Semi-Annual Report

Second Half of 2015
including AIFMD Article 23 Information(29th Period – July to December 2015)

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

ProﬁleOn September 10, 2001, Nippon Building Fund Inc. (NBF) became the first Japanese real estate
investment trust (J-REIT) to list on the J-REIT section of the Tokyo Stock Exchange. Today, NBF has
the largest market capitalization and assets under management among J-REITs.
NBF employs funds raised through unitholder subscriptions and borrowings to invest in realestate, real estate-backed securities, trust beneficiary rights and other assets with the objective ofsustainable growth in portfolio value and stable profits on a medium-to-long-term basis.
NBF primarily invests in office buildings in the central business districts of Tokyo, other Greater
Tokyo and other cities in Japan.
Going forward, NBF will continue its steady management for the high quality and growth befitting
the number one J-REIT.

Ueno East Tower, scheduled for acquisition on June 1, 2016

Contents
Introduction ............................................................. 2

Investment and Distribution Policies ......................22

A Track Record of Steady Growth ............................4Management’s Discussion and Analysis ................30

To Our Unitholders ...................................................6

Financial Statements ..............................................44

Strategies .................................................................8

Notes to Financial Statements ...............................48

Performance Highlights ..........................................10

Independent Auditor’s Report ................................63

Sustainability Initiatives ..........................................11
Portfolio Overview ..................................................12

Response to Article 23 of the European Alternative
Investment Fund Managers Directive .................64

Location of Office Properties .................................13

Corporate Data ......................................................83

Major Assets ..........................................................14

Investors’ Information ............................................84

Management Team and Management Structure .....16

Note regarding the European Alternative Investment Fund Managers Directive (European Directive 2011/61/EU)
This report, which has been prepared to comply with Article 22 of the European Alternative Investment Fund Managers Directive (European Directive 2011/61/EU), or the AIFMD, also
includes certain information required under Article 23 of the AIFMD. Such information required under Article 23 of the AIFMD is included in the Article 23 portion of this report starting on
page 64 of this report.

NBF Report July – December 20151

Introduction

NBF is an office-specialized J-REIT, sponsored by Mitsui Fudosan Co., Ltd.

NBF Policies
STRATEGIES
Portfolio Strategy• Make aggressive acquisitions andflexible dispositions• Focus on highly competitive officebuildings, primarily in Tokyo central
business districts (CBDs)• Expand assets

Financial Strategy• Maintain a conservative loan-to-value(LTV) ratio of 36-46% and a long-term
fixed-rate debt ratio of 90% or higher
to enable flexible financing
and acquisitions• Diversify debt to reduce financial risk

• Use the Mitsui Fudosan Grouppipeline

Leasing Strategy• Use the sales capabilities of the
Mitsui Fudosan Group for leasing
and tenant retention• Maintain a high occupancy rate

Property Management Strategy• Use the comprehensive capabilitiesof the Mitsui Fudosan Group• Maintain and increase asset value
through strategic investment• Use NBF’s exclusive property
management (PM) company
to deliver high-quality management

2

NBF Report July – December 2015

Increase Unitholder Value• Stable medium-to-long-term growth in distribution per unit (DPU)• Expansion of net asset value (NAV) per unit

FEATURES
Portfolio Quality

Financial Fundamentals

Focused investment in highly competitive
prime office buildings
Ratio of investment in 5 wardsof central Tokyo

Sound LTV control
LTV (Interest-bearing debt to asset* ratio)

51.7%(Share of investment in 23 wards of Tokyo

78.1%)(Acquisition price basis)

High occupancy rate
Average occupancy rateduring the period*

96.8%

Unrealized gain ratio

Long-term fixed-rate
debt ratio

Size

95.2%
4.11 years(Long-term interest-bearing debt)

Maintain high credit ratings

12.8%*Average occupancy rate during the period: weighted average of month-end occupancy rate on a floor space basis

41.3%

Diversified long-term fixed-rate debt

Average maturity(2H/2015 (29th Period))

Appraisal value(As of December 31, 2015 )JCR

AA+ R&I AA S&P A+*Book value basis

Sponsor

The largest J-REIT¥1,012.7 billion
Market cap¥814.7 billion
Properties
74
Total rentable area 1.079 million m
Total assets*

Property acquisition pipeline from the
Mitsui Fudosan Group
Leverage the comprehensive strengthsof the Mitsui Fudosan Group
Leasing capabilities
Property management capabilities

2*Book value basis

NBF Report July – December 20153

A Track Record of Steady Growth(Yen)

Distribution per Unit 1

12,00011,274
9,695

9,513

10,000

8,126

8,000

8,645
7,683

8,001

9,612

9,904
10,064

8,446

7,291

8,523
7,592

6,000
May 23,2001

Dec. 31,2001

Jun. 30,
2002

Dec. 31,2002

Jun. 30,
2003

Dec. 31,2003

Jun. 30,
2004

Dec. 31,2004

Jun. 30,
2005

Dec. 31,2005

Jun. 30,
2006

Dec. 31,2006

Jun. 30,
2007

Dec. 31,2007

Jun. 30,
2008(Investmentcommencement
date)

(Yen)

NAV per Unit 1,2

581,646

600,000
400,000

274,984

255,090

200,000
0

May 23,2001

Dec. 31,2001

Jun. 30,
2002

Dec. 31,2002

Jun. 30,
2003

Dec. 31,2003

Jun. 30,
2004

Dec. 31,2004

Jun. 30,
2005

Dec. 31,2005

Jun. 30,
2006

Dec. 31,2006

Jun. 30,
2007

Dec. 31,2007

Jun. 30,
2008

98.7

98.4

97.3

674.4

674.4

(Investmentcommencement
date)

Asset Scale ( Total Acquisition Price ) and Average Occupancy Rate during the Period 3
97.1(Yen in billions)

97.3

95.5

1,200

95.1

96.9

97.0

97.2

97.9
98.3

92.4

98.3

1,100
1,000

Average occupancy rate during
the period (right scale)

900
800

Managed Assets by Region(left scale)

725.2
700

23 wards of Tokyo600

5 wards of central Tokyo (incl. in above)

624.8
539.4

Other Greater Tokyo
500

Other cities

393.8

400

100
0

414.2

336.2

300
200

624.8

192.1
22

226.6

24

246.1

26

260.2

28

276.1

29

285.7

33

43

43

47

52

55

55

56

56

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

May 23,2001

Dec. 31,2001

Jun. 30,
2002

Dec. 31,2002

Jun. 30,
2003

Dec. 31,2003

Jun. 30,
2004

Dec. 31,2004

Jun. 30,
2005

Dec. 31,2005

Jun. 30,
2006

Dec. 31,2006

Jun. 30,
2007

Dec. 31,2007

Jun. 30,
2008(Investmentcommencement
date)
Notes:
1. Historical data for the 25th Period, the six months ended December 31, 2013, and before are adjusted for the two-for-one investment unit split. Figures are rounded down to the nearest yen.
2. NAV per unit = (Unitholder’s capital + Reserve for advanced depreciation + Unrealized gain or loss on appraisal value at period end) ÷ Issued and outstanding units as of period end.
3. Average occupancy rate during the period: weighted average of month-end occupancy rate on a floor space basis
4. Data uses the new geographical categories introduced on June 30, 2014.

458

Buildings

NBF Report July – December 2015

11,126 10,887
9,836
8,562
7,877

Dec. 31, Jun. 30,
2008
2009

Dec. 31,2009

Jun. 30,
2010

7,747

7,569 7,600

7,740

Dec. 31,2010

Jun. 30,
2011

Jun. 30,
2012

Dec. 31,
2011

8,427

8,645

8,152

8,036

7,681
7,787

Dec. 31,2012

Jun. 30,
2013

Dec. 31,2013

Jun. 30,
2014

Dec. 31,2014

Jun. 30,
2015

Dec. 31,2015

460,479
389,663

Dec. 31, Jun. 30,
2008
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Dec. 31,2012

Jun. 30,
2013

97.5

97.8

Dec. 31,2013

Jun. 30,
2014

Dec. 31,2014

Jun. 30,
2015

97.6

97.9

Dec. 31,
2015

(%)

96.8

95.5

93.4

93.3

93.9

95.4

96.7

96.8

97.1

97.0

95

1,066.5 1,050.8 1,074.4 1,074.4

837.1
762.3

60

Buildings

783.2

61

783.2

61

779.6

59

96.8

100

870.2

892.8

1,080.3 1,080.3

90

921.6

779.6

59

64

64

67

68

74

71

73

73

74

74

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Dec. 31, Jun. 30,
2008
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Dec. 31,2012

Jun. 30,
2013

Dec. 31,2013

Jun. 30,
2014

Dec. 31,2014

Jun. 30,
2015

Dec. 31,2015

NBF Report July – December 2015

5

To Our Unitholders
Kenichi Tanaka
President and CEO of
Nippon Building Fund Management Ltd.

Operating Environment and Results
During the six months ended December 31, 2015 (the“29th Period”), the Japanese economy continued to recovermoderately as evidenced by strong corporate performanceand accompanying improvement in the employment andincome environment against the backdrop of government
economic policies and the monetary policies of the Bank ofJapan, although some weaknesses such as weaker exports
and production affected by the slowdown in the economiesof emerging nations including China.
The Japanese economy is expected to continue
recovering moderately supported by the ongoing
improvement in the employment and income environment
and the effects of various government policies. At the sametime, the deceleration in the economies of emerging nations
including China, movement of crude oil prices andreemergence of debt problems in Europe are among theissues that require our attention while the normalization of
U.S. financial policies progresses.
In the office building leasing market, favorable corporate
performance is leading to tenants adding space, andrelocations to new offices are brisk. As a result, the vacancy
rate in Tokyo central business districts has continued todecrease. In addition, asking rents at buildings continue torise incrementally in Tokyo central business districts with thetightening of supply and demand.
New supply is expected to increase centering on Tokyo
central business districts over the medium term, but vacancy
rates are expected to decrease while rents continue to risemoderately driven by continued solid demand for officespace resulting from the improved corporate performanceand employment environment.
In the office building transaction market, given thefavorable fund procurement environment, the appetite for

Average Vacancy Rates for Tokyo, Osaka and Nagoya CBDs

Average Asking Rents for Tokyo CBDs(%)

(Yen per tsubo*)o40,00015
Nagoya CBDs

35,000

Osaka CBDs
10

7.27

New buildings

30,00028,25025,000

7.18
Tokyo CBDs

5

Average asking rent
20,00017,790

4.01
Existing buildings

15,0000Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Miki Shoji Co., Ltd.
Tokyo CBDs: Chiyoda-ku, Chuo-ku, Minato-ku, Shinjuku-ku, Shibuya-ku
Osaka CBDs: Umeda area, Minamimorimachi area, Yodoyabashi & Honmachi areas,
Funaba area, Shinsaibashi & Nanba areas, Shin Osaka area
Nagoya CBDs: Nagoya Station area, Fushimi area, Sakae area, Marunouchi area

6

NBF Report July – December 2015

0

17,511

Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*tsuboo = 3.3m2
Source: Miki Shoji Co., Ltd.
New buildings: 18 buildings
Existing buildings: 2,580 buildings
Average: 2,598 buildings

transactions is strong among real estate market participants
including J-REITs, private equity funds and overseas
investors, backed by rising property prices in anticipation of
expected improvement in the office leasing market over the
medium term. Under these circumstances, competition toacquire properties is intensifying, causing a further decline in
expected cap rates and further rise in purchase and saleprices.
Real estate prices are expected to rise because the deal
flow among investors in Japan and overseas is forecast to
remain brisk given the continued favorable fund procurement
environment.
Under these conditions, NBF is conducting investment
activities in accordance with its basic policy of investing in
high-quality office buildings that are highly competitive interms of location, size and facilities, and that are expected togenerate stable cash flows from rents. For properties alreadyin its portfolio, NBF works to expand revenues from property
leasing through systematically conducting property
management, renovations and new construction to further
raise tenant satisfaction as well as by setting appropriate
rents for new tenants and revising rents for tenants renewing
their lease contracts while keeping abreast of market trends.
NBF’s real estate portfolio as of December 31, 2015
consisted of 74 properties. Total investment on an acquisition
price basis was ¥1,080.3 billion. Total rentable area was
1,079 thousand m2. The average occupancy rate during theperiod was 96.8 percent, a 1.1 percentage point decrease
from the previous period, and the total number of tenants
was 1,595.

Overview of Performance
As the result of above-explained operations, NBF's
performance results during the reported period consisted ofoperating revenues of ¥34,641million (a increase of¥48million, or 0.1%, compared to the previous period),
operating income from leasing activities of ¥14,905million (adecrease of ¥118million, or 0.8%, compared to the previous
period), operating income after asset management, custody
and agent fees etc. of ¥13,476million (a decrease of ¥97
million, or 0.7% compared to the previous period), ordinary
income of ¥10,978million (a decrease of ¥18million, or 0.2%,
compared to the previous period), and net income of¥10,977million(adecrease of ¥18million, or 0.2%, comparedto the previous period).
In accordance with the distribution policy prescribed in its
Articles of Incorporation, NBF is to make cash distributions
so that the preferential tax measures to investment
corporations (Article 67-15 of the Act on Special Measures
Concerning Taxation) will be applied. In addition, NBF
decided to reverse part of the reserve for advanced
depreciation (¥370 million) during the reported period bytaking into consideration the temporary impact of a large
tenant moving out. Thus, NBF has decided to distribute theentire amount arrived at byadding the amount of reversal ofreserve for advanced depreciation to undistributed earnings,
excluding fractions of the distribution per unit that are lessthan ¥1. As a result, the distribution per unit was ¥8,036.

New Supply of Large-Scale Office Buildings in the 23 Wards of Tokyo(10,000 m2)

Forecast

250
216
200

Historical average (1986-2014)
1.03 million m2/year(gross floor space basis)

154

Average of 1.19 million m2/year(gross floor space basis)from 2015 onward 183

175

150
124

121

86

77

72

0

117

111

91

100

50

131

119

107

87

85

65

63

58

36

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Source: Prepared by asset manager using data from Mori Building Co., Ltd. as of November 4, 2015.

NBF Report July – December 20157

Strategies

For further information, click here to jump
to the relevant page on NBF’s website.

Portfolio• Make aggressive acquisitions and flexible dispositions• Focus on highly competitive office buildings, primarily in Tokyo CBDs
• Expand assets• Use the Mitsui Fudosan Group pipeline

Investment by Region

NBF’s J-REIT Market Share(As of December 31, 2015)(As of December 31, 2015) (Total Aquisition Price)(Yen in billions)

23 Wards of Tokyo¥844.1 billion(78.1%)

Other Cities¥133.1 billion(12.3%)

Total Acquisitions by Seller

Other(infrastructure, seniors)(3.8%)
Hotels (4.0%)

1,080.3

1,200

362.7

7.7%

800

219.6

Logistics (10.3%)

Housing(17.0%)¥1,080.3 billion
74 properties
Other
Greater Tokyo¥103.0 billion(9.5%)

Total
acquisition
price

400

Office46.9%¥14,004.1
billion0

Retail facilities(18.1%)

5 Wards of Central Tokyo¥558.8 billion (51.7%)

Approx.
60%*

2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period2H/’1427th
Period2H/’1529th
PeriodAcquired from Mitsui Fudosan and funds that it manages
Acquired through Mitsui Fudosan brokerage

Source: Asset management companies, compiled from publicly
available information

Acquisition from other (external) sources
Properties acquired when NBF began managing properties*Ratio to total acquisitions since the initial public offering in September 2001

Leasing• Use the sales capabilities of the Mitsui Fudosan Group for leasing andtenant retention• Maintain a high occupancy rate

Average Occupancy Rate and Total Rentable Area
(10,000m2 )

(%)
100

96.7

96.8
95.5
95

97.5

97.8

97.1

93.3

97.9

94.3

94.7

107.4

107.9

180

96.8

95.5

90

91.2

91.0

91.0

NBF’s average occupancy rate (left scale)Market average occupancy rate (Tokyo business districts; left scale)
NBF’s total rentable floor area (right scale)
82.8
77.0
77.0
76.3
76.3

91.2

90.8

91.1

91.5
105.6

86.1

89.3

91.4

Jun.
2012

Dec.
2012

92.2
103.8

120
107.4

107.9

90

60

80
Dec.
Jun.
2008
2009
Source: Miki Shoji Co., Ltd.

8

150

93.3
92.2

76.4

97.6

93.9

93.7

85

97.0
7.0

95.4
93.4

95.8

96.8

Dec.
2009

NBF Report July – December 2015

Jun.
2010

Dec.
2010

Jun.
2011

Dec.
2011

Jun.
2013

Dec.
2013

Jun.
2014

Dec.
2014

Jun.
2015

Dec.
2015

Property
Management• Use the comprehensive capabilities of the Mitsui Fudosan Group• Maintain and increase asset value through strategic investment• Use NBF’s exclusive PM company to deliver high-quality management

Property Management Structure• Formulate and execute management and operation plans• Formulate and execute large-scale repair plans• Approval
for majorpp
j issues

Nippon Building Fund Management[Asset management (AM)exclusive to NBF]

Cooperation
C
Co
ti n
NBF Ofﬁce Management[Property management (PM)exclusive to NBF]

• New tenant leasingg• Provides management and operation expertise and operating systems• Overall management of subleased properties

Financial• Overallll property management (excluding subleased properties)
proper• Responds to existing tenants• Uniﬁed administration of management information for all operating properties• Maintain a conservative LTV of 36-46% and a long-term fixed-rateinterest-bearing debt ratio of 90% or higher to enable flexible financing
and acquisitions• Diversify debt to reduce financial risk

LTV and Long-Term Fixed-Rate Interest-Bearing Debt Ratio

Debt Maturity Schedule(%)(Yen in billions)70

Long-term fixed-rate interest-bearing debt ratio: 90% or higher

100
80

92.2

95.0

94.7

99.6

96.4

97.7

96.5

95.2

50

60

40

LTV: 36-46%
40

60

Short-term debt
Long-term debt
Investment corporation bonds
Funds procured in 2H/2015 (29th Period)

42.9

44.4

45.2

43.8

30
43.1

41.9

41.9

41.3

20

20
10

0
1H/’1222nd
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period2H/’1427th
Period1H/’1528th
Period2H/’1529th
Period0

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
(Calendar years)(As of December 31, 2015)

NBF Report July – December 20159

Performance Highlights

Total Operating Revenues

NOI from Property Leasing Activities1 and NOI(Yen in millions)(Yen in millions)

Profits from dispositions included in total operating revenues.
Figures in parentheses are total operating revenues excluding
profits from dispositions.

45,00040,00035,720(33,622)35,00037,135(34,845)

25,000

NOI from property leasing activities (left scale)
NOI yield (right scale)
22,03622,864

22,482

22,22022,16722,01520,00036,562(34,659)

34,806

34,59334,641

(%)
8
6

4.60

15,000

4.51

4.67

4.47

4.48

4.44

4
30,00010,00025,0005,000

0(Yen in millions)

Profits from dispositions included in net income.
Figures in parentheses are net income excluding profits
from dispositions.

16,00012,000

1H/’13
2H/’13
1H/’14
2H/’14
1H/’15
2H/’1524th Period 25th Period 26th Period 27th Period 28th Period 29th Period

Total Assets

Net Income

14,0000

1H/’13
2H/’13
1H/’14
2H/’14
1H/’15
2H/’1524th Period 25th Period 26th Period 27th Period 28th Period 29th Period

2(Yen in billions)
1,100
1,048.0

1,040.6

1,022.8
12,941(10,844)

13,277(11,273)(10,869)

1,023.0

1,022.4

1,012.7

Dec. 31,2014

Jun. 30,
2015

Dec. 31,
2015

1,000

12,771
10,846

10,995

10,977900

10,000
800

8,000
0

0

1H/’13
2H/’13
1H/’14
2H/’14
1H/’15
2H/’1524th Period 25th Period 26th Period 27th Period 28th Period 29th Period

DPU3

Jun. 30,
2013

Dec. 31,2013

Jun. 30,
2014

NAV per Unit3(Yen)
10,0009,000
8,000

Profits from dispositions included in DPU (after provision to the reserve foradvanced depreciation).
DPU include reversal of reserve for advanced depreciation.
Figures in parentheses are DPU excluding reversal of reserve
for advanced depreciation.
8,427(7,835)

8,645(8,145)

8,152(7,697)

7,681

7,787

8,036

(Yen)

460,479
444,360

450,000
421,123400,000

400,890

407,432

Jun. 30,
2013

Dec. 31,2013

430,707(7,773)7,000

350,000

6,000
300,000

5,000
0

1H/’13
2H/’13
1H/’14
2H/’14
1H/’15
2H/’1524th Period 25th Period 26th Period 27th Period 28th Period 29th Period

0Jun. 30,
2014

Notes: 1. NOI from property leasing activities does not include such items as gain or loss on sale of investment properties.
2. NOI yield = NOI from properties held at beginning of period/Period-end book value of properties held at beginning of period
3. Figures for the 24 and 25 Periods are adjusted for the two-for-one investment unit split. Figures are rounded down to the nearest yen.

10

NBF Report July – December 2015

Dec. 31,2014

Jun. 30,
2015

Dec. 31,2015

0Sustainability Initiatives

NBF Receives the Top “Green Star” Evaluation in the Global Real Estate
Sustainability Benchmark (GRESB) Survey
Policy" and "Implementation and Measurement" as sustainability efforts, and it received a "Green Star", whichis the highest rating.

GRESB Overview
The Global Real Estate Sustainability Benchmark (GRESB) survey is an indicator that
evaluates the sustainability initiatives of real estate companies and REITs rather thanparticular real assets.

● Improving Business Continuity and Creating Added Value

Disaster Prevention and BCP Measures
Installing emergency power generators

Introducing system for safe evacuation(Additional power generator)●

NBF Shinkawa Bldg. West Tower

Sensor network and algorism will estimate thedamage to the building and provide the real-time
evacuation routes for occupants.

Sumitomo Mitsui Banking Nagoya Bldg.

