common units issued and outstanding during the period

Portfolio Highlights(As of June 30, 2010)

Investment Areas (Acquisition price basis)

By Property Size (Acquisition price basis)

metropolitan
TokyoTokyo
metropolitan
area area
percentage
percentage

9494
%%

Medium-sizedMedium-sizedbuildings
buildings
21.4%
21.4%
Large
buildings
Largebuildings
78.6%
78.6%

Note: Area Ⅰ: Six central wards of Tokyo
Area Ⅱ: Central Osaka, central Nagoya and central Fukuoka
Area Ⅲ: Tokyo other than AreaⅠ, and its vicinity
For details see page 10.

Note:
Large buildings: .Floor areas of over 10,000 tsubo* within Tokyo’s 23 wards
			or over 4,000 tsubo outside Tokyo’s 23 wards
Medium-sized buildings: Floor areas of 1,000 - 10,000 tsubo within Tokyo’s
23 wards or 1,000 - 4,000 tsubo outside Tokyo’s
23 wards* 1 tsubo = 3.306m2
For details see page 10.

4 Japan Excellent, Inc.

Total Revenues / Net Income

Funds from Operations

Net Operating Income (NOI)(Millions of yen)

(Millions of yen)

(Millions of yen)

4th

4th

period4th

period5th

period5th

period5th

period6th

period6th

period6th

period7th

period7th

period7th

period8th

period8th

period8th

period
0

2,000

4,000

6,000

8,000

period0

10,000

800

1,600

2,400

3,200

4,000

0

1,000 2,000 3,000 4,000 5,000 6,000

Total revenues
Net income

Net Assets

LTV (Loan to Value) Ratio

Distribution per Unit

(Millions of yen)

(%)

(Yen)

4th

4th

period4th

period5th

period5th

period5th

period6th

period6th

period6th

period7th

period7th

period7th

period8th

period8th

period8th

period0

20,000 40,000 60,000 80,000 100,000

period
0

10.0

20.0

30.0

40.0

50.0

60.0

0

10,000 12,000 14,000 16,000 18,000 20,000 22,000

Major Tenants			
Name
Property

Toshiba Information Systems (Japan)
Corporation
2rd ﬁscal period

Leased Space(m2)

Net income Higashiguchi Building
Kowa Kawasaki
2rd ﬁscal period

Percentage ofTotal Leased Area

18,612.72

8.7
2rd ﬁscal period
8.5

National Mutual Insurance Federation
3th ﬁscal periodof Agricultural Cooperatives

Kowa Kawasaki Nishiguchi Building

3th ﬁscal period

18,206.18

4thDiagnostics
ﬁscal period
Roche
K.K.

Shiba 2-Chome Building

4th ﬁscal period

9,284.18

4th ﬁscal period
4.3

Fujitsu
Science Laboratory Ltd.
5thSocialﬁscal periodMusashikosugi Tower Place5th ﬁscal period

8,680.74

4.0
5th ﬁscal period

Fujitsu Network Solutions Ltd.

Kawasaki Nisshincho Building

7,259.45

3.4

6th ﬁscal period

Total revenues

6th ﬁscal period

3th ﬁscal period

6th ﬁscal period

Note: Major tenants are the portfolio’s top five tenants in terms of total leased floor space. If a tenant leases space in multiple properties held by the investment
2000
6000
8000
10000
0
1000 2000 3000 4000 5000 6000
corporation, floor0 spacein such4000
properties
is included
in
the tenant’s total leased space.

2rd ﬁscal period0

2rd ﬁscal period

2rd ﬁscal period

Japan Excellent, Inc. 5

3th ﬁscal period

3th ﬁscal period

3th ﬁscal period

800

1600

To Our Unitholders

Chifumi Toda
Executive Director,
Japan Excellent, Inc.

While maintaining solid management,
we will implement sensible strategies
for growth and value creation
over the medium-to-long term.

6 Japan Excellent, Inc.

Occupancy Rate in Central Tokyo,
Central Osaka and Central Nagoya

Occupancy Rate for JEI Properties
Average Asking Rents in Tokyo CBDs

Occupancy Rate in Central Tokyo,
Central Osaka and Central Nagoya

Average Asking Rents in Central Tokyo

(%)

100

JEI total
Central Tokyo

Central Osaka
Central Nagoya(%)
100per tsubo)(Yen

Rent mhigherthe ma40,00035,000
95

95

33.0%

30,00090

25,00090

Samethe ma20,00085
0Oppo

8/200910/2009
12/2009
2/20104/20106/20107/20099/200911/2009
1/20103/20105/2010Central Tokyo: Chiyoda, Chuo, Minato, Shinjuku and Shibuya wards
Central Osaka: Umeda, Minami-Morimachi, Yodoyabashi / Honcho, Senba,
Shinsaibashi / Namba, and Shin-Osaka districts
Central Nagoya: Meieki, Fushimi, Sakae and Marunouchi districts
Source: Miki Shoji Co., Ltd.

Overview of 8th Period Results
Although revenue and profit declined, we
minimized the effects of the harsh market
environment.

15,000008.9%
8/200910/2009
12/2009
2/20104/20106/20107/20099/20096/200711/2009
1/20105/20106/2006 12/2006
12/2007 6/2008
12/2008 3/2010
6/2009 12/2009
6/2010

Average asking rent for new buildings
Average asking rent for existing buildings
Total average asking rent

Central Tokyo: Chiyoda, Chuo, Minato, Shinjuku and Shibuya wards
Source: Miki Shoji Co., Ltd.

Nevertheless, our average rent declined as rent cuts forexisting tenants renewing their leases were unavoidable.
Operations in the 8th Period resulted in a decline inrevenue and profit. Total revenues were ¥7,302 million(down ¥192 million, or 2.6 percent, compared to the

During the 8th Period (the six-month period ended

previous period), operating income was ¥3,252 million

June 30, 2010), the office leasing market saw vacancy(down ¥97 million, or 2.9 percent) and net income wasrates increase in all areas as corporations continued to¥2,366 million (down ¥119 million, or 4.8 percent).

cut costs and consolidate office space. Even in the

Despite the decline in revenue and profit, we takeTokyo metropolitan area, in general, vacancy rates

pride in the fact we minimized the effects of the harshcontinued to rise. There were isolated signs ofenvironment and succeeded in maintaining a highimprovement in the office leasing market, however, as

occupancy rate, the most important factor in thisvacancy rates in large high-grade buildings located inenvironment.

central Tokyo declined. Meanwhile, in Osaka, Nagoya
and other regional cities, the market continued to see
vacancy rates rise and market rents fall as the balance
between supply and demand worsened.
Amid such an environment, in the 8th Period Japan
Excellent Inc. (JEI) focused its efforts on quickly fillingvacated space by strengthening leasing activities in

Our External Growth Strategy
Invest selectively and acquire high-grade
properties, tapping our sponsors’ networks
of information.
While the real estate investment market iscollaboration with property managers. Furthermore, we

improving, there remain few transactions for high-grade

maintained a high portfolio occupancy rate of 97.4

properties. Despite that fact, JEI will strive to enhance

percent as of the end of the 8th Period (up 0.4

the quality of its portfolio by positioning external growth

percentage points compared to the end of the previous

as an important management challenge and making

period) due to improved service in building operations

selective investments in high-grade properties.

and management, including enhanced building

In August 2010, JEI decided to pay ¥2,390 million

functions resulting from equipment upgrades andto acquire an additional stake in one of its existing

effective tenant satisfaction improvement measures.

portfolio properties—the No. 32 Kowa Building. The
Japan Excellent, Inc. 7

ncy Rate for JEI Properties

Xxxxxxxxxxxxxxxxxxxxxxxxxxxx

Planned Acquisition in the 9th Period

Asset Growth (Acquisition Price Basis)

No. 32 Kowa Building
Additional Acquisition of 30% of Co-ownership

I -4

009
10/2009
12/2009
2/20104/20106/20109/200911/2009
1/20103/20105/2010Acquisition price:¥2,390 million
Scheduled acquisition date:
December 24, 2010
Location:
5-2-32 Minami-Azabu,
Minato-ku, Tokyo
Site area:Land
2,592.39m2
Building 10,110.96m2
Leasable floor space:
2,271.29m2*
Seller:Kowa Real Estate Co., Ltd.

(Billions of yen)

350

300

300
250
200

181

183

6/201012/2010(est.)

150
100

98

50
0

6/2006

Mid-term target* Figure indicates total leasable area ofthe co-owned compartmentalized
portion multiplied by the ratio of theco-ownership acquired (30/100).

No. 32 Kowa Building is a highly competitive building

bottomed out, as cancellations motivated by cost-that lies in a prime location in central Tokyo that is

cutting and other factors have mostly run their course.

home to many embassy buildings. (The planned date ofMoving forward, we will position maintaining andacquisition is December 24, 2010, and the planned

raising our occupancy rate as our most importantseller is Kowa Real Estate, one of our sponsors).

challenge and focus on quickly leasing up vacant

At JEI, this negotiated deal is an example of how,space. To that end, we will continue to improve

moving forward, we plan to leverage our sponsors’

satisfaction among existing tenants to maintain our

networks of information to make selective investments

occupancy rate and pursue leasing activities that fullyin high-grade buildings located primarily in the Tokyo

leverage the comprehensive resources of our sponsor

metropolitan area. By doing so, we seek to enhancecompanies.

the quality and grow the size of our portfolio andestablish a solid earnings base, even in a stagnant realestate investment market.

Our Internal Growth Strategy
Position maintaining and raising ouroccupancy rate as our most important
challenge. Focus on leasing up vacant space
through enhanced tenant satisfaction andleasing activities.
In the office leasing market, with the exception of

Our Financial Strategy
Pursue a variety of measures aimed at further
stabilizing our funding base.
The financing environment for J-REITs is recovering
to its state preceding the collapse of Lehman Brothers,
as refinancing risk has subsided due to theestablishment of the Real Estate Market Stabilization
Fund in September 2009 and credit improvements
realized through the reorganization of certain J-REITs.
At JEI, however, we consider a solid funding basesome large, high-grade buildings located in central

to be an important factor in our future growth strategy

Tokyo, vacancy rates continued to rise and averageand plan to adhere to conservative financial

asking rent levels continue to fall. We expect it will takemanagement moving forward. Specifically, we will worksome time before the market bottoms out.

to shift to debt with longer maturities and fixed interest

Meanwhile, although at JEI we are receiving somerates, level out our maturity schedule and diversify

tenant cancellations, we believe the JEI portfolio has

our funding sources. In the 8th Period, we issued

8 Japan Excellent, Inc.

ToDateOurandUnitholders
Balance
Balanceby
byRepayment
Repayment
Dateand
Average
AverageInterest
InterestRate
Rate

Balance
BalanceofofInterest-Bearing
Interest-BearingDebt
Debt

Balance of Interest-Bearing Debt

Balance by Repayment Date and
Average Interest Rate

AsAsofofDecember
December31,
31,2009
2009(Billions of yen)(Billions of yen)
30
30

Short-term,
Short-term,floating-rate
floating-rate¥12.0¥12.0billion
billion(12.6%)(12.6%)

AsAsofofJune
June30,30,20102010
Long-term,Long-term,
fixed-rate
fixed-rate¥25.25¥25.25billion
billion(26.4%)(26.4%)

Corporate
Corporatebonds,
bonds,
fixed-rate
fixed-rate¥17.00billion¥17.00 billion(17.8%)(17.8%)

Interest-Bearing
Interest-Bearing
Debt
Debt

Interest-Bearing
Interest-Bearing
Debt
Debt

billionbillion

¥95.5
¥95.5
billionLong-term,Long-term,
fixed-rate
fixed-rate¥35.75¥35.75billion
billion(37.4%)(37.4%)
Long-term,Long-term,floating-rate
floating-rate¥47.75¥47.75billion
billion(50.0%)(50.0%)

20
20

¥95.5
¥95.5
billion10
100Long-term,Long-term,floating-rate
floating-rate¥53.25¥53.25billion
billion(55.8%)(55.8%)

0 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th

9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th
PeriodPeriodLong-term debt
Long-term debt
Short-term debt
Short-term debt
Corporate bonds
Corporate bonds

Ratio
100%
Ratioofoflong-termlong-termdebt:
debt:
100%
Ratio
44.2%
Ratioofoflong-term,
long-term,fixed-rate
fixed-ratedebt:
debt:44.2%
LTV
ratio:
49.0%
LTV ratio:
49.0%

Average
2.46years
Averageremaining
remainingdebt
debtterm:
term: 2.46
years
Average
1.40%
Averageinterest
interestrate:
rate:
1.40%
(included in the above, long-term 1.39%)(included in the above, long-term 1.39%)

investment corporation bonds in March (¥12 billion

by accurately assessing changes in the market

issuance with a maturity of 4 years) and, as ofenvironment.

