8th Period
NAF Report | September 2009 – February 2010
http://www.naf-r.jp/english/index.html

An Ongoing Commitment
to Value Creation

Profile

Nippon Accommodations Fund Inc. (“NAF”) was incorporated as an investment
corporation on October 12, 2005 with an initial investment by Mitsui Fudosan Co., Ltd.
(“Mitsui Fudosan”), and was listed on the Tokyo Stock Exchange on August 4, 2006 withassets of more than ¥100 billion. NAF invests in accommodation assets* located mainlyin the 23 wards of Tokyo. The Investment Trust and Investment Corporation Act of Japanrequires an investment corporation to be managed by an external entity. NAF’s assets aremanaged 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 and senior residences. They do not include hotel properties.

Contents
NAF Snapshot .............................................. 1
NAF’s Two Core Strategies........................... 2
To Our Stakeholders..................................... 4
Portfolio Summary ....................................... 8
Management‘s Discussion and Analysis ...... 10
Financial Statements.................................... 18
Notes to Financial Statements ..................... 22
Independent Auditors’ Report...................... 28
Facts and Figures
Rental Apartment
Investment Characteristics ...................

1

Corporate Structure and Governance ...

3

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

6

Portfolio Policy .....................................

8

Corporate Data.....................................

11

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

12

NAF Snapshot(As of February 28, 2010)■ Profitability

96.5%

An occupancy rate of 96.5 percent

5.3%

Net operating income (NOI) yield* of 5.3 percent¥14,567

Distribution per unit of ¥14,567 for the 8th Period■ Outstanding Portfolio
Portfolio of 61 superior properties with a totalacquisition price of ¥180,027 million¥180,027 million
279,562.00m2 / 6,214 units

6,214 units with a total rentable area of 279,562.00m2

89.6%

89.6 percent of portfolio located in the 23 wards of Tokyo■ Financial Stability
Rated A2 by Moody’s; AA– by Rating and Investment Information;
and A+ (Long-term) and A-1 (Short-term) by Standard & Poor’s

A2, AA–, A+

LTV (Loan-to-Value) ratio of 53.1 percent,long-term fixed-rate debt ratio of 74.2 percent

53.1%* Weighted average of annual NOI yield on the acquisition value of each property.

Asset Growth (Acquisition Price Basis) / Occupancy Rate / Distribution per Unit
250,000 Assets under management (Yen in millions)
100 Occupancy rate (%)

97.2

96.9

97.2

96.0

96.2

94.4

200,00080

180,027

150,000
60

100,000
40

50,00020

96.5

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

38,986140,001

123,246
101,385

108,234

41,03600 Establishment March 31,

Distribution per unit

140,001

182,776

Okawabata
Apartment
Communities

2006

February 28, August 31, February 29, August 31, February 28, August 31, February 28, August 31,
2010
2007
2007
2008
2008
2009
2009
2010
(projected)¥8,871¥17,871¥12,750¥14,366¥14,461¥14,587¥13,626¥14,567¥13,400(planned)

NAF Report September 2009 – February 20101

NAF’s Two Core Strategies

1. Utilization of the Mitsui Fudosan Group
Full and active use of
the Mitsui FudosanGroup’s value chain fromplanning and development
to management
and operation

Operation, Planning/
Development of Accommodation Business

Provision of
Property Information

Mitsui Real Estate Sales

Market Research/
Analysis

REIT Management

Feedbackto Planning/
Development

Access to investment
opportunities throughMitsui Fudosan’s
properties and its Group’s
extensive real estate
information network

Site Acquisition

Comprehensive
operating system
conducted by the
Mitsui Fudosan GroupManagement/
Operation

Planning and
DesignConstruction
Management/
Supervision
Leasing

Property
Management
Residential Building
Maintenance2

Initial Leasing/
Tenant Brokerage

Market Research / Analysis

Site Acquisition

Planning and Design

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

Development of site acquisition strategy basedon macro market and potential demand trends. An
extensive site information database supports property
development capabilities of all types from smallbuildings to complexes and large development
projects.

Targeting of customers and development ofproperty concepts according to purpose, number ofresidents, family structure and lifestyle. Strategicplanning covers specifications, grades and tastes suitable
for target demographics and concepts, as well as design,
safety, function, operation and maintenance.

Construction Management / Supervision

Leasing

Management / Operation

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, andfrequent on-site meetings and checks by professionals
in construction, structures and facilities.

The leasing process includes individual planevaluation; discussions on living environment,competitive landscape and other conditions; andsetting rents. Other activities include creating aframework for conveying product appeal, using leasing
specialists and managing a leasing agency network.

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

Nippon Accommodations Fund Inc.

2. 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

Real Estate for Living Accommodations

Serviced apartments

HotelsService provided

Senior residences

Corporate
housing/
Dormitories/
Student
apartments

Rentalapartments

Houses built for retail sale

Accommodation assets

High

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 Report September 2009 – February 20103

To Our Stakeholders

We are Yuji Yokoyama, Executive Director of Nippon Accommodations Fund Inc. (“NAF”), andKosei Murakami, who has assumed the position of Representative Director and CEO of Mitsui
Fudosan Accommodations Fund Management Co., Ltd. as of April 2010. During the six months
ended February 28, 2010 (the “8th Period”), NAF increased its assets under management by
newly acquiring 18 properties after issuing new investment units through a public offering. In
addition, NAF made maximum use of the integrated value chain of Mitsui Fudosan Group
companies to manage its portfolio with an emphasis on stability. As a result, NAF generated stablerevenues. In the six months ending August 31, 2010 (the “9th Period”), we will promote ourgrowth strategy to make steady progress in increasing unitholder value through strategic means
including additional property acquisitions.

Market Environment and8th Period Performance
During the 8th Period, despite steady recovery from theglobal economic recession, with improved corporate earnings
and a pickup in exports and personal consumption, theoperating environment remained challenging in the J-REIT
market due to factors including concerns about downturns inoverseas economies and deflation.
However, demand remained stable in the residential rental
markets in the 23 wards of Tokyo and the centers of Japan’smajor regional cities. The economic slowdown had limited
impact on rents for single and compact units and highly
competitive properties, which remained relatively firm.
In this environment, NAF issued new investment units
through public offering as a J-REIT for the first time in one year
and three months. NAF procured a total of ¥20,124 million
through issuance of new investment units. As a result, the total
Yuji Yokoyama

Kosei Murakami

Executive Director of Nippon
Accommodations Fund Inc.

President and CEO of Mitsui
Fudosan Accommodations FundManagement Co., Ltd.

value of issued investment units was ¥81,103 million, and thetotal number issued was 156,178.
NAF used the funds procured through the above issuance of4

Nippon Accommodations Fund Inc.

8th Period (Actual)

9th Period (Forecast)(Ended February 28, 2010)(Ending August 31, 2010)

Total revenues¥5,919 million¥6,160 million

Operating income¥3,010 million¥2,882 million

Net income¥2,275 million¥2,092 million

Total assets¥186,429 million—

LTV (Loan-to-value) ratio

53.1%

—

Distribution per unit (Yen)¥14,567¥13,400

Acquisition price basis¥180,027 million¥182,776 million

Number of properties

61

62

Assets under management

Note: The above forecasts were announced on April 16, 2010.

new investment units and ¥18,000 million in borrowings fromprevious period, NAF’s loan-to-value (LTV) ratio was 53.1

multiple financial institutions to newly acquire 18 Park Axis

percent, and long-term, fixed-rate loans accounted for 74.2

properties developed by the Mitsui Fudosan Group for a total ofpercent of NAF’s interest-bearing debt.

¥42,596 million. In addition, NAF sold Park Axis Ichigaya for

Total revenues for the 8th Period were ¥5,919 million,¥3,100 million in response to a purchase offer in Februarycompared with ¥4,475 million for the previous period.

2010. As a result, NAF’s portfolio as of February 28, 2010

Operating income was ¥3,010 million, compared with ¥2,169

consisted of 61 properties valued at ¥180,027 million on an

million for the previous period. Net income was ¥2,275 million,acquisition price basis.

compared with ¥1,546 million for the previous period.

We utilized the value chain of Mitsui Fudosan Group
companies as we conducted flexible and prompt leasing

Distribution per unit totaled ¥14,567, compared with ¥13,626
for the previous period.

activities to maintain a high occupancy rate and leveraged
the scale of our assets to reduce operating expenses. At the
Okawabata Apartment Communities in particular, weFuture Initiatives

carried out further interior renovations. As a result of theleasing activities discussed above, the occupancy rate for
NAF’s overall portfolio as of February 28, 2010 remained at
a high level of 96.5 percent.

NAF manages its high-quality portfolio with an emphasis on
stability, aiming for steady external and internal growth.
Our strategy for external growth entails steady expansion ofDuring the 8th Period, NAF borrowed funds from banks forour portfolio through the acquisition of properties in the Park

the acquisition of the new properties described above.

Axis and the Park Cube series. We are currently structuring ourConsequently, as of February 28, 2010, interest-bearing debt

portfolio with a greater weighting on single and compact units,was ¥99,000 million, an ¥18,000 million increase from thefrom which we can expect a high occupancy rate. Based on thisNAF Report September 2009 – February 20105

strategy, during the 9th Period we newly acquired one property

consideration to the issuance of new units after examining

on March 30, 2010. This step was aimed at the steady growthmarket trends and distribution levels and taking intoof our overall portfolio based on our strategy to invest mainly

account the demand for funds for the purpose of property

within the 23 wards of Tokyo and major regional cities.

acquisition as well as our financial position.

