NAF Report 21st Period

March 2016 – August 2016
http://www.naf-r.jp/english/

ProﬁleNippon Accommodations Fund Inc. (“NAF”) was incorporated as an investment corporation on October 12, 2005 with an initialinvestment by Mitsui Fudosan Co., Ltd. (“Mitsui Fudosan”), and was listed on the Tokyo Stock Exchange on August 4, 2006 withassets 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, corporate housing, dormitories/student apartments, serviced apartments and senior residences.
They do not include hotel properties.

Contents
NAF Snapshot .......................................................... 1

Rental Apartment Investment Characteristics ........... 34

NAF’s Two Core Strategies ......................................... 2

Corporate Structure and Governance ....................... 36

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

Primary Related Corporations .................................. 39

Portfolio Strategy ...................................................... 6

Portfolio Policy ........................................................ 42

Portfolio Summary..................................................... 8

Corporate Data ....................................................... 46

Management‘s Discussion and Analysis .................... 10

Status of Unitholders ............................................... 47

Financial Statements................................................ 18
Notes to Financial Statements .................................. 22
Independent Auditor’s Report .................................. 33
Note: In this report, amounts less than 1 million yen have been omitted. As a result, the totals in Japanese yen shown in the ﬁnancial statements do not necessarily agree with the sum of the individual amounts.

NAF Snapshot
Proﬁtability (21st Period)

96.4%
5.2%
¥8,130An average monthly occupancy rate of 96.4 percent
Net operating income (NOI) yield* of 5.2 percent
Distribution per unit of ¥8,130 for the 21st Period*Weighted average of actual NOI yield on the acquisition price of each property

Outstanding Portfolio (As of August 31, 2016)of 119 superior properties with a total¥298,718 million Portfolio
acquisition price of ¥298,718 million

480,708.77m2/
11,729 units

11,729 units with a total rentable area of 480,708.77m2

87.6%

87.6 percent of portfolio located in the 23 wards of Tokyo**Based on acquisition price of rental apartments only

Financial Stability (As of August 31, 2016)

AA−, A+, A3
50.4%

Rated AA– by Rating and Investment Information; A+ (Long-term)and A-1 (Short-term) by Standard & Poor’s; and A3 by Moody’s
LTV (Loan-to-value) ratio of 50.4 percent,long-term debt ratio of 95.3 percent

Distribution per Unit
(Yen)
10,000
8,000
7,274

7,153

12th
Period(Feb.12)13th
Period(Aug.12)

6,754

7,445

7,444

7,672

16th
Period(Feb.14)17th
Period(Aug.14)

7,984

7,688

8,036

8,130

18th
Period(Feb.15)19th
Period(Aug.15)20th
Period(Feb.16)

21st
Period(Aug.16)

8,250(Forecast)

6,858

6,000
4,000
2,000
0
11th
Period(Aug.11)14th
Period(Feb.13)15th
Period(Aug.13)

22nd
Period(Feb.17)

Notes: 1. NAF implemented a two-for-one split of investment units with an effective date of March 1, 2014. Distribution per unit for the period ended February 28, 2014 and earlier is adjusted for this split (actual distribution
divided in half, rounded down to the nearest yen).
2. The above forecast was announced on October 20, 2016.

1

NAF’s Two Core Strategies

Investment in Accommodation Assets
Investment in accommodation assets to meet diversiﬁed needs for residential properties

Social Background
Changes in lifestyles

Changes in family structures

Diversiﬁed needs for residential properties<Real Estate for Living Accommodations>High

Investment Target “Accommodation Assets”

Service Provided

Senior Residences

HotelsServiced
Apartments

Corporate
Housing/
Dormitories/
Student
Apartments

RentalApartments

HousesBuilt for
Retail Sale

Low
Short

Length of Time/Stay

2

Long

Leveraging the Mitsui Fudosan Group
Delivering quality portfolio and efﬁcient operating system by leveraging the Mitsui Fudosan Group’s value chain

Operation, Planning / Development ofResidential Leasing Business
Provision of Property Information

Parent Company of
REIT Management Company

Market Research/
Analysis
Feedback to Planning/
Development

Provision of Property Information

Site Acquisition

Comprehensive
operating system
conducted by the
Mitsui Fudosan GroupREIT Management

Management/
Operation

Planning and
DesignConstruction
Management/
Supervision
Leasing

Residential Building Maintenance

Tenant Brokerage

Mitsui Housing Loop
Membership services

Property Management

Provide various housing and lifestyle services
for continued strong customer relationships

3

To Our Stakeholders
We are enhancing value for our unitholders bygenerating steady growth from an expanding
portfolio of quality properties.
During the six months ended August 31, 2016 (the “21st Period”), the Japanese
economy continued to recover gradually due to factors such as a recovery in capital
investment and improvement in the employment conditions, although there was weakness
in some sectors including a pause in the improvement of corporate earnings. Looking ahead,
the gradual economic recovery is expected to continue, with ongoing improvement in theemployment and income environment, as well as the effect of various government policies.
At the same time, weakness is apparent in overseas economies, including downturns in
China, other emerging economies in Asia and resource producing countries, with the risk ofan economic decline in Japan. Therefore, rising uncertainty in overseas economies, including
the issue of the UK leaving the EU, and the effect of volatility in ﬁnancial and capital markets
require careful attention.
In the residential rental market, occupancy rates remained high at rental apartments heldby J-REITs, with ongoing gradual increases in rents. Moreover, stable demand is expectedin the 23 wards of Tokyo, where nearly 90 percent of NAF’s rental apartments portfolio islocated, and in the centers of other major cities. Contributing factors include the continuing
inﬂux of people into these areas from other regions and growth in the number of households
due to an increase in single- and two-person households. At the same time, the balance of
supply and demand is expected to remain favorable for the time being due to factors such as
the limited supply of the quality rental apartments in which NAF typically invests.

Tateyuki Ikura

In the real estate trading market, competition for property acquisitions remains

Nippon Accommodations Fund Inc.
Management Teamoverheated. Therefore, the acquisition environment remains challenging due to factors suchas acquisition and disposition prices for quality rental real estate remaining high.
In this environment, Mitsui Fudosan Residential Lease Co., Ltd., our master property
management company, and Mitsui Fudosan Accommodations Fund Management Co., Ltd.,
our asset management company, conducted collaborative management and other activities,
which successfully maintained NAF’s average monthly occupancy rate at a high level of 96.4
percent during the 21st Period.
As a result, distribution per unit was ¥8,130. This report presents our results andoperational status for the 21st Period.
NAF will continue working to earn the trust of our unitholders and requests your

From left: Tsunehisa Ota, Nobumi Tobari,
Tateyuki Ikura, Hiroyuki Sodeyama,
Hiroaki Saito

continued support and cooperation.

Nobumi Tobari

Executive Director

December 2016

Tateyuki Ikura

Executive Director

Hiroyuki Sodeyama(Certiﬁed Public Accountant,Certiﬁed Public Tax Accountant)

Tsunehisa Ota(Attorney at Law)

Supervisory Director

Supervisory Director

Tateyuki Ikura

Hiroaki Saito(Certiﬁed Public Tax Accountant,
Real Estate Appraiser)

Supervisory Director

Executive Director of Nippon Accommodations Fund Inc.
President and CEO of Mitsui Fudosan Accommodations Fund Management Co., Ltd.
4

Financial Highlights
20th Period (Actual)

21st Period (Actual)

22nd Period (Forecast)(Ended February 29, 2016)(Ended August 31, 2016)(Ending February 28, 2017)

Total revenues¥10,433 million¥10,621 million¥10,521 million

Operating income¥4,531 million¥4,567 million¥4,586 million

Net income¥3,893 million¥3,939 million¥3,997 million

Total assets¥293,684 million¥295,463 million

—

50.2%

50.4%

—

LTV (Loan-to-value) ratio
Distribution per unit (Yen)¥8,130¥8,036¥8,250Assets under management
Acquisition price basis¥294,918 million¥298,718 million¥298,718 million

Number of properties

116

119

119

Note: The above forecast was announced on October 20, 2016.

New Acquisitions in the 21st Period
Location

Acquisition pricePark Axis Magome Residence

Ota-ku, Tokyo

1,450

55 residential

April 7, 2016

Park Axis Higashi Ueno

Taito-ku, Tokyo

1,250

45 residential

April 7, 2016

Dormy Nishi Ogikubo

Suginami-ku, Tokyo

1,100

71 residential

March 30, 2016

3,800

171 residential

Property name(Yen in millions)

Total

Park Axis Magome ResidencePark Axis Higashi Ueno

5

Rentable units

Dormy Nishi Ogikubo

Acquisition date

Portfolio Strategy
Steady Portfolio Expansion
NAF has steadily expanded its portfolio, primarily by acquiring properties in the Park Axis series. NAF’s portfolio
as of August 31, 2016, the end of the 21st Period, consisted of 119 properties valued at ¥298,718 million on an
acquisition price basis.

Assets under management(Yen in millions)■ Other Accommodation Assets■ Park Cube Series■ Park Axis Series■ Shibaura Island Air Tower■ Okawabata Apartment Communities

300,000

250,000

223,877

267,406

271,713287,733

287,733

294,918

294,918

298,718

242,140

231,227

231,936

200,000
180,026

186,975

186,975

9th
Period(Aug.10)10th
Period(Feb.11)11th
Period(Aug.11)12th
Period(Feb.12)13th
Period(Aug.12)14th
Period(Feb.13)15th
Period(Aug.13)16th
Period(Feb.14)17th
Period(Aug.14)18th
Period(Feb.15)19th
Period(Aug.15)20th
Period(Feb.16)

21st
Period(Aug.16)

6,464

6,464

8,722

9,131

9,281

9,509

10,516

10,685

11,295

11,295

11,558

11,558

11,729150,000

100,000

50,00008thPeriod(Feb.10)

Rentable units
6,214

Rental Apartments Characteristics
1. Location

87.6% in the 23 wards of Tokyo

2. Property Age4

3. Monthly Rent per Unit5

Average 10.9 years

Average ¥150 thousand per unit

[ 8.9 years excluding Okawabata Apartment Communities ]GreaterTokyo: 4.3%

Other Major Cities: 8.1%

Less than 3 years: 1.8%
20 yearsor more:10.7%

23 Wardsof Tokyo:
87.6%

3-5 years: 7.0%

Tokyo CBD2: 34.6%
10-20 years:
29.8%
5-10 years: 50.7%

Tokyo 23 Wards
excluding Tokyo CBD: 53.0%

Notes: 1. The data above are calculations for rental apartments owned as of August 31, 2016 and do not include other accommodation assets.
2. Tokyo CBD (Central Business District) includes Minato, Chuo and Chiyoda wards.
3. The calculations for graphs 1 and 2 above are based on acquisition price. The calculations for graph 3 above are based on units, excluding retail units.
4. The calculations are based on individual property age as of August 31 2016.
5. The calculations are based on total monthly rent (rent and common area fees) per unit as of August 31, 2016.

6¥300,000 ¥500,000: 2.6%
¥200,000 ¥300,000:
16.4%¥500,000or more: 0.5%
Less than¥100,000:
25.7%¥150,000 ¥200,000:¥100,000 24.1%¥150,000: 30.7%

Portfolio Composition
Rental apartments have a lower earnings ﬂuctuation risk than real estate leased for other uses. By concentrating
the majority of its portfolio in the 23 wards of Tokyo where demand for rental apartments is strong, NAF
achieves even greater earnings stability.

NAF aims for steady portfolio expansion centeredon properties in the high-quality Park Axis series
Adachi-ku

planned and developed by the Mitsui Fudosan Group,

Itabashi-ku
Kita-kucomplemented with acquisitions of properties that

Nerima-ku

meet NAF’s proprietary standards in the Park Cube

Katsushika-ku
Arakawa-ku
Toshima-ku

series constructed by other developers. In addition,
Taito-ku Sumida-ku

Bunkyo-ku

NAF focuses investment on single and compact

Nakano-ku
Shinjuku-ku

Suginami-ku

Edogawa-ku

Chiyoda-ku
Inperial
Palaceapartments for which it expects high occupancy rates,
as well as on large-scale and relatively new properties.

Koto-ku

Shibuya-ku
Minato-ku

Geographically, NAF invests mainly within the 23

Chuo-kuwards of Tokyo while also acquiring carefully selected

5km

Meguro-ku

properties in major regional cities.

Setagaya-ku

Shinagawa-ku

NAF also invests in accommodation assets other10km

than rental apartments.

Ota-kuRental apartments
Other accommodation assets

Note: Portfolio as of August 31, 2016

4. Category3

5. Unit Area

Single and compact units: 82.7%

Average 42.8m2 per unit

Large: 4.6%

80m2
or more: 4.8%

Family:12.7%

60-80m2:
12.5%
Singlecompact:
82.7%

Compact: 42.0%

Single:40.7%

Less than
30m2: 32.1%

50-60m2:
14.0%
40-50m2:
16.3%

30-40m2:
20.3%

Notes: 1. The data above are calculations for rental apartments owned as of August 31, 2016 and do not include other accommodation assets.
2. The calculations for graphs 4 and 5 above are based on units, excluding retail units.
3. The calculations are based on unit categories as of August 31, 2016.

