SEMI-ANNUAL REPORTFor the 6th Period
from January 1, 2009 to June 30, 2009

Putting Our Advantages to Work

Profile

Putting Our Advantages

Japan Excellent, Inc. (JEI) listed its units in
the real estate investment trust market of theTokyo Stock Exchange on June 27, 2006, andinitiated operations on the same date. Since
then, JEI has used the support of its group ofsponsors, which are leading companies in realestate and finance, to invest mainly in officebuildings in major urban areas, primarily Tokyo.
Over the medium-to-long term, JEI will manage
its portfolio with the fundamental policies ofachieving steady asset expansion and stablerevenue growth.

to Work
Contents
JEI Snapshot .................................................................

2

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

4

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

6

Putting Our Advantages to Work
Stable Portfolio ........................................................

8

External Growth Based on Accurate Market Evaluation .... 10
Sound Financial Strategies....................................... 11
Investment Strategy ....................................................... 12
Portfolio Map ................................................................. 13
Portfolio ......................................................................... 14
Main Properties.............................................................. 16
Management.................................................................. 20
Performance Report....................................................... 22
Financial Statements...................................................... 29
Investor Information ....................................................... 44

AKASAKA INTERCITY

Japan Excellent, Inc. 1

JEI Snapshot

Basic Strategies

Deploy the Comprehensive Strengthsof Our Corporate Sponsors
JEI’s sponsors are strong in both real estate andfinance. Kowa Real Estate Co., Ltd., The Dai-ichi MutualLife Insurance Company and Sekisui House, Ltd. haveJapan Excellent, Inc.

developed numerous office buildings and are experienced
in the leasing and management of properties. These
companies supply properties, human resources andexpertise to JEI. Our sponsors from the financial industry

Property market

Financial market

include Mizuho Corporate Bank, Ltd. and Mizuho Trust andBanking Co., Ltd. They are part of the Mizuho Financial
Group, which is one of Japan’s three mega banking groups.
We use the comprehensive strengths of our sponsors tosteadily manage operations.

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

2 Japan Excellent, Inc.

Total leasable floor space

Portfolio
Portfolio

18

220,521.66m

2

properties

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

Generates stable revenues.

Occupancy rate

Acquisition price

181.0

billion yen

Steady portfolio expansion over the
3 years since JEI listed on the Tokyo
Stock Exchange.

ProfitabilityP
rof itability

Financial
Financial
SStability
tability

126

98.5

tenants

Tenant leasing risk is well dispersed.

Stable at an extremely high level.

Distribution per unit

NOI yield

15,802

5.4

yen

％

％

JEI has maintained stable distributions
since listing its investment units.

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

Ratings

LTV ratio

A3,AA- 48.9％(Moody’s/R&I)

JEI maintains ratings from international
rating agencies to provide high levels oftransparency.

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

Japan Excellent, Inc. 3

Financial Highlights

6th Period

5th Period

4th Period

6th Period

January 1, 2009 toJune 30, 2009

July 1, 2008 to
December 31, 2008

January 1, 2008 toJune 30, 2008

January 1, 2009 toJune 30, 2009

Millions of yen, except per unit dataor where otherwise indicatedThousands of U.S. dollars(Note 1)

Total revenues (Note 2) ..................................
Operating income ..........................................
Net income.....................................................

7,544
3,278
2,442

8,501
4,000
3,155

7,840
3,432
2,661

78,57434,14525,434

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

3,432
4,814
2,442

3,296
4,732
3,155

3,703
5,033
2,661

35,75150,14425,434

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

195,145
95,50089,36348.9%

195,929
95,50090,01948.7%

206,079
105,500
89,65551.2%

2,032,344
994,584
930,672

154,550
578,215
15,802

154,550
582,458
20,418

154,550
580,107
17,2186,022
165

22,211

21,331

23,963231

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

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥96.02 = U.S.$1.00, the approximate exchange rate on June 30, 2009.
2. Total revenues do not include consumption taxes.
3. Funds from operations: Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization
Net operating income: (Rental business revenues - Property operating expenses) + Depreciation and amortization
Loan to value ratio: Interest-bearing debt / Total assets
Funds from operations per unit: (Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation
and amortization) / Weighted average number of common units issued and outstanding during the period

Portfolio Highlights
As of June 30, 2009

Investment Areas (Acquisition price basis)

By Property Size (Acquisition price basis)

Tokyo metropolitan area
percentage

AreaⅢ
42.3%

94%

Medium-sizedbuildings
21.4%
Large buildings
78.6%

AreaⅡ
6.1%

AreaⅠ
51.6%

Note: Area Ⅰ: Six central wards of Tokyo
Area Ⅱ: Central Osaka, central Nagoya and central Fukuoka
Area Ⅲ: Tokyo other than AreaⅠ, and its vicinity
For details see page 12.

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

4 Japan Excellent, Inc.

For details see page 12.

Total Revenues / Net Income

Funds from Operations

Net Operating Income (NOI)(Millions of yen)

(Millions of yen)

(Millions of yen)

2nd

2nd

2nd

periodperiodperiod

3rd

3rd

3rd

periodperiodperiod

4th

4th

4th

periodperiodperiod

5th

5th

5th

periodperiodperiod

6th

6th

6th

periodperiodperiod

0

2,000

4,000

6,000

8,000

10,000

0

800

1,600

2,400

3,200

0 1,000 2,000 3,000 4,000 5,000

4,000

6,000

Total revenues
Net income

Net Assets

LTV (Loan to Value)

Distribution per Unit

(Millions of yen)

(%)

2nd

2nd

(Yen)

2nd

periodperiodperiod

3rd

3rd

3rd

periodperiodperiod

4th

4th

4th

periodperiodperiod

5th

5th

5th

periodperiodperiod

6th

6th

6th

periodperiodperiod0

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

0

10.0

20.0

30.0

40.0

50.0

60.0

0

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

Major Tenants
Name

Property

Leased Space(m2)

Percentage ofTotal Leased Area

Toshiba Information Systems (Japan)
Corporation

Kowa Kawasaki Higashiguchi Building

18,612.72

8.6

National Mutual Insurance Federationof Agricultural Cooperatives

Kowa Kawasaki Nishiguchi Building

18,206.18

8.4

Roche Diagnostics K.K.

Shiba 2-Chome Building

9,284.18

4.3

Fujitsu Social Science Laboratory Ltd.

Musashikosugi Tower Place

8,680.74

4.0

Fujitsu Network Solutions Ltd.

Kawasaki Nisshincho Building

7,259.45

3.3

Note: Major tenants are the portfolio’s top five tenants in terms of total leased floor space. If a tenant leases space in multiple properties held by the investment
corporation, floor space in such properties is included in the tenant’s total leased floor space.

Japan Excellent, Inc. 5

To Our Unitholders

In a challenging environment,
we achieved growth in real terms.

6 Japan Excellent, Inc.

During the sixth period, the six months ended June30, 2009, the office building leasing market remained
particularly challenging as a result of deteriorating
corporate performance following the global economic
slowdown, with an increase in the vacancy rate andsoftening office rents throughout Japan.
In this environment, total revenues of Japan Excellent,
Inc. (JEI) for the six months ended June 30, 2009
decreased 11.3 percent, or ¥957 million, compared withthe previous period to ¥7,544 million. Operating income
decreased 18.1 percent, or ¥722 million, to ¥3,278
million. Net income decreased 22.6 percent, or ¥713
million, to ¥2,442 million. Distribution per unit decreased¥4,616 to ¥15,802. However, these decreases were theresult of the sale of two properties during the previous
period. Excluding this factor, JEI’s portfolio of 18
properties as of June 30, 2009 generated real income
growth of ¥94 million and a ¥614 increase in real
distribution per unit.
In this challenging environment, we can take pride in
our ability to achieve growth in real terms.
The current operating environment for J-REITs
remains uncertain. We will continue to fully utilize thecomprehensive leverage of our sponsors with strengths inboth real estate and finance as we aim to achieve stable
growth and maximum investor value from a medium-tolong-term perspective.

Chifumi Toda
Executive Director, Japan Excellent, Inc.

Japan Excellent, Inc. 7

Putting Our Advantages to Work

Stable Portfolio
JEI aims for steady cash flow by further enhancing property management efficiency
based on stable rents that are unlikely to fall.

The global economic recession has resulted in a
sharp decline in exports and a drop in corporate
profits. In the office building leasing market, falling
occupancy rates and rents have become evident
throughout Japan as demand for office spacecontinues to recede due to corporate cost-cutting andincreasing pessimism about the economy and the realestate market.
In JEI’s main investment area of Tokyo and its
vicinity, rents for newly constructed buildings and highend properties in central Tokyo generally dropped, also
affecting low-to-mid-end properties in greater Tokyo tosome degree. In addition, the occupancy rate was

Average Asking Rents in Central Tokyo*

Opportunity for Rent Increases (As of June 30, 2009)(Yen per tsubo)

40,00035,000Rent more than 3%
higher thanthe market

30,00033.0%

Rent more than 3%
lower thanthe market
58.1%

25,00020,000Same asthe market

15,0008.9%

06/2006

12/2006

6/2007

12/20076/2008

12/2008

Average Asking Rent for New Buildings
Average Asking Rent for Existing Buildings
Total Average Asking Rent

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

8 Japan Excellent, Inc.

6/2009Contracts withroom for growth

58.1%

directly impacted by the economic slowdown,

quality and leasing properties with vacant space. We

deteriorating to the same level as in 2003 when it fell

successfully raised the occupancy rate of the JEI

significantly due to an oversupply of office space.

