Proactively Managing
Accommodation Demand
3rd Period
NAF Report | March 2007 – August 2007

http://www.naf-r.jp/english/index.html

Profile

Nippon Accommodations Fund Inc. (“NAF”) was incorporated as an investment corporation on
October 12, 2005 with an initial investment by Mitsui Fudosan Co., Ltd. (“Mitsui Fudosan”),
and was listed on the Tokyo Stock Exchange on August 4, 2006 with assets of more than ¥100
billion. NAF invests in accommodation assets* located mainly in the 23 wards of Tokyo. The
Investment Trust and Investment Corporation Act of Japan requires an investment corporation
to be managed by an external entity. NAF’s assets are managed by Mitsui Fudosan
Accommodations Fund Management Co., Ltd., a 100 percent subsidiary of Mitsui Fudosan.
* Accommodation assets in this report are defined as rental apartments, dormitory/student apartments, serviced apartments,
senior residences and corporate housing. They do not include hotel properties.

Contents
Financial Highlights ......................................................................... 1

Corporate Structure and Governance............................................... 24

NAF Snapshot .................................................................................. 2

Rental Apartment Investment Characteristics.................................. 28

To Our Stakeholders ........................................................................ 4

Management‘s Discussion and Analysis .......................................... 30

Proactively Managing Accommodation Demand ............................. 7
External Growth .......................................................................... 8Internal Growth ........................................................................... 10
Value Chain ................................................................................. 12

Financial Statements........................................................................ 37

NAF Portfolio ................................................................................... 16
Portfolio Map............................................................................... 16
New Acquisitions......................................................................... 18
Representative Accommodation Assets ....................................... 20
Portfolio Summary ....................................................................... 22

Nippon Accommodations Fund Inc.

Notes to Financial Statements ......................................................... 41
Independent Auditors’ Report.......................................................... 49
Appendix ......................................................................................... 50
Portfolio Policy................................................................................. 54
Corporate Data and Investor Information ........................................ 58

Financial Highlights

Yen in millions

U.S. dollars in thousands(Except per unit data or
where otherwise indicated)(Note 1)
(Except per unit data)

3rd Period

2nd Period

1st Period

3rd Period

March 1, 2007 to
August 31, 2007

April 1, 2006 to
February 28, 2007

October 12, 2005 to
March 31, 2006

March 1, 2007 to
August 31, 2007

¥ 3,524
1,448
1,447

¥ 5,072
2,030
2,028

2,055

924
378
377

$ 30,361
12,475
12,4672,873

507

17,705

2,806
1,447

4,131
2,028

734
377

24,175
12,467

Total assets
Total liabilities
Total net assets (b)LTV (Loan-to-value) ratio (Note 3)

114,366
51,94062,42643.3%

108,097
45,09063,00739.3%

43,64422,02821,61748.1%

985,319
447,489
537,831

Total number of common units issued (units) (c)Net assets per unit (Yen/$) (b) / (c)Distribution per unit (Yen/$) (a) / (c)Funds from operations per unit (Yen/$) (Note 3)

113,480
550,10212,75018,106

113,480555,223
17,871
25,35942,480508,871
8,871
11,936

Total revenues (Note 2)
Income before income taxes
Net income
Funds from operations (Note 3)
Net operating income from property
leasing activities (Note 3)
Total amount of cash distribution (a)¥4,739.40
109.85155.99Notes 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥116.07 = U.S.$1.00 in effect on August 31, 2007.
2. Total revenues do not include consumption taxes.
3. Funds from operations: Net income + Depreciation and amortization – Gain on sale of investment properties
Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation and amortization
LTV ratio: Interest-bearing debt ÷ Total assets
Funds from operations per unit:(Net income + Depreciation and amortization – Gain on sale of investment properties) ÷ Total number of units issued and outstanding at end of period

Occupancy Rate (Portfolio average)

Ratings (As of August 31, 2007)

(%)

100
98
96

95.8

95.6
93.8

94

96.3

96.9

94.1

RatingOutlook

Moody’s Investors Service Inc.

A1

StableRating and Investment Information Inc.

AA

StableLong-term Corporate

A+

StableShort-term Corporate

A-1—

Standard and Poor’s

92
90

Rating Agency

3
2007

4

5

6

7

8

(End of the month)

NAF’s properties have maintained a stablehigh occupancy rate since the listing on
the stock exchange.

NAF’s ratings from major rating agencies
are among the highest for J-REITs.

NAF Report March 2007 – August 2007

1

NAF Snapshot(As of August 31, 2007)

1
2

NAF is Japan’s first...
... listed residential J-REIT, with over ¥100 billion in assets at IPO.
... residential J-REIT sponsored by a leading real estate company.

NAF’s portfolio is...
... currently made up of 30 acquired properties with a total acquisition value of¥108,234 million.
... located in popular areas and comprises large-scale properties.
The occupancy rate is 96.9 percent.

3

Total return on NAF properties is...
... ¥12,750 in distribution per unit for the 3rd Period, with a forecast of¥12,950 per unit for the 4th Period.
... a 132.4 percent total return since its Tokyo Stock Exchange listing on
August 4, 2006.

4

NAF’s finances are...
... highly sound: The LTV (Loan-to-Value) ratio is 43.3 percent and the long-term
fixed ratio is 68.7 percent.
... rated A1 by Moody’s, AA by Rating and Investment Information,
A+ (Long-term) and A-1 (Short-term) by Standard and Poor’s.

2

Nippon Accommodations Fund Inc.

Social Background

Real Estate for Living Accommodations

Accommodation assets

High

Diversified needs for residential properties

Corporate
housing/
Dormitories/
Student
apartments

Houses built for retail saleServiced apartments

Senior residences
HotelsChangingfamily structures

Service provided

Changing
lifestyles

Rentalapartments

Low
Short

Length of time/stayLong

Accommodation assets are defined as rental apartments, dormitory/student apartments,
serviced apartments, senior residences and corporate housing. They do not include hotel properties.

NAF’s Two Core Strategies
1. Investment in Accommodation Assets
Accommodation assets: newly developed residential properties created in response toongoing social and lifestyle changes
Objective: to maximize the value of accommodation assets by providing accommodations
that satisfy diverse tenant needs

2. Utilization of the Mitsui Fudosan Group
Full and active use of the Mitsui Fudosan Group’s value chain from planning anddevelopment to management and operation
Access to investment opportunities through Mitsui Fudosan’s properties and its Group’s
extensive real estate information network

NAF Report March 2007 – August 2007

3

To Our Stakeholders

The six months ended August 31, 2007 (the “3rd Period”) was the second period sinceNippon Accommodations Fund Inc. (NAF) listed its investment units on the Tokyo Stock
Exchange. NAF performed well during the 3rd Period, acquiring three properties andachieving an occupancy rate of 96.9 percent as of the end of the period. Looking
forward, NAF will use the Mitsui Fudosan Group’s pipeline to steadily expand its
portfolio by acquiring highly strategic properties.

Market Environment and 3rd Period Performance
During the six months ended August 31, 2007, demand remained stable in themarket for residential rental properties in the 23 wards of Tokyo due to factors
including the ongoing increase in population and the number of households. The
same factors are projected to drive the development of the residential rental
markets in Japan’s major regional cities. Demand exceeded supply because
increased supply of new properties did not fully compensate for demolition of
aging properties. The supply of rental housing featuring outstanding location,
management and facilities has been limited, and occupancy rates and rents havebeen rising moderately at such highly competitive properties. The environment
surrounding the acquisition of properties became increasingly challenging as land
prices increased markedly, primarily in city centers.
In this environment, NAF acquired three properties valued at ¥6,848 million
during the 3rd Period, and as of August 31, 2007 its portfolio consisted of 30
properties valued at ¥108,234 million on an acquisition price basis. The overall
occupancy rate was 96.9 percent as of August 31, 2007.
As a result, total revenues were ¥3,524 million, operating income was ¥1,795
million and net income was ¥1,447 million. Distributions per unit totaled ¥12,750
and exceeded projections announced along with results for the 2nd Period.

Nobuyuki Nakai
Executive Director of Nippon Accommodations Fund Inc.
President and CEO of Mitsui Fudosan Accommodations Fund Management Co., Ltd.

4

Nippon Accommodations Fund Inc.

3rd Period Initiatives
During the 3rd Period, cooperation between NAF’s REIT
management company and its master property manager supported

3rd Period Highlights

leasing tailored to the unique features of each property and each

➤ Three properties acquired

location. NAF also dealt with the new issue of leasing out the
newly constructed and vacant properties it acquired. The full-scale
start of our new portfolio management system supported precisionleasing that resulted in the full lease out of new buildings in about➤ Occupancy rate remains high at 96.9%➤ NAF files shelf registration in July 2007

to issue bonds

five months. Moreover, NAF renovated some of the residential
units it leases in the Okawabata Apartment Communities and continued its large-scale
exterior renovation program from the previous period with the objective of maintaining
and improving market competitiveness.
NAF procured a total of ¥7,000 million from several financial institutions to fund theacquisition of properties during the period. As a result, interest-bearing debt as of August
31, 2007 totaled ¥49,500 million, and NAF’s loan-to-value (LTV) ratio stood at 43.3
percent. NAF emphasized long-term, fixed-rate loans, which accounted for 68.7 percent of
NAF’s interest-bearing debt as of August 31, 2007. Moreover, NAF moved to diversify
funding methods by filing a shelf registration to issue bonds with the Kanto Bureau of the
Ministry of Finance.

Future Initiatives
NAF manages its high-quality portfolio with an emphasis on stability, and works toachieve steady external and internal growth.
Our strategy for external growth entails the acquisition of properties centered on thePark Axis series developed by Mitsui Fudosan Co., Ltd. We are currently structuring ourportfolio with a greater weighting of single and compact apartments, which are in strong
demand. In addition, we are selectively investing in properties that feature outstanding
location, scale and facilities in central Tokyo, sub-central Tokyo and major regional cities,
where demand for rental housing is solid. Under this policy, NAF acquired seven properties
valued at approximately ¥15,000 million in the 4th Period during September 2007.
During the 3rd Period, our strategy for internal growth included renewing the brandlogos for both the Park Axis and the Park Cube series. NAF also integrated the brandimage of both series to heighten the brand identity of NAF properties in cooperation with
Mitsui Fudosan. In the future, we will develop new logos for both new and existingbuildings and increase opportunities for brand communication.
Our financial strategy continues to emphasize long-term, fixed-rate funding in
response to the risk of rising interest rates and financial risk. We will give due
consideration to the issue of bonds in order to increase the diversity and flexibility of our

NAF Report March 2007 – August 2007

5

To Our Stakeholders

funding. While our upper limit for the LTV ratio is 60 percent, we expect to operate withan LTV ratio in the 40 to 50 percent range.
NAF is committed to earning the trust of unitholders and all stakeholders, and istherefore strengthening corporate governance while further strengthening its system for
managing compliance risk.
3rd Period (Actual)

4th Period (Forecast)(Ended August 31, 2007)(Ending February 29, 2008)

Total revenues¥3,524 million¥4,014 million

Operating income¥1,795 million¥1,971 million

Net income¥1,447 million¥1,469 million¥12,750¥12,950

Acquisition price basis¥108,234 million¥123,245 million

Number of properties

30

37

Distribution per unit (Yen)
Assets under management

OutlookDuring the 4th Period, the six months ending February 29, 2008, we expect theinitiatives discussed above to result in total revenues of ¥4,014 million, operating incomeof ¥1,971 million, net income of ¥1,469 million, and distribution per unit of ¥12,950. This
forecast is valid as of the date of publication of this report, and assumes that NAF will notacquire or exchange any properties other than the seven acquired in September 2007 andwill not issue new units during the 4th Period.
NAF will continue to invest in accommodation assets and will make use of the Mitsui
Fudosan Group’s pipeline to expand its portfolio by acquiring high-quality properties. We
also aim to maximize unitholder value through effective management and brand strategies
that enhance competitiveness.
December 2007

Nobuyuki Nakai
Executive Director of Nippon Accommodations Fund Inc.
President and CEO of Mitsui Fudosan Accommodations Fund Management Co., Ltd.

6

Nippon Accommodations Fund Inc.

Proactively Managing
Accommodation Demand

External
GrowthInternal
Growth➥ page 8➥ page 10

Value
Chain
➥ page 12

NAF Report March 2007 – August 2007

7

Proactively Managing Accommodation Demand

External Growth

NAF selectively invests in assets with the location, scale and facilities that will maintain
NAF’s position of strength and competitiveness in the real estate leasing market over the
medium-to-long term.

Portfolio
Expansion

Asset Growth (Acquisition Price Basis)(Yen in millions)

200,000

150,000

Pipeline

123,246
101,385

100,000

101,385

108,234

Superior
Brand Identity

Park Axis
50,00038,989Park Cube
Okawabata Apartment
Communities

0
Mar.
2006

Aug.
2006
(IPO)

Feb.
2007

Aug.
2007

Feb.
2008(Est.)

Cooperation with
Mitsui Fudosan
Group

Steady Property Acquisitions Centered on the Park Axis Series

8

NAF was established with assets under management

September 2007 NAF completed the acquisition of seven newvalued at approximately ¥38,989 million. NAF’s portfolio had

Park Axis properties valued at approximately ¥15.0 billion.

increased to ¥101,385 million when NAF listed its units, andLooking forward, NAF aims to consistently expand its portfolio

as of the end of the 3rd Period, assets under management hadby steadily acquiring properties, centered on Park Axis

expanded to ¥108,234 million. During the 4th Period, inproperties that Mitsui Fudosan develops.

Nippon Accommodations Fund Inc.

➤ Increasing the Proportion of Single and Compact Apartments
Proportion of Single and Compact Apartments to Total Units

43.7%

72.8%

79.7%
Definition of Room Types
Single: Studio

3/2006IPO

2/2008Compact: 1BR(Note)

Family: 2BR
Large: 3BR or more

Note: Estimate as of October 15, 2007. Assumes no additional acquisitions or sales during the 4th Period.

Single adults and couples aged 20 to 49 make up the

housing. These and other interrelated factors have caused theprimary demographic segment for tenants of single andneed for rental housing among people in the 20-to-49

compact apartments. In the 23 wards of Tokyo and thedemographic to expand steadily. The high occupancy rate forcenters of major regional cities, changes in working

single and compact apartments that NAF manages as part ofarrangements in recent years have increased the need to live

its portfolio further corroborates this trend. NAF has therefore

closer to work. Moreover, changes in corporate benefit

been increasing the proportion of single and compact

systems have in some cases brought an end to company

apartments in its portfolio.

➤ Investment in Sub-Central Tokyo and Major Regional Cities
Competition to acquire investment properties has become
increasingly intense in Tokyo, particularly in the three major
Adachi-ku
Itabashi-ku

wards, which has caused returns from property management

Kita-ku

to decrease. NAF is therefore increasing investment in sub-Nerima-ku

Katsushika-ku
Toshima-ku

Arakawa-ku

central areas of Tokyo including Koto-ku, Taito-ku andTaito-ku

Bunkyo-ku

Nakano-ku

Sumida-ku

Itabashi-ku with the objective of expanding opportunities to
Suginami-ku

Imperial
PalaceShibuya-ku

properties are relatively scarce in these areas, and new

Minato-ku

Setagaya-ku

SapporoChiyoda-ku

acquire highly profitable properties. High-quality rental
subway construction and redevelopment projects have made

Edogawa-ku

Shinjuku-ku

Meguro-ku

Koto-kuChuo-ku

Tokyo Bayliving in these areas more convenient. Areas that are
Shinagawa-ku

attractive for rental housing have therefore increased.

