Semi-Annual Report 4th Fiscal Period (from May 1, 2016 to October 31, 2016)

Performance highlights

Message to our unitholders

Distribution per unit

Since its listing on the Tokyo Stock Exchange Real Estate Investment Trust Section (the J-REIT market) in
December 2014, Sekisui House Reit, Inc. (“SHR”) has steadily accumulated a track record, and it has settled
its accounts for the 4th fiscal period (namely, the fiscal period ended October 2016). I, on behalf of SHR,
would like to extend my heartfelt thanks to unitholders as this could not have been managed without yoursupport.

2,596 yen

Distribution per unit
4th Fiscal Period Ended October 2016

I hereby report on the management status and financial results for the 4th fiscal period of SHR.

Business results and distribution
3rd FP (Actual)(ended Apr. 2016)

4th FP (Actual)(ended Oct. 2016)

5th FP (Forecast)(ended Apr. 2017)

6th FP (Forecast)(ended Oct. 2017)

Operating revenue(million yen)

3,467

4,059

4,140

4,149

Operating income(million yen)

2,278

2,664

2,686

2,657

Ordinary income(million yen)

1,967

2,321

2,361

2,315

Net income(million yen)

1,966

2,320

2,360

2,314

Distribution per unit
(yen)

2,477

2,596

2,640

2,590

Operating revenue/Net income
Operating revenue(million yen)

Net income

5,000

4,149

4,140

4,059

Distribution per unit
(yen)

2,500

3,467

2,477

2,596

2,640

2,590

2,000

3,000

2,320
2,000

2,360

2,314

In terms of debt finances, SHR obtained a short-term loan of 9.2 billion yen in May 2016 which was used aspart of the funds to acquire the properties. In September of the same year, it conducted early repayment of
the short-term loan by using funds procured through its first issuance of investment corporation bonds anda long-term loan etc., thereby extending the term of debts and diversifying the dates for repayment of debts,
as well as diversifying its financing method.
Moreover, SHR was included in the FTSE EPRA/NAREIT Global Real Estate Index Series in September 2016.
The inclusion should allow SHR to expect the further broadening of its potential investor base and an increasein the liquidity of its investment units.
As a result, SHR recorded operating revenue of 4,059 million yen, operating income of 2,664 million yen,ordinary income of 2,321 million yen and net income of 2,320 million yen, and the distribution per unit declared for the fiscal period ended October 2016 was 2,596 yen.

3,000

4,000

In the fiscal period under review, SHR conducted its second public offering in May 2016 since its listing andacquired three properties (comprising an additional portion of a property part of which is already owned by
SHR and two new properties) for 26.6 billion yen with the funds procured, etc. With this public offering,
SHR’s asset size has grown from 152.9 billion yen comprising four properties at the end of the 3rd fiscal period to 179.5 billion yen comprising six properties, enabling SHR to make progress in the realization of its
external growth and diversification of its portfolio.

By taking full advantage of the sponsor support from Sekisui
House, Ltd. (“Sekisui House”), which has an excellent track recordof developing commercial properties, SHR will continue to seek tosecure 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.

1,500

1,966
1,000

Junichi Inoue

1,000

500

0

Executive Director of Sekisui House Reit, Inc.
President & Representative Director of
Sekisui House Investment Advisors, Ltd.

0
3rd FP(ended Apr. 2016)

4th FP(ended Oct. 2016)

5th FP(ended Apr. 2017)

6th FP(ended Oct. 2017)

3rd FP(ended Apr. 2016)

4th FP(ended Oct. 2016)

5th FP(ended Apr. 2017)

6th FP(ended Oct. 2017)

ActualActualForecast

Forecast

ActualActualForecast

Forecast

1

I Overview of SHR

Characteristics of SHR

Strategies of SHR

SHR is a J-REIT that has Sekisui House as its sponsor and invests in commercial prop-

SHR seeks to provide high-quality social capital and to maximize the unitholder

erties centering on office buildings

value through the 3 strategies

Asset Size

Status of Portfolio

6properties
Aggregateacquisition price 179.5billion yen

Occupancy rate

Number ofowned properties

Total appraisal
value
Unrealized gain

PML value
Office building
ratio

5.8years
1.9%
100.0%

Long-term debt ratio
Fixed interest rate
debt ratio

Osaka area
Nagoya area

40.8%
100.0%
76.6%

JCR

Investment in commercial properties focused on “strategic
locations” and “high quality”

 ll acquisitions are of recently built and high quality office buildings developedA
by Sekisui House educing earthquake-related risks by owning properties with high quake-resistantR
performance such as having a seismically isolated mechanism, etc.

