Semi-Annual Report
1st Fiscal Period Ended April 30, 2015
(from September 8, 2014 to April 30, 2015)

Message to Our Unitholders
Sekisui House Reit, Inc. (“SHR”) is an investment corporation that has Sekisui House, Ltd. (“Sekisui
House”), one of the leading housing manufacturers in Japan, as its sponsor.
SHR has been established to achieve mutual growth and prosperity with its unitholders, tenant companies
and all other stakeholders. SHR aims to provide high-quality social capital and maximize unitholder value
by conducting asset management that pursues the securing of stable earnings over the medium to longterm and steady growth of its investment assets. With this basic philosophy, SHR was newly listed on theTokyo Stock Exchange Real Estate Investment Trust Section on December 3, 2014.
SHR recently settled its accounts for the 1st fiscal period (fiscal period ended April 2015). I, on behalf of
SHR, would like to extend my heartfelt thanks to unitholders as this could not have been managed without
your understanding and support.
I hereby report on the management status and financial results for the 1st fiscal period of SHR.
SHR acquired three properties for 114.3 billion yen upon its listing, and posted operating revenue of 2,108
million yen, operating income of 1,580 million yen, ordinary income of 1,014 million yen and net income of
1,013 million yen. As a result, the distribution per investment unit declared was 1,603 yen.
I next report on the status of activities subsequent to the fiscal period under review. Entering the 2nd
fiscal period (fiscal period ending October 2015), SHR conducted issuance of new investment units to follow
its listing five months earlier and, combined with new borrowing of funds, SHR newly acquired a property.
SHR’s portfolio has thus grown to four properties, amounting to an asset size of 152.9 billion yen on an
acquisition price basis.
By taking full advantage of the sponsor support by Sekisui House, which has an excellent track record ofdeveloping commercial properties, SHR will continue to pursue the securing of stable earnings and steady
growth of its investment assets and thereby aim to maximize unitholder value.
I ask for the continued support and encouragement of unitholders.
Junichi Inoue
Executive Director of Sekisui House Reit, Inc.
President & Representative Director of Sekisui House Investment Advisors, Ltd.

1

Outline of asset management operation
1.

Developments in Asset Management in the Fiscal Period under Review(1) Brief History of the Investment Corporation
Sekisui House Reit, Inc. (“SHR”) that has as its sponsor Sekisui House, Ltd. (“Sekisui House”), which is one of theleading housing manufacturers in Japan and has an abundant development and management track record also
in the development business, was established on September 8, 2014 and listed on the Tokyo Stock Exchange Real
Estate Investment Trust Section on December 3, 2014 (securities code: 3309).
SHR makes it a policy to conduct asset management that pursues the securing of stable earnings over the medium
to long term and steady growth of its investment assets, mainly investing in commercial properties (Note), withparticularly commercial properties situated in strategic locations or have high quality that it refers to as prime
properties positioned as its core investment targets.
Based on the policy described above, SHR acquired three properties (sum total of acquisition price: 114,300 million
yen) and, in effect, commenced management on the listing date December 3, 2014.
(Note)“Commercial properties” refer to real estate mainly used for business purposes other than for residence, such as office buildings,
retail properties and hotels. Residence includes student dormitories, company housing and serviced housing for the elderly. The
same shall apply hereinafter.

(2) Management Environment and Management Performance
Management Environment
In the fiscal period under review, the Japanese economy continued to be on a moderate recovery trend, as
evidenced by such factors as improvement in the employment and income situation leading to private consumption
picking up, albeit moderately, and corporate earnings sustaining an improving trend due to depreciation of the
yen and crude oil prices.
In the real estate transaction market, in addition to a favorable financing environment, signs of an increasingly
marked improvement in the office rent level and vacancy rate boosted the investment appetite, with particularly
depreciation of the yen and the sense that real estate prices are relatively undervalued leading to increasingly
active overseas fund movements, thereby increasing the sense of overheating in certain areas.
In addition, in the office leasing market, reflecting the improvement in corporate earnings leading to floor space
expansions, relocations for greater floor space, etc. in major office areas, the vacancy rate showed ongoing steady
improvement, and the rent level also showed signs of increase in certain areas. On the other hand, theenvironment surrounding retail properties, according to the Bank of Japan’s Monthly Report of Recent Economic
and Financial Developments (April 2015), was that sales at department stores have been on an improving trend
supported by the pick-up in demand following the decline in reaction to the rush demand and the wealth effects
as a result of the rise in stock prices as well as by increased sales to foreign visitors to Japan. Meanwhile, sales atsupermarkets nationwide have shown relatively weak movements, while sales at convenience stores have showna moderate increasing trend. These, among other factors, suggest that store rent, which is susceptible to private
consumption trends, was on a recovery trend.
Management Performance
Based on the basic asset management policy set forth in its articles of incorporation, SHR used the proceeds fromissuance of new investment units and loans to acquire real estate trust beneficiary interests that have real estate
as assets in trust (the three properties “Garden City Shinagawa Gotenyama” (Shinagawa Ward, Tokyo; acquisition
price: 39,700 million yen), “Gotenyama SH Building” (Shinagawa Ward, Tokyo; acquisition price: 51,500 million
yen) and “Hommachi Minami Garden City” (Osaka City, Osaka; acquisition price: 23,100 million yen)) and thereby
commenced management on December 3, 2014.
The assets held by SHR as of April 30, 2015 (“as of the end of the fiscal period under review”) are the threeproperties above, with sum total of acquisition price of 114,300 million yen and total leasable area of 57,732.90m2.
In addition, of the three properties, master lease agreements with Sekisui House as lessee have been executed fortwo properties and a long-term lease agreement with one tenant as lessee has been executed for one property,
resulting in occupancy rate as of the end of the fiscal period under review of 100.0%.

2

(3) Overview of Fund Procurement
SHR implemented an issuance of new investment units through public offering (600,000 units) with December 2,
2014 as the payment date and was listed on the Tokyo Stock Exchange Real Estate Investment Trust Section on
December 3, 2014. SHR then implemented an issuance of new investment units by way of third-party allotment(30,000 units) with December 24, 2014 as the payment date. As a result, as of the end of the fiscal period underreview, unitholders’ capital is 67,074 million yen and the number of investment units issued and outstanding is632,000 units.
In addition, in connection with acquisition of real estate trust beneficiary interests (three properties) upon the
new listing, SHR procured loans in a total amount of 55,000 million yen on December 3, 2014 for use as funds foracquisition of the real estate trust beneficiary interests (three properties) as well as related expenses. The interest
rate for loans in the amount of 41,000 million yen of these loans has been converted into a fixed rate through aninterest rate swap transaction.
As a result, as of the end of the fiscal period under review, the balance of interest-bearing liabilities is 55,000
million yen and the ratio of total interest-bearing liabilities (total amount of loans amount, investment corporation
bonds issuance amount and short-term investment corporation bonds issuance amount) to total assets (“LTV (total
assets basis)”) is 42.5%.
Furthermore, in the fiscal period under review, SHR acquired long-term issuer rating (AA−; rating outlook: stable)from Japan Credit Rating Agency, Ltd.
(4) Overview of Business Performance and Distributions
Results in the fiscal period under review are operating revenue of 2,108 million yen, operating income of 1,580
million yen and ordinary income of 1,014 million yen, resulting in net income of 1,013 million yen. In addition,
concerning distributions, the decision has been made to distribute the entire amount of unappropriated retained
earnings, excluding the portion where distribution per investment unit is less than 1 yen, with the intention of
having the maximum amount of distribution of earnings included in deductible expenses based on application ofa special tax treatment for investment corporations (Article 67-15 of the Act on Special Measures Concerning
Taxation (Act No. 26 of 1957, as amended)). As a result, the distribution per investment unit is 1,603 yen.
2.

Status of Capital Increase, etc.
The following is the increase (decrease) in unitholders’ capital and the total number of investment units issued
and outstanding since the establishment of SHR through to April 30, 2015.

Date

Event

Unitholders’ capital(thousand yen)
Increase(Decrease)

September 8, 2014

Private placement forestablishment

Balance

Total number ofinvestment units
issued and outstanding(units)Increase(Decrease)

Note

Balance

200,000

200,000

2,000

2,000

(Note 1)

December 2, 2014

Public offering

63,690,000

63,890,000

600,000

602,000(Note 2)

December 24, 2014

Third-party allotment

3,184,500

67,074,500

30,000632,000(Note 3)(Note 1) New investment units were issued at an offer price of 100,000 yen per unit upon the establishment of SHR.
(Note 2) New investment units were issued at an offer price of 110,000 yen (issue price of 106,150 yen) per unit through public offering.
(Note 3) New investment units were issued at an issue price of 106,150 yen per unit by way of third-party allotment.

