Distribution
Distribution per unit:

15,663yen

Financial Highlights
Revenues:
Operating income:Net income:
Total assets:
Net assets:
Dividend yield (annualized):
Net assets per investment unit:

6,982 mm yen
3,055 mm yen
2,420 mm yen
205,486 mm yen
89,292 mm yen
3.0 %577,758 yen

Table of Contents
Table of Contents ……………………………………… 1
Message to Our Unitholders ………………………… 2
About Japan Excellent, Inc. …………………………… 4
3rd Fiscal Period Highlights …………………………… 5Core Sponsors Supporting JEI ……………………… 6
Collective Strengths of Sponsor Companies………… 7
A Solid Investment Policy ……………………………… 8
Portfolio Overview …………………………………… 10External Growth …………………………………… 12
Portfolio Profile ……………………………………… 16
Internal Growth ……………………………………… 21
Financial Strategy …………………………………… 22
Breakdown of Unitholders ………………………… 23
Japan Excellent’s Future Management Strategies 24
The Asset Management Company ………………… 25
Compliance and Risk Management ……………… 26
Performance Report ……………………………… 29
Financial Statements ……………………………… 53
Website ………………………………Back inside cover
Information for Investors ……………Back inside cover1

Future Management of JEIJEI follows a basic asset management policy of striving to manage a portfolio with a balance in region,
property-size, and tenants - centering on office buildings in major metropolitan areas - by pursuinga balance between steady profits and expansion, while maintaining the REIT characteristic of steady
growth over the medium to long term.

Messageto Our Unitholders

Performance in the Third Fiscal Period
First, we would like to thank you, our unitholders, for your support of Japan Excellent, Inc. (JEI) andJapan Excellent Asset Management Co., Ltd. (JEAM).
JEI listed on the real estate investment trust market of the Tokyo Stock Exchange on June 27, 2006.
JEI primarily invests in and manages office buildings with our greatest objective being to steadily growin asset size and maximize unitholder value from a medium-to long-term perspective. We have justconcluded our third fiscal period, which ran from July 1, 2007 to December 31, 2007. Here I would liketo use this message to report on operating and management conditions and our financial accounts.
JEI posted revenues of 6,982 million yen, income before income taxes of 2,421 million yen and net
income of 2,420 million yen. As a result we were able to distribute 15,663 yen per investment unit thisfiscal period.
JEI also acquired two excellent properties from one of our core sponsors, Kowa Real Estate Co., Ltd.,
this fiscal period - AKASAKA INTERCITY and Kowa Kawasaki Nishiguchi Building. Consequently,
our portfolio as of the end of the third fiscal period has grown to twenty office buildings and a totalacquisition price of 188.9 billion yen. We have continued to work closely with our property managers
to achieve consistent tenant satisfaction, and to raise rent levels, as key tactics of our internal growthstrategy. The strategy has borne fruit with a 2.4% increase per annum in total rents from the last fiscal
period for the fourteen properties initially in our portfolio.
JEI also raised capital through a secondary offering and used these funds to repay short-termborrowings. Short-term borrowings were also converted into long-term borrowings to reinforce thefinancial stability of JEI. JEI further submitted a shelf registration for investment corporation bonds(effective on January 7, 2008) with the objective of gaining the ability to dynamically raise long-term
funds.
The full-period contribution of the four properties acquired in the second fiscal period and the two
properties JEI acquired this fiscal period contributed to the raise in revenues by 1,476 million yen andnet income by 181 million yen. However, the accompanying 14.7% increase in investment units due tothe increase in capital reduced the dividends paid per investment unit by 951 yen.

2

Geographically, our greatest emphasis is on the six central wards of Tokyo - Minato, Chuo, Chiyoda,
Shinjuku, Shibuya and Shinagawa. The percentage of properties in these six wards to the total
portfolio is currently around 50%.
Under the continuing severe market assessment of the investment environment at hand, JEI has been
convinced of the need for a more prudent investment managing strategy. This is in part due to the apparent
peaking of high rents in the Tokyo Metropolitan Area and growing vacancies in central regional cities.
In accordance with this understanding of the market environment, JEI willcontinue to maintain its policy of acquiring new properties and expanding
the portfolio over the medium to long term, and will continue to place assets
provided by sponsors at the core of our acquisition strategy while at times
acquiring new properties from third parties. The three core sponsors of JEI
are real estate developers but JEI expects a strong inflow of properties fromthem in the future due to their awareness of the need for off-balancing theirassets. An analysis of the twenty properties JEI owns at the end of the third
fiscal period reveals that seventeen were supplied by sponsors and two by
parties found using the network of sponsors and divergence.
JEI believes there is a growing divergence in the value of individual properties
in the market, and is committed through the management of portfolio
properties to maintain and improve the management quality and conduct
effective follow up investment in the properties. These steps will be used toraise tenant satisfaction at each property, which will then be used to raise
rents.
As for our financial strategy, JEI plans to implement an efficient and dynamic
capital raising strategy that considers the floating of investment corporation
bonds while taking steps to diversify lenders and repayment periods in orderto maintain a balance between short-and long-term borrowings in the process
of external growth. JEI also intends to fix the interest rates of borrowings as astep to assuage the risk of rising interest rates in the future.
The real estate and financial environments surrounding REITs are undergoing
dramatic changes due to a variety of measures and developments. These
include the Financial Instruments and Exchange Law that was implemented
in September 2007, the revisions to the Trust Law and Trust Business Act,revision of the real estate appraiser assessment standards, and systematic
revisions like the new BIS regulations. JEI and JEAM also plan to appropriately
respond to these environmental changes and construct prudent andappropriate measures for JEI now and in the future.

Junichi Tamura
Executive Director, Japan Excellent, Inc.
President, Japan Excellent Asset Management Co., Ltd.

3

About Japan Excellent, Inc.

3rd Fiscal Period Highlights

Sponsor Companies Providing
Pipeline Support

External Growth

A. Kowa Real Estate Co., Ltd.
B. Sekisui House, Ltd.
C. Mizuho Trust & Banking Co., Ltd.

Investment Corporation

Administrative Agent
Asset Custodian❹

Mizuho Trust & Banking Co., Ltd.

● Acquisition of AKASAKA INTERCITY and Kowa Kawasaki Nishiguchi Building(Total Acquisition Price: 49.8 bn yen)❷Transfer Agent❺

Asset Management Company
Japan Excellent
Asset Management Co., Ltd.

Number of Properties

Mizuho Trust & Banking Co., Ltd.

❶

2nd Fiscal Period

Unitholders’ Meeting❸

Underwriters

Think Tanks

Mizuho Securities Co., Ltd.
Morgan Stanley Japan
Securities Co., Ltd.
Others

Accounting Auditor

A. Mizuho Research Institute, Ltd.
B. Urban Research InstituteCorporation❻

Ernst & Young ShinNihon

3rd Fiscal Period

2nd Fiscal Period
3rd Fiscal Period

7

6

3rd Fiscal Period
Acquisitions
49.8 bn yen (2 properties)

1st Fiscal Period Revenues
4.7 bn yen

150

98.4 bn yen

Acquisition upon IPO

50● Debt Financing(72% as of February 2008)● Fixation of Interest Rates

4

Shelf Registration for the issuance of Corporate Bonds

3

Compliance and Risk Management

Acquisition of large-scale buildings
in central Tokyo, which is the core
investment area of the portfolio.

98.3 bn yen (14 properties)● Public Offering

5139.1 bn yen

98.3 bn yen

4,259 mm yen

Fixed Long-term Debt (%) at end of 3rd Fiscal Period: 54%

2nd Fiscal Period Acquisitions
40.6 bn yen (4 properties)

100▼

4,209 mm yen

Public Offering: 19,000 units

3rd Fiscal Period Revenues
6.9 bn yen
188.9 bn yen

188.9 billion yen (36% increase)

Financial Strategy

Revenues (bn yen)

2nd Fiscal Period Revenues
5.5 bn yen

20 properties

Rental Revenues

JEI’s asset size expanded from 98.3 billion yen with 14 properties to 188.9 billion yen with 20 properties
in approximately one year and four months from its IPO.

200

139.1 billion yen● Total Rental Revenues Increase: 2.4% per annum (14 asset base)

Overview of Japan Excellent History of Portfolio Growth

Asset value (bn yen)

18 properties

Internal Growth❶ Asset management agreement ❷ (A) Pipeline support agreement with Kowa Real Estate (B) Pipeline
support agreement with Sekisui House (C) Pipeline support agreement with Mizuho Trust & Banking❸ (A) Agreement with Mizuho Research Institute for provision of economic trend analysis (B) Agreementwith Urban Research Institute for provision of real estate market analysis❹ Agreement to entrust
administrative duties and asset custody❺ Agreement to entrust administration of unitholders’ register❻ New issue underwriting agreement250▼

Total Acquisition Price

Acquisition of properties which are
to be the foundation for revenuesof JEI’s portfolio.

● Internal Management Structure00Internal audit using outside consultant (completed in September 2007)

Number of outstanding units
160,000
153,800(July 3, 2007)

134,800
120,000

128,400
June 27, 2006 (IPO date)● Abiding by the Financial Instruments and Exchange Law

154,550

Supervisory Directors increased by one (November 2007)
December 31, 2006

June 30, 2007

December 31, 2007

Registered as an Investment Management Firm (November 2007)

Note 1: Asset value is indicated based on acquisition prices.
2: Asset value, acquisition prices, and revenues are rounded down to the nearest million yen.

45Core Sponsors Supporting JEIJEAM considers Kowa Real Estate Co., Ltd., the Dai-ichi Mutual Life Insurance Company, and Sekisui
House, Ltd. as its core sponsor companies. The three sponsors have strengths in development,
investment, and management of office buildings.
Percentage of the entire portfolio

JEI collaborates with the asset management company’s eight sponsor companies in managementof the J-REIT. The below diagram indicates in which part each company provides support.

● Mizuho Corporate Bank’s Close Partner
in Real Estate● Development and Management of Office
Buildings and Luxury Condominiums inTokyo’s Center

Kowa Real Estate Co., Ltd.
Core Sponsor

Collective Strengths ofSponsor Companies

40.7%

Pipeline Support Company

of Provision of Provision ofof Assistance in Provision
Research
Investment Provision
Pipeline Warehousing
Expertise
Property
Functionin JEAM
Supportto JEAM Acquisition Function
Function(Note 2)
Core Sponsor

Kowa Real Estate Co., Ltd.
Core Sponsor

The Dai-ichi Mutual Life
Insurance Company
AKASAKA
INTERCITY

Kowa Kawasaki
Kowa Kawasaki
Nishiguchi Building Higashiguchi Building

Sendai Kowa
Building

No. 32 Kowa
Building

No. 36 Kowa
Building

No. 28 Kowa
Building

Core Sponsor

SekisuiS
ki i HHouse Co., Ltd.

The Dai-ichi Mutual Life Insurance Company

Core Sponsor

31.4%● One of the Leading Life Insurers in Japan in Total Assets and Amount of Insurance in Force● Managing Approximately 280 Real Estate Properties for Investment Nationwide witha Focus on Office Buildings (as of December 31, 2007)

Omori Bellport D

NHK Nagoya
Housou-Center Building

Musashikosugi
Tower Place

Ebina
Prime Tower

KawasakiNisshincho Building

Shiba 2-Chome
Building

Sekisui House Co., Ltd.
Core Sponsor

12.3%● Japan’s Premier Housing Construction Company Also Active inLarge-scale Urban Development● Rokko Island City and Akasaka Garden City Exemplify Sekisui
House’s Achievements in Development
Akasaka Garden City

9.4%

Morgan Stanley Capital K.K.

The
T Dai-ichi Building Co., Ltd.

2.0%

Shiba 2-Chome Building

Mizuho Corporate Bank, Ltd.
Mizuho Trust & Banking Co., Ltd.

6

●

●

●

●

●

●

●

●

Morgan Stanley Capital K.K.

●●

The Dai-ichi Bulding Co., Ltd.

●●

Sohgo Housing Co., Ltd.

●

Mizuho Corporate Bank, Ltd.

●●

Mizuho Trust & Banking Co., Ltd.

●

●

●

●

●

●
●

●

● indicates the areas in which sponsor companies provide support for JEI or JEAM. (Note 1)

Pipeline Support Company

Sohgo Housing Co., Ltd.

Ryogoku Dai-ichi
Life Building●

Pipeline Support Company(Note 1) Property acquisition in cooperation with and through utilization of the close relationship with sponsor
companies(Note 2) JEAM has entered into an agreement with Mizuho Research Institute (98.4% of its shares held byMizuho Financial Group) and Urban
Research Institute Corporation(10 0 % o f i t s s h a r e s h e l d b yMizuho Trust & Banking Co., Ltd.)for the entrustment of research
operations. The suppor t to beprovided by Mizuho Corporate
B a n k, Ltd. i n th e a b ove ta b l e
includes, accordingly, the service
to b e prov id e d by the Mizuho
Research Institute. Similarly, thesupport to be provided by Mizuho
Trust & Banking Co., Ltd. in theabove table includes that provided
by Urban Research InstituteCorporation.

7

Portfolio Map

A Solid Investment Policy● III-4

Tokyo

23,300 mm yen

A Portfolio of Stability and Expansion
JEI is committed to configuring a portfolio that optimally combines large and medium-sized
office buildings according to a geographic allocation to provide investors with stable growth andmaximized user value. JEI’s investment policy has 90% or more of the portfolio’s leasable area
being invested in office buildings, with the remaining 10% or less being invested in commercial,residential, and other properties. ( As of December 31, 2007, the main usage for the assets in theportfolio is 100% office buildings. )Property Type
Office Buildings

4,023 mm yen

I-7 ●● III-3

5,400 mm yen

I-8 ●2,550 mm yen

4,000 mm yen● I-2

Tokyo’s
six central wards

9,450 mm yen

I-4 ●(Note 1)

Share of Portfolio● III-7● I-5

17,857 mm yen● I-3

5,040 mm yen

8,350 mm yen

Chiba
Prefecture

III-6 ●

90% or more

1,150 mm yen

Others (commercial, residential, and other properties)

10% or lessI-6 ●2,859 mm yen● I-1

22,553 mm yen

III-1 ●

13,890 mm yen

Geographic Breakdown of Targeted Investment Areas
and Share of Portfolio
Kanagawa Prefecture

Targeted Investment Areas

Share of Portfolio (Note 1)● III-8
80% or moreCore Areas
Area I:

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

Central Nagoya City (Meieki, Fushimi, andSakae districts, etc.)

Area IV:Tokyo and surrounding area (Kanagawa,
Saitama, and Chiba Prefectures) excluding Area I
Osaka, Nagoya, and Fukuoka Cities excluding Area
II and government ordinance designated cities, etc.

50% or less of corearea

50% or less of corearea

● III-932,000 mm yen● III-5

3,905 mm yen

Portfolio
Diversification in
3rd Fiscal Period

Area I

Area II

Area IIIArea IV

Total acquisition
price93,409mm yen10,974mm yen80,364mm yen4,238
mm yenNo. of properties

8

2

9

1

Sendai
Se
end
dai
dai
ai City
City
it
IV-1
V-1
● IV

20% or less

(Note) Area II includes Central Osaka City, generally referred to as the area
within a ten-minute walk of Osaka Station (JR), Umeda Station (Hankyu
Railway, Hanshin Railway, and Osaka City Subway), Yodoyabashi
Station (Osaka City Subway) and Honmachi Station (Osaka City
Subway); Central Nagoya City is within a ten-minute walk from Nagoya
Station (JR, Nagoya City Subway, and Meitetsu Line), Fushimi Station(Nagoya City Subway), and Sakae Station (Nagoya City Subway andMeitetsu Line); and Central Fukuoka City is within a ten-minute walkfrom Hakata Station (JR and Fukuoka City Subway), Tenjin Station(Fukuoka City Subway), and Nishitetsu Fukuoka Station (NishitetsuLine).

8

10,976 mm yen

Ebina City,
Kanagawa
Prefecture

Central Fukuoka City (Tenjin and Hakata
Terminal peripheral districts, etc.)