Properties acquired during 3rd Period
Properties acquired during 4th Period

Moreover, steady demand is projected in major regional

Sendai(As of October 15, 2007)
Ota-kucities including Fukuoka and Nagoya. NAF will selectively
invest in highly competitive properties in these cities, centeredon Park Axis series properties developed by Mitsui Fudosan.

Tokyo(23 wards)

Property numbers are the same as those used for the Portfolio Summary on pages 22-23

NagoyaOsaka(Kansai region)

Hiroshima
Fukuoka

NAF Report March 2007 – August 20079

Internal Growth

NAF manages its leasing business to maintain a high occupancy rate and will work toincrease profitability in ways such as raising rents on new contracts.

Portfolio
Expansion

Strong Occupancy

Effective Marketing, Higher Rent

100（%）New contracts

Renewals(Units that became available)(Contracts renewed)

90
80

3 units 1.0%
27 properties in portfolio at end of 2nd Period

70
10

10 units 3.3%

57 units
16.1%

Overall occupancy rate

37 units

Park Axis Shin Itabashi

10.5% 354 units

300 units

Park Axis Meguro Honcho
Park Cube Ikebukuro Kanamecho

260 units73.4%

0Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug.
2006
2007

Increase
No change

287 units
95.7%

Decrease

Cooperation with
Mitsui Fudosan
Group

Attractive Properties for Lease
Support a High Occupancy Rate
NAF maintained the same high occupancy rate as in the

As a result of quick and accurate marketing of available

previous period for 27 existing properties, and steadily leased

space, NAF successfully increased rent compared to previous

out newly acquired properties that were not fully occupied at thelevels for approximately three-fourths of new contracts during

start of the 3rd Period, including newly constructed Park Cube

the 3rd Period.

Ikebukuro Kanamecho. As a result, the occupancy rate at theend of the 3rd Period remained at the high level of 96.9 percent.

10

Higher Rents through Quick andAccurate Marketing of Available Space

Nippon Accommodations Fund Inc.

Proactively Managing Accommodation Demand➤ Progress in Brand Strategy

Brand Manual

Building Signage

For Lease Signs

We have created our Brand Manual to enhanceawareness of our brands more effectively and efficiently.

NAF has renewed building signage that reflects
newly established brand logo guidelines (Park Axis
Hamamatsucho).

NAF’s logo and leasing contact information aredisplayed at property entrances.

With the aim of further increasing brand value, the Park

awareness of its brands by working with Mitsui Fudosan to

Axis series brand logo was renewed for the first time in thecreate a Brand Manual that delineates issues such as brandeight years since the brand was launched. NAF also moved tologo usage. These detailed guidelines cover an array of issues

enhance the identity of the properties it owns by changing thefrom building signage design to room identification inside

Park Cube series brand logo and integrating the image for bothbuildings, tenant notices and leasing tools.

brands. Moreover, NAF moved to more efficiently increase➤ Quick and Efficient Leasing Management through Cooperation with the
Master Property Manager
NAF’s REIT management company, Mitsui Fudosan
Accommodations Fund Management Co., Ltd., and its master
property manager, Mitsui Fudosan Housing Lease Co., Ltd.,use various systems to manage numerical data from allproperties for timely understanding. These systems include a
database for comprehensively managing information such as
customer contract information and leasing revenues andexpenses, a system for converting and managing these data
for accounting, and a system for profit planning andperformance projections. These data form the basis formaintaining high occupancy and lease rates through swift
decisions based on detailed discussion of issues such as
occupancy and marketing activities for each building.

NAF Report March 2007 – August 200711

Value Chain

The companies of the Mitsui Fudosan Group form a comprehensive operating system for rental
properties that spans from market research, site selection and acquisition, planning and development to leasing, management and operation, in which the Group functions as a single
organic value chain.
Operation, Planning/
Development of Accommodation Business

MarketResearch /Analysis

Site Acquisition

Feedbackto Planning /Development

Planning and
DesignComprehensive operating
system conducted by
the Mitsui Fudosan GroupManagement /Operation
Construction
Management /Supervision
Leasing

Property
Management

Residential Building
Maintenance12

Nippon Accommodations Fund Inc.

Initial Leasing
Tenant Brokerage

Proactively Managing Accommodation DemandMarket Research / Analysis
Analysis of supply and demand trends using statistical data,
occupancy surveys of new properties and fixed property
observation. Examination of micro market characteristics andneeds based on representative data, real estate brokers’
opinions, and historical occupancy and rental data.

Site Acquisition
Development of site acquisition strategy based on macro
market and potential demand trends. An extensive site
information database is supported by property development
capabilities of all types from small buildings to complexes andlarge development projects

Planning and Design
Targeting of customers and development of property
concepts according to purpose, number of residents, family
structure and lifestyle. Strategic planning covers specifications,
grades and tastes suitable for target demographics and concepts,
as well as design, safety, function, operation and maintenance.

Construction Management / Supervision
Management of the design and construction process using realestate development expertise gained from tenant feedback. Quality
control includes a rental apartment construction and design
checklist, and frequent on-site meetings and checks byprofessionals in construction, structures and facilities.

Leasing

Management / Operation

The leasing process includes individual plan evaluation;
discussions on living environment, competitive landscape andother conditions; and setting rents. Other activities include
creating a framework for conveying product appeal, using leasing
specialists, and managing a leasing agency network.

Working to understand tenant needs, and using the
feedback obtained in reinvestment and development. The
decision to reinvest in renewal and renovation is based on
appropriate investment return analysis. Value-added services takeadvantage of economies of scale.

NAF Report March 2007 – August 200713

Property Management Capabilities Support Growth
Property management involves three main areas. The first is

the financial and administrative issues involved in leasing assets.

lease management within a direct tenant relationship. It entails

Mitsui Fudosan Housing Lease Co., Ltd., a 100 percent

issues that include finding tenants, billing and managing rent,

owned subsidiary of Mitsui Fudosan Co., Ltd., provides

and responding to requests. The second area is building

comprehensive property management for NAF’s properties. NAF

management, which entails cleaning, maintaining anduses the Mitsui Fudosan Group’s value chain to respondinspecting buildings, providing concierge services, and otherprecisely to tenant needs through superior property

issues including supervising repair and renovations. The third ismanagement that increases the value tenants receive from thereporting, which entails preparing operational reports that coverproperty while maintaining and increasing asset value.

NAF’s Approach to Property Management

J-REIT

Property
Management Contract/
Masterlease Contract

Lease
Management

Property
Manager

NipponAccommodations
Fund

Tenants
Lease Contract

Rep

ort

s

nal
tio
era
Op

ent
gem
ana ent
T M emREI Agre

Ind

ica

tor

s

Mitsui Fudosan
Housing Lease

REIT
Management
Company
Mitsui Fudosan
Accommodations
Fund Management

On-Site Management
At large-scale residential housing complexes in the United

on-site management staff explains contracts to tenants, provides

States, on-site staff handle the three property management

reception services, resolves problems with the facilities andoperations of lease management, building management andhandles other issues in swiftly responding to the various needs

reporting, and provide services tailored to respective operationalof tenants, thus enhancing tenant feeling of security and trust.

issues. In Japan, however, almost all properties are muchsmaller in scale and few have on-site management staff.
NAF maintains a management office and a building safetycontrol center at the properties it leases in the Okawabata
Apartment Communities, which are staffed 24 hours a day. The

14

Nippon Accommodations Fund Inc.

NAF aims to employ at other properties the information
concerning tenant needs, administration and operations
collected from on-site management at its Okawabata Apartment
Communities properties.

Proactively Managing Accommodation Demand

Management
Our number-one goal is to increase “use value.” When we
make tenants feel that they are getting even greater value thanthey expected from a property, we raise the level of tenantsatisfaction, the occupancy rate and rent levels. That is directly
related to maintaining and increasing the value of assets.
Toru Nakamura — Property Manager

On-Site Property Management
Staff at Okawabata Apartment
Communities

Service
Simply put, tenants do not want to be overwhelmed with
communication. We keep our services from being intrusive by
providing flexible services that are appropriate to tenantsensibilities.

(from Mitsui Fudosan Housing Lease)

Echiko Furuta — Assistant Manager

Maintenance
We often hear from tenants that they were reassured that
we swiftly dispatched technical staff to handle even minor
repair problems. Helping tenants feel free to make requests forrepairs increases tenant trust.
Takeshi Kobayashi — Maintenance

Tenant Relations
Many of our foreign tenants heard about Okawabata byword of mouth, and some plan to stay here again when they
return to Japan. We all take pride in helping tenants feel thatour properties are their home.
Kumiko Saito — Tenant Relations

Rent and Occupancy of Okawabata Apartment Communities
150

Rent per tsubo (renewal rent per tsubo in 98/1H = 100)

Occupancy (%)

140
130
120
110

100
95

Occupancy
New Rent
Total Avg. Rent
Chuo-ku Avg. Market Rent

90
85

(10-year-old building)

80

100

75

90

70

80

65
98/1H 2H 99/1H 2H 00/1H 2H 01/1H 2H 02/1H 2H 03/1H 2H 04/1H 2H 05/1H 2H 06/1H 2H

NAF Report March 2007 – August 2007

15

NAF Portfolio(As of August 31, 2007. Numbers in red for each property refer to the Portfolio Summary on pages 22-23.)

Portfolio Map

Adachi-ku
Itabashi-ku

Kita-ku
Nerima-ku

Katsushika-ku

Arakawa-ku

10
Bunkyo-ku 15

Taito-ku

8

Sumida-ku

Chiyoda-ku

3

Imperial
Palace22
Shibuya-ku

16

17

Chuo-ku

4 12

13

Koto-ku1
95 Minato-ku 14
Setagaya-ku

Edogawa-ku

19
5.0 k m21

10.0 k m

20

6
Shinjuku-ku

Suginami-ku

24 23

18

2.5 k mNakano-ku

7.5 k mToshima-ku

11
Meguro-ku

7

2

Tokyo Bay

Shinagawa-ku

Investment Criteria➤ Area• Tokyo 23 Wards (80% or more)• Greater Tokyo(Tokyo (other than the 23 wards),
Kanagawa, Chiba, Saitama)• Other Major Cities(Sapporo, Sendai, Nagoya, Kyoto,
Osaka, Kobe, Hiroshima, Fukuoka)➤ Investment Size
¥1 billion or more per property (in principle)➤ Ownership Interest
Fee simple (in principle)➤ Building Structure
Reinforced concrete or steel reinforced
concrete (no wooden structures)

16

Nippon Accommodations Fund Inc.

Ota-kuTokyo

Okawabata (River Point Tower)
Okawabata (Park Side Wings)
Okawabata (Pier West House)
Park Axis Gakugei Daigaku
Park Axis Ichigaya
Park Axis Shibuya Jinnan
Park Axis Aoyama Kotto DoriPark Axis Kagurazaka Stage
Park Axis Shirokanedai
Park Axis Bunkyo Stage
Park Axis Tsukishima
Park Axis Otsuka
Park Axis Minami Azabu
Park Axis Shibuya
Park Axis Nihonbashi Stage
Park Axis Hamamatsucho
Park Axis Hongo no Mori
Park Axis Tameike Sanno
Park Axis Roppongi Hinokicho Koen
Park Axis Ochanomizu Stage
Park Axis Okachimachi
Park Cube Hongo
Park Cube Kanda
Park Cube Ichigaya
Park Cube Asakusa Tawaramachi
Park Cube Ueno
Park Cube Keio Hachioji
Park Cube Keio Hachioji II
Park Axis Meieki Minami
Park Cube Ikebukuro Kanamecho
Park Axis Meguro Honcho
Park Axis Shin Itabashi

Regional Allocation
Greater Tokyo: 2%

Tokyo Wards
Other than
3 Central
Wards: 42%

Portfolio by Acquisition Price

Other Major Cities: 2%

23 Wards ofTokyo: 96%

More than¥10 billion:27%(1 property)

3 Central
Wards
of Tokyo: 54%¥5 – ¥10 billion:
21% (3 properties)

96% of portfolio is locatedin the 23 wards of Tokyo

Portfolio by Category

Family: 17%

Single: 36%

Compact: 40%

Percentage of single andcompact: 76%Less than
1 year: 5%

More than
5 years: 27%¥2 – ¥5 billion:
34% (13 properties)

Less than
2 years: 41%
Less than
5 years:
13% Less than
3 years:
14%

Average ¥3.60 billion
per property

Average 6.8 years

Portfolio by Monthly Rent

Portfolio by Unit Area

More than¥500,000: 1%¥300,000 –¥500,000: 9%

Large: 7%

Portfolio by Property Age

Less than ¥2 billion:
18% (13 properties)

Less than¥100,000: 8%¥200,000 –¥300,000: 25%

More than80m2: 9%60m2 –
80m2: 16%
¥100,000 –¥150,000: 35%¥150,000 –¥200,000: 22%

Average ¥190,000 per unit

Less than
30m2: 25%50m2 –
60m2: 13%30m2 –
40m2: 21%40m2 –
50m2: 16%

Average 47.3m2 per unit

Notes: 1. 3 Central Wards of Tokyo includes Chiyoda, Chuo and Minato wards; Greater Tokyo includes Tokyo (other than the 23 wards),
Kanagawa, Chiba and Saitama; Other Major Cities includes Sapporo, Sendai, Nagoya, Kyoto, Osaka, Kobe, Hiroshima and Fukuoka.
2. Percentages for Regional Allocation, Portfolio by Acquisition Price and Portfolio by Property Age are based on acquisition price.
Average property age has been calculated using a weighted average based on acquisition price.
3. Percentages for Portfolio by Category, Portfolio by Monthly Rent and Portfolio by Property Area are unit-based, excluding retail units.

NAF Report March 2007 – August 200717

(Numbers in red for each property refer to the Portfolio Summary on pages 22-23 excluding properties acquired during the 4th Period.)

New Acquisitions
3rd Period
Park Cube Ikebukuro Kanamecho

4th Period
Park Axis Toyocho

Acquisition date: March 23, 2007
Acquisition price: ¥ 1,608 million
Rentable area:

1,886.82m2

Address:

Toshima-ku, Tokyo

Units:

65

Completed:

March 2007

Acquisition date: September 14, 2007
Acquisition price: ¥ 3,950 million

Park Axis Meguro Honcho

Rentable area:

5,412.40m2

Acquisition date: April 19, 2007

Address:

Koto-ku, Tokyo

Acquisition price: ¥ 1,810 million

Units:

140

Rentable area:

1,884.77m2

Completed:

March 2007

Address:

Meguro-ku, Tokyo

Units:

60

Completed:

July 2006

Park Axis Asakusabashi

Park Axis Shin Itabashi
Acquisition date: April 19, 2007
Acquisition price: ¥ 3,430 million

18

Rentable area:

2,145.66m2 (East)
2,250.33m2 (West)

Address:

Itabashi-ku, Tokyo

Units:

152

Completed:February 2007

Nippon Accommodations Fund Inc.

