Portfolio Quality Drives

Growth11th Period
NBF Report July – December 2006

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

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

Contents
Building on Our Strengths
Financial Highlights

2

To Our Shareholders

4

Portfolio Quality Drives Growth

6

A Continuing Record of Achievement

8

Six Months of Progress

On the Cover
NBF purchased the 18th floor of the
Nishi-Shinjuku Mitsui Building in
September 2002, and had acquired
about 85 percent of the entire building
as of April 2006. Mitsui Fudosan was
involved in this large-scale redevelopment. Nishi Shinjuku is a superior location for office buildings, and the property
had an occupancy rate of 100 percent at
the end of NBF’s 11th period.

1

8

New Acquisitions Will Increase Asset Value

9

A Track Record of Steady Growth and High Occupancy Rates

10

Ongoing Improvement in Portfolio Quality

11

Planned New Acquisitions

12

Main Properties

13

Location of Office Properties

16

Portfolio Overview

18

Management Team and Management Structure

20

Management’s Discussion and Analysis

24

Financial Statements

35

Appendix49

Investment and Distribution Policies

51

Corporate Data

60

Investors’ Information

61

Building on Our Strengths

Japan’s First andLargest J-REIT◆ In September 2001, NBF was listed as the first real estate
investment corporation in Japan on the J-REIT section of theTokyo Stock Exchange.
◆ The largest total market capitalization of any J-REIT(¥ 802.6 billion)*

High-Quality
Properties◆ Specializes in investing in office buildings◆ Possesses 55 properties*, mainly large-scale officebuildings in the Tokyo Central Business Districts◆ Diversified in other Tokyo markets as well as in regional cities◆ Total rentable area of 670,513m2*◆ The largest scale of managed assets(¥ 624.8 billion)*◆ 892* diversified tenants

NBF’s
Strengths◆ Ratings
Standard & Poor’s
Long-term Corporate: A+, Short-term Corporate: A-1■ Moody‘s Issuer Rating: A1■ R&I Issuer Rating: AA■◆ 221.9% total return** since Tokyo Stock Exchange
listing on September 10, 2001

(As of February 15, 2007)◆ LTV (Loan to Value): 40.9%◆ Percentage of long-term, fixed-rate debt included ininterest-bearing debt: 82.5%*◆ Cash distribution of ¥19,224 pershare for the 11th period◆ 63.6% total return** for NBF in most recent year,
compared with 28.7% for TSE J-REIT index(Source: Bloomberg L.P.)** Total return includes reinvested distributions.

◆ Average years remaining on long-term, fixed-rateinterest-bearing debt: 5.46 years*◆ Total average cost: 1.53%*

Sound Finances

Strong Returns

Strategic Partnership with Mitsui Fudosan◆ Access to the expertise of Mitsui Fudosan Co., Ltd., the leading real estate company in Japan■ Acquisition of properties developed by Mitsui Fudosan■ Use of property information-gathering capabilities of Mitsui Fudosan■ Use of Mitsui Fudosan’s tenant mediation and building management capabilities in office management* As of December 31, 2006

NBF Report July–December 2006

1

Financial Highlights

11th Period

10th Period

9th Period

8th Period

11th Period

from July 1, 2006 to
December 31, 2006

from January 1, 2006 toJune 30, 2006

from July 1, 2005 to
December 31, 2005

from January 1, 2005 toJune 30, 2005

from July 1, 2006 to
December 31, 2006
U.S. dollars in thousands(Note 1)

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

Operating revenues
Income before income taxes
Net income

Note 2¥ 25,894
9,767
9,766

¥ 24,307
9,852
9,851

¥ 19,363
7,206
7,205

¥ 16,731
6,162
6,161

$ 217,560
82,062
82,053Funds from operations
Net operating income
from property leasing activities
Total amount of cash distribution

Note 3

14,754

12,951

10,8699,441

123,962

Note 3(a)17,787
9,766

15,936
9,851

13,333
7,205

11,457
6,161

149,445
82,053

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

634,117
236,500
356,21340.9%

633,693
237,500
356,29741.0%

564,902257,500
269,37548.5%

449,556
199,700
216,84044.4%

5,327,819
1,987,061
2,992,884—

Total number ofcommon shares issued (shares)
Net assets per share (Yen/$)Distribution per share (Yen/$)Funds from operations per share (Yen/$)(c)(b) / (c)(a) / (c)Note 3508,000
701,206
19,22429,043508,000
701,373
19,391
27,395

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

5,891
162
244

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥119.02 = U.S.$1.00, the approximate exchange rate on December 31, 2006.
2. Operating revenues do not include consumption taxes.
3. Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation and amortization
Funds from operations: Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization
Funds from operations per share: (Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization) / Weighted
average number of common shares issued and outstanding during the period.
Loan to value: (Interest-bearing debt + Deposits under management) / Total assets

Portfolio Highlights (As of December 31, 2006)
Asset Allocation

Regional Allocation

Total Assets

Total Real Estate, Etc.

¥634,117 million¥597,065 million
Deposits andOther Assets

Other Cities¥37,052 million(5.9%)¥81,010 million(13.6%)

Real Estate

Other GreaterTokyo¥224,076 million(35.3%)¥114,842 million(19.2%)

Real Estate Held in TrustTokyo CBDs*¥372,989 million(58.8%)¥401,214 million(67.2%)* Central Business Districts

2

NBF Report July–December 2006

Operating revenues / Net income(Yen in millions)

Funds from operations per share

Net operating income fromproperty leasing activities(Yen in millions)

(Yen)

11th
Period11th
Period11th
Period10th
Period10th
Period10th
Period9th
Period9th
Period9th
Period8th
Period8th
Period8th
Period7th
Period7th
Period7th
Period05,000 10,000 15,000 20,000 25,000 30,000
Operating revenues
Net income

Total assets

0

5,000

10,00015,00020,000

LTV(%)(Yen in millions)0

10,00025,000550,000 600,000 650,000
0Distribution per share (top scale)
Net assets per share (bottom scale)

700,000

750,000

11th
Period10th
Period10th
Period10th
Period9th
Period9th
Period9th
Period8th
Period8th
Period8th
Period7th
Period7th
Period7th
Period
40

42

44

46

48

50

10,000(Yen)

20,00011th
Period040,00015,00011th
Period300,000 400,000 500,000 600,000 700,000

30,000Distribution per share /Net assets per share
5,000

0

20,000

List of Major Tenants (As of December 31, 2006)
Name

1
2
3
4
5
6
7
8
9
10

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

Leased Space(m2)

Percentage of Total
Rentable Area3

169,913
28,184
22,791
17,70515,753
15,333
13,135
8,816
8,493
7,483

25.9%
4.3%
3.5%
2.7%
2.4%
2.3%
2.0%
1.3%
1.3%
1.1%

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

NBF Report July–December 2006

3

To Our Shareholders

Nippon Building Fund Inc. (NBF) makes maximum use of the portfolio,
expertise and information network it has built in working to further
enhance profitability, primarily through internal growth, with the aim ofincreasing shareholder value.
Koichi Nishiyama
Executive Director of Nippon Building Fund Inc.
President and CEO of Nippon Building Fund Management Ltd.

Performance during the Six Months Ended
December 31, 2006

Initiatives to Generate External Growth during
the 11th Period

Operating revenues increased during the six months ended

Given increasing competition in the real estate acquisition mar-December 31, 2006 (the “11th Period”), while income

ket, NBF deployed its unique capabilities to generate sustain-

decreased due to the absence of gain on sale of investment

able external growth by focusing on improving the value andproperties. Distribution per share was ¥19,224.

utilization of existing assets.

The environment for acquisition of real estate became increasingly

During the six months ended December 31, 2006, factors influencing thechallenging during the six months ended December 31, 2006. NBF exer-

real estate acquisition market included solid demand for office space and ris-

cised careful deliberation that made the most of its innovative acquisition

ing acquisition prices resulting from aggressive investment by domestic andtechniques and collective expertise. As a result, we committed to theforeign funds, J-REITs and other institutions against a backdrop of low inter-acquisition of three properties. However, NBF’s portfolio remained at 55

est rates. The real estate acquisition environment grew increasingly chal-properties, unchanged from six months earlier, because NBF will complete

lenging as a result. Given these conditions, NBF recognized the importancethe acquisition of all of these properties in future fiscal periods. Totalof sustainable external growth. Based on our strategy of investing in high-investment on an acquisition price basis stood at ¥624,839 million.

quality, highly competitive office buildings with comparatively stable rental

Operating revenues for the six months ended December 31, 2006

cash flow and little risk of decline in asset value, we invested selectively,

increased 6.5 percent, or ¥1,586 million, compared with the previous six-

making the most of our innovative techniques and collective expertise.

month period to ¥25,894 million. A primary factor in the increase was theConsequently, during the 11th Period we focused on generating external

full-period contribution of the seven properties acquired in the previous six-

growth by enhancing the value and utilization of existing assets by working

month period. Absent gain on sale of investment properties and gain on

to acquire properties adjacent to existing buildings. This approach resulted in

exchange of investment properties totaling ¥1,435 million in the previous

acquisition contracts for three buildings: the Toyosu 5-Chome Building (tenta-

six-month period, however, operating income decreased 0.3 percent, or ¥33

tive name) under development adjacent to the IST Building; the expansion of

million, compared to the previous six-month period to ¥11,652 million. Net

the NBF Nagoya Hirokoji Building; and the property adjacent to the NBF

income decreased 0.9 percent, or ¥85 million, compared to the previous

Sudacho Verde Building. Looking forward, we will work to differentiate NBF

six-month period to ¥9,766 million, and distribution per share decreased

under this unique strategy in order to acquire attractive investment opportu-¥167 compared to the previous six-month period to ¥19,224.

nities, thus generating sustainable external growth. Please refer to “NewSales of investment properties are a non-recurring event for NBF.

Acquisitions Will Increase Asset Value” on page 9 for additional details.

Earnings from real estate leasing, NBF’s core business, increased comparedto the previous six-month period and NBF is steadily raising profitability.

4

NBF Report July–December 2006

Profitability
Strengthen portfolio
profitability

Prospects of Performance*

Asset Value

Financial Base

Expand asset value by
acquiring outstanding assets

Maintain and strengthen
NBF’s stable financial base

Increase
Investor Value

Trust

Dividends

Maintain and strengthen strong,long-term relationships of trustwith investors

Increase funds
available for distribution
over the medium term

(Yen in millions)

12th Period

13th Period(Projected)
from January 1, 2007
to June 30, 2007

(Projected)
from July 1, 2007 to
December 31, 2007

Operating revenues

26,032

26,457

Net income

9,499

9,550

Distribution per
share (Yen)

18,70018,800* Based on current portfolio of 55 properties

NBF’s Operating Environment

shareholder value through growth and enhancement in the five areas ofAmid rising lease rates for premium office buildings, NBF is

profitability, scale of assets, financial base, credibility and funds available

working to enhance its profitability by increasing rent for bothfor distribution. We also intend to further strengthen our compliance andnew and existing tenants.

risk management systems to accommodate increased assets and changing

During the six months ended December 31, 2006, economic recoverysocial requirements.

caused vacancy rates to drop nationwide in the office leasing market. In the

Under this policy, we aim to further enhance profitability, primarily

central business districts of Tokyo in particular, the lack of available space

through internal growth, during the six months ending June 30, 2007 (thein large-scale buildings continued to drive rent for new tenants higher.

“12th Period”), for which we project operating revenues of ¥26,032 million,

Given these conditions, NBF moved to enhance its profitability by raising

operating income of ¥11,499 million, net income of ¥9,499 million, and alease rates for new tenants and increasing rent for existing tenants during

distribution of ¥18,700 per share. For the period ending December 31, 2007

contract renewals. As a result, renegotiation of existing lease contracts(the “13th Period”), we project operating revenues of ¥26,457 million, oper-

increased monthly rental revenue by ¥11.0 million, which represented aating income of ¥11,723 million, net income of ¥9,550 million, and a distri-¥6.0 million increase compared to the six-month period ended June 30,

bution of ¥18,800 per share. These projections assume no acquisitions or

2006. NBF plans to continue increasing rents when contracts come up fortransfers of buildings and no issue of new shares.

renegotiation. Moreover, in order to carry out our objective of generating

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

internal growth, we will work to maintain high occupancy rates by increas-

assets and its management system. We will make maximum use of ouring tenant satisfaction while sustaining and enhancing the competitivenessstrengths, including the scale of the asset portfolio we have structured, ourof our properties through strategic investments in renovation. Please referexpertise and our information network, in executing our mission of gener-

to “Portfolio Quality Drives Growth” on page 6 for additional details.

ating further growth.
Looking forward, NBF will manage its assets according to its invest-

Fundamental Management Policies and Outlook

ment policy of achieving sustainable growth in portfolio value and stable

NBF aims to expand shareholder value through growth andprofits over the medium-to-long term. Our objective will be increased

enhancement in five areas: profitability, scale of assets, financial

shareholder value. We will be counting on your continued support as webase, credibility and funds available for distribution*.

work toward these goals.

Looking forward, the firm office leasing market and increasing competition in the real estate acquisition market will continue. Interest rates arelikely to rise against a backdrop of economic recovery, and funding costs
are likely to increase. Under these conditions, our fundamental policy during Phase II, the five years that began with the 11th Period, is to expand

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

* Funds available for distribution: Cash dividends per share calculated based on operating income from property leasing excluding the effect of property sales and property and urban planning taxes that
accrue in the first fiscal period upon acquisition of real estate.