59.6%
36.8%
3.5%

2

GrowthStrategy

Taking full advantage of versatile support by SekisuiHouse tilization of the pipeline support agreement for property acquisition to realize
Uexternal growthCredit Rating

Financial BaseLTV (total asset basis)

Greater Tokyo

Investment
StrategyT he 6 properties owned are in strategic locations of central Tokyo, Osaka and Nagoya

Location Ratio

Portfolio Quality
Average building
age

99.9%
202.1billion yen
24.1billion yen

1S electing a leasing agreement type from among a fixed-rent/pass-through typemaster lease, a direct lease, etc., in accordance with property characteristics
E ntrusting Sekisui House with real estate management/operation and utilizing information network, etc. on tenant attraction

AA– (stable)(as of October 31, 2016)

Owned properties

3

Financial
Strategy

Stable and sound financial operations

 anaging LTV (total assets basis)(ratio of interest-bearing liabilities to total
M
assets) at a conservative level between 40% and 50%
P romoting extension of the term of debts, diversification of dates for repayment and fixation of interest rates in order to reduce risks of fluctuation in interest
rates and refinancing risk

Garden City
Shinagawa
Gotenyama

2

Gotenyama SH
Building

HommachiMinami Garden
City

Hommachi
Garden CityHK Yodoyabashi
Hirokoji
Garden Avenue Garden Avenue

Obtained AA- rating (Rating Outlook: Stable) for the long-term issuer ratingfrom Japan Credit Rating Agency, Ltd. (JCR)3

I Overview of SHR

TopicsS
 HR conducted the public offering for two consecutive years since its listing,enabling SHR to expand its asset size
In May 2016, SHR conducted a public offering for the second consecutive year since its listing, and acquired three properties for 26.6 billion yen with the fund procured, etc. Such acquisition expanded its
asset size to 179.5 billion yen comprising six properties, further diversifying its portfolio. Moreover, as afirst arrangement, SHR adopted the pass-through type master lease at two of the three properties, in aneffort to create opportunities for its internal growth.

Development of asset size

End of 3rd FP (as of Apr. 30, 2016)

End of 4th FP (as of Oct. 31, 2016)

Number of owned properties

4 properties

6 properties

Aggregate acquisition price152.9 billion yen

179.5 billion yen

Total appraisal value

169.7 billion yen

202.1 billion yen

Unrealized gain

17.8 billion yen

24.1 billion yen

11.8 %

13.6 %

40.9 %

40.8 %

31.0 billion yen

35.0 billion yen

Portfolio

Unrealized gain ratio (Note 1)
1st follow-on PO(1 property)
JPY 38.6 billion

IPO(3 properties)
JPY 114.3 billion

2nd follow-on PO(3 properties)
JPY 26.6 billion
Portion of
additional
acquisition

GC Shinagawa Gotenyama SH
Gotenyama
Building

Indexes as of the end of 4th fiscal period

HommachiMinami GC

Hommachi GC

Finance
LTV (total asset basis)

GC Shinagawa HK Yodoyabashi
GotenyamaGA

Hirokoji GA

Acquisition capacity until LTV reaches
50% (Approximate amount) (Note 2)
Number of investment units issued
and outstanding

794,000 units

894,000 units

Net Asset Value per unit (Note 3)

133,030 yen

138,885 yen

Distribution per unit (actual)

2,477 yen

2,596 yen

(Note 1) “Unrealized gain ratio” is obtained by dividing unrealized gain (the difference between the sum total of the book value and the sum
total of the appraisal value of owned properties at the end of each fiscal period) by the sum total of the book value of owned
properties at the end of each fiscal period, rounded to the nearest first decimal place.
(Note 2) “Acquisition capacity” refers to the maximum amount of funds to be procured, upon property acquisitions by SHR, through newinterest-bearing liabilities until LTV (total asset basis) reaches 50%. Please note that this does not guarantee that such an amount canbe actually procured.
(Note 3) N et Asset Value per unit = (unitholders’ capital at the end of each fiscal period + unrealized gain) / number of investment units issued
and outstanding

26.6
billion yen

38.6
billion yen

179.5
billion yen

Inclusion in the FTSE EPRA/NAREIT Global Real Estate Index Series
SHR was included in the FTSE EPRA/NAREIT Global Real Estate Index Series from September 19, 2016.
This Index is widely adopted by many institutional investors globally as a benchmark for international realestate investments and SHR believes that its inclusion in the Index will contribute to the further broadeningof its potential investor base and an increase in the liquidity of its investment units.

152.9
billion yen

SHR’s first issuance of investment corporation bonds
Acquisition Price
100.0 billion yen

114.3
billion yen
End of 1st FP(as of Apr. 30, 2015)

End of 2nd FP(as of Oct. 31, 2015)

End of 3rd FP(as of Apr. 30, 2016)(Note) “Garden City” and “Garden Avenue” are abbreviated as “GC” and “GA”, respectively.

End of 4th FP(as of Oct. 31, 2016)

On September 8, 2016, SHR issued the First Series Unsecured Investment Corporation Bonds, marking its firstissuance of investment corporation bonds. Taking advantage of the favorable bond issuance environment,
SHR issued the bonds with a coupon rate of 0.340%, the lowest level for bonds with a term of 10 years issued
by J-REITs (Note), thereby diversifying its financing method and procuring funds with a lower interest rate
than that of loans.
(Note) The information is as of September 8, 2016, upon issuance of the First Series Unsecured Investment Corporation Bonds.