Improving earthquake-resistanceof elevators(Installation and renewal of earthquake sensors)

NBF Platinum Tower● Achieving occupant comfort while minimizing environmental impacts / Community engagements

Retrofit to improve energy efficiency
Common Area
Lighting Upgrades

Separation of Smoking Room

HVAC Retrofit(Smoking Rooms)(Installation of High-Efficiency
Air Conditioning)●

NBF Shibuya East

Sumitomo Mitsui Banking Nagoya Bldg.

(Installation of LED Lighting)

NBF Shin-Urayasu Tower

CS improvement and Community
Engagement Programs

Higashi Gotanda Square

Various Events
Concerts and various other events are held
to promote communication between
occupants and local community.

NBF Report July – December 201511

Portfolio Overview (As of December 31, 2015)
Property Name
1 NBF Osaki Bldg.
●
2 NBF Hibiya Bldg.
●
3 Gate City Ohsaki●
4 Nishi-Shinjuku Mitsui Bldg.
●
5 Nakanosakaue Sunbright Twin●
6 Mitsubishi Heavy Industries Head Office Bldg.
●
7 NBF Toyosu Canal Front●
8 Shiba NBF Tower●
9 NBF Platinum Tower●
10 NBF Minami-Aoyama Bldg.
●
11 NBF COMODIO Shiodome●
12 NBF Toyosu Garden Front●
13 Toranomon Kotohira Tower●
14 Nakameguro GT Tower●
15 Celestine Shiba Mitsui Bldg.
●
16 NBF Ochanomizu Bldg.
●
17 NBF Shibuya Garden Front●
18 NBF Ginza Street Bldg.
●
19 Shinjuku Mitsui Bldg. No. 2●
20 GSK Bldg.
●
21 River City M-SQUARE●
22 NBF Toranomon Bldg.
●
23 Kowa Nishi-Shinbashi Bldg. B●
24 NBF Shinkawa Bldg.
●
25 Shinbashi M-SQUARE●
26 NBF Ueno Bldg.
●
27 NBF ALLIANCE●
28 Yotsuya Medical Bldg.
●
29 NBF Ikebukuro East●
30 Higashi Gotanda Square●
31 NBF Shibuya East●
32 NBF Shibakouen Bldg.
●
33 NBF Takanawa Bldg.
●
34 NBF Akasaka Sanno Square●
35 NBF Shibakouen Daimon Street Bldg.
●
36 NBF Kandasudacho Bldg.
●
37 Sumitomo Densetsu Bldg.
●
38 NBF Higashi-Ginza Square●
39 Panasonic Tokyo Shiodome Bldg.
●
40 NBF Ogawamachi Bldg.
●
41 Nihonbashi Kabuto-cho M-SQUARE●
42 NBF Ikebukuro Tower●
43 NBF Ikebukuro City Bldg.
●
44 Ryukakusan Bldg.
●
45 Jingumae M-SQUARE●

23 Wards of Tokyo Total
46 Chofu South Gate Bldg.
●
47 Shin-Kawasaki Mitsui Bldg.
●
48 Yokohama ST Bldg.
●
49 Parale Mitsui Bldg.
●
50 NBF Atsugi Bldg.
●
51 Tsukuba Mitsui Bldg.
●
52 NBF Utsunomiya Bldg.
●
53 S-ino Omiya North Wing●
54 NBF Urawa Bldg.
●
55 NBF Shin-Urayasu Tower●
56 NBF Matsudo Bldg.
●
Other Greater Tokyo Total
57 Sapporo L-Plaza●
58 NBF Sapporo Minami Nijo Bldg.
●
59 NBF Sendai Honcho Bldg.
●
60 NBF Unix Bldg.
●
61 NBF Niigata Telecom Bldg.
●
62 Sumitomo Mitsui Banking Nagoya Bldg.
●
63 NBF Nagoya Hirokoji Bldg.
●
64 Aqua Dojima NBF Tower●
65 Nakanoshima Central Tower●
66 Shinanobashi Mitsui Bldg.
●
67 Sakaisuji-Honmachi Center Bldg.
●
68 Sun Mullion NBF Tower●
69 Aqua Dojima East●
70 NBF Hiroshima Tatemachi Bldg.
●
71 Hiroshima Fukuromachi Bldg.
●
72 NBF Matsuyama Nichigin-mae Bldg.
●
73 Hakata Gion M-SQUARE●
74 NBF Kumamoto Bldg.
●
Other Cities Total
Total

12

NBF Report July – December 2015

For further information, click here to jump
to the relevant page on NBF’s website.

Acquisition Price(Yen in millions)Book Value(Yen in millions)Appraisal Value(Yen in millions)

Total Rentable Area(m2)

Total Leased Area(m2)

66,66063,50057,28145,14540,75036,30035,20032,00031,00031,00028,80025,01824,54323,85622,50020,84020,26917,00016,285
14,434
13,35013,337
13,217
12,614
11,90010,400
9,126
8,800
8,630
8,350
8,000
6,770
6,667
6,250
6,100
5,960
5,365
5,200
5,075
4,940
4,850
4,695
4,428
4,050
3,700
844,156
9,320
25,82013,529
3,800
2,300
8,875
2,435
16,8162,000
15,7002,455
103,051
4,404
1,870
3,566
4,028
3,957
14,9007,232
17,81014,90014,40012,70010,500
1,914
2,930
2,215
3,310
8,000
4,500
133,138
1,080,346

66,98464,02449,19533,62436,57636,09430,053
27,236
26,91431,551
28,08023,095
18,862
18,08322,42020,292
18,97817,537
16,058
11,85012,444
13,114
11,11012,055
11,809
9,559
9,365
7,856
9,087
7,928
8,121
6,207
6,377
6,242
6,230
6,006
4,787
4,482
5,031
5,083
4,617
4,323
4,140
4,396
3,539
781,436
8,456
22,522
12,505
3,149
2,145
7,213
2,177
13,931
1,828
15,6102,301
91,841
3,295
1,609
3,339
2,928
3,427
14,620
6,405
16,15814,732
10,707
12,191
7,343
1,695
2,706
1,906
3,186
7,191
4,008
117,455
990,734

79,90054,40063,60041,40030,80045,60033,30028,70058,90018,10032,20028,10032,80021,10025,20013,00029,00016,00017,20016,60015,50016,30014,20013,98013,6008,870
11,700
7,360
9,650
8,020
6,630
7,780
7,140
6,250
4,280
7,550
5,740
7,120
5,850
5,660
5,300
5,390
5,060
4,450
3,750
893,030
9,970
21,80014,800
3,750
2,140
7,450
2,050
19,300
2,060
9,980
2,280
95,580
6,920
1,330
2,890
3,390
2,970
16,0007,050
17,10016,40012,80012,900
6,950
1,440
2,390
2,310
3,630
9,000
3,910
129,380
1,117,990

74,42527,572
41,88133,33832,02135,641
36,674
24,73033,503
9,631
20,53828,28916,84821,423
16,915
6,627
16,516
3,440
14,82820,426
16,232
10,067
10,08817,307
5,392
8,504
4,033
7,481
11,073
6,166
4,999
7,084
10,458
5,258
3,432
4,470
5,991
4,871
4,577
4,805
3,298
5,631
5,127
5,332
7,232
694,173
13,762
39,83720,047
12,545
5,242
16,697
6,160
20,6983,455
22,7604,770
165,972
11,396
5,351
7,514
13,267
10,20817,658
9,876
21,917
17,35525,31423,23014,954
3,245
5,567
3,927
5,983
14,3287,931
219,019
1,079,164

74,42527,38839,21833,32032,02135,641
24,14824,73033,503
9,521
20,53828,28916,84821,423
11,677
6,627
16,516
3,440
14,617
20,426
16,232
10,0399,976
17,178
5,392
8,504
4,033
7,349
10,835
6,115
4,999
7,084
10,147
5,258
3,432
4,470
5,991
4,871
4,577
4,805
3,298
5,631
5,127
5,332
7,232
672,222
13,76238,452
19,753
12,545
5,242
15,171
6,160
20,1393,455
19,856
4,677
159,210
11,396
5,351
7,514
13,2609,333
17,3409,876
20,833
16,03024,38323,23014,954
3,115
5,473
3,927
5,753
13,7907,931
213,490
1,044,921

Occupancy Rate(%)

Total Numberof Tenants

100.0
99.3
93.6
99.9
100.0
100.0
65.8
100.0
100.0
98.9
100.0
100.0
100.0
100.0
69.0
100.0
100.0
100.0
98.6
100.0
100.0
99.7
98.9
99.3
100.0
100.0
100.0
98.2
97.9
99.2
100.0
100.0
97.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
96.8
100.0
96.5
98.5
100.0
100.0
90.9
100.0
97.3
100.0
87.2
98.0
95.9
100.0
100.0
100.0
100.0
91.4
98.2
100.0
95.1
92.4
96.3
100.0
100.0
96.0
98.3
100.0
96.2
96.2
100.0
97.5
96.8

1
95
78
39
17
11
10
33
6
12
15
5
24
19
6
6
1
1
50
1
8
15
19
35
7
6
8
39
20
11
4
18
12
6
8
9
1
7
1
16
2
17
11
10
8
728
1
20
94
34
19
61
40
43
12
52
24
400
13
3
9
52
30
11
23
42
20
64
52
29
20
32
12
21
16
18
467
1,595

Location of Ofﬁce Properties (As of December 31, 2015)

For further information, click here to jump
to the relevant page on NBF’s website.

Kita-ku
43

Toshima-ku

Investment by Region
Arakawa-ku

42
29

Other Cities

12.3%

Taito-ku

Bunkyo-ku

Nakano-ku

Other Greater Tokyo

26
5

Shinjuku-ku

19

16

Imperial
Palace1027

Meguro-ku

18
38

24
21

11
8
32 35

9

33

51.7%

41

Chuo-ku

Minato-ku

14

5 Wards ofCentral Tokyo

36 44

Koto-ku

2
34
22 25
13
23 39

45

17 31

Setagaya-ku

40

Chiyoda-ku

28
20

Shibuya-ku

9.5%

Sumida-ku

4

23 Wards of Tokyo

12 7

78.1%

15
37

30

57
58

Tokyo Bay

6
3

1

Shinagawa-ku

23 Wards of Tokyo

45 Properties : ¥844.1 billion
59
61

60

70 71

73

72

72

Tochigi

74
64 65 66 67 68 69

62
63

Utsunomiya

51

Ibaraki

52

Saitama53
To Omiya

54

Other Cities

18 Properties: ¥133.1 billion

56

Tokyo

Chiba
46

55

Kanagawa
50

Tokyo Bay

47

49

48

Other Greater Tokyo

11 Properties: ¥103.1 billion
NBF Report July – December 201513

Major Assets (As of December 31, 2015) (Building numbers correspond to those on pages 12 and 13.)

23 Wards of Tokyo
3 Gate City Ohsaki

6 Mitsubishi Heavy Industries Head Office Bldg.

CASBEE Certification
DBJ Green Building Certification
Tokyo Metropolitan
Top-Level-Facility Certification

7 NBF Toyosu Canal Front

Tokyo Metropolitan
Top-Level-Facility Certification

12 NBF Toyosu Garden Front

DBJ Green Building Certification

CASBEE Certification
DBJ Green Building Certification

36 NBF Kandasudacho Bldg.

39 Panasonic Tokyo Shiodome Bldg.
21 River City M-SQUAREDBJ Green Building Certification

14

NBF Report July – December 2015

Tokyo Metropolitan
Top-Level-Facility Certification

DBJ Green Building Certification

Other Greater Tokyo
47 Shin-Kawasaki Mitsui Bldg.

48 Yokohama ST Bldg.

55 NBF Shin-Urayasu Tower

Other Cities
62

Sumitomo Mitsui Banking Nagoya Bldg.

65 Nakanoshima Central Tower

73 Hakata Gion M-SQUAREDBJ Green Building Certification

NBF Report July – December 201515

Management Team and Management Structure (As of December 31, 2015)

Nippon Building Fund Inc. (NBF) is an investment corporation that takes a medium-to-long-term
perspective with the aim of generating steady asset growth and stable profits. NBF continues to do
its utmost for investors.

Nippon Building Fund Inc.
Nippon Building Fund Inc. is an investment corporation

The General Meeting of Unitholders adopts or vetoes

established with the objective of investing in assets, primarily

resolutions on the basis of a simple majority of the voting

Designated Assets as defined by the Investment Trust Law ofrights of unitholders in attendance, unless otherwise stipu-

Japan. NBF entrusts the management of its assets tolated by laws, regulations or NBF’s Articles of Incorporation.

Nippon Building Fund Management Ltd., which is an asset

Decisions on substantive matters such as changes in the

management company.

Articles of Incorporation require the attendance of

NBF’s primary investment objective is to achieve sustain-

unitholders that control a simple majority of total units issued

able growth in portfolio value and stable profits on aand outstanding, and a two-thirds majority of the voting

medium-to-long-term basis. NBF achieves this objective by

rights of such unitholders. In addition, any change in theinvesting in real estate consisting of buildings primarily used

asset management policies and standards, which are stipu-

for offices with their underlying land located in the central

lated by NBF’s Articles of Incorporation, requires an extraor-

business districts (CBDs) of Tokyo, other Greater Tokyo anddinary resolution of unitholders as outlined above.

other cities in Japan. NBF also invests in securities, beneficiary certificates representing beneficial interests in trusts
and other assets backed by office properties.

Executive Directors, Supervisory Directors andthe Board of Directors
NBF’s Articles of Incorporation stipulate that NBF must

General Meeting of Unitholders

have one or more executive directors and four or fewer

Specific matters pertaining to NBF that are subject to thesupervisory directors, but the number of supervisory direc-

Investment Trust Law of Japan or the Company’s Articles oftors must always be at least one greater than the number ofIncorporation are decided by resolution of the General

executive directors. As of March 12, 2015, NBF had one

Meeting of Unitholders, which convenes at least once every

executive director and three supervisory directors.

two years, in principle. The ninth General Meeting of

NBF’s executive director is responsible for business

Unitholders convened on March 12, 2015. The date of theexecution and has authority for all judicial and extrajudicial

next General Meeting of Unitholders has not been set.

proceedings related to the operations of NBF. Supervisory
directors are responsible for supervising execution by the
executive director.

Asset Management Company
Nippon Building FundManagement Ltd.
Mitsui Fudosan Co., Ltd.

Entrusting AssetManagement Services

Entrusting Asset
Custody Services,etc.
Entrusting
Accounting Services

Entrusting Ofﬁce
Management Services
Nippon Building Fund Inc.

Entrusting Tax
Affairs Services

General Meeting of Unitholders

Borrowings/Issue ofBonds and Notes

Subcontracting

NBF Ofﬁce Management Co., Ltd.
Providing Ofﬁce
Management
Services

Principal and Interest
Payment
Investment
Rent, etc.

Real Estate, etc.

16

NBF Report July – December 2015

Board of Directors

Investment
Distribution

Sumitomo Mitsui Trust Bank, Ltd.
Tax Accountant Corporation
Heiseikaikeisha Tax Co.
Tax Accountant Corporation
PwC Co., Ltd.
Accounting Auditor
KPMG AZSA LLC
Financial Institutions, etc. / Bondholders
Securities Markets
Investors
Trading

Investors

Management Team

From left: Yutaka Fukaya, Yoshiki Kageyama, Tetsuro Tsugawa, Hakaru Goto

Executive Director
Supervisory Directors

Name

Career Summary

Yoshiki Kageyama
Tetsuro Tsugawa
Yutaka Fukaya
Hakaru Goto

Appointed Executive Director of NBF in March 2015 after serving as a standing auditor of Mitsui Fudosan Realty Co., Ltd.
Reappointed Supervisory Director of NBF in March 2015. Attorney.
Reappointed Supervisory Director of NBF in March 2015. Certified Public Accountant and Certified Public Tax Accountant.
Appointed Supervisory Director of NBF in March 2015. Real Estate Appraiser.

The Board of Directors consists of the executive and

The terms of office of the executive director and supervi-

supervisory directors. Its responsibilities include authorizingsory directors are two years from the time they assume

business execution and supervising the performance of theoffice. The terms of executive directors and supervisory

executive director. Resolutions by the Board of Directors

directors selected to fill a vacancy or to increase the number

require a simple majority with more than half of the membersof directors expire at the same time as the remaining terms ofof the Board in attendance.

their predecessors or the current directors.

The bylaws of NBF’s Board of Directors stipulate that

A new executive director was elected with the consent ofexecutive and supervisory directors may not participate inunitholders at the General Meeting of Unitholders held on

decisions in which they have a vested interest. Executive andMarch 12, 2015. Two of the three supervisory directors weresupervisory directors with such financial interest shall not bereelected and one new supervisory director was elected at theincluded in the number of executive and supervisory directors

same time, and assumed office on March 17, 2015.

in attendance for such decisions.

NBF Report July – December 201517

Nippon Building Fund Management Ltd.
NBF entrusts asset management to Nippon Building Fund Management Ltd. under an asset management agreement.

Matters Entrusted to Nippon Building Fund Management Ltd.
As the asset management company required by the

Nippon Building Fund Management Ltd. as the institutional

Investment Trust Law of Japan, Nippon Building Fundmanager of NBF’s assets, Nippon Building Fund Management

Management Ltd. manages NBF’s assets in accordance with

Ltd. executes certain responsibilities in connection with thethe asset management objectives and policies stipulated byoperation of the General Meeting of Shareholders and the

NBF’s Articles of Incorporation. In addition, in accordance with

Board of Directors as manager of general administration.

the manager of general administration contract designating

History of NBFM
NBFM is an Asset Management Company which is alimited liability company duly established under the laws ofJapan. Major events in the history of NBFM are as follows.
September 19, 2000

Established

November 17, 2000

Obtained license as a building lots and building transactions agent under the Building Lots and Building Transactions Law

January 29, 2001

Obtained approval as a discretionary transaction agent under the Building Lots and Building Transactions Law

February 15, 2001

Registered as a general real estate investment advisor under the Real Estate Investment Advisor Registration Regulations

March 7, 2001

Obtained approval as an Asset Management Company under the Investment Trust Law of Japan

March 22, 2001

Increased capital from ¥100 million to ¥198 million

May 23, 2001

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

June 16, 2001

Increased capital from ¥198 million to ¥495 million

March 14, 2003

Changed name (from “Office Building Fund Management Japan Limited” to “Nippon Building Fund Management Ltd.”)

September 30, 2007

Registered as a financial instruments firm with the Kanto Local Finance Bureau Chief (Financial Instruments) No. 371

List of Shareholders (As of December 31, 2015)
Name

Percent

An outline of the financial condition of NBFM is as follows.

Mitsui Fudosan Co., Ltd.

4,257

43.0%

Outline of principal assets and liabilities for the most recent

Sumitomo Life Insurance Company

3,465

35.0

fiscal year:

Sumitomo Mitsui Trust Bank, Limited

495

5.0

As of March 31, 2015

Sumitomo Mitsui Banking Corporation

495

5.0

Total Assets¥2,183

Daido Life Insurance Company

297

3.0

Total Liabilities

362

Mitsui Sumitomo Insurance Co., Ltd.

297

3.0

Total Net Assets

1,821

Mitsui Life Insurance Co., Ltd.

297

3.0

The Britel Fund Trustees Limited

297

3.0

9,900

100.0%

Total

18

Numberof Shares Owned

Outline of Financial Condition

NBF Report July – December 2015

(Yen in millions)

Management Team and Management StructureManagement Structure
General Meeting of Shareholders
AuditorBoard of Directors

Compliance Committee

Executive Board
Risk Management Meeting
CEO

Investment
Review Meeting

Accounting Auditor

ComplianceOfﬁcerInvestment & FinanceGroup

Real Estate AssetManagement
Team

Real Estate
Investment
Team

Management Structure of
Nippon Building Fund Management Ltd.

Corporate Operation
Group

FinancialTeam

Corporate
Planning &Administration
Team

Risk
Management &ComplianceTeam& Finance Group and the Corporate Operation Group also
serve as directors, and oversee their respective divisions under

The Board of Directors makes decisions on the basic

the direction and oversight of the president. Corporate auditors

management policies of Nippon Building Fund Management

conduct accounting audits and operational audits of Nippon

Ltd. and oversees execution of the duties of the representa-

Building Fund Management Ltd. The Compliance Officer

tive director. The president, who is the representative direc-

oversees compliance for the asset management company andtor, supervises and executes the operations of Nippon

is responsible for internal administration in connection with

Building Fund Management Ltd. The heads of the Investment

internal audits at the asset management company.

Directors and Staff
As of December 31, 2015, the directors and corporate
auditors of NBFM are as follows. The staff other than directors
and auditors of NBFM is comprised of 23 persons.
Name of Directors and Auditors

Title

Kenichi Tanaka

President & CEO (standing)Morio Shibata

Director, CIO & CFO (standing)

Miki Takahashi

Director, COO (standing)

Hiromu Yamanaka

Director

Hiroshi Yabuki

Director

Yoichi Kunikane

Corporate Auditor

Kenshi Ueda

Corporate Auditor

NBF Report July – December 201519

Compliance Initiatives
The management of NBF and Nippon Building FundManagement Ltd. conduct honest and appropriate businessactivities while maintaining rigorous compliance by adhering to
all relevant laws and regulations, based on a high level of corporate ethics.
The bylaws of NBF’s Board of Directors stipulate that Boardof Directors’ meetings are to be held at least once every threemonths. In practice, NBF holds such meetings once a month.
At Board meetings, the executive director reports on the execution of his duties and supervisory directors ensure that oversightand check-and-balance systems are functioning properly.
Nippon Building Fund Management Ltd. views complianceas a management strategy, with a fundamental compliancepolicy of conducting operations honestly and fairly while
maintaining a rigorous compliance system based on a high levelof corporate ethics. Specifically, Nippon Building FundManagement Ltd. has established a Compliance Committee,
consisting of the Compliance Officer, the president, the head of
the Investment & Finance Group, the head of the Corporate
Operation Group and an outside committee member. Initiatives
to enhance awareness of and adherence to compliance include
the establishment of Compliance Rules and a Compliance
Manual. In addition, a Compliance Program is formulated eachyear to verify the progress of the execution plan for that year
and identify any problem areas.

