Quality Differentiates NBF

10 th Period
NBF Report January – June 2006

Nippon Building Fund Inc.
http://www.nbf-m.com/nbf_e/

Profile
On September 10, 2001, Nippon Building Fund Inc. (NBF) became the first Japanese real estate investment trust(J-REIT) investment corporation with its listing on the J-REIT section of the Tokyo Stock Exchange. Today, NBF has thelargest market capitalization and assets under management among J-REITs.
NBF employs funds raised through shareholder subscriptions and borrowing to invest in real estate, real estatebacked securities, trust beneficiary rights and other assets with the objective of sustainable growth in portfolio value
and stable profits on a medium- to long-term basis. Its fiscal periods are six months long. NBF primarily invests inoffice buildings in the central business districts of Tokyo, Greater Tokyo and other cities in Japan. The Investment Trust
Law of Japan requires an external entity to manage the assets of an investment corporation; NBF entrusts asset management to Nippon Building Fund Management Ltd. (NBFM). NBF maintains a close relationship with NBFM’s major
shareholder Mitsui Fudosan Co., Ltd., and employs this company’s expertise to invest in carefully selected, high-quality
properties, with the aim of generating further asset growth.

Contents
Building on Our Strengths

1

Location of Office Properties

Financial Highlights

2

Portfolio Overview

18

To Our Shareholders

4

Management Team and Management Structure

20

Phase II Begins

6

Management’s Discussion and Analysis

22

A Continuing Record of Achievement

8

Financial Statements

33

Six Months of Progress

8

Appendix46

Ongoing Improvement in Portfolio Quality

9

Investment and Distribution Policies

48

A Track Record of Steady Growth and High Occupancy Rates

10

Corporate Data

58

New Acquisitions

11

Investors’ Information

59

On the CoverWhen NBF concluded the sale and purchase contract for the
NBF Platinum Tower in September 2003, it was the company’s
first development project in which it assumed tenant leasing
risk. In March 2006, NBF acquired the property, which continues
to be fully occupied, contributing to NBF’s profitability.

16Building on Our Strengths

Japan’s First andLargest J-REIT◆ In September 2001, NBF was listed as the first real estate
investment corporation in Japan on the J-REIT section of theTokyo Stock Exchange.
◆ The largest total market capitalization of any J-REIT(¥ 563.9 billion)*

High-Quality
Properties◆ Specializes in investing in office buildings◆ Possesses 55 properties*, mainly large-scale officebuildings in the Tokyo Central Business Districts◆ Diversified in other Tokyo markets as well as in regional cities◆ Total rentable area of 670,249m2*◆ The largest scale of managed assets(¥ 624.8 billion)*◆ 887* diversified tenants

NBF’s Strengths◆ Ratings*■

Standard & Poor‘sLong-term Corporate: A, Short-term Corporate: A-1■

Moody‘s Issuer Rating: A2■

R&I Issuer Rating: AA-◆ Cash distribution of ¥19,391 pershare for the 10th period◆ 123.3 % total return** since Tokyo Stock Exchange
listing on September 10, 2001

◆ LTV (Loan to Value): 41.0 %◆ Percentage of long-term, fixed-rate debt included ininterest-bearing debt: 89.3 %*◆ Average years remaining on long-term, fixed-rateinterest-bearing debt: 5.94 years*◆ 14.9 % total return** for NBF in most recent year,
compared with 4.7 % for TSE J-REIT index(Source: Bloomberg L.P.)** Total return includes reinvested distributions.

◆ Total average cost: 1.52 %*Sound Finances

Strong Returns

Strategic Partnership with Mitsui Fudosan◆ Access to the expertise of Mitsui Fudosan Co., Ltd., the leading real estate company in Japan■ Acquisition of properties developed by Mitsui Fudosan■ Use of property information-gathering capabilities of Mitsui Fudosan■ Use of Mitsui Fudosan’s tenant mediation and building management capabilities in office management* As of June 30, 2006

NBF Report January–June 2006

1

Financial Highlights

10th Period

9th Period

8th Period

7th Period

10th Period

from January 1, 2006 toJune 30, 2006

from July 1, 2005 to
December 31, 2005

from January 1, 2005 toJune 30, 2005

from July 1, 2004 to
December 31, 2004

from January 1, 2006 toJune 30, 2006

(Yen in millions, except per share data or where otherwise indicated)

Operating revenue
Income before income taxes
Net income
Funds from operations
Net operating income
from property leasing activities
Total amount of cash distribution
Total assets
Interest-bearing debt
Total shareholders’ equity (Net assets)
LTV (Loan to value)
Total number ofcommon shares issued (shares)
Net assets per share (Yen/$)Distribution per share (Yen/$)Funds from operations per share (Yen/$)Note 2¥ 24,307
9,852
9,851

Note 3Note 3(a)U.S. dollars in thousands(Note 1)

12,951¥ 19,363
7,206
7,205
10,869¥ 16,731
6,162
6,161
9,441

¥ 16,116
6,307
6,306
8,259

$ 212,277
86,03286,024
113,099(b)Note 3

15,936
9,851
633,693
237,500
356,29741.0%

13,3337,205
564,902257,500
269,375
48.5%

11,457
6,161
449,556
199,700
216,840
44.4%

10,2386,306
430,378
179,500
216,98541.7%

139,165
86,024
5,533,956
2,074,055
3,111,497—(c)(b) / (c)(a) / (c)Note 3508,000
701,373
19,391
27,395

422,700
637,274
17,046
26,505364,700
594,571
16,89325,887364,700
594,968
17,291
23,060

6,125
169
239

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥114.51 = U.S.$1.00, the approximate exchange rate on June 30, 2006.
2. Operating revenue does not include consumption taxes.
3. Net operating income from property leasing activities: (Revenue from property leasing – Rental 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 share: (Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization) / Weighted average number of common shares issued and outstanding during the period.
Loan to value: (Interest–bearing debt + Deposits under management) / Total assets

Portfolio Highlights (As of June 30, 2006)
Asset Allocation

Regional Allocation

Total Assets

Total Real Estate, Etc.

¥633,693 million¥599,851 million
Deposits andOther Assets

Other Cities¥33,842 million(5.4%)¥81,547 million(13.6%)

Real Estate

Other GreaterTokyo¥225,110 million(35.5%)¥115,775 million(19.3%)

Real Estate Held in TrustTokyo CBDs*¥374,741 million(59.1%)¥402,529 million(67.1%)* Central Business Districts

2

NBF Report January–June 2006

Operating revenue / Net income

Total assets

Distribution per share /Net assets per share(Yen in millions)(Yen in millions)(Yen)

25,000700,000

25,000600,000

20,000700,000

15,000650,000

10,000600,000

5,000

550,000

Operating revenue
Net income

20,000500,000

15,000750,000

Distribution per share (left scale)
Net assets per share (right scale)

400,000
10,000300,000
5,000
0

0

0

6th

7th

8th

9th

10th

6th

7th

8th

9th

10th

PeriodPeriodPeriodPeriodPeriodPeriodPeriodPeriodPeriodPeriod6th
Period7th
Period8th
Period9th
Period10th
PeriodList of Major Tenants (As of June 30, 2006)
Name

1
2
3
4
5
6
7
8
9
10

Mitsui Fudosan Co., Ltd. 1
IBM Japan, Ltd. 2
GlaxoSmithKline K.K. 2
AXA Life Insurance Co., Ltd. 2
Fuji Xerox Co., Ltd.
Nippon Steel Corporation 2
Nikkei Business Publications, Inc. 2
Transcosmos Inc. 2
NTT Communications Corporation
NEC Facilities, Ltd.

Leased Space(m2)

Percentage of Total
Rentable Area3

169,51428,184
22,791
17,441
16,263
15,333
13,135
8,816
8,493
7,483

25.6%
4.3%
3.4%
2.6%
2.5%
2.3%
2.0%
1.3%
1.3%
1.1%

Notes: 1. NBF receives lease revenue from Mitsui Fudosan Co., Ltd. after Mitsui Fudosan has taken a fixed percentage commission of the lease revenue from the tenants of the sub-leased space.
2. Indicates tenants with long-term lease contracts (IBM Japan, Ltd.’s contract expires January 2010; GlaxoSmithKline K.K.’s contract (GSK Building) expires September 2010; AXA Life
Insurance Co., Ltd.’ s contract expires November 2010; Nippon Steel Corporation’s contract expires November 2009; Nikkei Business Publications, Inc.’s contract expires November 2009;
Transcosmos Inc.’s contract (Shibuya Garden Front) expires September 2009)
3. Percentage of total rentable area = Leased space ÷ Total rentable area of all properties in portfolio

NBF Report January–June 2006

3

To Our Shareholders

The six-month period ended June 30, 2006 was the close of the first phase of development of
Nippon Building Fund Inc. (“NBF”), which began with the company’s founding. During this time,
NBF grew its assets and generated stable income. On July 1, 2006, our second phase of development began. We aim to build on the competitive advantages we have established while further
expanding shareholder value.

Koichi Nishiyama,
Executive Director of Nippon Building Fund Inc.
President and CEO of Nippon Building Fund Management Ltd.

Performance during the Six Months Ended June 30, 2006
During the six months ended June 30, 2006 (the “10th Period”),
NBF expanded assets under management and generated gain on
the sale of a property. Revenue and income increased as a result,and cash dividends per share totaled ¥19,391, the highest since
NBF listed its shares.
During the six months ended June 2006, NBF acquired two new buildings, sold one building, and executed an exchange of buildings with Mitsui
Fudosan Co., Ltd. As a result, our real estate portfolio increased by a net
three properties to 55 buildings. Total investment on an acquisition pricebasis increased 15.8 percent compared to the previous six-month period to¥624,839 million. Operating revenue for the six months ended June 2006
increased 25.5 percent compared to the previous six-month period to¥24,307 million, and operating income increased 33.1 percent to ¥11,685
million. Reasons included higher lease revenue as a result of the asset
growth discussed above and gains on sales of buildings. Net income
increased 36.7 percent compared to the previous six-month period to¥9,851 million, and cash dividends per share totaled ¥19,391, the highest
since NBF listed its shares.

ing environment. In the office building market, asset management benefited
from substantially improved occupancy rates, particularly in Tokyo’s central
business districts, and a sustained increase in rent levels of new lease contracts. However, in the real estate acquisition market the price of incomeproducing properties has been increasing, primarily in the central business
districts of Tokyo. Participants such as private funds and J-REITs have been
investing aggressively, resulting in increasingly challenging conditions.
In this environment, NBF proceeded to acquire properties after careful
deliberation using information acquired through a number of proprietarychannels, including Mitsui Fudosan Co., Ltd. We concentrated on investingin and managing high-quality buildings that are highly competitive andhave the potential for stable future cash flow.
As a result, we acquired two new properties – the NBF Platinum
Tower and the Shin-Kawasaki Mitsui Building – and transferred the
Otemae Center Building out of our portfolio. In addition, we exchanged theJFE Building for five properties owned by Mitsui Fudosan Co., Ltd. after
accepting a termination notice from JFE Steel Corporation, the sole tenantof the JFE Building. The exchange of buildings with Mitsui Fudosan Co.,
Ltd. further enhanced the quality of our portfolio. As a result of these initiatives, we achieved a high level of net operating income (NOI) of 5.5 percent

Investment Environment and Initiatives

on an acquisition price basis.

The office leasing market was favorable during the six months
ended June 2006, and competition increased in the real estate
acquisition market. NBF focused on investing in and managing
high-quality buildings that are highly competitive and have thepotential for stable future cash flow.
During the six months ended June 30, 2006, factors including visible,

4

fundamental recovery throughout Japan’s economy affected NBF’s operat-

Phase I in Retrospect
During Phase I of NBF’s development, successes such as
achieving objectives for assets under management ahead ofschedule made NBF the largest J-REIT and allowed NBF tostructure a highly profitable portfolio.

NBF Report January–June 2006

Since becoming the first J-REIT in Japan to list its shares in

to NBF’s growth. In addition, we will work to steadily increase assets

September 2001, NBF’s management policy has been sustainable growthunder management by taking advantage of additional external opportuni-

in portfolio value and stable profits on a medium-to-long-term basis. We

ties for growth enabled by the scale and quality of the portfolio we built

have structured a high-quality portfolio of large-scale office buildings, pri-during Phase I. In particular, we will take on tenant leasing risk in develop-

marily in Tokyo’s central business districts.

ment in order to aggressively promote acquisition of development projects

NBF’s objective for assets was ¥500 billion by the end of March 2006.

that take advantage of excellent investment opportunities.

Asset expansion has created economies of scale. NBF also had the objec-

Furthermore, we are moving to sufficiently insulate the solid financial

tive of reducing its dependence on the JFE Building, which accounted forbase we structured in Phase I against expected increases in interest rates.

approximately 38 percent of NBF’s portfolio when the fund was established.

Along with these efforts to grow and strengthen NBF’s profitability,

Numerous challenges have confronted NBF as it worked toward theseassets and financial base, we are also working to enhance our manage-

goals, including terrorist attacks in the United States, recession in Japan,

ment and compliance capabilities by strengthening our systems for han-weak real estate market conditions, and the so-called “2003 Problem” whendling increased assets and changing social requirements. We intend tothe completion of several large-scale office buildings in succession in cen-maintain and strengthen sound, long-term relationships with shareholders.

tral Tokyo resulted in an oversupply. Yet over the past 10 fiscal periods we

In implementing these Phase II initiatives, NBF will work to increase

have established a track record of outstanding asset management.
In October 2005, NBF achieved its goal of ¥500 billion in assets underfunds available for distribution* over the medium term with the aim ofincreasing shareholder value.

management six months ahead of schedule, and assets under management

On the basis of these fundamental policies, for the six months ending

as of June 30, 2006 totaled ¥624,839 million. Moreover, initiatives such as

December 31, 2006 (the “11th Period”), NBF projects operating revenue ofthe exchange of the JFE Building during the six months ended June 30,¥25,701 million, net income of ¥9,398 million, and cash dividends per share2006 have allowed NBF to further strengthen the quality of its portfolioof ¥18,500. For the six months ending June 30, 2007 (the “12th Period”),

while reducing property concentration risk. NBF has also been able to

NBF projects operating revenue of ¥25,739 million, net income of ¥9,449

reduce the average age of its portfolio to 12.86 years from 17.72 years as

million, and cash dividends per share of ¥18,600. These projections assumeof December 31, 2001, while reducing its portfolio’s probable maximum

no acquisitions or sales of buildings and no issue of new shares.

loss (PML), or the maximum expected rate of loss in the event of an earth-

NBF drives the Japanese J-REIT market because of the scale of its

quake, to 3.1 percent from 4.8 percent as of December 31, 2001. In addi-

assets and its management system. In Phase II of NBF’s development, NBF

tion, we have structured a stable financial base, with a 41.0 percent loan-

sees its mission as generating additional growth from the assets, financial

to-value (LTV) ratio, calculated as the ratio of the total amount of borrow-base and expertise built since the fund’s founding.

ings of NBF bonds and lease deposits under management to the total

Looking forward, NBF will manage its assets according to its invest-

amount of assets of NBF, and a ratio of long-term, fixed-rate debt to total

ment policy of achieving sustainable growth in portfolio value and stableinterest-bearing debt of 89.3 percent.

profits over the medium-to-long term. Our objective will be increased
shareholder value.

Basic Policies for Phase II and Outlook

We will be counting on your continued support as we work toward

During Phase II, we will make full use of the portfolio we structured during Phase I and our financial base in working to further
enhance shareholder value.

these goals.

Koichi Nishiyama,

Phase II will cover the five years beginning July 1, 2006. We see it as

Executive Director of Nippon Building Fund Inc.
President and CEO of Nippon Building Fund Management Ltd.

a time during which we will steadily capture the benefits of economic
recovery and deploy our management capabilities.
Office rents have been rising. During the six months ending December
31, 2006, which is the first period of Phase II, rent increases will be central*Funds available for distribution: cash dividends per share calculated based on operating income
from property leasing excluding the effect of property sales and property and urban planningtaxes that accrue in the first fiscal period upon acquisition of real estate.

NBF Report January–June 20065

Phase II Begins

Nippon Building Fund Inc. will make full use of the portfolio and financial base it has
structured during Phase I to strengthen its initiatives in the areas of internal and external
growth, finance, and management and compliance systems. This will support our efforts toincrease dividends over the medium term and expand shareholder value.

Phase I: The Past Five Years
NBF drives the Japan real estate investment trust (JREIT) market, and has structured a large-scale, high-quality
portfolio and a stable, solid financial base.

and moved decisively to enhance portfolio quality by exchanging the JFE

Over the past ten fiscal periods, NBF has built a solid track record ofratio of long-term, fixed-rate debt to total interest-bearing debt of 89.3 per-growth and shareholder value. NBF is the largest J-REIT in terms of assets,

Building for five high-potential properties during the six months ended June30, 2006. In addition, we have structured a stable financial base with acent and a conservative loan-to-value (LTV) ratio of 41.0 percent.

Phase II: The Next Five Years
NBF will make full use of the portfolio and financial baseit structured during Phase I with the aim of achieving sustainable growth in portfolio value and stable profits on a
medium-to-long-term basis to generate further growth inshareholder value.

Phase II Management Policies
Internal Growth

External Growth

Fully realize the potential of
NBF’s enhanced portfolio.

Fully use NBF’s three competitive advantages of scale, information and expertise, and takethem to a new level.