7

Portfolio Summary (As of August 31, 2016)
No.
1

2
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
28
29
30

31
32
33
34
38
39
41
42
43
44
46
47
48
51
52
53
54
55
59
60
61
62
63
64
68
70
72
74
75

84
86
88
91
92
93
94

Name
Okawabata Apartment Communities
River Point Tower
Park Side Wings
Pier West House
Okawabata Parking
Park Axis Gakugei Daigaku
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
East
West
Park Axis Akihabara
Park Axis Toyocho
Park Axis Takinogawa
Park Axis Asakusabashi
Park Axis Nihonbashi Hamacho
Park Cube Yoyogi Tomigaya
Park Axis Monzen Nakacho
Park Cube Itabashi Honcho
Park Cube Gakugei Daigaku
Park Cube Oimachi
Park Axis Nishigahara
Park Axis Kinshicho
Park Axis Tatsumi Stage
Park Axis Kameido
Park Axis Honancho
Park Axis Itabashi
Park Axis Oshiage
Park Axis Takadanobaba
Park Axis Toyosu
Park Axis Hatchobori
Park Axis Itabashi Honcho
Park Axis Sumiyoshi
Park Cube Yotsuya Sanchome
Park Cube Hatchobori
Park Axis Kamata Ichibankan
Park Axis Taito Negishi
Park Axis Komagome
Park Axis Itabashi Honcho Nibankan
Shibaura Island Air Tower (Note 3)
Air Tower
Air Terrace
Park Cube Higashi Shinagawa
Park Cube Sasazuka
Park Axis Higashi Jujo
Park Cube Heiwadai
Park Cube Meguro Tower
Park Cube Nihonbashi Suitengu
Park Cube Ginza East

Location
Chuo-ku, Tokyo

Acquisition Price (Note 1) Portfolio Share Rentable Area
(Yen in millions)(%)(m2)
30,816
10.3
43,812.41

Setagaya-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

1,760
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
1,949
2,508
2,233
1,608
1,810
3,430

Chiyoda-ku, Tokyo
Koto-ku, Tokyo
Kita-ku, Tokyo
Taito-ku, Tokyo
Chuo-ku, Tokyo
Shibuya-ku, Tokyo
Koto-ku, Tokyo
Itabashi-ku, Tokyo
Meguro-ku, Tokyo
Shinagawa-ku, Tokyo
Kita-ku, Tokyo
Sumida-ku, Tokyo
Koto-ku, Tokyo
Koto-ku, Tokyo
Nakano-ku, Tokyo
Kita-ku, Tokyo
Sumida-ku, Tokyo
Toshima-ku, Tokyo
Koto-ku, Tokyo
Chuo-ku, Tokyo
Itabashi-ku, Tokyo
Sumida-ku, Tokyo
Shinjuku-ku, Tokyo
Chuo-ku, Tokyo
Ota-ku, Tokyo
Taito-ku, Tokyo
Toshima-ku, Tokyo
Itabashi-ku, Tokyo
Minato-ku, Tokyo

1,200
3,950
1,820
2,717
5,540
1,975
1,700
4,170
910
1,440
840
1,448
7,464
2,359
745
1,448
1,193
1,222
14,300
1,760
987
1,006
2,749
4,200
1,069
672
1,389
1,859
7,905

Shinagawa-ku, Tokyo
Shibuya-ku, Tokyo
Kita-ku, Tokyo
Nerima-ku, Tokyo
Meguro-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo

6,060
2,200
1,700
1,204
9,000
2,711
2,269

8

0.6
1.1
0.6
0.5
1.7
1.5
0.3
0.6
1.3
0.4
2.5
0.7
1.0
1.0
0.7
3.3
0.4
0.6
0.8
0.7
0.8
0.7
0.5
0.6
1.1

0.4
1.3
0.6
0.9
1.9
0.7
0.6
1.4
0.3
0.5
0.3
0.5
2.5
0.8
0.2
0.5
0.4
0.4
4.8
0.6
0.3
0.3
0.9
1.4
0.4
0.2
0.5
0.6
2.6

2.0
0.7
0.6
0.4
3.0
0.9
0.8

2,437.66
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
2,288.46
4,012.68
3,041.61
1,886.82
1,884.77
4,395.99

1,346.07
5,412.40
2,924.75
3,400.78
6,999.83
1,929.10
1,886.39
5,317.07
957.88
1,511.12
1,435.83
2,288.13
16,474.06
3,986.78
1,231.08
2,567.96
2,121.29
1,463.25
25,537.94
2,416.29
2,048.31
1,785.72
3,599.82
5,191.86
1,721.28
1,283.13
1,979.51
3,661.58
17,646.33

10,636.67
2,416.00
2,893.54
2,656.00
12,367.62
4,235.33
3,358.63

PML (Note 2)(%)

Rentable Units
544

64
75
40
59
99
154
30
52
64
20
184 residential, 1 retail, etc.
80
86 residential, 1 retail, etc.
70
46
324
42
60
95
53
76
91
65
60
152

41
140
48 residential, 1 retail, etc.
78 residential, 1 retail, etc.
118
38
55
165 residential, 1 retail, etc.
24
65
46
65
299 residential, 1 retail, etc.
118
31
64
57 residential, 1 retail, etc.
36 residential, 1 retail, etc.
401 residential, 2 retail, etc.
63 residential, 1 retail, etc.
66
60
130
118 residential, 2 retail, etc.
63
40
39 residential, 1 retail, etc.
99
270 residential, 2 retail, etc.

201
92 residential, 1 retail, etc.
70 residential, 1 retail, etc.
34
193 residential, 1 retail, etc.
77
77

1.8
2.7
2.7
1.7
5.0
4.1
4.5
3.0
4.2
3.6
3.2
2.4
3.0
4.1
4.5
3.3
4.0
3.5
5.8
3.9
4.0
3.9
2.4
2.9
2.8
2.8
3.8
5.8
3.4
3.3
3.3
5.8
4.0
3.2
4.2
5.8
5.1
2.9
6.8
3.2
2.4
4.2
5.1
5.6
3.0
5.3
4.9
2.7
3.9
3.2
4.0
7.4
5.1
2.4
6.7
4.2
2.5
3.1
1.9
7.5
3.5
3.4
3.1
2.8
2.2
4.4
3.0

No.
95
96
97
98
99
100
101
103
104
105
106
108
110
111
112
113
114
115
116
117
120
121
26
40
66
67
69
85
87
102
109
27
35
36
37
45
49
50
56
57
58
65
71
73
107

76
77
78
79
80
81
82
83
89
90
118
119

Name

Location

Park Cube KayabachoChuo-ku, Tokyo
Park Cube Honjo Azumabashi
Sumida-ku, Tokyo
Park Axis Kiyosumi Shirakawa
Koto-ku, Tokyo
Park Axis Asakusabashi Nichome
Taito-ku, Tokyo
Park Axis Nishi Sugamo
Kita-ku, Tokyo
Park Axis Ueno
Taito-ku, Tokyo
Park Axis Akihabara East
Taito-ku, Tokyo
Park Axis KayabachoChuo-ku, Tokyo
Park Axis Kinshicho Shinsui Koen
Sumida-ku, Tokyo
Park Cube Kasuga Andozaka
Bunkyo-ku, Tokyo
Park Cube Kameido
Koto-ku, Tokyo
Park Axis Shin Okachimachi East
Taito-ku, Tokyo
Park Axis Nihonbashi Honcho
Chuo-ku, Tokyo
Park Cube Nishigahara Stage
Kita-ku, Tokyo
Park Cube Atagoyama Tower
Minato-ku, Tokyo
Park Axis Shibaura
Minato-ku, Tokyo
Park Axis Asakusa Kuramae
Taito-ku, Tokyo
Park Axis Kamata Station Gate
Ota-ku, Tokyo
Park Axis Kinshicho Residence
Sumida-ku, Tokyo
Park Axis Oshiage Sumida Koen
Sumida-ku, Tokyo
Park Axis Magome Residence
Ota-ku, Tokyo
Park Axis Higashi Ueno
Taito-ku, Tokyo
23 Wards of Tokyo Total
Park Cube Keio Hachioji II
Hachioji-shi, Tokyo
Park Axis Nishi Funabashi
Funabashi-shi, Chiba
Yokohama-shi, Kanagawa
Park Axis Yokohama Idogaya
Park Axis Chiba Shinmachi
Chiba-shi, Chiba
Park Axis Chiba
Chiba-shi, Chiba
Park Cube Kita Matsudo
Matsudo-shi, Chiba
Park Cube Musashi Kosugi
Kawasaki-shi, Kanagawa
Yokohama-shi, Kanagawa
Park Axis Yokohama Tanmachi Koen
Yokohama-shi, Kanagawa
Park Axis Yokohama Yamashitacho
Greater Tokyo Total
Park Axis Meieki Minami
Nagoya-shi, Aichi
Park Axis Marunouchi
Nagoya-shi, Aichi
Park Axis Ropponmatsu
Fukuoka-shi, Fukuoka
Park Axis Hakataeki Minami
Fukuoka-shi, Fukuoka
Park Axis Naka Gofukumachi
Fukuoka-shi, Fukuoka
Park Axis Shirakabe
Nagoya-shi, Aichi
Park Axis Sendai
Sendai-shi, Miyagi
Park Axis Hakata Minoshima
Fukuoka-shi, Fukuoka
Park Axis Takamiya Higashi
Fukuoka-shi, Fukuoka
Park Axis Sapporo Shokubutsuen Mae
Sapporo-shi, Hokkaido
Park Axis Shin Sapporo
Sapporo-shi, Hokkaido
Park Axis Esaka Hiroshibacho
Suita-shi, Osaka
Park Axis Utsubo Koen
Osaka-shi, Osaka
Park Cube Kitahama
Osaka-shi, Osaka
Other Major Cities Total
Rental Apartments Total
Dormy Ashiya
Ashiya-shi, Hyogo
Kawaijuku Kyoto Gakushin Ryo
Kyoto-shi, Kyoto
Sundai Horikawa Ryo
Kyoto-shi, Kyoto
Dormy Rakuhoku
Kyoto-shi, Kyoto
Rikkyo University International Dormitory
Shiki-shi, Saitama(RUID) Shiki
Dormy Naka Itabashi
Itabashi-ku, Tokyo
Philosophia Nishidai
Itabashi-ku, Tokyo
Dormy Musashi Kosugi
Kawasaki-shi, Kanagawa
Artis Sendai Kakyoin
Sendai-shi, Miyagi
Artis Sendai Kimachi DoriSendai-shi, Miyagi
Medical Home Granda Sangen Jaya
Setagaya-ku, Tokyo(Land with leasehold interest)
Dormy Nishi Ogikubo
Suginami-ku, Tokyo
Other Accommodation Assets Total
Grand Total

Acquisition Price (Note 1) Portfolio Share Rentable Area
PML (Note 2)
Rentable Units(Yen in millions)
(%)
(m2)
(%)
1,105
0.4
1,695.06 27 residential, 1 retail, etc.
3.2
1,252
0.4
2,241.63
45
4.6
696
0.2
1,159.84
36
3.7
1,079
0.4
1,569.00
48
3.4
1,439
0.5
2,326.32
56
3.9
1,389
0.5
1,992.29
59
3.3
1,369
0.5
1,890.20
58
3.8
1,809
0.6
2,355.07
72
3.0
1,369
0.5
2,085.62
60
7.5
2,670
0.9
3,581.09
68
2.7
3,020
1.0
4,442.09 121 residential, 1 retail, etc.
5.5
1,299
0.4
1,847.01
49
3.0
1,469
0.5
1,808.12
49
2.5
4,110
1.4
19,693.35 357 residential, 1 retail, etc.
2.5
8,650
2.9
8,389.91
165
2.4
1,045
0.3
1,273.60
42
5.2
1,095
0.4
1,456.35
45
3.0
4,144
1.4
4,582.72 157 residential, 1 retail, etc.
3.2
1,251
0.4
1,793.33
56
4.0
1,055
0.4
1,610.49
49
5.2
1,450
0.5
1,621.94
55
9.6
1,250
0.4
1,460.1045
4.0
251,57484.2
368,862.55 7,985 residential, 23 retail, etc.
1,130
0.4
3,082.32 47 residential, 1 retail, etc.
4.0
1,020
0.3
2,074.35
55
3.2
1,419
0.5
2,706.59 99 residential, 1 retail, etc.
6.3
1,679
0.6
3,318.15 77 residential, 7 retail, etc.
1.9
970
0.3
2,270.32
91
2.3
1,200
0.4
2,358.66 108 residential, 1 retail, etc.
1.6
2,250
0.8
3,057.36
136
3.3
1,119
0.4
1,682.46
63
4.1
1,539
0.5
2,325.92 70 residential, 1 retail, etc.
8.2
12,326
4.1
22,876.13 746 residential, 11 retail, etc.
2,440
0.8
5,565.13
169
3.7
1,920
0.6
3,821.75 98 residential, 1 retail, etc.
2.9
1,515
0.5
3,473.67 111 residential, 1 retail, etc.
2.5
1,890
0.6
4,668.29 176 residential, 1 retail, etc.
3.0
742
0.2
2,707.88
112
2.9
1,547
0.5
4,735.89
86
3.0
2,320
0.8
8,843.17
204
2.8
960
0.3
3,461.85
112
2.7
605
0.2
2,289.21
70
5.1
1,650
0.6
7,845.01
146
1.1
827
0.3
3,729.05 84 residential, 1 retail, etc.
2.4
2,369
0.8
4,309.24
130
4.9
2,399
0.8
4,952.45
133
8.6
1,970
0.7
4,683.33
138
5.7
23,1547.8
65,085.92 1,769 residential, 4 retail, etc.
287,05496.1
456,824.60 10,500 residential, 38 retail, etc.
928
0.3
2,826.00
140
6.6
991
0.3
2,785.40
134
12.9
916
0.3
2,043.32
113
8.8
374
0.1
1,035.00
69
8.8
1,478

0.5

2,293.20

126

3.0

1,041
1,249
1,152
540
1,160

0.3
0.4
0.4
0.2
0.4

1,911.00
2,184.00
1,996.47
1,564.40
4,063.47

105
120
111
60
142

5.5
5.3
7.3
3.0
2.7

735

0.2

—

—

—

1,100
11,664
298,718

0.4
3.9
100.0

1,181.91
23,884.17
480,708.77

71
8.8
1,191
11,729 2.4 (Portfolio PML)

Notes: 1. Acquisition Price does not include acquisition-related expenses, property tax or consumption tax.
2. PML = Probable maximum loss
Portfolio PML is the PML for all NAF’s portfolio, 118 properties excluding Medical Home Granda Sangen Jaya (Land with leasehold interest).
3. Rentable units and rentable area for Shibaura Island Air Tower are calculated by multiplying NAF’s equity share (31%) by the property’s total rentable units (871 residential, 7 retail, etc.) and total rentable area
(56,923.63m2) and rounded to the nearest unit and one-hundredth of a square meter, respectively.
4. Numbers in light orange indicate properties acquired during the 21st Period.