Nishi-Honmachi Building, which had dropped due toIn this environment, JEI achieved a 3.5 percent
increase in average rent and a ¥61 million increase inrenovation, to 96.1 percent.
Moreover, we are aggressively enhancing property

rental income during its sixth period based on its

management functions and services to raise tenant

portfolio of 18 properties as of June 30, 2009. We

satisfaction while working to reduce building operating

improved the occupancy rate by 3.3 percentage points

expenses. In particular, we maintained managementcompared with the end of the previous term to 98.5

quality and reduced property management costs forpercent, an extremely high level.

the JEI Nishi-Honmachi Building from April 2009 by

In implementing rent increases, our basic policy is

introducing a group management system. At the NHK

to build good, long-term relationships with tenants,

Nagoya Housou-Center Building, we contracted with aand we have entered into leases with reasonable rent

new property management company in July, further

levels when market rents were rising. As a result,improving the property management level andduring the recent downward phase in office building

reducing property management costs.

rents, we have still had leeway to adjust rents upward,

While the office building leasing market remains

and have secured agreements on rent increases bychallenging, we will aim for steady cash flow by further

utilizing these good tenant relationships.

enhancing maintenance efficiency based on our

In addition, we maintained the tenant departure

current rent levels, which are unlikely to fall.

rate at an extremely low level of less than 1.7 percent
by focusing on enhancing property management

Occupancy Rate in Central Tokyo,
Central Osaka and Central Nagoya

Occupancy Rate for JEI Properties

(%)

100

100

(%)

Central Tokyo
Central Osaka
Central Nagoya

90
Transfer of
Sendai Kowa Building

95
80
90
70
85
60
0

8/2008
10/2008
12/20082/20094/20096/20097/20089/2008
11/2008
1/20093/20095/2009Central Tokyo: Chiyoda, Chuo, Minato, Shinjuku and Shibuya
Central Osaka: Umeda, Minami-Morimachi, Yodoyabashi / Honcho, Senba,
Shinsaibashi / Namba, and Shin-Osaka
Central Nagoya: Meieki, Fushimi, Sakae and Marunouchi
Source: Miki Shoji Co., Ltd.

08/2008
10/2008
12/20082/20094/20096/20097/20089/2008
11/2008
1/20093/20095/2009Portfolio total

AreaⅠ

AreaⅡ

AreaⅢ

AreaⅣ

Note: For details see page 12.
Japan Excellent, Inc. 9

External Growth Based on
Accurate Market Evaluation
JEI’s medium-term objective is a portfolio

Under these conditions, we will actively pursue

on the order of ¥300 billion throughinvestment opportunities at new properties

continued prudent investments and use ofcentered on Tokyo and its vicinity by closely

its powerful network.

monitoring financial and capital trends while
carrying out detailed consideration that emphasizes
property competitiveness and profitability.
In finding opportunities to acquire properties,

In the real estate investment market for office

we will continue to fully utilize the comprehensive

buildings, transactions are declining, the cap rate isleverage of our sponsors with their experience inrising and sales prices remain low due toreal estate and finance, and our information network.

conservative investment and lending by JapaneseIn this way, we will work to soundly and steadily

and overseas investors and banks since theexpand the scale of our portfolio toward ouraftereffects of the bankruptcy of Lehman Brothers

medium-term target of ¥300 billion on an

in fall 2008.

acquisition price basis.

Asset Growth (Acquisition Price Basis)

Investment Areas (Acquisition Price Basis) (As of June 30, 2009)¥ 300 billion(Billions of yen)

300

AreaⅢ
42.3%

250

AreaⅠ
51.6%

200
150

Tokyo metropolitan
area percentage

100

AreaⅡ
6.1%

50
0

12/2006

AreaⅠ

6/2007

AreaⅡ

12/20076/2008AreaⅢ

12/2008

AreaⅣ

6/2009Mid-term
targetMid-term target

Average age of buildings: 15.2 years
Occupancy rate:

Note: For details see page 12.

10 Japan Excellent, Inc.

94%

98.5%

Putting Our Advantages to WorkSound Financial Strategies
In this challenging environment for financing,

relationships with financial institutions based on our

JEI will smoothly refinance its debt based on its

sound financial operation.

sound financial position, which it will focus on

As a result, we maintained solid finances. The
loan-to-value (LTV) ratio as of June 30, 2009 was 48.9

further reinforcing.

percent, and the ratio of long-term debt (including longterm debt due within one year) to total interest-bearing
The changes in global financial conditions thatdebt was 87.4 percent. The ratio of long-term, fixed-

occurred in 2008 continue to challenge investment

rate debt to total interest-bearing debt (minus long-termin the real estate sector by financial institutions. The

debt due within one year) was 42.8 percent, and thecredit crunch has begun to ease for a number ofweighted-average interest rate was 1.46 percent.

reasons, including a public-private fund created in

JEI will continue to strengthen ties with

September 2009 as a safety net that will allow

financial institutions including its sponsor

J-REITs to refinance. However, J-REITs continue tocompanies Mizuho Corporate Bank, Ltd. andface a challenging environment for financing.

The Dai-ichi Mutual Life Insurance Company.

Under these conditions, a total of ¥25 billion in

We will work to increase the ratio of long-term

debt came due in the sixth period, but we smoothly

debt and diversify maturities as we focus on

implemented refinancing by maintaining goodbuilding a stable financial foundation.

Balance of Interest-Bearing Debt
As of December 31, 2008

As of June 30, 2009

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

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

Interest-Bearing
Debt

¥95.5

Interest-Bearing
Debt

Balance by Repayment Date and
Average Interest Rate
(Billions of yen)
45

30

¥95.5

billionLong-term,
fixed-rate¥45.75 billion(47.9%)
Long-term, floating-rate¥37.75 billion(39.5%)

Long-term,billionfixed-rate¥35.75 billion(37.4%)
Long-term, floating-rate¥47.75 billion(50.0%)

Ratio of long-term debt:
87.4%
Ratio of long-term, fixed-rate debt: 54.8%
LTV ratio:
48.7%

Ratio of long-term debt:
87.4%
Ratio of long-term, fixed-rate debt: 42.8%
LTV ratio:
48.9%

15

0

2009

2010

Long-term debt
Short-term debt

2011

2012

2013

2014

Average remaining debt term:
Average interest rate:

2015

2.35 years
1.46%(Included in the above, long-term: 1.52%)

Japan Excellent, Inc. 11

Investment Strategy

JEI has built a portfolio centered on office buildings in major
metropolitan areas that balances stable profitability and revenue growth.
JEI invests primarily in office buildings, and has set other usage at less than 10 percent of its portfolio. As ofJune 30, 2009, office buildings accounted for 100 percent of JEI’s portfolio. JEI invests in urban properties,
primarily in the central business districts of Tokyo, and is moving to further enhance the stability and profitabilityof its portfolio with a focus on strong tenant relationships, property scale and quality, and a balanced tenant mix.

Portfolio Composition Target by Usage
Usage*

Investment Ratio in Portfolio

Office buildings

90% or more

Others (commercial facilities, housing, etc.)

10% or less

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

Portfolio Composition Target by Area
Target Investment Areas

Investment Ratio in Portfolio

Core areas (80% or more)
Area I

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

50% or more of the core areas

Area Ⅱ

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

50% or less of the core areas

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

50% or less of the core areas

Area Ⅳ

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

20% or lessNon-core areas

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

Property Scale Balance

Tenant Mix Balance

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

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

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

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

12 Japan Excellent, Inc.

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

Ⅰ-1 〜 Ⅰ-8

¥93,409 millionTokyo

Ⅲ-1 〜 Ⅲ-9

Kanagawa
Prefecture¥76,641 million

Ⅲ-8¥6,470 million
Ebina City

Ⅱ-1

¥4,300 million

Ⅱ-2¥6,674 million

Nagoya City
Osaka City

¥23,300 million Ⅰ-7

Ⅲ-3¥5,400 million

Tokyo’s six central wards

Ⅲ-7¥2,550 million
Ⅰ-5 ¥4,000 million¥17,857 million Ⅰ-8

Ⅰ-3 ¥8,350 million¥5,040 million Ⅰ-4¥1,150 million Ⅲ-6

Ⅰ-2 ¥9,450 million¥2,859 million Ⅰ-6

Chiba
Prefecture

Kanagawa
Prefecture

within a

Ⅰ-1¥22,553 million

Ⅲ-1¥13,890 million

Japan Excellent properties

20km radius

Ⅲ-9¥32,000 millionof Tokyo’s six central wards.