Risk Management System
NBF and Nippon Building Fund Management Ltd. haveestablished the following risk management system to avoid
and minimize risks related to investments.

NBF
NBF’s Risk Management Regulations define risk management policies and procedures. The Risk Management Meeting
convenes once every three months and undertakes deliberation, monitoring and other initiatives to ensure that theentrusted asset managers are conducting their duties with due
care in good faith in a manner consistent with its fiduciary duty
to the conservation and maintenance of entrusted assets.

Nippon Building Fund Management Ltd.
Nippon Building Fund Management Ltd. formulates aManagement Policy, a Medium-to-Long-Term AssetManagement Policy and an Annual Management Plan tofollow in managing NBF’s assets. In addition, Nippon Building
Fund Management Ltd. has set Asset Management
Guidelines as a set of standards to follow.

20

NBF Report July – December 2015

Policy and Management System for
Dealing with Conflict of Interest Transactions
Fundamental Policy on Conflict of Interest Transactions
Nippon Building Fund Management Ltd. is constantly
aware of its accountability to NBF and NBF’s unitholders withregard to any transactions in which the interests of NBF andthe interests of Nippon Building Fund Management Ltd. andits related corporations or customers may conflict. Nippon
Building Fund Management Ltd. follows voluntary rules stipulated in laws and internal bylaws to proactively prevent
conflicts of interest.
All decisions made in executing the management of NBF’s
assets are subject to the approval of the president, and aremade after going through discussions by the Investment
Review Meeting and Executive Board of Nippon Building FundManagement Ltd. Sponsor companies are not permitted tointervene in the decision-making process.

Voluntary Rules for Conflict of Interest Transactions Stipulated inInternal Bylaws
Nippon Building Fund Management Ltd. has set voluntaryrules in its internal bylaws to address transactions withparties, including sponsor companies that have interests in
Nippon Building Fund Management Ltd.
The voluntary rules require the Investment Division, which
initiates the transaction, as well as the Compliance Department,
the Investment Review Meeting and other units to protect
NBF’s managed assets and profits by fully examining thetransaction contents according to the voluntary rules set in
the internal bylaws in the event of a transaction in which theinterests of Nippon Building Fund Management Ltd. andparties that have interests in Nippon Building FundManagement Ltd. may conflict with the interests of NBF.
These rules are designed from the standpoint of accountability
to NBF and its unitholders.
In examining the transaction contents, Nippon Building
Fund Management Ltd. solicits the opinions of attorneys,
certified tax accountants and other third-party experts asneeded. In addition, when purchasing real estate or otherassets from parties that have interests in Nippon Building
Fund Management Ltd., the purchase price is strictly set, inprinciple no higher than the appraised value according to areal estate appraiser with no vested interest.

Sustainability Initiatives
Policy for Initiatives
Nippon Building Fund Management Ltd. (“NBFM”), to which
Nippon Building Fund Inc. (“NBF”) entrusts asset management
services, established a “Policy for Environmental Considerations”
in March 2015.

Management Team and Management Structure

Basic Policy

Asset Management Fee Structure

NBFM, in recognition of the importance of environmental considerations, etc. for carrying out real property investment and management activities, strives to achieve asset management activities
giving consideration to reduction of environmental load, enhancement of safety, security and comfort, as well as diversified affiliations
and collaborations with various entities, in line with the “Group
Environmental Policy” established by the Mitsui Fudosan Group.

Operation

Initiatives for Environmental Considerations(1) Reduction of environmental load
• Promoting energy saving and reduction of CO 2 emissions
By promoting efficient use of energy in real property
investment and management activities and pursuing introductionof energy-saving facilities, etc., NBFM endeavors to reduce CO 2
emissions through energy saving.
• Preserving the water environment and promoting resourcesaving and waste reduction
NBFM aims to preserve the water environment by initiatives
for saving water and introduction of water-saving devices. NBFM
also makes an effort to promote the 3Rs (reduce, reuse andrecycle) for resource saving and waste reduction.

(2) Enhancement of safety, security and comfort• Enhancement of safety and security
NBFM promotes improvement of response times during
emergencies and strengthens preparedness during normal
times, and strives to implement disaster prevention and BCP
measures in office buildings, the major assets for which it
manages investments.
• Enhancement of comfort
NBFM aims to improve customer satisfaction (CS) of tenants
of office buildings, the major assets for NBFM’s management ofinvestment, by enhancing the level of comfort.

Diversified Affiliations and Collaborations with
Various Entities(1) Coordination with outside related parties
To implement this Policy, NBFM strives to collaborate andcooperate with outside related parties such as property management companies, tenants and local communities, etc.

(2) Training of officers and employees
NBFM aims to improve awareness of environmental considerations by training its officers and employees through continuous
implementation of education and encouragement of activities
relating thereto.

Information Disclosure to Related Parties such as
Investors, and Utilization of Environmental
Certification and Evaluation

Nippon Building Fund Management Ltd. undertakes asset
management of NBF pursuant to an Asset Management
Entrustment Agreement based on an entrustment from NBF inaccordance with the Articles of Incorporation of NBF and theInvestment Objects and Policies set forth therein. In addition,
Nippon Building Fund Management Ltd. undertakes managementof the general affairs of the general meeting of unitholders andthe Board of Directors as Administrative Agent regarding theManagement of Institutions based on an entrustment from
NBF and pursuant to an Agreement for General Administration
Regarding the Management of Institutions.

Fees for the Asset Management Operation
Management Fees 1
The amount equivalent to 2.5% effective from July 1, 2003 of
the amount of the revenue arising from Real Estate, etc. as
calculated on each closing date (provided, however, thatrevenues from the sale of Real Estate, etc. and other Managed
Assets will be excluded) will be payable.
Management Fees 2
The amount equivalent to 3% of income before income tax(provided, however, that in the event a loss is carried forward,
then the amount of income before income taxes remaining after
such loss has been covered) prior to deduction of Management
Fees 2 as calculated on each closing date will be payable.
Management Fees 3
In the event that Real Estate, etc. is newly acquired (in theevent of merger, succession of status by merger), compensationequivalent to the total amount of the acquisition price of said
Real Estate, etc. (meaning the acquisition price of both land andbuildings, in the event of the simultaneous acquisition of multiple
units of Real Estate, etc., the acquisition price of each item, andin the event of merger, the appraised value of Real Estate, etc.
succeeded by NBF at the time of the merger, provided, however,that national consumption tax, regional consumption tax andmiscellaneous costs of acquisition are excluded) multiplied by
the following percentage rates will, in principle, be payable,
provided, however, that with the approval of the directors of NBF,
compensation may be calculated using different rates notexceeding the following rates.
●

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

0.5%

●

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

0.2%

●

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

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

NBFM endeavors to actively disclose this Policy and its compliance herewith, etc. to related parties such as investors andtenants. In addition, NBFM will consider the use of environmental
certification and evaluation to achieve goals based on this Policy.

NBF Report July – December 201521

Investment and Distribution Policies

Investment Policies of NBF
A. Basic Policies
NBF’s primary investment objective is to achieve sustainable growth inportfolio value and stable profits on a medium-to-long-term basis. NBF

The following table sets forth above said area diversification strategy.
Area and Allocation Ratio

Area Analysis

Tokyo CBDs■

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

■

Relatively low yearly NOI yields.

■

Relatively high liquidity at the time of sale.

■

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

23 wards of Tokyo with a focus
on the 5 central wards of
Chiyoda, Chuo, Minato,
Shinjuku and Shibuya

achieves this objective by investing in real estate consisting of buildings
primarily used for offices with their underlying land located in the Tokyo

Other Greater Tokyo

central business districts (hereinafter “CBDs”), Other Greater Tokyo and

Neighboring cities (see Note 1
below) such as Musashino,
Tachikawa, Yokohama, Kawasaki,
Chiba, Kashiwa, Saitama, etc.

Other Cities in Japan as well as securities, beneficiary certificates
representing beneficial interests in trusts (hereinafter “beneficiary
certificates”) and other assets backed by office properties (collectively

Total of above two areas: 70% or morehereinafter “Real Estate, etc.”) (“Investment Objectives and Policies,”
Articles of Incorporation). (Reference to laws, legal documents, etc. usedas the basis or sources hereof are set forth in parenthesis herein.)

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

(1) Strategy for Creation of the Portfolio

Other Cities
Principal regional cities such as
Sapporo, Sendai, Niigata,
Shizuoka, Hamamatsu, Nagoya,
Kyoto, Osaka, Kobe, Okayama,
Hiroshima, Takamatsu, Fukuoka,
Kumamoto, etc.

■

Rent levels relatively low and vacancy rates
relatively high compared to Tokyo CBDs, withsome variance by each area’s characteristics;
also, relatively small market scale and low
growth rates.

■

Relatively high yearly NOI yields.

■

Relatively low liquidity at the time of sales.

Total of above area: 30% or less
Notes: 1. “Neighboring cities” refers to the metropolis of Tokyo excluding its 23 wards, andthe 6 prefectures of Kanagawa, Chiba, Saitama, Ibaraki, Gunma and Tochigi.
2. Due to unforeseeable events, such as extreme fluctuations in macroeconomic
trends, financial trends, real estate market trends and so forth, it may not always be
possible to operate in accordance with each of the above criteria (“Investment
Objectives and Policies,” Articles of Incorporation).

The goal of the portfolio is to generate steady growth and stableprofits on a medium-to-long-term basis. The selection criteria of(2) Acquisition Strategy

investment assets is based on the composition of investment assets in thea) Ratio of Real Estate Assets

portfolio and on consideration of a quantitative proportion of the officestock located in the various regions of Japan.

NBF will maintain a ratio of 75% or more with respect to the“Designated Real Estate Ratio” (“Investment Objectives and Policies,”
Articles of Incorporation). As of June 30, 2015, NBF satisfied the criteria.

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

The “Designated Real Estate Ratio” means the ratio of the total
amount of Designated Real Estate to the total amount of Designated
Assets owned by NBF.
Note: Designated Real Estate includes real estate, real estate leasehold rights, superficies
and beneficiary certificates backed by real estate, land leasehold rights and superficies(as designated under Article 83.4.3.1 of the Special Taxation Measures Law of Japan).

b) Due Diligence
When investing in office properties, selections will be made throughcomprehensive research and analysis based on the forecast investment
yields resulting from the acquisition costs and their anticipated profits,
future prospects and stability of the area of location, availability ofmeasures responding to risks of deterioration and obsolescence,
insurability and so forth of the relevant office properties (or Beneficiary22

NBF Report July – December 2015

Certificates backed by such office properties) (“Investment Objectives andamount of previously acquired unleasable assets (but excluding

Policies,” Articles of Incorporation). The details of the relevant criteria areunleasable assets which thereafter become operational) will not exceed

set forth in the following table.

10% of the total assets indicated on the most recent balance sheet ofThough such consideration will involve the study of the criteria included

NBF. For this purpose, “leased/leasable assets” shall mean property within the following table, it is possible that when NBF acquires or intends torespect to which the construction of the building has been completed

acquire operating assets, not all of the following criteria will be satisfied.

and such building is leased or leasable. Properties which are owned by

Item

Points to be reviewed

NBF and have become operational at some point shall be deemed

Scale of building■

Net rentable area, including net rentable areaof entire building and standard net rentablearea per floor.

“leasable” thereafter (including such cases as reconstruction or large-■

Desired total net rentable area is 1,650m(approximately 500 tsubo) or more.

Articles of Incorporation).

■

Desired standard net rentable area per floor
is 330m2 (approximately 100 tsubo) or more.

Construction type andspecifications of facilities■

Building design and floor plan suitable
for leasing, with divisibility, adequate
ceiling height, electrical service, HVAC
equipment, etc.

Earthquake resistance■

Measures regarding
status of legal title

■

●

●

2

scale renovation of a building) (“Investment Objectives and Policies,”(3) Management and Disposition Policies
Regarding acquired Real Estate, etc., the goal is to obtain steady
growth of operating profits on a medium-to-long-term basis by planningto maintain and improve asset value and competitive ability throughEnsure that construction quality exceeds
earthquake standards (meaning thoserequired pursuant to the Building Standards
Law as amended in 1981) or standards
equivalent thereto (obtain structural appraisal/assessment (appraisal/assessment of thebuilding structure pursuant to the BuildingStandards Law conducted by The Building
Center of Japan), etc.).

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

In cases such as co-ownership, divided
condominium ownership, a building erected
on leased land, etc. where NBF will not
obtain complete ownership of a building, thefollowing matters are appropriately treated.

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

Measures to protect security deposits, policies and measures regarding cash reserves
for long-term renovation plans.

Objectives and Policies,” Articles of Incorporation).

Appropriate measures regarding demands fordivision of co-owned interests or the sale ofa co-owner’s interest, etc.

Tenancy characteristics■

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

Environmental:
condition of land, etc.

■

Absence of harmful substances suchas asbestos (or countermeasures can be
implemented for any such substances), nonexistence of soil pollution, etc.

c) Uncompleted or Unleasable Properties
In principle, NBF acquires Real Estate, etc. which are leased/leasable

increasing occupancy rates, extending the term of leases and rendering
them more stable, etc.) and reducing property-related expenses.
NBF will, in principle, for the purpose of assuring stable income on a
medium-to-long-term basis, lease out all Real Estate, etc. included inoperating assets (including installation of parking lots, billboards, etc.).
monies may be received and said monies will be managed in accordancewith the requirements of the Articles of Incorporation (“Investment
NBF is entitled to establish reserves for long-term renovations required
to maintain and enhance the value of operating properties, reserves forpayables, reserves for cash distributions and any other similar reserves,etc. (Article 14.1 (2) of the Articles of Incorporation).

a) Reserves for Long-Term Renovations
From the reserves set forth above, a portion corresponding torenovations, repairs and tenant improvements will be determined based onrenovation plans for each building.

b) Measures to Avoid Reductions and Fluctuations in
Operating Income

assets at the time of closing. NBF may acquire a property which is not

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

yet leasable at the time of closing based on consideration of the impact

income due to fire damage, withdrawal of tenants and so forth, efforts,

on NBF’s asset management activities after taking into account thesuch as area diversification and obtaining adequate fire and casualty

investment amount, the date of completion or of becoming leasable,

insurance, etc., will be exerted.

estimated revenue and so forth, provided, however, that the contract
amount of any such unleasable asset combined with the total contract

NBF Report July – December 201523c) Disposition
In disposing of individual operating properties, selections will be maded) Derivative Transactions
NBF purchases rights in derivatives transactions solely to hedge

through comprehensive research and analysis based on the forecasted

against risks, including risks of fluctuation in interest rates for debt, as set

income, actual and predicted fluctuations in asset value, future prospects

out in Article 2.20 of the Financial Instruments and Exchange Law ofand stability of the area of location, risks of deterioration andJapan (“Investment Objectives and Policies,” Articles of Incorporation).

obsolescence of real estate and predicted costs thereof as well as thecomposition of the portfolio, etc. Sell/hold studies will be periodicallyundertaken with respect to all operating properties (“Investment
Objectives and Policies,” Articles of Incorporation).

(5) Disclosure Policy
NBF’s policy on disclosure is to earn recognition from society byshowing itself to be an open and transparent investment company. It also
works at all times to engender an environment in which it can(4) Financial Policiesa) Issuance of Units
NBF may issue units in order to undertake acquisition and renovation andso forth of assets and to provide allowance for funds required for working
capital as well as for the repayment of debt (including security deposits, borrowings and repayment of obligations regarding NBF bonds, etc.).

disseminate fair and unbiased information to all its investors without
delay. In addition to conducting disclosure in the style required by theInvestment Trust and Investment Corporation Law of Japan, the Financial
Instruments and Exchange Law of Japan, the Tokyo Stock Exchange, theInvestment Trusts Association and other laws and organizations, NBF also
voluntarily discloses information it deems necessary for investor
decision-making.

b) Debt Financing
NBF may raise capital (including use of the call loan market) and issue
bonds in order to undertake acquisition and renovation and so forth ofassets and to provide allowance for funds required for working capital aswell as for the repayment of debt (including security deposits, borrowings
and repayment of obligations regarding NBF bonds, etc.) (“Investment
Objectives and Policies,” Articles of Incorporation).
Borrowings are limited to those from Qualified Institutional Investors as
specified in the Financial Instruments and Exchange Law of Japan, incase capital is borrowed. Further, the total limit on all such borrowings
and issues of NBF bonds will be ¥1,000,000 million. When undertaking
borrowings or when issuing NBF bonds, NBF may provide operating
assets as collateral (Article 15 of the Articles of Incorporation).

a) Appraisal Value, etc.
In the event that NBF undertakes asset valuation for the purpose of
disclosure in Performance Information Reports, etc. using methods andstandards different from those it has set forth, (a) the disclosure value
to be used for real estate, real estate leasehold rights and superficies
will, in principle, be the appraised valuation provided by a certified realestate appraiser, and (b) the disclosure value to be used for beneficiary
certificates, equity interests of tokumei kumiai and equity interests ofpartnerships for which respective assets are real estate, real estateleasehold rights or superficies will be the calculated value of equity
interests of each based on the value of their respective assets asdetermined in (a) plus the fair value of any financial assets asdetermined in conformity with generally accepted accounting principles,c) Loan-to-Value Ratio

less trust and total tokumei kumiai liabilities (Articles of Incorporation).

The ratio of the total amount of borrowings and issues of NBF bonds

The appraisal value of property with respect to the period

to the total amount of assets of NBF (loan-to-value ratio) is envisioned tocommencing on the acquisition thereof and ending on the date of

be limited to 56%, but may temporarily exceed 56% when acquiring

disclosure of such value with respect to the next following closure ofcertain assets, etc. (medium-to-long-term operating asset management

NBF’s accounting term shall be the acquisition price of the said property

policy and annual management plan established by the Asset(excluding miscellaneous acquisition costs, fixed assets tax, city-

Management Company).

planning tax and consumption tax) as stated in the sale and purchase
contract, etc. for the said property.

24

NBF Report July – December 2015

Investment and Distribution Policies

Investment Objectives of NBF(7) Beneficiary Certificates of investment trusts (meaning those specified
in Article 2.1.10 of the Financial Instruments and Exchange Law ofJapan, provided, however, that this is limited to those the assets ofInvestment Restrictions in Articles ofIncorporation
The Investment Objectives of NBF specified in the Articles ofIncorporation are as follows. Please also refer to “B. Investment Strategy”
of “Investment Policies of NBF” herein.

which are primarily invested and Managed Assets principally referred
to in paragraphs (1) and (2) above)(8) Investment Securities (meaning those specified in Article 2.1.11 of the
Financial Instruments and Exchange Law of Japan, provided, however,that this is limited to those the assets of which are primarily invested
and Managed Assets principally referred to in paragraphs (1) and (2)A. Principal Investment Objectives among
Designated Assets
NBF will principally invest in the below-listed Designated Assets withthe objective of assuring steady growth and stable profits from theManaged Assets.

above)(9) Beneficiary Certificates of Money Trust (limited to those the trust
assets of which are primarily invested and Managed Assets referred toin paragraph (1), (3) or (4) above, provided, however, that those thatare deemed securities are excluded)(1) Real estate, real estate leasehold interests and superficies(2) Beneficiary Certificates backed by real estate, real estate leasehold
rights and superficies, including inclusive trusts consisting of funds
appurtenant to real estate(3) Tokumei kumiai ownership interests as defined by Article 535 of theCommercial Code of Japan (provided, however, that this is limited tothose the assets of which are primarily invested and Managed Assets
principally referred to in paragraphs (1) and (2) above)(4) Equity interests in partnerships as defined by Article 667 of the Civil
Code of Japan (limited to leased, operating and managed partnershipassets primarily referred to in paragraphs (1) and (2) above that are
specified in Article 2.2.5 of the Financial Instruments and Exchange
Law of Japan)(5) Preferred Investment Certificates of Special Purpose Companies(meaning those specified in Article 2.1.8 of the Financial Instruments
and Exchange Law of Japan, provided, however, that this is limited tothose the assets of which are primarily invested and Managed Assets
principally referred to in paragraphs (1) and (2) above)(6) Special Purpose Beneficiary Certificates (meaning those specified in
Article 2.1.13 of the Financial Instruments and Exchange Law ofJapan, provided, however, that this is limited to those the assets ofwhich are primarily invested and Managed Assets principally referred
to in paragraphs (1) and (2) above)

NBF Report July – December 201525

B. Other Investment Objectives among
Designated Assets(7) Requisite ancillary rights to Designated Assets referred to in
section A

NBF may, in the course of efficiently managing funds or in other cases
as necessary, invest in the following Designated Assets.
(1) Bank deposits(2) Certificates of deposit issued by Japanese legal entities(3) Call loans(4) Japanese government bonds, notes and bills (meaning thosespecified in Article 2.1.1 of the Financial Instruments and Exchange
Law of Japan)

D. In the event that securities with “rights to
be indicated on securities” as specified
in Article 2.2 of the Financial Instruments
and Exchange Law of Japan are notissued, such rights shall be deemed
securities to which sections A through C
above are applicable.

(5) Regional treasury bonds, notes and bills (meaning those specified in
Article 2.1.2 of the Financial Instruments and Exchange Law of Japan)(6) Commercial paper (meaning that specified in Article 2.1.15 of the
Financial Instruments and Exchange Law of Japan)(7) Designated bonds of Special Purpose Companies (meaning thosespecified in Article 2.1.4 of the Financial Instruments and Exchange
Law of Japan, provided, however, that this is limited to asset-backed
securities principally referred to in paragraphs (1) and (2) of section
A above)(8) Monetary claims (limited to those claims that are deemed
Designated Assets under the Investment Trust Law of Japan otherthan those referred to in section A and above)(9) Securities (other than those listed in section A and above)(10) Rights to financial derivative transactions (limited to those specified in
Article 2.20 of the Financial Instruments and Exchange Law of Japan)(11) Renewable energy power generation facilities (meaning those specified
in Article 3.11 of the Order for Enforcement of the Investment Trust Act(Cabinet Order No. 480 of 2000, including amendments thereto)

C. Assets Other than Designated Assets
NBF may, in the course of efficiently managing funds or in other cases
as necessary, invest in the following assets.
(1) Equity interests of partnerships, excluding assets in section A,
paragraph (4)(2) Easements(3) Trademark rights(4) Copyrights

A. Distributions of Profits
A registered investment corporation may deduct its cash dividends ofprofits from taxable income under Japanese tax regulations if it distributes to
its unitholders in excess of 90% of its taxable income and complies withother organizational and operational requirements. NBF intends to make dividend distributions that ensure that NBF satisfies those requirements.
NBF will, in principle, effect distributions in accordance with the following policies (Article 14.1 of the Articles of Incorporation).