4

5

I Overview of SHR

Growth strategies that take full advantage of the versatile support by Sekisui House
External growth strategies: Pipeline Support by Sekisui House rant of preferential negotiation rights with regard to the sale of domestic real estate, etc. owned orGdeveloped by Sekisui House
Provision of information on domestic real estate, etc. owned or developed by third parties
Provision of warehousing functions
Support for redevelopment of owned properties

Investment policy·	Promoting continuous external growth primarily through property acquisitions from the sponsor·	Investigating property acquisitions from third parties other than the sponsor, from the perspective of selective investment.
·	Continuing to focus on office buildings as the main driver of external growth, while investigating the acquisition of hotels and retail properties from the perspective of expanding the scope of the portfolio·	Shifting to an external growth strategy focused on domestic real estate for the time being
 romote external growth focused on domestic real estate, passing onPinvestments in overseas real estate for the time being
Since its listing, SHR has worked to expand its asset size through acquisition of domestic real estate, while
investigating investments in overseas real estate, with preferential negotiation rights granted by Sekisui
House for two of its overseas properties. Having investigated such acquisition, SHR concluded that the time
is not right to invest in overseas real estate, and a prudent stance can be adopted with respect to such investments that will operate to SHR’s benefit. Accordingly, SHR waived the preferential negotiation rights to
Sekisui House in November 2016.
Going forward, SHR will work to expand its asset size centering on domestic real estate, while keeping a
prudent stance toward investments in overseas real estate for the time being.
Furthermore, after waiver of the relevant preferential negotiation rights to Sekisui House, SHR has preferential negotiation rights as outlined below.
Property Name

Location

Asset Type

Ratio of unacquired floor area(Note)

Shinagawa-ku, Tokyo

Office building

24.2%

Hommachi Minami Garden City

Osaka-shi, Osaka

Office building

43.6%

Hommachi Garden City

Osaka-shi, Osaka

Hotel

47.3%

Garden City Shinagawa Gotenyama(Note) “Ratio of unacquired floor area” refers to the ratio of the floor area that SHR does not own but in respect of which it holds preferential acquisition negotiation rights in the relevant building, as against the total floor area in the relevant building that is exclusively owned, rounded
to the nearest first decimal place. Specifically, such floor area refers to the floor area which is exclusively owned and over which SHR holds
preferential acquisition negotiation rights in the Garden City Shinagawa Gotenyama, Hommachi Minami Garden City and Hommachi Garden
City properties.

SHR waived the following preferential negotiation rights (on overseas real estate) on November 28, 2016.
Property Name

6

Location

Asset Type

Waterway Point

Punggol, Singapore

Retail property

One Central Park

Sydney, Australia

Retail property

Term of preferential period(when the preferential right is exercisable)
From Dec. 1, 2016
To Nov. 30, 2019
From Dec. 1, 2016
To Nov. 30, 2019

Internal growth strategies: Sponsor Support by Sekisui HouseP rovision of property management services for owned properties
Provision of know-how and services related to operation management of highly value-added realestate possessed by Sekisui House
Upon acquiring properties in respect of which a certain period has passed since the date of construction, coordination in terms of strategies such as renovation or repairment with value enhancement,
etc. after acquisition of such properties
Investigation and discussion regarding such matters as execution of master lease agreements in formats responding to the property characteristics

Status of portfolio by types of lease agreements (leased floor area basis) (Note)
Fixed-Rent Type Master Lease

Direct Lease

Pass-ThroughType
Master Lease

68.5%

21.8%

9.8%

ensure stability

expectupside

SHR’s characteristics in terms of portfolio
Approximately 70% of the portfolio (ratio of lease types) (Note) adopts fixed-rent type master
Characteristic lease by Sekisui House. Rent revenue is stable over the long term, as SHR can receive pre1
determined rents from Sekisui House regardless of how the market conditions and theoccupancy status are.
Gotenyama SH Building adopts direct lease in which the property is directly leased to theCharacteristic
end-tenant. A 20-year lease agreement has been concluded with the tenant, and thus the2rent revenue is stable over the long-term.

HK Yodoyabashi Garden Avenue and Hirokoji Garden Avenue adopt pass-through typemaster lease by Sekisui House. Since SHR can receive rent which is the same amount as theCharacteristic
rent under the lease agreement concluded between Sekisui House and end-tenants, SHR
3
can benefit from rent revenue upside when the occupancy rate rises or the rent is revised
upward.
(Note) Ratio of the leased floor for each lease type under the relevant lease agreements, in respect of the properties, that are valid as of October
31, 2016 (or, if a master lease agreement that is valid as of October 31, 2016 is concluded for the property, the master lease agreement),
to the total sum of leased floor areas indicated in such lease agreements, rounded to the nearest first decimal place. “Ratio of lease types”
refers to such ratio of the leased floor area for each lease type.