Ⅲ-2¥10,976 million

Ⅲ-5 ¥3,905¥4,205 million

Area

Area I

Area Ⅱ

Area Ⅲ

Total acquisition price(Millions of yen)

93,40910,974

76,6418

2

8

No. of properties

Japan Excellent, Inc. 13

Portfolio

Property
NumberName

Investment
TypeYear Built

Acquisition Price1(Millions of yen)Book Value(Millions of yen)Appraisal Value(Millions of yen)

I-7

Akasaka Garden City

Trust

2006

23,30023,156

22,400I-1

Omori Bellport D

Trust

1996

22,55322,422

25,560

I-8

AKASAKA INTERCITY

Trust

2005

17,857

17,73814,400

I-2

Shiba 2-Chome Building

Trust

1994

9,450

9,340

11,600I-3

JEI Hamamatsucho Building

Trust

1991

8,350

8,307

9,570

I-4

No. 32 Kowa Building

Trust

1979

5,040

5,014

5,592

I-5

No. 36 Kowa Building

Trust

1982

4,000

4,033

4,228

I-6

No. 28 Kowa Building

Trust

1975

2,859

2,848

3,590

93,40992,85996,940Subtotal
Ⅱ-2

JEI Nishi-Honmachi Building

Ⅱ-1

NHK Nagoya Housou-Center Building

Trust

1988

6,674

7,665

4,930

Ownership

1991

4,300

4,217

5,210

10,974

11,882

10,140Subtotal
Ⅲ-9

Kowa Kawasaki Nishiguchi Building

Trust

1988

32,00031,651

29,700

Ⅲ-1

Musashikosugi Tower Place

Trust

1995

13,89013,51915,900

Ⅲ-2

Kowa Kawasaki Higashiguchi Building

Trust

1988

10,976

10,616

10,800

Ⅲ-8

Ebina Prime Tower

Trust

1995

6,470

6,515

5,480

Ⅲ-3

JEI Hongo Building

Trust

1991

5,400

5,301

5,170

Ⅲ-5

Kawasaki Nisshincho Building

Trust

1992

4,205

4,167

5,510

Ⅲ-7

JEI Ryogoku Building

Trust

1996

2,550

2,473

2,224

Ⅲ-6

No. 44 Kowa Building

Trust

1984

1,150

1,028

1,600

Subtotal

76,641

75,274

76,384

Total

181,023

180,016

183,464

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

14 Japan Excellent, Inc.

Total Floor Space2(m2)

Total Leasable
Floor Space(m2)

Total Leased
Space at End of Period(m2)

Occupancy Rate
at End of Period(%)

Revenue(Millions of yen)

NOI(Millions of yen)

Investment
Ratio3(%)

PML

46,776.76

8,769.53

8,769.53

100.0

591

436

12.9

8.6

155,778.75

25,828.29

25,828.29

100.0

1,090

705

12.5

8.0

73,061.33

5,622.98

5,622.98

100.0

365

265

9.9

9.2

19,518.15

11,749.30

11,559.68

98.4

370

279

5.2

8.2

8,327.53

6,411.26

6,411.26

100.0

315

234

4.6

8.2

10,110.96

5,299.67

4,845.72

91.4

242

181

2.8

13.2

8,266.55

5,720.34

5,720.34

100.0

—

127

2.2

13.2

6,282.23

4,472.71

4,472.71

100.0

169

117

1.6

13.5

328,122.26

73,874.08

73,230.51

99.1

—

2,348

51.6

—

15,800.31

10,601.70

10,187.80

96.1

166

59

3.7

11.5

80,809.95

8,964.88

8,719.56

97.3

326

173

2.4

11.9

96,610.26

19,566.58

18,907.36

96.6

—

232

6.1

—

61,856.92

38,332.15

37,430.61

97.6

1,140

651

17.7

7.9

53,711.13

25,275.07

25,275.07

100.0

809

521

7.7

11.5

31,009.62

18,612.72

18,612.72

100.0

—

359

6.1

6.7

55,806.20

25,362.37

24,403.50

96.2

548

250

3.6

12.2

5,877.11

4,078.37

4,078.37

100.0

176

134

3.0

14.2

22,141.60

8,980.70

8,980.70

100.0

233

179

2.3

14.7

5,820.56

3,871.64

3,721.68

96.1

116

76

1.4

14.3

3,359.55

2,567.98

2,567.98

100.0

95

60

0.6

13.4

239,582.69

127,081.00

125,070.63

98.4

—

2,234

42.3

—

664,315.21

220,521.66

217,208.50

98.5

7,544

4,814

100.0

6.6

Japan Excellent, Inc. 15

Main Properties

Ⅰ-2
Shiba 2-Chome Building

Ⅰ-1
Omori Bellport D

Ⅰ-3

Ⅰ-4
JEI Hamamatsucho
Building

16 Japan Excellent, Inc.

No. 32 Kowa
Building

Ⅰ-7

Ⅰ-7
Akasaka Garden City

Ⅰ-8
AKASAKA INTERCITY

Ⅰ-5

Ⅰ-6
No. 36 Kowa
Building

No. 28 Kowa
Building
Japan Excellent, Inc. 17

Ⅱ-2
JEI Nishi-Honmachi
Building

Ⅱ-1
NHK Nagoya
Housou-Center Building

Ⅲ-6
No. 44 Kowa
Building

Ⅲ-5

Ⅲ-7
KawasakiNisshincho Building

18 Japan Excellent, Inc.

JEI Ryogoku
Building

Main Properties

Ⅲ-2
Kowa Kawasaki
Higashiguchi
Building

Ⅲ-1

Ⅲ-3
Musashikosugi
Tower PlaceJEI Hongo
Building

Ⅲ-9
Ⅲ-8
Ebina Prime Tower

Kowa Kawasaki
Nishiguchi Building

Japan Excellent, Inc. 19

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

Organization
Sponsor Companies Providing
Pipeline Support

Administrative Agent
Asset Custodian

Japan Excellent, Inc.

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

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

Mizuho Trust & Banking Co., Ltd.

Transfer Agent
Board of Directors
1

3

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

Think Tanks

5

Mizuho Trust & Banking Co., Ltd.

Accounting Auditor

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

1 Asset management agreement
2 (A) Pipeline support agreement with Kowa Real Estate (B) Pipeline support agreement with Sekisui House(C) Pipeline support agreement with Mizuho Trust & Banking
3 (A) Agreement with Mizuho Research Institute for provision of market and other relevant information(B) Agreement with Urban Research Institute for provision of market and other relevant information
4 Agreement to entrust administrative duties and asset custody
5 Agreement to entrust administration of unitholders’ register

Japan Excellent, Inc. Management Team
Chifumi Toda

Executive Director

February 1998
September 2000
July 2004
March 2009
November 2009

Makoto Sakagami

Supervisory Director

December 1990
July 2000
February 2006

Tsuyoshi Nagahama

Supervisory Director

April 1961

20 Japan Excellent, Inc.

Supervisory Director

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

February 2006

Entered the Ministry of Transport (currently Ministry of Land,
Infrastructure, Transport and Tourism)
Partner, Attorney at law, Anderson Mori and Rabinowitz (currently
Anderson Mori & Tomotsune)
Supervisory Director, Japan Excellent, Inc. (current)

April 1978
April 1999
November 2007
April 2008

Entered Japan Real Estate Institute
Professor, Faculty of Real Estate Sciences, Meikai University
Supervisory Director, Japan Excellent, Inc. (current)
Director, Land Information Center (current)

January 1972

Shunichi Maekawa

Manager, Namba branch, Industrial Bank of Japan, Limited
General Manager, Mizuho Holdings, Inc.
Executive Officer / General Manager, Building Business Sales
Department, Kowa Real Estate Co., Ltd.
President and Representative Director, Japan Excellent AssetManagement Co., Ltd. (current)
Executive Director, Japan Excellent, Inc. (current)Overview of Asset Management Company
Company Outline
Corporate NameJapan Excellent Asset Management Co., Ltd. (JEAM)

Headquarters

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

Officers

Director, Chief Operating Officer

Hiroshi Tabei

Established

April 14, 2005

Director, Chief Investment Officer

Naoki Fukuda

Capital¥450 million

Director (Non-executive)

Takashi Uchida

Shareholders

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

Auditor (Non-executive)

Masatoshi Tamaru

40.0%

President

Chifumi Toda

Compliance Officer
20.0%
15.0%
5.0%
5.0%
5.0%
5.0%
5.0%

Business
Operations

Michiro Ezaki

Financial Instrument Dealer
Investment Management Business:
Director-General of Kanto Local Financial Bureau No. 331
Real Estate Agency License:
Governor of Tokyo (1) No. 84511
Discretionary License: Minister of Land,
Infrastructure, Transport and Tourism No. 44

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

JEAM Management Team
Chifumi Toda

President

February 1998
September 2000
July 2004
March 2009
November 2009

Hiroshi Tabei

Director,
Chief Operating Officer

October 2004
April 2008
April 2009

Naoki Fukuda

Director,
Chief Investment Officer

Takashi UchidaDirector (Non-executive)