Area III:● III-2

50% or more of core
areas

Central Osaka City (Umeda, Dojima,
Nakanoshima, Yodoyabashi, and Honmachi
districts, etc.)

Area II:6,470 mm yen

The map shows the successful
concentration of properties in the six
central wards of Tokyo combined with
our regional diversification. The figures
are a representation of the acquisition
price s of individual prope r tie s or
combination of properties in the area.
Note The figures indicated in mm yen havebeen rounded to the nearest million yen.

4,238
4,
4,23
238 mm yen

Osaka City
● II-2

6,674 mm yen● I-1~I-8

93,409 mm yen● III-1~III-9
Nagoya City
● II-180,364 mm yen

4,300 mm yen

9Portfolio Overview
Property
No.

Name

I-1
I-2

Total Floor
Area (m2)(Note 1)

Completion(Note 2)

Omori Bellport D

Minami-Oi, Shinagawa Ward, Tokyo

155,778.75

Sep 1996

22,55325,630

11.9

8.0

Shiba 2-Chome Building

Shiba, Minato Ward, Tokyo

19,518.15

Mar 1994

9,450

13,200

5.0

8.2

I-3

Shuwa Daiichi
Hamamatsucho Building

Hamamatsucho,
Minato Ward, Tokyo

8,327.53

Dec 1991

8,350

10,300

4.4

8.2

I-4

No. 32 Kowa Building

Minami-Azabu, Minato Ward, Tokyo

10,110.96

Mar 1979

5,040

5,676

2.7

13.2

I-5

No. 36 Kowa Building

Sanbancho, Chiyoda Ward, Tokyo

8,266.55

Sep 1982

4,000

4,234

2.1

13.2

I-6

No. 28 Kowa Building

Nishi-Gotanda, Shinagawa Ward, Tokyo

6,282.23

Feb 1975

2,859

4,210

1.5

13.5

I-7

Akasaka Garden City

Akasaka, Minato Ward, Tokyo

46,776.76

Jan 2006

23,30025,700

12.3

8.6

I-8

AKASAKA INTERCITY

Akasaka, Minato Ward, Tokyo

73,061.33

Jan 2005

17,85718,300

9.4

9.2

II-1

NHK Nagoya
Housou-Center Building

Higashi Ward, Nagoya City,
Aichi Prefecture

80,809.95

Jul 1991

4,300

5,570

2.3

11.9

II-2

JEI Nishi-Honmachi Building

Nishi Ward, Osaka City, Osaka

15,800.31

Feb 1988

6,674

6,760

3.5

11.5

53,711.13

Jul 1995

13,89018,300

7.3

11.5(former Nishi-Honmachi Mitsui Building)III-1

Musashikosugi Tower Place

Kawasaki Ward, Kawasaki City,
Kanagawa Prefecture

III-2

Kowa Kawasaki
Higashiguchi Building

Kawasaki Ward, Kawasaki City,
Kanagawa Prefecture

31,009.62

Apr 1988

10,976

11,300

5.8

6.7

III-3

Hongo TS Building

Hongo, Bunkyo Ward, Tokyo

5,877.11

Feb 1991

5,400

5,500

2.9

14.2

III-4

Shuwa Iidabashi Building

Koraku, Bunkyo Ward, Tokyo

5,083.77

Oct 1988

4,023

4,940

2.1

12.9

III-5

Kawasaki Nisshincho Building

Kawasaki Ward, Kawasaki City,
Kanagawa Prefecture

22,141.60

Apr 1992

3,905

5,790

2.1

14.7

III-6

No. 44 Kowa Building

Higashiyama, Meguro Ward, Tokyo

3,359.55

Jul 1984

1,150

1,840

0.6

13.4

III-7

Ryogoku Dai-ichi Life Building

Ryogoku, Sumida Ward, Tokyo

5,820.56

Aug 1996

2,550

2,566

1.3

14.3

III-8

Ebina Prime Tower

Chuo, Ebina City, Kanagawa Prefecture

52,733.59

May 1995

6,470

6,610

3.4

12.2

III-9

Kowa Kawasaki
Nishiguchi Building

Saiwai Ward, Kawasaki,
Kanagawa Prefecture

61,856.92

Feb 1988

32,00032,300

16.9

7.9

IV-1

Sendai Kowa Building

Aoba Ward, Sendai City,
Miyagi Prefecture

18,564.45

Aug 1979

4,238

4,462

2.2

9.2

188,984 213,188

100.0

6.3

Total

Investment
Area (Note 1)

Portfolio at End of
2nd Fiscal Period

Portfolio at End of
3rd Fiscal Period

2.2%

3.0%
42.6%

Area I
Area II
Area IIIArea IV

42.5%

34.8%

53.1%

49.4%

54.3%
4.4%

Portfolio: 14 properties
Acquired amount: 98,446 mm yen

5.8%

7.9%
Portfolio: 18 properties
Acquired amount: 139,127 mm yen

Portfolio: 20 properties
Acquired amount: 188,984 mm yen

Property Size
(Note 2)

43.5%

30.8%

22.7%

Large buildings

684,890.82

As of the end of December 31, 2007, the properties held by JEI are all office properties.

Note 1. Figures for “Total Floor Area” are the respective totals for the entire building, including
buildings in which JEI has acquired sectional ownership or co-ownership.
2. Dates of “Completion” are the dates of new construction indicated in the registry.
3. Figures for “Acquisition Price” are sales prices recorded in sales agreements (excluding
taxes) and have been rounded to the nearest million yen.
4. Figures for “Appraised Value” are the values entered in the real estate appraisals
prepared by the Japan Real Estate Institute, Chuo Real Estate Appraisal Co., Ltd.,and HIRO & REAS network, Inc., based on the Articles of Incorporation of JEI andthe rules of the Investment Trusts Association. The appraised value of real estate is
only an indication of the opinion of those that conducted the valuation for the valueof the subject real estate by a real estate appraiser who conducted the appraisal inaccordance with the Law concerning Real Estate Appraisals (Law No. 152 in 1963and ensuing revisions), real estate appraisal standards, etc.
5. “Investment Ratio” figures show the ratio of the acquisition pricefor each acquired property in proportion to the total acquisition
price for all acquired properties in the portfolio and have beenrounded to the first decimal place.
6. “PML” figures are based on the PML in the structural condition
study report including the PML calculation report. The figures are
no more than a representation of opinions indicated in the report
and JEI does not guarantee their accuracy.

10

Portfolio at End of
1st Fiscal Period

Acquisition Appraised InvestPML
Price
Value
ment
(%)
(mm yen) (mm yen) Ratio (%)(Note 3)(Note 4)(Note 5) (Note 6)

Location

56.5%

69.2%

77.3%

Portfolio: 14 properties

Portfolio: 18 properties

Portfolio: 20 properties

Medium-sizedbuildings

Age

10.4%

2.9%

10.4%

2.1%
16.7%

Less than
10 years
10 years ormore - lessthan 20 years
20 years or
86.7%
more - lessthan 30 years
30 years orPortfolio: 14 properties
more
Average age: 15.3 years
As of December 31, 2006

7.6%

1.5%
21.8%

70.8%

69.1%

Portfolio: 18 properties
Average age: 13.8 years
As of June 30, 2007

Portfolio: 20 properties
Average age: 14.1 years
As of December 31, 2007

(Note 1) The percentage breakdowns for the Investment Area, Property Size, and Age are all based on the acquisition
price.
(Note 2) The investment corporation defines “large buildings” in the 23 wards of Tokyo as buildings with a total floor
space of 10,000 tsubo or more, and medium-sized buildings as buildings with a total floor space of 1,000
tsubo or more but less than 10,000 tsubo. Large buildings outside of Tokyo’s 23 wards are defined as
those with a total floor space of 4,000 tsubo or more, and medium-sized buildings as those with a total floor
space of 1,000 tsubo or more but less than 4,000 tsubo ( 1 tsubo=3.3m2 ).

Major Tenant Information

As of December 31, 2007

TenantProperty

Toshiba Information Systems (Japan)
Corporation
National Mutual Insurance Federation ofAgricultural Cooperatives

Kowa Kawasaki
Higashiguchi Building
Kowa Kawasaki
Nishiguchi Building

Total Leased
Floor Space (m2)

Ratio of Total Leased Floor
Space to Total Portfolio (%)

18,612.72

8.3

17,444.02

7.8

Roche Diagnostics K.K.

Shiba 2-Chome Building

9,284.18

4.2

Fujitsu Social Science Laboratory Ltd.

Musashikosugi Tower Place

8,680.74

3.9

Fujitsu Network Solutions Limited

JEI Nishi-Honmachi Building

6,884.00

3.1

Total for Major Tenants

60,905.66

27.3

Total Portfolio

222,928.07

100.0

11

External Growth

External
Growth:Solid Growth Within
Investment Policy
The external growth strategy of JEI is
focused on close collaboration withthe sponsors of the asset managementcompany, manifested in the acquisitionof two large-scale buildings from Kowa
Real Estate, Co., Ltd. during the third fiscal
period, which were acquired based on thepolicies of 1) Acquiring assets in favorable
locations that will be core assets of theportfolio and 2) Adding value to existing
properties in the portfolio.

AKASAKA INTERCITY◆ Located in an internationally sophisticated area (Akasaka/
Roppongi) next to the political and economic center◆ A prominent property developed by Kowa Real Estate, withenvironmentally friendly design and advanced technology◆ The standard floor plate of about 550 tsubos is pillar free
◆ Uses a hybrid anti-vibration system which can prevent
building collapse in the largest-scale earthquakes◆ This environmentally friendly building features anadvanced ventilation system along with advanced heatshielding glass, and also a water recycling system

12

Address:
1-11-44 Akasaka, Minato-Ward, Tokyo
Site area:
8,019.87m2
Total floor space:
73,061.33m2
Floors:29 (3 basement floors)
PML:
9.2%
Constructed:
January 28, 2005
Acquisition price:
17,857 mm yen
Annual NOI:
719 mm yen
NOI return:
4.0%
Asset form:
Trust beneficiary interests in real estate
Acquisition date:
October 26, 2007

Akasaka Tidbit: The area of Akasaka is a part of Minato
Ward, Tokyo, with an area of approximately 4km2. In recent years,
the area has been undergoing commercial redevelopment andis becoming one of the most renowned business areas in central
Tokyo. Recent representative development projects in this area
include Tokyo Midtown and Akasaka Sakas, with a total facility
ﬂoor area of approximately 218,000m2 and 564,000m2 respectively.
It is also one of the most cosmopolitan areas in Tokyo, with many
foreign-aﬃliated companies and embassies.

13External Growth

Kawasaki City Tidbit: T h e c i t y w a s h o m e t o

Kowa
Kawasaki Nishiguchi Building◆ The building is a key part of Kawasaki Technopia◆ The building boasts a roughly 60m wide frontage anda strong presence◆ The floor plate is about 600 tsubos per floor andfeatures office automation specifications, and a pillarfree design that allows for a flexible floor layout◆ The building enjoys excellent access to both JR
Kawasaki Station, a key terminal station in the Kanto
region, and Keikyu Kawasaki Station

14

66-2 Horikawa-cho, Saiwai Ward,
Kawasaki City, Kanagawa Prefecture
Site area:
8,196.21m2
Total floor space:
61,856.92m2
Floors:21 (2 basement floors)
PML:
7.9%
Constructed:
February 29, 1988
Acquisition price:
32,000 mm yen
Annual NOI:
1,690 mm yen
NOI return:
5.3%
Asset form:
Trust beneficiary interests in real estate
Acquisition date:
October 26, 2007
Address:

1,369,443 residents in 2007. The port of the city isrobust, located 15km from Central Tokyo, and Yokohama
and Haneda Airport, the fourth busiest airport in theworld, are 20-minute train rides away. The area
along the Tama River is home to many machinery,electronics, and IT companies and the city also boasts a
massive concentration of steel, petrochemical, and metal
conglomerates. Some of the major enterprises withfactories or core operations in Kawasaki are NEC, Fujitsu,
Kao, Fuji Electric, Nippon Oil, Canon, Toshiba, and JFE
Steel. Industrial shipment in 2002 ranked fourth in Japan.

15

Portfolio Profile:
A presentation of
the eighteen previously
acquired properties

Akasaka Garden City
◆ Enjoys excellent access to three subway stations:Akasaka-Mitsuke, Akasaka, and Aoyama-Itchome◆ Extremely close proximity to embassies, leading
corporate offices, and central governmental institutions◆ A cutting-edge building with a ceiling height of
2,800mm and windows on three sides further increasing
the sense of openness
Address:

4-15-1 Akasaka, Minato Ward, Tokyo
6,888.97m2
Site area:(co-ownership of 308,671.7536/1,000,000)
46,776.76m2
Total floor space:(co-ownership of 6,432/10,000)
Floors:19 (2 basement floors)
PML:
8.6%
Constructed:
January 31, 2006
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:8.0%

Omori Bellport D◆ This property boasts excellent access to two
key Shinkansen stations - Shinagawa and Tokyo◆ This property is one of the core buildings in thelandmark Bellport development of The Dai-ichi
Mutual Life Insurance Company
Address: 6-26-3 Minami-Oi, Shinagawa Ward, Tokyo
Site area:
22,294.51m2
Total floor space:155,778.75m2
Floors:17 (3 basement floors)
PML:
8.0%
Constructed:
September 24, 1996
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
15.3%

16

Shiba
2-Chome
Building◆ A 2-minute
walk from ShibaKoen Station, a
7-minute ride to
the Marunouchi
CBD◆ This property
lies adjacent to
Shiba Koen, oneof the oldest parksin Japan
Address:
2-6-1 Shiba, Minato Ward, Tokyo
Site area:
3,355.00m2
Total floor space:
19,518.15m2
Floors:
Office:12 (2 basement floors); residential: 14
PML:
8.2%
Constructed:
March 17, 1994
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
5.3%

Shuwa
DaiichiHamamatsucho Building◆ A 4-minute
walk from
Hamamatsucho
Station, a 20-minuteride to Narita International Airport◆ This property is inclose proximity to
the vibrant emerging community of Shiodome
Address:
2-2-12 Hamamatsucho, Minato Ward, Tokyo
Site area:
1,102.48m2 (of which, 387.85m2 is leasehold land)
Total floor space:
8,327.53m2
Floors:8 (1 basement floor)
PML:
8.2%
Constructed:
December 16, 1991
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:4.1%

No. 32
Kowa
Building

No. 36
Kowa
Building◆ A 3-minute
walk from Hiroo
Station◆ This property
is surroundedby embassies
and prestigious
private schools◆ Located 1/4 km
from the Imperial
Palace and lies
amidst universities
and embassies◆ This property is
6 minutes by
subway from
Marunouchi CBD

Address:
5-2-32 Minami-Azabu, Minato Ward, Tokyo
Site area:
2,592.39m2
Total floor space:
10,110.96m2
Floors:9 (1 basement floor)
PML:
13.2%
Constructed:
March 19, 1979
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
3.5%

Address:
5-19 Sanbancho, Chiyoda Ward, Tokyo
Site area:
1,988.49m2
Total floor space:
8,266.55m2
Floors:7 (1 basement floor)
PML:
13.2%
Constructed:
September 30, 1982
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:(Note 1)

(Note) There are no disclosures for these properties due to the end tenants decline of granting the right todisclose for the corresponding figures.