March 31, 2010, prepaid ¥12 billion in short-term

In the 9th Period (the six-month period ending

borrowings. Additionally, we refinanced ¥13 billion in

December 31, 2010) we forecast total revenues oflong-term borrowings due to mature in June, 2010 with

¥7,063 million, operating income of ¥2,963 million, net¥5 billion in investment corporation bonds and ¥8 billion

income of ¥2,163 million and distributions per unit of

in long-term borrowings, with a maturity of 3.5 years.
As of December 31, 2008

¥14,000. In the 10th Period (the six-month period

Short-term,
Short-term,floating-rate
floating-rate¥12.0¥12.0billion
billion Period, all outstanding borrowings are long-term, and(12.6%)(12.6%)¥6,992 million, operating income of ¥2,833 million,

As of December 31, 2008

ending June 30, 2011), we forecast total revenues of

As a result of these efforts, as of the end of the 8th

net income of ¥2,009 million and distributions per unit

fixed interest rate debt accounted for 44.2 percent ofInterest-Bearingof ¥13,000.

theInterest-Bearing
total,
up from 37.4 percent as of the end of the
Debt
Debt

¥95.5
¥95.5

At JEI, we aim to maximize unitholder value andprevious period.

billionLong-term,billionLong-term,
At
JEI, we will raise the stability of our funding base,
fixed-rate
fixed-rate¥45.75billion¥45.75 billion working together with financial institutions such as(47.9%)(47.9%) Long-term, floating-rateLong-term, floating-rate
Mizuho Corporate Bank, Ltd.
¥37.75¥37.75billion
billion(39.5%)(39.5%)

Forecasts and our Basic Approach
Moving Forward

87.4%
Ratio
Ratioofoflong-termlong-termdebt:
debt:
87.4%
Ratio
Ratioofoflong-term,
long-term,fixed-rate
fixed-ratedebt:
debt:54.8%
54.8%
LTV
ratio:
48.7%
LTV ratio:
48.7%

achieve stable medium-to-long term growth as we
continue solid operations while fully leveraging thecollective resources of our sponsors, who havestrength in both real estate and finance.

45000
45000

Accurately assess changes in the market
30000
30000
environment and implement sensible
strategies for growth and value creation
over the medium-to-long term.
15000
15000

Long-termLong-termdebt
debt
Short-term
Short-termdebt
debt

Chifumi Toda
Executive Director, Japan Excellent, Inc.

The office building market environment continues tobe weak, but we believe that the highly competitive JEI 00
portfolio has already bottomed out. Over the near-term,

2009年
2010年
2011年
2012年
2013年
2014年
2015年
2009年
2010年
2011年
2012年
2013年
2014年
2015年

we expect earnings to decline on the effects of tenant
cancellations. However, we intend to return to growth
Japan Excellent, Inc. 9

Investment Strategy

JEI invests primarily in office buildings, and has set otherusage at less than 10 percent of its portfolio. As of June 30,
2010, office buildings accounted for 100 percent of JEI’s
portfolio. JEI invests in urban properties, primarily in thecentral business districts of Tokyo, and is moving to further
enhance the stability and profitability of its portfolio with afocus on strong tenant relationships, property scale andquality, and a balanced tenant mix.

JEI has built a portfolio
centered on officebuildings in major
metropolitan areas thatbalances stable profitability
and revenue growth.
Portfolio Composition Target by Usage
Usage*

Investment Ratio in Portfolio

Office buildings

90% or more

Others (commercial facilities, housing, etc.)

10% or less

* Usage of a building is defined as the usage to which more than 50% of the total floor space available for rental revenue of the asset is designated.

Portfolio Composition Target by Area
Target Investment Areas

Investment Ratio in Portfolio

Core areas (80% or more)
Area I

Six central wards of Tokyo (Chiyoda, Chuo, Minato,
Shinjuku, Shinagawa and Shibuya)

50% or more of the core areas

Area Ⅱ

Central Osaka (Umeda, Dojima, Nakanoshima,
Yodoyabashi, Honmachi districts, etc.)
Central Nagoya (Meieki, Fushimi, Sakae districts, etc.)
Central Fukuoka (Tenjin, Hakata-Terminal peripheral
districts, etc.)

50% or less of the core areas

Area ⅢTokyo other than AreaⅠ, and its vicinity (Kanagawa,
Saitama and Chiba prefectures)

50% or less of the core areas

Area Ⅳ

Osaka, Nagoya and Fukuoka other than AreaⅡ, and othergovernment-ordinance designated cities, etc.

20% or lessNon-core areas

Portfolio with a Focus on Regional, Property Scale, and Tenant Mix Balance
Regional Balance

Property Scale Balance

Tenant Mix Balance

JEI recognizes that AreaⅠis the top priority
for its investment activities, but will also
proactively invest in properties situated in
AreasⅡ and Ⅲ. Through these initiatives,
JEI expects to minimize the impact ofany market fluctuations caused bychanges in economic conditions and theconcentration of large-scale development
projects in major urban areas.

JEI pursues optimal portfolio development
by effectively balancing its investment inlarge buildings*, which are believed tooffer advantages and competitiveness in
the real-estate market, and medium-sizedbuildings*, which are regarded as assets
with high liquidity and stable rent levels.

JEI aims to minimize various risks related
to tenants, such as tenants vacating theproperties. To this end, JEI is endeavoring
to optimize tenant mix and diversify risks
by avoiding the over-concentration of thesame kind of tenants or tenants from thesame industries in its portfolio.

* JEI defines buildings located in the 23 wards of Tokyo with total floor space of approximately 33,058m2 (10,000 tsubo) or larger as large buildings, and those with total
floor space of 3,306m2 (1,000 tsubo) or larger but smaller than 33,058m2 as medium-sized buildings. For properties in all other areas, JEI defines buildings with total
floor space of approximately 13,223m2 (4,000 tsubo) or larger as large buildings, and those with total floor space of 3,306m2 or larger but smaller than 13,223m2 as
medium-sized buildings.

10 Japan Excellent, Inc.

Portfolio Map(Length of bars indicates portfolio on an acquisition price basis.
Figures have been rounded to the nearest million yen.)¥93,409 million

Tokyo

Kanagawa
Prefecture¥76,641 million¥6,470 million
Ebina City

¥4,300 million¥6,674 million

Nagoya City
Osaka City

¥23,300 million¥5,400 million

Tokyo’s six central wards¥2,550 million¥4,000 million¥17,857 million¥8,350 million¥5,040 million¥1,150 million¥9,450 million¥2,859 million

Chiba
Prefecture

Kanagawa
Prefecture¥22,553 million¥13,890 million

Japan Excellent properties
within a 20km radiusof Tokyo’s six central wards.

¥32,000 million¥10,976 million¥3,905 million¥4,205

Total acquisition price(Millions of yen)
No. of properties

Area I

Area Ⅱ

Area Ⅲ

93,40910,974

76,641

8

2

8

Japan Excellent, Inc. 11

Portfolio

Property			
NumberName		

						
Investment		
Acquisition Price1
Book Value
Appraisal Value
Type
Year Built(Millions of yen)
(Millions of yen)
(Millions of yen)

I-7

Akasaka Garden City

Trust

2006

23,30023,04421,300I-1

Omori Bellport D

Trust

1996

22,553

22,26624,780

I-8

AKASAKA INTERCITY

Trust

2005

17,857

17,656

13,300

I-2

Shiba 2-Chome Building

Trust

1994

9,450

9,279

11,500I-3

JEI Hamamatsucho Building

Trust

1991

8,350

8,260

8,900

I-4

No. 32 Kowa Building

Trust

1979

5,040

4,987

5,356

I-5

No. 36 Kowa Building

Trust

1982

4,000

4,011

4,030

I-6

No. 28 Kowa Building

Trust

1975

2,859

2,829

3,390

93,40992,33592,556

		

Subtotal

Ⅱ-2

JEI Nishi-Honmachi Building

Ⅱ-1

NHK Nagoya Housou-Center Building

		

Trust

1988

6,674

7,592

4,650

Ownership

1991

4,300

4,222

4,800

10,974

11,8149,450

Subtotal

Ⅲ-9

Kowa Kawasaki Nishiguchi Building

Trust

1988

32,00031,191

27,300

Ⅲ-1

Musashikosugi Tower Place

Trust

1995

13,89013,37016,200

Ⅲ-2

Kowa Kawasaki Higashiguchi Building

Trust

1988

10,976

10,5009,940

Ⅲ-8

Ebina Prime Tower

Trust

1995

6,470

6,380

4,360

Ⅲ-3

JEI Hongo Building

Trust

1991

5,400

5,266

5,160

Ⅲ-5

Kawasaki Nisshincho Building

Trust

1992

4,205

4,108

5,230

Ⅲ-7

JEI Ryogoku Building

Trust

1996

2,550

2,444

2,182

Ⅲ-6

No. 44 Kowa Building

Trust

1984

1,150

1,021

1,480

		

Subtotal

76,641

74,28371,852

		

Total

181,023

178,434

173,858

Notes: 1. Figures for “Acquisition Price” are sales prices recorded in sales agreements (excluding taxes). Amounts of less than one million yen are rounded.
2. Figures for “Total Floor Space” are for each entire building, including buildings in which JEI has acquired compartmentalized ownership or co-ownership.
3. Figures for “Investment Ratio” show the ratio of the acquisition price for each acquired property in proportion to the total acquisition price for all acquired properties
in the portfolio. Figures are rounded to the first decimal place.