7

I Overview of SHR

Stable and sound financial operations

Overview of portfolio

Debt finance

Outline of portfolio (as of October 31, 2016)
End of 3rd FP(As of Apr. 30, 2016)

End of 4th FP(As of Oct. 31, 2016)

Total interest-bearing liabilities(billion yen)

68.1

77.3

LTV (total asset basis)(%)

40.9

40.8

Fixed interest rate debt ratio(%)

79.4

76.6

Long-term debt ratio(%)

100.0

100.0

Average financing interest rate (Note 1) (%)

0.80

0.75

Average remaining term of interest-bearing
liabilities (Note 2) (years)

4.8

4.7

Interest-bearing liabilities(Note 3)

Balance(billion yen)

Percentage(%)

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

18.11

23.4

Sumitomo Mitsui Banking Corporation

16.16

20.9

Mizuho Bank, Ltd.

9.60

12.4

Sumitomo Mitsui Trust Bank, Limited

8.98

11.6

Resona Bank, Limited

5.70

7.4

Mitsubishi UFJ Trust and Banking Corporation

4.74

6.1

Development Bank of Japan Inc.

4.02

5.2

The Norinchukin Bank

4.02

5.2

Mizuho Trust & Banking Co., Ltd.

3.97

5.1

Investment Corporation Bonds

2.00

2.6

Property
No.

Property name

J-1

Garden City
Shinagawa Gotenyama
Portion of additional NEW
acquisition
Sub-total

6.1%

Total interest-bearing

7.4%

21,033.47

15.9

8.9

—

8,202.48

55.6

31.0

63.1

29,235.95

100.0

51.5

28.7

56.9

19,999.97

100.0

J-3

Hommachi Minami
Garden City

23.1

12.9

27.2

16,699.46

100.0

J-4

Hommachi Garden City

38.6

21.5

42.8

17,006.94

100.0

NEW

4.4

2.5

5.19

4,554.52

98.6

NEW

6.35

3.5

6.92

4,442.75

100.0

179.55100.0

202.11

91,939.59

HK Yodoyabashi
Garden Avenue
Hirokoji Garden
AvenueTotal

Osaka Area:Hommachi-Yodoyabashi Area

77.3

11.6%

—

5.7

Shinagawa-ku,
Tokyo

Shinagawa-ku,
Tokyo
Osaka-shi,
5.7
Osaka
Osaka-shi,
6.5
Osaka
Osaka-shi,
1.3
Osaka
Nagoya-shi,
5.6
Aichi
5.7

0.5

1.9
4.5
4.2
7.5
2.7

Portfolio map

liabilities
billion yen

22.1

Gotenyama SH Building

J-6

23.4%

39.7

J-2

J-5

2.6%
5.1%
5.2%
5.2%

Acquisition Investment Appraisal
Occupancy Building
PML
Leasable area
price
ratio
price
rate
age Location value2(m )(billion yen)(%)(billion yen)(%)(years)(%)

Greater Tokyo:Shinagawa Gotenyama Area

20.9%
J-2

12.4%
J-5

Diversification of repayment date (Note 3)

J-1

Floating interest rate borrowing
Fixed interest rate borrowing（billion yen）

20

Nagoya Area:Nagoya Meieki Area

Investment Corporation Bonds

J-4

15
10
5

14.0

14.0

4.05

17.0
10.0

7.0
0
2017

8

2018

2019

2020

2021

3.0

3.1

2022

2023

2.0
3.15

2024

2025

2026

(Note 1) “Average financing interest rate” indicates a weighted average (annual) interest rate using the balance of interest-bearing liabilities.
In respect of the interest rates of interest-bearing liabilities for which an interest rate swap was conducted, interest rates taking
into account the effect of the interest rate swap are used.
(Note 2) “Average remaining term of interest-bearing liabilities” indicates the average remaining term from the end of each fiscal period tomaturity dates, weighted by the balance of the respective interest-bearing liabilities.
(Note 3) The information is as of October 31, 2016.

J-3
J-6

9

I Overview of SHR

Overview of portfolio
Greater Tokyo

J-1

Garden City Shinagawa Gotenyama

Additionally
Acquired in
the 4th FP

Environmentally friendly maison-like office building that blends in with the townscape of abundant greenery and a long and distinguished history

J-2

J-3

Hommachi Minami Garden City

Office building located along the Midosuji street, which is the main street in Osaka City, and is capable ofbeing a landmark in the vicinity

Location(indication of residential address)

6-7-29 Kitashinagawa, Shinagawa-ku, Tokyo

Location(indication of residential address)

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

Acquisition Price

55.6 billion yen

Acquisition Price

23.1 billion yen

Structure, Floors

RC, 9F/B1F

Structure, Floors

S/ SRC, 25F/B2F

Total Floor Area

62,975.42m2

Total Floor Area

46,010.88m2

Leasable Area

29,235.95m2

Leasable Area

16,699.46m2

Gotenyama SH Building

J-4

Office building located upland with high business continuity incorporating a seismically isolated device

10

Osaka area

Hommachi Garden City

Complex facility capable of becoming a landmark as it stands on Midosuji street and its height exceeds
the conventional height control due to application of special urban renaissance district rules

Location(indication of residential address)

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

Location(indication of residential address)

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

Acquisition Price

51.5 billion yen

Acquisition Price

38.6 billion yen

Structure, Floors

S/ SRC, 7F/B1F

Structure, Floors

S/ SRC, 27F/B2F

Total Floor Area

19,812.85m2

Total Floor Area

49,163.16m2

Leasable Area

19,999.97m2

Leasable Area

17,006.94m2

11

I Overview of SHR

Overview of portfolio

Overview of SHR and the Asset Management Company

Osaka areaJ-5

Acquired in
the 4th FP

HK Yodoyabashi Garden Avenue

Comfortable and safe office building with strength of iron and tenderness of natural stone

Structure diagram
Asset Custodian

SEKISUI HOUSE REIT, INC.