(1) NBF’s earnings available for distributions are based on accounting of
profits prepared in accordance with the Investment Trust Law and in conformity with generally accepted accounting principles in Japan.
The distributable amount which results from operation of managed
assets of NBF (hereinafter, “Distributable Amount”) shall be the amount of
profit (the amount of net assets on the balance sheet less the amount of
total expenses, capital surplus reserves and estimated or equivalent variances) calculated on each closing date.

(2) The amount of cash distributions will be determined by NBF, suchamount being in excess of 90% of earnings available for dividends of NBF
set forth in Article 67.15 of the Special Taxation Measures Law of Japan(hereinafter “Distributable Earnings”), provided, however, that the maximum amount of distributions will be the Distributable Amount. NBF has(5) Chattels

the right to allow for long-term reserve for renovations, reserve for pay-(6) Emission credits (including emission credits for greenhouse gases) orables, reserve for cash distributions and other reserves and allowances

other similar carbon dioxide equivalent quotas based on the Act onsimilar thereto which are deemed necessary for maintaining or enhancing

Promotion of Global Warming Countermeasures of Japan (Act No. 117

the assets of NBF.

of 1998, including subsequent revisions)26

Distribution Policies of NBF

NBF Report July – December 2015

Investment and Distribution Policies(3) Earnings retained and not allocated to cash distributions or other-C. Method of Distributions

wise available for distribution as of the closing date will be managed inDistributions will be made in cash, in principle, within three months

accordance with “Investment Objectives and Policies” in the Articles

from the closing date, to such unitholders or registered pledgees as areof Incorporation.

listed or recorded in the latest Unitholder Registry as of the closing date,in proportion to the number of units owned by or pledged to them (Article

B. Distribution in Excess of Earnings

14.3 of the Articles of Incorporation).

A registered investment corporation is allowed to distribute cash to its
unitholders in excess of the Distributable Amount under the Financial

D. Prescription for Cash Distributions, etc.

Instruments and Exchange Law of Japan, although the Investment Trusts

NBF will be discharged from the obligation to pay distributions of

Association of Japan has established rules such that a corporate-styleprofits three calendar years from the date of commencing payment.

J-REIT may pay out the excess of retained earnings for the period up to a

Interest will not accrue on unpaid distributions (Article 14.4 of the

maximum of 60% of depreciation for the period. NBF is entitled to make

Articles of Incorporation).

cash distributions of the amounts described below in excess of theDistributable Amount in the following cases, provided, however, that the
maximum amount of such distributions will be the amount set forth in therules of the Investment Trusts Association of Japan (Article 14.2 of theInvestment Restrictions

Articles of Incorporation).

(1) Amount determined by NBF as being eligible for the requirements ofArticle 39.32.3 of the Special Taxation Treatment for Investment

A. Investment Restrictions in Articles
of Incorporation
The investment restrictions specified in the Articles of Incorporation

Corporations, in case of the Distributable Amount being less than theand the asset management guidelines applicable to NBF. Please also refer

Taxable Income Available for Dividends.

to “Investment Policies of NBF, B. Investment Strategy” herein.

(2) Amount determined by NBF not in excess of the amount of depreciation(1) Investment Location and Currencies

for the current term less the amount of appropriate reserves for the current

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

term, if NBF determines it appropriate considering trends in macroeconomic

assets denominated in non-Japanese currencies (“Investment Objectives

environments, real estate markets and leasing markets.

and Policies,” Articles of Incorporation).

(3) Amount determined by NBF if NBF determines it appropriate for reduc-(2) Borrowing

ing its tax burden.

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

As for cash distributions in excess of profits, as long as the current
Japanese taxation treatment applicable to NBF’s unitholders in Japan towhom such distributions are paid requires them to calculate capital gain

(3) Concentration of Investment
There is no limitation on concentration of investment. See “Investment

or loss at the time of each distribution, NBF will not make distributions in

Policies of NBF, B. Investment Strategy, (1) Strategy for Creation of theexcess of profits.

Portfolio.”

Notwithstanding the above, NBF may make distributions in excess of
profits in accordance with the distribution policies stated above in order to(4) Investment Objectives

meet “Requirement for Deduction from Taxable Income of Dividends of

NBF does not invest aggressively in the Monetary Claims andProfit, etc.,” and if such distributions in excess of profits are deemed

Securities referred to in “Investment Objectives, B. Other Investment

necessary by the Board of Directors of NBF.

Objectives among Designated Assets.” Rather, NBF takes into accounttheir stability and liquidity based on the extent of their relationship with

NBF Report July – December 2015

27

Designated Assets referred to in “Investment Objectives, A. Principal

Exchange Law that are considered unlikely to result in failure to protect

Investment Objectives among Designated Assets.” NBF invests in rights tothe interests of unitholders, damage fair transactions or discredit thefinancial derivatives transactions solely to hedge against risks, including

financial instruments business.

risks of fluctuation in interest rates for debt (“Investment Objectives andPolicies,” Articles of Incorporation).

b) Reciprocal Transactions with Managed Assets (§ 42.2.2)

Transactions between asset management companies of investment

Moreover, investment in other funds (investment securities orBeneficiary Certificates) is limited mainly to those the assets of which arecorporation assets are prohibited except for certain cases specified in thereferred to in “Investment Objectives of NBF, A. Principal Investment

provisions of the government ordinance regarding the Financial

Objectives among Designated Assets,” paragraphs (1) and (2).

Instruments and Exchange Law of Japan that are considered unlikely to

The real estate held by such funds may not include any real estate

result in failure to protect the interests of unitholders, damage fair trans-

located outside of Japan (Articles of Incorporation).

actions or discredit the financial instruments business.

(5) Compliance with Laws and Regulationsc) Transactions for the Benefit of Third Parties (§ 42.2.3)

An asset management company may not undertake transactions in

The Managed Assets of NBF will be managed in compliance with the
Financial Instruments and Exchange Law of Japan and related regula-certain financial instruments, indices or options based on fluctuations in thetions, the rules stipulated by the Investment Trusts Association (asprice, index, value, or amount of consideration related to transactions in theamended), as well as “Investment Objectives and Policies” of the Articles

assets of an investment corporation, without a legally valid reason, with theof Incorporation.

objective of benefiting a third party other than NBF or said investment.

B. Compliance with the Financial
Instruments and Exchange Law and theInvestment Trust Law of Japand) Transactions Harmful to the Interests of NBF (§ 42.2.4)

NBF is subject to restrictions on investment under the Financial

and further, such transactions upon said conditions would be harmful toInstruments and Exchange Law and the investment Trust Law of Japan.

An asset management company may not undertake transactions thatare other than upon normal terms and conditions for such transactions,the interests of the investment.

Main restrictions are as follows.
e) Other Transactions Defined by Cabinet(1) Pursuant to Article 198.1 of the Investment Trust Law of Japan, a

Office Ordinances

In addition to the above, the following activities are prohibited

registered investment corporation must entrust business related toasset management to an asset management company registered as afinancial instrument firm, but an asset management company isprohibited from performing certain acts related to the business of(§42.2.7 of the Financial Instruments and Exchange Law, Cabinet Office
Ordinance §130).
(i)

investment corporation is subject to certain investment restrictions (all(ii)

investment corporation

Instruments and Exchange Law of Japan, except where stated other(iii)a) Internal Transactions (§ 42.2.1)

Transactions between an asset management company and its directors or officers are prohibited except for certain cases specified in Article
128 of the government ordinance regarding the Financial Instruments and28

NBF Report July – December 2015

Transactions for the benefit of third parties that are not necessary
according to investment management policies, the financial condition of

corporation. NBF will naturally comply with such investment restrictions,a general overview of which follows.

Transactions for the benefit of the investment management company
or third parties that would be harmful to the interests of thereferences in parentheses below are to the provisions of the Financialwise) besides restrictions applied to a registered investment

Transactions among the auditors, officers and employees of an asset
management company

managing the assets of said investment corporation. As a result, anassets under management, or market conditions(iv)

Asset management that introduces unfair restrictions or other limitations
from external entities(v)

The sale or purchase of investment securities, or similar transactions,with the objective of unfairly inflating transaction amounts or artificiallyinflating prices

Investment and Distribution Policies(vi)

Transactions between third parties and their agents (excluding specific●when acquired from another investment corporation as the surviving
entity of a merger; or●

when purchasing units pursuant to a government ordinance regarding
the Investment Trust Law of Japan.

transactions to which rights holders have agreed pursuant to advance
explanation of the rationale for the transaction)(vii) When entities as specified below engage in underwriting investment
securities or other transactions, requested tenders or acquisitions ofinvestment securities when the subject investment securities to be

C. Other Restrictionsacquired by or the amount subscribed under the tender agreement by

Subscription and Margin Trading of Securities

the said underwriter differ from the planned amounts(a) foreign entities including corporations for their own account (asPursuant to the guidelines set by its asset management company, NBF
may not subscribe to, or conduct margin trading of, securities.

stipulated by Cabinet Office Ordinance §126.3)(b) entities that hold more than 50/100 of the total amount of investment securities representing underlying managed assets issued in
the two most recent fiscal years, as defined by §2.8.1-3, §2.8.8
and §2.8.9 of the Financial Instruments and Exchange Law (limited
to investment securities that give holders rights in the said managed
assets and such rights)(viii) Other activities prohibited by Cabinet Office Ordinance 130(2) Limitation on Acquisition of the Same Issueof Units (§ 194 of the Investment Trust Law)
An investment corporation may not acquire the same units issued by acorporation in excess of 50/100 of total number of said issued and outstanding units.

(3) Restriction on Acquisition of Own Units andAcceptance of Pledge (§ 80.1 of the Investment
Trust Law)
An investment corporation may not acquire units issued by itself, or
accept them for the purpose of pledge, unless it acquires units issued byitself in the following cases:●

when acquired from another investment corporation as the surviving
entity of a merger;●

when purchasing units pursuant to the provisions of the Investment
Trust Law of Japan; or●when purchasing units pursuant to a government ordinance regarding
the Investment Trust Law of Japan.

(4) Restriction on Acquisition of Parent
Corporation’s Units by Subsidiary Corporation(§ 81.1.2)
An investment corporation (subsidiary), a majority of the units of which
is owned by another investment corporation (parent), may not acquire theunits of such parent investment corporation except in the following cases:

NBF Report July – December 201529

Management’s Discussion and Analysis

6XPPDU\RI6HOHFWHG)LQDQFLDO'DWD
29th Period
from July 1, 2015
to December 31,2015㻌

28th Period
from January 1,
2015 to June 30,
2015

27th Period
from July 1, 2014
to December 31,
2014

29th Period
from July 1, 2015
to December 31,
2015
U.S. dollars in

Yen in millions, except per unit data or where otherwise indicatedthousands except
per unit data (Note1)

Operating revenues

Note 2

Revenues from property leasing¥

34,641¥ 34,593¥ 34,806$288,026

34,641

34,59334,806

288,026

Operating expenses

21,16521,02021,182

175,979

Rental expenses

19,736

19,571

19,749164,10291,280Ordinary income
Net income
Funds from operations
Net operating income from property
leasing activities
Total amount of cash distribution

10,978

10,996

10,847(a)

10,977

10,995

10,846

91,271

Note 318,08818,14018,009150,391

Note 322,01522,16722,220183,045(b)

11,347

10,995

10,846

94,345

Depreciation and amortization

7,111

7,145

7,163

59,122

Capital expenditures

2,839

2,656

2,329

23,606

1,012,708

1,022,386

1,022,952

8,420,288

418,375

428,750

428,125

3,478,631
4,442,404

Total assets(c)Interest-bearing debt
Net assets(d)534,288534,306

534,156

Total number of units issued (Units)(e)1,412,000

1,412,000

1,412,000

Net assets per unit (Yen/$)(d) / (e)378,390

378,403378,297

3,146

Distribution per unit (Yen/$)(b) / (e)

8,036

7,787

7,681

67

Note 312,80912,847

12,754107

Note 3

1.1%

1.1%

1.1%

(2.2%)(2.2%)(2.1%)

2.1%

2.1%

2.0%

(4.1%)(4.1%)(4.1%)

Funds from operations per unit
(Yen/$)
ROA(Annual rate)
ROE

Note 3(Annual rate)
Loan to value (LTV)

Note 3

41.3%

41.9%

41.9%

Capital ratio(d) / (c)

52.8%

52.3%

52.2%

103.3%

99.9%

99.9%
184

Payout ratio(b) / (a),Note 4

Number of days

184

181

Number of investment properties

Note 574

74

73

Number of tenants

Note 5

1,595

1,579

1,568

1,079,164

1,079,185

1,074,771

96.8%

97.9%

97.6%

Total rentable area (m2)Occupancy rate (Average)

Notes:

Note 5

1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥120.27 = U.S. $1.00, the approximate
exchange rate on December 31, 2015.
2. Operating revenues do not include consumption tax.
3. All valuations are calculated through the following formulas. The figures in parentheses after ROA and ROE are
annualized based on the six-month figures for the period.

30

NBF Report July – December 2015

Management’s Discussion and Analysis

Funds from operations: Net income (excluding Gain on sale of investment properties) + Depreciation and amortization
Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation
and amortization
Funds from operations per unit: (Net income (excluding Gain on sale of investment properties) + Depreciation andamortization) / Weighted average number of units issued and outstanding during the period
ROA: Ordinary income / (Initial total assets + Total assets at end of period) ÷ 2
ROE: Net income / (Initial net assets + Net assets at end of period) ÷ 2
LTV: Interest-bearing debt / Total assets
4. Payout ratio figures are calculated to one decimal place only.
5. Number of investment properties means units generally perceived to be one office building. Number of tenants meansgross number of tenants by building. Occupancy rate, end-tenant basis, is the ratio of gross leased area to total rentable areaat the end of the period.



NBF Report July – December 201531

2SHUDWLQJ(QYLURQPHQWDQG5HVXOWVDuring the six months ended December 31, 2015 (the “29th Period”), the Japanese economy continued torecover moderately as evidenced by strong corporate performance and accompanying improvement in theemployment and income environment against the backdrop of government economic policies and the monetary
policies of the Bank of Japan, although some weaknesses such as weaker exports and production affected by theslowdown in the economies of emerging nations including China.
The Japanese economy is expected to continue recovering moderately supported by the ongoing improvement in
the employment and income environment and the effects of various government policies. At the same time, thedeceleration in the economies of emerging nations including China, movement of crude oil prices and reemergenceof debt problems in Europe are among the issues that require our attention while the normalization of U.S.
financial policies progresses.
In the office building leasing market, favorable corporate performance is leading to tenants adding space, andrelocations to new offices are brisk. As a result, the vacancy rate in Tokyo central business districts has continued
to decrease. In addition, asking rents at buildings continue to rise incrementally in Tokyo central business districts
with the tightening of supply and demand.
New supply is expected to increase centering on Tokyo central business districts over the medium term, butvacancy rates are expected to decrease while rents continue to rise moderately driven by continued solid demandfor office space resulting from the improved corporate performance and employment environment.
In the office building transaction market, given the favorable fund procurement environment, the appetite fortransactions is strong among real estate market participants including J-REITs, private equity funds and overseas
investors, backed by rising property prices in anticipation of expected improvement in the office leasing market
over the medium term. Under these circumstances, competition to acquire properties is intensifying, causing afurther decline in expected cap rates and further rise in purchase and sale prices.
Real estate prices are expected to rise because the deal flow among investors in Japan and overseas is forecast to
remain brisk given the continued favorable fund procurement environment.
Under these conditions, NBF is conducting investment activities in accordance with its basic policy of investingin high-quality office buildings that are highly competitive in terms of location, size and facilities, and that are
expected to generate stable cash flows from rents. For properties already in its portfolio, NBF works to expand
revenues from property leasing through systematically conducting property management, renovations and new
construction to further raise tenant satisfaction as well as by setting appropriate rents for new tenants and revising
rents for tenants renewing their lease contracts while keeping abreast of market trends.
NBF’s real estate portfolio as of December 31, 2015 consisted of 74 properties. Total investment on an
acquisition price basis was ¥1,080.3 billion. Total rentable area was 1,079 thousand m2. The average occupancy
rate during the period was 96.8 percent, a 1.1 percentage point decrease from the previous period, and the total
number of tenants was 1,595.

2YHUYLHZRI3HUIRUPDQFHDQG'LVWULEXWLRQAs the result of above-explained operations, NBF's performance results during the reported period consisted ofoperating revenues of ¥34,641million (an increase of ¥48million, or 0.1%, compared to the previous period),
operating income from leasing activities of ¥14,905million (a decrease of ¥118million, or 0.8%, compared to theprevious period), operating income after asset management, custody and agent fees etc. of ¥13,476million (adecrease of ¥97 million, or 0.7% compared to the previous period), ordinary income of ¥10,978million (a decreaseof ¥18million, or 0.2%, compared to the previous period), and net income of ¥10,977million(a decrease of¥18million, or 0.2%, compared to the previous period).
In accordance with the distribution policy prescribed in its Articles of Incorporation, NBF is to make cash
distributions so that the preferential tax measures to investment corporations (Article 67-15 of the Act on Special
32

NBF Report July – December 2015

Management’s Discussion and Analysis

Measures Concerning Taxation) will be applied. In addition, NBF decided to reverse part of the reserve foradvanced depreciation (¥370 million) during the reported period by taking into consideration the temporary impactof a large tenant moving out. Thus, NBF has decided to distribute the entire amount arrived at by adding theamount of reversal of reserve for advanced depreciation to undistributed earnings, excluding fractions of the
distribution per unit that are less than ¥1. As a result, the distribution per unit was ¥8,036.



NBF Report July – December 201533

Management’s Discussion and Analysis
1. Distribution for the Current Period
NBF decided to reverse part of the reserve for advanced depreciation (¥370,000 thousands) during thereported period by taking into consideration the temporary impact of a large tenant moving out. Thus, NBF has
decided to distribute the entire amount arrived at by adding the amount of reversal of reserve for advanced
depreciation to undistributed earnings, excluding fractions of the distribution per unit that are less than ¥1. As aresult, the distribution per unit for the current period was ¥8,036. NBF expects to distribute almost all retained
earnings at the current period end to be eligible for special tax treatment (Special Taxation Measures Law ofJapan Article 67-15) that allows NBF to deduct its cash dividends of profits from taxable income.

For the six months
ended December 31,
2015

For the six months
ended June 30,
2015

For the six months
ended December 31,
2014(Yen in thousands, except per unit amounts)
Retained earnings
Undistributed earnings
Reversal of reserve for advanced depreciation
Total cash distribution
䠄Cash distribution per unit䠅
Distribution of accumulated earnings
䠄Distribution of accumulated earnings per unit䠅
Cash distribution in excess of accumulated earnings
䠄Per unit䠅

¥10,977,737
905
370,000
11,346,832
8,036
11,346,832
8,036
—
—

¥10,995,810
566—
10,995,244
7,787
10,995,244
7,787
—
—

¥10,846,081
509—
10,845,572
7,681
10,845,572
7,681
—
—

Notes:
1. Above cash distributions were paid after the period end.

2. Changes in Assets, Liabilities and Net Assets
Assets
As of December 31, 2015, total assets decreased by ¥9,677 million to ¥1,012,708 million compared with
June 30, 2015. Return on average total assets (ROA) for the six months ended December 31, 2015 was 1.08
percent same as for the previous six-month period.
Current assets decreased by ¥5,538 million to ¥14,902 million compared with June 30, 2015. Investment
properties decreased by ¥4,274 million to ¥990,699 million compared with June 30, 2015.

Liabilities
Current liabilities decreased by ¥16,890 million to ¥74,794 million compared with June 30, 2015, primarily
because of a decrease in long-term debt due within one year compared with June 30, 2015.

34

NBF Report July – December 2015

Management’s Discussion and Analysis

Long-term debt increased by ¥6,625 million to ¥355,625 million compared with June 30, 2015.
As a result, total interest-bearing liabilities decreased by ¥10,375 million to ¥418,375 million compared with
June 30, 2015. The ratio of long-term debt (for which the redemption period at the time of contract or issuance ismore than one year) to total interest-bearing liabilities decreased 97.1 percent as of December 31, 2015 from
98.4 percent as of June 30, 2015.
The loan-to-value ratio, calculated as the ratio of interest-bearing liabilities to total assets, decreased 41.3
percent as of December 31, 2015 from 41.9 percent as of June 30, 2015.

In addition, NBF worked to diversify funding sources. In January 2015, NBF updated a shelf registration to
publicly offer up to ¥200 billion in bonds, as a shelf registration that NBF updated in January 2013 has expired.
Net assets
Net assets decreased by ¥18 million to ¥534,288 million compared with June 30, 2015.

3. Funding
Balance of Paid-in Capital
NBF was established on March 16, 2001 with initial paid-in capital of ¥100 million. NBF began investing
activities in May 2001 after ¥98,800 million was raised through private placements. As of December 31, 2015,
NBF had issued 1,412,000 units out of 4,000,000 total authorized units. NBF’s units were listed on the J-REIT
section of the Tokyo Stock Exchange in September 2001 upon the completion of a public offering. As theInvestment Trust Law of Japan does not contain any provision for the issue of more than one class of units,
NBF’s units comprise the sole class of units authorized and issued by NBF.

