NAF Report 22nd Period

September 2016 – February 2017
http://www.naf-r.jp/english/

Profile
Nippon 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 Act on
Investment Trust and Investment Corporation 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 refers to “Rental Apartments” and “Hospitality Facilities”.
“Hospitality Facilities” is the generic term for the four categories of dormitories/corporate housing, serviced apartments, senior residences and hotels.

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

Rental Apartment Investment Characteristics............ 37

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

Corporate Structure and Governance........................ 39

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

Primary Related Corporations................................... 42

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

Portfolio Policy......................................................... 45

Sustainability Initiatives.............................................. 8

Corporate Data........................................................ 50

Portfolio Summary...................................................... 9

Status of Unitholders................................................ 51

Management‘s Discussion and Analysis..................... 13
Financial Statements................................................. 21
Notes to Financial Statements................................... 25
Independent Auditor’s Report................................... 36
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 (22nd Period)

96.8%
5.3%
¥8,428

An average monthly occupancy rate of 96.8 percent
Net operating income (NOI) yield* of 5.3 percent
Distribution per unit of ¥8,428 for the 22nd Period*Weighted average of actual NOI yield on the acquisition price of each property

Outstanding Portfolio (As of February 28, 2017)¥297,435 million

Portfolio of 118 superior properties with a totalacquisition price of ¥297,435 million

479,614m2/
11,709 units

11,709 units with a total rentable area of 479,614m2

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 February 28, 2017)

AA­­−, A+, A3
50.1%

R & I ; AA- (Long-term)
S & P; A+(Long-term) and A-1 (Short-term)
Moody’s; A3

LTV (Loan-to-value) ratio of 50.1 percent,long-term debt ratio of 95.9 percent

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

7,153

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

7,445

6,858

7,444

7,672

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

7,984

7,688

8,036

8,130

8,428

8,200
(Forecast)

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

21st
Period(Aug.16)

22nd
Period(Feb.17)

23rd
Period(Aug.17)

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

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 April 18, 2017.

1

NAF’s Core Strategies

Initiatives for Medium-to-Long-Term Growth
Resolution at the General Meeting of Unitholders Regarding the Amendment to Articles ofIncorporation to Enable Investment in Hotels
As Proposal 1 “Partial Amendments of the Articles of Incorporation*” was approved at NAF’s Eighth General Meeting ofUnitholders on May 19, 2017, NAF is now able to invest in Real Estate-Related Assets consisting of or backed by real estatethat is primarily used or may be primarily used as hotels.
* Please refer to the press release of April 18, 2017 titled “Notification of Amendments to Articles of Incorporation and Election of Directors.”* In response to this amendment to the articles of incorporation, the asset management company has made amendments to the asset management guidelines, as summarized below.

Hospitality Facilities

1 Our asset portfolio has grown to about ¥300 billion(Investment targets other than Rental Apartments)

since NAF listed its units 10 years ago.

2 We have diversified our accommodation assets toaddress economic and social changes.

3 We have created an investment framework that generates
sustainable external growth by changing with the times.

Dormitories,
Corporate Housing

Serviced Apartments

Senior Residences

HotelsContinuing Our Basic Policy of Investing Mainly in Rental Apartments
Hospitality Facilities
Maximum of

10%Tokyo 23 wards
Rental Apartments
Rental Apartments

Over

Over

90%

Tokyo 23 Wards(As of February 28, 2017: 96.1%)

Portfolio share

Portfolio share

Each investment ratio is based on the proportion (based on acquisition price) of the combined portfolio of Rental Apartments and Hospitality Facilities.

280%(As of February 28, 2017: 85.6%)

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 February 28, 2017 (the “22nd Period”), the Japanese
economy is on a moderate recovery due to factors such as an improvement in corporate
profits and the employment situation, although there was a pause in private consumption.
Looking ahead, the economy is expected to recover, supported by the effects of the policies,
while employment and income situation is improving. At the same time, attention should begiven to the uncertainty in overseas economies and the effects of fluctuations in the financial
and capital markets.
In the residential rental market, occupancy rates remained high at rental apartments heldby J-REITs, with an ongoing trend of gradual increases in rents. Moreover, stable demandis 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 thecontinuing influx of people into these areas from other regions and growth in the numberof 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 typicallyinvests.
Concerning the real estate trading market, competition for property acquisitions remains

Tateyuki Ikura

overheated. Therefore, the acquisition environment remains challenging due to factors such

Nippon Accommodations Fund Inc.
Management Team

as acquisition and disposition prices for quality rental real estate remaining high.
Amid this environment, Mitsui Fudosan Residential Lease Co., Ltd., our 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 96.8
percent during the 22nd Period.
As a result, distribution per unit was ¥8,428. This report presents our results andoperational status for the 22nd Period.
NAF will continue working to earn the trust of our unitholders and requests your

From left: Hiroaki Saito, Takashi Ikeda,
Tateyuki Ikura, Tsunehisa Ota,
Mitsutoshi Masuda

Takashi Ikeda

Executive Director

Tateyuki Ikura

Executive Director

continued support and cooperation.
June 2017

Tsunehisa Ota
Supervisory Director(Attorney at Law) 		
Hiroaki Saito(Real Estate Appraiser)

Mitsutoshi Masuda(Certified Public Accountant)

Supervisory Director
Supervisory Director

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

Financial Highlights(Ended August 31, 2016)

21st Period (Actual)(Ended February 28, 2017)

22nd Period (Actual)

23rd Period (Forecast)

Total revenues¥10,621 million¥10,650 million¥10,666 million

Operating income¥4,567 million¥4,717 million¥4,545 million

Net income¥3,939 million¥4,138 million¥3,973 million

Total assets¥295,463 million¥293,446 million

—

50.4%

50.1%

—

LTV (Loan-to-value) ratio
Distribution per unit (Yen)¥8,130(Ending August 31, 2017)¥8,428¥8,200Assets under management
Acquisition price basis¥298,718 million¥297,435 million¥299,735 million

Number of properties

119

118

119

Note: The above forecast was announced on April 18, 2017.

New Acquisitions in the 23rd Period
NAF acquired the following property in April 2017, after the end of the 22nd period.
Property namePark Axis Higashi Koenji

Acquisition price

Location(Yen in millions)

Suginami-ku, Tokyo

Rentable units

2,300

The property acquired in the 23rd period shown here is that for which its contract was concluded by the date of the announcement of financial results (April 18, 2017).

585

Acquisition date
April 27, 2017

150
Portfolio Strategy

100

NAF will continue to aim for further progress in the future by leveraging the Mitsui Fudosan Group's Value Chain
50
and achieving steady external growth and stable earnings, through stable and careful selection of property
0 and by establishing appropriate operational and management systems.
acquisition

Track Record of External Growth
Assets under management(Yen in millions)

Accommodation■
Hospitality
Facilities Assets■ Other■ Park Cube Series■ Park Cube Series■ Park Axis Series■ Park Axis Series■ Shibaura Island Air Tower■ Shibaura Island Air Tower■ Okawabata Apartment Communities

300,000

250,000■ Okawabata Apartment Communities

223,877

200,000
180,026
150,000

140,000

140,000

140,000

186,975

186,975

231,227

123,245
100,000

108,233

101,385

50,0000
2ndPeriod(Feb.07)

3rd
Period(Aug.07)

4th
Period(Feb.08)

5th
Period(Aug.08)

6th
Period(Feb.09)

7th
Period(Aug.09)

8th
Period(Feb.10)9th
Period(Aug.10)10th
Period(Feb.11)11th
Period(Aug.11)12th
Period(Feb.12)

3,038

3,735

4,256

4,256

4,256

6,214

6,464

6,464

8,722

9,131

Rentable units
2,761

Rental Apartments Characteristics
1. Location

87.6% in the 23 wards of Tokyo

2. Property Age4

3. Monthly Rent per Unit5

Average 11.4 years

Average ¥150 thousand per unit

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

Less than 3 years: 1.0%

Other Major Cities: 8.1%
20 yearsor more:10.8%

3-5 years: 6.5%

¥200,000 ¥300,000:
16.4%

2

23 Wardsof Tokyo:
87.6%

Tokyo CBD : 34.8%
10-20 years:
38.8%

5-10 years: 42.9%

Tokyo 23 Wards
excluding Tokyo CBD: 52.8%

Notes: 1. The data above are calculations for Rental Apartments owned as of February 28, 2017 and do not include Hospitality Facilities.
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 February 28, 2017.
5. The calculations are based on total monthly rent (rent and common area fees) per unit as of February 28, 2017.