Mitsubishi UFJ Trust andBanking Corporation

General Meetingof Unitholders
Executive Director:
Junichi Inoue
Supervisory Director:
Shigeru Nomura
Supervisory Director:
Tatsushi Omiya

Mizuho Trust & Banking Co., Ltd.

J-6

SEKISUI HOUSE INVESTMENTADVISORS, LTD.

Board of Directors

Transfer Agent

Administrative Agentfor Operation of
Administrative Instruments

100%
ownership

Location(indication of residential address)

4-3-9 Fushimi-cho, Chuo-ku, Osaka-shi, Osaka

Mitsubishi UFJ Trust andBanking Corporation

Independent Auditor

Acquisition Price

4.4 billion yen

Ernst & Young ShinNihon LLC

Structure, Floors

S/ SRC/ RC, 13F/B2F

Administrative Agentfor Investment
Corporation Bonds

Total Floor Area

16,953.28m2

Leasable Area

4,554.52m2

Nagoya area

Parent Company of theAsset Management
Company / Sponsor
SEKISUI HOUSE, LTD.

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Acquired in
the 4th FP

Hirokoji Garden Avenue

Asset Management
Company

Office building located in the Nagoya Meieki area, a core area in Nagoya, with an elegant exterior using
natural materials

Asset Management Agreement

Asset Custody Agreement

Administrative Agreement (Administration of Investment Units)General Administrative Agreement

Fiscal Agency Agreement

Pipeline Support Agreement / Sponsor Support Agreement, etc.

Overview of the Asset Management Company
Organization chart
Trade Name

Sekisui House Investment Advisors, Ltd.

Shareholder

Sekisui House, Ltd. (100%)

Paid-in Capital

General Meetingof Shareholders
AuditorBoard ofDirectors

400 million yen
Investment
Committee

12Location(indication of residential address)

4-24-16, Meieki, Nakamura-ku, Nagoya-shi,
Aichi

Acquisition Price

6.35 billion yen

Structure, Floors

S/ SRC, 12F/B1F

Total Floor Area

7,017.98m2

Leasable Area

4,442.75m

2Location

1-6-6 Motoakasaka, Minato-ku, Tokyo

President & CEO

Junichi Inoue

Compliance
Committee
President &Representative
Director
Compliance
Officer

Real Estate
Investment andManagement Division
Real Estate
Investment
Department

Real EstateManagement
Department

Management
Division
IR andFinance
Department

General Affairs
and Accounting
Department13

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”), one of theagreements with Sekisui House as lessee have been executed for five properties and a long-term leaseagreement with one tenant as lessee has been executed for one property, resulting in occupancy rate as of theend of the fiscal period under review of 99.9%.
(3) Overview of Fund Procurement

leading homebuilders in Japan with an established development and management track record also in theproperty development business, was established on September 8, 2014 and listed on the Tokyo Stock Exchangea. Issuance of New Investment Units
During the fiscal period under review, SHR issued new investment units through the public offering (of 95,200

and steady growth of its investment assets, mainly by investing in commercial properties (Note), in particularcommercial properties which are situated in strategic locations or are of a high quality (referred to by SHR as

capital is 100,040 million yen and the total number of investment units issued and outstanding is 894,000 units.

Real Estate Investment Trust Section on December 3, 2014 (securities code: 3309).
SHR’s policy is to conduct asset management that seeks to secure stable earnings over the medium to long term

units) on May 24, 2016, and issued additional new investment units by way of third-party allotment (of 4,800
units) on June 21 of the same year. As a result, as of the end of the fiscal period under review, unitholders’prime properties) positioned as its core investment targets.
Based on the policy described above, SHR acquired three properties (with an aggregate acquisition price ofb. Fund Procurement

114,300 million yen) on December 3, 2014, the day it was listed, and thereafter began managing them. Afteracquiring a property (with an acquisition price of 38,600 million yen) on May 19, 2015, SHR acquired three

additional properties (with an aggregate acquisition price of 26,650 million yen; one of which is an additional
portion of a property part of which is already owned by SHR) on May 24, 2016. As of October 31, 2016 (the end of
the fiscal period under review), SHR owns six properties (with an aggregate acquisition price of 179,550 million
yen) as its investment assets.
(Note)“Commercial properties” refer to real estate mainly used for business purposes other than for residence, such as officebuildings, retail properties and hotels. Residential properties include student dormitories, company housing and serviced
housing for the elderly. The same shall apply hereinafter.