17

Portfolio Profile

No. 28
Kowa
Building

JEI NishiHonmachi
Building

Kowa
KawasakiHigashiguchi
Building◆ A 3-minute
walk from
GotandaStation on the
Yamanote Line◆ Completed
facility
renovation
includingseismic
reinforcementin 2000◆ This property
enjoys excellent
access being a
2-minute walkto Honmachi
Station on the
Yotsubashi Line◆ An expansive feeling achieved with more than 1,000m2
floor plates on each floor◆ A 2-minute walkfrom Kawasaki
Station◆ This property is
located in a rapidly
metamorphosing
district of the Tokyo
metropolitan area

◆ This property
enjoysphenomenal
access to both
Shinjuku andMarunouchi
CBDs◆ Located in the Iidabashi district, which is fast evolving
into a very competitive district of central Tokyo

Address:
2-20-1 Nishi-Gotanda, Shinagawa Ward, Tokyo
Site area:
925.13m2
Total floor space:
6,282.23m2
Floors:10 (1 basement floor)
PML:
13.5%
Constructed:
February 21, 1975
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
2.3%

Address:
1-3-15 Awaza, Nishi Ward, Osaka City
Site area:
1,970.44m2
Total floor space:
15,800.31m2
Floors:11 (1 basement floor)
PML:
11.5%
Constructed:
February 19, 1988
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
3.7%

Address:

Address:
2-3-19 Koraku, Bunkyo Ward, Tokyo
Site area:
904.38m2
Total floor space:
5,083.77m2
Floors:8 (1 basement floor)
PML:
12.9%
Constructed:
October 31, 1988
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:(P.13, Note 1)

NHK
NagoyaHousouCenter
Building

Musashikosugi
Tower
Place

Hongo
TS
Building

KawasakiNisshincho
Building◆ This property
is located in themost vibrantcommercial
area in Nagoya◆ A 4-minute
walk to Sakae
Station
1-13-3 Higashi-Sakura, Higashi Ward,
Nagoya City, Aichi Prefecture
Site area:
7,927.36m2
Total floor space:
80,809.95m2
Floors:22 (4 basement floors)
PML:
11.9%
Constructed:
July 3, 1991
Asset form:
Real estate
Share of total rental income:
4.8%
Address:

18

1-53 Nisshincho, Kawasaki Ward,
Kawasaki City, Kanagawa Prefecture
Site area:
1,652.89m2
Total floor space:
31,009.62m2
Floors:21 (3 basement floors)
PML:
6.7%
Constructed:
April 30, 1988
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:(Note 1)

Shuwa
Iidabashi
Building◆ This property
is immediately infront of MusashiKosugi Station
which hastrackages for
3 railway lines
and easy accessto Yokohama,
Kawasaki, andTokyo
1-403 Kosugicho, Nakahara Ward,
Kawasaki City, Kanagawa Prefecture
Site area:
8,329.62m2
Total floor space:
53,711.13m2
Floors:23 (2 basement floors)
PML:
11.5%
Constructed:
July 15, 1995
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
11.7%
Address:◆This property
lies in close
proximity
to Hongosanchome
Station, a
7-minute ridefrom Tokyo
Station
Address:
2-38-16 Hongo, Bunkyo Ward, Tokyo
Site area:
984.89m2
Total floor space:
5,877.11m2
Floors:8 (1 basement floor)
PML:
14.2%
Constructed:
February 6, 1991
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
2.6%◆ This property
is close to
Kawasaki Station,
20 minutes from
Tokyo Station◆ This property
is a part of
the quickly
transforming
commercial areaof Kawasaki
7-1 Nisshincho, Kawasaki Ward,
Kawasaki City, Kanagawa Prefecture
Site area:
3,673.94m2
Total floor space:
22,141.60m2
Floors:15 (2 basement floors)
PML:
14.7%
Constructed:
April 24, 1992
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
3.0%
Address:

19

Portfolio Profile

Internal Growth
No. 44
Kowa
Building

Total rental revenue has steadily increased at 2.4% in the most recent year (based on fourteen assets). This
increase is a result of a combination of positive market conditions and our proactive stance of renegotiating
rates upon expiration and renewal of existing rental contracts.

Ebina
Prime
Tower

Track Record of Total Monthly Rents

102.4(thousand yen)
710,000◆ An 8-minute
walk fromNakameguro
Station,located on
the popular
Yamate-DoriAve.
◆ Close to an enormous development project that is
expected to greatly raise the intrinsic value of the area
Address:
1-2-7 Higashiyama, Meguro Ward, Tokyo
Site area:
699.87m2
Total floor space:
3,359.55m2
Floors:
9
PML:
13.4%
Constructed:
July 31, 1984
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
1.4%◆ A multi-use
building
redevelopmentwith office, hotel,
auditorium, andfitness center
functions◆ Ebina Station
provides trackage to the Odakyu Odawara Line, Sagami
Railway Line, and JR Sagami Line100.

700,000
690,000
680,000
670,000
660,000

2-9-50 Chuo Ward, Ebina City,
Kanagawa Prefecture
Site area:
12,008.62m (JEI co-ownership portion 70/100)
Total floor space: 52,733.59m2 (JEI co-ownership portion 70/100)
Floors: Main tower: 25 (1 basement floor); fitness center: 3
PML:
12.2%
Constructed:
May 31, 1995
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
8.0%
Address:2

650,000

6/20069/2006

12/2006

3/20076/20079/2007

12/2007(Note 1) The total monthly rents for December 2006, March, June, September and December 2007 include
the monthly rent (930,000 yen) of a part of the co-owned interest in the Kawasaki Nisshincho Building(acquisition price of 130 million yen) additionally acquired in November 2006.
(Note 2) The total monthly rent for December 2007 equates to 102.4 when the total monthly rent of December 2006
is indexed to 100.

Key Operational Measures

Ryogoku
Dai-ichi Life
Building◆ Located in
front of Ryogoku
Station◆ This property isin the Ryogoku
area, home to
the renowned
Kokugikan sumo
stadium
Address:
3-25-5 Ryogoku, Sumida Ward, Tokyo
Site area:
968.33m2
Total floor space:
5,820.56m2
Floors:11 (2 basement floors)
PML:
14.3%
Constructed:
August 8, 1996
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
1.7%

20

Sendai
Kowa
Building◆ Built in an
excellent locationin central
Sendai, amidst
commercial andgovernmental
facilities◆ An 8-minute
walk from Sendai
Station, a key
Shinkansen andterminal station
2-4-1 Ichibancho, Aoba Ward,
Address:
Sendai City, Miyagi Prefecture
Site area:
2,715.39m2 (co-ownership 85.244/100)
Total floor space: 18,564.45m2 (co-ownership 88.094/100)
Floors:15 (2 basement floors)
PML:
9.2%
Constructed:
August 20, 1979
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
3.6%

Japan Excellent, Inc. (JEI) is continuing with its proactive policy of renovating and upgrading portfolio
properties to raise their values. JEI first implements measures to grasp the current conditions of properties,
and then renovates properties when needed, to raise their asset value based on a medium-to long-term
perspective.
JEI Nishi-Honmachi Building

Example 1: The removal of asbestos and renovation of
office space in the JEI Nishi-Honmachi Building
In addition to removing asbestos located above the ceiling in theoffice space, JEI raised the ceiling height, installed IT flooring, andincreased light intensity.

Office space on 5th floor post removal ofasbestos and renovation

Sendai Kowa Building
Entrance Hall

Example 2: Renovation of
the Sendai Kowa Building
After acquiring the Sendai Kowa Building, JEI
began renovation work on the entrance hall,
restrooms, and other shared spaces, alongwith air conditioning and other key facilities
at the previous owner’s expense. (Note: The
work was completed in March 2008.)

BeforeAfter

21

Financial Strategy
Japan Excellent, Inc. (JEI) is committed to drafting and executing financial strategies based on fine-tuned
and flexible operations, by effectively applying the know-how of asset management staff experienced infinance, and utilizing the research of Mizuho Research Institute, Ltd. In line with its mission as a J-REIT,
JEI will prudently manage the loan-to-value ratio at a conservative level and consider the implementation ofequity finance at the appropriate timing with an eye on the balance of finance to enable flexible achievementof external growth.

Spreading Out of Repayment Periods for Borrowings
JEI is also taking steps to reduce refinancing risks by decentralizing the repayment
periods of borrowings.
rrowings
rt-term bo
o
h
rm
S
Te
t
b
e
emaining D(bn yen)Average R
wings
od)
Fiscal Perierm borro
rd
-t
g
n
rs
o
a
L
ye
(End of 3
2.1

50

Financial Standing as of December 31, 2007

Total:
years
loans: 3.3
Long-term

40

Borrowings
At the end of the third fiscal period, JEI has borrowings of 105.5 billion yen from twelve financial institutions
including its sponsor, Mizuho Corporate Bank, Ltd., and continues to strive to diversify lenders.

30
20
10

Diversified Financial Institutions
End of 1st Fiscal Period

0

2.6%

Sponsor Companies

13.0%

13.0%

6

10

17

(Fiscal Period)

JEI continues to observe its LTV policy at a ceiling of 60% and desired scope of 35%-50%. As of the end of
the third fiscal period, JEI had an LTV of 51.3%.

Ratings

23.4%

End of 3rd Fiscal Period

9 lenders
JPY 38.5bn

Although JEI has not employed the issuance of bonds in the procurement of capital to date, it has taken an
essential step toward bond issuance by obtaining ratings from the following rating agencies.

Rating Agency

Description (Outlook)

Moody’s Investors Service

Issuer rating: A2 (stable)

R&I

Issuer rating: AA- (stable)

1.4%

7.8%
5.2%

5

9

13

12

16

15

Status of LTV

Mizuho Corporate BankThe Dai-ichi Mutual Life Insurance
Mizuho Trust & Banking

7.8%

4

8

7

11

14

7.8%

6.6%

19.5%

2.8%

Corporate Bonds

7.6%

In addition, JEI has filed a shelf registration for corporate bonds for JEI’s further flexible procurement oflong-term borrowings.
32.7%

11.6%
Resona BankThe Chuo Mitsui Trust and Banking
The Norinchukin Bank
Aozora Bank
Sumitomo Mitsui Banking
Mitsubishi UFJ Trust and Banking

12 lenders
JPY 105.5bn

18.8%

Planned Issue Amount

Planned Length of Issue

100 billion yen

January 7, 2008 - January 6, 2010

Corporate Bonds

4.7%
9.0%

Breakdown of Unitholders
3rd Fiscal Period

New lenders from 3rd Fiscal Period

7,260 (4.7%)
101,908 (65.9%)

Tokio Marine & Nichido Fire Insurance 0.9%
Sompo Japan Insurance 1.9%
Development Bank of Japan 1.9%22

Note: The percentages havebeen rounded to the
1st decimal place.

Individuals

Japanese financial institutions andsecurities companies( Units)
20,985 (13.6%) 24,397 (15.8%)
Other Japanese
corporations

Foreign institutions
and individuals

23

Japan Excellent’s
Future Management Strategies

The Asset Management
Company● Our medium-to-long-term management target is steady growth in distributions

Company Outline● Our goal is to increase both profitability and assets under management through a well-balanced plan,

while also optimizing our capital strategy and improving corporate governance◆ External Growth Strategies◆ Internal Growth Strategies◇ Increasing rental income by portfolio
expansion through properties provided bysponsors◇ Diluting management fees through portfolio
expansion◇ Raising rent levels◇ Improving occupancy rates◇ Reducing management fees▼

Increasing profitability

Internal
GrowthCorporate Name
Headquarters

1-9-20 Akasaka, Minato Ward, Tokyo

Established

April 14, 2005

Paid-in Capital

450 mm yen

Shareholders

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

OthersExternal
GrowthRisk
Management

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

President

Junichi Tamura

Director of Planning & Management

Nobuyuki Tanabe

Director of Real Estate Investment

Ryuichi Yamamoto (Note)

Director (Non-executive)

Takashi Uchida

Auditor (Non-executive)

Masatoshi Tamaru

Compliance Officer

Michiro Ezaki

Asset Management for Investment Corporation● Invest. Co. Asset Mgt. License:
Prime Minister No. 61● Discretionary License:
Minister of MLIT No. 44● Real Estate Agency License:
Governor of Tokyo (1) No. 84511

Business
Operations

Maximize
Unitholder Value& Increase DPU

Japan Excellent Asset Management Co., Ltd.

(Note) Naoki Fukuda was appointed Director of Real Estate Investment to replace Ryuichi Yamamoto on April 1, 2008.

Organizational Chart of Asset Manager

Financial
Strategies

Compliance

Shareholders’ Meeting
AuditorBoard of Directors
Compliance Committee

Investment Committee

Compliance Officer◆ Enhancement of Compliance andRisk Management▼◇ Improved internal management structurewith the support of an outside consultant◇ Strengthened governance functions withthe appointment of a certified real estateappraiser as supervisory director

24

Executive Director◆ Financial Strategies◇ Accurate understanding of the market environment◇ Preparation for rising interest rates◇ Maintain LTV level between 35%-50%◇ Improvement of credit rating▼

Optimized capital strategy

Planning and Management DivisionCorporate
Planning
Department

Finance andAccounting
Department

Business
Management
Department

Real Estate Investment Division

Investment
Planning
Department

Real Estate
Investment
Department

Real EstateManagement
Department

25

Compliance andRisk Management
Japan Excellent, Inc. (JEI) recognizes compliance is one of the pillars of the J-REIT system and iscommitted to ensuring through its asset manager, Japan Excellent Asset Management (JEAM), that its
operations are run in strict accordance with the governing laws including the Law concerning Investment
Trusts and Investment Corporations and the Financial Instruments and Exchange Law (FIEL). One of themethods that JEI has employed to ensure compliance since its founding is to have the asset manager
establish a transparent organization.
The key to our compliance strategy is a periodical review and facilitating process. The close relationshipwith sponsors at JEI is achieved by the pipeline support agreements made with Kowa Real Estate Co.,
Ltd., Sekisui House, Ltd., and Mizuho Trust & Banking Co., Ltd. (JEI also maintains strong ties with
Morgan Stanley Capital K.K. and other JEAM sponsors). While this provides JEI with a distinct advantage
in sourcing information on properties and contracting them, a firmly constructed organizational structure isrequired to ensure that JEI is paying what is recognized as a rational and fair market price in the event ofsuch transactions.
JEAM has established internal rules to restrict and prudently oversee transactions, including the acquisitionand disposition of assets, between JEI and interested parties. Under these internal rules, in principle, thepurchase price of an asset to be acquired from interested parties should be no more than the appraisedvalue of the property obtained from a real estate appraiser (appraised value), and the sale price of an asset
JEI disposes to interested parties should be no less than the appraised value.

Proposals for decisions to buy or sell assets are submitted by the Real Estate Investment Department
to the Compliance Officer (CO). The CO verifies that said transaction is not in violation of the respective
laws, regulations, and asset manager/REIT rules and contracts, along with generally accepted compliancepractices. If no problems regarding compliance are found, the CO returns the proposal to the Real Estate
Investment Department, which then submits it to the Compliance Committee and then to the Investment
Committee. If the ensuring Investment Committee and Board of Directors’ examinations reveal any issues
with the proposal, they return it to the Real Estate Investment Department and the process is re-initiated,
unless the instruction has been to abandon the proposal. After approvals by the Investment Committee
and JEAM Board of Directors are reported to the JEI Board of Directors, and a final decision is reached. In
this manner, a proposed acquisition or disposition must be approved at several levels and can be rejected
at any levels, allowing for numerous safeguards against decisions that would be detrimental to the interestsof unitholders, for whom the REIT seeks to maximize value.
The CO and the compliance team also conduct an internal operational audit once a year to ensure thatdecisions and operations are proceeding in compliance with laws, regulations, and asset manager/
REIT rules. Further, with the implementation of FIEL, the asset manager engaged the assignment of an
outside consultant in November 2006 to examine the internal management system and provide advice
for reinforcing the system. The preparation of the foundation for this internal management, or corporate
governance system, was completed in September 2007 in the form of Internal Audit Guidelines that containrisk-management countermeasures, internal audit policies and other essential procedures.
As a result of and in correlation with these measures, JEAM submitted required documents under FIEL
to the Prime Minister to be recognized as an investment manager on November 14, 2007. Additionally,
several training sessions were held on compliance with FIEL and one real estate appraiser was added as asupervisory director to enhance compliance through the supervisory system.

Consequently, JEI has established the below decision-making flow to ensure that compliance andtransparency are secured in its real estate transactions.