6¥300,000 ¥500,000: 2.7%

¥500,000or more: 0.4%
Less than¥100,000:
25.7%¥150,000 ¥200,000:¥100,000 24.3%¥150,000: 30.5%

231,936

267,406

271,713287,733

287,733

294,918

294,918
294,918

298,718

297,435

299,735

242,140

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)

22nd
Period(Feb.17)

23rd (E)
Period(Aug.17)

9,281

9,509

10,516

10,685

11,295

11,295

11,558

11,558

11,72911,709

11,794

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:
12.4%
Singlecompact:
82.7%

Compact: 41.9%

Single:40.8%

Less than
30m2: 32.2%

50-60m2:
14.0%
40-50m2:
16.2%

30-40m2:
20.4%

Notes: 1. The data above are calculations for Rental Apartments owned as of February 28, 2017 and do not include Hospitality Facilities.
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 February 28, 2017.

7

Sustainability Initiatives
Sustainability Policy
Mitsui Fudosan Accommodations Fund Management Co., Ltd. ("the Company"), to which NAF entrusts asset management
services, established a "Sustainability Policy" in April 2016.
The Company, 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 reductionof environmental load, enhancement of safety, security and comfort, as well as diversified affiliations and collaborations withvarious entities, in line with the "Group Environmental Policy" established by the Mitsui Fudosan Group.

DBJ Green Building Certification
The DBJ Green Building Certification System is a system developed by the Development Bank of Japan Inc. ("DBJ") in
April 2011 to recognize and support buildings with environmental and social awareness ("Green Buildings"). DBJ supports
environmental initiatives by evaluating/certifying buildings that are socially and economically sought, based on comprehensive
evaluation taking into account the subject building's responses to various stakeholders including disaster prevention andconsideration for communities as well as its environmental performance.

Properties with DBJ Green Building Certification
Okawabata Apartment Communities ((i)River Point Tower, (ii) Park Side Wings, (iii) Pier West House, (iv) Okawabata Parking)Location

11-6, Tsukuda 1-chome, Chuo-ku, Tokyo; etc.

Site area

30,291.75m2

Completion(i): March 1989(iii): April 1988

Number of stories(i): 40 stories with 2 underground stories(ii): 14 stories with 2 underground stories(iii): 2 stories with 1 underground story(iv): 3 underground stories

Gross floor area(i): 42,177.83m2(iii): 847.27m2

Certification rank

Properties with excellent
environmental & social awareness

Location

2-39, Toyosu 1-chome, Koto-ku, Tokyo

Site area

7,073.96m2 ㎡Completion

March 2008

Number of stories

20 stories with 1 underground story

Gross floor area

34,805.76m2 ㎡

Certification rank

Properties with exceptionally highenvironmental & social awareness(ii): July 1988,(iv): March 1989(ii): 15,737.63m2(iv): 32,137.93m2

Park Axis Toyosu

In April 2017, we established a new page on our website introducing sustainability initiatives.

http://www.naf-r.jp/english/profile/3-4.html
8

Portfolio Summary (As of February 28, 2017)
No.
1

Name
Okawabata Apartment Communities

Location
Chuo-ku, Tokyo

Acquisition Price(Yen in millions)Portfolio Share(%)

Rentable Area(m2)

30,816

10.4

43,812.41(Note 1)PML
(Note2)(%)

Rentable Units
544

River Point Tower

1.8

Park Side Wings

2.7

Pier West House

2.7

Okawabata Parking

1.7

2Park Axis Gakugei Daigaku

Setagaya-ku, Tokyo

1,760

0.6

2,437.66

64

5.0

4

Park Axis Shibuya Jinnan

Shibuya-ku, Tokyo

3,230

1.1

2,766.62

75

4.1

5

Park Axis Aoyama Kotto DoriMinato-ku, Tokyo

1,730

0.6

1,537.24

40

4.5

6

Park Axis Kagurazaka Stage

Shinjuku-ku, Tokyo

1,400

0.5

1,891.05

59

3.0

7

Park Axis Shirokanedai

Minato-ku, Tokyo

5,140

1.7

4,704.44

99

4.2

8

Park Axis Bunkyo Stage

Bunkyo-ku, Tokyo

4,440

1.5

6,078.93

154

3.6

9

Park Axis Tsukishima

Chuo-ku, Tokyo

930

0.3

1,383.99

30

3.2

10

Park Axis Otsuka

Toshima-ku, Tokyo

1,655

0.6

2,606.37

52

2.4

11

Park Axis Minami Azabu

Minato-ku, Tokyo

3,939

1.3

3,938.14

64

3.0

13

Park Axis Nihonbashi Stage

Chuo-ku, Tokyo

7,557

2.5

10,025.40

184 residential, 1 retail, etc.

4.5

14

Park Axis Hamamatsucho

Minato-ku, Tokyo

2,025

0.7

2,426.45

80

3.3

15

Park Axis Hongo no Mori

Bunkyo-ku, Tokyo

2,910

1.0

3,317.94

86 residential, 1 retail, etc.

4.0

16

Park Axis Tameike Sanno

Minato-ku, Tokyo

2,860

1.0

2,710.69

70

3.5

17

Park Axis Roppongi Hinokicho Koen

Minato-ku, Tokyo

2,170

0.7

2,054.46

46

5.8

18

Park Axis Ochanomizu Stage

Bunkyo-ku, Tokyo

9,710

3.3

12,025.25

324

3.9

19

Park Axis Okachimachi

Taito-ku, Tokyo

1,070

0.4

1,621.73

42

4.0

20

Park Cube Hongo

Bunkyo-ku, Tokyo

1,760

0.6

2,160.12

60

3.9

21

Park Cube Kanda

Chiyoda-ku, Tokyo

2,454

0.8

3,194.59

95

2.4

22

Park Cube Ichigaya

Shinjuku-ku, Tokyo

1,949

0.7

2,288.46

53

2.9

23

Park Cube Asakusa Tawaramachi

Taito-ku, Tokyo

2,508

0.8

4,012.68

76

2.8

24

Park Cube Ueno

Taito-ku, Tokyo

2,233

0.8

3,041.61

91

2.8

28

Park Cube Ikebukuro Kanamecho

Toshima-ku, Tokyo

1,608

0.5

1,886.82

65

3.8

29

Park Axis Meguro Honcho

Meguro-ku, Tokyo

1,810

0.6

1,884.77

60

5.8

30

Park Axis Shin Itabashi

Itabashi-ku, Tokyo

3,430

1.2

4,395.99

152
3.4

East

3.3

West
31

Park Axis Akihabara

Chiyoda-ku, Tokyo

1,200

0.4

1,346.07

41

3.3

32

Park Axis Toyocho

Koto-ku, Tokyo

3,950

1.3

33

Park Axis Takinogawa

Kita-ku, Tokyo

1,820

0.6

5,412.40

140

5.8

2,924.75

48 residential, 1 retail, etc.

34

Park Axis Asakusabashi

Taito-ku, Tokyo

2,717

4.0

0.9

3,400.78

78 residential, 1 retail, etc.

38

Park Axis Nihonbashi Hamacho

Chuo-ku, Tokyo

3.2

5,540

1.9

6,999.83

118

4.2

39

Park Cube Yoyogi Tomigaya

41

Park Axis Monzen Nakacho

Shibuya-ku, Tokyo

1,975

0.7

1,929.10

38

5.8

Koto-ku, Tokyo

1,700

0.6

1,886.39

55

42

5.1

Park Cube Itabashi Honcho

Itabashi-ku, Tokyo

4,170

1.4

5,317.07

165 residential, 1 retail, etc.

2.9

43

Park Cube Gakugei Daigaku

Meguro-ku, Tokyo

910

0.3

957.88

24

6.8

44

Park Cube Oimachi

Shinagawa-ku, Tokyo

1,440

0.5

1,511.12

65

3.2

46

Park Axis Nishigahara

Kita-ku, Tokyo

840

0.3

1,435.83

46

2.4

47

Park Axis Kinshicho

Sumida-ku, Tokyo

1,448

0.5

2,288.13

65

4.2

48

Park Axis Tatsumi Stage

Koto-ku, Tokyo

7,464

2.5

16,474.06

299 residential, 1 retail, etc.

5.1

9

No.

Name

Location

Acquisition Price(Note 1)

(Yen in millions)Portfolio Share(%)

Rentable Area
(m2)

PML
(Note2)(%)

Rentable Units

51

Park Axis Kameido

Koto-ku, Tokyo

2,359

0.8

3,986.78

118

5.6

52

Park Axis Honancho

Nakano-ku, Tokyo

745

0.3

1,231.08

31

3.0

53

Park Axis Itabashi

Kita-ku, Tokyo

1,448

0.5

2,567.96

64

5.3

54

Park Axis Oshiage

Sumida-ku, Tokyo

1,193

0.4

2,121.29

57 residential, 1 retail, etc.

4.9

55

Park Axis Takadanobaba

Toshima-ku, Tokyo

1,222

0.4

1,463.25

36 residential, 1 retail, etc.