12 Japan Excellent, Inc.

						Total Floor Space2(m2)

Total Leasable
Floor Space(m2)

Total Leased
Space at End of Period(m2)

Occupancy Rate			at End of Period
Revenue
NOI(%)(Millions of yen)
(Millions of yen)

Investment
Ratio3(%)

PML

46,776.76

8,769.53

8,769.53

100.0

555

449

12.9

8.6

155,778.75

25,828.29

25,828.29

100.0

1,081

714

12.5

8.0

73,061.33

5,622.98

5,169.39

91.9

333

234

9.9

9.2

19,518.15

11,749.30

11,275.24

96.0

371

282

5.2

8.2

8,327.53

6,411.26

6,411.26

100.0

295

218

4.6

8.2

10,110.96

5,299.67

4,303.54

81.2

207

151

2.8

13.2

8,266.55

5,720.34

5,720.34

100.0

—

130

2.2

13.2

6,282.23

4,472.71

4,009.77

89.6

147

99

1.6

13.5

328,122.26

73,874.08

71,487.36

96.8

—

2,280

51.6

—

15,800.31

10,601.70

10,601.70

100.0

247

126

3.7

11.5

80,809.95

8,964.88

8,335.47

93.0

319

178

2.4

11.9

96,610.26

19,566.58

18,937.17

96.8

—

304

6.1

—

61,856.92

38,332.15

36,433.38

95.0

1,083

703

17.7

7.9

53,711.13

25,217.28

25,217.28

100.0

802

528

7.7

11.5

31,009.62

18,612.72

18,612.72

100.0

—

316

6.1

6.7

55,806.20

25,373.27

24,660.49

97.2

513

231

3.6

12.2

5,877.11

4,078.37

4,078.37

100.0

173

132

3.0

14.2

22,141.60

8,980.70

8,980.70

100.0

229

172

2.3

14.7

5,820.56

3,871.64

3,792.82

98.0

109

72

1.4

14.3

3,359.55

2,567.98

2,567.98

100.0

93

35

0.6

13.4

239,582.69

127,034.11

124,343.74

97.9

—

2,194

42.3

—

664,315.21

220,474.77

214,768.27

97.4

7,302

4,778

100.0

6.6

Japan Excellent, Inc. 13

Main Properties

I -3

I -4

I -5

14 Japan Excellent, Inc.

I -6

I -1

I -8

I -7

I -2

I -1

Omori Bellport D

I -2

Shiba 2-Chome Building

I -3

JEI Hamamatsucho Building

I -4

No. 32 Kowa Building

I -5

No. 36 Kowa Building

I -6

No. 28 Kowa Building

I -7

Akasaka Garden CityI -8

AKASAKA INTERCITY

Japan Excellent, Inc. 15

Ⅱ-1
Ⅲ-1

Ⅲ-2

Ⅱ-2

Ⅲ-3

Ⅱ-1

NHK Nagoya
Housou-Center Building

Ⅱ-2

JEI Nishi-Honmachi Building

16 Japan Excellent, Inc.

Main Properties

Ⅲ-5

Ⅲ-9

Ⅲ-7

Ⅲ-6

Ⅲ-8

Ⅲ-1

Musashikosugi Tower Place

Ⅲ-2

Kowa Kawasaki Higashiguchi Building

Ⅲ-3

JEI Hongo Building

Ⅲ-5

Kawasaki Nisshincho Building

Ⅲ-6

No. 44 Kowa Building

Ⅲ-7

JEI Ryogoku Building

Ⅲ-8

Ebina Prime Tower

Ⅲ-9

Kowa Kawasaki Nishiguchi Building

Japan Excellent, Inc. 17

Management
Overview of Investment Corporation (As of June 30, 2010)
Japan Excellent, Inc. (JEI) was established with the aim of managing investment in the form of specified assets under the Trust
Law. The asset management company Japan Excellent Asset Management Co., Ltd. (JEAM) performs all the asset management.
JEAM is characterized by asset management that aims at securing steady earnings and stable growth of assets undermanagement from a medium-to-long-term perspective. It accomplishes this by targeting investment properties in major
metropolitan areas centering on the six central wards of Tokyo, investing 90 percent or more of the total portfolio in officebuildings or real estate constructed on such sites, and investing in marketable securities, beneficiary trust rights and otherassets that back the real estate.

Organization
Sponsor Companies Providing
Pipeline Support

Administrative Agent
Asset Custodian

Japan Excellent, Inc.

Kowa Real Estate Co., Ltd. (A)Sekisui House, Ltd. (B)Mizuho Trust & Banking Co., Ltd. (C)42Unitholders’ Meeting

Asset Management Company
Japan Excellent
Asset Management Co., Ltd. (JEAM)

Mizuho Trust & Banking Co., Ltd.

Transfer Agent
1

3

Board of Directors
Executive Director: Chifumi Toda
Supervisory Director: Makoto Sakagami
Supervisory Director: Tsuyoshi Nagahama
Supervisory Director: Shunichi Maekawa

Think Tanks

5

Mizuho Trust & Banking Co., Ltd.

General Administrator for
Investment Corporation Bonds

Accounting Auditor

Mizuho Research Institute, Ltd. (A)Urban Research Institute Corporation (B)Ernst & Young ShinNihon LLC

6

Mizuho Corporate Bank, Ltd.

1 Asset management agreement
2 (A) Pipeline support agreement with Kowa Real Estate
3 (B) Pipeline support agreement with Sekisui House(C) Pipeline support agreement with Mizuho Trust & Banking
3 (A) Agreement with Mizuho Research Institute for provision of market and other relevant information(B) Agreement with Urban Research Institute for provision of market and other relevant information
4 Agreement to entrust administrative duties and asset custody
5 Agreement to entrust administration of unitholders’ register
6 Fiscal, issuing and paying agency agreement related to the first issuance of unsecured investment corporation bonds

Japan Excellent, Inc. Management Team
Chifumi Toda
Executive Director
February 1998			
September 2000
			July 2004
				
			March 2009							November 2009
Makoto Sakagami

Supervisory Director

December 1990

				

			
			

April 1961

Partner, Chuo Coopers & Lybrand Consulting Co., Ltd.
(currently IBM Business Consulting Services K.K.)
Established Makoto Sakagami Certified Public Accounting Office (current)
Supervisory Director, Japan Excellent, Inc. (current)

			
			
			

April 1964
February 2006
January 2009Entered the Ministry of Transport (currently Ministry of Land,
Infrastructure, Transport and Tourism)
Registered as lawyer (Daini Tokyo Bar Association)
Supervisory Director, Japan Excellent, Inc. (current)
Advisor, Anderson, Mori & Tomotsune (current)

Shunichi Maekawa
Supervisory Director
			
			
			

February 1983
April 1999
November 2007
April 2008

Registered as real estate appraiser
Professor, Faculty of Real Estate Sciences, Meikai University (current)
Supervisory Director, Japan Excellent, Inc. (current)
Director, Land Information Center (current)

Tsuyoshi Nagahama

Supervisory Director

July 2000
February 2006

Manager, Namba Branch, Industrial Bank of Japan, Limited
General Manager, Mizuho Holdings, Inc.
Executive Officer / General Manager, Sales Department,
Office Building Business Division, Kowa Real Estate Co., Ltd.
President and Representative Director, Japan Excellent AssetManagement Co., Ltd. (current)
Executive Director, Japan Excellent, Inc. (current)				

18 Japan Excellent, Inc.

Overview of Asset Management Company (As of June 30, 2010)
Company Outline
Corporate NameJapan Excellent Asset Management Co., Ltd.

Officers

President

Headquarters
Established1-9-20 Akasaka, Minato-ku, Tokyo		

Director, Chief Financial Officer

April 14, 2005

		Director, Chief Investment Officer

Capital¥450 million		

Director (Non-executive)

Takashi Uchida

Shareholders
		
		
		
		
		
		
		
		

Kowa Real Estate Co., Ltd.
The Dai-ichi Life
Insurance Company, Limited
Sekisui House, Ltd.
Morgan Stanley Capital K.K.
The Dai-ichi Building Co., Ltd.
Sohgo Housing Co., Ltd.
Mizuho Corporate Bank, Ltd.
Mizuho Trust & Banking Co., Ltd.

		

Auditor (Non-executive)

Masatoshi Tamaru		Compliance Officer

Business
Operations

Financial Instrument Dealer

40.0%
20.0%
15.0%
5.0%
5.0%
5.0%
5.0%
5.0%

Chifumi Toda
Miki Naito
Naoki Fukuda

Michiro Ezaki		

Investment Management Business:
Director-General of Kanto Local Financial Bureau No. 331

				Real Estate Agency License:
Governor of Tokyo (2) No. 84511

				

Discretionary License: Minister of Land,
Infrastructure, Transport and Tourism No. 44

Note: The ratio stated in the table above represents the number of investment units held to the total number of outstanding investment units.

Japan Excellent Asset Management Co., Ltd. Management Team
Chifumi Toda
President
February 1998
		and Representative
September 2000
		
Director
July 2004
				
			March 2009							November 2009Manager, Namba Branch, Industrial Bank of Japan, Limited
General Manager, Mizuho Holdings, Inc.
Executive Officer / General Manager, Sales Department,
Office Building Business Division, Kowa Real Estate Co., Ltd.
President and Representative Director, Japan Excellent AssetManagement Co., Ltd. (current)
Executive Director, Japan Excellent, Inc. (current)

Miki Naito
Director,
July 2002	Deputy General Manager, Otemachi Corporate Banking Division No. 6,		Chief Financial Officer		 Mizuho Corporate Bank, Ltd.
			May 2009	General Manager, Planning Department, Office Building Business
Division, Kowa Real Estate Co., Ltd.
			
April 2010	Director, Chief Financial Officer, Japan Excellent AssetManagement Co., Ltd. (current)
Naoki Fukuda
Director,
April 1998
		
Chief Investment Officer
April 2004							
April 2006
			April 2008

President, Dai-ichi Life Capital Properties, Inc.
Deputy General Manager, Real Estate Planning Group, Real Estate
Department, Dai-ichi Mutual Life Insurance Company
President, Dai-ichi Life International (U.S.A.), Inc.
Director, Chief Investment Officer, Japan Excellent Asset Management Co., Ltd. (current)

Takashi UchidaDirector (Non-executive)			

Director, Japan Excellent Asset Management Co., Ltd. (current)
Director and Managing Executive Officer, Sekisui House, Ltd. (current)

Masatoshi Tamaru
Auditor		(Non-executive)						August 2005
April 2006
April 2004
April 2005
July 2007

Michiro Ezaki
Compliance Officer						June 2001
April 2002
September 2005

Executive Officer, General Manager, Finance Control Department,
Kowa Real Estate Co., Ltd.
Auditor, Japan Excellent Asset Management Co., Ltd. (current)
Auditor, Kowa Real Estate Co., Ltd. (current)
Corporate Auditor, Auditing Department, Industrial Bank of Japan, Limited
Chief Corporate Auditor, Internal Audit Division, Mizuho Corporate Bank, Ltd.
Compliance Officer, Japan Excellent Asset Management Co., Ltd. (current)

Organization of Japan Excellent Asset Management Co., Ltd.
Shareholders’ Meeting
AuditorBoard of Directors
Compliance Committee

Investment Committee

Compliance Officer
Executive Director
Planning and Management Div.
Corporate
Planning Dept.

Finance andAccounting Dept.

Business
Management Dept.

Real Estate Investment Div.
Investment
Planning Dept.

Real Estate
Investment Dept.

Real EstateManagement Dept.
Japan Excellent, Inc. 19

Performance Report
Summary of Selected Financial Data
8th Period

January 1, 2010
to June 30, 2010

7th Period

6th Period

July 1, 2009
January 1, 2009
to December 31, 2009
to June 30, 2009
		Millions of yen, except per share dataor where otherwise indicatedTotal revenues (Note 2)...................................
Rental business revenues...........................
Operating expenses.......................................
Property operating expenses......................
Income before income taxes..........................
Net income.....................................................

¥

7,302
7,302
4,050
3,516
2,367
2,366

¥

7,494
7,494
4,145
3,577
2,486
2,485

¥

8th Period

January 1, 2010
to June 30, 2010

Thousands of U.S. dollars
except per share data (Note 1)

7,544
7,544
4,266
3,720
2,443
2,442

$

82,501
82,50145,75939,726
26,752
26,741

Funds from operations (Note 3)...................
Net operating income (NOI) (Note 3).............
Total distribution ............................................
Depreciation and amortization.......................
Capital expenditures......................................

3,359
4,778
2,366
992
248

3,476
4,907
2,485
990
134

3,432
4,814
2,442
990
267

37,951
53,983
26,741
11,2142,800

Total assets....................................................
Interest-bearing debt......................................
Net assets......................................................