Masatoshi Tamaru

Auditor(Non-executive)

Michiro Ezaki

Compliance Officer

April 1998
April 2004

Manager, Namba branch, Industrial Bank of Japan, Limited
General Manager, Mizuho Holdings, Inc.
Executive Officer / General Manager, Building Business Sales
Department, Kowa Real Estate Co., Ltd.
President and Representative Director, Japan Excellent AssetManagement Co., Ltd. (current)
Executive Director, Japan Excellent, Inc. (current)
Advisor, ALC Advisory Division (Business Research Division), Mizuho Bank, Ltd.
General Manager, Corporate Planning Division, Japan Excellent
Asset Management Co., Ltd. (current)
Director, Japan Excellent Asset Management Co., Ltd. (current)

April 2006
April 2008

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

August 2005
April 2006

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

April 2004
April 2005
July 2007

Executive Officer, General Manager, Finance Control Department,
Kowa Real Estate Co., Ltd.
Supervisory Director, Japan Excellent Asset Management Co., Ltd. (current)Standing Auditor, Kowa Real Estate Co., Ltd. (current)

June 2001
April 2002
September 2005

Corporate Auditor, Auditing Department, Industrial Bank of Japan, Limited
Chief Corporate Auditor, Internal Audit Division, Mizuho Corporate Bank, Ltd.
Compliance Officer, Japan Excellent Asset Management Co., Ltd. (current)

Organization of JEAM
Shareholders’ Meeting
AuditorBoard of Directors
Compliance Committee

Investment Committee

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

Finance andAccounting Dept.

Business
Management Dept.

Real Estate Investment Div.
Investment
Planning Dept.

Real Estate
Investment Dept.

Real EstateManagement Dept.
Japan Excellent, Inc. 21

Performance Report
Summary of Selected Financial Data

6th Period

5th Period

4th Period

6th Period

January 1, 2009
to June 30, 2009

July 1, 2008
to December 31, 2008

January 1, 2008
to June 30, 2008

January 1, 2009
to June 30, 2009

Millions of yen, except per share dataor where otherwise indicatedTotal revenues (Note 2) ..................................
Rental business revenues ..........................
Operating expenses.......................................
Property operating expenses .....................
Income before income taxes .........................
Net income.....................................................

¥

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

¥

8,501
7,647
4,500
3,910
3,156
3,155

¥

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

7,840
7,840
4,408
3,849
2,662
2,661

$

78,57478,57444,42938,74625,44525,434

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

3,432
4,814
2,442
990
267

3,296
4,732
3,155
995
799

3,703
5,033
2,661
1,042
530

35,75150,14425,434
10,316
2,780

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

195,145
95,50089,363

195,929
95,50090,019206,079
105,500
89,6552,032,344
994,584
930,672

154,550
578,215
15,802

154,550
582,458
20,418

154,550
580,107
17,2186,022
165

22,211

21,331

23,963231

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

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

1.6
(3.1)
3.5
(7.0)
48.7
45.9
100.0
184

1.3
(2.6)
3.0
(6.0)
51.2
43.5
100.0
182

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

18
126
220,521
98.5

18
127
220,521
95.2

20
131
234,006
95.1

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

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥96.02 = U.S. $1.00, the approximate exchange rate on June 30, 2009.
2. Total revenues do not include consumption tax.
3. All valuations are calculated through the following formulas. The figures in parentheses are annualized based on the 6-month figures for the period.
ROA: Income before income taxes / (Initial total assets + Total assets at end of period) ÷ 2
ROE: Net income / (Initial net assets + Net assets at end of period) ÷ 2
Net operating income: (Rental business revenues - Property operating expenses) + Depreciation and amortization
Funds from operations: Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization
Funds from operations per unit: (Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation andamortization) / Weighted average number of common units issued and outstanding during the period
Loan to value ratio: Interest-bearing debt / Total assets
4. Payout ratio figures are calculated to one decimal place only.
5. Number of investment properties means units generally perceived to be one office building. Number of tenants means gross number of tenants by building.
Occupancy rate is the ratio of gross leased area to total rentable area at the end of the period.

22 Japan Excellent, Inc.

Operating Environment and Results
During the sixth period, the global economic recession resulted in a sharp decline in exports and a drop in corporate
profits. The Japanese economy remained severe with the rapid deterioration of business conditions in Japan, and apersistent downturn in employment and decreasing capital investment due to reduced corporate profits.
In the real estate investment market, increasing restraint by domestic and foreign investors slowed trading transactions,as the increase in the cap rate and the trend toward lower prices continued.
In the office building leasing market, rents continued to fall as poor earnings led to cost-cutting among tenants andeconomic sentiment remained pessimistic. Rents for high-end properties in central Tokyo generally dropped, affecting lowto-mid-end properties in greater Tokyo. In Osaka, Nagoya and other major regional cities, oversupply and declining demandfor office space led to decreases in occupancy rates and rents. In Sendai, Fukuoka and other areas, occupancy rates andrents fell substantially in reaction to the deepening severity of regional economic conditions in addition to the already existingoversupply.
In this operating environment, JEI maintained the tenant departure rate* at an extremely low level of less than 1.7
percent by focusing on enhancing property management quality and leasing properties with vacant space, while
successfully raising the occupancy rate of the JEI Nishi-Honmachi Building, which had dropped due to renovation, to 96.1
percent. As a result, the overall occupancy rate of JEI’s properties remained extremely high at 98.5 percent, which was 3.3
percentage points higher than at the end of the previous term.
As of June 30, 2009, JEI’s portfolio consisted of 18 properties with a total investment value of ¥181.0 billion on an
acquisition price basis. Total rentable area for the portfolio was 220,521m2 (66,707 tsubo), serving 126 tenants.

Overview of Performance
Total revenues for the six months ended June 30, 2009 decreased 11.3 percent, or ¥957 million, compared with theprevious period to ¥7,544 million following the sale of two properties in the previous period. Operating income decreased
18.1 percent, or ¥722 million, to ¥3,278 million. Net income decreased 22.6 percent, or ¥713 million, to ¥2,442 million.
Excluding the disposition factor of the properties sold in the previous period, JEI’s 18 properties generated real growth inrevenues and earnings of ¥94 million.
* The tenant departure rate is floor space for which tenants did not renew their lease at the end of its term or cancelled their lease during a period as apercentage of rentable area at the end of the previous period. Any increase in rentable area obtained through the acquisition of properties during a period
increases the total rentable area used in the calculation. Any decrease in rentable area resulting from sale of properties during the period is not deducted fromtotal rentable area.

Japan Excellent, Inc. 23

Distribution for Current Period
Distribution per unit totaled ¥15,802. The payout ratio was therefore 99.9 percent.
6th Period

5th Period

4th Period

January 1, 2009
to June 30, 2009

July 1, 2008
to December 31, 2008

January 1, 2008
to June 30, 2008

Thousands of yen, except per share amounts

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

¥2,442,271
72
2,442,199(15,802)2,442,199(15,802)—(—)¥3,155,635
33
3,155,601(20,418)
3,155,601(20,418)—(—)¥2,661,098
56
2,661,041(17,218)
2,661,041(17,218)—(—)

Unitholders’ Capital
An overview of the issue of investment units is as follows.

Issue date

Remarks

February 20, 2006

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

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

Investment units outstanding
Increase
Balance
Units

400

400

128,000
6,400
19,000750

128,400
134,800
153,800
154,550

Paid-in capital
Increase
BalanceMillions of yen

¥

200

¥

64,2303,211
18,702
738

Notes

200

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

Notes: 1. JEI was established with an issue of investment units priced at ¥500,000 per unit.
2. JEI issued new investment units through a public offering at a price of ¥520,000 per unit (underwriting price: ¥501,800 per unit) to raise capital primarily for theacquisition of properties following its listing on the Tokyo Stock Exchange.
3. JEI issued new investment units through a private placement at a price of ¥501,800 per unit to raise a portion of the capital required for the acquisition of properties.
4. JEI issued new investment units through a public offering at a price of ¥1,109,200 per unit (underwriting price: ¥984,360 per unit) to raise a portion of the capitalrequired for the acquisition of properties during the second period.
5. JEI issued new investment units through a private placement at a price of ¥984,360 per unit to raise a portion of the capital required for the acquisition ofproperties during the second period.