9

Management’s Discussion and Analysis

Summary of Selected Financial Data

Total revenues (Note 2)
Rental revenues
Other revenues related to property leasing
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)

21st Period

20th Period

19th Period

21st Period

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

March 1, 2015
to August 31, 2015

March 1, 2016
to August 31, 2016¥

10,621
10,148
473
6,053
3,940
3,939

¥

10,433
10,052
380
5,901
3,894
3,893

¥

10,435
9,959
475
6,062
3,725
3,725

$ 102,936
98,352
4,584
58,66438,18538,176

6,005
7,745
3,939
2,066
175

5,967
7,723
3,893
2,073
240

5,808
7,564
3,725
2,083
163

58,19975,062
38,17620,023
1,696

Total assets (c)Interest-bearing debt
Total net assets (d)295,463
149,000
139,612

293,684
147,500
139,567

295,644
149,500
139,398

2,863,568
1,444,078
1,353,091

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)

484,522
288,145
8,130
12,394

484,522
288,051
8,036
12,315484,522287,703
7,688
11,9882,792.64
78.79
120.12

ROA (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 the period

1.3%(2.7%)
2.8%(5.6%)
50.4%
47.3%
100.0%
184

1.3%(2.7%)
2.8%(5.6%)
50.2%
47.5%
100.0%
182

1.3%(2.5%)
2.8%(5.5%)
50.6%
47.2%
100.0%
184

Number of investment properties (Note 6)
Total rentable area (m2)The occupancy rate at the end of the period (Note 6)

119
480,708
96.5%

116
476,44497.0%

116
476,444
96.2%

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥103.18 = U.S.$1.00, the approximate exchange rate as of August 31, 2016.
2. “Total revenues” do not include consumption tax.
3. Funds from operations: Net income + Depreciation and amortization – Gain on sale of investment properties
Net operating income from property leasing activities: (Revenues from property leasing – Rental expenses) + Depreciation and amortization
Funds from operations per unit: (Net income + Depreciation and amortization – Gain on sale of investment properties) ÷ Total number of units issued and outstanding at the end of the period
LTV ratio: Interest-bearing debt ÷ Total assets
4. ROA : Income before income taxes ÷ {(Initial total assets + Total assets at the end of the period) ÷ 2}
ROE: Net income ÷ {(Initial net assets + Net assets at the end of the 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, 2016: Amount for the period ÷ Actual days in the period (184) x 365 days
Annual equivalent amounts for the period ended February 29, 2016: Amount for the period ÷ Actual days in the period (182) x 365 days
Annual equivalent amounts for the period ended August 31, 2015: Amount for the period ÷ Actual days in the period (184) x 365 days
Net assets and total assets used in calculating ROA and ROE are beginning-of-period and period-end averages, respectively.
5. “Payout ratio” is calculated to one decimal place only.
6. “Number of investment properties” means properties generally perceived to be one residential building.
“The occupancy rate at the end of the period” is the ratio of gross leased area to total rentable area at the end of the period.

10Overview
Investment Environment and Operating Performance
During the six months ended August 31, 2016 (the “21st Period”), the Japanese economy continued to recover gradually due tofactors such as a recovery in capital investment and improvement in the employment conditions, although there was weakness insome sectors including a pause in the improvement of corporate earnings. Looking ahead, the gradual economic recovery is
expected to continue, with ongoing improvement in the employment and income environment, as well as the effect of various
government policies. At the same time, weakness is apparent in overseas economies, including downturns in China, otheremerging economies in Asia and resource producing countries, with the risk of an economic decline in Japan. Therefore, rising
uncertainty in overseas economies, including the issue of the UK leaving the EU, and the effect of volatility in financial and capital
markets require careful attention.
In the J-REIT market, four new J-REITs listed their shares while capital increases through public offerings by existing listed JREITs were brisk. The Tokyo Stock Exchange REIT Index reached 1,823.54 points at the end of the period (August 31, 2016)
despite the substantial fall after the results of the vote by the UK citizenry regarding leaving the EU.
In the residential rental market, occupancy rates remained high at rental apartments held by J-REITs, with ongoing gradualincreases in rents. Moreover, stable demand is expected in the 23 wards of Tokyo, where nearly 90 percent of NAF’s rental
apartments portfolio is located, and in the centers of other major cities. Contributing factors include the continuing influx of people
into these areas from other regions and growth in the number of households due to an increase in single- and two-personhouseholds. At the same time, the balance of supply and demand is expected to remain favorable for the time being due to factors
such as the limited supply of the quality rental apartments in which NAF typically invests.
In the real estate trading market, competition for property acquisitions remains overheated. Therefore, the acquisition
environment remains challenging due to factors such as continuing high acquisition and disposition prices for quality rental realestate.
During the period under review, NAF acquired a total of 3 new properties with a total acquisition price of ¥3,800 million: 1
property in March 2016 and 2 properties in April 2016. As a result, NAF’s portfolio as of August 31, 2016 consisted of 119 properties
valued at ¥298,718 million on an acquisition price basis.
NAF has chosen Mitsui Fudosan Residential Lease Co., Ltd. as master property management company (below, “Master PM”)
on management of NAF’s rental apartments portfolio. The company and the asset management company collaborate in the
management of properties NAF owns with the aim of implementing effective management and operational activities based onregional characteristics and the individual features of each property. These include efforts such as speedy management andoperations by the Master PM by applying the portfolio management system, the tenant recruiting activities suited to thecircumstances of individual properties, the streamlining efforts such as reduction of management cost, etc., and providing tenants
the “accommodation” services by corresponding to various needs based on the results of resident questionnaires.
In order to maintain and improve the competitiveness of NAF’s portfolio, operations are adequately planned and carried out at
the asset management company. These include appropriate renewal work according to the property age, and work to enhance theproperty value at Okawabata Apartment Communities, which is one of the core properties of NAF. In addition, NAF is not only
making continuous efforts to reduce costs, but also introducing such features as environmentally friendly, energy-saving facilities ina timely manner.
In the period under review, NAF carried out renovations in private areas at Okawabata Apartment Communities and common
areas at Park Axis Roppongi Hinokicho Koen. Changes implemented at other properties include reviews of contract capacity forelectricity through the introduction of controllable circuit breakers, and work to change the lighting in common areas to LED lighting.
As a result of these activities, the occupancy rate for NAF’s overall portfolio as of August 31, 2016 remained at a high level of
96.5 percent.
Consequently, for the 21st Period, total revenues were ¥10,621 million, operating income was ¥4,567 million, income before
income taxes was ¥3,940 million and net income was ¥3,939 million.

11

Changes in Assets, Liabilities and Net Assets
Total assets as of August 31, 2016 increased from February 29, 2016 by ¥1,778 million to ¥295,463 million. Total current assets
decreased by ¥315 million to ¥8,517 million and total investment properties net of accumulated depreciation compared with
February 29, 2016 increased by ¥2,088 million to ¥285,232 million as a result of NAF’s acquisitions during the 21st Period, in
addition to normal depreciation.
One of NAF’s basic policies is to carry out operations, while paying attention to risk factors and market trends, in a conservative
manner that gives consideration to such matters as maintaining stable distributions in the medium and long term. Based on thispolicy, during the period under review, while taking into account market trends and interest rate levels, NAF pursued financing fromvarious sources with diversified repayment dates and an emphasis on long-term loans in its procurement of funds.
As a result, at the end of the period, total interest-bearing debt amounted to ¥149,000 million, the long-term debt ratio was 95.3
percent, the long-term fixed-rate debt ratio was 94.3 percent, and the LTV (loan-to-value) ratio was 50.4 percent. The averageannual current maturity of long-term interest-bearing debt was 4.3 years and the number of financial institutions was 21.
Furthermore, the weighted average interest rate at the end of the period was 0.78 percent.
NAF has also established a commitment line with a total maximum borrowing amount of ¥10,000 million, for the purpose of
securing flexible and stable fund procurement methods.
Net assets totaled ¥139,612 million as of August 31, 2016. Unitholders’ capital was unchanged at ¥135,603 million, andretained earnings increased to ¥4,009 million from ¥3,963 million as of February 29, 2016.

Distributions to Unitholders
NAF determines the amount of cash distributions such that they exceed 90 percent of NAF’s retained earnings available fordividends as set forth in Article 67-15 of the Act on Special Measures Concerning Taxation. For the 21st Period, cash distributions
totaled ¥3,939,163,860 or ¥8,130 per unit.
Yen in thousands, except per unit amounts

21st Period

20th Period

19th Period

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

March 1, 2015
to August 31, 2015

Retained earnings
Undistributed earnings¥3,939,329
165¥3,893,706
87¥3,725,260
255

Total cash distribution

3,939,163

3,893,618

3,725,005(Per unit)
Distribution of retained earnings(Per unit)
Cash distribution in excess of retained earnings(Per unit)

8,130
3,939,163
8,130
—
—

8,036
3,893,618
8,036
—
—

7,688
3,725,005
7,688
—
—

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

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 placement. As of August 31, 2016, NAF had issued 484,522
investment units out of 4,000,000 total authorized units. NAF’s investment units were listed on the J-REIT section of the Tokyo
Stock Exchange in August 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 issuance of more than one class of units, NAF’s investment units comprise the soleclass of units authorized and issued by NAF.

12

Units outstanding
Issue date

Remarks

Increase

Paid-in capital

Balance

Increase(Units)

October 12, 2005

Initial capital (private)

Balance

Notes(Yen in millions)

200

200

¥

100

¥

100

Note 1

November 29, 2005 Private placement

42,28042,48021,14021,240Note 2

August 3, 2006

67,200109,680

37,611

58,851

Note 3Public offering

September 4, 2006 Third-party allocation

3,800

113,480

2,126

60,978Note 4

November 4, 2009 Public offering

42,000155,480

19,79580,773Note 5

698

156,178

328

81,102

Note 6Note 7

December 1, 2009 Third-party allocation
March 1, 2011

Public offering

37,500

193,678

21,539102,641

March 28, 2011

Third-party allocation

1,033

194,711593

103,235

Note 8March 1, 2013

Public offering

34,000228,711

21,204

124,439

Note 9March 26, 2013

Third-party allocation

2,000

230,711

1,247

125,686

Note 10

March 1, 2014

Split of investment units

230,711

461,422—

125,686

Note 11

March 2, 2015

Public offering

22,000483,4229,444

135,131

Note 12

March 24, 2015

Third-party allocation

1,100

484,522472

135,603

Note 13

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.
5. Public offering of new units for ¥487,910 per unit (excluding underwriting fee: ¥471,311) to fund property acquisition.
6. Additional issue of new units (third-party allocation) for ¥471,311 per unit undertaken pursuant to the public offering in Note 5.
7. Public offering of new units for ¥593,872 per unit (excluding underwriting fee: ¥574,380) to fund property acquisition.
8. Additional issue of new units (third-party allocation) for ¥574,380 per unit undertaken pursuant to the public offering in Note 7.
9. Public offering of new units for ¥644,816 per unit (excluding underwriting fee: ¥623,652) to fund property acquisition.
10. Additional issue of new units (third-party allocation) for ¥623,652 per unit undertaken pursuant to the public offering in Note 9.
11. NAF implemented a two-for-one split of investment units with the effective date of March 1, 2014.
12. Public offering of new units for ¥443,868 per unit (excluding underwriting fee: ¥429,300) to fund property acquisition.
13. Additional issue of new units (third-party allocation) for ¥429,300 per unit undertaken pursuant to the public offering in Note 12.

Market Price of Units
High/Low (closing price) of units on the Tokyo Stock Exchange:
21st Period
March 1, 2016 toAugust 31, 2016

20th Period
September 1, 2015 toFebruary 29, 2016

19th Period
March 1, 2015 toAugust 31, 2015

18th Period
September 1, 2014 to
February 28, 2015

17th Period
March 1, 2014 toAugust 31, 2014

(Yen)

(Yen)

(Yen)

(Yen)

(Yen)

High

¥488,000¥448,000¥481,000¥500,000¥400,000

Low

408,000

364,000

396,500

370,000

339,000

Borrowings
Borrowings from financial institution as of August 31, 2016 are shown below.
Short-term loans
Balance(Yen in millions)Interest rate
(Note 1)

Date of maturity(Note 2)

Shinsei Bank, Limited¥3,0000.1%

September 30, 2016

The 77 Bank, Ltd.

2,000

0.1%

September 30, 2016

Shinkin Central Bank

2,000

0.1%

September 30, 2016

Total short-term loans¥7,000

Lender

13

Repayment
methodUse of
funds

Notes

Bulletpayment(Note 3)

Unsecured/
unguaranteed/pari passu(Note 4)

Long-term loans (Note 6)
LenderSumitomo Mitsui Banking
Corporation

Sumitomo Mitsui Trust Bank,
LimitedNIPPON LIFE INSURANCECOMPANY

Development Bank of JapanInc.

The Hachijuni Bank, Ltd.

Mizuho Bank, Ltd.

The Chugoku Bank, Limited
Shinsei Bank, Limited
Shinkin Central Bank
The Bank of Fukuoka, Ltd.

