Reliable Management
Generates Solid Returns

5th Period
NAF Report | March 2008 – August 2008

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

Profile

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

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

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

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

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

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

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

Reliable Management Generates Solid Returns ............................... 7
Steady Acquisitions...................................................................... 8
Agile Operations.......................................................................... 10
Integrated Value Chain................................................................ 12

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

NAF Portfolio ................................................................................... 16
Portfolio Map............................................................................... 16
New Acquisitions......................................................................... 18
Property Portfolio ........................................................................ 19
Portfolio Summary ....................................................................... 22

Nippon Accommodations Fund Inc.

Notes to Financial Statements ......................................................... 41
Independent Auditors’ Report.......................................................... 47
Appendix ......................................................................................... 48
Portfolio Policy................................................................................. 52
Corporate Data and Investor Information ........................................ 56

Financial Highlights

Yen in millions

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

5th Period

4th Period

3rd Period

5th Period

March 1, 2008 to
August 31, 2008

September 1, 2007 to
February 29, 2008

March 1, 2007 to
August 31, 2007

March 1, 2008 to
August 31, 2008

¥ 4,498
1,642
1,641

¥ 4,092
1,631
1,630

¥ 3,524
1,448
1,447

2,489

2,361

2,055

22,760

3,541
1,641

3,317
1,630

2,806
1,447

32,37915,005

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

146,666
84,04662,62055.2%

129,969
67,36062,60949.6%

114,366
51,94062,42643.3%

1,341,130
768,526
572,604

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

113,480
551,813
14,461
21,929113,480
551,717
14,36620,809113,480
550,10212,75018,106

Total revenues (Note 2)
Income before income taxes
Net income
Funds from operations (Note 3)
Net operating income from property
leasing activities (Note 3)
Total amount of cash distribution (a)$41,13015,01515,0055,045.84
132.23200.52

Notes 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥109.36 = U.S.$1.00, the approximate exchange rate on August 31, 2008.
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
LTV ratio: Interest-bearing debt ÷ Total assets
Funds from operations per unit:(Net income + Depreciation and amortization – Gain on sale of investment properties) ÷ Total number of units issued and outstanding at end of period

Occupancy Rate (Portfolio average)

Ratings (As of August 31, 2008)

(%)

100

Rating Agency

RatingOutlook

Moody’s Investors Service Inc.

A1

StableRating and Investment Information Inc.

AA

StableLong-term Corporate

A+

StableShort-term Corporate

A-1

—

98
96.0
96
94

93.8

93.9

94.0

94.1

94.2

Standard & Poor’s

92
90

Mar.
2008

Apr.

May

June

July

Aug.

(End of the month)

NAF’s properties have maintained a stablehigh occupancy rate since its listing on theTokyo Stock Exchange.

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

NAF Report March 2008 – August 2008

1

NAF Snapshot(As of August 31, 2008)

Profitability
96.0%

An occupancy rate of 96.0 percent

5.1%

Net operating income (NOI) yield* of 5.1 percent¥14,461

Distribution per unit of ¥14,461 for the 5th Period

Outstanding Portfolio¥140,001 million

Steady portfolio expansion to 44 properties with a totalacquisition price of ¥140,001 million

189,635.68m2/
4,256 units

4,256 units with a total rentable area of 189,635.68m2

92.2%

92.2 percent of portfolio located in the 23 wards of Tokyo

Financial Stability
A1, AA, A+
55.2%

Rated A1 by Moody’s; AA by Rating and Investment Information;
and A+ (Long-term) and A-1 (Short-term) by Standard & Poor’s
LTV (Loan-to-Value) ratio of 55.2 percent, long-term fixedratio of 64.2 percent* Weighted average of annual NOI yield on the acquisition value of each property.

2

Nippon Accommodations Fund Inc.

Real Estate for Living Accommodations

Accommodation assets
Senior residences

Corporate
housing/
Dormitories/
Student
apartments

Houses built for retail saleServiced apartments

HotelsService provided

High

Rentalapartments

Low
Short

Length of time/stayLong

Real estate for living accommodations is classified in relation to two axes,“length of time/stay” and “service provided.” Accommodation assets are defined as rental apartments,
corporate housing, dormitories/student apartments, serviced apartments and senior residences.

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

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

NAF Report March 2008 – August 20083

To Our Stakeholders

During the six months ended August 31, 2008 (the“5th Period”), Nippon Accommodations Fund Inc.
(“NAF”) made maximum use of the Mitsui FudosanGroup’s pipeline to manage its portfolio with anemphasis on stability as it worked to increase
profitability and to earn the trust of unitholders byachieving steady external and internal growth.

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

Market Environment and 5th Period Performance
During the 5th Period, the operating environment in the J-REIT market changed considerably due toturmoil in global financial markets caused by the U.S. subprime loan crisis, and conditions remained severe.
However, in the residential rental market in the 23 wards of Tokyo, demand remained stable during the six
months ended August 31, 2008 due to factors including the ongoing population influx from other areas
and the increasing number of single and two-person households. The same factors are projected to drive
the development of the residential rental markets in Japan’s major regional cities. Furthermore, the overall
stock of rental housing did not increase, due in part to the demolition of aging properties. In addition, thesupply of rental housing featuring outstanding location, management and facilities is still limited in number,and as a result occupancy rates and rents have been rising moderately at such highly competitive
properties. Demand for acquisition is currently experiencing a lull, reflecting recent changes in the realestate investment market operating environment.
In this environment, NAF acquired seven properties valued at ¥16,755 million during the 5th Period, andas of August 31, 2008 its portfolio consisted of 44 properties valued at ¥140,001 million on an acquisition
price basis, compared with ¥123,246 million as of the end of the previous period. The overall occupancy rate
was 96.0 percent as of August 31, 2008, compared with 97.2 percent at the end of the previous period.
As a result, total revenues were ¥4,498 million (compared with ¥4,092 million for the previous period),
operating income was ¥2,212 million (compared with ¥2,103 million for the previous period) and net
income was ¥1,641 million (compared with ¥1,630 million for the previous period). Distribution per unit
totaled ¥14,461 (compared with ¥14,366 for the previous period) and exceeded projections announced
along with results for the 4th Period.

4

Nippon Accommodations Fund Inc.

5th Period Initiatives
During the 5th Period, NAF made use of its pipeline of properties from its sponsor Mitsui Fudosan Co.,
Ltd. and others to acquire seven properties.
In addition, cooperation between NAF’s REIT management company, Mitsui Fudosan Accommodations
Fund Management Co., Ltd., and its master property management company, Mitsui Fudosan Housing Lease
Co., Ltd., supported leasing tailored to the unique features of each property and each location. At the
Okawabata Apartment Communities, one of NAF’s core properties, we completed large-scale renovations,mostly concerning exterior walls, at the Park Side Wings, following work at River Point Tower. NAF has
mostly completed its large-scale renovation of the common-use areas of the property.
Flexible use of our new portfolio management system, which began full-scale operation in the previous
period, supported greater speed for tenant solicitation activities geared to each individual property. As aresult, NAF steadily concluded new leases, with occupancy rates for the previously unoccupied properties
Park Cube Itabashi Honcho and Park Cube Gakugei Daigaku of 85.7 percent and 87.0 percent, respectively,
at the end of the 5th Period.
NAF procured a total of ¥16,800 million from multiple financial institutions for the acquisition of new
properties in March 2008 and May 2008. As a result, interest-bearing debt as of August 31, 2008 totaled¥81,000 million, and NAF’s loan-to-value (LTV) ratio stood at 55.2 percent, compared with 49.6 percent at
the end of the previous period. NAF secured
long-term, fixed-rate loans, which
accounted for 64.2 percent of NAF’s

5th Period Highlights

interest-bearing debt as of August 31,➤ Seven properties acquired

2008, compared with 80.6 percent at the➤ Occupancy rate remains high at 96.0%

end of the previous period.

Future Initiatives
NAF manages its high-quality portfolio with an emphasis on stability, and works to achieve steadyexternal and internal growth.
Our strategy for external growth entails steady expansion of our portfolio through the acquisition ofproperties in the Park Axis and the Park Cube series. We are currently structuring our portfolio with agreater weighting of single and compact apartments, from which we can expect a high occupancy rate.
During the 5th Period, our strategy for internal growth included strengthening the brand penetration ofboth the Park Axis and Park Cube series to heighten their recognition in the real estate rental market.
Moreover, with an optimized operational and management structure that makes use of the expertise ofeach company in the Mitsui Fudosan Group, NAF uses additional strategic investment to maintain asset
value over the long term in order to maintain or raise its rents and occupancy rate.
Regarding financial strategy, while our upper limit for the LTV ratio is 60 percent, we expect tooperate with an LTV ratio in the 40 to 50 percent range. We will continue to implement a strategy that

NAF Report March 2008 – August 2008

5

To Our Stakeholders

5th Period (Actual)

6th Period (Forecast)(Ended August 31, 2008)(Ending February 28, 2009)

Total revenues¥4,498 million¥4,543 million

Operating income¥2,212 million¥2,252 million

Net income¥1,641 million¥1,642 million¥14,461¥14,470

Acquisition price basis¥140,001 million¥140,001 million

Number of properties

44

44

Distribution per unit (Yen)
Assets under management

emphasizes long-term, fixed-rate funding in response to the risk of rising interest rates and refinancing
risk. We will give due consideration to the most appropriate issue of bonds within this limit in order toincrease the diversity and flexibility of our funding.
NAF is committed to earning the trust of unitholders and all stakeholders, and is therefore
strengthening corporate governance while working toward more thoroughgoing legal compliance.

OutlookDuring the 6th Period, we expect the initiatives discussed above to result in total revenues of ¥4,543
million, operating income of ¥2,252 million, net income of ¥1,642 million, and distribution per unit of¥14,470. This forecast is valid as of October 2008 and assumes that NAF will not acquire or exchange any
additional properties and will not issue new units during the 6th Period.
NAF will continue to invest in accommodation assets and will make use of the Mitsui Fudosan Group’s
pipeline to expand its portfolio by acquiring high-quality properties. We also aim to maximize unitholder
value through effective management and brand strategies that enhance competitiveness.
December 2008

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

6

Nippon Accommodations Fund Inc.

Reliable Management
Generates Solid Returns
NAF aims to maximize unitholder value by generating solid returns through steadyexternal and internal growth.

Steady Acquisitions➥ page 8

NAF selectively invests in assets with the location, scale and facilities thatwill maintain NAF’s position of strength and competitive power in the realestate leasing market over the medium-to-long term. NAF aims for stable
growth in the future through steady acquisition of properties.

Agile Operations➥ page 10

Based on an optimized management and operating structure and measures
to maintain or raise asset value, NAF will work toward steady internal
growth by increasing rental revenues and reducing operating expenses.

Integrated Value Chain➥ page 12

NAF will secure solid returns through the full and active use of the Mitsui
Fudosan Group’s value chain from planning and development tomanagement and operation.