Market Price of Units
High/Low (closing price) of units on the TSE:
6th Period

5th Period

4th Period

January 1, 2009
to June 30, 2009

July 1, 2008
to December 31, 2008

January 1, 2008
to June 30, 2008

Yen

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

24 Japan Excellent, Inc.

¥413,000
298,000¥535,000
254,000¥859,000
501,000

Performance Report

Loans
Loans by lending institution as of June 30, 2009 are summarized below.
List of lenders
Outstanding debt at
end of this period
Millions of yen

Share

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

¥30,500
17,800
9,200
8,000
7,000
6,500
5,000
4,000
3,000
2,000
1,500
1,000

31.9%
18.6%
9.6%
8.4%
7.3%
6.8%
5.2%
4.2%
3.1%
2.1%
1.6%
1.0%

¥23,500
14,800
7,200
8,000
7,000
6,500
5,000
4,000
3,000
2,000
1,500
1,000

¥ 7,000
3,000
2,000
0
0
0
0
0
0
0
0
0

Total

¥95,500

100.0%¥83,500¥12,000

LenderLong-term

Short-term
Millions of yen

Short-term loans
LenderMizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Sumitomo Mitsui Banking Corporation

Due onSeptember 30, 2009
September 30, 2009
September 30, 2009

Total short-term loans

Average interest
rate (%) (Note 1)

Repayment
methodUse of
funds

Notes

¥ 7,000
3,000
2,000

1.0
1.0
1.0

Bulletpayment

Repayment ofloans

Unsecured /unguaranteed¥12,000

1.0

—

—

—

Average interest
rate (%) (Note 1)

Repayment
methodUse of
funds

Notes

Bulletpayment

Acquisition ofreal estate

Unsecured /unguaranteed

—

—

—

BalanceMillions of yen

Long-term debt due within 1 year
Lender

The Norinchukin Bank
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust andBanking Corporation
Aozora Bank, Ltd.
Total long-term debt due within 1 year

Due onBalanceMillions of yen

June 29, 2010
June 29, 2010

¥ 5,000
3,000

1.5
1.5

June 29, 2010
June 29, 2010

3,000
2,000

1.5
1.5

¥13,000

1.5

Japan Excellent, Inc. 25

Long-term loans (Note 3)
LenderDue onMizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Resona Bank, Ltd.
The Dai-ichi Mutual Life Insurance Company

BalanceMillions of yen

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

¥ 5,000
3,500
1,000
3,000

Average interest
rate (%) (Note 1)

Repayment
method

1.5
1.5
1.5
2.0

Use of
funds

Notes

Acquisition ofreal estate(Note 2)

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

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

6,000
4,000
3,000
2,000
3,000
3,000
3,000
2,000
1,000
1,000
2,300
2,200
2,000
500
2,500

1.2
1.2
1.2
1.2
1.4
1.4
1.4
1.4
1.4
1.4
1.0
1.0
1.0
1.0
2.0

Repayment ofloans

Bulletpayment

Acquisition ofreal estate(Note 2)

Mizuho Trust & Banking Co., Ltd.

July 31, 2012

1,500

Unsecured /unguaranteed

2.0(Note 2)

Sompo Japan Insurance Inc.

July 31, 2012

2,000

2.0
(Note 2)

Tokio Marine & Nichido Fire
Insurance Co., Ltd.
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and
The Dai-ichi Mutual Life
Insurance Company
Development Bank of Japan

July 31, 2012

1,000

2.0
(Note 2)June 28, 2013
June 28, 2013
July 31, 2014
July 31, 2014

6,000
1,000
2,000
2,000

1.3
1.3
2.3

Repayment ofloans(Note 2)Acquisition ofreal estate

2.3(Note 2)

The Dai-ichi Mutual Life
Insurance Company
Development Bank of Japan

June 30, 2015

3,000

2.3
(Note 2)June 30, 2015

2,000

Repayment of
loans

2.3
(Note 2)

Total long-term loans¥70,500

1.5

—

—

—

Total loans¥95,500

1.5

—

—

—

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

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

1 to 2 years

2 to 3 years

3 to 4 years
Millions of yen

4 to 5 years

5 to 10 years¥27,500¥13,000¥21,000—¥9,000Bonds
JEI has submitted a shelf registration so that it can smoothly issue investment corporation bonds, but has not issued such bonds.
26 Japan Excellent, Inc.

Performance Report

Capital Expenditures
Planned Capital Expenditures
Primary planned capital expenditures for properties in JEI’s portfolio as of June 30, 2009 for renovation and otherpurposes are as follows. The planned construction expenditures below include the portion already recorded as expenses.

Name of property

Address

Estimated
durationObjective

Kowa Kawasaki
Saiwai-ku, Kawasaki,
Upgrade of uninterruptible July 2009
Higashiguchi Building Kanagawa Prefecture power supply (UPS) in
to November 2009high-voltage electricity room
Omori Bellport D

Shinagawa-ku, Tokyo Upgrade ofdrainage pump

NHK Nagoya
Higashi-ku, Nagoya
Housou-Center Building

Upgrade of water tankTotal amounts

Estimated amounts
Payment for thecurrent period
Millions of yen

Cumulative
amount paid

¥15

—

—

October 2009
to November 2009

11

—

—

October 2009
to December 2009

13

—

—

Capital Expenditures for the Current Period
Construction requiring capital expenditures during the period ended June 30, 2009 for properties in JEI’s portfolio as ofJune 30, 2009 is outlined below. Capital expenditures during the period ended December 31, 2008 totaled ¥267 million. The
total of capital expenditures and repair expenses of ¥182 million during the period ended June 30, 2009 was ¥449 million.
Name of property

Address

Kowa Kawasaki
Nishiguchi Building

Saiwai-ku, Kawasaki,
Kanagawa Prefecture

No. 36 Kowa Building

Chiyoda-ku, Tokyo

Omori Bellport D

Objective

Estimated duration

Expenditure
Millions of yen

Asbestos removal(Second phase)

December 2008
to June 2009

¥119

Overhaul of air-conditioning
on first and second floors

May 2009
to June 200917

Shinagawa-ku, Tokyo Overhaul of bathrooms
on first and second floors

February 2009
to March 200912

Other buildings

—

117

Total

¥267

Cash Reserve for Capital Improvements
JEI formulates a long-term maintenance plan for each of its properties, and uses it as the basis for provisions to the cash
reserve for capital improvements to cover major repairs and other future property issues, as outlined below.
6th Period

5th Period

January 1, 2009
to June 30, 2009

July 1, 2008
to December 31, 2008

Millions of yen

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

¥254
—
—
¥254

¥282
—
28
¥254

Japan Excellent, Inc. 27

Performance Report

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

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

Transactions with Related Parties and Transactions with Major
Shareholders of Asset Management Company
Ongoing Transactions
None
Fees Paid for the Period from January 1, 2009 to June 30, 2009

Category

Total fees paid
(A)
(Millions of yen)

Maintenance expenses(Note 2)

¥1,148

Total¥1,148Description of transactions with related parties (Note 1)
Amount ofPaid topayment (B)(Millions of yen)

Kowa Real Estate Co., Ltd.
Sekisui House, Ltd.

¥400
69
¥469

B/A

34.9%
6.0%
40.9%

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

28 Japan Excellent, Inc.

Financial Statements
For the six-month periods ended June 30, 2009 and December 31, 2008
with Report of Independent Auditors

Contents
Report of Independent Auditors

31

Balance Sheets

32

Statements of Income and Retained Earnings

33

Statements of Changes in Net Assets

34

Statements of Cash Flows35

Notes to Financial Statements

36Japan Excellent, Inc. 29

30 Japan Excellent, Inc.

Report of Independent Auditors

Japan Excellent, Inc. 31

Balance Sheets
As of June 30, 2009 and December 31, 2008

As ofJune 30,
2009

As of
December 31,
2008

Thousands of yen

As ofJune 30,
2009
U.S. dollars (Note 2)

AssetsCurrent assets:
Cash and cash equivalents including trust accounts (Notes 4 and 5)..................
Rental receivables.................................................................................................
Derivative assets ...................................................................................................
Other current assets .............................................................................................
Total current assets ..................................................................................................

¥ 13,841,046
453,974—
186,509
14,481,529¥ 14,208,501
370,534
545
119,941
14,699,521$ 144,147,536
4,727,912—
1,942,396
150,817,844

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

3,254,086
363
5,488
64,280,337
409,186
32,194
108,502,799(5,032,923)
171,451,530

3,251,136
363
2,777
64,035,334
393,541
24,427
108,502,799(4,042,346)
172,168,031

33,889,672
3,784
57,153
669,447,375
4,261,460
335,288
1,130,002,072(52,415,362)
1,785,581,442

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
10,76815,182574,245
47,3709,212,627¥195,145,686

1,185,045
7,380,017
10,76815,182
429,382
41,984
9,062,378¥195,929,930

12,341,646
76,859,163
112,143
158,1095,980,473
493,336
95,944,870$2,032,344,156¥

523,42225,000,000
327,801
32,347
79,328
270,710
26,233,608¥$

70,500,000
465,5058,500,600
82,83579,548,940
105,782,548

70,500,000
452,0488,300,428
198,604
79,451,080
105,910,918

734,222,037
4,848,004
88,529,470
862,686
828,462,197
1,101,672,026

87,083,030

87,083,030

906,925,953

2,442,271
89,525,301

3,155,635
90,238,665

25,435,027
932,360,980(162,163)(162,163)
89,363,138¥195,145,686(219,653)(219,653)
90,019,012¥195,929,930(1,688,850)(1,688,850)
930,672,130$2,032,344,156

Liabilities
Current liabilities:
Accounts payable - trade......................................................................................
Short-term loans (Note 7)......................................................................................
Accounts payable - other......................................................................................
Unpaid consumption taxes ...................................................................................
Derivative liabilities................................................................................................
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 ofJune 30, 2009 and December 31, 2008
Retained earnings .............................................................................................
Total unitholders’ equity........................................................................................
Valuation and translation adjustments:
Unrealized loss on deferred hedge transactions ..............................................
Total valuation and translation adjustments .........................................................
Total net assets.........................................................................................................
Total liabilities and net assets ...................................................................................
The accompanying notes are an integral part of these financial statements.