Issue date

March 16, 2001
May 23, 2001
September 8, 2001
July 14, 2004
August 11, 2004
August 10, 2005
March 16, 2006
March 29, 2006
February 4, 2008
March 4, 2008

Remarks

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

Units issued andoutstanding
Increase
Balance(units)200

200

197,600

197,800

82,90080,000Paid-in capital

Notes

Increase
Balance(Yen in millions)
¥

100

¥

100

Note 1

98,80098,900Note 2

280,700
360,700

49,99958,838148,899
207,737

Note 3Note 44,000
58,00080,0005,300

364,700
422,700
502,700
508,000

2,942
51,491
79,0405,236

210,679
262,170
341,210
346,446

Note 5Note 6Note 7Note 831,800539,800

37,159383,605

Note 92,200

542,000

2,571

386,176

Note 10NBF Report July – December 201535

January 26, 2011
February 22, 2011
January 25, 2012
February 21, 2012
January 23, 2013
January 31, 2013
January 1, 2014
March 19, 2014
March 28, 2014

Public offering
Third party
allocation
Public offering
Third party
allocation
Public offering
Third party
allocation
Unit split
Public offering
Third party
allocation

34,000576,000

26,957413,133

Note 112,500

578,500

1,982

415,115

Note 1230,000608,500

18,172433,287

Note 134,500

613,000

2,726

436,013

Note 1474,000687,000

63,973499,986

Note 155,000

692,000

4,323

504,309

Note 16

692,000
26,5001,384,000
1,410,500

䇷
14,022504,309518,331

Note 17
Note 18

1,500

1,412,000

794

519,125

Note 19

Notes: 1. NBF was established with initial capital of ¥500,000 per unit.
2. Follow-on private offering at ¥500,000 per unit to raise funds for acquisition of 22 properties.
3. Public offering of new units for ¥625,000 per unit (excluding underwriting fee: ¥603,125) to repay debt and to fundproperty acquisition.
4. Public offering of new units for ¥759,500 per unit (excluding underwriting fee: ¥735,475) to repay debt, etc.
5. Additional issue of new units (third party allocation) for ¥735,475 per unit undertaken pursuant to the public offering in
Note 4.
6. Public offering of new units for ¥916,300 per unit (excluding underwriting fee: ¥887,782) to repay debt and to fundproperty acquisition.
7. Public offering of new units for ¥1,019,200 per unit (excluding underwriting fee: ¥988,000) to repay debt and to fundproperty acquisition.
8. Additional issue of new units (third party allocation) for ¥988,000 per unit undertaken pursuant to the public offering in
Note 7.
9. Public offering of new units for ¥1,205,400 per unit (excluding underwriting fee: ¥1,168,500) to repay debt and to fundproperty acquisition.
10. Additional issue of new units (third party allocation) for ¥1,168,500 per unit undertaken pursuant to the public offering in
Note 9.
11. Public offering of new units for ¥818,025 per unit (excluding underwriting fee: ¥792,855) to repay debt and to fundproperty acquisition.
12. Additional issue of new units (third party allocation) for ¥792,855 per unit undertaken pursuant to the public offering in
Note 11.
13. Public offering of new units for ¥624,975 per unit (excluding underwriting fee: ¥605,745) to repay debt and to fundproperty acquisition.
14. Additional issue of new units (third party allocation) for ¥605,745 per unit undertaken pursuant to the public offering in
Note 13.
15. Public offering of new units for ¥891,800 per unit (excluding underwriting fee: ¥864,500) to repay debt and to fundproperty acquisition.
16. Additional issue of new units (third party allocation) for ¥864,500 per unit undertaken pursuant to the public offering in
Note 15.
17䠊Effective January 1, 2014, NBF implemented a 2-for-1 unit split of its investment units.
18䠊Public offering of new units for ¥545,860 per unit (excluding underwriting fee: ¥529,150) to repay debt and to fundproperty acquisition.
19䠊Additional issue of new units (third party allocation) for ¥529,150 per unit undertaken pursuant to the public offering in
Note 18.

36

NBF Report July – December 2015

Management’s Discussion and Analysis

Market Price of Units
High/Low (closing price) of units on the TSE: 㻌
For the six months ended
December 31, 2015


High
Low

For the six months ended
June 30, 2015For the six months ended
December 31, 2014

<HQ 
¥640,000
536,000¥589,000
491,000¥622,000
546,000

Borrowings
Borrowings from financial institutions as of December 31, 2015 are shown below.㻌

Short-term loansAverage

LenderBalanceinterest
rate (%)

Due on(Note1)

Repayment
methodUse of
funds

Notes

Bulletpayment(Note 4)

Unsecured/unguaranteed/pari passu,
See (Note 5)

Repayment
methodUse of
funds

Notes

(Yen in millions)
Sumitomo Mitsui Trust Bank, Limited¥7,0000.2% January 8, 2016

Shinsei Bank, Limited

3,000

0.2% January 8, 2016

Resona Bank, Limited.

1,000

0.2% January 8, 2016

1,000

0.1% January 8, 2016

The Yamanashi Chuo Bank, Ltd.
Total short-term loans¥12,000

Long-term loans
Average

LenderDevelopment Bank of Japan Inc.

Mitsubishi UFJ Trust and Banking Corporation

Balance(Yen in millions)
10,00010,00010,000
3,375
7,000
10,00013,0007,000
15,00015,00010,0005,000
3,000

Sumitomo Mitsui Trust Bank, Limited

Mizuho Bank, Ltd.

Sumitomo Mitsui Banking Corporation

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

10,00010,000
5,000
5,000
3,000
6,000
7,000
2,000
10,0008,000
4,000
10,000
5,000
6,000
1,000
4,000
5,000

interest
rate (%)

Due on(Note 1)

1.8% September 27, 20172.0% February 15, 2016
2.4% May 30, 2018
2.2% April 28, 20192.2% August 30, 20191.3% July 2, 2023
0.7% September 10, 2027
1.5% March 4, 2016
1.1% March 1, 2019
0.8% July 31, 2020
0.7% February 26, 2021
1.0% June 30, 2021
0.1%
(Note 6)

July 31, 2019

䠄Note 2䠅䠄Note 3䠅Bulletpayment(Note 4)

Unsecured/unguaranteed/pari passu,
See (Note 5)

1.2% June 1, 2018
1.1% December 30, 20191.2% March 5, 2021
0.2% January 25,2019
0.2% January 27,2020
0.2% September 11,2019
1.2% November 30, 2018
0.7% February 7, 20170.9% February 28, 2022
1.1% July 29, 2022
1.1% December 30, 2022
1.0% February 28, 2023
1.0% April 28, 2023
0.5% April 28, 2020
0.3% June 30, 20171.0% June 1, 20170.8% July 2, 2019
NBF Report July – December 201537

Sumitomo Life Insurance Company

Mizuho Trust & Banking Co., Ltd.
MITSUI LIFE INSURANCE COMPANY
LIMITED

Zenkyoren (National Mutual Insurance
Federation of Agricultural Cooperatives)
THE BANK OF FUKUOKA, Ltd.

Nippon Life Insurance Company
Shinkin Central Bank
The Norinchukin BankThe Chugoku Bank, Limited
The Daishi Bank, Ltd.
Resona Bank, Limited.
TAIYO LIFE INSURANCE COMPANYDAIDO LIFE INSURANCE COMPANY

The Hachijuni Bank, Ltd.
The Iyo Bank, LTD.

10,000
7,000
5,000
7,000
3,000
5,000
5,000
10,000
4,000
2,000
2,000
2,000
2,000
2,000
2,000

0.6% February 28, 2020
1.0% May 29, 2020
1.9% May 23, 2016
2.1% May 23, 2018
1.8% February 3, 2016
1.0% July 19, 20170.5% July 16, 2021
1.0% February 28, 2023
0.9% September 30, 2022
1.1% February 13, 2020
0.9% March 29, 20191.2% March 30, 2021
1.0% November 1, 2022
1.5% May 30, 2025
1.0% December 13, 2023

10,0002.3% May 30, 2016

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

1.0% June 1, 2017
0.6% June 30, 20170.5% July 12, 20170.5% June 30, 2023
1.3% October 19, 2018
1.3% May 31, 2019
0.9% September 30, 2022
1.0% June 1, 20170.7% December 30, 2016
0.7% September 30, 2020
1.0% February 25, 2016
1.0% May 29, 2020
0.6% May 28, 2021
0.7% March 3, 2017
0.6% June 30, 20170.5% April 27, 2018
1.0% June 1, 20171.0% March 8, 2019
1.0% July 2, 2021
1.0% May 29, 2020
0.5% July 9, 2021
0.9% March 29, 2019
0.7% October 2, 2020
0.5% June 30,2022
0.4% September 11,2023
0.6% December 2, 2020
0.5% June 26, 2020
0.6% April 30, 2021
0.1%

1,000
1,000
The Yamaguchi Bank, Ltd.
Meiji Yasuda Life Insurance Company
The Joyo Bank, Ltd.
The 77 Bank, Ltd.
The Gunma Bank, Ltd.
Shinsei Bank, Limited
The Hiroshima Bank, Ltd.
Total long-term loans
Total borrowings (Note 7)

1,000
1,000
1,000
3,000
1,000
1,000
2,000
1,000
1,000
1,000

(Note 6)0.2%
(Note 6)

Bulletpayment(Note 4)January 27,2022
June 30,2025

0.9% January 4, 20171.1% May 1, 20191.1% September 4, 2020
1.3% April 27, 2022
0.7% March 3, 2017
0.6% March 27, 2020
0.1%
(Note 6)

June 30,2023

0.7% May 31, 2018
1.5% May 30, 2025
0.1%
(Note 6)

January 27,2021¥366,375¥378,375

Notes:
1. With respect to the date of repayment in case of more than one short-term loan from the same lender, the earliest date of
repayment for all such loans coming due is given.
2. Scheduled for repayment of ¥125 million at six-month intervals and ¥2,625 million at the final maturity date.

38

NBF Report July – December 2015

Unsecured/unguaranteed/pari passu,
See (Note 5)

Management’s Discussion and Analysis

3.㻌 Scheduled for repayment of ¥250 million at six-month intervals and ¥5,250 million at the final maturity date.
4. Use of funds for the above includes acquisition of real estate or beneficiary interests, repayment of borrowings and working
capital, etc.
5. A special agreement attached to “Loan Agreement” entered into between NBF and each financial institution provides that theabove borrowings from all financial institutions rank pari passu to each other.
6. This loan is a floating rate loan. Other long-term loans are all fixed rate loans.
7. The total amount of long-term loans (i.e. excluding those expected to be repaid within one year) repayable within 5 years of thedate of the balance sheet and expected to be repaid by specific year(s) is as follows.

1 to 2 years

2 to 3 years(Yen in millions)
3 to 4 years
4 to 5 years¥40,750¥38,750¥61,125¥56,000

Issue date

Balance as ofDecember 31,
2015(Yen in millions)

CouponNo. 3 Unsecured Bonds

June 12, 2003

¥10,000

No. 10 Unsecured Bonds

May 24, 2007

No. 12 Unsecured Bonds
No. 13 Unsecured Bonds

Long-term loans

NBF Bonds

Redemption

Use ofproceeds

2.00% June 12, 2018

Bullet payment

Note 1

10,0002.04% May 24, 2017

Bullet payment

Note 1

September 15, 2011

10,0000.64%

September 15,
2016

Bullet payment

Note 1Notes
3 and 5June 26, 2013

10,0001.17% June 26, 2023

Bullet payment

Note 1Notes
3 and 5

Issue

Total㻌 (Note 6)

Maturity
date

Notes
Notes
2 and 4Notes
3 and 5¥40,000

Notes:
1. Use of funds includes acquisition of real estate, repayment of borrowings and investment corporation bonds, etc.
2. These bonds are only issued to qualified institutional investors.
3. Rank pari passu with all other publicly and privately issued bonds.
4. Subject to provision of collateral and financial restrictions pursuant to material decline in credit rating.
5. Subject to provision of collateral restrictions.
6. The total amount of bonds repayable within 5 years of the date of the balance sheet and expected to be repaid by specific year(s)is as follows.


Investment
corporation bonds













(Yen in millions)

Within 1 year

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥10,000¥10,000¥10,000̿̿Others
NBF has security deposits totaling ¥47,929 million as of December 31, 2015.

䕔 Capital Expenditures
1. Planning
As of December 31, 2015, NBF is planning the following capital expenditures for the renovation of its

NBF Report July – December 201539

properties. The amounts below include repairs and maintenance costs that will be expensed as incurred.
Moreover, in addition to a steady program of expenditures for construction, repair and renovation of facilities, a
program of renewal construction is being implemented in order to increase competitive power in the market aswell as to increase the level of tenant satisfaction based on the results of tenant satisfaction surveys andneighboring competitive building specification surveys, etc.
Estimated amounts
Name of property

Objective

Estimated
duration

Totalamounts

Payment for thecurrent period(from July 1, 2015 to
December 31, 2015)

Cumulative
amount paid

(Yen in millions)
Tsukuba Mitsui Bldg.
Yokohama ST Bldg.
Tsukuba Mitsui Bldg.
Aqua Dojima NBF Tower
NBF Shin-Urayasu Tower
Shiba NBF Tower
Yokohama ST Bldg.
NBF Ikebukuro East
Chofu South Gate Bldg.

Gate City Ohsaki
Nakanoshima Central
Tower

Renovation of air
conditioningձ
Renovation of air
conditioningձ
Renovation of air
conditioningղ
Renovation of air
conditioning
Renovation of hot andchilled water
generator
Renovation of air
conditioning
Renovation of air
conditioningղ
Renovation of air
conditioning
Renovation of
emergency power
generators
Attachment ofemergency power
generators
Renovation of
emergency power
generators for oil tank

NBF Atsugi Bldg.

Renovation of exterior

Aqua Dojima East

Renovation of air
conditioning

From January 2016
to June 2016
From January 2016
to June 2016
From July 2016
to December 2016
From January 2016
to June 2016
From July 2016
to December 2016

271

䠉

䠉

265

䠉

䠉

259

䠉

䠉

232

䠉

䠉

162

䠉

䠉

From July 2016
to December 2016
From July 2016
to December 2016
From July 2015
to March 2016

154

䠉

䠉

138

䠉

䠉

123

䠉

䠉

From July 2016
to December 2016

122

䠉

䠉

From July 2015
to March 2016

118

䠉

䠉

From June 2016
to December 2016

102

䠉

䠉

34

䠉

䠉

21

䠉

䠉

From July 2016
to October 2016
From August 2016
to December 2016

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NBF posted ¥2,839 million incapital expenditures together with ¥713 million for repairs and maintenance expenses.

40

NBF Report July – December 2015

Management’s Discussion and Analysis

Name of property

Objective

PeriodExpenditure(Yen in millions)

NBF Shinkawa Bldg.

Renovation of emergency power
generators(West Building), renovation of air
conditioning (East Building), renovation of
air conditioning (West Building), etc.

¥694

Tsukuba Mitsui Bldg.

Renovation of air conditioning, leasehold
improvement, renovation of gondola, etc.

320

NBF Ikebukuro East

Renovation of air conditioning, leasehold
improvement, business continuity planningcountermeasure work, etc.

280

Aqua Dojima NBF Tower

Renovation of air conditioning, constructionof partition wall, leasehold improvement,
etc.

222

NBF Shin-Urayasu Tower

Renovation of hot and chilled water
generator, renovation of common use
department lighting equipment, leasehold
improvement, etc.

Yokohama ST Bldg.

Renovation of air conditioning, business
continuity planning countermeasure work,
renovation of security camera, etc.

125

Aqua Dojima East

Renovation of air conditioning, renovation of
shutter switch, renovation of sprinkler, etc.

21

Other buildings

Asset preservation construction and otherrenewal construction to improve tenantsatisfaction, etc.

From July 2015
to December 2015
154

1,023

Total

¥2,839‫ ڦ‬Expenses regarding Entrustment, etc.
The following table sets forth the breakdown of entrustment fees, etc. paid by NBF.
For the six months
ended December 31,
2015

Item
Asset management fees
Asset custody fees
Agent fees (stock transfer, accounting
and administrative)
Directors’ remuneration
Auditor’s fees
Other expenses
Total

For the six months
ended June 30,
2015

For the six months
ended December 31,
2014¥1,206
49(Yen in millions)¥1,20549¥1,206
50

48
13
14
98
¥1,428

53
13
14
115
¥1,449

49
13
14
101
¥1,433

NBF Report July – December 201541

䕔 Trading Activities during the Current Period
1. Trading of Real Estate and Real Estate Held in TrustNone.

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

3. Transactions with Related Parties of Asset Management Company(1) Ongoing Transactions
None. (No purchases, or sales or other transactions involving related parties.)(2)㻌 Fees Paid for the Period from July 1, 2015 to December 31, 2015
Description of transactions with related parties (Note 1)

Category

Total fees paid
(A)

Paid to(Yen in millions)

Office management fees,
etc.

1,452

(Note 2)

Property maintenance fees

Leasing related service fees

3,693

128

Mitsui Fudosan Co., Ltd.
NBF Office Management Co., Ltd.
Mitsui Fudosan Facilities Co., Ltd.
Mitsui Fudosan Co., Ltd.
Mitsui Fudosan Building Management Co.,Ltd.
First Facilities West Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
Mitsui Fudosan Co., Ltd.
NBF Office Management Co., Ltd.
Mitsui Fudosan Realty Co., Ltd.

Amount ofpayment (B)(Yen in millions)

B/A

1,414

97.4%

38
593
472

2.6%
16.0%
12.8%

248

6.7%

220
3

6.0%
0.1%

89
12
1

69.6%
9.1%
1.1%

Notes:
1. “Related parties” are defined as related parties of asset management companies under asset management agreementwith NBF as defined in Article 123 of Order for Enforcement of the Law Concerning Investment Trusts andInvestment Corporations, and Article 26, Section 27 of the Regulations regarding management report of the Investment
trusts and Investment corporations set by the Investment Trusts Association, Japan. During the period from July 1,2015 to December 31, 2015, transactions with and fees paid to, Mitsui Fudosan Co., Ltd., NBF Office Management
Co., Ltd., Mitsui Fudosan Facilities Co., Ltd., Mitsui Fudosan Building Management Co., Ltd., First Facilities West
Co., Ltd., Mitsui Fudosan Housing Lease Co., Ltd. and Mitsui Fudosan Realty Co., Ltd.which meet either of the said
definitions, are as described above.
2. In terms of properties for which NBF has not entrusted office management businesses to Mitsui Fudosan Co., Ltd. due
to its master leasing (12 properties: Gate City Ohsaki, Nishi-Shinjuku Mitsui Bldg., Toranomon Kotohira Tower,

42

NBF Report July – December 2015

Management’s Discussion and Analysis

Nakameguro GT Tower, Celestine Shiba Mitsui Bldg., Yotsuya Medical Bldg., Higashi Gotanda Square, PanasonicTokyo Shiodome Bldg., NBF Ogawamachi Bldg., Shin-Kawasaki Mitsui Bldg., Parale Mitsui Bldg. and Shinanobashi
Mitsui Bldg.), NBF has entrusted them to NBF Office Management Co., Ltd. as business representative of the property
owners or lessors.
3. In addition to the above fees paid, the following have been paid to related parties for repair and maintenance work, etc.

㻌

(Yen in millions)

Mitsui Fudosan Building Management Co., Ltd¥486

Mitsui Fudosan Facilities Co., Ltd.

352

Mitsui Fudosan Co., Ltd.

345

First Facilities West Co., Ltd.

316

Mitsui Fudosan Housing Lease Co., Ltd.

8

Harajuku-no-mori Co.,Ltd.

4

Mitsui Fudosan Realty Co., Ltd.

0

MITSUI Designtec Co.,Ltd.

0

Mitsui Home Linkage Co.,Ltd.

0

NBF Report July – December 201543

Financial Statements

NIPPON BUILDING FUND INC.
BALANCE SHEETSAs of December 31, 2015 and June 30, 2015

As ofDecember 31, 2015㻌㻌

㻌
AssetsCurrent Assets:
Cash and cash equivalents㸦Note 3㸧
Tenant receivables
Prepaid expenses
Other current assets
Total current assets
Investment Properties:
Land including trust accounts㸦Notes 4,12㸧
Buildings and improvements including trust accounts㸦Notes 4,12㸧
Other tangible assets㸦Notes 4,12㸧
Less: accumulated depreciation㸦Notes 4,12㸧
Leasehold rights in trust accounts and other intangible assets㸦Note 12㸧
Total investment properties, net
Long-term prepaid expenses
Other Assets
Total Assets
Liabilities㻌
Current Liabilities:
Short-term loans㸦Notes 3,6㸧Long-term debt due within one year㸦Notes 3,6㸧Accounts payable
Rents received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term Debt㸦Notes 3,6㸧㻌
Tenant Security Deposits Including Trust Accounts㸦Note 3㸧
Other Liabilities
Total Liabilities
Net Assets㸦Note 5㸧㻌
Unitholders' Equity
Unitholders' capital
Units authorized: 4,000,000 units
Units issued and outstanding: 1,412,000 units
Retained earnings
Total Net Assets㻌
Total Liabilities and Net Assets㻌
The accompanying notes to financial statements are an integral part of these statements.