Phase II will cover the five years beginning July 1, 2006. We intend to
steadily capture the benefits of economic recovery and deploy our asset
management capabilities. Growing demand for prime office space is providing opportunities for rent increases, which will be the principal axis of inter-

Financenal growth for NBF at the start of Phase II. In addition, we will act on addi-

Maintain conservative financial policies.

tional external opportunities for growth enabled by the scale and quality ofthe portfolio we built during Phase I to steadily increase assets under man-Management andCompliance Systems
Strengthen systems for handling increased assets andchanging social requirements.

agement. We will maintain fiscal discipline to insulate our solid financialbase against expected increases in interest rates, while further enhancing
our sound management and compliance systems.

6

Increase dividends over the medium term

NBF Report January–June 2006

NBF will focus on four areas during Phase II: internal growth; external growth; finance; and management and compliance systems. With
the aim of increasing shareholder value over the medium term, NBF will work to increase funds available for distribution, which are cash
dividends per share calculated based on operating income from property leasing excluding the effect of property sales and property andurban planning taxes that accrue in the first fiscal period upon acquisition of real estate.

Internal Growth
NBF will extract maximum value from the enhanced portfolio it

maximize our use of the comprehensive strengths of Mitsui Fudosan instructured during Phase I. We also intend to strengthen the profitability

working to maintain high occupancy rates with high-quality tenantof our portfolio. NBF will concentrate on increasing rent levels for leaseservices. Moreover, we will enhance market competitiveness by con-contracts that are substantially below the market average. We will also

ducting strategic renovations while strategically revising our portfolio.

External Growth
While making optimum use of our three competitive advantages ofour creativity and risk management, as represented by projects such

scale, information and expertise, we will continue to acquire out-as the NBF Platinum Tower, while investigating issues including new

standing properties to steadily expand assets under management.

acquisition methods to further differentiate NBF. In addition, we will

We will work to capture a wide variety of excellent investment

continue to employ information gathered from Mitsui Fudosan andopportunities by exploiting economies of scale in developing andother important sources in working to strengthen and enhance ourrehabilitating properties. We will also enhance the sophistication of

proprietary information channels.

Finance
With the aim of maintaining conservative financial policies, NBF will

total interest-bearing liabilities to prepare against interest rate increas-

work to maintain and strengthen its stable financial base to counter thees. In procuring funds, we will emphasize diversity, flexibility and stag-risk of higher interest rates. We intend to keep our LTV ratio at 40 to 50

gered maturities.

percent while maintaining a high ratio of long-term, fixed-rate debt toManagement and Compliance Systems
NBF aims to maintain and strengthen sound, long-term relation-

the level of risk management organization. In addition, NBF is enhanc-ships of trust with shareholders while strengthening its systems foring the content of disclosure and maintaining and improving its trans-

handling increased assets and changing social requirements. We areparency, while reinforcing the organization, personnel and systems ofworking to strengthen compliance and risk management in ways suchits asset management company so that it provides consistent asset

as enhancing internal controls, improving internal audits, and raising

management know-how.

NBF Report January–June 2006

7

A Continuing Record of Achievement

Six Months of Progress
April 2006

After accepting a lease termination notice effective March 31, 2007 from JFE Steel Corporation, theFive Properties Acquired
through JFE Building
Exchangesole tenant of the JFE Building, NBF transferred the JFE Building to Mitsui Fudosan Co., Ltd. and in returnacquired the Nishi-Shinjuku Mitsui Building (additional acquisition), Gate City Ohsaki, the Toranomon
Kotohira Tower (additional acquisition), the Parale Mitsui Building, and the Shinanobashi Mitsui Building in
April 2006. This transaction allowed NBF to resolve the effect of the departure of the JFE Building’s tenantby securing stable cash flow from the five properties received in exchange. Moreover, the transaction
reduces NBF’s dependence on a single large tenant, thus reducing asset concentration risk, and also
allowed NBF to further strengthen the quality of its portfolio.

March 2006

NBF acquired the NBF Platinum Tower in March 2006, having concluded the sale and purchase contract

Acquisition of NBF
Platinum Tower

for this development project in September 2003. Purchasing a development project in collaboration with
Mitsui Fudosan Co., Ltd. enabled NBF to systematically acquire an outstanding new property. The property
is fully occupied, and contributing to NBF’s profitability.

March 2006

In March 2006, NBF acquired a 35 percent co-ownership interest in the Shin-Kawasaki Mitsui Building withAcquisition of ShinKawasaki Mitsui Building

the intention of enhancing NBF’s portfolio in other Greater Tokyo. This large-scale property features 31-story twin
towers, and is highly competitive compared with other buildings in the surrounding area. It has excellent accessto major neighboring urban areas, and an urban redevelopment project is planned in the vicinity. NBF therefore
expects this property to become even more profitable as improvements in the surrounding area progress.

June 2006

Project Agreement
Concluded to Expand the
NBF Nagoya Hirokoji
Building

In June 2006, NBF concluded a project agreement with Taisei Corporation under which Taisei will construct an addition to the NBF Nagoya Hirokoji Building and then sell this additional property to NBF once thebuilding expansion is completed. With acquisition scheduled for January 2008, the new large-scale building
will enhance NBF’s ability to attract new tenants and respond to the needs of existing tenants for additional
floor space. NBF expects these and other factors to make the property more competitive and increase its
returns. In addition, NBF will participate with Taisei in product planning and other parts of the expansion
plan, and will work to strengthen the property’s competitiveness while moving toward early acquisition.

March 2006

Issue of New Shares
Increases Capital

8

In March 2006, NBF issued new shares through a public offering and a third-party allocation. The 85,300
new shares issued generated proceeds of ¥84,276 million, which NBF used for purposes including theacquisition of the NBF Platinum Tower and other properties and debt repayment.

NBF Report January–June 2006

Ongoing Improvement in Portfolio Quality
Our portfolio has improved in quality as it has increased in asset value. The graphs below compare our portfolio from the end of the 1st period
through to the end of the 10th period.

End of the 1st period

End of the 8th period

End of the 9th period

End of the 10th period(December 31, 2001)(June 30, 2005)(December 31, 2005)(June 30, 2006)

37.5%

39.0%

33.2%

31.9%

46.5%
20.9%

Diversifying tenant risk
(Ratio of leased area of the top 10 tenants to total leased area)

54.3%

Ratio of 9 tenants excluding Mitsui Fudosan Co., Ltd. (top 10 tenants at the end of the 1st period)

Mitsui Fudosan Co., Ltd.

Diversifying property concentration risk
(Ratio of total acquisition price of top three properties to total acquisition price of all owned properties)

32.0%

23.0%

17.00 years

16.38 years

12.86 years

14.6%

20.4%

31.4%

54.0%

Average age(Average age of properties weighted by acquisition price of each property at the end of each period)

17.72 years
11.5%
88.5%

5.7%
74.3%

79.7%
Over 10 years

5.4%

Between 5 and 10 years

25.5%
14.7%
59.8%

5 years or less

Portfolio PML (Probable Maximum Loss)

4.8%

3.6%

NBF Report January–June 2006

3.8%

3.1%

9

A Track Record of Steady Growth and High Occupancy Rates
Occupancy rate (%)

100.0

96.9

97.5

97.7

97.4
95.0

97.5

98.1

98.1

98.7

94.8
92.3
Total rentable area (m2)90.0
800,000

Acquisition priceTokyo CBDs

Acquisition price(Yen in billions)670,249

700,000

Other Greater Tokyo

800

Other cities
600,000

578,243700

Occupancy rate
Total rentable area

624.8
488,323600

500,000

460,901
539.3
419,511500

400,000

358,940414.1

340,497400

303,486

393.8

322,344

277,054300,000

336.1

247,687
300

226.5
200

246.0

260.2

276.0

285.6
200,000

192.1

100,000
100

0

22

24

26

28

29

33

43

43

47

52

55

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

May 23,
2001

December 31, June 30,
2001
2002

December 31, June 30, December 31, June 30,
2002
2003
2003
2004

December 31, June 30, December 31, June 30,
2004
2005
2005
2006

(Investment commencement date)

10

NBF Report January–June 2006

0

A Continuing Record of Achievement

New Acquisitions
NBF Platinum Tower
10th period, Tokyo CBDs

Gate City Ohsaki
10th period, Tokyo CBDs

This was the company’s first development
project in which it assumed tenant leasing
risk. In March 2006, NBF acquired the property, which continues to be fully occupied,contributing to NBF’s profitability.

Gate City Ohsaki is a large-scale, redeveloped complex consisting of the west andeast office buildings, as well as commercial
and cultural facilities.

Shin-Kawasaki Mitsui Building

Shinanobashi Mitsui Building

10th period, Other Greater Tokyo

10th period, Other cities

With highly visible, 31-story twin-towerbuildings, these skyscrapers have a favorably
configured standard floor area of approximately 1,261m2.

Shinanobashi Mitsui Building is a large scalebuilding with a standard floor configuration,
providing specifications that meet tenantneeds.

Nishi-Shinjuku Mitsui Building(Additional acquisition)

Parale Mitsui Building
10th period, Other Greater Tokyo

10th period, Tokyo CBDs
Nishi-Shinjuku Mitsui Building has a standard rentable floor area of approximately
1,576m2 providing bright and open space.

Toranomon Kotohira Tower(Additional acquisition)

Parale Mitsui Building is a 22-story building,providing a nicely shaped standard rentablefloor area of approximately 919m2.

NBF Nagoya Hirokoji Building(Building expansion)

10th period, Tokyo CBDs

After 11th period, Other cities

With the recent completion of improvements
to this property, every function required forcontemporary offices can be incorporated bymeans of the latest design technology.

NBF Report January–June 2006

A current expansion plan is expected tomake the whole property very competitive inattracting new tenants.

11

New Acquisitions

NBF Platinum Tower

10th period, Tokyo CBDs

Acquisition date

March 31, 2006

Ownership status

Fee simple

Acquisition price¥31,000 million

Acquisition structure

Trust

Location

17-3, Shirokane 1-chome, Minato-ku, Tokyo

Site area

4,373.93m2

Floor area of building

48,762.65m2

Structure

26 floors above ground, 2 floors below

Completed

November 21, 2005

Shin-Kawasaki Mitsui Building

10th period, Other Greater Tokyo

Acquisition date

March 31, 2006

Ownership status

Co-ownership

Acquisition price¥20,300 million

Acquisition structure

Ownership

Location

890-12, Kashimada, Saiwai-ku, Kawasaki, Kanagawa

Site area

19,478.07m2 *Floor area of building

138,485.98m2 *Structure

32 floors above ground, 2 floors below

CompletedMay 22, 1989

* The figures above for Site area and Floor area of building indicate the total site area and total floor area of this property. NBF owns 35.0% of this property.

12

NBF Report January–June 2006

A Continuing Record of Achievement

Nishi-Shinjuku Mitsui Building (Additional acquisition)
Acquisition date
Ownership status
Acquisition price10th period, Tokyo CBDs

April 24, 2006
(September 30, 2003, for the existing acquisition)

Condominium, co-ownership of condominium¥43,300 million(¥44,903 million for the additional and existing acquisition)

Acquisition structure

Ownership

Location

24-1, Nishi-shinjuku 6-chome, Shinjuku-ku, Tokyo

Site area

10,014.02m2 *Floor area of building

84,634.02m2 *Structure

27 floors above ground, 2 floors below

Completed

April 28, 1999

* The figure above for Site area indicates the total site area of this property. NBF owns about 76.64% of the land and about 85.11% of the building.

Toranomon Kotohira Tower (Additional acquisition)
Acquisition date
Ownership status
Acquisition price10th period, Tokyo CBDs

April 24, 2006
(November 30, 2004, for the existing acquisition)

Condominium¥18,500 million(¥24,543 million for the additional and existing acquisition)

Acquisition structure

Ownership

Location

2-8, Toranomon 1-chome, Minato-ku, Tokyo

Site area

3,647.30m2 *Floor area of building

29,353.21m2 *Structure

26 floors above ground, 3 floors below

Completed

November 13, 2004

* Condominium interest: 100% of floors 4 through 25
Superficies rights: co-ownership of 1,256.19m2
Superficies rights and easements: 1,035.23m2

NBF Report January–June 2006

13

New Acquisitions

Gate City Ohsaki

10th period, Tokyo CBDs

Acquisition date

April 24, 2006

Ownership status

Condominium, co-ownership of condominium

Acquisition price¥30,100 million

Acquisition structure

Ownership

Location

11-1, 2, 6, Ohsaki 1-chome, Shinagawa-ku, Tokyo

Site area

42,509.31m2 *Floor area of building

287,349.75m2 *Structure

24 floors above ground, 4 floors below

Completed

January 6, 1999

* The figures above for Site area and Floor area of building indicate the total site area and total floor area of this property. NBF owns about 12.89% of this property.

Shinanobashi Mitsui Building

10th period, Other Cities

Acquisition date

April 24, 2006

Ownership status

Co-ownership

Acquisition price¥14,400 million

Acquisition structure

Ownership

Location

11-7, Utsubohonmachi 1-chome, Nishi-ku, Osaka, Osaka

Site area

4,298.26m2 *Floor area of building

36,301.54m2 *Structure

12 floors above ground, 2 floors below

Completed

September 29, 1982

* The figures above for Site area and Floor area of building indicate the total site area and total floor area of this property. NBF owns 99.0% of this property.

14

NBF Report January–June 2006

A Continuing Record of Achievement

Parale Mitsui Building

10th period, Other Greater Tokyo

Acquisition date

April 24, 2006

Ownership status

Co-ownership of condominium

Acquisition price¥3,800 million

Acquisition structure

Ownership

Location

8, Higashidacho, Kawasaki-ku, Kawasaki, Kanagawa

Site area

5,673.25m2 *Floor area of building

50,934.97m2 *Structure

22 floors above ground, 1 floor below

Completed

October 16, 1990

* The figures above for Site area and Floor area of building indicate the total site area and total floor area of this property. NBF owns about 72.62% of this property.

NBF Nagoya Hirokoji Building (Building expansion)

After 11th period, Other Cities

Acquisition date

January 2008 (expected)

Ownership status

Fee simple

Acquisition price¥1,914 million (expected)(Total price ¥7,320 million)

Acquisition structure

Ownership

Location

3-6, Sakae 2-chome, Naka-ku, Nagoya, Aichi

Site area

431.30m2 (expected)(1,683.76m2 for the additional and existing acquisition)

Floor area of building

3,608.00m2 (expected)(14,809.68m2 for the additional and existing acquisition)

Structure
Completion

9 floors above ground, 1 floor below(9 floors above ground, 2 floors below acquired in the previous period)

January 2008 (expected)(Existing portion: October 25, 2000)

Note: On June 9, 2006, NBF concluded a contract for an expansion project for the NBF Nagoya Hirokoji Building.

NBF Report January–June 200615

Location of Office Properties

Tokyo CBDs
Kita-ku

1 Yamato Seimei Building
2 Nishi-Shinjuku Mitsui Building
3 Shiba NBF Tower

Arakawa-ku

24 23

4 NBF Platinum Tower

Toshima-ku

5 Gate City Ohsaki
6 Toranomon Kotohira Tower
7 Nihonbashi Muromachi Center Building

Taito-ku

Bunkyo-ku

Nakano-ku

8 Nakameguro GT Tower
28

9 Shinjuku Mitsui Building No.2
10 GSK Building

Sumida-ku
Shinjuku-ku

2

22

11 NBF Toranomon Building

Chiyoda-ku

9

12 Kowa Nishi-Shinbashi Building B
13 Nippon Steel Building No.2

15
Imperial
Palace10

14 NBF Alliance25
7Chuo-ku

19

15 Yotsuya Medical Building

Koto-ku

1

Shibuya-ku

16 Shibuya Garden Front

6

17 NBF Shibakouen Building

11

12

14
16

18 NBF Takanawa Building
19 Akasaka Sanno Square

Setagaya-ku

20 Sumitomo Densetsu Building

8

Minato-ku

21

13

3

27

17

26
4

21 NBF Higashi-Ginza Square

18
20

22 NBF Ogawamachi Building

Tokyo Bay

Meguro-ku

23 NBF Ikebukuro Tower
24 NBF Ikebukuro City Building
25 NBF Sudacho Verde Building

5

26 NBF Ebisu-minami Building

Shinagawa-ku

Other Greater Tokyo
27 IST Building
28 Nakanosakaue Sunbright Twin

1 Yamato Seimei Building●16

3 Shiba NBF Tower●

16 Shibuya Garden Front●

NBF Report January–June 2006

19 Akasaka Sanno Square●

21 NBF Higashi-Ginza Square●As of June 30, 2006
Other Greater TokyoTOCHIGI

29 Shin-Kawasaki Mitsui Building
30 Yokohama ST Building

UTSUNOMIYA

34

31 Parale Mitsui Building

33

32 NBF Atsugi Building

IBARAKITo Omiya

35 36

33 Tsukuba Mitsui Building
34 NBF Utsunomiya Building

SAITAMA

35 S-ino Omiya North Wing
36 Daido Life Omiya Building

37

37 NBF Urawa Building
38 NBF Matsudo Building
38

TOKYO

CHIBA
28
27

Other Cities
Tokyo Bay

29
31

39 Sapporo L-Plaza
32

40 NBF Sapporo Minami Nijo Building

30

39 40

41 NBF Sendai Honcho Building
42 NBF Unix Building

KANAGAWA

43 NBF Niigata Telecom Building
44 NBF Nagoya Hirokoji Building
45 Aqua Dojima NBF Tower
43

41
42

46 Shinanobashi Mitsui Building
47 Sun Mullion NBF Tower
48 Sakaisuji-Honmachi Center Building

52

49 NBF Sakai-Higashi Building

44

50 NBF Tanimachi Building

53 54
55

45 46 47 48

51 Aqua Dojima East

49 50 51

52 NBF Shijo Karasuma Building
53 NBF Hiroshima Tatemachi Building
54 Hiroshima Fukuromachi Building
55 NBF Hakata Gion Building