3

[Changes in Market Price of Investment Securities]
The following is the fiscal period high and low (closing price) on the Tokyo Stock Exchange Real Estate Investment
Trust Section on which SHR investment securities are listed.

(Note)

3.

Fiscal period

1st fiscal period
From: Sept. 8, 2014
To: Apr. 30, 2015

High (yen)148,600

Low (yen)

131,700

SHR investment securities were listed on the Tokyo Stock Exchange Real Estate Investment Trust Section on December 3, 2014.

Performance of Distribution, etc.
Distribution per unit for the fiscal period under review (1st fiscal period) is 1,603 yen. The policy is to distributealmost the entire amount of unappropriated retained earnings with the intention of applying the special treatmentof corporation tax under which the amount equivalent to distribution of earnings is deductible from the taxable
income of investment corporations as deductible expenses (Article 67-15 of the Act on Special Measures
Concerning Taxation).
Fiscal period

Total amount of unappropriated retained earnings (thousand yen)

1st fiscal period
From: Sept. 8, 2014
To: Apr. 30, 2015
1,013,381

Amount of accumulated earnings (thousand yen)285

Total amount of cash distribution (thousand yen)

1,013,096[Distribution per unit] (yen)Of which,
Total amount of distribution of earnings (thousand yen)[Distribution of earnings per unit] (yen)[1,603]
1,013,096[1,603]

Of which,
Total amount of withdrawal of investments in capital (thousand yen)-[Amount of withdrawal of investments in capital per unit] (yen)[-]

4. Future Management Policy(1) Future Trends Outlook
The future Japanese economic outlook is that, amid ongoing improvement in the employment and income
situation, such factors as the impact of decline in crude oil prices and effects of the government’s various economic
measures are supposed to lead to moderate economic recovery. In the immediate future, while the favorable
investment environment, such as strong corporate earnings, is expected to continue, the pace of U.S. economic
recovery, impact of decline in crude oil prices, future of emerging economies and other overseas economic trends
are thought to require continued monitoring.
In the office leasing market, strong office demand backed by such factors as recovery in employment conditions
and corporate earnings and the accompanying continued decrease in the vacancy rate in major office areas willlead to progress in improvement in the supply-demand balance.
Amid such expected full-fledged office leasing market recovery, supported by a favorable financial environment,
the office real estate transaction market is showing increasingly active real estate investment with listed REITs
and private REITs being joined by overseas investors and other participants due to depreciation of the yen andthe sense that real estate prices are relatively undervalued. In addition, the real estate pricing factoring in the
expected future increase in rental income is seen to lower the expected cap rate and thereby further increase thesense of overheating over real estate acquisitions.

4(2) Future Management Policy and Challenges to Address
In the next and subsequent fiscal periods, SHR will continue to focus on prime properties, commercial properties
situated in strategic locations or that have high quality, as its core investment targets among commercial
properties positioned as its main investment targets. By implementing growth strategies that take full advantageof the real estate development and operation capabilities and other strengths of Sekisui House, which has built
an abundant track record of developing and operating commercial properties, through the sponsor support, SHR
will pursue the securing of stable earnings over the medium to long term and steady growth of its investment
assets and thereby aim to maximize unitholder value. Meanwhile at Sekisui House Investment Advisors, Ltd. (the“Asset Management Company”), investment opportunities will also be explored through its own initiatives in aneffort to advance diversification of the portfolio.
The policy is to set as its main investment areas the Three major metropolitan areas with Three large cities,
namely the Tokyo 23 Wards, Osaka City and Nagoya City, at the core, of which SHR has knowledge in the courseof developments made by Sekisui House (Note).
SHR has executed a pipeline support agreement with Sekisui House. This agreement provides for utilization of
the urban redevelopment business track record and know-how of Sekisui House, allowing SHR to seek fromSekisui House property acquisition support for external growth (pipeline support), which is specifically (a) grantof preferential negotiation rights with regard to the sale of domestic real estate, etc. owned or developed by Sekisui
House, (b) provision of information on real estate, etc. owned or developed in Japan by third parties, (c) provisionof warehousing functions, and (d) support for redevelopment of owned properties. In addition, SHR can seek fromSekisui House (a) provision of property management services for owned assets, and (b) in relation to managementof owned assets for internal growth, (i) provision of technologies and know-how that contribute to improvement of
tenant satisfaction or those, including energy saving and eco-friendly considerations, that contribute to valueenhancement of properties, (ii) personnel support, including provision of know-how required for the operation of
SHR, and (iii) support for such matters as discussion regarding execution of master lease agreements.
By implementing growth strategies that take full advantage of the versatile support by Sekisui House for external
growth and internal growth as described above, SHR will pursue the securing of stable earnings and steady growthof its investment assets and thereby aim to maximize unitholder value.
(Note)“Three large cities” refers to the Tokyo 23 wards, Osaka City and Nagoya City. In addition, “Three major metropolitan areas”
refers to “Greater Tokyo,” “Osaka area” and “Nagoya area,” where “Greater Tokyo” refers to Tokyo, Kanagawa Prefecture, Chiba
Prefecture and Saitama Prefecture, “Osaka area” refers to Osaka Prefecture, Kyoto Prefecture, Hyogo Prefecture and Nara
Prefecture and “Nagoya area” refers to Aichi Prefecture.

(3) Financial Strategy
SHR makes it a policy to conduct stable and sound financial operations in order to secure stable earnings over the
medium to long term and enhance unitholder value. Specifically, the policy is to form strong and stable business
relationships with leading domestic financial institutions, centering on megabanks, bolstered by thecreditworthiness of the sponsor Sekisui House, and also to reduce refinance risks and risk of fluctuations ininterest rates by investigating lengthening of the borrowing periods and working to diversify the repayment dates,
etc., while pursuing the optimum balance of fixed-rate and floating-rate debts.
In addition, the policy for LTV (total assets basis) is to manage it at a conservative level between 40% and 50%
with attention paid to securing funding capacity.
SHR’s LTV (total assets basis), which was 42.5% as of the end of the fiscal period under review, is expected todecrease by a certain level as a result of the public offering, etc. implemented in May 2015. Along with considering
utilization of the funding capacity generated by this decrease in LTV (total assets basis), SHR will work todiversify the procurement methods for direct and indirect financing, including issuance of investment corporation
bonds, by comprehensively taking into account the market environment, SHR’s financial standing and otherfactors.

55.

Significant Subsequent Events
Issuance of new investment units
SHR passed the following resolution concerning issuance of new investment units at a meeting of the board of
directors held on April 24, 2015. Payments for the new investment units through public offering and the newinvestment units by way of third-party allotment were completed on May 19 and June 12, 2015, respectively. As
a result, unitholders’ capital is 87,743,594,000 yen and the number of investment units issued and outstanding is794,000 units.
i) Issuance of new investment units through public offering (primary offering)Number of investment units to be issued:
Offer price:

154,200 units
131,917 yen per unit

Total amount of offer price:Amount to be paid in (issue price):

20,341,601,400 yen
127,587 yen per unit

Total amount of amount to be paid in (issue price):
Payment date:

19,673,915,400 yen
May 19, 2015

Date of commencement of distribution calculation:

May 1, 2015ii) Issuance of new investment units by way of third-party allotment
Number of investment units to be issued:
7,800 units
Amount to be paid in (issue price):
Total amount of amount to be paid in (issue price):

127,587 yen per unit
995,178,600 yen

Payment date:
Date of commencement of distribution calculation:

June 12, 2015
May 1, 2015

Allottee:

Nomura Securities Co., Ltd.

iii) Use of proceeds
The proceeds from the issuance of new investment units through public offering above were used as part offunds for acquisition of Hommachi Garden City on May 19, 2015, and the proceeds from the issuance of new
investment units by way of third-party allotment above were used for early repayment of part of short-termloans on June 17, 2015.
(Reference Information)(a) Borrowing of funds
SHR conducted the following borrowing of funds on May 19, 2015 for use as funds for acquisition of the asset
stated in “(b) Acquisition of asset” below, as well as related expenses.
Category

LenderShort term

The Bank of TokyoMitsubishi UFJ, Ltd.
and Sumitomo Mitsui
Banking Corporation

Loan amount(million yen)Interest rate

Drawdown
date

Repayment
due date

Repayment
methodRemarks

16,600Base rate (JBA
1-month JPY
TIBOR) +0.225%

May 19, 2015

May 18, 2016

Lump-sumpayment atmaturity

Unsecured
Unguaranteed(b) Acquisition of asset
The following one property was acquired on May 19, 2015.
Property name

Hommachi Garden City

Type of asset

Trust beneficiary interests that have real estate as assets in trust

Category

Office building

Acquisition price38,600 million yen

Acquisition date

May 19, 2015

SellerSekisui House, Ltd.