After the completion of the above transaction, NAF’s

NAF is committed to earning the trust of unitholders andportfolio consists of 62 properties valued at ¥182,776 million

all stakeholders, and is therefore strengthening corporate

on an acquisition price basis, encompassing 6,344 units.

governance while working toward more thoroughgoing

We have built a stable and profitable portfolio, withlegal compliance.

approximately 90 percent of our assets located in the 23 wardsof Tokyo on an area basis, approximately 80 percent consistingof single and compact units on a category basis, and an average

Outlookproperty age of 6.2 years. NAF aims to build a stronger earnings
structure over the long term by further enhancing profitability

During the 9th Period, we forecast total revenues ofand closely examining business opportunities toward a medium-¥6,160 million, operating income of ¥2,882 million, net

term target of 10,000 units.

income of ¥2,092 million, and distribution per unit ofRegarding financial strategy, our upper limit for the LTV¥13,400. This forecast is valid as of April 2010 andratio is 60 percent. We will continue to emphasize long-assumes that NAF will not acquire or exchange any

term, fixed-rate funding considering the future risk of rising

additional properties and will not issue new units during

interest rates and refinancing risk. We will give due

the 9th Period.

New Acquisitions
8th Period
Name of property(Yen in millions)

Name of property

Acquisition Price

Park Axis Naka Gofukumachi

742

Location(Yen in millions)

Park Axis Nishigahara

840Park Axis Kinshicho

1,448Park Axis Shirakabe

1,547Park Axis Tatsumi Stage

7,464

Park Axis Sendai

2,320Park Axis Kameido

2,359Park Axis Hakata Minoshima

960

Park Axis Honancho

745Park Axis Takamiya Higashi

605

Park Axis Itabashi

1,448Park Axis Oshiage

1,193Park Axis Takadanobaba

Park Axis Sapporo
Shokubutsuen Mae

1,650

1,222

Total

42,596Park Axis Toyosu

14,300

9th Period

Park Axis Hatchobori

1,760Park Axis Itabashi Honcho
Park Axis Sumiyoshi

6

Acquisition Price

Nippon Accommodations Fund Inc.

987
1,006

Tokyo 23 Wards

Name of property

Acquisition Price

Park Cube Yotsuya Sanchome

2,749(Yen in millions)

Location

Other Major Cities

Location
Tokyo 23 Wards

To Our Stakeholders

NAF will continue to invest in accommodation assets andwill make use of the Mitsui Fudosan Group’s pipeline to expand

Nippon Accommodations Fund Inc.
Management Teamits portfolio by acquiring high-quality properties. We also aim to
maximize unitholder value through effective management andbrand strategies that enhance competitiveness.

May 2010

Yuji Yokoyama
Executive Director of Nippon Accommodations Fund Inc.

From left: Michihiko Takabe, Yuji Yokoyama, Takeo Tomita,
Hiroyuki Sodeyama

Yuji Yokoyama

Executive Director

Takeo Tomita

Supervisory Director(Attorney at Law)

Kosei Murakami

Michihiko Takabe

President and CEO of Mitsui Fudosan
Accommodations Fund Management Co., Ltd.

(Attorney at Law)

Supervisory Director

Hiroyuki Sodeyama

Supervisory Director(Certified Public Accountant,Certified Public Tax Accountant)

Representative Properties
Park Axis Toyosu

Park Axis Sendai

Location
Koto-ku, Tokyo
Acquisition Price¥14,300 million
Rentable Area
25,537.94m2

Location
Sendai-shi, Miyagi
Acquisition Price¥2,320 million
Rentable Area
8,843.17m2

Units
401 Residential
2 RetailCompleted

Units
204
Completed

March 2008

March 2008

NAF Report September 2009 – February 2010

7

Portfolio Summary(As of February 28, 2010. Properties total 62 including the acquisition of Park Cube Yotsuya Sanchome (number in red) during the 9th Period.)

No. Name

Location

Okawabata Apartment Communities
River Point Tower
Park Side Wings
Pier West House
Park Axis Gakugei Daigaku
Park Axis Shibuya Jinnan
Park Axis Aoyama Kotto DoriPark Axis Kagurazaka Stage
Park Axis Shirokanedai
Park Axis Bunkyo Stage
Park Axis Tsukishima
Park Axis Otsuka
Park Axis Minami Azabu
Park Axis Shibuya
Park Axis Nihonbashi Stage
Park Axis Hamamatsucho
Park Axis Hongo no Mori
Park Axis Tameike Sanno
Park Axis Roppongi Hinokicho Koen
Park Axis Ochanomizu Stage
Park Axis Okachimachi
Park Cube Hongo
Park Cube Kanda
Park Cube Ichigaya
Park Cube Asakusa Tawaramachi
Park Cube Ueno
Park Cube Ikebukuro Kanamecho
Park Axis Meguro Honcho
Park Axis Shin Itabashi
Park Axis Akihabara
Park Axis Toyocho
Park Axis Takinogawa
Park Axis Asakusabashi
Park Axis Nihonbashi Hamacho
Park Cube Yoyogi Tomigaya

Acquisition Price (Note 1)

Chuo-ku, Tokyo

Setagaya-ku, Tokyo
Shibuya-ku, Tokyo
Minato-ku, Tokyo
Shinjuku-ku, Tokyo
Minato-ku, Tokyo
Bunkyo-ku, Tokyo
Chuo-ku, Tokyo
Toshima-ku, Tokyo
Minato-ku, Tokyo
Shibuya-ku, Tokyo
Chuo-ku, Tokyo
Minato-ku, Tokyo
Bunkyo-ku, Tokyo
Minato-ku, Tokyo
Minato-ku, Tokyo
Bunkyo-ku, Tokyo
Taito-ku, Tokyo
Bunkyo-ku, Tokyo
Chiyoda-ku, Tokyo
Shinjuku-ku, Tokyo
Taito-ku, Tokyo
Taito-ku, Tokyo
Toshima-ku, Tokyo
Meguro-ku, Tokyo
Itabashi-ku, Tokyo
Chiyoda-ku, Tokyo
Koto-ku, Tokyo
Kita-ku, Tokyo
Taito-ku, Tokyo
Chuo-ku, Tokyo
Shibuya-ku, Tokyo

Portfolio Share Rentable Area

(Yen in millions)(%)(sq. m.)29,69616.2

43,812.41

1,760
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

1.0
1.8
0.9
0.8
2.8
2.4
0.5
0.9
2.2
0.7
4.1
1.1
1.6
1.6
1.2
5.3
0.6
1.0
1.3
1.0
1.4
1.2
0.9
1.0
1.9
0.7
2.2
1.0
1.5
3.0
1.1

2,437.66
2,766.62
1,537.24
1,891.05
4,704.44
6,078.93
1,383.99
2,606.37
3,938.14
1,094.28
10,025.40
2,426.45
3,317.94
2,710.69
2,054.46
12,025.25
1,621.73
2,160.12
3,194.59
2,127.50
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

Rentable Units

PML (Note 2)
(%)

544

64
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

4.5
7.9
7.0
7.6
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

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.

A Portfolio Mainly Composed of Large-Scale Properties in the 23 Wards of Tokyo
Portfolio by Location
GreaterTokyo: 2%

3 Central
Wards
of Tokyo: 37%
Tokyo Wards
Other than
3 Central
Wards: 53%

Portfolio by Acquisition Price

Portfolio by Property Age

Other Major Cities: 9%

23 Wards ofTokyo: 90%

90% in the 23 wards of Tokyo
Amount excluding
the Okawabata Apartment Communities ➤ ➤ ➤Less than
1 year: 2%
More than¥10 billion:24%(2 properties)¥5 – ¥10 billion:
19% (5 properties)

Less than¥2 billion:28%(37 properties)

More than
5 years: 27%

Less than
2 years: 19%
Less than
3 years: 17%¥2 – ¥5 billion:
29% (18 properties)

Less than
5 years: 36%

Average ¥2.9 billion per property

Average 6.2 years[ Average ¥2.5 billion per property ][ Average 3.4 years ]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 Portfolio by Location, 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.

8

Nippon Accommodations Fund Inc.

No. Name

Location

Park Axis Monzen Nakacho
Park Cube Itabashi Honcho
Park Cube Gakugei Daigaku
Park Cube Oimachi
Park Axis Nishigahara
Park Axis Kinshicho
Park Axis Tatsumi Stage
Park Axis Kameido
Park Axis Honancho
Park Axis Itabashi
Park Axis Oshiage
Park Axis Takadanobaba
Park Axis Toyosu
Park Axis Hatchobori
Park Axis Itabashi Honcho
Park Axis Sumiyoshi
Park Cube Yotsuya Sanchome
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
Park Axis Naka Gofukumachi
Park Axis Shirakabe
Park Axis Sendai
Park Axis Hakata Minoshima
Park Axis Takamiya Higashi
Park Axis Sapporo Shokubutsuen Mae
Other Major Cities Total
Grand Total

Acquisition Price (Note 1)

Portfolio Share Rentable Area

(Yen in millions)

(%)

1,700
4,170
910
1,440
840
1,448
7,464
2,359
745
1,448
1,193
1,222
14,300
1,760
987
1,006
2,749
164,046
991
1,130
1,020
3,141
2,440
1,920
1,515
1,890
742
1,547
2,320
960
605
1,650
15,589182,776

0.9
2.3
0.5
0.8
0.5
0.8
4.1
1.3
0.4
0.8
0.7
0.7
7.8
1.0
0.5
0.6
1.5
89.8
0.5
0.6
0.6
1.7
1.3
1.1
0.8
1.0
0.4
0.8
1.3
0.5
0.3
0.9
8.5
100.0

Koto-ku, Tokyo
Itabashi-ku, Tokyo
Meguro-ku, Tokyo
Shinagawa-ku, Tokyo
Kita-ku, Tokyo
Sumida-ku, Tokyo
Koto-ku, Tokyo
Koto-ku, Tokyo
Nakano-ku, Tokyo
Kita-ku, Tokyo
Sumida-ku, Tokyo
Toshima-ku, Tokyo
Koto-ku, Tokyo
Chuo-ku, Tokyo
Itabashi-ku, Tokyo
Sumida-ku, Tokyo
Shinjuku-ku, Tokyo
Hachioji-shi, Tokyo
Hachioji-shi, Tokyo
Funabashi-shi, Chiba
Nagoya-shi, Aichi
Nagoya-shi, Aichi
Fukuoka-shi, Fukuoka
Fukuoka-shi, Fukuoka
Fukuoka-shi, Fukuoka
Nagoya-shi, Aichi
Sendai-shi, Miyagi
Fukuoka-shi, Fukuoka
Fukuoka-shi, Fukuoka
Sapporo-shi, Hokkaido