(2) Management Environment and Management Performance
Management Environment

During the fiscal period under review, the Japanese economy remained, as a matter of basic trend, on course fora moderate recovery, on the back of a virtuous cycle of continued income spending, although sluggishness wasobserved, mainly in exports and production, due to such factors as the slowdown in emerging economies.
In the real estate transaction market, investors remain willing to invest, backed by high rent levels for officebuildings and improved vacancy rates. Competition over acquisitions has been intensified, however, as property
prices have stayed at a high level and the supply of properties available for sale has gone down. Accordingly, thetransaction volume in the domestic market is on a downward trend, although real estate investment
corporations continue to show a strong appetite for property acquisitions and willingness to pay high prices foracquisitions.
As for the office leasing market, demand remains solid. Given that the pace of economic recovery has stayedmodest, however, tenants’ ability to pay their rents has failed to grow. As such, there is a prevailing sense of rent
levels hitting the ceiling as a whole on the back of signs of a turnaround of market recovery, although there aredifferences in rent levels by area.
With regard to the environment surrounding retail properties, according to the Outlook for Economic Activity

and Prices (October 2016) by the Bank of Japan, private consumption has remained solid, backed by steady
improvements in the employment and income environments, although some weakness can be seen in certain

areas.
Demand for new store openings has remained strong as a whole, supported by the trend of population inflows in

For the acquisition of the aforementioned real estate trust beneficiary interests (relating to three underlying
properties), SHR procured short-term loans in the total amount of 9,200 million yen on May 24, 2016 to use as

funds for acquisitions and related expenses. SHR made early repayment of the above-mentioned 9,200 million
yen in short-term loans on September 9, 2016 by using proceeds from the investment corporation bonds totaling
2,000 million yen that it issued on September 8, 2016 (which is the first such issuance for SHR), and long-termloans totaling 7,200 million yen that it borrowed on September 9, 2016, among other funds. With thisarrangement, SHR worked to diversify the dates for debt repayment, extend the term of debts and partly fix
the interest rates of debts.

As a result, as of the end of the fiscal period under review, the balance of interest-bearing liabilities is 77,300
million yen and the ratio of total interest-bearing liabilities to total assets (“LTV (total assets basis)”) is 40.8%.
c. Credit Rating

The following table sets forth the rating status of SHR as of the end of the fiscal period under review.
Credit Rating Agency

Rating TypeJapan Credit Rating Agency, Ltd.
(JCR)

Long-term issuer rating: AA−
Rating outlook: Stable

Japan Credit Rating Agency, Ltd.
(JCR)

Bond rating: AA−(4) Overview of Business Performance and Distributions
Results in the fiscal period under review are operating revenue of 4,059 million yen (an increase of 17.1% overthat of the previous fiscal period), operating income of 2,664 million yen (an increase of 17.0% over that of theprevious fiscal period) and ordinary income of 2,321 million yen (an increase of 18.0% over that of the previous
fiscal period), resulting in net income of 2,320 million yen (an increase of 18.0% over that of the previous fiscal
period). In addition, concerning distributions, the decision has been made to distribute the entire amount of

unappropriated retained earnings (excluding the portion in respect of which distribution per investment unit isless than 1 yen), with the intention of having the maximum amount of distribution of earnings included indeductible expenses based on the application of 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, thedistribution per investment unit is 2,596 yen (an increase of 4.8% over that of the previous fiscal period).

large cities and the number of foreign visitors to Japan hitting a record high, despite the fact that the impact of
inbound tourism demand passing its peak has started to surface.
Management Performance

On May 24, 2016, SHR acquired real estate trust beneficiary interests as assets in trust for Garden City
Shinagawa Gotenyama (portion of additional acquisition) (Shinagawa-ku, Tokyo; acquisition price: 15,900

million yen), HK Yodoyabashi Garden Avenue (Osaka-shi, Osaka; acquisition price: 4,400 million yen) and
Hirokoji Garden Avenue (Nagoya-shi, Aichi; acquisition price: 6,350 million yen.). As a result, the assets held by
SHR as of the end of the fiscal period under review are six properties with an aggregate acquisition price of
179,550 million yen and total leasable area of 91,939.59m2. In addition, of the six properties, master lease

14

14

15

15

2.

Status of Capital Increase, etc.

The following table sets forth the increase/(decrease) in unitholders’ capital and the total number of investment
units issued and outstanding since the establishment of SHR through to the end of the fiscal period underreview.

Date

Total number ofinvestment units
issued and outstanding(units)Unitholders’ capital(million yen)

Event

Increase(Decrease)

Increase(Decrease)

Balance3.

Performance of Distribution, etc.

Distribution per unit for the fiscal period under review (that is, the 4th fiscal period) is 2,596 yen. The policy is
to distribute almost the entire amount of unappropriated retained earnings with the intention of applying thespecial treatment of 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).