Location (indication of residential address)

3-6-4 Hommachi, Chuo-ku, Osaka-shi, Osaka

Type of ownership

Land: Right of site (co-ownership interest)
Building: Sectional ownership right6

Outline of the Investment Corporation
1.

Status of Capital
Fiscal period

1st fiscal period
as of Apr. 30, 2015

Total number of investment units authorized (units)

10,000,000

Total number of investment units issued and outstanding (units)

632,000

Unitholders’ capital (million yen)

67,074

Number of unitholders (persons)

16,0052.

Matters Concerning Investment Units
Of the unitholders as of the end of the fiscal period under review, the following are the top ten unitholders in termsof investment unitholding ratio.
Percentage of
Number of owned
owned units tounits
total units issued
Name(units)and outstanding(%)

Japan Trustee Services Bank, Ltd. (Trust Account)

129,381

20.47

Sekisui House, Ltd.

60,200

9.53

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

44,794

7.09

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

40,616

6.43

Goldman Sachs International

17,741

2.81

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

16,816

2.66

Nomura Bank (Luxembourg) S.A.

13,536

2.14

The Bank of Yokohama, Ltd.

7,658

1.21

The Hokkoku Bank, Ltd.

6,518

1.03

Trust & Custody Services Bank, Ltd. (Taxable Money Trust Account)

6,429

1.02

343,689

54.38

Total
(Note)

7

Percentage of owned units to total units issued and outstanding is rounded to two decimal places.

3. Matters Concerning Directors, etc.
(1) The following is the executive director, supervisory directors and independent auditor in the fiscal period underreview.
Position
Executive
Director

Name

Junichi Inoue

Key concurrently held position, etc.

Total amount of compensationfor each position during period(thousand yen)

President & Representative Director,－

Sekisui House Investment Advisors, Ltd.
Auditor, K-GOLD International Corporation

Supervisory

Shigeru Nomura

Director, Shigeru Nomura Certified Public
Accountant Office

2,400

Inspector, View Communications

Director
Tatsushi Omiya
Independent

Ernst & Young

AuditorShinNihon LLC

Auditor, QB Net Co., Ltd.

2,400

Partner, City Law Offices

10,600－(Note 2)

(Note 1) None of the executive director or supervisory directors own SHR investment units in their own name or in the name of another.
In addition, supervisory directors may be directors of other corporations other than those stated above, but none of them,including those above, have vested interest in SHR.
(Note 2) The total amount of compensation stated above is an approximate amount and includes the compensation for businesspertaining to agreed-upon procedures for matters specific to real estate investment corporations upon the issuance of new
investment units conducted in October 2014 and April 2015.

(2) Policy for Deciding on Dismissal and Refusal of Reappointment of the Independent Auditor
Subject to consideration at a meeting of the board of directors of SHR shall be the dismissal of the independent
auditor in accordance with the provisions of the Act on Investment Trusts and Investment Corporations (Act No.
198 of 1951, as amended) (the “Investment Trusts Act”) and the refusal of reappointment of the independent
auditor by taking into account the quality of audits, amount of audit fee and other various circumstances in acomprehensive manner.
4.

Asset Management Company, Asset Custodian and Administrative AgentsThe following is the asset management company, asset custodian and administrative agents as of the end of the
fiscal period under review.
Entrustment category

Name

Asset Management Company

Sekisui House Investment Advisors, Ltd.

Asset Custodian

Mitsubishi UFJ Trust and Banking Corporation

Administrative Agent (Transfer Agent)Mizuho Trust & Banking Co., Ltd.

Administrative Agent (Administrative Agent forOperation of Administrative Instruments)

Mitsubishi UFJ Trust and Banking Corporation

8

Condition of investment assets
1.

Composition of Assets of the Investment Corporation
The following is the composition of assets of SHR as of the end of the fiscal period under review.
1st fiscal period
as of Apr. 30, 2015
Type ofasset

Geographical area, etc.
(Note 1)Three major
metropolitan areas

Total amountheld(million yen)

As a percentage of
total assets(%)(Note 2)

(Note 3)

114,108

88.1

Other areas－－

Total of real estate in trust

114,108

88.1

Deposits and other assets

15,374

11.9

Total amount of assets

129,482

100.0

Real estatein trust(Note 1) Under “Geographical area, etc.,” “Three major metropolitan areas” refers to “Greater Tokyo,” “Osaka area” and “Nagoya area,”
where “Greater Tokyo” refers to Tokyo, Kanagawa Prefecture, Chiba Prefecture and Saitama Prefecture, “Osaka area” refers to
Osaka Prefecture, Kyoto Prefecture, Hyogo Prefecture and Nara Prefecture and “Nagoya area” refers to Aichi Prefecture.
(Note 2) “Total amount held” is the carrying amount (for real estate in trust, the depreciated book value) as of the end of the fiscal period
under review, rounded down to the nearest million yen.
(Note 3) “As a percentage of total assets” is rounded to one decimal place.

2.

Major Portfolio Assets
The following is an overview of the portfolio assets of SHR as of the end of the fiscal period under review.
Book value(millionyen)(Note 1)

Leasablearea(m2)(Note 2)

Leasedarea(m2)(Note 3)

Garden City
Shinagawa Gotenyama

39,66021,033.47

Gotenyama SH
Building

51,421

Hommachi Minami
Garden City

Name ofreal estate, etc.

Total

Occupancy
rate(%)(Note 4)

As a percentage of
total property-related
operating revenue(%) (Note 5)

Main use

21,033.47

100.0

34.6

Officebuilding

19,999.97

19,999.97

100.0

42.5

Officebuilding

23,026

16,699.46

16,699.46

100.0

22.9

Officebuilding

114,108

57,732.90

57,732.90

100.0

100.0

－

(Note 1) “Book value” is the depreciated book value of each property as of the end of the fiscal period under review, rounded down to thenearest million yen. The same shall apply hereinafter.
(Note 2) “Leasable area” is the floor area available for leasing based on the lease agreement or building drawing, etc. for each property
that is valid as of the end of the fiscal period under review. The same shall apply hereinafter.
(Note 3) “Leased area” is the sum total of the leased area indicated in the respective lease agreements for each property that are valid
as of the end of the fiscal period under review.
(Note 4) “Occupancy rate” is the ratio of leased area to leasable area of each property as of the end of the fiscal period under review,rounded to one decimal place. That in the total column is the occupancy rate of the entire portfolio, which is the ratio of leased
area of all properties to leasable area of all properties. The same shall apply hereinafter.
(Note 5) “As a percentage of total property-related operating revenue” is rounded to one decimal place. The same shall apply hereinafter.

9

3.

Itemization of Assets (Real Estate, etc.) in the Portfolio
The following is an overview of the assets held by SHR as of the end of the fiscal period under review.
Name ofreal estate, etc.

Location

Type of ownership

Garden City
Shinagawa Gotenyama

6-7-29 Kitashinagawa,

Gotenyama SH
Building

6-5-17 Kitashinagawa,Shinagawa-ku, Tokyo

Hommachi Minami
Garden City

3-6-1 Kitakyuhojimachi,
Chuo-ku, Osaka-shi, Osaka

Real estate trust
beneficiaryinterests
Real estate trust
beneficiaryinterests
Real estate trust
beneficiaryinterests

－

－

Total
(Note)

Shinagawa-ku, Tokyo

Book value
at end of period(million yen)

Estimated value
at end of period(million yen)
(Note)

39,66041,10051,42153,40023,02625,600114,108

120,100“Estimated value at end of period” is the value stated in each real estate appraisal report (based on real estate appraisal reports
prepared by Daiwa Real Estate Appraisal Co., Ltd., The Tanizawa Sōgō Appraisal Co., Ltd. and Richi Appraisal Institute Co.,
Ltd. with the end of the fiscal period under review as the date of value), rounded down to the nearest million yen.

