Asset Management Report for 22nd Period(Semi-Annual Report for 22nd Period)
From January 1, 2017 to June 30, 20171

I. Greetings
To Our Unitholders
We would like to express our sincere gratitude for your continued support of Japan Excellent, Inc. (JEI) and Japan
Excellent Asset Management Co., Ltd.
We hereby report the financial results of JEI for the 22nd period (from January 1, 2017 to June 30, 2017).
During the 22nd period and as with the previous period, we worked to attract new tenants while prioritizing the increaseof the rent level and conclude upward rent revisions, promoting an increase of rental revenues.
In terms of finance, we increased financial stability by extending borrowing periods through large and long-term
investment corporation bond issuance and refinancing while also reducing financial costs.
As a result, JEI recorded operating revenue of 10,642 million yen and operating income of 4,154 million yen for theperiod. The net income of 3,459 million yen was a new record high. Distribution per unit increased by 41 yen from theprevious period to 2,650 yen.
Besides this, in August 2017 JEI additionally acquired urban high-spec properties Kowa Nishi-Shimbashi Building and
Akasaka Garden City to continue high-quality growth in the periods to come.

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

We kindly ask for your continued understanding and support.

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

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)
2II. Asset Management Report
1. Outline of asset management operation(1) Operating results and financial position of the Investment Corporation
19th Period
21st Period
20th Period,
22nd Period
18th Period
July 1, 2015
July 1, 2016
January 1,
January 1, 2017
January 1,
toto2016 to Juneto June2015 to June
December 31,
December 31,
30, 2016
30, 2017
30, 2015
2015
2016

Fiscal period(Millions ofyen)(Millions of(Rental revenues)
yen)(Millions ofOperating expenses
yen)(Millions of(Property operating expenses)
yen)(Millions ofOperating income
yen)(Millions of
Ordinary income
yen)(Millions of
Net income
yen)(Millions of
Total assetsyen)Operating revenue(Period-on-period change)
Net assets(%)(Millions ofyen)(Period-on-period change)

10,83910,223

10,653

10,642(10,121)(10,669)(10,223)(10,653)(10,642)

6,102

6,537

6,240

6,431

6,488

(5,533)(5,916)(5,655)(5,849)(5,890)

4,018

4,301

3,982

4,221

4,154

3,098

3,385

3,113

3,407

3,460

3,097

3,384

3,112

3,406

3,459

300,976

284,443

283,653

296,081

297,177(8.3)(−5.5)(-0.3)

(4.4)

(0.4)

131,085

137,857

137,808

143,640

143,693

(0.0)

(5.2)

(△0.0)

(4.2)

(0.0)

Unitholders’ capital
Total outstanding investment
units
Net assets per unit

(Millions ofyen)

127,950

134,434

134,434

139,972

139,972(units)

1,212,750

1,264,450

1,264,450

1,305,700

1,305,700(yen)

108,089

109,025

108,987

110,010110,050

Net income per unit (Note 1)

(yen)

2,554

2,685

2,461

2,614

2,649

(Millions of
yen)

3,097

3,161

3,113

3,406

3,460

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

(yen)

2,554

2,500

2,462

2,609

2,650

(yen)

2,554

2,500

2,462

2,609

(2,650)

(yen)

(－ )

(－ )

(－ )

(－ )

(－ )

Total distribution(%)

10,121

(%)

1.1

1.2

1.1

1.2

1.2

(%)

(2.2)

(2.3)

(2.2)

(2.3)

(2.4)

(%)

2.4

2.5

2.3

2.4

2.4

(%)

(4.8)

(5.0)

(4.5)

(4.8)

(4.9)

Capital ratio (Note 4)(Period-on-period change)

(%)

43.6

48.5

48.6

48.5

48.4

(%)

(−3.6)

(4.9)

(0.1)

(-0.1)(-0.2)

Payout ratio (Note 5)
Number of investment
properties
Number of tenants
Total leasable space (Note 6, 7)

(%)

100.0

93.4

100.0

100.0

100.0

(properties)

31

30

30

31

31

(tenants)

219

224

228

237

242

(m2)

370,671356,918

356,884

362,305362,292

(%)

97.9

98.5

99.1

99.0

99.4

1,786

1,908

1,899

1,956

1,967

790

635

729

1,294

1,056

6,374

6,662

6,467

6,760

6,719

4,027

4,051

3,964

4,107

4,156

17.4

16.5

17.6

18.2

14.9

Occupancy rate
Depreciation(Millions ofyen)(Millions ofyen)

Capital expenditure
Net operating income (NOI)(Millions ofyen)(Note 8)Funds from operation (FFO) per(yen)unit (Note 9)(times)FFO multiples (Note 10)ndndAsset Management Report for 22 period (Semi-Annual Report for 22 Period)3

Debt service coverage ratio(DSCR) (Note 11)
Interest-bearing debt

(times)(Millions of
yen)

7.3

8.1

8.2

9.4

10.7

155,400

131,900

131,900

137,900

137,900

Loan-to-value (Note 12)

(%)

51.6

46.4

46.5

46.6

46.4

Number of days in operation(days)

181

184

182

184

181

(Note 1) Net income per unit is calculated by dividing the net income by the weighted-average number of units outstanding during
the six months period.
(Note 2) Return on assets = Ordinary income / [(Period beginning total assets) + (Period end total assets) / 2] × 100(Note 3) Return on equity = Net income / [(Period beginning net assets) + (Period end net assets)/ 2] × 100(Note 4) Capital ratio = Period end net assets / Period end total assets × 100(Note 5) Payout ratio for this fiscal period and for the past four periods is calculated with the following formula.
Payout ratio = (Distribution per unit (not including distribution in excess of earnings per unit) / Net income per unit) × 100(Figures are rounded to the first decimal place.)
T he payout ratio for the 19th and 21st periods are calculated with the following formula as new investment units were
issued.
Payout ratio = T otal distributions (not including distribution in excess of earnings per unit) / Net income) × 100
Payout ratio for earlier periods are calculated with the following formula.
Payout ratio = (T otal distribution / Net income) × 100 (figures for the 18th period and before are rounded down to the firstdecimal place while figures for the 19th period and after are rounded to the first decimal place.)(Note 6)

For properties with joint ownership, a figure obtained by multiplying the leasable space of the entire property by theownership ratio is indicated as JEI’s leasable space. T he same shall apply hereinafter.

(Note 7) Spaces are rounded to the nearest specified unit. T he same applies hereinafter.
(Note 8) NOI = Rental revenues – Property operating expenses + Depreciation(Note 9) FFO per unit = (Net income + Depreciation – Gain on sale of real estate + Loss on sale of real estate) / T otal number ofoutstanding investment units (the figure is rounded down to the whole number).
(Note 10) FFO multiples = Period end investment unit price / Annualized FFO per unit (T he rate is rounded down to the first decimal
place for the 18th period.)(Note 11)T he debt service coverage ratio for this fiscal period and for the past four periods is calculated with the following formula.
DSCR = (Net income before interest and taxes + Depreciation) / (Interest expenses + Interest expense on investment
corporation bonds)
T he debt service coverage ratio for earlier periods are calculated with the following formula.
DSCR = Net income before interest and taxes / (Interest expenses + Interest expense on investment corporation bonds)(Note 12) Loan-to-value = Period end interest-bearing debt / Period end total assets × 100

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)
4

(2) Asset Management Development
Japan Excellent, Inc. (JEI) was founded on February 20, 2006 under the Law Concerning Investment Trusts andInvestment Corporations of Japan (hereinafter referred to the “Investment Trust Law”). On March 15, 2006, it
completed the corporate registration to the Kanto Finance Bureau (registration number 52, issued by the Head of
the Kanto Local Finance Bureau) and listed on the Real Estate Investment Trust Section of the Tokyo Stock
Exchange (Securities Code: 8987) on June 27, 2006. Since the listing, we have continued investment management
primarily in office buildings with the aim of maintaining sound corporate growth and stable revenues from themedium- to long-term perspectives. On June 30, 2017, we settled our twenty-second period.
1) Business conditions and results
The Japanese economy during the 22nd period (ended June 2017) continues to be on a moderate recovery
trend against the backdrop of the pickup in consumer spending and improvement of corporate earnings as wellas improvement in the employment situation.
In the real estate transaction market, transaction yields were at low level amid the continuing favorable fundprocurement environment, and real estate transaction prices remain high. Market participation of overseas
investors, private funds, private REITs and general companies, etc. is also continuing.
In the office building leasing market, tenant needs for floor area increase in the same building, relocation for
expansion and better location, etc. continue to be apparent, and vacancy rates and asking rent levels are
steadily improving. JEI has conducted leasing activities emphasizing rent levels and has promoted upward
rent revisions to suit the value of properties for current contracts by ensuring to seize opportunities of upward
rent revision. As to new contracts, JEI has conducted leasing activities while setting higher rent levels basedon market trends. As a result of these efforts, the portfolio occupancy rate at the end of the current periodstood at 99.4% (99.0% at the end of the previous period).
The total number of properties owned and managed by JEI at the end of the current period was 31 with totalacquisition price of 286.9 billion yen and total leasable space of 362,291.56 m2 (109,593.20 tsubo).
2) Fund procurement highlights
Given the favorable environment for issuance of investment corporation bonds in the 22nd period, JEI issued
10-year investment corporation bonds totaling 7 billion yen, thereby extending borrowing periods.
Moreover, JEI refinanced the total of 12 billion yen of loans maturing during the 22nd period (averageborrowing period: 4.7 years; average interest rate: 1.1%) with loans with an average borrowing period of 2.4
years and an average interest rate of 0.25%.
As a result of the above, as of the end of the 22nd period the average remaining period of interest-bearing
debts (Note 1) was 3.7 years (extended by 0.2 years from the end of the previous period) and the period end
average interest-bearing debt interest rate (Note 2) was 0.82% (down 0.06% from the end of the previous
period), showing an extension of debts and a decrease of interest rates.
In addition, JEI continues to have commitment lines of 14.0 billion yen to reduce refinancing risk, enhancestability for fund procurement, etc.
The ratings granted to JEI by the following rating agencies are shown below:(Ratings as of June 30, 2017)
Individual debt issue rating
Issuer rating (outlook)
Credit rating agency(Note 3)
Japan Credit Rating Agency, Ltd.
Long-term issuer rating
AA−
(JCR)
AA- (Stable)
Rating and Investment Information,
Issuer rating
A+
Inc. (R&I)
A+ (Stable)
Issuer rating
Moody’s Japan―
A3 (Stable)
3) Financial results and distribution highlights
As a result of the above management, JEI posted 10,642 million yen in operating revenue, 4,154 million yen
in operating income, 3,460 million yen in ordinary income and 3,459 million yen in net income for the period
under review.
Considering distributions in the period under review, JEI determined to distribute the whole unappropriated
Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)
5retained earnings (except for the portion of less than one yen per unit) to be eligible for special provisions of
the tax system on investment corporations (Section 67-15 of the Special Taxation Measures Law), that allows
JEI to deduct the amount of profit distribution from its taxable income. Accordingly, distribution per unit forthe period was 2,650 yen.
(Note 1) Average remaining period of interest-bearing debts = Remaining period of borrowings and investment
corporation bonds before repayment dates and maturity dates as of the end of the period ÷ Balance of relevantborrowings and investment corporation bonds as of the end of the period (weighted average)(Note 2) The period end average interest-bearing debt interest rate is calculated by using a weighted–average of theinterest at the end of the current period, by balance of respective interest-bearing debt with all the interestbearing debts.
(Note 3) The rating of JCR is for the 4th series unsecured investment corporation bonds, 5th series unsecure dinvestment corporation bonds, 6th series unsecured investment corporation bonds, 7th series unsecure dinvestment corporation bonds, 8th series unsecured investment corporation bonds, 9th series unsecure dinvestment corporation bonds, 10th series unsecured investment corporation bonds and 11th series unsecure dinvestment corporation bonds. The rating of R&I is for the 4th series unsecured investment corporation bonds.

