SEMI-ANNUAL REPORTFor the 5th Period
from July 1, 2008 to December 31, 2008

Structured for Consistently Solid Returns

Profile

Structured for Consistently
Solid Returns

0Japan Excellent, Inc.

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

Contents
JEI Snapshot

2

Financial Highlights

4

To Our Unitholders

6

Growth Strategy
External Growth

8Internal Growth10

Financial Strategies

11

Investment Strategy

12

Portfolio Map

13

Portfolio

14

Main Properties

16

Management

20

Performance Report

22

Financial Statements

29

Investor Information

44

Akasaka Garden City green zone

1
Japan Excellent, Inc.

JEI Snapshot

Basic Strategies

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

developed numerous office buildings and are experienced
in managing properties. These companies supply properties, human resources and expertise to JEI. Our sponsors
from the financial industry are Mizuho Corporate Bank, Ltd.

Property market

Financial market

and Mizuho Trust and Banking Co., Ltd. They are part of
the Mizuho Financial Group, which is one of Japan’s threemega banking groups. We use the comprehensive
strengths of our sponsors to steadily manage operations.

Stable Operations Centered on
Metropolitan Tokyo Office Buildings
JEI invests primarily in office buildings. All properties in our
portfolio at this time are office buildings. We primarily
invest in Tokyo, where property leasing demand is strong,
and also have properties in Japan’s large regional cities.
Currently 94 percent of our portfolio is in metropolitan
Tokyo.

2
Japan Excellent, Inc.

Total leasable floor space

Portfolio

18

220,521.65m

2properties

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

Generates stable revenues.

Occupancy rate

Acquisition price

181.0

billion yen

Steady portfolio expansion over the 2.5
years since JEI listed on the Tokyo Stock
Exchange.

Profitability

Financial
Stability

127

95.2

tenants

Tenant recruiting risk is well dispersed.

Stable at a high level.

Distribution per unit

NOI yield

20,418

5.2

yen

％

％

JEI has maintained stable distributions
since listing its investment units.

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

Ratings

LTV ratio

A3,AA- 48.7％(Moody’s/R&I)

JEI continues to obtain ratings frominternational rating agencies to maintainhigh levels of transparency.

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

3
Japan Excellent, Inc.

Financial Highlights

5th Period

4th Period

3rd Period

5th Period

July 1, 2008 to
December 31, 2008

January 1, 2008 toJune 30, 2008

July 1, 2007 to
December 31, 2007

July 1, 2008 to
December 31, 2008

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

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

8,501
4,000
3,155

7,840
3,432
2,661

6,982
3,055
2,420

93,41643,961
34,673Funds from operations (Note 3) ...................
Net operating income (NOI) (Note 3)..............
Total distribution ............................................

3,296
4,732
3,155

3,703
5,033
2,661

3,314
4,438
2,420

36,21551,994
34,673

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

195,929
95,50090,01948.7%

206,079
105,500
89,65551.2%

205,486
105,500
89,29251.3%

2,152,839
1,049,335
989,111

154,550
582,458
20,418

154,550
580,107
17,218

154,550
577,758
15,663

—
6,398
224

21,331

23,963

21,447234

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

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥91.01 = U.S.$1.00, the approximate exchange rate on December 31, 2008.
2. Total revenues do not include consumption taxes.
3. Funds from operations: Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization
Net operating income: (Revenue from property leasing - Rental expenses) + Depreciation and amortization
Loan to value: (Interest-bearing debt + Deposits under management) / Total assets
Funds from operations per unit: (Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation
and amortization) / Weighted average number of common units issued and outstanding during the period

Portfolio Highlights
As of December 31, 2008

Investment Areas (Note 1)

AreaⅢ
42.3%

By Property Size

Tokyo metropolitan area
percentage (Note 2)

Medium-sizedbuildings

94% (+2%)

21.4%
Large buildings
78.6%

AreaⅡ
6.1%

AreaⅠ
51.6%

Notes: 1. Area Ⅰ: Six central wards of Tokyo
Area Ⅱ: Central Osaka, central Nagoya and central Fukuoka
Area Ⅲ: Tokyo other than AreaⅠ
2. The percentage of JEI’s portfolio located in AreasⅠand Ⅲ
increased 2% from the end of the previous fiscal period to 94%.
For details see page 12.

4Japan Excellent, Inc.

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

Total Revenues / Net Income

Net Operating Income (NOI)

Funds from Operations(Millions of yen)

(Millions of yen)

(Millions of yen)

1st

1st

1st

periodperiodperiod

2nd

2nd

2nd

periodperiodperiod

3rd

3rd

3rd

periodperiodperiod

4th

4th

4th

periodperiodperiod

5th

5th

5th

periodperiodperiod

0

2,000

4,000

6,000

8,000

10,0000 1,000 2,000 3,000 4,000 5,000

6,000

0

800

1,600

2,400

3,200

4,000

Total revenues
Net income

Net Assets

LTV (Loan to value)

Distribution per Unit

(Millions of yen)

(Yen)

(%)

1st

1st

1st

periodperiodperiod

2nd

2nd

2nd

periodperiodperiod

3rd

3rd

3rd

periodperiodperiod

4th

4th

4th

periodperiodperiod

5th

5th

5th

periodperiodperiod0

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

0

10.0

20.0

30.0

40.0

50.0

60.0

0

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

Major Tenants
Name

Property

Leased Space(m2)

Percentage ofTotal Leased Area

Toshiba Information Systems (Japan)
Corporation

Kowa Kawasaki Higashiguchi Building

18,612.72

8.9

National Mutual Insurance Federationof Agricultural Cooperatives

Kowa Kawasaki Nishiguchi Building

18,206.18

8.7

Roche Diagnostics K.K.

Shiba 2-Chome Building

9,284.18

4.4

Fujitsu Social Science Laboratory Ltd.

Musashikosugi Tower Place

8,680.74

4.1

Fujitsu Network Solutions Ltd.

Kawasaki Nisshincho Building

7,259.45

3.5

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

5
Japan Excellent, Inc.

To Our Unitholders

Our balanced, fiscally sound approach to management and the value we offer
tenants support our ability to deliver consistently solid returns to unitholders.
Our comprehensive strategy to further enhance earnings encompasses external,
internal and financial initiatives.
Overview of Results for the Period
Higher Revenues and Earnings from Portfolio Adjustments
Based on Understanding Market Changes

properties, our contracted rents were still lower thanmarket rents. Moreover, we have invested in the Tokyo
metropolitan area, where the markets are relatively firm.
Thus, the value that Japan Excellent, Inc. (JEI) provides toDuring the fifth period, the six months ended
December 31, 2008, Japan’s economy was impacted bytenants has insulated results from the effect of worsening
market conditions.

the turmoil in global financial markets caused by theOn the other hand, purchase transactions dropped off

financial crisis in the United States. Factors such as

sharply in the real estate investment market as the global

deteriorating corporate performance and the related

credit crunch caused a sharp decline in demand for

decrease in capital investment affected the real economy.

investment in risk assets and lending for real estate

In addition, the operating environment remained

continued to decrease. The cap rate for office buildings inparticularly challenging in the real estate industry, where

Tokyo’s central business districts clearly trended upward.

for the first time ever Japanese real estate investment

In this environment, JEI worked to raise the quality oftrusts (J-REITs) entered bankruptcy.

its portfolio and executed a timely sale of the Shuwa

In the office building leasing market, the national

Iidabashi Building and the Sendai Kowa Building because

average vacancy rate trended upward against a backdropof factors that were likely to destabilize their profitabilityof falling demand due to deteriorating corporate results.

over the medium term. Gain on sale totaled ¥854 million.

While asking rents softened, primarily at high-end

Moreover, JEI added to its interest in the highly profitable
Kawasaki Nisshincho Building in working to strengthen
portfolio competitiveness.
As a result of these initiatives, total revenues for the six
months ended December 31, 2008 increased 8.4 percent,or ¥661 million, compared with the previous period to¥8,501 million. Operating income increased 16.6 percent,or ¥568 million, to ¥4,000 million. Net income increased
18.6 percent, or ¥494 million, to ¥3,155 million.
Distribution per unit increased ¥3,200 to ¥20,418.
As of December 31, 2008, JEI’s portfolio consisted of
18 properties with a total investment value of ¥181,023

6
Japan Excellent, Inc.

Total revenues (Millions of yen)
Excluding disposition factor (Note)
Distribution per unit (Yen)
Excluding disposition factor (Note)

5th Period
July 1, 2008
to December 31, 2008

6th Period(Forecast)January 1, 2009
to June 30, 2009

8,501

7,549

7,565

7,549

20,41814,50015,18814,500Note: Excludes gain on sale of real estate and related rental revenue during the period

million on an acquisition price basis. Total rentable area forcompetitiveness of our properties and minimize the gap

the portfolio was 220,521m and the occupancy rate was

between contract and market rents.

2

95.2 percent.

Financially, we will continue to increase the proportionof long-term, fixed-rate debt. We will also continue todiversify maturities and lenders as we work to reduce

Future Management Policies
and Outlook

financing risk.