44

NBF Report July – December 2015

As ofJune 30, 2015

(Yen in millions)¥ 14,006
329
473
94
14,902¥ 19,500
413
434
93
20,440666,723
408,293
12,934(133,144)
35,893
990,699
38
7,069

666,717405,631
12,879(126,145)
35,891
994,97342
6,931¥1,012,708¥1,022,386¥ 12,000
50,750
5,488
4,815
1,741
74,794355,625
47,92972
478,420¥ 7,000
72,750
5,059
4,569
2,306
91,684
349,000
47,322
74
488,080

519,125

519,125

15,163534,288

15,181
534,306¥1,012,708¥1,022,386

NIPPON BUILDING FUND INC.
STATEMENTS OF INCOME
For the six months ended December 31, 2015, June 30, 2015 and December 31, 2014㻌㻌

For the six months
ended December
31, 2015㻌Operating Revenues and Expenses㻌

For the six months
ended June30, 2015㻌

For the six months
ended December
31, 2014㻌

(Yen in millions)Operating Revenues:㻌㻌㻌

Rental㸦Note 7㸧㻌

¥31,269¥31,396¥31,457

3,372

3,197

3,349

34,641

34,59334,806

Property management fees㸦Note 7㸧㻌

5,096

5,008

5,024

Real estate taxes㸦Note 7㸧㻌

3,341

3,365

3,231

Repairs and maintenance㸦Note 7㸧㻌

713

626

571

Insurance㸦Note 7㸧

40

39

40

Other rental expenses㸦Note 7㸧㻌

3,436

3,388

3,720

Depreciation and amortization㸦Note 7㸧㻌

7,111

7,145

7,163

Asset management fees㻌

1,206

1,205

1,206

Other operating expenses㻌

222

244

227

Total Operating Expenses㻌

21,16521,02021,182

Operating Income㻌

13,476

13,573

13,62422

4(2,452)(2,535)(2,726)

Amortization of bond issuance costs㻌

(8)

(8)

(14)

Other non-operating expenses, net

(40)

(36)

(41)

Ordinary Income

10,978

10,996

10,847

Income before Income Taxes㻌

10,978

10,996

10,847

Other revenues related to property leasing㸦Note 7㸧
Total Operating Revenues㻌㻌Operating Expenses:㻌

Non-Operating Revenues and Expenses
Non-Operating Revenues:
Interest income㻌
Non-Operating Expenses:
Interest expense㻌

Current and deferred income taxes㸦Note 8㸧㻌
Net Income㻌(1)¥

10,977(1)¥

10,995(1)¥

10,846

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

NBF Report July – December 2015

45

NIPPON BUILDING FUND INC.
STATEMENTS OF CHANGES IN NET ASSETSFor the six months ended December 31, 2015, June 30, 2015 and December 31, 2014㻌㻌㻌Balance as of June 30, 2014

㻌

(Yen in millions)Total. . . . . . . . . . . . . . . . . . . . 1,412,000¥ 519,125¥ 15,696¥ 534,821

Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . .

——(11,511)(11,511)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

——10,846

10,846

Balance as of December 31, 2014 . . . . . . . . . . . . . . . . . . . . 1,412,000

519,125

15,031

534,156

Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . .

——(10,845)(10,845)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

——10,995

10,995. . . . . . . . . . . . . . . . . . . . 1,412,000

519,125

15,181

534,306

Balance as of June 30, 2015

Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . .

——(10,995)(10,995)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

——10,977

10,977

Balance as of December 31, 2015 . . . . . . . . . . . . . . . . . . . . 1,412,000¥519,125¥15,163¥534,288

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

46

Retained
Earnings

Number of Unitholders’Units
Capital㻌

NBF Report July – December 2015

Financial Statements

NIPPON BUILDING FUND INC.㻌㻌
STATEMENTS OF CASH FLOWSFor the six months ended December 31, 2015, June 30, 2015 and December 31, 2014㻌

㻌
Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Amortization of bond issuance costs
Interest expense(Increase) Decrease in tenant receivables
Increase (Decrease) in accounts payable
Increase (Decrease) in rents received in advanceCash payments of interest expense(Increase) Decrease in consumption tax refund
receivable
Others, net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases of investment properties
Payments for purchases of intangible assets
Proceeds from tenant security deposits
Payments for tenant security deposits
Payments for security deposits paid to lessors
Others, net
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Net proceeds from repayment of short-term loans
Proceeds from long-term debt
Repayment of long-term debt
Payment of dividends
Net Cash Used in Financing Activities
Net Change in Cash and Cash Equivalents
Cash and Cash Equivalents at the Beginning of Period
Cash and Cash Equivalents at the End of Period

For the six
months ended
December 31,
2015

For the six
months ended
June 30,
2015

For the six
months ended
December 31,
2014(Yen in millions)¥ 10,978
7,111
8
2,452
84
462
246
(2,648)¥ 10,996
7,145
8
2,535
(47)
(1,081)(60)(2,519)¥ 10,847
7,163
14
2,726
31
2,031
119
(2,899)̿(396)
18,297

̿(794)
16,183140
1,079
21,251(2,787)(17)
1,755(1,148)(43)(182)(2,422)(8,318)(44)
1,935(1,306)(2)(165)(7,900)(2,435)(97)
2,178(1,723)(6)(179)(2,262)

5,000
20,000(35,375)(10,994)(21,369)(5,494)
19,500¥ 14,006

䇷
16,000(15,375)(10,847)(10,222)(1,939)21,439¥ 19,500(9,000)10,000(21,375)(11,509)(31,884)(12,895)
34,334¥ 21,439

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











NBF Report July – December 201547

Notes to Financial Statements

Notes To Financial Statements
For the six months ended December 31, 2015, June 30, 2015 and December 31, 2014㻌
Note 1 – Organization and Basis of Presentation㻌
Organization
Nippon Building Fund Inc. (hereinafter "NBF") was formed on March 16, 2001 as an investment corporation
under the Law Concerning Investment Trusts and Investment Corporations of Japan (hereinafter the Investment
Trust Law of Japan) with Mitsui Fudosan Co., Ltd., Sumitomo Mitsui Trust Bank, Limited., and Nippon
Building Fund Management Ltd. (hereinafter "NBFM") acting as sponsors. Registration with the Kanto Local
Finance Bureau of the Ministry of Finance was completed on May 10, 2001 and NBF started acquisition of
office properties on May 23, 2001.
NBF is an externally managed real estate fund, formed as an investment corporation. NBFM, as NBF’s asset
management company, is engaged in acquiring, managing, leasing, and renovating office properties. Mitsui
Fudosan Co., Ltd. currently owns 43% of NBFM while Sumitomo Life Insurance Company owns 35% and theremaining 22% is mainly owned by financial institutions.㻌
On September 10, 2001, NBF had raised approximately ¥50,000 million through an initial public offering ofunits. Those units are listed on the J-REIT section of the Tokyo Stock Exchange.㻌
As of December 31, 2015, NBF had ownership or beneficiary interests in 74 office properties containing
approximately 1,079,164 square meters of rentable office space. As of December 31, 2015, NBF had leased
office space to 1,199 tenants engaged in a variety of businesses. The occupancy rate for the office properties wasapproximately 97.8%.

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

Note 2 – Summary of Significant Accounting Policies

㻌Cash and Cash Equivalents
NBF considers all highly liquid investments with original maturity of three months or less to be cash and cash
equivalents.
㻌

Investment Properties㻌
Investment properties are recorded at cost, which includes the allocated purchase price, related costs andexpenses for acquisition of the office properties and the beneficiary interests of properties in trust. Property andequipment balances are depreciated using the straight-line method over the estimated useful lives.Theestimated48

NBF Report July – December 2015

useful lives of the principal tangible fixed assets (including assets held in trust) are as follows:
Buildings and improvements including trust accounts
Buildings and improvements
2-50 years
Other tangible assets
Structures
2-50 years
Machinery and equipment
2-17 years
Tools, furniture and fixtures
2-19 years
Costs related to the renovation, construction and improvement of properties are capitalized. Expenditures forrepairs and maintenance which do not add to the value or prolong the useful life of a property, are expensed
when incurred.
㻌

Investment Corporation Bond Issuance Costs
Deferred investment corporation bond issuance costs are amortized using the straight-line method over therespective terms of the bonds. 㻌Income Taxes
Income taxes are accounted for on the basis of income for financial statement purposes. The tax effect of
temporary differences between the amounts of assets and liabilities for financial statements and for income tax
purposes is recognized as deferred taxes.

Real Estate Taxes Real estate taxes are imposed on properties on a calendar year basis and expensed when incurred. In terms of
newly purchased properties, NBF capitalizes a portion of the real estate taxes that relate to a period from thepurchase date of each property until the end of the calendar year as part of the acquisition cost of the relevant
property.No capitalized real estate taxes were incurred for the period ended December 31, 2015 and December
31, 2014. Capitalized real estate taxes amounted to ¥14 million for the period ended June 30, 2015.

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

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

NBF Report July – December 201549

Note 3 – Financial Instruments
Status of Financial Instruments
Policy for Financial Instruments
NBF procures funds for acquisition of assets and repayment of debt, which includes repayment of tenantsecurity deposits, loans and investment corporation bonds, through issuance of new investment units, bank loans
and issuance of investment corporation bonds, with the aim of ensuring steady asset growth and stable earnings
from a mid- and long-term angle.
As a general rule NBF invests surplus funds in deposits considering safety of the investments.
NBF may enter into derivative transactions solely for the purpose of reducing interest rate risks and otherrisks arising from liabilities. NBF does not engage in speculative transactions. Currently NBF is not engaged inany derivative transactions.
Financial Instruments, Their Risks and Risk Management System
Deposits are used for investment of NBF’s surplus funds. These deposits are exposed to credit risks such as
bankruptcy of the depository financial institutions. NBF limits credit risk by using only short-term deposits infinancial institutions with high credit ratings.
Proceeds from loans and investment corporation bonds are used mainly to acquire real estate properties andrepay outstanding loans and bonds. While these loans and bonds are exposed to liquidity risk, such risk ismanaged in the following ways such as diversifying the means of funding and lending institutions, dispersing
repayment dates, establishing committed credit line,keeping sufficient liquidity in hand, and monitoring cash
flows projected monthly.
Floating rate loans are exposed to interest-rate fluctuation. NBF limits the impact of such risks by maintaining
the ratio of interest-bearing liabilities to total assets low and the level of long-term fixed-rate debt high.
Tenant security deposits are exposed to liquidity risk arising from vacating of properties by tenants due to thetermination of contract. NBF manages this risk by monitoring forecasted cash flows on a monthly basis toensure it has sufficient funds.
Supplemental Explanation regarding Fair Values of Financial Instruments
The fair value of financial instruments is based on their observable market value, if available. When there isno observable market value available, fair value is based on a price that is reasonably estimated. Since various
factors are reflected in estimating the fair value, different assumptions and factors could result in a different
value.

Estimated Fair Value of Financial Instruments
Book value, fair value and difference between the two as of December 31, 2015 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from thefollowing table (See Note 2. below).
(Yen in millions)


(1)

(1)
(2)
(3)

50


AssetsCash and cash equivalents
Total
Liabilities
Short-term loans
Long-term debt due within
one yearLong-term debt
Total

NBF Report July – December 2015

Book value

Fair value

Difference¥ 14,006¥ 14,006¥ 14,006¥ 14,006¥¥

㸫㸫¥ 12,000¥ 12,000¥㸫

50,750355,625¥418,375

50,958367,136¥430,094

208
11,511¥11,719

Notes to Financial Statements

Notes:
1. Methods to Estimate Fair Value of Financial Instruments
Assets:(1) Cash and cash equivalents
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate
fair values because these instruments are settled within a short term period.
Liabilities:(1) Short-term loans
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate
fair values because these instruments are settled within a short term period.
(2) Long-term debt due within one year Long-term debt due within one year which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)


(1)
(2)


Investment corporation bonds
Long-term loans
Total

Book value¥10,000
40,750¥50,750

Fair value¥10,025
40,933¥50,958

Difference
¥ 25
183
¥208

(1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is noobservable market value available, fair values are calculated based on the present value of principal and interest cash
flows discounted at the current interest rate that is estimated by taking into consideration the remaining term of theinvestment corporation bonds and their credit risk.
(2) Long-term loans
Fair values of floating rate long-term loans are based on the book values because the market interest rates arereflected within a short term periodand the book values are considered to approximate fair values. Fair values of fixed
rate long-term loans are based on the present value of principal and interest cash flows discounted at the current interest
rate estimated to be applied if similar new loans were entered into.
(3) Long-term debt
Long-term debt which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)


(1)
(2)


Investment corporation bonds
Long-term loans
Total

Book value¥ 30,000
325,625¥355,625

Fair value¥ 31,163
335,973¥367,136

Difference¥ 1,163
10,348¥11,511(1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is noobservable market value available, fair values are calculated based on the present value of principal and interest cash
flows discounted at the current interest rate that is estimated by taking into consideration the remaining term of theinvestment corporation bonds and their credit risk.
(2) Long-term loans
Fair values of floating rate long-term loans are based on the book values because the market interest rates arereflected within a short term periodand the book values are considered to approximate fair values. Fair values of fixed
rate long-term loans are based on the present value of principal and interest cash flows discounted at the current interest
rate estimated to be applied if similar new loans were entered into.
NBF Report July – December 201551

Book value, fair value and difference between the two as of June 30, 2015 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from thefollowing table (See Note 2. below).
(Yen in millions)





(1)

(1)
(2)
(3)

Book value

AssetsCash and cash equivalents
Total
Liabilities
Short-term loans
Long-term debt due within
one yearLong-term debt
Total

Fair value

Difference¥ 19,500¥ 19,500¥ 19,500¥ 19,500¥¥

㸫㸫

¥ 7,000¥ 7,000¥

㸫

72,750349,000¥428,750

73,348359,406¥439,754

598
10,406¥11,004

Notes:
1. Methods to Estimate Fair Value of Financial Instruments
Assets:(1) Cash and cash equivalents
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate
fair values because these instruments are settled within a short term period.
Liabilities:(1) Short-term loans
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate
fair values because these instruments are settled within a short term period.
(2) Long-term debt due within one year Long-term debt due within one year which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)


(1)
(2)


Investment corporation bonds
Long-term loans
Total

Book value¥10,000
62,750¥72,750

Fair value¥10,062
63,286¥73,348

Difference
¥ 62
536
¥598

(1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is noobservable market value available, fair values are calculated based on the present value of principal and interest cash
flows discounted at the current interest rate that is estimated by taking into consideration the remaining term of theinvestment corporation bonds and their credit risk.
(2) Long-term loans
Fair values of floating rate long-term loans are based on the book values because the market interest rates arereflected within a short term period and the book values are considered to approximate fair values. Fair values of fixed
rate long-term loans are based on the present value of principal and interest cash flows discounted at the current interest
rate estimated to be applied if similar new loans were entered into.
(3) Long-term debt
Long-term debt which includes Investment corporation bonds and Long-term loans are as follows.

52

NBF Report July – December 2015

Notes to Financial Statements(Yen in millions)


(1)
(2)


Investment corporation bonds
Long-term loans
Total

Book value¥ 40,000
309,000¥349,000Fair value¥ 41,320
318,086¥359,406

Difference¥ 1,320
9,086¥10,406(1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is noobservable market value available, fair values are calculated based on the present value of principal and interest cash
flows discounted at the current interest rate that is estimated by taking into consideration the remaining term of theinvestment corporation bonds and their credit risk.
(2) Long-term loans
Fair values of floating rate long-term loans are based on the book values because the market interest rates arereflected within a short term period and the book values are considered to approximate fair values. Fair values of fixed
rate long-term loans are based on the present value of principal and interest cash flows discounted at the current interest
rate estimated to be applied if similar new loans were entered into.

2. Financial Instruments for Which It Is Very Difficult to Estimate the Fair Value.
(Yen in millions)

As of December 31, 2015
Tenant security deposits

As of June 30, 2015

¥47,929

including trust accounts¥47,322

Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and actual deposit
period is not estimable as leases may be cancelled, renewed or re-signed even if a lease term is set in the lease contract, thatmakes a reasonable estimate of future cash flows difficult.
3. Redemption Schedule for Monetary Claims as of December 31, 2015
(Yen in millions)
Cash and cash
equivalents

Due within
one year

Due after one
to two years

Due after two
to three years

Due after
three to four
years

¥14,006㸫㸫㸫Due after four
to five years

Due after five
years

㸫

㸫

Redemption Schedule for Monetary Claims as of June 30, 2015
(Yen in millions)
Cash and cash
equivalents

Due within
one year

Due after one
to two years

Due after two
to three years

Due after
three to fouryears

Due after four
to five years

Due after fiveyears

¥19,500

㸫

㸫

㸫

㸫

㸫

NBF Report July – December 2015

53

4. Repayment Schedule for Loans and Investment Corporation Bonds as of December 31, 2015
(Yen in millions)
Short-term
loans
Investment
corporationbonds
Long-term
loans
Total

Due within
one year

Due after
one to twoyears

Due after
two to threeyears

Due after
three to fouryears

Due after
four to fiveyears

Due after
five years¥12,000¥

10,00010,00010,000㸫㸫

10,00040,75040,75038,75061,12556,000129,000¥62,750¥50,750¥48,750¥61,125¥56,000¥139,000

㸫

¥

㸫

¥

㸫

¥

㸫

¥

㸫

Repayment Schedule for Loans and Investment Corporation Bonds as of June 30, 2015
(Yen in millions)
Short-term
loans
Investment
corporationbonds
Long-term
loans
Total

Due within
one year

Due after
one to twoyears㸫Due after
two to threeyears

Due after
three to four
years

㸫

㸫

Due after
four to fiveyears

Due after
five years㸫㸫¥7,000¥10,00020,00010,000㸫㸫

10,00062,75024,75048,75041,25056,250138,000¥79,750¥44,750¥58,750¥41,250¥56,250¥148,000

¥

¥

¥

¥

Note 4– Schedule of Tangible Assets of Investment Properties
Tangible assets as of December 31, 2015 and June 30, 2015 consisted of the following:
As of December 31, 2015

As of June 30, 2015

(Yen in millions)¥317,740
348,977
666,717217,284

Accumulated
depreciation¥———(55,259)¥317,740
348,977
666,717
162,025

122,454

188,347(63,935)

124,412(125,812)(1,608)(1,149)(966)(1,230)282,481
1,570
696
652
1,593

405,631
3,174
1,822
1,601
2,822

(119,194)(1,538)(1,072)(904)(1,164)286,437
1,636
750
697
1,658

1,832

(1,293)

539

1,816

(1,239)

577

1,638
—
12,934¥1,087,950(1,086)—(7,332)¥(133,144)

552
—
5,602
¥954,806

1,617
27
12,879¥1,085,227(1,034)—(6,951)¥(126,145)

583
27
5,928
¥959,082

Book
value

Acquisition costs¥317,746
348,977
666,723
218,876

Accumulated
depreciation¥———(58,849)¥317,746
348,977
666,723
160,027

189,417(66,963)408,293
3,178
1,845
1,618
2,823

Acquisition costs
Land
Land in trust
Land including trust total
Buildings and improvements
Buildings and improvements
in trust
Buildings and improvements
including those in trust total
Structures
Machinery and equipment
Tools, furniture and fixtures
Structures in trust
Machinery and equipment in
trust
Tools, furniture and fixtures intrust
Construction in process
Other tangible assets total
Total
54

NBF Report July – December 2015

Book
value

Notes to Financial Statements

Note 5 – Net Assets
NBF issues only non-par value units in accordance with the Investment Trust Law of Japan and all of the issue
prices of new units are designated as stated capital. NBF maintains at least ¥50 million as the minimum net assets
as required by the Investment Trust Law of Japan.

Note 6 – Short-Term Loans and Long-Term Debt
Short-term loans consist of short-term notes and short-term borrowings under loan agreements. The annualinterest rates on short-term loans outstanding are floating rates and on December 31, 2015 and June 30, 2015 were
at 0.15% respectively. Long-term debt as of December 31, 2015 and June 30, 2015 consisted of the following:
As of
December 31,
2015

As of
June 30,
2015(Yen in millions)
Unsecured loans due 2016 to 2027 principally from banks andinsurance companies with interest rates mainly ranging from
0.1% to 2.4% .....................................................................................
1.85% unsecured bonds due 2015
0.64% unsecured bonds due 2016
2.04% unsecured bonds due 20172.00% unsecured bonds due 2018
1.17% unsecured bonds due 2023

(Note 1) ........................................
(Note 1) ........................................
(Note 1) ........................................
(Note 2) ........................................
(Note 1) ........................................

Less: amount due within one year ..........................................................

¥366,375—
10,00010,00010,00010,000406,375
50,750¥355,625¥371,750
10,00010,00010,00010,00010,000421,750
72,750¥349,000

Notes: 1. Subject to provision of collateral restrictions.
2. Subject to provision of collateral and financial restrictions pursuant to material decline in credit rating.
The annual maturities of long-term debt as of December 31, 2015 were as follows:㻌(Yen in millions)㻌㻌
㻌㻌
Due after one to two years㻌 ……………………………………㻌
¥ 50,750
Due after two to three years ……………………………………
48,750Due after three to four years 㻌 ……………………………………
61,125Due after four to five years 㻌 㻌 ……………………………………
56,000Due after five years……………………………………
139,000㻌During the periods ended December 31, 2015 and June 30, 2015, NBF had commitment credit line contracts of¥60 billion with several financial institutions to reduce refinancing risk. The unused amount of such committed
credit lines was ¥60 billion as of December 31, 2015.

NBF Report July – December 201555

Note 7 – Rental Revenues and Expenses
Rental revenues and expenses for the periods ended December 31, 2015, June 30, 2015 and December 31, 2014
were as follows:
For the six
For the six
For the six㻌months ended
months ended
months ended㻌
December 31,
2015㻌
Revenues from Property Leasing:
Rental:Rental revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common area charges. . . . . . . . . . . . . . . . . . . . . . . . .
Others㻌. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal㻌 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .㻌Other revenues related to property leasing:
Parking lots㻌. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .㻌Facility charge㻌. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incidental income㻌. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous income㻌. . . . . . . . . . . . . . . . . . . . . . . .
Subtotal㻌. . . . . . . . . . . . . . . . . . . . . . . . . . . .㻌Total revenues from property leasing. . . . . . . . . . . . .
Rental Expenses:
Property management fees. . . . . . . . . . . . . . . . . . . . .
Real estate taxes㻌 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repairs and maintenance㻌. . . . . . . . . . . . . . . . . . . . . .
Insurance㻌 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other rental expenses㻌 . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization㻌. . . . . . . . . . . . . . . . . .
Total rental expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income from Property Leasing Activities. . .





















56

NBF Report July – December 2015

June 30,2015

December 31,
2014(Yen in millions)㻌

㻌㻌
¥28,457
2,701
111
31,269¥28,494
2,789
113
31,396㻌㻌
¥28,426
2,917
114
31,457

692
251
2,180
163
86
3,372
34,641

678
259
2,045
100
115
3,197
34,593

683
245
2,330
14
77
3,349
34,806

5,096
3,341
713
40
3,436
7,110
19,736¥14,905

5,008
3,365
626
39
3,388
7,145
19,571¥15,022

5,024
3,231
571
40
3,720
7,163
19,749¥15,057

Notes to Financial Statements

Note 8 – Income Taxes
NBF is subject to income taxes in Japan. The effective tax rate on NBF's income was 0.01% for the periods
ended December 31, 2015, June 30, 2015 and December 31, 2014. The following table summarizes the significant
differences between the statutory tax rates and NBF's effective tax rates for financial statement purposes.