Rentable Units

PML (Note 2)

1,886.39
55
5,317.07
165 Residential, 1 Retail957.8824
1,511.12
65
1,435.83
46
2,288.13
65
16,474.06
299 Residential, 1 Retail
3,986.78
118
1,231.08
31
2,567.96
64
2,121.29
57 Residential, 1 Retail1,463.25
36 Residential, 1 Retail25,537.94
401 Residential, 2 Retail2,416.29
63 Residential, 1 Retail2,048.31
66
1,785.72
60
3,599.82
130
227,778.98 4,891 Residential, 11 Retail2,814.32
52
3,082.32
47 Residential, 1 Retail2,074.35
55
7,970.99
154 Residential, 1 Retail5,565.13
169
3,821.75
98 Residential, 1 Retail3,473.67
111 Residential, 1 Retail
4,668.29
176 Residential, 1 Retail
2,707.88
112
4,735.89
86
8,843.17
204
3,461.85
112
2,289.21
70
7,845.01
146
47,411.85 1,284 Residential, 3 Retail283,161.82 6,329 Residential, 15 Retail

10.1
8.1
6.8
10.0
7.7
10.7
10.0
11.0
8.0
9.1
10.5
7.9
7.8
9.1
9.2
11.4
8.7

(sq. m.)

(%)

7.1
7.6
7.9
4.1
6.1
2.2
3.1
2.8
6.1
5.7
2.9
2.3
2.4

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

A Balanced Mix of Properties Centered on Single and Compact Units
Portfolio by Category
Large: 4%

Portfolio by Monthly Rent
¥300,000 –¥500,000: 3%

Family: 16%
Single: 37%

Compact: 43%¥200,000 –¥300,000:
19%

More than¥500,000: 1%
Less than¥100,000:
23%¥150,000 –¥200,000: ¥100,000 –20%¥150,000: 34%

Portfolio by Unit Area
More than80m2: 6%60m2 –
80m2: 14%

Less than
30m2: 29%50m2 –
60m2: 15%40m2 –
50m2: 13%30m2 –
40m2: 23%

Percentage of single andcompact units: 80%

Average ¥154 thousand per unit

Average 44.3m2 per unit

[ 87% ][ Average ¥141 thousand per unit ][ Average 40.9m2 per unit ]3. Percentages for Portfolio by Category, Portfolio by Monthly Rent and Portfolio by Unit Area are unit-based, excluding retail units.
4. Totals may exceed 100 percent due to rounding.

NAF Report September 2009 – February 20109

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)

8th Period

7th Period

6th Period

8th Period

September 1, 2009
to February 28, 2010

March 1, 2009 toAugust 31, 2009

September 1, 2008
to February 28, 2009

September 1, 2009
to February 28, 2010

¥ 5,919
5,133
230
556
2,909
2,276
2,275

¥ 4,475
4,211
264¥ 4,508
4,296
212

—

—

2,306
1,547
1,546

2,260
1,656
1,655

66,18657,3972,572
6,217
32,52825,45025,439

2,780
4,179
2,275
1,061
94

2,397
3,508
1,546
851
138

2,518
3,614
1,655
862
72

31,086
46,72925,43911,864
1,051

Total assets (c)Interest-bearing debt
Total net assets (d)186,429
99,00083,378

146,542
81,00062,525

146,666
81,00062,6342,084,636
1,107,011
932,327

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)

156,178
533,863
14,567
17,799113,480
550,978
13,62621,123

113,480
551,939
14,58722,184

5,969.62
162.89199.03Return 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

1.4%(2.8%)
3.1%(6.3%)
53.1%
44.7%
100.0%
181

1.1%(2.1%)
2.5%(4.9%)
55.3%
42.7%
99.9%
184

1.1%
(2.3%)
2.6%(5.3%)
55.2%
42.7%
99.9%
181

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

61279,56296.5%

44189,63694.4%

44
189,636
96.2%

Total revenues (Note 2)
Rental revenues
Other revenues related to property leasing
Gain on sale of investment properties
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$

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥89.43 = U.S.$1.00, the approximate exchange rate on February 28, 2010.
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 February 28, 2010: Amount for the period ÷ Actual days in the period (181) x 365 days
Annual equivalent amounts for the period ended August 31, 2009: Amount for the period ÷ Actual days in the period (184) x 365 days
Annual equivalent amounts for the period ended February 28, 2009: Amount for the period ÷ Actual days in the period (181) 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 properties generally perceived to be one residential building. Average occupancy rate at end of period is the ratio of gross leased area to total rentable areaat the end of the period.

10

Nippon Accommodations Fund Inc.

Overview
Investment Environment and Operating Performance
During the 8th Period, the six months ended February 28, 2010, despite improved corporate earnings and recovery in exports andpersonal consumption as the global economy steadily recovered from recession, high levels of unemployment and other challenging conditions persisted for Japan’s economy. Looking forward, employment conditions remain severe, while corporate earnings continue toimprove. Under these conditions, economic recovery is expected to continue as overseas economies improve and urgent economic measures take effect. At the same time, concern about a double-dip recession overseas and the effect of deflation are factors weighing on
the economy.
In the residential rental market, the effects of the recession were apparent, particularly among high-priced properties. However, arecovery in occupancy rates became apparent for residential REITs. In addition, people continued to move from other regions into the 23
wards of Tokyo, where NAF has concentrated approximately 90 percent of its portfolio investment, as well as into the centers of othermajor cities. The number of households also expanded because of an increase in the number of single and two-person households. As aresult of these and other factors, demand for rental housing remained steady.
In the real estate investment and trading market, the rapid deterioration of the economic environment had the effect of making bothbuyers and sellers cautious, and the number of transactions was low. However, signs of recovery have become apparent, with the gradual return of large-scale transactions.
During the 8th Period, NAF acquired 18 properties, consisting of 13 properties with a total acquisition price of ¥22,893 million in
November 2009, 2 properties with a total acquisition price of ¥15,950 million in December 2009, and 3 properties with a total acquisition price of ¥3,753 million in January 2010. In addition, in February 2010 NAF agreed to a request from a buyer to sell Park Axis
Ichigaya for ¥3,100 million after careful and comprehensive consideration of issues including the effect on its overall portfolio. NAF had
acquired this property in November 2005 for a total acquisition price of ¥2,570 million. As a result, NAF’s portfolio as of February 28,
2010 consisted of 61 properties valued at ¥180,027 million on an acquisition price basis.
Mitsui Fudosan Housing Lease Co., Ltd., the master property management company (hereinafter “Master PM”), and Mitsui Fudosan
Accommodations Fund Management Co., Ltd. (hereinafter “MFAFM”), NAF’s asset management company, collaborate with the aim of
implementing effective management and operations at properties held by NAF in accordance with regional characteristics and the individual features of each property. Activities include rapid management and operations by the Master PM applying the portfolio management system, tenant recruiting suited to the circumstances of individual properties, streamlining of management cost reduction efforts,
interior renovations at Okawabata Apartment Communities, one of NAF’s principal properties, and provision of tenant services that meetvarious needs in accordance with the results of resident questionnaires. As a result of these activities, the occupancy rate for NAF’s overall portfolio as of February 28, 2010 remained at a high level of 96.5 percent.
As a result of the above, for the 8th Period, NAF recorded total revenues of ¥5,919 million, operating income of ¥3,010 million,
income before income taxes of ¥2,276 million and net income of ¥2,275 million.

Changes in Assets, Liabilities and Net Assets
Total assets as of February 28, 2010 increased ¥39,887 million from August 31, 2009 to ¥186,429 million. Total current assets
decreased ¥529 million to ¥4,643 million and total investment properties increased ¥40,418 million to ¥181,681 million compared with
August 31, 2009 due to NAF’s acquisition of 18 properties (total acquisition price ¥42,596 million) and sale of Park Axis Ichigaya (saleprice ¥3,100 million) during the 8th Period, in addition to normal depreciation.
To fund the acquisition of the new properties, NAF issued new investment units with a total issue price of ¥20,124 million and borrowed ¥18,000 million from financial institutions during the 8th Period. As a result, interest-bearing debt as of February 28, 2010
increased ¥18,000 million from August 31, 2009 to ¥99,000 million. The ratio of long-term, fixed-rate debt to total interest-bearing debt
was 74.2 percent, compared with 71.0 percent as of August 31, 2009. Excluding long-term loans due within one year, the ratio was 62.1

NAF Report September 2009 – February 201011

percent. The loan-to-value ratio, calculated as interest-bearing debt divided by total assets at the end of the period, was 53.1 percent,compared with 55.3 percent as of August 31, 2009.
Net assets totaled ¥83,378 million as of February 28, 2010. Unitholders’ capital increased ¥20,124 million from August 31, 2009 to¥81,103 million, and retained earnings increased to ¥2,275 million from ¥1,546 million as of August 31, 2009.