Note

Balance

Fiscal period
Total amount of unappropriatedretained earnings (thousand yen)

September 8, 2014

Private placement forincorporation

200

200

2,000

2,000

(Note 1)

December 2, 2014

Public offering

63,69063,890600,000

602,000(Note 2)(thousand yen)

December 24, 2014

Third-party allotment

3,184

67,07430,000632,000(Note 3)(thousand yen)

May 19, 2015

Public offering

19,67386,748154,200

786,200(Note 4)[Distribution per unit] (yen)Total amount of distribution of
earnings out of the total amountJune 12, 2015

Third-party allotment

995

87,7437,800

794,000(Note 5)

May 24, 2016

Public offering

11,70699,45095,200889,200(Note 6)

June 21, 2016

Third-party allotment

590

100,040

4,800

894,000(Note 7)(Note 1) New investment units were issued at an offer price of 100,000 yen per unit upon the establishment of SHR on September 8,
2014.
(Note 2) New investment units were issued at an offer price of 110,000 yen (with the issue price being 106,150 yen) per unit through apublic offering to procure funds for the acquisition of new properties.
(Note 3) New investment units were issued at an issue price of 106,150 yen per unit by way of third-party allotment and proceeds
thereof were intended to use to make part repayment of loans. Out of proceeds from the issuance of new investment units, aportion was allocated for partial repayment of loans and the remaining was allocated to fund part of the acquisition cost of anew property.
(Note 4) New investment units were issued at an offer price of 131,917 yen (with the issue price being 127,587 yen) per unit through apublic offering to procure funds for the acquisition of a new property.
(Note 5) New investment units were issued at an issue price of 127,587 yen per unit by way of third-party allotment and proceeds
thereof were intended to use to make part-repayment of loans or as part of future acquisition funds for specified assets.
(Note 6) New investment units were issued at an offer price of 127,140 yen (with the issue price being 122,967 yen) per unit through apublic offering to procure funds for the acquisition of new properties.
(Note 7) New investment units were issued at an issue price of 122,967 yen per unit by way of third-party allotment and proceeds
thereof were intended to use to make future part-repayment of loans or as part of future acquisition funds for specified assets.

The following table sets forth 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.
1st fiscal period
From: Sep. 8, 2014
To: Apr. 30, 2015

2nd fiscal period
From: May 1, 2015
To: Oct. 31, 2015

3rd fiscal period
From: Nov. 1, 2015
To: Apr. 30, 2016

4th fiscal period
From: May 1, 2016
To: Oct. 31, 2016

High (yen)148,600

142,500

133,500

157,900

Low (yen)

131,700

111,400

116,700

125,800(Note)

Total amount of cash distributionof cash distribution(thousand yen)[Distribution of earnings per unit](yen)

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

1,013,381

1,951,805

1,967,034

2,321,003

285

153

296

179

1,013,096

1,951,652

1,966,738

2,320,824[1,603][2,458][2,477][2,596]

1,013,096

1,951,652

1,966,738

2,320,824[1,603][2,458][2,477][2,596]

－

－

－

－

[－]

[－]

[－]

[－]

－

－

－

－

[－]

[－]

[－]

[－]

－

－

－

－

[－]

[－]

[－]

[－]

Total amount of refund ofinvestment in capital out of thetotal amount of cash distribution(thousand yen)[Amount of refund of investment
in capital per unit] (yen)Total distribution amount fromreserve for temporary difference

adjustments out of total amountof refund of investment in capital(thousand yen)[Distribution amount fromreserve for temporary difference
adjustments per unit out of[Changes in Market Price of Investment Securities]

Fiscal period

Amount of accumulated earnings

1st fiscal period
2nd fiscal period
3rd fiscal period
4th fiscal period
From: Sep. 8, 2014 From: May 1, 2015 From: Nov. 1, 2015 From: May 1, 2016
To: Apr. 30, 2015
To: Oct. 31, 2015 To: Apr. 30, 2016
To: Oct. 31, 2016

amount of refund of investment
in capital per unit] (yen)Total distribution amount from

distribution reducing unitholders’capital for tax purpose out of total

amount of refund of investment incapital(thousand yen)[Distribution amount from

distribution reducing unitholders’capital for tax purpose out of

amount of refund of investment incapital per unit]
(yen)

16

16

17

17

4.

Future Management Policy(1) Future Trends Outlook
Looking ahead, the Japanese economy is expected to head toward moderate recovery, supported by the effects of(3) Financial Strategy

SHR has adopted as its policy the conduct of stable and sound financial operations in order to secure stableearnings over the medium to long term and enhance unitholder value. Specifically, the policy is to form strong

various policies, while the employment and income situations continue to improve, according to the Monthly
Economic Report (November 2016) by the Cabinet Office. However, attention should be paid to the uncertainty

and stable business relationships with leading domestic financial institutions, centering on megabanks,bolstered by the creditworthiness of the sponsor Sekisui House, and also to reduce refinancing risks and risks ofin overseas economies and the impact of fluctuations in the financial and capital markets.
In the office leasing market, there continues to be strong office demand, bolstered by recovery in thefluctuations in interest rates by exploring the extension of borrowing periods and working to diversify dates for
repayment, etc., while pursuing the optimum balance between fixed-rate and floating-rate debts.