NAF Report March 2008 – August 2008

7

Reliable Management Generates Solid Returns

Steady Acquisitions➤ Growth in Acquisitions Generates Higher Portfolio Value
Asset Growth (Acquisition Price Basis)

200,000 (Yen in millions)

150,000

140,001
123,246
August 2006:
Listed on the REIT
section of the Tokyo
Stock Exchange

100,000

50,00038,986

101,385

108,234

41,0360Establishment March 31,
2006
Distribution per unit

8

¥8,871February 28, August 31, February 29, August 31,
2007
2007
2008
2008
¥17,871¥12,750¥14,366

Okawabata
Apartment
Communities¥14,461

NAF was established in 2005 with assets under management

series based on property information from the information channels

valued at approximately ¥39 billion. In August 2006, NAF was

MFAFM has established. During the 5th Period, NAF acquired

listed on the Tokyo Stock Exchange as the first J-REIT managing

seven properties for a total of 44 properties with a value of assets

mainly residential assets with a value of over ¥100 billion at IPO.

under management of approximately ¥140 billion.

NAF’s external growth strategy is centered on the Park Axis

NAF aims to steadily expand its portfolio by selectively investing

properties that Mitsui Fudosan develops. NAF also maintains

in assets mainly in the 23 wards of Tokyo that will retain theirsteady external growth by acquiring properties in the Park Cube

superiority and competitiveness over the medium-to-long term.

Nippon Accommodations Fund Inc.

The Park Axis series, developed by the Mitsui Fudosan Group, is the core of NAF’s portfolio. NAF aims to continue steadily expanding its portfolio by following a policy of
selectively investing in assets that will retain their market superiority and competitiveness over the medium-to-long term.

➤ NAF’s Outstanding Portfolio Reflects Market Trends
Single adults and couples aged 20 to 49 make up the primary

Occupancy Rates by Category

demographic segment for tenants of single and compact(Properties as of the End of the 4th Period)

apartments. In the 23 wards of Tokyo and regional city centers,
factors including an increasing need to live closer to work and the

100 (%)

elimination of the company housing system at many corporations

95

have caused demand for rental housing in this demographic toSingleCompact

FamilyLarge90expand steadily. The occupancy rate for the single and compact
apartments that NAF manages is high compared with other85
80

apartment types.

75
Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug.
2007
2008

Percentage of Single and Compact Units

43.7%

72.8%

81.2%

Definition of Unit Types
Single: StudioCompact: 1BR

End of
1st Period

Time oflisting

End of
5th Period

Family: 2BR
Large: 3BR or more

➤ Solid Relationship with Mitsui Fudosan
The Park Axis series is NAF’s core asset. Taking advantage

Park Axis Series Supply (Mitsui Fudosan)of Mitsui Fudosan’s many years of experience in residential
1,834

2,000 (Units)(Construction
completed)

Owned by other REITs
Not yet acquired by NAF
Acquired by NAF

1,500

803

expanding its portfolio based on the competitive andprofitable Park Axis series.

28

0

84
31
2000

127
2001

28
2002

110
84
2003

388
2004

951
639
2005

located in convenient areas, and distinguished by quality
control from the construction stage. NAF aims to continue

280

1,000
500

housing, the properties in the series are functional, safe,

2006

819
2007 Sept. 30,
2008

Source: Prepared by NAF’s REIT management company from Mitsui Fudosan materials and publicly
available data.

NAF Report March 2008 – August 2008

9

Reliable Management Generates Solid Returns

Agile Operations➤ Sound Management for Solid Returns
Occupancy Rates of NAF-Managed Assets and Total J-REIT-Managed Residential Assets
100 (%)
98
96
94
92
90

NAF-Managed Assets
Total J-REIT-Managed Residential Assets

88Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug.

2006

2007

2008

Source: “Property Data of Real Estate Investment Trusts,” The Investment Trusts Association, Japan

Occupancy Rates for All 44 Properties and2 Properties in Lease-Up

Since NAF’s listing on the Tokyo Stock Exchange, its portfolio
has maintained a high occupancy rate, reaching 96.0 percent at
the end of the 5th Period. This is a result of the highly competitive

100 (%)

power of NAF’s assets together with the agile marketing ofavailable space and quick and efficient leasing activities conducted

80

by MFAFM, which is its REIT management company, and Mitsui
60

Fudosan Housing Lease Co., Ltd., which is its master property
management company. These activities also achieved steady lease-40

up for unoccupied properties.
All 44 properties
Park Cube Itabashi Honcho
Park Cube Gakugei Daigaku

20
0
Mar.
2008

10

Apr.

Nippon Accommodations Fund Inc.

May

June

July

Aug.

NAF aims for a high net operating income (NOI) yield by maintaining a high occupancy
rate and steadily reducing operating expenses. Through continued cooperation with
Mitsui Fudosan Housing Lease Co., Ltd., NAF’s master property management company,
MFAFM will implement effective operations and management, aiming for steady internal growth by increasing rental revenues and reducing operating expenses.

➤ Superior Properties in Stable Markets Lead to Rent Growth
Changes in Rents for
5th Period Contracts

Rent Trends
New Contracts

New Contracts (483 Units)
No change

Decrease

276 units

109 units

98 units

Net increase in rents

Total tenant rents before new contracts Change¥563,000¥82,266,000

0.7%

Total (1,283 units) Including Renewals (800 units)
Net increase in rents

Total tenant rents before new contracts Change¥571,000¥222,476,000

3rd Period

Number of units(Percentage of units with increased rent)

Increase

0.3%

Changes in Rents for
New 5th Period Contracts

Net increase in rents
Total tenant rents before new contracts

483 units
57.1%¥829,000¥1,516,000¥563,000¥66,545,000¥82,266,000

1.2%

2.3%

0.7%

3rd Period

4th Period

5th Period

654 units

856 units

1,283 units

Net increase in rents¥876,000¥1,501,000¥571,000¥140,254,000¥166,136,000¥222,476,000

0.6%

0.9%

0.3%

ChangeNo change
22.6%
109 units

5th Period

Number of units

Total tenant rents before new contracts

Decrease
20.3%
98 units

372 units
69.1%¥69,102,000

ChangeTotal Including Renewals

4th Period

354 units
73.4%

NAF increases rents for its new tenants within a reasonable framework in line with

483
units

market conditions. During the 5th Period, NAF increased rents for approximately 57

Increase
57.1%
276 units

percent of 483 units that changed tenants.

➤ Effective Cost Management Increases Profitability
Building Maintenance Fee Ratio*

MFAFM works to leverage its scale in rationalizing
operations in order to reduce operating expenses. As a result,3.90 (%)
3.85

the ratio of building maintenance fees to rental revenues in the

3.85

5th Period decreased to 3.63 percent from 3.75 percent in the

3.80

4th Period. Other cost reduction measures in the 5th Period

3.75

3.75

included revising the electrical cost plan in common areas of

3.70
3.65

3.63

3.60

buildings and bundling orders based on internet contracts.
MFAFM will continue to implement further cost reductions.

3.55
3.50

3rd Period

4th Period

5th Period*Building maintenance fees / Rental revenues

NAF Report March 2008 – August 200811

Reliable Management Generates Solid Returns

Integrated Value Chain➤ Mitsui Fudosan Group Companies Form an Integrated Value Chain

Operation, Planning/
Development of Accommodation Business

MarketResearch /Analysis

Site Acquisition

Feedbackto Planning /Development

Planning and
DesignComprehensive operating
system conducted by
the Mitsui Fudosan GroupREIT Management

Management /Operation
Construction
Management /Supervision
Leasing

Property
Management

Residential Building
Maintenance12

Nippon Accommodations Fund Inc.

Initial Leasing/
Tenant Brokerage

The companies of the Mitsui Fudosan Group form a comprehensive operating systemthat spans from planning and development to leasing, management and operation, in
which the Group functions as a single integrated value chain. NAF will secure solid
returns through the full and active use of this value chain.

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

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

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

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

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

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

NAF Report March 2008 – August 200813➤ Creating Value through Quality Control
Mitsui Fudosan Group Quality Management

period of time and encompasses a variety of processes starting

Site acquisition

with geological survey, followed by steel reinforcement andStart of construction

1. Geological andenvironmental surveys

onsite and offsite check which we call “Construction Management

2. Foundation work

and Supervision,” the sum of which enables NAF to maintain the

3. Steel reinforcement
construction

quality of rental housing over the medium-to-long term.
The Park Axis series is NAF’s core asset. Taking advantage of

4. Concrete work

Mitsui Fudosan’s many years of expertise in the housing businessand based on “PAX-M” (Park Axis Quality Management Manual),

Under
construction

approximately 1,500 design and quality standards are employed
how from over 20 years of rental housing management, Mitsui

8. Roofing andwaterproofing

Fudosan Housing Lease carries out building checks after

9. Landscaping

construction has been completed, encompassing ease of facility
NAF will continue to create value for assets under management

6. Equipment installation
7. Interior andexterior finishingfrom the design stage to completion. Based on accumulated know-

renewal, low-cost maintenance and tenant usability.

5. Heat insulation work

End of construction

Inspection and Confirmation

exterior construction work. Each construction stage is subject to an

Park Axis Quality Management Manual (PAX-M)

Planning and design

concrete construction, equipment installation, and interior andOriginal quality management system

The construction of rental housing takes place over a long

10. Inspection
Leasingusing the value chain of the Mitsui Fudosan Group to maintain a

Occupancyhigh level of quality.

Sale➤ Thorough Quality Control Generates Profitability
In rental housing, large discrepancies in asset value andrenovation work. With regard to renovation, because construction

competitive power occur due to factors including management andwork takes place alongside residents’ everyday lives, construction

operation, and time-related deterioration. Although nearly twenty

planning and supervision that reduces the impact of construction work

years have passed since the construction of the Okawabata Apartment

on their freedom is necessary in order to maintain a high occupancy

Communities, one of NAF’s properties, it retains high competitive

rate. MFAFM uses staff from Mitsui Fudosan under an Agreement on

power due to regular facilities upgrades and interior and exterior

Provision of Real Estate Information/Advisory Service to maintain thesame strict quality control that
Mitsui Fudosan applies to its newly
constructed properties.
NAF uses the expertise andoptimized management of each
Mitsui Fudosan Group company tomaintain asset value over thelong term, aiming to increase rents
and occupancy.

14

Nippon Accommodations Fund Inc.

Reliable Management Generates Solid Returns

Quality checks that consider potential risks
We carry out thorough quality checks to limit as much as
possible potential risks such as noise or water leaks that stem directlyfrom residents’ lifestyles. We implement thorough quality control
measures to maintain quality at the Park Axis series.
Atsushi Arata
Quality Engineer, Mitsui Fudosan Co., Ltd.

The same strict quality control as for newly
constructed properties
It is important to implement a quality control system thatfacilitates ease of operation for property managers and comfort forresidents. Renovation work at the Okawabata Apartment Communities
is governed by strict quality control based on this expertise.
Yasuo Sawa
Quality Engineer, Mitsui Fudosan Co., Ltd.

Pursuing satisfaction
Our design focuses on maintaining quality control while at thesame time resolving various issues from a resident’s point of view.
Kyoko Matsuo
Designer, Mitsui Home Remodeling Co., Ltd.

Creating a space that offers hospitality
Regarding Pier West House, the administrative building of the
Okawabata Apartment Communities, our remit from MFAFM was to“reinvigorate it as a community and leasing office brimming withhospitality.” The real work of a designer is indeed “creating a space.”
Yasuhiko Fukatsu
Architect, Yaz Design Associates Inc.