Distributions to Unitholders
NAF determines the amount of cash distributions such that they exceed 90 percent of NAF’s retained earnings available for dividends
as set forth in Article 67-15 of the Special Taxation Measures Law of Japan. For the 8th Period, cash distributions totaled ¥2,275,044,926,
or ¥14,567 per unit.
Yen in thousands, except per unit amounts

8th Period

7th Period

6th Period

September 1, 2009
to February 28, 2010

March 1, 2009
to August 31, 2009

September 1, 2008
to February 28, 2009

Retained earnings
Undistributed earnings¥2,275,058
13¥1,546,304
26¥1,655,345
12

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

2,275,045
14,5672,275,045
14,567——

1,546,278
13,626
1,546,278
13,626——

1,655,333
14,587
1,655,333
14,587——

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

Funding
Balance of Paid-in Capital
NAF was established on October 12, 2005 with initial paid-in capital of ¥100 million. NAF began investing activities on November 29,
2005 after ¥21,140 million was raised through private placement. As of February 28, 2010, NAF had issued 156,178 investment units outof 2,000,000 total authorized units. NAF’s investment units were listed on the J-REIT section of the Tokyo Stock Exchange in August 2006
upon the completion of a public offering. As the Investment Trust and Investment Corporation Act of Japan does not contain any provision
for the issue of more than one class of units, NAF’s investment units comprise the sole class of units authorized and issued by NAF.
Units outstanding
Issue date

Remarks

Increase

Balance(Units)

October 12, 2005
November 29, 2005
August 3, 2006
September 4, 2006
November 4, 2009
December 1, 2009

Initial capital (private)
Private placement
Public offering
Third party allocation
Public offering
Third party allocation200
42,28067,2003,800
42,000698

Paid-in capital
Increase

200
42,480109,680
113,480
155,480
156,178¥ 100
21,14037,612
2,127
19,795329

Notes: 1. NAF was established with initial capital of ¥500,000 per unit.
2. Follow-on private offering at ¥500,000 per unit to raise funds for acquisition of investment properties.
3. Public offering of new units for ¥580,000 per unit (excluding underwriting fee: ¥559,700) to fund property acquisition.
4. Additional issue of new units (third party allocation) for ¥559,700 per unit undertaken pursuant to the public offering in Note 3.
5. Public offering of new units for ¥487,910 per unit (excluding underwriting fee: ¥471,311) to fund property acquisition.
6. Additional issue of new units (third party allocation) for ¥471,311 per unit undertaken pursuant to the public offering in Note 5.

12

Nippon Accommodations Fund Inc.

Balance

Notes(Yen in millions)¥ 100
21,24058,85260,97980,774
81,103Note 1
Note 2
Note 3Note 4Note 5Note 6

Management’s Discussion and Analysis

Market Price of Units
High/Low (closing price) of units on the Tokyo Stock Exchange:
8th Period
September 1, 2009 to
February 28, 2010

7th Period
March 1, 2009 toAugust 31, 2009

6th Period
September 1, 2008 to
February 28, 2009

5th Period
March 1, 2008 to
August 31, 2008

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

(Yen)

(Yen)

(Yen)

(Yen)

(Yen)

High

¥526,000¥515,000¥538,000¥565,000¥762,000Low

443,000

361,000

371,000

396,000

528,000

Borrowings
Borrowings by financial institution as of February 28, 2010 are shown below.
Short-term loans
LenderSumitomo Mitsui Banking
Corporation
The Hachijuni Bank, Ltd.
Mitsubishi UFJ Trust andBanking Corporation
The 77 Bank, Ltd.
The Chuo Mitsui Trust andBanking Company, Limited
The Sumitomo Trust andBanking Co., Ltd.
The Bank of Fukuoka, Ltd.
The Bank of Tokyo-Mitsubishi
UFJ, Ltd.
Total short-term loans(Yen in millions)

Balance

Interest rate
(Note 1)

Date of maturity(Note 2)

¥ 6,500

0.8%

March 15, 2010

1,000

0.8%

March 15, 2010

5,000

0.8%

March 23, 2010

1,000

0.8%

March 31, 2010

3,500

0.8%

April 1, 2010

4,500

0.8%

April 8, 2010

2,000

0.8%

April 16, 2010

2,000

0.6%

March 5, 2010

Repayment
methodBulletpayment

Use offunds(Note 3)

Notes

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

¥25,500

NAF Report September 2009 – February 201013

Long-term loans
LenderSumitomo Mitsui Banking
Corporation

The Chuo Mitsui Trust andBanking Company, Limited
The Sumitomo Trust andBanking Co., 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.
Mitsubishi UFJ Trust andBanking Corporation
Total long-term loans
Total borrowings(Yen in millions)

Balance

Interest rate
(Note 1)

Date of maturity(Note 2)

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

1.4%
1.6%
1.6%
1.7%
1.4%
1.6%
1.7%

November 30, 2010
March 22, 2011
November 29, 2013
May 30, 2014
November 30, 2010
November 29, 2013
May 30, 2014

3,000

1.8%

November 30, 2012

3,000
3,000
3,000
5,000
1,000
1,000
1,000
1,000
2,000
2,000
2,000
1,000
3,000
3,000
2,000
1,000

1.6%
2.1%
2.2%
2.1%
1.8%
1.5%
1.5%
1.6%
1.6%
1.6%
1.6%
1.6%
1.7%
1.6%
1.6%
1.4%

February 28, 2011
April 11, 2012
April 11, 2013
August 6, 2013
April 12, 2010
September 14, 2012
May 31, 2013
April 19, 2011
October 12, 2011
November 29, 2013
April 19, 2011
April 19, 2011
October 12, 2012
November 29, 2013
October 31, 2012
July 8, 2013

3,000

1.7%

May 30, 2014

Repayment
methodBulletpayment

Use offunds(Note 3)

Notes

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

¥63,500¥89,000

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 (excluding maturities within one year) of the balance sheet date are as follows.
(Yen in millions)

Amount14

Nippon Accommodations Fund Inc.

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥11,500¥12,000¥19,000¥9,000Management’s Discussion and Analysis

Bonds
Issue

Issue date

Balance as ofFebruary 28, 2010
(Yen in millions)

CouponMaturitydate

Redemption

Use ofproceeds

Notes¥10,000

1.7%

November 14,
2014

Bulletpayment

Note 1

Note 2

No. 1 unsecured November 15,
bonds
2007
Total

¥10,000

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

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(September 1, 2009
to February 28, 2010)

Cumulative
amount paid

(Yen in millions)Okawabata
Apartment
Communities

Renovation of common use areas

From March 2010
to August 2010

¥39

¥—

¥—

Expansion of bicycle parking lot,
replacement of bicycle rack

From March 2010
to August 2010

15

—

—

Renovation of disasterprevention equipment

From August 2009
to June 2010

67

14

14

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NAF posted ¥94 million in capital expenditures together
with ¥207 million for repairs and maintenance expenses.
Name of property

Objective

Expenditure

Period(Yen in millions)Okawabata Apartment
Communities

Renewal construction in rentable areas, etc.

From September 2009
to February 2010

¥63

Other Properties

Replacement of emergency lighting, etc., andother construction

From September 2009
to February 2010

32

Total

¥94

NAF Report September 2009 – February 201015

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
As of February 28, 2010

As of August 31, 2009

As of February 28, 2009

¥529
165
104
¥590

¥501
173
145
¥529

¥556
12
67
¥501

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

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

8th Period

7th Period

6th Period

September 1, 2009
to February 28, 2010

March 1, 2009
to August 31, 2009

September 1, 2008
to February 28, 2009

¥433
7
22
10
14
177

¥317
7
25
10
13
116

¥324
7
22
10
12
128

¥664

¥488

¥504

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

Total paid (A)(Yen in millions)

Paid toAmount ofpayment (B)

B/A(Note 2)

(Yen in millions)

Acquisition price of real estate
Total

16

Nippon Accommodations Fund Inc.

¥42,596

Mitsui Fudosan Co., Ltd.

¥26,646

62.6%

Mitsui Fudosan Residential Co., Ltd.

15,95037.4%¥42,596

100.0%

Management’s Discussion and Analysis(2) Fees Paid for the Period from September 1, 2009 to February 28, 2010
Description of transactions with related parties (Note 1)
Total fees paid (A)(Yen in millions)Category

Amount ofpayment (B)Paid to

B/A(Note 2)

(Yen in millions)

Property management fees

¥367

Mitsui Fudosan Housing Lease Co., Ltd.

¥367

100.0%

Building management fees

185

Mitsui Fudosan Housing Lease Co., Ltd.

185

100.0%RESIDENT FIRST CO., LTD.

25

20.6%

Mitsui Rehouse Tokyo Co., Ltd.

1

1.1%

MITSUI HOME ESTATE CO., LTD.

1

0.6%

Mitsui Real Estate Sales Tohoku Co., Ltd.

0

0.4%

Mitsui Real Estate Sales Kyusyu Co., Ltd.

0

0.3%

Mitsui Rehouse Nagoya Co., Ltd.

0

0.0%

Leasing related service fees

122(3) Other Payments to Related Parties
Paid toAmount of payment(Yen in millions)

Item

MITSUI FUDOSAN HOUSING SERVICE Co., Ltd.

¥17

Repair and maintenance costs

Mitsui Home Remodeling Co., Ltd.

13

Repair and maintenance costs

Accommodation First Co., Ltd.

2

Repair and maintenance costs

Mitsui Designtec 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.

NAF Report September 2009 – February 201017

Financial Statements

Balance Sheets
Nippon Accommodations Fund Inc.
As of February 28, 2010 and August 31, 2009

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)

8th Period

7th Period

8th Period

As of February 28, 2010

As of August 31, 2009

As of February 28, 2010

¥ 3,637
839
167
4,643

¥ 4,534
598
40
5,172

115,052

96,0201,286,503

72,448(5,819)181,681105¥186,429

50,118(4,875)
141,263107¥146,542

810,108(65,068)
2,031,544
1,174$2,084,636¥ 25,500
12,000628
964
341
39,433¥ 23,500
5,000
433
698
333
29,964$ 285,139
134,183
7,022
10,7793,813
440,937

51,50010,0002,118
63,618¥103,051

42,50010,0001,553
54,053¥ 84,017

575,869
111,819
23,683
711,372$1,152,309

81,1032,275¥ 83,378¥186,429

60,9791,546¥ 62,525¥146,542

906,888
25,439$ 932,327$2,084,636$

40,6699,382
1,867
51,918

Liabilities and Net Assets
Liabilities
Current liabilities:
Short-term loans (Note 4)Long-term loans due within one year (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 statements.