NBF Report July–December 2006

5

Portfolio Quality Drives Growth

Supported by a strong office leasing market, NBF is using the strengths of its high-quality properties
to generate internal growth.
Trends in the Office Leasing Market
Economic recovery has resulted in increased demand for premium office buildings. Vacancy rates
continue to decrease nationwide, and rent for new tenants is increasing.
The Cabinet Office’s Monthly Economic Report for November 2006 announced that the current economic expansion in Japan
had surpassed the 57-month Izanagi Boom, which had been Japan’s longest period of post-war economic growth. This andother evidence indicate that the Japanese economy continues its steady, albeit gradual, expansion. Against a backdrop ofincreased corporate vitality and earnings, companies are expanding and integrating office space. Vacancy rates are decreasing
nationwide, and demand for office buildings is rising steadily. These trends are particularly evident in the five central Tokyo
wards — Chiyoda-ku, Chuo-ku, Minato-ku, Shinjuku-ku and Shibuya-ku — where vacancy rates decreased 0.4 percentage
points from the extremely low level of 2.7 percent as of June 30, 2006 to 2.3 percent as of December 31, 2006. (Source: CB
Richard Ellis Japan)
The supply of available office space is insufficient to meet the needs of tenants who want to move into or expand withinpremium large-scale buildings, and as lending markets accelerate further, lease rates for new tenants continue to increase.
Rent increases have been particularly notable in the five central Tokyo wards discussed above, where average lease rates for
new tenants increased 5.3 percent from June to December 2006. (Source: Miki Shoji Company)

Vacancy Rates in Major Cities

New Tenant Lease Rates in Five Central Tokyo Wards(%)(Yen / Tsubo*)

15.0

20,00012.0

19,50019,0009.0

18,500
6.0

18,0003.0
0.0

17,500
04.12

05.3

05.6

05.9

5 Central Tokyo Wards
NagoyaSendai

05.12

06.3

06.6

06.9

06.12

SapporoTokyo 23 Wards
Osaka
Hiroshima
Fukuoka

17,00006.1 06.2 06.3 06.4 06.5 06.6 06.7 06.8 06.9 06.10 06.11 06.12* 1 tsubo = approx. 3.3m2(Source : Miki Shoji Company)(Source : CB Richard Ellis Japan)

NBF’s Strategy for Internal Growth
While maintaining and increasing the level of tenant satisfaction and investing strategically in renovation, NBF will emphasize rent increases with the aim of enhancing profitability.
Given the strong office leasing market, NBF aims to further enhance its profitability, primarily through internal growth. NBF’sbuildings have occupancy rates that exceed the market, and are known for their outstanding management. We will use thesecharacteristics in executing the following three measures to generate internal growth.

6

NBF Report July–December 2006

The first measure is the most important. We will increase rent for new tenants and raise rent for tenants renewing contracts
with lease rates that are below market.
In Japan’s leasing market, rent does not customarily increase for existing tenants other than at contract renewal. Rent
increases therefore coincide with contract renewals. However, rent increases are no simple matter even at contract renewal.
Maintaining and increasing levels of tenant satisfaction and steady efforts to lay the groundwork for rent increases are crucial.
As of December 31, 2006, contracts up for renewal within two years with below-market lease rates accounted for 48.4 percent of NBF’s total rental revenue. However, these contracts provide the potential for rent increases over the coming two years,
and we are therefore taking a focused approach to this issue.
During the six months ended December 31, 2006 (the “11th Period”), renegotiation of existing lease contracts increased
monthly rental revenue by ¥11.0 million, or 5.1 percent.
NBF plans to raise rents for existing tenants to increase rental revenue by ¥52.0 million per month for the six months ending
June 30, 2007 (the “12th Period”), and increase it by an additional ¥20.0 million per month during the six months ending
December 31, 2007 (the “13th Period”).
The second measure is maintaining high occupancy rates by increasing tenant satisfaction. Our proactive initiatives in thisarea include improvements to common areas, seasonal events, and determining issues for improvement through tenant surveys.
During the 11th Period, our tenants expressed appreciation for the map we produced and distributed that will help people returnhome in the event of a disaster. We intend to undertake other such initiatives in the future.
The third measure is maintaining and increasing the competitiveness of our buildings by making strategic investments inrenovation. During the 11th Period, we renovated common areas at the NBF Shibakouen Building, including hallways and theelevator hall, when a large tenant accounting for 94 percent of the building’s occupancy canceled its lease. These improvements to the building’s design and amenities helped NBF both increase rent and attain 100 percent occupancy. Looking forward,
we intend to execute other strategic renovations that raise the competitiveness of our buildings.
Assuming that the number of buildings in our portfolio remains at 55 at June 30, 2007 and December 31, 2007, unchanged
from December 31, 2006, we therefore project that our initiatives to generate internal growth will increase rental revenue (compared with the 11th Period) by ¥304.0 million for the 12th Period, and by ¥787.0 million for the 13th Period.

Lease Contracts as of December 31, 2006
(Rent Basis)
Lease contracts to be
renewed after December 2008

24.3%
Lease contracts
with potential
rent increases
within 2 years
Above-market lease contracts
to be renewed within 2 years

Below-market
lease contracts

48.4%

27.3%

NBF Report July–December 2006

7

A Continuing Record of Achievement

Six Months of Progress
Rent
Increases■ Consistent Increases during Contract Renewals
NBF has been increasing rents during contract renewals to enhance profitability. During the six months ended December
31, 2006, NBF renegotiated contracts generating monthly rental revenue of ¥217.0 million, and renegotiation of existing
lease contracts increased monthly rental revenue by ¥11.0 million, or 5.1 percent.

New
Property■ Decision to Acquire Toyosu 5-Chome Building (September 2006)
NBF has decided to acquire the Toyosu 5-Chome Building (tentative name), a new, large-scale building scheduled for completion in September 2007 that is adjacent to one of NBF’s major properties, the IST Building. The development of the
Toyosu area is progressing rapidly. The acquisition of this property, an advanced office building with extremely competitive specifications, will make a significant contribution to enhancing NBF’s portfolio in the Greater Tokyo area.

Property
Acquisition■ NBF Nagoya Hirokoji Building (Building Expansion) (December 2006)
In December 2006, NBF concluded a contract to expand the NBF Nagoya Hirokoji Building. NBF was involved in this transaction as the project consultant, working with the seller of the land adjacent to the existing building before the seller acquiredthat land. As a result, this contract aligns the interests of the seller, which will work to promote the project, and NBF, which
will acquire the completed development. This project will result in a single, larger-scale building, with benefits including
greater appeal among potential new tenants and enhanced ability to meet requirements for additional space among existing tenants. This will raise the overall competitiveness of the property, which NBF expects to enhance return on investment.

Area
Expansion■ NBF Sudacho Verde Building (December 2006)
NBF decided in December 2006 to acquire the property adjacent to the NBF Sudacho Verde Building. After acquiring thisproperty in June 2007, NBF will demolish the building and manage part of the land as a parking lot. In the future we will
be able to redevelop the entire site as an integrated office building with a scale and specifications that create greater
asset value than the current properties, which enhances the potential of NBF’s portfolio.

HigherRatings■ Leading Bond Rating Agencies Raise NBF’s Ratings(Moody’s: October 2006; R&I: December 2006)

NBF received an issuer rating of A1 from Moody’s Investors Service in October 2006 and AA from Rating and Investment
Information, Inc. in December 2006. These ratings reaffirm NBF’s position as a market leader operating on a scale thatplaces it at the forefront of its business, which has built a strong operating and revenue base while improving its financial
structure by implementing a consistent portfolio strategy.

8

NBF Report July–December 2006

New Acquisitions Will Increase Asset Value
The real estate acquisition market remained challenging during the six months ended December 31, 2006. NBF worked to differentiate itself and achieve sustainable external growth by aggressively enhancing the value of existing assets and deciding toacquire properties adjacent to three existing buildings.

Toyosu 5-Chome Building (Tentative Name)
Integration with the adjacent IST Building adds value
Integrating this acquisition with the IST Building will increase total rentable area to 65,090m2 and heighten the property’s profile. We
aim to raise competitiveness by managing the two properties as one, which will add flexibility to tenant management as we work to
improve property management cost efficiency.

B

A

Toyosu 5-Chome Building (A)IST Building (B)(Tentative Name)(A) + (B)

Acquisition price¥16,200 million-¥24,100 million

Maximum of¥59,300 million

Location

Koto-ku, Tokyo

Site area

12,551m2

14,335m2

26,886m2

Rentable area

28,326m2

36,764m2

65,090m2

Structure

10 floors

11 floors—

Completion of construction

September 30, 2007 (scheduled) September 7, 2004—

Acquisition date

March 31, 2008 (scheduled)—¥35,200 million—

September 13, 2005

(October 31, 2007 at the earliest)

SellerShimizu Corporation

Special Purpose Company of —Shimizu Corporation

NBF Nagoya Hirokoji Building
Expansion increases scale and grade
The expansion of the NBF Nagoya Hirokoji Building will raise the standard area of each floor to 1,117m 2 and total floor area to
14,652m 2, thus increasing the scale of the existing building. This will raise the grade of the property. Efforts to add value including
improvements to common areas will further support our objective of increasing competitiveness and rent levels.

A
B

NBF Nagoya Hirokoji Building(A) (Expansion)

NBF Nagoya Hirokoji Building(B) (Existing)(A) + (B)

Acquisition price¥1,826 million¥5,406 million¥7,232 million

LocationNaka-ku, Nagoya, Aichi

Site area

431m2

1,252m2

1,683m2

Rentable area

2,903m2

6,873m2

9,776m2

Structure

9 floors

9 floors above ground,
2 floors below—

Completion of construction

March 17, 2008 (scheduled)

October 25, 2000—

Acquisition date

March 17, 2008 (scheduled)

March 30, 2004—

SellerTaisei Corporation

Toei Corporation—

NBF Report July–December 2006—9

A Track Record of Steady Growth and High Occupancy Rates

Occupancy rate (%)

100.0

96.9

97.5

97.4

97.7
95.0

97.5

98.1

98.1

98.7

97.8

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

Acquisition priceTokyo CBDs

Acquisition price(Yen in billions)670,249

700,000

670,513

Other Greater Tokyo

800

Other cities
600,000

578,243700

Occupancy rate

¥22.7 billion

624.8

Total rentable area

647.5 (contract

completed)*

488,323600

500,000

460,901
539.3

419,511500

400,000

358,940400

277,054

303,486

322,344414.1

340,497

393.8

300

226.5
200

300,000

336.1

247,687
246.0

260.2

276.0

285.6
200,000

192.1

100,000
100

0

22

24

26

28

29

33

43

43

47

52

55

56

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

May 23,
2001

December 31, June 30, December 31, June 30, December 31, June 30, December 31, June 30, December 31, June 30, December 31,
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
2006

(Investment commencement date)10* Contract basis. Toyosu 5-Chome Building (tentative name) calculated as ¥20 billion for convenience.

NBF Report July–December 2006

0

A Continuing Record of Achievement

Ongoing Improvement in Portfolio Quality

End of the 1st period

End of the 9th period

End of the 11th period(December 31, 2001)(December 31, 2005)(December 31, 2006)

39.0%

46.9%
21.0%

Diversifying tenant risk
(Top 10 tenants’ share)

31.9%

54.3%

Top 10 tenants’ share excluding Mitsui Fudosan Co., Ltd. (top 10 tenants at the end of the 1st period)

Mitsui Fudosan Co., Ltd.

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

23.0%

32.0%

54.0%

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

17.72 years

16.38 years

13.36 years

20.4%

11.5%

25.5%
12.9%

5.4%
88.5%

74.3%
Over 10 years

Between 5 and 10 years

61.6%
5 years or less

Portfolio PML (Probable Maximum Loss)

4.8%

3.8%

NBF Report July–December 2006

1.5%

11

A Continuing Record of Achievement

Planned New Acquisitions
Other Greater Tokyo

Nakanosakaue Sunbright Twin (Additional Acquisition)
and Nakanosakaue Sunbright Annex
Nakanosakaue Sunbright Twin

Nakanosakaue Sunbright Annex(Additional Acquisition)

Acquisition date

March 23, 2007

Ownership status

Co-ownership of Condominium

Acquisition price¥31,163 million¥452 million

Acquisition structure
Location

Ownership
46-1, Honcho 2-chome,
Nakano-ku, Tokyo

46-4, Honcho 2-chome,
Nakano-ku, Tokyo

Site area

10,331.90m2

Floor area of building* 63,396.95m2 (NBF share: 49.0%)
Structure

30 floors above ground,
2 floors below

Completed

Tokyo CBDs

12

2,463.94m2 (NBF share: 50.3%)
5 floors above ground,
1 floor below

September 30, 1996

NBF Ginza Street Building
Acquisition date

April 25, 2007

Ownership status

Fee simple

Acquisition price¥17,000 million

Acquisition structure

Trust

Location

7-5, Ginza 5-chome, Chuo-ku, Tokyo

Site area

425.60m2

Floor area of building

3,408.79m2

Structure

10 floors above ground, 1 floor below

Completed

June 12, 1990 (Building expansion: September 30, 1997)