Decision-making Flow of
the Asset Manager
for Real Estate Transactions
Final Decision
Pertinent Department
Submission

Approval

Compliance Officer
ReportCompliance Committee

Investment Committee

Board of Directors

26

Board of Directors ofJapan Excellent, Inc.
Instruction to revise, resubmit orreject proposal

27

PERFORMANCE REPORT
I. Overview of Asset Management(1) Operating PerformanceFirst Fiscal Second Fiscal Third Fiscal
PeriodPeriodPeriodJuly 1,February 20,
January 1,
2007 2006 2007
June
Calculation Period
December 31,
December31,
30, 2007
2006
2007
Revenues(mm yen)
4,751
5,505
6,982
Of which, rental revenues(mm yen)
4,751
5,505
6,982
Operating expenses(mm yen)
2,382
2,851
3,926
Of which, property operating expenses (mm yen)
1,977
2,409
3,437
Operating income(mm yen)
2,369
2,653
3,055
Income before Income taxes(mm yen)
1,858
2,240
2,421
2,239
2,420
Net income(mm yen)
1,856
Total assets(mm yen)114,199
156,291
205,486
Net assets(mm yen)69,32969,81389,292Unitholders’ capital(mm yen)67,641
67,64187,083
134,800
154,550
Total investment units outstanding(units)
134,800
Net assets per unit
(yen)514,317517,906
577,758
Net income per unit (Note 1)(yen)
13,858
16,614
15,784
Total cash distributions(mm yen)
1,856
2,239
2,420
16,614
15,663
Cash distributions per unit
(yen)
13,773
Of which, distributions of earnings per unit
(yen)
13,773
16,614
15,663
Of which, distributions in excess of earnings per unit
(yen)
(-)
(-)
(-)
ROA (Return on Assets) (Note 2)
(%)
2.0
1.7
1.3
ROE (Return on Equity) (Note 3)
(%)
2.8
3.2
3.0
Unitholders’ equity ratio (Note 4)
(%)
60.7
44.7
43.5
100.0
99.9
Dividend payout ratio (Note 5)(%)
99.9
Number of properties at end of period(buildings)
14
18
20
Number of tenants at end of period(tenants)
99
120
132
135,264
190,051
234,007
Total leasable ﬂoor space(m2)
Occupancy rate at end of period
(%)
98.5
98.2
95.3
Depreciation and amortization(mm yen)
631
674
894
Capital expenditures(mm yen)
155
182
319
(mm yen)
3,405
3,770
4,438
NOI (Net Operating Income) (Note 6)
FFO (Funds from Operations) per unit (Note 7)(yen)
18,45921,616
21,447
FFO ratio (Note 8)(times)
21.1
24.3
21.1
Debt service coverage ratio (Note 9)(times)9.9
7.2
5.5
Interest-bearing debt
(mm yen)38,50077,600105,500
(%)
33.7
49.7
51.3
LTV (Loan-to-Value) (Note 10)(number of days)
188
181
184
Management period
Fiscal Period(Note 1) The net income per unit is calculated by dividing the net income by the weighted average (number of days)
number of investment units. In the case of the ﬁrst ﬁscal period, the value entered is the net income perunit calculated by dividing the net income by the weighted average (number of days) number of investment
units using the actual management initiation date of June 27, 2006.
(Note 2) ROA = Ordinary income ÷ [(Total assets at beginning of period + Total assets at end of period) ÷ 2] × 100
The ﬁgures are rounded to the ﬁrst decimal place.
June 27, 2006 is deemed the beginning of the ﬁrst ﬁscal period.

29

(Note 3) ROE = Net income ÷ [(Net assets at beginning of period + Net assets at end of period) ÷ 2] × 100
The figures are rounded to the first decimal place.
June 27, 2006 is deemed the beginning of the first fiscal period.
(Note 4) Unitholders’ equity ratio = Net assets at end of period ÷ Total assets at end of period × 100
The figures are rounded to the first decimal place.
(Note 5) The figures are rounded down to the first decimal place.
(Note 6) NOI = Rental revenues − Property operating expenses + Depreciation and amortization(Note 7) FFO per unit = (Net income + Depreciation and amortization) ÷ Total investment units outstanding
The figures are rounded down to the nearest whole number.
(Note 8) FFO multiple = Investment unit price at end of period ÷ Annualized FFO per unit
The figures are rounded down to the first decimal place.
(Note 9) Debt service coverage ratio = Net income before interest and income taxes ÷ Interest expenses
The figures are rounded to the first decimal place.
(Note 10) LTV = Interest-bearing debt at end of period ÷ Total assets at end of period
The figures are rounded to the first decimal place.

(2) Overview of Asset Management This Fiscal Period
Japan Excellent, Inc. (JEI) was established on February 20, 2006, based on the Investment Trusts and Investment Corporations Law (ITL). Registration with the Kanto Local Finance Bureau was completed on March 15,
2006 (registration number: Director-General of Kanto Local Finance Bureau No. 52), and JEI was successfully
listed on the Tokyo Stock Exchange’s Real Estate Investment Trust section (securities code: 8987) on June 27,
2006.
Since listing, JEI has striven to secure both steady growth and earnings in the medium-to long-term perspective, and the third fiscal period recently completed with the end of December 2007. JEI primarily invests andmanages office buildings.

Portfolio Management is conducted in accordance with the basic investment policy of JEI of pursuing a strong
balance between steady earnings and expansion over the medium to long term, by primarily investing in officebuildings in major metropolises.
As for internal growth, the greatest priority has been placed on improving net operating income (NOI) throughimprovement of rental revenues from existing tenants and cost reduction. The asset manager and property
managers collaborate to achieve higher rental revenues at each property and negotiate with existing tenants forrental contracts felt to be far below present market levels. In these negotiations, we are calling for tenants torenew agreements at appropriate rent levels based on market levels and property competitiveness.
Additionally, the property managers of each property closely monitor and manage the buildings in a mannerthat ensures the understanding of end tenants (Note 2). While negotiating to raise rents, JEI is also endeavoring
to make beneficial investments (renovations) to meet specific tenant needs and raise tenant satisfaction.
Besides active application of energy conservation and management cost reduction measures, JEI has implemented innovations to effectively utilize unused space in its our properties. As a result, sublease contracts havebeen concluded with parking lot operators for three portfolio assets with low or unused parking lots.
(Note 1) Sponsor companies refer to the following eight companies that are shareholders of the asset manager:
Kowa Real Estate Co., Ltd., The Dai-ichi Mutual Life Insurance Company, Sekisui House, Ltd., Dai-ichi
Building Co., Ltd., Sohgo Housing Co., Ltd., Morgan Stanley Capital K.K., Mizuho Corporate Bank, Ltd.,and Mizuho Trust & Banking Co., Ltd.
(Note 2) The end tenant is the lessee that has directly concluded a lease agreement with JEI, or the trust fiduciary (excluding master lessees) or sub-lessees that have concluded lease agreements with the master
lessees.

Management Environment and PerformanceFund-raising Performance and an Overview of Fund Raising
The office rental market performed solidly with market expansion caused by integrations, expansions, transfers,
and such of offices supported by strong corporate performance. Central Tokyo in particular continued to see
a tightening of supply and demand centering on blue-chip office properties, which drove the continued rise inrents. On the other hand, there was an increase in vacancies in regional cities due to the slump in supply anddemand.

There were active developments in the fund procurement conditions of JEI during this fiscal period. The paid-in
money for the follow-on offering on July 11, 2007 was used for the early repayment on July 24, 2007, of shortterm borrowings taken out to acquire properties. Specifically, the borrowings from Mizuho Corporate Bank
totaling 20,700 million yen that were borrowed on March 28 and 29, 2007 were repaid early.

The real estate investment market saw an increase in the intensity of competition to acquire blue-chip properties with active investments by developers, private funds, real estate investment corporations, and the like.
Central Tokyo saw transactions of large properties such as the Toranomon Pastoral Hotel and the Ginza Toshiba Building.

The repayment deadline for the 18,400 million yen in short-term borrowings borrowed from two financial institutions on April 24, 2007 was July 31, 2007. On the same day, we borrowed long-term borrowings totaling 18,000
million yen from ten financial institutions and used these funds to convert the short-term borrowings into longterm borrowings, of which 11,000 million yen were borrowed in the form of a fixed interest loan.

In this environment, JEI, with the collaboration and the application of relationships with the sponsors (Note 1) ofJapan Excellent Asset Management (asset manager) to whom JEI outsources asset management, contributed
to the enhancement of the JEI portfolio through the acquisition of two properties: Kowa Kawasaki Nishiguchi
Building (acquisition price: 32 billion yen) and AKASAKA INTERCITY (acquisition price: 17.857 billion yen). Thiswas made possible by continuing the policy from the second fiscal period of: 1) acquiring large buildings located in the city center to be the core of the portfolio while also maintaining profitability, and 2) promoting regional diversification. As a result, JEI owns twenty office buildings as of the end of the third fiscal period for a
total acquisition price of 188.984 billion yen.

30

On October 26, 2007, JEI borrowed 49,000 million yen from five financial institutions in correlation with the acquisition of assets. This money was borrowed as a short-term borrowing using an uncommitted revolving
credit facility agreement. As a result, borrowings as of the end of the third fiscal period (December 31, 2007)
totaled 105,500 million yen, borrowed from twelve financial institutions including JEI’s sponsor, Mizuho Corporate Bank. Further, 53.5% of the total long-term borrowings (56,500 million yen) have had the interest rate fixed
through fixed interest loans and interest swaps.

31

JEI also completed a shelf registration for issuing investment corporation bonds on December 26, 2007 withthe objective of ensuring a flexible procurement of long-term funds.
(Overview of Shelf Registration)
Type
Investment corporation
bonds

Planned Issuance

Planned Issuance Period
January 7, 2008 – January
6, 2010100 billion yen

The following is the rating JEI has obtained, with the objective of issuing investment corporation bonds in the
future.
(Ratings as of December 31, 2007.)
Issuer rating

Outlook

Moody’s Investors Service
A2
StableR&I
AAStable(Note 1) JEI was founded with an issue price of 500,000 per investment unit.
(Note 2) The issue price per investment unit was 520,000 yen (underwriting price: 501,800 yen). New investment
units were issued through a secondary offering to raise capital to acquire properties purchased uponlisting.
(Note 3) The issue price per investment unit was 501,800 yen. These new investment units were issued througha third-party allotment with the objective of applying some of the funds raised to acquire new properties.
(Note 4) New investment units were issued through a secondary offering at an issue price per investment unitof 1,019,200 yen (underwriting price: 984,360 yen) with the objective of partially repaying the funds
procured to acquire properties in the second fiscal period.
(Note 5) New investment units were issued through a third-party allotment at an issue price per investment unitof 984,360 yen, with the objective of partially repaying the funds procured to acquire properties in thesecond fiscal period.
Performance of Investment Unit Price on the Tokyo Stock Exchange

Performance and Distribution Overview
As a result of the above management performance, JEI posted the following figures this fiscal period: Revenuesof 6,982 million yen; operating income of 3,055 million yen; income before income taxes of 2,421 million yen,and net income of 2,420 million yen.
Due to the application of the special tax treatment under tax convention (Special Taxation Measures Law Article
67-15), distributions on earnings are included in expenses. With this in mind, it was decided that the distribution
per investment unit for this period would amount to the entire disposable profit at the end of this fiscal period
minus fractions of less than one yen in distribution per investment unit. As a result, the distribution per investment unit for this fiscal period was set at 15,663 yen.

(3) Capital Raising
JEI conducted a secondary offering on July 11, 2007 (19,000 units) and also executed its green shoe option
through Mizuho Securities Co., Ltd. (joint lead manager in the secondary offering) on August 8, 2007 to issue
investment units through a third-party allotment (750 units). JEI raised a total of approximately 19,441 million
yen in funds through this offering and option. The following table shows the number of outstanding units andunitholders’ capital and variation for the current and preceding fiscal periods.
Payment Date

Description

No. of Outstanding Units
Variation

February 20,
2006Foundedthrough
privateplacement

June 26, 2006 Public offering
Third-party
allotment
Secondary
July 11, 2007
offering
August 8,
Third-party
2007
allotment

July 21, 2006

32

Total

Total Equity(mm yen)
Variation
Total

Remarks

400

400

200

200

(Note 1)

128,000

128,400

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

134,800

3,211

67,641(Note 3)19,000

153,800

18,702

86,344(Note 4)

750

154,550738

87,083(Note 5)

Japan Excellent’s investment securities are listed on the Real Estate Investment Trust section of the Tokyo Stock
Exchange. The high and low prices for each period are listed below based on the respective closing prices.
Fiscal PeriodHigh and low investment
Settlement Dateunit prices by fiscal
High (yen)periodLow (yen)First Fiscal Period
December 2006
815,000
548,000

Second Fiscal Period
June 2007
1,400,000
761,000

Third Fiscal Period
December 2007
1,090,000
837,000(4) Distribution Results
The distribution per unit for the third fiscal period is 15,663 yen, and the entire disposable profit as of the end of
this fiscal period will be distributed, except for the fraction below one yen in distribution per unit that exists when
the profit is divided by this distribution. This amount was reached to meet a special corporation tax measurethat allows an investment corporation to deduct an amount equivalent to profit distributions from taxable income as expenses (Special Taxation Measures Law Article 67-15).
PeriodFirst Fiscal Period Second Fiscal Period
February 20, 2006 – January 1, 2007 –Accounting Period
December 31, 2006
June 30, 2007
Retained earnings for this fiscal period
1,856,675,000 yen 2,239,620,000 yen
Undistributed earnings
75,000 yen
53,000 yen
Total cash distributions
1,856,600,000 yen 2,239,567,000 yen(distribution per unit)(13,773 yen)
(16,614 yen)
Of which, total profit distributions of earnings 1,856,600,000 yen 2,239,567,000 yen(profit distribution)(13,773 yen)
(16,614 yen)
Of which, refund of unitholders’ capital(refund of unitholders’ capital per unit)(-)(-)

Third Fiscal Period
July 1, 2007 –December 31, 2007
2,420,792,000 yen
76,000 yen
2,420,716,000 yen(15,663 yen)
2,420,716,000 yen(15,663 yen)(-)

33

(5) Future Management Policies and Current Issues

applied for the generation of internal growth.

Outlook of Investment Environment3) Implementing Beneficial Investments (Renovations)

The Tokyo metropolitan area as a whole is expected to continually perform solidly, but JEI is a convinced that a
cautious investment stance is necessary because some high class properties are seeing rents peak and the
supply-demand balance is weakening in regional cities and leading to an increase in vacancy rates. It has also
become more difficult to obtaining financing due to the aftereffects of the subprime loan issue. Consequently,
JEI expects private funds to continue selling off properties but without a change in the cap rate, so the environment for procuring properties is expected to continue to be severe.

Naturally, JEI will also analyze properties from a medium-to long-term perspective and initiate appropriate maintenance while implementing planned investments (renovations) to further improve tenant satisfaction and enhance value of properties. JEI will conduct corrective work upon property acquisition and then check building
usage safety, convenience, and enact further measures in areas where it is determined that safety and convenience require further enhancement.

Future Management Policy and Current Issues
As for the acquisition of new properties, JEI will maintain its medium-to long-term policy of expanding its asset
portfolio next fiscal period and afterwards based on a collaborative relationship with sponsor companies, sothat JEI can continue to post external growth. As for the management of portfolio properties, the improving of
tenant satisfaction regarding hardware such as buildings and facilities through the implementation of appropriate maintenance and preservation and the improving of functions and grades by accurately grasping tenantneeds will only increase in importance. With regard to the hardware aspects of the building and facilities, JEI
puts high priority on the improvement of tenant satisfaction, which shall be achieved by implementing measures
to maintain appropriate maintenance and by raising the level of functions and the grades of units to more accurately ascertain tenant needs.
Therefore, JEI will continue to work to improve both rent levels and cost reductions. JEI is convinced of theimportance of implementing the following measures, based on our foremost mission of achieving the evaluationthat the rent levels on each property truly reflect the value of that building.