194,71095,50089,389195,040
95,50089,450

195,145
95,50089,363

2,199,874
1,078,974
1,009,939

154,550
578,387
15,315

154,550
578,780
16,085

154,550
578,215
15,802

6,537
173

21,73722,494

22,211

246

ROA (%) (Note 3).........................................
(Annualized rate) (%).................................
ROE (%) (Note 3)..........................................
(Annualized rate) (%).................................
LTV (Loan to value) ratio (%) (Note 3)............
Capital ratio (%).............................................
Payout ratio (%) (Note 4)..............................
Number of days..............................................

1.2
(2.5)
2.6
(5.3)
49.0
45.9
100.0
181

1.3
(2.5)
2.8
(5.6)
49.0
45.9
100.0
184

1.2
(2.5)
2.7
(5.5)
48.9
45.8
99.9
181

Number of investment properties (Note 5)......
Number of tenants (Note 5).............................
Total rentable area (m2)................................
Occupancy rate (Note 5).................................

18
124
220,474
97.4

18
126
220,521
97.0

18
126
220,52198.5

Total number of outstanding
investment units (units) . ............................
Net assets per unit (Yen/$) ............................
Distribution per unit (Yen/$) . .........................
Funds from operations
per unit (Yen/$) (Note 3)................................

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥88.51 = U.S. $1.00, the approximate exchange rate on June 30, 2010.
2. Total revenues do not include consumption tax.
3. All valuations are calculated through the following formulas. The figures in parentheses are annualized based on the 6-month figures for the period.
		 ROA: Income before income taxes / (Initial total assets + Total assets at end of period) ÷ 2
		 ROE: Net income / (Initial net assets + Net assets at end of period) ÷ 2
		 Net operating income: (Rental business revenues - Property operating expenses) + Depreciation and amortization
		 Funds from operations: Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization
		 Funds from operations per unit: (Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation andamortization) / Weighted average number of common units issued and outstanding during the period
		 Loan to value ratio: Interest-bearing debt / Total assets
4. Payout ratio figures are calculated to one decimal place only.
5. Number of investment properties means units generally perceived to be one office building. Number of tenants means gross number of tenants by building.
Occupancy rate is the ratio of gross .leased area to total rentable area at the end of the period.

20 Japan Excellent, Inc.

Operating Environment
During the 8th Period (the six-month period ended June 30, 2010), corporate earnings improved and capital
expenditures rose on continued increases in exports and production levels driven by economic strength in China and otheremerging markets of Asia. Despite concerns about a global economic slowdown primarily centered on Europe and theeffects of deflation, the Japanese economy experienced a moderate recovery, including an upturn in personal spending, as
government economic measures took effect.
The office leasing market saw vacancy rates increase in all areas as corporations cut costs and consolidated officespace. Even in the Tokyo metropolitan area, in general, vacancy rates continued to rise. There were isolated signs ofimprovement in the office leasing market, however, as vacancy rates declined in large high-grade buildings located in central
Tokyo. Meanwhile, in Osaka, Nagoya and other regional cities, the market continued to see vacancy rates rise and market
rents fall as the balance between supply and demand worsened.
The flow of deals in the real estate investment market remained stagnant, due to the ongoing scarcity of information
about prime properties available for sale and a wide gap between buyers and sellers on pricing.

Overview of Performance
In the 8th Period, Japan Excellent Inc. (JEI) focused its efforts on quickly filling vacated space by strengthening leasing
activities in collaboration with property managers. Furthermore, we maintained a high portfolio occupancy rate of
97.4 percent as of the end of the 8th Period (up 0.4 percentage points compared to the end of the previous period) due toimproved service in building operations and management, including enhanced building functions resulting from equipment
upgrades and effective tenant satisfaction improvement measures. Nevertheless, our average rent declined 2.1 percent asrent cuts for existing tenants renewing their leases were unavoidable.
Operations in the 8th Period resulted in a decline in revenue and profit. Total revenues were ¥7,302 million (down ¥192
million, or 2.6 percent, compared to the previous period), operating income was ¥3,252 million (down ¥97 million, or 2.9
percent) and net income was ¥2,366 million (down ¥119 million, or 4.8 percent).
As of the end of the 8th Period, JEI owned a portfolio of 18 properties (no change from the previous period) with a total
investment value of ¥181 billion (on an acquisition price basis), having 220,474 m2 (66,693 tsubo) in aggregate leasable
space and housing 124 tenants.

Property Acquisition Slated for the 9th Period (the six-month period ending December 31, 2010)
On August 6, 2010, JEI decided to pay ¥2,390 million to acquire an additional 30% stake in one of our existing portfolio
properties—the No. 32 Kowa Building. The planned date of acquisition is December 24, 2010, and the seller is Kowa Real
Estate, one of our sponsors. This transaction is an example of how we effectively leverage our sponsors’ networks of
information in a stagnant real estate investment market.

Japan Excellent, Inc. 21

Distribution for Current Period
Distribution per unit totaled ¥15,315. The payout ratio was therefore 100.0 percent.
8th Period

January 1, 2010
to June 30, 2010

7th Period

6th Period

July 1, 2009
to December 31, 2009

January 1, 2009
to June 30, 2009

Thousands of yen, except per share amounts

Retained earnings................................................................
Undistributed earnings.........................................................
Total distribution...................................................................
(Total distribution per unit)................................................
Distribution of accumulated earnings..................................
(Distribution of accumulated earnings per unit)................
Distribution in excess of accumulated earnings..................
(Per share).........................................................................

¥2,486,006
69
2,485,936(16,085)
2,485,936(16,085)—(—)¥2,366,962
29
2,366,933
15,3152,366,933
15,315—(—)¥2,442,271
72
2,442,199(15,802)2,442,199(15,802)—(—)

Unitholders’ Capital
An overview of the issue of investment units is as follows.
			
Investment units outstanding		 Paid-in capital
Issue date
Remarks
Increase		
Balance
Increase 		
Balance				
Units			 Millions of yen

February 20, 2006
June 26, 2006
July 21, 2006
July 11, 2007
August 8, 2007

Initial capital(private)
Public offering
Third party
Public offering
Third party

400

400

128,000
6,400
19,000750

128,400
134,800
153,800
154,550¥200

64,2303,211
18,702
738

¥

Notes

200

Note 164,43067,641
86,34487,083Note 2
Note 3Note 4Note 5

Notes: 1. JEI was established with an issue of investment units priced at ¥500,000 per unit.
2. JEI issued new investment units through a public offering at a price of ¥520,000 per unit (underwriting price: ¥501,800 per unit) to raise capital primarily for theacquisition of properties following its listing on the Tokyo Stock Exchange.
3. JEI issued new investment units through a private placement at a price of ¥501,800 per unit to raise a portion of the capital required for the acquisition of properties.
4. JEI issued new investment units through a public offering at a price of ¥1,019,200 per unit (underwriting price: ¥984,360 per unit) to raise a portion of the capitalrequired for the acquisition of properties during the second period.
5. JEI issued new investment units through a private placement at a price of ¥984,360 per unit to raise a portion of the capital required for the acquisition ofproperties during the second period.

Market Price of Units
High/Low (closing price) of units on the TSE:
8th Period

January 1, 2010
to June 30, 2010

7th Period

July 1, 2009
to December 31, 2009

6th Period

January 1, 2009
to June 30, 2009

Yen

High......................................................................................
Low.......................................................................................

22 Japan Excellent, Inc.

¥496,500
386,500¥490,000
388,000¥413,000
298,000

Performance Report

Loans
Loans by lending institution as of June 30, 2010 are summarized below.
List of lenders		Lender		

Outstanding debt at				end of this period
ShareLong-term
Short-term
Millions of yen			Millions of yen

Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
The Dai-ichi Life Insurance Company, Limited
Mizuho Trust & Banking Co., Ltd.
Sumitomo Mitsui Banking Corporation
The Norinchukin Bank
Development Bank of Japan
Aozora Bank, Ltd.
Chuo Mitsui Trust & Banking Co., Ltd.
Sompo Japan Insurance Inc.
Resona Bank, Ltd.
Tokio Marine & Nichido Fire Insurance Co., Ltd.

¥22,300
13,600
8,000
7,800
7,200
5,100
4,000
3,000
3,000
2,000
1,500
1,000

28.4%
17.3%
10.2%
9.9%
9.2%
6.5%
5.1%
3.8%
3.8%
2.5%
1.9%
1.3%

¥22,300
13,600
8,000
7,800
7,200
5,100
4,000
3,000
3,000
2,000
1,500
1,000

¥0
0
0
0
0
0
0
0
0
0
0
0

Total

¥78,500

100.0%¥78,500¥0Long-term debt due within 1 year				LenderDue onBalance			Millions of yen

Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Resona Bank, Ltd.
The Dai-ichi Life Insurance Company, Limited
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Resona Bank, Ltd.
The Dai-ichi Life Insurance Company, Limited

June 29, 2011
June 29, 2011
June 29, 2011
June 29, 2011
June 29, 2011
June 29, 2011
June 29, 2011
June 29, 2011

Total long-term debt due within 1 year		Average interest
rate (%) (Note 1)

Repayment
method¥ 5,000
3,500
1,000
3,000
6,000
4,000
3,000
2,000

1.5
1.5
1.5
2.0
1.0
1.0
1.0
1.0

Bulletpayment¥27,500

1.3—

Use of
funds

Notes

Acquisition ofreal estate
Unsecured /unguaranteed
Repayment of
loans

—

—

Japan Excellent, Inc. 23

Long-term loans (Note 3)
				LenderDue onBalance			Millions of yen

Aozora Bank, Ltd.
Chuo Mitsui Trust & Banking Co., Ltd.
Mizuho Trust & Banking Co., Ltd.
Sumitomo Mitsui Banking Corporation
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Mitsubishi UFJ Trust and Banking Corporation
Sumitomo Mitsui Banking Corporation
The Norinchukin Bank
Resona Bank, Ltd.
Mizuho Corporate Bank, Ltd.

November 29, 2011
November 29, 2011
November 29, 2011
November 29, 2011
November 29, 2011
November 29, 2011
July 31, 2012
July 31, 2012
July 31, 2012
July 31, 2012
July 31, 2012

¥ 3,000
3,000
3,000
2,000
1,000
1,000
2,300
2,200
2,000
500
2,500

Mizuho Trust & Banking Co., Ltd.

July 31, 2012

1,500

Sompo Japan Insurance Inc.

July 31, 2012

2,000

Tokio Marine & Nichido Fire Insurance Co., Ltd.

July 31, 2012

1,000

Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
The Norinchukin Bank
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Mizuho Trust & Banking Co., Ltd.
The Dai-ichi Life Insurance Company, Limited

June 28, 2013
June 28, 2013
December 27, 2013
December 27, 2013
December 27, 2013
December 27, 2013
July 31, 2014

6,000
1,000
3,100
1,800
1,800
1,300
2,000

Development Bank of Japan

July 31, 2014

2,000

The Dai-ichi Life Insurance Company, Limited

June 30, 2015

3,000

Development Bank of Japan

June 30, 2015

2,000

			
			
			
			

			
			
			
			

Total long-term loans		
Total loans		

Average interest
rate (%) (Note 1)

Repayment
method

1.4
1.4
1.4
1.4
1.4
1.4
0.8
0.8
0.8
0.8
2.0

Use of
funds

Notes

Repayment ofloans

Acquisition ofreal estate(Note 2)2.0

(Note 2)2.0

(Note 2)2.0

Bulletpayment

Unsecured /unguaranteed(Note 2)

1.1
1.1
1.1
1.1
1.1
1.1
2.3

Repayment ofloans(Note 2)Acquisition ofreal estate

2.3(Note 2)

2.3

(Note 2)

Repayment of
loans

2.3

(Note 2)¥51,000¥78,500

1.5
1.4

—
—

—
—

—
—

Notes: 1. Average interest rate is a weighted average of interest rates on each loan contract as of the end of the period. In addition, JEI uses interest-rate swaps to mitigate the risk
associated with variable interest rates. The weighted average is calculated after adjusting the interest rate for applicable loans for the effect of the interest-rate swap.
2. Fixed-rate loans
3. Annual maturities of long-term loans (excluding long-term loans due within one year) due after more than one year from the balance sheet date are listed below.