NAF Report March 2008 – August 2008

15

NAF Portfolio(As of August 31, 2008. Numbers in red for each property refer to the Portfolio Summary on pages 22-23.)

Portfolio Map

Adachi-ku
Itabashi-ku

Kita-ku
Nerima-ku

Katsushika-ku

Arakawa-ku

Toshima-ku

10
Bunkyo-ku 15

Taito-ku

8
6

Sumida-ku

Shinjuku-ku

16

17

Chuo-ku

12

Koto-ku1
95 Minato-ku 14
Setagaya-ku

13

7.5 k mImperial
Palace22

5.0 k mChiyoda-ku

3

Shibuya-ku

Edogawa-ku

21
2.5 k mSuginami-ku

23

18

10.0 k m

Nakano-ku

11
Meguro-ku

7

2

Tokyo BayTokyo
Shinagawa-ku

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

16

Nippon Accommodations Fund Inc.

Okawabata (River Point Tower)
Okawabata (Park Side Wings)
Okawabata (Pier West House)
Park Axis Gakugei Daigaku
Park Axis Ichigaya
Park Axis Shibuya Jinnan
Park Axis Aoyama Kotto DoriPark Axis Kagurazaka Stage
Park Axis Shirokanedai
Park Axis Bunkyo Stage
Park Axis Tsukishima
Park Axis Otsuka
Park Axis Minami Azabu
Park Axis Shibuya
Park Axis Nihonbashi Stage
Park Axis Hamamatsucho
Park Axis Hongo no Mori
Park Axis Tameike Sanno
Park Axis Roppongi Hinokicho Koen
Park Axis Ochanomizu Stage
Park Axis Okachimachi
Park Cube Hongo
Park Cube Kanda

Park Cube Ichigaya
Park Cube Asakusa Tawaramachi
Park Cube Ueno
Park Cube Keio Hachioji
Park Cube Keio Hachioji II
Park Axis Meieki Minami
Park Cube Ikebukuro Kanamecho
Park Axis Meguro Honcho
Park Axis Shin Itabashi
Park Axis Akihabara
Park Axis Toyocho
Park Axis Takinogawa
Park Axis Asakusabashi
Park Axis Marunouchi
Park Axis Ropponmatsu
Park Axis Hakataeki Minami
Park Axis Nihonbashi Hamacho
Park Cube Yoyogi Tomigaya
Park Axis Nishi Funabashi
Park Axis Monzen Nakacho
Park Cube Itabashi Honcho
Park Cube Gakugei Daigaku
Park Cube Oimachi

A Portfolio Mainly Composed of Large-Scale Properties in the 23 Wards of Tokyo
Regional Allocation

Portfolio by Acquisition Price

Portfolio by Property Age(As of October 15, 2008)

Greater Tokyo: 2%

Tokyo Wards
Other than
3 Central
Wards: 45%

Other Major Cities: 6%

23 Wards ofTokyo: 92%

3 Central
Wards
of Tokyo: 47%

Less than 1 year: 5%

More than Less than
¥10 billion: ¥2 billion:25%
21%(1 property) (23 properties)¥5 – ¥10 billion:
20% (4 properties)

92% of portfolio is locatedin the 23 wards of Tokyo[¥2 – ¥5 billion:
34% (16 properties)

More than
5 years: 25%

Less than
2 years: 17%

Less than
5 years:
27%

Less than
3 years:
26%

Average ¥3.2 billion
per property

Average 6.3 years

Approx. ¥2.6 billion per property,
excluding the Okawabata
Apartment Communities

Approx. 2.7 years,
excluding the Okawabata
Apartment Communities] []A Balanced Mix of Properties Centered on Single and Compact Units
Portfolio by Category

Portfolio by Monthly Rent
More than¥500,000: 1%¥300,000 –¥500,000: 7%

Large: 6%

Family: 13%

More than80m2: 6%¥200,000 –¥300,000:20%

Single: 39%¥150,000 –¥200,000:
20%

Compact: 42%[

Portfolio by Unit Area

Less than¥100,000:
17%60m2 –
80m2: 12%

Less than
30m2: 30%50m2 –
60m2: 14%¥100,000 –¥150,000: 35%

40m2 –
50m2: 15%30m2 –
40m2: 23%

Percentage of Single andCompact Units: 81%

Average ¥171 thousand per unit

Average 44.3m2 per unit

Approx. 92%,
excluding the Okawabata
Apartment Communities

Approx. ¥149 thousand per unit,
excluding the Okawabata
Apartment Communities

Approx. 39.0m2 per unit,
excluding the Okawabata
Apartment Communities

]

[

]

[

]

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

NAF Report March 2008 – August 200817

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

New Acquisitions
5th Period
Park Axis Nihonbashi Hamacho

Park Cube Yoyogi Tomigaya

Park Axis Monzen Nakacho

Acquisition date: March 11, 2008
Acquisition price: ¥1,975 million
Rentable area:

1,929.10m2

Location:

Shibuya-ku, Tokyo

Units:

38

Completed:

July 2007

Park Axis Nishi Funabashi
Acquisition date: March 11, 2008
Acquisition price: ¥5,540 million
Rentable area:

6,999.83m2

Location:

Chuo-ku, Tokyo

Units:

118

Completed:

July 2006

Acquisition date: March 11, 2008
Acquisition price: ¥1,020 million
Rentable area:

2,074.35m2

Location:

Funabashi-shi, Chiba

Units:

55

Completed:

September 2007

Park Cube Itabashi Honcho

Acquisition date: March 27, 2008
Acquisition price: ¥1,700 million
Rentable area:

1,886.39m2

Location:

Koto-ku, Tokyo

Units:

55

Completed:February 2007

Park Cube Oimachi

Park Cube Gakugei Daigaku
Acquisition date: March 27, 2008
Acquisition price: ¥910 million

18

Rentable area:

957.88m2

Location:

Meguro-ku, Tokyo

Units:

24

Completed:

March 2008

Acquisition date: March 27, 2008

Acquisition date: May 21, 2008

Acquisition price: ¥4,170 million

Acquisition price: ¥1,440 million

Rentable area:

5,317.07m2

Rentable area:

1,511.12m2

Location:

Itabashi-ku, Tokyo

Location:

Shinagawa-ku, Tokyo

Units:

165 Residential, 1 Retail

Units:

65

Completed:

March 2008

Completed:

March 2008

Nippon Accommodations Fund Inc.

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

Property Portfolio
Okawabata Apartment Communities① River Point Tower ② Park Side Wings

Park Axis Shirokanedai

Park Axis Akihabara

Park Axis Toyocho③ Pier West House

Park Axis Ichigaya

Park Axis Meguro Honcho

Park Axis Tameike Sanno

Park Axis Shibuya Jinnan

Park Cube Kanda

NAF Report March 2008 – August 200819

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

Park Axis Takinogawa

Park Axis Asakusabashi

Park Axis Marunouchi

Park Axis Aoyama Kotto DoriPark Axis Roppongi Hinokicho Koen

Park Axis Gakugei Daigaku

Park Axis Ropponmatsu

20

Nippon Accommodations Fund Inc.

Park Axis Meieki Minami

Park Cube Ikebukuro Kanamecho

Park Cube Hongo

NAF Portfolio

Property Portfolio
Park Axis Minami Azabu

Park Axis Nihonbashi Stage

Park Axis Hakataeki Minami

Park Axis Kagurazaka Stage

Park Cube Asakusa Tawaramachi

Park Axis Bunkyo Stage

Park Axis Shin Itabashi

Park Axis Tsukishima

Park Axis Ochanomizu Stage

Park Axis Otsuka

NAF Report March 2008 – August 2008

21

Property Portfolio
Park Axis Shibuya

Park Cube Ueno

Park Axis Hongo no Mori

Park Axis Okachimachi

22

Nippon Accommodations Fund Inc.

Park Cube Keio Hachioji

Park Cube Keio Hachioji II

Park Cube Ichigaya

Park Axis Hamamatsucho

Portfolio Summary
No. Name
Okawabata Apartment Communities
River Point Tower
Park Side Wings
Pier West House
Park Axis Gakugei Daigaku
Park Axis Ichigaya
Park Axis Shibuya Jinnan
Park Axis Aoyama Kotto DoriPark Axis Kagurazaka Stage
Park Axis Shirokanedai
Park Axis Bunkyo Stage
Park Axis Tsukishima
Park Axis Otsuka
Park Axis Minami Azabu
Park Axis Shibuya
Park Axis Nihonbashi Stage
Park Axis Hamamatsucho
Park Axis Hongo no Mori
Park Axis Tameike Sanno
Park Axis Roppongi Hinokicho Koen
Park Axis Ochanomizu Stage
Park Axis Okachimachi
Park Cube Hongo
Park Cube Kanda
Park Cube Ichigaya
Park Cube Asakusa Tawaramachi
Park Cube Ueno
Park Cube Ikebukuro Kanamecho
Park Axis Meguro Honcho
Park Axis Shin Itabashi
Park Axis Akihabara
Park Axis Toyocho
Park Axis Takinogawa
Park Axis Asakusabashi
Park Axis Nihonbashi Hamacho
Park Cube Yoyogi Tomigaya
Park Axis Monzen Nakacho
Park Cube Itabashi Honcho
Park Cube Gakugei Daigaku
Park Cube Oimachi
Tokyo 23 Wards Total
Park Cube Keio Hachioji
Park Cube Keio Hachioji II
Park Axis Nishi Funabashi
Greater Tokyo Total (Note 3)
Park Axis Meieki Minami
Park Axis Marunouchi
Park Axis Ropponmatsu
Park Axis Hakataeki Minami
Other Major Cities Total
Grand Total

NAF Portfolio(As of August 31, 2008)

Location
Chuo-ku, Tokyo

Setagaya-ku, Tokyo
Shinjuku-ku, Tokyo
Shibuya-ku, Tokyo
Minato-ku, Tokyo
Shinjuku-ku, Tokyo
Minato-ku, Tokyo
Bunkyo-ku, Tokyo
Chuo-ku, Tokyo
Toshima-ku, Tokyo
Minato-ku, Tokyo
Shibuya-ku, Tokyo
Chuo-ku, Tokyo
Minato-ku, Tokyo
Bunkyo-ku, Tokyo
Minato-ku, Tokyo
Minato-ku, Tokyo
Bunkyo-ku, Tokyo
Taito-ku, Tokyo
Bunkyo-ku, Tokyo
Chiyoda-ku, Tokyo
Shinjuku-ku, Tokyo
Taito-ku, Tokyo
Taito-ku, Tokyo
Toshima-ku, Tokyo
Meguro-ku, Tokyo
Itabashi-ku, Tokyo
Chiyoda-ku, Tokyo
Koto-ku, Tokyo
Kita-ku, Tokyo
Taito-ku, Tokyo
Chuo-ku, Tokyo
Shibuya-ku, Tokyo
Koto-ku, Tokyo
Itabashi-ku, Tokyo
Meguro-ku, Tokyo
Shinagawa-ku, Tokyo
Hachioji-shi, Tokyo
Hachioji-shi, Tokyo
Funabashi-shi, Chiba
Nagoya-shi, Aichi
Nagoya-shi, Aichi
Fukuoka-shi, Fukuoka
Fukuoka-shi, Fukuoka