27 IST Building●

28 Nakanosakaue●

Sunbright Twin

35 S-ino Omiya North Wing●

45 Aqua Dojima NBF Tower●
51 Aqua Dojima East●

NBF Report January–June 2006

47 Sun Mullion NBF Tower●

17

Portfolio Overview
NBF’s properties as of June 30, 2006 are as follows:

Name of Building

Investment
Type

Type of Ownership

Percentageof OwnershipYear Built

Acquisition
Price

(%)

Book Value(Yen in millions)Tokyo CBDs
1 Yamato Seimei Building●
2 Nishi-Shinjuku Mitsui Building●
3 Shiba NBF Tower●
4 NBF Platinum Tower●
5 Gate City Ohsaki●
6 Toranomon Kotohira Tower●
7 Nihonbashi Muromachi Center Building●
8 Nakameguro GT Tower●
9 Shinjuku Mitsui Building No.2●
10 GSK Building●
11 NBF Toranomon Building●
12 Kowa Nishi-Shinbashi Building B●
13 Nippon Steel Building No.2●
14 NBF Alliance●
15 Yotsuya Medical Building●
16 Shibuya Garden Front●
17 NBF Shibakouen Building●
18 NBF Takanawa Building●
19 Akasaka Sanno Square●
20 Sumitomo Densetsu Building●
21 NBF Higashi-Ginza Square●
22 NBF Ogawamachi Building●
23 NBF Ikebukuro Tower●
24 NBF Ikebukuro City Building●
25 NBF Sudacho Verde Building●
26 NBF Ebisu-minami Building●

Trust
Ownership
Trust
Trust
Ownership
Ownership
Trust
Ownership
Trust
Trust
Trust
Trust
Ownership
Trust
Trust
Ownership
Ownership
Trust
Trust
Trust
Trust
Ownership
Trust
Trust
Ownership
Ownership

Fee simple
Condominium
Fee simple
Fee simple
Condominium
Condominium
Fee simple
Condominium
Fee simple
Fee simple
Fee simple
Co-ownership of condominium
Fee simple
Fee simple
Fee simple
Co-ownershipFee simple
Fee simple
Fee simple
Fee simple
Fee simple
Condominium
Fee simple
Fee simple
Fee simple
Fee simple

100.0
85.1
100.0
100.0
12.9
100.0
100.0
93.1
100.0
100.0
100.0
83.0
100.0
100.0
100.0
50.0
100.0
100.0
100.0
100.0
100.0
83.8
100.0
100.0
100.0
100.0

1984
1999
1986
2005
1999
2004
1986
2002
1983
1990
1963
1994
1989
1989
2004
2003
1990
1987
1989
1991
2005
1986
1993
1993
1988
1991

63,50044,90332,00031,00030,10024,54323,94523,856
16,285
15,616
13,337
13,217
12,614
9,126
8,800
8,700
6,770
6,667
6,250
5,365
5,200
4,940
4,695
4,428
2,380
1,000

64,54937,31732,17931,80725,223
21,762
24,111
23,25815,79814,31913,653
12,437
12,159
9,440
8,848
8,557
6,742
6,304
6,314
5,011
5,184
4,998
4,573
4,489
2,460
1,036

Trust
Trust
Ownership
Trust
Ownership
Ownership
Trust
Ownership
Ownership
Trust
Ownership
Ownership

Fee simple
Condominium
Co-ownership
Co-ownership
Co-ownership of condominium
Fee simple
Fee simple
Fee simple
Fee simple
Fee simple
Fee simple
Fee simple

100.0
31.6
35.0
75.0
97.5
100.0
100.0
100.0
100.0
100.0
100.0
100.0

2004
1996
1989
1987
1990
1991
1990
1996
2004
1991
1990
1992

35,2008,979
20,30013,529
3,800
2,300
8,876
2,435
16,816
2,361
2,000
2,455

34,871
8,547
20,405
12,769
3,291
2,239
7,875
2,598
16,542
2,240
2,006
2,392

Ownership
Trust
Trust
Trust
Trust
Ownership
Trust
Ownership
Trust
Ownership
Trust
Trust
Trust
Trust
Ownership
Ownership
Trust
—
—

Condominium
Fee simple
Fee simple
Fee simple
Fee simple
Fee simple
Fee simple
Co-ownershipFee simple
Co-ownership of condominium
Fee simple
Fee simple
Co-ownership of condominium
Fee simple
Fee simple
Co-ownership of condominium
Fee simple
—
—

46.2
100.0
100.0
100.0
100.0
100.0
100.0
99.0
100.0
49.3
100.0
100.0
23.7
100.0
100.0
10.4
100.0
—
—

2003
1990
1987
1994
1989
2000
1996
1982
1996
1991
1991
1993
1993
1991
1991
2002
1993
—
—

4,404
1,870
3,566
4,029
3,958
5,406
17,81014,40010,500
6,500
2,227
1,944
1,914
1,627
2,930
835
2,629
—
—
624,839

4,368
1,772
3,477
3,494
3,717
5,405
17,711
12,101
9,493
6,466
2,073
1,944
1,914
1,413
2,989
795
2,416
—
—
599,851

Other Greater Tokyo
27 IST Bldg●
28 Nakanosakaue Sunbright Twin●
29 Shin-Kawasaki Mitsui Building●
30 Yokohama ST Building●
31 Parale Mitsui Building●
32 NBF Atsugi Building●
33 Tsukuba Mitsui Building●
34 NBF Utsunomiya Building●
35 S-ino Omiya North Wing●
36 Daido Life Omiya Building●
37 NBF Urawa Building●
38 NBF Matsudo Building●

Other Cities
39 Sapporo L-Plaza●
40 NBF Sapporo Minami Nijo Building●
41 NBF Sendai Honcho Building●
42 NBF Unix Building●
43 NBF Niigata Telecom Building●
44 NBF Nagoya Hirokoji Building●
45 Aqua Dojima NBF Tower●
46 Shinanobashi Mitsui Building●
47 Sun Mullion NBF Tower●
48 Sakaisuji-Honmachi Center Building●
49 NBF Sakai-Higashi Building●
50 NBF Tanimachi Building●
51 Aqua Dojima East●
52 NBF Shijo Karasuma Building●
53 NBF Hiroshima Tatemachi Building●
54 Hiroshima Fukuromachi Building●
55 NBF Hakata Gion Building●
56 JFE Building●
57 Otemae Center Building●
Total

Notes: 1. Percentage of total revenue is the ratio of revenue from each office property to total revenue from all office properties.
2. Consent for disclosure was not obtained from tenants from whom rent revenue accounts for more than 80% of total rent revenue for the property. However, relevant figures are included in the total.
3. Figures stated above are based on NBF‘s ownership interest.

18

NBF Report January–June 2006

Revenue

Percentage ofTotal Revenue(Yen in millions)(Note 1)
(%)

65
1
27
5
1
1
14
1
42
1
11
2
2
9
1
1
3
5
6
1
9
1
12
13
3
3

1,770
534
1,057
511
374
442
896
1,003
656
Note 2570
Note 2611
284
269
Note 2
Note 2325
243
Note 2
231
186
212
179
111
59

7.7
2.3
4.6
2.2
1.6
1.9
3.9
4.4
2.9
Note 22.5
Note 22.7
1.2
1.2
Note 2
Note 21.4
1.1
Note 2
1.0
0.8
0.9
0.8
0.5
0.3

98.3
100
100
100
100
96.7
90.6
97.0
99.8
100
100
92.3

8
1
1
83
1
20
66
33
34
15
15
24

1,126
Note 2
476
750
101
138
479
143
742
120
109
129

4.9
Note 2
2.1
3.3
0.4
0.6
2.1
0.6
3.2
0.5
0.5
0.6

100
100
99.7
93.6
99.0
100
99.9
100
94.5
92.2
91.1
100
100
87.7
95.7
100
100
—
—
98.7

12
10
10
53
36
10
39
1
26
41
17
3
20
16
28
16
8
—
—
887

319
127
220
284
270
229
853
256
414
310
129
Note 2
115
90
156
42
157
1,365
22
22,872

1.4
0.6
1.0
1.2
1.2
1.0
3.7
1.1
1.8
1.4
0.6
Note 2
0.5
0.4
0.7
0.2
0.7
6.0
0.1
100.0

Appraisal Value

Rentable
Area

Leased Area at
End of Period

Occupancy Rate at
End of Period(Yen in millions)

(m2)

(m2)

(%)

63,80046,20031,30037,40030,80027,10029,40025,00020,90019,50017,60016,40014,810
11,1009,000
14,200
8,030
8,020
7,250
5,580
7,500
5,710
5,660
5,310
2,610
1,390

27,64032,967
24,72833,503
20,315
16,84816,30621,423
14,90022,702
10,354
10,08817,338
4,043
7,450
8,258
7,087
10,473
5,258
5,978
4,871
4,805
5,730
5,127
2,971
1,595

26,75632,967
24,72833,503
20,315
16,84815,911
21,423
14,74722,702
10,187
10,08817,338
4,043
7,450
8,258
7,087
10,473
5,258
5,978
4,871
4,805
5,730
5,127
2,628
1,595

96.8
100
100
100
100
100
97.6
100
99.0
100
98.4
100
100
100
100
100
100
100
100
100
100
100
100
100
88.5
100

35,80011,50020,50018,400
3,960
2,520
9,380
2,610
19,400
2,540
2,030
2,670

36,764
12,07427,92420,07012,545
5,230
16,842
6,163
20,699
3,574
3,455
4,772

36,144
12,07427,92420,07012,545
5,059
15,265
5,977
20,650
3,574
3,455
4,405

5,360
1,800
4,160
4,370
4,550
5,940
21,20014,50010,100
6,810
2,520
2,030
2,080
1,690
3,140
877
2,620
—
—
696,627

11,396
5,352
7,567
13,47910,221
6,873
21,93525,237
14,121
11,438
5,327
4,948
3,243
3,931
5,587
1,310
5,416
—
—
670,249

11,396
5,352
7,542
12,623
10,123
6,873
21,917
25,237
13,347
10,551
4,852
4,948
3,243
3,447
5,346
1,310
5,416
—
—
661,481

Total Number ofTenants at
End of Period

NBF Report January–June 2006

19

Management Team and Management Structure
Corporate Structure and Management
Nippon Building Fund Inc. (NBF) is an investment corporation that takes a medium-to-long-term perspectivewith the aim of generating steady asset growth and stable earnings. NBF believes that fair, transparent
management is central to increasing return on investment
March 10, 2005, and the date of the next General Meeting of Shareholders

Nippon Building Fund Inc.
Nippon Building Fund Inc. is an investment corporation established withthe objective of investing in assets, primarily Designated Assets as definedby the Investment Trust Law of Japan. NBF entrusts management of its
assets to Nippon Building Fund Management Ltd., which is an asset man-has not been set.
The General Meeting of Shareholders adopts or vetoes resolutions on thebasis of a simple majority of the voting rights of shareholders in attendance,
unless otherwise stipulated by laws, regulations or NBF’s articles of incorporation. Decisions on substantive matters such as changes in the articles ofagement company.
NBF’s primary investment objective is to achieve sustainable growth inportfolio value and stable profits on a medium- to long-term basis. NBF
achieves this objective by investing in real estate consisting of buildings primarily used for offices with their underlying land located in central business
districts (CBDs) in Tokyo, Greater Tokyo and other cities in Japan. NBF also
invests in securities, beneficiary certificates representing beneficial interests
in trusts (beneficiary certificates) and other assets backed by office properties.

General Meeting of Shareholders

incorporation require the attendance of shareholders that control a simple
majority of total shares issued and outstanding, and a two-thirds majority ofthe voting rights of such shareholders. In addition, any change in the asset
management policies and standards, which are stipulated by NBF’s articles
of incorporation, requires an extraordinary resolution of shareholders as outlined above.

Executive Directors, Supervisory Directors and theBoard of Directors
NBF’s articles of incorporation stipulate that NBF must have one or more

Specific matters pertaining to NBF that are subject to the Investment

executive directors and four or fewer supervisory directors (but the number

Trust Law or the Company’s articles of incorporation are decided by resolu-

of supervisory directors must always be at least one greater than the num-tion of the General Meeting of Shareholders, which convenes at least once

ber of executive directors). As of June 30, 2006, NBF had two executive

every two years. The fourth General Meeting of Shareholders convened on

directors and four supervisory directors.

Management Team

From left:

Nobutoshi Kozuka
Tomio Hirota
Sadafumi Abe
Koichi Nishiyama
Akira Nishizawa
Hideo Fukazawa

20

NBF Report January–June 2006

NBF’s executive directors are responsible for business execution. In
addition, they have authority for all judicial and extrajudicial proceedings
related to the operations of NBF.

Compliance Initiatives
Nippon Building Fund Management Ltd.’s fundamental compliance policy is to conduct operations honestly and fairly while maintaining a rigorousSupervisory directors are responsible for supervising execution by the
executive directors.

compliance system based on a high level of corporate ethics.
Nippon Building Fund Management Ltd. considers protecting sharehold-

The Board of Directors consists of the executive and supervisory directors. Its responsibilities include authorizing business execution and supervising the performance of the executive directors.

er interests its first priority, and is especially diligent with respect to conflict of interest.
When acquiring properties from sponsors, Nippon Building FundThe bylaws of NBF’s Board of Directors stipulate that executive andManagement Ltd. conducts appropriate internal procedures, such as opera-

supervisory directors may not participate in decisions in which they have ational review meetings and management meetings, followed by advancefinancial interest. Executive and supervisory directors with such financial

reports submitted to the Board of Directors of NBF in order to obtain sub-interest shall not be included in the number of executive and supervisory

stantive consent. Moreover, when acquiring such properties, Nippon

directors in attendance for such decisions.

Building Fund Management Ltd. strictly applies the investment standards,
income-based pricing and purchasing conditions used for external acquisi-

Nippon Building Fund Management Ltd.

tions. In addition, it keeps transaction prices within the bounds of third-

NBF entrusts asset management to Nippon Building Fund Management

party appraisals to avoid arbitrariness.

Ltd. under contract. As the asset management company required by the

Nippon Building Fund Management Ltd. has been working to strengthen

Investment Trust Law of Japan, Nippon Building Fund Management Ltd.

its compliance system through periodic reviews of internal rules and othermanages NBF’s assets in accordance with the asset management objectives

measures. With the support of all its shareholders, the company will con-and policies stipulated by NBF’s articles of incorporation. In addition, intinue making every effort to raisie its compliance system to a higher level.

accordance with the manager of general administration contract designating
Nippon Building Fund Management Ltd. as the institutional manager of
NBF’s assets, Nippon Building
General Meeting of
Shareholders

Fund Management Ltd. also
executes certain responsibilities

The Chuo Mitsui Trustand Banking Co., Ltd.

tion of the General Meeting of
Shareholders and the Board of
Directors as manager of general administration.

Asset Custodyin connection with the opera-

Mitsui Fudosan Co., Ltd.

Asset
Management
Entrustment

Asset Custody
Entrustment

NIPPON BUILDING FUND Inc. (NBF)
OfficeManagement
Entrustment

Board of Directors

NBF Office Management Co., Ltd.

Borrowings /Bonds and
Notes
Debt
service

NIPPON BUILDINGFUND MANAGEMENT Ltd. (NBFM)

Qualified Institutional
Investors / Bondholders
Independent Auditors

Liabilities

Office Management
Investment

AssetsReal Estate, etc.
Rent, etc.

Shareholders’EquityInvestment
Distribution

Shareholder
Trading

Shareholder

Name of executive directors and supervisory directors

Title

Sadafumi Abe
Koichi Nishiyama
Tomio Hirota
Akira Nishizawa
Nobutoshi Kozuka
Hideo Fukazawa

Executive Director
Executive Director
Supervisory Director, Lawyer
Supervisory Director, Real Estate Appraiser
Supervisory Director, Certified Public Accountant, Certified Public Tax Accountant
Supervisory Director

Note: Executive Director Koichi Nishiyama is concurrently President & CEO of Nippon Building Fund Management Ltd. No executive or supervisory director directly or indirectly holds any shares
in NBF. Further, while some supervisory directors are concurrently officers in other corporations, there exist no conflicts of interest between said corporations and NBF.

NBF Report January–June 200621

Management‘s Discussion and Analysis
Summary of Selected Financial Data
10th Period
from January 1, 2006 toJune 30, 2006

9th Period
from July 1, 2005 to
December 31, 2005

8th Period
from January 1, 2005 toJune 30, 2005

(Yen in millions, except per share data or where otherwise indicated)

Operating revenue
Revenue from property leasing
Revenue from capital gain
Operating expenses
Rental expenses
Income before income taxes
Net income

Note 2

Funds from operations
Net operating income from property leasing activities
Total amount of cash distribution
Depreciation and amortization
Capital expenditures

10th Period
from January 1, 2006 toJune 30, 2006
U.S. dollars in thousands
except per share data (Note 1)¥24,307
22,872
1,435
12,622
11,472
9,852
9,851¥19,363
19,363—
10,582
9,694
7,206
7,205

¥16,731
16,731
—
9,344
8,554
6,162
6,161

$ 212,277
199,744
12,533
110,230
100,187
86,03286,024Note 3Note 3(b)

12,951
15,936
9,851
4,536
753

10,86913,333
7,205
3,664
618

9,441
11,457
6,161
3,280
702

113,099
139,165
86,02439,608
6,572

(c)
(d)

633,693
237,500
356,297564,902257,500
269,376

449,556
199,700
216,840

5,533,956
2,074,055
3,111,497

Total number of common shares issued (shares)
Net assets per share (Yen)Distribution per share (Yen)Funds from operations per share (Yen)(e)(d) / (e)(b) / (e)Note 3508,000
701,373
19,391
27,395

422,700
637,274
17,046
26,505364,700
594,571
16,89325,887

—
6,125
169
239

Return on total assets(Annual rate)
ROE(Annual rate)
LTV (Loan to Value)
Capital ratio
Payout ratio
Number of days

Note 3(a)Total assets
Interest-bearing debt
Total shareholders’ equity (Net assets)

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

Note 3Note 3(d) / (c)(b) / (a) Note 4Note 5Note 5Note 5

1.64%(3.29%)
3.15%(6.30%)
41.0%
56.2%
100.0%
181

1.42%(2.84%)
2.96%(5.93%)
48.5%
47.7%
99.9%
184

1.40%
(2.80%)
2.84%(5.68%)
44.4%
48.2%
99.9%
181

55
887
670,249
98.7%

52
868
578,243
98.1%

47
763
488,323
98.1%

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥114.51=U.S. $1.00, the approximate exchange rate on June 30, 2006.
2. Operating revenue does 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.
Return on total assets: Income before income taxes / (Initial total assets + Total assets at end of period) ÷ 2
ROE: Net income / (Initial shareholders’ equity + Shareholders’ equity at end of period) ÷ 2
Net operating income from property leasing activities: (Revenue from property leasing – Rental 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 share: (Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization) / Weighted average
number of common shares issued and outstanding during the period.
Loan to value: (Interest–bearing debt + Deposits under management) / 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 grossleased area to total rentable area at the end of the period.