32 Japan Excellent, Inc.

766,906
25,000,000
339,723
121,946
21,380209,883
26,459,838

5,451,171
260,362,424
3,413,886
336,879
826,164
2,819,305
273,209,829

Statements of Income and Retained Earnings
For the periods from January 1, 2009 to June 30, 2009
and from July 1, 2008 to December 31, 2008

For the period
from January 1,
2009 toJune 30,
2009

For the period
from July 1,2008 toDecember 31,
2008

Thousands of yen

For the period
from January 1,
2009 toJune 30,
2009
U.S. dollars (Note 2)

Revenues:
Rental revenues (Note 11) .......................................................................
Other (Note 11) ........................................................................................
Gain on sale of real estate (Note 12) .......................................................
Total revenues.............................................................................................

¥6,890,298
654,437—
7,544,735¥6,909,524
738,009854,292
8,501,825$71,758,991
6,815,633—
78,574,624

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

3,720,471
418,130
15,01528,2196,540
77,701
4,266,076
3,278,659

3,910,891
443,596
15,72627,375
6,540
96,7214,500,849
4,000,976

38,746,838
4,354,608
156,375
293,890
68,111
809,22144,429,043
34,145,581

Other income:Refund of consumption taxes .................................................................
Interest income ........................................................................................
Other........................................................................................................

11,665
10,95055—
18,297
13

121,482
114,042586

Other expenses:
Interest expense ......................................................................................
Loan arrangement fees............................................................................
Other........................................................................................................
Income before income taxes.......................................................................

707,446
150,62402,443,259

702,689
121,654
38,382
3,156,561

7,367,694
1,568,676
525,445,316

Income taxes: (Note 10)
Current ................................................................................................
Deferred ...................................................................................................
Net income ..................................................................................................
Retained earnings at beginning of period ...................................................
Retained earnings at end of period.............................................................

1,023
(2)
2,442,238
33¥2,442,271

981
1
3,155,579
57¥3,155,636

1,656
(17)
25,434,677
350$25,435,027

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

Japan Excellent, Inc. 33

Statements of Changes in Net Assets
For the periods from January 1, 2009 to June 30, 2009
and from July 1, 2008 to December 31, 2008

For the period from July 1, 2008 to December 31, 2008
Net assets
Unitholders’ equity

Unitholders’capitalRetainedearnings

Total
unitholders’equityThousands of yen

154,550¥87,083,030¥ 2,661,098¥89,744,128¥ (88,527)¥ (88,527)¥89,655,600

—
—

—
—

(2,661,042)
3,155,579(2,661,042)
3,155,579

—
—

—
—

(2,661,042)
3,155,579——
154,550——¥87,083,030—
494,537¥ 3,155,635—
494,537¥90,238,665(131,126)(131,126)¥(219,653)(131,126)(131,126)¥(219,653)(131,126)
363,412¥90,019,012

Number ofunits in issue

Balance as of June 30, 2008 ...............
Changes during the fiscal period:
Distributions from retained earnings ...
Net income ..........................................
Changes in unrealized loss ondeferred hedge transactions .............
Total changes during the fiscal period ....
Balance as of December 31, 2008 .....

Valuation and translation
adjustments
Unrealized
loss onTotal
deferredvaluation andhedge
translationtransactions
adjustments

Total
net assets

For the period from January 1, 2009 to June 30, 2009
Net assets
Unitholders’ equity

Unitholders’capitalRetainedearnings

Total
unitholders’equityThousands of yen

154,550¥87,083,030¥ 3,155,635¥90,238,665¥(219,653)¥(219,653)¥90,019,012

—
—

—
—

(3,155,602)
2,442,238(3,155,602)
2,442,238

—
—

—
—

(3,155,602)
2,442,238——
154,550——¥87,083,030—(713,364)¥ 2,442,271—(713,364)¥89,525,301

57,49057,490¥(162,163)

57,49057,490¥(162,163)

57,490(655,874)¥89,363,138

Number ofunits in issue

Balance as of December 31, 2008 .....
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, 2009 ...............

Valuation and translation
adjustments
Unrealized
loss onTotal
deferredvaluation andhedge
translationtransactions
adjustments

Total
net assets

For the period from January 1, 2009 to June 30, 2009
Net assets
Unitholders’ equity

Number ofunits in issue

Balance as of December 31, 2008 .....
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, 2009 ...............

Unitholders’capital154,550 $906,925,953
—
—

—
—
—
—
154,550 $906,525,953

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

34 Japan Excellent, Inc.

——

Retainedearnings

Total
unitholders’equityU.S. dollars (Note 2)

Valuation and translation
adjustments
Unrealized
loss onTotal
deferredvaluation andhedge
translationtransactions
adjustments$ 32,864,356 $939,790,309$(2,287,582)(32,864,006)
25,434,677

—
—

—
—
(7,429,329)(7,429,329)$ 25,435,027 $932,360,980

598,732
598,732$(1,688,850)(32,864,006)
25,434,677

Total
net assets$(2,287,582) $937,502,727——(32,864,006)
25,434,677

598,732
598,732(6,830,597)
598,732$(1,688,850) $930,672,130

Statements of Cash Flows
For the periods from January 1, 2009 to June 30, 2009
and from July 1, 2008 to December 31, 2008

For the period
from January 1,
2009 toJune 30,
2009

Cash flows from operating activities
Income before income taxes.......................................................................
Depreciation and amortization ....................................................................
Interest income............................................................................................
Interest expense..........................................................................................
(Increase) decrease in rental receivables ....................................................
(Increase) decrease in prepaid expenses....................................................
(Decrease) increase in accounts payable - trade........................................
Decrease in accounts payable - other ........................................................
Decrease in unpaid consumption taxes......................................................
Increase (decrease) in advances received ..................................................
Increase in long-term prepaid expenses.....................................................
Decrease in property and equipment for trust accounts due to sales........
Other, net ....................................................................................................
Subtotal................................................................................................
Interest received..........................................................................................
Interest paid ................................................................................................
Income taxes paid.......................................................................................
Net cash provided by operating activities...................................................

For the period
from July 1,2008 toDecember 31,
2008

For the period
from January 1,
2009 toJune 30,
2009

Thousands of yen

U.S. dollars (Note 2)¥ 2,443,259 ¥ 3,156,561
990,609995,423(10,950)(18,297)
707,446
702,689(83,440)
49,588(50,328)
33,981(84,221)52,420(19,108)(2,124)(89,599)(98,631)85,493(1,950)(144,862)(280,729)—
8,227,227(20,298)
4,161
3,724,001
12,820,319
10,95018,297(732,090)(615,628)(2,190)(3,659)3,000,671
12,219,329$ 25,445,316
10,316,694(114,042)
7,367,694(868,987)(524,136)(877,119)(198,999)(933,133)
890,373(1,508,670)—(211,395)
38,783,596
114,042(7,624,353)(22,808)
31,250,477

Cash flows from investing activities
Purchases of property and equipment........................................................
Purchases of property and equipment for trust accounts ..........................
Proceeds from security deposits from tenants ...........................................
Payments for security deposits to tenants..................................................
Proceeds from security deposits from tenants for trust accounts..............
Payments for security deposits to tenants for trust accounts ....................
Net cash used in investing activities ...........................................................

(13,352)(421,089)
21,933(8,475)472,706(272,535)(220,812)(4,104)(982,849)
285(25,151)
112,235(863,980)(1,763,564)(139,052)(4,385,430)
228,420(88,266)
4,922,993(2,838,308)(2,299,643)

Cash flows from financing activities
Proceeds from short-term loans .................................................................
Repayment for short-term loans .................................................................
Proceeds from long-term debt....................................................................
Repayment for long-term debt....................................................................
Distributions to unitholders .........................................................................
Net cash used in financing activities...........................................................

12,000,000(12,000,000)
13,000,000(13,000,000)(3,147,314)(3,147,314)

12,000,000(49,000,000)
27,000,000—(2,656,631)(12,656,631)

124,973,964(124,973,964)
135,388,461(135,388,461)(32,777,692)(32,777,692)(367,455)(2,200,866)
Net decrease in cash and cash equivalents................................................
14,208,501
16,409,367
Cash and cash equivalents at beginning of period.....................................
Cash and cash equivalents at end of period............................................... ¥ 13,841,046 ¥ 14,208,501(3,826,858)
147,974,394$ 144,147,536

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

Japan Excellent, Inc. 35

Notes to Financial Statements
For the periods from January 1, 2009 to June 30, 2009
and from July 1, 2008 to December 31, 2008

1. Organization
Japan Excellent, Inc. (hereinafter, “JEI”), established on February 20, 2006 under the Law Concerning Investment Trusts and Investment
Corporations of Japan (the “Investment Trust Law”), is a real estate investment corporation which primarily invests in office buildings.
JEI is externally managed by a licensed asset management company, Japan Excellent Asset Management (“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% by other corporations.
JEI was listed on the Tokyo Stock Exchange on June 27, 2006. As of June 30, 2009, JEI held 18 properties with 220,521 square meters of total
leasable space and had leases with 126 tenants excluding residential tenants.