The following is the status of leasing of real estate, etc. held by SHR.
1st fiscal period
From: Sept. 8, 2014
To: Apr. 30, 2015

Name ofreal estate, etc.

Number of tenants[at end of fiscal
period underreview](Note 1)

Occupancy rate
[at end of fiscal
period underreview](%)

Property-related
operating revenue[during fiscal
period underreview](million yen)
(Note 2)

As a percentage of
total property-related
operating revenue(%)(Note 3)

Garden City
Shinagawa Gotenyama

1

100.0

730

34.6

Gotenyama SH
Building

1

100.0

895

42.5

Hommachi Minami
Garden City

1

100.0

482

22.9

3

100.0

2,108

100.0

Total

(Note 1) “Number of tenants” is the sum total of the number of tenants under the respective lease agreements for each property indicatedin the lease agreement for the property that is valid as of the end of the fiscal period under review. Furthermore, in cases wherea fixed-rent-type master lease agreement, based on which a fixed amount of rent is received regardless of fluctuations in rent
from end-tenants, has been executed for the concerned property, the number of lessees under the master lease agreement isstated as the number of tenants.
(Note 2) “Property-related operating revenue [during fiscal period under review]” is the sum total of property-related operating revenue
in the fiscal period under review of each property, rounded down to the nearest million yen.
(Note 3) “As a percentage of total property-related operating revenue” is property-related operating revenue in the fiscal period underreview of each property expressed as a percentage of total property-related operating revenue, rounded to one decimal place.

10

4.

Table of Status of Contract Amount, etc. and Fair Value of Specified Transactions
The following is the status of contract amount, etc. and fair value of specified transactions at SHR as of the endof the fiscal period under review.

Category

Transaction other thanmarket transaction

Type

Contract amount, etc.
(thousand yen) (Note 1)
Of which,due after 1 year

Fair value(thousand yen)
(Note 2)

Interest rate swap transaction
Floating interest rate receivableand fixed interest rate payable

41,000,000

41,000,000－(Note 1) The contract amount, etc. of interest rate swap transactions is based on notional principal.
(Note 2) The fair value is omitted because the transaction meets the criteria for special accounting under the Accounting Standards for
Financial Instruments.

5.

Status of Other Assets
Trust beneficiary interests that have real estate as the main assets in trust are stated in “3. Itemization of Assets(Real Estate, etc.) in the Portfolio” above. As of the end of the fiscal period under review, there are no specified
assets other than real estate, etc. and asset-backed securities, etc. in the portfolio.

6.

Status of Holding of Assets by Country and Region
As of the end of the fiscal period under review, there are no overseas real estate, etc. in countries and regions otherthan Japan in the portfolio.

11Capital expenditures for property
1.

Schedule of Capital Expenditures
There are no capital expenditures accompanying renovation work, etc. currently planned for assets held by SHR.
However, there may possibly be a portion eventually charged to capital expenditures for accounting purposes.

2.

Capital Expenditures During Period
There is no construction work that falls under the category of capital expenditures conducted by SHR in the fiscal
period under review.
Repair expenses charged to expenses in the fiscal period under review amounted to 3,898 thousand yen.

3.

Cash Reserves for Long-Term Repair Plans
No cash was reserved for long-term repair plans in the fiscal period under review.

12Condition of expenses
Itemization of Expenses Pertaining to Management, etc.
(Unit: thousand yen)
Item
Asset management fee

1st fiscal period
From: Sept. 8, 2014
To: Apr. 30, 2015
143,170

Asset custody fee

1,381

Administrative service fees

3,813

Directors’ compensations

4,800

Other expenses

7,632
Total

13

160,798

Condition of investment transactions
1.

Status, etc. of Sale and Purchase of Real Estate, etc. and Asset-Backed Securities, etc.
Acquisition
Name ofreal estate, etc.

Garden City

December 3,

Shinagawa Gotenyama
Gotenyama SH
Building

2014
December 3,
2014

Hommachi Minami
Garden City

(Note)

December 3,
2014

Total

2.

Acquisition
date－

Disposition

Acquisition
price(million yen)
(Note)

Disposition
date

Disposition
price(million yen)
(Note)

Book value(million yen)

Gain (Loss)on sale(million yen)

39,700－－－－51,500－－－－23,100－－－－114,300

－

－

－

－

“Acquisition price” and “Disposition price” is the sale and purchase price stated in the sale and purchase agreement for each
property held (excluding consumption tax and local consumption tax, as well as commission and other various expenses; rounded
down to the nearest million yen). The same shall apply hereinafter.

Status, etc. of Sale and Purchase of Other Assets
Not applicable.
Main other assets other than the abovementioned real estate, etc. and asset-backed securities, etc. are basicallybank deposits or bank deposits within assets in trust.

3.

Investigation into Value, etc. of Specified Assets(1) Real Estate, etc. (Appraisal)
Acquisitionordisposition

Acquisition

Appraisalvalue(million yen)
(Note)

Appraisal firm

Date of value

Real estate trust
beneficiaryinterests

39,70039,900Daiwa Real
Estate Appraisal
Co., Ltd.

August 1,
2014

December 3,
2014

Real estate trust
beneficiaryinterests

51,50052,100The Tanizawa
Sōgō Appraisal
Co., Ltd.

August 1,
2014

December 3,
2014

Real estate trust
beneficiaryinterests

23,10024,400Richi Appraisal
InstituteCo., Ltd.

August 1,
2014

－

－

114,300

116,400－－

Transaction
dateType of asset

Garden City
Shinagawa
Gotenyama

December 3,
2014

Gotenyama
SH Building
HommachiMinami
Garden City

Total
(Note)

Acquisition priceor
disposition price(million yen)

Name ofreal estate,etc.

The appraisal stated above is by applying “Real Estate Appraisal Standards; Particulars; Chapter 3: Appraisal on Value of Real
Estate Subject to Securitization.”(2) Other
Concerning transactions requiring investigation into the value, etc. of specified assets pursuant to Article 201,
Paragraph 2 of the Investment Trusts Act, Ernst & Young ShinNihon LLC has conducted the investigation
pursuant to The Japanese Institute of Certified Public Accountants’ Industry Audit Practice Committee Practical
Guidelines No. 23 “Investigation into the Value, etc. of Specified Assets of Investment Trusts and Investment
Corporations” and SHR has been notified of the results of the investigation.
The transactions subject to the investigation in the fiscal period under review were three interest rate swap
transactions. For the transactions, investigation of the name of the counterparty to the transaction, the type offinancial instrument or financial indicator, the transaction period, other matters concerning the content of theover-the-counter transaction of derivatives, etc. has been entrusted.
14

4. Status of Transactions with Interested Persons, etc. (Note 1)(1) Status of Transactions
Amount of purchase and sale, etc.

Category

Amount of purchase, etc.

Total amountAmount of sale, etc.
－ million yen

114,300 million yen

Breakdown of status of transactions with interested persons, etc.
Sekisui House, Ltd.

－ million yen [－%]

114,300 million yen [100.0%](2) Amount of Commission Fee, etc. (Note 2)

Category

Management fee(Note 3)

Total amount ofcommission fee, etc.
(A)(thousand yen)
10,858

Breakdown of transactions with interested persons, etc.
Payee

Amount paid(B)(thousand yen)Sekisui House, Ltd.

10,858As apercentage of
total amount(B ÷ A)(%)
100.0(Note 1) “Interested persons, etc.” refers to interested persons, etc. of the asset management company with which SHR has executed an
asset management agreement as provided in Article 123 of the Order for Enforcement of the Act on Investment Trusts andInvestment Corporations and Article 26, Item 27 of the Rules on Investment Reports, etc. of Investment Trusts and Investment
Corporations of The Investment Trusts Association, Japan.
(Note 2) The following is the amount paid for repair work, etc. orders placed with interested persons, etc. in the fiscal period underreview other than the commission fee, etc. stated above.
Sekisui House, Ltd.
3,898 thousand yen(Note 3) “Management fee” is rounded down to the nearest thousand yen.

5.