22

NBF Report January–June 2006

Operating Environment and Results
During the six months ended June 30, 2006 (the “10th Period”), Japan’s economic recovery came into a sharper focus. Employment conditions and household income improved as a result of better corporate performance. These factors in turn spurred corporate capital investment.
In the office building leasing market, the trend toward consolidation in larger floor space continued as corporate performance improved.
In particular, occupancy rates improved substantially in Tokyo’s central business districts, centered on newly constructed large-scale buildings. The lease rates for new contracts continued to increase due to the shortage of space in large buildings.
In the real estate acquisition market, the perception spread that land prices have stopped falling. Acquisitions became more challenging
in central business districts and other areas where prices have been rising because participants including private funds and J-REITs
aggressively invested against a backdrop of solid demand for office space.
Given these conditions, NBF continued to invest in and manage its portfolio according to a fundamental policy of investing in outstanding office buildings that are highly competitive in terms of infrastructure because of their location, scale and facilities and that carry little
risk of decline in value because of their stable cash flow from leasing.
In March 2006, NBF acquired two buildings: the NBF Platinum Tower, acquired for ¥31,000 million; and the Shin-Kawasaki Mitsui
Building, acquired for ¥20,300 million. In February 2006, NBF transferred the Otemae Center Building, valued at ¥2,370 million, out of its
portfolio based on considerations including asset composition and its portfolio structuring policy. In addition, after accepting a lease termination notice effective March 31, 2007 from JFE Steel Corporation, the sole tenant of the JFE Building, NBF transferred the JFE Building to
Mitsui Fudosan Co., Ltd. and in return received five buildings, including the Nishi-Shinjuku Mitsui Building, in April 2006. This exchangetransaction allowed NBF to quickly resolve the departure of the tenant of the JFE Building, secure stable cash flow from the five properties
received in exchange, and further strengthen the quality of its portfolio.
As a result of the above initiatives, as of June 30, 2006 NBF’s overall real estate portfolio increased by a net three buildings from six
months earlier to 55, and total investment on an acquisition price basis increased 15.9 percent from the previous period to ¥624,839 million. Total rentable area increased 15.9 percent from the previous period to 670 thousand square meters.
At the same time, NBF continued to conduct tenant surveys to strengthen its ability to collect information on tenant needs and otherissues with the objective of maintaining and increasing the profitability of its existing portfolio. NBF also continuously conducted hospitality training as a measure to increase customer satisfaction with its property management company, which has many opportunities to communicate directly with tenants. Moreover, NBF energetically attracted new tenants, with the result that the occupancy rate of its overallreal estate portfolio remained high at 98.7 percent, up from 98.1 percent six months earlier.

Overview of Performance
For the six months ended June 30, 2006, operating revenue increased 25.5 percent, or ¥4,944 million, compared with the previous sixmonth period to ¥24,307 million. Net operating income from property leasing activities increased 19.5 percent, or ¥2,603 million, comparedwith the previous six-month period to ¥15,936 million. Operating income increased 33.1 percent, or ¥2,904 million, compared with the previous six-month period to ¥11,685 million.
Operating revenue increased because of the contribution from seven newly acquired properties, including additional acquisition of jointly owned properties. The full-period contribution of the seven properties acquired during the six months ended December 31, 2005, including additional acquisition of jointly owned properties, also supported the increase in operating revenue. In addition, the exchange of the
JFE Building for five properties and strategic portfolio acquisitions and disposals generated income including gain on sale of investment
properties.

NBF Report January–June 200623

Cash Dividends
Distribution per share for the current period was ¥19,391. NBF expected to distribute almost all taxable income for the current period tobe eligible for special tax treatment (Special Taxation Measures Law of Japan Article 67-15) that allows NBF to deduct its cash dividends
of profits from taxable income.
For the six months ended
June 30, 2006

December 31, 2005

June 30, 2005

(Yen in thousands, except per share amounts)

Retained earnings
Undistributed earnings
Total cash distribution(Total cash distribution per share)
Distribution of accumulated earnings(Distribution of accumulated earnings per share)
Cash distribution in excess of accumulated earnings(per share)¥ 9,850,811
183
9,850,628
19,3919,850,628
19,391——¥ 7,205,589
245
7,205,344
17,046
7,205,344
17,046——¥ 6,161,091
214
6,160,877
16,893
6,160,877
16,893——

Note: Above cash distributions were paid after the period end.

Changes in Assets, Liabilities and Shareholders’ Equity
Assets
As of June 30, 2006, total assets increased ¥68,791 million compared with December 31, 2005 to ¥633,693 million. Return on average
total assets (ROA) for the six months ended June 30, 2006 improved to 1.64 percent from 1.42 percent for the previous six-month period.
Current assets increased ¥385 million compared with December 31, 2005 to ¥31,720 million.
Investment properties increased ¥67,753 million compared with December 31, 2005 to ¥599,796 million. Factors such as the acquisitionof new properties resulted in an increase of ¥4,444 million in land including trust accounts. Buildings and improvements including trust
accounts increased ¥54,747 million.

Liabilities
Current liabilities decreased ¥38,469 million compared with December 31, 2005 to ¥32,522 million. NBF used capital procured throughthe issue of new shares and long-term debt to repay short-term loans, which decreased ¥38,000 million compared with December 31,
2005.
Long-term debt increased ¥19,000 million compared with December 31, 2005 to ¥212,000 million. NBF increased long-term debt to raise
the ratio of fixed-rate long-term debt.
As a result, total interest-bearing liabilities decreased ¥20,000 million compared to December 31, 2005 to ¥237,500 million. The ratio of
fixed-rate long-term debt to total interest-bearing liabilities increased to 89.3 percent from 75.0 percent as of December 31, 2005. The
loan-to-value ratio, calculated as the ratio of interest-bearing liabilities plus deposits under management to total assets, decreased to 41.0
percent from 48.5 percent as of December 31, 2005.
In addition, NBF worked to diversify funding sources. In January 2005, NBF submitted a shelf registration to publicly offer up to ¥200 billion
in bonds. As of June 30, 2006, NBF had issued bonds totaling ¥60,000 million under this shelf registration.

24

NBF Report January–June 2006

Management‘s Discussion and Analysis

Shareholders’ Equity
Shareholders’ equity increased ¥86,922 million compared with December 31, 2005 to ¥356,297 million. The increase in common sharesas a result of the issue of new shares in March 2006 accounted for ¥84,276 million of the increase.

Funding
Balance of Paid-in Capital
NBF was established on March 16, 2001 with initial paid-in capital of ¥100 million. NBF began investing activities in May 2001 after¥98,800 million was raised through private placements. As of June 30, 2006, NBF had issued 508,000 common shares out of 2,000,000
total authorized shares. NBF’s common shares were listed on the J-REIT section of the Tokyo Stock Exchange in September 2001 upon thecompletion of a public offering. As the Investment Trust Law of Japan does not contain any provision for the issue of more than one classof shares, NBF’s common shares comprise the sole class of shares authorized and issued by NBF.
Common shares outstanding
Issue date

Remarks

Increase

BalancePaid-in capital
Increase(Shares)

Initial capital(private)
May 23, 2001
Private placement
September 8, 2001 Public offering
July 14, 2004
Public offering
Third party
August 11, 2004
allocation
August 10, 2005
Public offering
March 16, 2006
Public offering
Third party
March 29, 2006
allocation

March 16, 2001

Balance

Notes(Yen in millions)

200

200

197,600
82,90080,000197,800
280,700
360,700

4,000

¥

100

¥

100

Note 1

98,80049,99958,83898,900148,899
207,737

Note 2
Note 3Note 4

364,700

2,942

210,679

Note 558,00080,000422,700
502,700

51,491
79,044

262,170
341,210Note 6Note 75,300

508,000

5,236

346,446

Note 8Notes: 1. NBF was established with initial capital of ¥500,000 per share.
2. Follow-on private offering at ¥500,000 per share to raise funds for acquisition of 22 properties.
3. Public offering of new units for ¥625,000 per share (excluding underwriting fee: ¥603,125) to repay debt and to raise funds.
4. Public offering of new units for ¥759,500 per share (excluding underwriting fee: ¥735,475) to repay debt, etc.
5. Additional issue of new units (third party allocation) for ¥735,475 per share undertaken pursuant to the public offering in Note 4.
6. Public offering of new units for ¥916,300 per share (excluding underwriting fee: ¥887,782) to repay debt and to raise funds.
7. Public offering of new units for ¥1,019,200 per share (excluding underwriting fee: ¥988,000) to repay debt and to raise funds.
8. Additional issue of new units (third party allocation) for ¥988,000 per share undertaken pursuant to the public offering in Note 7.

Market Price of Shares
High/Low (closing price) of shares on the TSE:
For the six months ended
June 30, 2006

December 31, 2005

June 30, 2005

(Yen)

High

¥1,170,000¥1,020,000¥ 1,000,000

Low

995,000

891,000

849,000

NBF Report January–June 200625

Borrowings
Borrowings by financial institution as of June 30, 2006 are shown below.
Short-term debt
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

Repayment
method

0.6%
0.4%
0.4%
0.5%
0.5%
0.4%
0.4%
0.4%
0.5%
0.6%

September 29, 2006
July 31, 2006
August 31, 2006
August 31, 2006
August 31, 2006
July 31, 2006
July 31, 2006
July 31, 2006
August 31, 2006
September 29, 2006

Bulletpayment

Averageinterest rate (%)

Due on(Note 1)

Repayment
methodUse of
funds

Notes

(Yen in millions)

The Hachijuni Bank, Ltd.
The Bank of Fukuoka, Ltd.
Mizuho Corporate Bank, Ltd.
Shinkin Central BankThe Chugoku Bank, Ltd.
The Gunma Bank, Ltd.
The Kagoshima Bank, Ltd.
The Yamaguchi Bank, Ltd.
The Shizuoka Bank, Ltd.
The Yamanashi Chuo Bank, Ltd.

¥ 2,000
2,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
500

Total short-term debt

¥11,500(Note 2)

Unsecured/unguaranteed/pari passu(Note 3)
Floating rateLong-term debt
LenderBalanceUse of
funds

Notes

(Yen in millions)

Development Bank of Japan

Sumitomo Life Insurance Company

Zenkyoren(The National Mutual Insurance
Federation of Agricultural Cooperatives)

The Chuo Mitsui Trust andBanking Co., Ltd.
Mitsui Life Insurance Company, Ltd.

Meiji Yasuda Life Insurance Company

26¥ 4,000
10,00010,00010,00010,00012,000
5,000
5,000
3,000
1,000
10,00010,000
9,000
5,000
1,000
2,000
4,000
2,000
3,000
2,000
3,000
4,000
1,000
2,000

1.8%
1.5%
1.8%
2.0%
2.4%
1.7%
1.7%
2.1%
1.2%
1.7%
1.5%
2.3%
1.3%
1.6%
1.2%
1.7%
1.8%
1.6%
1.6%
2.0%
2.1%
2.2%
2.2%
1.2%

November 28, 2014
September 11, 2015
September 27, 2017
February 15, 2016
May 30, 2018
May 23, 2008
July 16, 2009
July 19, 2011
February 3, 2010
June 1, 2011
September 11, 2015
May 30, 2016
July 16, 2007
March 30, 2011
March 30, 2009
February 13, 2012
March 30, 2012
November 1, 2012
December 13, 2013
May 30, 2013
December 21, 2011
April 27, 2012
May 23, 2012
February 26, 2010

NBF Report January–June 2006

Bulletpayment(Note 2)

Unsecured/unguaranteed/pari passu(Note 3)Fixed rate

Management‘s Discussion and Analysis

Long-term debt (Continued)
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

Repayment
methodUse of
funds

Notes

(Yen in millions)

The Norinchukin Bank
Nippon Life Insurance Company

The Sumitomo Trust andBanking Co., Ltd.
Daido Life Insurance Company

Sumitomo Mitsui
Banking Corporation
The Dai-Ichi Mutual Life
Insurance Company
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Taiyo Life Insurance Company
The Joyo Bank, Ltd.
The Iyo Bank, Ltd.
Total long-term debt
Total borrowings (Note 4)¥ 8,000
3,000
2,000
2,000
6,000

1.1%
0.9%
0.8%
1.1%
1.3%

November 20, 2008
October 30, 2009
April 1, 2010
October 19, 2010
July 16, 2007

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

1.2%
1.8%
2.0%
1.4%
1.2%
1.2%
1.5%
0.8%
0.9%
0.7%
1.2%
1.7%
1.4%
0.7%

February 3, 2010
March 30, 2012
October 31, 2014
October 4, 2013
March 12, 2007
March 12, 2007
June 30, 2009
February 13, 2008
September 29, 2006
September 28, 2007
February 12, 2010
December 15, 2014
May 23, 2008
February 2, 2007

Bulletpayment(Note 2)

Unsecured/unguaranteed/pari passu(Note 3)Fixed rate

¥166,000¥177,500

Notes: 1. With respect to the date of drawdown and date of repayment in case of more than one short-term loan from the same lender, the earliest date of repayment for all
such loans coming due is given.
2. Use of funds for the above includes acquisition of real estate or beneficiary interests, repayment of borrowings and working capital.
3. A special agreement attached to “Loan Agreement” entered into between the NBF and each financial institution provides that the above borrowings from all
financial institutions rank pari passu to each other.
4. The total amount of long-term borrowings (i.e. excluding those expected to be repaid within one year) repayable within 5 years of the date of the balance sheet andexpected to be repaid by specific year(s) is as follows.
(Yen in millions)

Amount Borrowed

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥32,000¥10,000¥18,000¥8,000NBF Report January–June 2006

27

NBF Bonds
Issue

Issue date

Balance as ofJune 30, 2006

CouponMaturitydate

Redemption

Use ofproceeds

Notes

Bullet Payment

Note 1

Note 2(Yen in millions)No. 2 Unsecured Bonds

February 10, 2003

¥10,000

0.75%

February 9, 2007

No. 3 Unsecured Bonds

June12, 2003

¥10,000

2.00%

June 12, 2018

Bullet Payment

Note 1

Note 2

No. 4 Unsecured Bonds

September 22, 2004

¥10,000

1.04%

September 22,
2009

Bullet Payment

Note 1

Note 2

No. 5 Unsecured Bonds

September 22, 2004

¥10,000

1.60%

September 22,
2011

Bullet Payment

Note 1

Note 2

No. 6 Unsecured Bonds

March 9, 2005

¥10,000

0.80%

March 9, 2010

Bullet Payment

Note 1

No. 7 Unsecured Bonds

November 9, 2005

¥10,000

1.85%

November 9,
2015

Bullet Payment

Note 1

Total (Note 3)¥60,000

Notes: 1. Use of proceeds includes acquisition of Real Estate, etc., repayment of borrowings and working capital.
2. The bonds are limited to qualified institutional investors and rank pari passu with other debts issued.
3. The total amount of bonds repayable within 5 years of the date of the balance sheet and expected to be repaid by specific year(s) is as follows.
(Yen in millions)

Amount Borrowed

Within 1 year

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥10,000——¥20,000—

Others
NBF has security deposits totaling ¥32,823 million as of June 30, 2006.

28

NBF Report January–June 2006

Management‘s Discussion and Analysis

Capital Expenditures
Planning
NBF is planning the following capital expenditures for the renovation of its properties. The amounts below include repairs and maintenance costs that will be expensed as incurred. Moreover, in addition to a steady program of expenditures for construction, repair and renovation of facilities, a program of renewal construction is being implemented in order to increase competitive power in the market as wellas to increase the level of tenant satisfaction based on the results of tenant satisfaction surveys and neighboring competitive building
specification surveys, etc.