2.7

59

Park Axis Toyosu

Koto-ku, Tokyo

14,3004.8

25,537.94

401 residential, 2 retail, etc.

3.9

60

Park Axis Hatchobori

Chuo-ku, Tokyo

1,760

0.6

2,416.29

63 residential, 1 retail, etc.

3.2

61

Park Axis Itabashi Honcho

Itabashi-ku, Tokyo

987

0.3

2,048.31

66

4.0

62

Park Axis Sumiyoshi

Sumida-ku, Tokyo

1,006

0.3

1,785.72

60

7.4

63

Park Cube Yotsuya Sanchome

Shinjuku-ku, Tokyo

2,749

0.9

3,599.82

130

5.1

64

Park Cube Hatchobori

Chuo-ku, Tokyo

4,200

1.4

5,191.86

118 residential, 2 retail, etc.

2.4

68

Park Axis Kamata Ichibankan

Ota-ku, Tokyo

1,069

0.4

1,721.28

63

6.7

70

Park Axis Taito Negishi

Taito-ku, Tokyo

672

0.2

1,283.13

40

4.2

72

Park Axis Komagome

Toshima-ku, Tokyo

1,389

0.5

1,979.51

39 residential, 1 retail, etc.

2.5

74

Park Axis Itabashi Honcho Nibankan

Itabashi-ku, Tokyo

1,859

0.6

3,661.58

99

3.1

75

Shibaura Island Air Tower (Note3)

Minato-ku, Tokyo

7,905

2.7

17,646.33

270 residential, 2 retail, etc.

Air Tower

1.9

Air Terrace

7.5

84

Park Cube Higashi Shinagawa

Shinagawa-ku, Tokyo

6,060

2.0

10,636.67

201

3.5

86

Park Cube Sasazuka

Shibuya-ku, Tokyo

2,200

0.7

2,416.00

92 residential, 1 retail, etc.

3.4

88

Park Axis Higashi Jujo

Kita-ku, Tokyo

1,700

0.6

2,893.54

70 residential, 1 retail, etc.

3.1

91

Park Cube Heiwadai

Nerima-ku, Tokyo

1,204

0.4

2,656.00

34

2.8

92

Park Cube Meguro Tower

Meguro-ku, Tokyo

9,000

3.0

12,367.62

193 residential, 1 retail, etc.

2.2

93

Park Cube Nihonbashi Suitengu

Chuo-ku, Tokyo

2,711

0.9

4,235.33

77

4.4

94

Park Cube Ginza East

Chuo-ku, Tokyo

2,269

0.8

3,358.63

77

3.0

95

Park Cube KayabachoChuo-ku, Tokyo

1,105

0.4

1,695.06

27 residential, 1 retail, etc.

3.2

96

Park Cube Honjo Azumabashi

Sumida-ku, Tokyo

1,252

0.4

2,241.63

45

4.6

97

Park Axis Kiyosumi Shirakawa

Koto-ku, Tokyo

696

0.2

1,159.84

36

3.7

98

Park Axis Asakusabashi Nichome

Taito-ku, Tokyo

1,079

0.4

1,569.00

48

3.4

99

Park Axis Nishi Sugamo

Kita-ku, Tokyo

1,439

0.5

2,326.32

56

3.9

100

Park Axis Ueno

Taito-ku, Tokyo

1,389

0.5

1,992.29

59

3.3

101

Park Axis Akihabara East

Taito-ku, Tokyo

1,369

0.5

1,890.20

58

3.8

103

Park Axis KayabachoChuo-ku, Tokyo

1,809

0.6

2,355.07

72

3.0

104

Park Axis Kinshicho Shinsui Koen

Sumida-ku, Tokyo

1,369

0.5

2,085.62

60

7.5

105

Park Cube Kasuga Andozaka

Bunkyo-ku, Tokyo

2,670

0.9

3,581.09

68

2.7

106

Park Cube Kameido

Koto-ku, Tokyo

3,020

1.0

4,442.09

121 residential, 1 retail, etc.

5.5

108

Park Axis Shin Okachimachi East

Taito-ku, Tokyo

1,299

0.4

1,847.01

49

3.0

110

Park Axis Nihonbashi Honcho

Chuo-ku, Tokyo

1,469

0.5

1,808.12

49

2.5

111

Park Cube Nishigahara Stage

Kita-ku, Tokyo

4,110

1.4

19,693.35

357 residential, 1 retail, etc.

2.5

112

Park Cube Atagoyama Tower

Minato-ku, Tokyo

8,650

2.9

8,389.91

165

2.4

113

Park Axis Shibaura

Minato-ku, Tokyo

1,045

0.4

1,273.60

42

5.2

114

Park Axis Asakusa Kuramae

Taito-ku, Tokyo

1,095

0.4

1,456.35

45

3.0

115

Park Axis Kamata Station Gate

Ota-ku, Tokyo

4,144

1.4

4,582.72

157 residential, 1 retail, etc.

3.2

116

Park Axis Kinshicho Residence

Sumida-ku, Tokyo

1,251

0.4

1,793.33

56

4.0

117

Park Axis Oshiage Sumida Koen

Sumida-ku, Tokyo

1,055

0.4

1,610.49

49

5.2

120

Park Axis Magome Residence

Ota-ku, Tokyo

1,450

0.5

1,621.94

55

9.6

121

Park Axis Higashi Ueno

Taito-ku, Tokyo

1,460.10

45

4.0Tokyo 23 Wards Total

1,250

0.4

250,29184.1

10367,768.27 7,965 residential, 23 retail, etc.

Acquisition Price(Yen in millions)

26

Park Cube Keio Hachioji II

Hachioji-shi, Tokyo

1,130

0.4

3,082.32

47 residential, 1 retail, etc.

40

Park Axis Nishi Funabashi

Funabashi-shi, Chiba

1,020

0.3

2,074.35

55

3.2

66

Park Axis Yokohama Idogaya

Yokohama-shi, Kanagawa

1,419

0.5

2,706.59

99 residential, 1 retail, etc.

6.3

67

Park Axis Chiba Shinmachi

Chiba-shi, Chiba

1,679

0.6

3,318.15

77 residential, 7 retail, etc.

1.9

69

Park Axis Chiba

Chiba-shi, Chiba

970

0.3

2,270.32

91

2.3

85

Park Cube Kita Matsudo

Matsudo-shi, Chiba

1,200

0.4

2,358.66

108 residential, 1 retail, etc.

1.6

Name

Location(Note 1)

Rentable Area
(m2)

PML
(Note2)(%)

Portfolio Share
(%)

No.

Rentable Units

4.0

87

Park Cube Musashi Kosugi

Kawasaki-shi, Kanagawa

2,250

0.8

3,057.36

136

3.3

102

Park Axis Yokohama Tanmachi Koen

Yokohama-shi, Kanagawa

1,119

0.4

1,682.46

63

4.1

109

Park Axis Yokohama Yamashitacho

Yokohama-shi, Kanagawa

8.2

Greater Tokyo Total

1,539

0.5

2,325.92

70 residential, 1 retail, etc.

12,326

4.1

22,876.13

746 residential, 11 retail, etc.

27

Park Axis Meieki Minami

Nagoya-shi, Aichi

2,440

0.8

5,565.13

169

3.7

35

Park Axis Marunouchi

Nagoya-shi, Aichi

1,920

0.6

3,821.75

98 residential, 1 retail, etc.

2.9

36

Park Axis Ropponmatsu

Fukuoka-shi, Fukuoka

1,515

0.5

3,473.67

111 residential, 1 retail, etc.

2.5

37

Park Axis Hakataeki Minami

Fukuoka-shi, Fukuoka

1,890

0.6

4,668.29

176 residential, 1 retail, etc.

3.0

45

Park Axis Naka Gofukumachi

Fukuoka-shi, Fukuoka

742

0.2

2,707.88

112

2.9

49

Park Axis Shirakabe

Nagoya-shi, Aichi

1,547

0.5

4,735.89

86

3.0

50

Park Axis Sendai

Sendai-shi, Miyagi

2,320

0.8

8,843.17

204

2.8

56

Park Axis Hakata Minoshima

Fukuoka-shi, Fukuoka

960

0.3

3,461.85

112

2.7

57

Park Axis Takamiya Higashi

Fukuoka-shi, Fukuoka

605

0.2

2,289.21

70

5.1

58

Park Axis Sapporo Shokubutsuen Mae

Sapporo-shi, Hokkaido

1,650

0.6

7,845.01

146

1.1

65

Park Axis Shin Sapporo

Sapporo-shi, Hokkaido

827

0.3

3,729.05

84 residential, 1 retail, etc.