NBF Report July–December 2006

Main Properties

1 Yamato Seimei Building●

NBF Report July–December 200613

6 Toranomon Kotohira Tower●

4 NBF Platinum Tower●

5 Gate City Ohsaki●

14

2 Nishi-Shinjuku Mitsui Building●

NBF Report July–December 2006

8 Nakameguro GT Tower●

Main Properties

19 NBF Akasaka Sanno Square●

29 Shin-Kawasaki Mitsui Building●

31 Parale Mitsui Building●

46 Shinanobashi Mitsui Building●

NBF Report July–December 2006

45 Aqua Dojima NBF Tower ●51 Aqua Dojima East●

15

Location of Office Properties

Tokyo CBDs
Kita-ku

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

Arakawa-ku

24 23

4 NBF Platinum Tower

Toshima-ku

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

Taito-ku

Bunkyo-ku

Nakano-ku

8 Nakameguro GT Tower
28

9 Shinjuku Mitsui Building No.2

Sumida-ku

10 GSK Building

Shinjuku-ku

2

22

11 NBF Toranomon Building

Chiyoda-ku

9

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

7

15Imperial
Palace10

14 NBF Alliance25

Chuo-ku

19

15 Yotsuya Medical Building

Koto-ku

1

Shibuya-ku

16 Shibuya Garden Front

6

17 NBF Shibakouen Building

11

12

14
16

18 NBF Takanawa Building
19 NBF Akasaka Sanno Square

Setagaya-ku

20 Sumitomo Densetsu Building

8

Minato-ku

57

21

13

3

56 27

17

26
4

21 NBF Higashi-Ginza Square

18
20

22 NBF Ogawamachi Building

Tokyo Bay

Meguro-ku

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

5

26 NBF Ebisu-minami Building

Shinagawa-ku

57 NBF Ginza Street Building*

Other Greater Tokyo
27 IST Building
28 Nakanosakaue Sunbright Twin
56 Toyosu 5-Chome Building**

3 Shiba NBF Tower●

11 NBF Toranomon●

14 NBF Alliance●* Scheduled for acquisition in April 2007.
** Scheduled for acquisition in March 2008.

16

16 Shibuya Garden Front●

17 NBF Shibakouen●

Building

Building

NBF Report July–December 2006

As of December 31, 2006
Other Greater TokyoTOCHIGI

29 Shin-Kawasaki Mitsui Building
30 Yokohama ST Building

UTSUNOMIYA

34

31 Parale Mitsui Building

33

32 NBF Atsugi Building

IBARAKITo Omiya

35 36

33 Tsukuba Mitsui Building
34 NBF Utsunomiya Building

SAITAMA

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

37

37 NBF Urawa Building
38 NBF Matsudo Building

TOKYO

38

CHIBA
28
56 27

Other Cities
Tokyo Bay

29
31

39 Sapporo L-Plaza
32

40 NBF Sapporo Minami Nijo Building

30

39 40

41 NBF Sendai Honcho Building
42 NBF Unix Building

KANAGAWA

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

41
42

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

52

49 NBF Sakai-Higashi Building

44

50 NBF Tanimachi Building

53 54
55

45 46 47 48

51 Aqua Dojima East

49 50 51

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

21 NBF Higashi-Ginza Square●

35 S-ino Omiya North Wing●

39 Sapporo L-Plaza●

47 Sun Mullion NBF Tower●

48 Sakaisuji-Honmachi●

Center Building

NBF Report July–December 2006

17

Portfolio Overview
NBF’s properties as of December 31, 2006 are as follows:

Name of Building

Investment
Type

Type of Ownership

Percentageof OwnershipYear Built

Acquisition
Price

(%)

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

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

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

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

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

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

64,56637,36831,87831,53025,241
21,67924,062
22,98015,735
14,228
13,833
12,35912,026
9,481
8,782
8,501
6,723
6,305
6,301
4,975
5,148
4,981
4,549
4,498
2,449
1,034

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

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

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

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

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

34,5908,438
20,20912,717
3,380
2,222
7,760
2,565
16,380
2,230
1,989
2,361

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

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

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

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

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

4,308
1,751
3,565
3,447
3,703
5,347
17,49012,128
9,373
6,450
2,060
1,927
1,898
1,409
2,970
784
2,399
597,065

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

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

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

18

NBF Report July–December 2006

Revenue

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

63
1
27
5
1
1
14
1
42
1
11
2
2
9
1
1
2
5
6
1
9
1
12
13
4
3

1,801
1,361
1,066
1,429
1,078
915
898
1,047
693
Note 2603
Note 2620
291
265
Note 2
Note 2
321
245
Note 2
233
186
215
190
116
59

7.0
5.3
4.1
5.5
4.2
3.5
3.5
4.0
2.7
Note 2
2.3
Note 22.4
1.1
1.0
Note 2
Note 21.2
0.9
Note 2
0.9
0.7
0.8
0.7
0.4
0.2

98.3
100
100
98.1
100
100
92.0
98.5
98.9
97.8
100
100

8
1
1
83
1
21
68
34
33
14
15
24

1,134
Note 2
953
744
325
142
505
146
762
123
113
135

4.4
Note 2
3.7
2.9
1.3
0.5
1.9
0.6
2.9
0.5
0.4
0.5

100
100
99.7
95.4
99.0
99.6
99.9
100
96.7
94.1
93.2
100
96.4
95.3
97.3
96.8
100
97.8

12
10
10
56
36
9
39
1
27
40
19
3
20
18
27
16
8
892

324
126
220
299
270
238
872
728
440
320
131
Note 2
121
94
160
40
157
25,894

1.3
0.5
0.8
1.2
1.0
0.9
3.4
2.8
1.7
1.2
0.5
Note 2
0.5
0.4
0.6
0.2
0.6
100.0

Appraisal Value

Rentable
Area

Leased Area at
End of Period

Occupancy Rate at
End of Period(Yen in millions)

(m2)

(m2)

(%)

65,00050,00033,10046,00032,90030,30030,20026,30023,00020,10018,60017,70014,860
11,2009,100
15,400
8,120
8,430
7,440
5,790
7,560
5,850
5,980
5,440
2,680
1,400

27,64032,967
24,72833,503
20,714
16,84816,30621,423
14,90022,702
10,193
10,08817,338
4,043
7,450
8,258
7,087
10,473
5,258
5,978
4,871
4,805
5,741
5,127
2,971
1,595

27,24632,967
24,72833,503
20,714
16,84816,30621,423
14,841
22,702
7,751
10,08817,338
4,043
7,450
8,258
986
10,458
5,258
5,978
4,871
4,805
5,730
5,127
2,971
1,595

96.8
100
100
100
100
100
100
100
99.6
100
76.0
100
100
100
100
100
13.9
99.9
100
100
100
100
99.8
100
100
100

36,90011,50020,50019,700
4,360
2,520
9,510
2,630
20,500
2,540
2,080
2,720

36,764
12,07427,92420,07012,545
5,230
16,834
6,164
20,699
3,574
3,455
4,772

36,144
12,07427,924
19,686
12,545
5,230
15,482
6,071
20,474
3,495
3,455
4,772

5,890
1,810
4,220
4,370
4,480
6,220
23,00014,900
10,200
7,100
2,540
2,100
2,250
1,750
3,210
887
2,700
735,537

11,396
5,352
7,567
13,47910,221
6,873
21,93525,237
14,121
11,438
5,327
4,948
3,243
3,931
5,612
1,310
5,416
670,513

11,396
5,352
7,542
12,86010,123
6,844
21,917
25,237
13,657
10,758
4,966
4,948
3,125
3,747
5,459
1,268
5,416
655,954

Total Number ofTenants at
End of Period

NBF Report July–December 2006

19

Management Team and Management Structure(As of March 17, 2007)

Corporate Structure and Management
Nippon Building Fund Inc. (NBF) is an investment corporation that takes a medium-to-long-term perspective with theaim of generating steady asset growth and stable earnings. NBF believes that fair, transparent management is central
to increasing return on investment.
■ Nippon Building Fund Inc.

of the voting rights of such shareholders. In addition, any change in the

Nippon Building Fund Inc. is an investment corporation established withasset management policies and standards, which are stipulated by NBF’s

the objective of investing in assets, primarily Designated Assets as defined

articles of incorporation, requires an extraordinary resolution of sharehold-by the Investment Trust Law of Japan. NBF entrusts management of its

ers as outlined above.

assets to Nippon Building Fund Management Ltd., which is an asset man-

Executive Directors, Supervisory Directors and theagement company.
NBF’s primary investment objective is to achieve sustainable growth inBoard of Directors

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

NBF’s articles of incorporation stipulate that NBF must have one orachieves this objective by investing in real estate consisting of buildings

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

primarily used for offices with their underlying land located in central busi-

number of supervisory directors must always be at least one greater thanness districts (CBDs) in Tokyo, Greater Tokyo and other cities in Japan. NBF

the number of executive directors). As of March 17, 2007, NBF had two

also invests in securities, beneficiary certificates representing beneficial

executive directors and four supervisory directors.

interests in trusts (beneficiary certificates) and other assets backed by

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

office properties.

related to the operations of NBF.

General Meeting of Shareholders

Supervisory directors are responsible for supervising execution by theSpecific matters pertaining to NBF that are subject to the Investment

executive directors.

Trust Law of Japan or the Company’s articles of incorporation are decided

The Board of Directors consists of the executive and supervisory direc-

by resolution of the General Meeting of Shareholders, which convenes at

tors. Its responsibilities include authorizing business execution and super-

least once every two years, in principle. The fifth General Meeting ofvising the performance of the executive directors. Resolutions by the Board

Shareholders convened on March 8, 2007. The date of the next Generalof Directors require a simple majority with more than half of the members

Meeting of Shareholders has not been set.

of the Board in attendance.

The General Meeting of Shareholders adopts or vetoes resolutions on

The bylaws of NBF’s Board of Directors stipulate that executive andthe basis of a simple majority of the voting rights of shareholders in atten-

supervisory directors may not participate in decisions in which they have adance, unless otherwise stipulated by laws, regulations or NBF’s articles ofvested interest. Executive and supervisory directors with such financial

incorporation. Decisions on
substantive matters such

General Meeting of
Shareholders

as changes in the articles

The Chuo Mitsui Trustand Banking Co., Ltd.

the attendance of shareholders that control a simple majority of total sharesissued and outstanding,and a two-thirds majority

20

Asset Custodyof incorporation require

Mitsui Fudosan Co., Ltd.

Asset
Management
Entrustment

Asset Custody
Entrustment

NIPPON BUILDING FUND Inc. (NBF)
OfficeManagement
Entrustment

Board of Directors

NBF Office Management Co., Ltd.

Borrowings /Bonds and
Notes
Debt
service

NIPPON BUILDINGFUND MANAGEMENT Ltd. (NBFM)

Qualified Institutional
Investors / Bondholders
Independent Auditors

Liabilities

Office Management
Investment

Real Estate, etc.
Rent, etc.

AssetsShareholders’EquityNBF Report July–December 2006

Investment
Distribution

Shareholder
Trading

Shareholder

Management Team

Seated from left:

Sadafumi Abe
Koichi Nishiyama
Standing from left:

Hatsuo Komatsu
Akira Nishizawa
Hideo Fukazawa
Sadao Kamiyama

Executive Directors

Supervisory Directors

Name

New/Reappointment

Background Summary

Sadafumi Abe(Reappointed)

Koichi Nishiyama(Reappointed)

Akira Nishizawa(Reappointed)

Hideo Fukazawa(Reappointed)

Hatsuo Komatsu
Sadao Kamiyama(Newly appointed)(Newly appointed)

Appointed Executive Director of NBF in March 2005 after serving as Corporate
Auditor of Mitsui Fudosan Co., Ltd.
Representative Director of Nippon Building Fund Management Ltd. Executive
Director of NBF since August 2001.
Appointed Supervisory Director of NBF in August 2001. Real estate appraiser. Tokyo
District Court Appraisal Committee member.
Appointed Supervisory Director of NBF in March 2005 after serving as a deputy
director of the Ministry of Land, and director of the Government Housing Loan
Corporation.
Attorney. Appointed Supervisory Director of NBF in March 2007.
Certified Public Accountant. Certified Public Tax Accountant. Appointed Supervisory
Director of NBF in March 2007.

interest shall not be included in the number of executive and supervisory

executive directors and all four supervisory directors were elected at thedirectors in attendance for such decisions.

General Meeting of Shareholders held on March 8, 2007, and assumed

The terms of office of executive directors and supervisory directors are

office on March 17, 2007.

two years from the time they assume office. The terms of executive directors and supervisory directors selected to fill a vacancy or because of anincrease in the number of directors expire at the same time as the remaining terms of their predecessors or the current directors. Both of the two

NBF Report July–December 200621

■ Nippon Building Fund Management Ltd.

Management Structure

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

General Meeting of Unitholders
AuditorBoard of Directors

Matters Entrusted toInternal Audit Organization

Nippon Building Fund Management Ltd.

Executive BoardCEOAs the asset management company required by the Investment Trust

Accounting Auditor
Investment
Review Board

Law of Japan, Nippon Building Fund Management Ltd. manages NBF’s

Risk
Management
Board

assets in accordance with the asset management objectives and policies
stipulated by NBF’s articles of incorporation. In addition, in accordance

Investment & Finance Group

Corporate Operation Group

with the manager of general administration contract designating Nippon
Building Fund Management Ltd. as the institutional manager of NBF’s

Real EstateManagement
Team

Real Estate
Investment
Team

Research
Team

FinancialTeam

assets, Nippon Building Fund Management Ltd. also executes certain

Fund
Operation
Team

Corporate
Risk
Planning &Management
Administration & Compliance
Team
Team

responsibilities in connection with the operation of the General Meetingof Shareholders and the Board of Directors as manager of general admin-

sentative director, supervises and executes the operations of Nippon

istration.

Building Fund Management Ltd. The heads of the Investment & FinanceGroup and the Corporate Operation Group also serve as directors, and over-Management Structure of

see their respective divisions under the direction and oversight of the pres-

Nippon Building Fund Management Ltd.

ident. Corporate auditors conduct accounting audits and operational audits

The Board of Directors makes decisions on the basic management poli-of Nippon Building Fund Management Ltd. An internal audit unit conducts

cies of Nippon Building Fund Management Ltd. and oversees execution ofinternal audits covering the operations and departments of Nippon Building

the duties of the representative director. The president, who is the repre-

Fund Management Ltd. at the request of the Board of Directors.