18

Nippon Accommodations Fund Inc.

Statements of Income
Nippon Accommodations Fund Inc.
September 1, 2009 to February 28, 2010, March 1, 2009 to August 31, 2009 and September 1, 2008 to February 28, 2009

U.S. dollars in thousands
Yen in millions

Revenues (Notes 6 and 7):
RentalOther revenues related to property leasing
Gain on sale of investment properties
Total Revenues
Operating Expenses (Note 6):
Property management fees
Real estate taxes and insurance
Repairs and maintenance
Other rental expenses
Depreciation and amortization
Asset management fees
Other expenses
Total Operating Expenses
Operating Income
Interest and other income
Interest expense
New investment unit issue costs
Other expenses
Income before Income Taxes
Current and deferred income taxes (Note 8)
Net Income(Note 1)

8th Period

7th Period

6th Period

8th Period

September 1, 2009
to February 28, 2010

March 1, 2009 toAugust 31, 2009

September 1, 2008
to February 28, 2009

September 1, 2009
to February 28, 2010

¥5,133
230
556
5,919

¥4,211
264—
4,475¥4,296212—
4,508$57,397
2,572
6,217
66,186

590
176
207
211
1,061
433
231
2,909
3,010
3
(666)
(64)
(7)
2,276
1
¥2,275

473
175
153
166
851
317
171
2,306
2,169
2
(619)
—
(5)
1,547
1
¥1,546

458
148
127
162
862
324
179
2,260
2,248
4
(592)
—
(4)
1,656
1
¥1,655

6,597
1,968
2,315
2,359
11,8644,842
2,583
32,52833,65834(7,447)(716)(78)
25,450
11$25,439

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

NAF Report September 2009 – February 201019

Statements of Changes in Net Assets
Nippon Accommodations Fund Inc.
For the period from September 1, 2008 to February 28, 2010

Yen in millions

Balance as of August 31, 2008
Cash distribution declared
Net income
Balance as of February 28, 2009
Cash distribution declared
Net income
Balance as of August 31, 2009
Cash distribution declaredIssuance of new units through public offering as ofNovember 4, 2009
Issuance of new units through allocation to a third party
as of December 1, 2009
Net income
Balance as of February 28, 2010

Number of
Units

Unitholders’CapitalRetained
Earnings

Total

113,480¥60,979¥ 1,641¥62,620————(1,641)
1,655(1,641)
1,655

113,480

60,9791,655

62,634————(1,655)
1,546(1,655)
1,546

113,480

60,9791,546

62,525——(1,546)(1,546)42,00019,795—

19,795

698
—

329
—

—
2,275

329
2,275

156,178¥81,103¥ 2,275¥83,378

U.S. dollars in thousands (Note 1)

Balance as of August 31, 2008
Cash distribution declared
Net income
Balance as of February 28, 2009
Cash distribution declared
Net income
Balance as of August 31, 2009
Cash distribution declaredIssuance of new units through public offering as ofNovember 4, 2009
Issuance of new units through allocation to a third party
as of December 1, 2009
Net income
Balance as of February 28, 2010
The accompanying notes to financial statements are an integral part of these statements.

20

Nippon Accommodations Fund Inc.

Number of
Units

Unitholders’CapitalRetained
Earnings

Total

113,480$681,863$ 18,350$700,212————(18,350)
18,506(18,350)
18,506

113,480

681,863

18,506700,369————(18,506)
17,287(18,506)
17,287

113,480

681,863

17,287699,150——(17,287)(17,287)

42,000221,346—

221,346

698
—

3,679
—

—
25,4393,679
25,439156,178$906,888$ 25,439$932,327

Financial Statements

Statements of Cash Flows
Nippon Accommodations Fund Inc.
September 1, 2009 to February 28, 2010, March 1, 2009 to August 31, 2009 and September 1, 2008 to February 28, 2009

U.S. dollars in thousands
Yen in millions

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
New investment unit issue costs
Amortization of bond issue costs
Interest expense(Increase) Decrease in rent receivables
Increase (Decrease) in accounts payable
Increase (Decrease) in rents received
in advance
Decrease in investment properties
due to sale
Cash 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
Repayment of long-term loans
Proceeds from issuance of investment units
Payment of distribution
Net Cash Provided by (Used in) 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(Note 1)

8th Period

7th Period

6th Period

8th Period

September 1, 2009 to
February 28, 2010

March 1, 2009
to August 31, 2009

September 1, 2008 to
February 28, 2009

September 1, 2009 to
February 28, 2010

¥ 2,276
1,061
64
4
666
(240)
195

¥ 1,547
851
—
4
619
30
1

¥ 1,656
862
—
4
592
30
(2)

266

(10)

(3)

2,974

2,543
(655)

—
(565)

—
(578)

28,436(7,324)

(142)
11
6,049

—
(42)
2,435

9
6
2,576

(1,588)123
67,639(44,022)
822
(257)
(3)
(43,460)

(183)
197
(255)
(6)
(247)

(90)
163
(196)
(2)
(125)

(492,251)
9,192(2,874)(34)(485,967)

94,000(92,000)
20,000(4,000)20,060(1,546)36,514(897)

43,500(49,000)
5,500——(1,654)(1,654)534

55,000(55,000)———(1,640)(1,640)811

1,051,101(1,028,738)
223,639(44,728)
224,310(17,287)
408,297(10,030)

4,534

4,000

3,189

50,699¥ 3,637¥ 4,534¥ 4,000$$

25,45011,864716
45
7,447(2,684)2,180

40,669The accompanying notes to financial statements are an integral part of these statements.

NAF Report September 2009 – February 201021

Notes to Financial Statements
Nippon Accommodations Fund Inc.
September 1, 2009 to February 28, 2010, March 1, 2009 to August 31, 2009 and September 1, 2008 to February 28, 2009

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, isengaged in acquiring, managing, leasing, and renovating accommodation assets. MFAFM is a 100% subsidiary of Mitsui Fudosan Co., Ltd.
On August 3, 2006, NAF had raised approximately ¥40,000 million through an initial public offering of investment units. Those investment units are listed on the J-REIT section of the Tokyo Stock Exchange.
As of February 28, 2010, NAF had ownership or beneficiary interests in 61 properties containing approximately 279,562 square metersof rentable space. As of February 28, 2010, NAF had leased approximately 269,692 square meters to tenants. The occupancy rate for theproperties was approximately 96.5%.

Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust andInvestment Corporation Act of Japan and the Financial Instruments and Exchange Law of Japan and its related accounting regulations, and in
conformity with accounting principles generally accepted in Japan (hereinafter “Japanese GAAP”), which are different in certain respects as toapplication and disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements have been restructured and translated into English from the financial statements of NAF 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 February 28, 2010, which was ¥89.43 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:

22

Buildings and improvements

2-47 years

Structures

3-60 years

Machinery and equipment

7-45 years

Tools, furniture and fixtures

2-15 years

Nippon Accommodations Fund Inc.

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
New unit issue costs are charged 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 February 28, 2010 amounted to ¥10 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.

NAF Report September 2009 – February 201023

Note 3

Schedule of Investment Properties

Investment properties as of February 28, 2010 and August 31, 2009 consisted of the following:
Yen in millions

As of February 28, 2010
Acquisition
costs

Accumulated
depreciation

As of August 31, 2009

Book value

Acquisition
costs

—
—

¥ 71,631
43,421¥ 52,599
43,421

115,052—

115,052

Buildings and improvements
Buildings and improvements in trust

50,27917,905(2,787)(2,237)

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

68,184
1,123
1,141
670
0
886
120
299
25

Other investment properties total

Land
Land in trust¥ 71,631
43,421

Land including trust total

Total

Note 4¥

Accumulated
depreciation¥

Book value——¥ 52,599
43,421

96,020—96,02047,492
15,66929,366
17,811(2,275)(1,953)27,09215,858(5,024)
(130)
(116)
(224)
—
(120)
(35)
(169)
—

63,160
993
1,024
446
0
766
84
130
25

47,178
661
513
453
—
886
120
296
12

(4,228)
(106)
(78)
(181)
—
(105)
(29)
(148)
—

42,949
555
434
272
—
781
91
147
12

4,263

(795)

3,468

2,940

(647)

2,293

¥187,500¥(5,819)¥181,681¥146,138¥(4,875)¥141,263

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 February 28, 2010 and August 31, 2009 ranged from 0.62% to 0.85% and from 0.82% to 1.23%, respectively.
Long-term debt is at fixed rates and consists of the following:
Yen in millions

Unsecured loans due 2010 to 2014 principallyfrom banks and insurance companies withinterest rates mainly ranging from 1.4% to 2.2%
1.7% unsecured bonds due 2014

As of February 28, 2010

As of August 31, 2009

¥63,500
10,000¥47,500
10,000¥73,500¥57,500

The annual maturities of long-term loans as of February 28, 2010 were as follows:
Yen in millions

2010
2011
2012
2013
Thereafter24

Nippon Accommodations Fund Inc.