2.4

71

Park Axis Esaka Hiroshibacho

Suita-shi, Osaka

2,369

0.8

4,309.24

130

4.9

73

Park Axis Utsubo Koen

Osaka-shi, Osaka

2,399

0.8

4,952.45

133

8.6

107

Park Cube Kitahama

Osaka-shi, Osaka

4,683.33

138

5.7

1,970

0.7

Other Major Cities Total

23,1547.8

65,085.92 1,769 residential, 4 retail, etc.

Rental Apartments Total

455,730.32 10,480 residential, 38 retail, etc.

285,771

96.1

76

Dormy Ashiya

Ashiya-shi, Hyogo

928

0.3

2,826.00

140

6.6

77

Kawaijuku Kyoto Gakushin Ryo

Kyoto-shi, Kyoto

991

0.3

2,785.40

134

12.9

78

Sundai Horikawa Ryo

Kyoto-shi, Kyoto

916

0.3

2,043.32

113

8.8

79

Dormy Rakuhoku

Kyoto-shi, Kyoto

374

0.1

1,035.00

69

8.8

80

Rikkyo University International
Dormitory (RUID) Shiki

Shiki-shi, Saitama

1,478

0.5

2,293.20

126

3.0

81

Dormy Naka Itabashi

Itabashi-ku, Tokyo

1,041

0.3

1,911.00

105

5.5

82

Philosophia Nishidai

Itabashi-ku, Tokyo

1,249

0.4

2,184.00

120

5.3

83

Dormy Musashi Kosugi

Kawasaki-shi, Kanagawa

1,152

0.4

1,996.47

111

7.3

89

Artis Sendai Kakyoin

Sendai-shi, Miyagi

540

0.2

1,564.40

60

3.0

90

Artis Sendai Kimachi DoriSendai-shi, Miyagi

1,160

0.4

4,063.47

142

2.7

118

Medical Home Granda Sangen Jaya
(Land with leasehold interest)

Setagaya-ku, Tokyo

735

0.2

—

—

—

119

Dormy Nishi Ogikubo

Suginami-ku, Tokyo

1,100

0.4

1,181.91

71

8.8

Hospitality Facilities Total

11,664

3.9

23,884.17

1,191Grand Total

297,435

100.0

479,614.49

11,709

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, 117 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.

11

Tokyo 23 Wards

87 properties

Adachi-ku
Itabashi-ku
Kita-ku
Nerima-ku

Katsushika-ku

Arakawa-ku
Toshima-ku
Taito-ku Sumida-ku

Bunkyo-ku
Nakano-ku
Shinjuku-ku

Suginami-ku

Edogawa-ku

Chiyoda-ku
Inperial
PalaceKoto-ku

Shibuya-ku
Minato-ku

Setagaya-ku

Meguro-ku

Chuo-ku

5km

10km

Shinagawa-ku

Ota-kuRental apartments

Greater Tokyo

11 properties

Other Major Cities

20 properties

Hospitality Facilities

Portfolio as of February 28, 201712

Management’s Discussion and Analysis
Summary of Selected Financial Data
Yen in millions(Except per unit data or
where otherwise indicated)

22nd Period

September 1, 2016
to February 28, 2017

Total revenues (Note 2)
Rental revenues¥

10,65021st Period

March 1, 2016
to August 31, 2016¥

10,621

U.S. dollars in thousands(Note 1)
(Except per unit data)

20th Period

September 1, 2015
to February 29, 2016¥

10,43322nd Period

September 1, 2016
to February 28, 2017$94,616

10,21010,14810,05290,707

Other revenues related to property leasing

382

473

380

3,393

Gain on sale of investment properties

58

—

—

515

Operating expenses

5,932

6,053

5,901

52,700

Income before income taxes

4,139

3,940

3,894

36,771

Net income (a)

4,138

3,939

3,893

36,762

Funds from operations (Note 3)

6,137

6,005

5,967

54,522

Net operating income from property leasing activities (Note 3)

7,854

7,745

7,723

69,776

Total amount of cash distribution (b)

4,083

3,939

3,893

36,273

Depreciation and amortization

2,056

2,066

2,073

18,265

231

175

240

2,052

Total assets (c)293,446

295,463

293,684

2,607,018

Interest-bearing debt

147,000

149,000

147,500

1,305,970

Total net assets (d)139,812

139,612

139,567

1,242,110

Total number of common units issued (Units) (e)484,522484,522484,522

Net assets per unit (Yen/$) (d) / (e)288,557

288,145

288,051

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

8,428

8,130

8,036

74.87

Funds from operations per unit (Yen/$) (Note 3)

12,666

12,394

12,315112.52

Capital expenditures

ROA (Note 4)(Annual rate)
ROE (Note 4)(Annual rate)

1.4%

1.3%

1.3%

(2.8%)(2.7%)(2.7%)

3.0%

2.8%

2.8%

(6.0%)(5.6%)(5.6%)LTV (Loan-to-value) ratio (Note 3)

50.1%

50.4%

50.2%

Capital ratio (d) / (c)

47.6%

47.3%

47.5%
100.0%

Payout ratio (b) / (a) (Note 5)

98.7%

100.0%

Number of days in the period

181

184

182

Number of investment properties (Note 6)

118

119

116

Total rentable area (m2)479,614

480,708

476,444

The occupancy rate at the end of the period (Note 6)

97.5%

96.5%

97.0%

2,563.58

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥112.56 = U.S.$1.00, the approximate exchange rate as of February 28, 2017.
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 February 28, 2017: Amount for the period ÷ Actual days in the period (181) x 365 days
		 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
		 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.

13

Overview
Investment Environment and Operating Performance
During the six months ended February 28, 2017 (the “22nd Period”), the Japanese economy is on a moderate recovery due tofactors such as an improvement in corporate profits and the employment situation, although there was a pause in private
consumption. Looking ahead, the economy is expected to recover, supported by effects of the policies, while employment andincome situation is improving. At the same time, attention should be given to the uncertainty in overseas economies and the effectsof fluctuations in the financial and capital markets.
In the J-REIT market, three new J-REITs listed their shares while capital increases through public offerings by existing listed JREITs were brisk. From the beginning of the current fiscal period, the Tokyo Stock Exchange REIT index was continuing adownward trend. This trend turned upward around the time of the US Presidential Election. However, the trend began softening
since the start of the calendar year, and the index finished on 1,817.36 points at the end of the period (February 28, 2017).
In the residential rental market, occupancy rates remained high at rental apartments held by J-REITs, with an ongoing trend of
gradual increases 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.
Concerning the real estate trading market, competition for property acquisitions remains overheated. Therefore, the acquisition
environment remains challenging due to factors such as acquisition and disposition prices for quality rental real estate remaininghigh.
No properties were acquired during the period under review.
NAF sold Park Axis Shibuya in December 2016 (acquisition price in August 2006: ¥1,282 million, sale price: ¥1,270 million).
As a result, NAF’s portfolio as of February 28, 2017 consisted of 118 properties valued at ¥297,435 million on an acquisition
price basis.
NAF has chosen Mitsui Fudosan Residential Lease Co., Ltd. as property management company (below, “PM”) on managementof NAF’s rental apartments portfolio. The company and the asset management company collaborate in the management ofproperties NAF owns with the aim of implementing effective management and operational activities based on regional
characteristics and the individual features of each property. These include efforts such as speedy management and operations by
the PM by applying the portfolio management system, the tenant recruiting activities suited to the circumstances 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 common areas and private areas at Okawabata Apartment
Communities. Changes implemented at other properties include reviews of contract capacity for electricity through the introductionof 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 February 28, 2017 remained at a high level of
97.5 percent.
Consequently, for the 22nd Period, total revenues were ¥10,650 million, operating income was ¥4,717 million, income before
income taxes was ¥4,139 million and net income was ¥4,138 million.

14

Changes in Assets, Liabilities and Net Assets
Total assets as of February 28, 2017 decreased from August 31, 2016 by ¥2,016 million to ¥293,446 million. Total current
assets increased by ¥981 million to ¥9,499 million and total investment properties net of accumulated depreciation compared with
August 31, 2016 decreased by ¥2,996 million to ¥282,235 million as a result of NAF’s sale of Park Axis Shibuya during the 22nd
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, fixed-rate loans in its procurement of funds andrepaid ¥2,000 million of its loans.
As a result, at the end of the period, total interest-bearing debt amounted to ¥147,000 million, the long-term debt ratio was 95.9
percent, the long-term, fixed-rate debt ratio was 94.9 percent, and the loan-to-value (LTV) ratio was 50.1 percent. The averageannual current maturity of long-term interest-bearing debt was 4.2 years and the number of financial institutions was 22.
Furthermore, the weighted average interest rate at the end of the period was 0.76 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 ¥139,812 million as of February 28, 2017. Unitholders’ capital was unchanged at ¥135,603 million, andretained earnings increased to ¥4,208 million from ¥4,009 million as of August 31, 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 22nd Period, NAF distributed
the majority of the balance of retained earnings, excluding a ¥55 million provision of reserve for reduction entry pursuant to Article66-2 of the Act on Special Measures Concerning Taxation. As a result, cash distributions totaled ¥4,083,551,416 or ¥8,428 per unit.
Yen in thousands, except per unit amounts

22nd Period

21st Period

20th Period

September 1, 2016
to February 28, 2017

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

Retained earnings
Reserve for reduction entry
Undistributed earnings¥4,138,710
55,000158¥3,939,329—
165¥3,893,706—
87

Total cash distribution

4,083,551

3,939,163

3,893,618(Per unit)
Distribution of retained earnings(Per unit)
Cash distribution in excess of retained earnings(Per unit)

8,428
4,083,551
8,428
—
—

8,130
3,939,163
8,130
—
—

8,036
3,893,618
8,036
—
—

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 February 28, 2017, 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.