Acquisition Price (Note 1)

Portfolio Share

Rentable Area

(Yen in millions)(%)(sq. m.)29,69621.2

43,812.41

1,760
2,570
3,230
1,730
1,400
5,140
4,440
930
1,655
3,939
1,283
7,558
2,025
2,910
2,860
2,170
9,710
1,070
1,760
2,454
1,794
2,508
2,233
1,609
1,810
3,430
1,200
3,950
1,820
2,717
5,540
1,975
1,700
4,170
910
1,440
129,095
991
1,130
1,020
3,141
2,440
1,920
1,515
1,890
7,765
140,001

1.3
1.8
2.3
1.2
1.0
3.7
3.2
0.7
1.2
2.8
0.9
5.4
1.4
2.1
2.0
1.5
6.9
0.8
1.3
1.8
1.3
1.8
1.6
1.1
1.3
2.4
0.9
2.8
1.3
1.9
4.0
1.4
1.2
3.0
0.6
1.0
92.2
0.7
0.8
0.7
2.2
1.7
1.4
1.1
1.3
5.5
100.0

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

2,437.66
3,313.33
2,766.62
1,537.24
1,891.05
4,704.44
6,078.93
1,383.99
2,606.37
3,938.14
1,094.28
10,025.40
2,426.45
3,317.94
2,710.69
2,054.46
12,025.25
1,621.73
2,160.12
3,194.59
2,127.50
4,012.68
3,041.61
1,886.82
1,884.77
4,395.99
1,346.07
5,412.40
2,924.75
3,400.78
6,999.83
1,929.10
1,886.39
5,317.07
957.88
1,511.12
164,135.85
2,814.32
3,082.32
2,074.35
7,970.99
5,565.13
3,821.75
3,473.67
4,668.29
17,528.84
189,635.68

Rentable Units

PML (Note 2)
(%)

544

64
84
75
40
59
99
154
30
52
64
20
184 Residential, 1 Retail80
86 Residential, 1 Retail
70
46
324
42
60
95
51
76
91
65
60
152
41
140
48 Residential, 1 Retail
78 Residential, 1 Retail
118
38
55
165 Residential, 1 Retail24
65
3,539 Residential, 5 Retail52
47 Residential, 1 Retail55
154 Residential, 1 Retail169
98 Residential, 1 Retail
111 Residential, 1 Retail
176 Residential, 1 Retail
554 Residential, 3 Retail4,247 Residential, 9 Retail

4.5
7.9
7.0
7.6
7.3
6.8
7.0
7.5
8.7
6.5
6.8
6.4
7.4
7.9
7.5
7.1
8.8
8.2
9.2
7.2
6.8
8.2
8.9
6.8
8.8
7.5
8.1
8.5
7.3 East, 7.5 West
7.4
10.8
5.8
8.9
8.1
7.4
10.1
8.1
6.8
10.0
7.1
7.6
7.9
4.1
6.1
2.2
3.1
3.9 (Portfolio PML)

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

NAF Report March 2008 – August 200823

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 an

These guidelines may change in the future in response to changes

investment corporation established with the objective ofin the external investment environment and the status of NAF’s

investing in assets, primarily Designated Assets as defined

assets under management.

under the Investment Trust and Investment Corporation Act of

In addition, the REIT Management Company has concluded

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

contracts with other companies in the Mitsui Fudosan Group to

Fudosan Accommodations Fund Management Co., Ltd. (thepromote smooth, effective management of NAF’s assets. An“REIT Management Company” or “MFAFM”) as its asset

Agreement on Provision of Real Estate Information/Advisory

management company.

Service with Mitsui Fudosan Co., Ltd. provides information

NAF has entrusted management of all of its assets to the REIT

regarding real estate owned or developed by Mitsui Fudosan’sManagement Company, which is the asset management company

Accommodations Business Division, and other management

required under the Investment Trust and Investment Corporation

advisory information. Each of (i) a Memorandum on Provision of

Act of Japan. Operating in accordance with the REIT Management

Real Estate Brokerage Information with Mitsui Fudosan Real

Agreement concluded on October 13, 2005 (as amended), theEstate Sales Co., Ltd. and (ii) an Agreement on Provision of RealREIT Management Company manages NAF’s assets according toEstate Information with Mitsui Fudosan Residential Co., Ltd.

NAF’s asset management and administration policies and theprovides access to certain real estate property information. A

asset management guidelines embodied in the internal

Basic Agreement on Property Management with Mitsui Fudosan

regulations of the REIT Management Company. The asset

Housing Lease Co., Ltd., the master property management

management guidelines take current investment conditions into

company to which NAF has entrusted property management

account and follow NAF’s basic operating principle of taking aservices of all its properties, is fundamental to NAF’s policy of

medium-to-long-term perspective in managing assets to secure

outsourcing such property management services required instable earnings and steadily increase assets under management.

managing real estate.
Independent Auditor

Asset Custodian

The Chuo Mitsui Trust andBanking Company, Limited

KPMG AZSA & Co.

Asset Custody
Agreement

Transfer Agent

The Chuo Mitsui Trust andBanking Company, Limited
General Administrative Agent(Bond Administration)

The Chuo Mitsui Trust andBanking Company, Limited
Property Information Provider

Mitsui Real Estate
Sales Co., Ltd.

Transfer Agency
Service Agreement

REIT
Nippon Accommodations
Fund Inc.

Financial Agency
Agreement

Memorandum on
Provision of Real Estate
Brokerage Information

Agreement on Provisionof Real Estate Information(TSE 3226)

24

Nippon Accommodations Fund Inc.

Fiscal Administrative
Service Agreement(Tax Return Filing)

General Administrative Agent(Accounting)

HEISEIKAIKEISHA TAX Co.
General Administrative Agent(Tax Return Filing)

Zeirishi-Hojin
PricewaterhouseCoopers

REIT Management Agreement andGeneral Administrative Service Agreement
REIT Management Company

Mitsui Fudosan
Accommodations FundManagement Co., Ltd.
Agreement on Provision ofReal Estate Information/Advisory Service

Real Estate Information Provider

Mitsui Fudosan
Residential Co., Ltd.

General Administrative
Service Agreement(Accounting)

Real Estate Information/Advisory

Mitsui Fudosan Co., Ltd.

Basic Agreement
on Property
Management
Master Property
Management Company

Mitsui Fudosan
Housing Lease Co., Ltd.

Management Team

Michihiko Takabe

Yuji Yokoyama

Nobuyuki Nakai

Takeo Tomita

Hiroyuki Sodeyama(Attorney at Law)
Supervisory Director

Executive Director

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

Corporate Structure
General Meeting of Unitholders

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

executive directors plus at least one additional supervisory

the General Meeting of Unitholders is held within the 23

director). As of August 31, 2008, NAF had two executive

wards of Tokyo. In accordance with the Investment Trust anddirectors and three supervisory directors. NAF’s independent

Investment Corporation Act of Japan and NAF’s Articles ofauditor is KPMG AZSA & Co.

Incorporation, NAF convenes a General Meeting of

NAF’s executive directors are responsible for business

Unitholders. The third General Meeting of Unitholders

execution. In addition, they have authority for all judicial andconvened on October 12, 2007. The General Meeting ofextrajudicial proceedings related to the operations

Unitholders adopts or vetoes ordinary resolutions on the basisof NAF.

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

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

changes in the Articles of Incorporation require the

The Board of Directors acts in accordance with theattendance of unitholders holding at least a simple majority ofInvestment Trust and Investment Corporation Act of Japan andtotal units issued and outstanding, and a vote of two-thirds

NAF’s Articles of Incorporation and other internal rules inmajority of the voting rights of such unitholders. The asset

exercising their responsibility to supervise the performance ofmanagement policies and standards are stipulated by NAF’s

the executive directors. In accordance with the current Articles

Articles of Incorporation.

of Incorporation, the Board of Directors passes or vetoes
resolutions on the basis of a simple majority of executive andExecutive 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 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.

NAF Report March 2008 – August 2008

25

The independent auditor is elected at the General Meeting

material violations of laws, regulations or NAF’s Articles ofof Unitholders. It audits financial and accounting documents

Incorporation that executive directors may commit in the

including NAF’s financial statements. In addition, it is charged

course of their duties. The independent auditor also performs

with reporting to supervisory directors any unlawful acts orother duties as required by laws and regulations.

Compliance Initiatives

Corporate Governance Structure of MFAFM
General Meeting of Stockholders

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

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

Compliance Officer (CCO) of MFAFM has been appointed tosupervise compliance with laws, regulations and internal rules

Compliance Committee

on the part of the REIT Management Company.

CCO
CEO

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

Investment Committee

also appoint other employees of MFAFM to participate asneeded in internal audits, based on the recommendations of
the CCO.

Financial
Division

Investment
DivisionCIO

CFO

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 compliance

Investment,
Research &Strategy Team

Asset
Management
Team

FinancialTeam

Corporate
Operation
Team

program, but the CEO may initiate extraordinary audits.

Investment Strategy and the Process for Acquiring and Selling Properties
The REIT Management Company acts in accordance withA diagram of the investment policy of the asset

NAF’s Articles of Incorporation in formulating and amending themanagement guidelines and the process for acquiring andasset management guidelines that determine investment policies

selling specific assets under management follows on page 27.

and internal rules. In addition, it makes decisions regarding theacquisition and sale of specific assets under management inaccordance with the asset management guidelines.

Investment Risk Management System
NAF itself is responsible for complying with the26compliance among officers and employees of MFAFM.

Investment Trust and Investment Corporation Act of Japan

NAF’s Board of Directors convenes as needed at leastand related laws and regulations in managing risks. In

once every three months, and resolves important matters andaddition, the REIT Management Company has establishedreports on the status of business execution in accordance withappropriate internal rules. In conjunction with appropriate

laws, regulations and internal rules for such Board oforganizational systems, NAF is providing education and

Directors. Independent supervisory directors supervise

implementing other measures to enhance the culture ofbusiness execution. Moreover, supervisory directors can obtain

Nippon Accommodations Fund Inc.

Corporate Structure and Governanceas needed reports on operations and financial condition fromThe REIT Management Company formulates and revises

the REIT Management Company and from NAF’s asset

an annual management plan that is the blueprint forcustodian, The Chuo Mitsui Trust and Banking Company,

management and administration policies that comply with theLimited. Independent supervisory directors can also conduct

asset management guidelines. This annual plan andrequired investigations.

compliance with the asset management guidelines serve to

One of NAF’s executive directors has obtained approvaleliminate or minimize risk. In addition, the REIT Managementfrom the regulator in accordance with the Investment Trust

Company has established internal risk management

and Investment Corporation Act of Japan to serve concurrently

regulations and a department that focuses on managing eachas the President and CEO of the REIT Management Company,

type of risk appropriately.

or MFAFM.