Mitsubishi UFJ Trust andBanking Corporation

The Norinchukin Bank

Balance(Yen in millions)Interest rate
(Note 1)

¥ 5,000
5,500
3,000
2,000
4,000
2,000
1,500
3,500
2,000
2,000
1,000
2,000
3,000
1,000
5,000
2,000
3,000
3,000
2,500
2,500
2,500
2,000
1,000
1,500
1,000
1,000
2,000
3,000
2,000
2,000
2,000
2,000
1,000
1,000
1,000
3,000
2,000
2,000
1,000
2,500
3,000
2,000
4,000
1,000
3,000
3,000
3,000
2,000
3,000
3,000
2,000

1.2%
August 13, 2018
0.9%
February 28, 2020
0.7%
May 28, 2021
0.5%
May 31, 2019
0.3%
September 28, 2018
0.5%
November 30, 2021
0.2% (Note 5) July 31, 2029
August 14, 2017
1.0%
0.4%
September 30, 2020
1.3%
February 28, 2017
1.5%
February 28, 2018
0.9%
November 30, 2022
1.0%
May 31, 2024
0.5%
November 30, 2021
1.2%
October 18, 2017
1.0%
December 21, 2018
1.0%
April 11, 2019
1.1%
April 11, 2023
1.3%
February 6, 2024
1.4%
August 6, 2024
1.2%
April 1, 2025
0.2%
December 30, 2027
0.5%
September 14, 20170.8%
May 31, 2019
0.6%
April 9, 2021
April 19, 2018
1.5%
0.8%
October 12, 2016
0.9%
October 31, 2017
0.7%
June 15, 2020
0.8%
November 30, 2021
0.6%
July 31, 2023
0.2%
May 29, 2026
1.2%
January 19, 2023
0.7%
May 28, 2021
1.0%
May 28, 2024
0.6%
October 12, 2018
0.9%
February 20, 2017
0.6%
April 27, 2018
0.8%
January 8, 2020
0.6%
April 28, 2020
April 25, 2017
1.2%
0.7%
March 16, 2020
0.7%
September 15, 2020
1.0%
August 23, 2021
0.8%
March 7, 2022
0.9%
September 7, 2022
0.8%
May 31, 2022
0.5%
October 1, 2021
0.6%
October 3, 2022
0.7%
November 30, 2020
0.4%
December 30, 2021

Date of maturity

14

Repayment
methodUse of
funds

Notes

Bulletpayment(Note 3)

Unsecured/
unguaranteed/pari passu(Note 4)

Lender

Resona Bank, Limited
Mizuho Trust & Banking Co.,Ltd.

The Yamaguchi Bank, Ltd.

The Daishi Bank, Ltd.
MITSUI LIFE INSURANCECOMPANY LIMITEDThe Ashikaga Bank, Ltd.
DAIDO LIFE INSURANCECOMPANYTAIYO LIFE INSURANCECOMPANY
Total long-term loans
Total loans

Balance(Yen in millions)Interest rate
(Note 1)

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

1.2%
0.6%
1.0%
1.2%
1.0%
1.1%
1.3%
1.3%
1.0%
0.6%
0.4%
0.1%

April 3, 2017
December 16, 2019
June 14, 2021
June 14, 2022
February 23, 2022
August 23, 2022
June 14, 2023
July 19, 2023
May 31, 2024
April 28, 2020
June 30, 2021
July 30, 2021

1,000

1.0%

March 28, 2024

2,000

0.3%

June 30, 2019

1,000

0.6%

June 30, 2021

2,000

0.6%

December 30, 2024

Date of maturity

Repayment
methodUse of
funds

Notes

Bulletpayment(Note 3)

Unsecured/
unguaranteed/pari passu(Note 4)¥ 142,000¥ 149,000

Notes: 1. “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 outstandingbalance of short-term loans if the institution has provided more than one short-term loan.
2. The earliest maturity of short-term loans 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 loans, and operating expenses.
4. The loan agreements between NAF and each financial institution stipulate that the above loans from all financial institutions rank pari passu to each other.
5. The interest rate is applied from August 31, 2016 to September 29, 2016.
6. The expected annual maturities of long-term loans within five years (excluding maturities within one year) 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

Amount¥18,000¥17,500

Bonds
None applicable15¥18,000¥19,000

Capital Expenditures
1. Planned
NAF is planning the following capital expenditures for the renovation of its properties. The amounts below include repairs andmaintenance costs that will be expensed as incurred. Moreover, in addition to a steady planning of expenditures for construction,
repair and renovation of facilities, a plan of renewal construction is being implemented in order to increase competitive power in themarket as well as to increase the level of tenant satisfaction.
Estimated amounts
Name of property

Objective

Estimated duration

Total amounts

Payment for thecurrent period(March 1, 2016 toAugust 31, 2016)

Cumulative
amount paid

(Yen in millions)Okawabata Apartment
Renewal of common use From September 2016
Communities, Other Properties area equipment, etc.
to February 2017

¥150

¥—

¥—

Okawabata Apartment
Renovation of common From September 2016
Communities, Other Properties use areas, etc.
to February 2017

92

—

—

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NAF posted ¥175 million in capital expenditures
together with ¥505 million for repairs and maintenance expenses.
Name of property

Objective

PeriodExpenditure(Yen in millions)Okawabata Apartment
Communities

Renovation of rentable areas, etc.

From March 2016
to August 2016

¥ 83

Park Axis Roppongi Hinokicho
Koen, Other Properties

Renovation of common use areas, etc.

From March 2016
to August 201643

Okawabata Apartment
Communities, Other Properties

Renewal of common use area equipment, etc., From March 2016
other construction
to August 2016

48

Total

¥ 175

3. Cash Reserve for Capital Improvements
NAF accumulates a cash reserve from cash flows to prepare for large-scale mid-term to long-term capital improvements andrepairs and maintenance that will be conducted based on NAF’s business plan for each property.
Yen in millions
As of August 31, 2016

As of February 29, 2016

As of August 31, 2015

Reserve balance at the beginning of the period
Amount accumulated in the current period
Withdrawal from reserves in the current period¥2,139332
179¥1,979425
265¥1,845314
180

Amount carried forward¥2,293¥2,139¥1,97916

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

21st Period

20th Period

19th Period

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

March 1, 2015
to August 31, 2015

¥ 766
14
30
7
12
279

¥ 754
14
30
7
12
298

¥ 745
14
36
7
12
292

¥ 1,111¥1,117¥1,108Asset management fees
Asset custody fees
Agent fees (stock transfer, accounting and administrative)
Directors’ remuneration
Auditor’s fees
Other expenses
Total

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

Total amount
paid (A)(Yen in millions)Category

Acquisition price of real estate
and real estate held in trust¥3,800

Amount ofpayment (B)(Yen in millions)

Paid toMitsui Fudosan Residential Co., Ltd.

¥2,700

B/A(Note 2)71.1%

2. Fees Paid for the Period from March 1, 2016 to August 31, 2016
Description of transactions with related parties (Note 1)
Total fees paid (A)(Yen in millions)Category

Amount ofpayment (B)(Yen in millions)

B/A(Note 2)

Mitsui Fudosan Residential Lease Co., Ltd.
(Note 3)¥715

100.0%

374

98.8%

Paid to

Property management fees

¥715

Building management fees

379

Mitsui Fudosan Residential Lease Co., Ltd.
(Note 3)
Mitsui Fudosan Realty Co., Ltd.

4

1.2%

Operation management fees

4

Mitsui Fudosan Investment Advisors, Inc.

4

100.0%

Leasing-related service fees, etc.

186

RESIDENT FIRST CO., LTD.

21

11.4%

Mitsui Home Estate Co., Ltd.

2

1.6%

Mitsui Fudosan Realty Co., Ltd.

1

0.6%

Mitsui Fudosan Realty Sapporo Co., Ltd.

0

0.3%

Mitsui Fudosan Realty Tohoku Co., Ltd.

0

0.3%

Mitsui Fudosan Realty Kyushu Co., Ltd.

0

0.2%

3. Other Payments to Related Parties (Note 1)
Paid toAmount of payment(Yen in millions)

Item

Mitsui Fudosan Reform Co., Ltd.

¥32

Repair and maintenance costs

Accommodation First Co., Ltd.

11

Repair and maintenance costs

Mitsui Fudosan Residential Service Co., Ltd.

1

Repair and maintenance costs

Notes: 1. “Related parties” means parties defined in 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.
3. On April 1, 2016, Mitsui Fudosan Housing Lease Co., Ltd. changed its corporate name to Mitsui Fudosan Residential Lease Co., Ltd.

17

Financial Statements

Balance Sheets
Nippon Accommodations Fund Inc.
As of August 31, 2016 and February 29, 2016

U.S. dollars in thousands
Yen in millions

AssetsCurrent assets:
Cash and cash equivalents (Note 11)
Rent receivables
Other current assets(Note 1)

21st Period

20th Period

21st Period

As of August 31, 2016

As of February 29, 2016

As of August 31, 2016

¥

7,092
1,369
56

¥

7,364
1,400
68

$

68,734
13,268542

Total current assets
Investment properties (Note 3):
Land including trust accounts
Depreciable property and improvements including trust accounts
Accumulated depreciation

8,517

8,833

82,545

180,736
133,695(29,200)

177,883
132,395(27,135)

1,751,657
1,295,745(283,000)

Total investment properties
Other assets

285,232
1,713

283,143
1,706

2,764,411
16,602¥ 295,463¥ 293,684$ 2,863,568

¥

¥

$

Total Assets
Liabilities and Net Assets
Liabilities
Current liabilities:
Short-term loans (Notes 4,11)
Bonds due within one year (Notes 4,11)
Long-term loans due within one year (Notes 4,11)
Accounts payable
Rent received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term liabilities:
Long-term loans (Notes 4,11)
Tenant security deposits (Note 11)
Total long-term liabilities

7,000—
14,500
1,254
1,705
293

5,000
7,000
6,000
1,037
1,704
314

67,842—
140,531
12,153
16,524
2,839

24,752

21,055

239,891

127,500
3,597

129,500
3,561

1,235,704
34,861

131,097

133,061

1,270,566

Total Liabilities¥ 155,850¥ 154,117$ 1,510,467

Net Assets
Unitholders’ capital (Note 5)
Retained earnings¥ 135,603
4,009¥ 135,603
3,963$ 1,314,237
38,854

Total Net Assets¥ 139,612¥ 139,567$ 1,353,091

Total Liabilities and Net Assets¥ 295,463¥ 293,684$ 2,863,568

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

18

Statements of Income
Nippon Accommodations Fund Inc.
March 1, 2016 to August 31, 2016, September 1, 2015 to February 29, 2016 and March 1, 2015 to August 31, 2015

U.S. dollars in thousands
Yen in millions

Revenues (Note 6):
RentalOther revenues related to property leasing
Total revenues(Note 1)

21st Period

20th Period

19th Period

21st Period

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

March 1, 2015
to August 31, 2015

March 1, 2016
to August 31, 2016

¥ 10,148473¥ 10,052
380¥ 9,959475$ 98,352
4,584

10,621

10,433

10,435102,936

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

1,126
597
505
646
2,066
766
345

1,102
587
418
602
2,073
754
363

1,125
587
462
694
2,083
745
363

10,912
5,786
4,894
6,260
20,0237,423
3,343

Total operating expenses

6,053

5,901

6,062

58,664

Operating Income

4,567

4,531

4,372

44,262

Interest and other income
Interest expense
Other expenses

6
(619)
(14)

5
(628)
(15)

9
(642)
(13)

58
(5,999)(135)

Income before Income Taxes

3,940

3,894

3,725

38,18500

00¥ 3,939¥ 3,893¥ 3,725$ 38,176

Current and deferred income taxes (Note 8)
Net Income

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

19

Statements of Changes in Net Assets
Nippon Accommodations Fund Inc.
For the period from March 1, 2015 to August 31, 2016

Yen in millions
Number of
Units(Note 5)Unitholders’CapitalRetained
Earnings

Total

Balance as of March 1, 2015

461,422¥ 125,686¥ 3,754¥ 129,441

Cash distribution
Issuance of new units through public offering as of March 2, 2015
Issuance of new units through allocation to a third party as ofMarch 24, 2015
Net income—
22,000—9,444(3,683)—(3,683)
9,444

1,100
—

472
—

—
3,725

472
3,725

Balance as of August 31, 2015

484,522

135,603

3,795

139,398————(3,725)
3,893(3,725)
3,893

484,522

135,603

3,963

139,567————(3,893)
3,939(3,893)
3,939

484,522¥ 135,603¥ 4,009¥ 139,612

Cash distribution
Net income
Balance as of February 29, 2016
Cash distribution
Net income
Balance as of August 31, 2016

U.S. dollars in thousands (Note 1)

Balance as of February 29, 2016
Cash distribution
Net income
Balance as of August 31, 2016
The accompanying notes to financial statements are an integral part of these statements.