¥ 9,000
14,50012,00019,0009,000

Notes to Financial Statements

Note 5Unitholders’ Capital
As of February 28, 2010

As of August 31, 2009

As of February 28, 2009

2,000,000
156,1782,000,000
113,480

2,000,000
113,480

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

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

Note 6

Rental Revenues and Expenses

Rental revenues and expenses for the periods ended February 28, 2010, August 31, 2009, and February 28, 2009 were as follows:
Yen in millions

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

8th Period

7th Period

6th Period

September 1, 2009
to February 28, 2010

March 1, 2009
to August 31, 2009

September 1, 2008
to February 28, 2009

¥4,977156¥4,099112¥4,179
117

5,133

4,211

4,296

179
51

203
61

164
48

230

264

212

Total revenues from property leasing

5,363

4,475

4,508

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

590
207
166
9
50
10
1,061
122
30

473
153
166
9
42
9
851
94
21

458
127
138
9
47
9
862
84
22

2,245

1,818

1,756

¥3,118¥2,657¥2,752

Total rental expenses
Operating Income from Property Leasing Activities

Note 7

Breakdown of Gain on Sale of Investment Properties

On February 24, 2010 NAF sold the property set forth below:
Yen in millions

Park Axis Ichigaya
Revenues from sale of investment properties
Cost of investment properties
Other sales expenses
Gain on sale of investment properties¥3,100
2,543
1
¥ 556

NAF Report September 2009 – February 201025

Note 8

Income Taxes

NAF is subject to income taxes in Japan. The effective tax rates on NAF’s income based on applicable Japanese tax law were 0.04%,
0.06% and 0.06% for the periods ended February 28, 2010, August 31, 2009 and February 28, 2009, respectively. The following tablesummarizes the significant differences between the statutory tax rates and NAF’s effective tax rates for financial statement purposes.

Statutory effective tax rate
Deductible distributions paid
Others
Effective tax rate

8th Period

7th Period

6th Period

September 1, 2009
to February 28, 2010

March 1, 2009
to August 31, 2009

September 1, 2008
to February 28, 200939.33%(39.31)
0.03

39.33%(39.30)0.04

39.39%(39.37)
0.04

0.04%

0.06%

0.06%

The tax effects of significant temporary differences that resulted in net deferred tax assets or liabilities as of February 28, 2010,
August 31, 2009 and February 28, 2009 were as follows:
Yen in thousands
As of February 28, 2010

As of August 31, 2009

As of February 28, 2009

Deferred tax assets:
Enterprise taxes

¥ 19

¥ 20

¥ 20

Total deferred tax assets
Deferred tax liabilities

19
—

20
—

20
—

Net Deferred Tax Assets

¥ 19

¥ 20

¥ 20

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

Note 9Per Unit Information

Information about earnings per unit for the periods ended February 28, 2010, August 31, 2009 and February 28, 2009 and net
assets per unit as of February 28, 2010, August 31, 2009 and February 28, 2009 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

26

Nippon Accommodations Fund Inc.

8th Period

7th Period

6th Period

September 1, 2009
to February 28, 2010

March 1, 2009
to August 31, 2009

September 1, 2008
to February 28, 2009

¥16,137¥13,626¥14,587

140,976

113,480

113,480

As of February 28, 2010

As of August 31, 2009

As of February 28, 2009

¥533,863¥550,978¥551,939

Notes to Financial Statements

Note 10

Transactions with Related Parties(September 1, 2009 – February 28, 2010)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Affiliates: None applicable(3) Sister Companies: None applicable(4) Directors and Major Individual Unitholders
Classification

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

Amount oftransaction

Account(Yen in millions)¥646(Notes 2 and 4)¥1(Note 4)

Balance at endof period(Yen in millions)

Accounts
payable(Note 4)

Accounts
payable(Note 4)¥455

¥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 ¥213 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.

(March 1, 2009 – August 31, 2009)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Affiliates: None applicable(3) Sister Companies: None applicable(4) Directors and Major Individual Unitholders
Classification

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

Amount oftransaction

Account(Yen in millions)¥317(Notes 2 and 4)¥6(Note 4)

Balance at endof period(Yen in millions)

Accounts
payable(Note 4)

Accounts
payable(Note 4)¥333¥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 does not include fees 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.

Note 11Significant Subsequent Events

None applicable

NAF Report September 2009 – February 201027

Independent Auditors’ Report

To the Board of Directors of
Nippon Accomodations Fund Inc.:
We have audited the accompanying balance sheets of Nippon Accomodations Fund Inc. (a Japanese Real Estate
Investment Trust) as of February 28, 2010, and August 31, 2009, and the related statements of income, changes in
net assets and cash flows for each of the periods from September 1, 2009 to February 28, 2010, from March 1, 2009
to August 31, 2009, and from September 1, 2008 to February 28, 2009, expressed in Japanese yen. These financial
statements are the responsibility of the Company’s management. Our responsibility is to independently express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosuresin 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 positionof Nippon Accomodations Fund Inc. as of February 28, 2010, and August 31, 2009, and the results of their operations
and their cash flows for each of the periods from September 1, 2009 to February 28, 2010, from March 1, 2009 toAugust 31, 2009, and from September 1, 2008 to February 28, 2009, 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 February 28,
2010 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 the financial
statements.

Tokyo, JapanMay 26, 2010

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.

28

Nippon Accommodations Fund Inc.

Facts and Figures

Contents
Rental Apartment Investment Characteristics .... 1
Corporate Structure and Governance................. 3
Primary Related Corporations ............................ 6
Portfolio Policy................................................... 8
Corporate Data .................................................. 11
Status of Unitholders ......................................... 12

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 and developing
a portfolio with high market competitiveness and asset value, NAF will stably increase earnings.
1. Net Migration into Tokyo (23 Wards)(People)In-migration

Net in-migration

Out-migration

Residential Rental Market Trends
in the 23 Wards of Tokyo

400,000

Population and Number of Households
In the 23 wards of Tokyo, where most of NAF’s assets

200,000

under management are located, the population influx is0continuing, reflecting an increasing desire in recent years tolive closer to work and the progressive concentration of-200,000

economic activities in Tokyo. Graph 1 shows migration trends-400,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

in the 23 wards of Tokyo as well as net in-migration. Inmigration has continued to exceed out-migration since 1996,

Sources: “Households and Population in Tokyo in Accordance with the Basic Register of Residents,”
Statistics Division, Tokyo Metropolitan Government Bureau of General Affairs, and“Report on Internal Migration in Japan,” Statistics Bureau, Ministry of Internal Affairs
and Communications

2. Projected Number of Households and Population (Tokyo 23 Wards)(Thousands of households)
4,500

projected number of households and population for the 23

4,323

9,000
8,767

8,689

3,500

8,500

8,490

3,763

3,000

1995

Increase of 520,000 residents over 10 years
6.6% increase

2000

2005

2010
2015
(Projected) (Projected)

7,500

3. Rental Apartment Construction Starts (Tokyo 23 Wards)(Units)
50,000percent increase was more than double the 6.6 percent
difference implies growth in the number of single and twoperson households, a trend that is projected to continue
Due to the above factors, MFAFM projects solid demand
from the growing number of single and two-personhouseholds for single and compact (rentable area under
60m 2 with two or fewer bedrooms) apartments, which
comprise the majority of NAF’s portfolio.

Rental Housing Stock
Graph 3 shows the number of rental apartment

43,371
39,08440,00030,76530,00022,075 21,878

25,603 23,831 25,888

construction starts in the 23 wards of Tokyo. Construction

33,101

31,880starts increased more or less steadily until 2006, but

26,512
21,71820,000decreased significantly following changes in the building
authorization procedure resulting from revisions in 2007 to

10,000the Building Standards Law (Law No. 201 of 1950 as
amended). The number of construction starts in 2009 stalled
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: “Housing Construction Statistics,” Information Security, Research and Statistics Division,
Policy Bureau, Ministry of Land, Infrastructure, Transport and Tourism

1

thousand over the decade from 1995 to 2005. This 15.8

through 2015.

Sources: Population censuses conducted in 1995, 2000 and 2005 by the Statistics Bureau, Ministryof Internal Affairs and Communications
For number of households from 2006, “Household Projections for Tokyo,” March 2009,
Tokyo Metropolitan Government, Statistics Division Bureau of General Affairs
For population from 2006, “Population Projections by Municipality” (as of December 2008),
National Institute of Population and Social Security Research0wards of Tokyo. The number of households increased by 550

increase in population during the same period. This
8,000

8,135
7,968

greater rate than the population as households divide into
smaller units, among other factors. Graph 2 shows the

4,025
3,475

Moreover, the number of households is increasing at a

9,500
4,453

Increase of 550,000 households over 10 years
15.8% increase

highly convenient areas.

(Thousands of people)

Number of households (left scale)
Population (right scale)

4,000

indicating stable demand for residential rental housing in

Nippon Accommodations Fund Inc.

at about the same level as 1999.

Rental housing stock volume for the 23 wards of Tokyo is

4. Rental Housing Stock Volume and Composition (Tokyo 23 Wards)

shown in Graph 4. Stock increased by 132 thousand units to
2,079 thousand in 2008 from 1,947 thousand in 2003 with
the increase in demand due to the population influx into
Tokyo. However, the overall increase was moderatecompared with the concurrent increases in population andnumber of households. On closer analysis, the ratio ofcompany housing, private apartments and public housing
decreased, whereas the ratio of private condominiums
increased in response to the needs of potential occupants.

(Thousands of units)
2,500
2,000

1,975
5.6%
8.8%

1,947
4.9%
8.0%

1,500

25.9%

20.1%

1,000

13.9%

500

45.8%

51.0%

1998

2003

0

Stability of Residential Rent
Graph 5 shows relative rents for non-wooden residential

Other
Private apartments
Private condominiums

Company housing
Public housing

2,079(+132)
3.6% (-1.3%)
7.3% (-0.7%) Parentheses represent
15.7% (-4.5%) comparison with 2003.
14.8% (-1.2%)

16.0%
58.6% (+7.7%)

2008

Source: “Housing and Land Survey,” Statistics Bureau, Ministry of Internal Affairs andCommunications

units over 30m2 in the 23 wards of Tokyo and offices inGreater Tokyo, with 1989 levels set as 100. Residential rent
has remained relatively stable in comparison to office rent.