Nippon Building Fund Management Ltd. Management Team (As of April 1, 2007)
Name

Title

Career Summary

Koichi Nishiyama

President and CEO
and Representative
Director

Yasushi Nakayama

Director, Head ofInvestment& Finance GroupRiichi Morihiro

Director, Head ofCorporate Operation
Group

April 1974 Joined Mitsui Fudosan Co., Ltd.
April 2000 Manager of Building Fund Office, Building Division of Mitsui Fudosan
Sept. 2000 President and representative director of MF Asset Management Co., Ltd.
(now Nippon Building Fund Management Ltd.) (current position)
Aug. 2001 Became Executive Director of NBF (current position)
April 1981 Joined Mitsui Fudosan Co., Ltd.
April 2001 Head of Building Business Division, Building Department of Mitsui Fudosan
April 2006 Manager of Building Department, Chiyoda Development Division of Mitsui Fudosan
April 2007 Became Director of Nippon Building Fund Management, Ltd. (current position)
April 1978 Joined Sumitomo Life Insurance Company
Oct. 2002 Assistant Manager, Financial Corporation Division of Sumitomo Life Insurance
April 2005 Director and Manager of Residential Planning Division, Eisen Realty Co., Ltd.
April 2006 Became Director of Nippon Building Fund Management Ltd. (current position)
April 2007 Became Director of Nippon Building Fund Management, Ltd. (current position)
April 2002 Became Director of Nippon Building Fund Management Ltd. (current position)
April 2007 Became Auditor of Nippon Building Fund Management, Ltd. (current position)

Kimihiro Suwa
Tamotsu Shinyama
Kaneo Maeda

Director (Part-time)
Director (Part-time)
Corporate Auditor(Part-time)
Noriyuki Moromachi Corporate Auditor(Part-time)

22

April 2003 Became Auditor of Nippon Building Fund Management Ltd. (current position)

NBF Report July–December 2006

Management Team and Management Structure■ Compliance Initiatives

fund procurement and management policies; accounting guidelines for tax

The management of NBF and Nippon Building Fund Management Ltd.
conduct honest and appropriate business activities while maintaining rigor-

accounting and dividend distribution policies; and guidelines on transactions with potential conflicts of interest.

ous compliance by adhering to all relevant laws and regulations, based on

Policy and Management System fora high level of corporate ethics.
The bylaws of NBF’s Board of Directors stipulate that Board of
Directors meetings are to be held at least once every three months. In

Dealing with Conflict of Interest Transactions■

Fundamental Policy on Conflict of Interest Transactions

practice, NBF holds such meetings once a month. At Board meetings, exec-

Nippon Building Fund Management Ltd. is constantly aware of its

utive directors report on their execution of their duties and supervisoryaccountability to NBF and NBF’s shareholders with regard to any transac-

directors ensure that oversight and check-and-balance systems are func-

tions in which the interests of NBF and the interests of Nippon Building

tioning properly.

Fund Management Ltd. and its related corporations or customers may con-

Nippon Building Fund Management Ltd. views compliance as a man-flict. Nippon Building Fund Management Ltd. follows voluntary rules stipu-

agement strategy, with a fundamental compliance policy of conducting

lated in laws and internal bylaws to proactively prevent conflicts of interest.

operations honestly and fairly while maintaining a rigorous complianceAll decisions made in executing the management of NBF’s assets are

system based on a high level of corporate ethics. Specifically, Nippon

subject to the approval of the president, and are made after going throughBuilding Fund Management Ltd. requires that a compliance officer be

discussions by the Investment Review Board and Executive Board ofassigned to the Corporate Operation Group, and has establishedNippon Building Fund Management Ltd. Sponsor companies are not permit-

Compliance Rules and a Compliance Manual. In addition, a Complianceted to intervene in the decision-making process.

Program is formulated each year to verify the progress of the execution■

Voluntary Rules for Conflict of Interest Transactions
Stipulated in Internal Bylaws

plan for that year and identify any problem areas.

Nippon Building Fund Management Ltd. has set voluntary rules in its

Risk Management Systeminternal bylaws to address transactions with parties, including sponsor

NBF and Nippon Building Fund Management Ltd. have established thefollowing risk management system to avoid and minimize risks related tocompanies that have interests in Nippon Building Fund Management Ltd.
The voluntary rules require the Investment Division, which initiates theinvestments.

transaction, as well as the Compliance Department, the Asset■

NBF

Management Examination Meeting and other units to protect NBF’s man-

NBF’s Risk Management Regulations define risk management policies

aged assets and profits by fully examining the transaction contents accord-and procedures. The Risk Management Board convenes once every three

ing to the voluntary rules set in the internal bylaws in the event of a trans-months and undertakes deliberation, monitoring and other initiatives toaction in which the interests of Nippon Building Fund Management Ltd.

ensure that the entrusted asset manager is conducting its duties with dueand parties that have interests in Nippon Building Fund Management Ltd.

care in good faith in a manner consistent with its fiduciary duty to the con-may conflict with the interests of NBF. These rules are designed from theservation and maintenance of entrusted assets.

standpoint of accountability to NBF and its shareholders.

■

In examining the transaction contents, Nippon Building Fund

Nippon Building Fund Management Ltd.
Nippon Building Fund Management Ltd. formulates a Management

Management Ltd. solicits the opinions of attorneys, certified tax account-

Policy, a Medium-to-Long-Term Asset Management Policy and an Annual

ants and other third-party experts as needed. In addition, when purchasing

Management Plan to follow in managing NBF’s assets. In addition, Nippon

real estate or other assets from parties that have interests in Nippon

Building Fund Management Ltd. has set Asset Management Guidelines as

Building Fund Management Ltd., the purchase price is strictly set no higher

a set of standards to follow.

than the appraised value according to a real estate appraiser, who, as a

The Asset Management Guidelines consist of management guidelines

rule, shall have no vested interest.

for management, acquisition and sale of assets; financial guidelines for

NBF Report July–December 2006

23

Management’s Discussion and Analysis

Summary of Selected Financial Data
11th Period
from July 1, 2006 to
December 31, 2006

10th Period
from January 1, 2006 toJune 30, 2006

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

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

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

Note 2

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

11th Period
from July 1, 2006 to
December 31, 2006
U.S. dollars in thousands
except per share data (Note 1)¥25,894
25,894—
14,242
13,095
9,767
9,766¥24,307
22,872
1,435
12,622
11,472
9,852
9,851¥19,363
19,363—
10,582
9,694
7,206
7,205

$ 217,560
217,560—
119,661
110,024
82,062
82,053Note 3Note 3(b)

14,754
17,787
9,766
4,988
1,317

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

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

123,962
149,445
82,053
41,90911,065(c)(d)

634,117
236,500
356,213633,693
237,500
356,297564,902257,500
269,376

5,327,819
1,987,061
2,992,884

Total number of common shares issued (shares)
Net assets per share (Yen)Distribution per share (Yen)Funds from operations per share (Yen)(e)(d) / (e)(b) / (e)Note 3508,000
701,206
19,22429,043508,000
701,373
19,391
27,395

422,700
637,274
17,046
26,505

—
5,891
162
244

ROA
(Annual rate)
ROE(Annual rate)
LTV (Loan to Value)
Capital ratio
Payout ratio
Number of days

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

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

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

1.54%(3.08%)
2.74%(5.48%)
40.9%
56.2%
99.9%
184

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

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

55
892
670,513
97.8%

55
887
670,249
98.7%

52
868
578,243
98.1%

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥119.02=U.S. $1.00, the approximate exchange rate on December 31, 2006.
2. Operating revenues do not include consumption tax.
3. All valuations are calculated through the following formulas. The figures in parentheses are annualized based on the 6-month figures for the period.
ROA: Income before income taxes / (Initial total assets + Total assets at end of period) ÷ 2
ROE: Net income / (Initial net assets + Net assets at end of period) ÷ 2
Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation and amortization
Funds from operations: Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization
Funds from operations per share: (Net income (excluding Gain on sale of investment properties + Gain on exchange of investment properties) + Depreciation and amortization) / Weighted average
number of common shares issued and outstanding during the period.
Loan to value: (Interest-bearing debt + Deposits under management) / Total assets
4. Payout ratio figures are calculated to one decimal place only.
5. Number of investment properties means units generally perceived to be one office building. Number of tenants means gross number of tenants by building. Occupancy rate is the ratio of grossleased area to total rentable area at the end of the period.

24

NBF Report July–December 2006

Operating Environment and Results
During the six months ended December 31, 2006 (the “11th Period”), Japan’s economy continued its gradual but steady recovery. Whileconsumer spending was little changed, improved corporate profits resulted in continued steady growth in capital investment and employment
conditions improved.
In the office building leasing market, economic recovery has led companies to expand or to consolidate in larger floor space, which has
caused vacancy rates to decrease nationwide. In the central business districts of Tokyo in particular, the scarcity of space available in largescale buildings continues to drive rent for new tenants higher.
In the real estate acquisition market, solid demand for office space and low interest rates have led domestic and foreign funds, J-REITs andother institutions to invest aggressively, which has caused acquisition prices to rise. The environment for real estate acquisition therefore
became increasingly challenging.
Under these conditions, NBF exercised careful deliberation that made the most of its innovative acquisition techniques and collective
expertise, based on its strategy of investing in high-quality, highly competitive office buildings with comparatively stable rental cash flow andlittle risk of decline in asset value. In September 2006, NBF decided to acquire the Toyosu 5-Chome Building (tentative name; acquisitionscheduled to close in March 2008 for a maximum price of ¥24,100 million). In December 2006, NBF decided to acquire a building with land in
Kandasuda-cho 2-Chome, Chiyoda-ku, Tokyo (acquisition scheduled to close in June 2007 for ¥900 million) and the NBF Nagoya Hirokoji
Building Expansion (acquisition scheduled to close in March 2008 for ¥1,826 million).
NBF also moved to maintain high occupancy rates by reflecting tenant needs in property management, regularly implementing tenant service initiatives and aggressively marketing properties to new tenants. In addition, NBF increased rents for new tenants and for existing tenants
that renewed lease contracts. These and other efforts enhanced profitability.
As a result of these efforts, NBF’s real estate portfolio as of December 31, 2006 totaled 55 buildings. Total investment on an acquisition
price basis was ¥624,839 million. Total rentable area was 670,513m 2. The occupancy rate decreased 0.9 percentage points from June 30,
2006 to 97.8 percent. Tenants totaled 892.

Occupancy rate

Acquisition price(Yen in billions)

December 31,
2006¥22.7 billion(contract completed)*

June 30,
2006(%)

December 31,
2006
June 30,
2006

December 31,
2005

December 31,
2005

June 30,
2005

June 30,
2005

December 31,
2004

December 31,
2004
0

100

200

300

400

500

600

700

0

90 91 92 93 94 95 96 97 98 99 100* Contract basis. Toyosu 5-Chome Building (tentative name)calculated as ¥20 billion for convenience.

Overview of Performance
Operating revenues for the six months ended December 31, 2006 increased 6.5 percent, or ¥1,586 million, compared with the previous
six-month period to ¥25,894 million. Operating income in the property leasing business increased 12.3 percent, or ¥1,399 million, comparedwith the previous six-month period to ¥12,799 million. Operating income decreased 0.3 percent, or ¥33 million, compared to the previous
six-month period to ¥11,652 million.
Operating income decreased despite the full-period contribution of seven buildings acquired in the previous six-month period, including
the NBF Platinum Tower and the Nishi-Shinjuku Mitsui Building (additional acquisition), because of the absence of gain on sale of invest-

NBF Report July–December 200625

ment properties and gain on exchange of investment properties totaling ¥1,435 million recorded in the previous six-month period in connection with the transfer of the JFE Building in exchange for five buildings and the transfer of other buildings as part of NBF’s portfolio realignment strategy. Absent these one-time gains, which significantly increased earnings in the real estate leasing business in the previous sixmonth period, operating income would have increased period-on-period.

Operating income from property
leasing activities

Operating revenues(Yen in millions)(Yen in millions)

11th

11th
PeriodPeriod10th
Period10th
Period9th
Period9th
Period8th
Period8th
Period7th
Period7th
Period005,000 10,000 15,000 20,000 25,000 30,000

5,000

10,00015,000Distribution for the Current Period
Distribution per share for the current period was ¥19,224. NBF expected to distribute almost all taxable income for the current period tobe eligible for special tax treatment (Special Taxation Measures Law of Japan Article 67-15) that allows NBF to deduct its cash dividends
of profits from taxable income.
For the six months ended
December 31, 2006

For the six months ended
June 30, 2006

For the six months ended
December 31, 2005

(Yen in thousands, except per share amounts)

Retained earnings
Undistributed earnings
Total cash distribution(Total cash distribution per share)
Distribution of accumulated earnings(Distribution of accumulated earnings per share)
Cash distribution in excess of accumulated earnings(per share)¥9,766,001
209
9,765,792
19,224
9,765,792
19,224——¥9,850,811
183
9,850,628
19,3919,850,628
19,391——¥7,205,589
245
7,205,344
17,046
7,205,344
17,046——

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

Distribution per share

Total cash distribution
(Yen)

11th
PeriodPeriod10th
Period10th
Period9th
Period9th
Period8th
Period8th
Period7th
Period7th
Period0

26(Yen in millions)

11th

5,000

10,00015,00020,00002,500

NBF Report July–December 2006

5,000

7,500

10,000Management’s Discussion and Analysis

Changes in Total Assets, Liabilities and Net Assets■ Total Assets
As of December 31, 2006, total assets increased ¥424 million compared with June 30, 2006 to ¥634,117 million. Return on average total
assets (ROA) for the six months ended December 31, 2006 decreased to 1.54 percent from 1.64 percent for the previous six-month period.
Current assets increased ¥3,057 million compared with June 30, 2006 to ¥34,777 million. Investment properties decreased ¥2,674 million compared with June 30, 2006 to ¥597,122 million.