Status, etc. of Transactions with the Asset Management Company Pertaining to Business Operations ofConcurrent Business Engaged in by the Asset Management Company
There are no applicable transactions because the Asset Management Company does not engage in any business
operations of type I financial instruments business or type II financial instruments business under the Financial
Instruments and Exchange Act, building lots and buildings transaction business, or specified joint real estate
ventures as a concurrent business as of the end of the fiscal period under review.

15

Other information
1. Notice(1) General Meeting of Unitholders
In the fiscal period under review, the first general meeting of unitholders of SHR was held on October 16, 2014.
The following matters were approved at the general meeting of unitholders.
Approval date

Matters approved

Overview
The articles of incorporation of SHR was partially amended,
involving deletion of wording for matters stated in the articles ofOctober 16, 2014

Partial amendment ofarticles of incorporation

incorporation that were required upon the establishment of SHR
but are no longer required after the establishment, and additionof investment targets and other matters in line with revision of
the Order for Enforcement of the Act on Investment Trusts andInvestment Corporations (Cabinet Order No. 480 of 2000, as
amended).

16

(2) Meeting of the Board of Directors of the Investment Corporation
In the fiscal period under review, of the matters, etc. provided in Items 2, 3, 5, 6 and 8 of Article 109, Paragraph
2 of the Investment Trusts Act, the following matters were approved at a meeting of the board of directors of SHR.
Approval date
September 8, 2014

September 8, 2014

Matters approved

Overview

Execution of asset

Business operations related to asset management for SHR weremanagement agreement

entrusted to Sekisui House Investment Advisors, Ltd.

Execution of asset

Business operations related to asset custody for SHR were

custodian contract

entrusted to Mitsubishi UFJ Trust and Banking Corporation.

Execution of
September 8, 2014

administrative contract(contract on
administration of
investment units)

Business operations related to transfer agency for SHR were
entrusted to Mizuho Trust & Banking Co., Ltd.

General administrative affairs pertaining to operation of theSeptember 8, 2014

Execution of generaladministrative contract

administrative instruments, accounting and other business
operations for SHR were entrusted to Mitsubishi UFJ Trust andBanking Corporation.

Execution of contract on
October 16, 2014

amendment of asset
management agreement

Addition of investment targets and other matters, with approvalof the partial amendment of the articles of incorporation at thegeneral meeting of unitholders which was approved by themeeting of the board of directors held on the same date as acondition precedent, were agreed upon with Sekisui House
Investment Advisors, Ltd.
Administrative affairs pertaining to solicitation of persons to
subscribe for new investment units and other business
operations related to the issuance of new investment units andNovember 21, 2014

Execution ofunderwriting agreement

secondary distribution of investment units approved at themeeting of the board of directors held on the same date were

for new investment units

entrusted to Nomura Securities Co., Ltd., SMBC Nikko
Securities Inc., Goldman Sachs Japan Co., Ltd., Daiwa
Securities Co. Ltd., Mitsubishi UFJ Morgan Stanley Securities
Co., Ltd. and Mizuho Securities Co., Ltd.

2. OtherAmounts have been rounded down and ratios have been rounded to the nearest specified unit unless otherwise
indicated in this document.

17

Financial Section (Audited)

Contents
Financial Statements
Balance Sheet
Statement of Income and Retained Earnings
Statement of Changes in Net Assets
Statement of Cash Distributions
Statement of Cash Flows
Notes to Financial Statements
Supplementary Schedules
Independent Auditor’s Report

19
20
21
22
23
24
34
37

18

1. Financial Statements(1) Balance Sheet(Thousands of yen)

1st Fiscal Period(As of April 30, 2015)

AssetsCurrent assets
Cash and deposits
Cash and deposits in trust
Prepaid expenses
Deferred tax assets
Consumption taxes receivable
Other
Total current assets
Non-current assets
Property, plant and equipment
Buildings in trust
Accumulated depreciation
Buildings in trust, net
Structures in trust
Accumulated depreciation
Structures in trust, net
Land in trust
Construction in progress in trust
Total property, plant and equipment
Intangible assets
Other
Total intangible assets
Investments and other assets
Lease and guarantee deposits
Long-term prepaid expenses
Total investments and other assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Operating accounts payable
Accounts payable – otherAccrued expenses
Income taxes payable
Total current liabilities
Non-current liabilities
Long-term loans payable
Tenant leasehold and security deposits in trust
Total non-current liabilities
Total liabilities
Net assets
Unitholders’ equity
Unitholders’ capital
Surplus
Unappropriated retained earnings
Total surplus
Total unitholders’ equity
Total net assets (Note 4)
Total liabilities and net assets
The accompanying notes are an integral part of these financial statements.

19

4,806,695
7,770,676
65,88324
2,451,353
121
15,094,753

30,919,664(297,650)
30,622,013
643,178(7,215)635,962
82,850,441
0114,108,418
6,822
6,822
10,000262,823
272,823
114,388,065
129,482,818

17,552
194,928
67,862
1,144
281,488
55,000,000
6,113,449
61,113,449
61,394,937

67,074,500
1,013,381
1,013,381
68,087,881
68,087,881
129,482,818

(2) Statement of Income and Retained Earnings(Thousands of yen)

1st Fiscal Period(From September 8, 2014
to April 30, 2015)

Operating revenue
Rent revenue – real estate (Note 5)
Total operating revenue
Operating expenses
Expenses related to rent business (Note 5)
Asset management fee
Asset custody fee
Administrative service fees
Directors’ compensations
Other operating expenses
Total operating expenses
Operating income
Non-operating income
Interest income
Total non-operating income
Non-operating expenses
Interest expenses
Borrowing related expenses
Organization expenses
Investment unit issuance expenses
Other offering costs associated with issuance of investment units
Other
Total non-operating expenses
Ordinary income
Income before income taxes
Income taxes – current
Income taxes – deferred
Total income taxes
Net income
Unappropriated retained earnings

2,108,597
2,108,597
367,319
143,170
1,381
3,813
4,800
7,632
528,117
1,580,479
502
502
183,616
134,748
58,684
119,963
64,3675,000
566,379
1,014,602
1,014,602
1,246
(24)
1,221
1,013,381
1,013,381

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

20(3) Statement of Changes in Net Assets
1st Fiscal Period (From September 8, 2014 to April 30, 2015)(Thousands of yen)

Unitholders’ equity
Surplus

Unitholders’capitalBalance at beginning of period

Unappropriatedretained earnings
－
－

Total
surplus－Total
unitholders’equityTotal
net assets－－

67,074,500

67,074,500

Changes of items during period
Issuance of new investment units

67,074,500

Net income
Total changes of items during period
Balance at end of period (Note 6)

1,013,381

1,013,381

1,013,381

1,013,381

67,074,500

1,013,381

1,013,381

68,087,881

68,087,881

67,074,500

1,013,381

1,013,381

68,087,881

68,087,881

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

21

(4) Statement of Cash Distributions
Item

1st Fiscal Period(From September 8, 2014 toApril 30, 2015 )Ⅰ. Unappropriated retained earnings

1,013,381,222 yen

Ⅱ. Cash distributions

1,013,096,000 yen[1,603 yen]

[Cash distributions per unit]
Ⅲ. Retained earnings brought forward
Method of calculating amount of distribution

285,222 yen
The basic policy is to distributein excess of an amountequivalent to 90% of theamount of earnings available
for distribution of SHR provided
in Article 67-15, Paragraph 1 of
the Act on Special Measures
Concerning Taxation as set
forth in Article 46, Paragraph 1,
Item 2 of the Articles ofIncorporation of SHR.
Based on such policy, SHR
decided to pay out a distributionof earnings of 1,013,096,000
yen, which is the largest
integral multiple of the total
number of investment units
issuedandoutstanding(632,000 units) in an amountnot in excess of unappropriatedretained
period.

earnings

fortheSHR will not distribute cash inexcess of earnings as set forth in
Article 46, Paragraph 2 of the
Articles of Incorporation of
SHR.

22

(5) Statement of Cash Flows(Thousands of yen)

1st Fiscal Period(From September 8, 2014
to April 30, 2015)

Cash flows from operating activities
Income before income taxes
Depreciation
Investment unit issuance expenses
Interest income
Interest expenses
Decrease (increase) in consumption taxes receivable
Decrease (increase) in prepaid expenses
Decrease (increase) in long-term prepaid expenses
Increase (decrease) in operating accounts payable
Increase (decrease) in accounts payable – other
Other, net
SubtotalInterest income received
Interest expenses paid
Income taxes paid
Net cash used in by operating activities
Cash flows from investing activities
Purchase of property, plant and equipment in trust
Purchase of intangible assets
Proceeds from tenant leasehold and security deposits in trust
Repayments of tenant leasehold and security deposits in trust
Payments for lease and guarantee deposits
Net cash used in investing activities
Cash flows from financing activities
Proceeds from long-term loans payable
Proceeds from issuance of investment units
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 7)
The accompanying notes are an integral part of these financial statements.