5. Residential and Office Rents

Rental housing is a necessary expense in the same way as(Index: 1989 = 100)
150

clothing and food. Therefore, residential rent is considered140

stable because it is generally unaffected by fluctuations in

130

economic conditions and asset value, with relatively low risk

120

of change.
In addition, rental housing enables a more diversified

Office rent (Greater Tokyo)
Residential rent
(Tokyo, non-wooden, over 30m2)

110
100
90

portfolio in terms of number of properties and tenants due to80

its relatively small scale in comparison to office buildings and70

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

other properties. Investment in rental housing of this nature
is perfectly matched with NAF’s core strategy of securing

Source: “Annual Report: Consumer Price Index,” Cabinet Office, Ministry of Internal Affairs andCommunications, and “Service Price Index for the Private Sector,” Bank of Japan

stable revenues. Furthermore, new properties are scarce,
comprising a limited share of rental housing stock. Suchproperties, which make up the majority of NAF’s investment
portfolio, ensure market competitiveness and asset value.

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

Commission Fee

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

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

Security Deposit

Guarantor/Joint Surety

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

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

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

Facts and Figures2

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 investment
corporation established with the objective of investing in assets,
primarily Designated Assets as defined under the Investment Trustand Investment Corporation Act of Japan. NAF was established on
October 12, 2005, with Mitsui Fudosan Accommodations FundManagement Co., Ltd. (the “REIT Management Company” or“MFAFM”) as its asset management company.
NAF has entrusted management of all of its assets to the REITManagement Company, which is the asset management company
required under the Investment Trust and Investment Corporation
Act of Japan. Operating in accordance with the REIT Management
Agreement concluded on October 13, 2005 (as amended), the
REIT Management Company manages NAF’s assets according to
NAF’s asset management and administration policies and the asset
management guidelines embodied in the internal regulations of
the REIT Management Company. The asset management
guidelines take current investment conditions into account andfollow NAF’s basic operating principle of taking a medium-tolong-term perspective in managing assets to secure stableearnings and steadily increase assets under management.
These guidelines may change in the future in response to changes

in the external investment environment and the status of NAF’s
assets under management.
In addition, the REIT Management Company has concluded
contracts with other companies in the Mitsui Fudosan Group topromote smooth, effective management of NAF’s assets. An
Agreement on Provision of Real Estate Information/Advisory
Service with Mitsui Fudosan Co., Ltd. provides information
regarding real estate owned or developed by Mitsui Fudosan’s
Accommodations Business Division, and other managementadvisory information. Each of (i) a Memorandum on Provision ofReal Estate Brokerage Information with Mitsui Fudosan Real
Estate Sales Co., Ltd. and (ii) an Agreement on Provision of Real
Estate Information with Mitsui Fudosan Residential Co., Ltd.
provides access to certain real estate property information. A Basic
Agreement on Property Management with Mitsui Fudosan
Housing Lease Co., Ltd., the master property managementcompany to which NAF has entrusted property management
services of all its properties, is fundamental to NAF’s policy ofoutsourcing such property management services required inmanaging 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)

Transfer Agency
Service Agreement/
Agreement regarding
Management ofSpecial Accounts

Nippon Accommodations
Fund Inc.
(TSE 3226)

The Chuo Mitsui Trust andBanking Company, Limited

Financial Agency
Agreement

Property Information Provider

Memorandum on
Provision of Real Estate
Brokerage Information

Mitsui Real Estate
Sales Co., Ltd.

REIT

Agreement on Provisionof Real Estate Information

3

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.

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

Executive Directors, Supervisory Directors,
Independent Auditor and the Board of Directors
NAF’s Articles of Incorporation stipulate that NAF must haveone or more executive directors, and two or more supervisory
directors (but always equal to the number of executive directors
plus at least one additional supervisory director). NAF’s
independent auditor is KPMG AZSA & Co.
NAF’s executive directors are responsible for businessexecution. In addition, they have authority for all judicial andextrajudicial proceedings related to the operations of NAF.

Compliance Initiatives
The REIT Management Company, MFAFM, assumes full
responsibility for compliance in order to structure an appropriate
asset management system for NAF. A Chief Compliance Officer(CCO) of MFAFM has been appointed to supervise compliancewith laws, regulations and internal rules on the part of the REITManagement Company.
The CCO is responsible for internal audits at the REITManagement Company. The Chief Executive Officer (CEO) may
also appoint other employees of MFAFM to participate as needed
in internal audits, based on the recommendations of the CCO.
MFAFM’s entire organization and all personnel within it are
subject to internal audits. As a rule, internal audits are conducted
on a regular basis in accordance with the compliance program,but the CEO may initiate extraordinary audits.

Supervisory directors are responsible for supervising businessexecution by the executive directors.
The Board of Directors acts in accordance with the Investment
Trust and Investment Corporation Act of Japan and NAF’s Articles
of Incorporation and other internal rules in exercising their
responsibility to supervise the performance of the executive
directors. In accordance with the current Articles of Incorporation,
the Board of Directors passes or vetoes resolutions on the basis ofa simple majority of executive and supervisory directors on the
Board who are in attendance and are able to vote. Executive andsupervisory directors having special interest in a resolution areprohibited from participating in related decisions.
The independent auditors are elected at the General Meetingof Unitholders. They audit financial and accounting documents
including NAF’s financial statements. In addition, they are charged
with reporting to supervisory directors any unlawful acts ormaterial violations of laws, regulations or NAF’s Articles ofIncorporation that executive directors may commit in the course of
their duties. The independent auditors also perform other duties
as required by laws and regulations.

Corporate Governance Structure of MFAFM
General Meeting of Stockholders
AuditorBoard of Directors
Compliance Committee

CCO
CEO

Investment Committee

Financial
Division

Investment
Division
CIO

Investment,
Research &Strategy Team

CFO

Asset
Management
Team

FinancialTeam

Corporate
Operation
Team

Facts and Figures4Corporate Structure and Governance

Investment Risk Management System
NAF itself is responsible for complying with the Investment
Trust and Investment Corporation Act of Japan and related laws
and regulations in managing risks. In addition, the REITManagement Company has established appropriate internal
rules. In conjunction with appropriate organizational systems,
NAF is providing education and implementing other measures toenhance the culture of compliance among officers and employeesof MFAFM.
NAF’s Board of Directors convenes as needed at least once
every three months, and resolves important matters and reportson the status of business execution in accordance with laws,
regulations and internal rules for such Board of Directors.
Independent supervisory directors supervise business execution.
Moreover, supervisory directors can obtain as needed reports on
operations and financial condition from the REIT Management

Company and from NAF’s asset custodian, The Chuo Mitsui Trustand Banking Company, Limited. Independent supervisory directors
can also conduct required investigations.
One of NAF’s executive directors has obtained approval fromthe regulator in accordance with the Investment Trust andInvestment Corporation Act of Japan to serve concurrently as the
President and CEO of the REIT Management Company, or MFAFM.
The REIT Management Company formulates and revises anannual management plan that is the blueprint for management
and administration policies that comply with the asset
management guidelines. This annual plan and compliance withthe asset management guidelines serve to eliminate or minimize
risk. In addition, the REIT Management Company has establishedinternal risk management regulations and a department that
focuses on managing each type of risk appropriately.

Restrictions on Related-Party Transactions
Laws and regulations prohibit the REIT Management
Company from conducting specified transactions with relatedparties. In the case of a transaction with a potential conflict ofinterest between an entity specified under the Investment Trustand Investment Corporation Act of Japan and its ordinances andits asset management company, in principle the REITManagement Company must prepare a brief describing thetransaction and deliver it to NAF and other entities specified by5

Nippon Accommodations Fund Inc.

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

Primary Related Corporations

Overview of the Roles of Primary Related Corporations
The following outlines the contractual relationship between NAF and its REIT management company, and the contractual relationship between NAF’s REIT
management company and primary related corporations.
Role

Name

Overview of Relevant Operations

REIT managementcompany and generaladministrative agent

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

MFAFM serves as the company entrusted with asset management as required under the Investment Trustand 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 thisagreement, 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 ofUnitholders; and (3) any other matters related to the above items listed in (1) and (2) that NAF may
require, as General Administrative Agent based on a General Administrative Service Agreement dated
March 1, 2006. The matters entrusted to the Transfer Agent pursuant to the Agreement between NAF
and the Transfer Agent are not included in the above matters set forth in (1) and (2).

Real estate information/
advisory service provider

Mitsui Fudosan Co., Ltd.

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

Property information
providerMitsui Real Estate
Sales Co., Ltd.

Mitsui Real Estate Sales provides real estate brokerage information and other services to MFAFM
under a Memorandum on Provision of Real Estate Brokerage Information that MFAFM entered intowith 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 managementcompany, all property management services required for real estate of NAF, under a Basic Agreement
on Property Management between MFAFM and Mitsui Fudosan Housing Lease dated March 31, 2006.

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

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 management of theinstitutions of NAF.
MFAFM has no capital relationship with NAF. Nobuyuki Nakai,
President & CEO of MFAFM, is concurrently an executive director of NAF.

Operation■ Undertakes asset management of NAF pursuant to a REITManagement Agreement based on an entrustment from NAF in accordance with the Articles of Incorporation of NAF and the Investment
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 andpursuant to a General Administrative Service Agreement.

Fees for the Asset Management Operation
NAF pays asset management fees to MFAFM, in accordance with 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 arisingfrom 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 todeduction of Management Fees 1 and 2 as calculated on each closing
date will be payable. Management Fees 2 are paid without delay after
definite settlement of accounts.

Facts and Figures6

Primary Related Corporations

Management Fees 3

Management Fees 4

In the event that Real Estate, etc. is newly acquired, compensationequivalent 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 bepayable. Management Fees 3 are paid at or before the end of the next
month after the month of the acquisition date.

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 theend of the next month after the month of the sales date.

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 a diverse array of
support services that employ the information and expertise 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.

Note: “Real estate management information” means thefollowing information:

Provision of Information on Real Estate and Other
Assets Owned or Developed by Mitsui Fudosan(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 investment corporations, income and expense data for specific properties, and real estateleasing market trends including vacancy rate and rent trends.