Specifically, JEI is initiating major renovations at the Sendai Kowa Building and JEI Nishi-Honmachi Building, theproperties it acquired in the second fiscal period, in the pursuit of quality increase. Regarding the Sendai Kowa
Building, one of the purchase conditions at the time of acquisition was the conducting of renovations by theformer owner, and primarily common use area renovations such as the virtually comprehensive renewal (renewal of entrance, restrooms, and other common use areas and replacement of air conditioning and othermajor facilities) are currently in progress for completion in March 2008. These renovations are being conductedat the expense of the previous owner. For JEI Nishi-Honmachi Building, JEI has improved safety by removing
asbestos and also raising the ceiling height and installing floors for automated office equipment, improved lighting and conducted other work to upgrade the building so that its convenience could be improved further. The
sprayed on asbestos existed behind the ceilings in rooms occupied by tenants (offices) and so the work required tenants to relocate within the building. Therefore, to complete the removal JEI obtained the cooperationof tenants to relocate within the building rationally and quickly. A proposal was made to remove the asbestos
one floor at a time and JEI is in the midst of this process.
As for the Kowa Kawasaki Nishiguchi Building acquired during the third fiscal period, JEI plans to remove thematerial that has been sprayed on in the air conditioning control room and EPS room which contains asbestos.

1) Improving the Rent Levels of Existing Tenants4) Solidifying the JEI Brand
The portfolio occupancy of JEI was 95.3% as of December 31, 2007, and the issues for the time being are
maintaining the high occupancy level and increasing rent levels where the upward trend continues. Most of thecontracts with existing tenants are standard two-year lease agreements with renewals every two years (there
are fifteen fixed-period lease agreements as of December 31, 2007). JEI will determine the contracted rents thatare distinctly different from present market levels and continue negotiations with those tenants to renew at appropriate levels given the market price and property competitiveness. JEI is focused on building strong relations with tenants through these negotiations by developing a mutual understanding through the proffering ofcomprehensive proposals that take into account not only rent levels but also contract periods, contract methods, etc.
2) Maintaining and Improving Property Management Quality and Reducing Costs
The property managers of each of the properties owned by JEI provide building management attuned to theproperties for which they are responsible, which enables the maintenance of mutual understanding with tenants. As for management quality, on-site surveys are conducted periodically and efforts are constantly madeto maintain and improve management quality by implementing measures successful at other properties in theportfolio. Measures to reduce outsourcing janitorial costs and other changes have been taken with a wellbalanced approach to both service quality and the outsourcing costs. JEI is also examining measures to increase income by efficiently utilizing unused space in buildings such as concluding sub-leasing contracts withparking lot operators for parking lots that are poorly occupied or not occupied at all. These reductions in operating and management fees and examination and implementation of measures to increase income will be

34

JEI is taking steps to solidify the JEI brand by changing the names of buildings whose previous owners remainin their names. JEI is changing these names to building names that use JEI after their acquisition. In accordance with the concerned policy, JEI changed the name of the Nishi-Honmachi Mitsui Building that was acquired during the second fiscal period to JEI Nishi-Honmachi Building as of March 28, 2007.
As for financial strategy, JEI will work to efficiently and flexibly raise capital by diversifying lenders and spreadingout repayment terms as well as considering the possibility of bond issuances. This, in line with external growth,will be performed while taking into account the balance between short- and long-term loans. JEI also plans topursue the fixing of interest rates on borrowings to prepare for any future rise in interest rates.
Meanwhile, the environment surrounding the REIT business is undergoing changes both in terms of acquisition
and financing. There are also a number of major systematic changes to the environment underway or already
implemented, including the Financial Instruments and Exchange Law which was put into effect from September
2007, the revision of the Trust Law and Trust Business Law, the revision of real estate appraisal standards, andthe system for executing new BIS regulations. In recognition of these changes, JEI and JEAM will work to ensure that appropriate steps are taken.

(6) Material Developments after Closing of Accounts
Not applicable35

II. Overview of Investment Corporation

3. Information on Board of Directors

1. Overview of Equity Capital

Names of Directors during the Third Fiscal Period

PeriodFirst Fiscal Period(as of December 31, 2006)

Second Fiscal Period(as of June 30, 2007)

Third Fiscal Period(as of December 31, 2007)

2,000,000 units

2,000,000 units

2,000,000 units

Number of issuable investment
units
Total number of outstanding
investment units
Total unitholders’ capital
No. of unitholders

134,800 units

134,800 units

154,550 units

67,641 mm yen
2,529

67,641 mm yen
2,193

87,083 mm yen
3,708

Post

Name

Executive Director

Junichi Tamura

Supervisory Director

Makoto Sakagami

Supervisory Director

Tsuyoshi Nagahama

Supervisory Director

Shunichi Maekawa(Note 2)Misuzu Audit
Corporation (Note 3)
Ernst & Young
ShinNihon (Note 4)

Accounting Auditor

2. Information on Investment Units
Accounting Auditor

Primary Concurrent Positions
President and Representative
Director, Japan Excellent AssetManagement Co., Ltd.
Sakagami CPA OfficePartner, Anderson Mori &Tomotsune
Professor, Faculty of Real Estate
Sciences, Meikai University

Compensation
during Concerned
Operational Period-

5.1 mm yen

-

-

-

11.3 mm yen

The following are the primary unitholders as of December 31, 2007.
(Note 1) Neither the executive director nor the supervisory directors own investment units of JEI. There arecases where the supervisory directors are directors of corporations not indicated above, but in none of
the cases including the above does an interest relationship exist with JEI.
(Note 2) Maekawa was selected as a supervisory director of JEI on November 1, 2007 based on the resolutionof the Second Unitholders’ Meeting for JEI held on October 5, 2007.
(Note 3) Misuzu Audit Corporation resigned as the accounting auditor of JEI on July 31, 2007. Further, in regard
to Misuzu Audit Corporation, the former accounting auditor of JEI, it has been separately paid compensation for the AUP work that accompanied the issuance of new investment units.
(Note 4) Ernst & Young ShinNihon was selected as the temporary accounting auditor of JEI on August 1, 2007
in correlation with the resignation of Misuzu Audit Corporation. Ernst & Young ShinNihon was selected
as the accounting auditor at the Second Unitholders’ Meeting of JEI. The above entered total amount ofcompensation is an estimate and includes the compensation for auditing English financial statements.
(Note 5) The Second Unitholders’ Meeting of JEI also selected Nobuyuki Tanabe, a Director of Japan Excellent
Asset Management, as an alternate Executive Director of JEI.

Units
Owned

Ownership
Ratio (%)

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

14,312

9.26

1-8-11 Harumi, Chuo Ward, Tokyo

12,8798.33

11,2817.30

11,062

7.16

8,660

5.60

4,573

2.96

4,414

2.86

Policy on Dismissal of Accounting Auditor and Decision to Not Re-employ

1-13-1 Yurakucho, Chiyoda Ward, Tokyo

4,132

2.67

Bank of Ikeda, Ltd.

2-1-11 Jonan, Ikeda City, Osaka
Prefecture

3,432

2.22

The board of directors shall examine the dismissal of an accounting auditor in accordance with stipulations of
the Investment Trusts and Investment Corporation Law and examine the non re-employment of said party after
thorough consideration of various circumstances.

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

2-2-2 Otemachi, Chiyoda Ward, Tokyo.

3,400

2.20

78,145

50.56

Name

Address

Kowa Real Estate Co., Ltd.
Japan Trustee Services Bank, Ltd.
(investment trust account)
Trust & Custody Services Bank, Ltd.
(securities investment trust account)
NikkoCiti Trust and Banking
Corporation (investment trust account)
The Master Trust Bank of Japan, Ltd.
(investment trust account)North Pacific Bank, Ltd
JPMorgan Chase Goldman Sachs
Trust Jasdac Lending Account
The Dai-ichi Mutual Life Insurance
Company

Harumi Island Triton Square Office Tower
Z, 1-8-12 Harumi, Chuo Ward, Tokyo
2-3-14 Higashi Shinagawa, Shinagawa
Ward, Tokyo
2-11-3 Hamamatsucho, Minato Ward,Tokyo
3-11 Odori-Nishi, Chuo Ward, Sapporo,
Hokkaido
Goldman Sachs and Co., 180 Maiden
Lane, New York, NY 10038 U.S.A.

Total(Note) Figures for Ownership Ratio have been rounded to the second decimal place.

4. Asset Management Company, Asset Custodian, and Administrative Agent
The asset management company, asset custodian, and administrative agent as of December 31, 2007 are as
follows.
Description
Name
Asset management company
Japan Excellent Asset Management Co., Ltd.
Asset custodian
Mizuho Trust & Banking Co., Ltd.
Administrative agent (affairs regarding the managementof the unitholders’ list, administering of accounts andMizuho Trust & Banking Co., Ltd.
the institution, etc.)

36

37

III. Overview of Assets Managed by JEI

2. Primary Assets under Management

1. Configuration of Japan Excellent’s Portfolio

An overview of the primary assets under management by JEI (top ten in terms of book value) as of December
31, 2007 is as follows.
Leasable Floor Leased Floor Occupancy Ratio of Rental
Book ValuePrimarySpace (m2)(%)
Space (m2)
Revenue (%)
Property Name
(mm yen)
Usage(Note 3)(Note 4)(Note 1)
(Note 2)
Kowa Kawasaki
32,01937,569.99
98.0
6.0 Office
38,332.15
Nishiguchi Building
Akasaka Garden
23,3198,769.53
7,215.53
82.3
8.0 OfficeCity

Asset TypeReal estate(Note 3)Trust
beneficiaryinterests inreal estate(Note 3)

Usage

OfficeArea

Area II (Note 4)

Second Fiscal Period
Third Fiscal Period(as of June 30, 2007)(as of December 31, 2007)
Total Assets
Total Assets
Share ofunder
Share ofunderManagement Portfolio (%) Management Portfolio (%)(Note 2)(mm yen)(Note 2)(mm yen)(Note 1)
(Note 1)
4,310

2.8

4,288

2.1

Omori Bellport D
Area I (Note 4)

76,007

48.6

93,62945.6

Area II (Note 4)
Area III (Note 4)
Area IV (Note 4)

6,928
48,345
4,276
139,868
16,422
156,291

4.4
30.9
2.7
89.5
10.5
100.0

7,026
80,134
4,244
189,323
16,162
205,486

3.4
39.0
2.1
92.1
7.9
100.0

OfficeTotal
Deposits and other assets
Total assets(Note 1) The Total Assets under Management amount is the amount entered on the balance sheet as of thesettlement date (the book value after depreciation for the real estate and trust beneficiary interests inreal estate).
(Note 2) The figures for the Share of Portfolio have been rounded to the first decimal place.
(Note 3) Land leasehold rights owned with buildings are combined with the buildings and entered in the realestate and trust beneficiary interests in real estate rows.
(Note 4) The following are the divisions of area.
Area I: Six central Tokyo wards of Chiyoda, Chuo, Minato, Shinjuku, Shinagawa, and Shibuya
Area II: Central Osaka City (Umeda, Dojima, Nakanoshima, Yodoyabashi, Honmachi District, etc.), central Nagoya City (Meieki area, Fushimi, Sakae district, etc.), and central Fukuoka City (Tenjin, area infront of Hakata Station, etc.)
Area III: Tokyo excluding Area I and the area around Tokyo (Kanagawa, Saitama, and Chiba Prefectures)
Area IV: Osaka City, Nagoya City, and Fukuoka Cities excluding Area II and other ordinance-designatedcities, etc.

38

22,70925,828.29

25,828.29

100.0

15.3

Office17,861

5,622.98

5,546.06

98.6

1.9

Office13,751

25,275.07

25,275.07

100.0

11.7

Office10,81018,612.72

18,612.72

100.0(Note 5)

Office9,430

11,749.30

11,654.49

99.2

5.3

Office8,365

6,411.26

6,411.26

100.0

4.1

Office7,026

10,601.70

5,532.91

52.2

3.7

OfficeEbina Prime Tower

6,666

25,362.37

24,909.39

98.2

8.0

OfficeTotal

151,960

176,565.37

168,555.71

95.5

72.1

AKASAKA
INTERCITY
Musashikosugi
Tower Place
Kowa Kawasaki
Higashiguchi
Building
Shiba 2-Chome
Building
Shuwa Daiichi
Hamamatsucho
Building
JEI Nishi-Honmachi
Building(Note 1) The area for leasable floor space is the leasable floor space of the portion acquired by JEI as of December 31, 2007, and is rounded to the second decimal place. For jointly-owned properties, the figure enteredis the leasable floor space of the entire jointly-owned property multiplied by the percentage actually
owned by JEI.
(Note 2) In the case of the leased floor space, it is rounded to the second decimal place and the area under thelease agreement with the end tenants as of December 31, 2007 is entered. For jointly-owned properties, the figure entered is the leased floor space of the entire jointly-owned property multiplied by thepercentage actually owned by JEI.
(Note 3) Occupancy is the ratio of leased floor space to leasable floor space as of December 31, 2007, and isrounded to the first decimal place.
(Note 4) The ratio of rental revenue of each asset is rounded to the first decimal place.
(Note 5) JEI has not obtained agreement to disclose the rent from the end tenant of this property and so theamount is not disclosed here.

39

3. Itemized Statement of Incorporated Real Estate and Other Assets
The following is an itemized statement of the real estate, etc. owned by JEI (real estate or trust beneficiary interests in real estate) as of December 31, 2007.
Property
No.

I-1

I-2
I-3
I-4
I-5
I-6
I-7
I-8

II-1

II-2

40

Property Name

Omori Bellport D

Shiba 2-Chome
Building
Shuwa Daiichi
Hamamatsucho
Building
No. 32 Kowa
Building
No. 36 Kowa
Building
No. 28 Kowa
Building
Akasaka Garden
City
AKASAKA
INTERCITYNHK Nagoya
Housou-Center
Building
JEI NishiHonmachi
Building

Address

OwnershipForm

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

Trust
beneficiaryinterests inreal estate(TBIRE)

End-of-Period
Appraisal(mm yen)(Note)

Book Value(mm yen)22,7092-6-1 Shiba, Minato Ward,
TBIRE
Tokyo

13,2009,430

2-2-12 Hamamatsucho,
Minato Ward, Tokyo

TBIRE

10,300

8,365

TBIRE

5,676

5,030

TBIRE

4,234

4,049

TBIRE

4,210

2,863

TBIRE

25,70023,319TBIRE

18,30017,861

Area I
1-13-3 Higashi-Sakura,
Higashi Ward, Nagoya
City, Aichi Prefecture
1-3-15 Awaza, Nishi
Ward, Osaka City, Osaka
Prefecture
Area II

III-1

III-2
25,6305-2-32 Minami-Azabu,
Minato Ward, Tokyo
5-19 Sanbancho, Chiyoda
Ward, Tokyo
2-20-1 Nishi-Gotanda,
Shinagawa Ward, Tokyo
4-15-1 Akasaka, Minato
Ward, Tokyo
1-11-44 Akasaka, Minato
Ward, Tokyo

Property
No.

III-3
III-4
III-5
III-6
III-7
III-8

107,250

93,629Real Estate

5,570

4,288

TBIRE

6,760

7,026

12,33011,314III-9

End-of-Period
Appraisal(mm yen)(Note)

Book Value(mm yen)

TBIRE

18,30013,751

TBIRE

11,30010,810

TBIRE

5,500

5,357

TBIRE

4,940

4,048

TBIRE

5,790

3,906

TBIRE

1,840

1,052

TBIRE

2,566

2,521

TBIRE

6,610

6,666

TBIRE

32,30032,01989,14680,134

4,462

4,244

Area IV

4,462

4,244

Total

213,188

189,323

Property Name

Address

1-403 Kosugimachi,
Nakahara Ward, Kawasaki
City, Kanagawa Prefecture
Kowa Kawasaki 1-53 Nisshincho,
Kawasaki Ward, Kawasaki
Higashiguchi
City, Kanagawa Prefecture
Building
Hongo TS
2-38-16 Hongo, Bunkyo
Building
Ward, Tokyo
Shuwa Iidabashi 2-3-19 Koraku, Bunkyo
Building
Ward, Tokyo
7-1 Nisshincho, Kawasaki
KawasakiWard, Kawasaki City,
Nisshincho
Kanagawa Prefecture
Building
1-2-7 Higashiyama, MeNo. 44 Kowa
Building
guro Ward, Tokyo
Ryogoku Dai-ichi 3-25-5 Ryogoku, SumidaLife Building
Ward, Tokyo
2-9-50 Chuo, Ebina City,
Ebina Prime
Kanagawa Prefecture
Tower
Kowa Kawasaki 66-2 Horikawacho, Saiwai
Ward, Kawasaki City,
Nishiguchi
Kanagawa Prefecture
Building
Musashikosugi
Tower Place

OwnershipForm

Area III
IV-1

Sendai Kowa
Building

2-4-1 Ichibancho, Aoba
Ward, Sendai City, Miyagi
Prefecture

TBIRE(Note) In accordance with the articles of incorporation of JEI and the rules designated by the Investment Trusts
Association, the end-of-period appraisal values have been written in appraisal reports prepared with apricing point of December 31, 2007, by appraisers of the Japan Real Estate Institute, Chuo Real EstateAppraisal Co., Ltd., or HIRO & REAS Network, Inc. Further, in the case of co-owned properties, JEI has
entered a value arrived at by multiplying the proportion owned by JEI or the trustee by the total amountfor the entire co-owned real estate.