23

1,014,602
305,394
119,963(502)
183,616(2,451,353)(65,883)(262,823)
17,552
194,928(121)(944,625)
502(115,753)(102)(1,059,978)(114,413,285)(7,350)6,115,249(1,800)(10,000)(108,317,186)
55,000,000
66,954,536
121,954,536
12,577,371
12,577,371

(6) Notes to Financial Statements
1. Organization
Sekisui House Reit, Inc. (“SHR”) is a Japanese real estate investment corporation established in September 2014
under the Act on Investment Trusts and Investment Corporations of Japan (the “Investment Trust Act”).
On December 3, 2014, SHR commenced its investment operations when it was listed on the Real Estate Investment
Trust Securities Market of the Tokyo Stock Exchange, and it acquired three properties (total acquisition cost of ¥114.3
billion) on the same days.
SHR is externally managed by a licensed asset management company, Sekisui House Investment Advisors, Ltd.
2. Basis of Presentation
SHR maintains its accounting records and prepares its financial statements in accordance with accounting principles
generally accepted in Japan (“Japanese GAAP”), including provisions set forth in the Financial Instruments andExchange Act, the Investment Trust Act, the Companies Act and the related regulations, which are different in certain
respects as to the application and disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements are basically a translation of the financial statements of SHR, which wereprepared in accordance with Japanese GAAP and were presented in its Securities Report filed with the Kanto Local
Finance Bureau. In preparing the accompanying financial statements, certain reclassifications and modifications havebeen made to the financial statements issued domestically in order to present them in a format which is more familiar
to readers outside Japan. In addition, the notes to the financial statements include certain information which might
not be required under Japanese GAAP but is presented herein as additional information.
SHR’s fiscal period is a six-month period, which ends at the end of April and October of each year.
SHR does not prepare consolidated financial statements as it has no subsidiaries.
Unless otherwise specified, amounts have been rounded down to the nearest thousand yen in the accompanying
financial statements and the notes thereto. As a result, the amounts shown in the financial statements and notes
thereto do not necessarily agree with the sum of the individual account balances.

3. Summary of Significant Accounting Policies
1. Method of depreciation
and amortization of noncurrent assets

2. Accounting fordeferred assets

3. Standards forrevenue and expense
recognition

4. Method of hedge
accounting(1)Property, plant and equipment (including assets in trust)
Depreciation is calculated using the straight-line method.
The useful lives of principal property, plant and equipment are as follows:
Buildings
17-62 years
Structures
37-40 years(2)Intangible assets
Intangible assets are amortized utilizing the straight-line method.
(3)Long-term prepaid expenses
Long-term prepaid expenses are amortized utilizing the straight-line method.
(1)Organization expenses
The entire amount is expensed as incurred.
(2)Investment unit issuance expenses
The entire amount is expensed as incurred.
Accounting for property taxes.
In accounting for property tax, city planning tax, depreciable asset tax, etc. onreal estate, etc., of the tax amount assessed and determined, the amountcorresponding to the applicable calculation period is expensed as expenses
related to rent business.
Reimbursement of property tax, paid to the seller upon the acquisition of real estateor trust beneficiary interests of real estate as assets in trust is not recognized as
expenses related to rent business in the corresponding fiscal period but included in
the acquisition cost of the property. In the 1st fiscal period, the amount equivalent toproperty tax included in the acquisition cost of real estate, etc. was 30,766 thousand
yen.
(1)Method of hedge accounting
Deferral hedge accounting is applied. However, the special accounting treatment
is applied to interest rate swaps that meet the criteria for the special accounting
treatment.
24

5.

6.

25

(2)Hedging instruments and hedged items
Hedging instruments: Interest rate swap transactions
Hedged items:
Interest on loans(3)Hedging policy
SHR conducts derivative transactions for the purpose of hedging the risks set
forth in its Articles of Incorporation based on its basic risk management policy.
(4)Method for assessing the effectiveness of hedging
Interest rate swaps meet the criteria for the special accounting treatment andan assessment of the effectiveness is thus omitted.
The funds (cash and cash equivalents) in the statement of cash flows consist of cash
Scope of funds in theon hand and cash in trust; deposits that can be withdrawn at any time and deposits
statement of cash flows
in trust; and short-term investments with a maturity of three months or less fromthe date of acquisition, which are readily convertible to cash and bear only an
insignificant risk of price fluctuation.
Other significant matters (1)Accounting for trust beneficiary interests of real estate, etc. as assets in trust
serving as basis forConcerning trust beneficiary interests of real estate, etc. as assets in trust, allpreparation of
accounts of assets and liabilities within assets in trust as well as all accounts offinancial statements
revenue and expenses from the assets in trust are recognized in the relevant
account items on the balance sheet and the statement of income and retained
earnings.
The following material items of the assets in trust recognized in the relevant
account items are separately listed on the balance sheet.
1) Cash and deposits in trust2) Buildings in trust; Structures in trust; Land in trust; Construction inprogress in trust3) Tenant leasehold and security deposits in trust(2)Accounting for consumption tax, etc.
Consumption tax and local consumption tax are excluded from the correspondingtransaction amounts.

4. Notes to Balance Sheet*1. Minimum net assets designated in Article 67-4 of the Investment Trust Act(Thousands of yen)

1st Fiscal Period(As of April 30, 2015)

50,0005. Notes to Statement of Income and Retained Earnings*1. Breakdown of property-related operating revenue and expenses(Thousands of yen)

1st Fiscal Period(From September 8, 2014
to April 30, 2015)

A. Property-related operating revenue
Rent revenue – real estate
Rental income
Other lease business revenue
Other
Total property-related operating revenue

2,108,582
14
2,108,597

B. Property-related operating expenses
Expenses related to rent business
Property management fees
Trust fees

10,8581,077

Property and other taxes
Insurance expenses

41,801
2,738

Repair expenses
Depreciation

3,898
304,866

Other expenses related to rent business

2,080

Total property-related operating expenses

367,319

C. Property-related operating income [A − B]

1,741,277

6. Notes to Statement of Changes in Net Assets*1. Total number of authorized investment units and total number of investment units issued
1st Fiscal Period(From September 8, 2014
to April 30, 2015)

Total number of authorized investment units
Total number of investment units issued

10,000,000 units
632,000 units26

7. Notes to Statement of Cash Flows*1. Reconciliation of cash and cash equivalents at end of period to the corresponding balance sheet items(Thousands of yen)

1st Fiscal Period(From September 8, 2014
to April 30, 2015)

Cash and deposits

4,806,695

Cash and deposits in trust

7,770,676

Cash and cash equivalents

12,577,371

8. Lease Transactions
Operating lease transactions as lessor
Future minimum lease payments(Thousands of yen)

1st Fiscal Period(As of April 30, 2015)