Restrictions on Related-Party Transactions
Laws and regulations prohibit the REIT Management

With the objective of enhancing returns for NAF’s

Company from conducting specified transactions with related

unitholders, the REIT Management Company’s internal

parties. In the case of a transaction with a potential conflict ofregulations specify rules for handling related-party

interest between an entity specified under the Investment Trusttransactions. The REIT Management Company has establishedand Investment Corporation Act of Japan and its ordinances

standards and procedures for related-party transactions andand its asset management company, in principle the REIT

executes appropriate asset management for NAF by

Management Company must prepare a brief describing theeliminating conflicts of interest.

transaction and deliver it to NAF and other entities specified by
the Investment Trust and Investment Corporation Act of Japanand its ordinances.

NAF Report March 2008 – August 200827

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.

Growing Demand for Rental Apartments
Japan’s population is projected to decrease in the future,

particular, where over 90 percent of NAF’s assets under

but the number of smaller households is conversely projected

management are located, the population influx is continuing,

to increase due to the growth in single-person households andsuggesting that the number of households and population in

the trend toward nuclear families. In the 23 wards of Tokyo in

the 23 wards of Tokyo will continue to increase steadily.

Scarcity of High-Quality Rental Apartments
The principal sources of rental apartments in Japan have

In recent years, while there has been an upward trend inconventionally been individual landowners seeking to utilize their

the number of construction starts for reinforced concrete

assets effectively and public organizations, and the supply byapartments in Tokyo, the overall stock of rental apartments is

private companies has been limited. In recent years, however, thenot increasing, due in part to the demolition of aging rental

private sector has a greater influence on the supply of rental

stock including company housing. Furthermore, rental

apartments due to factors including the reorganization of theapartments generally do not compare favorably with owned

former Urban Development Corporation as the independent

houses in terms of floor space and quality of facilities andadministrative institution Urban Renaissance Agency and theother amenities. The stock of high-quality rental apartments

transformation of rental apartments into investment products

owned by J-REITs is still limited, and thus very scarce.

through the securitization of real estate.

Demand: Increasing Population Influx into Tokyo(People)Net in-migration

In-migration

Demand: Steady Growth of Households in Tokyo

Out-migration

500,000
250,000
0(Thousands of households)

13,5006,000

13,0005,000

12,5004,000

12,0003,000

11,5002,000-250,000

Projected number of households
Projected population

1,000-500,000

1997

1999

2001

2003

2005

2007

Source: “Households and Population in Tokyo in Accordance with the Basic Register of Residents,”
Statistics Division, Tokyo Metropolitan Government Bureau of General Affairs

28(Thousands of people)

7,000

Nippon Accommodations Fund Inc.

0

1995

2000

2005

2010

2015

2020

11,00010,50010,000Source: “Household Projections for Tokyo,” March 2006, Tokyo Metropolitan Government;
National Institute of Population and Policy ResearchRental Apartments Generate Stable Earnings
Rental apartments are generally unaffected by fluctuations

subdivided and diversified in terms of contract period andin economic conditions and asset value, and rents haverenewal and termination dates. As a result, the potential forremained stable in the past. Moreover, the risk of sudden shifts

fluctuations in earnings is also lower. For this reason, rental

in vacancy rates and lease rates is lower for rental apartments

apartments are perfectly matched with NAF’s core strategy ofthan for office buildings because apartment lease contracts are

securing stable earnings.

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

Key Money

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

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

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

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

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

Supply: Number of Apartment Construction Starts in Tokyo(Units)100,000

Concrete rental apartments
Wooden rental apartments
Apartments for sale

80,000Stability: Relatively Stable Rents(1989 = 100)
150
140

Offices (Tokyo)
Private rental houses(Tokyo, non-wooden, over 30m2)

130
120

60,000110
40,000100
90

20,0000801981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

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

70

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

Source: “Annual Report: Consumer Price Index,” Cabinet Office, Ministry of Internal Affairs andCommunications, and “Service Price Index for the Private Sector,” Bank of JapanNAF Report March 2008 – August 200829

Management‘s Discussion and Analysis

Summary of Selected Financial Data
Yen in millions

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

5th Period

4th Period

3rd Period

5th Period

March 1, 2008 to
August 31, 2008

September 1, 2007 to
February 29, 2008

March 1, 2007 to
August 31, 2007

March 1, 2008 to
August 31, 2008

¥ 4,498
4,208
290
2,286
1,642
1,641

¥ 4,092
3,869
223
1,989
1,631
1,630

¥ 3,524
3,323
201
1,729
1,448
1,447

2,489
3,541
1,641
848
442

2,361
3,317
1,630
731
538

2,055
2,806
1,447
608
159

22,76032,37915,005
7,754
4,042

Total assets (c)Interest-bearing debt
Total net assets (d)146,666

129,969

114,366

81,00062,62064,50062,60949,50062,426

1,341,130
740,673572,604

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

113,480
551,813
14,461
21,929113,480
551,717
14,36620,809113,480
550,10212,75018,106

5,045.84
132.23200.52Return on total assets (Note 4)(Annual rate)
ROE (Note 4)(Annual rate)
LTV (Loan-to-value) ratio (Note 3)
Capital ratio (d) / (c)Payout ratio (b) / (a) (Note 5)
Number of days in period

1.2%(2.4%)
2.6%(5.2%)
55.2%
42.7%
99.9%
184

1.3%
(2.7%)
2.6%(5.2%)
49.6%
48.2%
100.0%
182

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

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

44
189,63696.0%

37168,960
97.2%

30
143,912
96.9%

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

41,13038,4782,652
20,90315,01515,005

Notes 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥109.36 = U.S.$1.00, the approximate exchange rate on August 31, 2008.
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 end of period
LTV ratio: Interest-bearing debt ÷ Total assets
4. Return on total assets: Income before income taxes ÷ {(Initial total assets + Total assets at end of period) ÷ 2}
ROE: Net income ÷ {(Initial net assets + Net assets at end of period) ÷ 2}
The figures in parentheses are annualized based on the number of actual days in each period.
Annual equivalent amounts for the period ended August 31, 2008: Amount for the period ÷ Actual days in the period (184) x 365 days
Annual equivalent amounts for the period ended February 29, 2008: Amount for the period ÷ Actual days in the period (182) x 365 days
Annual equivalent amounts for the period ended August 31, 2007: Amount for the period ÷ Actual days in the period (184) x 365 days
Net assets and total assets used in calculating ROE and ROA are the respective beginning-of-period and period-end averages.
5. Payout ratio figures are calculated to one decimal place only.
6. Number of investment properties means units generally perceived to be one residential building. Average occupancy rate at end of period is the ratio of gross leased area to total rentable area atthe end of the period.

30

Nippon Accommodations Fund Inc.

Investment Environment and Operating Performance
In the residential rental market, people continued to move from other regions into the 23 wards of Tokyo, where NAF has concentrated over 90 percent of its portfolio investment. The number of households also expanded because of an increase in the number of single
and two-person households. As a result of these and other factors, demand for rental housing remained steady. The same factors areprojected to drive the development of the residential rental markets in Japan’s major regional cities, such as Nagoya and Fukuoka,
where NAF has assets.
Recent new development had been increasing the supply of rental housing. However, the overall balance of supply and demandremains stable, due to the demolition of existing stock including aging properties such as company housing and dormitories. In addition,
rental housing such as that provided by NAF that features outstanding location, management, facilities and specifications is still limited in
number in the overall market, and occupancy rates remain high and rents remain stable.
Land prices have been increasing, particularly in central Tokyo, amid intensifying competition to acquire properties. However, there aresigns of a drop in demand to acquire properties, reflecting the changing conditions in the real estate market.
Under such circumstances, NAF made use of its direct pipeline of properties from its sponsor Mitsui Fudosan Co., Ltd. and the information network of its REIT management company during the 5th Period to acquire seven properties valued at a total of ¥16,755 million on
an acquisition price basis in March and May 2008. As a result, NAF’s portfolio as of August 31, 2008 consisted of 44 properties valued at¥140,001 million on an acquisition price basis.
NAF’s assets under management are concentrated in the 23 wards of Tokyo, where demand for rental housing is solid. In addition,
cooperation between NAF’s REIT management company, Mitsui Fudosan Accommodations Fund Management Co., Ltd., and its master
property management company, Mitsui Fudosan Housing Lease Co., Ltd., supported leasing tailored to the unique features of each property
and each location.
At the Okawabata Apartment Communities, one of the principle properties, NAF completed large-scale repairs, mostly concerning exterior walls, at the Park Side Wings. The same work for the River Point Tower had previously been completed. NAF has mostly completed its
large-scale renovation of the common-use areas of the property.
In addition, NAF’s master property management company continued to use its portfolio management system flexibly over the lasttwo periods, further accelerating management and administration and supporting efforts to acquire tenants according to conditions at
specific properties.
As a result of the leasing activities discussed above, the occupancy rate for NAF’s overall portfolio as of August 31, 2008 remained at ahigh level of 96.0 percent.

Overview of Results
As a result of the above, for the 5th Period, NAF recorded total revenues of ¥4,498 million, operating income of ¥2,212 million, income
before income taxes of ¥1,642 million and net income of ¥1,641 million.

NAF Report March 2008 – August 200831

Distributions to Unitholders
NAF determines the amount of cash distributions such that they exceed 90 percent of NAF’s taxable income available for dividends as
set forth in Article 67-15 of the Special Taxation Measures Law of Japan. For the 5th Period, cash distributions totaled ¥1,641,034,280, or¥14,461 per unit.
Yen in thousands, except per unit amounts

5th Period

4th Period

3rd Period

March 1, 2008
to August 31, 2008

September 1, 2007
to February 29, 2008

March 1, 2007
to August 31, 2007

Retained earnings
Undistributed earnings¥1,641,044
10¥1,630,255
1¥1,446,885
15

Total cash distribution(Per unit)
Distribution of retained earnings(Per unit)
Cash distribution in excess of retained earnings(Per unit)

1,641,034
14,461
1,641,034
14,461——

1,630,254
14,366
1,630,254
14,366——

1,446,870
12,7501,446,870
12,750——Note: The above cash distributions were paid after the close of the period.

Changes in Assets, Liabilities and Net Assets
AssetsTotal assets as of August 31, 2008 increased ¥16,697 million from February 29, 2008 to ¥146,666 million.
Total current assets decreased ¥238 million from February 29, 2008 to ¥3,882 million.
Total investment properties increased ¥16,934 million from February 29, 2008 to ¥142,703 million as a result of the acquisition of
new properties and other factors. Compared to February 29, 2008, land including land held in trust increased ¥10,788 million andbuildings including buildings held in trust increased ¥6,146 million.

Liabilities
Current liabilities increased ¥16,542 million from February 29, 2008 to ¥30,403 million. Short-term loans increased ¥16,500 million
from February 29, 2008 to ¥29,000 million due to the acquisitions of properties.
Long-term debt was unchanged from February 29, 2008 at ¥52,000 million.
Interest-bearing debt as of August 31, 2008 increased ¥16,500 million from February 29, 2008 to ¥81,000 million. The ratio of longterm, fixed-rate debt to total interest-bearing debt was 64.2 percent, compared to 80.6 percent as of February 29, 2008. The loan-tovalue ratio, calculated as interest-bearing debt divided by total assets at the end of the period, increased to 55.2 percent from 49.6
percent as of February 29, 2008.