15

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 3September 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 6

Public offering

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

Public offering

37,500

193,678

21,539102,641

Note 7

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:
22nd Period
September 1, 2016 to
February 28, 2017

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

(Yen)

(Yen)

(Yen)

(Yen)

(Yen)

High

¥511,000¥488,000¥448,000¥481,000¥500,000

Low

439,000

408,000

364,000

396,500

370,000

Borrowings
Borrowings from financial institution as of February 28, 2017 are shown below.
Short-term loans
LenderBalance(Yen in millions)Interest rate
(Note 1)

Date of maturity(Note 2)The 77 Bank, Ltd.

¥2,0000.1%

March 31, 2017

Shinkin Central Bank

2,000

0.1%

March 31, 2017

Mizuho Bank, Ltd.

2,000

0.1%

March 31, 2017

Total short-term loans¥6,000

16

Repayment
methodBulletpayment

Use of
funds

Notes

(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.

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
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
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
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
1.5%
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
1.5%
April 19, 2018
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
0.4%
January 29, 2027
0.6%
April 27, 2018
0.8%
January 8, 2020
0.6%
April 28, 2020
0.4%
February 26, 2027

Date of maturity

17

Repayment
methodUse of
funds

Notes

Bulletpayment(Note 3)

Unsecured/
unguaranteed/pari passu(Note 4)

Lender

Mitsubishi UFJ Trust andBanking Corporation

The Norinchukin Bank
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 INSURANCECOMPANYThe Iyo Bank, Ltd.
Total long-term loans
Total loans

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

Date of maturity¥ 3,000
2,000
4,000
1,000
3,000
3,000
3,000
2,000
3,000
3,000
2,000
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%
0.7%
0.7%
1.0%
0.8%
0.9%
0.8%
0.5%
0.6%
0.7%
0.4%
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 25, 2017
March 16, 2020
September 15, 2020
August 23, 2021
March 7, 2022
September 7, 2022
May 31, 2022
October 1, 2021
October 3, 2022
November 30, 2020
December 30, 2021
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

1,000
¥ 141,000¥ 147,000

0.1%

March 31, 2022

Repayment
methodUse of
funds

Notes

Bulletpayment(Note 3)

Unsecured/
unguaranteed/pari passu(Note 4)

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 February 28, 2017 to March 30, 2017.
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)

Amount1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥17,000¥18,000¥17,500¥20,000

Bonds
None applicable18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(September 1, 2016 to
February 28, 2017)

Cumulative
amount paid

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

¥241

¥—

¥—

Okawabata Apartment
Renovation of common From March 2017
Communities, Other Properties use areas, etc.
to August 2017

57

—

—

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NAF posted ¥231 million in capital expenditures
together with ¥420 million for repairs and maintenance expenses.
Name of property

Objective

PeriodExpenditure(Yen in millions)Okawabata Apartment
Communities

Renovation of rentable areas, etc.

From September 2016
to February 2017

¥ 71

Okawabata Apartment
Communities, Other Properties

Renovation of common use areas, etc.

From September 2016
to February 201735

Okawabata Apartment
Communities, Other Properties

Renewal of common use area equipment, etc., From September 2016
other construction
to February 2017

124

Total

¥ 231

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 February 28, 2017

As of August 31, 2016

As of February 29, 2016

Reserve balance at the beginning of the period
Amount accumulated in the current period
Withdrawal from reserves in the current period¥2,293512238¥2,139332
179¥1,979425
265

Amount carried forward¥2,567¥2,293¥2,13919

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

22nd Period

21st Period

20th Period

September 1, 2016
to February 28, 2017

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

¥ 788
14
30
7
12
285

¥ 766
14
30
7
12
279

¥ 754
14
30
7
12
298

¥1,138¥ 1,111¥ 1,117

Asset 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
None applicable

2. Fees Paid for the Period from September 1, 2016 to February 28, 2017
Description of transactions with related parties (Note 1)
Total fees paid (A)(Yen in millions)Category

Property management fees

¥702

Building management fees

380

Operation management fees

4

Leasing-related service fees, etc.

160

Amount ofpayment (B)(Yen in millions)

B/A(Note 2)

Mitsui Fudosan Residential Lease Co., Ltd.

¥702

100.0%

Mitsui Fudosan Residential Lease Co., Ltd.

376

98.8%

4

1.2%

Mitsui Fudosan Investment Advisors, Inc.

4

100.0%RESIDENT FIRST CO., LTD.

18

11.3%

Mitsui Home Estate Co., Ltd.

0

0.6%

Paid toMitsui Fudosan Realty Co., Ltd.

Mitsui Fudosan Realty Co., Ltd.

0

0.2%

Mitsui Fudosan Realty Kyushu Co., Ltd.

0

0.2%

Mitsui Fudosan Realty Sapporo Co., Ltd.

0

0.0%

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

Item

Mitsui Fudosan Reform Co., Ltd.

¥10

Repair and maintenance costs

Accommodation First Co., Ltd.

4

Repair and maintenance costs

MITSUI Designtec Co., Ltd.

2

Repair and maintenance costs

Mitsui Fudosan Facilities 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.

20

Financial Statements

Balance Sheets
Nippon Accommodations Fund Inc.
As of February 28, 2017 and August 31, 2016

U.S. dollars in thousands
Yen in millions

AssetsCurrent assets:
Cash and cash equivalents (Note 12)
Rent receivables
Other current assets(Note 1)

22nd Period

21st Period

22nd Period

As of February 28, 2017

As of August 31, 2016

As of February 28, 2017

¥

8,050
1,404
44

¥

7,092
1,369
56

$

71,517
12,473390

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

9,499

8,517

84,390179,714
133,669(31,148)

180,736
133,695(29,200)

1,596,606
1,187,535(276,723)

Total investment properties
Other assets

282,235
1,711

285,232
1,713

2,507,418
15,200¥ 293,446¥ 295,463$ 2,607,018

¥

¥

$

Total Assets
Liabilities and Net Assets
Liabilities
Current liabilities:
Short-term loans (Note 4, 12)Long-term loans due within one year (Note 4, 12)
Accounts payable
Rent received in advanceAccrued expenses and other liabilities

6,000
18,500
1,007
1,723
302

7,000
14,500
1,254
1,705
293

53,304
164,356
8,946
15,307
2,683

Total current liabilities
Long-term liabilities:
Long-term loans (Note 4, 12)
Tenant security deposits (Note 12)27,53324,752

244,607

122,500
3,600

127,500
3,597

1,088,308
31,982

Total long-term liabilities

126,100

131,097

1,120,291

Total Liabilities¥ 153,634¥ 155,850$ 1,364,907

Net Assets
Unitholders’ capital (Note 5)
Retained earnings¥ 135,603
4,208¥ 135,603
4,009$ 1,204,717
37,384

Total Net Assets¥ 139,812¥ 139,612$ 1,242,110

Total Liabilities and Net Assets¥ 293,446¥ 295,463$2,607,018

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

21

Statements of Income
Nippon Accommodations Fund Inc.
September 1, 2016 to February 28, 2017, March 1, 2016 to August 31, 2016 and September 1, 2015 to February 29, 2016

U.S. dollars in thousands
Yen in millions

Revenues (Note 6):
RentalOther revenues related to property leasing
Gain on sale of investment properties (Note 7)
Total revenues(Note 1)

22nd Period

21st Period

20th Period

22nd Period

September 1, 2016
to February 28, 2017

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

September 1, 2016
to February 28, 2017

¥ 10,210
382
58¥ 10,148473—¥ 10,052
380—$ 90,707
3,393
515

10,65010,621

10,433

94,616

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

1,133
596
420
587
2,056
788
350

1,126
597
505
646
2,066
766
345

1,102
587
418
602
2,073
754
363

10,065
5,294
3,731
5,214
18,265
7,000
3,109

Total operating expenses

5,932

6,053

5,901

52,700Operating Income

4,717

4,567

4,531

41,906

Interest and other income
Interest expense
Other expenses

4
(572)
(9)

6
(619)
(14)

5
(628)
(15)

35
(5,081)(79)

Income before Income Taxes

4,139

3,940

3,894

36,77100

0

0¥ 4,138¥ 3,939¥ 3,893$ 36,762

Current and deferred income taxes (Note 9)
Net Income

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

22

Statements of Changes in Net Assets
Nippon Accommodations Fund Inc.
For the period from September 1, 2015 to February 28, 2017

Yen in millions

Balance as of September 1, 2015
Cash distribution
Net income
Balance as of February 29, 2016
Cash distribution
Net income
Balance as of August 31, 2016
Cash distribution
Net income
Balance as of February 28, 2017

Number of
Units(Note 5)Unitholders’CapitalRetained
Earnings

Total

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————(3,939)4,138(3,939)4,138

484,522¥ 135,603¥ 4,208¥ 139,812

U.S. dollars in thousands (Note 1)

Balance as of August 31, 2016
Cash distribution
Net income
Balance as of February 28, 2017
The accompanying notes to financial statements are an integral part of these statements.