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)63) Capital Increase
JEI had no changes in the total number of outstanding investment units for the period under review. The outline of
the changes in the total number of outstanding investment units and unitholders’ capital until the end of the period
under review are as follows:
Unitholders’ capital
Capital transaction Capital transaction (units)
Remarks
Paid-up Date
(Millions of yen)
ChangeBalance
ChangeBalance
Private placement
February 20, 2006
400
400
200
200
(Note 1)for incorporation
June 26, 2006
Public offering
128,000
128,400
64,23064,430(Note 2)
Allocation ofJuly 21, 2006
investment units to
6,400
134,800
3,211
67,641(Note 3)a third party
July 11, 2007
Public offering
19,000
153,800
18,702
86,344(Note 4)
Allocation ofAugust 8, 2007
investment units to
750
154,550738
87,083(Note 5)a third party
January 31, 2011
Public offering
31,000185,550
13,608100,691(Note 6)
Allocation of
February 28, 2011 investment units to
3,100
188,650
1,360
102,052(Note 7)a third party
January 30, 2013
Public offering
33,000221,650
14,408116,460(Note 8)
Allocation of
February 27, 2013 investment units to
3,300
224,950
1,440
117,901(Note 9)a third party
Split of investment
January 1, 2014
899,800
1,124,750–
117,901 (Note 10)
unit
January 27, 2014
Public offering
80,0001,204,750
9,135
127,036 (Note 11)
Allocation of
February 26, 2014 investment units to
8,000
1,212,750
913
127,950 (Note 12)a third party
July 13, 2015
Public offering
47,0001,259,750
5,894
133,845 (Note 13)
Allocation ofAugust 12, 2015
investment units to
4,700
1,264,450
589
134,434 (Note 14)
a third party
July 11, 2016
Public offering
37,5001,301,950
5,034
139,469 (Note 15)
Allocation ofAugust 10, 2016
investment units to
3,750
1,305,700
503
139,972 (Note 16)a third party(Note 1) JEI was incorporated through private placement at a price of 500,000 yen per unit.
(Note 2) New investment units were issued at an offer price of 520,000 yen per unit (issue price of 501,800 yen per unit) through apublic offering in order to fund acquisition of new properties which were acquired at the time of the listing.
(Note 3) New investment units were issued at an issue price of 501,800 yen per unit through an allocation of investment units to athird party in order to partially fund new property acquisitions.
(Note 4) New investment units were issue d at an offer price of 1,019,200 yen per unit (issue price of 984,360 yen per unit) through apublic offering in order to partially repay debts procured to acquire properties in the second period.
(Note 5) New investment units were issued at an issue price of 984,360 yen per unit through an allocation of investment units to athird party in order to partially repay debts procured to acquire properties in the second period.
(Note 6) New investment units were issued at an offer price of 454,930 yen per unit (issue price of 438,984 yen per unit) through apublic offering in order to repay short-term loans procured to acquire properties in the ninth period and to fund acquisitionof a new property which was acquired in the tenth period.
(Note 7) New investment units were issued at an issue price of 438,984 yen per unit through an allocation of investment units to athird party in order to repay short-term loans procured to acquire new properties in the ninth period and to fund acquisitionof a new property which was acquired in the tenth period.
(Note 8) New investment units were issued at an offer price of 451,425 yen per unit (issue price of 436,609 yen per unit) through apublic offering in order to fund acquisition of new properties which were acquired at the fourteenth period.
(Note 9) New investment units were issued at an issue price of 436,609 yen per unit through an allocation of investment units to athird party in order to fund acquisition of properties acquired in the fourteenth period.
(Note 10) With December 31, 2013 as the record date, JEI implemented a 5-for-1 split of its investment units held by Unitholders
stated or recorded on that date’s final unitholder registry with January 1, 2014 as the effective date.
(Note 11) New investment units were issued at an offer price of 118,072 yen per unit (issue price of 114,196 yen per unit) through a

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)
7

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

[Market price of the investment securities]
The period-on-period fluctuations in the highest and lowest (closing) prices of JEI’s investment units listed on theReal Estate Investment Trust Section of the Tokyo Stock Exchange during each period is as follows:
19th period
21st period
Fiscal period
20th period
22nd period
18th period(December(December
(June
2016)
(June 2017)(June 2015)(closing
date)
2015)
2016)
Investment unit
market priceHighest (yen)168,400
141,900
161,000
149,200
147,200
Lowest (yen)(Note)

141,400

122,400

123,200

132,900

125,100

T he highest and lowest prices of investment units refer to the closing prices on the Real Estate Investment T rust Section of
the T okyo Stock Exchange.

(4) Distributions Paid
The distribution per unit for the period (the 22nd period) was 2,650 yen per unit, based on JEI’s decision to
distribute the whole unappropriated retained earnings (except for the portion of less than one yen per unit) to beeligible for the special tax treatment on investment corporations (Article 67-15 of the Special Taxation Measures
Law) that allows JEI to deduct the amount of profit distribution from its taxable income.

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)8

Fiscal period
Accounting period
Unappropriated retained
earnings at end of period(T housands of yen)
Retained income(T housands of yen)
T otal cash distribution
amount (T housands of yen)
(Cash distributions perunit) (yen)Of which, total profit
distributions (T housands ofyen)(Profit distribution per unit)(yen)
T otal refund of investment
equity(Refund of investment
equity per unit)
Of total refund ofinvestment equity, total
distribution amount fromreserve for temporary
difference adjustments(Of refund of investment
equity per unit, distribution
amount per unit fromreserve for temporary
difference adjustments)
Of total refund ofinvestment equity, total
distribution amount from
distribution reducing
unitholders’ capital for tax
purpose(Of refund of investment
equity per unit,
distribution amount perunit from distribution
reducing unitholders’capital for tax purpose)

18th period

19th period

20th period

21st period

22nd period

January 1, 2015 toJuly 1, 2015 toJanuary 1, 2016 toJuly 1, 2016 toJanuary 1, 2017
June 30, 2015
December 31, 2015
June 30, 2016
December 31, 2016 to June 30, 2017
3,098,080

3,385,019

3,113,717

3,406,981

3,460,111

717

261,241

641

409

6

3,097,363

3,161,125

3,113,075

3,406,571

3,460,105(2,554)(2,500)(2,462)(2,609)(2,650)3,097,363

3,161,125

3,113,075

3,406,571

3,460,105(2,554)(2,500)(2,462)(2,609)(2,650)

–

－

－

－

－

(–)

(－)

(－)

(－)

(－)

–

－

－

－

－

(–)

(－)

(－)

(－)

(－)

–

－

－

－

－

(–)

(－)

(－)

(－)

(－)

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)
9(5) Policy and Issues on Future Investment Management
1) Outlook for investment environment
In the real estate market, while transaction yields are drawing closer to the level where room for further
lowering is scarce, real estate transaction prices are expected to remain high backed by factors such as thefavorable fund procurement environment and vigorous appetite for investment by market participants.
In the office building leasing market, the vacancy rate and the asking rent level are forecasted to improvecentering on competitive buildings for the time being, as the office demand is strong. However, focusing onmarket trends including corporate performances seems necessary going forward as increase in the amount ofoffice floor supply is expected mainly in central Tokyo.
2) Policy and issues on future investment management
For external growth, JEI will continue striving to acquire, including replacing assets, competitive properties
with well-balanced investments based on size, concentration and target area to increase asset size and realize
stable profitability in our portfolio over the medium to long term. To this end, we will continue enhancing
further interaction and collaboration with sponsor companies and have the asset management company
cultivate and refine property information sources in an effort to promptly gain access to market information
on disposition of properties and thereby keep seizing the right business opportunities. Furthermore, on
August 1, 2017 we additionally acquired ownership interest, etc. of Kowa Nishi-Shimbashi Building from
Nippon Steel Kowa Real Estate Co., Ltd., a sponsor.
For internal growth, JEI will continue to make efforts to capture the needs of existing tenants in a timely
manner by further strengthening finely-tuned relationships. JEI will aim to enhance earnings of the entire
portfolio by continuously making additional strategic investments in order to maintain asset value andimprove property competitiveness over the medium to long term while setting new rents based on market
trends as well as promoting upward rent revisions to realize rents that are more suitable for the property
value, along with the aforementioned initiatives.
Regarding financial operations, while fund procurement for long-term and with fixed interest rates willremain as our basic policies, JEI will consistently work on stable and sound financial operations. While
watching the trends of the financial environment as well as considering the interest rate level according toperiods and the status of debt redemption balance of each period, JEI will implement agile decisions.
(6) Subsequent Events
None(Reference Material)
1. Acquisition of an Asset (Kowa Nishi-Shimbashi Building (Additional Acquisition of Ownership Interest, etc.))
JEI concluded the real estate transaction agreement as of July 26, 2017 and received the property as of August 1, 2017 as
described below.
(Overview of acquired asset)
Acquired asset

Real estate

Name of asset

Kowa Nishi-Shimbashi Building (additional acquisition of ownership interest)

Location

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

Acquisition price (Note)

7,500,000,000 yen

Date of conclusion ofagreement

July 26, 2017

Acquisition dateAugust 1, 2017

Seller

Nippon Steel Kowa Real Estate Co., Ltd.

(Note) T he acquisition price does not include consumption tax, local consumption tax or fees required for the acquisition.
2. Borrowing of Funds
JEI concluded an individual commitment line agreement as of July 26, 2017 in order to allot the funds to part of the funds for theacquisition of the asset as indicated in 1. above and the related expenses, etc. as described below.

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)
10(Overview of borrowing)
LenderMizuho Bank, Ltd.

Loan amount

7,700,000,000 yen

Interest rate

Base interest rate (Japanese Bankers Association (JBA) one-month Yen-TIBOR) +0.20%

Drawdown dateAugust 1, 2017

Principal repayment date

September 29, 2017

Principal repayment
methodTo be repaid in full on the principal repayment date (early repayment permitted)

Collateral

Unsecured / Non-guaranteed

3. Acquisition of an Asset (Akasaka Garden City (Additional Acquisition of Co-ownership Interest))
JEI concluded the real estate transaction agreement with multiple sellers as of August 7, 2017 and received the property as ofAugust 10, 2017 as described below.
(Overview of acquired asset)
Acquired asset (Note 1)

Real estate

Name of asset

Akasaka Garden City (additional acquisition of co-ownership interest)

Location

4-15-1 Akasaka, Minato-ku, Tokyo

Acquisition price (Note 2)

869,591,115 yen

Date of conclusion ofagreement

August 7, 2017

Acquisition dateAugust 10, 2017

SellerNot disclosed as consent from sellers has not been obtained.

(Note 1) JEI already held trust beneficiary interest in part of Akasaka Garden City as a major trust asset, for which Mizuho
T rust & Banking Co., Ltd. has been acting as the trustee. JEI placed the above asset in trust, adding it to the said trust
asset, immediately after the additional acquisition. As of the date of this document, JEI owns trust beneficiary interestin one trust including the ownership interest additionally acquired.
(Note 2)T he acquisition price does not include consumption tax, local consumption tax or fees required for the acquisition.
4. Borrowing of Funds
JEI concluded an individual commitment line agreement as of August 7, 2017 in order to allot the funds to part of the funds forthe acquisition of the asset as indicated in 3. above and the related expenses, etc. as described below.
(Overview of borrowing)
LenderMizuho Bank, Ltd.

Loan amount

900,000,000 yen

Interest rate

Base interest rate (Japanese Bankers Association (JBA) three-month Yen-TIBOR) +0.20%

Drawdown dateAugust 10, 2017

Principal repayment dateJuly 31, 2018

Principal repayment method

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

Collateral

Unsecured / Non-guaranteed

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)11

2. Outline of the Investment Corporation(1) Investment units
Fiscal period
T otal number of units
authorized
T otal number of units
issued and outstanding

18th
As of June 30,
2015

19th
As of December
31, 2015

20th
As of June 30,
2016

21st
As of December
31, 2016

22nd
As of June 30,
2017

10,000,000 units

10,000,000 units

10,000,000 units

10,000,000 units

10,000,000 units

1,212,750 units

1,264,450 units

1,264,450 units

1,305,700 units

1,305,700 units

Unitholders’ capital

127,950 million yen 134,434 million yen 134,434 million yen 139,972 million yen 139,972 million yen

Number of unitholders

7,848 individuals

8,465 individuals

7,686 individuals

7,850 individuals

8,086 individuals(2) Unitholders
Major unitholders as of June 30, 2017 are as follows:
Number ofunits held
(Units)Ratio of number ofunits held tooutstanding
investment units(%)

338,434

25.92

115,474

8.84

99,8807.65

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

71,560

5.48

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

54,364

4.16

STATE STREET BANK AND
TRUST COMPANY 505012

ONE LINCOLN STREET, BOSTON MA
USA 02111

29,202

2.24

The Dai-ichi Life Insurance
Company, Limited

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

20,6601.58

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

19,3861.486300 BEE CAVE ROAD, BUILDING ONE
AUSTIN TX 78746 US

16,279

1.25

P.O. BOX 351 BOSTONMASSACHUSETTS 02101 U.S.A.