Acquisition date: September 14, 2007
Acquisition price: ¥ 2,717 million
Rentable area:

3,400.78m2

Address:

Taito-ku, Tokyo

Units:

78 Residential, 1 RetailCompleted:

July 2007

NAF Portfolio

Park Axis Marunouchi

Park Axis Ropponmatsu
Acquisition date: September 14, 2007
Acquisition price: ¥ 1,515 million
Rentable area:

3,473.67m2

Address:

Fukuoka-shi, Fukuoka

Units:

111 Residential,
1 RetailCompleted:

March 2007

Acquisition date: September 14, 2007
Acquisition price: ¥ 1,920 million
Rentable area:

3,821.75m2

Address:

Nagoya-shi, Aichi

Units:

98 Residential,
1 RetailPark Axis Takinogawa

Completed:

November 2006

Acquisition date: September 14, 2007
Acquisition price: ¥ 1,820 million

Park Axis Hakataeki Minami

Rentable area:

2,924.75m2

Address:

Kita-ku, Tokyo

Units:

48 Residential, 1 RetailCompleted:

March 2007

Park Axis Akihabara

Acquisition date: September 14, 2007
Acquisition price: ¥ 1,200 million
Rentable area:

1,346.07m2

Address:

Chiyoda-ku, Tokyo

Units:

41

Completed:

September 2007

Acquisition date: September 14, 2007
Acquisition price: ¥ 1,890 million
Rentable area:

4,668.29m2

Address:

Fukuoka-shi, Fukuoka

Units:

176 Residential, 1 RetailCompleted:

March 2007

NAF Report March 2007 – August 2007

19

(Numbers in red for each property refer to the Portfolio Summary on pages 22-23.)

Representative Accommodation Assets
Okawabata Apartment Communities

Park Axis Shirokanedai① River Point Tower

Park Axis Aoyama Kotto Dori

20

Nippon Accommodations Fund Inc.

② Park Side Wings③ Pier West House

Park Axis Shibuya Jinnan

Park Axis Tsukishima

NAF Portfolio

Park Axis Minami Azabu

Park Axis Nihonbashi Stage

Park Axis Ochanomizu Stage

Park Cube Hongo

Park Cube Kanda

Park Axis Meieki Minami

NAF Report March 2007 – August 200721

Portfolio Summary
No. Name

Location

Okawabata Apartment Communities
River Point Tower
Park Side Wings
Pier West House
Park Axis Gakugei Daigaku
Park Axis Ichigaya
Park Axis Shibuya Jinnan
Park Axis Aoyama Kotto DoriPark Axis Kagurazaka Stage
Park Axis Shirokanedai
Park Axis Bunkyo Stage
Park Axis Tsukishima
Park Axis Otsuka
Park Axis Minami Azabu
Park Axis Shibuya
Park Axis Nihonbashi Stage
Park Axis Hamamatsucho
Park Axis Hongo no Mori
Park Axis Tameike Sanno
Park Axis Roppongi Hinokicho Koen
Park Axis Ochanomizu Stage
Park Axis Okachimachi
Park Cube Hongo
Park Cube Kanda
Park Cube Ichigaya
Park Cube Asakusa Tawaramachi
Park Cube Ueno
Park Cube Ikebukuro Kanamecho
Park Axis Meguro Honcho
Park Axis Shin Itabashi
Tokyo 23 Wards Total
Park Cube Keio Hachioji
Park Cube Keio Hachioji II
Greater Tokyo Total (Note 3)
Park Axis Meieki Minami
Other Major Cities Total
Grand Total

Chuo-ku, Tokyo

Setagaya-ku, Tokyo
Shinjuku-ku, Tokyo
Shibuya-ku, Tokyo
Minato-ku, Tokyo
Shinjuku-ku, Tokyo
Minato-ku, Tokyo
Bunkyo-ku, Tokyo
Chuo-ku, Tokyo
Toshima-ku, Tokyo
Minato-ku, Tokyo
Shibuya-ku, Tokyo
Chuo-ku, Tokyo
Minato-ku, Tokyo
Bunkyo-ku, Tokyo
Minato-ku, Tokyo
Minato-ku, Tokyo
Bunkyo-ku, Tokyo
Taito-ku, Tokyo
Bunkyo-ku, Tokyo
Chiyoda-ku, Tokyo
Shinjuku-ku, Tokyo
Taito-ku, Tokyo
Taito-ku, Tokyo
Toshima-ku, Tokyo
Meguro-ku, Tokyo
Itabashi-ku, Tokyo
Hachioji-shi, Tokyo
Hachioji-shi, Tokyo
Nagoya-shi, Aichi

Notes: 1. Acquisition Price does not include acquisition-related expenses, property tax(to be capitalized) and consumption tax (not refundable for residential properties).
Amounts are rounded down to the nearest million.

22

Nippon Accommodations Fund Inc.

NAF Portfolio(As of August 31, 2007)

Acquisition Price (Note 1)

Portfolio Share

Rentable Area

(Yen in millions)(%)(sq. m.)29,69627.4

43,812.41

1,760
2,570
3,230
1,730
1,400
5,140
4,440
930
1,655
3,939
1,282
7,557
2,025
2,910
2,860
2,170
9,710
1,070
1,760
2,454
1,794
2,508
2,233
1,608
1,810
3,430
103,672
991
1,130
2,121
2,440
2,440
108,234

1.6
2.4
3.0
1.6
1.3
4.7
4.1
0.9
1.5
3.6
1.2
7.0
1.9
2.7
2.6
2.0
9.0
1.0
1.6
2.3
1.7
2.3
2.1
1.5
1.7
3.2
95.8
0.9
1.0
2.0
2.3
2.3
100.0

2,437.66
3,313.33
2,766.62
1,537.24
1,891.05
4,704.44
6,078.93
1,383.99
2,606.37
3,938.14
1,094.28
10,025.40
2,426.45
3,317.94
2,710.69
2,054.46
12,025.25
1,621.73
2,160.12
3,194.59
2,127.50
4,012.68
3,041.61
1,886.82
1,884.77
4,395.99
132,450.46
2,814.32
3,082.32
5,896.64
5,565.13
5,565.13
143,912.23

Rentable Units

PML (Note 2)

Developer

(%)

544

64
84
75
40
59
99
154
30
52
64
20
184 Residential, 1 Retail80
86 Residential, 1 Retail
70
46
324
42
60
95
51
76
91
65
60
152
2,767 Residential, 2 Retail52
47 Residential, 1 Retail
99 Residential, 1 Retail169
Residential 169
3,035 Residential, 3 Retail

Mitsui Fudosan
4.5
7.9
7.0
7.6
7.3
6.8
7.0
7.5
8.7
6.5
6.8
6.4
7.4
7.9
7.5
7.1
8.8
8.2
9.2
7.2
6.8
8.2
8.9
6.8
8.8
7.5
8.1
8.5
7.3 East, 7.5 West

Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Mitsui Fudosan
Other Party
Other Party
Other Party
Other Party
Other Party
Mitsui Fudosan
Other Party
Mitsui Fudosan

7.1
7.6

Other Party
Other Party

4.1

Mitsui Fudosan

4.0

2. PML = Probable maximum loss
3. Greater Tokyo includes Tokyo (other than the 23 wards), Kanagawa, Chiba and Saitama.

NAF Report March 2007 – August 200723

Corporate Structure and GovernanceNippon Accommodations Fund Inc. has structured systems for compliance and risk management
and operates fairly and transparently with the aim of increasing investor value.

Real Estate Investment Trust (REIT) Structure
Nippon Accommodations Fund Inc. (NAF) is anassets to secure stable earnings and steadily increase

investment corporation established with the objective ofassets under management. These guidelines may change ininvesting in assets, primarily Designated Assets as defined

the future in response to changes in the externalby the Investment Trust and Investment Corporation Act ofinvestment environment and the status of NAF’s assets

Japan. NAF was established on October 12, 2005, with

under management.

Mitsui Fudosan Accommodations Fund Management Co.,

In addition, the REIT Management Company has

Ltd. (the “REIT Management Company”) as its asset

concluded contracts with the Mitsui Fudosan Group to

management company.

promote smooth, effective management of NAF’s assets. A

NAF has entrusted management of all of its assets toReal Estate Information and Advisory Service Agreement

the REIT Management Company, which is the asset

with Mitsui Fudosan Co., Ltd. provides information

management company required by the Investment Trust

regarding real estate owned or developed by Mitsui

and Investment Corporation Act of Japan. Operating in

Fudosan Accommodations Business Division, and otheraccordance with the asset management contract concluded

management advisory information. A Memorandum on

on October 13, 2005, the REIT Management Company

Provision of Real Estate Brokerage Information with Mitsui

manages NAF’s assets according to NAF’s asset

Fudosan Real Estate Sales Co., Ltd. provides access to real

management and administration policies and the asset

estate brokerage information. A Basic Agreement on

management guidelines embodied in the internal

Property Management with Mitsui Fudosan Housing Lease

regulations of the REIT Management Company. The asset

Co., Ltd., the master property management company tomanagement guidelines take current investment conditions

which NAF has entrusted all its properties, is fundamental

into account and follow NAF’s basic operating principle ofto NAF’s policy of outsourcing the property managementtaking a medium-to-long-term perspective in managing

services required in managing real estate.

Asset Custodian

Accounting Auditor

The Chuo Mitsui Trust andBanking Company, Limited

KPMG AZSA & Co.
Asset Custody
Agreement
General Administrative Agent(Taxation)

Transfer Agent

The Chuo Mitsui Trust andBanking Company, Limited

Transfer Agency
Service Agreement

General Administrative Agent(Accounting)

HEISEIKAIKEISHA TAX Co.

REIT
Nippon Accommodations
Fund Inc.

REIT Management Agreement andGeneral Administrative Service Agreement

Property Information Provider

REIT Management Company

Mitsui Real Estate
Sales Co., Ltd.

Mitsui Fudosan
Accommodations FundManagement Co., Ltd.

Memorandum on
Provision of Real
Estate Brokerage
Information

Master Property Manager
Basic Agreement
on Property
Management

Agreement on Provision ofReal Estate Information/Advisory Service

Mitsui Fudosan Co., Ltd.

Nippon Accommodations Fund Inc.

Zeirishi-Hojin
PricewaterhouseCoopers(TSE 3226)
General Administrative
Service Agreement(Accounting)

Real Estate Information/Advisory

24

General Administrative
Service Agreement(Taxation)

Mitsui Fudosan
Housing Lease Co., Ltd.

Management Team

Michihiko Takabe

Yuji Yokoyama

Nobuyuki Nakai

Takeo Tomita

Hiroyuki Sodeyama(Attorney at Law)
Supervisory Director

Executive Director

Executive Director(Attorney at Law)
Supervisory Director(Certified Public Accountant,Certified Public Tax Accountant)
Supervisory Director

Corporate Structure
General Meeting of Unitholders

supervisory directors (but always equal to the number ofIn accordance with the current Articles of Incorporation,

executive directors plus at least one additional supervisory

the General Meeting of Unitholders is held within the 23

director). As of August 31, 2007, NAF had two executive

wards of Tokyo. In accordance with the Investment Trust

directors and three supervisory directors. NAF’s accounting

and Investment Corporation Act of Japan and NAF’s Articles

auditor is KPMG AZSA & Co.

of Incorporation, NAF convenes a General Meeting of

NAF’s executive directors are responsible for business

Unitholders. The third General Meeting of Unitholders

execution. In addition, they have authority for all judicial

convened on October 12, 2007. The General Meeting ofand extrajudicial proceedings related to the operations

Unitholders adopts or vetoes resolutions on the basis of aof NAF.

simple majority of the voting rights of unitholders inattendance. Decisions on substantive resolutions such as

Supervisory directors are responsible for supervisingbusiness execution by the executive directors.

changes in the Articles of Incorporation require the

The Board of Directors acts in accordance with theattendance of unitholders that control a simple majority ofInvestment Trust and Investment Corporation Act of Japan

total units issued and outstanding, and a two-thirds

and NAF’s Articles of Incorporation and other internal rules

majority of the voting rights of such unitholders. The asset

in exercising their responsibility to supervise themanagement policies and standards are stipulated by NAF’s

performance of the executive directors. In accordance with

Articles of Incorporation.

the current Articles of Incorporation, the Board of Directors
passes or vetoes resolutions on the basis of a simple

Executive Directors, Supervisory Directors,
Independent Auditor and the Board of Directors

majority of executive and supervisory directors on the Board

NAF’s Articles of Incorporation stipulate that NAF mustsupervisory directors with a vested interest in a resolution

have one or more executive directors, and two or more

who are in attendance and are able to vote. Executive andare prohibited from participating in related decisions.

NAF Report March 2007 – August 2007

25

The accounting auditor is selected by the Generalmaterial violations of laws, regulations or NAF’s Articles of

Meeting of Unitholders. It audits documents including

Incorporation that executive directors may commit in the

NAF’s financial statements. In addition, it is charged withcourse of their duties. The accounting auditor also

reporting to supervisory directors any unlawful acts or

performs other duties as required by laws and regulations.

Compliance Initiatives

Corporate Governance Structure
General Meeting of Unitholders

The REIT Management Company assumes full
responsibility for compliance in order to structure an

Auditorappropriate asset management system for NAF. A Chief
Board of Directors

Compliance Officer (CCO) has been appointed to supervise
compliance with laws, regulations and internal rules on the

Compliance Committee

part of the asset management company.

CCO
CEO

The CCO is responsible for internal audits at the REITManagement Company. The Chief Executive Officer (CEO)Investment Committee

may also appoint other employees to participate as needed ininternal audits, based on the recommendations of the CCO.
NAF’s entire organization and all personnel within it

Financial
Division

Investment
Division
CIO

CFO

are subject to internal audits. As a rule, internal audits are
conducted on a regular basis in accordance with thecompliance program, but the CEO may initiate

Investment,
Research &Strategy Team

Asset
Management
Team

FinancialTeam

Corporate
OperationTeamextraordinary audits.

Investment Strategy and the Process for Acquiring and Selling Properties
The REIT Management Company acts in accordancewith the asset management guidelines.

with NAF’s Articles of Incorporation in formulating andA diagram of the investment policies of the asset

amending the asset management guidelines that determine

management guidelines and the process for acquiring

fundamental investment policies and internal rules. In

and selling specific assets under management follows on

addition, it makes decisions regarding the acquisition andpage 27.

sale of specific assets under management in accordance

Investment Risk Management System
NAF itself is responsible for complying with theInvestment Trust and Investment Corporation Act of Japan

26

implementing other measures to enhance the culture ofcompliance among officers and employees.

and related laws and regulations in managing risks. In

NAF’s Board of Directors convenes as needed more

addition, the REIT Management Company has establishedthan once every three months, and resolves important

appropriate internal rules. In conjunction with appropriate

matters and reports on the status of business execution inorganizational systems, it is providing education andaccordance with laws, regulations and internal rules for

Nippon Accommodations Fund Inc.

Corporate Structure and Governancethe Board of Directors. Independent supervisory directors

Management Co., Ltd.

supervise business execution. Moreover, supervisory

The REIT Management Company formulates anddirectors can obtain as needed reports on operations andrevises an annual management plan that is the blueprint

financial condition from the REIT Management Company

for management and administration policies that comply

and from NAF’s asset custodian, The Chuo Mitsui Trustwith the asset management guidelines. This annual planand Banking Company, Limited. They can also conductand compliance with the asset management guidelines

required research. Of note, one of NAF’s executive

serve to eliminate or minimize risk. In addition, the REIT

directors has obtained approval in accordance with theManagement Company has established internal risk

Investment Trust and Investment Corporation Act of Japan

management regulations and a department that focuses on

to serve concurrently as the president and chief executive

managing each type of risk appropriately.

officer of Mitsui Fudosan Accommodations Fund

Related-party transactions require approval by independent external professional

Restrictions on Related-Party Transactions
Laws and regulations prohibit the REIT Management
Company from conducting specified transactions withother entities specified by the Investment Trust andInvestment Corporation Act of Japan and its ordinances.

related parties. In the case of a transaction with aWith the objective of enhancing returns for NAF’s

potential conflict of interest between an entity specified

unitholders, the REIT Management Company’s internal

under the Investment Trust and Investment Corporation

regulations specify rules for handling related-party

Act of Japan and its ordinances and its asset managementtransactions. The REIT Management Company hascompany, in principle the REIT Management Company

established standards and procedures for related-party

must prepare a brief describing the transaction and delivertransactions and executes appropriate asset management

it to NAF, other related asset management companies andfor NAF by eliminating conflicts of interest.