41

Property
No.

Property Name

I-1

Omori Bellport D
Shiba 2-Chome
Building
Shuwa Daiichi
Hamamatsucho
Building
No. 32 Kowa
Building
No. 36 Kowa
Building
No. 28 Kowa
Building
Akasaka Garden
City
AKASAKA
INTERCITY
Area I
NHK Nagoya
Housou-Center
Building
JEI NishiHonmachi Building
Area II
Musashikosugi
Tower Place
Kowa Kawasaki
Higashiguchi Building
Hongo TS
Building
Shuwa Iidabashi
Building
KawasakiNisshincho
Building
No. 44 Kowa
Building
Ryogoku Dai-ichi
Life Building
Ebina Prime Tower
Kowa Kawasaki
Nishiguchi
Building
Area III
Sendai Kowa
Building
Area IV
Total

I-2
I-3
I-4
I-5
I-6
I-7
I-8

II-1
II-2

III-1
III-2
III-3
III-4
III-5
III-6
III-7
III-8
III-9

IV-1

42

Second Fiscal Period
Third Fiscal Period(January 1, 2007 - June 30, 2007)(July 1, 2007 - December 31, 2007)
No. ofShare of No. of
Share ofOccupancy Rental
Occupancy Rental
Tenants
Rental Tenants
Rental(end-of- Revenue(end-of- Revenue(end-ofRevenue (end-ofRevenue
period) (during period)
period) (during period)
period)period)(%)(%)(%)(mm yen)(%)(mm yen)(Note 1)
(Note 2) (Note 1)(Note 2)
1
99.7
1,042
18.9
1
100.0
1,071
15.3
2

98.4

346

6.3

2

99.2

369

5.3

1

100.0

277

5.0

1

100.0

288

4.1

(Note 1) The figure for the number of tenants is the total number of tenants at each property as of the end ofeach fiscal period. In the case of a master lease agreement, the number of tenants is entered as ‘one.’
When a single tenant leases multiple spaces, it is recognized as one tenant on a single property, andas multiple tenants on multiple properties.
(Note 2) The share of rental revenue is rounded to the first decimal place.
(Note 3) No figure is entered for said property because approval for disclosure has not been obtained from theend tenants.

4. Other Asset Information
Stocks and Investment Securities
15

100.0

237

4.3

15

94.3

244

3.5
Issue

No. ofStocksAcquisition Price(1,000 yen)
Unit Price Amount

Appraised Value(1,000 yen)
Unit Price Amount

LatentProfit/Loss Remarks(1,000 yen)

1

100.0

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

1

100.0

154

2.8

1

100.0

160

2.3

NHK Nagoya Build
Systems Co., Ltd.

1

100.0

295

5.4

1

82.3

557

8.0

(N
t ) TheTh acquisition
i iti pricei iis enteredt d as thi d value
l off said
id unlisted
li t d stocks.
t k(Note)
the appraised

-

-

-

-

12

98.6

132

1.9

22

99.6

2,553

46.4

34

97.3

3,024

43.3

39

98.0

349

6.3

41

95.7

337

4.8

Table of Specific Transaction Agreements and Market Values
Contract Amount (1,000 yen)
Of which, more
Category
Type(Note 1)than 1 year
(Note 1)

1

96.1

150

2.7

1

52.2

261

3.7

Non-market transaction

40

96.9

500

9.1

42

72.1

599

8.6

32

100.0

789

14.3

32

100.0

814

11.7

1

100.0

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

1

100.0

176

3.2

1

100.0

179

2.6

1

100.0

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

1

100.0

211

3.8

1

100.0

212

3.0

1

100.0

88

1.6

1

94.5

97

1.4

1

100.0

114

2.1

1

100.0

119

1.7

19

98.7

291

5.3

16

98.2

559

8.0

-

-

-

-

1

98.0

419

6.0

57

99.6

2,360

42.9

55

99.0

3,110

44.5

1

77.8

91

1.7

1

77.8

248

3.6

1
120

77.8
98.2

91
5,505

1.7
100.0

1
132

77.8
95.3

248
6,982

3.6
100.0

64

168

Interest rate swap
Floating interest andfixed interest

10,768168

16,250,000

10,76816,250,000-(Note)

Market Value(1,000 yen)
(Note 2)

(211,254)(Note 1) The indicated balance for the interest rate swap is indicated based on the assumed principal.
(Note 2) The appraisal is made at the amount calculated by the other party involved in said transaction basedon the going rate of interest, etc.

43

IV. Capital Expenditures on Owned Real Estate

2. Capital Expenditures during the Third Fiscal Period

1. Planned Capital Expenditures

The following is the construction work on assets under management as of the end of the third fiscal period thatfall under capital expenditures conducted by JEI during the fiscal period ended December 2007. Capital expenditures during this period were 319 million yen, and the total amount for construction work was 682 million yen
when the preceding figure is combined with the 363 million yen in maintenance and repair costs classified as
expenses in the period ended December 2007.

The following table indicates the primary scheduled capital expenditures as of December 31, 2007 for scheduled renovations, etc. to assets owned at the end of the third fiscal period by JEI. The following planned construction amounts include portions that will be treated as expenses for accounting purposes.

Property Name

LocationObjective

PlannedSchedule

Renewal of
April 2008 residential
Shiba 2-Chome Minato Ward,
June 2008
building
BuildingTokyo
entrance
Upgrading of
Kawasaki Ward,
Kawasaki
fan coils for air
October 2007 Kawasaki City,
Nisshincho
conditioning
January 2008
Kanagawa
system andBuilding
Prefecture
pipingAsbestos
removal work
JEI
Nishi Ward,
November 2007and leasable
Nishi-Honmachi Osaka City,
unit maintenance June 2008
Building
Osaka Prefecturework(phase 2)

Planned Construction Amount (mm yen)AmountAmountAlready
Total
Paid This
Paid
Period
10

29

313

-

-

-

-

-

-

Property Name

LocationObjective

Asbestos removal
work and leasable
unit maintenancework (phase 1)
Upgrading of
Shuwa Iidabashi
Bunkyo Ward, Tokyo ventilation and
Building
humidifier
Ebina City,
Setting of shower
Ebina Prime Tower
Kanagawa Prefecture toilets
No. 44 Kowa
Renovation of
Meguro Ward, Tokyo
Building
common areas
Shuwa Daiichi
Upgrading ofHamamatsucho
Minato Ward, Tokyo
humidifier
Building
Other construction
Total
JEI
Nishi-Honmachi
Building

Nishi Ward, Osaka
City, Osaka Prefecture

Amount Paid(mm yen)Schedule
August 2007 December 2007

125

October 2007 December 2007

35

October 2007 November 2007
October 2007 December 2007

1211

October 2007 December 2007

18

-

115
319

3. Reserves for Maintenance and Repair Costs
JEI is applying maintenance and repair reserves to payment for major maintenance and repairs, etc. based onlong-term maintenance and repair plans established for each property. These funds are being accumulated
from among depreciation and other surplus cash flow.
Category

44

First Fiscal Period Second Fiscal Period Third Fiscal Period(February 20, 2006 - December 31, 2006) (January 1, 2007 - June 30, 2007) (July 1, 2007 - December 31, 2007)

Balance of reserves frompreceding fiscal period (mm yen)
Current reserves(mm yen)Withdrawals from reserves(mm yen)

-

164

232

164

67

50

-

-

-

Amount carried forward(mm yen)

164

232

282

45

V. Expenses and Liabilities

Category

1. Itemization of Management Expenses

Lender(unit: thousand yen)First Fiscal Period Second Fiscal Period Third Fiscal Period
Category(February 20, 2006 - December 31, 2006) (January 1, 2007 - June 30, 2007) (July 1, 2007 - December 31, 2007)(a) Asset management fees
306,290
328,491
369,974(b) Asset custodian outsourcing fee
8,975
7,435
12,240(c) Administrative agent fee
18,014
14,541
24,648
11,8584,690
5,100(d) Director compensation
4,500
6,000
(e) Accounting auditor compensation
4,500(f) Other expenses
54,513
83,01470,678404,152442,671488,642Total

2. Borrowing Conditions
The following are the borrowing conditions for each financial institution as of the end of the third fiscal period (asof December 31, 2007).
Category
LenderShort-term
Borrowings

Balance Balance Average
End ofLoanof This Interest Repayment Repayment
Execution Previous End(%)
PeriodDate
MethodPeriodDate(mm yen) (mm yen) (Note 1)

MizuhoCorporate
Bank, Ltd.
Mitsubishi
UFJ TrustandBanking
Corporation
Sumitomo
Mitsui10/26/07
Banking
Corporation
MIzuho Trust& BankingCo., Ltd.

46-

10,4008,000-

AozoraBank, Ltd.
Subtotal

20,700-Usage

Description

23,00010,000

8,000

For
No
collateral
One-time property
1.04667 10/24/08
or
payment acquisition
funds
guarantee

5,000

-

3,000

39,10049,0001.04667

-

-

-

-

Balance Balance Average
End ofLoanof This Interest Repayment Repayment
Execution Previous End(%)
PeriodDate
MethodPeriod
Date
(Note
1)
(mm
yen)
(mm yen)AozoraBank, Ltd.
Chuo Mitsui
Trust andBankingCo., Ltd.
MizuhoTrust &
BankingCo., Ltd.
Sumitomo 6/29/06
Mitsui
Banking
Corporation
MizuhoCorporate
Bank, Ltd.
Mitsubishi
UFJ Trustand Banking
Corporation
The
Long-term Norinchukin
borrowings Bank
MizuhoCorporate
Bank, Ltd.
6/29/06
Mitsubishi
UFJ Trustand Banking
Corporation
AozoraBank, Ltd.
MizuhoCorporate
Bank, Ltd.
Mitsubishi
UFJ Trustand Banking
Corporation 6/29/06
ResonaBank, Ltd.
The Dai-ichi
Mutual Life
Insurance
Company

3,000

3,000

3,000

3,000

3,000

3,000

Usage

Description

1.43420 6/29/09
2,000

2,000

1,000

1,000

1,000

1,000

5,000

5,000

3,000

3,000

For
No
One-time property
collateral
payment acquisitionor
funds
guarantee
1.58785 6/29/10

3,000

3,000

2,000

2,000

5,000

5,000

3,500

3,500

1.59975
6/29/11

1,000

1,000

3,000

3,000

1.96625(Note 2)47

Category
LenderBalance Balance Average
End ofLoanof This Interest Repayment Repayment
Execution Previous End(%)
PeriodDate
MethodPeriod
Date
(Note
1)
(mm
yen)
(mm yen)Mitsubishi
UFJ Trustand Banking
Corporation
Sumitomo
Mitsui
Banking
Corporation
The
Norinchukin
Bank
ResonaBank, Ltd.
MizuhoCorporateLong-term Bank, Ltd.
7/31/07
borrowings Mizuho
Trust &
BankingCo., Ltd.
Sompo Japan
Insurance Inc.
Tokio Marine& Nichido Fire
Insurance
Co., Ltd.
The Dai-ichi
Mutual Life
Insurance
Company
Development
Bank of Japan
Subtotal
Total
-

-

3. Overview of Investment Corporation Bonds
Usage

Description

VI. Property Sales and Purchase Conditions during the Third Fiscal Period

2,300

1. Sale and Purchase Conditions of Real Estate and Asset-backed Securities
-

-

2,200

(unit: mm yen)
1.200000500
7/31/12-ForNo
collateral
One-time propertyorpayment acquisition
funds
guarantee

2,500

1,500
1.96907(Note 2)-Category
Borrowings

48

Asset Type

Property Name

Trust
beneficiaryinterests inreal estate

AKASAKA
INTERCITY
Kowa Kawasaki
Nishiguchi Building
Total

2,000

Acquisition
Acquisition Acquisition
Transfer
Price
Date
Date
(Note 1)
October 26,
2007
October 26,
2007

Transfer
Transfer
Price

Book
Value

CapitalGains

17,857
-

-

-

-

-

-

-

32,00049,857(Nt ) Tht d ffor th
i iti pricei ((property
t ttransfer
f pricei enteredt d iin theth agreementt to
t transfertf(Note)
The figure entered
the acquisition
beneficiary interests in trust, etc.) is an amount that does not factor in the acquisition costs of the concerned property, etc. (brokerage fee, public charges, etc.), and figures have been rounded to the nearest
million yen.

2,000

2. Other Asset Sale and Purchase Conditions-

1,000
The primary assets other than the above property, asset-backed securities, etc. are bank deposits or bankdeposits of property placed in trust.

-

2,000

-

2,000

38,50077,60056,500105,500

2.25875(Note 2)2.28417(Note 2)
1.622171.35487

7/31/14

3. Appraisal of Qualified Asset Values(1) Real estate, etc. (Note 1)

-

-

-

-

(Note
(N
t 1) ThThe iindicateddi t d average interest
i t
t is
i the
th weighted
i ht d average off theth end-of-periodd f
i d balanceb l
with
ith theth borrowingbiinterest rate for each loan agreement as of the end of the period, and has been rounded to the fifth
decimal place. The weighted average after factoring in the benefits of the interest rate swap has beenentered for the borrowings where interest rate swaps have been concluded to avoid the risk of interest
variations.
(Note 2) This is a fixed-interest loan.
(Note 3) The following is the scheduled repayment amount by years of the settlement date for the borrowings.
Less than
1 year(mm yen)49,000Not applicable.

1 year – Less 2 years – Less 3 years – Less 4 years – Less
than 2 years than 3 years than 4 years than 5 years(mm yen)(mm yen)(mm yen)(mm yen)13,00012,50014,00013,0005 years –(mm yen)
4,000

Acquisition orTransfer

Acquisition

Type of Asset

AKASAKA
INTERCITY

Trust beneficiary
October 26,
interests in real
2007
estate (TBIRE)

17,85718,000

October 26,
2007

32,00032,20049,85750,200Kowa Kawasaki
Nishiguchi
Building
Total

TBIRE

Acquisition Date

Acquisition Price Appraised Value of(mm yen)
Qualified Asset(Note 2)(mm yen)

Property Name

(Note 1) The appraisals of the values, etc. for the qualified assets above were conducted at the time of acquisition of the assets by Ernst & Young ShinNihon based on Occupation Audit Committee Report No. 23
Investigation of Qualified Asset Prices for Investment Trusts and Investment Corporations of the Japanese Institute of Certified Public Accountants. In addition to the above appraised value, JEI has

49

received appraisal reports for other items needed for determination of the actual concerned property
such as property address and lot number.
(Note 2) The acquisition price figures (property transfer price entered in the agreement to transfer beneficiaryinterests in trust, etc.) do not factor in acquisition costs for the concerned property, etc. (brokerage fee,public charges, etc.) and figures have been rounded to the nearest million yen.
(2) Negotiable Securities (Note 1)
Acquisition orTransfer

Issue
NHK Nagoya
Build
Systems Co.,
Ltd.

Acquisition

No. of Shares

64

Acquisition Date

Acquisition Price Appraised Value of(thousand yen)
Qualified Asset(Note 2)(thousand yen)

June 27, 2006

162

106-218(Note 1) The appraisals of the values, etc. for the qualified assets above were conducted by Ernst & Young ShinNihon based on Occupation Audit Committee Report No. 23 Investigation of Qualified Asset Prices for
Investment Trusts and Investment Corporations of the Japanese Institute of Certified Public Accountants. In addition to the above appraised value, JEI has received appraisal reports for other items
needed for determination of the actual concerned negotiable securities.
(Note 2) The acquisition price figures do not factor in acquisition costs for the concerned qualified assets, etc.
(stock price appraisal fee) and figures have been rounded to the nearest thousand yen.
(Note 3) The acquisition price and investigated price of the qualified assets have been entered as the unit priceper share.