15,602

1.19

Total

780,841

59.80

Name

Address

Japan Trustee Services Bank, Ltd.
1-8-11 Harumi, Chuo-ku, Tokyo(Trust Account)
Trust & Custody Services Bank,
Harumi Island Triton Square Office Tower Z,
Ltd. (Securities Investment Trust
1-8-12 Harumi, Chuo-ku, Tokyo
Account)
The Master Trust Bank of Japan,
2-11-3 Hamamatsu-cho, Minato-ku, Tokyo
Ltd. (Trust Account)
NIPPON STEEL KOWA REALESTATE CO., LTD.
The Nomura Trust and Banking
Co., Ltd. (Investment Trust
Account)

STATE STREET BANK - WESTPENSION FUND CLIENTS EXEMPT 505233
DFA INTERNATIONAL REALESTATE SECURITIESPORTFOLIO
STATE STREET BANK AND
TRUST COMPANY 505223

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)
12

(3) Officers
1) Directors and accounting auditor
Post

Name

Compensation or fee forthe six months ended
June 30, 2017
(T housands of yen)

Major additional post

Executive
Director

Hidehiko Ogawa

President, Japan Excellent Asset Management
Co., Ltd.

Supervisory
Director

Tsuyoshi Nagahama

Advisor, Anderson, Mori & Tomotsune

Shunichi Maekawa

Professor, Sugiyama Jogakuen University, Schoolof Modern Management

Eiji Takagi

Eiji Takagi Certified Public Accounting Office

Supervisory
Director
Supervisory
Director
Accounting
AuditorErnst & Young
ShinNihon LLC

–

6,540

14,500(Note 2)–

(Note 1) There are no investment units of JEI held by either the Executive Director or the Supervisory Directors. Although
Supervisory Directors may have additional posts in companies other than those listed above, there is no conflict of interests
between those companies, including those listed above, and JEI.
(Note 2) The total amount of compensation or fee shown above is an estimated amount and includes the amount paid ascompensation for auditing during the 22nd period (11,000 thousand yen), the fee for the English financial statements audit
and the preparation of a comfort letter upon the issuance of the 11th Series Unsec ured Investment Corporation Bonds in
April 2017.

2) Policy on dismissal and discontinuation of re-election of accounting auditor
The board of directors of JEI shall deliberate dismissal of accounting auditor in accordance with the provisions
set out in the Investment Trust Law, and deliberate discontinuation of re-election based on circumstances in all
respects.
3) Matters concerning an entity which received a business suspension order in the past two years

The accounting auditor of JEI received an order to suspend accepting new engagements for 3 months (fromJanuary 1, 2016, to March 31, 2016) from the Financial Services Agency on December 22, 2015.
(4) Name of Asset Management Company, Asset Custodian and Administrative Agents
Our asset management company, asset custodian and administrative agents as of June 30, 2017 are as follows:
Classification

Name

Asset management company

Japan Excellent Asset Management Co., Ltd.

Asset custodian

Mizuho Trust & Banking Co., Ltd.

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

Mizuho Bank, Ltd.

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)13

3. Investment Portfolio of the Investment Corporation(1) Investment Portfolio by Area
Area
(Note 1)
Classification

21st Period(December 31, 2016)

22nd Period(June 30, 2017)

Total
Total
acquisition
Investment
acquisition
Investment
price (Millions
ratio inprice (Millions
ratio inportfolio (%)
of yen)of yen)portfolio (%)(Note 2)
(Note 2)

Use

Area I

3,808

1.3

3,796

1.3

Area II

5,645

1.9

5,650

1.9

Area I

116,09139.2

116,027

39.0

Area II

9,107

3.1

9,111

3.1

Area III

102,24234.5

101,644

34.2

Area IV

18,896

6.4

18,883

6.4

OthersTrust beneficiary (commercial
interest in realfacilities, Area I
estateresidence,
etc.)

18,166

6.1

18,025

6.1

Total

273,958

92.5

273,139

91.9

Deposits in bank and other assets

22,122

7.5

24,037

8.1

Total assets

296,081100.0

297,177

100.0

Real estate
property

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

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)
14

(2) Major Property
The principal properties (top ten properties in net book value) owned by JEI as of June 30, 2017 are as
follows:
Ratio of rental
Book value
Leasable space Leased space Occupancy revenue to total
Name(Millions ofrate (%) rental revenues Major use(m ) (Note 1)(m ) (Note 2)(Note 3)yen)(%)
Kowa Kawasaki
Office28,77338,375.65
38,375.65
100.0
8.8 building
Nishiguchi Building
OfficeAKASAKA INTERCITY
5.4 building
27,194
11,021.03
11,021.03
100.0
Nisseki Yokohama
Office24,14140,440.73
40,314.38
99.7
10.7
Buildingbuilding
OfficeAkasaka Garden City
3.7 building
22,2658,769.53
8,769.53
100.0
OfficeOmori Bellport D
8.8 building
21,11925,801.66
25,801.66
100.0
Other
(commercial
HAMARIKYU
18,025
19,718.11
19,500.96
98.9
6.8 facilities,
INTERCITY
residence,etc.)
Musashikosugi Tower
Office12,75025,043.93
25,043.93
100.0
7.3
Place
building
OfficeMansard Daikanyama
2.7 building
11,4375,420.80
5,278.26
97.4
Daiba Garden City
Office10,066
12,122.85
12,122.85
100.0
3.1 building
Building
Kowa Kawasaki
Office9,553
18,612.72
18,612.72
100.0(Note 4)
Higashiguchi Buildingbuilding
2

T otal185,326

205,327.01

2

204,840.97

99.8

－

－

(Note 1) Leasable space refers to space available for lease of which ownership is attributable to JEI as of June 30, 2017. For
properties with joint ownership, the value is obtained by multiplying the total leasable space of the shared property by thepercentage of the interest owned by JEI, regarding the figure as JEI’s leasable space.
(Note 2) Leased space refers to space with lease contracts or master lease agreements that guarantee a certain amount of fixed rent
payment concluded with end tenants as of June 30, 2017. For properties with joint ownership, the value is obtained bymultiplying the total leased space of the property by the percentage of the interest owned by JEI, regarding the figure as
JEI’s leased space. For properties which are used for profit by the master lease company, leased space refers to the portionuse d and the figures indicate space which can be reasonably calculated base d on the lease agreement on the master leasing.
The leased space of end tenants who terminated their lease arrangement but have not yet moved out as of the end of period
is included in the leased space. T his also applies to any figure which is calculated based on “ leased space” in this document.
(Note 3) Occupancy rate is a percentage of total leased space to total leasable space as of June 30, 2017.
(Note 4) The values of Kowa Kawa saki Higashiguchi Building are not disclosed as consent on disclosure from the end tenants havenot been obtained.

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)
15

(3) Portfolio Ownership Breakdown
Real estate properties and their forms of ownership as of June 30, 2017 are as follows:P ropertyNo.

P roperty nameLocation (Residential address)

Ⅰ-1

Omori Bellport D

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

Ⅰ-2

Shiba 2-Chome Building

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

Ⅰ-3

JEI Hamamatsucho Building

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

Ⅰ-7

Akasaka Garden City

4-15-1 Akasaka, Minato-ku, Tokyo

Ⅰ-8

AKASAKA INTERCITY

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

Ⅰ-9

Kowa Shirokanedai Building

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

Ｉ -10

Daiba Garden City Building

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

Ⅰ-12

HAMARIKYU INTERCITY

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

Ⅰ-13

Shintomicho Building

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

Ⅰ-14

Kowa Nishi-Shimbashi Building

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

Ⅰ-15

Mansard Daikanyama

10-1 Sarugakucho, Shibuya-ku, Tokyo

Ⅱ-1

NHK Nagoya Housou-Center
Building

1-13-3 Higashi-Sakura, Higashi-ku, Nagoyashi, Aichi

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

Area I

Ⅱ-2

JEI Nishi-Honmachi Building

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

Ⅱ-3

Osaka Kogin Building (Land with
Leasehold Interest)

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

Ⅲ-1

Musashikosugi Tower P lace

Ⅲ-2

Kowa Kawasaki Higashiguchi
Building

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

Ⅲ-3

JEI Hongo Building

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

Ⅲ-5

Kawasaki Nisshincho Building

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

Ⅲ-6

No. 44 Kowa Building

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

Ⅲ-7

JEI RYOGOKU BUILDING

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

Ⅲ-8

Ebina P rime Tower

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

Ⅲ-9

66-2 Horikawa-cho, Saiwai-ku, Kawasaki-shi,
Kowa Kawasaki Nishiguchi Building
Kanagawa

Ⅲ-10

P acific Square Sengoku

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

Ⅲ-11

Core City Tachikawa

2-37-7 Akebono-cho, Tachikawa-shi, Tokyo
1-1-8 Sakuragi-cho, Naka-ku, Yokohama-shi,
Kanagawa
Area III

Ⅲ-12

Nisseki Yokohama Building

Ⅳ-2

JEI Kyobashi Building

Ⅳ-3

JEI Hiroshima Hacchobori Building

Ⅳ-4

SE Sapporo Building

Ⅳ-5

Aoba-dori P laza

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

Ⅳ-6

Daiwa Minami-morimachi Building

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

Ⅳ-7

JEI Naha Building

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

2-2-48 Kata-machi, Tsushima-ku, Osaka-shi,Osaka
14-4 Hacchobori, Naka-ku, Hiroshima-shi,
Hiroshima
1-1-2 Kitananajonishi, Kita-ku, Sapporo-shi,
Hokkaido

Real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate
Trust beneficiaryinterest in real estate

Area IV
Total

Appraisal value
at end of period Net book value(Millions of yen) (Millions of yen)
(Note)
25,70021,11911,900

9,142

7,350

8,250

17,70022,26526,70027,194

5,090

4,787

12,00010,066

22,40018,025

2,040

1,763

4,040

3,796

12,10011,437147,020

137,849

5,710

5,650

4,690

7,245

2,140

1,865

12,54014,761

20,30012,750

9,450

9,553

4,690

5,115

4,150

4,377

1,750

1,007

2,230

2,257

4,290

5,792

25,40028,773

1,310

1,655

8,270

6,220

26,70024,141

108,540

101,644

4,150

2,975

3,280

2,627

6,970

5,358

3,570

2,188

5,140

4,284

1,580

1,448

24,690292,790

18,883
273,139(Note) Appraisal value at end of period indicates the appraisal value de scribe d in the real estate appraisal report prepared by realestate appraisers belonging to Japan Real Estate Institute, Chuo Real Estate Appraisal Co., Ltd., Japan Valuers Co., Ltd. andDaiwa Real Estate Appraisal Co., Ltd. as of June 30, 2017 pursuant to the articles of incorporation of JEI and the regulations
stipulated by the Investment T rusts Association, Japan. For properties with joint ownership in the current portfolio, the value isobtained by multiplying the total value of the shared real estate by the percentage of the interest owned by JEI or the trustee.

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)16

P roperty
No.