Accurate Response to External Changes for Stable
Medium- and Long-Term Growth

total revenues of ¥7,549 million, operating income of ¥3,171

JEI is working to achieve stable medium- and longterm growth by investing primarily in office buildings inlarge cities, emphasizing stable revenues, and taking a

For the six months ending June 30, 2009, we forecast
million, net income of ¥2,241 million, and distribution per unitof ¥14,500. (These projections assume no acquisitions ortransfers of buildings, and no issue of new shares.)
The operating environment for real estate and finance isbalanced approach to opportunities to expand the scale ofcurrently challenging. We will make maximum use of theits assets.

know-how of our powerful sponsors and will accurately

External growth is one way for JEI to achieve its

grasp changes in our operating environment to respond to

objectives. However, given the current uncertainties of thethe challenging environment appropriately and smoothly withreal estate investment environment, we are taking a

the aim of generating stable medium- and long-term growth.

conservative approach to new acquisitions. While theenvironment for acquiring new properties may be
improving, we will remain even more selective than in thepast in considering acquisition opportunities.
Internal growth is another means for JEI to reach its
goals. Despite the trend toward weaker markets, we are

Junichi Tamura

working to increase rental revenues, enhance the

Executive Director, Japan Excellent, Inc.

7
Japan Excellent, Inc.

Growth Strategy

External
GrowthRaising Portfolio Quality
through Selective Investment
JEI is working to achieve stable medium- and long-term growth by investing
primarily in office buildings in large cities, emphasizing stable revenues, andtaking a balanced approach to opportunities to expand the scale of its assets.

Initiatives during the Fifth Period

JEI adjusted its property portfolio according to
its outlook for market change and worked toraise portfolio quality.
During the fifth period, JEI worked to adjust its property portfolio

20-Property Basis(Before dispositions)

AreaⅣ
2.2%

AreaⅢ
42.6%

to raise portfolio quality in order to achieve stable medium- and longterm growth. Specifically, we sold the Shuwa Iidabashi Building inJuly 2008 and the Sendai Kowa Building in August 2008 because offactors that were likely to destabilize their profitability over the
medium term. Moreover, we added to our interest in the highly
profitable Kawasaki Nisshincho Building in October 2008.
We completed the above sale of the two properties prior to the

AreaⅡ
5.8%
Average age of buildings:
Occupancy rate:

AreaⅠ
49.3%
15.1 years
93.3%

rapid deterioration of real estate market conditions following thebankruptcy of Lehman Brothers Holdings Inc. Gain on sale totaled¥854 million.

Enhancement of CompetitivenessWe steadily improved portfolio quality and profitability as a resultof these initiatives. As of December 31, 2008, our portfolio consistedof 18 properties with a total investment value of ¥181,023 million on
an acquisition price basis. Total rentable area for the portfolio was
220,521m2, down slightly from the end of the previous period.

18-Property Basis(After dispositions)

AreaⅢ
42.3%
AreaⅠ
51.6%
Tokyo metropolitan
area ratio

AreaⅡ
6.1%
Average age of buildings:
Occupancy rate:

8
Japan Excellent, Inc.

94% (+2%)
14.7 years (- 0.4 years)
95.2% (+1.9％)

Strategy for the Future

JEI aims for stable growth through selective
investment while prudently observing themarket environment.
JEI’s target for assets is ¥300 billion over the medium-to-longterm. However, recently the real estate trading market has been
affected by the global credit crunch. Therefore, domestic and foreign
investors and financial institutions have significantly cut back the flow

Portfolio Diversification Policy･ Regional balance･ Property scale balance･ Tenant balanceof investment in and lending for risk assets. These and other factors
have significantly increased uncertainty. As a result, JEI does not

Regional Balance(Properties acquired / Medium-term plan acquisitions)simply intend to expand assets. Rather, under a basic policy ofgenerating stable medium- and long-term growth, we will place

AreaⅣ

AreaⅠ

priority on improving portfolio quality while also aiming for prudent

Acquired: 0 (0%)
Plan target: 5%

Acquired: ¥93.4 billion (52%)
Plan target: 50%

expansion.
Therefore, our stance regarding property acquisition has become¥300

more conservative. However, we see improvement in the officebillionbuilding acquisition market because of evidence such as rising cap
rates throughout Japan. We are therefore being more selective than

AreaⅡ

ever regarding issues such as investment area, location, and building

AreaⅢ

grade in prudently studying opportunities.

Acquired: ¥76.6 billion (42%)
Plan target: 25%

Acquired: ¥10.9 billion (6%)
Plan target: 20%

Property Scale Balance(Properties acquired / Medium-term plan acquisitions)
Medium-sized buildings
Acquired: ¥38.7 billion (21%)
Plan target: 35%

Large buildings
Acquired: ¥141.9 billion (79%)
Plan target: 65%¥300
billion9
Japan Excellent, Inc.

Internal
GrowthIncreasing Profitability
by Maintaining a High Occupancy Rate and Raising Rents
JEI is increasing profitability by strengthening relationships with tenants tomaintain a high occupancy rate while maximizing the potential of its properties
by raising rents.

Initiatives during the Fifth Period

Occupancy Rate

JEI worked to increase profitability by recruiting
tenants and raising rents.

100

(%)

During the fifth period, JEI focused on the pressing task of recruiting
tenants for empty space at the JEI Nishi-honmachi Building in Osaka and

95
90
85

Akasaka Garden City in Tokyo. Renovation work had constrained new

80

occupancy at the JEI Nishi-honmachi Building, but with work complete and75

tenant recruiting activities in progress, we project the building’s occupancy

70

rate will rise to 85 percent by the end of the sixth period. The occupancy rate

65

of Akasaka Garden City has already reached 100 percent. We therefore haveexcellent prospects of raising our occupancy rate in the sixth period andthereafter.
Moreover, we are moving to rectify situations where contract rent is below

Transfer of
Sendai Kowa Building

60
January 2008

June 2008

4th Period
AreaⅠ
AreaⅡ
AreaⅢ

December 2008

5th Period

AreaⅣ
Portfolio total

the market. Negotiations to raise rents added ¥62 million to rental revenues.

Opportunity for Rent Increases
Note: (Average renewal rate)“New tenants”: Excluded from calculation of average rate of renewal
because there were vacant rooms at time of acquisition.

Strategies for the Future

As of June 30, 2008
(18-property basis)

JEI is focusing on raising rents andmaintaining the occupancy rate in working toincrease profitability.
At JEI, 75 percent of total contracts had rent below the market at the end

Contracts withroom for growth78%of the fifth period. In other words, they are contracts with leeway for raising
rents. From the sixth period, we will maximize the potential for raising rent

As of December 31, 2008

with the aim of steadily increasing rental revenues.
In addition, although prospects for increasing the occupancy rate
improved during the fifth period, the office building market has clearlyContracts withroom for growthsoftened. We are fortifying our revenue base in ways such as strengthening75%

tenant relationships by enhancing tenant satisfaction and reducing
management costs.
10
Japan Excellent, Inc.

More than 20% lower than the market
Between 10-20% lower than the market
3-10% lower than the market
Same as the market
More than 3% higher than the market

Growth Strategy

Financial
Strategies

Reducing Risk
by Increasing Long-Term, Fixed-Rate Financing
JEI is reducing financial risk by increasing long-term, fixed-rate
financing and diversifying maturities.

Initiatives during the Fifth Period

Debt Balance
As of June 30, 2008

While reducing total interest-bearing debt, JEI
increased long-term, fixed-rate financing in working
to significantly strengthen its financial structure.
JEI worked to significantly strengthen its financial structure during the fifth
period. We reduced interest-bearing debt by using ¥10.0 billion of the proceedsfrom sales of properties, etc. to retire debt prior to its maturity. We also shiftedLong-term
floating rate
¥15.75 billion(15.0%)

Debt BalanceLong-term
fixed rate
¥40.75 billion(38.6%)¥105.5
Short-term
floating rate
¥49.0 billion(46.4%)

billionRatio of long-term debt:
53.5%
Ratio of long-term fixed rate debt: 72.1%
Total assets LTV:
51.2%

away from short-term debt in favor of long-term, fixed-rate financing.
As a result, the loan-to-value (LTV) ratio as of December 31, 2008
decreased to 48.7 percent from 51.2 percent at the end of the previous
period. The proportion of long-term debt to total debt was 87.4 percent, asubstantial improvement compared with 53.5 percent at the end of the

As of December 31, 2008previous period. Moreover, we maintained the average interest rate at a

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

favorable 1.57 percent.

Long-term
floating rate
¥37.75 billion(39.5%)

Debt Balance¥95.5

Strategies for the Futurebillion

JEI is working to disperse various risks in order toreduce refinancing risk.