Net Assets
Net assets totaled ¥62,620 million as of August 31, 2008. Unitholders’ capital was unchanged at ¥60,979 million, and retained earnings increased to ¥1,641 million from ¥1,630 million as of February 29, 2008.

32

Nippon Accommodations Fund Inc.

Management‘s Discussion and Analysis

Funding
Balance of Paid-in Capital
NAF was established on October 12, 2005 with initial paid-in capital of ¥100 million. NAF began investing activities on November
29, 2005 after ¥21,140 million was raised through private placement. As of August 31, 2008, NAF had issued 113,480 investment
units out of 2,000,000 total authorized units. NAF’s investment units were listed on the J-REIT section of the Tokyo Stock Exchange inAugust 2006 upon the completion of a public offering. As the Investment Trust and Investment Corporation Act of Japan does not contain any provision for the issue of more than one class of units, NAF’s investment units comprise the sole class of units authorized andissued by NAF.
Units outstanding
Issue date

Remarks

Increase

Paid-in capital

Balance

Increase(Units)

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

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

Balance

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

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

Market Price of Units
High/Low (closing price) of units on the Tokyo Stock Exchange:
5th Period
March 1, 2008 to
August 31, 2008

4th Period
September 1, 2007 to
February 29, 2008

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

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

(Yen)

(Yen)

(Yen)

(Yen)

High

¥565,000¥762,000¥1,030,000¥1,000,000

Low

396,000

528,000

685,000

583,000

Borrowings
Borrowings by financial institution as of August 31, 2008 are shown below.
Short-term loans(Yen in millions)Interest rate
(Note 1)

Sumitomo Mitsui
Banking Corporation¥12,000

1.1%

October 10, 2008

The Hachijuni Bank, Ltd.

1,000

1.0%

September 11, 2008

Mitsubishi UFJ Trust andBanking Corporation

5,000

1.0%

September 11, 2008

The 77 Bank, Ltd.

1,000

1.0%

October 31, 2008

The Chuo Mitsui Trust andBanking Company, Limited

3,500

1.1%

January 16, 2009The Sumitomo Trust andBanking Co., Ltd.

4,500

0.8%

September 19, 2008

The Bank of Fukuoka, Ltd.

2,000

1.1%

January 16, 2009

LenderTotal short-term loans

Balance

Date of maturity(Note 2)

Repayment
methodBulletpayment

Use offunds(Note 3)

Notes

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

¥29,000

NAF Report March 2008 – August 200833

Long-term loans
Balance

LenderInterest rate

Date ofmaturity¥ 2,000
5,000

1.2%
1.4%

November 30, 2009
November 30, 2010

3,000

1.4%

November 30, 2010

3,000

1.8%

November 30, 2012

2,000

1.5%

February 26, 2010

3,000
3,000
3,000
5,000
1,000
1,000
1,000
2,000
2,000
1,000
3,000
2,000
¥42,000¥71,000

1.6%
2.1%
2.2%
2.1%
1.8%
1.5%
1.6%
1.6%
1.6%
1.6%
1.7%
1.6%

February 28, 2011
April 11, 2012
April 11, 2013
August 6, 2013
April 12, 2010
September 14, 2012
April 19, 2011
October 12, 2011
April 19, 2011
April 19, 2011
October 12, 2012
October 31, 2012

(Yen in millions)

Sumitomo Mitsui Banking
Corporation
The Chuo Mitsui Trust andBanking Company, Limited
The Sumitomo Trust andBanking Co., Ltd.
The Bank of Tokyo-Mitsubishi
UFJ, Ltd.
Nippon Life Insurance Company
Development Bank of Japan Inc.
The Hachijuni Bank, Ltd.
Mizuho Corporate Bank, Ltd.
The Chugoku Bank, Limited
Shinsei Bank, Limited
Shinkin Central Bank
The Bank of Fukuoka, Ltd.
Total long-term loans
Total borrowings

Repayment
methodBulletpayment

Use offunds(Note 3)

Notes

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

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

Amount1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥5,000¥15,000¥5,000¥17,000

Bonds
Issue

Issue date

No. 1 unsecured November 15,
bonds
2007
Total

Balance as ofAugust 31, 2008
(Yen in millions)

CouponMaturitydate

Redemption

Use ofproceeds

Notes¥10,000

1.7%

November 14,
2014

BulletPayment

Note 1

Note 2¥10,000

Notes 1. Use of funds includes repayment of borrowings.
2. This bond is only issued to rank pari passu with other bonds issued.

34

Nippon Accommodations Fund Inc.

Management‘s Discussion and Analysis

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

Objective

Estimated duration

Total amounts

Payment for thecurrent period(March 1, 2008 to
August 31, 2008)

Cumulative
amount paid

(Yen in millions)Okawabata
Apartment
Communities

Renovation of shared facilities(emergency lighting, water
pump, etc.)

From September 2008
to February 2009

¥42

—

—

Renovation of emergencyrelated equipment

From September 2008
to February 2009

21

—

—

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NAF posted ¥442 million in capital expenditures together
with ¥133 million for repairs and maintenance expenses.
Name of property

Okawabata Apartment
Communities

Other Properties

Objective

PeriodExpenditure(Yen in millions)

Repairs and renovation of outer walls, etc.
(Construction area 3)

From October 2007
to July 2008

¥267

Renewal construction in rentable areas, etc.

From March 2008
to August 2008

140

Miscellaneous construction

From March 2008
to August 2008

35

Total

¥442

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 and repairs andmaintenance that will be conducted in accordance with NAF’s business plan for each property.
Yen in millions

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

As of August 31, 2008

As of February 29, 2008

As of August 31, 2007

¥740
222
406
¥556

¥696
651
607
¥740

¥413
438
156
¥696

NAF Report March 2008 – August 200835

Management‘s Discussion and Analysis

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

Item

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

5th Period

4th Period

3rd Period

March 1, 2008
to August 31, 2008

September 1, 2007
to February 29, 2008

March 1, 2007
to August 31, 2007

¥323
6
21
10
13
108

¥301
6
27
10
13
125

¥262
5
22
10
14
89

¥481

¥482

¥402

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

Total paid (A)(Yen in millions)

Amount ofpayment (B)Paid to

B/A(Note 2)

(Yen in millions)

Acquisition price of real estate andreal estate held in trust¥16,755

Mitsui Fudosan Co., Ltd.

Total

¥8,26049.3%¥8,26049.3%(2) Fees Paid for the Period from March 1, 2008 to August 31, 2008
Description of transactions with related parties (Note 1)
Category

Total fees paid (A)(Yen in millions)

Amount ofpayment (B)Paid to

B/A(Note 2)

(Yen in millions)

Property management fees

¥345

Mitsui Fudosan Housing Lease Co., Ltd.

¥345

100.0%

Building management fees

142

Mitsui Fudosan Housing Lease Co., Ltd.

142

100.0%RESIDENT FIRST CO., LTD.

16

16.6%

Mitsui Home Estate Co., Ltd.

2

1.6%

Mitsui Rehouse Tokyo Co., Ltd.

1

1.5%

Kyushu Mitsui Real Estate Sales Co., Ltd.

0

0.4%

Leasing related service fees98(3) Other Payments to Related Parties
Paid toMitsui Home Remodeling Co., Ltd.

Amount of payment(Yen in millions)

Item

¥122

Repair and maintenance costs

MITSUI Designtec Co., Ltd.

8

Repair and maintenance costs

Mitsui Fudosan Housing Service Co., Ltd.

2

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.

36

Nippon Accommodations Fund Inc.

Financial Statements

Balance Sheets
Nippon Accommodations Fund Inc.
As of August 31, 2008 and February 29, 2008

U.S. dollars in thousands
Yen in millions

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

5th Period

4th Period

5th Period

As of August 31, 2008

As of February 29, 2008

As of August 31, 2008

¥ 3,189
658
35
3,882

¥ 3,486
583
51
4,120

96,006

85,218877,890

49,860(3,163)
142,703
81¥146,666

42,866(2,315)
125,76980¥129,969

455,925(28,923)
1,304,892
741$1,341,130¥ 29,000
434
710
259
30,403¥ 12,500
480
648
233
13,861$ 265,179
3,969
6,492
2,368
278,008

42,00010,0001,643
53,643¥ 84,046

42,00010,0001,499
53,499¥ 67,360

384,053
91,441
15,024
490,518$ 768,526

60,9791,641¥ 62,620¥146,666

60,9791,630¥ 62,609¥129,969

557,599
15,005$ 572,604$1,341,130$

29,1616,017
320
35,497

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

NAF Report March 2008 – August 200837

Statements of Income
Nippon Accommodations Fund Inc.
March 1, 2008 to August 31, 2008, September 1, 2007 to February 29, 2008 and March 1, 2007 to August 31, 2007

U.S. dollars in thousands
Yen in millions

Revenues (Note 6):
RentalOther revenues related to property leasing
Total Revenues
Operating Expenses (Note 6):
Property management fees
Real estate taxes and insurance
Repairs and maintenance
Other rental expenses
Depreciation and amortization
Asset management fees
Other expenses
Total Operating Expenses
Operating Income
Interest and other income
Interest expense
Other expenses
Income before Income Taxes
Current and deferred income taxes (Note 7)
Net Income

5th Period

4th Period

3rd Period

5th Period

March 1, 2008 to
August 31, 2008

September 1, 2007 to
February 29, 2008

March 1, 2007 to
August 31, 2007

March 1, 2008 to
August 31, 2008

¥4,208290
4,498¥3,869223
4,092¥3,323201
3,524$38,478
2,652
41,130

499
148
133
177
848
323
158
2,286
2,212
19
(583)
(6)
1,642

425
115
91
145
731
301
181
1,989
2,103
6
(474)
(4)
1,631

375
117
87
140
608
261
141
1,729
1,795
4
(349)
(2)
1,448

4,563
1,353
1,216
1,619
7,754
2,954
1,445
20,903
20,227174(5,331)(55)
15,015

1¥1,6411¥1,6301¥1,447

9$15,005

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

38

Nippon Accommodations Fund Inc.