Ⅰ -1
Ⅰ -2
Ⅰ -3
Ⅰ -7
Ⅰ -8
Ⅰ -9
Ｉ -10
Ⅰ -12
Ⅰ -13
Ⅰ -14
Ⅰ -15
Ⅱ -1
Ⅱ -2
Ⅱ -3

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

P roperty name

Omori Bellport D
Shiba 2-Chome Building
JEI Hamamatsucho
Building
Akasaka Garden CityAKASAKA
INTERCITY
Kowa Shirokanedai
Building
Daiba Garden City
Building
HAMARIKYUINTERCITY
Shintomicho Building
Kowa Nishi-Shimbashi
Building
Mansard Daikanyama
Area I
NHK Nagoya HousouCenter Building
JEI Nishi-Honmachi
Building
Osaka Kogin Building(Land with Leasehold
Interest)
Area II
Musashikosugi Tower
P laceKowa Kawasaki
Higashiguchi Building
JEI Hongo Building
Kawasaki Nisshincho
Building
No. 44 Kowa Building
JEI Ryogoku Building
Ebina P rime Tower
Kowa Kawasaki
Nishiguchi Building
P acific Square Sengoku
Core City Tachikawa
Nisseki Yokohama
Building
Area IIIJEI Kyobashi Building
JEI Hiroshima
Hacchobori Building
SE Sapporo Building
Aoba-dori P laza
Daiwa Minamimorimachi Building
JEI Naha Building
Area IV
Total

21st P eriod
22nd P eriod
July 1, 2016 to December 31, 2016
January 1, 2017 to June 30, 2017
Ratio ofRatio of
Total number
Total number
Occupancy Rental revenue
rentalOccupancy Rental revenue
rentalofofrevenue torate (At end
revenue torate (At end(Interim)(Interim)tenants
tenants
total rentalof period)
total rental(Millions of(Millions ofof period)(At end(At endrevenues(%)
revenues
yen)
yen)
(%)
of period)of period)(%)(Note 1)
(Note 1)
(%)
1
100.0
938
8.8
1
100.0
940
8.8
2
100.0
373
3.5
2
100.0
371
3.5
1

100.0

210

2.0

1

100.0

209

2.0

1

100.0

395

3.7

1

100.0

390

3.7

14

100.0

581

5.5

14

100.0

578

5.4

1

100.0

165

1.6

1

100.0

170

1.6

1

100.0

334

3.1

1

100.0

334

3.1

1

98.3

713

6.7

1

98.9

719

6.8

11

100.0

69

0.7

11

100.0

71

0.7

6

100.0

(Note 2)

(Note 2)5100.0(Note 2)

(Note 2)

7
46

97.4
99.6

299
-

2.8
-

7
45

97.4
99.7

291
-

2.7
-

31

95.3

372

3.5

31

94.2

366

3.4

1

100.0

196

1.8

1

100.0

193

1.8

1

100.0

83

0.8

1

100.0

83

0.8

33

97.9

-

-

33

97.3

-

-

37

100.0

797

7.5

40

100.0

778

7.3

1

100.0

(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)1100.0(Note 2)

(Note 2)

1

100.0

191

1.8

1

100.0

190

1.8

1
1
37

100.0
100.0
98.8

88
104
413

0.8
1.0
3.9

1
1
39

100.0
95.8
99.6

90
104
429

0.8
1.0
4.0

1

99.1

923

8.7

1

100.0

938

8.8

9
1

95.5
98.5

49
309

0.5
2.9

10
1

100.0
98.5

54
308

0.5
2.9

1

98.3

1,134

10.7

1

99.7

1,138

10.7

91
1

99.1
91.8

166

1.6

97
1

99.7
100.0

168

1.6

1

98.2

149

1.4

1

98.0

141

1.3

1
53

99.2
99.4

369
188

3.5
1.8

1
53

98.6
98.5

361
189

3.4
1.8

10

100.0

198

1.9

10

100.0

195

1.8

1
67
237

95.8
97.6
99.0

74
10,653

0.7
100.0

1
67
242

91.7
98.5
99.4

74
10,6420.7
100.0(Note 1) Total number of tenants indicates the total number of tenants in each property as of the end of each period. For properties forwhich master lease agreements have been concluded, the number of tenants is counted as one per property. When a tenant
has multiple tenancies in the same property, it is counted as one tenant, and when in multiple properties, it is counted as
multiple tenants. As for Osaka Kogin Building (Land with Leasehold Interest), total number of tenants is counted as one
based on the lease agreement for the leased land.
(Note 2) Rental revenue (interim) and ratio of rental revenue to total rental revenues for Kowa Nishi-Shimbashi Building, Kowa
Kawa saki Higashiguchi Building and JEI Hongo Buildin g are not disclosed as consents on disclosure of rents from the end
tenants have not been obtained.

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)
17

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

Over-the-countertransaction

Interest rate swap
transactions
Floating interest ratereceivable
Fixed interest rate
payable51,140,000

35,140,000–(Note 1) Contract amount of swap transactions is calculated based on notional principal.
(Note 2) Fair value is omitted for presentation as over-the-counter transactions meet requirements for special accounting under the
Accounting Standard for Financial Instruments.

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

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)18

4. Capital Expenditures for Owned Properties(1) Scheduled Capital Expenditures
The following table shows major items of scheduled capital expenditures for repairs and maintenance planned
for the properties owned by JEI as of the end of the 22nd period (ended June 30, 2017). The values below
include portions to be expensed for accounting purposes.
Estimated construction costs(Millions of yen)
Payment
for the six
Total of
Property nameLocation
PurposeSchedule termmonths advanceTotal
ended payment
June 30,
2017
Kowa Kawasaki
Nishiguchi

Kawasaki, Kanagawa

Building

Building

378

－

－

From April 2017
To December 2017

103

－

－

From April 2017
To July 2017

94

37

37

From July 2017
To December 2017

90

－

－

From July 2017
To December 2017

56

－

－

From July 2017
To December 2017

36

－

－

Update of automatic

Ebina Prime T ower Ebina, Kanagawa
Shiba 2-Chome

Renewal of common From March 2017
space
To December 2017

fire alarm system
Renovation of

Minato, T okyo

common spaces ofentire office building

Kowa Kawasaki
Nishiguchi

Kawasaki, Kanagawa

Building

Repair of refractory
coating alongside
update of passenger
elevators
Update of automatic

Omori Bellport D

Shinagawa, T okyo

air conditioning
control equipment(1/5th term)

HAMARIKYUINT ERCIT Y

Minato, T okyo

Repair of common
space lighting(2) Capital Expenditures for the Six Months Ended June 30, 2017
The following table shows constructions conducted by JEI during the period ended June 2017 and expensed ascapital expenditures. Capital expenditures for the period ended June 2017 were 1,056 million yen and, whencombined with repairs and maintenance costs of 271 million yen classified as expenses in the period underreview, the amount of constructions completed totaled 1,328 million yen.

Property nameLocation

PurposeScheduled term

Amounts
Paid(Millions ofyen)

Renewal of wall-throughtype air conditioner

From April 2017
To June 2017244

Shiba 2-Chome Building

Minato, T okyo

SE Sapporo Building

Sapporo-shi, Hokkaido Renewal of common space

From February 2017
To June 2017159

Musashikosugi Tower
Place

Kawasaki-shi,
Kanagawa

Renewal of wall-throughtype air conditioner (5/5th
term)

From January 2017
To March 201785

NHK Nagoya HousouCenter Building

Nagoya-shi, Aichi

Renewal of air conditioners
in lower floors

From July 2016
To March 201761

Nisseki Yokohama
Building

Yokohama-shi,
Kanagawa

Replacement of integrating From October 2016
electricity meter
To February 201738

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)
19

JEI Nishi-honmachi
Building

Osaka-shi, Osaka

Omori Bellport D

Shinagawa, T okyo

Renewal of heat sourcechiller
Replacement of external wallceiling and repair of roof
waterproofing (6/7th term)

From April 2017
To June 201736

From March 2017
To June 2017

30

–

399

Other constructions
Total

1,056

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

19th Period
21st Period
18th Period
20th Period
22nd Period
July 1, 2015 toJuly 1, 2016 toJanuary 1, 2015
January 1, 2016
January 1, 2017
December 31,
December 31,
to June 30, 2015
to June 30, 2016
to June 30, 2017
2015
2016

Reserved funds at beginning of
period

316

317

310

436

450

Increase

119

65

619

675

468

Decrease

118

72

492

662

371

Reserved funds at the end of
period

317

310

436

450

546

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)20

5. Expenses and Liabilities(1) Expenses Associated with Asset Management(Unit: Thousands of yen)Account

21st Period
July 1, 2016
to December 31, 2016

22nd Period
January 1, 2017
to June 30, 2017(a) Asset management fees

442,497442,866(b) Custodian fees

21,15522,025(c) Administrative service fees

40,02541,489(d) Compensation for directors

6,540

6,540

(e) Accounting auditor fees

11,00011,000(f) Other

61,50273,724

582,721597,646

Total

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)
21

(2) Borrowings
Borrowings by each financing source as of the end of the 22nd period (ended June 30, 2017) are as follows:
Classification
Drawdown

Short-term

Lenderdate

Mizuho Bank, Ltd.

November2, 2016loans

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

1,000,000－

Sub Total

1,000,000－

Mizuho Bank, Ltd.

2,000,000－

1,500,000－

Sumitomo Mitsui Banking Corporation

1,500,000－

Mizuho Bank, Ltd.

1,500,000－

Mitsubishi UFJ Trust and Banking

1,300,000－

Mitsubishi UFJ Trust and Banking

January 31,
2012

Sumitomo Mitsui Banking Corporation

July 31,1,200,000－

Sompo Japan Nipponkoa Insurance Inc.

2012

2,000,000－

1,000,000－

6,000,000

6,000,000

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

500,000

500,000

0.23000

Maturity
date

Repayment
methodSeptember
29, 2017(Note 2)

Redemption
UnsecuredLump- of investment
andsum corporation
unguaranteed
bonds

Use

Remarks

1.24750(Note 3)1.03000

January 31,(Note 3)2017

1.09734
Tokio Marine & Nichido Fire

(Note 3)

Insurance Co., Ltd.
Development Bank of Japan Inc.

November30, 2010

Mizuho Bank, Ltd.
Mitsubishi UFJ Trust and Banking
Long-term Sumitomo Mitsui Banking Corporationloans due
within one Mizuho Bank, Ltd.
year
Aozora Bank, Ltd.

July 31,1.73875(Note 3)2012

1.08375(Note 3)1.04550

Resona Bank, Ltd.

June 28,500,000

500,000

Sompo Japan Nipponkoa Insurance Inc.

2013

500,000

500,000

November30, 2017

Lumpsum

Repayment Unsecured
andof existing
borrowing unguaranteed(Note 3)

1.19212Tokio Marine & Nichido Fire

500,000

500,000－

3,000,000(Note 3)

Insurance Co., Ltd.
The Dai-ichi Life Insurance Company

June 29,

Limited2011

Resona Bank, Ltd.

－
－
－
－
－
－
－

Sub Total

24,000,000

Mizuho Bank, Ltd.
Mitsubishi UFJ Trust and Banking
Sumitomo Mitsui Banking Corporation
June 28,
Shinkin Central Bank
The Norinchukin Bank
The Bank of Fukuoka

2013

1.65125(Note 3)June 29,2018

5,000,000
2,000,000
1,100,000
0.81225
1,000,000(Note 3)June 30,2018

1,000,000
700,000
200,000
26,000,000

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)
22Classification
LenderBalance at end of
Balance atperiodDrawdown beginning of period(Thousands of(Thousands of
date
yen)
yen)

Mizuho Bank, Ltd.

1,500,000

Mitsubishi UFJ Trust and Banking November

2,500,000

Sumitomo Mitsui Banking

The Dai-ichi Life Insurance
Company Limited

June 29,2011－－

2,000,000－

3,000,000－

Mizuho Bank, Ltd.

5,000,000

Mitsubishi UFJ Trust and Banking

2,000,000－－

1,100,000－

Sumitomo Mitsui Banking
Corporation
June 28,
Shinkin Central Bank2013

1,000,000－－

The Norinchukin Bank

1,000,000

The Bank of Fukuoka

700,000－

Resona Bank, Ltd.

200,000－

Mizuho Bank, Ltd.