Name of property

Estimated
durationObjective

Total amounts

Estimated amounts
Payment for thecurrent period(from January 1,
2006 to June 30, 2006)

Cumulative
amount paid

(Yen in millions)

NBF Toranomon Building

Renovation of 8th floor

From March 2006
to September 2006

Parale Mitsui Building

Installation of
security equipment

From April 2006
to July 2006

NBF Sendai Honcho Building
NBF Sendai Honcho Building

¥ 295

¥—

¥—

53

—

—

Rework of air-conditioning From July 2006
(Phase 2)
to December 2006

116

—

—

Rework of air-conditioning From January 2007
(Phase 3)
to June 2007

108

—

—

Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NBF posted ¥753 million in capital expenditures together
with ¥474 million for repairs and maintenance expenses.
Name of property

NBF Sendai Honcho Building

Objective

PeriodRework of air-conditioning (Phase 1),
Exhaust equipment renovation

Renovation of Central Monitoring system,
NBF Niigata Telecom Building Property maintenance including dismantlingof fan coil units
Other buildings

Expenditure(Yen in millions)¥ 98
From January 2006
to June 2006

Property maintenance, Renovations intended to
improve the level of tenant satisfaction

Total

41
614
¥753

NBF Report January–June 200629

Cash Reserve for Capital Improvements
NBF accumulates cash reserves from cash flows to prepare for large-scale mid-term to long-term capital improvements and repairs andmaintenance that will be conducted in accordance with NBF’s business plan for each property.
As of June 30, 2006

As of December 31, 2005
(Yen in millions)

Reserve balance at beginning of period¥1,166¥1,654

Amount accumulated in current period

1,453

1,013

Withdrawal from reserves in current period

1,206

1,501

Amount carried forward¥1,413¥1,166

Notes: 1. The reserve figures represent only the amount of reserves attributable to NBF's ownership interest, the amount of reserves attributable to other owners has
been excluded.
2. The above reserves do not include an accumulated reserve of ¥1,700 million as of June 30, 2006 for repairs based on maintenance and other contracts with management organizations at buildings owned by NBF.

Expenses regarding Entrustment, etc.
The following table sets forth the breakdown of fees and other operating expenses paid by NBF.
For the six months ended
June 30, 2006
Item

Asset management fees

December 31, 2005

June 30, 2005

(Yen in millions)

¥ 877

¥707

¥609

Asset custody fees

26

21

19

Agent fees
(stock transfer, accounting and administrative)

67

57

56

Directors' remuneration

11

11

11

Auditor’s fees

12

12

12

Other expenses

157

80

83

¥1,150

¥888

¥790

Total

Note: In addition to the amounts stated above, there are asset management fees of ¥493 million for the period from January 1, 2006 to June 30, 2006, ¥325 million for theperiod from July 1, 2005 to December 31, 2005 and ¥102 million for the period from January 1, 2005 to June 30, 2005 related to investment in properties whichwere booked on each property.

30

NBF Report January–June 2006

Management‘s Discussion and Analysis

Trading Activities during Current Period
Trading of Real Estate and Real Estate Held in Trust(Yen in millions)

Acquisitions
Name of building

Acquisition price

Date(Note 1)

NBF Platinum Tower

March 31, 2006

¥ 31,000

Shin-Kawasaki Mitsui Building

March 31, 2006

20,300

Nishi-Shinjuku Mitsui Building

April 24, 2006

43,300Gate City Ohsaki

April 24, 2006

30,100Toranomon Kotohira Tower

April 24, 2006

18,500Parale Mitsui Building

April 24, 2006

3,800

Shinanobashi Mitsui Building

April 24, 2006

14,400Total¥161,400

Note 1. “Acquisition price” does not include national consumption tax, regional consumption tax and miscellaneous costs of acquisition.
(Yen in millions)

DisposalsName of building

Date

Disposal priceOtemae Center Building

February 1, 2006

¥ 2,370

JFE Building

April 24, 2006

91,000

Total¥93,370

Trading of Other Assets Including Total Amount and Transactions
Other major assets besides real estate and real estate held in trust stated above consist mostly of bank deposits or bank deposits
included in assets held in trust.

NBF Report January–June 2006

31

Management‘s Discussion and Analysis

Related Party Transactions
Ongoing Transactions
None.

Fees Paid for Period from January 1, 2006 to June 30, 2006
Description of transactions with related parties (Note 1)
Category

Total fees paid
(A)

Paid to(Yen in millions)

Brokerage commissions¥ 710

Amount ofpayment (B)(Yen in millions)

B/A(Note 2)

Mitsui Fudosan Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.

¥700
10

98.6%
1.4%

Office management fees, etc.
(Note 3)998

Mitsui Fudosan Co., Ltd.
NBF Office Management Co., Ltd.

970
22

97.2%
2.2%

Property transfer fees

24

Mitsui Fudosan Co., Ltd.

24

100.0%First Facilities Co., Ltd.
Mitsui Fudosan Co., Ltd.
First Facilities West Co., Ltd.
Mitsui Fudosan Building Management Co., Ltd.
First Facilities Yokohama Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
NBF Office Management Co., Ltd.

274
155
128
78
11
1
0

15.2%
8.6%
7.1%
4.3%
0.6%
0.1%
0.0%

NBF Office Management Co., Ltd.
Mitsui Fudosan Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
Repark Co., Ltd.

27
11
0
0

33.0%
14.1%
0.2%
0.1%

Property maintenance fees

1,801

Leasing related service fees

82

Notes: 1. “Related parties” mean parties defined in Article 20 of the government ordinance regarding the Investment Trust Law of Japan, principally, parties related to an
asset management company.
2. Figures indicate percentages of total prices.
3. NBF leases the Naka-Meguro GT Tower, Toranomon Kotohira Tower, NBF Ogawamachi Building and the Nishi-Shinjuku Mitsui Building to Mitsui Fudosan Co., Ltd.,
which sub-leases them to sub-lessees. Further, Sumitomo Trust & Banking Co., Ltd., as trustee, also leases the Yotsuya Medical Building to Mitsui Fudosan Co., Ltd.
which sub-leases it to sub-lessees. Accordingly, NBF does not entrust the office management business for those properties to Mitsui Fudosan. Instead, NBF Office
Management Co., Ltd. has been entrusted to undertake such business on behalf of NBF, the owner and lessor of those properties.
4. In addition to the above fees, a certain portion of the fees paid by NBF to a third party (a company supervising investment company securities) for handling payments ofprincipal and interest concerning the No. 2, No. 3, No. 4, No. 5 and No. 6 NBF Bonds was paid to Daiwa Securities SMBC Co., Ltd., and in the same manner, a certain
portion of the fees for No. 6 NBF Bond was paid to Nomura Securities Co., Ltd.
5. A public offering of new investment shares, the payment date for which was March 16, 2006, was conducted through a firm commitment underwriting agreement,
under which an underwriting securities company underwrote shares at an issue price and sold them at an offering price different from such issue price to generalinvestors (“spread method”). In addition to the fees listed in the above table, a portion of ¥2,496 million, which is the difference between the offering price and theissue price, comprises actual underwriting fees for Nomura Securities Co., Ltd. and Daiwa Securities SMBC Co., Ltd.
6. In addition to the above fees paid, the following have been paid to related parties for repair and maintenance work.
(Yen in millions)First Facilities Co., Ltd.
First Facilities West Co., Ltd.
Mitsui Fudosan Building Management Co., Ltd.
Mitsui Designtech Co., Ltd.
Mitsui Fudosan Co., Ltd.
First Facilities Yokohama Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.

32

¥155
108
99
51
17
7
4

NBF Report January–June 2006

Financial Statements

NBF Report January–June 2006

33

Balance Sheets
NIPPON BUILDING FUND INC.
As of June 30, 2006 and December 31, 2005

As ofJune 30, 2006

As of
December 31, 2005
(Yen in millions)

AssetsCurrent assets:
Cash and cash equivalents
Tenant receivables
Consumption tax refund receivables and other current assets
Total current assets
Investment properties:
Land including trust accounts
Building and improvements including trust accounts
Other tangible assets
Less: accumulated depreciation
Leasehold rights in trust accounts and other intangible assets
Total investment properties, net
Other assets¥ 28,769
340
2,611
31,720¥ 29,713
238
1,384
31,335356,950
233,1635,688(24,715)
28,710599,796
2,177

352,506
178,416
4,126(22,849)
19,844532,043
1,524

Total Assets¥633,693¥564,902

Liabilities
Current liabilities:
Short-term loans
Long-term debt due within one year
Bonds due within one year
Accounts payable
Rents received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term debt
Tenant security deposits
Other liabilities¥ 11,500
4,000
10,000
2,669
2,956
1,397
32,522
212,000
32,82351¥ 49,500
15,000
—
2,234
3,153
1,104
70,991
193,000
31,48947

Total Liabilities

277,396295,527

346,446

262,170

Net Assets
Common shares, non-par value
Shares authorized: 2,000,000 shares
Shares issued and outstanding: 508,000 shares
Retained earnings

9,851

7,205

Total Net Assets

356,297269,375

Total Liabilities and Net Assets¥633,693¥564,902

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

34

NBF Report January–June 2006

Statements of Income
NIPPON BUILDING FUND INC.
For the six months ended June 30, 2006, December 31, 2005 and June 30, 2005

June 30, 2006

For the six months ended
December 31, 2005

June 30, 2005

(Yen in millions)

Revenue:
RentalOther revenue related to property leasing
Gain on sale of investment properties
Gain on exchange of investment properties¥20,799
2,073
685
750

¥17,429
1,934——¥15,114
1,617——

Total Revenue

24,307

19,363

16,731

Operating Expenses:
Property management fees
Real estate taxes
Insurance
Repairs and maintenance
Other rental expenses
Depreciation and amortization
Asset management fees
Other expenses

2,832
1,923
37
474
1,670
4,536
877
273

2,373
1,593
30
462
1,572
3,664
707
181

2,050
1,579
27
383
1,235
3,280
609
181

Total Operating Expenses

12,622

10,582

9,344

Operating Income

11,685

8,781

7,387

Interest income
Interest expense
New investment shares issue costs
Amortization of bond issue costs
Other expenses, net

0(1,642)
(141)
(36)
(14)

1
(1,366)
(103)
(57)
(50)

10
(1,163)
—
(47)
(25)

Income Before Income Taxes

9,852

7,206

6,162

Current and deferred income taxes
Net Income

(1)

(1)

(1)

¥ 9,851¥ 7,205¥ 6,161

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

NBF Report January–June 2006

35

Statements of Shareholders’ Equity
NIPPON BUILDING FUND INC.
For the six months ended June 30, 2006, December 31, 2005, June 30, 2005 and December 31, 2004

(Yen in millions)
Number ofCommonSharesCommonSharesRetained
Earnings

Total

280,700¥148,899¥ 4,262¥153,161——(4,262)(4,262)Issuance of new shares through public offering as of July 14, 2004

80,00058,838—58,838Issuance of new shares through allocation toa third party as of August 11, 2004

4,000

2,942

—

2,942

—

—

6,306

6,306

364,700

210,679

6,306

216,985

Balance as of June 30, 2004
Cash dividends declared

Net income
Balance as of December 31, 2004
Cash dividends declared——(6,306)(6,306)

Net income

—

—

6,161

6,161

364,700

210,679

6,161

216,840

Balance as of June 30, 2005
Cash dividends declaredIssuance of new shares through public offering as of August 10, 2005
Net income
Balance as of December 31, 2005
Cash dividends declared——(6,161)(6,161)58,00051,491—51,491

—

—

7,205

7,205

422,700

262,170

7,205

269,375——(7,205)(7,205)Issuance of new shares through public offering as of March 16, 2006

80,00079,040—79,040Issuance of new shares through allocation toa third party as of March 29, 2006

5,300

5,236

—

5,236

—

—

9,851

9,851

508,000¥346,446¥ 9,851¥356,297

Net income
Balance as of June 30, 2006
The accompanying notes to financial statements are an integral part of these statements.

36

NBF Report January–June 2006

Statements of Cash FlowsNIPPON BUILDING FUND INC.
For the six months ended June 30, 2006, December 31, 2005 and June 30, 2005

June 30, 2006

For the six months ended
December 31, 2005

June 30, 2005

(Yen in millions)

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Amortization of bond issue costs
Interest expense(Increase) Decrease in tenant receivables
Gain on exchange of investment properties
Increase (Decrease) in accounts payable
Increase (Decrease) in rents received in advance
Decrease in investment properties in trust
accounts due to sale
Cash payments of interest expense(Increase) Decrease in consumption tax refund receivable
Other, net

¥

9,852
4,536
36
1,642
(102)
(774)
525
(197)

¥

7,206
3,664
57
1,366
42
—
(83)
373

¥

6,162
3,280
47
1,163
(96)
—
426
191

1,677
(1,553)(1,145)274—(1,191)(1,074)11—(1,142)517
108

Net Cash Provided by Operating Activities

14,771

10,371

10,656

Cash Flows from Investing Activities:
Payments for purchases of investment properties
Payments for purchases of intangible assets
Proceeds from tenant security deposits
Payments for tenant security deposits
Refunds from security deposits paid to lessors
Payments for security deposits paid to lessors
Payments for purchases of other assets(64,419)(8,871)
10,212(8,879)
4
(3)
(695)

(127,850)
(0)
5,368
(928)
1
(5)
(66)

(22,828)(1,123)
2,271(1,407)4(7)(40)

Net Cash Used in Investing Activities(72,651)(123,480)(23,130)

Cash Flows from Financing Activities:
Proceeds from short-term loans
Repayment of short-term loans
Proceeds from long-term debt
Payments for bond issue costs
Proceeds from issuance of common shares
Payment of dividends

168,000(206,000)
18,000—84,135(7,199)184,200(168,400)
42,000(63)
51,388(6,160)159,000(150,800)
12,000(56)—(6,302)Net Cash Provided by Financing Activities

56,936

102,965

13,842Net Change in Cash and Cash Equivalents
Cash and cash equivalents at beginning of period(944)
29,713(10,144)
39,857

1,368
38,489Cash and Cash Equivalents at End of Period¥ 28,769¥ 29,713¥ 39,857

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

NBF Report January–June 200637

Notes to Financial Statements
NIPPON BUILDING FUND INC.
June 30, 2006, December 31, 2005 and June 30, 2005

Note 1—Organization and Basis of Presentation
Organization
Nippon Building Fund Inc. (hereinafter "NBF") was formed on March 16, 2001 as an investment corporation under the Investment Trust
Law of Japan with Mitsui Fudosan Co., Ltd., The Chuo Mitsui Trust and Banking Co., Ltd., and Nippon Building Fund Management Ltd.
(hereinafter "NBFM") acting as sponsors. Registration with the Kanto Local Finance Bureau of the Ministry of Finance was completed on
May 10, 2001 and NBF started acquisition of office properties on May 23, 2001.
NBF is an externally managed real estate fund, formed as an investment corporation. NBFM, as NBF’s asset management company, isengaged in acquiring, managing, leasing, and renovating office properties. Mitsui Fudosan Co., Ltd. currently owns 43% of NBFM while
Sumitomo Life Insurance Company owns 35% and the remaining 22% is mainly owned by financial institutions.
On September 10, 2001, NBF raised approximately ¥50,000 million through an initial public offering of common shares. Those commonshares are listed on the J-REIT section of the Tokyo Stock Exchange.
As of June 30, 2006, NBF had ownership or beneficiary interests in 55 office properties containing approximately 670,249 rentable
square meters of office space. As of June 30, 2006, NBF had leased office space to 887 tenants engaged in a variety of businesses. The
occupancy rate for the office properties was approximately 98.7%.

Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust Law ofJapan and the Japanese Securities and Exchange Law and its related accounting regulations, and in conformity with accounting principles
generally accepted in Japan (hereinafter “Japanese GAAP”), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements have been restructured and translated into English from the financial statements of NBF preparedin accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the
Securities and Exchange Law. Some supplementary information included in the statutory Japanese language financial statements, but notrequired for fair presentation, is not presented in the accompanying financial statements. NBF does not prepare consolidated financial statements, as NBF has no subsidiaries.

Note 2—Summary of Significant Accounting Policies
Cash and Cash Equivalents
NBF considers all highly liquid investments with original maturity of three months or less to be cash and cash equivalents.

Investment Properties
Investments properties are recorded at cost, which includes the allocated purchase price and related costs and expenses for acquisition of
the office properties and the beneficiary interests of properties in trust. Property and equipment balances are depreciated using the straightline method over the estimated useful lives. The estimated useful lives of the principal tangible fixed assets (including assets held in trust) are
as follows:
2-50 years

Costs related to the renovation, construction and improve-

Structures

2-52 years

ment of properties are capitalized. Expenditures for repairs andMachinery and equipment

2-17 years

maintenance which do not add to the value or prolong the use-

Tools, furniture and fixtures

2-19 years

ful life of a property, are expensed as incurred.

Buildings and improvements

38

NBF Report January–June 2006

Bond Issue Costs
Bond issue costs are amortized using the straight-line method over three years.

New Investment Shares Issue Cost
The issue costs of new investment shares are expensed in the period of payment.
The public offering of new investment shares on March 16, 2006 was conducted through an underwriting agreement under which anunderwriting securities company underwrote all of the newly issued shares at an agreed issue price and sold them at an offering price different from such issue price to investors (“spread method”). Since, pursuant to such spread method, the difference between an offering price andan issue price is earned by an underwriting securities company as substantial underwriting fees, there were no underwriting fees paid by NBF
to the underwriting securities company. In the case of the public offering of new investment shares on March 16, 2006, the total amount of thedifference between the offering price and the issue price was ¥2,496 million, which would have been accounted for as issue costs of new
investment shares of NBF if it had been conducted through an underwriting agreement under which an underwriting securities company underwrites shares at an issue price and sells them at an offering price which is the same as such issue price (“conventional method”). Therefore,
under the spread method, the issue costs of new investment shares were ¥2,496 million lower, and the operating income and the income
before income taxes were ¥2,496 million higher than the case if the conventional method was applied.

Income Taxes
Income taxes are accounted for on the basis of income for financial statement purposes. The tax effect of temporary differences
between the amounts of assets and liabilities for financial statements and for income tax purposes is recognized as deferred taxes.