NAF Report March 2007 – August 200727

Rental Apartment Investment Characteristics

The high-quality rental apartments that NAF selects as accommodation assets are highly attractive,competitive properties that generate stable earnings.

Growing Rental Needs and Demand

Demand: Steady Growth of Households
Forecast change in number of households in major urban areas(2000 = 100)
115
Greater Tokyo
110

Nagoya area
Kansai area
Fukuoka
Other areas

105
100
95

2000

2005

2010

2015

Source: National Institute of Population and Social Security Research
Note: Other areas excludes Hokkaido, Miyagi, Greater Tokyo, Nagoya area, Kansai area,
Hiroshima and Fukuoka.

Demand: Decreasing Home Ownership Ratein the 25-54 Age Bracket
Home ownership rates by age of head of household (%)

1978

1988

1998

2003

Average

59.9

61.1

60.0

60.9

Under 25

9.9

4.5

2.7

2.7

25 to 54

58.6

58.9

54.1

52.9

55 to 59

79.0

79.3

76.7

76.7

60 to 64

77.9

80.3

79.2

78.9

77.4

81.2

80.0

75.5

79.4

80.3

60 to 74
75 and over

75.9

Source: “Housing in Japan (1978),” Prime Minister’s Office; “Housing Statistical Survey (1988)”
and “Housing/Land Statistical Survey (1998),” General Affairs Agency;“Housing/Land Statistical Survey (2003),” Ministry of Internal Affairs and Communications

Supply: Limited Supply from Private Companies
Number of rental residential construction starts by construction owner(Thousands of residences)
900
800
700
600
500
400
300
200
100
0
1989 1991 1993 1995

Aggregate total
Individual
Corporate
Public entity

1997

1999

2001

2003

2005

Source: “Housing Construction Statistics,” Ministry of Land, Infrastructure and Transport

28

Nippon Accommodations Fund Inc.

Japan’s population is projected to decrease in the
future. Given an aging population with a low birthrate andthe trend toward nuclear families, however, the number ofsmaller households is conversely projected to increase.
Moreover, lifestyles are evolving, with changes in theemployment environment and a move toward urban homes
in pursuit of more convenient living. NAF concentrates
investment in large urban areas, primarily the 23 wards ofTokyo, where projected stable growth in the number ofhouseholds points to expanding demand for rental
apartments.
In addition, over the past 25 years, the age at whichpeople in Japan acquire their own home has been trending
upward, with a decreasing rate of home ownership amongpeople between the ages of 25 and 54, the primary rental
customer segment. This trend indicates a shift towardrental apartment occupancy.

A Tight Supply of High-Quality
Rental Apartments
Conventionally, individual landowners seeking toutilize their assets effectively have been the principal
source of rental apartments in Japan, and the supply by
private companies has been limited. In this environment, in
2004, the former Urban Development Corporation was
reorganized as the Urban Renaissance Agency, an
independent administrative institution. Rather than directly
supplying rental apartments, the Urban RenaissanceAgency now takes the position of transferring or leasing
tracts of land it has prepared to private developers. Thus
control of the supply of rental apartments is shifting to theprivate sector.
In addition, the available rental apartments generally
do not compare favorably to owned houses in terms offloor space or building and construction quality. Looking

at apartment floor space per unit in Tokyo, units with theleast amount of floor space are concentrated in company
housing and rental housing, and units with greater floor
space are increasingly concentrated in owned andoccupied houses. In Tokyo, company and rental units tend
to have less floor space, while owned and occupied
houses are generally much larger. As a result, high-quality
apartments are scarce, as demand grows but the supply
remains limited.

Supply: Relative Scarcity of Quality Apartments
Number of Tokyo residential units by floor space (2003)(Thousands of residences)
1,200

In general, apartment rents are not greatly affected bychanges in economic conditions or asset values. Moreover,
the risk of sudden shifts in vacancy and lease rates is lower
for rental apartments than for office buildings because
apartment lease contracts are subdivided and diversified interms of contract period and renewal and termination
dates. As a result, the potential for fluctuations in earnings
is also limited. These conditions allow NAF to structure adiversified portfolio of rental apartments throughinvestments congruent with NAF’s basic policy of securing
stable earnings.

(private and public)
Rental (private)
Rental (other)
Rental (public)

1,000
800

Owned and occupied

600
400
200
0

High-Quality Rental Apartments
Generate Highly Stable Earnings

Company housing〜29

30〜49 50〜69 70〜99 100〜149 150〜
Total floor area per dwelling (m2)

Source: “2003 Housing/Land Statistical Survey (August 2004),” Ministry of Internal Affairs andCommunications

Stability: Relatively Stable Rents
Offices (Tokyo)(1985 = 100)
Private rental houses
170(Tokyo, non-wooden, over 30m2)
160
150
140
130
120
110
100
0
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Source: “Annual Report: Consumer Price Index,” Cabinet Office, Ministry of Internal Affairs andCommunications, and “Service Price Index for the Private Sector,” Bank of Japan

Common Practices in Japan’s Rental Apartment Market
Contract Validity Period

Key Money

Leases in Japan are generally 2-year contracts, which can be renewedby paying an extension fee (usually one month’s rent).

The tenant pays key money to the landlord prior to signing a lease
contract. It is equivalent to two months’ rent and is not refunded.

Security Deposit

Commission Fee

The tenant must pay a security deposit in advance to the landlord to
insure against future unpaid rent and/or damages. Generally, it isequal to two months’ rent and is typically refunded when moving out(a cleaning and/or repair fee may be deducted prior to refund).

A commission fee is paid to the leasing agent; by regulation, it cannot
exceed one month’s rent.

Guarantor/Joint Surety
A guarantor is required when signing a lease contract. The guarantor musthave an income sufficient to cover the rent if the tenant cannot pay and/or
the cost of repairs to the apartment if the tenant causes any damage.

NAF Report March 2007 – August 200729

Management‘s Discussion and Analysis

Summary of Selected Financial Data

Total revenues (Note 2)
Rental revenue
Other revenue
Operating expenses
Income before income taxes
Net income (a)Funds from operations (Note 3)
Net operating income from property leasing activities (Note 3)
Total amount of cash distribution (b)Depreciation and amortization
Capital expenditures

Yen in millions

U.S. dollars in thousands(Except per unit data or
where otherwise indicated)(Note 1)
(Except per unit data)

3rd Period

2nd Period

1st Period

3rd Period

March 1, 2007 to
August 31, 2007

April 1, 2006 to
February 28, 2007

October 12, 2005 to
March 31, 2006

March 1, 2007 to
August 31, 2007

¥ 3,524
3,323
201
1,729
1,448
1,447

¥ 5,072
4,830
242
2,366
2,030
2,028

2,055

2,806
1,447
608
159

¥

924
849
75
458
378
377

$ 30,361
28,6291,732
14,896
12,475
12,467

2,873
4,131
2,028
850
301

507
734
377
130
26

17,70524,175
12,4675,238
1,370

Total assets (c)Interest-bearing debt
Total net assets (d)114,366
49,50062,426108,097
42,50063,00743,64421,00021,617985,319
426,467
537,831

Total number of common units issued (units) (e)Net assets per unit (Yen/$) (d) / (e)Distribution per unit (Yen/$) (b) / (e)Funds from operations per unit (Yen/$) (Note 3)

113,480
550,10212,75018,106

113,480555,223
17,871
25,35942,480508,871
8,871
11,936

4,739.40
109.85155.99Return on total assets (Note 4)(Annual rate)
ROE (Note 4)(Annual rate)
LTV (Loan-to-value) ratio (Note 3)
Capital ratio (d) / (c)Payout ratio (b) / (a) (Note 5)
Number of days in period

1.3%(2.6%)
2.3%(4.6%)
43.3%
54.6%
100.0%
184

2.7%(2.9%)
4.8%(5.2%)
39.3%
58.3%
100.0%
334

1.7%(3.7%)
3.5%(7.4%)
48.1%
49.5%
100.0%
171

Number of investment properties (Note 6)
Total rentable area (m2)
Average occupancy rate at end of period (Note 6)30
143,91296.9%

27135,74497.2%

756,91996.1%

Notes 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥116.07=U.S. $1.00, the approximate exchange rate on August 31, 2007.
2. Total revenues do not include consumption tax.
3. Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation and amortization
Funds from operations: Net income + Depreciation and amortization – Gain on sale of investment properties
Funds from operations per unit: (Net income + Depreciation and amortization – Gain on sale of investment properties) ÷ Total number of units issued and outstanding at end of period
Loan-to-value ratio: Interest-bearing debt ÷ Total assets
4. Return on total assets: Income before income taxes ÷ {(Initial total assets + Total assets at end of period) ÷ 2}
ROE: Net income ÷ {(Initial unitholders’ capital + Unitholders’ capital at end of period) ÷ 2}
The figures in parentheses are annualized based on the number of actual days in each period.
Annual equivalent amounts for the period ended August 31, 2007: Amount for the period ÷ Actual days in the period (184) x 365 days
Annual equivalent amounts for the period ended February 28, 2007: Amount for the period ÷ Actual days in the period (334) x 365 days
Annual equivalent amount for the period ended March 31, 2006: Amount for the period ÷ Actual days in the period (171) x 365 days
Net assets and total assets used in calculating ROE and ROA are the respective beginning-of-period and period-end averages.
Paid-in capital at the company’s establishment is used for net assets and total assets for the beginning of the period ended March 31, 2006 (¥100 million each).
5. Payout ratio figures are calculated to one decimal place only.
6. Number of investment properties means units generally perceived to be one residential building. Occupancy rate is the ratio of gross leased area to total rentable area at the end of the period.

30

Nippon Accommodations Fund Inc.

Investment Environment and Operating Performance
During the period from March 1, 2007 to August 31, 2007 (the “3rd Period”), corporate earnings remained at a high level and capital
investment continued to increase. Moreover, personal consumption remained firm, and moderate economic expansion is forecast to continue.
In the rental housing market, people continued to move from other regions into the 23 wards of Tokyo, where NAF has concentrated
over 90 percent of its portfolio investment. The number of households also expanded because of an increase in the number of single-person and two-person households. As a result of these and other factors, demand for rental housing remained steady. Moreover, similar
dynamics are evident in Japan’s major regional cities.
New development increased the supply of rental housing, but overall demand continued to exceed supply because of the demolition of
aging properties such as company housing. In addition, rental housing such as that provided by NAF that features outstanding location,
management, facilities and specifications is still limited in the overall market, and occupancy rates and rents have been rising moderately
at such highly competitive properties.
In the real estate market, land prices increased markedly, particularly in central Tokyo, and competition to acquire income-producing
properties continued to intensify. However, NAF continued to use Mitsui Fudosan’s pipeline, acquiring one property valued at ¥1,609 million on an acquisition price basis in March 2007, and two properties valued at a total of ¥5,240 million on an acquisition price basis in
April 2007. As a result, NAF’s portfolio as of August 31, 2007 consisted of 30 properties valued at ¥108,234 million on an acquisition
price basis with total rentable area of 143,912m2.
NAF’s assets under management are concentrated in the 23 wards of Tokyo, where demand for rental housing is solid. NAF cooperated
with its master property manager, Mitsui Fudosan Housing Lease Co., Ltd., in executing effective leasing activities that accommodated theunique features of each property and each location.
Moreover, at the core Okawabata Apartment Communities, NAF continued its large-scale exterior renovation program from the previous period and renovated some of the rental units. In addition, NAF cooperated with Mitsui Fudosan in a number of initiatives with theobjective of increasing awareness of the Park Axis brand, such as the creation of a new brand logo.
NAF’s master property manager began full-scale use of a portfolio management system during the 3rd Period. This accelerated management and administration, and supported efforts to acquire tenants according to conditions at specific properties.
As a result of the leasing activities discussed above, NAF was able to completely lease Park Cube Ikebukuro Kanamecho, a new property
that was unoccupied when NAF acquired it. As of August 31, 2007, the occupancy rate for NAF’s overall portfolio was at a high level of
96.9 percent.

Overview of Results
NAF listed its units on the Tokyo Stock Exchange during the 2nd Period. The 1st and 2nd fiscal periods varied compared to the normal
six-month fiscal periods for an investment trust. The 1st Period began on October 12, 2005 and ended on March 31, 2006, a total of 171
days. The 2nd Period began on April 1, 2006 and ended on February 28, 2007, a total of 334 days. Beginning with the 3rd Period, NAF’s
fiscal periods will consistently be six months long.
For the 3rd Period, total revenues were ¥3,524 million and operating income totaled ¥1,795 million.

NAF Report March 2007 – August 200731

Distributions to Unitholders
NAF determines the amount of cash distributions such that they exceed 90 percent of NAF’s taxable income available for dividends as
set forth in Article 67-15 of the Special Taxation Measures Law of Japan. For the 3rd Period, cash distributions totaled ¥1,446,870,000, or¥12,750 per unit.
Yen in thousands, except per unit amounts

3rd Period

2nd Period

1st Period

March 1, 2007
to August 31, 2007

April 1, 2006
to February 28, 2007

October 12, 2005
to March 31, 2006

Net income available for distribution
Undistributed net income¥1,446,885
15¥2,028,037
36¥376,848
8

Total cash distribution(Per unit)
Distribution from net income(Per unit)
Cash distribution in excess of net income(Per unit)

1,446,870
12,7501,446,870
12,750——2,028,001
17,871
2,028,001
17,871——

376,840
8,871
376,840
8,871——

Note: The above cash distributions were paid after the close of the period.

Changes in Assets, Liabilities and Net Assets
AssetsTotal assets as of August 31, 2007 increased ¥6,269 million from February 28, 2007 to ¥114,366 million.
Total current assets decreased ¥481 million from February 28, 2007 to ¥3,980 million.
Total investment properties increased ¥6,751 million from February 28, 2007 to ¥110,356 million as a result of the acquisition of new
properties and other factors. Compared to February 28, 2007, land including land held in trust increased ¥4,519 million and buildings
including buildings held in trust increased ¥2,232 million.

Liabilities
Current liabilities increased ¥2,802 million from February 28, 2007 to ¥16,625 million. Short-term loans increased ¥3,000 million fromFebruary 28, 2007 to ¥15,500 million due to the acquisition of properties.
Long-term loans increased ¥4,000 million from February 28, 2007 to ¥34,000 million because NAF increased long-term debt to acquire
properties.
Consequently, interest-bearing debt as of August 31, 2007 increased ¥7,000 million from February 28, 2007 to ¥49,500 million. The
ratio of long-term, fixed-rate debt to total interest-bearing debt was 68.7 percent, compared to 70.6 percent as of February 28, 2007. The
loan-to-value ratio, calculated as interest-bearing debt divided by total assets at the end of the period, increased to 43.3 percent from39.3 percent as of February 28, 2007.

Net Assets
Net assets totaled ¥62,426 million as of August 31, 2007. Unitholders’ capital was unchanged at ¥60,979 million, although retained
earnings decreased to ¥1,447 million from ¥2,028 million as of February 28, 2007.

32

Nippon Accommodations Fund Inc.