Long-term
fixed rate
¥45.75 billion(47.9%)
Ratio of long-term debt:
87.4%
Ratio of long-term fixed rate debt: 54.8%
Total assets LTV:
48.7%

The global credit crunch that has resulted from the financial crisis in the
United States has caused financial institutions to tighten their lending policies.
In this environment, refinance risk has become amajor concern for J-REITs. JEI’s excellent
creditworthiness is backed by collateral and thepowerful financial sector sponsors Mizuho Financial
Group and The Dai-ichi Mutual Life Insurance
Company. However, looking to further reduce risk,
during the sixth period and beyond we will continue
to promote long-term, fixed-rate financing whileworking to diversify maturities and lenders as wemove to reduce refinancing risk.

Balance of Repayment Date and Average Borrowing Rate
(Millions of yen)

30,000
Average remaining debt term:
Average interest rate:

25,00020,0002.45 years
1.57%(included in the above, long-term: 1.62%)

15,00010,000
5,000
0

2009

2010

2011

2012

2013

2014

2015

Long-term debt
Short-term debt

11
Japan Excellent, Inc.

Investment Strategy

JEI has built a portfolio centered on office buildings in major
metropolitan areas that balances stable profitability and revenue growth.
JEI invests primarily in office buildings, and has set other uses at less than 10 percent of its portfolio. As of
December 31, 2008, office buildings accounted for 100 percent of JEI’s portfolio. JEI invests in urban properties,
primarily in the central business districts of Tokyo, and is moving to further enhance the stability and profitabilityof its portfolio with a focus on strong tenant relationships, property scale and quality, and a balanced tenant mix.

Portfolio Composition by Usage
Usage*

Investment Ratio in Portfolio

Office buildings

90% or more

Others (commercial facilities, housing, etc.)

10% or less

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

Target Investment Areas
Targeted Investment Areas

Investment Ratio in Portfolio

Core areas (80% or more)
Area I

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

50% or more of the core areas

Area Ⅱ

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

50% or less of the core areas

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

50% or less of the core areas

Area Ⅳ

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

20% or lessNon-core areas

Target Investment Areas
Regional Balance

Property Scale Balance

Tenant Mix Balance

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

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

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

* JEI defines buildings located in the 23 wards of Tokyo with total floor space of approximately 33,058m2 (10,000 tsubo) or larger as large buildings, and those with total
floor space between 3,306m2 (1,000 tsubo) and 33,057m2 as medium-sized buildings. For properties in all other areas, JEI defines buildings with total floor space ofapproximately 13,223m2 (4,000 tsubo) or larger as large buildings, and those with total floor space between 3,306m2 and 13,222m2 as medium-sized buildings.

12Japan Excellent, Inc.

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

Ⅰ-1 〜 Ⅰ-8

¥93,409 millionTokyo

Ⅲ-1 〜 Ⅲ-9

Kanagawa
Prefecture¥76,641 million

Ⅲ-8¥6,470 million
Ebina City

Ⅱ-1

¥4,300 million

Ⅱ-2¥6,674 million

Nagoya City
Osaka City

¥23,300 million Ⅰ-7

Ⅲ-3¥5,400 million

Tokyo’s six central wards

Ⅲ-2 ¥4,023
million

Ⅲ-7¥2,550 million

Ⅰ-5 ¥4,000 million¥17,857 million Ⅰ-8

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

Ⅰ-2 ¥9,450 million¥2,859 million Ⅰ-6

Chiba
Prefecture

Kanagawa
Prefecture

within a

Ⅰ-1¥22,553 million

Ⅲ-1¥13,890 million

Japan Excellent properties

20km radius

Ⅲ-9¥32,000 millionof the Tokyo CBD.

Ⅲ-2
¥10,976 million

Ⅲ-5 ¥4,205¥3,905 million

Area

Area I

Area Ⅱ

Area Ⅲ

Total acquisition price(Millions of yen)

93,40910,974

76,6418

2

8

No. of properties

13
Japan Excellent, Inc.

Portfolio

Property
NumberName

Investment
TypeYear Built

Acquisition Price2(Millions of yen)Book Value(Millions of yen)Appraisal Value(Millions of yen)

I-7

Akasaka Garden City

Trust

2006

23,30023,207

23,200I-1

Omori Bellport D

Trust

1996

22,55322,50926,560

I-8

AKASAKA INTERCITY

Trust

2005

17,857

17,77915,800

I-2

Shiba 2-Chome Building

Trust

1994

9,450

9,373

12,200I-3

JEI Hamamatsucho Building

Trust

1991

8,350

8,334

10,200I-4

No. 32 Kowa Building

Trust

1979

5,040

5,016

5,762

I-5

No. 36 Kowa Building

Trust

1982

4,000

4,026

4,398

I-6

No. 28 Kowa Building

Trust

1975

2,859

2,856

3,710

93,40993,104

101,830

Subtotal
Ⅱ-2

JEI Nishi-honmachi Building

Ⅱ-1

NHK Nagoya Housou-Center Building

Trust

1988

6,674

7,700

5,450

Ownership

1991

4,300

4,249

5,140

10,974

11,95010,590Subtotal
Ⅲ-9

Kowa Kawasaki Nishiguchi Building

Trust

1988

32,00031,75531,200

Ⅲ-1

Musashikosugi Tower Place

Trust

1995

13,89013,603

16,400

Ⅲ-2

Kowa Kawasaki Higashiguchi Building

Trust

1988

10,976

10,692

11,200

Ⅲ-8

Ebina Prime Tower

Trust

1995

6,470

6,582

5,820

Ⅲ-3

JEI Hongo Building

Trust

1991

5,400

5,318

5,410

Ⅲ-5

Kawasaki Nisshincho Building

Trust

1992

4,205

4,198

5,750

Ⅲ-7

JEI Ryogoku Building

Trust

1996

2,550

2,490

2,450

Ⅲ-6

No. 44 Kowa Building

Trust

1984

1,150

1,037

1,680

Subtotal

76,64175,67879,910Total

181,023

180,733

192,330

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

14
Japan Excellent, Inc.

Total Floor Space1(m2)

Total Leasable
Floor Space(m2)

Total Leased
Space at End of Period(m2)

Occupancy Rate
at End of Period(%)

Revenue(Millions of yen)

NOI

Investment
Ratio3(%)

PML

46,776.76

8,769.53

7,215.53

82.3

463

373

12.9

8.6

155,778.75

25,828.29

25,828.29

100.0

1,096

693

12.5

8.0

73,061.33

5,622.98

5,622.98

100.0

374

267

9.9

9.2

19,518.15

11,749.30

11,275.24

96.0

366

268

5.2

8.2

8,327.53

6,411.26

6,411.26

100.0

315

208

4.6

8.2

10,110.96

5,299.67

4,987.79

94.1

252

190

2.8

13.2

8,266.55

5,720.34

5,720.34

100.0

—

125

2.2

13.2

6,282.23

4,472.71

4,472.71

100.0

171

119

1.6

13.5

328,122.26

73,874.08

71,534.14

96.8

—

2,247

51.6

—

15,800.31

10,601.70

4,722.30

44.5

130

54

3.7

11.5

80,809.95

8,964.87

8,011.91

89.4

323

177

2.4

11.9

96,610.26

19,566.57

12,734.21

65.1

—

123

6.1

—

61,856.92

38,332.15

37,343.57

97.4

1,241

713

17.7

7.9

53,711.13

25,275.07

25,275.07

100.0

838

541

7.7

11.5

31,009.62

18,612.72

18,612.72

100.0

—

385

6.1

6.7

55,806.20

25,362.37

25,021.36

98.7

563

257

3.6

12.2

5,877.11

4,078.37

4,078.37

100.0

178

139

3.0

14.2

22,141.60

8,980.70

8,980.70

100.0

225

165

2.3

14.7

5,820.56

3,871.64

3,787.50

97.8

119

73

1.4

14.3

3,359.55

2,567.98

2,567.98

100.0

97

65

0.6

13.4

239,582.69

127,081.00

125,667.27

98.9

—

2,341

42.3

—

664,315.21

220,521.65

209,935.62

95.2

7,565

4,713

100.0

6.6

15
Japan Excellent, Inc.

Main Properties

Ⅰ-1

Omori Bellport D

Ⅰ-2
Ⅰ

Ⅰ-3

16
Japan Excellent, Inc.

JEI Hamamatsucho
Building

Ⅰ-4

No. 32 Kowa
Building

Shiba 2-Chome Building

Ⅰ-7

Akasaka Garden City

Ⅰ-8
Ⅰ-5

No. 36 Kowa
Building

Ⅰ-6

AKASAKA INTERCITY

No. 28 Kowa
Building

17
Japan Excellent, Inc.

Ⅱ-2

Ⅱ-1

NHK Nagoya
Housou-Center Building

Ⅲ-2

Ⅲ-1

18
Japan Excellent, Inc.

JEI Nishi-honmachi
Building

Musashikosugi
Tower Place

Kowa Kawasaki
Higashiguchi Building

Ⅲ-3

JEI Hongo
Building

Main Properties

Ⅲ-5

Kawasaki Nisshincho
Building

Ⅲ-7

Ⅲ-6

No. 44 Kowa
Building

Ⅲ-9

Kowa Kawasaki
Nishiguchi Building

Ⅲ-8

Ebina Prime
Tower

JEI Ryogoku
Building

19
Japan Excellent, Inc.

Management

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

Organization
Sponsor Companies Providing
Pipeline Support

Administrative Agent
Asset Custodian

Japan Excellent, Inc.