■ Liabilities
Current liabilities increased ¥16,798 million compared with June 30, 2006 to ¥49,319 million, primarily because of an increase in longterm debt due within one year compared with December 31, 2006.
Long-term debt decreased ¥17,000 million compared with June 30, 2006 to ¥195,000 million. NBF increased long-term debt to raise theratio of fixed-rate long-term debt.
As a result, total interest-bearing liabilities decreased ¥1,000 million compared to June 30, 2006 to ¥236,500 million. The ratio of fixedrate long-term debt to total interest-bearing liabilities decreased to 82.5 percent from 89.3 percent as of June 30, 2006. The loan-tovalue ratio, calculated as the ratio of interest-bearing liabilities plus deposits under management to total assets, decreased to 40.9 percent
from 41.0 percent as of June 30, 2006.
In addition, NBF worked to diversify funding sources. In January 2005, NBF submitted a shelf registration to publicly offer up to ¥200 billion
in bonds. As of December 31, 2006, NBF had issued bonds totaling ¥20,000 million under this shelf registration.

■ Net Assets
Net assets decreased ¥85 million compared with June 30, 2006 to ¥356,213 million.

Total assets

Net assets(Yen in millions)

11th(Yen in millions)

11th
PeriodPeriod10th

10th
PeriodPeriod9th
Period9th
Period8th

8th
PeriodPeriod7th
Period0300,000 400,000 500,000 600,000 700,000

7thPeriod0100,000

200,000

300,000

400,000

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, 2006, NBF had issued 508,000 common shares out of
2,000,000 total authorized shares. NBF’s common shares were listed on the J-REIT section of the Tokyo Stock Exchange in September 2001

NBF Report July–December 2006

27

upon the completion of a public offering. As the Investment Trust Law of Japan does not contain any provision for the issue of more than
one class of shares, NBF’s common shares comprise the sole class of shares authorized and issued by NBF.
Common shares outstanding
Issue date

Remarks

Increase

Paid-in capital

Balance

Increase(Shares)

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

March 16, 2001

Balance

Notes(Yen in millions)

200

200

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

4,000

¥

100

¥

100

Note 1

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

Note 2
Note 3Note 4

364,700

2,942

210,679

Note 558,00080,000422,700
502,700

51,491
79,040262,170
341,210Note 6Note 75,300

508,000

5,236

346,446

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

■ Market Price of Shares
High/Low (closing price) of shares on the TSE:
For the six months ended
December 31, 2006

For the six months ended
June 30, 2006

For the six months ended
December 31, 2005

(Yen)

High

¥1,580,000¥1,170,000¥1,020,000

Low

1,080,000

995,000

891,000■ Borrowings
Borrowings by financial institution as of December 31, 2006 are shown below.
Short-term debt
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

0.7%
0.8%
0.7%
0.7%
0.7%
0.7%
0.8%
0.8%
0.8%
0.8%

January 31, 2007
March 30, 2007
February 28, 2007
January 31, 2007
January 31, 2007
January 31, 2007
February 28, 2007
February 28, 2007
February 28, 2007
March 30, 2007

Repayment
methodUse of
funds

Notes

(Yen in millions)

28

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

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

Total short-term debt

¥11,500

NBF Report July–December 2006

Bulletpayment(Note 2)

Unsecured/unguaranteed/pari passu,
See (Note 3)
Floating rate

Management’s Discussion and Analysis

Long-term debt
LenderAverageinterest rate (%)

Due on(Note 1)

¥ 4,000
10,00010,00010,00010,00012,000
5,000
5,000
3,000
1,000
10,00010,000
9,000
5,000
1,000
2,000
4,000
2,000
3,000
2,000
3,000
4,000
1,000
2,000
8,000
3,000
2,000
2,000
6,000

1.8%
1.5%
1.8%
2.0%
2.4%
1.7%
1.7%
2.1%
1.2%
1.7%
1.5%
2.3%
1.3%
1.6%
1.2%
1.7%
1.8%
1.6%
1.6%
2.0%
2.1%
2.2%
2.2%
1.2%
1.1%
0.9%
0.8%
1.1%
1.3%

November 28, 2014
September 11, 2015
September 27, 2017
February 15, 2016
May 30, 2018
May 23, 2008
July 16, 2009
July 19, 2011
February 3, 2010
June 1, 2011
September 11, 2015
May 30, 2016
July 16, 2007
March 30, 2011
March 30, 2009
February 13, 2012
March 30, 2012
November 1, 2012
December 13, 2013
May 30, 2013
December 21, 2011
April 27, 2012
May 23, 2012
February 26, 2010
November 20, 2008
October 30, 2009
April 1, 2010
October 19, 2010
July 16, 2007

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

1.2%
1.8%
2.0%
1.4%
1.2%
1.2%
1.5%

February 3, 2010
March 30, 2012
October 31, 2014
October 4, 2013
March 12, 2007
March 12, 2007
June 30, 2009

Balance

Repayment
methodUse of
funds

Notes

(Yen in millions)

Development Bank of Japan

Sumitomo Life Insurance Company

Zenkyoren(The National Mutual Insurance
Federation of Agricultural Cooperatives)

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

Meiji Yasuda Life Insurance Company

The Norinchukin Bank
Nippon Life Insurance Company

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

Sumitomo Mitsui
Banking Corporation

Bulletpayment(Note 2)

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

(Continued)

NBF Report July–December 2006

29

Long-term debt (Continued)
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

Repayment
method0.8%

February 13, 2008

0.7%
1.2%
1.7%
1.4%
0.7%

September 28, 2007
February 12, 2010
December 15, 2014
May 23, 2008
February 2, 2007

Use of
funds

Notes

(Yen in millions)

The Dai-Ichi Mutual Life
¥ 2,000
Insurance Company
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
2,000
Taiyo Life Insurance Company
1,000
1,000
The Joyo Bank, Ltd.
1,000
The Iyo Bank, Ltd.
1,000
Total long-term debt
Total borrowings (Note 4)

Bulletpayment(Note 2)

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

¥165,000¥176,500

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

Amount Borrowed

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥23,000¥10,000¥12,000¥14,000■ NBF Bonds
Issue

Issue date

Balance as ofDecember 31, 2006

CouponMaturitydate

Redemption

Use ofproceeds

Notes

Bullet payment

Note 1

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

February 10, 2003

¥10,000

0.75%

February 9, 2007

No. 3 Unsecured Bonds

June 12, 2003

¥10,000

2.00%

June 12, 2018

Bullet payment

Note 1

Note 2

No. 4 Unsecured Bonds

September 22, 2004

¥10,000

1.04%

September 22,
2009

Bullet payment

Note 1

Note 2

No. 5 Unsecured Bonds

September 22, 2004

¥10,000

1.60%

September 22,
2011

Bullet payment

Note 1

Note 2

No. 6 Unsecured Bonds

March 9, 2005

¥10,000

0.80%

March 9, 2010

Bullet payment

Note 1

No. 7 Unsecured Bonds

November 9, 2005

¥10,000

1.85%

November 9,
2015

Bullet payment

Note 1

Total (Note 3)¥60,000

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

Amount Borrowed

Within 1 year

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥10,000—¥10,000¥10,000¥10,000■ Others
NBF has security deposits totaling ¥33,534 million as of December 31, 2006.

30

NBF Report July–December 2006

Management’s Discussion and Analysis

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

Objective

Estimated
duration

Total amounts

Payment for thecurrent period(from July 1, 2006 to
December 31, 2006)(Yen in millions)

Cumulative
amount paid

NBF Shibakouen Bldg.

Renovation ofcommon space

From November 2006
to January 2007

¥ 102

¥—

¥—

NBF Sakai Higashi Bldg.

Renovation of airconditioning of 8th floor

From March 2007
to March 2007

22

—

—

NBF Sendai Honcho Bldg.

Renovation of airconditioning (Phase 3)

From April 2007
to June 2007

115

—

—

Yokohama ST Bldg.

Installation of new
security equipment

From July 2007
to December 2007

142

—

—

NBF Sendai Honcho Bldg.

Renovation of airconditioning (Phase 4)

From September 2007
to December 2007

81

—

—

NBF Report July–December 200631

■ Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NBF posted ¥1,317 million in capital expenditures together
with ¥593 million for repairs and maintenance expenses.
Name of property

Objective

PeriodExpenditure(Yen in millions)

NBF Toranomon Bldg.

Renovation of 8th floor, projects including renovationof 5th basement level rubbish handling facilities¥ 246

NBF Sendai Honcho Bldg.

Renovation of air-conditioning (Phase 2), projects
including replacement of new rooftop cooling
unit inverters

115

Parale Mitsui Bldg.

Projects including installation of security
equipment and emergency lighting

NBF Shijo Karasuma Bldg.

Parking facilities, projects including replacement ofparking turntable drive components, and maintenance of internal HVAC mechanisms (floors 1-4)

18

Other buildings

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

881

From July 2006
to December 2006

Total

56

¥1,317■ Cash Reserve for Capital Improvements
NBF accumulates cash reserves from cash flows to prepare for large-scale mid-term to long-term capital improvements and repairs andmaintenance that will be conducted in accordance with NBF’s business plan for each property.
As of December 31, 2006

As of June 30, 2006
(Yen in millions)

Reserve balance at the beginning of the period¥1,413¥1,166

Amount accumulated in the current period

1,460

1,453

Withdrawal from reserves in the current period

1,924

1,206

Amount carried forward¥ 949¥1,413

Notes: 1. The reserve figures represent only the amount of reserves attributable to NBF's ownership interest; the amount of reserves attributable to other owners has
been excluded.
2. The above reserves do not include an accumulated reserve of ¥1,723 million as of December 31, 2006 for repair based on maintenance and other contracts with management organizations at buildings owned by NBF.

32

NBF Report July–December 2006

Management’s Discussion and Analysis

Expenses regarding Entrustment, etc.
The following table sets forth the breakdown of entrustment fees, etc. paid by NBF.
For the six months ended
December 31, 2006

For the six months ended
June 30, 2006

For the six months ended
December 31, 2005

(Yen in millions)

Item

Asset management fees

¥ 949

¥ 877

¥707

Asset custody fees

30

26

21

Agent fees
(stock transfer, accounting and administrative)

56

67

57

Directors' remuneration

19

11

11

Auditor’s fees

12

12

12

Other expenses

80

157

80

¥1,147¥1,150

¥888

Total

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

Trading Activities during the Current Period■ Trading of Real Estate and Real Estate Held in Trust
None■ Trading of Other Assets Including Total Amount and Transactions
Other major assets besides real estate and real estate held in trust stated above consist mostly of bank deposits or bank deposits
included in assets held in trust.

NBF Report July–December 2006

33

Management’s Discussion and Analysis■Related Party Transactions
Ongoing Transactions
None.

Fees Paid for the Period from July 1, 2006 to December 31, 2006
Description of transactions with related parties (Note 1)
Category

Total fees paid
(A)

Paid to(Yen in millions)

Amount ofpayment (B)(Yen in millions)

B/A(Note 2)

Office management fees, etc.
(Note 3)

¥1,024

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

¥990
28

96.7%
2.7%

Property maintenance fees

2,361

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

489
324
125
76
11
2
0

20.7%
13.7%
5.3%
3.2%
0.5%
0.1%
0.0%

Leasing related service fees

149

Mitsui Fudosan Co., Ltd.
NBF Office Management Co., Ltd.
Mitsui Real Estate Sales Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.