－－Long-term
Mitsubishi UFJ Trust and Banking
loans
Sumitomo Mitsui Banking

January
31, 2017

Maturity
date

Repayment
method－2,700,000

850,000

850,000

Remarks(Note 2)1.65125(Note 3)June 29,2018

0.81225

June 30,(Note3)2018

0.21000

July 31,2018

0.74500(Note 3)

November 1,
2018

0.77500(Note 3)

March 8,2019

0.25000(Note 3)

December 12,
2019

0.28000

December 30,
2019

3,500,000
2,800,000

Use

May 29, 20170.23000

29, 2016

Corporation

Averageinterest rate(%) (Note 1)

Lumpsum

Repayment Unsecured
andof existing
borrowing unguaranteed

Corporation
Mizuho Bank, Ltd.
The Norinchukin Bank

1,450,000

1,450,000

Mitsubishi UFJ Trust and Banking

850,000

850,000

Mizuho Trust & Banking Co., Ltd. March 11,
2014
Mizuho Bank, Ltd.

600,000

600,000

850,000

850,001,450,000

1,450,000

850,000

850,000

600,000

600,000

1,000,000

1,000,000

4,400,000

4,400,000

4,600,000

4,600,000

4,000,000

4,000,000

The Norinchukin Bank
Mitsubishi UFJ Trust and Banking
Mizuho Bank, Ltd.
Nippon Life Insurance Company

December
12, 2016

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

June 29,2016

Corporation

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)
23

Classification
LenderDevelopment Bank of Japan Inc.

Balance at end of
Balance at
AverageperiodDrawdown beginning of periodinterest rate
(Thousands of(Thousands ofdate(%) (Note 1)
yen)
yen)
January 31,
2012

Mizuho Bank, Ltd.

2,000,000

2,000,000

500,000

500,000

1,000,000

1,000,000

600,000

600,000

500,000

500,000

1,000,000

1,000,000

675,000

675,000

Maturity
date

Repayment
methodUse

Remarks

1.60000(Note 3)

Sumitomo Mitsui Banking
Corporation
June 28,
Mizuho Trust & Banking Co., Ltd.

2013

Mitsubishi UFJ Trust and Banking

1.36400(Note 3)

The Dai-ichi Life Insurance Company

January 31,
1.31261

LimitedMizuho Bank, Ltd.
The Norinchukin Bank

December

1,162,500

1,162,500

1.00000

Mitsubishi UFJ Trust and Banking

27, 2013

675,000

675,000(Note 3)

Mizuho Trust & Banking Co., Ltd.

2020

(Note 3)

487,500

487,500

June 28,2013

2,000,000

2,000,000

1.60750(Note 3)

July 31,2014

2,000,000

2,000,000

0.98834(Note 3)2021

Mizuho Bank, Ltd.

520,000

520,000

Mitsubishi UFJ Trust and Banking

540,000

540,000
0.40727

1,080,000

1,080,000

November29, 2021

Sumitomo Mitsui Trust Bank Limited

1,620,000

1,620,000

Mizuho Bank, Ltd.

1,950,000

1,950,000

Development Bank of Japan Inc.
The Dai-ichi Life Insurance Company
LimitedSumitomo Mitsui Banking

November29, 2016

Corporation

Mitsubishi UFJ Trust and Banking
Long-term
Mizuho Trust & Banking Co., Ltd.
loans

December

2,000,000

2,000,000

0.81875

December29, 2014

1,200,000

1,200,000(Note 3)30, 2021

0.35000(Note 3)January 31,
2022

1.15417(Note 3)June 30,
2022

Resona Bank, Ltd.
Sompo Japan Nipponkoa Insurance Inc.
Tokio Marine & Nichido Fire

June 30,

600,000

600,000－

2,000,000

January 31,
2017－

1,000,000

July 31,2014

2,000,000

2,000,000

1,950,000

1,950,000

Lumpsum

Repayment Unsecured
andof existing
borrowing unguaranteed

Insurance Co., Ltd.
Development Bank of Japan Inc.
Mizuho Bank, Ltd.
Mitsubishi UFJ Trust and Banking

December

2,000,000

2,000,000

0.93625

DecemberMizuho Trust & Banking Co., Ltd.

29, 2014

1,200,000

1,200,000(Note 3)30, 2022

600,000

600,000

2,000,000

2,000,000

1.20250(Note 3)June 30,
2023

Mizuho Bank, Ltd.

420,000

420,000

Mitsubishi UFJ Trust and Banking

250,000

250,000

140,000

140,000

1,560,000

1,560,000

0.84375

November(Note 3)30, 2023

0.96275

November(Note 3)30, 2024

Resona Bank, Ltd.
Development Bank of Japan Inc.

June 30,
2015

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

November30, 2015

The Norinchukin Bank

1,500,000

1,500,000

Resona Bank, Ltd.

500,000

500,000

Aozora Bank, Ltd.

750,000

750,000

The Bank of Fukuoka

150,000

150,000

Mizuho Bank, Ltd.

870,000

870,000

Mitsubishi UFJ Trust and Banking

590,000

590,000

Sumitomo Mitsui Banking

350,000

350,000

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)24Corporation
Mizuho Trust & Banking Co., Ltd.

November

1,560,000

1,560,000

Resona Bank, Ltd.

30, 2015

1,000,000

1,000,000

750,000

750,000

Aozora Bank, Ltd.
The Bank of Fukuoka

150,000

150,000

Sub Total

83,900,000

75,900,000

Total

108,900,000

101,900,000(Note 1) The average interest rates are calculated using a weighted-average of the loan balance during the period. Borrowings
hedged by interest rate swaps to avoid interest rate fluctuation risk are calculated using a weighted average rate adjusting
the effect of the interest rate swaps.
(Note 2) Conducted early repayment in full on April 28, 2017.
(Note 3) Loans are fixed-rate loans (including loans with fixed-rate interest using interest rate swaps).

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)

25

(3) Investment Corporation Bonds
The outstanding investment corporation bonds issued by JEI as of June 30, 2017 are as follows:
Issue

Issuance date

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

Balance at
beginning of period(Thousands ofyen)

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

2,000,000

2,000,000

1.40000

Maturity date

Repayment
methodUse

November 2,
2018(Note 1)

(Note 2)5,000,000

5,000,000

0.46000

5,000,000

5,000,000

0.46000

March 11,2019

8,000,000

8,000,000

1.13000

March 11,2024
Lump-sum(Note 3)5,000,000

5,000,000

1.03000

September 9,2025

2,000,000

2,000,000

0.45000

October 27,
2026(Note 2)2,000,000

2,000,000

0.39000

December 20,
2023(Note 4)－7,000,000

0.65000

April 23,2027

(Note 2)29,000,000

36,000,000

Remarks(Note 5)(Note 1) T he funds were used for acquiring new properties.
(Note 2) T he funds were used for repaying existing borrowings.
(Note 3) T he funds are used for redeeming existing investment corporation bonds and repaying existing borrowings.
(Note 4) T he funds are used for redeeming existing investment corporation bonds.
(Note 5) T he bonds are with special pari passu conditions among specified investment corporation bonds.

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

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)26

6. Condition of Investment Transactions(1) Transactions of Property, Asset-Backed Securities, etc. and Infrastructure Assets, etc.
and Infrastructure Related Assets
None(2) Transactions of Other Assets
None(3) Appraisal and Research for Specified Asset Value, etc.
1) Real estate, etc.
None2) OthersNone(4) Transactions with Interested Parties
1) Transactions
None2) Amounts of fees paid and other expenses(Unit: Thousands of yen)Classification

Property management
costs and fees

Breakdown of transactions with interested parties
Total amount paid (A)Paid toAmount paid (B)
NIPPON STEEL KOWA
REAL ESTATE CO., LTD.
Kowa Real Estate Facilities,
1,477,096 Co., Ltd.
Nippon Steel Community
Service Co., Ltd.

Total

1,477,096–

B/A

167,52611.3%

266,710

18.1%

81

0.0%

434,318

29.4%(Note 1) Figures indicate fees paid to interested parties of asset management companies with whom JEI had transactions during thesix months ended June 30, 2017.
(Note 2) Other than the Total amount paid indicated above, the following payments were made for maintenance and repair work, etc.
which were ordered to interested parties during the period.
NIPPON ST EEL KOWA REAL EST AT E CO., LT D.
4,954 thousand yen
KOWA REAL EST AT E FACILIT IES CO., LT D.
196,017 thousand yen(5)Transactions with Asset Management Company Concerning the Additional Businesses of
the Asset Management Company
The Asset Management Company (Japan Excellent Asset Management Co., Ltd.) does not conduct any
additional business falling under the categories of the type I financial instruments business, type II financial
instruments business, building lots and buildings transaction business, or real estate specified joint enterprise,and had no applicable transactions.

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)27

7. Accounting(1) Assets, Liabilities, Principal, and Profit and Loss
For assets, liabilities, principal, and profit and loss, please refer to the attached Balance Sheets, Statements ofIncome and Retained Earnings, Statements of Changes in Net Assets, Notes to Financial Statements andDistribution Information.

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

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

8. Others(1) Notice1) General unitholders’ meeting
There were no applicable items during the period.
2) Board of directors meeting
Major issues related to the execution and modification of major contracts approved by the board of directorsof JEI during the six months ended June 30, 2017 is summarized below.
Approval date

Approved agenda

Description
The board of directors made a comprehensive
resolution on investment corporation bonds to beissued in the period from February 20, 2017 to
February 8, 2018. T he board of directors approved

February 16, 2017

Entrustment of generaladministrative duties
concerning investment
corporation bonds

the respective candidate general administrator for“ administrative

duties concerning offering ofinvestment corporation bonds” and “ administrative
duties concerning acceptance of claims for exerciseof rights and other inquiries from creditors of theinvestment corporation, and other administrative
duties concerning investment corporation bonds
during the period,” and assigne d decisions on allother necessary matters to the Executive Director.

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

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

(4) Other
Unless otherwise stated, monetary amounts have been rounded down and percentage figures have beenrounded off to the nearest indicated unit in this Report.

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)

28

9.

Risk Factors

An investment in JEI’s units involves significant risks. The principal risks with respect to investment in JEI are as
follows.
The principal risks with respect to investment in JEI are as follows:• any adverse conditions in the Japanese economy could adversely affect JEI;• JEI may not be able to acquire properties to execute its growth and investment strategy in a manner that isaccretive to earnings;• illiquidity in the real estate market may limit JEI’s ability to grow or adjust its portfolio;• the past experience of the Asset Management Company in the Japanese real estate market is not an indicator or
guarantee of the future results;• JEI’s reliance on the Core Sponsors, the Asset Management Company and third party service providers could
have a material adverse effect on its business;• there are potential conflicts of interest between JEI and the Core Sponsors as well as the Asset Management
Company;• JEI’s revenues largely comprise leasing revenues from the portfolio properties, which may be negatively
affected by factors including vacancies, decreases in rent, and late or missed payments by tenants;• JEI invests primarily in office properties, the market for which may be affected by macro-economic trends andother forces which JEI cannot control;• JEI faces significant competition in seeking tenants and it may be difficult to find replacement tenants;• increases in prevailing market interest rates may increase JEI’s interest expense and may result in a decline in
the market price of JEI’s units;• JEI may suffer large losses if any of its properties incurs damage from a natural or man-made disaster such as
an earthquake, fire, flood, tsunami or typhoon;• due to the concentration of JEI’s portfolio in the Tokyo metropolitan area, JEI’s business is highly susceptible
to circumstances and developments that may adversely impact that area;• any inability to obtain financing for future acquisitions could adversely affect the growth of JEI’s portfolio;• JEI’s failure to satisfy a complex series of requirements pursuant to Japanese tax regulations would disqualify
JEI from certain taxation benefits and significantly reduce the cash distributions to the unitholders; and• the ownership rights in some of JEI’s properties may be declared invalid or limited.
In addition, JEI is subject to the following risks:• risks related to increasing operating costs;• risks related to JEI’s dependence on the efforts of the Asset Management Company’s key personnel;• risks related to the restrictive covenants under debt financing arrangements;• risks related to entering into forward commitment contracts;• risks related to third party leasehold interests in the land underlying JEI’s properties;• risks related to holding property in the form of stratified ownership (kubun shoyū) interests or co-ownershipinterests (kyōyū-mochibun);• risks related to properties not in operation (including properties under development);• risks related to the defective title, design, construction or other defects or problems in the properties;• risks related to suffering impairment losses relating to the properties;• risks related to decreases in tenant leasehold deposits and/or security deposits;• risks related to tenants’ default as a result of financial difficulty or insolvency;• risks related to the insolvency of master lessees;• risks related to relying on expert appraisals and engineering, environmental and seismic reports as well as
industry and market data;• risks related to the presence of hazardous or toxic substances in JEI’s properties, or the failure to properly
remediate such substances;• risks related to strict environmental liability for the properties;• risks related to potential amendment of applicable administrative laws and local ordinances;• risks related to holding interests in Japanese anonymous association (tokumei kumiai);• risks related to holding properties through trust beneficiary interests;• risks related to JEI’s tight supervision by regulatory authorities and compliance with applicable rules andregulations;
Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)