Amount borrowed........................

1 to 2 years

2 to 3 years

3 to 4 years
Millions of yen

4 to 5 years

5 to 10 years¥13,000¥21,000¥8,000¥9,000

¥—

Bonds
			
Issue
Issue date			

Balance as of		June 30, 2010
CouponMillions of yen

1st Series Unsecured Investment
March 11, 2010
Corporation Bond
2nd Series Unsecured Investment
June 28, 2010
Corporation Bond
Total		

¥12,000

1.5%

March 11, 2014

5,000

1.3%

June 26, 2015

¥17,000

1.5%

Notes: Use of found includes repayment of loans.

24 Japan Excellent, Inc.

Maturity		
date
Redemption

Bulletpayment

Use ofproceeds

NotePerformance Report

Capital Expenditures
Planned Capital Expenditures
Primary planned capital expenditures for properties in JEI’s portfolio as of June 30, 2010 for renovation and otherpurposes are as follows. The planned construction expenditures below include the portion already recorded as expenses.
						
				
Estimated		Name of property
Address
Objective
duration
Total amounts						

Kawasaki Nisshincho
Kawasaki-ku, Kawasaki, Upgrade heat source July 2010 to
Building
Kanagawa Prefecture equipment
December 2010
Kowa Kawasaki
Kawasaki-ku, Kawasaki, Upgrade central
August 2010 toHigashiguchi Building Kanagawa Prefecture monitoring equipment December 2010
NHK Nagoya
Higashi-ku,
Upgrade air-conditioning July 2010 to
Housou-Center Building Nagoya
equipment (first phase) December 2010

Estimated amounts
Payment for thecurrent period
Millions of yen

Cumulative
amount paid

¥87

—

—

70

—

—

67

—

—

Capital Expenditures for the Current Period
Construction requiring capital expenditures during the period ended June 30, 2010 for properties in JEI’s portfolio as ofJune 30, 2010 is outlined below. Capital expenditures during the period ended June 30, 2010 totaled ¥248 million. The totalof capital expenditures and repair expenses of ¥130 million during the period ended June 30, 2010 was ¥379 million.
Name of property
Address
Objective
Estimated duration
					Omori Bellport D

Shinagawa-ku, Tokyo

Upgrade central
monitoring equipment
Upgrade central
monitoring equipment
Improve automaticFire alarm equipment

NHK Nagoya
Higashi-ku, Nagoya
Housou-Center Building		
Kowa Kawasaki
Kawasaki-ku, Kawasaki,
Higashiguchi Building
Kanagawa Prefecture
Other buildings			
Total				Expenditure
Millions of yen

September 2009
to May 2010
March 2009
to March 2010
August 2009
to May 2010
—

¥ 61
50
39
96
¥248

Cash Reserve for Capital Improvements
JEI formulates a long-term maintenance plan for each of its properties, and uses it as the basis for provisions to the cash
reserve for capital improvements to cover major repairs and other future property issues, as outlined below.
8th Period

January 1, 2010
to June 30, 2010

7th Period

July 1, 2009
to December 31, 2009

Millions of yen

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

¥254
—
—
¥254

¥254
—
—
¥254

Japan Excellent, Inc. 25

Performance Report

Trading Activities during the Current Period
Trading of Real Estate and Real Estate Held in Trust
None

Trading of Other Assets Including Total Amount and Transactions
Assets other than real estate, securitized assets and other assets principally consist of current bank deposits, including
trust accounts.

Transactions with Related Parties and Transactions with Major
Shareholders of Asset Management Company
Ongoing Transactions
None
Fees Paid for the Period from January 1, 2010 to June 30, 2010
					Category			Description of transactions with related parties (Note 1)
Total fees paid		
Amount of(A)
Paid topayment (B)(Millions of yen)		
(Millions of yen)

Maintenance expenses¥1,087
Kowa Real Estate Co., Ltd.
(Note 2)		Sekisui House, Ltd.
¥1,087		
Total

¥393
43
¥436

B/A

36.2%
4.0%
40.2%

Notes: 1. “Related parties” are defined as related parties of asset management companies under the asset management agreement with JEI as defined in Article 123 ofOrder for Enforcement of the Law Concerning Investment Trusts and Investment Corporations. “Major shareholders” are the major shareholders of asset
management companies as defined in Article 29, Section 4, Paragraph 2 of the Financial Instruments and Exchange Law. During the period ended June 30,
2009, transactions with Kowa Real Estate Co., Ltd. and Sekisui House, Ltd. are as described above.
2. Maintenance expenses include construction management compensation associated with assets that have not been adjusted to reflect compensation and
expenses related to project management.
3. Amounts do not include consumption or other taxes.

26 Japan Excellent, Inc.

Financial Statements
For the six-month periods ended June 30, 2010 and December 31, 2009
with Report of Independent Auditors

Contents
Report of Independent Auditors ............................................. 29
Balance Sheets ...................................................................... 30
Statements of Income and Retained Earnings ....................... 31
Statements of Changes in Net Assets ................................... 32
Statements of Cash Flows ..................................................... 33
Notes to Financial Statements ............................................... 34

Japan Excellent, Inc. 27

28 Japan Excellent, Inc.

Report of Independent Auditors

Japan Excellent, Inc. 29

Balance Sheets
As of June 30, 2010 and December 31, 2009

As ofJune 30,
2010

As of
June 30,
2010

As of
December 31,
2009

Thousands of yen

U.S. dollars (Note 2)

AssetsCurrent assets:
Cash and cash equivalents including trust accounts (Note 4) .............................
Rental receivables ................................................................................................
Other current assets .............................................................................................
Total current assets ..................................................................................................

¥ 15,149,859
464,133
103,828
15,717,820¥ 14,691,160
467,058
168,511
15,326,729$ 171,165,511
5,243,849
1,173,061
177,582,421

Property and equipment (Note 8):
Buildings and building improvements ..................................................................
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 ........................................................................................
Construction in progress for trust accounts.........................................................
Less: accumulated depreciation ..........................................................................
Net property and equipment ....................................................................................

3,325,628
662
13,83964,567,292
413,595
60,948
108,503,144—(7,016,054)
169,869,054

3,264,543
662
5,488
64,382,651
409,185
55,172
108,502,799
3,360(6,023,500)
170,600,360

37,573,475
7,475
156,354
729,491,494
4,672,866
688,604
1,225,885,702—(79,268,488)
1,919,207,482

Investments and other assets:
Leasehold rights ...................................................................................................
Leasehold rights for trust accounts......................................................................
Investment in securities (Note 5) ..........................................................................
Security deposits..................................................................................................
Long-term prepaid expenses ...............................................................................
Investment corporation bond issuance costs ......................................................
Other assets .........................................................................................................
Total investments and other assets ..........................................................................
Total assets...............................................................................................................

1,185,045
7,380,017—
15,181
404,493
80,70858,609
9,124,053¥194,710,927

1,185,045
7,380,017
10,76815,182
468,857—
53,2489,113,117¥195,040,206

13,388,825
83,380,598—
171,525
4,570,024
911,851
662,173
103,084,996$2,199,874,899¥

467,463
27,500,000
333,222
61,51660,222
243,823
28,666,246¥$

17,000,000
51,000,000
442,205
8,212,705—
76,654,910
105,321,156—
70,500,000
448,904
8,382,851
78,48379,410,238
105,589,673

192,068,693
576,206,078
4,996,100
92,788,448—
866,059,319
1,189,935,105

87,083,030
2,366,963
89,449,993

87,083,030
2,486,006
89,569,036

983,877,867
26,742,321
1,010,620,188(60,222)(60,222)
89,389,771¥194,710,927(118,503)(118,503)
89,450,533¥195,040,206(680,394)(680,394)
1,009,939,794$2,199,874,899

Liabilities
Current liabilities:
Accounts payable – trade.....................................................................................
Short-term loans (Note 9) .....................................................................................
Accounts payable – other.....................................................................................
Unpaid consumption taxes ..................................................................................
Derivative liabilities ...............................................................................................
Other current liabilities..........................................................................................
Total current liabilities ...............................................................................................
Long-term liabilities:
Investment corporation bonds (Note 10)..............................................................
Long-term debt (Note 9) .......................................................................................
Security deposits from tenants ............................................................................
Security deposits from tenants for trust accounts ...............................................
Derivative liabilities ...............................................................................................
Total long-term liabilities...........................................................................................
Total liabilities ...........................................................................................................
Net assets (Note 11):Unitholders’ equity:
Unitholders’ capital:
Units authorized: 2,000,000 units
Units issued and outstanding: 154,550 units as ofJune 30, 2010 and December 31, 2009 .....................................................
Retained earnings ............................................................................................
Total unitholders’ equity .......................................................................................
Valuation and translation adjustments:
Unrealized loss on deferred hedge transactions ..............................................
Total valuation and translation adjustments .........................................................
Total net assets ........................................................................................................
Total liabilities and net assets ...................................................................................
The accompanying notes are an integral part of these financial statements.

30 Japan Excellent, Inc.

472,91325,000,000
351,764
94,27940,020220,459
26,179,435

5,281,471
310,699,356
3,764,797
695,022680,3942,754,746
323,875,786

Statements of Income and Retained Earnings
For the periods from January 1, 2010 to June 30, 2010
and from July 1, 2009 to December 31, 2009

For the period
from January 1,
2010 toJune 30,
2010

For the period
from July 1,
2009 toDecember 31,
2009

Thousands of yen

For the period
from January 1,
2010 toJune 30,
2010
U.S. dollars (Note 2)

Revenues:
Rental revenues (Note 14).......................................................................
Other (Note 14) .......................................................................................
Total revenues ............................................................................................

¥6,746,130
556,0447,302,174¥6,886,689
608,0297,494,718$76,218,847
6,282,277
82,501,124

Operating expenses:
Property operating expenses (Note 14) ..................................................
Asset management fees .........................................................................
Custodian fees ........................................................................................
Administrative service fees .....................................................................
Compensation for directors ....................................................................
Other ......................................................................................................
Total operating expenses ...........................................................................
Operating income .......................................................................................

3,516,170
414,743
14,953
28,6196,540
69,141
4,050,166
3,252,008

3,577,299
423,891
14,96028,2906,540
94,637
4,145,617
3,349,101

39,726,249
4,685,833
168,939
323,339
73,890781,168
45,759,418
36,741,706

Other income:Interest income .......................................................................................
Penalty income .......................................................................................
Other .......................................................................................................

3,490
19,141
2,333

2,743
—
603

39,429216,261
26,358Other expenses:
Interest expense .....................................................................................
Loan arrangement fees ...........................................................................
Interest expense on investment corporation bonds ...............................
Amortization of investment corporation bond issuance costs ...............
Other .......................................................................................................
Income before income taxes ......................................................................

635,048
196,694
55,3705,192
16,8042,367,864

701,727
163,780——12,486,939

7,174,873
2,222,286
625,577
58,661
189,856
26,752,501

Income taxes (Note 13)
Current ...............................................................................................
Deferred ..................................................................................................
Net income .................................................................................................
Retained earnings at beginning of period ..................................................
Retained earnings at end of period ............................................................