20

Number of
Units(Note 5)Unitholders’CapitalRetained
Earnings

Total

484,522$1,314,237$ 38,408$1,352,655

—
—

—
—

(37,730)
38,176(37,730)
38,176

484,522$1,314,237$ 38,854$1,353,091

Statements of Cash Flows
Nippon Accommodations Fund Inc.
March 1, 2016 to August 31, 2016, September 1, 2015 to February 29, 2016 and March 1, 2015 to August 31, 2015

U.S. dollars in thousands
Yen in millions(Note 1)

21st Period

20th Period

19th Period

21st Period

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

March 1, 2015
to August 31, 2015

March 1, 2016
to August 31, 2016

¥ 3,940
2,066¥ 3,894
2,073¥ 3,725
2,083$ 38,185
20,023

4
2
619
31
281

4
3
628
(60)
(215)

4
3
642
(31)
137

38
19
5,999
300
2,723

1
(619)
(8)

23
(640)
28

45
(671)
(15)

9
(5,999)
(77)

6,318

5,739

5,922

61,232(4,220)
(0)

(304)
(0)

(7,168)(615)(40,899)
(0)

—

—

28

—

—
426
(389)
(11)

—
322
(334)
(3)

(29)
492
(383)
(6)

—
4,128
(3,770)(106)

Net Cash Used in Investing Activities(4,196)(319)(7,683)(40,666)

Cash Flows from Financing Activities:
Proceeds from short-term loans
Repayment of short-term loans
Proceeds from long-term loans
Repayment of long-term loans
Proceeds from issuance of investment units
Redemption of bonds
Payment of distribution

42,000(40,000)
6,500——(7,000)(3,894)30,000(30,000)—(2,000)——(3,722)51,000(50,000)
2,000(8,000)9,892—(3,684)

407,055(387,672)
62,996——(67,842)(37,739)

Net Cash Provided by (Used in) Financing Activities(2,394)(5,722)

1,208(23,202)

Net Change in Cash and Cash Equivalents
Cash and Cash Equivalents at the Beginningof the Period

(272)

(301)

(552)

(2,636)

7,364

7,666

8,219

71,370¥ 7,092¥ 7,364¥ 7,666$ 68,734

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Amortization of investment unit issuance
expenses
Amortization of bond issue costs
Interest expense(Increase) Decrease in rent receivables
Increase (Decrease) in accounts payable
Increase (Decrease) in rents received
in advanceCash payments of interest expense
Other, net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases ofinvestment properties
Purchase of intangible assets
Proceeds from security deposits
paid to lessors
Payments for security deposits
paid to lessors
Proceeds from tenant security deposits
Payments for tenant security deposits
Other, net

Cash and Cash Equivalents at the Endof the Period

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

21

Notes to Financial Statements
Nippon Accommodations Fund Inc.
March 1, 2016 to August 31, 2016, September 1, 2015 to February 29, 2016 and March 1, 2015 to August 31, 2015

Note 1

Organization and Basis of Presentation

Organization
Nippon Accommodations Fund Inc. (hereinafter “NAF”) was established on October 12, 2005 as an investment corporation under theInvestment Trust and Investment Corporation Act of Japan with Mitsui Fudosan Accommodations Fund Management Co., Ltd. (hereinafter“MFAFM”) acting as a sponsor. 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 the acquisition, management, and renovation of accommodation assets. 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. Thoseinvestment units are listed on the J-REIT section of the Tokyo Stock Exchange.
As of August 31, 2016, NAF had ownership and beneficiary interests in 119 properties containing approximately 480,708 square metersof rentable space. As of August 31, 2016, NAF had leased approximately 464,027 square meters to tenants. The occupancy rate for theproperties was approximately 96.5%.

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 Financial Instruments and Exchange Law of Japan and its related accounting regulations,and in conformity with accounting principles generally accepted in Japan (hereinafter “Japanese GAAP”), which are different in certain
respects as to application and disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements have been restructured and translated into English from the financial statements of NAF
prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by
the Financial Instruments and Exchange Law. Some supplementary information included in the statutory Japanese language financial
statements, but not required for fair presentation, is not presented in the accompanying financial statements. NAF does not prepare
consolidated financial statements, as NAF has no subsidiaries.
Amounts less than 1 million yen have been omitted. As a result, the totals in Japanese yen shown in the financial statements do notnecessarily agree with the sum of the individual amounts.
The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using
the approximate exchange rate on August 31, 2016, which was ¥103.18 to U.S.$1.00. 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 purchase price and related costs and expenses for acquisition of theproperties 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
Structures
Machinery and equipment
Tools, furniture and fixtures

2-63 years
2-60 years
2-45 years
2-15 years

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
Investment unit issuance expenses are amortized over the period of three years under the straight-line method.
Bond issue costs are amortized over the period of the bonds under the straight-line method.

22

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
Properties are subject to taxes including property tax, city planning tax and depreciable asset tax. Taxes for each fiscal period arecharged 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.
Even when a property is purchased on a date other than January 1 of any given calendar year, these taxes for that year are imposedon the seller. The buyer pays the seller the corresponding tax amounts for the period from the property’s transfer date to December 31 ofthat 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, 2016 amounted to ¥6 million. No property tax was capitalized for the period ended February 29, 2016.

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.

Note 3

Schedule of Investment Properties

Investment properties as of August 31, 2016 and February 29, 2016 consisted of the following:
Yen in millions

As of August 31, 2016Land
Land in trust
Land including trust total

Acquisition
costs

Accumulated
depreciation¥ 122,922
57,813¥As of February 29, 2016
Book value

Acquisition
costs

Accumulated
depreciation——¥ 122,922
57,813¥ 120,069
57,813¥

Book value——¥ 120,069
57,813

180,736—

180,736

177,883—

177,883

Buildings and improvements
Buildings and improvements in trust

91,00136,010(17,321)(8,116)

73,68027,89389,85535,896(15,990)(7,607)73,86528,289Buildings and improvements
including those in trust total

127,012(25,437)

101,574

125,751(23,597)

102,154

Structures
Machinery and equipment
Tools, furniture and fixtures
Construction in process
Structures in trust
Machinery and equipment in trust
Tools, furniture and fixtures in trust
Construction in process in trust

1,628
1,882
1,083
1
1,122
556
401
7

(702)
(1,094)
(912)
—
(337)
(394)
(319)
—

925
787
170
1
785
161
81
7

1,613
1,880
1,070
0
1,121
556
393
7

(654)
(1,005)
(884)
—
(317)
(364)
(311)
—

959
875
186
0
803
191
82
7

Other investment properties total

6,683(3,762)

2,921

6,643

(3,537)3,106¥ 314,432¥ (29,200)¥ 285,232¥ 310,279¥ (27,135)¥ 283,143

Total

23

Note 4

Short-Term Loans and Long-Term Debt

The annual interest rate on short-term loans as of August 31, 2016 was 0.1% and the rate as of February 29, 2016 was 0.1%.
Long-term debt consists of the following:
Yen in millions

As of August 31, 2016

Unsecured loans due 2016 to 2029 principallyfrom banks and insurance companies withinterest rates mainly ranging from 0.1% to 1.5%
1.2% unsecured bonds due 2016

As of February 29, 2016

¥142,000—¥135,500
7,000¥142,000¥142,500

The annual maturities of long-term debt as of August 31, 2016 were as follows:
Yen in millions

Due after one to two years
Due after two to three years
Due after three to four years
Due after four to five years
Due after five years¥18,000
17,50018,00019,00055,000

NAF currently has commitment line contracts of ¥10,000 million with two financial institutions. The unused amount of such commitmentline was ¥10,000 million as of August 31, 2016.

Note 5Unitholders’ Capital
As of August 31, 2016

As of February 29, 2016

As of August 31, 2015

4,000,000
484,5224,000,000
484,5224,000,000
484,522

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

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

24

Note 6

Rental Revenues and Expenses

Rental revenues and expenses for the periods ended August 31, 2016, February 29, 2016 and August 31, 2015 were as follows:
Yen in millions

Revenues from Property Leasing:
Rental:Rental revenues
Facility charge

21st Period

20th Period

19th Period

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

March 1, 2015
to August 31, 2015

¥ 9,674473¥ 9,581471¥ 9,488470

10,14810,052

9,959

339
134

254
126

340
135

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

473

380

475

Total revenues from property leasing

Subtotal

10,621

10,433

10,435

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

1,126
505
583
10
118
13
2,066
186
330

1,102
418
574
11
134
13
2,073
163
293

1,125
462
574
11
139
13
2,083
213
330

Total rental expenses
Operating income from property leasing activities

Note 7

4,942

4,784

4,954

¥ 5,679¥ 5,649¥ 5,481

LeasesNAF leases some of its investment properties to outside parties under non-cancelable operating leases. As of August 31, 2016 andFebruary 29, 2016, future minimum rental revenues under the non-cancelable operating leases were as follows:
Yen in millions

As of August 31, 2016

Due within one year
Due after one year
Total

As of February 29, 2016

¥ 834
2,210

¥ 774
2,526

¥3,045¥3,30025Note 8

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 0.02%,
0.02% and 0.02% for the periods ended August 31, 2016, February 29, 2016 and August 31, 2015, respectively. The following tablesummarizes the significant differences between the statutory tax rates and NAF’s effective tax rates for financial statement purposes.
21st Period

20th Period

19th Period

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

March 1, 2015
to August 31, 2015

Statutory effective tax rate
Deductible distributions paid
Others
Effective tax rate

32.31%(32.30)0.01

32.31%(32.31)
0.02

34.15%(34.14)
0.01

0.02%

0.02%

0.02%

The tax effects of significant temporary differences that resulted in net deferred tax assets or liabilities as of August 31, 2016, February 29,
2016 and August 31, 2015 were as follows:
Yen in thousands

As of August 31, 2016

As of February 29, 2016

As of August 31, 2015

Deferred tax assets:
Enterprise taxes
Total deferred tax assets

¥15
15

¥9
9

¥14
14

Net deferred tax assets

¥15

¥9

¥14

NAF was established as an investment corporation under the Investment Trust and Investment Corporation Act of Japan, and as long as aninvestment corporation distributes to its unitholders at least 90% of earnings available for dividends for a period and other requirements 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 9Per Unit Information

Information about earnings per unit for the periods ended August 31, 2016, February 29, 2016 and August 31, 2015 and net assets per unit asof August 31, 2016, February 29, 2016 and August 31, 2015 were as follows.
The computation of earnings per unit is based on the weighted average number of common units outstanding during the period. The
computation of net assets per unit is based on the number of common units outstanding at each period end.
Yen

21st Period

20th Period

19th Period

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

March 1, 2015
to August 31, 2015

¥8,130¥8,035¥7,692484,522484,522484,264

As of August 31, 2016

As of February 29, 2016

As of August 31, 2015

¥288,145¥288,051¥287,703

Earnings per Unit:
Net income
Weighted average number ofcommon units outstanding

Net Assets per Unit

26

Note 10

Transactions with Related Parties(March 1, 2016 – August 31, 2016)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Affiliates: None applicable(3) Sister Companies: None applicable(4) Directors and Major Individual Unitholders
Classification

Director and/or
close relative

Name

Tateyuki Ikura

Principal businessor occupation

Nature of transaction

Amount oftransaction

Account(Yen in millions)Payment of asset management
fee to MFAFM (Note 1)
Executive Directorof NAF and
President & CEO
Payment for the provision ofof MFAFM
general administration relating toorganizational management to
MFAFM (Note 3)

Balance at theend of the period(Yen in millions)¥790(Note 2)

Accounts payable

¥827

¥0

—

¥—

Notes: 1. Tateyuki Ikura 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 ¥24 million of management fees related to acquisition of properties included in the book value of each investment
property, etc.
3. Tateyuki Ikura 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. “Amount of transaction” does not include consumption taxes.
“Balance at the end of the period” includes consumption taxes.

(September 1, 2015 – February 29, 2016)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Affiliates: None applicable(3) Sister Companies: None applicable(4) Directors and Major Individual Unitholders
Classification

Director and/or
close relative

Name

Tateyuki Ikura

Principal businessor occupation

Nature of transaction

Amount oftransaction

Account(Yen in millions)Payment of asset management
fee to MFAFM (Note 1)
Executive Directorof NAF and
President & CEO
Payment for the provision ofof MFAFM
general administration relating toorganizational management to
MFAFM (Note 3)

Balance at theend of the period(Yen in millions)¥754(Note 2)

Accounts payable

¥814

¥0

—

¥—

Notes: 1. Tateyuki Ikura 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. No fees for management related to acquisition of properties included in the book value of each investment property, etc. were required to be disclosed as asset
management fees.
3. Tateyuki Ikura 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. “Amount of transaction” does not include consumption taxes.
“Balance at the end of the period” includes consumption taxes.

27

(March 1, 2015 – August 31, 2015)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Affiliates: None applicable(3) Sister Companies: None applicable(4) Directors and Major Individual Unitholders
Classification

Director and/or
close relative

Director and/or
close relative

Name

Kosei Murakami(Note 1)

Tateyuki Ikura(Note 1)

Principal businessor occupation

Nature of transaction

Amount oftransaction

Account(Yen in millions)Executive Director
Payment of asset managementof NAF andfee to MFAFM (Note 2)
President & CEOof MFAFM
Payment of asset management
fee to MFAFM (Note 2)
Executive Directorof NAF and
President & CEO
Payment for the provision ofof MFAFM
general administration relating toorganizational management to
MFAFM (Note 5)

Balance at theend of the period(Yen in millions)¥7(Note 3)

—

¥—

¥745
(Note 4)

Accounts payable

¥804

¥0

—

¥—

Notes: 1. Kosei Murakami retired from his positions as Executive Director of NAF and President and CEO of MFAFM on March 31, 2015. In addition, Tateyuki Ikura assumed
these positions on May 21, 2015 and April 1, 2015, respectively.
2. Kosei Murakami and Tateyuki Ikura entered into these transactions as representatives of MFAFM, and these amounts are subject to the conditions set forth in the bylaws of NAF.
3. The amount of asset management fees includes management fees related to the acquisition of Medical Home Granda Sangen Jaya (Land with leasehold interest;
acquired March 31, 2015) included in its book value.
4. No fees for management related to acquisition of properties included in the book value of each investment property, etc. were required to be disclosed as asset
management fees.
5. Tateyuki Ikura 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.
6. The “Amount of transaction” included in the above amounts are for transactions before Kosei Murakami retired from his positions as Executive Director of NAF andafter Tateyuki Ikura became Executive Director of NAF.
“Amount of transaction” does not include consumption taxes.
“Balance at the end of the period” includes consumption taxes.