29

•
•
•
•

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

Asset Management Report for 22 nd period (Semi-Annual Report for 22 nd Period)

30

Financial Statements
Japan Excellent, Inc.
For the six-month periods ended
June 30, 2017 and December 31, 2016
with Independent Auditor’s Report

31

32

Japan Excellent, Inc.
Balance Sheets
As of June 30, 2017 and December 31, 2016

As ofJune 30, 2017

As ofDecember 31, 2016

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

22,182,030
486,122－
196,472
22,864,624

20,096,382
559,458
58,187
183,753
20,897,782

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

5,922,283
6,253
12,2703,032,788
12,606
121,130,825
797,332
194,343
160,660,425
139,031(27,877,107)
264,031,052

5,849,052
6,253
12,2703,032,788
3,812
120,173,335
772,751
193,087
160,660,425
55,969(25,909,714)
264,850,033

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

1,721,607
113
7,382,016
4,848
9,108,586

1,721,607
138
7,382,016
4,562
9,108,325

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

15,181
628,970379,051
1,023,203

15,181
705,216
382,193
1,102,591

149,786
149,786
297,177,254

122,341
122,341
296,081,074

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

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

As of
As ofJune 30, 2017
December 31, 2016
(Thousands of yen)
Liabilities
Current liabilities:
Accounts payable – trade
Short-term loans (Notes 5 and 8)
Long-term debt due within one year
(Notes 5 and 8)
Accounts payable – otherAccrued expenses
Accrued corporation taxes
Accrued consumption taxes
Advances received
Other current liabilities
Total current liabilities
Long-term liabilities:
Investment corporation bonds (Notes 5 and 9)
Long-term debt (Notes 5 and 8)
Security deposits from tenants (Note 5)
Security deposits from tenants for trust accounts (Note 5)
Total long-term liabilities
Total liabilities
Net assets (Note 10)
Unitholders’ equity:
Unitholders’ capital
Surplus
Voluntary reserve
Reserve for advanced depreciation of non-current assets
Retained earnings
Total surplus
Total unitholders’ equity
Total net assets
Total liabilities and net assets

1,465,612－

1,204,829
1,000,000

26,000,000
438,800
133,136678
289,887
83,886－28,412,001

24,000,000
434,187
182,273764－
76,142
105
26,898,303

36,000,000
75,900,000
723,098

29,000,000
83,900,000
733,092

12,448,681
125,071,779
153,483,781

11,909,335
125,542,427
152,440,731

139,972,885

139,972,885

260,476
3,460,111
3,720,588
143,693,473
143,693,473
297,177,254

260,476
3,406,981
3,667,457
143,640,343
143,640,343
296,081,074

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

Japan Excellent, Inc.
Statements of Income and Retained Earnings
For the periods from January 1, 2017 to June 30, 2017
and from July 1, 2016 to December 31, 2016

For the period
from January 1, 2017
to June 30, 2017

For the period
from July 1, 2016
to December 31, 2016

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

9,760,176
882,490
10,642,667

9,702,024
951,062
10,653,086

5,890,983
442,866
22,02541,4896,540
84,724
6,488,630
4,154,037

5,849,144
442,497
21,15540,025
6,540
72,502
6,431,865
4,221,220

98
1,034

158
713

437,910
114,622－
123,538
13,5545,143
3,460,399
3,460,399

506,703
142,818
13,965
128,180
13,592
9,699
3,407,130
3,407,130693
4
3,459,701
409
3,460,111

788
1
3,406,339
641
3,406,981

The accompanying notes are an integral part of these financial statements.
35

Japan Excellent, Inc.
Statements of Changes in Net Assets
For the periods from January 1, 2017 to June 30, 2017
and from July 1, 2016 to December 31, 2016
For the period from January 1, 2017 to June 30, 2017
Net assets
Unitholders’ equity
SurplusNumber ofunits in issue

Unitholders’capitalVoluntary
reserve
Reserve foradvanceddepreciation of
non-current
assetsRetainedearnings

Total surplus

Totalunitholders’equityTotal net
assets(Thousands of yen)
Balance as ofDecember 31, 2016
Changes during
the fiscal period:
Issuance of
new units
Distributions fromretained earnings
Net income
Total changes
during the fiscal
periodBalance as ofJune 30, 2017

1,305,700

139,972,885

260,476

3,406,981

3,667,457

143,640,343

143,640,343

－

－

－

－

－

－

－

－

－

－

(3,406,571)(3,406,571)(3,406,571)(3,406,571)

－

－

－

3,459,701

3,459,701

3,459,701

3,459,701－－－

53,13053,13053,13053,1301,305,700

139,972,885

260,476

3,460,111

3,720,588

143,693,473

143,693,473

For the period from July 1, 2016 to December 31, 2016
Net assets
Unitholders’ equity
SurplusNumber ofunits in issue

Unitholders’capitalVoluntary
reserve
Reserve foradvanceddepreciation of
non-current
assetsRetainedearnings

Total surplus

Totalunitholders’equityTotal net
assets(Thousands of yen)
Balance as ofJune 30, 2016
Changes during
the fiscal period:
Issuance of
new units
Distributions fromretained earnings
Net income
Total changes
during the fiscal
periodBalance as ofDecember 31, 2016

1,264,450

134,434,701

260,476

3,113,717

3,374,193

137,808,895

137,808,895

41,2505,538,183－－－

5,538,183

5,538,183－－－(3,113,075)(3,113,075)(3,113,075)(3,113,075)

－

－

－

3,406,339

3,406,339

3,406,339

3,406,339

41,2505,538,183－

293,264

293,264

5,831,447

5,831,447

1,305,700

139,972,885

260,476

3,406,981

3,667,457

143,640,343

143,640,343

The accompanying notes are an integral part of these financial statements.
36

Japan Excellent, Inc.
Statements of Cash Flows
For the periods from January 1, 2017 to June 30, 2017
and from July 1, 2016 to December 31, 2016

For the period
For the period
from January 1, 2017from July 1, 2016
to June 30, 2017
to December 31, 2016
(Thousands of yen)
Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Amortization of investment corporation bond issuance costs
New unit issuance costs
Interest income
Interest expense
Decrease (increase) in rental receivables
Decrease (increase) in consumption taxes refundable
Decrease (increase) in prepaid expense
Increase (decrease) in accounts payable – trade
Increase (decrease) in accounts payable – other
Increase (decrease) in unpaid consumption taxes
Increase (decrease) in advances received
Decrease (increase) in long-term prepaid expenses
Other, net
SubtotalInterest received
Interest paid
Income taxes paid
Net cash provided by operating activities

3,460,399
1,967,549
13,554－(98)
561,449
73,33658,187(7,422)
124,373
5,780
289,887
7,744
76,246(2,806)
6,628,182
98(610,586)(779)
6,016,915

3,407,130
1,956,920
13,592
13,965(158)
634,884
93,587(58,187)(53,299)
75,65917,248(98,318)(6,394)34,713(39,653)
5,991,692
158(639,938)(546)
5,351,365

Cash flows from investing activities
Purchases of property and equipment
Purchases of property and equipment for trust accounts
Proceeds from security deposits from tenants
Payments for security deposits to tenants
Proceeds from security deposits in trust accounts from tenants
Payments for security deposits in trust accounts to tenants
Net cash used in investing activities(102,514)(909,906)
13,393(23,387)
628,846(89,501)(483,068)(8,933)(12,513,882)
6,369(13,607)
680,893(143,788)(11,992,949)

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 redemption of investment corporation bonds
Proceeds from issuance of investment units
Distributions to unitholders
Net cash provided by (used in) financing activities－(1,000,000)
12,000,000(18,000,000)
6,959,000－－(3,407,199)(3,448,199)

14,500,000(14,500,000)
10,760,000(3,760,000)
3,969,500(5,000,000)
5,506,766(3,112,259)
8,364,006

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

2,085,647
20,096,382
22,182,030

1,722,422
18,373,960
20,096,382

The accompanying notes are an integral part of these financial statements.
37

Japan Excellent, Inc.
Notes to Financial Statements
For the periods from January 1, 2017 to June 30, 2017
and from July 1, 2016 to December 31, 2016

1.

Organization

Japan Excellent, Inc. (hereinafter, “JEI”), established on February 20, 2006 under the Law
Concerning Investment Trusts and Investment Corporations of Japan (the “Investment TrustLaw”), is a real estate investment corporation which primarily invests in office buildings.
JEI is externally managed by a licensed asset management company, Japan Excellent AssetManagement (“JEAM”). JEAM was originally owned 45% by NIPPON STEEL KOWA
REAL ESTATE CO., LTD., 20% by The Dai-ichi Life Insurance Company, Limited, 15% by
Sekisui House, Co., LTD., and 20% by other corporations. Due to the transfer of ownershipby Sekisui House, Co., LTD., on May 12, 2014, ownership interests of 9% and 6% were eachacquired by NIPPON STEEL KOWA REAL ESTATE CO., LTD., and The Dai-ichi Life
Insurance Company, Limited, respectively.
JEI was listed on the Tokyo Stock Exchange on June 27, 2006. As of June 30, 2017, JEI held
31 properties with 362,291.56 square meters of total leasable space and had leases with 242
tenants excluding residential tenants.

2.

Basis of Presentation

JEI maintains its accounting records and prepares its financial statements in accordance withaccounting principles generally accepted in Japan (“Japanese GAAP”), including provisions
set forth in the Investment Trust Law, the Corporation Law of Japan, the Financial
Instruments and Exchange Law of Japan and related regulations, which are different in certain
respects as to the application and disclosure requirements of International Financial ReportingStandards.
The accompanying financial statements are a translation of the financial statements of JEI,
which were prepared in accordance with Japanese GAAP and presented in the securities
report of JEI filed with the Kanto Local Finance Bureau. In preparing the accompanying
financial statements, certain reclassifications and modifications have been made for theconvenience of readers outside Japan. In addition, the notes to the financial statements include
information that might not be required under Japanese GAAP but is presented herein as
additional information.
The amounts have been rounded down to the nearest thousand yen in the accompanying
financial statements in accordance with the financial statements originally prepared inJapanese and filed with the regulatory authorities in Japan.

38

3.

Summary of Significant Accounting Policies

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

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

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

39

3.

Summary of Significant Accounting Policies (continued)

JEI capitalizes the property-related taxes allocated to the sellers of properties to JEI at thetime of acquisition of such properties including trust accounts. The capitalized amount for theperiod from July 1, 2016 to December 31, 2016 was ¥27,726 thousand. No property-related
taxes were capitalized for the period from January 1, 2017 to June 30, 2017.
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 against fluctuation risk in interest rates. JEI has therefore
entered into certain interest-rate swap contracts in order to hedge the risk of variable rates for
its long-term debt obligations.
Each corresponding interest-rate swap is not required to be re-measured to fair value, because
it meets the criteria for the special hedge accounting treatment under Japanese GAAP, which
JEI applies to each interest-rate swap agreement.
Under this special hedge accounting treatment, the differentials paid or received under theswap agreements are recognized and included in interest expense of the hedged loans, and theinterest-rate swaps are not required to be measured at fair value separately. For interest-rate
swaps that meet the specific criteria for the special accounting treatment, assessments ofhedge effectiveness are not performed.
Properties in trust accounts
All assets and liabilities held in trust, for which real estate in possession of JEI was entrusted,
and all earnings and expenses resulting from such trust, are properly reflected in theaccompanying balance sheets and statements of income and retained earnings, respectively.