969
22,366,893
70¥2,366,963

1,004
1
2,485,934
72¥2,486,006

10,94720
26,741,534
787$26,742,321

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

Japan Excellent, Inc. 31

Statements of Changes in Net Assets
For the periods from January 1, 2010 to June 30, 2010
and from July 1, 2009 to December 31, 2009

For the period from July 1, 2009 to December 31, 2009
Net assets
Unitholders’ equity

Unitholders’capitalRetainedearnings

Total
unitholders’equityThousands of yen

154,550¥87,083,030¥ 2,442,271¥89,525,301¥(162,163)¥(162,163)¥89,363,138

—
—

—
—

(2,442,199)
2,485,934(2,442,199)
2,485,934

—
—

—
—

(2,442,199)
2,485,934——
154,550——¥87,083,030—
43,735¥ 2,486,006—
43,735¥89,569,036

43,66043,660¥(118,503)

43,66043,660¥(118,503)

43,66087,395¥89,450,533

Number ofunits in issue

Balance as of June 30, 2009 ...............
Changes during the fiscal period:
Distributions from retained earnings ...
Net income ..........................................
Changes in unrealized loss ondeferred hedge transactions .............
Total changes during the fiscal period ....
Balance as of December 31, 2009 .....

Valuation and translation
adjustments
Unrealized
loss onTotal
deferredvaluation andhedge
translationtransactions
adjustments

Total
net assets

For the period from January 1, 2010 to June 30, 2010
Net assets
Unitholders’ equity

Unitholders’capitalRetainedearnings

Total
unitholders’equityThousands of yen

154,550¥87,083,030¥ 2,486,006¥89,569,036¥(118,503)¥(118,503)¥89,450,533

—
—

—
—

(2,485,936)
2,366,893(2,485,936)
2,366,893

—
—

—
—

(2,485,936)
2,366,893——
154,550——¥87,083,030—(119,043)¥ 2,366,963—(119,043)¥89,449,993

58,28158,281¥ (60,222)

58,28158,281¥ (60,222)

58,281(60,762)¥89,389,771

Number ofunits in issue

Balance as of December 31, 2009 .....
Changes during the fiscal period:
Distributions from retained earnings ...
Net income ..........................................
Changes in unrealized loss ondeferred hedge transactions .............
Total changes during the fiscal period ....
Balance as of June 30, 2010 ...............

Valuation and translation
adjustments
Unrealized
loss onTotal
deferredvaluation andhedge
translationtransactions
adjustments

Total
net assets

For the period from January 1, 2010 to June 30, 2010
Net assets
Unitholders’ equity

Number ofunits in issue

Balance as of December 31, 2009 .....
Changes during the fiscal period:
Distributions from retained earnings ...
Net income ..........................................
Changes in unrealized loss ondeferred hedge transactions .............
Total changes during the fiscal period ....
Balance as of June 30, 2010 ...............

Unitholders’capital154,550 $983,877,867
—
—

—
—
—
—
154,550 $983,877,867

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

32 Japan Excellent, Inc.

——

Retainedearnings

Total
unitholders’equityU.S. dollars (Note 2)$ 28,087,294 $1,011,965,161(28,086,507)
26,741,534(28,086,507)
26,741,534

Valuation and translation
adjustments
Unrealized
loss onTotal
deferredvaluation andhedge
translationtransactions
adjustments

Total
net assets$(1,338,864) $(1,338,864) $1,010,626,297
—
—

—
—

(28,086,507)
26,741,534

658,470
658,470
658,470——(686,503)
658,470
658,470(1,344,973)(1,344,973)$ 26,742,321 $1,010,620,188 $ (680,394) $ (680,394) $1,009,939,794

Statements of Cash Flows
For the periods from January 1, 2010 to June 30, 2010
and from July 1, 2009 to December 31, 2009

For the period
from January 1,
2010 toJune 30,
2010

For the period
from July 1,
2009 toDecember 31,
2009

Thousands of yen

Cash flows from operating activities
Income before income taxes ...................................................................... ¥ 2,367,864 ¥ 2,486,939
Depreciation and amortization ...................................................................
992,611
990,621
Amortization of investment corporation bond issuance costs ...................
5,192—
Interest income ...........................................................................................
(3,490)(2,743)
Interest expense .........................................................................................
690,418
701,727
Gain on liquidation of investment in securities...........................................
(123)—
Increase in rental receivables .....................................................................
(6,416)(13,083)
Decrease (increase) in prepaid expenses ...................................................
79,388(3,761)
Increase (decrease) in accounts payable – trade .......................................
3,301(17,003)(Decrease) increase in accounts payable – other .......................................
(15,984)
17,204(Decrease) increase in unpaid consumption taxes.....................................
(32,762)
61,931
Decrease in advances received..................................................................
(701)(66,764)
Decrease in long-term prepaid expenses ..................................................
64,364105,388
Other, net ....................................................................................................
(38,564)
16,237
Subtotal ...............................................................................................
4,105,098
4,276,693
Interest received .........................................................................................
3,490
2,743
Interest paid................................................................................................
(647,221)(685,618)
Income taxes paid ......................................................................................
(2,814)(721)
Net cash provided by operating activities ..................................................
3,458,553
3,593,097

For the period
from January 1,
2010 toJune 30,
2010
U.S. dollars (Note 2)$ 26,752,501
11,214,676
58,661(39,429)7,800,451(1,393)(72,491)
896,937
37,293(180,589)(370,150)(7,919)727,200(435,703)
46,380,045
39,429(7,312,407)(31,785)
39,075,282

Cash flows from investing activities
Proceeds from liquidation of investment in securities................................
Purchases of property and equipment .......................................................
Purchases of property and equipment for trust accounts .........................
Purchases of intangible fixed assets ..........................................................
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 ..........................................................

10,891(70,557)(199,441)—
10,385(17,085)
190,590(351,395)(426,612)—(1,465)(171,448)(281)—(16,601)
474,198(591,946)(307,543)

123,052(797,167)(2,253,319)—
117,332(193,026)
2,153,311(3,970,111)(4,819,928)

Cash flows from financing activities
Proceeds from short-term loans ................................................................
Repayment for short-term loans ................................................................
Proceeds from long-term debt ...................................................................
Repayment for long-term debt ...................................................................
Proceeds from issuance of investment corporation bonds .......................
Payments for investment corporation bond issuance costs ......................
Distributions to unitholders ........................................................................
Net cash used in financing activities ..........................................................

—(12,000,000)
8,000,000(13,000,000)
17,000,000(85,900)(2,487,342)(2,573,242)

12,000,000(12,000,000)————(2,435,440)(2,435,440)—(135,577,901)
90,385,267(146,876,059)
192,068,693(970,512)(28,102,383)(29,072,895)

Net increase in cash and cash equivalents ................................................
Cash and cash equivalents at beginning of period ....................................
Cash and cash equivalents at end of period ..............................................

458,699
14,691,160¥ 15,149,859

850,114
13,841,046¥ 14,691,160

5,182,459
165,983,052$ 171,165,511

The accompanying notes are an integral part of these financial statements.
Japan Excellent, Inc. 33

Notes to Financial Statements
For the periods from January 1, 2010 to June 30, 2010
and from July 1, 2009 to December 31, 2009

1. Organization
Japan Excellent, Inc. (hereinafter, “JEI”), established on February 20, 2006 under the Law Concerning Investment Trusts and Investment
Corporations of Japan (the “Investment Trust Law”), is a real estate investment corporation which primarily invests in office buildings.
JEI is externally managed by a licensed asset management company, Japan Excellent Asset Management Co., Ltd. (“JEAM”). JEAM isowned 40% by Kowa Real Estate Co., Ltd., 20% by The Dai-ichi Life Insurance Company, Limited, 15% by Sekisui House, Ltd. and 25% byother corporations.
JEI was listed on the Tokyo Stock Exchange on June 27, 2006. As of June 30, 2010, JEI held 18 properties with 220,474 square meters of
total leasable space and had leases with 124 tenants excluding residential tenants.

2. Basis of Presentation
JEI maintains its accounting records and prepares its financial statements in accordance with accounting principles generally accepted in Japan(“Japanese GAAP”), including provisions set forth in the Investment Trust Law, the Corporation Law of Japan, the Financial Instruments andExchange Law of Japan and related regulations, which are different in certain respects as to the application and disclosure requirements ofInternational Financial Reporting Standards.
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 the convenience 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 havebeen rounded to the nearest thousand yen in the accompanying financial statements and in the notes thereto, whereas amounts were truncated in
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 ¥88.51 = U.S.$1.00, the foreign exchange
rate prevailing on June 30, 2010, has been used for translation. The inclusion of such amounts is not intended to imply that Japanese yen have beenor could be readily converted, realized or settled into U.S. dollars at that or any other rate.

3. Summary of Significant Accounting Policies●

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, deposits with banks, a negotiable certificate of deposit and short-term investments which
are highly liquid, readily convertible into cash with an insignificant risk of price fluctuation and with an original maturity of three months or less.
●Securities
Non-marketable securities classified as other securities are carried at cost. Cost of securities sold is determined by the moving average method.

●

Property and equipment including trust accounts and trademark rights
Depreciation is computed by the straight-line method over the estimated useful lives of the respective assets as follows:
Buildings
Building improvements
Machinery and equipment
Furniture and fixtures

2 - 59 years
4 - 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.

●

Income taxes

Income taxes are accounted for on the basis of taxable income for financial statement purposes. The asset and liability method is used torecognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and thetax bases of assets and liabilities.
●

Consumption taxes

Consumption taxes received and paid are not included in the accompanying statements of income and retained earnings. Consumption tax
related to properties, which has not been deducted, is included in the cost of the properties.

34 Japan Excellent, Inc.

●

Property-related taxes

Principally, property-related taxes including property taxes, urban planning taxes and depreciable property taxes are imposed on a calendar-year basis
and are expensed as property and other taxes (refer to Note 14).
JEI capitalizes the property-related taxes allocated to the sellers of properties to JEI at the time of acquisition of such properties including trust accounts.
For the periods from January 1, 2010 to June 30, 2010 and from July 1, 2009 to December 31, 2009, no property-related taxes were capitalized.
●

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.
JEI deferred recognition of gains or losses resulting from changes in the fair value of interest-rate swap agreements because its interest-rate agreements
met the criteria for deferred hedge accounting.
●

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, areproperly reflected in the accompanying balance sheets and statements of income and retained earnings, respectively.

4. Cash and Cash Equivalents
Cash and cash equivalents including trust accounts in the accompanying balance sheets and cash and cash equivalents in the accompanying statementsof cash flows at June 30, 2010 and December 31, 2009 consisted of the following:

As ofJune 30,
2010

As of
December 31,
2009

Thousands of yen

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

¥ 3,742,691
11,407,168¥15,149,859¥ 3,027,658
11,663,502¥14,691,160

As ofJune 30,
2010
U.S. dollars$ 42,285,515
128,879,996$171,165,511

5. Securities(1) Investment in securities
Investment in securities at December 31, 2009 consisted of the following:

As of
December 31,
2009		

Unlisted stock.....................................................................................................................................

Thousands of yen¥10,768

Japan Excellent, Inc. 35

As of December 31, 2009			Acquisition cost
Book value
Name
Number of shares
Unit priceTotal price
Unit priceTotal price			
Thousands of yen

Gain or loss
on valuation
Total price

Unlisted stock
NHK Nagoya Build
64¥168¥10,768¥168¥10,768
Systems Co., Ltd.......
64¥168¥10,768¥168¥10,768
Total................................. 		

¥—¥—Note: There were no investments in securiities at June 30, 2010.