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

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

Mizuho Trust & Banking Co., Ltd.

Transfer Agent
Board of Directors
1

3

Executive Director : Junichi Tamura
Supervisory Director: Makoto Sakagami
Supervisory Director: Tsuyoshi Nagahama
Supervisory Director: Shunichi Maekawa

Think Tanks

5

Mizuho Trust & Banking Co., Ltd.

Accounting Auditor

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

1 Asset management agreement
2 (A) Pipeline support agreement with Kowa Real Estate (B) Pipeline support agreement with Sekisui House(C) Pipeline support agreement with Mizuho Trust & Banking
3 (A) Agreement with Mizuho Research Institute for provision of market and other relevant information(B) Agreement with Urban Research Institute for provision of market and other relevant information
4 Agreement to entrust administrative duties and asset custody
5 Agreement to entrust administration of unitholders’ register
Note: Ernst & Young ShinNihon changed its corporate name to Ernst & Young ShinNihon LLC as of July 1, 2008, after becoming a limited liability auditing firm.

Japan Excellent, Inc. Management Team
Junichi Tamura

Executive Director

April 1976
June 1999
April 2004
February 2006

Makoto Sakagami

Supervisory Director

December 1990
July 2000
February 2006

Tsuyoshi Nagahama

Supervisory Director

April 1961

20
Japan Excellent, Inc.

Supervisory Director

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

February 2006

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

April 1978
April 1999
November 2007
April 2008

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

January 1972

Shunichi Maekawa

Entered Industrial Bank of Japan, Limited
Executive Director, Equity Research Department, IBJ Securities Co., Ltd.
Executive Officer and General Manager, Corporate Business
Promoting & Planning Department, Shinko Securities Co., Ltd.
Executive Director, Japan Excellent, Inc.

Overview of Asset Management Company
Company Outline
Corporate NameJapan Excellent Asset Management Co., Ltd. (JEAM)

Officers

President

Chifumi Toda

Director, Chief Operating Officer

Hiroshi Tabei

Headquarters

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

Established

April 14, 2005

Director, Chief Investment Officer

Naoki Fukuda

Capital¥450 million

Director (Non-executive)

Takashi Uchida

Shareholders

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

Auditor (Non-executive)

Masatoshi Tamaru

40.0%Compliance Officer
20.0%
15.0%
5.0%
5.0%
5.0%
5.0%
5.0%

Business
Operations

Michiro Ezaki

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

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

JEAM Management Team
Chifumi Toda

President

February 1998
September 2000
July 2004
March 2009

Hiroshi Tabei

Director,
Chief Operating Officer

October 2004
April 2008
April 2009

Naoki Fukuda

Director,
Chief Investment Officer

Takashi UchidaDirector (Non-executive)

Masatoshi Tamaru

Auditor(Non-executive)

Michiro Ezaki

Compliance Officer

April 1998
April 2004

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

April 2006
April 2008

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

August 2005
April 2006

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

April 2004
April 2005
July 2007

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

June 2001
April 2002
September 2005

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

Outline and Organization of JEAM
Shareholders’ Meeting
AuditorBoard of Directors
Compliance Committee

Investment Committee

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

Finance andAccounting Dept.

Business
Management Dept.

Real Estate Investment Div.
Investment
Planning Dept.

Real Estate
Investment Dept.

Real EstateManagement Dept.
21
Japan Excellent, Inc.

Performance Report

Summary of Selected Financial Data

5th Period

4th Period

3th Period

5th Period

July 1, 2008
to December 31, 2008

January 1, 2008
to June 30, 2008

July 1, 2007
to December 31, 2007

July 1, 2008
to December 31, 2008

Millions of yen, except per share dataor where otherwise indicatedTotal revenues (Note 2) ..................................
Revenue from property leasing ..................
Operating expenses.......................................
Rental expenses.........................................
Income before income taxes .........................
Net income.....................................................

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

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

6,982
6,982
3,926
3,437
2,421
2,420

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

32,967
4,732
3,155
995
799

37,035
5,033
2,661
1,042
530

331,477
4,438
2,420
894
319

362,155
51,982
34,658
10,9308,777

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

195,929
95,50090,019206,079
105,500
89,655

205,486
105,500
89,292

2,152,356
1,049,104
988,893

154,550
582,458
20,418

154,550
580,107
17,218

154,550
577,758
15,663

—
6,398
224

21,331

23,963

21,447

234

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

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

Total number of outstanding
investment units (units) .............................
Net assets per unit (Yen/$) ...........................
Distribution per unit (Yen/$) ..........................
Funds from operations
per unit (Yen/$) (Note 3)...............................
ROA (Note 3) ...............................................
(Annual rate) ..............................................
ROE (Note 3)................................................
(Annual rate) ..............................................
LTV (Loan to value) (Note 3)...........................
Capital ratio....................................................
Payout ratio (Note 4)....................................
Number of days .............................................
Number of investment properties (Note 5) .....
Number of tenants .........................................
Total rentable area (m2) ...............................
Occupancy rate..............................................

¥

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

18
127
220,521
95.2

20
131
234,006
95.1$

93,38684,00549,43442,952
34,66934,658

1.3
(2.7)
3.0
(6.0)
51.3%
43.5
99.9
184
20
132
234,00795.3

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥91.01 = U.S. $1.00, the approximate exchange rate on December 31, 2008.
2. Total revenues do not include consumption tax.
3. All valuations are calculated through the following formulas. The figures in parentheses are annualized based on the 6-month figures for the period.
ROA: Income before income taxes / (Initial total assets + Total assets at end of period) ÷ 2
ROE: Net income / (Initial net assets + Net assets at end of period) ÷ 2
Net operating income: (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 unit: (Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation andamortization) / Weighted average number of common units issued and outstanding during the period
Loan to value: (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 gross leased area to total rentable area at the end of the period.

22Japan Excellent, Inc.

Operating Environment and Results
During the fifth period, the six months ended December 31, 2008, the turmoil in global financial markets caused by thefinancial crisis that originated in the United States reduced corporate profits and restrained capital investment. These andother factors affected the real economy, and Japan’s economy entered a recession.
The global credit crunch impacted the real estate investment market. Reduced demand among investors for risk assets
resulted in a significant decrease in trading transactions. The cap rate for buildings in the central business districts of Tokyo
rose and the trend toward lower prices intensified. Investment risk increased in regional areas and a trend toward lower
prices was evident, particularly among less competitive properties.
On the other hand, conditions in the office building leasing market became increasingly uncertain. Rents trended lower,
particularly among high-rent properties in central business districts.
In office building leasing markets outside metropolitan Tokyo, even the central business districts of Osaka and Nagoya
are oversupplied. Demand is stable at properties that are highly competitive because of factors such as location andbuilding grade, but rents are decreasing at other types of properties. Moreover, in regional cities such as Sapporo, Sendai
and Fukuoka, demand is decreasing because of worsening economic conditions and the oversupply of space that existed
previously. Overall, vacancy rates are rising and rents are decreasing.
In this operating environment, JEI worked to generate growth externally by understanding the changes in the office building
leasing market and strengthening the competitiveness of its portfolio over the medium and long term by selling the Shuwa
Iidabashi Building and the Sendai Kowa Building. Moreover, we added to our existing interest in the highly profitable Kawasaki
Nisshincho Building by acquiring additional interest from a co-owner. As a result, as of December 31, 2008 the percentage ofour portfolio located in areas Ⅰ and Ⅲ of metropolitan Tokyo increased to 93.9 percent from 91.9 percent at the beginning of
the period.
In working to generate growth internally in a softening office building leasing market, JEI executed initiatives to enhancetenant satisfaction, such as installing a coffee shop and smoking areas and investing in remodeling. Moreover, JEI maintained
the tenant non-renewal rate (Note) at under 1.5 percent. During the fifth period, we worked on the priority task of finding
tenants for vacant space. We completely leased vacant space at Akasaka Garden City, and prepared the JEI Nishi-honmachi
Building for full-scale operation from the sixth period onward through progress in tenant recruiting. Moreover, a majority of thelease contracts for our properties carry below-market rents. We therefore worked to raise rents during contract renewal
negotiations, with the result that we added ¥62 million to rental revenues on an 18-property basis.
As of December 31, 2008, our portfolio consisted of 18 properties with a total investment value of ¥181,023 million on an
acquisition price basis. Total rentable area for the portfolio was 220,521m2 (66,707 tsubo). Our portfolio served 127 tenants,
and had a occupancy rate of 95.2 percent, which was 0.1 percentage points higher than at the end of the previous term.