Note 11

Financial Instruments(March 1, 2016 – August 31, 2016)

1. Status of Financial Instruments(1) Policy for Financial Instruments
NAF procures funds for acquisition of assets and other uses through bank loans, issuance of bonds and investment units.
NAF may enter into derivative transactions solely for the purpose of hedging interest rate risk. Currently, NAF is not engaged in any
derivative transactions. NAF strives for efficiency in its funding plans and has an operating policy of minimizing surplus funds.
(2) Financial Instruments, Their Risks and Risk Management System
Funds from loans and bonds are primarily used for acquiring assets and to repay interest-bearing debt. NAF manages associatedliquidity and interest rate fluctuation risk in ways such as diversifying its credit sources and maturities, and by mainly using fixed-rateloans.
(3) Supplemental Explanation regarding Fair Values of Financial Instruments
The fair value of financial instruments is based on their observable market value, if available. When there is no observable market
value available, fair value is based on a price that is reasonably estimated. Since various factors are reflected in estimating the fairvalue, different assumptions and factors could result in a different value.

28

2. Estimated Fair Value of Financial Instruments
Book value, fair value and the difference between the two as of August 31, 2016 were as follows. The financial instruments for which it is very
difficult to estimate the fair value are excluded from the following table (See Note 2, below).
Yen in millions
Book value

Assets(1) Cash and cash equivalents
Total
Liabilities(1) Short-term loans(2) Long-term loans due within one year
(3) Long-term loans
Total

Fair value

Difference

¥

7,092

¥

7,092

¥

—

¥

7,092

¥

7,092

¥

—

¥

7,000
14,500127,500¥

7,000
14,611
131,371

¥

—
111
3,871

¥ 149,000¥ 152,982¥ 3,982

Notes: 1. Methods to estimate fair value of financial instruments
Assets:(1) Cash and cash equivalents
Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments
are settled within a short-term period.
Liabilities:(1) Short-term loans
Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments
are settled within a short-term period.
(2) Long-term loans due within one year and (3) Long-term loans
Fair values of fixed-rate instruments are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied
if similar new loans were entered into. Fair values of variable-rate instruments are considered to be their book values because these instruments reflect market
interest rates over short time periods.
2. Financial instruments for which it is very difficult to estimate the fair value
Yen in millions
Book value

Tenant security deposits¥3,597

Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and the actual deposit period is not estimable as leases
may be cancelled, renewed or re-signed even if a lease term is set in the lease contract, making a reasonable estimate of future cash flows difficult.
3. Redemption schedule for monetary claims with maturity dates after August 31, 2016
Yen in millions
Due within
one year

Cash and cash equivalents¥7,092

4. Repayment schedule for loans after August 31, 2016
Yen in millions
Due within
one year

Due after
one to two years

—

—

¥

—

Due after
four to five years¥—

Due after
five years¥ 7,000

Long-term loans

14,50018,00017,50018,00019,00055,000¥ 21,500¥ 18,000¥ 17,500¥ 18,000¥ 19,000¥ 55,00029¥

Due after
three to four years

Short-term loans
Total

¥

Due after
two to three years¥—

(September 1, 2015 – February 29, 2016)

1. Status of Financial Instruments
Same as above.

2. Estimated Fair Value of Financial Instruments
Book value, fair value and the difference between the two as of February 29, 2016 were as follows. The financial instruments for which it is very
difficult to estimate the fair value are excluded from the following table (See Note 2, below).
Yen in millions
Book value

Assets(1) Cash and cash equivalents
Total
Liabilities(1) Short-term loans(2) Bonds due within one year
(3) Long-term loans due within one year
(4) Long-term loans
Total

Fair value

Difference

¥

7,364

¥

7,364

¥

—

¥

7,364

¥

7,364

¥

—

¥

5,000
7,000
6,000
129,500

¥

5,000
7,030
6,048
133,512

¥

—
30
48
4,012

¥ 147,500¥ 151,591¥ 4,091

Notes: 1. Methods to estimate fair value of financial instruments
Assets:(1) Cash and cash equivalents
Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments
are settled within a short-term period.
Liabilities:(1) Short-term loans
Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments
are settled within a short-term period.
(2) Bonds due within one year
Fair values of these bonds are based on observable market value.
(3) Long-term loans due within one year and (4) Long-term loans
Fair values of these instruments are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if
similar new loans were entered into.
2. Financial instruments for which it is very difficult to estimate the fair value
Yen in millions
Book value

Tenant security deposits¥3,561

Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and the actual deposit period is not estimable as leases
may be cancelled, renewed or re-signed even if a lease term is set in the lease contract, making a reasonable estimate of future cash flows difficult.
3. Redemption schedule for monetary claims with maturity dates after February 29, 2016
Yen in millions
Due within
one year

Cash and cash equivalents¥7,364

4. Repayment schedule for loans and bonds due after February 29, 2016
Yen in millions
Due within
one year

Short-term loans¥ 5,000

Due after
one to two years¥—

Due after
two to three years¥—

Due after
three to four years¥—

Due after
four to five years¥—

Due after
five years

¥

—

Bonds

7,000

—

—

—

—

—

Long-term loans

6,000

18,50017,00018,00017,50058,500¥ 18,000¥ 18,500¥ 17,000¥ 18,000¥ 17,500¥ 58,500

Total

30

Note 12Investment and Rental Properties(March 1, 2016 – August 31, 2016)
NAF owns rental properties including land located in Tokyo and other areas. The book value, net changes in the book value and the fair valueof the investment and rental properties were as follows.
Yen in millions
Book value

Fair value

As of March 1, 2016

Change during the 21st Period

As of August 31, 2016

As of August 31, 2016

¥283,751¥2,087¥285,839¥327,704

Notes: 1. “Book value” is the acquisition cost inclusive of acquisition expenses less accumulated depreciation and excluding expenses for construction in process.
2. In “Change during the 21st Period,” the main factor for the increase in book value was the acquisition of properties for ¥3,966 million. The main factor for the decreasein book value was depreciation.
3. “Fair value as of August 31, 2016” is based on appraisals provided by independent real estate appraisers.

Information about profit and loss from investment and rental properties for the period ended August 31, 2016 is disclosed in Note 6, Rental
Revenues and Expenses.

(September 1, 2015 – February 29, 2016)
NAF owns rental properties including land located in Tokyo and other areas. The book value, net changes in the book value and the fair valueof the investment and rental properties were as follows.
Yen in millions
Book value

Fair value

As of September 1, 2015

Change during the 20th Period

As of February 29, 2016

As of February 29, 2016

¥285,457¥(1,705)¥283,751¥323,142

Notes: 1. “Book value” is the acquisition cost inclusive of acquisition expenses less accumulated depreciation and excluding expenses for construction in process.
2. In “Change during the 20th Period,” the main factor for the decrease in book value was depreciation.
3. “Fair value as of February 29, 2016” is based on appraisals provided by independent real estate appraisers.

Information about profit and loss from investment and rental properties for the period ended February 29, 2016 is disclosed in Note 6, Rental
Revenues and Expenses.

Note 13

Segment Information(March 1, 2016 – August 31, 2016)

1. Segment Information
Segment information has been omitted as NAF has only one segment, which is real estate leasing business.

2. Related Information(1) Information by Products and Services
Disclosure of this information has been omitted as NAF has a single product/service line that accounts for more than 90% of total revenues.

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

(3) Information on Major Tenants
TenantMitsui Fudosan Residential Lease Co., Ltd. (Note)

Operating revenues(Yen in millions)¥10,156

Related segment

Real estate leasing businessNote: On April 1, 2016, Mitsui Fudosan Housing Lease Co., Ltd. changed its corporate name to Mitsui Fudosan Residential Lease Co., Ltd.

31

(September 1, 2015 – February 29, 2016)

1. Segment Information
Segment information has been omitted as NAF has only one segment, which is real estate leasing business.

2. Related Information(1) Information by Products and Services
Disclosure of this information has been omitted as NAF has a single product/service line that accounts for more than 90% of total revenues.

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

(3) Information on Major Tenants
TenantMitsui Fudosan Housing Lease Co., Ltd.

Operating revenues(Yen in millions)¥9,992

Related segment

Real estate leasing business(March 1, 2015 – August 31, 2015)

1. Segment Information
Segment information has been omitted as NAF has only one segment, which is real estate leasing business.

2. Related Information(1) Information by Products and Services
Disclosure of this information has been omitted as NAF has a single product/service line that accounts for more than 90% of total revenues.

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

(3) Information on Major Tenants
TenantMitsui Fudosan Housing Lease Co., Ltd.

Note 14

Operating revenues(Yen in millions)¥10,011Significant Subsequent Events

None applicable

32

Related segment

Real estate leasing businessIndependent Auditor's Report33

Rental Apartment Investment Characteristics

Rental apartments have a lower earnings fluctuation risk than real estate leased for other uses. By
concentrating investment in the 23 wards of Tokyo where demand for rental housing is high anddeveloping a portfolio with high market competitiveness and asset value, NAF will stably increase
earnings.
NAF projects solid demand from the growing number ofsingle and two-person households for single and compact(rentable area under 60m2 with two or fewer bedrooms)
apartments, which comprise the majority of NAF’s portfolio.

Residential Rental Market Trends inthe 23 Wards of Tokyo
Population and Number of Households
In the 23 wards of Tokyo, where most of NAF’s assets
under management are located, the population influx iscontinuing, reflecting an increasing desire to live closer to workand the progressive concentration of economic activities inTokyo. Graph 1 shows migration trends in the 23 wards ofTokyo as well as net in-migration. In-migration has continued
to exceed out-migration indicating stable demand forresidential rental housing in highly convenient areas.

Rental Housing Stock
Graph 2 shows the number of rental apartment
construction starts in the 23 wards of Tokyo. Construction
starts increased more or less steadily until 2006, but
decreased significantly following changes in the building
authorization procedure resulting from revisions in 2007 to the
Building Standards Law (Law No. 201 of 1950 as amended).
The number of construction starts has been at a low level
since 2007.

1. Population Change in the 23 Wards of Tokyo(No. of people)(No. of people)

400,000

68,917300,000

69,95876,786

77,267200,000

67,84249,65549,713100,000

37,39133,09861,28190,00060,00063,97630,00035,43500-100,000-30,000-200,000-60,000-300,000
In-migration (Left axis)

Out-migration (Left axis)

Net in-migration (Right axis)-400,000-90,000
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: Tokyo Metropolitan Government, Ministry of Internal Affairs and Communications

2. Construction-Starts for Rental Apartments in the 23 Wards of Tokyo(Units)

43,371
39,084

33,101

31,880

26,512

23,707

21,718

17,054

17,994

24,532

20,582

20,863














Source: Ministry of Land, Infrastructure, Transport and Tourism (SRC and RC)

34









Stability of Apartment Rent

In addition, rental housing enables a more diversified portfolio
in terms of number of properties and tenants due to its
relatively small scale in comparison to office buildings andother properties. Investment in rental housing of this nature isperfectly matched with NAF’s core strategy of securing stablerevenues. Furthermore, new properties are scarce, comprising
a limited share of rental housing stock. Such properties, whichmake up the majority of NAF’s investment portfolio, ensure
market competitiveness and asset value.

Graph 3 shows relative rents for apartments and offices inTokyo metropolitan area, with 2005 levels set as 100.
Apartment rent has remained relatively stable in comparison to
office rent. Rental housing is a necessary expense in thesame way as clothing and food. Therefore, apartment rent is
considered stable because it is generally unaffected byfluctuations in economic conditions and asset value, withrelatively low risk of change.

3. Rent Fluctuation: Apartments / Offices
140.0
Index: 2005 = 100

Apartment rent index (Tokyo metropolitan area)
Office rent index (Tokyo metropolitan area)

130.0
120.0
110.0
100.0

100.2

100.5

100.4

100.0

96.9

96.6

96.3

96.3

96.4

96.7

2010

2011

2012

2013

2014

2015

98.4

90.0
80.0
2005

2006

2007

2008

2009

Source: Japan Real Estate InstituteCommon Practices in Japan’s Rental Apartment Market
Contract Validity Period

Commission Fee

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

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

Security Deposit

Guarantor/Joint Surety

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

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

Key Money
The tenant pays key money to the landlord prior to signing alease contract. Generally, it is equivalent to one or two months’
rent and is not refunded.

35

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

Real Estate Investment Trust (“REIT”) Structure
Nippon Accommodations Fund Inc. (“NAF”) is aninvestment corporation established with the objective ofinvesting in assets, primarily Designated Assets as defined
under the Investment Trust and Investment Corporation Act ofJapan. NAF was established on October 12, 2005, with Mitsui
Fudosan Accommodations Fund Management Co., Ltd. (the“REIT Management Company” or “MFAFM”) as its asset
management company.
NAF has entrusted management of all of its assets to the
REIT Management Company, which is the asset managementcompany required under the Investment Trust and Investment
Corporation Act of Japan. Operating in accordance with the
REIT Management Agreement concluded on October 13, 2005
(as amended), the REIT Management Company manages
NAF’s assets according to NAF’s asset management andadministration policies and the asset management guidelines
embodied in the internal regulations of the REIT Management
Company. The asset management guidelines take current
investment conditions into account and follow NAF’s basic
operating principle of taking a medium-to-long-term
perspective in managing assets to secure stable earnings andsteadily increase assets under management. These guidelines

may change in the future in response to changes in theexternal investment environment and the status of NAF’s
assets under management.
In addition, the REIT Management Company is a 100
percent subsidiary of Mitsui Fudosan Co., Ltd., and has
concluded contracts with other companies in the Mitsui
Fudosan Group to promote smooth, effective management of
NAF’s assets. An Agreement on Provision of Real Estate
Information/Advisory Service and an Agreement on Provisionof Real Estate Information with Mitsui Fudosan Residential Co.,
Ltd. provide information regarding real estate owned ordeveloped by Mitsui Fudosan Residential’s Rental Apartment
Development Department, and other management advisory
information. A Memorandum on Provision of Real Estate
Brokerage Information with Mitsui Fudosan Realty Co., Ltd.
provides access to certain real estate property information. A
Basic Agreement on Property Management with Mitsui
Fudosan Residential Lease Co., Ltd., the master property
management company to which NAF has entrusted property
management services of all its rental apartments, isfundamental to NAF’s policy of outsourcing such property
management services required in managing real estate.