For the six months
ended December 31,
2015

Statutory tax rate . . . . . . . . . . . . . . . . . . . . . .
Deductible dividends. . . . . . . . . . . . . . . . . . . .
5HYHUVDORIUHVHUYH for
advanced depreciation . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . .

32.31%(33.39)
1.09
0.01
0.01%

For the six months
ended June 30,
2015

㻌
㻌
㻌
㻌
㻌

For the six months
ended December 31,
2014

34.15%(34.15)34.16%(34.15)

—
0.01
0.01%

—
0.01
0.01%

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

Note 9 – Per Unit Information
Information about earnings per unit for the periods ended'HFHPEHU, 2015, June 30, 2015 and'HFHPEHU
 and net assets per unit as of'HFHPEHU, June 30, 2015 and 'HFHPEHU were as
follows.㻌
The computation of earnings per unit is based on the weighted average number of units outstanding during theperiod. The computation of net assets per unit is based on the number of units outstanding at each period end.㻌㻌
For the six months
ended December 31,
2015㻌㻌

For the six months
ended June 30,
2015

For the six months
ended December 31,
2014㻌

¥7,774¥7,787¥7,681

1,412,000

1,412,000

1,412,000

Earnings per Unit:㻌
Net income per unit (Yen)
Weighted average number of 㻌units outstanding㻌
As ofDecember 31, 2015

Net Assets per Unit (Yen)¥378,390㻌As ofJune 30, 2015

As ofDecember 31, 2014

¥378,403¥378,297









NBF Report July – December 201557

Note 10 – Leases
As Lessor
NBF leases some of its investment properties to outside parties under non-cancelable operating leases. As of
December 31, 2015 and June 30, 2015, future minimum rental revenues under the non-cancelable operating leases
are as follows:㻌㻌㻌
As of June 30, 2015
㻌 As of December 31, 2015
(Yen in millions)Due within one year........................
¥ 19,535¥ 20,307
Due after one year ..........................
26,21025,974
Total ............................................
¥ 45,745¥ 46,281

As Lessee
NBF leases some of its investment properties from outside parties under non-cancelable operating leases. As of
December 31, 2015 and June 30, 2015, future minimum rental expenses under the non-cancelable operating leases
are as follows:㻌㻌㻌
As of June 30, 2015
㻌 As of December 31, 2015
(Yen in millions)Due within one year........................
¥ 2¥—
Due after one year ..........................
5—
Total ............................................
¥ 7
¥—

58

NBF Report July – December 2015

Notes to Financial Statements

Note 11 – Transactions with Related Parties(1) Parent Company and Major Corporate Unitholders(For the six months ended December 31, 2015)
None applicable.
(For the six months ended June 30, 2015)
None applicable.
(For the six months ended December 31, 2014)
None applicable.
(2) Affiliates(For the six months ended December 31, 2015)
None applicable.
(For the six months ended June 30, 2015)
None applicable.
(For the six months ended December 31, 2014)
None applicable.
(3) Sister Companies(For the six months ended December 31, 2015)
None applicable.
(For the six months ended June 30, 2015)
None applicable.
(For the six months ended December 31, 2014)
None applicable.
(4) Directors and Major Individual Unitholders(For the six months ended December 31, 2015)
None applicable.
(For the six months ended June 30, 2015)
None applicable.
(For the six months ended December 31, 2014)
None applicable

NBF Report July – December 201559

Note 12 – Investment and Rental Property
NBF owns office buildings (including land) for rent in Tokyo and other areas. The carrying amounts, netchanges in the carrying amounts and the fair value of the investment and rental properties are as follows.
(Yen in millions)
For the six months ended
For the six months ended
December 31, 2015
June 30, 2015
Carrying amount
Balance at beginning¥ 994,984¥ 993,411
of the Fiscal Period
Amount of increase(4,250)1,573(decrease) during
current period
Balance at end of the990,734
994,984
Fiscal Period
Fair value at end of the¥ 1,117,990¥ 1,099,110
periodNotes:
1. Carrying amounts represent acquisition cost less accumulated depreciation.
2. The major decrease in the fiscal period ended December 31, 2015 was mainly due to recognition ofdepreciation costs.
The major increase in the fiscal period ended June 30, 2015 was mainly due to the acquisitions of aproperty (NBF Kandasudacho Bldg., ¥ 6,036 million) and the major decrease was mainly due torecognition of depreciation costs.
3. Fair value at end of the period is based on appraisals provided by independent real estate appraisers.
Information about profit and loss from investment and rental properties is disclosed in Note 7 (Rental
Revenues and Expenses).






















60

NBF Report July – December 2015

Notes to Financial Statements

Note 13 – Segment Information
Segment Information
Segment information has been omitted as NBF has only one segment, which is real estate leasing business.

Related Information(For the six months ended December 31, 2015)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for morethan 90% of total operating revenues.

2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of 
total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for morethan 90% of the book value of total investment properties.

3. Information on Major Tenants(Yen in millions)
TenantOperating revenues
Related segment
Mitsui Fudosan
Real estateCo., Ltd.
¥7,497
leasing businessNote: NBF leases properties to Mitsui Fudosan Co., Ltd. under a master lease agreement, andMitsui Fudosan Co., Ltd. subleases such properties to subtenants.

(For the six months ended June 30, 2015)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for morethan 90% of total operating revenues.

2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of 
total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for morethan 90% of the book value of total investment properties.

3. Information on Major Tenants(Yen in millions)
TenantOperating revenues
Related segment
Mitsui Fudosan
Real estateCo., Ltd.
¥7,736
leasing businessNote: NBF leases properties to Mitsui Fudosan Co., Ltd. under a master lease agreement, andMitsui Fudosan Co., Ltd. subleases such properties to subtenants.

NBF Report July – December 201561

Notes to Financial Statements(For the six months ended December 31, 2014)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for morethan 90% of total operating revenues.

2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of 
total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for morethan 90% of the book value of total investment properties.

3. Information on Major Tenants(Yen in millions)
TenantOperating revenues
Related segment
Mitsui Fudosan
Real estateCo., Ltd.
¥7,910leasing businessNote: NBF leases properties to Mitsui Fudosan Co., Ltd. under a master lease agreement, andMitsui Fudosan Co., Ltd. subleases such properties to subtenants.

Note 14 – Significant Subsequent Events
None applicable.
62

NBF Report July – December 2015

Independent Auditor’s Report

NBF Report July – December 201563

Response to Article 23 of the European Alternative
Investment Fund Managers Directive
DISCLAIMER
This document has been prepared solely for the purpose of providing U.K. and Dutch
investors with certain information under Article 23 of the European Alternative Investment
Fund Managers Directive (European Directive 2011/61/EU) as implemented in theirrespective jurisdictions, and does not constitute an offer to sell or a solicitation of any offer
to buy the units of Nippon Building Fund Inc. (“NBF” or the “AIF”). Accordingly, you should
not use this document for any other purpose.
Netherlands
The units of NBF are being marketed in the Netherlands under Section 1:13b of the Dutch
Financial Supervision Act (Wet op het financieel toezicht, or the “Wft”). In accordance withthis provision, Nippon Building Fund Management Ltd. (the “AIFM”) has notified the Dutch
Authority for the Financial Markets certain matters in accordance with the AIFMD. The units
of NBF will not, directly or indirectly, be offered, sold, transferred or delivered in the
Netherlands, except to or by individuals or entities that are qualified investors(gekwalificeerde beleggers) within the meaning of Article 1:1 of the Wft, and as aconsequence neither the AIFM nor NBF is subject to the license requirement pursuant to
the Wft. The AIFM is therefore solely subject to limited ongoing regulatory requirements as
referred to in Article 42 of the AIFMD.
United Kingdom
Units of NBF are being marketed in the United Kingdom pursuant to Article 59 of the United
Kingdom Alternative Investment Fund Managers Regulations 2013. In accordance with thisprovision, the AIFM has notified the Financial Conduct Authority (the “FCA”) certain mattersin accordance with the AIFMD.
For the purposes of the United Kingdom Financial Services and Markets Act 2000 (“FSMA”)
NBF is an unregulated collective investment scheme which has not been authorized by the
FCA.
Accordingly, any communication of an invitation or inducement to invest in NBF may bemade to persons in the United Kingdom only if the communication falls within one or moreof the categories of exempt financial promotions under the Financial Services and Markets
Act (Financial Promotion) Order 2005 (the “Order”), such as financial promotions
communicated to:(1) persons who are investment professionals, as defined in article 19 of the Order;(2) persons who are certified high net worth individuals, as defined in article 48 of theOrder;

64

NBF Report July – December 2015

(3) persons who are high net worth companies, unincorporated associations, or otherentities listed in article 49 of the Order; or(4) persons who are certified sophisticated investors, as defined in article 50 of theOrder,
or if the communication is made to persons to whom such an invitation or inducement mayotherwise lawfully be communicated. The distribution of this document to any person in the
United Kingdom in circumstances not falling within one of the above categories is not
permitted and may contravene FSMA. No person falling outside those categories should
treat this document as constituting a promotion to him, or act on it for any purposes
whatever.
In relation to each Member State of the European Economic Area which has implemented
the Prospectus Directive (each, a Relevant Member State), with effect from and including
the date on which the Prospectus Directive is implemented in that Relevant Member State(the Relevant Implementation Date) no offer of units of NBF may be made to the public inthat Relevant Member State except in circumstances falling within Article 3(2) of theProspectus Directive, provided that no such offer of units shall require the publication of aprospectus pursuant to Article 3 of the Prospectus Directive, or a supplement to aprospectus pursuant to Article 16 of the Prospectus Directive.
For the purposes of this provision, the expression “an offer of units to the public” in relation
to any units in any Relevant Member State means the communication in any form and by
any means of sufficient information on the terms of the offer and the units to be offered so
as to enable an investor to decide to purchase or subscribe the units, as the same may bevaried in that Member State by any measure implementing the Prospectus Directive in that
Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (andamendments thereto, including the 2010 PD Amending Directive, to the extent
implemented in the Relevant Member State), and includes any relevant implementing
measure in the Relevant Member State and the expression “2010 PD Amending Directive”
means Directive 2010/73/EU.
Japan
This document is not an offer to sell or a solicitation of any offer to buy the units of NBF in
Japan.

NBF Report July – December 201565

Article 23 (1)(a)Objectives of the

Nippon Building Fund Inc. (“NBF” or the “AIF”) invests in office buildings in the Tokyo Central

AIF.

Business Districts (“CBDs”, which comprises the 23 wards of Tokyo), Other Greater Tokyo
Areas (neighboring cities within Tokyo other than the 23 wards, such as Musashino andTachikawa cities, as well as cities within the neighboring prefectures of Kanagawa, Chiba,
Saitama, Ibaraki, Gunma and Tochigi prefectures, including the cities of Yokohama, Kawasaki,
Chiba, Kashiwa and Saitama) and Other Cities (principal regional cities, including Sapporo,
Sendai, Niigata, Shizuoka, Hamamatsu, Nagoya, Kyoto, Osaka, Kobe, Okayama, Hiroshima,
Takamatsu, Fukuoka and Kumamoto).
The basic policy of NBF is to operate assets with the objective of assuring steady growth andstable profits for the mid to long term.

Investment

The investment strategy of NBF aims to assure steady growth of and stable profits from NBF’s

strategy.

portfolio for the mid to long term by considering the proportion of Japan’s office stock byregion. Specifically, the strategydivides the investment area into three areas consisting ofTokyo CBDs, Other Greater Tokyo Areas and Other Cities in such manner that 70% or more of
total investment assets is allocated to Tokyo CBDs and Other Greater Tokyo Areas and 30% orless to Other Cities. The purpose of this area diversification is to minimize cash flow risks suchas those due to earthquakes and risk of vacancies. In general, NBF fully exploits its uniquecharacteristics when conducting investment activities. It is one of the largest listed J-REITs on
the Tokyo Stock Exchange in terms of total assets, and is able to take advantage of Mitsui
Fudosan Group’s powerful information network, as well as the industry knowledge andfamiliarity that it has cultivated itself. NBF investment strategy focuses on expanding its asset
portfolio by making aggressive acquisitions and flexible dispositions mainly of highly
competitive office buildings, primarily in Tokyo CBDs while conducting appropriate risk
management.

Types of assets theReal estate, trust beneficiary interests in real estate, real estate securities, specified assets

AIF may invest in.

and other assets.

Techniques it may

NBF achieves its objective by investing in real estate consisting of buildings primarily used for

employ and all

offices with their underlying land located in the Tokyo CBDs, Other Greater Tokyo Areas andassociated risks.

Other Cities. NBF also invests in securities, beneficiary certificates representing beneficial
interests in trusts and other assets backed by office properties.
The principal risks with respect to investment in NBF are as follows:(1) General Risks(a) Risks concerning NBF’s ability to make cash distributions(b) Risks concerning resale or redemption of investment units or investment
corporation bonds

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Response to Article 23 of the European Alternative
Investment Fund Managers Directive(c) Risks concerning market price fluctuations of the investment units orinvestment corporation bonds(d) Risks concerning changes to treatment of investment corporations under legal,
taxation and other systems(e) Risks concerning dilution of per-unit value through the issuance of new
investment units(f) Risks concerning merger of investment corporations(2) Risks Related to Product Structure and Affiliates of NBF(a) Risks concerning investment units or investment corporation bonds as financial
products(b) Risks concerning fluctuations in revenues, expenditures and cash flow(c) Risks concerning loan-to-value ratio(d) Risks concerning borrowings and investment corporation bonds(e) Risks concerning insider trading(f) Risks concerning the asset manager(g) Risks concerning office management service providers(h) Risks concerning dependency on NBF’s affiliates(i) Risks concerning conflict of interests between NBF and other corporations
involved with the management of NBF(j) Risks concerning changes to NBF’s investment policy(k) Risks concerning tenant leasehold deposits and security deposits(l) Risks of NBF going bankrupt or its registration being cancelled(m) Risks arising from bankruptcy of the seller of properties(3) Risks Related to Real Estate(a) Risks concerning illiquidity in the real estate market and transactional costs(b) Risks concerning the defective title, design, construction (such as piles andbeams), quality of materials or other defects or problems in the properties(c) Risks concerning competition in acquisition of properties(d) Risks concerning competition in seeking tenants(e) Risks concerning co-owned properties(f) Risks concerning compartmentalized ownership of buildings(g) Risks concerning properties on leased lands(h) Risks concerning leased properties(i) Risks concerning properties not in operation (including properties underdevelopment)(j) Risks concerning hazardous materials and radioactive contamination

NBF Report July – December 201567

(k) Risks concerning strict environmental liabilities for the properties(l) Risks concerning reliance on expert appraisals and engineering, environmental
and seismic reports as well as industry and market data(m) Risks concerning lease contracts in Japan(n) Risks concerning building damage and loss due to fire, explosion, lightning, wind,
hail, snow, floods, electrical and mechanical hazards and other unexpected
accidents(o) Risks concerning building damage and loss due to fire, explosion and collapse
caused by earthquakes and other disasters such as eruptions, tsunami andliquefaction(p) Risks concerning the concentration of properties in the portfolio in certain areas(q) Risks concerning tenants’ financial status and insolvency(r) Risks concerning fluctuation of profits due to a limited number of tenants(s) Risks concerning subleases(t) Risks concerning ownership liabilities related to real estate(u) Risks concerning repair and maintenance costs related to real estate(v) Risks concerning liability as the seller of properties(w) Risks related to holding partnership interests(x) Risks concerning complexity of ownership and other interests of properties andinaccuracy of real estate registration(y) Risks concerning administrative rules and regulations and prefectural or municipal
ordinances for real estate(z) Risks concerning establishment of new or revisions of existing laws andregulations(aa) Risks concerning conclusion of post-dated sale agreements (forward
commitment contracts)(4) Risks Related to Trust Beneficiary Rights(a) Risks concerning investments in trust beneficiary interests(b) Risks concerning liquidity of beneficiary interests(c) Risks concerning insolvency of the trustee(5) Risks Related to Taxation(a) Risks of failure to satisfy pass-through requirements due to inability to pay
dividends and other reasons(b) Risks of failure to satisfy pass-through requirements due to excessive amount oftax burden(c) Risk of additional tax liability as a result of a tax audit, which could, among other68

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things, retroactively cause us to fail to satisfy pass-through requirements(d) Risks that preferential tax measures associated with real estate acquisitions
cannot be applied(e) Risks of failure to satisfy pass-through requirements due to treatment of NBF as afamily corporation under Japanese tax law.
(f) Risks of failure to satisfy pass-through requirements due to borrowings fromcompanies or individuals other than institutional investors(g) Risks of failure to satisfy pass-through requirements due to the composition of
investors(h) Risks concerning revisions of the general taxation system(i) Risks that tax burdens will increase due to discrepancies between accounting
treatment and tax treatment
Any applicable

NBF is subject to investment restrictions under Japanese laws and regulations (e.g., the Act on

investment

Investment Trusts and Investment Corporations (the “ITA”), the Financial Instruments andrestrictions.

Exchange Act (the “FIEA”)) as well as its articles of incorporation.

NBF must invest primarily in specified assets as defined in the ITA. Specified assets include,
but are not limited to, securities, real estate, leaseholds of real estate, surface rights(chijō-ken) (i.e., right to use land for the purpose of having a structure on it) or trust
beneficiary interests for securities or real estate, leaseholds of real estate or surface rights. A
listed J-REIT must invest substantially all of its assets in real estate, real estate-related assets
and liquid assets as provided by the listing requirements. Real estate in this context includes,
but is not limited to, real estate, leaseholds of real estate, surface rights, and trust beneficiaryinterests for these assets, and real estate-related assets in this context include, but are notlimited to, anonymous association (tokumei kumiai) interests for investment in real estate.
Pursuant to the ITA, investment corporations may not independently develop land for housing
or to construct buildings, but must outsource such activities.
Circumstances in

NBF may take out loans or issue long-term or short-term investment corporation bonds forwhich the AIF may

the purpose of investing in properties, conducting repairs and related work, paying cash

use leverage.

distributions, operating capital, repaying obligations (including repayment of tenant leasehold
or security deposits, and obligations related to loans or long-term or short-term investment
corporation bonds) and other activities.

The types andLoans or investment corporation bonds. Currently, all of NBF’s outstanding long- andsources of leverage

short-term loans as well as outstanding investment corporation bonds are unsecured andpermitted andunguaranteed.

associated risks.
Loans or investment corporation bonds in which NBF enters or NBF issues may be subject torestrictive covenants in connection with any future indebtedness that may restrict operations

NBF Report July – December 201569

and limit its ability to make cash distributions to unitholders, to dispose of properties or toacquire additional properties. Furthermore, if NBF were to violate such restrictive covenants,
such as with regard to debt service coverage or loan-to-value ratios, lenders may be entitled
to require NBF to collateralize portfolio properties or demand that the entire outstandingbalance be paid.
In the event of an increase in interest rates, to the extent that NBF has any debt withunhedged floating rates of interest or NBF incurs new debt, interest payments may increase,which in turn could reduce the amount of cash available for distributions to unitholders.
Higher interest rates may also limit the capacity for short- and long-term borrowings, which
would in turn limit NBF’s ability to acquire properties, and could cause the market price of theunits to decline.
Any restrictions on

The maximum amount of each loan and investment corporation bond issuance will be 1

leverage.

trillion yen, and the aggregate amount of all such debt will not exceed 1 trillion yen.

Any restrictions on

No applicable arrangements.

collateral and asset
reusearrangements.
Maximum level of

NBF has set an upper limit of 56% as a general rule for its loan-to-value, or LTV, ratio, which isleverage which thethe ratio of (x) the aggregate principal amount of borrowings and investment corporation

AIFM is entitled tobonds to (y) the total assets of NBF’s portfolio, in order to operate with a stable financial

employ on behalf

condition. NBF may, however, temporarily exceed such levels as a result of propertyof the AIF.

acquisitions or other events.

Article 23(1) (b)Procedure by

Amendment of the articles of incorporation. Amendment requires a quorum of a majority ofwhich the AIF may

the total issued units and at least a two-thirds vote of the voting rights represented at thechange its

meeting. Unitholders should note, however, that under the ITA and our articles ofinvestment

incorporation, unitholders who do not attend and exercise their voting rights at a general

strategy /meeting of unitholders are deemed to be in agreement with proposals submitted at theinvestment policy.

meeting, except in cases where contrary proposals are also being submitted. Additionally, theguidelines of the AIFM, which provide more detailed policies within NBF’s overall investment
strategy and policy, can be modified without such formal amendment of the articles ofincorporation.

Article 23(1) (c)Description of themain legal

70

NBF has entered into the following agreements with Mitsui Fudosan Co., Ltd.:x

Master lease agreement under which NBF leases properties to Mitsui Fudosan Co.,

implications of theLtd. under a master lease agreement, and Mitsui Fudosan Co., Ltd. subleases suchcontractual

properties to subtenants;

NBF Report July – December 2015

Response to Article 23 of the European Alternative
Investment Fund Managers Directive

relationshipx

Direct lease agreements with Mitsui Fudosan Co., Ltd. as tenant;entered into forx

Purchase and sale agreements regarding certain NBF assets originally held by Mitsui

the purpose ofinvestment,
includingFudosan Co., Ltd., and management contracts with regard to such assets; andxAgreements for the development of certain properties.

NBF has entered into the following agreements with Sumitomo Mitsui Trust Bank, Limited:jurisdiction,x

A custody agreement regarding NBF’s assets;

applicable law, andx

A transfer agent agreement regarding the units;

the existence orxLoan agreements over certain of our short- and long-term loans;

not of any legalx

Agreements establishing Sumitomo Mitsui Trust Bank, Limited as the trustee for

instruments
providing for therecognition andcertain trust beneficiary rights held by NBF; andx

Various agreements related to our investment corporation bond offerings.

NBF has entered into the following agreements with Sumitomo Life Insurance Company:

enforcement ofx

Loan agreements over certain of our long-term loans;judgments in thex

Lease agreements for certain properties with Sumitomo Life Insurance Company as

territory where the
AIF is established.

tenant; andx

Purchase and sale agreements regarding certain NBF assets originally held by
Sumitomo Life Insurance Company.