In case Mitsui Fudosan initiates selling activities of real estate or realestate-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 made due 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 or assets, Mitsui
Fudosan deals with NAF as a prospective purchaser on a pari passu basiswith regard to any third party interested in purchasing such estate orother 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 inprinciple notifies MFAFM of information concerning available real estateor real estate-related assets owned by third parties, when such real estateor 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 to acquire such real estate or assets with the objective of development or ownership.

(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, and trends
in housing stock.

(c) Other information related to items (a) or (b) above that MFAFM
requests, as needed.

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

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 (seenote 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.

7

Nippon Accommodations Fund Inc.

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

Portfolio Policy

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

When considering individual investments, NAF studies regional
characteristics and tenant needs. NAF then deploys this information toinvest in properties with suitable residential plans and characteristics.

1. Investment Areas

2. Investment Standards

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

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

ItemStandard

Investment amountIn principle, the value of each property must 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 in compartmentalized ownershipupon consideration of the specific property. NAF may also invest in leaseholds, including fixed-term leaseholds, on the basis of
consideration of earning potential, the stability 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 (in compliance 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 of acquisition, and shall notinvest 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, are expected to carry minimum risk in respect to completion, delivery andsubsequent leasing.

3. Due Diligence Standards
NAF selects assets to invest in only after due diligence covering
economic feasibility, physical condition and legal status in accordance withthe asset management guidelines. Due diligence includes real estateappraisals and building inspection reports from third-party specialists.
Item
Economic
feasibility
studies

Physicalcondition
studies

Based on the results of such due diligence, the REIT Management
Company in principle undertakes investigation of the items listed below inorder to make 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 their 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

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 the interior and exterior,status of maintenance (or deterioration) of facilities including sanitary facilities, ventilation facilities, electrical facilities, elevatorsand 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
Facts and Figures8Legalinvestigation

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 institution that 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 other relevant matters must be considered.

Environmental,
soil and other issues

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 complicatedrelation of rights, the following matters, among others, shall be investigated (the complicated relation of rights include relationshipbetween NAF and others if NAF does not hold the title to property or jointly holds the title);
1. (If the concerned right is leasehold) the perfection of such leasehold and the absence of any right which supersedes suchleasehold.
2. The registration status of the relevant right of site; the limitation on separate transfer of such right of site from the building
thereon and the registration status of such limitation; share of such right
3. Measures to be taken to ensure the maintenance of deposits; reserve rules or measures based on long-term renovation plan
4. Existence of agreement on prohibition from division of co-ownership property and registration status of such agreement;
appropriate treatments in case of request for division of co-ownership property or sales of co-ownership share; (possible)
claims against or from other co-owners.
5. Status of compartment of compartmentalized ownership.
6. Security arrangements established prior to involvement of NAF and assumption of any encumbrances or obligations inconnection 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 otherrelevant 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 planfor NAF’s assets under its management for each fiscal period. This management plan covers issues such as handling of the assets and projected
capital expenditures for properties, including plans for large-scale renovation, and is subject to Investment Committee approval.
The REIT Management Company acts in accordance with this yearly
management plan in undertaking management and operation of the assets
in cooperation with the property management company. The REITManagement Company is also responsible for implementing appropriatechanges and revisions to the yearly management plan if necessitated bysignificant changes in the operating environment.

9

property management, and its operations must be organized and efficientso 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. to provide
these services as its master property management company. 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 thatit meets the following requirements:

2. Selection and Monitoring of the Property
Management Company

1. An organizational structure that can execute property management
operations according to the management and operation specificationsof 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.

The property management company is responsible for proposal andimplementation of various measures for day-to-day, on-site managementof tenants and properties. Such functions of the property managementcompany are particularly important to the management of accommodation
assets in general and rental housing in particular. Naturally, the property
management company should have specialized expertise in the business of

In addition, the REIT Management Company will periodically monitor
whether the selected property management company is maintaining its
capabilities at the level dictated by the standards for selection. As a resultof monitoring, the REIT Management Company may require improvements or may change the property management company.

Nippon Accommodations Fund Inc.

Portfolio Policy

3. Policies for Property and Casualty
Insurance Coverage

4. Basic Policies for Renovation Plans andCapital Expenditures

NAF maintains property and casualty insurance coverage, to theextent that is deemed appropriate, to address damage to property due todisasters such as fires and accidents or claims for compensatory 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 earthquakeon 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 such property causes portfolio PML to rise above 15 percent, NAF
comprehensively considers the impact from an earthquake, insurance premiums and any other relevant issues to determine whether or not to purchase earthquake insurance.

The renovation plans are strategic and require renovation and capital
expenditures in addition to routine expenses incurred by small repairs inorder 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 12year medium-term renovation plans.
NAF funds a reserve for renovation according to considerations ofdepreciation 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, anddoes not engage in short-term divestiture.
However, NAF decides to sell specific assets after consideration of theoverall portfolio impact based on evaluation of trends affecting the future

rental market in a given area, actual or projected increases or decreases in
asset values, risk of asset impairment, obsolescence and associated costs,
and other relevant factors.

Financial Policies
1. Issue of New Units

3. Loan-to-Value Ratio

NAF may flexibly issue additional units through an offering with theobjective of financing acquisition of assets, renovation and other capitalrequirements for operation, or to repay debt, including lease deposits,
security deposits, loans and bonds that NAF may have issued.

The ratio of interest-bearing debt to NAF’s total assets is known as
the loan-to-value (LTV) ratio. The REIT Management Company
determines the upper limit of NAF’s LTV ratio as part of its mid-to-longterm 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 the acquisition of assets may cause the LTV ratio totemporarily exceed 60 percent.

2. Debt Financing
NAF may issue bonds or take on loans, including call market
funding, with the objective of financing acquisition of assets; 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 ¥1trillion. According to NAF’s current Articles of Incorporation, NAF may
use its assets under management as collateral for loans and bonds.

4. Derivatives
According to NAF’s current Articles of Incorporation, NAF limits
transactions involving financial derivatives to those with the objective ofhedging risks including the risk of change in the interest rates associatedwith 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 that encourages timely and accurate
disclosure of unbiased information to all investors. In keeping with its
name, NAF’s fundamental policy is to accommodate investors indisclosing information.

NAF discloses information in accordance with the Investment Trustand Investment Corporation Act of Japan, the Financial Instruments andExchange Law of Japan, and the rules of the Tokyo Stock Exchange andthe Investment Trusts Association, Japan. Moreover, NAF energeticallydiscloses of its own accord information that it believes is relevant toinvestment decisions.

Facts and Figures

10Corporate Data

11

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

Fiscal period

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

Unit listing

Tokyo Stock Exchange (Securities Code: 3226)

Transfer agent

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

Nippon Accommodations Fund Inc.

Status of Unitholders

Major Unitholders(As of February 28, 2010)

Number of Units Held

Percentage of Total*

Japan Trustee Services Bank, Ltd. (Trust Account)

21,04913.47%

NCT Trust and Banking Corporation (Investment Account)

12,491

7.99%

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

10,317

6.60%

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

9,672

6.19%

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

9,174

5.87%

Mitsui Fudosan Co., Ltd.

6,600

4.22%

Name

State Street Bank and Trust Company

5,371

3.43%

AIG EDISON-GA NON DIMA

3,827

2.45%

The Chuo Mitsui Trust and Banking Company, Limited

3,600

2.30%

Sumitomo Mitsui Banking Corporation

3,590

2.29%

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

Composition and Distribution of Unitholders(As of February 28, 2010)

Individuals
and others

Financial
institutions

Other domestic
corporations

Overseas corporations
and individuals

Securities
companies

Total

Number of unitholders

8,530(95.59%)78(0.87%)

171(1.92%)

122(1.37%)

22(0.25%)

8,923(100%)

Number of units held

23,262(14.89%)98,523(63.08%)12,071(7.73%)

20,922(13.40%)1,400(0.90%)

156,178(100%)

Disclaimer
This document was prepared solely for the convenience of andreference by overseas investors and does not correspond to the original
Japanese documents.
This English document contains selected information including a partial
translation of the Securities Report (Yuka shoken hokokusho) filed on May
27, 2010 pursuant to the Financial Instruments and Exchange Law ofJapan, and the Financial Statements and Performance Information Reportfor the period from September 1, 2009, to February 28, 2010, of Nippon
Accommodations Fund Inc. prepared pursuant to the Investment Trust andInvestment Corporation Act of Japan. This document should not be deemeda summary of the above mentioned Securities Report and the Financial
Statements and Performance Information Report.
The contents of this document do not constitute an offer to sellor solicitation 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 theequivalent Japanese terms. If there exist any discrepancies in the meaning
or interpretation with respect to any and all terms herein including, without
limitation, financial statements, between the original Japanese documents
and English statements contained herein, the original Japanese documents
will always govern the meaning and interpretation. None of Nippon
Accommodations Fund Inc., Mitsui Fudosan Accommodations FundManagement Co., Ltd. or any of their respective directors, officers,
employees, partners, unitholders, agents, parent company or affiliates will
be responsible or liable for the completeness, appropriateness or accuracyof English translations contained in this document. No person has beenauthorized to give any information or make any representations other thanas contained in this document in relation to the matters set out in thisdocument, and if given or made, such information or representation mustnot 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. havebeen prepared in accordance with generally accepted accounting principles
in Japan (Japanese GAAP), which may materially differ in certain respects
from generally accepted accounting principles in other jurisdictions.
This document contains forward-looking statements and information.
We base these statements on our beliefs as well as our assumptions based
solely on certain limited information currently available to us. Because
these statements reflect our current views concerning future events, thesestatements involve known and unknown risks, uncertainties andassumptions. Our future performance could materially differ from those set
out in these forward-looking statements. We do not undertake and will
not undertake to release revisions of forward-looking statements to reflect
future events or circumstances or of any other statements or information
contained herein.

Facts and Figures12

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

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