4.

Cash and Cash Equivalents

Cash and cash equivalents including trust accounts in the accompanying balance sheets andcash and cash equivalents in the accompanying statements of cash flows at June 30, 2017 andDecember 31, 2016 consisted of the following:

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

As of
As of
June 30, 2017
December 31, 2016
(Thousands of yen)
5,373,222
3,790,935
16,808,808
16,305,446
22,182,030
20,096,382

40

5.

Financial Instruments

For the periods from January 1, 2017 to June 30, 2017 and from July 1, 2016 to
December 31, 2016
Overview(1) Policy for Financial Instruments
JEI borrows from banks, issues investment corporation bonds and issues investment units
to procure funds required to grow its assets under management and to repay liabilities,
based on the financial policy set forth by JEAM and the JEI’s Annual Funding
Procurement Plan. When procuring funds by means of interest-bearing debt, matters suchas seeking longer durations and maturities, securing fixed interest rates over the entire
term of the instrument in order to benefit from the recent favorable financial environment
with low interest rates, and diversifying maturity dates are taken into consideration toachieve a more stable financial situation and avoid the risk of future interest rate hikes.
Surplus funds may be invested in deposits and safe, liquid financial assets and investment
securities, but are, in principle, placed in fixed-rate term deposits. Derivative transactions
are used solely for the purpose of hedging against the risk of fluctuations in interest rates
of borrowings and investment corporation bonds.
(2) Types of Financial Instruments, Related Risks and Risk Management System(a) Market Risks (Interest rate fluctuation risk)
Borrowings and investment corporation bonds are primarily used to acquire
properties or to refinance existing borrowings or bonds. Some of such debt were
floating rate instruments and thus were exposed to the risk of interest rate
fluctuations. Based on interest rate forecasts developed through constant financial
market monitoring activities, JEI has concentrated on hedging against the risk ofinterest rate fluctuations principally using interest-rate swaps, through which afloating interest rate is swapped for a fixed interest rate, which finally led to 81.3%
of existing borrowings being covered by a fixed interest rate swap for the entire
maturity as of June 30, 2017. To reduce credit risk, derivative transactions(interest-rate swaps) are entered into exclusively with counterparties that are
financial institutions with high credit ratings. For hedging accounting methods,
hedging instruments, hedged items, hedging policies and methods for evaluation of
the effectiveness of hedging activities, see “Derivatives and hedge accounting”
under Summary of Significant Accounting Policies.
(b) Liquidity Risk (Risk of being unable to procure funds required for repayments)
Borrowings and investment corporation bonds are exposed to liquidity risk. This risk
is reduced through diversification of maturity dates and funding sources, andarrangement of commitment line agreements (as described in Note 8, “Short-Term
Loans and Long-Term Debt,” there is no balance outstanding under the facility
agreements as of June 30, 2017). Liquidity risk is also mitigated through theconstant management of liquidity on hand.

41

5.

Financial Instruments (continued)(3) Supplementary Explanation of the Estimated Fair Value of Financial Instruments
The fair value of financial instruments is based on their quoted market price, if available.
When there is no quoted market price available, fair value is reasonably estimated. Sincevarious assumptions and factors are reflected in estimating the fair value, different
assumptions and factors could result in a different fair value.
Fair value of financial instruments
The following are carrying values and fair values as of June 30, 2017 and December 31, 2016of financial instruments and the differences between them. When fair value is extremely
difficult to ascertain, it is excluded from the following table (Note B).
As of June 30, 2017
As of December 31, 2016
Fair value
Carrying
Fair value
Difference
Difference(Note A)
value
(Note A)
(Thousands of yen)
3,790,935
3,790,935
5,373,222
5,373,222－－
16,305,446
16,305,446
16,808,808
16,808,808－－
22,182,030
22,182,030－
20,096,382
20,096,382－－－
1,000,000
1,000,000－－

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

－

－

－

－

－

－

26,000,000

26,171,999

171,999

24,000,000

24,207,439

207,439

36,000,000
75,900,000
137,900,000

36,436,630
76,886,676
139,495,305

436,630
986,676
1,595,305

29,000,000
83,900,000
137,900,000

29,596,890
85,175,932
139,980,262

596,890
1,275,932
2,080,262

－

－

－

－

－

－

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

(Note A)
Methods for calculating the fair value of financial instruments and matters related toderivatives transactions
Assets(1) Cash and cash deposits and(2) Cash and deposits in trust
Carrying value approximates fair value because of the short maturities of these
instruments.
Liabilities(3) Short-term loans
Carrying value approximates fair value because of the short maturities of these
instruments.

42

5.

Financial Instruments (continued)(5) Long-term debt due within one year and(7) Long-term debt
Where floating rates apply, book value is generally considered appropriate as fair value.
The fair value of such liabilities is considered to approximate book value, since floating
rates reflect market interest rates within a short period of time.
If the loan is part of long-term debt, in the case of floating-rate debt hedged by aninterest-rate swap, the fair value is calculated in a similar manner using the total principal
and interest amount, treated in combination with the interest-rate swap, given that theinterest-rate swap is subject to the special treatment of interest-rate swaps under Japanese
GAAP.
The fair value of long-term fixed-rate debt and long-term fixed-rate debt due within one
year are calculated by applying a reasonably assumed interest rate as a discount rate,
which was determined to be applicable for the borrowings under similar conditions.
(4) Investment corporation bonds due within one year and(6) Investment corporation bonds
The fair value of investment corporation bonds issued by JEI is based on quoted market
prices.
(8) Derivative transactions
Please refer to Note 15, “Derivative Transactions.”(Note B)・Financial instruments for which fair value is deemed extremely difficult to determine
The fair values of security deposits from tenants and security deposits from tenants for trust
accounts are as follows:① Security deposits from tenants*② Security deposits from tenants for trust accounts*

As of
As of
June 30, 2017
December 31, 2016
(Thousands of yen)
723,098
733,092
12,448,681
11,909,335* Security deposits from tenants and security deposits for trust accounts from tenants in leased properties are
not subject to fair value disclosure, since such deposits have no market price. Furthermore, due to theircharacteristics, it is extremely difficult to estimate the fair value of security deposits in advance because of
the uncertainty of the timing when the tenant vacates. As a result, it is therefore impossible to rationallyestimate the exact cash flow from such security deposits.

43

5.

Financial Instruments (continued)

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

Cash and cash deposits
Cash and deposits in trust
Total

1 year or less

1 to 2 years

5,373,222
16,808,808
22,182,030－－－

1 year or less

1 to 2 years

3,790,935
16,305,446
20,096,382－－－

As of June 30, 2017
2 to 3 years
3 to 4 years(Thousands of yen)
－
－
－
－
－
－
As of December 31, 2016
2 to 3 years
3 to 4 years(Thousands of yen)
－
－
－
－
－
－

4 to 5 years

Over 5 years

－
－
－

－
－
－

4 to 5 years

Over 5 years

－
－
－

－
－
－

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

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

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

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

1 year or less

1 to 2 years

－

－

－

－

－

26,000,000－－
26,000,000－
12,000,000
16,500,000
28,500,000－－
22,600,000
22,600,000

4 to 5 years

Over 5 years

－

－

－

－

－

－
－
4,000,000
4,000,000－－
14,510,000
14,510,000－
24,000,000
18,290,000
42,290,000

4 to 5 years

Over 5 years－－

As of December 31, 2016
2 to 3 years
3 to 4 years(Thousands of yen)－－

1 year or less

1 to 2 years

1,000,000

－

－

－

－

－

－

－

24,000,000－－
25,000,000－
7,000,000
23,750,000
30,750,000－
5,000,000
17,750,000
22,750,000－－
8,600,000
8,600,000－－
13,510,000
13,510,000－
17,000,000
20,290,000
37,290,000

44

6. Investment and Rental Property
For the periods from January 1, 2017 to June 30, 2017 and from July 1, 2016 to
December 31, 2016
JEI owns rental office buildings and other properties in Tokyo and other regions for the
purpose of generating rental income. The following is the carrying value and fair value as ofJune 30, 2017 and December 31, 2016 for such real estate for lease.
Carrying value
Change during period
As of
As of
(*1)
January 1, 2017
June 30, 2017
(Thousands of yen)
273,958,219(818,694)
273,139,525
Carrying value
As of
Change during period
As ofJuly 1, 2016(*2)
December 31, 2016
(Thousands of yen)
263,249,595
10,708,624
273,958,219

Fair value
As ofJune 30, 2017292,790,000

Fair value
As ofDecember 31, 2016
286,880,000

A) Carrying value represents the acquisition cost less accumulated depreciation.
B) Details of change during period:(*1) The decrease of ¥818,694 thousand during the period is mainly due to a decrease of¥1,967,524 thousand for depreciation costs.
(*2) The increase of ¥10,708,624 thousand during the period is mainly due to an increase of¥11,514,768 thousand related to the acquisition of Mansarde Daikanyama Building
offset by a decrease of ¥1,956,895 thousand for depreciation costs.
C) Fair value
Fair value as of June 30, 2017 and December 31, 2016 is appraisal value provided bythird-party real estate appraisers.

45

7.

Property and Equipment

Property and equipment at June 30, 2017 and December 31, 2016 consisted of the following:
As of December 31, 2016

As of June 30, 2017

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

8.

Net
Acquisition
book value
cost(Thousands of yen)

Accumulated
depreciation

Netbook value

5,849,052
6,253
12,2703,032,788
3,812(1,165,549)(1,973)(4,384)－－

4,683,503
4,279
7,885
3,032,788
3,812

95,004,498

120,173,335(24,284,695)

95,888,639(375,536)

421,796772,751(346,901)

425,850

194,343
160,660,425(114,567)－

79,775
160,660,425

193,087
160,660,425(106,209)－

86,878160,660,425

139,031291,908,160－(27,877,107)

139,031
264,031,052

55,969290,759,747－(25,909,714)

55,969264,850,033

Acquisition
cost

Accumulated
depreciation

5,922,283
6,253
12,2703,032,788
12,606(1,253,386)(2,255)(5,035)－－

4,668,896
3,998
7,234
3,032,788
12,606

121,130,825(26,126,326)

797,332

Short-Term Loans and Long-Term Debt

Short-term loans and long-term debt as of June 30, 2017 and December 31, 2016 consisted of
the following:

Short-term loans:
Unsecured loans from a bank due on September 29, 2017(*2)
SubtotalLong-term debt due within one year:

As of June 30, 2017
Weighted-averageAmountinterest rate (*1)
(Thousands of yen)

As of December 31, 2016
Weighted-averageAmountinterest rate (*1)
(Thousands of yen)－－－

1,000,000
1,000,000

0.23000%

Unsecured loans from banks due on January 31, 2017－－

5,000,000

1.24750% (*3)

Unsecured loans from banks due on January 31, 2017
Unsecured loans from insurance companies due on
January 31, 2017－－

4,000,000

1.03000% (*3)－－

3,000,000

1.09734% (*3)

Unsecured loans from a bank due on November 30, 2017

6,000,000

1.738750% (*3)

6,000,000

1.73875% (*3)

Unsecured loans from banks due on November 30, 2017

3,000,000

1.083750% (*3)

3,000,000

1.08375% (*3)

Unsecured loans from banks due on November 30, 2017
Unsecured loans from insurance companies due on
November 30, 2017
Unsecured loans from an insurance company due on
June 29, 2018

2,000,000

1.045500% (*3)

2,000,000

1.04550% (*3)

1,000,000

1.192120% (*3)

1,000,000

1.19212% (*3)

3,000,000

1.651250% (*3)－－

Unsecured loans from banks due on June 30, 2018
Subtotal

11,000,000
26,000,000

0.812250% (*3)－
24,000,000－

46

8. Short-Term Loans and Long-Term Debt (continued)
Long-term debt:
Unsecured loans from banks due on May 29, 2018(*2)
Unsecured loans from an insurance company due on
June 29, 2018－－