Real Estate Taxes
Real estate taxes are imposed on properties on a calendar year basis. NBF is allocated the portion of the real estate taxes related to theperiod following the purchase date of each property through the end of the year and the equivalent amounts of those allocated portions arecapitalized as part of the acquisition costs of the relative properties. Capitalized real estate taxes amounted to ¥105 million for the period
ended June 30, 2006, ¥197 million for the period ended December 31, 2005 and ¥71 million for the period ended June 30, 2005, respectively.

Revenue Recognition
NBF operates office properties that are rented to tenants on lease terms of generally two years, with monthly payments due in advance.
Rental and other property income is recorded when due from tenants and is recognized monthly as it is earned. Common area charges provided for in tenant leases are recognized as income when earned and their amounts can be reasonably estimated.

Accounting Treatment of Beneficiary Interests in Trust Assets including Real Estate
For trust beneficiary interests in real estate, all accounts of assets and liabilities within assets in trust as well as all income generated
and expenses incurred from assets in trust are recorded in the relevant balance sheet and income statement accounts.

Accounting Standards for Presentation of Net Assets in the Balance Sheet
Effective for the year ended June 30, 2006, NBF adopted new accounting standards, "Accounting Standard for Presentation of Net
Assets in the Balance Sheet" (Statement No. 5 issued by the Accounting Standards Board of Japan on December 9, 2005), and the implementation guidance for the accounting standard for presentation of net assets in the balance sheet (the Financial Accounting Standard
Implementation Guidance No. 8 issued by the Accounting Standards Board of Japan on December 9, 2005), (collectively, the "New
Accounting Standards"). Shareholders' equity calculated using the former standard would have been ¥356,297 million.

NBF Report January–June 200639

Accounting Standards for Impairment of Fixed Assets
Effective July 1, 2005, NBF adopted accounting standards for impairment of fixed assets (“Opinion on Establishment of AccountingStandards for Impairment of Fixed Assets” issued by the Business Accounting Deliberation Council on August 9, 2002) and the guidance on
accounting standards for impairment of fixed assets (the “Financial Accounting Standard Guidance No. 6” issued by the AccountingStandards Board of Japan on October 31, 2003).
The adoption of the standard had no effect on the statements of income for the fiscal period ended December 31, 2005.

Reclassifications
Certain reclassifications have been made to prior periods' financial statements to conform with the presentation used for the period
ended June 30, 2006.

Note 3—Schedule of Tangible Assets of Investment Properties
Tangible assets as of June 30, 2006 and December 31, 2005 consisted of the following:
As of June 30, 2006

As of December 31, 2005
(Yen in millions)

Acquisition
Costs

Accumulated
Depreciation

Acquisition
Costs

—
—

¥114,032
242,918¥ 57,979
294,527

Land
Land in trust¥114,032
242,918

Land including trust total

356,950—

356,950

Buildings and improvements
Buildings and improvements in trust

102,448
130,715(5,461)(18,139)

Building and improvements
including those in trust
Structures
Machinery and equipment
Tools, furniture and fixtures
Structures in trust
Machinery and equipment in trust
Tools, furniture and fixtures in trust
Construction in process in trust

233,163
1,494
765
299
1,313
1,225
590
2

Other tangible assets total
Total

¥

Book Value

Accumulated
Depreciation¥

Book Value——¥ 57,979
294,527

352,506—

352,506

96,987
112,576

55,303
123,113(3,895)(18,000)

51,408105,113(23,600)
(196)
(116)
(46)
(233)
(337)
(187)
—

209,563
1,298
649
253
1,080
888
403
2

178,416
890
540
116
1,158
925
492
5

(21,895)
(141)
(82)
(27)
(214)
(288)
(202)
—

156,521
749
458
89
944
637
290
5

5,688

(1,115)

4,573

4,126

(954)

3,172

¥595,801¥(24,715)¥571,086¥535,048¥(22,849)¥512,199

Note 4—Shareholders‘ Equity
NBF issues only non-par value shares in accordance with the Investment Trust Law of Japan and all of the issue price of new shares is designated as stated capital. NBF maintains at least ¥50 million as the minimum net assets as required by the Investment Trust Law of Japan.

40

NBF Report January–June 2006

Notes to Financial Statements

Note 5—Short-Term Loans and Long-Term Debt
Short-term loans consist of short-term notes and short-term borrowings under loan agreements. The annual interest rates on short-termloans outstanding are floating rates and on June 30, 2006 and December 31, 2005 ranged from 0.41% to 0.61% and from 0.24% to 0.37%,
respectively. Long-term debt is at fixed rates and as of June 30, 2006 and December 31, 2005 consisted of the following:(Yen in millions)

Unsecured loans due 2006 to 2018 principally from banks and insurancecompanies with interest rates mainly ranging from 0.7% to 2.4%
0.75% unsecured bonds due 2007
1.04% unsecured bonds due 2009
0.80% unsecured bonds due 2010
1.60% unsecured bonds due 2011
1.85% unsecured bonds due 2015
2.00% unsecured bonds due 2018
Less: amount due within one year

As of June 30, 2006

As of December 31, 2005

¥166,000
10,00010,00010,00010,00010,00010,000¥148,000
10,00010,00010,00010,00010,00010,000226,000

208,000

14,00015,000¥212,000¥193,000

The annual maturities of long-term debt as of June 30, 2006 were as follows:(Yen in millions)2006¥ 1,000

2007

20,0002008

23,0002009

10,0002010

12,000

Thereafter

100,000

During the period ended June 30, 2006, NBF obtained committed credit lines of ¥30 billion with certain financial institutions to reducerefinancing risk. The unused amount of such committed credit lines was ¥30 billion on June 30, 2006.

NBF Report January–June 200641

Note 6—Rental Revenue and Expenses
Rental revenue and expenses for the periods ended June 30, 2006, December 30, 2005, and June 30, 2005 were as follows:

June 30, 2006

For the six months ended
Decenber 31, 2005

June 30, 2005

(Yen in millions)

Revenue from Property Leasing:
Rental:Rental revenue
Common area charges
Others¥18,198
2,467
134¥15,356
1,966
107¥13,291
1,741
82

20,79917,42915,114

Other revenue related to property leasing:
Parking lots
Facility charge
Incidental income
Cancellation fees
Miscellaneous income
Subtotal

531
76
1,325
81
60
2,073

459
70
1,331
49
25
1,934

412
68
1,025
100
12
1,617

Total revenue from property leasing

22,872

19,363

16,731

Rental Expenses:
Property management fees
Real estate taxes
Repairs and maintenanceInsurance
Other rental expenses
Depreciation and amortization
Total rental expenses

2,832
1,923
474
37
1,670
4,536
11,472

2,373
1,593
462
30
1,572
3,664
9,694

2,050
1,579
383
27
1,235
3,280
8,554

Operating Income from Property Leasing Activities¥11,400¥ 9,669¥ 8,177

Subtotal

Note 7—Breakdown of Gain on Sale of Investment Properties
On June 30, 2006 NBF sold two properties set forth below:(Yen in millions)

Otemae Center Building
Revenue from sale of investment properties
Cost of investment properties
Other sales expenses
Gain on sale of investment properties¥2,370
1,677
8
¥ 685

(Yen in millions)

JFE Building
Revenue from sale of investment properties
Cost of investment properties
Other sales expenses
Advanced depreciation of investment properties
Gain on exchange of investment properties(Yen in millions)

Total
Revenue from sale of investment properties
Cost of investment properties
Other sales expenses
Advanced depreciation of investment properties
Gain on sale of investment properties
Gain on exchange of investment properties

42¥93,370
73,38432
18,519¥ 685¥ 750

NBF Report January–June 2006

¥91,000
71,70724
18,519¥ 750

Notes to Financial Statements

Note 8—Income Taxes
NBF is subject to income taxes in Japan. The effective tax rate on NBF's income based on applicable Japanese tax law was 0.01% for the period
ended June 30, 2006 and December 31, 2005 respectively, and 0.02% for the period ended June 30, 2005. The following table summarizes the significant differences between the statutory tax rates and NBF's effective tax rates for financial statement purposes.

Statutory effective tax rate
Deductible dividends paid
Others
Effective tax rate

June 30, 2006

For the six months ended
December 31, 2005

June 30, 2005

39.39%(39.39)0.01
0.01%

39.39%(39.39)0.01
0.01%

39.39%(39.38)0.01
0.02%

NBF was established as an investment corporation under the Investment Trust Law of Japan, and as long as an investment corporation distributes to its shareholders at least 90% of taxable income for a period and other requirements prescribed in Japanese tax regulations are met,
the investment corporation is allowed to deduct total amount of dividends paid in calculating its taxable income under Japanese tax regulations.

Note 9—Per Share Information
Information about earnings per share for the periods ended June 30, 2006, December 31, 2005 and June 30, 2005 and net assets per
share as of June 30, 2006 and December 31, 2005 was as follows.
The computation of earnings per share is based on the weighted average number of common shares outstanding during the period. The
computation of net assets per share is based on the number of common shares outstanding at each period end.

Earnings per Share of Common Stock:
Net income
Weighted average number ofcommon shares outstanding

Net Assets per Share

June 30, 2006

For the six months ended
December 31, 2005
(Yen)

June 30, 2005

¥ 20,836¥ 17,570¥ 16,893

472,745

410,091

364,700

As of June 30, 2006

As of December 31, 2005

¥701,373¥637,274

Note 10—Leases
NBF leases some of its investment properties to outside parties under non-cancelable operating leases. As of June 30, 2006 andDecember 31, 2005 the future lease revenue under the non-cancelable operating leases are as follows:
As of June 30, 2006
As of December 31, 2005
(Yen in millions)Due within one year
Due after one year
Total

¥ 7,00913,256¥20,265¥ 6,145
6,291¥12,436

NBF Report January–June 2006

43

Notes to Financial Statements

Note 11—Significant Non-cash Transaction
On February 24, 2006, NBF concluded a contract for an exchange of properties with Mitsui Fudosan Co., Ltd., and consummated thistransaction on April 24, 2006. The non-cash component of this transaction is outlined below.
(Yen in millions)

Value of properties acquired through exchange
Value of properties exchanged
Payments for purchases of tangible and intangible assets¥(110,100)
91,000¥ (19,100)

Note 12—Transactions with Related Parties(January 1, 2006 - June 30, 2006)(1) Parent Company and Major Corporate Shareholders: None applicable(2) Directors and Major Individual Shareholders
Classification

Director
and/or close
relative

Principal
business or
occupation

Name

Koichi
Nishiyama

Executive
Director of
NBF andPresident & CEO
of NBFMNature oftransaction

Amount oftransaction
Yen in millions

Account

Balance at
end of period
Yen in millions

Payment of
asset
management
fees to NBFM
(Note 1)

¥1,369(Notes 2 and 4)

Accounts
payable¥327(Note 4)

Payment for theprovision ofgeneraladministration
services relating
to organizational
management to
NBFM (Note 3)¥2(Note 4)

Accounts
payable¥1(Note 4)

Notes: 1. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and this amount is subject to the conditions set forth in the by-laws of NBF.
2. The amount of asset management fees includes ¥493 million for management related to acquisition of properties included in the book value of each
investment property, etc.
3. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and this amount is set forth in the “General Administration Agreement
relating to Organizational Management” concluded between NBF and NBFM.
4. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

(3) Subsidiaries: Not applicable, because the Company has no subsidiaries in which it has invested.
(4) Sister Companies: None applicable(July 1, 2005 - December 31, 2005)(1) Parent Company and Major Corporate Shareholders: None applicable(2) Directors and Major Individual Shareholders: None applicable(3) Subsidiaries: Not applicable, because the Company has no subsidiaries in which it has invested.
(4) Sister Companies: None applicable

44

NBF Report January–June 2006

Independent Auditors’ Report

To the Board of Directors of
Nippon Building Fund Inc.:

We have audited the accompanying balance sheets of Nippon Building Fund Inc. (a Japanese Real Estate
Investment Trust) as of June 30, 2006 and December 31, 2005, and the related statements of income, shareholders’ equity and cash flows for each of the six months ended June 30, 2006, December 31, 2005 and June30, 2005 expressed in Japanese yen. These financial statements are the responsibility of the Company’s management. Our responsibility is to independently express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of Nippon Building Fund Inc. as of June 30, 2006 and December 31, 2005, and the results of its operations and its cash flows for each of the six months ended June 30, 2006, December 31, 2005 and June 30,2005 in conformity with accounting principles generally accepted in Japan.

Tokyo, Japan
September 19, 2006

NBF Report January–June 200645

Appendix
Major Interested Parties
Nippon Building Fund Management Ltd. (Asset Management Company and Administrative Agent regarding the Managementof Institutions, herein "NBFM")
NBFM, as Asset Management Company provided for in theManagement Fees 3

Investment Trust Law of Japan, performs management of NBF's assets

In the event that Real Estate, etc. is newlyacquired, compensation

and undertakes management of the institutions of NBF. As of June 30,

equivalent to the total amount of the acquisition price of said Real2006, NBFM has been entrusted as an asset management company only

Estate, etc. (meaning the acquisition price of both land and buildings,

by NBF.

and in the event of the simultaneous acquisition of multiple units of RealAs of the same date, NBFM has paid-in capital of ¥495 million. There

Estate, etc., the acquisition price of each item; provided, however, thatis no capital relationship with NBF. Koichi Nishiyama, President & CEO

national consumption tax, regional consumption tax and miscellaneousof NBFM, is concurrently an executive director of NBF.

costs of acquisition are excluded) multiplied by the following percentage
rates will, in principle, be payable; provided, however, that with the

Operation

approval of the directors of NBF, compensation will be calculated within■ Undertakes asset management of NBF pursuant to an Assetthe scope decided up to the following maximum rates.

Management Entrustment Agreement based on an entrustment from●

The portion up to and including ¥10,000 million ............................ 0.5%

NBF in accordance with the Articles of Incorporation of NBF and the●

The portion exceeding ¥10,000 million up to andincluding ¥30,000 million ................................................................ 0.2%●

The portion exceeding ¥30,000 million up to andincluding ¥50,000 million ................................................................ 0.05%●

The portion exceeding ¥50,000 million ............................................ nothing

Investment Objects and Policies set forth therein.
■ Undertakes management of the general affairs of the general meetingof shareholders and the Board of Directors as Administrative Agent
regarding the Management of Institutions based on an entrustment
from NBF and pursuant to an Agreement for General Administration
Regarding the Management of Institutions.

Fees for the Asset Management Operation
Management Fees 1
The amount equivalent to 2.5% effective from July 1, 2004 of theamount of the revenue arising from Real Estate, etc. as calculated oneach closing date (provided, however, that revenue from the sale of Real
Estate, etc. and other Managed Assets will be excluded) will be payable.
Management Fees 2
The amount equivalent to 3% of income before income tax (provided,
however, that in the event a loss is carried forward, then the amount ofincome before income taxes remaining after such loss has been covered)prior to deduction of Management Fees 2 as calculated on each closing
date will be payable.

46

NBF Report January–June 2006

History of NBFM

Directors and Staff

NBFM is an Asset Management Company which is a limited liability

As of June 30, 2006, the directors and corporate auditors of NBFM

company duly established under the laws of Japan. Major events in theare as follows. The staff other than directors and auditors of NBFM ishistory of NBFM are as follows.

composed of 17 persons.

September 19, 2000 Established

Name of Directors and Auditors

Title

November 17, 2000

Obtained license as a building lots and building
trans-actions agent under the Building Lots andBuilding Transactions Law

Koichi Nishiyama

President & CEO (standing)

Hiroyuki Sawa

Director, Head of Investment & Finance Group(standing)Obtained approval as a discretionary transaction
agent under the Building Lots and Building
Transactions Law

Riichi Morihiro

Director, Head of Administration Group(standing)

Yuri Giga

Director

January 29, 2001

February 15, 2001

March 7, 2001

Registered as a general real estate investment advisor under the Real Estate Investment Advisor
Registration Regulations
Obtained approval as an Asset Management
Company under the Investment Trust Law of Japan

March 22, 2001

Increased capital from ¥100 million to ¥198 million

May 23, 2001

Changed name (from “MF Asset Management Co.,
Ltd.” to "Office Building Fund Management Japan
Limited")June 16, 2001

Increased capital from ¥198 million to ¥495 million

March, 2003

Changed name (from "Office Building Fund Management Japan Limited" to "Nippon Building FundManagement Ltd.")

List of Shareholders (as of June 30, 2006)
Numberof Shares Owned

Percent

Mitsui Fudosan Co., Ltd.

4,257

43.0%

Sumitomo Life Insurance Company

3,465

35.0

The Chuo Mitsui Trust and.
Banking Co., Ltd

495

5.0

Sumitomo Mitsui Banking
Corporation

495

5.0

Name

Daido Life Insurance Company

297

3.0

Mitsui Sumitomo InsuranceCo., Ltd.

297

3.0

Mitsui Mutual Life Insurance
Company297

3.0

Britel Fund Trustees Limited

297

3.0

Total

9,900

100.0%

Tamotsu Shinyama

Director

Yoshinori Nishitsuji

Corporate Auditor

Noriaki Moromachi

Corporate Auditor

Outline of Financial Condition
An outline of the financial condition of NBFM is as follows.
Outline of principal assets and liabilities for the most recent fiscal year:
Current as of May 31, 2006

Total Assets
Total Liabilities
Shareholders‘ Equity(Yen in thousands)

1,799,163
377,888
1,421,275

Profit and loss for the most recent fiscal year:
First Fiscal Year
From: April 1, 2005
To: March 31, 2006

(Yen in thousands)

Operating Income
Ordinary Profit
Net Income¥1,867,641
1,284,785
742,444

NBF Report January–June 2006

47

Investment and Distribution Policies
Investment Policies of NBF
A. Basic Policies
NBF’s primary investment objective is to achieve sustainable growthin portfolio value and stable profits on a mid-term to long-term basis. NBF
achieves this objective by investing in real estate consisting of buildings
primarily used for offices with their underlying land located in the Tokyo
Central Business Districts (hereinafter “CBDs”), Other Greater Tokyo andArea and Allocation Ratio

Area Analysis

Tokyo CBDs■

Relatively high rent levels and low vacancy
rates compared to Other Cities; also, relatively large market scale (both leasing andpurchase/sale) with high growth rates.