4. Transactions with Interested Parties and Major Stockholders(2) Amounts of Fees Paid
Category
Maintenance andManagement Fees
(Note 2)
Total

Total Fees Paid
(A)

1,092,035,000 yen

Breakdown of Transactions
with Interested Parties
and Major Stockholders
Paid To
Kowa Real EstateCo., Ltd.
Sekisui House, Ltd.

1,092,035,000 yen

B/A

Amount Paid (B)367,909,000 yen

33.7%

57,967,000 yen
425,876,000 yen

5.3%
39.0%

(Note 1) The entries are for Kowa Real Estate Co., Ltd., and Sekisui House, Ltd., with whom the asset manager
had transactions this fiscal period and which fall under interested parties, etc. of the investment trust
manager that has concluded an asset management agreement with JEI as stipulated in Article 15-2 ofthe Investment Trusts and Investment Corporations Law before being revised by Law for the Partial
Amendment of the Securities and Exchange Law (Law No. 65 in 2006) and major stockholders of theinvestment trust manager as defined in Article 9-3 of the Investment Trusts and Investment Corporation
Law.
(Note 2) The maintenance and management fees include property management fees and construction management fees recorded as assets and not treated as expenses.
(Note 3) The amounts do not include consumption tax.

5. Existence of Transactions between the Asset Manager and Concurrent Operations of Said Manager
This entry is not applicable because the asset manager – JEAM – is not involved in Type I and Type II financial
instruments, real estate brokerage, or real estate syndication businesses.

(1) Transactions
Sale or Purchase Amount
Purchase AmountSale Amount
49,857 mm yen- mm yen
Of which, 49,857 mm yen are
Total Amountacquisitions from interested- mm yenparties and major stockholders.
Breakdown of transactions with interested parties and major stockholders- mm yen
Kowa Real Estate Co., Ltd.
49,857 mm yen (100%)
Total
49,857 mm yen (100%)- mm yen
Category

VII. Accounting
1. Conditions of Assets, Liabilities, Principal, and Profits/Losses

(-%)
(-%)

Please refer to the Balance Sheet, Income Statement, Form of Changes to Investor Capital, Annotation Table,
and Cash Distribution Calculation Form for information on the conditions of assets, liabilities, principal, andprofits/losses noted later.

2. Changes to the Depreciation Calculation Method
Not applicable

3. Changes to the Real Estate Valuation Method
Not applicable50

51

Financial Statements
VIII. Other
1. Notiﬁcation
1) Unitholders’ Meeting
The Second Unitholders’ Meeting of JEI was held on October 5, 2007. The following is an overview of the primary items approved by the Unitholders’ Meeting
Agendum

Partial amendment to the articles ofincorporation

Appointment of Executive Director

Description
The following items were amended in the articles of incorporation.
-Required amendments accompanying the establishment/
revision to the Investment Trust Law and other laws and ordersthat occurred with the implementation of the Law concerning
Adjustment and Coordination of Relevant Laws in Association
with the Enforcement of the Corporation-Required amendments accompanying revisions to the tax
system-Changes to the types of assets subject to asset management-Necessary regulatory changes to enable the issuance of shortterm investment corporation bonds-The transfer and deletion of article text, correction of article
numbering and such accompanying the above describedchanges

Table of Contents
Report of Independent Auditors

55

Balance Sheets

56

Statements of Income and Retained Earnings

57

Statements of Changes in Net Assets

58

Statements of Cash Flows59

Notes to Financial Statements

60

Junichi Tamura was selected as the executive director. His
term is two years from November 1, 2007.

Three people – Makoto Sakagami, Tsuyoshi Nagahama andAppointment of Three Supervisory Directors Shunichi Maekawa – were selected as supervisory directors.
Their terms are two years from November 1, 2007.
Appointment of Deputy Executive Director

Nobuyuki Tanabe was selected as the deputy executive
director.

2) Board of Directors’ Meeting
The following is an overview of the primary agreements concluded, changed, etc. with the approval of the boardof directors of JEI during this ﬁscal period.
Date of Approval
by Board of
Directors

July 3, 2007

Approval Item

Description

JEI consigned the administrative services regarding the issue ofConcluding agreement
new investment units to Mizuho Securities Co., Ltd., Morgan
to entrust administrative
Stanley Japan Securities Co., Ltd., Shinko Securities Co., Ltd.,
services regarding issue
Nomura Securities Co., Ltd., Nikko Citigroup Ltd., Mitsubishi
of investment units
UFJ Securities Co., Ltd., and Mito Securities Co., Ltd.

2. Other
When there is no particular indication, values below those indicated in this document have been cut off in thecase of monetary amounts and rounded in the case of ratios (percentages).

52

September 26, 2007

53

54

55

Japan Excellent, Inc.

Japan Excellent, Inc.

Balance Sheets

Statements of Income and Retained Earnings

As of December 31, 2007 and June 30, 2007

For the periods from July 1, 2007 to December 31, 2007
and from January 1, 2007 to June 30, 2007

As of
As of
December 31,
June 30,
2007
2007(Thousands of yen)
AssetsCurrent assets:
Cash and cash equivalents including trust accounts (Note 4)
Rental receivables
Consumption taxes refundable
Other current assets
Total current assets

As ofDecember 31,
2007(U.S. dollars)(Note 2)

¥ 14,586,906
546,118
669,083
127,993
15,930,100¥ 15,319,710
357,859
518,641
86,645
16,282,855$ 127,787,177
4,784,211
5,861,437
1,121,275
139,554,100

Property and equipment (Note 6):
Buildings and building improvements
Construction in progress
Buildings and building improvements for trust accounts
Machinery and equipment for trust accounts
Furniture and fixtures for trust accounts
Land for trust accounts
Construction in progress for trust accounts
Less: accumulated depreciation
Net property and equipment

3,219,074
126
65,049,362
382,373
6,593
114,300,604
210(2,200,053)
180,758,289

3,204,845
126
47,625,937
380,957
4,771
81,393,329
210(1,306,053)
131,304,122

28,200,384
1,103
569,858,629
3,349,747
57,7541,001,319,353
1,840(19,273,350)
1,583,515,460

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

1,185,045
7,380,017
10,76815,182
175,542
31,213
8,797,767¥205,486,156

1,185,045
7,380,017
10,76815,182
112,681545
8,704,238¥156,291,215

10,381,471
64,651,921
94,332
132,997
1,537,822
273,435
77,071,978$1,800,141,538¥¥

447,648
39,100,000
308,346
26,97839,882,972$

56,500,000
466,672
8,866,066
211,254
66,043,992
116,193,588

38,500,000
516,494
7,510,209
67,776
46,594,479
86,477,451

494,962,768
4,088,235
77,670,304
1,850,674
578,571,981
1,017,902,656

87,083,030

67,641,920

762,882,435

2,420,792
89,503,822

2,239,620
69,881,540

21,207,121
784,089,556(211,254)(211,254)
89,292,568¥205,486,156(67,776)(67,776)
69,813,764¥156,291,215(1,850,674)(1,850,674)
782,238,882$1,800,141,538

Liabilities
Current liabilities:
Accounts payable – trade
Short-term loans (Note 7)
Accounts payable – other
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term debt (Note 7)
Security deposits from tenants
Security deposits from tenants for trust accounts
Derivative liabilities
Total long-term liabilities
Total liabilities
Net assets (Note 8):
Unitholders’ equity:
Unitholders’ capital:
Units authorized: 2,000,000 units
Units issued and outstanding: 154,550 units as ofDecember 31, 2007 and 134,800 units as of June 30, 2007
Retained earnings
Total unitholders’ equity
Valuation and translation adjustments:
Unrealized loss on deferred hedge transactions
Total valuation and translation adjustments
Total net assets
Total liabilities and net assets

753,529
49,000,000
280,475
115,592
50,149,596

6,601,224
429,259,746
2,457,072
1,012,633
439,330,675

For the period
For the period
from July 1,
from January 1,
2007 to2007 toDecember 31,
June 30,
2007
2007(Thousands of yen)

For the period
from July 1,
2007 toDecember 31,
2007(U.S. dollars)(Note 2)

Revenues:
Rental revenues (Note 11)
Other (Note 11)
Total revenues¥6,335,265
647,070
6,982,335¥5,069,179
436,637
5,505,816$55,499,467
5,668,597
61,168,064

Operating expenses:
Property operating expenses (Note 11)
Asset management fees
Custodian fees
Administrative service fees
Compensation for directors
Other
Total operating expenses
Operating income

3,437,912
369,975
12,24024,648
5,100
76,6793,926,554
3,055,781

2,409,279
328,491
7,435
14,542
4,690
87,5142,851,951
2,653,865

30,117,492
3,241,128
107,231
215,930
44,678
671,735
34,398,194
26,769,870

2,625
13,885257

16,384
7,975
319

23,003
121,643
2,259

Other expenses:
Interest expense
Loan arrangement fees
New unit issuance costs
Other
Income before income taxes

533,71176,27040,74712,421,819

361,110
46,77730,12612,240,529

4,675,529
668,157
356,962
11
21,216,116

Income taxes – current (Note 10)
Income taxes – deferred
Net income
Retained earnings at beginning of period
Retained earnings at end of period

1,086
(6)
2,420,739
53¥2,420,792

965
19
2,239,545
75¥2,239,620

9,516
(53)
21,206,653
468$21,207,121

Other income:Refund of consumption taxes including interest
Interest income
Other

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

The accompanying notes are an integral part of these financial statements.
56

2

57

Japan Excellent, Inc.

Japan Excellent, Inc.
Statements of Changes in Net Assets

Statements of Cash Flows

For the periods from July 1, 2007 to December 31, 2007
and from January 1, 2007 to June 30, 2007

For the periods from July 1, 2007 to December 31, 2007
and from January 1, 2007 to June 30, 2007

Number ofunits in issue
Balance as of December 31, 2006
Changes during the fiscal period:
Distributions from retained earnings
Net income
Changes in unrealized loss ondeferred hedge transactions
Total changes during the fiscal period
Balance as of June 30, 2007

¥67,641,920¥ 1,856,675¥69,498,595¥(168,610)¥(168,610)¥69,329,985

–
–

–
–

(1,856,600)
2,239,545(1,856,600)
2,239,545

–
–

–
–

(1,856,600)
2,239,545––
134,800––¥67,641,920–
382,945¥ 2,239,620–
382,945¥69,881,540

100,834
100,834¥ (67,776)

100,834
100,834¥ (67,776)

100,834
483,779¥69,813,764

For the period from July 1, 2007 to December 31, 2007
Net assets
Valuation and translation
Unitholders’ equity
adjustments
Unrealized
Total
loss onvaluation and
TotaldeferredUnitholders’
Retained
unitholders’translation
hedge
capitalearnings
adjustments
transactions
equity(Thousands of yen)Total
net assets

134,800¥67,641,920¥ 2,239,620¥69,881,540¥ (67,776)¥ (67,776)¥69,813,764

19,750––19,441,110–––(2,239,567)
2,420,739

19,441,110(2,239,567)
2,420,739

–
–
–

–
–
–

19,441,110(2,239,567)
2,420,739–
19,750154,550–
19,441,110¥87,083,030–
181,172¥ 2,420,792–
19,622,282¥89,503,822(143,478)(143,478)¥(211,254)(143,478)(143,478)¥(211,254)(143,478)
19,478,804¥89,292,568

Number ofunits in issue
Balance as of June 30, 2007
Changes during the fiscal period:
Issuance of new units
Distributions from retained earnings
Net income
Changes in unrealized loss ondeferred hedge transactions
Total changes during the fiscal period
Balance as of December 31, 2007

Total
net assets

134,800

Number ofunits in issue
Balance as of June 30, 2007
Changes during the fiscal period:
Issuance of new units
Distributions from retained earnings
Net income
Changes in unrealized loss ondeferred hedge transactions
Total changes during the fiscal period
Balance as of December 31, 2007

For the period from January 1, 2007 to June 30, 2007
Net assets
Valuation and translation
Unitholders’ equity
adjustments
Unrealized
Total
loss onvaluation and
TotaldeferredUnitholders’
Retained
unitholders’translation
hedge
capitalearnings
adjustments
transactions
equity(Thousands of yen)

For the period from July 1, 2007 to December 31, 2007
Net assets
Valuation and translation
Unitholders’ equity
adjustments
Unrealized
Total
loss onTotalvaluation anddeferredUnitholders’
Retainedtranslation
hedge
unitholders’adjustments
capitalearnings
equitytransactions(U.S. dollars) (Note 2)

Total
net assets

134,800$592,570,477$ 19,619,980$612,190,457$ (593,748)$ (593,748)$611,596,709

19,750––170,311,958–––(19,619,512)
21,206,653

170,311,958(19,619,512)
21,206,653

–
–
–

–
–
–

170,311,958(19,619,512)
21,206,653–
19,750154,550–
170,311,958$762,882,435–
1,587,141$ 21,207,121–
171,899,099$784,089,556(1,256,926)(1,256,926)$(1,850,674)(1,256,926)(1,256,926)$(1,850,674)(1,256,926)
170,642,173$782,238,882

For the period
from July 1,
2007 toDecember 31,
2007(U.S. dollars)(Note 2)

¥ 2,421,819
894,032
40,747(13,885)533,711(188,259)(150,442)(9,771)
246,623(3,884)
10,544(62,861)(61,728)
3,656,646
13,885(454,211)(3,059)3,213,261¥ 2,240,529
674,428
30,126(7,975)361,110(162,175)
1,246,506(55,059)
82,743
31,107(1,333)
18,839(14,842)4,444,004
9,186(356,787)(2,677)
4,093,726$ 21,216,116
7,832,081
356,962(121,643)
4,675,529(1,649,226)(1,317,934)(85,594)
2,160,517(34,031)
92,365(550,684)(540,762)
32,033,696
121,642(3,979,076)(26,799)
28,149,463(14,752)(50,274,542)
–
–
7,453
(57,275)(10,963)(41,687,477)
(8)
(108)
33,452(3,872)(129,236)(440,425,244)––
65,291(501,754)

2,054,486(698,629)(48,983,259)

3,002,228(471,393)(39,138,141)

17,998,122(6,120,269)(429,113,090)

Cash flows from financing activities
Proceeds from short-term loans
Repayment for short-term loans
Proceeds from long-term debt
Issuance of new units
Payments for new unit issuance costs
Payments for initial public offering expenses
Distributions to unitholders
Net cash provided by financing activities

49,000,000(39,100,000)
18,000,000
19,441,110(65,687)–(2,238,229)
45,037,194

53,100,000(14,000,000)––(1,197)(161)(1,854,394)
37,244,248

429,259,746(342,531,756)
157,687,253
170,311,958(575,440)–(19,607,791)
394,543,970

Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period(732,804)
15,319,710¥ 14,586,906

2,199,833
13,119,877¥ 15,319,710(6,419,657)
134,206,834$ 127,787,177

Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Amortization of new unit issuance costs
Interest income
Interest expense
Increase in rental receivables(Increase) decrease in consumption taxes refundable
Increase in prepaid expenses
Increase in accounts payable – trade(Decrease) increase in accounts payable – other
Increase (decrease) in advances received(Increase) decrease in long-term prepaid expenses
Other, net
SubtotalInterest received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities
Purchases of property and equipment
Purchases of property and equipment for trust accounts
Purchases of intangible assets
Purchases of intangible assets for trust accounts
Proceeds from security deposits from tenants
Payments for security deposits to tenants
Proceeds from security deposits from tenants for trust
accounts
Payments for security deposits to tenants for trust accounts
Net cash used in investing activities

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

The accompanying notes are an integral part of these financial statements.
58

For the period
For the period
from July 1,
from January 1,
2007 to2007 toDecember 31,
June 30,
2007
2007(Thousands of yen)

459

Japan Excellent, Inc.
Notes to Financial Statements
For the periods from July 1, 2007 to December 31, 2007
and from January 1, 2007 to June 30, 2007

1.