6. Financial Instruments
For the period from January 1, 2010 to June 30, 2010●

Overview(1) Policy for Financial Instruments
J EI borrows from banks, issues investment corporation bonds and issues investment units to procure funds required to grow its assets undermanagement 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 such as 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 beinvested in deposits and safe, liquid financial assets and investment securities, but are, in principle, placed in deposits. Derivative transactions are usedsolely for the purpose of hedging against the risk 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 on interest 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 fora 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. The risk is reduced by diversifying maturity dates and funding sources, andliquidity risk is managed through the constant management of liquidity on hand.

(3) Supplementary Explanation of the Estimated Fair Value of Financial Instruments he fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available, fair value isTreasonably estimated. Since various assumptions and factors are reflected in estimating the fair value, different assumptions and factors could result in adifferent fair value.
●

Fair Value of Financial Instruments

The following are carrying values and fair values as of June 30, 2010 of financial instruments and the differences between them. When fair value is difficult
to ascertain, it is excluded from the following table (Note 2).
		Carrying value			

Fair value
Difference
Carrying value(Thousands of yen)			

Fair value(U.S. dollars)(1) Cash and cash deposits............... ¥ 3,742,691(2) Cash in trust anddeposits in trust...................... 11,407,168
		 Total assets......................... 15,149,859(3) Long-term debt due
within one year.......................... 27,500,000(4) Investment corporation
bonds...................................... 17,000,000(5) Long-term debt.......................... 51,000,000
		 Total liabilities...................... 95,500,000(6) Derivative transactions*............... ¥ (60,222)¥ 3,742,691

42,285,515 $

42,285,515 $

—

¥

—

$

11,407,168
15,149,859——

128,879,996
171,165,511

128,879,996
171,165,511——

27,525,604

25,604

310,699,356

310,988,640

289,284

17,096,300
51,417,729
96,039,634¥ (60,222)

96,300417,729
539,634¥—

192,068,693
193,156,706 1,088,013
576,206,078
580,925,653 4,719,575
1,078,974,127 1,085,070,999 6,096,872$(680,394) $(680,394) $—* The value of assets and liabilities arising from derivatives is shown at net value, with the amount in parentheses representing net liability position.
36 Japan Excellent, Inc.

DifferenceNotes to Financial Statements(Note 1) Methods for calculating the fair value of financial instruments and matters related to derivatives transactions
Assets(1) Cash and cash deposits and (2) Cash in trust and deposits in trust		The carrying value approximates fair value because of the short maturity of these instruments.

Liabilities(3) Long-term debt due within one year and (5) Long-term debt
		Where floating rates apply, fair value is based on book value. The fair value of such liabilities is considered to be close to book value because floating rates
reflect market interest rates within a short period of time.
			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 areasonable rate assuming the same amount were to be borrowed anew.

(4) Investment corporation bonds
		The fair value of investment corporation bonds issued by JEI is based on quoted market prices.

(6) Derivative transactions				

1. Hedge accounting not applied: Not applicable.
2. Hedge accounting applied: The following are contract values or values corresponding to the principle as stipulated by contract as of the settlement datefor each hedge accounting method.

Hedge
accounting
methodType ofderivativetransaction

				
Hedge
Contract
More thanFair
itemamountone yearvalue(Thousands of yen)

Principle Interest rate swap Long-term
methodReceive floating, debt
		
pay fixed				¥6,250,000*

Method of				calculating
Contract
More thanFair
the fair value
amountone yearvalue(U.S. dollars)¥(60,222)*$70,613,490*

Method ofcalculating
the fair value$(680,394)** Calculated based on prices provided by counterparty financial institutions.

(Note 2) Financial instruments for which fair value is deemed extremely difficult to determine
Category		Carrying value(Thousands of yen)

Carrying value(U.S. dollars)		

1. Security deposits from tenants*..................................................................

¥ 442,205$ 4,996,100

		

2. Security deposits from tenants for trust accounts*.....................................

8,212,705

92,788,448

		* Security deposits from tenants and security deposits from tenants for trust accounts in leased properties are not subject to fair value disclosure because suchdeposits have no market price. Moreover, it is difficult to calculate the actual period of time on deposit, namely, from the time the tenant moves in until the time thetenant 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 and 		Cash and cash
deposits in trust
Total
deposits(Thousands of yen)			

Cash in trust anddeposits in trust(U.S. dollars)

Total

1 year or less...........................

¥3,742,690¥11,407,168¥15,149,859$42,285,515$128,879,996$171,165,511

1 to 2 years..............................

—

—

—

—

—

—

2 to 3 years..............................

—

—

—

—

—

—

3 to 4 years..............................

—

—

—

—

—

—

4 to 5 years..............................

—

—

—

—

—

—

Over 5 years.............................

—

—

—

—

—

—

(Note 4) Planned redemption amounts after settlement date of borrowings, investment corporation bonds and other interest-bearing debt
		Long-term debt due Investment			
Long-term debt due
		within one year corporation bonds Long-term debt
Total
within one year			(Thousands of yen)			

●Investment
corporation bonds Long-term debt
(U.S. dollars)— ¥27,500,000 $310,699,356 $

— $

Total

1 year or less...... ¥27,500,000 ¥— ¥1 to 2 years.........

——

13,000,000

13,000,000—— 146,876,059— $310,699,356
146,876,059

2 to 3 years.........

——

21,000,000

21,000,000—— 237,261,326

237,261,326

3 to 4 years.........

— 12,000,000

8,000,000

20,000,000—

135,577,901

90,385,267

225,963,168

4 to 5 years.........

—

5,000,000

9,000,000

14,000,000—

56,490,792 101,683,426

158,174,218

Over 5 years........

—

—

—

—

—

—

—

—

Additional Information

Effective January 1, 2010, the Company adopted the Accounting Standards for Financial Instruments (Accounting Standards Board of Japan(hereinafter referred to as the ASBJ) Statement No. 10, March 10, 2008) and the Implementation Guidance for Disclosures about Fair Value of
Financial Instruments (ASBJ Guidance No. 19, March 10, 2008).
Japan Excellent, Inc. 37

7. Investment and Rental Property
For the period from January 1, 2010 to June 30, 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 of June 30, 2010, for such real estate for lease.

		
Carrying value		
Fair value		
Carrying value		
As of 		
As of
As of
As of 		As ofDecember 31,
Change during
June 30,
June 30,
December 31,
Change during
June 30,2009
period
2010
2010
2009
period2010
		(Thousands of yen)				
(U.S. dollars)¥179,165,422¥(731,306)¥178,434,116¥173,858,000$2,024,239,320$(8,262,414)

Fair value
As ofJune 30,2010$2,015,976,905$1,964,275,223(Note 1) Carrying value represents the acquisition cost less accumulated depreciation.
(Note 2) Change during period comprises an increase of ¥61,064 thousand in capital expenditures on construction work for central monitoring equipment
for Omori Bellport and a decrease of ¥992,554 thousand for depreciation costs.
(Note 3) Fair value as of June 30, 2010 is appraisal value provided by third-party real estate appraisers.
●

Additional Information

Effective January 1, 2010, the Company adopted the Accounting Standards for Fair Value of Investment and Rental Property (ASBJ Statement No. 20,
November 28, 2008) and the Implementation Guidance for Disclosures about Fair Value of Investment and Rental Property (ASBJ Guidance No. 23,
November 28, 2008).

8. Property and Equipment
Property and equipment at June 30, 2010 and December 31, 2009 consisted of the following:

As of June 30, 2010
				Acquisition
cost

Accumulated
depreciation

As of December 31, 2009

Net
Acquisition
book value
cost
Thousands of yen

Accumulated
depreciation

Buildings and building
improvements........... ¥ 3,325,628 ¥ (302,949) ¥ 3,022,679 ¥   3,264,543 ¥ (264,342) ¥   3,000,201
Furniture and fixtures....
662
(155)
507
662
(111)
551
Construction inprogress......................
13,839—13,839
5,488
—
5,488
Buildings and building
improvements fortrust accounts............. 64,567,292 (6,596,182)
57,971,110
64,382,651 (5,660,442)
58,722,209
Machinery andequipment for trust
accounts.....................
413,595(104,028)
309,567
409,185(90,104)
319,081
Furniture and fixtures
for trust accounts........
60,948(12,740)
48,20855,172(8,501)
46,671
Land for trust
accounts..................... 108,503,144— 108,503,144 108,502,799— 108,502,799
Construction inprogress for trust
accounts.....................
—
—
—
3,360
—
3,360
Total . ............................ ¥176,885,108 ¥(7,016,054) ¥169,869,054 ¥176,623,860 ¥(6,023,500) ¥170,600,360

38 Japan Excellent, Inc.

As of June 30, 2010

Net
book value

Acquisition
cost$

Accumulated
depreciation
U.S. dollars

Netbook value

37,573,475 $ (3,422,771) $7,475(1,748)34,150,704
5,727

156,354—

156,354

729,491,494(74,524,709)

654,966,785

4,672,866(1,175,320)

3,497,546

688,604(143,940)

544,664

1,225,885,702—

1,225,885,702———$1,998,475,970 $(79,268,488) $1,919,207,482

Notes to Financial Statements

9. Short-Term Loans and Long-Term Debt
Short-term loans and long-term debt as of June 30, 2010 and December 31, 2009 consisted of the following:		
As of June 30, 2010
As of December 31, 2009
			
			
		
AmountWeighted-average		interest rate
AmountThousands of yen

Short-term loans:
Unsecured loans from banks due
on September 30, 2010.................
		 Subtotal........................................
Long-term debt due within one year:
Unsecured loans from banks due
on June 29, 2010...........................
Unsecured loans from banks
due on June 29, 2011....................
Unsecured loans from an insurancecompany due on June 29, 2011....
Unsecured loans from banks
due on June 29, 2011....................
		 Subtotal........................................
Long-term debt:
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 dueon November 29, 2011..................
Unsecured loans from banks due
on July 31, 2012............................
Unsecured loans from banks andinsurance companies due
on July 31, 2012............................
Unsecured loans from banks due
on June 28, 2013...........................
Unsecured loans from banks dueon December 27, 2013..................
Unsecured loans from an insurancecompany due on July 31, 2014.....
Unsecured loans from a bank due
on July 31, 2014............................
Unsecured loans from aninsurance company and a bankdue on June 30, 2015....................
			 Subtotal....................................
Total . ................................................

¥

As of
June 30, 		
2010

Weighted-averageinterest rate

AmountThousands of yen

U.S. dollars———¥12,000,000
12,000,000

1.07364%——

13,000,000

1.49485%

—

$

—
—

9,500,000

1.45181%——

107,332,505

3,000,000

1.96625%——

33,894,475

15,000,000
27,500,000

1.00308%—
13,000,000—

169,472,376
310,699,356——

9,500,000

1.47669%———

3,000,000

1.96625%———

15,000,000

1.13545%—

13,000,000

1.39000%

13,000,000

1.52364%

146,876,059

7,000,000

0.75308%7,000,000

0.88545%

79,087,109

7,000,000

1.96907%7,000,000

1.96907%79,087,109

7,000,000

1.10308%7,000,000

1.23545%

79,087,109

8,000,000

1.14134%——

90,385,266

2,000,000

2.25875%

2,000,000

2.25875%

22,596,317

2,000,000

2.28417%2,000,000

2.28417%

22,596,317

5,000,000
51,000,000¥78,500,000

2.27344%5,000,000
70,500,000¥95,500,000

2.27344%

56,490,792
576,206,078$886,905,434

Japan Excellent, Inc. 39

10. Investment Corporation Bonds

Notes to Financial Statements

Details of total investment corporation bonds outstanding as of June 30, 2010 are summarized as follows:

		
		

As of
June 30, 2010				Weighted				average			Amountinterest rate			
Thousands of yen		

AmountU.S. dollars

Unsecured bond due on March 11, 2014.............................................................. ¥12,000,000
1.52000% $135,577,901
Unsecured bond due on June 26, 2015.................................................................
5,000,000
1.29000%
56,490,792
Total........................................................................................................................ ¥17,000,000		 $192,068,693

11. 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.