■

Relatively low yearly NOI yields. Relatively
high liquidity at the time of sales.

■

Basic special characteristics are between
those of Tokyo CBDs and Other Cities.

9 central wards in Tokyo:
Chiyoda, Minato, Chuo, Shinjuku,
Shinagawa, Shibuya, Toshima,
Bunkyo and Meguro

Other Cities in Japan as well as securities, beneficiary certificates representing beneficial interests in trusts (hereinafter “beneficiary certifi-

Other Greater Tokyo

cates”) and other assets backed by office properties (collectively here-

Other 14 wards in Tokyo andneighboring cities(see Note 1 below) such asMusashino, Tachikawa, Yokohama,
Kawasaki, Chiba, Kashiwa,
Saitama, etc.

inafter “Real Estate, etc.”) (“Investment Objectives and Policies,” Articles
of Incorporation). (Reference to: laws, legal documents, etc. used as thebasis or sources hereof are set forth in parenthesis herein.)

Total of above two areas: 70% or more

B. Investment Strategy
Nippon Building Fund Management Ltd. (“NBFM”), based on theinvestment strategy of NBF set forth below, invests and manages theassets of NBF. NBFM has established asset management guidelines
based on the Articles of Incorporation of NBF and in accordance with theinvestment strategy of NBF.

Other Cities

Rent levels relatively low and vacancy rates

Total of above area: 30% or less

(1) Strategy for Creation of the Portfolio
The goal of the portfolio is to generate steady growth and stable profits on a mid-term to long-term basis. The selection criteria of investment
assets is based on the composition of investment assets in the portfolio
and based on consideration of a quantitative proportion of the office stock

Notes: 1. "Neighboring cities" refers to the metropolis of Tokyo excluding its 23 wards, and the
6 prefectures of Kanagawa, Chiba, Saitama, Ibaraki, Gunma and Tochigi.
2. Due to unforeseeable events such as, extreme fluctuations in macro-economic
trends, financial trends, real estate market trends and so forth, it may not always be
possible to operate in accordance with each of the above criteria (“Investment
Objectives and Policies,” Articles of Incorporation).

located in the various regions of Japan.

Area Diversification
The investment strategy of NBF divides the investment area into threeareas consisting of Tokyo CBDs, Other Greater Tokyo and Other Cities insuch manner that 70% or more of total investment assets (Real Estate,etc.) are allocated to Tokyo CBDs and Other Greater Tokyo and 30% orless to Other Cities. The purpose of this area diversification is to mitigate
cash flow risks such as earthquakes, risk of vacancies and so forth.
The following table sets forth above said area diversification strategy.

48■

relatively high compared to Tokyo CBDs.
Principal regional cities such as
Sapporo, Sendai, Niigata, Shizuoka, ■ Also, scale of market is relatively small andHamamatsu, Nagoya, Kyoto, Osaka, growth rates relatively low.
■ Relatively high yearly NOI yields. Relatively
Kobe, Okayama, Hiroshima,
Takamatsu, Fukuoka, Kumamoto, etc. low liquidity at the time of sales.

NBF Report January–June 2006

Investment and Distribution Policies(2) Acquisition Strategy

Ratio of Real Estate Assets
NBF will maintain ratios of 75% or more with respect to the“Designated Real Estate Ratio.” As of June 30, 2006, NBF satisfied the

Measures regarding
status of legal title■

criteria.
■ The “Designated Real Estate Ratio” means the ratio of the total amount of●

Designated Real Estate to the total amount of Designated Assets owned by
NBF.
●

Note: Designated Real Estate includes real estate, real estate leasehold rights, superficies
and beneficiary certificates backed by real estate, land leasehold rights and superficies(as designated under Article 83.4.3.1 of the Special Taxation Measures Law of Japan).

comprehensive research and analysis based on the forecast investment

measures to protect security deposits, policies and measures regarding cash reserves
for long-term renovation plans;
appropriate measures regarding demands fordivision of co-owned interests or the sale ofa co-owner’s interest, etc;

Tenancy characteristics■

Acceptable creditworthiness of tenants, purposes of use by tenants, configuration, andcondition of collectibility of rents, etc.

Environmental;
condition of land, etc.

■

Absence of harmful substances such as
asbestos, (or countermeasures can be implemented for any such substances), non-existence of soil pollution, etc.

Due Diligence
When investing in office properties, selections will be made throughIn cases such as co-ownership, divided
condominium ownership, a building erected
on leased land etc. where NBF will not
obtain complete ownership of a building, thefollowing matters are appropriately treated.

yields resulting from their acquisition costs and their anticipated profits,
future prospects and stability of the area of location, availability of measures responding to risks of deterioration and obsolescence, insurability
and so forth. The details of the relevant criteria are set forth in the following table (“Investment Objectives and Policies,” Articles of Incorporation).
Though such consideration will involve the study of the criteria includedin the following table, it is possible that when NBF acquires or intends toacquire operating assets, not all of the following criteria will be satisfied.

Uncompleted or Unleasable Properties
In principle, NBF acquires Real Estate, etc. which are leased/leasable
assets at the time of closing. NBF may acquire a property which is not yet
leasable at the time of closing based on consideration of the impact on
NBF's asset management activities after taking into account the investment amount, the date of completion or of becoming leasable, estimatedrevenue and so forth; provided, however, that the contract amount of any

Item

Points to be reviewed

Scale of building■

such unleasable asset combined with the total contract amount of previ-

Net rentable area, including net rentable areaof entire building and standard net rentablearea per floor. Desired total net rentable area
is 1,650m2 (approximately 500 tsubo) or more.
Standard net rentable area per floor is 330m2(approximately 100 tsubo) or more.

ously acquired unleasable assets (but excluding unleasable assets which
thereafter become operational) will not exceed 10% of the total assets
indicated on the most recent balance sheet of NBF. For this purpose,“leased/leasable assets” shall mean property with respect to which theconstruction of the building has been completed and such building is

Construction type andspecifications of facilities

Earthquake resistance■■

Building design and floor plan suitable forleasing, with divisibility, adequate ceilingheight, electrical service, HVAC equipment,
etc.

leased or leasable. Properties which are owned by NBF and have become
operational at some point shall be deemed “leasable ” thereafter (including such cases as reconstruction or large-scale renovation of a building).

Ensure that construction quality exceeds earthquake standards (meaning those required pursuant to the Building Standards Law asamended in 1981) or standards equivalent
thereto.

NBF Report January–June 200649

(3) Management and Disposition Policies
Regarding acquired operating properties, the goal is to obtain steady

Measures to Avoid Reductions and Fluctuations in
Operating Income

growth of operating profits on a mid-term to long-term basis by planning

In order to avoid large-scale reductions and fluctuations in operating

to maintain and improve asset value and competitive ability throughincome due to fire damage, withdrawal of tenants and so forth, efforts,

investment in facilities and by expanding income (increasing rents, etc.,

such as area diversification and obtaining adequate fire and casualty

increasing occupancy rates, extending the term of leases and rendering

insurances, etc., will be exerted.

them more stable, etc.) and reducing property-related expenses.
NBF will, in principle, for the purpose of assuring stable income on a

Appraisal Value, Etc.

mid-term to long-term basis, lease out all operating properties included in

In the event that valuation of real estate, land leasehold rights andoperating assets (including installation of parking lots, billboards, etc.).

superficies (including beneficiary certificates, securities and tokumei-

When conducting such leasing, security deposits, etc. and other similar

kumiai ownership interests, and other asset-backed instruments) is under-

monies may be received and said monies will be managed in accordance

taken for the purpose of disclosure in Performance Information Reports,

with the requirements of “Investment Objectives and Policies” of theetc., the value to be used for disclosure will, in principle, be the appraisal

Articles of Incorporation (“Investment Objectives and Policies,” Articles ofvaluation provided by a certified real estate appraiser (Articles ofIncorporation).

Incorporation).

NBF is entitled to establish reserves for long-term renovations

The appraisal value of property with respect to the period commenc-

required to maintain and enhance the value of operating properties,

ing on the acquisition thereof and ending on the date of disclosure ofreserves for payables, reserves for cash distributions and any other simi-

such value with respect to the next following closure of NBF's accounting

lar reserves, etc. (Articles of Incorporation).

term shall be the acquisition price of the said property (excluding miscellaneous acquisition costs, fixed assets tax, city-planning tax and con-

Reserves for Long-Term Renovations

sumption tax) as stated in the sale and purchase contract, etc. for the said

From the reserves set forth above, a portion corresponding to renova-

property.

tions, repairs and tenant improvements will be determined based on renovation plans for each building. As of June 30, 2006, foreseen reserves
provided from January to December 2006 are as follows:

Disposition
In disposing of individual operating properties, selections will be

Item

Reasonmade through comprehensive research and analysis based on the fore-

Reserves forlong-term renovations■ Average annual amount over an approximately 10-year period based on engineering
reports

casted income, actual and predicted fluctuations in asset value, future■ Expenses of providing “free access floor” (orReserves for tenant improveraised floor); expenses for other move-in conments (reserves for future
struction costs (partitions, etc.)
construction expenses required
for spaces leased to tenants)

obsolescence of real estate and predicted costs thereof as well as the

Total Foreseen Amount: (annual basis) ¥2,434 million

prospects and stability of the area of location, risks of deterioration andcomposition of the portfolio, etc. Sell/hold studies will be periodicallyundertaken with respect to all operating properties (“Investment
Objectives and Policies,” Articles of Incorporation).

Notes: 1. In addition to the above-mentioned amount, certain amounts are set aside as cash
reserves for renovation pursuant to the administrative rules of the buildings in which
NBF owns condominium interests, etc.
2. The amount of reserves set forth above is the total amount of reserves with respect tothe 55 properties owned by NBF as of the end of June 2006.

50

NBF Report January–June 2006

Investment and Distribution Policies(4) Financial Policies

Issuance of Shares
NBF may issue shares in order to undertake acquisition and renovation and so forth of assets and to provide allowance for funds required
for working capital as well as for the repayment of debt (including security deposits, borrowings and repayment of obligations regarding NBF
bonds, etc.)

Debt Financing
NBF may raise capital (including use of the call loan market) and issue
bonds in order to undertake acquisition and renovation and so forth ofassets and to provide allowance for funds required for working capital aswell as for the repayment of debt (including security deposits, borrowings
and repayment of obligations regarding NBF bonds, etc.) (“Investment
Objectives and Policies,” Articles of Incorporation).
Borrowings are limited to those from Qualified Institutional Investors
as specified in Article 2.3.1 of the Securities and Exchange Law of Japan,
in case capital is borrowed. Further, the total limit on all such borrowings
and issues of NBF bonds will be ¥1,000,000 million. When undertaking
borrowings or when issuing NBF bonds, NBF may provide operating
assets as collateral (Articles of Incorporation).

Loan- to-Value Ratio
The ratio of the total amount of borrowings, issues of NBF bonds andlease deposits under management to the total amount of assets of NBF(Loan-to-Value ratio) is envisioned to be limited to 60%, but may temporarily exceed 60% when acquiring certain assets, etc. (Long and midterm operating asset management policy and annual management planestablished by the Asset Management Company).

Derivatives
In order to avoid risks of fluctuation in the prices of operating assets
as well as risks of fluctuations in interest rates, futures transactions,
option transactions, swap transactions and forward rate transactions
with respect to Japanese interest rates may be undertaken (“Investment
Objectives and Policies,” Articles of Incorporation).

NBF Report January–June 2006

51

Distribution Policies of NBF
A. Distributions of Profits

depreciation for the period. NBF is entitled to make cash distributions ofA registered investment corporation may deduct its cash dividends ofthe amounts described below in excess of the Distributable Earnings in

profits from taxable income under Japanese tax regulations if it distrib-

the following cases; provided, however, that the maximum amount ofutes to its shareholders in excess of 90% of its taxable income and com-such distributions will be the amount set forth in the rules of theplies with other organizational and operational requirements. NBF

Investment Trusts Association of Japan (Article 15.2 of the Articles ofintends to make dividend distributions that ensure that NBF satisfies

Incorporation).

those requirements.

■ Amount determined by NBF as being eligible for the requirements of

NBF will, in principle, effect distributions in accordance with the fol-the Special Taxation Treatment for Investment Corporations, in caseof the Distributable Earnings being less than the Taxable Income

lowing policies (Articles of Incorporation).

Available for Dividends■ Amount determined by NBF not in excess of the amount of depreciation

Earnings Available for Distributions
NBF’s earnings available for distributions are based on accounting offor the current term less the amount of appropriate reserves for the cur-profits prepared in accordance with the Investment Trust Law and therent term, if NBF determines it appropriate considering trends in macro

Securities and Exchange Law of Japan and in conformity with generally

economic environments, real estate markets and leasing mar0kets

accepted accounting principles in Japan.
The distributable amount which results from operation of managed

NBF’s Current Policy on Distributions in Excess of Profits

assets of NBF (hereinafter, “Distributable Amount”) shall be the amount of

As for cash distributions in excess of profits, as long as the current

profit (the amount of net assets on the balance sheet less the amount of total

Japanese taxation treatment applicable to NBF’s shareholders in Japan

expenses, capital surplus reserves and estimated variances) calculated on

to whom such distributions are paid requires them to calculate capitaleach closing date in accordance with the Investment Trust Law of Japan andgain or loss at the time of each distribution, NBF will not make distribu-

corporate accounting principles generally deemed to be fair and appropriate.

tions in excess of profits.
Notwithstanding the above, NBF may make distributions in excess of

Cash Distribution of Profits

profits in accordance with the distribution policies stated above in order

The amount of cash distributions will be determined by NBF, suchto meet “Requirement for Deduction from taxable income of Dividends ofamount being in excess of 90% of taxable income available for dividends

Profit, etc.,” and if such distributions in excess of profits are deemedof NBF set forth in Article 67-15 of the Special Taxation Measures Law

necessary by the Board of Directors of NBF.

of Japan (hereinafter "Taxable Income Available for Dividends"); provided, however, that the maximum amount of distributions will be theC. Method of Distributions

Distributable Amount. NBF has the right to allow for long-term reserve

Distributions will be made in cash, in principle, within three months

for repair, reserve for outstanding claims, reserve for distributions andfrom the closing date, to such shareholders or registered pledgees as areother reserves and allowances similar thereto which are deemed neces-listed in the latest Shareholder Registry as of the closing date, in propor-

sary for maintenance or appreciation of the assets of NBF.

tion to the number of shares owned by them (Articles of Incorporation).

B. Distribution in Excess of Earnings

D. Prescription for Cash Distributions, etc.

A registered investment corporation is allowed to distribute cash to

NBF will be discharged from the obligation to pay distributions of

its shareholders in excess of retained earnings under the Investment

profits three calendar years from the date of commencing payment.

Trust Law of Japan, although the Investment Trusts Association of Japan

Interest will not accrue on unpaid distributions (Articles of Incorporation).

has established rules such that a corporate-style J-REIT may pay out theexcess of retained earnings for the period up to a maximum of 60% of

52

NBF Report January–June 2006

Investment and Distribution Policies

Investment Objectives
The Investment Objectives of NBF specified in the Articles ofIncorporation are as follows.

(8) Beneficiary Certificates of Money Trust (limited to those the trust
assets of which are primarily invested and Managed Assets referred toin paragraph (1) above).

A. Principal Investment Objectives among Designated
Assets
NBF will principally invest in the below-listed Designated Assets with

B. Other Investment Objectives among Designated Assets
NBF may, for the purpose of efficiently managing surplus funds, invest

the objective of assuring steady growth and stable profits from thein the following Designated Assets.

Managed Assets.

(1) Bank deposits(1) Real estate, real estate leasehold interests and superficies.

(2) Call loans(2) Beneficiary Certificates backed by real estate, land leasehold rights(3) Japanese Government Bonds, Notes and Billsand superficies, including inclusive trusts consisting of funds appur-(4) Regional Treasury Bonds, Notes and Bills

tenant to real estate.

(5) Commercial Paper(3) Tokumei-kumiai ownership interests (provided, however, that this is(6) Designated Bonds of Special Purpose Companies (meaning thoselimited to those the assets of which are primarily invested andspecified in Article 2.1.3.2 of the Securities and Exchange Law ofManaged Assets principally referred to in paragraphs (1) and (2)Japan; provided, however, that this is limited to asset-backed securi-

above).

ties principally referred to in paragraphs (1) and (2) of section (A)(4) Preferred Investment Certificates of Special Purpose Companies

above).

(meaning those specified in Article 2.1.5.3 of the Securities and(7) Monetary Claims (excluding those subject to the provisions of

Exchange Law of Japan; provided, however, that this is limited toParagraphs 1, 12 and 14 of Article 3 of the government ordinancethose the assets of which are primarily invested and Managed Assets

regarding the Investment Trust Law of Japan).

principally referred to in paragraphs (1) and (2) above).
(5) Special Purpose Beneficiary Certificates (meaning those specified in(8) Beneficiary Certificates of Money Trust invested and managed for the
purpose of any of the foregoing items.