Overview of Performance
During the fifth period, the divestiture of two properties generated gain on sale of ¥854 million. Total revenues for the six
months ended December 31, 2008 increased 8.4 percent, or ¥661 million, compared with the previous period to ¥8,501
million. Operating income increased 16.6 percent, or ¥568 million, to ¥4,000 million. Net income increased 18.6 percent, or¥494 million, to ¥3,155 million. Of note, JEI’s 18 properties as of December 31, 2008 generated real growth in revenues andearnings despite factors such as the sale of properties and asbestos removal work at the JEI Nishi-honmachi Building.
Note: The tenant non-renewal rate is floor space for which tenants did not renew their contract during a period as a percentage of rentable area at the end of
the previous period. Any increase in rentable area obtained through the acquisition of properties during a period increases the total rentable area used in
the calculation. Any decrease in rentable area resulting from sale of properties during the period is not deducted from total rentable area.

23
Japan Excellent, Inc.

Distribution for Current Period
Distribution per unit totaled ¥20,418. The payout ratio was therefore 100 percent.
5th Period

4th Period

3th Period

July 1, 2008
to December 31, 2008

January 1, 2008
to June 30, 2008

July 1, 2007
to December 31, 2007

Thousands of yen, except per share amounts

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

¥3,155,635
33
3,155,601(20,418)
3,155,601(20,418)—(—)¥2,661,098
56
2,661,041(17,218)
2,661,041(17,218)—(—)¥2,420,792
76
2,420,716(15,663)2,420,716(15,663)—(—)

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

Issue date

Remarks

February 20, 2006

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

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

Common shares outstanding
Increase
Balance
Shares400

400

128,000
6,400
19,000750

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

Paid-in capital
Increase
BalanceMillions of yen

¥

200

¥

64,2303,211
18,702
738

Notes

200

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

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

Market Price of Units
High/Low (closing price) of units on the TSE:
5th Period

4th Period

3th Period

July 1, 2008
to December 31, 2008

January 1, 2008
to June 30, 2008

July 1, 2007
to December 31, 2007

Yen

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

24
Japan Excellent, Inc.

¥535,000
254,000¥859,000
501,000¥1,090,000
837,000

Performance Report

Loans
Loans by lending institution as of December 31, 2008 are summarized below.
List of lenders
Outstanding debt at
end of this period
Millions of yen

Share

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

¥29,500
17,800
9,200
8,000
7,500
7,000
5,000
4,000
3,000
2,000
1,500
1,000

30.9%
18.6%
9.6%
8.4%
7.9%
7.3%
5.2%
4.2%
3.1%
2.1%
1.6%
1.0%

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

¥ 6,000
3,000
2,000
0
1,000
0
0
0
0
0
0
0

Total

¥95,500

100.0%¥83,500¥12,000

LenderLong-term

Short-term
Millions of yen

Short-term loans
LenderDue on(Note 1)

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

October 24, 2008
October 24, 2008
October 24, 2008
October 24, 2008
October 24, 2008
March 31, 2009
March 31, 2009
March 31, 2009
March 31, 2009

Total short-term loans

BalanceMillions of yen

Averageinterest rate (%)

Repayment
methodUse of
funds

Notes

—
—
—
—
—
¥ 6,000
3,000
2,000
1,000

—
—
—
—
—
1.2
1.2
1.2
1.2

BulletUnsecured /payment

unguaranteed¥12,000

1.2

—

—

—

Averageinterest rate (%)

Repayment
methodUse of
funds

Notes

¥ 3,000
3,000
3,000
2,000
1,000
1,000

1.4
1.4
1.4
1.4
1.4
1.4

BulletAcquisition of

Unsecured /payment

real estate

unguaranteed¥13,000

1.4

—

—

—

Acquisition ofreal estate

Repayment ofloans

Long-term debt due within 1 year
LenderAozora Bank, Ltd.
Chuo Mitsui Trust & Banking Co., Ltd.
Mizuho Trust & Banking Co., Ltd.
Sumitomo Mitsui Banking Corporation
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Total long-term debt due within 1 year

Due on(Note 1)

June 29, 2009
June 29, 2009
June 29, 2009
June 29, 2009
June 29, 2009
June 29, 2009

BalanceMillions of yen

25Japan Excellent, Inc.

Long-term loans (Note 3)
Due on(Note 1)

Lender

The Norinchukin Bank
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Aozora Bank, Ltd.
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Resona Bank, Ltd.
The Dai-ichi Mutual Life
Insurance Company
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Sumitomo Mitsui Banking Corporation
Mizuho Trust & Banking Co., Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Sumitomo Mitsui Banking Corporation
The Norinchukin Bank
Resona Bank, Ltd.
Mizuho Corporate Bank, Ltd.

BalanceMillions of yen

June 29, 2010
June 29, 2010
June 29, 2010
June 29, 2010
June 29, 2011
June 29, 2011
June 29, 2011
June 29, 2011

¥ 5,000
3,000
3,000
2,000
5,000
3,500
1,000
3,000

Averageinterest rate (%)

Repayment
method

1.6
1.6
1.6
1.6
1.6
1.6
1.6
2.0

Notes

Acquisition ofreal estate(Note 2)June 29, 2011
June 29, 2011
June 29, 2011
June 29, 2011
July 31, 2012
July 31, 2012
July 31, 2012
July 31, 2012
July 31, 2012

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

1.5
1.5
1.5
1.5
1.2
1.2
1.2
1.2
2.0

Repayment ofloans

BulletUnsecured /payment

unguaranteed

Acquisition of(Note 2)

Mizuho Trust & Banking Co., Ltd.

Use offunds

July 31, 2012

1,500

real estate

2.0(Note 2)

Sompo Japan Insurance Inc.

July 31, 2012

2,000

2.0
(Note 2)

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

July 31, 2012

1,000

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

6,000
1,000
2,000

July 31, 2014

2,000

1.6
1.6
2.3

Repayment of(Note 2)Acquisition of

2.3

real estateloans(Note 2)

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

June 30, 2015

3,000

2.3
(Note 2)June 30, 2015

2,000

Repayment of
loans

2.3
(Note 2)

Total long-term loans¥70,500

1.7

—

—

—

Total loans¥95,500

1.6

—

—

—

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

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

1 to 2 years

2 to 3 years

3 to 4 years
Millions of yen

4 to 5 years

5 to 10 years¥13,000¥27,500¥14,000¥7,000¥9,000Bonds
JEI has submitted a shelf registration so that it can smoothly issue investment corporation bonds, but has not issued such bonds.
26
Japan Excellent, Inc.

Performance Report

Capital Expenditures
Planned Capital Expenditures
Primary planned capital expenditures for properties in JEI’s portfolio as of December 31, 2008 for renovation and otherpurposes are as follows. The planned construction expenditures below include the portion already recorded as expenses.

Name of property

Address

Objective

Estimated
duration

Total amounts

Estimated amounts
Payment for thecurrent period
Millions of yen

Cumulative
amount paid

Kowa Kawasaki
Saiwai-ku, Kawasaki,
Nishiguchi Building Kanagawa Prefecture

Asbestos removal(Second quarter)

December 2008
to June 2009

¥200

—

—

No. 36
Kowa Building

Chiyoda-ku,
TokyoOverhaul of airFebruary 2009
conditioning on first floor to May 2009

20

—

—

No. 32
Kowa Building

Minato-ku,
TokyoUpgrade of residences March 2009
for leasing
to April 2009

20

—

—

Capital Expenditures for the Current Period
Construction requiring capital expenditures during the period ended December 31, 2008 for properties in JEI’s portfolio
as of December 31, 2008 is outlined below. Capital expenditures during the period ended December 31, 2008 totaled ¥799
million. The total of capital expenditures and repair expenses of ¥313 million during the period ended December 31, 2008was ¥1,113 million.
Name of property

Address

Objective

Estimated duration

Expenditure
Millions of yen

JEI Nishi-honmachi
Building

Nishi-ku, Osaka

Asbestos removal and upgrade ofresidences for leasing (Third quarter)

Ebina Prime Tower

Ebina, Kanagawa
Prefecture

September 2008
to December 2008

59

Kowa Kawasaki
Nishiguchi Building

Saiwai-ku, Kawasaki, Coating, impregnation and hardening of fireproof August 2008
Kanagawa Prefecture covering, and installation of exit for roof inspection to December 2008

100

May 2008
to November 2008

¥370

Overhaul of common-use space
Conversion of unfinished floors
to office space

Installation of fire shutters
Other buildings

37

September 2008
to November 2008

30

—

200

Total

¥799

Cash Reserve for Capital Improvements
JEI formulates a long-term maintenance plan for each of its properties, and uses it as the basis for provisions to the cash
reserve for capital improvements to cover major repairs and other future property issues, as outlined below.
5th Period

4th Period

July 1, 2008
to December 31, 2008

January 1, 2008
to June 30, 2008

Millions of yen

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

¥282
—
28
¥254

¥282
—
—
¥282
27
Japan Excellent, Inc.