(Note 1)

Financial Statements

Statements of Changes in Net Assets
Nippon Accommodations Fund Inc.
For the period from March 1, 2007 to August 31, 2008

Yen in millions

Balance as of February 28, 2007
Cash distribution declared
Net income
Balance as of August 31, 2007
Cash distribution declared
Net income
Balance as of February 29, 2008
Cash distribution declared
Net income
Balance as of August 31, 2008

Number of
Units

Unitholders’CapitalRetained
Earnings

Total

113,480¥60,979¥ 2,028¥63,007————(2,028)1,447(2,028)
1,447

113,480

60,9791,447

62,426————(1,447)
1,630(1,447)
1,630

113,480

60,9791,630

62,609————(1,630)1,641(1,630)
1,641

113,480¥60,979¥ 1,641¥62,620

U.S. dollars in thousands (Note 1)

Balance as of February 28, 2007
Cash distribution declared
Net income
Balance as of August 31, 2007
Cash distribution declared
Net income
Balance as of February 29, 2008
Cash distribution declared
Net income
Balance as of August 31, 2008

Number of
Units

Unitholders’CapitalRetained
Earnings

Total

113,480$557,599$ 18,544$576,143————(18,544)
13,232(18,544)
13,232

113,480

557,599

13,232570,830————(13,232)
14,905(13,232)
14,905

113,480

557,599

14,905572,504————(14,905)
15,005(14,905)
15,005

113,480$557,599$ 15,005$572,604

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

NAF Report March 2008 – August 200839

Financial Statements

Statements of Cash Flows
Nippon Accommodations Fund Inc.
March 1, 2008 to August 31, 2008, September 1, 2007 to February 29, 2008 and March 1, 2007 to August 31, 2007

U.S. dollars in thousands
Yen in millions

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

5th Period

4th Period

3rd Period

5th Period

March 1, 2008 to
August 31, 2008

September 1, 2007 to
February 29, 2008

March 1, 2007 to
August 31, 2007

March 1, 2008 to
August 31, 2008

¥ 1,642
848
4
583
(75)
(46)

¥ 1,631
731
3
474
(72)
59

¥ 1,448
608
—
349
(52)
(277)

$ 15,015
7,754
37
5,331
(686)
(421)

63
(556)

88
(387)

40
(313)

576
(5,084)

1
15
2,479

(9)
(4)
2,514

65
(6)
1,862

9
137
22,668(17,782)
341
(197)
(6)
(17,644)(16,144)
351
(168)
(2)
(15,963)(7,359)
221
(173)
(5)
(7,316)(162,601)
3,118(1,801)(55)(161,339)

77,100(60,600)———(1,632)
14,868(297)

53,000(56,000)
8,000
10,000(58)(1,444)
13,49849

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

705,011(554,133)———(14,923)
135,955(2,716)

3,486

3,437

3,917

31,876¥ 3,189¥ 3,486¥ 3,437$ 29,161

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

40

Nippon Accommodations Fund Inc.

(Note 1)

Notes to Financial Statements
Nippon Accommodations Fund Inc.
March 1, 2008 to August 31, 2008, September 1, 2007 to February 29, 2008 and March 1, 2007 to August 31, 2007

Note 1

Organization and Basis of Presentation

Organization
Nippon Accommodations Fund Inc. (hereinafter “NAF”) was formed on October 12, 2005 as an investment corporation under theInvestment Trust 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 acquiring, managing, leasing, and renovating office properties. MFAFM is a 100% subsidiary of Mitsui Fudosan Co., Ltd.
On August 3, 2006, NAF had raised approximately ¥40,000 million through an initial public offering of investment units. Those investment units are listed on the J-REIT section of the Tokyo Stock Exchange.
As of August 31, 2008, NAF had ownership or beneficiary interests in 44 properties containing approximately 189,636 square metersof rentable space. As of August 31, 2008, NAF had leased approximately 182,068 square meters to tenants. The occupancy rate for theproperties was approximately 96.0%.

Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust andInvestment Corporation Act of Japan and the Japanese Securities and Exchange Law and its related accounting regulations, and in conformity
with accounting principles generally accepted in Japan (hereinafter “Japanese GAAP”), which are different in certain respects as to applicationand disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements have been restructured and translated into English from the financial statements of NAF preparedin accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Financial
Instruments and Exchange Law. Some supplementary information included in the statutory Japanese language financial statements, but notrequired for fair presentation, is not presented in the accompanying financial statements. NAF does not prepare consolidated financial statements, as NAF has no subsidiaries.
The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using theapproximate exchange rate on August 31, 2008, which was ¥109.36 to U.S. $1. The convenience translation should not be construed as representation that the Japanese yen amounts have been, or could in future be, converted into U.S. dollars at this or any other rate of exchange.

Note 2

Summary of Significant Accounting Policies

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

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

2-47 years

Structures

3-60 years

Machinery and equipment

12-45 years

Tools, furniture and fixtures

2-15 years

NAF Report March 2008 – August 2008

41

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

Deferred Assets
Costs for the initial public offering of units and start-up expenses were charged to income when incurred. New unit issue costs arecharged to income when incurred.
Bond issue costs are amortized over the period of the bonds under the straight-line method.

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

Real Estate Taxes
NAF-owned properties are subject to taxes including property tax, city planning tax and depreciable asset tax. Taxes for each fiscal
period are charged to income on an accrual basis.
The owner of properties is registered in a record maintained by the local government in each jurisdiction, and the taxes are imposed on
the owner registered in the record, as of January 1, based on the assessment made by the local government.
When the property is purchased before January 1 of any given calendar year, these taxes for the previous year are imposed on the seller. The Company pays the seller the corresponding tax amounts for the period from the property’s transfer date to December 31 of theprevious year as part of the purchase prices of each property, and capitalizes these amounts as the cost of the property. Capitalized property tax for the period ended August 31, 2008 amounted to ¥12 million.

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

42

Nippon Accommodations Fund Inc.

Notes to Financial Statements

Note 3

Schedule of Investment Properties

Investment properties as of August 31, 2008 and February 29, 2008 consisted of the following:
Yen in millions

As of August 31, 2008
Acquisition
Costs

Accumulated
Depreciation

As of February 29, 2008

Book Value

Acquisition
Costs

—
—

¥ 52,585
43,421¥ 41,797
43,421

96,006—96,006

Buildings and improvements
Buildings and improvements in trust

29,321
17,601(1,387)(1,376)

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

46,922
661
513
453
883
120
293
16

Other investment properties total

Land
Land in trust¥ 52,585
43,421

Land including trust total

Total

Note 4¥

Accumulated
Depreciation¥

Book Value——¥ 41,797
43,421

85,218—85,21827,934
16,22523,12917,167(947)(1,082)

22,182
16,084(2,763)
(64)
(31)
(111)
(76)
(17)
(100)
—

44,159
596
481
342
808
103
192
16

40,296
511
345
366
874
120
284
71

(2,029)
(44)
(16)
(76)
(61)
(13)
(76)
—

38,267
468
328
289
813
107
208
71

2,937

(399)

2,538

2,570

(286)

2,284

¥145,866¥(3,163)¥142,703¥128,084¥(2,315)¥125,769

Short-Term Loans and Long-Term Debt

Short-term loans consist of short-term borrowings under loan agreements. The annual interest rates on short-term loans outstanding
are fixed rates and as of August 31, 2008 and February 29, 2008 ranged from 0.82% to 1.08% and from 0.88% to 1.07%, respectively.
Long-term debt is at fixed rates and consists of the following:
Yen in millions

Unsecured loans due 2009 to 2013 principallyfrom banks and insurance companies withinterest rates mainly ranging from 1.2% to 2.2%
1.7% unsecured bonds due 2014

As of August 31, 2008

As of February 29, 2008

¥42,000
10,000¥42,000
10,000¥52,000¥52,000

The annual maturities of long-term loans as of August 31, 2008 were as follows:
Yen in millions

2009
2010
2011
2012
Thereafter¥ 2,000
11,0009,000
12,0008,000

NAF Report March 2008 – August 200843

Note 5Unitholders’ Capital

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

As of August 31, 2008

As of February 29, 2008

As of August 31, 2007

2,000,000
113,480

2,000,000
113,480

2,000,000
113,480

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

Note 6

Rental Revenues and Expenses

Rental revenues and expenses for the periods ended August 31, 2008, February 29, 2008 and August 31, 2007 were as follows:
Yen in millions

5th Period

4th Period

3rd Period

March 1, 2008
to August 31, 2008

September 1, 2007
to February 29, 2008

March 1, 2007
to August 31, 2007

¥4,091117¥3,766103¥3,243
80

4,208

3,869

3,323

241
49

186
37

159
42

290

223

201

Total revenues from property leasing

4,498

4,092

3,524

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

499
133
138
9
46
9
848
98
24

425
90
107
9
41
8
731
67
28

375
87
110
9
33
7
608
78
19

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

Total rental expenses
Operating Income from Property Leasing Activities

44

Nippon Accommodations Fund Inc.

1,804

1,506

1,326

¥2,694¥2,586¥2,198

Notes to Financial Statements

Note 7

Income Taxes

NAF is subject to income taxes in Japan. The effective tax rates on NAF’s income based on applicable Japanese tax law were 0.06%,
0.06% and 0.07% for the periods ended August 31, 2008, February 29, 2008 and August 31, 2007, respectively. The following table summarizes the significant differences between the statutory tax rates and NAF's effective tax rates for financial statement purposes.

Statutory effective tax rate
Deductible distributions paid
Others
Effective tax rate

5th Period

4th Period

3rd Period

March 1, 2008
to August 31, 2008

September 1, 2007
to February 29, 2008

March 1, 2007
to August 31, 2007

39.39%(39.37)0.04

39.39%(39.37)0.04

39.39%(39.36)
0.04

0.06%

0.06%

0.07%

The tax effects of significant temporary differences that resulted in net deferred tax assets or liabilities as of August 31, 2008,
February 29, 2008 and August 31, 2007 were as follows:
Yen in thousands
As of August 31, 2008

As of February 29, 2008

As of August 31, 2007

Deferred tax assets:
Enterprise taxes

¥ 21

¥ 19

¥ 19

Total deferred tax assets
Deferred tax liabilities

21
—

19
—

19
—

Net Deferred Tax Assets

¥ 21

¥ 19

¥ 19

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

Note 8Per Unit Information

Information about earnings per unit for the periods ended August 31, 2008, February 29, 2008 and August 31, 2007 and net
assets per unit as of August 31, 2008, February 29, 2008 and August 31, 2007 was 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

5th Period

4th Period

3rd Period

March 1, 2008
to August 31, 2008

September 1, 2007
to February 29, 2008

March 1, 2007
to August 31, 2007

¥14,461¥14,365¥12,749

113,480

113,480

113,480

As of August 31, 2008

As of February 29, 2008

As of August 31, 2007

¥551,813¥551,717¥550,102

NAF Report March 2008 – August 200845

Notes to Financial Statements

Note 9Transactions with Related Parties(March 1, 2008 – August 31, 2008)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Directors and Major Individual Unitholders
Classification

Name

Director and/or
close relative

Nobuyuki Nakai

Principal businessor occupation

Executive Directorof NAF and
President & CEOof MFAFM

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

Amount oftransaction

Account(Yen in millions)¥449(Notes 2 and 4)

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

Balance at endof period(Yen in millions)

Accounts
payable(Note 4)

Accounts
payable(Note 4)¥339

¥0Notes 1. Nobuyuki Nakai entered into this transaction as a representative of MFAFM, and this amount is subject to the conditions set forth in the by-laws of NAF.
2. The amount of asset management fees includes ¥126 million for management related to acquisition of properties included in the book value of each investment property, etc.
3. Nobuyuki Nakai entered into this transaction as a representative of MFAFM, and this amount is set forth in the “General Administration Agreement relating toOrganizational Management” concluded between NAF and MFAFM.
4. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

(3) Subsidiaries: None applicable, because NAF has no subsidiaries in which it has invested.
(4) Sister Companies: None applicable(September 1, 2007 – February 29, 2008)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Directors and Major Individual Unitholders
Classification

Name

Director and/or
close relative

Nobuyuki Nakai

Principal businessor occupation

Executive Directorof NAF and
President & CEOof MFAFM

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

Amount oftransaction

Account(Yen in millions)¥393(Notes 2 and 4)

Payment for the provision ofgeneral administration services
relating to organizational
management to MFAFM (Note 3)¥6(Note 4)

Balance at endof period(Yen in millions)

Accounts
payable(Note 4)

Accounts
payable(Note 4)¥316

¥0Notes 1. Nobuyuki Nakai entered into this transaction as a representative of MFAFM, and this amount is subject to the conditions set forth in the by-laws of NAF.
2. The amount of asset management fees includes ¥92 million for management related to acquisition of properties included in the book value of each investment property, etc.
3. Nobuyuki Nakai entered into this transaction as a representative of MFAFM, and this amount is set forth in the “General Administration Agreement relating toOrganizational Management” concluded between NAF and MFAFM.
4. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

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

Note 10Significant Subsequent Events

None applicable

46

Nippon Accommodations Fund Inc.