Management‘s Discussion and Analysis

Funding
Balance of Paid-in Capital
NAF was established on October 12, 2005 with initial paid-in capital of ¥100 million. NAF began investing activities on November
29, 2005 after ¥21,140 million was raised through private placements. As of August 31, 2007, NAF had issued 113,480 investment
units out of 2,000,000 total authorized units. NAF’s investment units were listed on the J-REIT section of the Tokyo Stock Exchange inAugust 2006 upon the completion of a public offering. As the Investment Trust and Investment Corporation Act of Japan does not contain any provision for the issue of more than one class of units, NAF’s investment units comprise the sole class of units authorized andissued by NAF.
Units outstanding
Issue date

Remarks

Increase

Balance(Units)

October 12, 2005
November 29, 2005
August 3, 2006
September 4, 2006

Initial capital (private)
Private placement
Public offering
Third party allocation200
42,28067,2003,800

Paid-in capital
Increase

Balance

Notes(Yen in millions)200
42,480109,680
113,480¥ 100
21,14037,612
2,127¥ 100
21,24058,85260,979Note 1
Note 2
Note 3Note 4Use of
funds

Notes

Notes 1. NAF was established with initial capital of ¥500,000 per unit.
2. Follow-on private offering at ¥500,000 per unit to raise funds for acquisition of investment properties.
3. Public offering of new units for ¥580,000 per unit (excluding underwriting fee: ¥559,700) to fund property acquisition.
4. Additional issue of new units (third party allocation) for ¥559,700 per unit undertaken pursuant to the public offering in Note 3.

Market Price of Units
High/Low (closing price) of units on the TSE:
3rd Period
March 1, 2007 to
August 31, 2007

2nd Period
April 1, 2006 to
February 28, 2007

(Yen)

(Yen)

High

¥1,030,000¥1,000,000

Low

685,000

583,000

Borrowings
Borrowings by financial institution as of August 31, 2007 are shown below.
Short-term debt
LenderThe Bank ofTokyo-Mitsubishi UFJ, Ltd.
The Sumitomo Trust &Banking Co., Ltd.
The Hachijuni Bank, Ltd.
Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust andBanking Corporation
Total short-term debt

(Yen in millions)

Balance

Interest rate
(Note 1)

Date of maturity(Note 2)

¥ 3,000

1.0%

October 31, 2007

4,000

1.0%

October 12, 2007

1,000
3,500

1.0%
1.0%

October 12, 2007
October 31, 2007

4,000

0.9%

September 25, 2007

Repayment
methodBulletpayment(Note 3)

Unsecured/unguaranteed/pari passu(Note 4)
Fixed rate

¥15,500

NAF Report March 2007 – August 200733

Long-term debt
Balance

LenderSumitomo Mitsui Banking
Corporation
The Chuo Mitsui Trust andBanking Co., Ltd.
The Sumitomo Trust &Banking, Co., Ltd.
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Nippon Life Insurance Company
The Development Bank of JapanThe Hachijuni Bank, Ltd.
Mizuho Corporate Bank, Ltd.
The Chugoku Bank, Ltd.
Shinsei Bank, Ltd.
Total long-term debt
Total borrowings

Interest rate

Date ofmaturity¥ 2,000
5,000

1.2%
1.4%

November 30, 2009
November 30, 2010

3,000

1.4%

November 30, 2010

3,000

1.8%

November 30, 2012

2,000
3,000
3,000
3,000
5,000
1,000
1,000
2,000
1,000
¥34,000¥49,500

1.5%
1.6%
2.1%
2.2%
2.1%
1.8%
1.6%
1.6%
1.6%

February 26, 2010
February 28, 2011
April 11, 2012
April 11, 2013
August 6, 2013
April 12, 2010
April 19, 2011
April 19, 2011
April 19, 2011

(Yen in millions)

Repayment
methodBulletpayment

Use of
funds

Notes

Unsecured/unguaranteed/pari passu(Note 4)(Note 3)Fixed rate

Notes 1. The interest rate is presented by loan from each lending institution and is rounded to the nearest tenth. The weighted average interest rate is presented for the outstanding balance of short-term borrowings if the institution has provided more than one short-term loan.
2. The earliest maturity of short-term borrowings is presented if the institution has provided more than one short-term loan.
3. Use of the proceeds of debt financing included purchase of property or real estate trust beneficiary interests, refinancing of other borrowings, and operating expenses.
4. The loan agreements between NAF and each financial institution stipulate that the above borrowings from all financial institutions rank pari passu to each other.
5. The expected annual maturities of long-term borrowings within five years of the balance sheet date are as follows.
(Yen in millions)

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥ —¥5,000¥15,000¥3,000

AmountCapital Expenditures
1. Planning
NAF is planning the following capital expenditures for the renovation of its properties. The amounts below include repairs and maintenancecosts that will be expensed as incurred. Moreover, in addition to a steady program of expenditures for construction, repair and renovationof facilities, a program of renewal construction is being implemented in order to increase competitive power in the market as well as toincrease the level of tenant satisfaction
Estimated amounts
Name of property

Objective

Estimated duration

Total amounts

Payment for thecurrent period(March 1, 2007

Cumulative
amount paid

to August 31, 2007)(Yen in millions)Okawabata Apartment
Communities

34

Nippon Accommodations Fund Inc.

Repairs and renovation ofouter walls, etc.
(Construction area 2)
Renovation of air
conditioning equipment,water pipes, etc.
Repairs and renovation ofouter walls, etc.
(Construction area 3)
Renovation of managed
building, etc.

From March 2007 to
September 2007

¥238

¥—

¥—

From October 2007 to
November 2007

81

—

—

From October 2007 to
May 2008

310

2

2

From October 2007 to
July 2008

144

2

2

Management‘s Discussion and Analysis

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NAF posted ¥159 million in capital expenditures together
with ¥87 million for repairs and maintenance expenses.
Name of property

Okawabata Apartment
Communities

Other Properties

Objective

PeriodExpenditure(Yen in millions)Renovation of air conditioning equipment,water cisterns for fire-fighting, etc.

From March 2007
to August 2007

¥ 81

Renewal construction in rentable areas, etc.

From March 2007
to August 2007

53

Security improvements, etc.

From March 2007
to August 2007

24

Total

¥159

3. Cash Reserve for Capital Improvements
NAF 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 NAF’s business plan for each property.
Yen in millions

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

As of August 31, 2007

As of February 28, 2007

As of March 31, 2006

¥413
438
156
¥696

¥523
191
300
¥413

¥ —
523
—
¥523

Expenses regarding Entrustment, etc.
The following table sets forth the breakdown of entrustment fees, etc. paid by NAF.
Yen in millions

Item

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

3rd Period

2nd Period

1st Period

March 1, 2007
to August 31, 2007

April 1, 2006
to February 28, 2007

October 12, 2005
to March 31, 2006

¥262
5
22
10
14
89

¥377
6
26
18
12
141

¥ 69
1
6
10
2
49

¥402

¥580

¥137

NAF Report March 2007 – August 200735

Management‘s Discussion and Analysis

Related Party Transactions(1) Ongoing Transactions
Description of transactions with related parties (Note 1)
Category

Total paid (A)(Yen in millions)

Amount ofpayment (B)Paid to

B/A(Note 2)

(Yen in millions)

Acquisition price of real estate andreal estate held in trust¥6,849Mitsui Fudosan Co., Ltd.

¥5,24076.5%(2) Fees Paid for the Period from March 1, 2007 to August 31, 2007
Description of transactions with related parties (Note 1)
Category

Total fees paid (A)(Yen in millions)

Amount ofpayment (B)Paid to

B/A(Note 2)

(Yen in millions)

Property management fees

¥245

Mitsui Fudosan Housing Lease Co., Ltd.

¥245

100.0%

Building management fees

114

Mitsui Fudosan Housing Lease Co., Ltd.

114

100.0%

Resident First Co., Ltd.

18

23.1%

Mitsui Rehouse Tokyo Co., Ltd.

2

3.1%

Mitsui Home Estate Co., Ltd.

2

2.3%

Leasing related service fees78(3) Other Payments to Related Parties
Paid toMitsui Home Remodeling Co., Ltd.

Amount of payment(Yen in millions)

Item

¥37

Repair and maintenance costs

Mitsui Fudosan Housing Service Co., Ltd.

7

Repair and maintenance costs

Mitsui Designtec Co., Ltd.

2

Repair and maintenance costs

Notes 1. “Related parties” means parties defined in Article 20 of the government ordinance regarding the Investment Trust and Investment Corporation Act
of Japan, principally, parties related to an asset management company.
2. Figures indicate percentages of total price.

36

Nippon Accommodations Fund Inc.

Financial Statements

Balance Sheets
Nippon Accommodations Fund Inc.
As of August 31, 2007 and February 28, 2007

U.S. dollars in thousands
Yen in millions

AssetsCurrent assets:
Cash and cash equivalents
Rent receivables
Consumption tax receivables and other current assets
Total current assets
Investment properties (Note 3):
Land including trust accounts
Depreciable property andimprovements including trust accounts
Accumulated depreciation
Total investment properties
Other assets
Total Assets(Note 1)

3rd Period

2nd Period

3rd Period

As of August 31, 2007

As of February 28, 2007

As of August 31, 2007

¥ 3,437
511
32
3,980

¥ 3,917
459
84
4,462

$ 29,611
4,403
276
34,29076,391

71,872

658,146

35,549(1,584)
110,35630¥114,366

32,709(976)
103,60530¥108,097

306,272(13,647)
950,771258$985,319¥ 15,500
421
560
144
16,625¥ 12,500
688
519
115
13,822$133,540
3,627
4,825
1,241
143,233

34,0001,315
35,31530,0001,267
31,267

292,927
11,329304,256

51,94045,090447,489

60,9791,447
62,426¥114,366

60,9792,028
63,007¥108,097

525,364
12,467537,831$985,319

Liabilities and Net Assets
Liabilities
Current liabilities:
Short-term loans (Note 4)
Accounts payable
Rent received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term liabilities:
Long-term loans (Note 4)
Tenant security deposits
Total long-term liabilities
Total Liabilities
Net Assets
Unitholders’ capital (Note 5)
Retained earnings
Total Net Assets
Total Liabilities and Net Assets
The accompanying notes to financial statements are an integral part of these balance sheets.

NAF Report March 2007 – August 2007

37

Statements of Income
Nippon Accommodations Fund Inc.
March 1, 2007 to August 31, 2007, April 1, 2006 to February 28, 2007 and October 12, 2005 to March 31, 2006

U.S. dollars in thousands
Yen in millions

Revenues (Note 6):
RentalOther revenue related to property leasing
Gain on sale of investment properties
Total Revenues
Operating Expenses (Note 6):
Property management fees
Real estate taxes and insurance
Repairs and maintenance
Other rental expenses
Depreciation and amortization
Asset management fees
Other expenses
Total Operating Expenses
Operating Income
Interest and other income
Interest expense
Founding costs
New investment unit issue costs
New investment unit publication costs
Other expenses
Income before Income Taxes
Current and deferred income taxes (Note 7)
Net Income

Nippon Accommodations Fund Inc.

1st Period

3rd Period

2nd Period

March 1, 2007 to
August 31, 2007

April 1, 2006 to
February 28, 2007

¥3,323201—
3,524¥4,830
238
5
5,072

¥849
75
—
924

$28,629
1,732—
30,361

375
117
87
140
608
261
141
1,729
1,795
4
(349)
—
—
—
(2)

534
140
104
158
850
377
203
2,366
2,706
2
(493)
—
(119)
(65)
(1)

114
3
32
42
130
69
69
458
466
4
(76)
(9)
(7)
—
(2)

3,231
1,008
750
1,206
5,238
2,249
1,215
14,896
15,46534(3,007)
—
—
—
(17)

1,448
1
¥1,4472,030
2¥2,028378
1¥377

12,475
9$12,467

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

38(Note 1)

(unaudited)
October 12, 2005 to
March 31, 2006

3rd Period
March 1, 2007 to
August 31, 2007

Financial Statements

Statements of Changes in Unitholders’ Equity
Nippon Accommodations Fund Inc.
For the period from April 1, 2006 to August 31, 2007

Yen in millions
Number of
Units

Unitholders’CapitalRetained
Earnings

Balance as of March 31, 2006

42,480¥ 21,240¥

Cash distribution declared—
67,200Issuance of new units through public offering as of August 3, 2006
Issuance of new units through allocation toa third party as of September 4, 2006
Net income
Balance as of February 28, 2007
Cash distribution declared
Net income
Balance as of August 31, 2007

Total

377

¥ 21,617—
37,612

(377)
—

(377)
37,612

3,800
—

2,127
—

—
2,028

2,127
2,028

113,480

60,9792,028

63,007————(2,028)1,447(2,028)
1,447

113,480¥60,979¥ 1,447¥62,426

U.S. dollars in thousands (Note 1)
Number of
Units

Unitholders’CapitalRetained
Earnings

Total

Balance as of March 31, 2006

42,480$ 182,993$ 3,248$ 186,241

Cash distribution declared—
67,200—324,046(3,248)—(3,248)324,046

3,800—

18,325——
17,472

18,325
17,472

113,480

525,364

17,472542,836————(17,472)
12,467(17,472)
12,467

113,480$525,364$ 12,467$537,831

Issuance of new units through public offering as of August 3, 2006
Issuance of new units through allocation toa third party as of September 4, 2006
Net income
Balance as of February 28, 2007
Cash distribution declared
Net income
Balance as of August 31, 2007
The accompanying notes to financial statements are an integral part of these statements.

NAF Report March 2007 – August 200739

Financial Statements

Statements of Cash Flows
Nippon Accommodations Fund Inc.
March 1, 2007 to August 31, 2007, April 1, 2006 to February 28, 2007 and October 12, 2005 to March 31, 2006

U.S. dollars in thousands
Yen in millions

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
New investment unit issue costs
Interest expense(Increase) Decrease in rent receivables
Increase (Decrease) in accounts payable
Increase (Decrease) in rents received
in advance
Decrease in investment properties due
to saleCash payments of interest expense(Increase) Decrease in consumption tax
refund receivable
Other, net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases ofinvestment properties
Proceeds from tenant security deposits
Payments for tenant security deposits
Other, net
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Proceeds from short-term loans
Repayment of short-term loans
Proceeds from long-term loans
Proceeds from issuance of investment units
Payment of distribution
Net Cash Provided by Financing Activities
Net Change in Cash and Cash Equivalents
Cash and Cash Equivalents at the Beginningof the Period
Cash and Cash Equivalents at the Endof the Period

Nippon Accommodations Fund Inc.