Performance Report

Trading Activities during the Current Period
Acquisition
Acquisitions
Type of asset

Name of property

Date

Acquisition price (Note)
Millions of yen

Real estate trust beneficiary rights
Total

Kawasaki Nisshincho Building

October 17, 2008

¥300
¥300

Sale
Sales
Type of asset

Name of property

Date

Sale priceBook value
Millions of yen

Gain on sale

Real estate trust
beneficiary rights
Total

Shuwa Iidabashi Building
Sendai Kowa Building

July 4, 2008
August 29, 2008

¥4,5804,814¥9,394¥4,0254,201¥8,227

¥413
440
¥854

Note: Acquisition price and transfer price (transfer price of real estate or other assets as stated in documents such as the contract transferring trust beneficiary rights) do
not include expenses such as brokerage fees and taxes and public charges associated with the acquisitions or transfers.

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

Transactions with Related Parties and Transactions with Major
Shareholders of Asset Management Company
Ongoing Transactions
None.
Fees Paid for the Period from July 1, 2008 to December 31, 2008

Category

Total fees paid
(A)
(Millions of yen)

Office management fees, etc.
(Note 2)

¥1,086

Total¥1,086

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

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

¥403
26
¥430

B/A
(Note 2)

37.1%
2.5%
39.6%

Notes: 1. “Related parties” are defined as related parties of asset management companies under the asset management agreement with JEI as defined in Article 123 ofOrder for Enforcement of the Law Concerning Investment Trusts and Investment Corporations. “Major shareholders” are the major shareholders of asset
management companies as defined in Article 29, Section 4, Paragraph 2 of the Financial Instruments and Exchange Law. During the period ended December
31, 2008, transactions with Kowa Real Estate Co., Ltd. and Sekisui House, Ltd. are as described above.
2. Maintenance expenses include construction management compensation associated with assets that have not been adjusted to reflect compensation and
expenses related to project management.
3. Amounts do not include consumption or other taxes.

28
Japan Excellent, Inc.

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

Contents
Report of Independent Auditors

31

Balance Sheets

32

Statements of Income and Retained Earnings

33

Statements of Changes in Net Assets

34

Statements of Cash Flows35

Notes to Financial Statements

3629Japan Excellent, Inc.

30
Japan Excellent, Inc.

Report of Independent Auditors

31
Japan Excellent, Inc.

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

As of
December 31,
2008

As of
June 30,
2008

Thousands of yen

As ofDecember 31,
2008
U.S. dollars (Note 2)

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

¥ 14,208,501
370,534
545
119,941
14,699,521¥ 16,409,367
420,1226,330
160,823
16,996,642$ 156,120,221
4,071,354
5,985
1,317,888
161,515,448

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

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

3,240,198
363
1,739
65,556,671
383,743
18,675
114,300,880(3,242,515)
180,259,754

35,722,837
3,993
30,514
703,607,669
4,324,154
268,399
1,192,207,439(44,416,502)
1,891,748,503

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

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

1,185,045
7,380,017
10,76815,182
148,653
46,992
36,5988,823,255¥206,079,651

13,021,040
81,090,174
118,317
166,8134,717,971—
461,315
99,575,630$2,152,839,581¥

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

571,646
62,000,000
336,334
220,578
26,567127,050
63,282,175$

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

43,500,000
476,914
9,052,173
94,27918,51053,141,876
116,424,051

774,640,150
4,967,012
91,203,474
2,182,219—
872,992,855
1,163,728,365

87,083,030

87,083,030

956,851,225

3,155,635
90,238,665

2,661,098
89,744,128

34,673,503
991,524,728(219,653)(219,653)
90,019,012¥195,929,930(88,528)(88,528)
89,655,600¥206,079,651(2,413,512)(2,413,512)
989,111,216$2,152,839,581

Liabilities
Current liabilities:
Accounts payable - trade......................................................................................
Short-term loans (Note 7)......................................................................................
Accounts payable - other......................................................................................
Unpaid consumption taxes ...................................................................................
Derivative liabilities................................................................................................
Other current liabilities ..........................................................................................
Total current liabilities ...............................................................................................
Long-term liabilities:
Long-term debt (Note 7) .......................................................................................
Security deposits from tenants .............................................................................
Security deposits from tenants for trust accounts................................................
Derivative liabilities................................................................................................
Other long-term liabilities......................................................................................
Total long-term liabilities...........................................................................................
Total liabilities ...........................................................................................................
Net assets (Note 8):
Unitholders’ equity:
Unitholders’ capital: ..........................................................................................
Units authorized: 2,000,000 units
Units issued and outstanding: 154,550 units as ofDecember 31, 2008 and June 30, 2008
Retained earnings .............................................................................................
Total unitholders’ equity........................................................................................
Valuation and translation adjustments:
Unrealized loss on deferred hedge transactions ..............................................
Total valuation and translation adjustments .........................................................
Total net assets.........................................................................................................
Total liabilities and net assets ...................................................................................
The accompanying notes are an integral part of these financial statements.

32
Japan Excellent, Inc.

8,426,610
274,695,088
3,732,807
1,339,924
234,924
2,306,157
290,735,510

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

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

For the period
from January 1,
2008 toJune 30,
2008

Thousands of yen

For the period
from July 1,2008 toDecember 31,
2008
U.S. dollars (Note 2)

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

¥6,909,524
738,009854,292
8,501,825¥7,135,748
704,917—
7,840,665$75,920,496
8,109,103
9,386,791
93,416,390

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

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

3,849,842
436,367
15,684
27,201
6,540
72,697
4,408,331
3,432,334

42,972,101
4,874,148
172,789
300,797
71,8601,062,754
49,454,449
43,961,941

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

—
18,29713

2,067
15,7207—
201,048
142

Other expenses:
Interest expense ......................................................................................
Loan arrangement fees............................................................................
Other........................................................................................................
Income before income taxes.......................................................................
Income taxes - current (Note 10) ...........................................................
Income taxes - deferred ..............................................................................
Net income ..................................................................................................
Retained earnings at beginning of period ...................................................
Retained earnings at end of period.............................................................

702,689
121,654
38,382
3,156,561
981
1
3,155,579
57¥3,155,636

686,658
67,451
33,9892,662,030
1,004
4
2,661,02276¥2,661,098

7,721,015
1,336,706
421,735
34,683,675
10,782
13
34,672,880
623$34,673,503

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

33
Japan Excellent, Inc.

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

For the period from January 1, 2008 to June 30, 2008
Net assets
Unitholders’ equity

Unitholders’capitalRetainedearnings

Total
unitholders’equityThousands of yen

154,550¥87,083,030¥ 2,420,792¥89,503,822¥(211,254)¥(211,254)¥89,292,568

—
—

—
—

(2,420,716)
2,661,022(2,420,716)
2,661,022

—
—

—
—

(2,420,716)
2,661,022——
154,550——¥87,083,030—
240,306¥ 2,661,098—
240,306¥89,744,128

122,727
122,727¥ (88,527)

122,727
122,727¥ (88,527)

122,727
363,032¥89,655,600

Number ofunits in issue

Balance as of December 31, 2007 .....
Changes during the fiscal period:
Distributions from retained earnings ...
Net income ..........................................
Changes in unrealized loss ondeferred hedge transactions .............
Total changes during the fiscal period ....
Balance as of June 30, 2008 ...............

Valuation and translation
adjustments
Unrealized
loss onTotal
deferredvaluation andhedge
translationtransactions
adjustments

Total
net assets

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

Unitholders’capitalRetainedearnings

Total
unitholders’equityThousands of yen

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

—
—

—
—

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

—
—

—
—

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

Number ofunits in issue

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

Valuation and translation
adjustments
Unrealized
loss onTotal
deferredvaluation andhedge
translationtransactions
adjustments

Total
net assets

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

Number ofunits in issue

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

Unitholders’capital154,550 $956,851,225
—
—

—
—
—
—
154,550 $956,851,225

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

34
Japan Excellent, Inc.

——

Retainedearnings

Total
unitholders’equityU.S. dollars (Note 2)$ 29,239,628 $986,090,853(29,239,005)
34,672,880

Valuation and translation
adjustments
Unrealized
loss onTotal
deferredvaluation andhedge
translationtransactions
adjustments$ (972,728)(29,239,005)
34,672,880

—
—

—
—
5,433,875
5,433,875$ 34,673,503 $991,524,728(1,440,784)(1,440,784)$(2,413,512)

Total
net assets$ (972,728) $985,118,126——(29,239,005)
34,672,880(1,440,784)(1,440,784)(1,440,784)
3,993,090$(2,413,512) $989,111,216

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

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

For the period
from January 1,
2008 toJune 30,
2008

Thousands of yen

Cash flows from operating activities
Income before income taxes....................................................................... ¥ 3,156,561
995,423
Depreciation and amortization ....................................................................
(18,297)
Interest income............................................................................................
702,689
Interest expense..........................................................................................
49,588Decrease in rental receivables ....................................................................
—
Decrease in consumption taxes refundable................................................
33,981
Decrease (increase) in prepaid expenses ...................................................
52,420
Increase (decrease) in accounts payable - trade ........................................
(2,124)(Decrease) increase in accounts payable - other........................................
(98,631)(Decrease) increase in unpaid consumption taxes .....................................
(1,950)(Decrease) increase in advances received ..................................................
(280,729)(Increase) decrease in long-term prepaid expenses ...................................
8,227,227
Decrease in property and equipment for trust accounts due to sales........
4,161
Other, net ....................................................................................................
12,820,319
Subtotal................................................................................................
18,297
Interest received..........................................................................................
(615,628)Interest paid ................................................................................................
(3,659)
Income taxes paid.......................................................................................
12,219,329
Net cash provided by operating activities...................................................