Due within 1 year

5,126,750

Due after 1 year

42,889,168

Total

27

48,015,919

9. Financial Instruments
1. Status of financial instruments(1) Policy for financial instruments
Making it a policy to conduct stable and sound financial operations that would contribute to steady growthof its investment assets as well as efficient management and stability of management, SHR shall procure
funds through borrowings or the issuance of investment corporation bonds for the purposes of utilizing suchfunds for the acquisition of assets, payments of repair expenses or distributions, operations of SHR,
repayment of obligations or other.
For derivative transactions, the policy is that derivative transactions shall be limited to those for the purposeof hedging the risk of fluctuations in interest rates on liabilities and foreign currency risk in the cost ofoverseas real estate investments, and that no speculative transactions shall be conducted.
(2) Description of financial instruments and associated risks, and risk management structure
The funds procured through borrowings shall be used mainly for the acquisition of investment assets andfor repayment of loans.
The availability and terms and conditions of borrowings and the issuance of investment corporation bonds
may be affected by SHR’s financial creditworthiness, the interest rate situation and other factors, and thereis thus no guarantee that funds can be procured at SHR’s desired timing and terms and conditions.
Furthermore, loans with floating interest rates are susceptible to subsequent market trends.
SHR manages and limits the liquidity risk and the risk of fluctuations in interest rates associated with suchfund procurement by diversifying fund procurement sources and means and by maintaining the ratio ofinterest-bearing liabilities to total assets and the ratio of floating-rate loans to total loans at appropriate
levels. Furthermore, for certain loans with floating interest rates, derivative transactions (interest rate swap
transactions) are used as a hedging instrument for hedging the risk of fluctuations in interest rates basedon rules that set forth the basic policy for handling derivative transactions and risk management.
(3) Supplementary explanation of matters concerning fair value of financial instruments
The fair value of financial instruments, aside from values based on market price, includes values based onreasonable calculations when there is no market price. As the calculations involve variable factors, there
may be cases where the corresponding values will vary when different assumptions are adopted. In addition,
the contract amount of derivative transactions in “2. Matters concerning fair value of financial instruments”
do not represent the market risk involved in the derivative transactions.
2. Matters concerning fair value of financial instruments
The following is the carrying amount and fair value of financial instruments as of April 30, 2015, and thedifference between them.
The following table does not include those for which fair value is recognized to be extremely difficult todetermine (please refer to (Note 2)).
(Thousands of yen)Book value
recorded on thebalance sheet

Fair value

Difference(1) Cash and deposits

4,806,695

4,806,695－(2) Cash and deposits in trust

7,770,676

7,770,676－

12,577,371

12,577,371－

55,000,000

55,096,527

96,52755,000,000

55,096,527

96,527－－－

Total assets(3) Long-term loans payable
Total liabilities(4) Derivative transactions(Note 1) Method of calculating the fair value of financial instruments(1) Cash and deposits and (2) Cash and deposits in trust
As these are settled within a short period of time, the fair value is approximately the same as the book value and is thus statedat that book value.
(3) Long-term loans payableAs long-term loans payable, with floating interest rates reflect interest rate changes within a short period of time, the fair value
is approximately the same as the book value and is thus stated at that book value (provided, however, that for long-term loans
payable with floating interest rates that qualify for the special accounting treatment of interest rate swaps (please refer to “11.
Derivative Transactions”), the fair value is based on the method of calculation in which the sum total amount of principal and28

interest accounted for with the interest rate swap is discounted by the rate assumed in the event of a similar new drawdown).
In addition, for those with fixed interest rates, the fair value is based on the method of calculation in which the sum total amountof principal and interest is discounted by the rate assumed in the event of a similar new drawdown corresponding to theremaining period.
(4) Derivative transactions
Please refer to “11. Derivative Transactions”.
(Note 2) Financial instruments for which fair value is recognized to be extremely difficult to determine
Tenant leasehold and security deposits in trust are not subject to valuation of fair value because a reasonable estimation of cash
flows is recognized to be extremely difficult because there is market price and the difficulty of calculating the actual deposit
period from when lessees move in to when they move out.

(Thousands of yen)Book value
recorded on thebalance sheet

Item
Tenant leasehold and security deposits in trust

6,113,449(Note 3) Redemption schedule of monetary claims after the closing date (As of April 30, 2015)(Thousands of yen)
Due after
4 to 5 years
5 years

Due in1 year or less

1 to 2 years

2 to 3 years

3 to 4 years

Cash and deposits

4,806,695

－

－

－

－

－

Cash and deposits in trust

7,770,676

－

－

－

－

－

Total

12,577,371

－

－

－

－

－

(Note 4) Repayment schedule of loans after the closing date (As of April 30, 2015)

Long-term loans payable29

Due in1 year or less

1 to 2 years

2 to 3 years

3 to 4 years－－

14,000,000－(Thousands of yen)
Due after
4 to 5 years
5 years

14,000,000

27,000,000

10. Securities
1st Fiscal Period (as of April 30, 2015)
Not applicable.
11. Derivative Transactions
1. Derivatives to which hedge accounting is not applied
1st Fiscal Period (as of April 30, 2015)
Not applicable.
2. Derivatives to which hedge accounting is applied
1st Fiscal Period (as of April 30, 2015)
The following is the contract amount or the amount equivalent to the principal provided in the contract as of
the closing date for each method of hedge accounting.
(Thousands of yen)

Method ofhedge
accounting

Type ofderivative transactions

SpecialInterest rate swap
accounting
transaction
treatment for
Receivable floating ;interest rate
Payable fixed
swaps

Main
hedgeditem
Long-term
loans
payableContract amount

41,000,000

Of which,over
1 yearFair value

Calculation
method offair value

41,000,000*－* As derivative transactions qualifying for the special accounting treatment for interest rate swaps are accounted for with the hedged
long-term loans payable, the fair value is included in the fair value of the underlying long-term loans payable (please refer to “ 9.
Financial Instruments; 2. Matters concerning fair value, etc. of financial instruments (Note 1)”).

12. Retirement Benefits
1st Fiscal Period (as of April 30, 2015)
Not applicable.
13. Income Taxes
1. Breakdown of deferred tax assets and deferred tax liabilities by major cause(Thousands of yen)

1st Fiscal Period(As of April 30, 2015)

Deferred tax assets
Accrued business taxes not deductible fromtaxable income
Total deferred tax assets
Net deferred tax assets

24
24
24

2. Breakdown of major items that caused significant differences between the statutory tax rate and the effective
income tax rate after application of tax-effect accounting(%)
1st Fiscal Period(As of April 30, 2015)

Statutory tax rate

34.16

[Adjustments]
Deductible cash distribution
Other
Effective income tax rate
after application of tax-effect accounting(34.11)
0.07
0.12
30

14. Profit or Loss of Affiliates Accounted for Under the Equity Method
1st Fiscal Period (From September 8, 2014 to April 30, 2015)
Not applicable.
15. Transactions with Related Parties
1. Parent company and major corporate unitholders.
1st Fiscal Period (From September 8, 2014 to April 30, 2015)
Not applicable.
2. Subsidiaries and affiliates.
1st Fiscal Period (From September 8, 2014 to April 30, 2015)
Not applicable.
3. Sister companies.
1st Fiscal Period (From September 8, 2014 to April 30, 2015)
Not applicable.
4. Directors and major individual unitholders.
1st Fiscal Period (From September 8, 2014 to April 30, 2015)
Type

Directoror close
relative

Name

Description ofbusiness or
occupation

JunichiInoue

Executive Directorof SHR and
Representative
Director of Sekisui
House Investment
Advisors, Ltd.

Percentage ofvoting rights, etc.
held by (in) SHR

Description oftransaction－

Payment of asset
management fee
to Sekisui House
Investment
Advisors, Ltd.
(Note 1)

Transaction
amount(Thousands ofyen)

143,170

Account
item

Accounts
payable– other

Balanceat end of period(Thousands ofyen)

154,624(Note 1) A transaction conducted by Junichi Inoue as a representative of a third party (Sekisui House Investment Advisors, Ltd.) andthe fee amount is based on terms and conditions set forth in the Articles of Incorporation of SHR.
(Note 2) Consumption taxes are not included in the transaction amount but are included in the balance at end of period.

16. Asset Retirement Obligations
1st Fiscal Period (as of April 30, 2015)
Not applicable.
17. Investment and Rental Properties
SHR owns rental office buildings, etc. in Tokyo and other areas for the purpose of earning revenue from leasing.
The following is the carrying amount, amount of increase (decrease) during the period and fair value of theseinvestment and rental properties.
(Thousands of yen)

1st Fiscal Period(From September 8,2014 to April 30, 2015)

Carrying amount
Balance at beginning of period－

Amount of increase (decrease) during period

114,108,418

Balance at end of period

114,108,418

Fair value at end of period

120,100,000(Note 1) Carrying amount is the book value less accumulated depreciation.
(Note 2) The increase during the period is mainly attributable to the acquisition of new properties (114,413,284 thousand yen), offset bydepreciation (304,866 thousand yen).
(Note 3) Fair value at the end of the period is the appraisal value by outside real estate appraisers.