1st Period

3rd Period

2nd Period

March 1, 2007 to
August 31, 2007

April 1, 2006 to
February 28, 2007

¥ 1,448
608
—
349
(52)
(277)

¥ 2,030
850
119
493
(269)
585

¥ 378
130
7
76
(191)
114

$ 12,475
5,238
—
3,007
(448)
(2,386)

40

303

216

345

—
(313)

667
(458)

—
(6)

—
(2,697)

65
(6)
1,862

(51)
(8)
4,260

(13)
(27)
683

560
(52)
16,042(7,359)
221
(173)
(5)
(7,316)(63,196)
853
(212)
(5)
(62,560)(42,056)
692
(65)
(11)
(41,441)(63,401)
1,904(1,490)(43)(63,031)

32,000(29,000)
4,000—(2,026)
4,974
(480)

52,000(42,500)
12,00039,619(377)
60,7432,442

9,000(6,000)18,00021,233—42,233
1,475

275,696(249,849)
34,462—(17,455)
42,853(4,135)

3,917

1,475

—

33,747¥ 3,437¥ 3,917¥ 1,475$ 29,611

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

40(Note 1)

(unaudited)
October 12, 2005 to
March 31, 2006

3rd Period
March 1, 2007 to
August 31, 2007

Notes to Financial Statements
Nippon Accommodations Fund Inc.
March 1, 2007 to August 31, 2007, April 1, 2006 to February 28, 2007 and October 12, 2005 to March 31, 2006

Note 1

Organization and Basis of Presentation

Organization
Nippon Accommodations Fund Inc. (hereinafter “NAF”) was formed on October 12, 2005 as an investment corporation under theInvestment Trust Law of Japan with Mitsui Fudosan Accommodations Fund Management Co., Ltd. (hereinafter “MFAFM”) acting as asponsor. Registration with the Kanto Local Finance Bureau of the Ministry of Finance was completed on November 11, 2005 and NAF
started acquisition of properties on November 30, 2005.
NAF is an externally managed real estate fund, formed as an investment corporation. MFAFM, as NAF’s asset management company,
is engaged in acquiring, managing, leasing, and renovating office properties. MFAFM is a 100% subsidiary of Mitsui Fudosan Co., Ltd.
On August 3, 2006, NAF had raised approximately ¥40,000 million through an initial public offering of investment units. Those investment units are listed on the J-REIT section of the Tokyo Stock Exchange.
As of August 31, 2007, NAF had ownership or beneficiary interests in 30 properties containing approximately 143,912 square metersof rentable space. As of August 31, 2007, NAF had leased approximately 139,485 square meters to tenants. The occupancy rate for theproperties was approximately 96.9%.

Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust andInvestment Corporation Act of Japan 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 applicationand disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements have been restructured and translated into English from the financial statements of NAF 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 not required forfair presentation, is not presented in the accompanying financial statements. NAF does not prepare consolidated financial statements, as NAF
has no subsidiaries.
The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using theprevailing exchange rate at August 31, 2007, which was ¥116.07 to U.S. $1. The convenience translation should not be construed as representation that the Japanese yen amounts have been, or could in future be, converted into U.S. dollars at this or any other rate of exchange.

Note 2

Summary of Significant Accounting Policies

Cash and Cash Equivalents
NAF 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 acquisitionof the 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 investment properties (including assets held in trust)
are as follows:
Buildings and improvements

2-47 years

Structures

3-60 years

Machinery and equipment

12-45 years

Tools, furniture and fixtures

2-13 years

NAF Report March 2007 – August 2007

41

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

Deferred Assets
Costs for the initial public offering of units and start-up expenses were charged to income when incurred. New unit issue costs arecharged to income when incurred.

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
NAF-owned properties are subject to taxes including property tax, city planning tax and depreciable asset tax. Taxes for each fiscal
period are charged to income on an accrual basis.
The owner of properties is registered in a record maintained by the local government in each jurisdiction, and the taxes are imposed on
the owner registered in the record, as of January 1, based on the assessment made by the local government.
When the property is purchased before January 1 of any given calendar year, these taxes for the previous year are imposed on the seller. The Company pays the seller the corresponding tax amounts for the period from the property’s transfer date to December 31 of theprevious year as part of the purchase prices of each property, and capitalizes these amounts as the cost of the property. Capitalized property tax for the period ended August 31, 2007 amounted to ¥5 million.

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

42

Nippon Accommodations Fund Inc.

Notes to Financial Statements

Note 3

Schedule of Investment Properties

Investment properties as of August 31, 2007 and February 28, 2007 consisted of the following:
Yen in millions

As of August 31, 2007
Acquisition
Costs

Land
Land in trust¥ 32,969
43,421

Accumulated
Depreciation——¥ 32,969
43,421¥ 28,451
43,421¥ ——¥ 28,451
43,421

76,390—76,39071,872—

71,872

Buildings and improvements
Buildings and improvements in trust

16,896
16,622

(598)
(795)

16,29815,827

14,342
16,463

(349)
(513)

13,993
15,951

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
Construction in process in trust

33,518
364
99
285
874
120
267
0
21

(1,393)
(27)
(6)
(49)
(47)
(9)
(52)
—
—

32,125
336
93
236
828
111
215
0
21

30,806
306
71
250
873
120
264
—
20

(862)
(16)
(3)
(28)
(32)
(5)
(29)
—
—

29,944
289
68
222
841
115
235
—
20

Land including trust total

Other investment properties total
Total

Note 4¥

Book Value

As of February 28, 2007
AccumuAcquisition
latedBook Value
Costs
Depreciation

2,031

(191)

1,841

1,904

(114)

1,790

¥111,940¥(1,584)¥110,356¥104,581¥(976)¥103,605

Short-Term and Long-Term Loans

Short-term loans consist of short-term borrowings under loan agreements. The annual interest rates on short-term loans outstanding
are fixed rates and as of August 31, 2007 and February 28, 2007 ranged from 0.89% to 1.02% and from 0.72% to 0.86%, respectively.
Long-term loans are at fixed rates and consist of the following:
Yen in millions

As of August 31, 2007

As of February 28, 2007

¥34,000¥30,000

Unsecured loans due 2009 to 2013 principally from banks andinsurance companies with interest rates mainly ranging from 1.2% to 2.2%
The annual maturities of long-term loans as of August 31, 2007 were as follows:

Yen in millions

2009
2010
2011
2012
Thereafter¥ 2,000
11,000
7,000
6,000
8,000

NAF Report March 2007 – August 200743

Note 5Unitholders’ Equity

Total number of units authorized
Total number of units issued and outstanding

As of August 31, 2007

As of February 28, 2007

As of March 31, 2006

2,000,000
113,480

2,000,000
113,480

2,000,000
42,480

NAF shall maintain minimum net assets of at least ¥50 million as required by the Investment Trust and Investment Corporation Act of Japan.

Note 6

Rental Revenues and Expenses

Rental revenues and expenses for the periods ended August 31, 2007, February 28, 2007 and March 31, 2006 were as follows:
Yen in millions

3rd Period

2nd Period

1st Period

March 1, 2007
to August 31, 2007

April 1, 2006
to February 28, 2007

October 12, 2005
to March 31, 2006

Revenue from Property Leasing:
Rental:Rental revenues
Facility charge¥3,24380¥4,720
110

¥834
14

Subtotal

3,323

4,830

849

159
42

200
37

46
29

201

238

75

Total revenues from property leasing

3,524

5,068

924

Rental Expenses:
Property management fees
Repairs and maintenanceReal estate taxes
Trust fee
Utilities
Insurance
Depreciation and amortization
Leasing-related service fees, etc.
Other rental expenses

375
87
110
9
33
7
608
78
19

534
104
131
12
50
10
850
68
28

114
32
0
2
10
3
130
18
12

Other revenues related to property leasing:
Income from leasing rights, etc.
Miscellaneous income
Subtotal

Total rental expenses
Operating Income from Property Leasing Activities

44

Nippon Accommodations Fund Inc.

1,326

1,787

320

¥2,198¥3,281¥603

Notes to Financial Statements

Note 7

Income Taxes

NAF is subject to income taxes in Japan. The effective tax rates on NAF’s income based on applicable Japanese tax law were 0.07%,
0.09% and 0.22% for the periods ended August 31, 2007, February 28, 2007 and March 31, 2006, respectively. The following table summarizes the significant differences between the statutory tax rates and NAF's effective tax rates for financial statement purposes.

Statutory effective tax rate
Deductible distributions paid
Others
Effective tax rate

3rd Period

2nd Period

1st Period

March 1, 2007
to August 31, 2007

April 1, 2006
to February 28, 2007

October 12, 2005
to March 31, 2006

39.39%(39.36)0.04

39.39%(39.35)0.05

39.39%(39.30)
0.13

0.07%

0.09%

0.22%

The tax effects of significant temporary differences that resulted in net deferred tax assets or liabilities as of August 31, 2007,
February 28, 2007 and March 31, 2006 were as follows:
Yen in thousands
As of August 31, 2007

As of February 28, 2007

As of March 31, 2006

Deferred tax assets:
Enterprise taxes

¥ 19

¥ 19

¥ 17

Total deferred tax assets
Deferred tax liabilities

19
—

19
—

17
—

Net Deferred Tax Assets

¥ 19

¥ 19

¥ 17

NAF was established as an investment corporation under the Investment Trust and Investment Corporation Act of Japan, and as longas an investment corporation distributes to its unitholders at least 90% of taxable income for a period and other requirements prescribedin Japanese tax regulations are met, the investment corporation is allowed to deduct the total amount of distributions paid in calculating
its taxable income under Japanese tax regulations.

Note 8Per Unit Information

Information about earnings per unit for the periods ended August 31, 2007, February 28, 2007 and March 31, 2006 and net assets perunit as of August 31, 2007, February 28, 2007 and March 31, 2006 was as follows.
The computation of earnings per unit is based on the weighted average number of common investment units outstanding during theperiod. The computation of net assets per unit is based on the number of common investment units outstanding at each period end.
Yen

Earnings per Unit:
Net income
Weighted average number of investment units outstanding

Net Assets per Unit

3rd Period

2nd Period

1st Period

March 1, 2007
to August 31, 2007

April 1, 2006
to February 28, 2007

October 12, 2005
to March 31, 2006

¥ 12,749
113,480¥ 23,375
86,757¥ 12,310
30,612As of August 31, 2007

As of February 28, 2007

As of March 31, 2006

¥550,102¥555,223¥508,871

NAF Report March 2007 – August 200745

Note 9Transactions with Related Parties(March 1, 2007 – August 31, 2007)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Directors and Major Individual Unitholders
Classification

Director and/or
close relative

Name

Nobuyuki Nakai

Principal businessor occupation

Executive Directorof NAF and
President & CEOof MFAFM

Nature oftransaction
Payment of asset
management fees to
MFAFM (Note 1)

Amount oftransaction

Account(Yen in millions)¥304(Notes 2 and 4)

Payment for the provision ofgeneral administration services
relating to organizational
management to MFAFM (Note 3)¥1(Note 4)

Balance at endof period(Yen in millions)

Accounts
payable(Note 4)

Accounts
payable(Note 4)¥275

¥0Notes 1. Nobuyuki Nakai entered into this transaction as a representative of MFAFM, and this amount is subject to the conditions set forth in the by-laws of NAF.
2. The amount of asset management fees includes ¥42 million for management related to acquisition of properties included in the book value of each investment property, etc.
3. Nobuyuki Nakai entered into this transaction as a representative of MFAFM, and this amount is set forth in the “General Administration Agreement relating toOrganizational Management” concluded between NAF and MFAFM.
4. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

(3) Subsidiaries: None applicable, because NAF has no subsidiaries in which it has invested.
(4) Sister Companies: None applicable(April 1, 2006 – February 28, 2007)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Directors and Major Individual Unitholders
Classification

Director and/or
close relative

Name

Nobuyuki Nakai

Principal businessor occupation

Executive Directorof NAF and
President & CEOof MFAFM

Nature oftransaction
Payment of asset
management fees to
MFAFM (Note 1)

Amount oftransaction

Account(Yen in millions)¥820(Notes 2 and 4)

Payment for the provision ofgeneral administration services
relating to organizational
management to MFAFM (Note 3)¥1(Note 4)

Balance at endof period(Yen in millions)

Accounts
payable(Note 4)

Accounts
payable(Note 4)¥392

¥0Notes 1. Nobuyuki Nakai entered into this transaction as a representative of MFAFM, and this amount is subject to the conditions set forth in the by-laws of NAF.
2. The amount of asset management fees includes ¥443 million for management related to acquisition of properties included in the book value of each investment property, etc.
3. Nobuyuki Nakai entered into this transaction as a representative of MFAFM, and this amount is set forth in the “General Administration Agreement relating toOrganizational Management” concluded between NAF and MFAFM.
4. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

(3) Subsidiaries: None applicable, because NAF has no subsidiaries in which it has invested.
(4) Sister Companies: None applicable

46

Nippon Accommodations Fund Inc.

Notes to Financial Statements

Note 10Significant Subsequent Events

1. Acquisition of Assets
Based on the provisions for investments and policies on asset management set forth in the contract, NAF has completed the acquisitionof the following assets.
Park Axis Akihabara
Date of Acquisition
Acquisition Price (Note)
Location (Residence Indication)
Building

Completion Date
Structure /Number of Floors
Rentable Area

September 14, 2007
¥1,200 million
16-1, Kandasakuma-cho 3-chome, Chiyoda-ku, Tokyo
September 27, 2006
RC 9F
1,346.07m2

Completion Date
Structure /Number of Floors
Rentable Area

September 14, 2007
¥3,950 million
29-10 Shiohama 2-chome, Koto-ku, Tokyo
March 22, 2007
RC 15F
5,412.40m2

Completion Date
Structure /Number of Floors
Rentable Area

September 14, 2007
¥1,820 million
48-11 Takinogawa 3-chome, Kita-ku, Tokyo
March 31, 2007
RC 7F
2,924.75m2

Completion Date
Structure /Number of Floors

September 14, 2007
¥2,717 million
6-2 Yanagibashi 2-chome, Taito-ku, Tokyo
July 10, 2007
RC B1F/14F

Rentable Area

3,400.78m2

Completion Date
Structure /Number of Floors
Rentable Area

September 14, 2007
¥1,920 million
19-3 Marunouchi 2-chome, Naka-ku, Nagoya City, Aichi Prefecture
November 1, 2006
RC 15F
3,821.75m2

Completion Date
Structure /Number of Floors
Rentable Area

September 14, 2007
¥1,515 million
13-2 Ropponmatsu 2-chome, Chuo-ku, Fukuoka City, Fukuoka Prefecture
March 22, 2007
RC 12F
3,473.67m2

Park Axis Toyocho
Date of Acquisition
Acquisition Price (Note)
Location (Residence Indication)
Building

Park Axis Takinogawa
Date of Acquisition
Acquisition Price (Note)
Location (Residence Indication)
Building

Park Axis Asakusabashi
Date of Acquisition
Acquisition Price (Note)
Location (Residence Indication)
Building

Park Axis Marunouchi
Date of Acquisition
Acquisition Price (Note)
Location (Residence Indication)
Building

Park Axis Ropponmatsu
Date of Acquisition
Acquisition Price (Note)
Location (Residence Indication)
Building

NAF Report March 2007 – August 200747

Notes to Financial Statements

Park Axis Hakataeki Minami
Date of Acquisition
Acquisition Price (Note)
Location (Residence Indication)
Building

September 14, 2007
¥1,890 million
5-27 Hakataeki Minami 3-chome, Hakata-ku, Fukuoka City,
Fukuoka Prefecture
March 23, 2007
RC 12F
4,668.29m2

Completion Date
Structure /Number of Floors
Rentable Area

Note: Acquisition Price excludes miscellaneous expenses for acquisition, fixed property taxes, urban planning taxes, consumption taxes and local consumption taxes.

2. Borrowing Funds
To purchase the assets mentioned above and related incidental expenses, NAF has borrowed funds as shown below.
Balance

Interest rate

(Yen in millions)(Note 1)The Chuo Mitsui Trust andBanking Co., Ltd.

3,000

The Sumitomo Trust &Banking, Co., Ltd.

LenderDate of loan

Date of maturity

1.0%

September 14, 2007

October 31, 2007

2,000

0.9%

September 14, 2007

October 12, 2007

1,000

1.0%

September 14, 2007

October 31, 2007

3,000

0.9%

September 14, 2007

October 12, 2007

The Hachijuni Bank, Ltd.

1,000

1.5%

September 14, 2007

September 14, 2012

Mizuho Corporate Bank, Ltd.

2,000

1.0%

September 14, 2007

October 31, 2007

The Bank of Fukuoka, Ltd.