23

Number of
Units(Note 5)Unitholders’CapitalRetained
Earnings

Total

484,522$1,204,717$ 35,616$1,240,334

—
—

—
—

(34,994)
36,762(34,994)
36,762484,522$1,204,717$ 37,384$1,242,110

Statements of Cash Flows
Nippon Accommodations Fund Inc.
September 1, 2016 to February 28, 2017, March 1, 2016 to August 31, 2016 and September 1, 2015 to February 29, 2016

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

22nd Period

21st Period

20th Period

22nd Period

September 1, 2016
to February 28, 2017

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

September 1, 2016
to February 28, 2017

¥ 4,139
2,056¥ 3,940
2,066¥ 3,894
2,073$ 36,771
18,265

4
—
572
(35)
(246)

4
2
619
31
281

4
3
628
(60)
(215)

35
—
5,081
(310)
(2,185)

17

1

23

151

1,210
(586)
36

—
(619)
(8)

—
(640)
28

10,749(5,206)319

Net Cash Provided by Operating Activities

7,170

6,318

5,739

63,699Cash Flows from Investing Activities:
Payments for purchases ofinvestment properties
Purchase of intangible assets
Proceeds from tenant security deposits
Payments for tenant security deposits
Other, net

(272)
—
344
(340)
(3)

(4,220)
(0)
426
(389)
(11)

(304)
(0)
322
(334)
(3)

(2,416)—
3,056(3,020)(26)

Net Cash Used in Investing Activities

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 advance
Decrease in investment properties
due to sales
Cash payments of interest expense
Other, net(272)(4,196)(319)(2,416)

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
Redemption of bonds
Payment of distribution

40,000(41,000)
5,000(6,000)—(3,939)42,000(40,000)
6,500—(7,000)(3,894)30,000(30,000)—(2,000)—(3,722)355,366(364,250)
44,420(53,304)—(34,994)

Net Cash Used in Financing Activities(5,939)(2,394)(5,722)(52,762)

958

(272)

(301)

8,511

7,092

7,364

7,666

63,006¥ 8,050¥ 7,092¥ 7,364$ 71,517

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

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

24Notes to Financial Statements
Nippon Accommodations Fund Inc.
September 1, 2016 to February 28, 2017 , March 1, 2016 to August 31, 2016, and September 1, 2015 to February 29, 2016

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 February 28, 2017, NAF had ownership and beneficiary interests in 118 properties containing approximately 479,614 square
meters of rentable space. As of February 28, 2017, NAF had leased approximately 467,863 square meters to tenants. The occupancy rate
for the properties was approximately 97.5%.

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 February 28, 2017, which was ¥112.56 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.

25

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 28, 2017.

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 February 28, 2017 and August 31, 2016 consisted of the following:
Yen in millions

As of February 28, 2017Land
Land in trust
Land including trust total

Acquisition
costs

Accumulated
depreciation¥ 122,930
56,784¥As of August 31, 2016

Book value

Acquisition
costs

Accumulated
depreciation——¥ 122,930
56,784¥ 122,922
57,813¥

Book value——¥ 122,922
57,813

179,714—

179,714

180,736—

180,736

Buildings and improvements
Buildings and improvements in trust

91,07635,844(18,652)(8,532)

72,42327,31191,00136,010(17,321)(8,116)

73,68027,893

Buildings and improvements
including those in trust total

126,920(27,185)

99,735127,012(25,437)

101,574

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
1,946
1,090
1
1,119
556
398
7

(748)
(1,182)
(937)
—
(353)
(423)
(317)
—

880
763
152
1
766
132
80
7

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

Other investment properties total
Total

6,748

(3,963)

2,785

6,683

(3,762)2,921¥ 313,384¥ (31,148)¥ 282,235¥ 314,432¥ (29,200)¥ 285,232

26

Note 4

Short-Term Loans and Long-Term Debt

The annual interest rate on short-term loans as of February 28, 2017 was 0.1% and the rate as of August 31, 2016 was 0.1%.
Long-term debt consists of the following:
Yen in millions

As of February 28, 2017

Unsecured loans due 2017 to 2029 principallyfrom banks and insurance companies withinterest rates mainly ranging from 0.1% to 1.5%

As of August 31, 2016

¥141,000¥142,000¥141,000¥142,000

The annual maturities of long-term debt as of February 28, 2017 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¥17,000
18,00017,50020,00050,000

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 February 28, 2017.
Note 5Unitholders’ Capital

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

As of February 28, 2017

As of August 31, 2016

As of February 29, 2016

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

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

27

Note 6

Rental Revenues and Expenses

Rental revenues and expenses for the periods ended February 28, 2017, August 31, 2016 and February 29, 2016 were as follows:
Yen in millions

22nd Period

21st Period

20th Period

September 1, 2016
to February 28, 2017

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

¥ 9,738471¥ 9,674473¥ 9,581471

10,21010,14810,052

269
112

339
134

254
126

Revenues from Property Leasing:
Rental:Rental revenues
Facility charge
Subtotal
Other revenues related to property leasing:
Income from leasing rights, etc.
Miscellaneous income

382

473

380

Total revenues from property leasing

Subtotal

10,592

10,621

10,433

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

1,133
420
583
11
115
13
2,056
160
300

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

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

Total rental expenses
Operating income from property leasing activities
Note 7

4,794

4,942

4,784

¥ 5,797¥ 5,679¥ 5,649

Breakdown of Gain on Sale of Investment Properties

Gain on sale of investment properties for the periods ended February 28, 2017, August 31, 2016 and February 29, 2016 were as
follows:
Yen in millions

22nd Period

21st Period

20th Period

September 1, 2016
to February 28, 2017

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

Park Axis Shibuya
Revenues from sale of investment properties
Cost of investment properties sold
Other sales expenses¥ 1,270
1,210
0

¥

—
—
—

¥

—
—
—

Gain on sale of investment properties

¥

¥

—

¥

—

28

58

Note 8

LeasesNAF leases some of its investment properties to outside parties under non-cancelable operating leases. As of February 28, 2017 andAugust 31, 2016, future minimum rental revenues under the non-cancelable operating leases were as follows:
Yen in millions

As of February 28, 2017

Due within one year
Due after one year
Total
Note 9As of August 31, 2016

¥ 834
1,894

¥ 834
2,210

¥2,729¥3,045

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 February 28, 2017, August 31, 2016 and February 29, 2016, respectively. The following tablesummarizes the significant differences between the statutory tax rates and NAF’s effective tax rates for financial statement purposes.

Statutory effective tax rate
Deductible distributions paid
Others22nd Period

21st Period

20th Period

September 1, 2016
to February 28, 2017

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 201631.74%(31.31)(0.41)

32.31%(32.30)0.01

32.31%(32.31)
0.02

0.02%

0.02%

0.02%

Effective tax rate

The tax effects of significant temporary differences that resulted in net deferred tax assets or liabilities as of February 28, 2017, August
31, 2016 and February 29, 2016 were as follows:
Yen in thousands

As of February 28, 2017

As of August 31, 2016

As of February 29, 2016

Deferred tax assets:
Enterprise taxes
Total deferred tax assets

¥13
13

¥15
15

¥9
9

Net deferred tax assets

¥13

¥15

¥9

NAF was established as an investment corporation under the Investment Trust and Investment Corporation Act of Japan, and as longas an investment corporation distributes to its unitholders at least 90% of earnings available for dividends for a period and otherrequirements prescribed in 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 10Per Unit Information

Information about earnings per unit for the periods ended February 28, 2017, August 31, 2016 and February 29, 2016 and net assets
per unit as of February 28, 2017, August 31, 2016 and February 29, 2016 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

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

Net Assets per Unit

22nd Period

21st Period

20th Period

September 1, 2016
to February 28, 2017

March 1, 2016
to August 31, 2016

September 1, 2015
to February 29, 2016

¥8,541¥8,130¥8,035484,522484,522484,522

As of February 28, 2017

As of August 31, 2016

As of February 29, 2016

¥288,557¥288,145¥288,051

29

Note 11

Transactions with Related Parties(September 1, 2016 – February 28, 2017)(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)¥788(Note 2)

Accounts payable

¥837

¥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.