46
14
2
1

30.6%
9.4%
1.2%
0.5%

Notes: 1. “Related parties” mean parties defined in Article 20 of the government ordinance regarding the Investment Trust Law of Japan, principally, parties related to an
asset management company.
2. Figures indicate percentages of total prices.
3. NBF leases Nishi-Shinjuku Mitsui Bldg., Gate City Ohsaki, Toranomon Kotohira Tower, Naka-Meguro GT Tower, NBF Ogawamachi Bldg., Shin-Kawasaki Mitsui Bldg.,
Parale Mitsui Bldg. and Shinanobashi Mitsui Bldg. to Mitsui Fudosan Co., Ltd., which sub-leases them to sub-lessees. Further, Sumitomo Trust & Banking Co., Ltd., astrustee, also leases the Yotsuya Medical Bldg. to Mitsui Fudosan Co., Ltd., which sub-leases it to sub-lessees. Accordingly, NBF does not entrust the office management business for those properties to Mitsui Fudosan. Instead, NBF Office Management Co., Ltd. has been entrusted to undertake such business on behalf of NBF, theowner and lessor of those properties.
4. In addition to the above fees, a certain portion of the fees paid by NBF to a third party (a company supervising investment company securities) for handling payments ofprincipal and interest concerning the No. 2, No. 3, No. 4, No. 5 and No. 6 NBF Bonds was paid to Daiwa Securities SMBC Co., Ltd., and in the same manner, a certain
portion of the fees for No. 6 NBF Bond was paid to Nomura Securities Co., Ltd.
5. In addition to the above fees paid, the following have been paid to related parties for repair and maintenance work.
(Yen in millions)

Mitsui Fudosan Building Management Co., Ltd.
First Facilities West Co., Ltd.
First Facilities Co., Ltd.
Mitsui Designtech Co., Ltd.
Mitsui Fudosan Co., Ltd.
First Facilities Yokohama Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
Mitsui Home Linkage Co., Ltd.
Sumitomo Life lnsurance Company

34

¥161
127
107
65
62
17
4
1
0

NBF Report July–December 2006

Financial Statements

35

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

As of
December 31, 2006

As ofJune 30, 2006
(Yen in millions)

AssetsCurrent assets:
Cash and cash equivalents
Tenant receivables
Consumption tax refund receivables and other current assets
Total current assets
Investment properties:
Land including trust accounts (Note 3)
Building and improvements including trust accounts (Note 3)
Other tangible assets (Note 3)
Less: accumulated depreciation (Note 3)
Leasehold rights in trust accounts and other intangible assets
Total investment properties, net
Other assets¥ 34,131
336
310
34,777¥ 28,769
340
2,611
31,720357,174
235,037
5,897(29,693)
28,707597,1222,218

356,950
233,1635,688(24,715)
28,710599,796
2,177

Total Assets¥634,117¥633,693

Liabilities
Current liabilities:
Short-term loans (Note 5)Long-term debt due within one year (Note 5)
Bonds due within one year (Note 5)
Accounts payable
Rents received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term debt (Note 5)
Tenant security deposits
Other liabilities¥ 11,500
20,00010,000
2,440
2,987
2,392
49,319195,000
33,53451¥ 11,500
4,000
10,000
2,669
2,956
1,397
32,522
212,000
32,82351

Total Liabilities

277,904

277,396346,446

346,446

9,767

9,851

Net Assets (Note 4)
Shareholders' equity
Common shares, non-par value
Shares authorized: 2,000,000 shares
Shares issued and outstanding: 508,000 shares
Retained earnings
Total Net Assets

356,213356,297

Total Liabilities and Net Assets¥634,117¥633,693

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

36

NBF Report July–December 2006

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

For the six months ended
December 31, 2006

For the six months ended
June 30, 2006

For the six months ended
December 31, 2005

(Yen in millions)

Revenues:
Rental (Note 6)
Other revenues related to property leasing (Note 6)
Gain on sale of investment properties (Note 7)
Gain on exchange of investment properties (Note 7)¥23,121
2,773——¥20,799
2,073
685
750

¥17,429
1,934——

Total Revenues

25,89424,307

19,363Operating Expenses:
Property management fees (Note 6)
Real estate taxes (Note 6)
Insurance (Note 6)
Repairs and maintenance (Note 6)
Other rental expenses (Note 6)
Depreciation and amortization (Note 6)
Asset management fees
Other expenses

3,403
1,765
36
593
2,310
4,988
949
198

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

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

Total Operating Expenses

14,242

12,622

10,582

Operating Income

11,652

11,685

8,781Interest income
Interest expense
New investment shares issue costs
Amortization of bond issue costs
Other expenses, net

3(1,822)
—
(36)
(30)

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

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

Income Before Income Taxes

9,767

9,852

7,206

(1)

(1)

(1)

¥ 9,766¥ 9,851¥ 7,205

Current and deferred income taxes (Note 8)
Net Income
The accompanying notes to financial statements are an integral part of these statements.

NBF Report July–December 2006

37

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

(Yen in millions)
Number ofCommonSharesCommonSharesRetained
Earnings

Total

364,700¥210,679¥ 6,161¥216,840——(6,161)(6,161)58,00051,491—51,491

—

—

7,205

7,205

422,700

262,170

7,205

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

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

5,300

5,236

—

5,236

—

—

9,851

9,851

508,000

346,446

9,851

356,297

Cash dividends declared——(9,850)(9,850)Net income

—

—

9,766

9,766

508,000¥346,446¥ 9,767¥356,213

Balance as of June 30, 2005
Cash dividends declaredIssuance of new shares through public offering as of August 10, 2005
Net income
Balance as of December 31, 2005
Cash dividends declared

Net income
Balance as of June 30, 2006

Balance as of December 31, 2006
The accompanying notes to financial statements are an integral part of these statements.

38

NBF Report July–December 2006

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

For the six months ended
December 31, 2006

For the six months ended
June 30, 2006

For the six months ended
December 31, 2005

(Yen in millions)

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Amortization of bond issue costs
Interest expense(Increase) Decrease in tenant receivables
Gain on exchange of investment properties
Increase (Decrease) in accounts payable
Increase (Decrease) in rents received in advance
Decrease in investment properties in trust
accounts due to sale
Cash payments of interest expense(Increase) Decrease in consumption tax refund receivable
Other, net¥ 9,767
4,988
36
1,822
4
—
(209)
31

¥

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

¥

7,206
3,664
57
1,366
42
—
(83)
373

—
(1,815)
2,219
1,082

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

Net Cash Provided by Operating Activities

17,925

14,771

10,371

Cash Flows from Investing Activities:
Payments for purchases of investment properties
Payments for purchases of intangible assets
Proceeds from tenant security deposits
Payments for tenant security deposits
Refunds from security deposits paid to lessors
Payments for security deposits paid to lessors
Payments for purchases of other assets(2,341)—
1,900(1,188)—(9)(81)(64,419)(8,871)
10,212(8,879)
4
(3)
(695)

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

Net Cash Used in Investing Activities(1,719)(72,651)(123,480)

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

24,000(24,000)(1,000)——(9,844)

168,000(206,000)
18,000—84,135(7,199)184,200(168,400)
42,000(63)
51,388(6,160)Net Cash (Used in) Provided by Financing Activities(10,844)

56,936

102,965

Net Change in Cash and Cash Equivalents
Cash and cash equivalents at the beginning of period

5,362
28,769(944)
29,713(10,144)
39,857

Cash and Cash Equivalents at the End of Period¥ 34,131¥ 28,769¥ 29,713

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

NBF Report July–December 2006

39

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

Note 1—Organization and Basis of Presentation■ Organization
Nippon Building Fund Inc. (hereinafter "NBF") was formed on March 16, 2001 as an investment corporation under the Investment Trust
Law of Japan with Mitsui Fudosan Co., Ltd., The Chuo Mitsui Trust and Banking Co., Ltd., and Nippon Building Fund Management Ltd.
(hereinafter "NBFM") acting as sponsors. Registration with the Kanto Local Finance Bureau of the Ministry of Finance was completed on
May 10, 2001 and NBF started acquisition of office properties on May 23, 2001.
NBF is an externally managed real estate fund, formed as an investment corporation. NBFM, as NBF’s asset management company, isengaged in acquiring, managing, leasing, and renovating office properties. Mitsui Fudosan Co., Ltd. currently owns 43% of NBFM while
Sumitomo Life Insurance Company owns 35% and the remaining 22% is mainly owned by financial institutions.
On September 10, 2001, NBF had raised approximately ¥50,000 million through an initial public offering of common shares. Those common shares are listed on the J-REIT section of the Tokyo Stock Exchange.
As of December 31, 2006, NBF had ownership or beneficiary interests in 55 office properties containing approximately 670,513 rentable
square meters of office space. As of December 31, 2006, NBF had leased office space to 892 tenants engaged in a variety of businesses.
The occupancy rate for the office properties was approximately 97.8%.

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

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

■ Investment Properties
Investment properties are recorded at cost, which includes the allocated purchase price and related costs and expenses for acquisition of
the office properties and the beneficiary interests of properties in trust. Property and equipment balances are depreciated using the straightline method over the estimated useful lives. The estimated useful lives of the principal tangible fixed assets (including assets held in trust) are
as follows:
Buildings and improvements
Structures
Machinery and equipment
Tools, furniture and fixtures40

2-50 years
2-52 years
2-17 years
2-19 years

Costs related to the renovation, construction and improvement of properties are capitalized. Expenditures for repairs andmaintenance which do not add to the value or prolong the useful life of a property, are expensed as incurred.

NBF Report July–December 2006

■ Bond lssue Costs
Deferred bond issue costs are amortized using the straight-line method over three years.

■ New Investment Shares lssue Cost
The issue costs of new investment shares are expensed in the period of payment.
The public offerings of new investment shares on March 16, 2006 and August 10, 2005 were conducted through underwriting agreements
under which a securities company underwrote all of the newly issued shares at an agreed issue price and sold them at an offering price different from such issue price to investors (“spread method”). Under the spread method, the substantial difference between the offering price andthe issue price serves as the underwriting fee for the underwriting securities company. NBF therefore did not pay underwriting fees to theunderwriting securities company. In the case of the public offerings of new investment shares on March 16, 2006 and August 10, 2005, thetotal amount of the difference between the offering price and the issue price was ¥2,496 million and ¥1,654 million, respectively, which would
have been accounted for as issue costs of new NBF investment shares if they had been conducted through underwriting agreements underwhich the securities company had underwritten shares at an issue price and sold them at an offering price that was the same as the issue
price (“conventional method”). Therefore, under the spread method, the issue costs of new investment shares were ¥2,496 million and ¥1,654
million lower, respectively, and operating income and income before income taxes were ¥2,496 million and ¥1,654 million higher, respectively,
than had the conventional method been applied.

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

■ Real Estate Taxes
Real estate taxes are imposed on properties on a calendar year basis. NBF is allocated the portion of the real estate taxes related to theperiod following the purchase date of each property through the end of the year and the equivalent amounts of those allocated portions arecapitalized as part of the acquisition costs of the relative properties. NBF incurred no capitalized real estate taxes for the period ended
December 31, 2006. Capitalized real estate taxes amounted to ¥105 million for the period ended June 30, 2006 and ¥197 million for the period
ended December 31, 2005, respectively.

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

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

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

NBF Report July–December 200641

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

■ Reclassifications
Certain reclassifications have been made to prior periods' financial statements to conform with the presentation used for the period
ended December 31, 2006.

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

As of June 30, 2006
(Yen in millions)

Acquisition
Costs

Book Value

Acquisition
Costs

—
—

¥114,256
242,918¥114,032
242,918¥

Accumulated
Depreciation

Book Value——¥114,032
242,918

Land
Land in trust¥114,256
242,918

Land including trust total

357,174—

357,174

356,950—

356,950

Buildings and improvements
Buildings and improvements in trust

103,361
131,676(7,513)(20,797)

95,848110,879

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

96,987
112,576

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

235,037
1,502
765
313
1,327
1,250
631
109

(28,310)
(266)
(154)
(76)
(274)
(386)
(227)
—

206,727
1,235
611
237
1,054
864
404
109

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

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

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

Other tangible assets total

5,897(1,383)

4,514

5,688

(1,115)

4,573¥598,108¥(29,693)¥568,415¥595,801¥(24,715)¥571,086

Total¥

Accumulated
Depreciation

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

42

NBF Report July–December 2006

Notes to Financial Statements

Note 5—Short-Term Loans and Long-Term Debt
Short-term loans consist of short-term notes and short-term borrowings under loan agreements. The annual interest rates on shortterm loans outstanding are floating rates and on December 31, 2006 and June 30, 2006 ranged from 0.67% to 0.81% and from 0.41% to0.61%, respectively. Long-term debt is at fixed rates and as of December 31, 2006 and June 30, 2006 consisted of the following:(Yen in millions)

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

As of December 31, 2006

As of June 30, 2006

¥165,000
10,00010,00010,00010,00010,00010,000¥166,000
10,00010,00010,00010,00010,00010,000225,000

226,000

30,00014,000¥195,000¥212,000

Less: amount due within one year

The annual maturities of long-term debt as of December 31, 2006 were as follows:(Yen in millions)2007¥ 20,000

2008

23,0002009

10,0002010

12,0002011

14,000

Thereafter

86,000During the period ended December 31, 2006, NBF obtained committed credit lines of ¥30 billion with certain financial institutions to
reduce refinancing risk. The unused amount of such committed credit lines was ¥30 billion on December 31, 2006.