2,000

1.0%

September 14, 2007

October 31, 2007

Mitsubishi UFJ Trust andBanking Corporation

1,000

1.0%

September 14, 2007

October 31, 2007

Repayment
methodBulletrepayment

Notes

Unsecured/
unguaranteed/pari passu(Note 2)

Notes 1. The interest rate is presented by reference to each of the loans and is rounded to the nearest tenth.
2. The loan agreements between NAF and each financial institution stipulate that the above borrowings from all financial institutions rank pari passu to each other.

3. Issue of Investment Corporation Bonds
NAF issued investment corporation bonds in accordance with its general resolution adopted at the Board of Directors’ Meeting held on
October 15, 2007 as follows:(1) Name of the Investment Corporation Bonds: Nippon Accommodations Fund Inc.1st Unsecured Investment Corporation Bonds (withspecial pari passu conditions among specified investment corporation bonds)(2) Total Amount of the Investment Corporation Bonds: ¥10,000 million(3) Issue Price: ¥100 per par value of ¥100(4) Interest Rate:1.70% per annum(5) Payment Date: November 15, 2007
(6) Security or Guarantee: Unsecured/unguaranteed(7) Method and Date of Redemption: The entire amount of the investment corporation bonds shall be redeemed on November 14, 2014.
(8) Use of Funds: Repayment of loans

48

Nippon Accommodations Fund Inc.

Independent Auditors’ Report

To the Board of Directors of
Nippon Accommodations Fund Inc.:
We have audited the accompanying balance sheets of Nippon Accommodations Fund Inc. (a Japanese Real
Estate Investment Trust) as of August 31, 2007 and February 28, 2007, and the related statements of income,changes in unitholders’ equity and cash flows for each of the periods from March 1, 2007 to August 31, 2007
and from April 1, 2006 to February 28, 2007, expressed in Japanese yen. These financial statements are theresponsibility of the Company’s management. Our responsibility is to independently express an opinion on thesefinancial 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 Accommodations Fund Inc. as of August 31, 2007 and February 28, 2007, the results of its
operations and its cash flows for each of the periods from March 1, 2007 to August 31, 2007 and from April 1,
2006 to February 28, 2007, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to Note 10 to the financial statements, which states that Nippon
Accommodations Fund Inc. has completed the acquisition of assets, has borrowed funds and has issued bonds.
The U.S. dollar amounts in the accompanying financial statements with respect to the period ended August 31,
2007 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S.
dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1 to thefinancial statements.

Tokyo, Japan
November 27, 2007
KPMG AZSA & Co., an audit corporation incorporated under the Japanese Certified Public
Accountants Law, is the Japan member firm of KPMG International, a Swiss cooperative.

NAF Report March 2007 – August 200749

Appendix

Major Interested Parties
Overview of the Roles of Major Interested Parties
The following outlines the contractual relationship between
NAF and its REIT management company, and the contractual rela-tionship between NAF’s REIT management company and primary
related corporations.

Role

Name

Overview of Relevant Operations

REIT managementcompany and generaladministrative agent

Mitsui Fudosan
Accommodations FundManagement Co., Ltd.
(MFAFM)

MFAFM serves as the company entrusted with asset management as required by
the Investment Trust and Investment Corporation Act of Japan (Article 198,
Paragraph 1) and under a REIT Management Agreement entered into between
MFAFM and NAF on October 13, 2005 (as amended). Under this contract,
MFAFM undertakes asset management of NAF in accordance with the asset
management guidelines of MFAFM and the Articles of Incorporation of NAF.
Under the above agreement, MFAFM is entrusted with (1) management of assets
owned by NAF; (2) fund procurement to be conducted by NAF; (3) reporting on
the condition of assets owned by NAF; (4) formulating management plans for
assets of NAF; and (5) any other matters related to the above items listed in (1)through (4) that NAF may require.
In addition, pursuant to Article 117 of the Investment Trust and Investment
Corporation Act of Japan, MFAFM undertakes management of (1) the Board of
Directors; (2) the general meeting of unitholders; and (3) any other mattersrelated to the above items listed in (1) and (2) that NAF may require, as
Administrative Agent based on a General Agent Administrative Service Agreement
dated March 1, 2006. The matters entrusted to the Transfer Agent pursuant to
the Agreement between NAF and the Transfer Agent are not included in theabove matters set forth in (1) and (2).

Real estate information/ Mitsui Fudosan Co., Ltd.
advisory service provider

Mitsui Fudosan provides real estate sales information, real estate management
information, and other services to MFAFM under an Agreement on Provision ofReal Estate Information/Advisory Service that MFAFM entered into with Mitsui
Fudosan on February 23, 2006.

Real estate
information provider

Mitsui Fudosan
Residential Co., Ltd.*

Mitsui Fudosan Residential provides real estate sales information and other services
to MFAFM under an Agreement on Provision of Real Estate Information that
MFAFM entered into with Mitsui Fudosan Residential on September 26, 2007.

Property information
providerMitsui Real Estate
Sales Co., Ltd.

Mitsui Real Estate Sales provides real estate brokerage information and otherservices to MFAFM under a Memorandum on Provision of Real Estate Brokerage
Information that MFAFM entered into with Mitsui Real Estate Sales on March 31,
2006.

Master property
manager

Mitsui Fudosan
Housing Lease Co., Ltd.

In principle, MFAFM will entrust to Mitsui Fudosan Housing Lease as master
property manager all property management services required for real estate of
NAF, under a Basic Agreement on Property Management between MFAFM and
Mitsui Fudosan Housing Lease dated March 31, 2006.

* Created as a wholly owned residential sales subsidiary through a corporate split from Mitsui Fudosan Co., Ltd. in October 2006.

50

Nippon Accommodations Fund Inc.

Mitsui Fudosan Accommodations Fund Management Co., Ltd.
REIT Management Company and Administrative Agent Regarding the Management of Institutions, hereafter “MFAFM”
MFAFM, as a REIT management company provided for in theInvestment Trust and Investment Corporation Act of Japan, performs management of NAF’s assets and undertakes managementof the institutions of NAF. As of August 31, 2007, MFAFM has
been entrusted as a REIT management company only by NAF.
As of the same date, MFAFM has paid-in capital of ¥300 million. There is no capital relationship with NAF. Nobuyuki Nakai,
President & CEO of MFAFM, is concurrently an executive directorof NAF.

■ Operation■■

Undertakes asset management of NAF pursuant to a REITManagement Agreement based on an entrustment from NAF in
accordance with the Articles of Incorporation of NAF and theInvestment Objects and Policies set forth therein.
Undertakes management of the general affairs of the general
meeting of unitholders and the Board of Directors as
Administrative Agent regarding the Management of Institutions
based on an entrustment from NAF and pursuant to an
Agreement for General Administration Regarding theManagement of Institutions.

■ Fees for the Asset Management Operation
NAF pays asset management fees to MFAFM, in accordancewith the REIT Management Agreement concluded with MFAFM.
These fees comprise items 1 to 4 below, with the method of calculation and payment dates as follows.
Management Fees 1
The amount equivalent to 5% of the amount of the revenue
arising from Real Estate, etc. as calculated on each 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 1 are paid without delay after definite settlement of accounts.
Management Fees 2
The amount equivalent to 5% of income before income tax
prior to deduction of Management Fees 1 and 2 as calculated oneach closing date will be payable. Management Fees 2 are paid
without delay after definite settlement of accounts.
Management Fees 3
In the event that Real Estate, etc. is newly acquired, compensation equivalent to 1% (0.5% if it is acquired from Related
Parties) of the total amount of the acquisition price of said Real
Estate, etc. (however, excluding consumption tax, local consumption tax, and acquisition costs) will be payable. Management Fees
3 are paid at or before the end of the next month after the monthof the acquisition date.
Management Fees 4
In the event that Real Estate, etc. is sold, compensation equivalent to 1% (0.5% if it is sold to Related Parties) of the total
amount of the sales price of said Real Estate, etc. (however,excluding consumption tax, local consumption tax) will bepayable. Management Fees 4 are paid at or before the end of thenext month after the month of the sales date.

NAF Report March 2007 – August 200751

■ History of MFAFM■ Directors and Staff

MFAFM is a REIT management company that is a limited liability company duly established under the laws of Japan. Major
events in the history of MFAFM are as follows.

As of August 31, 2007, the directors and corporate auditors of
MFAFM are as follows.

January 4, 2005
March 4, 2005

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

March 25, 2005

Title

Nobuyuki Nakai

President & CEO (standing)

Yoshihisa Otake

Director & CIO (standing)Morio Shibata

Director & CFO (standing)Kaneo Maeda

Director

Michio Yamada

Corporate Auditor

Changed name (from “MF Residential AssetManagement Co., Ltd.” to “Mitsui Fudosan
Residential Fund Management Co., Ltd.”)

July 8, 2005

Name of Directors and Auditors

In addition, one important executive other than the directors
and auditors is as follows.

Obtained approval as a discretionary transac-

Name

Title

tion agent under the Building Lots and

Tetsuya Kanazawa

Chief Compliance Officer

Building Transactions Law
September 26, 2005 Obtained approval as a REIT managementcompany under the Investment Trust andInvestment Corporation Act of Japan
December 15, 2005

Changed name (from “Mitsui Fudosan
Residential Fund Management Co., Ltd.” to“Mitsui Fudosan Accommodations FundManagement Co., Ltd.”)

February 8, 2006

Obtained approval to undertake management of the institutions

The staff other than those mentioned above comprises 13
persons.

■ Outline of Financial Condition
An outline of the financial condition of MFAFM is as follows.
Outline of principal assets and liabilities for the most recent
fiscal year:
Current as of March 31, 2007

Total Assets
Total Liabilities
Unitholders’ Equity(Yen in thousands)¥939,264
216,850
722,414

Profit and loss for the most recent fiscal year:
Third Fiscal Year
(April 1, 2006 – March 31, 2007)

Operating Income
Ordinary Profit
Net Income

52

Nippon Accommodations Fund Inc.

(Yen in thousands)¥872,957
596,864
349,653

Appendix

Mitsui Fudosan Co., Ltd.
Real Estate Information and Advisory Service Provider, hereafter Mitsui Fudosan
Pursuant to an Agreement on Provision of Real Estate
Information/Advisory Service, Mitsui Fudosan provides to MFAFM adiverse array of support services that employ the information andexpertise of Mitsui Fudosan in the area of real estate management
and administration.
In order to receive such services, MFAFM provides Mitsui
Fudosan with acquisition guidelines included in asset management
guidelines.

■ Provision of Information on Real Estate and Other
Assets Owned or Developed by Mitsui Fudosan
In case Mitsui Fudosan initiates selling activities of real estateor real estate-related rights which it owns or is developing under
its Accommodation Division, and is consistent with MFAFM’s asset
management guidelines, Mitsui Fudosan notifies MFAFM, in principle, before or at the same time as it notifies any third party of suchsales, unless such notification can not be made due to lack of consent of third parties or any other unavoidable reason.
When MFAFM receives such notification and provides written
notification that it will consider the purchase of such real estate orrights, Mitsui Fudosan deals with NAF as a prospective purchaser
on a pari passu basis with regard to any third party interested inpurchasing such estate or other rights.

■ Provision of Third-Party Real Estate Sales Information
Regardless of whether Mitsui Fudosan has originated or is brokering the sale, Mitsui Fudosan’s Accommodation Division in principle notifies MFAFM of information concerning available realestate or real estate-related rights owned by third parties, whensuch real estate or rights is consistent with MFAFM’s asset management guidelines, unless such notification can not be made due
to lack of consent of third parties or any other unavoidable reason,or Mitsui Fudosan itself intends to acquire such real estate or rights
with the objective of development or ownership.

■ Provision of Real Estate Management Information
Mitsui Fudosan will provide in writing at least once per calendar year real estate management information (see notes below)
drawn from information that its Accommodation Division supervises if MFAFM deems such information necessary for its business and
Mitsui Fudosan agrees to such provision upon request by MFAFM.

Notes: “Real estate management information” means the following information:(a) Information regarding medium-to-long-term trends relevant to
the operating environment of the real estate leasing market in
Japan including economic trends, population dynamics, andtrends in housing stock.
(b) Trends in new supply of residential properties for lease (including
property summaries, lease rates and initial leasing conditions),
recent lease contracts entered for specific residential properties,
area marketing surveys, financial data for other real estate invest
ment corporation, income and expense data for specific properties, and real estate leasing market trends including vacancy rate
and rent trends.
(c) Other information related to items (a) or (b) above that MFAFM
requests, as needed.

■ Provision of Advisory Services
MFAFM has entrusted the following activities to Mitsui
Fudosan.
(a) Support services for the acquisition of real estate or real estaterelated rights (including due diligence prior to such acquisition
review of relevant building plans and construction).
(b) Advice regarding the management and administration of realestate or real estate-related rights which NAF owns or is considering acquiring.
Such advice includes, but is not limited to (i) advice and support
in connection with the management and administration of thelong-term maintenance plan for buildings and facilities and deliberations on and preparation of related budgets and plans; (ii) advice
and support in connection with the investigation or review of theplan and estimated costs for maintenance and renovation to be
conducted in connection with real estate or real estate-related
rights; and (iii) advice and support in connection with large-scale
repair projects to be executed in respect of real estate or realestate-related rights■ Operation Fees
MFAFM will provide the compensation as separately discussed
and agreed with Mitsui Fudosan under this agreement.

NAF Report March 2007 – August 2007

53

Portfolio Policy

Portfolio Structure Policies
The portfolio structure policies and investment standards forindividual properties for the REIT Management Company and its
internal regulations that serve as asset management guidelines
are presented below.

When considering individual investments, NAF studies
regional characteristics and tenant needs. NAF then deploys thisinformation to invest in properties with suitable residential plans
and characteristics.

1. Investment Areas

2. Investment Standards

NAF emphasizes Greater Tokyo and other major cities ininvesting in accommodation assets. By region, approximately 80
percent of NAF’s assets are in the 23 wards of Tokyo.

The REIT Management Company identifies potential
investments and decides whether or not to invest in assets on thebasis of the asset management guidelines summarized in thetable below.

ItemStandard

Investment amountIn principle, the value of each property must exceed ¥1 billion. However, NAF may invest in properties
that do not meet this criterion upon consideration of relevant matters including property characteristics
and earning potential.

Ownership rights

In principle, NAF shall hold ownership rights of a whole property. However, NAF may invest in comparted
ownership upon consideration of the specific property. NAF may also invest in leaseholds, including fixedterm leaseholds, on the basis of consideration of earning potential, the stability of the leasehold rights
and other relevant matters.

Structure

Structures shall be reinforced concrete (RC) or steel reinforced concrete (SRC). Earthquake resistance shallconform to or substantially satisfy the New Earthquake Resistance Standards (in compliance with the1981 revision of the Building Standards Law (Law No. 201 of 1950), including subsequent revisions;
hereafter, the “Building Standards Law”).

Properties for development

In principle, NAF shall acquire properties that are already producing stable rental income at the time ofacquisition, and shall not invest in property development that entails NAF acquiring sites andconstructing buildings on them. However, NAF may consider contracts to acquire uncompleted buildings
that, although incomplete, are expected to carry minimum risk in respect to completion, delivery andsubsequent leasing.

3. Due Diligence Standards
NAF selects assets to invest in only after due diligencecovering economic feasibility, physical condition and legal statusin accordance with the asset management guidelines. Due
diligence includes real estate appraisals and building inspection

Item
Economic
feasibility
studies54

reports from third-party specialists. Based on the results of suchdue diligence, the REIT Management Company in principle
undertakes investigation of the items listed below in order tomake investment decisions as a result of comprehensive review.