Article 2.1.7.4 of the Securities and Exchange Law of Japan; provided,

Moreover, in order to avoid risks of fluctuation in the prices of the

however, that this is limited to those the assets of which are primarily

Managed Assets as well as risks of fluctuations in interest rates, futures

invested and Managed Assets principally referred to in paragraphs (1)transactions, option transactions, swap transactions and forward rateand (2) above).

transactions with respect to Japanese interest rates may be undertaken. In(6) Beneficiary Certificates of investment trusts (meaning those specified
in Article 2.1.7 of the Securities and Exchange Law of Japan; provided,
however, that this is limited to those the assets of which are primarily

addition, NBF may acquire shares of stock in real estate managementcompanies, etc. to the extent that such acquisition is incidental to NBF’s
investment in the principal Designated Assets.

invested and Managed Assets principally referred to in paragraphs (1)and (2) above).
(7) Investment Securities (meaning those specified in Article 2.1.7.2 of
the Securities and Exchange Law of Japan; provided, however, that
this is limited to those the assets of which are primarily invested andManaged Assets principally referred to in paragraphs (1) and (2) above).

NBF Report January–June 2006

53

Investment Restrictions
C. Assets Other than Designated Assets
NBF may, for the purpose of efficiently managing surplus funds,
invest in Certificates of Deposit issued by Japanese legal entities. In
addition, NBF may invest in equity interests of partnerships defined

A. The investment restrictions specified in the Articles ofIncorporation and the asset management guidelines
applicable to NBF. Please also refer to "Investment
Policies of NBF, B. Investment Strategy" herein.

under Article 667 of the Civil Code (but limited to such partnerships
established by contribution of real estate, real estate leasehold rights

Investment Location and Currencies

and superficies for the purpose of leasing, operating or managing, etc. of

NBF will invest neither in real estate located outside of Japan nor in

the same) as well as trademark rights to the extent that such investment

assets denominated in non-Japanese currencies ("Investment Objectives

is incidental to NBF’s investment in the principal Designated Assets.

and Policies," Articles of Incorporation).

Borrowing

D. Investment in Ordinary Securities
NBF does not, in principle, have the objective of investing in andmanaging assets which are securities, except for those described in A

See “Investment Policies of NBF, B. Investment Strategy, (4) Financial
Policies.”and B above.

Concentration of Investment
There is no limitation on concentration of investment. See “Investment
Policies of NBF, B. Investment Strategy, (1) Strategy for Creation of thePortfolio.”

Investment in Other Funds
See “Investment Objectives, A. Principal Investment Objectives among
Designated Assets.”
The real estate held by such funds may not include any real estate
located outside of Japan (Articles of Incorporation).

Subscription and Margin Trading of Securities
NBF may not subscribe to, or conduct margin trading of, securities.

Compliance with Laws and Regulations
The Managed Assets of NBF will be managed in compliance with
Investment Trust Law of Japan and related regulations, the rules stipulated by the Investment Trusts Association (as amended), as well as“Investment Objectives and Policies” of the Articles of Incorporation.

54

NBF Report January–June 2006

Investment and Distribution Policies

B. Compliance with the Investment Trust Law of Japan
While a registered investment corporation must entrust business

Other Transactions Specified in the Government Ordinanceregarding the Investment Trust Law of Japan (§ 34.3.1.8)

related to asset management to an asset management company, an

In the addition to the foregoing, those acts specified in the govern-

asset management company is prohibited from performing certain acts

ment ordinance regarding the Investment Trust Law of Japan being cer-

related to the business of managing the assets of said investment corpo-

tain acts committed by an asset management company that would result

ration. As a result, an investment corporation is subject to certain invest-

in failure to protect the interests of shareholders, damage the fairness ofment restrictions (all references in parentheses below are to the provi-

the management of the assets of NBF, and pose a risk of damaging thesions of the Investment Trust Law of Japan) besides restrictions applied

good public reputation of NBF are prohibited.

to a registered investment corporation. NBF will naturally comply withsuch investment restrictions, a general overview of which follows.

Limitation on Acquisition of the Same Issue of Shares (§ 194)
A registered investment corporation may not acquire the same shares

Reciprocal Transactions with Investment Corporations (§ 34.3.1.5)
Transactions between investment corporations, the assets of whichissued by a corporation in excess of 50/100 of total number of said
issued and outstanding shares.

are managed by an asset management company, are prohibited except
for certain cases specified in the provisions of the government ordinanceRestriction on Acquisition of Own Shares andregarding the Investment Trust Law of Japan that are considered unlikely

Acceptance of Pledge (§ 80.1)
An investment corporation may not acquire shares issued by itself, orto result in failure to protect the interests of shareholders.

accept them for the purpose of pledge, unless it acquires shares issued
Transactions by an Investment Corporation withby itself in the following cases:

Investment Trust Assets (§ 15.1.3)●

when acquired as the result of merger;

Transactions by an investment corporation with investment trust●

if necessary for attaining the purpose of exercising its rights; orassets subject to asset management are prohibited except for certain●

when purchasing shares pursuant to the provisions of the Investment
Trust Law of Japan.

cases specified in the provisions of the government ordinance regarding
the Investment Trust Law of Japan that are considered unlikely to result

Restriction on Acquisition of Parent Corporation’s Shares byin failure to protect the interests of shareholders.

Subsidiary Corporation (§ 81.1)
An investment corporation (e.g. subsidiary), a majority of the shares ofTransactions for the Benefit of Third Parties (§ 34.3.1.6)
An asset management company may not undertake transactions inwhich is owned by another investment corporation (e.g. parent) may notcertain securities based on fluctuations in the price, index, value, or

acquire the shares of such parent investment corporation except in the fol-amount of consideration related to transactions in the assets of anlowing cases:

investment corporation, without a legally valid reason, with the objective●

when acquired as the result of merger; orof benefiting a third party other than NBF or said investment.

●

if necessary for attaining the purpose of exercising its rights.

Transactions Harmful to the Interests of NBF (§ 34.3.1.7)
An asset management company may not undertake transactions thatare other than upon normal terms and conditions for such transactions,and further, such transactions upon said conditions would be harmful tothe interests of the investment.

NBF Report January–June 2006

55

Restrictions of Transactions with Interested Partiese) In the event that an issuer, securities company or registered financial(1) Restriction on an asset management company (§ 34.3)

institution, who is an Interested Party, etc. of an asset management

In accordance with the provisions of laws and regulations, an asset

company, undertakes a primary offer or secondary distribution ofmanagement company is prohibited from committing any of the follow-

securities or participates in handling a primary offer, private offering,ing acts in connection with transactions with an Interested Party, etc.

or secondary distribution at a time when the subscription amount of"Interested Party, etc." as used herein means a person who holds a

said acquisition or the amount of purchase offer of securities to saidmajority of the shares of an asset management company or otherwise

issuer, securities company or registered financial institution is not

has a close relationship with said asset management company as desig-

foreseen to reach that otherwise expected by said issuer, securities

nated by the government ordinance regarding the Investment Trust Law

company or registered financial institution, acquiring or purchasingof Japan.

said securities with assets of NBF at the request of said issuer, secu
rities company or registered financial institution.

a) An investment trust agent, trust company, financial institution engaged
in trust business, investment advisor, residential land and buildingf) In the event that a specified real estate syndicate, who is an

specialist, etc. who is an Interested Party, etc. of an asset manage-

Interested Party, etc. of an asset management company, makes ament company undertakes a transaction which harms the interests ofsolicitation in connection with the execution of a specified real estate

NBF with the objective of benefiting a customer, etc. specified in the

syndication agreement at a time when the contract amount of said

Investment Trust Law of Japan.

specified real estate syndication agreement is not foreseen to reachthat otherwise expected by said specified real estate syndicate,b) Undertaking transactions which harm the interests of an investment

acquiring a tokumei kumiai interest pursuant to said specified real

corporation with the objective of benefiting an Interested Party, etc.

estate syndication agreement with assets of NBF at the request ofof NBFM.

said specified real estate syndicate.

c) Undertaking transactions clearly recognized to be unnecessary in lightg) In the event that the manager of a tokumei kumiai, who is anof the management policies for the assets of an investment corpora-Interested Party, etc. of an asset management company, makes ation, the amount of net assets of NBF, or market conditions, with thesolicitation in connection with the execution of a tokumei kumiai

purpose of benefiting a securities company, registered financial insti-

agreement at a time when the total investment amount otherwise

tution, residential land and building specialist or other person speci-

obtained pursuant to said tokumei kumiai agreement is not foreseen

fied in the government ordinance regarding the Investment Trust Law

to reach that expected by the manager of said tokumei kumiai, acquir-of Japan who is an Interested Party, etc. of an asset management

ing a tokumei kumiai interest pursuant to said tokumei kumiai agree-company.

ment with assets of NBF at the request of the manager of said
tokumei kumiai.

d) In the event that a securities company, who is an Interested Party,
etc. of an asset management company, acts as an underwriter in ah) In the event that a trust company, who is an Interested Party, etc. of

securities transaction, undertaking transactions with the objective ofan asset management company, makes a solicitation in connection

fraudulently manipulating the market for the purpose of having anwith the execution of a trust agreement at a time when the amount ofinfluence upon the conditions of the primary offer or secondary distri-trust assets otherwise obtained pursuant to said trust agreement isbution of said securities not reflecting correct market pricing.

not foreseen to reach that expected by said trustee, acquiring a beneficiary certificate pursuant to said trust with assets of NBF at therequest of said trustee.

56

NBF Report January–June 2006

Investment and Distribution Policies

i) In the event that a distributor of trust beneficiary interests, who is an

said asset management company, other investment corporations (which

Interested Party, etc. of an asset management company, distributes,

invest in the same kind of assets as the said Designated Assets) theor acts as an agency or intermediary of distribution of, trust benefici-

assets of which are managed by said asset management company andary interests at a time when the total amount of purchase offer ofother persons set forth under the government ordinance regarding thesaid trust beneficiary interests to said distributor of trust beneficiary

Investment Trust Law.

interests is not foreseen to reach that otherwise expected by said distributor of trust beneficiary interests, purchasing said trust beneficiary(3) Restriction on an investment corporationinterests with assets of NBF at the request of said distributor of trust

Restrictions on Asset Management (§ 195)

beneficiary interests.

A registered investment corporation must not, in principle, acquire orsell securities, lend or borrow securities, acquire or sell real estate,(2) Submission of written notice when conflict of interest is anticipatedlease real estate or entrust the supervision of real estate (provided, how-

Submission of Written Notice When Conflict of Interest isever, that, it is acceptable to cause NBFM to act as an agent or broker

Anticipated (§ 34.6.2-4 of the Investment Trust Law)concerning the purchase or leasing of residential building lots or build-

An asset management company must, in the event that any sale orings) or otherwise engage in transactions concerning Designated Assets

purchase of, or any other transaction set forth under the government

other than the preparation of residential building lots and design ofordinance regarding the Investment Trust Law with respect to, thebuildings, with its executive directors or supervisory directors, asset

Designated Assets (excluding the specified assets set forth under the

management companies who perform asset management, close relatives

Investment Trust Law and such assets as are set forth under the enforce-of executive directors or supervisory directors, or persons or employees

ment regulations of the Investment Trust Law, the same to apply here-

who perform duties similar to directors or auditors of an asset manage-

inafter in this paragraph) is conducted between an investment corpora-ment company who perform asset management.

tion the assets of which are managed by said asset management company on one hand, and said asset management company, its director or
executive officer, any other investment corporation, investment fundwhich directs management, Interested Party, etc. or other person set
forth under the government ordinance regarding the Investment Trust
Law on the other, submit written notice, in accordance with the enforcement regulations of the Investment Trust Law, to said investment corporation, other investment corporations (which invest in the same kind ofassets as the said Designated Assets) the assets of which are managed
by said asset management company and other persons set forth under
the government ordinance regarding the Investment Trust Law specifying
the matters relating to such transaction; provided, however, that in lieu
of such submission of written notice, said asset management company
may, in accordance with the government ordinance regarding theInvestment Trust Law, provide the matters to be specified in such written
notice by such methods as using electronic information processing systems or other telecommunication technology which are set forth underthe enforcement regulations of the Investment Trust Law with the consent of said investment corporation the assets of which are managed by

NBF Report January–June 200657

Corporate Data
As of June 30, 2006

Corporate Office:7-2, Yaesu 2-chome, Chuo-ku, Tokyo 104-0028, Japan+81-3-3281-8810
http://www.nbf-m.com/nbf_e

Date of Inception:

March 16, 2001

Capital:Contributed capital and common shares issued and outstanding.
¥346,447 million
508,000 shares

Shareholders:

22,258Transfer Agent:

The Chuo Mitsui Trust and Banking Co., Ltd.
33-1, Shiba 3-chome, Minato-ku, Tokyo, 105-8574, Japan

Business Office of the Transfer Agent:

Stock Transfer Agency Department of the Chuo Mitsui Trust and Banking Co., Ltd.
8-4, Izumi 2-chome, Suginami-ku, Tokyo, 168-0063, Japan+81-3-3323-7111

Independent Public Accountants:

KPMG AZSA & Co.
AZSA Center Building
1-2, Tsukudo-cho, Shinjuku-ku, Tokyo, 162-8551, Japan

Investor Relations:

For further information, please contact our Asset Management company:
Investor Relations of Financial Department
Nippon Building Fund Management Ltd.
7-2, Yaesu 2-chome, Chuo-ku, Tokyo, 104-0028, Japan+81-3-3281-8810

This document contains translations of selected information described in the

portion(s) of any document(s) translated into English. No person has been authorized toSecurities Report (Yuka shoken hokokusho) filed on September 20, 2006 pursuant to thegive any information or make any representations other than as contained in this document

Securities Exchange Law of Japan, and the Financial Statements and the Performancein relation to the matters set out in this document, and if given or made, such information

Information Report for the period from January 1, 2006 to June 30, 2006, of Nippon

or representation must not be relied upon as having been authorized by Nippon Building

Building Fund Inc. prepared pursuant to the Investment Trust Law of Japan.

Fund Inc., Nippon Building Fund Management Ltd. or any of their respective directors, offi-

This English language document was prepared solely for the convenience of and refer-cers, employees, partners, shareholders, agents or affiliates.

ence by overseas investors and neither corresponds to the original Japanese documents nor

The financial statements of Nippon Building Fund Inc. have been prepared in accor-

is it intended to constitute a disclosure document. The Japanese language Securities Report

dance with generally accepted accounting principles in Japan (Japanese GAAP) which may

and the Financial Statements and the Performance Information Report for the aforemen-materially differ in certain respects from generally accepted accounting principles in othertioned period should always be referred to as originals of this document.

jurisdictions.

English terms for Japanese legal, accounting, tax and business concepts used herein

Many provisions of this document contain forward-looking statements and informa-

may not be precisely identical to the concept of the equivalent Japanese terms. Withtion. We base these statements on our beliefs as well as our assumptions based solely on

respect to any and all terms herein, including without limitation, financials statements, if

certain limited information currently available to us. Because these statements reflect ourthere exist any discrepancies in the meaning or interpretation thereof between the original

current views concerning future events, these statements involve known and unknown

Japanese documents and English statements contained herein, the original Japanese doc-

risks, uncertainties and assumptions. Our future performance could materially differ fromuments will always govern the meaning and interpretation. None of Nippon Building Fund

those set out in these forward-looking statements. We do not undertake and will notInc., Nippon Building Fund Management Ltd. or any of their respective directors, officers,

undertake to release revisions of forward-looking statements to reflect future events or cir-

employees, partners, shareholders, agents or affiliates will be responsible or liable for the

cumstances or of any other statements or information contained herein.

completeness, appropriateness or accuracy of English translations or the selection of the58

NBF Report January–June 2006

Investors’ Information
As of June 30, 2006

Fiscal Period

Shareholders

Six months ending June 30 and December 31
Other domestic corporations
427 (1.9%)

Total Number of Common Shares Issued

Overseas investors 291 (1.3%)
Financial institutions(Including securities companies)

10th Period (From January 1, 2006 to June 30, 2006)

508,000 shares

9th Period (From July 1, 2005 to December 31, 2005)

422,700 shares

220 (1.0%)

Individuals and others
21,320 (95.8%)

Distributions
Confirmed distribution for the 10th Period (ended June 2006)
For the operating period from January 1, 2006 to June 30, 2006 (6 months)¥19,391 per share

Number of shareholders
Total 22,258¥18,500 per share

Financial
institutions(Including
securities
companies)

Expected distribution for the 11th Period (ending December 2006)
For the operating period from July 1, 2006 to December 31, 2006 (6 months)

Other domestic corporations
54,713 (10.8%)
Individuals and others
52,266 (10.3%)

Overseas investors
98,810 (19.5%)

302,211(59.5%)

Number of shares held
Total 508,000

Major Shareholders
NameJapan Trustee Services Bank, Ltd. (Trust Account)
NikkoCiti Trust and Banking Corporation (Trust Account)
The Master Trust Bank of Japan, Ltd. (Trust Account)
Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account)
Mitsui Fudosan Co., Ltd.
Sumitomo Life Insurance Company
Nomura Securities Co., Ltd.
The Bank of New York, Treaty JASDEC Account
The Chugoku Bank, Ltd.
The Nomura Trust and Banking Co., Ltd. (Trust Account)

Number of Shares Held

Percentage of Total

35,68834,18625,75819,925
19,735
11,256
10,485
10,472
10,415
9,555

7.03%
6.73
5.07
3.92
3.88
2.22
2.06
2.06
2.05
1.88

Stock Price Range and Trading Volume(Yen)
1,200,000
1,100,000

Trading Volume (Right scale)Closing Price (Left scale)

1,000,000

60,000900,000
50,000800,000
700,000

40,000600,000
500,000

30,000400,000
20,000300,000
200,000
100,000
0

10,0009 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6
2001
2002
2003
2004
2005
2006

NBF Report January–June 2006

059

Nippon Building Fund Inc.
7-2, Yaesu 2-chome, Chuo-ku,
Tokyo 104-0028, Japan

http://www.nbf-m.com/nbf_e/

Printed in Japan