The property-related operating income in the 1st fiscal period for investment and rental properties is presented
in “5. Notes to Statement of Income and Retained Earnings”.
31

18. Segment Information
1. Segment information
Segment information is omitted because SHR operates a single segment, which is the real estate leasing
business.
2. Related information
1st fiscal period (From September 8, 2014 to April 30, 2015)(1) Information about products and services
Information about products and services is omitted because net sales to external customers for a single
products and services category are in excess of 90% of operating revenue on the statement of income andretained earnings.
(2) Information about geographic areas
1) Operating revenue

Information about net sales is omitted because net sales to external customers in Japan is in excess of
90% of operating revenue on the statement of income and retained earnings.
2) Property, plant and equipment
Information about property, plant and equipment is omitted because the property, plant and equipment

located in Japan is in excess of 90% of property, plant and equipment on the balance sheet.
(3) Information about major customers(Thousands of yen)

Name of customer

Operating revenue

Name of related segment

Sekisui House, Ltd.

1,212,793

Real estate leasing businessNot disclosed (Note)

895,788

Real estate leasing business(Note)

The customer is a general business company in Japan, but the name is not disclosed because consent has not beenobtained from the customer. The customer is not a group company of Sekisui House, Ltd.

19. Per Unit Information
1st Fiscal Period(From September 8, 2014
to April 30, 2015)

Net assets per unit

107,733 yen

Net income per unit

2,525 yen

(Note 1) Net income per unit is calculated by dividing net income by the daily weighted average number of investment units.
In addition, diluted net income per unit is not stated because there are no dilutive investment units.
(Note 2) The following is the basis for calculating net income per unit.

1st Fiscal Period(From September 8, 2014
to April 30, 2015)
Net income (thousand yen)Amount not attributable to common unitholders (thousand yen)
Net income attributable to common investment units (thousand yen)
Average number of investment units during period (units)

1,013,381－
1,013,381
401,31932

20. Significant Subsequent Events
Issuance of new investment units
SHR passed the following resolution concerning the issuance of new investment units at a meeting of the Boardof Directors held on April 24, 2015. Payment was completed for the new investment units through a public
offering on May 19, 2015, and for the new investment units by way of a third-party allotment on June 12, 2015.
As a result, unitholders’ capital was 87,743,594,000 yen with 794,000 investment units issued and outstanding
as of June 12, 2015.
<Issuance of investment units through public offering> (primary offering)Number of investment units to be issued:
154,200 units
Issue price:
Total amount of issue price:

131,917 yen per unit
20,341,601,400 yen

Amount to be paid in (issue amount):
Total amount to be paid in (issue amount):

127,587 yen per unit
19,673,915,400 yen

Payment deadline:
Date of commencement of distribution calculation:

May 19, 2015
May 1, 2015

<Issuance of investment units by way of third-party allotment>
Number of investment units to be issued:
7,800 units
Amount to be paid in (issue amount):
Total amount to be paid in (issue amount):

127,587 yen per unit
995,178,600 yen

Payment deadline:
Date of commencement of distribution calculation:

June 12, 2015
May 1, 2015

Allottee:

Nomura Securities Co., Ltd.

The funds procured from the issuance of the new investment units through the public offering above were usedas part of the funds for the acquisition of Hommachi Garden City on May 19, 2015, and the funds procured fromthe issuance of new investment units by way of third-party allotment above were used for early repayment of a
portion of short-term loans on June 17, 2015.

33

(7) Supplementary Schedules
1. Schedule of securities(1) Shares
Not applicable.

(2) Securities other than shares
Not applicable.
2. Contract amount and fair value of derivative transactions(Thousands of yen)Contract amount (Note 1)

Fair value(Note 2)Category

Type

Transaction other thanmarket transaction

Interest rate swap transaction
Floating interest rate receivableand fixed interest rate payable

41,000,000

41,000,000

－

Total

41,000,000

41,000,000－

Of which,over 1 year

(Note 1) The contract amount of interest rate swap transactions is based on the notional principal.
(Note 2) The fair value is omitted because the transaction meets the criteria for the special accounting treatment under the AccountingStandards for Financial Instruments.

3. Schedule of real estate, etc.

(Thousands of yen)
Accumulated depreciation

Balanceat beginningof period

Amount ofincreaseduringperiodAmount ofdecreaseduringperiodBalanceat end ofperiod－30,919,664－

30,919,664

297,650－

643,178－

643,178－

82,850,441

－

－

0

Subtotal－

Intangible Other
assetsSubtotalType of assets

Buildings
in trust
Structures
Property,plant andin trust
Land in trust

Net balanceat end ofperiodNotes

297,650

30,622,013(Note)

7,215

7,215

635,962(Note)

82,850,441－－

82,850,441(Note)

－

0

－

－

0

－

114,413,285－

114,413,285

304,866

304,866

114,108,418

－

－

7,350

－

7,350

527

527

6,822

－

－

7,350

－

7,350

527

527

6,822

－

－

114,420,635－

114,420,635

305,394

305,394

114,115,241－

or
accumulated
amortization

For theperiodequipment Constructionin progressin trust

Total(Note)The increase during the period is attributable to the acquisition of Garden City Shinagawa Gotenyama, Gotenyama SH
Building and Hommachi Minami Garden City.

4. Schedule of other specified assets
Real estate trust beneficiary interests are included above in “3. Schedule of real estate, etc.” .
5. Schedule of investment corporation bonds
Not applicable.

34

Category

6. Schedule of loans payable
Balanceat beginningof period

Amount ofincreaseduringperiodAmount ofdecreaseduringperiod－1,500,000－

1,500,000－

1,100,000－

1,100,000

The Norinchukin Bank－

1,500,000－

1,500,000

Mizuho Bank, Ltd.

－2,100,000－

2,100,000－

1,300,000－

1,300,000 0.38088－

1,200,000－

1,200,000－

2,100,000－

2,100,000－

1,300,000－

1,300,000－

1,900,000－

1,900,000－

3,300,000－

3,300,000－

800,000－

800,000

The Norinchukin Bank－

800,000－

800,000

Mizuho Bank, Ltd.

－

1,800,000－

1,800,000－

600,000－－

3,000,000－

3,000,000－

1,800,000－

1,800,000－

1,000,000－

1,000,000－

900,000－

900,000－

4,200,000－

4,200,000－

800,000－

800,000

The Norinchukin Bank－

700,000－

700,000

Mizuho Bank, Ltd.

－2,400,000－

2,400,000－

900,000－－

3,700,000－

3,700,000－

2,000,000－

2,000,000－

900,000－

900,000－

1,400,000－

1,400,000－

4,200,000－

4,200,000－

300,000－

300,000－

700,000－

700,000－

3,700,000－

3,700,000－

700,000－

700,000－

400,000－

400,000－

55,000,000－

55,000,000

LenderThe Bank of TokyoMitsubishi UFJ, Ltd.
Development Bank ofJapan Inc.

Mizuho Trust & Banking
Co., Ltd.
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited
Mitsubishi UFJ Trust andBanking Corporation
Resona Bank, Limited

Long-term loans payable

The Bank of TokyoMitsubishi UFJ, Ltd.
Development Bank ofJapan Inc.

Mizuho Trust & Banking
Co., Ltd.
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited
Mitsubishi UFJ Trust andBanking Corporation
Resona Bank, Limited
The Bank of TokyoMitsubishi UFJ, Ltd.
Development Bank ofJapan Inc.

Mizuho Trust & Banking
Co., Ltd.
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited
Mitsubishi UFJ Trust andBanking Corporation
Resona Bank, Limited
The Bank of TokyoMitsubishi UFJ, Ltd.
Development Bank ofJapan Inc.
Mizuho Bank, Ltd.
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited
Mitsubishi UFJ Trust andBanking Corporation
Total

35

(Thousands of yen)
Averageinterest
Repayment Repayment
rate
Purpose Security
due date
method(%)(Note 1)

Balanceat end ofperiod600,000 0.65830

Nov. 30,
2017

Nov. 30,
2019

Purchase UnLump-sum of assets secured
payment
andUnat maturity related guaranexpenses teed

900,000 0.94060

Nov. 30,2021

1.47450

Nov. 30,
2024

－

－

－

－

－

(Note 1) Average interest rate is the weighted average interest rate during the period. Interest rates are rounded to five decimal places.
The interest rates for loans hedged by interest rate swap transactions used to hedge the risk of interest rate fluctuations are
the interest rates reflecting the effect of the interest rate swaps.
(Note 2) The following is the maturity schedule of long-term loans within five years of the balance sheet date.

(Thousands of yen)Due in1 year or lessLong-term loans payable

1 to 2 years-

2 to 3 years-

14,000,000

3 to 4 years

4 to 5 years-

14,000,0003637