Issues InvestigatedMarket survey

1. Current residential environment in the relevant region and its mid-to-long-term forecast
2. Demand and supply for rental housing and housing sales in the relevant region
3. Rental housing competition trends in the relevant region
4. Markets rents in the relevant region, including current rents and its mid-to-long-term forecast
5. Discount rate and rate of return

Tenant survey

1. Tenant creditworthiness and rent income amount
2. Tenant information including tenant household status or industry, number or purpose of use

Nippon Accommodations Fund Inc.

Physical
condition
studiesLegalinvestigation

Survey ofearnings andrelated issues

1. Current property management costs and potential for cost reductions
2. Development of proposals for increasing value through change in management manner or renovation
3. Development of mid-to-long-term plan for repair and renovation expenses
4. Development of property cash flow projections
5. Verification that property is consistent with portfolio strategy

Location

1. Street conditions, access to major transportation
2. Convenience and access to public facilities
3. Status of borders between adjacent tracts and cross-border issues
4. Living conditions including view, light, ambient noise and airflow
5. Presence of unpleasant facilities
6. Future development plans in the surrounding area

Construction,equipment andspecifications

1. Building structure, age and construction company of property and other related matters
2. Layout, ceiling height, interior specifications (including ceiling, walls and floors), materials used for theinterior and exterior, status of maintenance (or deterioration) of facilities including sanitary facilities,
ventilation facilities, electrical facilities, elevators and parking
3. Need for immediate repairs

Building
management

1. Status of compliance with related regulations including the Building Standards Law, the City Planning Law
and the National Land Use Planning Law
2. Actual management status
3. Quality of the property management company and contract terms

Antiseismic
resistance andprobable
maximum loss
(PML)

1. Antiseismic resistance that meets the New Earthquake Resistance Standards or equivalent resistance
2. Checks of the construction company, architectural firm, construction engineering company, and institutionthat inspected construction. Confirmation of authenticity of the structural fabrication calculation sheets.
3. In principle, earthquake PML shall not exceed 15 percent. For buildings for which PML exceeds 20 percent,consideration of additional antiseismic reinforcing work, additional earthquake insurance and other relevant
matters must be considered.

Environmental,
soil and otherissues

1. Investigation of whether the building contains harmful materials
2. Investigation of land use records and soil contamination

Rights andrelated issues

1. Issues regarding ownership rights and mortgage
2. Lease contract terms
3. Any documentation related to confirmation of border or agreement regarding cross-border issues
4. Permission for occupancy of roads under the Traffic Law
5. Compliance with laws and regulations related to environmental preservation, including the Nature
Conservation Law and the Urban Green Space Conservation Law
Investigation shall be conducted as to whether the previous owner had obtained the enforceable real right.
In case of complicated relation of rights, the following matters, among others, shall be investigated; (thecomplicated relation of rights include relationship between NAF and others if NAF does not hold the title toproperty or jointly holds the title.)
1. (If the concerned right is leasehold) the perfection of such leasehold and the absence of any rightwhich supersedes such leasehold.
2. The registration status of the relevant right of site; the limitation on separate transfer of such right ofsite from the building thereon and the registration status of such limitation; share of such right
3. Measures to be taken to ensure the right of site; reserve rules or measures based on long-term
renovation plan
4. Existence of agreement on prohibition from division of co-ownership property and registration statusof such agreement; appropriate treatments in case of request for division of co-ownership property orsales of co-ownership share; (possible) claims against or from other co-owners.

NAF Report March 2007 – August 200755

5. Status of compartment of comparted-ownership.
6. Security arrangements established prior to involvement of NAF and succession of any rights or
obligations in connection thereto.
7. Terms of special agreement with the owner of site (or leasehold originator), other compartedownership holders, other co-owners and any other relevant parties, including agreement regarding
first refusal.
8. Characteristics of owners of site (or leasehold originator), comparted-ownership holders, co-owners orother relevant parties (for example, corporations or individuals).
9. Terms of trust agreement in case the relevant rights are beneficial interests in real estate trust.
Survey of property Documents regarding border confirmation or border certificatesboundaries

Policies for Portfolio Management and Operation
1. Basic Management Policies
The REIT Management Company prepares a yearly
management plan for NAF’s assets under its management foreach fiscal period. This management plan covers issues such as
handling of the assets and projected capital expenditures forproperties, including plans for large-scale renovation, and issubject to Investment Committee resolution.
The REIT Management Company acts in accordance with thisyearly management plan in undertaking management andoperation of the assets in cooperation with the property
management company. The REIT Management Company is also
responsible for implementing appropriate changes and revisions
to the yearly management plan if necessitated by significant
changes in the operating environment.

56

1. An organizational structure that can execute property
management operations according to the management andoperation specifications of the REIT Management Company.
2. The capability to accomplish smooth new tenant recruitment.
3. A reasonable compensation level for property management
operations compared to others in the region in which
properties are located.
In addition, the REIT Management Company will periodicallymonitor whether the selected property management company ismaintaining its capabilities at the level dictated by the standards
for selection. As a result of monitoring, the REIT Management
Company may require improvements or may change the property
management company.

2. Selection and Monitoring of the Property
Management Company

3. Policies for Property and Casualty
Insurance Coverage

The property management company is responsible for
proposal and implementation of various measures for day-to-day,on-site management of tenants and properties. Such functions of
the property management company are particularly important to
the management of accommodation assets in general and rental
housing in particular. Naturally, the property managementcompany should have specialized expertise in the business ofproperty management, and its operations must be organized andefficient so that it can provide consistent, high-quality services
across a widely dispersed array of properties and tenants.
NAF has selected Mitsui Fudosan Housing Lease Co., Ltd. toprovide these services as its master property managementcompany. In principle, NAF intends to entrust property
management for assets to be owned by NAF in the future to
Mitsui Fudosan Housing Lease, on the condition that it meetsthe following requirements:

NAF maintains property and casualty insurance coverage, tothe extent that is deemed appropriate, to address damage toproperty or claims for compensatory damages from third parties
due to disasters such as fires and accidents. Asset characteristics
determine such coverage.
NAF comprehensively determines earthquake insurance
coverage according to the effectiveness of insurance and the
projected impact of an earthquake on each building and on theportfolio as a whole. When earthquake PML for specificbuildings is projected at over 20 percent or when the acquisitionof such property causes portfolio PML to rise above 15 percent,
NAF comprehensively considers the impact from an earthquake,
insurance premiums and any other relevant issues to determine
whether or not to purchase earthquake insurance.

Nippon Accommodations Fund Inc.

Portfolio Policy

4. Basic Policies for Renovation Plans andCapital Expenditures
The renovation plans are strategic and require renovationand capital expenditures in addition to routine expenses incurredby small repairs in order to maintain and improve the market
competitiveness of properties and tenant satisfaction over the
medium-to-long term.

NAF determines and revises, for each property, an annual
renovation plan in yearly management plans that are based on
the established 12-year medium-term renovation plans.
NAF funds a reserve for renovation according toconsiderations of depreciation expenses and renovation plans
based on mid-to-long-term portfolio management. In principle,
NAF keeps capital expenditures within the scope of the overall
portfolio renovation plan.

Divestiture Policy
In principle, NAF aims to secure stable operating revenue
from assets under management through ownership over the
mid-to-long term, and does not engage in short-term divestiture.
However, NAF decides to sell specific assets after
consideration of the overall portfolio impact based on evaluationof trends affecting the future rental market in a given area,
actual or projected increases or decreases in asset values, risk ofasset impairment, obsolescence and associated costs, and otherrelevant factors.

Financial Policies
1. Issue of New Units
NAF may flexibly issue additional units with the objectiveof financing acquisition of assets, renovation and other capitalrequirements for operation, or to repay debt, including leasedeposits, security deposits, loans and bonds that NAF may
have issued.

2. Debt Financing
NAF may issue bonds or take on loans, including callmarket funding, with the objective of financing acquisition ofassets; renovation expenses; dividend payments; working
capital; or debt repayment, including lease deposits, security
deposits, loans and bonds that NAF may have issued. NAF only
borrows capital from qualified institutional investors as definedby Article 2-3-1 of the Securities and Exchange Law of Japan.
In addition, NAF may not take on loans or issue bonds thatexceed ¥1 trillion, respectively, nor may the total of loans andbonds exceed ¥1 trillion. According to NAF’s current Articles ofIncorporation, NAF may use its assets under management as
collateral for loans and bonds.

3. Loan-to-Value Ratio
The ratio of total loans and bonds outstanding to NAF’s
total assets is known as the loan-to-value (LTV) ratio. The REITManagement Company determines the upper limit of its LTV
ratio as part of its mid-to-long-term asset management plans
and its yearly management plans. The upper limit for NAF’s LTV
ratio is currently set at 60 percent, although issues including theacquisition of assets may cause the LTV ratio to temporarily
exceed 60 percent.

4. Derivatives
According to NAF’s current Articles of Incorporation, NAF
limits transactions involving financial derivatives to those withthe objective of hedging risks including the risk of change in theinterest rates associated with debts.

Information Disclosure Policy
NAF defines itself as an open, transparent investment trust,and has a disclosure policy for public awareness. Moreover, NAF
works to maintain an environment that encourages timely andaccurate disclosure of unbiased information to all investors. In
keeping with its name, NAF’s fundamental policy is toaccommodate investors in disclosing information.

NAF discloses information in accordance with theInvestment Trust and Investment Corporation Act of Japan, theSecurities and Exchange Law of Japan, and the rules of theTokyo Stock Exchange and the Investment Trusts Association,
Japan. Moreover, NAF energetically discloses of its own accord
information that it believes is relevant to investment decisions.

NAF Report March 2007 – August 200757

Corporate Data and Investor Information(As of August 31, 2007)■ Corporate Data
Corporate office

1-1, Nihonbashi-Muromachi 2-chome, Chuo-ku, Tokyo 103-0022, Japan+81-3-3246-3677
http://www.naf-r.jp/english/index.html

Date of incorporation

October 12, 2005

Capital¥60,979 million (as of August 31, 2007)

Unitholders

3,455Transfer agent

The Chuo Mitsui Trust and Banking Company, Limited
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 Company, Limited
8-4, Izumi 2-chome, Suginami-ku, Tokyo 168-0063, Japan

Accounting auditor

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

Investor relations

For further information, please contact the REIT Management Company:
Mitsui Fudosan Accommodations Fund Management Co., Ltd.
1-1, Nihonbashi-Muromachi 2-chome, Chuo-ku, Tokyo 103-0022, Japan+81-3-3246-3677

Disclaimer
This document was prepared solely for the convenience of andreference by overseas investors and does not correspond to theoriginal Japanese documents.
This English document contains selected information including apartial translation of the Securities Report (Yuka shoken hokokusho)
filed on November 28, 2007 pursuant to the Securities Exchange
Law of Japan, and the financial statements and the Performance
Information Report for the period from March 1, 2007 to August 31,
2007, of Nippon Accommodations Fund Inc. prepared pursuant to
the Investment Trust and Investment Corporation Act of Japan. This
document should not be deemed a summary of the above mentioned
Securities Report and the Financial Statements and the Performance
Information Report.
The contents of this document do not constitute an offer to sellor solicitation of an offer to buy or sell any security of Nippon
Accommodations Fund Inc. or otherwise, nor is it advice or therecommendation of Nippon Accommodations Fund Inc. to enter into
any transaction.
English terms for Japanese legal, accounting, tax and businessconcepts used herein may not be precisely identical to the concept of
the equivalent Japanese terms. With respect to any and all terms
herein including, without limitation, financial statements, if there exist
any discrepancies in the meaning or interpretation thereof between
the original Japanese documents and English statements contained
herein, the original Japanese documents will always govern themeaning and interpretation. None of Nippon Accommodations Fund
Inc., Mitsui Fudosan Accommodations Fund Management Co., Ltd. or58

Nippon Accommodations Fund Inc.

any of their respective directors, officers, employees, partners,
unitholders, agents or affiliates will be responsible or liable for thecompleteness, appropriateness or accuracy of English translations
contained in this document. No person has been authorized to give
any information or make any representations other than as containedin this document in relation to the matters set out in this document,
and if given or made, such information or representation must not be
relied upon as having been authorized by Nippon Accommodations
Fund Inc., Mitsui Fudosan Accommodations Fund Management Co.,
Ltd. or any of their respective directors, officers, employees, partners,
unitholders, agents or affiliates.
The financial statements of Nippon Accommodations Fund Inc.
have been prepared in accordance with generally accepted accounting
principles in Japan (Japanese GAAP) which may materially differ incertain respects from generally accepted accounting principles in otherjurisdictions.
This document contains forward-looking statements andinformation. We base these statements on our beliefs as well as ourassumptions based solely on certain limited information currently
available to us. Because these statements reflect our current views
concerning future events, these statements involve known andunknown risks, uncertainties and assumptions. Our future
performance could materially differ from those set out in theseforward-looking statements. We do not undertake and will notundertake to release revisions of forward-looking statements toreflect future events or circumstances or of any other statements orinformation contained herein.

■ Investor Information
Fiscal period*

Six months ending February 28 (February 29 in leap years) and August 31

Total number of units issued

113,480 (As of August 31, 2007)

Distribution per unit

¥12,750 (As of August 31, 2007)

Unit listing

Tokyo Stock Exchange (Securities Code: 3226)* The first fiscal period was from the date of incorporation on October 12, 2005 to March 31, 2006.
The second fiscal period was from April 1, 2006 to February 28, 2007.

Major Unitholders(As of August 31, 2007)

Number of Units Held

Percentage of Total

Japan Trustee Services Bank, Ltd. (Trust Account)

11,46610.10%The Master Trust Bank of Japan, Ltd. (Trust Account)

10,453

9.21%

Name

Nikko Cititrust and Banking Co., Ltd. (Investment Account)

7,902

6.96%

Mitsui Fudosan Co., Ltd.

6,600

5.81%

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

6,302

5.55%

CGML-IPB Customer Collateral Account

4,255

3.74%

Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account)

4,119

3.62%

The Chuo Mitsui Trust and Banking Company, Limited

3,600

3.17%

The Hiroshima Bank, Ltd.

3,126

2.75%

Sumitomo Mitsui Banking Corporation

2,953

2.60%

Unitholders
Overseas corporations
and individuals
80 (2.32%)
Financial institutions
90 (2.60%)

Other domestic corporations
61 (1.77%)

Individuals and others
7,515 (6.62%)

Securities companies
18 (0.52%)

Other domestic corporations
9,000 (7.85%)

Overseas corporations
and individuals
20,212 (17.81%)

Individuals and others
3,206 (92.79%)

Number of unitholders
Total 3,455

Securities companies
1,271 (1.12%)

Financial
institutions
75,582
Individuals and others(66.60%)2,288 (2.01%)

Number of units held
Total 113,480

Unit Price Range and Trading Volume(Yen)
1,200,000(Units)
30,000End-of-Month Closing Price (Left scale)Monthly Trading Volume (Right scale)

1,000,000

25,000800,000

20,000600,000

15,000400,000

10,000200,000

5,000

0

Aug.
2006

Sept.

Oct.

Nov.

Dec.

Jan.
2007

Feb.

Mar.

Apr.

May

June

July

Aug.

0

NAF Report March 2007 – August 2007

59

Nippon Accommodations Fund Inc.
1-1, Nihonbashi-Muromachi 2-chome,
Chuo-ku, Tokyo 103-0022, Japan

http://www.naf-r.jp/english/index.html

Printed in Japan on recycled paper with soy-based vegetable ink.