6,000,000

0.23000%－－

3,000,000

1.65125% (*3)

Unsecured loans from banks due on June 30, 2018－－

11,000,000

0.81225% (*3)

Unsecured loans from banks due on Juｌy 31, 2018

9,000,000

0.21000%－－

Unsecured loans from banks due on November 1, 2018

3,750,000

0.74500% (*3)

3,750,000

0.74500% (*3)

Unsecured loans from banks due on March 8, 2019
Unsecured loans from an insurance company due on
December 12, 20193,750,000

0.77500% (*3)

3,750,000

0.77500% (*3)

1,000,000

0.25000% (*3)

1,000,000

0.25000% (*3)

Unsecured loans from banks due on December 30, 201913,000,000

0.28000%

13,000,000

0.28120%

Unsecured loans from a bank due on January 31, 2020

2,000,000

1.60000% (*3)

2,000,000

1.60000% (*3)

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

2,600,000

1.36400% (*3)

2,600,000

1.36400% (*3)

1,000,000

1.31261% (*3)

1,000,000

1.31261% (*3)

Unsecured loans from banks due on January 31, 2020

3,000,000

1.00000% (*3)

3,000,000

1.00000% (*3)

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

2,000,000

1.60750% (*3)

2,000,000

1.60750% (*3)

2,000,000

0.98834% (*3)

2,000,000

0.98834% (*3)

Unsecured loans from banks due on November 29, 2021

3,760,000

0.40727%

3,760,000

0.40727%

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

5,750,000

0.81875% (*3)

5,750,000

0.81875% (*3)

3,000,000

0.35000% (*3)－－

Unsecured loans from a bank due on June 30, 2022

2,000,000

1.15417% (*3)

2,000,000

1.15417% (*3)

Unsecured loans from banks due on December 30, 2022

5,750,000

0.93625% (*3)

5,750,000

0.93625% (*3)

Unsecured loans from a bank due on June 30, 2023

2,000,000

1.20250% (*3)

2,000,000

1.20250% (*3)

Unsecured loans from banks due on November 30, 2023

5,270,000

0.84375% (*3)

5,270,000

0.84375% (*3)

Unsecured loans from banks due on November 30, 2024
Subtotal
Total

5,270,000
75,900,000
101,900,000

0.96275% (*3)

5,270,000
83,900,000
108,900,000

0.96275% (*3)(*1) The weighted-average interest rate is weighted-average figures during the period. As for the borrowings hedge d byinterest-rate swaps for the purpose of mitigating interest rate fluctuation risk, the fixed interest rates after entering into
the interest rate swap transactions are used to calculate the weighted-average interest rate.
(*2) JEI made a partial early repayment of this borrowing on April 28, 2017.
(*3) T hese are fixed-rate debt (incl. fixed-rate debt through each interest-rate swap agreement).

The scheduled repayment amounts of long-term debt as of June 30, 2017 are as follows:

Long-term debt

1 year or less

1 to 2 years

26,000,000

16,500,000

2 to 3 years
3 to 4 years(Thousands of yen)
22,600,000
4,000,000

4 to 5 years

Over 5 years

14,510,000

18,290,000

JEI has commitment lines of ¥14,000,000 thousand with three financial institutions to
mitigate refinancing risk and enhance financial stability. As of June 30, 2017, thesecommitment lines have never been utilized.
47

9.

Investment Corporation Bonds

Details of total investment corporation bonds outstanding as of June 30, 2017 and December
31, 2016 are summarized as follows:
As of June 30, 2017
Weighted-averageAmountinterest rate
(Thousands of yen)Unsecured bond #4
due on November 2, 2018
Unsecured bond #5
due on November 2, 2018
Unsecured bond #6
due on March 11, 2019
Unsecured bond #7
due on March 11, 2024
Unsecured bond #8
due on September 9, 2025
Unsecured bond #9
due on October 27, 2026
Unsecured bond #10
due on December 20, 2023
Unsecured bond #11
due on April 23, 2027
Total

As of December 31, 2016
Weighted-averageAmountinterest rate
(Thousands of yen)

2,000,000

1.40000%

2,000,000

1.40000%

5,000,000

0.46000%

5,000,000

0.46000%

5,000,000

0.46000%

5,000,000

0.46000%

8,000,000

1.13000%

8,000,000

1.13000%

5,000,000

1.03000%

5,000,000

1.03000%

2,000,000

0.45000%

2,000,000

0.45000%

2,000,000

0.39000%

2,000,000

0.39000%

7,000,000
36,000,000

0.65000%－
29,000,000－

The scheduled redemption amounts of investment corporation bonds as of June 30, 2017 are
as follows:
1 year or less

1 to 2 years－

12,000,000

Investment corporation bonds

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

4 to 5 years

Over 5 years－

24,000,000

10. Net Assets
In accordance with the Investment Trust Law, JEI issues only non-par value investment units
and maintains net assets of at least ¥50,000 thousand.

11. Per Unit Information
Net assets per unit as of June 30, 2017 and December 31, 2016 were calculated based on thenumber of units outstanding as of each date, (1,305,700 units) and (1,305,700 units),
respectively.
Net income per unit for the periods from January 1, 2017 to June 30, 2017 and July 1, 2016 to
December 31, 2016 was calculated based on the weighted-average number of units
outstanding during the corresponding periods, (1,305,700 units) and (1,302,847 units),
respectively.
Accordingly, net assets per unit were ¥110,050 as of June 30, 2017 and ¥110,010 as ofDecember 31, 2016. Net income per unit was ¥2,649 for the period from January 1, 2017 toJune 30, 2017 and ¥2,614 for the period from July 1, 2016 to December 31, 2016.

48

12. Income Taxes
JEI is subject to income taxes in Japan.
JEI’s policy is to make dividend distributions in excess of 90% of distributable income foreach fiscal period in order to meet the condition set forth in the Special Taxation Measures
Law of Japan concerning the deductibility of cash dividends paid for income tax purposes.
Details of significant components of deferred tax assets and liabilities as of June 30, 2017 andDecember 31, 2016 are summarized as follows:
As of June 30,
As of December 31,
2017
2016
(Thousands of yen)
Deferred tax assets:
Accrued enterprise taxes
Total deferred tax assets
Net deferred tax assets

4
4
4

8
8
8

A reconciliation of the differences between the statutory tax rate and the effective tax rate forthe periods from January 1, 2017 to June 30, 2017 and from July 1, 2016 to December 31,
2016 is as follows:

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

For the period
For the period
from January 1, 2017from July 1, 2016
to June 30, 2017
to December 31, 201631.74%
31.74%(31.74)0.02
0.02%(31.73)
0.02
0.02%

49

13. Breakdown of Revenues and Expenses

For the period
For the period
from July 1, 2016
from January 1, 2017
to December 31, 2016
to June 30, 2017
(Thousands of yen)
Revenues:
Rental business revenues
Rental revenues
Common area revenues
Other rental revenues
Subtotal
Other
Utilities revenues
Other revenues
Subtotal
Total rental revenues
Property operating expenses:
Property management costs and fees
Utilities expenses
Property and other taxes
Insurance
Repairs and maintenance
Depreciation
Other
Total property operating expenses
Profit8,044,157
1,447,214
268,805
9,760,176

7,969,256
1,459,895
272,872
9,702,024

758,214124,276
882,490
10,642,667

838,617
112,444
951,062
10,653,086

1,477,096
1,004,220
915,948
25,047
271,949
1,967,524
229,197
5,890,983
4,751,684

1,422,920
1,064,241
891,506
25,281
267,395
1,956,895
220,9035,849,144
4,803,941

14． Leases
JEI leases properties on which rental revenues are earned. At June 30, 2017 and December 31,
2016, future lease revenues under non-cancelable operating leases are summarized as follows:

Due within one year
Due after one year
Total

As of June 30,
As of December 31,
2017
2016
(Thousands of yen)
600,494
845,244780,089
899,010
1,380,583
1,744,254

50

15. Derivative Transactions
Derivative Transactions as of June 30, 2017
(1) Transactions to which hedge accounting is not applied:
Not applicable.
(2) Transactions to which hedge accounting is applied:
The following are the contract values or values corresponding to the principal amount as
stipulated by contracts as of June 30, 2017 for each hedge accounting method applied.

Hedge
accounting
methodSpecialtreatment ofinterest-rate
swaps

Type of derivativetransaction

Interest-rate swap
Receive floating,pay fixed

Hedgeditem

Long-term
debt

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

51,140,000

35,140,000

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

Derivative Transactions as of December 31, 2016
(1) Transactions to which hedge accounting is not applied
Not applicable.
(2) Transactions to which hedge accounting is applied
The following are the contract values or values corresponding to the principal amount as
stipulated by contracts as of December 31, 2016 for each hedge accounting method
applied.

Hedge
accounting
methodSpecialtreatment ofinterest-rate
swaps

Type of derivativetransaction

Interest-rate swap
Receive floating,pay fixed

Hedgeditem

Long-term
debt

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

60,140,000

46,140,000

Method ofcalculating
the fair value** Since the above interest-rate swap meets the criteria for the special hedge accounting treatment underJapanese GAAP and therefore qualifies for hedge accounting, the swap is not revalued at fair value on theaccompanying balance sheets, as described in the summary of significant accounting policies.
In addition, since the swap and the long-term debt hedged by the swap are accounted for as a unit, the fairvalue of the swap is disclosed as part of the fair value of the hedged long-term debt in the fair value
disclosure in Note 5, “Financial Instruments.”
51

16. Related Party Transactions
For the period from January 1, 2017 to June 30, 2017
(1) Parent Company and Major Corporate Unitholders
Not applicable.
(2) Subsidiaries and Affiliated Companies
Not applicable.
(3) Sister Companies
Not applicable.
(4) Directors and Major Individual Unitholders
Name

Description of transaction

Hidehiko
Ogawa

Payment of asset management
fees to JEAM

Amount(Thousands of yen)442,866

Account

Balance at the end of period(Thousands of yen)Accounts
payable361,935

For the period from July 1, 2016 to December 31, 2016
(1) Parent Company and Major Corporate Unitholders
Not applicable.
(2) Subsidiaries and Affiliated Companies
Not applicable.
(3) Sister Companies
Not applicable.
(4) Directors and Major Individual Unitholders
Name

Description of transaction

Hidehiko
Ogawa

Payment of asset management
fees to JEAM

Amount(Thousands of yen)442,497

Account

Balance at the end of period(Thousands of yen)Accounts
payable360,428

17. Segment Information
For the periods from January 1, 2017 to June 30, 2017 and from July 1, 2016 to
December 31, 2016
Since JEI has been engaged in the real-estate leasing business as a single segment, segment
information has been omitted.
Information about products and services
Since revenues from external customers for a single segment of similar products and services
accounted for more than 90% of total operating revenues, information about products andservices has been omitted.

52

17. Segment Information (continued)
Information about geographic area
(1) Revenues
Since 100% of the total operating revenues were generated from external customers
within Japan, geographical breakdown of revenues has been omitted.
(2) Property and equipment
Since 100% of total property and equipment on the balance sheet are located within
Japan, geographical breakdown of such property and equipment has been omitted.
Information about major clients
Since no single external client represents 10% or more of JEI’s total operating revenues,
information about major clients has been omitted.

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 is limited by the amount of retained
earnings at end of period, shall be in excess of 90% of its distributable income for the fiscal
period as set forth in Section 67.15 of the Special Taxation Measures Law. Consequently, JEI
set income available for distributions of dividends at ¥3,406,105,000, which is the maximum
integral multiple of the 1,305,700 units issued, but not exceeding ¥3,460,111,693, which isthe amount of retained earnings at June 30, 2017. No cash distribution exceeding the income
amount set forth in Section 33.1.4 of the bylaws of JEI shall be made.
On August 17, 2017, the Board of Directors approved a resolution to make a cash distributionof ¥2,650 per unit aggregating to ¥3,460,105,000 to unitholders of record as of June 30, 2017.

19. Significant Subsequent Event
Not applicable.

53