Organization

Japan Excellent, Inc. (hereinafter, “JEI”), established on February 20, 2006 under the Law
Concerning Investment Trusts and Investment Corporations of Japan (the “Investment TrustLaw”), is a real estate investment corporation which primarily invests in office buildings.
JEI is externally managed by a licensed asset management company, Japan Excellent AssetManagement (“JEAM”). JEAM is owned 40% by Kowa Real Estate Co., Ltd., 20% by
The Dai-ichi Mutual Life Insurance Company, 15% by Sekisui House, Ltd. and 25% byother corporations.
JEI was listed on the Tokyo Stock Exchange on June 27, 2006. As of December 31, 2007,
JEI held 20 properties with 234,007 square meters of total leasable space and had leases
with 132 tenants excluding residential tenants.

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 riskof price fluctuation and with an original maturity of three months or less.
Investments in securities
Non-marketable securities classified as other securities are carried at cost.
securities sold is determined by the moving average method.

Cost of

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

2 – 59 years
4 – 59 years
7 – 16 years
4 – 10 years

Amortization of trademark rights is computed using the straight-line method over a periodof 10 years.
2.

Basis of Presentation
Unit issuance costs

JEI maintains its accounting records and prepares its financial statements in accordancewith accounting principles generally accepted in Japan (“Japanese GAAP”), including
provisions set forth in the Investment Trust Law, the Corporation Law of Japan, theFinancial Instruments and Exchange Law of Japan, the Securities and Exchange Law ofJapan and related regulations, which are different in certain respects as to the applicationand disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements are a translation of the financial statements of JEI
which were prepared in accordance with Japanese GAAP and presented in the securities
report of JEI filed with the Kanto Local Finance Bureau. In preparing the accompanying
financial statements, certain reclassifications and modifications have been made for theconvenience of readers outside Japan. In addition, the notes to the financial statements
include information that might not be required under Japanese GAAP but is presented
herein as additional information. Amounts have been rounded to the nearest thousand yen
in the accompanying financial statements and in the notes thereto whereas amounts weretruncated in the Japanese financial statements prepared in accordance with Japanese GAAP.
Amounts in U.S. dollars are included solely for the convenience of readers outside Japan.
The rate of ¥114.15 = U.S.$1.00, the foreign exchange rate prevailing on December 31,
2007, has been used for translation. The inclusion of such amounts is not intended to
imply that Japanese yen have been or could be readily converted, realized or settled into
U.S. dollars at that or any other rate.

60

New unit issuance costs are charged to income as incurred.
Income taxes
Income taxes are accounted for on the basis of taxable income for financial statement
purposes. The asset and liability method is used to recognize deferred tax assets andliabilities 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.
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 11).
JEI capitalized the property-related taxes allocated to the sellers of properties to JEI at thetime of acquisition of such properties including trust accounts. The capitalized amounts
for the periods from July 1, 2007 to December 31, 2007 and from January 1, 2007 to June30, 2007 were ¥35,951 thousand and ¥193,439 thousand, respectively.

61

3.

Summary of Significant Accounting Policies (continued)

5.

Investment in Securities (continued)
As of December 31, 2007

Revenue recognition
Rental revenues are generally recognized on an accrual basis over the life of each lease.
Name

Numberof shares

Unlisted stock
NHK Nagoya Build
Systems Co., Ltd.
Total

64
64

Derivatives and hedge accounting
JEI utilizes interest-rate swap agreements as derivative financial instruments solely for the
purpose of hedging its exposure to fluctuation in interest rates. JEI has entered into
certain interest-rate swap contracts to hedge variable rates for its long-term debt
obligations.
JEI deferred recognition of gains or losses resulting from changes in the fair value ofinterest-rate swap agreements because its interest-rate agreements met the criteria fordeferred hedge accounting.

Acquisition cost
Unit
Total
Total
price
price
price
(Thousands of yen)(U.S.
dollars)

Book value
Unit
Total
price
price
(Thousands of yen)

Gain or loss on
valuation
Total
Total
Total
price
price
price
(U.S. (Thousands (U.S.
dollars)of yen)dollars)

¥168
¥168

¥168
¥168

$94,332$94,332

All assets and liabilities held in trust, for which real estate in possession of JEI was
entrusted, and all earnings and expenses resulting from such trust are properly reflected in
the accompanying balance sheets and statements of income and retained earnings,
respectively.

Unlisted stock
NHK Nagoya Build
Systems Co., Ltd.
Total

64
64

4.

6. Property and Equipment

¥168
¥168

¥10,768¥10,768¥168¥168

Cash and cash deposits
Cash in trust and deposits in trust
Cash and cash equivalents
5.

As of
December 31,
2007(U.S. dollars)¥ 2,440,880
12,146,026¥14,586,906$ 21,383,091
106,404,086$127,787,177¥ 5,223,560
10,096,150¥15,319,710

Investment in Securities

Investment in securities at December 31, 2007 and June 30, 2007 consisted of the follows:
As of
As of
December 31,
June 30,
2007
2007(Thousands of yen)
Unlisted stock62¥10,768¥10,768

As of
December 31,
2007(U.S. dollars)

¥–
¥–

$–
$–

Gain orloss onvaluation
Total
price

¥10,768¥10,768¥–¥–

Property and equipment at December 31, 2007 and June 30, 2007 consisted of thefollowing:
As of June 30, 2007

As of December 31, 2007

As of
As of
December 31,
June 30,
2007
2007(Thousands of yen)

¥10,768¥10,768

Book value
Acquisition cost
Unit
Total
Unit
Total
price
price
price
price
(Thousands of yen)

Name

Properties in trust accounts

Cash and cash equivalents including trust accounts in the accompanying balance sheets andcash and cash equivalents in the accompanying statements of cash flows at December 31,
2007 and June 30, 2007 consisted of the following:$94,332$94,332

As of June 30, 2007

Numberof shares

Cash and Cash Equivalents¥10,768¥10,768

Acquisition
cost

Accumulated
depreciation

Netbook value

Acquisition
cost

Accumulated
depreciation

As of December 31, 2007
Net
book value

Acquisition
cost(Thousands of yen)
Buildings and building
improvements¥ 3,219,074
Buildings and building
improvements fortrust accounts
65,049,362
Machinery andequipment for trust
accounts
382,373
Furniture and fixtures
for trust accounts
6,593
Land for trust accounts 114,300,604
Construction inprogress
126
Construction inprogress for trust
accounts
210
Total¥182,958,342

Accumulated
depreciation

Netbook value(U.S. dollars)¥ (115,854)¥ 3,103,220¥ 3,204,845(2,046,300)

63,003,062(37,142)¥(79,365)¥ 3,125,480

47,625,937(1,201,899)

345,232

380,957

(757)
–

5,835
114,300,604

–

126

$

28,200,384$ (1,014,926)$

27,185,458

46,424,038

569,858,629(17,926,414)

551,932,215(24,450)

356,5073,349,747(325,375)

3,024,372

4,771
81,393,329

(339)
–

4,432
81,393,329

57,7541,001,319,353(6,635)–

51,1191,001,319,353

126

–

126

1,103

–

1,103

–

210

210

–

210

1,840

–

1,840

¥(2,200,053)¥180,758,289¥132,610,175¥(1,306,053)¥131,304,122$1,602,788,810$(19,273,350)$1,583,515,460$94,33263

7.

Short-Term Loans and Long-Term Debt

9.

Short-term loans and long-term debt as of December 31, 2007 and June 30, 2007 consistedof the following:
As of December 31, 2007
WeightedaverageAmountinterest rate
(Thousands ofyen)
Short-term loans:
Unsecured loans frombanks due on July 31,
2007
Unsecured loans frombanks due on October24, 2008
Subtotal¥–
49,000,000
49,000,000

Long-term debt:
Unsecured loans frombanks due on June 29,
2009
13,000,000
Unsecured loans frombanks due on June 29,
2010
13,000,000
Unsecured loans frombanks due on June 29,
2011
9,500,000
Unsecured loans froman insurancecompany due on June29, 2011
3,000,000
Unsecured loans frombanks due on July 31,
2012
7,000,000
Unsecured loans frombanks and insurancecompanies due on
July 31, 2012
7,000,000
Unsecured loans froman insurancecompany due on July
31, 2014
2,000,000
Unsecured loans froma bank due on July
31, 2014
2,000,000
Subtotal
56,500,000
Total¥105,500,000

8.

–

As of June 30, 2007
WeightedaverageAmountinterest rate
(Thousands ofyen)¥39,100,000

0.87250%–

As of
December 31,
2007
Amount(U.S. dollars)

Net assets per unit were ¥577,758 as of December 31, 2007 and ¥517,906 as of June 30,
2007. Net income per unit was ¥15,784 for the period from July 1, 2007 to December 31,
2007 and ¥16,614 for the period from January 1, 2007 to June 30, 2007 and was computed
based on the weighted-average number of units outstanding during the respective periods.
10. Income Taxes
JEI is subject to income taxes in Japan.

$–

1.04667%–
39,100,000

1.43420%

13,000,000

1.35712%

113,885,239

1.58785%

13,000,000

1.51077%

113,885,239

1.59975%

9,500,000

1.49832%

83,223,827

1.96625%

3,000,000

1.96625%

26,281,209

1.20000%––

61,322,821

1.96907%––

61,322,821

429,259,746
429,259,746

2.25875%––

17,520,806

2.28417%–
38,500,000¥77,600,000–

17,520,806
494,962,768$924,222,514

Net Assets

JEI issues only non-par value investment units in accordance with the Investment TrustLaw.
JEI is required to maintain net assets of at least ¥50 million in accordance with theInvestment Trust Law.

64

Per Unit Information

JEI’s policy is to make dividend distributions in excess of 90% of taxable income for eachfiscal period in order to meet the condition set forth in the Special Taxation Measures Law
of Japan concerning the deductibility of cash dividends paid for income tax purposes.
Details of significant components of deferred tax assets as of December 31, 2007 and June30, 2007 are summarized as follows:
As of
As of
December 31,
June 30,
2007
2007(Thousands of yen)
Deferred tax assets:
Accrued enterprise taxes
Unrealized loss on deferredhedge transactions
Gross deferred tax assets
Valuation reserve
Total deferred tax assets
Net deferred tax assets¥

24

83,213
83,237(83,213)
24
¥
24

¥

18

26,697
26,715(26,697)
18
¥
18

As of
December 31,
2007(U.S. dollars)$

210

728,981
729,191(728,981)
210
$
210

A reconciliation of the differences between the statutory tax rate and the effective tax rate
for the period from July 1, 2007 to December 31, 2007 and for the period from January 1,
2007 to June 30, 2007 is as follows:

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

For the period
from July 1,
2007 toDecember 31,
2007

For the period
from January 1,
2007 toJune 30,
2007

39.39%

39.39%(39.37)0.02
0.04%(39.38)
0.03
0.04%

65

11.

Rental business revenues:
Rental revenues
Other
Property operating expenses:
Property management costs
and fees
Utilities
Property and other taxes
Insurance
Repairs and maintenance
Depreciation
Other
Profit12.

13. Derivatives and Hedge Accounting

Breakdown of Property Rental Business Revenues and Expenses
For the period For the period
from January 1,
from July 1,
2007 to2007 toJune 30,
December 31,
2007
2007
(Thousands of yen)

For the period
from July 1,
2007 toDecember 31,
2007(U.S. dollars)¥6,982,335
6,335,265
647,070
3,437,912¥5,505,816
5,069,179
436,637
2,409,279$61,168,064
55,499,467
5,668,597
30,117,492

1,083,074
613,617330,655
22,082363,094
894,000
131,390¥3,544,423

859,980452,266
174,558
19,063
124,121674,396
104,895¥3,096,537

9,488,169
5,375,529
2,896,670
193,448
3,180,847
7,831,802
1,151,027$31,050,572

The following table summarizes the notional amounts and the estimated fair value of theinterest-related positions outstanding as of December 31, 2007:
Estimated
Notional
fair value
amount(negative)(Thousands of yen)Interest-rate swap:
Receive/floating and pay/fixed¥16,250,000¥(211,254)

Estimated
Notional
fair value
amount(negative)(U.S. dollars)$142,356,548$(1,850,674)

14. Related Party Transactions
For the period from July 1, 2007 to December 31, 2007

LeasesJEI leases properties on which rental revenues are earned. At December 31, 2007 andJune 30, 2007, future lease revenues under non-cancelable operating leases are summarized
as follows:

Due within one year
Due after one year
Total

JEI has entered into certain interest-rate swap contracts with several Japanese financial
institutions to hedge its variable rate long-term debt obligations. JEI utilizes interest-rate
swap contracts, which are derivative financial instruments, only for the purpose of
mitigating future risk arising from fluctuation in interest rates, and does not enter into suchtransactions for speculative or trading purposes. JEI entered into such derivativetransactions to hedge risk in accordance with its Articles of Incorporation and theestablished risk management policies of JEAM.

For the period For the period
from July 1,
from January 1,
2007 to2007 toDecember 31,
June 30,
2007
2007(Thousands of yen)

For the period
from July 1,
2007 toDecember 31,
2007(U.S. dollars)¥ 864,339
2,109,868¥2,974,207$ 7,571,962
18,483,294$26,055,256¥1,050,491
2,875,559¥3,926,050(1) Major unitholders
Not applicable.
(2) Directors and major individual unitholders

Name

Description oftransaction

Amount(Thousands ofyen)

Amount(U.S.
dollars)

Account

Junichi Tamura

Payment of asset
management
fees to JEAM

¥369,975$3,241,128

Accounts
payableBalance at the Balance at theend of period end of period(Thousands of
(U.S.
yen)
dollars)¥229,765$2,012,835

For the period from January 1, 2007 to June 30, 2007
(1) Major unitholders
Company
nameDescription of transaction
Acquisition of real estate

Kowa Real
Property leasing
Estate Co., Ltd.
Payment of property
management costs and fees

66

Amount(Thousands of yen)
¥4,238,000¥1,399,789¥ 245,054

Account–
Advance received
Security deposit
Accounts payable –trade

Balance at the endof period(Thousands of yen)–¥801
¥1,985,940¥

67,53967

Website

14. Related Party Transactions (continued)(2) Directors and major individual unitholders
Name

Description of transaction

Payment of asset
Junichi Tamura
management fees to JEAM

Amount(Thousands of yen)Account¥328,491

Accounts payable

Balance at the endof period(Thousands of yen)
¥216,850

Japan Excellent, Inc. (JEI) is committed to disclosing information in a timely manner. Our website is thebest vehicle to do this, where information is provided through web releases, presentation documents,
and the like.
The URL for the English website is http://www.excellent-reit.co.jp/eng/,with disclosure documents at http://www.excellent-reit.co.jp/eng/cms/disclosure.html
and the portfolio covered at http://www.excellent-reit.co.jp/eng/portfolio/portfolio_01.html.

15. Significant Subsequent Event
Cash distribution
In accordance with Section 33.1.2 of the bylaws set forth by JEI for distributions of cash
dividends, the amount of dividends payable is limited by the amount of income and isequivalent to an amount exceeding 90% of income available for distributions of dividendsof JEI as set forth in Section 67.15 of the Special Taxation Measures Law. Consequently,
JEI set income available for distributions of dividends at ¥2,420,716,650 ($21,206,453), themaximum integral multiple of the 154,550 units issued not exceeding unappropriatedincome at December 31, 2007. No cash distribution exceeding the income amount set
forth in Section 33.1.4 of the bylaws of JEI shall be made.
On February 18, 2008, the Board of Directors approved a resolution to make a cash
distribution of ¥15,663 ($137) per unit aggregating to ¥2,420,716,650 ($21,206,453) tounitholders of record as of December 31, 2007.

Information for Investors
The annual IR schedule is
as follows.

June: Closing of accounts
August: Announcement ofMarch: Payment of
the distributions for the period
ending in December

February: Announcementof the accounts for the period
ending in December

December: Closing of accounts

68

Informationis regularly
disclosed on
the website

the accounts for the period
ending in June

September: Payment of
the distributions for the period
ending in June