All of the above agreements are governed by Japanese law.
NBF is not involved in or threatened by any legal arbitration, administrative or otherproceedings, the results of which might, individually or in the aggregate, be material.
Article 23(1) (d)The identity of thex AIFM (Asset Manager): Nippon Building Fund Management Ltd.

AIFM, AIF's

x Auditor: KPMG AZSA LLC

depository, auditor

x Custodian and Transfer Agent: Sumitomo Mitsui Trust Bank, Ltd.

and any otherService providers owe contractual obligations under their respective agreements with the AIF

service providers

or AIFM, as the case may be. In addition, the FIEA provides that an asset manager owes a

and a description

J-REIT a fiduciary duty and must conduct its activities as the asset manager in good faith. Theof their duties and

FIEA also prohibits an asset manager from engaging in certain specified conduct, including

the investors' rights entering into transactions outside the ordinary course of business or with related parties ofthereto.

the asset manager that are contrary to or violate the J-REIT’s interests. Pursuant to the ITA,
the unitholders have the right to approve the execution or termination of the asset
management agreement at a general meeting of unitholders.

Article 23(1) (e)NBF Report July – December 201571

Description of how

Not applicable.

the AIFM complies
with therequirements tocover professional
liability risks (ownfunds /
professional
indemnity
insurance).
Article 23(1) (f)Description of any

Not applicable. There is no delegation of such functions beyond the AIFM, which isdelegated

responsible for portfolio and risk management, and the Custodian, which is responsible formanagement

safekeeping activities.

function such as
portfolio
management orrisk management
and of any
safekeeping
function delegatedby the depositary,
the identificationof the delegate andany conflicts ofinterest that may
arise from suchdelegations.
Article 23(1) (g)72

Description of the

NBF makes investment decisions based on its investment strategies and in accordance with its

AIF’s valuation

articles of incorporation and based on the results of due diligence, including the valuation ofprocedure andproperties and consideration of the property appraisal value. The methods and standards thatpricing

NBF uses for the evaluation of assets are based on the Regulations Concerning themethodology,

Calculations of Investment Corporations, as well as the Regulations Concerning Real Estateincluding theInvestment Trusts and Real Estate Investment Corporations and other regulations stipulated

methods used inby ITA, in addition to Japanese GAAP. J-REITs may only use the valuation methods prescribedvaluingin the rules of the Investment Trusts Association, Japan, which emphasize market pricehard-to-value

valuation.

NBF Report July – December 2015

Response to Article 23 of the European Alternative
Investment Fund Managers Directive

assets.
Regarding hard to value assets, such assets comprise tenant security deposits including trust
accounts. Security deposits from tenants are not subject to fair value disclosure because they
are not marketable, and actual deposit period is not estimable as leases may be cancelled,
renewed or re-signed even if a lease term is set in the lease contract. This makes a reasonableestimate of future cash flows difficult. Valuation of such hard to value assets is included in thenotes to our financial statements.
If asset valuation methods other than those mentioned in the paragraphs above are to be
used in order to determine values for asset management reports, etc., valuation shall be
conducted in the following manner.
(1) Real estate, real estate leasehold rights and surface rights
In principle, valuation shall be based on the appraisal by a real estate appraiser.
(2) Trust beneficiary interests and equity interests in anonymous associations and voluntary
associations
Valuation shall be made by calculating the value of the equity interests in anonymous
associations or voluntary associations in relation to real estate, real estate leasehold rights or
surface rights, or the value of the trust beneficiary interests obtained by subtracting theamount of liabilities from the aggregate value of assets after (i) determining valuation as
described in (1) above with respect to trust assets or the assets of anonymous associations
composed of real estate, real estate leasehold rights or surface rights and (ii) determining
valuation in accordance with general accepted accounting principles in Japan with respect totrust assets or the assets of anonymous associations or voluntary associations composed offinancial assets.
Article 23(1) (h)Description of the

NBF seeks to manage the capital resources and liquidity sources to provide adequate funds

AIF’s liquidity risk

for current and future financial obligations and other cash needs and acquisitions. NBF hasmanagement,

entered into credit lines in the amount of 60 billion yen as of December 31, 2015, and has

includingentered into loans and has issued investment corporation bonds in the past. While loans andredemption rights

investment corporation bonds are exposed to liquidity risk, such risk is managed in ways suchin normal andas by diversifying the means of funding and lending institutions, dispersing repayment dates,

exceptional

establishing committed credit lines, and keeping sufficient liquidity in hand.

circumstances andexisting

NBF is a closed-end investment corporation, and unitholders are not entitled to request theredemption

redemption of their investment.

arrangements withinvestors.

NBF Report July – December 201573

Article 23(1) (i)Description of allxCompensation: The articles of incorporation provide that the AIF may pay its

fees, charges andexecutive and supervisory officers up to 700,000 yen per month. The board of officers

expenses and ais responsible for determining a reasonable compensation amount for the executive

maximum amountofficer and each of the supervisory officers.

which is directly /indirectly borne byx

the investors.

Asset Management Fee: The AIF will pay the Asset Manager an asset management fee
as follows:Management Fees 1 – The amount equivalent to 2.5% of theamount of the revenue arising from real estate, real estate-related and real estate-backed
assets (“Real Estate”) as calculated on each closing date (provided, however, that revenues
from the sale of Real Estate and other managed assets will be excluded) will be payable.
Management Fees 2 – The amount equivalent to 3% of income before income tax(provided, however, that in the event a loss is carried forward, then the amount of income
before income taxes remaining after such loss has been covered) prior to deduction ofManagement Fees 2 as calculated on each closing date will be payable.
Management Fees 3 – In the event that Real Estate is newly acquired (or acquired inconnection with a merger executed by NBF), compensation equivalent to the total amount of
the acquisition price of said Real Estate (meaning the acquisition price of both land andbuildings, and in the event of the simultaneous acquisition of multiple units of Real Estate, theacquisition price of each item, provided, however, that national consumption tax, regional
consumption tax and miscellaneous costs of acquisition are excluded) multiplied by thefollowing percentage rates will, in principle, be payable, provided, however, that with theapproval of the officers of NBF, compensation may be calculated using different rates notexceeding the following rates.
The portion up to and including ¥10,000 million .........................

0.5%

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

0.2%

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

0.05%

The portion exceeding ¥50,000 million.........................................

nothing

In addition to the above, NBF will pay the Asset Manager a management agent fee as follows:
3,000,000 yen per year for services related to the meetings of the board of officers and74

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Response to Article 23 of the European Alternative
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5,000,000 yen per meeting for services related to the meeting of unitholders.
xCustodian Fee: The AIF will pay the Custodian as follows:

A yearly fee calculated as follows:
The amount of total assets as indicated at the beginning of the period trial balance x 0.01%
xTransfer Agent Fee (Standard Fee):

Standard transfer agent fees are for services such as the preparation, maintenance andstorage of NBF’s unitholder register; and preparation of materials concerning end-of-period
unitholder statistical data (number of unitholders, total units held, distribution per geographicarea). Monthly standard fees are determined by calculating one sixth of the total number ofunitholders falling under each section as shown below. There is a minimum monthly fee of¥200,000.
Up to 5,000....................................................

480 yen5,001 to 10,000..............................................

420 yen

10,001 to 30,000............................................

360 yen30,001 to 50,000............................................

300 yen50,001 to 100,000..........................................

260 yenMore than 100,001.........................................

225 yen

NBF also pays certain de minimis fees in addition to the standard fee in connection with theadministration and handling of distributions (minimum of 350,000 yen per distribution) andother shareholder related functions.
x

Auditor Fee:

NBF may pay the accounting auditor up to ¥20 million per fiscal period. The board of officers
is responsible for determining the compensation amount for the accounting auditor.
x

Accounting Service Feeth

One 12 of the following in either (1) or (2) below each month:(1) A fixed amount of 10,900,000 yen.
(2) A variable amount calculated at April 1 and October 1 of each year in accordance withthe following:
Fewer than 30
properties.........................................

800,000 yen per property

Between 30 and 60
properties.........................................

600,000 yen per property

More than 60
properties.........................................

400,000 yen per property

NBF Report July – December 201575

x

Miscellaneous

NBF also pays fees to certain service providers in connection with:oAdministration of special accounts;o

Office management;oProperty control;oProperty transfer;oReferral of tenants;oProperty development;oTax administration; andoAdministration for investment corporation bonds governance

Article 23(1) (j)Description of theUnder Article 77 paragraph 4 of the ITA, which applies the requirements of Article 109

AIFM's procedureparagraph 1 of the Companies Act to investment corporations, investment corporations are

to ensure fairrequired to treat unitholders equally depending on the number and content of units held. In

treatment ofaddition, upon liquidation, the allotment of residual assets to unitholders is required to beinvestors andmade equally depending on the number units held under Article 77 paragraph 2 item 2 anddetails of any

Article 158 of the ITA.

preferential
treatment received
by investors,
including detailingthe type ofinvestors and theirlegal or economic
links with the AIF
or AIFM.
Article 23(1) (k)The latest annual

Not applicable. (The semiannual reports of the AIF are, however, available atreport referred tohttp://www.nbf-m.com/nbf_e/)

in Article 22(1).
Article 23(1) (l)The procedure and

NBF is authorized under the articles of incorporation to issue up to 4 million units. Its units

conditions for thehave been listed on the Tokyo Stock Exchange since September 10, 2001. Secondary market

issue and sale ofsales and transfers of units will be conducted in accordance with the rules of the Tokyo Stockthe units.

Exchange. Unit prices on the Tokyo Stock Exchange are determined on a real-time basis by theequilibrium between bids and offers. The Tokyo Stock Exchange sets daily price limits, which

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limit the maximum range of fluctuation within a single trading day. Daily price limits are set
according to the previous day’s closing price or special quote.
Article 23(1) (m)Latest net asset

NBF’s unit’s latest market price is publicly available at the Tokyo Stock Exchange or fromvalue of the AIF or

financial information vendors at

latest market price

http://www.reuters.com/finance/stocks/overview?symbol=8951.Tof the unit or shareof the AIF.
Article 23(1) (n)Details of the

The units of NBF were listed on the Tokyo Stock Exchange on September 10, 2001.

historical

The most recent five fiscal period performance of the units is as follows.

performance of the

Fiscal period (six months

Total Assets

Total Net Assets

Net Assets per unit

AIF, whereended)(JPY million)(JPY million)(base value) (JPY)available.

December 31, 2015

1,012,708

534,287

378,390

June 30, 2015

1,022,385

534,306

378,403

December 31, 2014

1,022,952

534,156

378,297

June 30, 2014

1,040,572

534,821378,768

December 31, 2013

1,022,812

519,198

375,143

Article 23(1) (o)Identity of theNo applicable prime broker.

prime broker, anymaterial
arrangements of
the AIF with its
prime brokers, howconflicts of interest
are managed withthe prime broker
and the provisionin the contract withthe depositary on
the possibility oftransfer and reuseof AIF assets, andinformation about
any transfer of

NBF Report July – December 201577

liability to theprime broker that
may exist.
Article 23(1) (p)Description of how

The AIFM will disclose the matters described in Articles 23(4) and 23(5) periodically throughand when periodic

its Internet website and semi-annual report.

disclosures will bemade in relation toleverage, liquidity
and risk profile of
the assets,pursuant to Articles
23(4) and 23(5).
Article 23(2)The AIFM shallNot applicable.

inform theinvestors before
they invest in the
AIF of any
arrangement madeby the depository
to contractuallydischarge itself ofliability inaccordance with
Article 21(13).
The AIFM shall also

Not applicable.

inform investors of
any changes withrespect todepositary liability
without delay.
Article 23(4)(a)Percentage of the AIF's assets which

There are no assets that are subject to special arrangements arising fromare subject to special arrangements

their illiquid nature.

arising from their illiquid nature. The
percentage shall be calculated as the
net value of those assets subject to78

NBF Report July – December 2015

Response to Article 23 of the European Alternative
Investment Fund Managers Directive

special arrangements divided by the
net asset value of the AIF concerned.
Overview of any special

There are no such special arrangements.

arrangements, including whether
they relate to side pockets, gates orother arrangements.
Valuation methodology applied to

There are no such special arrangements.

assets which are subject to sucharrangements.
How management and performance

There are no such special arrangements.

fees apply to such assets.
Article 23(4)(b)Any new arrangements for managing

Any new arrangements or change in applicable arrangements will be

the liquidity of the AIF.

disclosed at an appropriate time.

For each AIF that the AIFM manages

Any new arrangements or change in applicable arrangements will bethat is not an unleveraged closed-end

disclosed at an appropriate time.

AIF, notify to investors whenever they
make changes to its liquidity
management systems (which enable
an AIFM to monitor the liquidity riskof the AIF and to ensure the liquidity
profile of the investments of the AIF
complies with its underlying
obligations) that are material inaccordance with Article 106(1) ofRegulation (EU) No 231/2013 (ie.
there is a substantial likelihood that areasonable investor, becoming awareof such information, would reconsider
its investment in the AIF, including
because such information could
impact an investor’s ability to
exercise its rights in relation to its
investment, or otherwise prejudice
the interests of one or more investors
in the AIF).

NBF Report July – December 201579

Immediately notify investors where

Any new arrangements or change in applicable arrangements will bethey activate gates, side pockets ordisclosed at an appropriate time.

similar special arrangements or
where they decide to suspend
redemptions.
Overview of changes to liquidity

Any new arrangements or change in applicable arrangements will bearrangements, even if not special

disclosed at an appropriate time.

arrangements.
Terms of redemption and

NBF is a closed-end investment corporation, and unitholders are notcircumstances where management

entitled to request the redemption of their investment.

discretion applies, where relevant.
Also any voting or other restrictions

There are no voting or other restrictions on the rights attaching to units.

exercisable, the length of any lock-up
or any provision concerning ‘first inline’ or ‘pro-rating’ on gates andsuspensions shall be included.
Article 23(4)(c)
The current risk profile of the AIF and

The appropriateness and effectiveness of the risk management structure

the risk management systems

are regularly evaluated and enhanced by the AIFM.

employed by the AIFM to manage
those risks.

Deposits are exposed to risks of failure of the financial institution holding
the deposit and other credit risks, but such risks are controlled by striving todiversify the financial institutions holding the deposits.
Funds from debts and investment corporation bonds are mainly used for
asset acquisition or debt repayment, etc. While loans and investment
corporation bonds are exposed to liquidity risk, such risk is managed inways such as by diversifying the means of funding and lending institutions,dispersing repayment dates, establishing committed credit lines, andkeeping sufficient liquidity in hand. Our credit line is in the amount of 60
billion yen; no amount has been drawn down as of December 31, 2015.
Debt with a floating interest rate is exposed to interest rate fluctuation
risks, but the impact that interest rate rises have on the operations islimited by maintaining the proportion of debt that is long-term fixed-rate
debt at high levels, and setting a procurement limit depending on theeconomic and financial environment, terms of lease agreements withtenants, asset holding period and other factors.

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Furthermore, derivative transactions (interest rate swap transactions) areavailable as hedging instruments to mitigate the risks of rises in floatinginterest rates.
Tenant security deposits are exposed to liquidity risk arising from vacatingof properties by tenants due to the termination of contract.
NBF manages this risk by monitoring forecasted cash flows on a monthly
basis to ensure it has sufficient funds.
Measures to assess the sensitivity of

No such measures have been implemented.

the AIF’s portfolio to the most
relevant risks to which the AIF is or
could be exposed.
If risk limits set by the AIFM have

No such situation has occurred.

been or are likely to be exceeded andwhere these risk limits have been
exceeded a description of thecircumstances and the remedial
measures taken.
Article 23(5)(a)Any changes to the maximum amountAny new arrangements or change in applicable arrangements will beof leverage which the AIFM may

disclosed at an appropriate time.

employ on behalf of the AIF,
calculated in accordance with thegross and commitment methods. This
shall include the original and revised
maximum level of leverage calculated
in accordance with Articles 7 and 8 ofRegulation (EU) No 231/2013,
whereby the level of leverage shall becalculated as the relevant exposure
divided by the net asset value of theAIF.

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Response to Article 23 of the European Alternative
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Any right of the reuse of collateral or

No such right or guarantee exists.

any guarantee granted under theleveraging agreement, including thenature of the rights granted for thereuse of collateral and the nature of
the guarantees granted.
Details of any change in service

Any new arrangements or change in applicable arrangements will be

providers relating to the above.

disclosed at an appropriate time.

Article 23(5)(b)Information on the total amount of

The aggregate amount of debt with interest is JPY 418,375 million as ofleverage employed by the AIF

December 31, 2015.

calculated in accordance with thegross and commitment methods.

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NBF Report July – December 2015

Corporate Data (As of December 31, 2015)

Corporate Office38th Floor, GranTokyo North Tower, 9-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-6738, Japan+81-3-6259-8681
http://www.nbf-m.com/nbf_e/

Date of Inception

March 16, 2001

CapitalContributed capital and units issued and outstanding:¥519,124 million
1,412,000 units

Unitholders

15,489Transfer Agent

Sumitomo Mitsui Trust Bank, Ltd.
4-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8233, Japan

Business Office of the Transfer Agent

Stock Transfer Agency Department of Sumitomo Mitsui Trust Bank, Ltd.
8-4, Izumi 2-chome, Suginami-ku, Tokyo 168-0063, Japan+81-3-3323-7111

Independent Auditors

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

Investor Relations

For further information, please contact our asset management company:
Investor Relations of Financial Department
Nippon Building Fund Management Ltd.
38th Floor, GranTokyo North Tower, 9-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-6738, Japan+81-3-6259-8681

This document contains translations of selected information described in thetranslations or the selection of the portions of any documents translated into English. No

Securities Report (Yuka shoken hokokusho) filed on March 30, 2016 pursuant to theperson has been authorized to give any information or make any representations other

Securities Exchange Law of Japan, and the Financial Statements and the Performance

than as contained in this document in relation to the matters set out in this document,

Information Report for the period from July 1, 2015 to December 31, 2015, of Nippon

and if given or made, such information or representation must not be relied upon as

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

having been authorized by Nippon Building Fund Inc., Nippon Building FundThis English-language document was prepared solely for the convenience of andreference by overseas investors. It neither corresponds to the original JapaneseManagement Ltd. or any of their respective directors, officers, employees, partners,
unitholders/shareholders, agents or affiliates.

documents nor is intended to constitute a disclosure document. The Japanese-

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

language Securities Report and the Financial Statements and the Performancedance with generally accepted accounting principles in Japan (Japanese GAAP), which

Information Report for the aforementioned period should always be referred to as

may materially differ in certain respects from generally accepted accounting principles inoriginals of this document.

other jurisdictions.

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

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

herein may not be precisely identical to the concept of the equivalent Japanese terms.

tion. We base these statements on our beliefs as well as our assumptions based solelyWith respect to any and all terms herein, including without limitation, financial state-on certain limited information currently available to us. Because these statements reflect

ments, if there exist any discrepancies in the meaning or interpretation thereof between

our current views concerning future events, these statements involve known andthe original Japanese documents and English statements contained herein, the original

unknown risks, uncertainties and assumptions. Our future performance could materiallyJapanese documents will always govern the meaning and interpretation. None of Nippon

differ from those set out in these forward-looking statements. We do not undertake andBuilding Fund Inc., Nippon Building Fund Management Ltd. or any of their respective

will not undertake to release revisions of forward-looking statements to reflect future

directors, officers, employees, partners, unitholders/shareholders, agents or affiliates will

events or circumstances or of any other statements or information contained herein.

be responsible or liable for the completeness, appropriateness or accuracy of English

NBF Report July – December 201583

Investors’ Information (As of December 31, 2015)

Fiscal Periods

Unitholders

Six months ending June 30 and December 31

Financial institutions
196 (1.3%)

Total Number of Units Issued
29th Period (From July 1 , 2015 to December 31, 2015)

1,412,000 units

28th Period (From January 1 , 2015 to June 30, 2015)

1,412,000 units

Other domestic corporations 385 (2.5%)
Overseas investors 432 (2.8%)
Securities companies 20 (0.1%)

Total numberof unitholders:

Individuals and others
14,456 (93.3%)

15,489Securities companies
42,702 (3.0%)

Distribution per Unit

Overseas investors
350,040 (24.8%)

Confirmed distribution for the 29th Period
For the operating period from July 1 , 2015 to December 31, 2015 (6 months)¥8,036 per unit

Expected distribution for the 30th Period
For the operating period from January 1 , 2016 to June 30, 2016 (6 months)

Other domestic corporations
101,659 (7.2%)¥8,260 per unit

Individuals and others
67,359 (4.8%)

Total numberof units:

1,412,000

Financial institutions
850,240 (60.2%)

Top 10 Unitholders
NameJapan Trustee Services Bank, Ltd.
Trust & Custody Services Bank, Ltd.
The Master Trust Bank of Japan, Ltd.
The Nomura Trust and Banking Co., Ltd.
Mitsui Fudosan Co., Ltd.
STATE STREET BANK WEST CLIENT - TREATY 505234
Sumitomo Life Insurance Company
STATE STREET BANK-WEST PENSION FUND CLIENTS - EXEMPT 505233
STATE STREET BANK AND TRUST COMPANY 505223
Nomura Securities Co., Ltd.

Number of Units Held

Percentage of Total

278,869
152,103112,845
54,82447,63027,216
24,512
23,512
22,592
20,570

19.7%
10.8
8.0
3.9
3.4
1.9
1.7
1.7
1.6
1.5

Historical Unit Price(Yen)
1,000,000

NBF unit price (left scale)
TSE REIT Index (right scale)
TOPIX (right scale)(Points)
3,000

2,500

800,000
2,000
600,000

1,500

1,000
400,000
500
200,000
Sep. 10, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31,
2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015

Adjusted retroactively for the two-for-one investment unit split effective as of January 1, 2014.

84

NBF Report July – December 20150

Nippon Building Fund Inc.
38th Floor, GranTokyo North Tower,
9-1, Marunouchi 1-chome, Chiyoda-ku,
Tokyo 100-6738, Japan

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