(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.

30

(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.

Note 12Financial Instruments(September 1, 2016 – February 28, 2017)

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 are primarily used for acquiring assets and to repay interest-bearing debt. NAF manages associated liquidity andinterest rate fluctuation risk in ways such as diversifying its credit sources and maturities, and by mainly using fixed-rate loans.
(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.

31

2. Estimated Fair Value of Financial Instruments
Book value, fair value and the difference between the two as of February 28, 2017 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

¥

8,050

¥

8,050

¥

—

¥

8,050

¥

8,050

¥

—

¥

6,000
18,500122,500¥

6,000
18,637
125,459

¥

—
137
2,959

¥ 147,000¥ 150,097¥ 3,097

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¥3,600

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 28, 2017
Yen in millions
Due within
one year

Cash and cash equivalents¥8,050

4. Repayment schedule for loans after February 28, 2017
Yen in millions
Due within
one year

Due after
one to two years

—

—

¥

—

Due after
four to five years¥—

Due after
five years¥ 6,000

Long-term loans

18,50017,00018,00017,50020,00050,000¥ 24,500¥ 17,000¥ 18,000¥ 17,500¥ 20,000¥ 50,00032¥

Due after
three to four years

Short-term loans
Total

¥

Due after
two to three years¥—

(March 1, 2016 – August 31, 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 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¥ 55,00033¥

Due after
three to four years

Short-term loans
Total

¥

Due after
two to three years¥—

Note 13

Investment and Rental Properties(September 1, 2016 – February 28, 2017)
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, 2016

Change during the 22nd Period

As of February 28, 2017

As of February 28, 2017

¥285,839¥(2,996)¥282,842¥328,981

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 22nd Period,” the main factors decreasing book value were ¥1,210 million for the sale of Park Axis Shibuya and depreciation.
3. “Fair value as of February 28, 2017” 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 28, 2017 is disclosed in Note 6, Rental
Revenues and Expenses.

(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.

Note 14Segment Information(September 1, 2016 – February 28, 2017)

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.

Operating revenues(Yen in millions)¥10,120

34

Related segment

Real estate leasing business(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.

(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.

Note 15

Operating revenues(Yen in millions)¥9,992Significant Subsequent Events

None applicable

35

Related segment

Real estate leasing businessIndependent Auditor’s Report36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

90,000300,000
200,000

69,95876,786

58,207

77,267
67,842

63,976

61,281

68,91749,655100,000

37,39133,09860,00030,00035,43500-100,000-30,000-200,000-60,000-300,000
In-migration (Left axis)

Out-migration (Left axis)

Net in-migration (Right axis)-90,000-400,000
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

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

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

50,00043,37140,00039,08431,88030,00026,51220,00023,707

21,71817,054

17,9942010

2011

25,382

24,532
20,863

20,582

10,000

0
2005

2006

2007

2008

2009

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

37

2012

2013

2014

2015

2016

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

Ap artment rent index (Tokyo metropolitan area)

130.0

Office rent index (Tokyo metropolitan area)

120.0
110.0
100.0

100.2

100.5

100.4

96.9

96.6

96.3

96.3

96.4

96.7

97.1

2010

2011

2012

2013

2014

2015

2016

100.0
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.

38

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 Act on Investment Trusts and Investment
Corporations. 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 Act on Investment Trusts andInvestment Corporations. 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 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.

39

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 the Act on
Investment Trusts and Investment Corporations and NAF’s
Articles of Incorporation and other internal rules in exercising
their responsibility to supervise the performance of theexecutive directors. In accordance with the current Articles ofIncorporation, 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 Act on Investment Trusts andInvestment Corporations 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
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.

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
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 Team40

Financial
Division
Corporate Operation
TeamInvestment Risk Management System
NAF itself is responsible for complying with the Act on
Investment Trusts and Investment Corporations 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 Act on Investment Trusts and Investment Corporations, 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 Ordinance for Enforcement of the Act on Investment Trusts andInvestment Corporations 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 Act on
Investment Trusts and Investment Corporations 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 Act on Investment Trusts andInvestment Corporations 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.

41

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.
In addition, pursuant to Article 117 of the Act on Investment Trusts and Investment
Corporations, 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 mattersentrusted to the Transfer Agent pursuant to the Agreement between NAF and theTransfer Agent are not included in the above matters set forth in (1) and (2).

Real estate information/ Mitsui Fudosan
advisory service
Residential Co., Ltd.
provider (Note)

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.

Real estate information
providerMitsui 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.

Property managementcompany

Mitsui Fudosan
Residential Lease Co.,Ltd.

In principle, MFAFM will entrust to Mitsui Fudosan Residential Lease as property
management company, all property management services required for real estate 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.

42

Mitsui Fudosan Accommodations Fund Management Co., Ltd.
REIT Management Company and General Administrative Agent
MFAFM, as a REIT management company provided for in
the Act on Investment Trusts and Investment Corporations,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.

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 5 below, with themethod of calculation and payment dates as follows.
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,etc., and other Managed Assets) will be payable. Management
Fees 1 shall be 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 shall be 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 shall be paid at or before
the end of the next month after the month of the acquisition
date.
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 shall be paid at or
before the end of the next month after the month of the sales
date.
Management Fees 5
In a merger with other investment corporation, if the AssetManagement Company researches and evaluates assets etc.
that such other investment corporation owns and conducts
other businesses related thereto and such merger comes into
effect, the Company shall pay the amount provided for in theasset management agreement, up to the amount equivalent tothat obtained by multiplying the appraised price of Real Estate
and Real Estate-Backed Securities at the time of the merger
that such other investment corporation owns at such time byzero point five percent (0.5%). Management Fee 5 shall be
paid within three months from the effective date of the merger.

43

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.

Provision of Real Estate Management Information
Mitsui Fudosan Residential provides MFAFM with realestate management information (qualitative view andquantitative data regarding the operating environment of thereal estate leasing market) supervised by its Rental Apartment
Development Department if it is available for provision to
MFAFM.

Disclosure of Asset Management Guidelines
MFAFM provides Mitsui Fudosan Residential withinvestment policies and investment standards included in
asset management guidelines.

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 (excluding investment advice). This
technical advice includes the following.
(a) Provision of technical advice and examination support forthe preparation and implementation of daily maintenanceplans and long-term repair plans for buildings and facilities(including approximate costing)(b) Provision of technical advice and examination support forthe preparation and implementation of plans for small
repairs, renovations, periodic inspections and response tofacility and equipment recalls (including detailed costing ofcontract amounts)(c) Provision of technical advice, examination support andother assistance for the preparation and implementation oflarge-scale renovations (including approximate costing anddetailed costing)

Provision of Information on Real Estate and Other
Assets Owned or Developed by Mitsui Fudosan
Residential
If Mitsui Fudosan Residential sells real estate or realestate-related assets it owns or develops under its Rental
Apartment Development Department, it provides MFAFM with
the information on such sales.
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 Third-Party Real Estate Sales
Information

Operation Fees

Mitsui Fudosan Residential provides MFAFM withinformation concerning available real estate or real estaterelated assets owned by third parties, when such real estateor assets are consistent with MFAFM’s asset management
guidelines.

MFAFM will provide compensation with Mitsui Fudosan
Residential under this agreement.

44

Portfolio Policy

Portfolio Structure Policies
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 in Assets
NAF invests mainly in Rental Apartments, and currently
limits investment in Hospitality Facilities to a maximum of 10
percent of the total portfolio value on an acquisition price basis.

asset.
By region, at least 80 percent of NAF’s assets, including
Rental Apartments and Hospitality Facilities, are located in the
23 wards of Tokyo on an acquisition price basis. NAF studies
regional characteristics and tenant needs to invest inproperties with suitable building plans and characteristics.
(Note 1) “Greater Tokyo” refers to Tokyo, Kanagawa, Chiba and Saitama.
(Note 2) “Other Major Cities” refers to each of the urban areas of
Sapporo, Sendai, Nagoya, Osaka, Kyoto, Kobe, Hiroshima andFukuoka cities.

2. Investment Areas
NAF emphasizes Greater Tokyo (see Note 1, below),
mainly the 23 wards of Tokyo, and Other Major Cities (seeNote 2, below) in investing in Rental Apartments, while itfocuses on major cities throughout Japan and their suburbs ininvesting in Hospitality Facilities. NAF invests inaccommodation assets located in areas where there issubstantial demand, depending on the characteristics of each

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.