36

Corporate Structure
General Meeting of Unitholders

NAF’s executive directors are responsible for businessexecution. In addition, they have authority for all judicial andextrajudicial proceedings related to the operations of NAF.
Supervisory directors are responsible for supervisingbusiness execution by the executive directors.
The Board of Directors acts in accordance with theInvestment Trust and Investment Corporation Act of Japan
and NAF’s Articles of Incorporation and other internal rules in
exercising their responsibility to supervise the performance ofthe executive directors. In accordance with the current Articles
of Incorporation, the Board of Directors passes or vetoes
resolutions on the basis of a simple majority of executive andsupervisory directors on the Board who are in attendance andare able to vote. Executive and supervisory directors having
special interest in a resolution are prohibited from participatingin related decisions.
Independent auditors are elected at the General Meetingof Unitholders. They audit financial and accounting documents
including NAF’s financial statements. In addition, they arecharged with reporting to supervisory directors any unlawfulacts or material violations of laws, regulations or NAF’s
Articles of Incorporation that executive directors may commit
in the course of their duties. Independent auditors also
perform other duties as required by laws and regulations.

In accordance with the Investment Trust and Investment
Corporation Act of Japan and NAF’s Articles of Incorporation,
NAF convenes a General Meeting of Unitholders within the 23
wards of Tokyo, generally once every two years. The General
Meeting of Unitholders adopts or vetoes ordinary resolutions
on the basis of a simple majority of the voting rights ofunitholders in attendance. Decisions on substantive
resolutions such as changes in the Articles of Incorporation
require the attendance of unitholders holding at least a simple
majority of total units issued and outstanding, and a vote of
two-thirds majority of the voting rights of such unitholders. The
asset management policies and standards are stipulated by
NAF’s Articles of Incorporation.

Executive Directors, Supervisory Directors,
Independent Auditor and the Board of Directors
NAF’s Articles of Incorporation stipulate that NAF musthave one or more executive directors, and two or more
supervisory directors (but always equal to the number of
executive directors plus at least one additional supervisory
director). NAF’s independent auditor is KPMG AZSA LLC.

Compliance Initiatives
The REIT Management Company, MFAFM, assumes full
responsibility for compliance in order to structure an
appropriate asset management system for NAF. A Chief
Compliance Officer (CCO) of MFAFM has been appointed tosupervise compliance with laws, regulations and internal ruleson the part of the REIT Management Company. The CCO is
responsible for internal audits at the REIT Management

Company. The Chief Executive Officer (CEO) may also
appoint other employees of MFAFM to participate as needed
in internal audits, based on the recommendations of the CCO.
MFAFM’s entire organization and all personnel within it are
subject to internal audits. As a rule, internal audits are
conducted on a regular basis in accordance with the complianceprogram, but the CEO may initiate extraordinary audits.

Corporate Governance Structure of MFAFM
General Meeting ofStockholders
AuditorBoard of Directors
CCO

Compliance Committee
CEO
Investment Committee

Investment
Division
Investment,
Research & Strategy Team

CIO

CFO
Asset Management
Team

Financial Team37

Financial
Division
Corporate Operation
TeamInvestment Risk Management System
NAF itself is responsible for complying with the Investment
Trust and Investment Corporation Act of Japan and related
laws and regulations in managing risks. In addition, the REITManagement Company has established appropriate internal
rules. In conjunction with appropriate organizational systems,
NAF is providing education and implementing other measures
to enhance the culture of compliance among officers andemployees of MFAFM.
NAF’s Board of Directors convenes as needed at least
once every three months, and resolves important matters andreports on the status of business execution in accordance withlaws, regulations and internal rules for such Board of Directors.
Independent supervisory directors supervise businessexecution. Moreover, supervisory directors can obtain as

needed reports on operations and financial condition from the
REIT Management Company and from NAF’s asset custodian,
Sumitomo Mitsui Trust Bank, Limited. Independent
supervisory directors can also conduct required investigations.
The REIT Management Company formulates and revises
an annual management plan that is the blueprint for
management and administration policies that comply with theasset management guidelines. This annual plan andcompliance with the asset management guidelines serve toeliminate or minimize risk. In addition, the REIT Management
Company has established internal risk management
regulations and a department that focuses on managing eachtype of risk appropriately.

Note: When NAF acquires or disposes of assets in transactions with related parties as defined by the Investment Trust and Investment Corporation Act of Japan, the REITManagement Company must obtain consent from NAF based on the approval of NAF’s Board of Directors prior to the deliberations of the Investment Committee. However,such consent is not required for property or other real estate acquisitions stipulated by Article 245-2-1 of the Investment Trust and Investment Corporation Act as having
immaterial impact on NAF’s assets because the acquisition cost represents less than 10 percent of the book value of NAF’s investment properties.

Restrictions on Related-Party Transactions
Laws and regulations prohibit the REIT Management
Company from conducting specified transactions with relatedparties. In the case of a transaction with a potential conflict ofinterest between an entity specified under the Investment
Trust and Investment Corporation Act of Japan and its
ordinances and its asset management company, in principle
the REIT Management Company must prepare a brief
describing the transaction and deliver it to NAF and otherentities specified by the Investment Trust and Investment
Corporation Act of Japan and its ordinances.

With the objective of enhancing returns for NAF’s
unitholders, the REIT Management Company’s internal
regulations specify rules for handling related-party
transactions. The REIT Management Company has
established standards and procedures for related-party
transactions and executes appropriate asset management for
NAF by eliminating conflicts of interest.

38

Primary Related Corporations

Overview of the Roles of Primary Related Corporations
The following outlines the contractual relationship between NAF and its REIT management company, and the contractual
relationship 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 a Financial
Instruments Business Operator prescribed in Article 28 Paragraph 4 of the Financial
Instruments and Exchange Law and under a REIT Management Agreement enteredinto between MFAFM and NAF on October 13, 2005 (as amended). Under thisagreement, MFAFM undertakes asset management of NAF in accordance with theasset 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 thecondition 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.

Real estate information/ Mitsui Fudosan
advisory service
Residential Co., Ltd.
provider (Note)
Real estate information
providerIn 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 matters related
to the above items listed in (1) and (2) that NAF may require, as General
Administrative Agent based on a General Administrative Service Agreement dated
March 1, 2006. The matters entrusted to the Transfer Agent pursuant to theAgreement between NAF and the Transfer Agent are not included in the above
matters set forth in (1) and (2).
Mitsui Fudosan Residential provides real estate sales information, real estate
management information, and other services to MFAFM under an Agreement on
Provision of Real Estate Information/Advisory Service that MFAFM entered into with
Mitsui Fudosan Residential on February 23, 2006.
Mitsui Fudosan Residential provides real estate sales information to MFAFM underan Agreement on Provision of Real Estate Information that MFAFM entered into with
Mitsui Fudosan Residential on September 26, 2007.

Property information
providerMitsui Fudosan
Realty Co., Ltd.

Mitsui Fudosan Realty provides real estate brokerage information and other services
to MFAFM under a Memorandum on Provision of Real Estate Brokerage Informationthat MFAFM entered into with Mitsui Fudosan Realty on March 31, 2006.

Master property
management company

Mitsui Fudosan
Residential Lease Co.,Ltd.

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

Note: On February 23, 2006, NAF and Mitsui Fudosan Co., Ltd. concluded an Agreement on Provision of Real Estate Information/Advisory Service. Mitsui Fudosan ResidentialCo., Ltd. assumed Mitsui Fudosan’s rights and responsibilities in the residential leasing business by way of a company split on October 1, 2015. In conjunction with theassumption of these rights, the rights and responsibilities under this agreement and subsequent amendments thereto transferred to Mitsui Fudosan Residential as of
October 1, 2015.

39

Mitsui Fudosan Accommodations Fund Management Co., Ltd.
REIT Management Company and General Administrative Agent
MFAFM, as a REIT management company provided for in
the Investment Trust and Investment Corporation Act of Japan,
performs management of NAF’s assets and undertakes
management of the general affairs of NAF.
MFAFM has no capital relationship with 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 the Investment Objectives and Policies set forth
therein.
 Undertakes management of the general affairs of thegeneral meeting of unitholders and the Board of Directorsof NAF as General Administrative Agent based on an
entrustment from NAF and a General Administrative
Service Agreement.

etc., and other Managed Assets) will be payable. Management
Fees 1 are paid without delay after definite settlement ofaccounts.
Management Fees 2
The amount equivalent to 5 percent of income before
income tax prior to deduction of Management Fees 1 and 2 as
calculated on each closing date will be payable. Management
Fees 2 are paid without delay after definite settlement ofaccounts.
Management Fees 3
In the event that Real Estate, etc., is newly acquired,compensation equivalent to 1 percent (0.5 percent if it isacquired from Related Parties) of the total amount of theacquisition price of said Real Estate, etc., (excluding
consumption tax, local consumption tax, and acquisition costs)
will be payable. Management Fees 3 are paid at or before theend of the next month after the month of the acquisition date.

Fees for the Asset Management Operation
NAF pays asset management fees to MFAFM, inaccordance with the REIT Management Agreement concluded
with MFAFM. These fees comprise items 1 to 4 below, with themethod of calculation and payment dates as follows.

Management Fees 4
In the event that Real Estate, etc., is sold, compensationequivalent to 1 percent (0.5 percent if it is sold to Related
Parties) of the total amount of the sales price of said Real
Estate, etc., (excluding consumption tax, local consumptiontax) will be payable. Management Fees 4 are paid at or before
the end of the next month after the month of the sales date.

Management Fees 1
The amount equivalent to 5 percent of the amount of therevenue arising from Real Estate, etc., as calculated on eachclosing date (excluding revenues from the sale of Real Estate,40

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

(a) Mitsui Fudosan Residential’s qualitative view of medium-tolong-term trends relevant to the operating environment of
the real estate leasing market (including but not limited toeconomic trends in Japan, population dynamics and trends
in housing stock)(b) Mitsui Fudosan Residential’s qualitative view of short-term
trends relevant to the operating environment of the realestate leasing market, including but not limited to trends in
new supply of residential properties for lease (including
property summaries, level of rent and initial leasing
conditions), lease contracts entered into for specificresidential properties, area marketing surveys, financial
data for other real estate investment corporations, income
and expense data for specific real estate or real estaterelated assets, and real estate leasing market trends(including vacancy rate and rent trends)(c) Mitsui Fudosan Residential’s quantitative data regarding
real estate leasing market conditions up to the present(including but not limited to rent rolls of residential
properties for lease owned by Mitsui Fudosan Residential
or NAF and supplementary data such as records of lease
contracts entered into and cancelled, and related
expenses)(d) Other information related to items (a), (b) or (c) above that
MFAFM requests, as needed

Provision of Information on Real Estate and Other
Assets Owned or Developed by Mitsui Fudosan
Residential
In the case Mitsui Fudosan Residential decides to provide
any third party with information on real estate or real estaterelated assets that it owns or is planning to develop and sellunder its Rental Apartment Development Department orotherwise solicits the third party to purchase such real estateor assets, and such real estate or assets are consistent with
MFAFM’s asset management guidelines, Mitsui Fudosan
Residential provides such information to MFAFM before or at
the same time as it provides information to and/or solicits thethird party, unless prevented from doing so due to lack ofconsent of third parties or for any other unavoidable reason.
When MFAFM receives such information and provides
written notification that it will consider the purchase of such
real estate or assets, Mitsui Fudosan Residential deals with
NAF as a prospective purchaser on a pari passu basis withany third party interested in purchasing such real estate orother assets.

Provision of Advisory Services
Mitsui Fudosan Residential provides technical advice to
MFAFM regarding the buildings and facilities of the real estate
and real estate-related assets that NAF has purchased or isconsidering purchasing (but in no case does it provide MFAFM
with investment advice). This technical advice includes thefollowing.
(a) Advice and investigational support for the preparation andimplementation of daily and long-term maintenance plans
for said buildings and facilities(b) Advice and investigational support for the preparation andimplementation of plans for small repairs, renovations,periodic inspections and response to facility and equipment
recalls(c) Advice, investigational support and other assistance for the
preparation and implementation of large-scale renovations

Provision of Third-Party Real Estate Sales
Information
Regardless of whether Mitsui Fudosan Residential has
originated or is brokering the sale, Mitsui Fudosan
Residential’s Rental Apartment Development Department inprinciple provides MFAFM with information concerningavailable real estate or real estate-related assets owned bythird parties, when such real estate or assets are consistent
with MFAFM’s asset management guidelines, unlessprevented from doing so due to lack of consent of third parties
or for any other unavoidable reason, or because Mitsui
Fudosan Residential itself intends to acquire such real estateor assets with the objective of development or ownership.

Operation Fees
MFAFM will provide compensation as separately discussed
and agreed with Mitsui Fudosan Residential under thisagreement.

Provision of Real Estate Management Information
At least once per calendar year, Mitsui Fudosan
Residential will provide in writing, upon request by MFAFM,
real estate management information (see note below) that its
Rental Apartment Development Department supervises if
MFAFM requests such information and Mitsui Fudosan
Residential agrees to such provision.
Note: “Real estate management information” means thefollowing information.
41

Portfolio Policy

Portfolio Structure Policies
Japan in investing in accommodation assets. By region, atleast 80 percent of NAF’s assets are located in the 23 wardsof Tokyo.
When considering individual investments, NAF studies
regional characteristics and tenant needs. NAF then deploys
this information to invest in properties with suitable residential
plans and characteristics.