12. Per Unit Information
Net assets per unit were ¥578,387 ($6,535) as of June 30, 2010 and ¥578,781 as of December 31, 2009. Net income per unit was ¥15,315($173) for the period from January 1, 2010 to June 30, 2010 and ¥16,085 for the period from July 1, 2009 to December 31, 2009 and wascomputed based on the weighted-average number of units outstanding during the respective periods.

13. Income Taxes
JEI is subject to income taxes in Japan.
JEI’s policy is to make dividend distributions in excess of 90% of distributable income for each 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, 2010 and December 31, 2009 are summarized as follows:

As ofJune 30,
2010

As of
December 31,
2009

Thousands of yen

Deferred tax assets:
Accrued enterprise taxes.........................................................................
Unrealized loss on deferred hedge transactions.....................................
Gross deferred tax assets...........................................................................
Valuation reserve......................................................................................
Total deferred tax assets.............................................................................
Net deferred tax assets...............................................................................

40 Japan Excellent, Inc.

¥

18
23,68523,703(23,685)
18
¥
18

¥

19
46,607
46,626(46,607)
19
¥
19

As of
December 31,
2009
U.S. dollars$

202
267,599
267,801(267,599)
202
$
202

Notes to Financial Statements

A reconciliation of the differences between the statutory tax rate and the effective tax rate for the periods from January 1, 2010 to June 30, 2010
and from July 1, 2009 to December 31, 2009 is as follows:

For the period
from January 1, 2010
to June 30, 2010

For the period
from July 1, 2009
to December 31, 2009

Statutory tax rate.........................................................................................

39.33%

39.33%

Reconciliation:
Deductible distributions paid...................................................................
Other........................................................................................................
Effective tax rate..........................................................................................

(39.31)0.02
0.04%(39.31)0.02
0.04%

14. Breakdown of Property Rental Business Revenues and Expenses

For the period
from January 1,
2010 toJune 30,
2010

For the period
from July 1,
2009 toDecember 31,
2009

Thousands of yen

For the period
from January 1,
2010 toJune 30,
2010
U.S. dollars

Rental business revenues:
Rental revenues.......................................................................................
Other........................................................................................................
Total rental business revenues....................................................................

¥6,746,130
556,0447,302,174¥6,886,689
608,0297,494,718$76,218,847
6,282,277
82,501,124

Property operating expenses:
Property management costs and fees.....................................................
Utilities.....................................................................................................
Property and other taxes.........................................................................
Insurance.................................................................................................
Repairs and maintenance........................................................................
Depreciation.............................................................................................
Other........................................................................................................
Total property operating expenses..............................................................
Profit............................................................................................................

1,082,750
582,516
540,657
21,087130,898
992,554
165,708
3,516,170¥3,786,004

1,066,242
648,642542,20221,500142,858
990,577
165,278
3,577,299¥3,917,419

12,233,084
6,581,359
6,108,431
238,246
1,478,902
11,214,032
1,872,195
39,726,249$42,774,875

15. Leases
JEI leases properties on which rental revenues are earned. At June 30, 2010 and December 31, 2009, future lease revenues under noncancelable operating leases are summarized as follows:

As ofJune 30,
2010

As of
December 31,
2009

Thousands of yen

Due within one year.....................................................................................
Due after one year.......................................................................................
Total.............................................................................................................

¥1,032,650
202,840¥1,235,490¥1,128,389
671,295¥1,799,684

As ofJune 30,
2010
U.S. dollars$11,667,044
2,291,713$13,958,757

Japan Excellent, Inc. 41

16. Derivatives and Hedge Accounting
JEI has entered into certain interest-rate swap contracts with several Japanese financial institutions to hedge its variable rate long-term debt
obligations. JEI utilizes interest-rate swap contracts, which are derivative financial instruments, only for the purpose of mitigating future risk arisingfrom fluctuation in interest rates, and does not enter into such transactions for speculative or trading purposes. JEI entered into such derivativetransactions to hedge risk in accordance with its Articles of Incorporation and the established risk management policies of JEAM.
The following table summarizes the notional amount and the estimated fair value of the interest-related positions outstanding as of June 30, 2010:

Notional
amountEstimated		fair value
Notional(negative)
amountThousands of yen

Interest-rate swap:
Receive/floating and pay/fixed....................................

¥6,250,000¥(60,222)

Estimated
fair value(negative)
U.S. dollars$70,613,490$(680,394)

17. Related Party Transactions
For the period from January 1, 2010 to June 30, 2010
(1) Major unitholders
Not applicable(2) Directors and major individual unitholders

Description of				transaction
AmountAmountAccountName			

Chifumi Toda				

Thousands of yen

U.S. dollars		

Payment of asset¥414,743$4,685,833
management			
fees to JEAM

Accounts
payableBalance at theend of period

Balance at theend of period

Thousands of yen

U.S. dollars¥254,787$2,878,624

Balance at theend of period

Balance at theend of period

Thousands of yen

U.S. dollars¥259,814$2,821,913

For the period from July 1, 2009 to December 31, 2009(1) Major unitholders
Not applicable(2) Directors and major individual unitholders

Name

Description of				transaction
AmountAmountAccount			Chifumi Toda
				

42 Japan Excellent, Inc.

Thousands of yen

U.S. dollars		

Payment of asset¥423,891$4,604,003
management			
fees to JEAM

Accounts
payableNotes to Financial Statements

18. 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 islimited by the amount of unappropriated retained 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 ¥2,366,933,250($26,741,987), the maximum integral multiple of the 154,550 units issued not exceeding unappropriated retained earnings at June 30, 2010. No cash
distribution exceeding the income amount set forth in Section 33.1.4 of the bylaws of JEI shall be made.
On August 13, 2010, the Board of Directors approved a resolution to make a cash distribution of ¥15,315 ($173) per unit aggregating to¥2,366,933,250 ($26,741,987) to unitholders of record as of June 30, 2010.

19. Significant Subsequent Events(1) Conclusion of real estate transaction agreement				On August 6, 2010, JEI concluded a real estate transaction agreement related to a planned asset acquisition (hereinafter, the Agreement).
Overview of the planned asset acquisition

		(1) Asset to be acquired

Real estate		(2) Asset
			

No. 32 Kowa Building
Additional acquisition of co-ownership stake (acquiring additional 30% stake)		

5-2-32, Minami Azabu, Minato-ku, Tokyo(3) Location

		(4) Acquisition price¥2,390,000,000

		(5) Contract dateAugust 6, 2010		(6) Delivery date

December 24, 2010

		(7) Seller

Kowa Real Estate Co., Ltd.

(2) Other		
The Agreement is subject to forward commitments under Comprehensive Supervision Guidelines for Dealers in Financial Instruments (Latest
revision: June 2010) set forth by the Financial Services Agency of Japan. In case, JEI or the seller violates the Agreement, the counterparty may
cancel the Agreement and claim a penalty in the amount of 20% of the transaction amount.
		

Forward commitment: A postdated transaction agreement that calls for settlement or delivery to take place one month or more after theagreement conclusion or other similar agreements.

Japan Excellent, Inc. 43

Investor Information
As of June 30, 2010

Name

Japan Excellent, Inc.

Location

1-9-20 Akasaka, Minato-ku, Tokyo, Japan

EstablishedFebruary 20, 2006

Fiscal Periods

Six months ending June 30 and December 31

Unitholders

5,469

Total Number ofCommon Units Issued

8th Period (From January 1, 2010 to June 30, 2010)
7th Period (From July 1, 2009 to December 31, 2009)

Distributions

Confirmed distribution for the 8th Period (ended June 30, 2010) ¥15,315 per unit

154,550
154,550

Major Unitholders
Number ofUnits Held

Percentage of
Total

Japan Trustee Services Bank, Ltd. (Trust account)

19,186

12.41%

Kowa Real Estate Co., Ltd.

14,312

9.26%

NCT Trust and Banking Corporation (Trust account)

11,481

7.43%

Trust & Custody Services Bank, Ltd. (Securities investment trust account)

11,263

7.29%

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

9,331

6.04%

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

7,865

5.09%

North Pacific Bank, Ltd.

4,590

2.97%

The Dai-ichi Life Insurance Company, Limited

4,132

2.67%

The Senshu Ikeda Bank, Ltd.

3,711

2.40%

Sekisui House, Ltd.

2,091

1.35%

AIG Edison Life Insurance Company

2,091

1.35%

Total

90,05358.27%Name

44 Japan Excellent, Inc.

Investment Units

Investors (Number of unitholders)
Financial
institutions andFinancialsecurities
companies
institutions and
86 securities(1.6%)
companies

Individuals
14,759Individuals(9.5%)
14,759 (9.5%)
Foreign companies, etc.
19,296(12.5%)
Foreigncompanies, etc.
19,296 (12.5%)
Other domestic
companies
Other domestic
22,902(14.8%)
companies

86 (1.6%)

Other domestic companies
124companies(2.3%)
Other domestic
124 (2.3%)
Foreign companies, etc.
132
(2.4%)etc.
Foreign companies,
132 (2.4%)

Financial
institutions andFinancialsecurities companies
institutions and97,593 companies(63.1%)
securities

22,902 (14.8%)

97,593 (63.1%)

Total number of units issued: 154,550
Total number of units issued: 154,550

Total number of unitholders: 5,469
Total number of unitholders: 5,469

Individuals
5,127 (93.7%)
Individuals
5,127 (93.7%)

JEI Unit Performance Measured against TSE J-REIT Index(TSE J-REIT Index)(Yen)

250(TSE J-REIT Index)

1,400,000(Yen)
1,400,000

250

1,200,000
200

1,200,000

200

1,000,000
1,000,000

150

800,000

150

800,000
600,000

100

600,000

100

400,000
400,000

50

200,000

50

200,000
00
6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6
0 2006
2007
2008
2009
2010
6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6
2006
2007
2008
2009
2010
JEI closing price (Right scale)0

TSE J-REIT Index (Left scale)
JEI closing price (Right scale)(Left* June TSE
30, J-REIT2006 isIndex
usedasscale)the base 100 index.

* June 30, 2006 is used as the base 100 index.

Disclaimer
This semi-annual report in English is a translation of an equivalent document prepared in the Japanese language and filed in Japan inaccordance with the Financial Instruments and Exchange Law of Japan. This English translation was prepared solely for the convenience ofreaders outside Japan and should not be considered as a disclosure statement. The original Japanese document shall prevail in the event ofany discrepancies or difference arising from the translations or interpretations contained in this English report. Estimates and projections forJapan Excellent, Inc.’s results of future operations contained in this English semi-annual report are forward-looking statements and are
based on information currently available to us, and involve risks, uncertainties and assumptions.
Consequently, investors are cautioned not to place undue reliance on these estimates and projections for evaluating Japan Excellent, Inc.
Should any of the risks or uncertainties materialize or should underlying assumptions prove incorrect, the actual results may differ
substantially from these estimates and projections depending on numerous factors.

URL: http://www.excellent-reit.co.jp/eng
TEL: 81-3-5575-3511
E-mail: info@jeam.co.jp

Japan Excellent, Inc. 45

Address: 1-9-20 Akasaka, Minato-ku, Tokyo, Japan
http://www.excellent-reit.co.jp/eng
E-mail: info@jeam.co.jp

Printed in Japan