NBF Report July–December 2006

43

Note 6—Rental Revenues and Expenses
Rental revenues and expenses for the periods ended December 31, 2006, June 30, 2006 and December 31, 2005 were as follows:
For the six months ended
December 31, 2006

For the six months ended
June 30, 2006
(Yen in millions)

For the six months ended
December 31, 2005

¥20,180
2,817
124¥18,198
2,467
134¥15,356
1,966
107

Revenues from Property Leasing:
Rental:Rental revenues
Common area charges
Others23,121

20,79917,429Other revenues related to property leasing:
Parking lots
Facility charge
Incidental income
Cancellation fees
Miscellaneous income
Subtotal

Subtotal

584
148
1,807
186
48
2,773

531
76
1,325
81
60
2,073

459
70
1,331
49
25
1,934

Total revenues from property leasing

25,89422,872

19,363

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

3,403
1,765
593
36
2,310
4,988
13,095

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

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

Operating Income from Property Leasing Activities¥12,799¥11,400¥ 9,669

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

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

(Yen in millions)

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

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

44¥93,370
73,38432
18,519¥ 685¥ 750

NBF Report July–December 2006

¥91,000
71,70724
18,519¥ 750

Notes to Financial Statements

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

Statutory effective tax rate
Deductible dividends paid
Others
Effective tax rate

For the six months ended
December 31, 2006

For the six months ended
June 30, 2006

For the six months ended
December 31, 2005

39.39%(39.39)0.01
0.01%

39.39%(39.39)0.01
0.01%

39.39%(39.39)0.01
0.01%

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

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

For the six months ended
June 30, 2006

For the six months ended
December 31, 2005

(Yen)

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

Net Assets per Share¥ 19,224¥ 20,836¥ 17,570

508,000

472,745

410,091

As of December 31, 2006

As of June 30, 2006

¥701,206¥701,373

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

¥ 6,986
11,233¥18,219

NBF Report July–December 2006

¥ 7,00913,256¥20,26545

Note 11—Transactions with Related Parties(July 1, 2006 - December 31, 2006)(1) Parent Company and Major Corporate Shareholders: None applicable(2) Directors and Major Individual Shareholders
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

Payment of asset
management fees to NBFM
Executive Director of(Note 1)
NBF and
Payment for the provision
President & CEOof general administrationof NBFM
services relating toorganizational management
to NBFM (Note 2)

Amount oftransaction
Yen in millions

Account

Balance at
end of period
Yen in millions¥949(Note 3)

Accounts
payable¥320(Note 3)¥2
(Note 3)

Accounts
payable¥1(Note 3)

Notes: 1. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and this amount is subject to the conditions set forth in the by-laws of NBF.
2. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and this amount is set forth in the “General Administration Agreement
relating to Organizational Management” concluded between NBF and NBFM.
3. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

(3) Subsidiaries: Not applicable, because the Company has no subsidiaries in which it has invested.
(4) Sister Companies: None applicable(January 1, 2006 - June 30, 2006)(1) Parent Company and Major Corporate Shareholders: None applicable(2) Directors and Major Individual Shareholders
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

Payment of asset
management fees to NBFM
Executive Director of(Note 1)
NBF and
Payment for the provision
President & CEOof general administrationof NBFM
services relating toorganizational management
to NBFM (Note 3)

Amount oftransaction
Yen in millions

Account

Balance at
end of period
Yen in millions¥1,369(Notes 2 and 4)

Accounts
payable¥327(Note 4)¥2(Note 4)

Accounts
payable¥1(Note 4)

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

(3) Subsidiaries: Not applicable, because the Company has no subsidiaries in which it has invested.
(4) Sister Companies: None applicable

46

NBF Report July–December 2006

Notes to Financial Statements

Note 12—Subsequent Events
On March 7, 2007, NBF publicly offered an issue of unsecured corporate bonds pursuant to a comprehensive resolution concerning theissue of unsecured corporate bonds by its Board of Directors on January 29, 2007.
No. 8 Unsecured Corporate Bonds
1. Name: Number 8 Unsecured Corporate Bonds (limited to qualified institutional investors and ranked pari passu with other debts issued)
2. Total Issue Amount: ¥10.0 billion
3. Issue Price: ¥100 with a par value of ¥100
4. Redemption Value: ¥100 with a par value of ¥100
5. Interest: 1.48%
6. Collateral and Guarantee: Unsecured and unguaranteed
7. Redemption: The redemption date for the total amount of principal is March 7, 2012. The unsecured bonds may be redeemed at theoption of NBF at any time from the day immediately following the payment date unless otherwise determined by the book-entry
transfer agent.
8. Interest Payment Dates: March 7 and September 7 each year.
9. Use of Proceeds: Working capital

NBF Report July–December 200647

Independent Auditors’ Report

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

We have audited the accompanying balance sheets of Nippon Building Fund Inc. (a Japanese Real Estate
Investment Trust) as of December 31, 2006 and June 30, 2006, and the related statements of income, shareholders’ equity and cash flows for each of the six months ended December 31, 2006, June 30, 2006 andDecember 31, 2005 expressed in Japanese yen. These financial statements are the responsibility of theCompany’s management. Our responsibility is to independently express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of Nippon Building Fund Inc. as of December 31, 2006 and June 30, 2006, and the results of its operations and its cash flows for each of the six months ended December 31, 2006, June 30, 2006 and December
31, 2005 in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to Note 12 to the financial statements, which states that
Nippon Building Fund Inc. issued new unsecured bonds.

Tokyo, Japan
March 28, 2007

48

NBF Report July–December 2006

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

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

In the event that Real Estate, etc. is newly-acquired, compensation

and undertakes management of the institutions of NBF. As of December

equivalent to the total amount of the acquisition price of said Real31, 2006, NBFM has been entrusted as an asset management company

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

only by NBF.

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

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

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

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

approval of the directors of NBF, compensation will be calculated within

Undertakes asset management of NBF pursuant to an AssetManagement Entrustment Agreement based on an entrustment from
NBF in accordance with the Articles of Incorporation of NBF and thethe scope decided up to the following maximum 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

Investment Objects and Policies set forth therein.
■

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

■ Fees for the Asset Management Operation
Management Fees 1
The amount equivalent to 2.5% effective from July 1, 2003 of theamount of the revenue arising from Real Estate, etc. as calculated oneach closing date (provided, however, that revenues from the sale of Real
Estate, etc. and other Managed Assets will be excluded) will be payable.
Management Fees 2
The amount equivalent to 3% of income before income tax (provided,
however, that in the event a loss is carried forward, then the amount ofincome before income taxes remaining after such loss has been covered)prior to deduction of Management Fees 2 as calculated on each closing
date will be payable.

NBF Report July–December 200649

Appendix■ History of NBFM

■ Directors and Staff

NBFM is an Asset Management Company which is a limited liability

As of December 31, 2006, the directors and corporate auditors ofcompany duly established under the laws of Japan. Major events in the

NBFM are as follows. The staff other than directors and auditors ofhistory of NBFM are as follows.

NBFM is comprised of 16 persons.

September 19, 2000 Established

Name of Directors and Auditors

Title

November 17, 2000

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

Koichi Nishiyama

President & CEO (standing)

Hiroyuki Sawa

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

Riichi Morihiro

Director, Head of Corporate Operation
Group (standing)

Yuri Giga

Director

Tamotsu Shinyama

Director

Yoshinori Nishitsuji

Corporate Auditor

Noriaki Moromachi

Corporate Auditor

January 29, 2001

February 15, 2001

March 7, 2001

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

March 22, 2001

Increased capital from ¥100 million to ¥198 million

May 23, 2001

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

June 16, 2001

Increased capital from ¥198 million to ¥495 million

March, 2003

Changed name (from “Office Building Fund Management Japan Limited” to “Nippon Building FundManagement Ltd.”)■ List of Shareholders (as of December 31, 2006)
Name

50

Numberof Shares Owned

Percent

Mitsui Fudosan Co., Ltd.

4,257

43.0%

Sumitomo Life Insurance Company

3,465

35.0

The Chuo Mitsui Trust and.
Banking Co., Ltd

495

5.0

Sumitomo Mitsui Banking
Corporation

495

5.0

Daido Life Insurance Company

297

3.0

Mitsui Sumitomo InsuranceCo., Ltd.

297

3.0

Mitsui Mutual Life Insurance
Company297

3.0

Britel Fund Trustees Limited

297

3.0

Total

9,900

100.0%■ Outline of Financial Condition
An outline of the financial condition of NBFM is as follows.
Outline of principal assets and liabilities for the most recent fiscal year:
Current as of March 31, 2006

Total Assets
Total Liabilities
Net Assets(Yen in thousands)¥1,799,163
377,888¥1,421,275

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

(Yen in thousands)

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

NBF Report July–December 2006

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

Area Analysis

Tokyo CBDs■

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

■

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

■

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

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

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

Other Greater Tokyo

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

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

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

Total of above two areas: 70% or more

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

Other Cities■

Rent levels relatively low and vacancy rates

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

investment strategy of NBF.
Total of above area: 30% or less

(1) Strategy for Creation of the Portfolio
The goal of the portfolio is to generate steady growth and stable prof-

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 macro-economic
trends, financial trends, real estate market trends and so forth, it may not always be
possible to operate in accordance with each of the above criteria (“Investment
Objectives and Policies,” Articles of Incorporation).

its on a mid-term to long-term basis. The selection criteria of investment
assets is based on the composition of investment assets in the portfolio
and based on consideration of a quantitative proportion of the office stock
located in the various regions of Japan.

(2) Acquisition Strategy■ Ratio of Real Estate Assets■ Area Diversification

NBF will maintain ratios of 75% or more with respect to the

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“Designated Real Estate Ratio.” As of December 31, 2006, NBF satisfied
the criteria.
■

The “Designated Real Estate Ratio” means the ratio of the total amount of
Designated Real Estate to the total amount of Designated Assets owned by
NBF.

cash flow risks such as earthquakes, risk of vacancies and so forth.
The following table sets forth above said area diversification strategy.

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).

■ Due Diligence
When investing in office properties, selections will be made throughcomprehensive research and analysis based on the forecast investment

NBF Report July–December 200651

yields resulting from their acquisition costs and their anticipated profits,■ Uncompleted or Unleasable Properties

future prospects and stability of the area of location, availability of meas-

In principle, NBF acquires Real Estate, etc. which are leased/leasable

ures responding to risks of deterioration and obsolescence, insurability

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

and so forth. The details of the relevant criteria are set forth in the follow-

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

ing table (“Investment Objectives and Policies,” Articles of Incorporation).

NBF's asset management activities after taking into account the invest-

Though such consideration will involve the study of the criteria included

ment amount, the date of completion or of becoming leasable, estimatedin the following table, it is possible that when NBF acquires or intends torevenue and so forth; provided, however, that the contract amount of any

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

such unleasable asset combined with the total contract amount of previously acquired unleasable assets (but excluding unleasable assets which

Item

Points to be reviewed

Scale of building■

thereafter become operational) will not exceed 10% of the total assets

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

indicated on the most recent balance sheet of NBF. For this purpose,“leased/leasable assets” shall mean property with respect to which theconstruction of the building has been completed and such building isleased or leasable. Properties which are owned by NBF and have become
operational at some point shall be deemed “leasable” thereafter (includ-

Construction type andspecifications of facilities

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

■

ing such cases as reconstruction or large-scale renovation of a building).

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

Earthquake resistance

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

■growth of operating profits on a mid-term to long-term basis by planningto maintain and improve asset value and competitive ability throughinvestment in facilities and by expanding income (increasing rents, etc.,
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

Measures regarding
status of legal title

■

●

●

Tenancy characteristics■

Environmental;
condition of land, 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.

mid-term to long-term basis, lease out all operating properties included inoperating assets (including installation of parking lots, billboards, etc.).
When conducting such leasing, security deposits, etc. and other similar
monies may be received and said monies will be managed in accordance

measures to protect security deposits, policies and measures regarding cash reserves
for long-term renovation plans;with the requirements of “Investment Objectives and Policies” of theappropriate measures regarding demands fordivision of co-owned interests or the sale ofa co-owner’s interest, etc;

Incorporation).

Acceptable creditworthiness of tenants, purposes of use by tenants, configuration, andcondition of collectibility of rents, etc.
Absence of harmful substances such as
asbestos, (or countermeasures can be implemented for any such substances), non-existence of soil pollution, etc.

Articles of Incorporation (“Investment Objectives and Policies,” Articles of
NBF is entitled to establish reserves for long-term renovations
required to maintain and enhance the value of operating properties,
reserves for payables, reserves for cash distributions and any other similar reserves, etc. (Articles of Incorporation).

■ Reserves for Long-Term Renovations
From the reserves set forth above, a portion corresponding to renovations, repairs and tenant improvements will be determined based on reno-

52

NBF Report July–December 2006

Investment and Distribution Policies

vation plans for each building. As of December 31, 2006, foreseen

obsolescence of real estate and predicted costs thereof as well as thereserves provided from January to December 2007 are as follows:

composition of the portfolio, etc. Sell/hold studies will be periodically

Item

Reasonundertaken with respect to all operating properties (“Investment

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

Objectives and Policies,” Articles of Incorporation).

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

Total Foreseen Amount: (annual basis) ¥2,983 million
Notes: 1. In addition to the above-mentioned amount, certain amounts are set aside as cash
reserves for renovation pursuant to the administrative rules of the buildings in which
NBF owns condominium interests, etc.
2. The amount of reserves set forth above is the total amount of reserves with respect tothe 55 properties owned by NBF as of the end of December 2006.

■ Measures to Avoid Reductions and Fluctuations
in Operating Income
In order to avoid large-scale reductions and fluctuations in operating
income due to fire damage, withdrawal of tenants and so forth, efforts,such as area diversification and obtaining adequate fire and casualty(4) Financial Policies■ Issuance of Shares
NBF may issue shares in order to undertake acquisition and renovation and so forth of assets and to provide allowance for funds required
for working capital as well as for the repayment of debt (including security deposits, borrowings and repayment of obligations regarding NBF
bonds, etc.)■ Debt Financing
NBF may raise capital (including use of the call loan market) and issue
bonds in order to undertake acquisition and renovation and so forth ofassets and to provide allowance for funds required for working capital aswell as for the repayment of debt (including security deposits, borrowings
and repayment of obligations regarding NBF bonds, etc.) (“Investment

insurances, etc., will be exerted.

Objectives and Policies,” Articles of Incorporation).
Borrowings are limited to those from Qualified Institutional Investors■ Appraisal Value, etc.
In the event that valuation of real estate, land leasehold rights andsuperficies (including beneficiary certificates, securities and tokumeikumiai ownership interests, and other asset-backed instruments) is undertaken for the purpose of disclosure in Performance Information Reports,
etc., the value to be used for disclosure will, in principle, be the appraisal
valuation provided by a certified real estate appraiser (Articles ofIncorporation).
The appraisal value of property with respect to the period commencing on the acquisition thereof and ending on the date of disclosure ofsuch value with respect to the next following closure of NBF's accounting
term shall be the acquisition price of the said property (excluding miscellaneous acquisition costs, fixed assets tax, city-planning tax and consumption tax) as stated in the sale and purchase contract, etc. for the said
property.

as specified in Article 2.3.1 of the Securities and Exchange Law of Japan,
in case capital is borrowed. Further, the total limit on all such borrowings
and issues of NBF bonds will be ¥1,000,000 million. When undertaking
borrowings or when issuing NBF bonds, NBF may provide operating
assets as collateral (Articles of Incorporation).