For the period
from July 1,2008 toDecember 31,
2008
U.S. dollars (Note 2)¥ 2,662,030
1,042,494(15,720)686,658
125,996
669,083(52,413)(164,026)
48,115220,578576
26,889—34,8285,285,088
15,720(696,752)(3,188)4,600,868$ 34,683,676
10,937,507(201,048)
7,721,015
544,864—
373,372
575,983(23,339)(1,083,739)(21,423)(3,084,601)
90,399,150
45,723140,867,140
201,049(6,764,401)(40,206)
134,263,582

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

(4,104)(982,849)
285(25,151)
112,235(863,980)(1,763,564)(23,288)(538,497)
22,624(12,382)
519,036(332,928)(365,435)(45,093)(10,799,355)
3,135(276,353)
1,233,221(9,493,246)(19,377,691)

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

12,000,000(49,000,000)
27,000,000(2,656,631)(12,656,631)———(2,412,972)(2,412,972)

131,853,642(538,402,373)
296,670,696(29,190,539)(139,068,574)(2,200,866)
Net (decrease) increase in cash and cash equivalents ...............................
16,409,367
Cash and cash equivalents at beginning of period.....................................
Cash and cash equivalents at end of period............................................... ¥ 14,208,501

1,822,461
14,586,906¥16,409,367(24,182,683)
180,302,904$ 156,120,221

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

35
Japan Excellent, Inc.

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

1. Organization
Japan Excellent, Inc. (hereinafter, “JEI”), established on February 20, 2006 under the Law Concerning Investment Trusts and Investment
Corporations of Japan (the “Investment Trust Law”), is a real estate investment corporation which primarily invests in office buildings.
JEI is externally managed by a licensed asset management company, Japan Excellent Asset Management (“JEAM”). JEAM is owned 40% by
Kowa Real Estate Co., Ltd., 20% by The Dai-ichi Mutual Life Insurance Company, 15% by Sekisui House, Ltd. and 25% by other corporations.
JEI was listed on the Tokyo Stock Exchange on June 27, 2006. As of December 31, 2008, JEI held 18 properties with 220,521 square meters of
total leasable space and had leases with 127 tenants excluding residential tenants.

2. Basis of Presentation
JEI maintains its accounting records and prepares its financial statements in accordance with accounting principles generally accepted in Japan(“Japanese GAAP”), including provisions set forth in the Investment Trust Law, the Corporation Law of Japan, the Financial Instruments andExchange Law of Japan, the Securities and Exchange Law of Japan and related regulations, which are different in certain respects as to theapplication and disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements are a translation of the financial statements of JEI which were prepared in accordance with Japanese
GAAP and presented in the securities report of JEI filed with the Kanto Local Finance Bureau. In preparing the accompanying financial statements,
certain reclassifications and modifications have been made for the convenience of readers outside Japan. In addition, the notes to the financial
statements include information that might not be required under Japanese GAAP but is presented herein as additional information. Amounts havebeen rounded to the nearest thousand yen in the accompanying financial statements and in the notes thereto whereas amounts were truncated in
the Japanese financial statements prepared in accordance with Japanese GAAP.
Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of ¥91.01 = U.S.$1.00, the foreign exchange
rate prevailing on December 31, 2008, has been used for translation. The inclusion of such amounts is not intended to imply that Japanese yen havebeen or could be readily converted, realized or settled into U.S. dollars at that or any other rate.

3. Summary of Significant Accounting Policies●

Cash and cash equivalents

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

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

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

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

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

Income taxes

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

36
Japan Excellent, Inc.

Notes to Financial Statements●

Consumption taxes

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

Property-related taxes

Principally, property-related taxes including property taxes, urban planning taxes and depreciable property taxes are imposed on a calendar-yearbasis and are expensed as property and other taxes (refer to Note 11).
JEI capitalized the property-related taxes allocated to the sellers of properties to JEI at the time of acquisition of such properties including trust
accounts. The capitalized amounts for the periods from July 1, 2008 to December 31, 2008 and from January 1, 2008 to June 30, 2008 were ¥343
thousand and ¥0, respectively.
●

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

●

Derivatives and hedge accounting

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

Properties in trust accounts

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

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

As of
December 31,
2008

As of
June 30,
2008

Thousands of yen

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

¥ 1,279,525
11,428,976
1,500,000¥14,208,501

As of
December 31,
2008
U.S. dollars¥ 3,892,158
12,517,209—¥16,409,367$ 14,059,173
125,579,343
16,481,705$156,120,221

As ofJune 30,
2008

As of
December 31,
2008

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

As of
December 31,
2008

Thousands of yen

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

¥10,768¥10,768

U.S. dollars$118,317

37
Japan Excellent, Inc.

As of December 31, 2008
Name

Number of shares

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

64
64

Acquisition cost
Unit priceTotal priceThousands of yen

Total price
U.S. dollars

Book value
Unit priceTotal priceThousands of yen

Total price
U.S. dollars

¥168
¥168

$118,317$118,317

¥168
¥168

$118,317$118,317¥10,768¥10,768¥10,768¥10,768

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

¥—
¥—

$—
$—

As of June 30, 2008

Name

Number of shares

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

64
64

Acquisition cost
Unit priceTotal price

¥168
¥168

¥10,768¥10,768

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

¥168
¥168

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

As of
December 31,
2008

As of
June 30,
2008

Thousands of yen

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

¥1,500,000

As of
December 31,
2008
U.S. dollars¥—$16,481,705

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

As of December 31, 2008
Acquisition
cost

Accumulated
depreciation

As of June 30, 2008

Net
Acquisition
book value
cost
Thousands of yen

Accumulated
depreciation

Buildings and building
improvements........... ¥ 3,251,136 ¥ (189,776) ¥ 3,061,360 ¥ 3,240,198 ¥ (152,793) ¥ 3,087,405
363
(48)
315
363
(21)
342
Furniture and fixtures ...
Buildings and building
improvements for
60,248,542
65,556,671 (3,038,372)
62,518,299
trust accounts ............ 64,035,334 (3,786,792)
Machinery andequipment for trust
393,541(62,785)
330,756
383,743(49,875)
333,868
accounts.....................
Furniture and fixtures
24,427(2,945)
21,482
18,675(1,454)
17,221for trust accounts .......
Land for trust— 108,502,799 114,300,880— 114,300,880
accounts..................... 108,502,799
Construction in
2,777
—
2,777
1,739
—
1,739
progress .....................
Total ............................. ¥176,210,377 ¥(4,042,346) ¥172,168,031 ¥183,502,269 ¥(3,242,515) ¥180,259,754

38
Japan Excellent, Inc.

As of December 31, 2008

Netbook value

Acquisition
cost$

Accumulated
depreciation
U.S. dollars

Netbook value

35,722,837 $ (2,085,218) $
3,993
(527)

33,637,619
3,466

703,607,669(41,608,529)

661,999,140

4,324,154(689,870)

3,634,284

268,399(32,358)

236,041

1,192,207,439—

1,192,207,439

30,514—30,514$1,936,165,005 $(44,416,502) $1,891,748,503

Notes to Financial Statements

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

As of December 31, 2008
Weighted-averageinterest rate

Amount

As ofDecember 31,
2008

As of June 30, 2008
Weighted-averageinterest rate

AmountAmountThousands of yen

Short-term loans:
Unsecured loans from banks dueon October 24, 2008 ...................
Unsecured loans from banks due
on March 31, 2009.........................
Subtotal........................................
Long-term debt due within one year:
Unsecured loans from banks due
on June 29, 2009 ...........................
Subtotal........................................
Long-term debt:
Unsecured loans from banks due
on June 29, 2010 ...........................
Unsecured loans from banks due
on June 29, 2011 ...........................
Unsecured loans from aninsurance company due on
June 29, 2011 ................................
Unsecured loans from banks due
on June 29, 2011 ...........................
Unsecured loans from banks due
on July 31, 2012 ............................
Unsecured loans from banks andinsurance companies due on
July 31, 2012 .................................
Unsecured loans from banks due
on June 28, 2013 ...........................
Unsecured loans from aninsurance company due on
July 31, 2014 .................................
Unsecured loans from a bank due
on July 31, 2014 ............................
Unsecured loans from aninsurance company and a bankdue on June 30, 2015....................
Subtotal ....................................
Total ..................................................