Set forth below are the portfolio structure policies andinvestment standards for individual properties for the REITManagement Company and its internal regulations that serveas asset management guidelines.

1. Proportion of Investment Assets by Category
NAF invests mainly in rental apartments, and currently
limits investment in other accommodation assets to a
maximum of 10 percent of total portfolio value on an
acquisition price basis.

3. Investment Standards
The REIT Management Company identifies potential
investments and decides whether or not to invest in assets on
the basis of the asset management guidelines summarized in
the table below.

2. Investment Areas
NAF emphasizes Greater Tokyo and other major cities in
ItemStandard

Investment amountIn principle, the value of each property must exceed ¥1 billion. However, NAF may invest in properties ator below ¥1 billion after taking into account property characteristics and earnings potential and certain
relevant matters.

Ownership interests

In principle, NAF shall hold ownership interests of whole properties. However, NAF may invest in coownership; compartmentalized ownership; leaseholds, including fixed-term leaseholds; and limited
proprietary rights of the land upon consideration of specific properties.

Building structure

In principle, building structures shall be reinforced concrete (RC) or steel reinforced concrete (SRC).
Earthquake resistance shall conform to or substantially satisfy the New Earthquake Resistance Standards(in compliance with the 1981 revision to the Building Standards Law (Law No. 201 of 1950), as amended,
the “Building Standards Law”).

Properties underdevelopment

In principle, NAF shall acquire properties that are already producing stable rental income at the time ofacquisition, and shall not invest in land with a view to NAF’s own construction of the building thereon.
However, NAF may consider contracts to acquire uncompleted buildings that, although incomplete, areexpected to carry minimum risk in respect to completion, delivery and subsequent leasing.

4. Due Diligence Standards
NAF selects assets to invest in only after due diligencecovering economic feasibility, physical condition and legal
status in accordance with the asset management guidelines.
Due diligence includes various written assessments andreports from third-party specialists. Based on the results of
Item
Economic
feasibility
studiessuch due diligence, the REIT Management Company inprinciple undertakes investigation of the items listed below inorder to make investment decisions as a result ofcomprehensive review.

Issues InvestigatedMarket survey

1. Current residential environment in the relevant region
2. Demand and supply for rental housing in the relevant region
3. Rental housing competition trends in the relevant region
4. Markets rents in the relevant region
5. Discount rate and rate of return

Tenant survey

1. Tenant creditworthiness and rent income amount
2. Purpose of use and confirmation that tenants are not members of anti-social forces

Survey ofearnings andrelated issues

1. Current property management costs
2. Development of medium-to-long-term plan for repair and renovation expenses
3. Development of cash flow projections
4. Verification that property is consistent with portfolio strategy

42Physical
condition
studies

Location

1. Street conditions, access to major transportation
2. Convenience and access to public facilities
3. Primarily visual confirmation of 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, maintenance 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 such as the Building Standards Law, the City Planning
Law, asbestos-related laws and regulations, the Law concerning the Promotion of Expansion of
Public Lands 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 (the new earthquake
resistance standards for buildings, etc., based on the 1981 revision to the Building Standards Law) or
equivalent resistance
2. Checks by the construction company, architectural firm, construction engineering company andconstruction confirmation and inspection body; confirmation of authenticity of the structural calculation
sheets
3. In principle, earthquake PML shall be below 15 percent. In deciding whether or not to purchase abuilding for which PML is at or above 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 hazardous materials
2. Investigation of land use records and soil contamination

Legal
Rights andinvestigation related issues

Investigation shall be conducted as to whether the previous owner had obtained the enforceable real
right.
1. Issues regarding ownership interests and mortgage
2. Lease contract terms (including confirmation of area of rental units)
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, such as the Nature
Conservation Law and the Urban Green Space Conservation Law
6. Existence of factors impeding the enforceability of the previous owner’s rights
In case of complicated relation of rights, the following matters, among others, shall be investigated (thecomplicated relation of rights includes relationships between NAF and others in cases such as coownership; compartmentalized ownership; leaseholds, including fixed-term leaseholds; and limited
proprietary rights of the land).
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 rightof site from the building thereon and the registration status of such limitation; share of such right
3. Measures to be taken to ensure the maintenance of deposits; reserve rules or measures based onlong-term renovation plan
4. Existence of agreement on prohibition of division of co-ownership property and registration statusof such agreement; appropriate treatments in case of request for division of co-ownership property
or sales of co-ownership share; (possible) claims against or from other co-owners
5. Status of compartment of compartmentalized ownership
6. Security arrangements established prior to involvement of NAF and assumption of any
encumbrances or obligations in connection thereto
7. Terms of special agreement with the lessor, the land lease right holder, other compartmentalized
ownership holders, other co-owners and any other relevant parties
8. Characteristics of the lessor, the land lease right holder, compartmentalized ownership holders, coowners or other relevant parties (for example, corporations or individuals)
9. Terms of trust agreement in case the relevant rights are beneficial interests in real estate trust

43

Policies for Portfolio Management and Operation
In addition, the REIT Management Company will
periodically monitor whether the selected property
management company is maintaining its capabilities at thelevel dictated by the standards for selection. As a result ofmonitoring, the REIT Management Company may require
improvements or may change the property managementcompany.

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 suchas handling of the assets and projected capital expenditures
for properties, including plans for large-scale renovation, andis subject to Investment Committee approval.
The REIT Management Company acts in accordance withthis yearly management plan in undertaking management andoperation of the assets in cooperation with the property
management company. The REIT Management Company isalso responsible for implementing appropriate changes andrevisions to the yearly management plan if necessitated bysignificant changes in the operating environment.

3. Policies for Property and Casualty
Insurance Coverage
NAF maintains property and casualty insurance coverage,to the extent that is deemed appropriate, to address damage
to property due to disasters such as fires and accidents or
claims for compensatory damages from third parties. Assetcharacteristics determine such coverage.
NAF comprehensively determines earthquake insurance
coverage according to cost effectiveness and the projected
impact of an earthquake on each building and on the portfolio
as a whole. When earthquake PML for specific buildings is
projected above 20 percent or when the acquisition of suchproperty causes portfolio PML to rise above 15 percent, NAF
comprehensively considers the impact from an earthquake,
insurance premiums and any other relevant issues todetermine whether or not to purchase earthquake insurance.

2. Selection and Monitoring of the Property
Management Company
The property management company is responsible for
proposal and implementation of various measures for day-today, on-site management of tenants and properties. Suchfunctions of the property management company areparticularly important to the management of accommodation
assets in general and rental housing in particular. Naturally,
the property management company should have specialized
expertise in the business of property management, and its
operations must be organized and efficient so that it can
provide consistent, high-quality services across a wide array ofproperties and tenants.
For “Rental Apartments” in NAF’s portfolio, NAF has
selected Mitsui Fudosan Residential 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 Residential Lease, on the condition that itmeets the following requirements.

4. Basic Policies for Renovation Plans andCapital Expenditures
The renovation plans are strategic and require renovationand capital expenditures in addition to routine expenses
incurred by small repairs in order to maintain and improve themarket 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 medium-to-long-term portfolio management. In
principle, NAF keeps capital expenditures within the scope ofthe overall portfolio renovation plan.

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 the market level

Divestiture Policy
In principle, NAF aims to secure stable operating revenue
from assets under management through ownership over the
medium-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

evaluation of trends affecting the future rental market in agiven area, actual or projected increases or decreases in
asset values, risk of asset impairment, obsolescence andassociated costs, and other relevant factors.

44

Financial Policies
1. Issuance of New Units

3. Loan-to-Value Ratio

NAF may flexibly issue additional units through an offeringwith the objective of financing acquisition of assets, renovationand other capital requirements for operation, or to repay debt,
including lease deposits, security deposits, loans and bondsthat NAF may have issued.

The ratio of interest-bearing debt to NAF’s total assets is
known as the loan-to-value (LTV) ratio. The REITManagement Company determines the upper limit of NAF’s
LTV ratio. NAF’s policy is to keep the LTV ratio below 60
percent, although issues including the acquisition of assets
may cause the LTV ratio to temporarily exceed 60 percent.

2. Debt Financing
4. Derivatives

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
defined under the relevant laws and regulations in 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.

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
the interest rates associated with debts.

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

NAF discloses information in accordance with theInvestment Trust and Investment Corporation Act of Japan,
the Financial Instruments and Exchange Law of Japan, andthe rules of the Tokyo Stock Exchange and the Investment
Trusts Association, Japan. Moreover, NAF energeticallydiscloses of its own accord information that it believes isrelevant to investment decisions.

Sustainability Policy
MFAFM, as the asset management company for NAF, in
recognition of the importance of initiatives for sustainability
including environmental considerations, etc. for carrying out
asset management activities, strives to achieve asset
management activities giving consideration to reduction ofenvironmental load, enhancement of safety, security andcomfort, as well as diversified affiliations and collaborations
with various entities, in line with the "Group Environmental
Policy" established by the Mitsui Fudosan Group.

45Corporate Data

Corporate office

4-1, Nihonbashi 1-chome, Chuo-ku, Tokyo 103-0027, Japan+81-3-3246-3677
http://www.naf-r.jp/english/

Date of incorporation

October 12, 2005

Fiscal period

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

Unit listing

Tokyo Stock Exchange (Securities Code: 3226)

Transfer agent

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

Business office of the transfer agent

Stock Transfer Agency Department of
Sumitomo Mitsui Trust Bank, Limited
8-4, Izumi 2-chome, Suginami-ku, Tokyo 168-0063, Japan

Independent auditor

KPMG AZSA LLCAZSA 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.
4-1, Nihonbashi 1-chome, Chuo-ku, Tokyo 103-0027, Japan+81-3-3246-3677

46

Status of Unitholders

Major Unitholders(As of August 31, 2016)

Name

Number of units held

Percentage of total*

Japan Trustee Services Bank, Ltd. (Trust Account)
The Master Trust Bank of Japan, Ltd. (Trust Account)
Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account)
The Nomura Trust and Banking Co., Ltd. (Investment Account)
Mitsui Fudosan Residential Co., Ltd.
The Chugoku Bank, Limited
Trust & Custody Services Bank, Ltd. (Money Trust Tax Account)
JP Morgan Chase Bank 380055
MetLife Insurance
The Hachijuni Bank, Ltd.

111,20952,56830,535
18,62915,600
9,576
7,138
6,083
5,916
5,818

22.95%
10.84%
6.30%
3.84%
3.21%
1.97%
1.47%
1.25%
1.22%
1.20%

Total

263,072

54.29%* Number of units held as a percentage of total units issued and outstanding, rounded down to the nearest hundredth.

Composition and Distribution of Unitholders(As of August 31, 2016)

Individuals
and others

Financial
institutions

Other domestic
corporations

Overseas
corporations andindividuals

Number of units held

27,503(5.68%)

353,356(72.93%)23,010(4.75%)

77,640(16.02%)

3,013(0.62%)

484,522(100.00%)

Number of unitholders

5,961(92.26%)153(2.37%)

130(2.01%)

202(3.13%)

15(0.23%)

6,461(100.00%)

Securities
companies

Total

Disclaimer
This document was prepared solely for the convenience of andreference by overseas investors and does not correspond to theoriginal Japanese documents. The information provided in thisdocument does not constitute the disclosure or asset management
reports required under the Financial Instruments and Exchange Act orlaws relevant to investment trusts or investment corporations.
This English document contains selected information including apartial translation of the Securities Report (Yuka shoken hokokusho)
filed on November 28, 2016 pursuant to the Financial Instruments andExchange Law of Japan, and the Financial Statements andPerformance Information Report for the period from March 1, 2016 toAugust 31, 2016 of Nippon Accommodations Fund Inc. preparedpursuant to the Investment Trust and Investment Corporation Act ofJapan. This document should not be deemed a summary of the above
mentioned Securities Report and the Financial Statements andPerformance Information Report. Nippon Accommodations Fund Inc.
has exercised due care in providing the information in this document,
but does not guarantee its accuracy or completeness.
The contents of this document do not constitute an offer to sell orsolicitation of an offer to buy or sell any securities of Nippon
Accommodations Fund Inc. or otherwise, nor is it advice or therecommendation of Nippon Accommodations Fund Inc. to enter into
any transaction. Investment decisions should be based on your own
judgment and responsibility. Please consult with a securities company
regarding the purchase of units or investment corporation bonds ofNippon Accommodations Fund Inc.
English terms for Japanese legal, accounting, tax and businessconcepts used herein may not be precisely identical to the concept of
the equivalent Japanese terms. If there exist any discrepancies in themeaning or interpretation with respect to any and all terms herein
including, without limitation, financial statements, between the original
Japanese documents and English statements contained herein, theoriginal Japanese documents will always govern the meaning andinterpretation. None of Nippon Accommodations Fund Inc., Mitsui
Fudosan Accommodations Fund Management Co., Ltd. or any of theirrespective directors, officers, employees, partners, unitholders, agents,
parent company 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, parent company 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 and information.
We base these statements on our beliefs as well as our assumptions
based solely on certain limited information currently available to us.
Because these statements reflect our current views concerning future
events, these statements involve known and unknown risks,
uncertainties and assumptions. Our future performance could materiallydiffer from those set out in these forward-looking statements. We do notundertake and will not undertake to release revisions of forward-looking
statements to reflect future events or circumstances or of any otherstatements or information contained herein.
The information in this document may be changed without priornotice.
Duplication or use of information in this document for other purposes
without the prior consent of Nippon Accommodations Fund Inc. is
prohibited.

47