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

■ Derivatives
In order to avoid risks of fluctuation in the prices of operating assets■ Disposition
In disposing of individual operating properties, selections will bemade through comprehensive research and analysis based on the forecasted income, actual and predicted fluctuations in asset value, future
prospects and stability of the area of location, risks of deterioration andas well as risks of fluctuations in interest rates, futures transactions,
option transactions, swap transactions and forward rate transactions
with respect to Japanese interest rates may be undertaken (“Investment
Objectives and Policies,” Articles of Incorporation).

NBF Report July–December 2006

53

Distribution Policies of NBF
excess of retained earnings for the period up to a maximum of 60% of

A. Distributions of Profits
A registered investment corporation may deduct its cash dividends ofdepreciation for the period. NBF is entitled to make cash distributions ofprofits from taxable income under Japanese tax regulations if it distrib-the amounts described below in excess of the Distributable Earnings in theutes to its shareholders in excess of 90% of its taxable income and com-following cases; provided, however, that the maximum amount of suchplies with other organizational and operational requirements. NBF

distributions will be the amount set forth in the rules of the Investment

intends to make dividend distributions that ensure that NBF satisfies

Trusts Association of Japan (Article 14.2 of the Articles of Incorporation).

those requirements.

■

Amount determined by NBF as being eligible for the requirements of
the Special Taxation Treatment for Investment Corporations, in case

NBF will, in principle, effect distributions in accordance with the fol-of the Distributable Earnings being less than the Taxable Income

lowing policies (Articles of Incorporation).

Available for Dividends■ Earnings Available for Distributions■

Amount determined by NBF not in excess of the amount of depreciation

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

Securities and Exchange Law of Japan and in conformity with generally

economic environments, real estate markets and leasing markets

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■ NBF's Current Policy on Distributions in Excessof Profits

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

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

expenses, capital surplus reserves and estimated or equivalent variances)

Japanese taxation treatment applicable to NBF’s shareholders in Japan

calculated on each closing date in accordance with the Investment Trust Law

to whom such distributions are paid requires them to calculate capitalof Japan and corporate accounting principles generally deemed to be fairgain or loss at the time of each distribution, NBF will not make distribu-

and appropriate.

tions in excess of profits.
Notwithstanding the above, NBF may make distributions in excess of■ Cash Distribution of Profits

profits in accordance with the distribution policies stated above in order

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

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

necessary by the Board of Directors of NBF.

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

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

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

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

sary for maintenance or appreciation of the assets of NBF.

date, in proportion to the number of shares owned by them (Articles ofIncorporation).

B. Distribution in Excess of Earnings
A registered investment corporation is allowed to distribute cash to its

54

D. Prescription for Cash Distributions, etc.

shareholders in excess of retained earnings under the Investment Trust

NBF will be discharged from the obligation to pay distributions of

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

profits three calendar years from the date of commencing payment.

established rules such that a corporate-style J-REIT may pay out theInterest will not accrue on unpaid distributions (Articles of Incorporation).

NBF Report July–December 2006

Investment and Distribution Policies

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

(8) Beneficiary Certificates of Money Trust (limited to those the trust
assets of which are primarily invested and Managed Assets referred toin paragraph (1) or (3) above; provided, however, that those that are
deemed securities are excluded).

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 theB. Other Investment Objectives among
Designated Assets
NBF may, in the course of efficiently managing funds or in other cases

Managed Assets.
(1) Real estate, real estate leasehold interests and superficies.

as necessary, invest in the following Designated Assets.
(1) Bank deposits(2) Beneficiary Certificates backed by real estate, land leasehold rights
and superficies, including inclusive trusts consisting of funds appur-(2) Call loans(3) Japanese Government Bonds, Notes and Bills

tenant to real estate.
(3) Tokumei-kumiai ownership interests (provided, however, that this is(4) Regional Treasury Bonds, Notes and Bills

limited to those the assets of which are primarily invested and(5) Commercial Paper

Managed Assets principally referred to in paragraphs (1) and (2)(6) Designated Bonds of Special Purpose Companies (meaning thosespecified in Article 2.1.3.2 of the Securities and Exchange Law ofabove).
(4) Preferred Investment Certificates of Special Purpose Companies(meaning those specified in Article 2.1.5.3 of the Securities andExchange 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).

Japan; provided, however, that this is limited to asset-backed securities principally referred to in paragraphs (1) and (2) of section (A)above).
(7) Monetary Claims (limited to those claims that are deemed
Designated Assets under the Investment Trust Law of Japan otherthan those referred to above).

(5) Special Purpose Beneficiary Certificates (meaning those specified in
Article 2.1.7.4 of the Securities 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)(8) Securities (other than those listed above or in section (A)).
(9) Rights to financial futures transactions (limited to those deemed
Designated Assets under the Investment Trust Law of Japan).
(10) Rights to financial derivative transactions (limited to those deemedand (2) above).
(6) Beneficiary Certificates of investment trusts (meaning those specified

Designated Assets under the Investment Trust Law of Japan).

in Article 2.1.7 of the Securities and Exchange Law of Japan; provided,(11) Moreover, in order to avoid risks of fluctuation in the prices of the

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

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

invested and Managed Assets principally referred to in paragraphs (1)futures transactions, option transactions, swap transactions and for-and (2) above).

ward rate transactions with respect to Japanese interest rates may beundertaken. In addition, NBF may acquire shares of stock in real estate(7) Investment Securities (meaning those specified in Article 2.1.7.2 of
the Securities and Exchange Law of Japan; provided, however, thatmanagement companies, etc. to the extent that such acquisition isincidental to NBF’s investment in the principal Designated Assets.

this is limited to those the assets of which are primarily invested andManaged Assets principally referred to in paragraphs (1) and (2) above).

(12) Beneficiary Certificates of trusts for securities of monetary claims

NBF Report July–December 2006

55

Investment Restrictions

C. Assets Other than Designated Assets
NBF may, in the course of efficiently managing funds or in othercases as necessary, invest in the following assets.
(1) Certificates of deposit issued by Japanese legal entities(2) Equity interests of partnerships defined under Article 667 of the Civil
Code (limited to such partnerships established by contribution of realestate, real estate leasehold rights and superficies for the purpose ofleasing, operating or managing, etc., of the same; hereafter,“Voluntary Partnership Equity Interests”)

A. The investment restrictions specified in the Articles
of Incorporation and the asset management guidelines applicable to NBF. Please also refer to“Investment Policies of NBF, B. Investment
Strategy” herein.
■ Investment Location and Currencies
NBF will invest neither in real estate located outside of Japan nor in(3) Trademark rights

assets denominated in non-Japanese currencies (“Investment Objectives(4) Copyrights

and Policies,” Articles of Incorporation).

(5) Chattels defined under the Civil Code (hereafter, “Chattels”)■ Borrowing
See “Investment Policies of NBF, B. Investment Strategy, (4) Financial

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

Policies.”■ Concentration of Investment
There is no limitation on concentration of investment. See “Investment
Policies of NBF, B. Investment Strategy, (1) Strategy for Creation of thePortfolio.”■ Investment in Other Funds
See “Investment Objectives, A. Principal Investment Objectives among
Designated Assets.”
The real estate held by such funds may not include any real estate
located outside of Japan (Articles of Incorporation).

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

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

56

NBF Report July–December 2006

Investment and Distribution Policies

B. Compliance with the Investment Trust Law
of Japan■ Other Transactions Specified in the Government
Ordinance regarding the Investment Trust Law of Japan(§ 34.3.1.8)

While a registered investment corporation must entrust business
related to asset management to an asset management company, an

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

asset management company is prohibited from performing certain acts

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

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

tain acts committed by an asset management company that would result

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

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

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

good public reputation of NBF are prohibited.

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

■ Limitation on Acquisition of the Same Issue of Shares(§ 194)■ Reciprocal Transactions with Investment Corporations

A registered investment corporation may not acquire the same shares(§ 34.3.1.5)

issued by a corporation in excess of 50/100 of total number of said

Transactions between investment corporations, the assets of whichissued and outstanding shares.

are managed by an asset management company, are prohibited except
for certain cases specified in the provisions of the government ordinance■ Restriction on Acquisition of Own Shares andAcceptance of Pledge (§ 80.1)

regarding the Investment Trust Law of Japan that are considered unlikely

An investment corporation may not acquire shares issued by itself, orto result in failure to protect the interests of shareholders.

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

Investment Trust Assets (§ 15.1.3)●

when acquired as the result of merger;

Transactions by an investment corporation with investment trust●

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

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

cases specified in the provisions of the government ordinance regarding
the Investment Trust Law of Japan that are considered unlikely to result■ Restriction on Acquisition of Parent Corporation’sin failure to protect the interests of shareholders.

Shares by Subsidiary Corporation (§ 81.1)■ Transactions for the Benefit of Third Parties (§ 34.3.1.6)

An investment corporation (e.g. subsidiary), a majority of the shares ofAn asset management company may not undertake transactions inwhich is owned by another investment corporation (e.g. parent) may notcertain securities based on fluctuations in the price, index, value, or

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

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

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

●

if necessary for attaining the purpose of exercising its rights.

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

NBF Report July–December 200657

■ Restrictions of Transactions with Interested Parties(1) Restriction on an asset management company (§ 34.3)e) In the event that an issuer, securities company or registered financial
institution, who is an Interested Party, etc. of an asset management

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

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

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

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

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

issuer, securities company or registered financial institution is not

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

foreseen to reach that otherwise expected by said issuer, securities

nated by the government ordinance regarding the Investment Trust Law

company or registered financial institution, acquiring or purchasingof Japan.

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

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

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

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

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

syndication agreement at a time when the contract amount of said

Investment Trust Law of Japan.

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

acquiring a tokumei kumiai interest pursuant to said specified real

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

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

said specified real estate syndicate.

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

purpose of benefiting a securities company, registered financial insti-

agreement at a time when the total investment amount otherwise

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

obtained pursuant to said tokumei kumiai agreement is not foreseen

fied in the government ordinance regarding the Investment Trust Law

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

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

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

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

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

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

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

58

NBF Report July–December 2006

Investment and Distribution Policies

i) In the event that a distributor of trust beneficiary interests, who is ansent of said investment corporation the assets of which are managed byInterested Party, etc. of an asset management company, distributes,

said asset management company, other investment corporations (which

or acts as an agency or intermediary of distribution of, trust benefici-

invest in the same kind of assets as the said Designated Assets) theary interests at a time when the total amount of purchase offer ofassets of which are managed by said asset management company andsaid trust beneficiary interests to said distributor of trust beneficiary

other persons set forth under the government ordinance regarding theinterests is not foreseen to reach that otherwise expected by said dis-Investment Trust Law.

tributor of trust beneficiary interests, purchasing said trust beneficiaryinterests with assets of NBF at the request of said distributor of trust(3) Restriction on an investment corporation

beneficiary interests.

■ Restrictions on Asset Management (§ 195)
A registered investment corporation must not, in principle, acquire or(2) Submission of written notice when conflict of interest issell securities, lend or borrow securities, acquire or sell real estate,lease real estate or entrust the supervision of real estate (provided, how-anticipated■ Submission of Written Notice When Conflict of Interest

ever, that, it is acceptable to cause NBFM to act as an agent or broker

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

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

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

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

Designated Assets (excluding the specified assets set forth under the

management companies who perform asset management, close relatives

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

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

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

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

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

NBF Report July–December 2006

59

Corporate Data
As of December 31, 2006

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

Date of Inception:

March 16, 2001

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

Shareholders:

17,512

Transfer Agent:

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

Business Office of the Transfer Agent:

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

Independent Public Accountants:

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

Investor Relations:

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

This document contains translations of selected information described in the

portion(s) of any document(s) translated into English. No person has been authorized toSecurities Report (Yuka shoken hokokusho) filed on March 29, 2007 pursuant to thegive any information or make any representations other than as contained in this document

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

Information Report for the period from July 1, 2006 to December 31, 2006, of Nippon

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

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

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

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

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

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

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

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

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

jurisdictions.

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

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

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

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

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

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

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

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

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

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

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

cumstances or of any other statements or information contained herein.

completeness, appropriateness or accuracy of English translations or the selection of the60

NBF Report July–December 2006

Investors’ Information
As of December 31, 2006

Fiscal Period

Shareholders

Six months ending June 30 and December 31
Other domestic corporations
369 (2.1%)

Total Number of Common Shares Issued

Overseas investors 319 (1.8%)
Financial institutions(Including securities companies)

11th Period (From July 1, 2006 to December 31, 2006)

508,000 shares

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

508,000 shares

192 (1.1%)

Individuals and others
16,632 (95.0%)

Distributions
Confirmed distribution for the 11th Period (ended December 2006)
For the operating period from July 1, 2006 to December 31, 2006 (6 months)¥19,224 per share

Number of shareholders
Total 17,512¥18,700 per share

Financial
institutions(Including
securities
companies)

Expected distribution for the 12th Period (ending June 2007)
For the operating period from January 1, 2007 to June 30, 2007 (6 months)

Other domestic corporations
53,022 (10.4%)
Individuals and others
40,944 (8.1%)

Overseas investors
121,044 (23.8%)

292,990(57.7%)

Number of shares held
Total 508,000

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

Number of Shares Held

Percentage of Total

42,79337,586
28,84021,787
19,735
12,382
11,905
11,484
11,256
10,001

8.42%
7.40
5.68
4.29
3.88
2.44
2.34
2.26
2.22
1.97

Stock Price Range and Trading Volume(Yen)
1,600,000
1,400,000

Trading Volume (Right scale)Closing Price (Left scale)
60,0001,200,000

50,0001,000,000

40,000800,000

30,000600,000
400,000

20,000200,000

10,0000

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

NBF Report July–December 2006

061

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

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

Printed in Japan