Independent Auditors’ Report

To the Board of Directors of
Nippon Accommodations Fund Inc.:
We have audited the accompanying balance sheets of Nippon Accommodations Fund Inc. (a Japanese Real
Estate Investment Trust) as of August 31, 2008 and February 29, 2008, and the related statements of income,changes in net assets and cash flows for each of the periods from March 1, 2008 to August 31, 2008, from
September 1, 2007 to February 29, 2008 and from March 1, 2007 to August 31, 2007, expressed in Japaneseyen. These financial statements are the responsibility of the Company’s management. Our responsibility is toindependently express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of Nippon Accommodations Fund Inc. as of August 31, 2008 and February 29, 2008, the results of its
operations and its cash flows for each of the periods from March 1, 2008 to August 31, 2008, from September 1,
2007 to February 29, 2008 and from March 1, 2007 to August 31, 2007, in conformity with accounting
principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying financial statements with respect to the period ended August 31,
2008 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S.
dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1 to thefinancial statements.

Tokyo, Japan
November 25, 2008

KPMG AZSA & Co., an audit corporation incorporated
under the Japanese Certified Public Accountants Law
and a member firm of the KPMG network of
independent member firms affiliated with KPMGInternational, a Swiss cooperative.

NAF Report March 2008 – August 200847

Appendix

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 andprimary related corporations.

Role

Name

Overview of Relevant Operations

REIT managementcompany and generaladministrative agent

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

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

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

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

Real estate
information provider

Mitsui Fudosan
Residential Co., Ltd.*

Mitsui Fudosan Residential provides real estate sales information to MFAFM underan Agreement on Provision of Real Estate Information that MFAFM entered intowith Mitsui Fudosan Residential on September 26, 2007.

Property information
providerMitsui Real Estate
Sales Co., Ltd.

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

Master property
management company

Mitsui Fudosan
Housing Lease Co., Ltd.

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

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

48

Nippon Accommodations Fund Inc.

Mitsui Fudosan Accommodations Fund Management Co., Ltd.
REIT Management Company and General Administrative Agent
MFAFM, as a REIT management company provided for in theInvestment Trust and Investment Corporation Act of Japan, performs management of NAF’s assets and undertakes managementof the institutions of NAF. As of August 31, 2008, MFAFM has
been entrusted as a REIT management company only by NAF.
As of the same date, MFAFM has paid-in capital of ¥300 million. There is no capital relationship with NAF. Nobuyuki Nakai,
President & CEO of MFAFM, is concurrently an executive directorof NAF.

■ Operation■■

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

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

NAF Report March 2008 – August 200849

■ History of MFAFM■ Directors and Staff

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

As of August 31, 2008, the directors and corporate auditors of
MFAFM are as follows.

January 4, 2005
March 4, 2005

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

March 25, 2005

Title

Nobuyuki Nakai

President & CEO (standing)

Yoshihisa Otake

Director & CIO (standing)Morio Shibata

Director & CFO (standing)

Yoshinobu Nakamura

Director

Toru Suzuki

Corporate Auditor

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

July 8, 2005

Name of Directors and Auditors

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

Obtained approval as a discretionary transac-

Name

Title

tion agent under the Building Lots and

Tetsuya Kanazawa

Chief Compliance Officer

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

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

February 8, 2006

Obtained approval to undertake management of the institutions

September 30, 2007 Registration of financial instruments andexchange business

The staff other than those mentioned above comprises
13 persons.

■ Outline of Financial Condition
An outline of the financial condition of MFAFM is as follows.
Outline of principal assets and liabilities for the most recent
fiscal year:
Current as of March 31, 2008

(Yen in millions)

Total Assets
Total Liabilities
Stockholders’ Equity

¥855
78
777

Profit and loss for the most recent fiscal year:
Fourth Fiscal Year
(April 1, 2007 – March 31, 2008)

Operating Income
Ordinary Profit
Net Income

50

Nippon Accommodations Fund Inc.

(Yen in millions)

¥817
399
230

Appendix

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

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

■ Provision of Third-Party Real Estate Sales Information
Regardless of whether Mitsui Fudosan has originated or isbrokering the sale, Mitsui Fudosan’s Accommodations Business
Division in principle notifies MFAFM of information concerningavailable real estate or real estate-related assets owned by third
parties, when such real estate or assets are consistent with
MFAFM’s asset management guidelines, unless such notification
cannot be made due to lack of consent of third parties or for any
other unavoidable reasons, or Mitsui Fudosan itself intends toacquire such real estate or assets with the objective of development or ownership.

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

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

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

■ Operation Fees
MFAFM will provide the compensation as separately discussed
and agreed with Mitsui Fudosan under this agreement.

NAF Report March 2008 – August 2008

51

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 serve asasset management guidelines.

regional characteristics and tenant needs. NAF then deploys thisinformation to invest in properties with suitable residential plans
and characteristics.

2. Investment Standards
1. Investment Areas
NAF emphasizes Greater Tokyo and other major cities inJapan in investing in accommodation assets. By region,
approximately 80 percent of NAF’s assets are located in the 23
wards of Tokyo.
When considering individual investments, NAF studies

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 thetable below.

ItemStandard

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

Ownership interests

In principle, NAF shall hold ownership interests of a whole property. However, NAF may invest incompartmentalized ownership upon consideration of the specific property. NAF may also invest in
leaseholds, including fixed-term leaseholds, on the basis of consideration of earning potential, thestability of the leasehold rights and other relevant matters.

Building structure

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

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

3. Due Diligence Standards
NAF selects assets to invest in only after due diligencecovering economic feasibility, physical condition and legal statusin accordance with the asset management guidelines. Due
diligence includes real estate appraisals and building inspection
Item
Economic
feasibility
studies52

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

Issues InvestigatedMarket survey

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

Tenant survey

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

Nippon Accommodations Fund Inc.

Physical
condition
studiesLegalinvestigation

Survey ofearnings andrelated issues

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

Location

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

Construction,equipment andspecifications

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

Building
management

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

Antiseismic
resistance andprobable
maximum loss
(PML)

1. Antiseismic resistance that meets the New Earthquake Resistance Standards or equivalent resistance
2. Checks of the construction company, architectural firm, construction engineering company, and institutionthat inspected construction. Confirmation of authenticity of the structural fabrication calculation sheets.
3. In principle, earthquake PML shall be below 15 percent. For buildings for which PML is at or above 20
percent, consideration of additional antiseismic reinforcing work, additional earthquake insurance and otherrelevant matters must be considered.

Environmental,
soil and otherissues

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

Rights andrelated issues

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

NAF Report March 2008 – August 200853

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

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

54

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

2. Selection and Monitoring of the Property
Management Company

3. Policies for Property and Casualty
Insurance Coverage

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

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

Nippon Accommodations Fund Inc.

Portfolio Policy

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

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

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

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

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

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

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

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

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

NAF Report March 2008 – August 200855

Corporate Data and Investor Information(As of August 31, 2008)■ Corporate Data
Corporate office

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

Date of incorporation

October 12, 2005

Capital¥60,979 million (as of August 31, 2008)

Unitholders

3,983

Transfer agent

The Chuo Mitsui Trust and Banking Company, Limited
33-1, Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan

Business office of the transfer agent

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

Independent auditor

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

Investor relations

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

Disclaimer
This document was prepared solely for the convenience of andreference by overseas investors and does not correspond to theoriginal Japanese documents.
This English document contains selected information including apartial translation of the Securities Report (Yuka shoken hokokusho)
filed on November 26, 2008 pursuant to the Financial Instruments andExchange Law of Japan, and the Financial Statements andPerformance Information Report for the period from March 1, 2008 to
August 31, 2008, of Nippon Accommodations Fund Inc. preparedpursuant to the Investment Trust and Investment Corporation Act ofJapan. This document should not be deemed a summary of the above
mentioned Securities Report and the Financial Statements andPerformance Information Report.
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.
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 theoriginal Japanese documents and English statements contained herein,
the original Japanese documents will always govern the meaning andinterpretation. None of Nippon Accommodations Fund Inc., Mitsui
Fudosan Accommodations Fund Management Co., Ltd. or any

56

Nippon Accommodations Fund Inc.

of their respective 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 andinformation. We base these statements on our beliefs as well as ourassumptions based solely on certain limited information currently
available to us. Because these statements reflect our current views
concerning future events, these statements involve known andunknown risks, uncertainties and assumptions. Our future
performance could materially differ from those set out in theseforward-looking statements. We do not undertake and will notundertake to release revisions of forward-looking statements toreflect future events or circumstances or of any other statements orinformation contained herein.

■ Investor Information
Fiscal period

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

Total number of common units issued

113,480 (As of August 31, 2008)

Distribution per unit

¥14,461 (As of August 31, 2008)

Unit listing

Tokyo Stock Exchange (Securities Code: 3226)

Major Unitholders(As of August 31, 2008)

Number of Units Held

Percentage of Total*

Japan Trustee Services Bank, Ltd. (Trust Account)

12,862

11.33%The Master Trust Bank of Japan, Ltd. (Trust Account)

10,447

9.20%

NikkoCiti Trust and Banking Corporation (Investment Account)

9,106

8.02%

Mitsui Fudosan Co., Ltd.

6,600

5.81%

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

6,232

5.49%

Name

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

6,015

5.30%

The Chuo Mitsui Trust and Banking Company, Limited

3,600

3.17%

Sumitomo Mitsui Banking Corporation

3,590

3.16%

American Life Insurance Company GA-L

3,000

2.64%

The Hachijuni Bank, Ltd.

2,000

1.76%

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

Composition and Distribution of Unitholders
Overseas corporations
and individuals
96 (2.41%)
Financial institutions
83 (2.09%)

Other domestic corporations
65 (1.63%)

Individuals and others
8,890 (7.83%)

Securities companies
16 (0.40%)

Other domestic corporations
9,066 (7.99%)

Individuals and others
3,723 (93.47%)

Overseas corporations
and individuals
13,639 (12.02%)

Number of unitholders
Total 3,983

Securities companies
1,393 (1.23%)

Financial
institutions
80,492
Individuals and others(70.93%)
2,288 (2.01%)

Number of units held
Total 113,480

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

1,000,000

25,000800,000

20,000600,000

15,000400,000

10,000200,000

5,000

0Mar. Apr. May June
2007

July Aug. Sept. Oct. Nov. Dec. Jan. Feb.
2008

Mar. Apr. May June

July Aug.

0

NAF Report March 2008 – August 200857

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

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

Printed in Japan