ItemStandard

Investment amountIn principle, the value of each property must be at least ¥1 billion. However, NAF may invest in properties
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 after taking into account property characteristics.

Building structure

Building structures shall be reinforced concrete, steel reinforced concrete, steel (excluding light-gauge
steel), and a combination of these structures. However, NAF may invest in wooden buildings (fireproof
buildings only) if NAF deems it appropriate in the light of the characteristics of the use of buildings.

Earthquake resistancestandards

Buildings shall conform to or have antiseismic resistance equivalent to the New Earthquake ResistanceStandards, which have been in force since the 1981 revision to the Building Standards Law.

PML value(probable maximum loss)

In principle, PML shall be below 15 percent. In deciding whether or not to purchase a building 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.

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 during the period from the time
when building confirmation is obtained until the time of their completion, although incomplete, that are
expected to carry minimum risk in respect to completion, delivery and leasing.

4. Due Diligence Standards
The REIT Management Company selects assets to invest
in only after due diligence covering economic feasibility,
physical condition and legal status.
Due diligence includes various written assessments andreports from third-party specialists. Based on the results ofsuch due diligence, the REIT Management Company in
Item
Economic
feasibility
studiesprinciple undertakes investigation of the items listed below inorder to make investment decisions as a result ofcomprehensive review. The REIT Management Company also
conducts due diligence on Hospitality Facilities covering
issues similar to those described in the table below.

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 return45

Physical
condition
studies

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

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
2. Actual management status
3. Quality of the property management company and contract terms

Antiseismic
resistance andPML

1. Antiseismic resistance that meets the New Earthquake Resistance Standards 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. Earthquake PML

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
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 trust46

(i) Publication of NAF’s scheme
NAF shall make its best efforts to encourage operatorsof facilities to ensure that their users fully understand NAF’s
scheme (for example, i) the owner of the facility is NAF andthe services of the facility are provided by the operator; ii)
NAF intends to own the facility under management for along period in principle) and ensure that the REITManagement Company will announce such scheme tousers as necessary.
(ii) Confirmation of proper operation of healthcare facilities
To ensure the user’s sense of security, NAF shall makeits best efforts to confirm whether the status, usage fees,
terms and conditions of contracts and other relevant
matters related to the facilities conform to relevant laws andregulations, and whether the facilities appropriately respondto notifications from local governments, etc.
(iii) Securing proper operation of healthcare facilities
To ensure the user’s sense of security, NAF shall makeits best efforts to cause the operators to makerepresentations in lease contracts or alternative agreements
or memorandum of understanding, etc. between NAF andthe operators, that they will conform to the relevant laws
and regulations applicable to healthcare facilities under
NAF’s management with respect to usage fees, terms andconditions of contracts and other relevant matters, andoperate the facilities in compliance with administrative
guidance.

5. Points to Consider upon Acquisition of Senior
Residences
a. Advice from outside specialists
When NAF acquires any asset classified as healthcare
facilities (see note below) upon its acquisition of any seniorresidence, it shall receive the necessary advice on analyses ofexternal environments and business plans and other relevant
issues from outside specialists of a consultancy, etc. with athorough understanding of the business characteristics ofhealthcare facilities based on their experience in investment
activities, financing activities, due diligence activities, realestate appraisal activities or operating activities involving
healthcare facilities, or any other relevant experience.
(Note) “Healthcare facilities” refers to “Senior residences offering
services” as stipulated in Article 5 of the Act on Securement of
Stable Supply of Elderly Persons’ Housing, as well as “fee-based
homes for the elderly” as stipulated in Article 29 of the Act on
Social Welfare for the Elderly and “Long-term daily care fordementia patients in communal living situations” establishedpursuant to Article 5-2, Paragraph 6 of the said act.

b. Considerations for users
In the acquisition of healthcare facilities, NAF shall pay its
utmost attention to the following matters when managing its
assets so that users of those facilities will not have any
concerns about usage fees, terms and conditions of thecontract and other relevant matters.

Policies for Portfolio Management and Operation
1. Yearly Management Plans
The REIT Management Company prepares a yearly
management plan for NAF’s assets under its management foreach fiscal period (the “Yearly Management Plan”). The YearlyManagement Plan covers issues such as handling of theassets and projected capital expenditures, including plans forlarge-scale renovation, and is subject to Investment
Committee approval.
The REIT Management Company acts in accordance with
the 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 in the case ofsignificant changes in the operating environment.

2. Monitoring of the Property Management
Company
a. Rental Apartments
The REIT Management Company periodically monitors
whether Mitsui Fudosan Residential Lease Co., Ltd., theproperty management company selected by the REITManagement Company, meets the following requirements.
y An organizational structure that can execute property
management operations according to the management
and operation specifications of the REIT Management
Companyy The capability to accomplish smooth new tenant
recruitmenty A reasonable compensation level for property
management operations compared to the market level
Depending on the results of monitoring, the REITManagement Company may require improvements or may
change the property management company.
b. Hospitality Facilities
The REIT Management Company periodically monitors thestatus of management and operation of Hospitality Facilities
conducted by their operators or business corporations
according to their asset characteristics. Depending on the
results of monitoring, the REIT Management Company seeks
to consult and coordinate with the relevant operators orbusiness corporations, including making requests for
improvements, in order to ensure sound management andoperation.

3. Property and Casualty Insurance Coverage
The REIT Management Company maintains property andcasualty 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. Asset characteristics determine
such coverage.

47

and 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.

The REIT Management Company comprehensively
determines earthquake insurance coverage according to costeffectiveness and the projected impact of an earthquake oneach building and on the portfolio as a whole. When PML for
specific buildings is projected above 20 percent or when theacquisition of such property causes portfolio PML to rise
above 15 percent, the REIT Management Company considers
the impact from an earthquake, insurance premiums and anyother relevant issues to determine whether or not to purchaseearthquake insurance.

4. Renovation Plans and Capital Expenditures
The renovation plans are strategic and require renovation

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 current and future rental andsales markets in a given area, actual or projected increases ordecreases in asset values, risk of asset impairment,
obsolescence and associated costs, and other relevant factors.

Financial Policies
bonds exceed ¥1 trillion. According to NAF’s current Articles ofIncorporation, NAF may use its assets under management as
collateral for loans and bonds.

1. Issuance of new units
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.

3. Loan-to-value (LTV) ratio
The policy is to keep the ratio of interest-bearing debt to
NAF’s total assets at or below 60 percent, although issues
including the acquisition of assets may cause the LTV ratio totemporarily exceed 60 percent.

2. Debt financing
NAF may issue bonds or take on loans, including callmarket funding, with the objective of financing acquisition ofassets; renovation expenses; dividend payments; working
capital; or debt repayment, including lease deposits, security
deposits, loans and bonds that NAF may have issued. NAF
only borrows capital from qualified institutional investors as
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 and4. Derivatives
According to Article 29, Paragraph 2 of NAF’s current
Articles of Incorporation, NAF limits transactions involving
financial derivatives to those with the 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.
NAF discloses information in accordance with the Act on

Investment Trusts and Investment Corporations, theFinancial Instruments and Exchange Law of Japan, and therules 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.

48

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.

49

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

50

Status of Unitholders

Major Unitholders(As of February 28, 2017)

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)
State Street Bank and Trust Company 505012
State Street Bank - West Pension Fund Clients - Exempt 505233
MetLife Insurance

121,953
54,46531,502
17,34015,600
9,576
7,759
7,015
6,516
5,916

25.16
11.24
6.50
3.57
3.21
1.97
1.60
1.44
1.34
1.22

Total

277,64257.30* Number of units held as a percentage of total units issued and outstanding, rounded down to the nearest hundredth.

Composition and Distribution of Unitholders
Number of units
held
Number ofunitholders(As of February 28, 2017)

Individuals

Trust banks(investment
trusts, etc.)

Regional
banks

Other financial
institutions

Other
institutions

Overseas
investors

Securities
companies

25,673251,965

75,10535,571

22,156

69,846

4,206

484,522

5,518

18

56

77

124

201

14

6,008

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 or
Act on Investment Trusts and Investment Corporations.
This English document contains selected information including apartial translation of the Securities Report (Yuka shoken hokokusho)
filed on May 31, 2017 pursuant to the Financial Instruments andExchange Law of Japan, and the Financial Statements andPerformance Information Report for the period from September 1,
2016 to February 28, 2017 of Nippon Accommodations Fund Inc.
prepared pursuant to the Act on Investment Trusts and Investment
Corporations. This document should not be deemed a summary of theabove 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. Factors including changes in the price or earning
capacity of real estate under management, or worsening of thefinancial condition of the issuing entity, may cause the trading price ofreal estate investment securities to drop, resulting in a loss for theinvestor. 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 of Nippon
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.

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