¥—

U.S. dollars— ¥ 49,000,000

0.95917% $—12,000,000
12,000,000

1.20333%—
49,000,000—

131,853,642
131,853,642

13,000,000
13,000,000

1.37644%

13,000,000
13,000,000

1.39779%

142,841,446
142,841,446

13,000,000

1.55042%

13,000,000

1.56821%

142,841,446

9,500,000

1.57554%

9,500,000

1.60718%

104,384,134

3,000,000

1.96625%

3,000,000

1.96625%

32,963,410

15,000,000

1.49250%——

164,817,053

7,000,000

1.23583%

7,000,000

1.18667%

76,914,625

7,000,000

1.96907%7,000,000

1.96907%

76,914,625

7,000,000

1.59250%——

76,914,625

2,000,000

2.25875%

2,000,000

2.25875%

21,975,607

2,000,000

2.28417%2,000,000

2.28417%

21,975,607

5,000,000
70,500,000¥95,500,000

2.27344%—
43,500,000¥105,500,000—

54,939,018
774,640,150$1,049,335,238

39
Japan Excellent, Inc.

8. Net Assets

Notes to Financial Statements

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

9. Per Unit Information
Net assets per unit were ¥582,458 as of December 31, 2008 and ¥580,107 as of June 30, 2008. Net income per unit was ¥20,417 for theperiod from July 1, 2008 to December 31, 2008 and ¥17,217 for the period from January 1, 2008 to June 30, 2008 and was computed based on
the weighted-average number of units outstanding during the respective periods.

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

As of
December 31,
2008

As of
June 30,
2008

As of
December 31,
2008

Thousands of yen

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

¥

U.S. dollars

19
86,52086,538(86,520)
¥
19

¥

20
47,601
47,621(47,601)
¥
20

$

¥

¥ 21,003
21,003¥ 20,983

$

¥

214
214
196

206
950,662
950,868(950,662)
$
206

$

2,354
2,354
2,148

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

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

For the period
from January 1, 2008
to June 30, 2008

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

39.39%

39.39%

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

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

●

Tax rate change after the closing date

Due to the latest Japanese corporate income tax rate revision and the introduction of a new local corporate special tax, which applies toaccounts for fiscal periods commencing on or after January 1, 2009, the revised statutory tax rate of 39.33% will be used in the calculation ofdeferred tax assets and liabilities with respect to the temporary differences that are scheduled for elimination after January 1, 2009. The projected
impact of this tax rate change on the Company’s deferred tax assets as of the end of the fiscal period under review is estimated to be minor.
40
Japan Excellent, Inc.

Notes to Financial Statements

11. Breakdown of Property Rental Business Revenues and Expenses

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

For the period
from January 1,
2008 toJune 30,
2008

Thousands of yen

For the period
from July 1,2008 toDecember 31,
2008
U.S. dollars

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

¥7,647,533
6,909,524
738,009¥7,840,666
7,135,748
704,918$84,029,599
75,920,496
8,109,103

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

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

3,849,843
1,257,523
672,143457,50223,409217,246
1,042,463
179,557¥3,990,823

42,972,101
11,685,640
8,341,152
6,160,827
238,016
3,447,503
10,937,158
2,161,805$41,057,498

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

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

For the period
from January 1,
2008 toJune 30,
2008

Thousands of yen

For the period
from July 1,2008 toDecember 31,
2008
U.S. dollars

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

¥4,580,000
4,025,626
140,936¥ 413,438

¥—
—
—
¥—

$50,324,140
44,232,794
1,548,572$ 4,542,774

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

¥4,814,600
4,201,600
172,146¥ 440,854

¥—
—
—
¥—

$52,901,879
46,166,356
1,891,506$ 4,844,017

41
Japan Excellent, Inc.

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

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

For the period
from January 1,
2008 toJune 30,
2008

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

Thousands of yen

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

¥ 864,340
1,245,528¥2,109,868

U.S. dollars¥ 864,340
1,677,698¥2,542,038$ 9,497,193
13,685,622$23,182,815

Changes in significant accounting policies
From the fiscal year period December 31, 2008, the Company adopted Accounting Standard for Lease Transactions (Statement No. 13 issued
on June 17, 1993 and amended on March 30, 2007) and Guidance on Accounting Standard for Lease Transactions (Guidance No. 16 issued on
January 18, 1994 and amended on March 30, 2007). These changes do not have any impact on the statements of income and retained earnings.

14. Derivatives and Hedge Accounting
JEI has entered into certain interest-rate swap contracts with several Japanese financial institutions to hedge its variable rate long-term debt
obligations. JEI utilizes interest-rate swap contracts, which are derivative financial instruments, only for the purpose of mitigating future risk arisingfrom fluctuation in interest rates, and does not enter into such transactions for speculative or trading purposes. JEI entered into such derivativetransactions to hedge risk in accordance with its Articles of Incorporation and the established risk management policies of JEAM.
The following table summarizes the notional amounts and the estimated fair value of the interest-related positions outstanding as of December
31, 2008:

Notional
amountEstimated
fair value(negative)

Thousands of yen

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

¥26,750,000

Estimated
fair value(negative)

Notional
amountU.S. dollars¥(219,439)$293,923,745$(2,411,158)

Account

Balance at theend of period

Balance at theend of period

Thousands of yen

U.S. dollars¥274,677$3,018,091

15. Related Party Transactions
For the period from July 1, 2008 to December 31, 2008
(1) Major unitholders
Not applicable.

(2) Directors and major individual unitholders

Name

Description oftransaction

Junichi Tamura Payment of asset
management
fees to JEAM

42
Japan Excellent, Inc.

AmountAmountThousands of yen

U.S. dollars¥443,596$4,874,148

Accounts
payableNotes to Financial Statements
For the period from January 1, 2008 to June 30, 2008
(1) Major unitholders
Not applicable.

(2) Directors and major individual unitholders

Name

Description oftransaction

Junichi Tamura Payment of asset
management
fees to JEAM

AmountAmountThousands of yen

U.S. dollars¥436,367$4,100,420

Account

Accounts
payableBalance at theend of period

Balance at theend of period

Thousands of yen

U.S. dollars¥268,836$2,526,183

16. Significant Subsequent Events
Cash distribution
In accordance with Section 33.1.2 of the bylaws set forth by JEI for distributions of cash dividends, the amount of dividends payable is limited by
the amount of income and is equivalent to an amount exceeding 90% of income available for distributions of dividends of JEI as set forth in Section
67.15 of the Special Taxation Measures Law. Consequently, JEI set income available for distributions of dividends at ¥3,155,601,900 ($34,673,134),
the maximum integral multiple of the 154,550 units issued not exceeding unappropriated income at December 31, 2008. No cash distribution
exceeding the income amount set forth in Section 33.1.4 of the bylaws of JEI shall be made.
On March 16, 2009, the Board of Directors approved a resolution to make a cash distribution of ¥20,418 ($224) per unit aggregating to¥3,155,601,900 ($34,673,134) to unitholders of record as of December 31, 2008.

43
Japan Excellent, Inc.

Investor Information
As of December 31, 2008

Name

Japan Excellent, Inc.

Location

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

EstablishedFebruary 20, 2006

Fiscal Periods

Six months ending June 30 and December 31

Unitholders

4,515

Total Number ofCommon Units Issued

5th Period (From July 1, 2008 to December 31, 2008)
4th Period (From January 1, 2008 to June 30, 2008)

Distributions

Confirmed distribution for the 5th Period (ended December 31, 2008) ¥20,418 per unit

154,550
154,550

Major Unitholders
Number ofUnits Held

Percentage of
Total

Kowa Real Estate Co., Ltd.

14,312

9.26%

NikkoCiti Trust And Banking Corporation (Investment trust account)

12,887

8.34%

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

12,851

8.32%

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

12,806

8.29%

Japan Trustee Services Bank, Ltd. (Trust account)

12,016

7.77%

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

5,920

3.83%

North Pacific Bank, Ltd.

4,590

2.97%

The Dai-ichi Mutual Life Insurance Company

4,132

2.67%

The Bank of Ikeda, Ltd.

3,711

2.40%

The Chugoku Bank, Ltd.

3,517

2.28%

Total

86,74256.13%

Name

44
Japan Excellent, Inc.

Investment Units

Investors (Number of unitholders)
Financial
institutions andsecurities companies
105 (2.3%)

Individuals
11,609 (7.5%)

Other domestic companies
116 (2.6%)
Foreign companies, etc.
122 (2.7%)

Foreign companies, etc.
20,089 (13.0%)
Financial
institutions andsecurities companies
100,966 (65.3%)

Other domestic
companies
21,886 (14.2%)

Individuals
4,172 (92.4%)

Total number of units: 154,550

Total number of unitholders: 4,515

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

(Yen)

250

1,400,000

200
1,050,000
150
700,000
100

350,000
50

0

67
2006

8

9

10

11

12

1
2007

2

3

4

5

6

7

8

9

10

11

12

1
2
2008

3

4

5

6

7

8

9

10

11

12

0

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

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

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

45
Japan Excellent, Inc.

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

Printed in Japan