2. Basis of Presentation
JEI maintains its accounting records and prepares its financial statements in accordance with accounting principles generally accepted in Japan(“Japanese GAAP”), including provisions set forth in the Investment Trust Law, the Corporation Law of Japan, the Financial Instruments andExchange Law of Japan and related regulations, which are different in certain respects as to the application and disclosure requirements ofInternational Financial Reporting Standards.
The accompanying financial statements are a translation of the financial statements of JEI, which were prepared in accordance with Japanese
GAAP and presented in the securities report of JEI filed with the Kanto Local Finance Bureau. In preparing the accompanying financial statements,
certain reclassifications and modifications have been made for the convenience of readers outside Japan. In addition, the notes to the financial
statements include information that might not be required under Japanese GAAP but is presented herein as additional information. Amounts havebeen rounded to the nearest thousand yen in the accompanying financial statements and in the notes thereto, whereas amounts were truncated in
the Japanese financial statements prepared in accordance with Japanese GAAP.
Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of ¥96.02 = U.S.$1.00, the foreign exchange
rate prevailing on June 30, 2009, has been used for translation. The inclusion of such amounts is not intended to imply that Japanese yen have beenor could be readily converted, realized or settled into U.S. dollars at that or any other rate.

3. Summary of Significant Accounting Policies●

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, deposits with banks, a negotiable certificate of deposit and short-term investments which
are highly liquid, readily convertible into cash with an insignificant risk of price fluctuation and with an original maturity of three months or less.
●Securities

The negotiable certificate of deposit, classified under other securities but with the same characteristics as a time deposit, is carried at cost. Cost
is determined by the moving average method.
Non-marketable securities classified as other securities are carried at cost. Cost of securities sold is determined by the moving average method.
●

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

2 - 59 years
4 - 59 years
7 - 16 years
4 - 10 years

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

Income taxes

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

Consumption taxes

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

36 Japan Excellent, Inc.

●

Property-related taxes

Principally, property-related taxes including property taxes, urban planning taxes and depreciable property taxes are imposed on a calendar-yearbasis 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 the time of acquisition of such properties including trust
accounts. The capitalized amounts for the periods from January 1, 2009 to June 30, 2009 and from July 1, 2008 to December 31, 2008 were ¥0and ¥343 thousand, respectively.
●

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

●

Derivatives and hedge accounting

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

Properties in trust accounts

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

4. Cash and Cash Equivalents
Cash and cash equivalents including trust accounts in the accompanying balance sheets and cash and cash equivalents in the accompanying
statements of cash flows at June 30, 2009 and December 31, 2008 consisted of the following:

As ofJune 30,
2009

As of
December 31,
2008

Thousands of yen

Cash and cash deposits..............................................................................
Cash in trust and deposits in trust ..............................................................
Negotiable certificate of deposit .................................................................
Cash and cash equivalents including trust accounts..................................

¥ 2,253,964
11,587,082—¥13,841,046

As ofJune 30,
2009
U.S. dollars¥ 1,279,525
11,428,976
1,500,000¥14,208,501$ 23,473,906
120,673,630—$144,147,536

As ofDecember 31,
2008

As of
June 30,
2009

5. Securities(1) Investment in securities
Investment in securities at June 30, 2009 and December 31, 2008 consisted of the following:

As ofJune 30,
2009

Thousands of yen

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

¥10,768¥10,768

U.S. dollars$112,143

Japan Excellent, Inc. 37

As of June 30, 2009
Name

Number of shares

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

64
64

Acquisition cost
Unit priceTotal priceThousands of yen

Total price
U.S. dollars

Book value
Unit priceTotal priceThousands of yen

Total price
U.S. dollars

¥168
¥168

$112,143$112,143

¥168
¥168

$112,143$112,143¥10,768¥10,768¥10,768¥10,768

Gain or loss on valuation
Total priceTotal priceThousands of yen U.S. dollars

¥—
¥—

$—
$—

As of December 31, 2008

Name

Number of shares

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

64
64

Acquisition cost
Unit priceTotal price

¥168
¥168

¥10,768¥10,768

Gain or loss
on valuation
Total priceBook value
Unit priceTotal priceThousands of yen

¥168
¥168

¥10,768¥10,768¥—¥—(2) Non-trading securities
Non-trading securities at June 30, 2009 and December 31, 2008 consisted of the following:

As ofJune 30,
2009

As of
December 31,
2008

Thousands of yen

Negotiable certificate of deposit .................................................................

¥—

As of
June 30,
2009
U.S. dollars¥1,500,000$—

6. Property and Equipment
Property and equipment at June 30, 2009 and December 31, 2008 consisted of the following:

As of June 30, 2009
Acquisition
cost

Accumulated
depreciation

As of December 31, 2008

Net
Acquisition
book value
cost
Thousands of yen

Accumulated
depreciation

Netbook value

Buildings and building
improvements........... ¥ 3,254,086 ¥ (227,013) ¥ 3,027,073 ¥ 3,251,136 ¥ (189,776) ¥ 3,061,360
363
(75)
288
363
(48)
315
Furniture and fixtures ...
Buildings and building
improvements for
59,556,011
64,035,334 (3,786,792)
60,248,542
trust accounts ............ 64,280,337 (4,724,326)
Machinery andequipment for trust
409,186(76,328)
332,858
393,541(62,785)
330,756
accounts.....................
Furniture and fixtures
32,194(5,181)27,01324,427(2,945)
21,482for trust accounts .......
Land for trust— 108,502,799 108,502,799— 108,502,799
accounts..................... 108,502,799
Construction in
5,488
—
5,488
2,777
—
2,777
progress .....................
Total ............................. ¥176,484,453 ¥(5,032,923) ¥171,451,530 ¥176,210,377 ¥(4,042,346) ¥172,168,031

38 Japan Excellent, Inc.

As of June 30, 2009
Acquisition
cost$

Accumulated
depreciation
U.S. dollars

Netbook value

33,889,672 $ (2,364,223) $
3,784
(782)

31,525,449
3,002

669,447,375(49,201,482)

620,245,893

4,261,460(794,921)

3,466,539

335,288(53,954)281,334

1,130,002,072—

1,130,002,072

57,153—57,153$1,837,996,804 $(52,415,362) $1,785,581,442

Notes to Financial Statements

7. Short-Term Loans and Long-Term Debt
Short-term loans and long-term debt as of June 30, 2009 and December 31, 2008 consisted of the following:

As of June 30, 2009
Weighted-averageinterest rate

Amount

As ofJune 30,
2009

As of December 31, 2008
Weighted-averageinterest rate

AmountAmountThousands of yen

Short-term loans:
Unsecured loans from banks due
on March 31, 2009 ......................
Unsecured loans from banks due
on September 30, 2009 .................
Subtotal........................................
Long-term debt due within one year:
Unsecured loans from banks due
on June 29, 2009 ...........................
Unsecured loans from banks due
on June 29, 2010 ...........................
Subtotal........................................
Long-term debt:
Unsecured loans from banks due
on June 29, 2010 ...........................
Unsecured loans from banks due
on June 29, 2011 ...........................
Unsecured loans from aninsurance company due on
June 29, 2011 ................................
Unsecured loans from banks due
on June 29, 2011 ...........................
Unsecured loans from banks dueon November 29, 2011 ..................
Unsecured loans from banks due
on July 31, 2012
Unsecured loans from banks andinsurance companies due
on July 31, 2012 ............................
Unsecured loans from banks due
on June 28, 2013 ...........................
Unsecured loans from an insurancecompany due on July 31, 2014 .....
Unsecured loans from a bank due
on July 31, 2014 ............................
Unsecured loans from aninsurance company and a bankdue on June 30, 2015....................
Subtotal ....................................
Total ..................................................

U.S. dollars——¥12,000,000

1.20333%

12,000,000
12,000,000

1.03455%—
12,000,000—

124,973,964
124,973,964——

13,000,000

1.37644%—

13,000,000
13,000,000

1.51391%—
13,000,000—

135,388,460
135,388,460——

13,000,000

1.55042%—9,500,000

1.51059%

9,500,000

1.57554%

98,937,720

3,000,000

1.96625%

3,000,000

1.96625%

31,243,491

15,000,000

1.21091%

15,000,000

1.49250%

156,217,455

13,000,000

1.44455%——

135,388,461

7,000,000

0.96091%

7,000,000

1.23583%

72,901,479

7,000,000

1.96907%7,000,000

1.96907%

72,901,479

7,000,000

1.31091%

7,000,000

1.59250%

72,901,479

2,000,000

2.25875%

2,000,000

2.25875%

20,828,994

2,000,000

2.28417%2,000,000

2.28417%

20,828,994

5,000,000
70,500,000¥95,500,000

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

2.27344%

52,072,485
734,222,037$994,584,461

¥

$

—

Japan Excellent, Inc. 39

8. Net Assets

Notes to Financial Statements

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

9. Per Unit Information
Net assets per unit were ¥578,215 ($6,022) as of June 30, 2009 and ¥582,458 as of December 31, 2008. Net income per unit was ¥15,802($165) for the period from January 1, 2009 to June 30, 2009 and ¥20,417 for the period from July 1, 2008 to December 31, 2008 and wascomputed based on the weighted-average number of units outstanding during the respective periods.

10. Income Taxes
JEI is subject to income taxes in Japan.
JEI’s policy is to make dividend distributions in excess of 90% of distributable income for each fiscal period in order to meet the condition set
forth in the Special Taxation Measures Law of Japan concerning the deductibility of cash dividends paid for income tax purposes.
Details of significant components of deferred tax assets and liabilities as of June 30, 2009 and December 31, 2008 are summarized as follows:

As ofJune 30,
2009

As of
December 31,
2008

Thousands of yen

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

¥

As of
June 30,
2009
U.S. dollars

20
63,77963,799(63,779)
¥
20
¥
20

¥

19
86,52086,538(86,520)
¥
19
¥
—

$

¥

¥

$

¥

—
—
—

¥

214
214
196

213
664,224
664,437(664,224)
$
213
$
213

$

—
—
—

A reconciliation of the differences between the statutory tax rate and the effective tax rate for the period from January 1, 2009 to June 30, 2009
and for the period from July 1, 2008 to December 31, 2008 is as follows:

For the period
from January 1, 2009
to June 30, 2009

For the period
from July 1, 2008
to December 31, 2008

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

39.33%

39.39%

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

(39.31)0.02
0.04%(39.38)0.02
0.03%

40 Japan Excellent, Inc.

Notes to Financial Statements

11. Breakdown of Property Rental Business Revenues and Expenses

For the period
from January 1,
2009 toJune 30,
2009

For the period
from July 1,2008 toDecember 31,
2008

Thousands of yen

For the period
from January 1,
2009 toJune 30,
2009
U.S. dollars

Rental business revenues: ..........................................................................
Rental revenues .......................................................................................
Other........................................................................................................

¥7,544,735
6,890,298
654,437¥7,647,533
6,909,524
738,009$78,574,624
71,758,991
6,815,633

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

3,720,471
1,141,115
685,227
540,854
21,116
182,522990,577
159,060¥3,824,264

3,910,891
1,063,510
759,128
560,697
21,662
313,757
995,391
196,746¥3,736,642

38,746,838
11,884,143
7,136,295
5,632,719
219,918
1,900,872
10,316,363
1,656,528$39,827,786

12. Breakdown of Gain on Sale of Real Estate
Gain on sale of real estate for the period from January 1, 2009 to June 30, 2009 and for the period from July 1, 2008 to December 31, 2008 is
as follows:

For the period
from January 1,
2009 toJune 30,
2009

For the period
from July 1,2008 toDecember 31,
2008

Thousands of yen

For the period
from January 1,
2009 toJune 30,
2009
U.S. dollars

Shuwa Iidabashi Building
Proceeds from sale of real estate............................................................
Cost of sale of real estate........................................................................
Other related sale expenses ....................................................................
Gain on sale of real estate .......................................................................

¥—
—
—
¥—

¥4,580,000
4,025,626
140,936¥ 413,438

$—
—
—
$—

Sendai Kowa Building
Proceeds from sale of real estate............................................................
Cost of sale of real estate........................................................................
Other related sale expenses ....................................................................
Gain on sale of real estate .......................................................................

¥—
—
—
¥—

¥4,814,600
4,201,600
172,146¥ 440,854

$—
—
—
$—

Japan Excellent, Inc. 41

13. Leases
JEI leases properties on which rental revenues are earned. At June 30, 2009 and December 31, 2008, future lease revenues under noncancelable operating leases are summarized as follows:

As ofJune 30,
2009

As of
December 31,
2008

As of
June 30,
2009

Thousands of yen

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

¥1,134,029
1,235,490¥2,369,519

U.S. dollars¥ 864,340
1,245,528¥2,109,868$11,810,346
12,867,002$24,677,348

14. Derivatives and Hedge Accounting
JEI has entered into certain interest-rate swap contracts with several Japanese financial institutions to hedge its variable-rate long-term debt
obligations. JEI utilizes interest-rate swap contracts, which are derivative financial instruments, only for the purpose of mitigating future risk arisingfrom fluctuation in interest rates, and does not enter into such transactions for speculative or trading purposes. JEI entered into such derivativetransactions to hedge risk in accordance with its Articles of Incorporation and the established risk management policies of JEAM.
The following table summarizes the notional amount and the estimated fair value of the interest-related positions outstanding as of June 30, 2009:

Notional
amountEstimated
fair value(negative)

Thousands of yen

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

¥16,750,000

Estimated
fair value(negative)

Notional
amountU.S. dollars¥(162,163)$174,442,824$(1,688,850)

Account

Balance at theend of period

Balance at theend of period

Thousands of yen

U.S. dollars¥274,677$3,018,091

15. Related Party Transactions
For the period from January 1, 2009 to June 30, 2009(1) Major unitholders
Not applicable(2) Directors and major individual unitholders
Not applicable

For the period from July 1, 2008 to December 31, 2008
(1) Major unitholders
Not applicable(2) Directors and major individual unitholders

Name

Description oftransaction

Junichi Tamura Payment of asset
management
fees to JEAM

42 Japan Excellent, Inc.

AmountAmountThousands of yen

U.S. dollars¥443,596$4,874,148

Accounts
payableNotes to Financial Statements

16. Distribution Information
In accordance with Section 33.1.2 of the bylaws set forth by JEI for distributions of cash dividends, the amount of dividends payable, which islimited by the amount of unappropriated retained earnings, shall be in excess of 90% of JEI’s distributable income for the fiscal period as set forth in
Section 67.15 of the Special Taxation Measures Law. Consequently, JEI set income available for distributions of dividends at ¥2,442,199,100($25,434,275), the maximum integral multiple of the 154,550 units issued not exceeding unappropriated retained earnings at June 30, 2009. No cash
distribution exceeding the income amount set forth in Section 33.1.4 of the bylaws of JEI shall be made.
On September 14, 2009, the Board of Directors approved a resolution to make a cash distribution of ¥15,802 ($165) per unit aggregating to¥2,442,199,100 ($25,434,275) to unitholders of record as of June 30, 2009.

17. Significant Subsequent Events
Not applicable

Japan Excellent, Inc. 43

Investor Information
As of June 30, 2009

Name

Japan Excellent, Inc.

Location

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

EstablishedFebruary 20, 2006

Fiscal Periods

Six months ending June 30 and December 31

Unitholders

4,817

Total Number ofCommon Units Issued

6th Period (From January 1, 2009 to June 30, 2009)
5th Period (From July 1, 2008 to December 31, 2008)

Distributions

Confirmed distribution for the 6th Period (ended June 30, 2009) ¥15,802 per unit

154,550
154,550

Major Unitholders
Number ofUnits Held

Percentage of
Total

Kowa Real Estate Co., Ltd.

14,312

9.26%

NikkoCiti Trust and Banking Corporation (Investment trust account)

13,242

8.57%

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

12,623

8.17%

Japan Trustee Services Bank, Ltd. (Trust account)

12,598

8.15%

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

11,578

7.49%

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

6,304

4.08%

North Pacific Bank, Ltd.

4,590

2.97%

The Dai-ichi Mutual Life Insurance Company

4,132

2.67%

The Bank of Ikeda, Ltd.

3,711

2.40%

The Chugoku Bank, Ltd.

2,367

1.53%

Total

85,45755.29%Name

44 Japan Excellent, Inc.

Investment Units

Investors (Number of unitholders)
Financial
institutions andsecurities companies
93 (1.9%)

Individuals
12,919 (8.4%)

Other domestic companies
118 (2.4%)
Foreign companies, etc.
129 (2.7%)

Foreign companies, etc.
21,002 (13.6%)
Financial
institutions andsecurities companies
98,128 (63.5%)

Other domestic
companies
22,501 (14.6%)

Individuals
4,477 (92.9%)

Total number of units issued: 154,550

Total number of unitholders: 4,817

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

(Yen)

250

1,500,000

200

1,200,000

150

900,000

100

600,000

50

300,000

0

0
6 7
2006

8

9

10 11 12

1 2
2007

3

4

5

6

7

8

9

10 11 12

1 2
2008

3

4

5

6

7

8

9

10 11 12

1 2
2009

3

4

5

6

JEI closing price (Right scale)
TSE J-REIT Index (Left scale)* June 30, 2006 is used as the base 100 index.

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

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

Japan Excellent, Inc. 45

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

Printed in Japan