employment situation and corporate earnings, such as to keep vacancy rates stably at a low level. While future
supply trends must be closely watched, vacancy rates will presumably continue in the trend of staying stably at

In addition, the LTV (total assets basis) policy is to manage it at a conservative level between 40% and 50% withattention paid to the securing of funding capacity.

levels by area.
Although the office leasing market is expected to show a full-fledged recovery, the real estate transaction market

and other factors.

a low level. Meanwhile, while rent levels are also expected to improve, the pace of improvement will be a modest
one, and the sense of rent levels hitting the ceiling as a whole will remain, although there are differences in rent

is in an environment where caution must be exercised in terms of the timing of fund procurement, since thefinancial market has become somewhat less stable due to such factors as concerns about a downward swing of

the Chinese economy, the monetary policy in the U.S. and Brexit (the U.K. leaving the EU).
The above being said, competition over property acquisitions still shows a trend of overheating and cap rates
remain stable at a low level. Consequently, it is likely that transaction prices of properties will continue to stayat a high level for some time to come.
(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 are of a high quality, as its core commercial property investment targets.
By implementing growth strategies that take full advantage of the real estate development and operation
capabilities and other strengths of Sekisui House, which has established an extensive track record of developing

and operating commercial properties, SHR will, through the support of its sponsor, seek to secure stableearnings 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 efforts to advance portfolio
diversification.
SHR’s policy is to set as its core investment areas the Three major metropolitan areas with Three large cities,
namely the Tokyo 23 Wards, Osaka City and Nagoya City, all of which SHR has knowledge in the course ofdevelopments 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). Specifically, such support will(a) grant to SHR preferential negotiation rights with regard to the sale of domestic real estate, etc. owned ordeveloped by Sekisui House, (b) provide SHR with information on real estate, etc. owned or developed in Japanby third parties, (c) provide SHR with warehousing functions, and (d) provide SHR with support for the

SHR will consider utilizing its funding capacity and work to diversify procurement methods for direct andindirect financing by comprehensively taking into account the market environment, SHR’s financial standing

5.

Significant Subsequent Events
Not applicable.

(Reference Information)

SHR was granted preferential negotiation rights for the acquisition of the Properties (as defined below) (the“Preferential Negotiation Rights”) by Sekisui House, based on the Letters of Intent concerning Sale of Overseas
Real Estate (the “Letters of Intent”) dated October 16, 2014 between Sekisui House, SHR and the AssetManagement Company. Such rights entitled SHR to enter into negotiations with Sekisui House, on apreferential basis, for the acquisition of the properties owned by Sekisui House, its subsidiaries or its affiliates
in which it has equity interest (collectively the “Sekisui House Group”) during the preferential period. The
Properties refer to the retail components of (i) Waterway Point, located in Punggol, Singapore and (ii) One
Central Park, located in Sydney, Australia.

In connection with the above, SHR and the Asset Management Company have made the decision to waive thePreferential Negotiation Rights and, accordingly, agreed with Sekisui House to cancel the Letters of Intent on
November 28, 2016.

A brief outline of the Preferential Negotiation Rights is set forth in the following table.
Property nameLocation

Asset type

Waterway Point

Punggol, Singapore

Retail property

One Central Park

Sydney, Australia

Retail property

Term of preferential period(when the preferential right is
exercisable)
From Dec. 1, 2016
to Nov. 30, 2019
From Dec. 1, 2016
to Nov. 30, 2019redevelopment of owned properties. In addition, SHR can seek from Sekisui House (a) property management
services for owned assets, and (b) in relation to management of owned assets for internal growth, (i) technologies
and know-how that contribute to the improvement of tenant satisfaction or other factors, including energyefficiency and eco-friendliness, that contribute to the enhancement of property value, (ii) personnel support,

including provision of know-how required for the operation of SHR, and (iii) support in areas such as negotiationof master lease agreements.
By implementing growth strategies that take full advantage of the versatile support from Sekisui House forexternal growth and internal growth as described above, SHR will seek to secure stable earnings and steady
growth of its investment assets and thereby aim to maximize unitholder value.

(Note)

18

18

The “Three large cities” refer to the Tokyo 23 wards, Osaka City and Nagoya City. In addition, the “Three major metropolitan
areas” refer to “Greater Tokyo,” the “Osaka area” and the “Nagoya area,” where “Greater Tokyo” refers to Tokyo, Kanagawa
Prefecture, Chiba Prefecture and Saitama Prefecture, the “Osaka area” refers to Osaka Prefecture, Kyoto Prefecture, Hyogo
Prefecture and Nara Prefecture and the “Nagoya area” refers to Aichi Prefecture. The same shall apply hereinafter.

19

19

Outline of the Investment Corporation
1.

Status of Capital3.

As of end of 1st As of end of 2nd As of end of 3rd As of end of 4th
fiscal period
fiscal period
fiscal period
fiscal period(Apr. 30, 2015) (Oct. 31, 2015) (Apr. 30, 2016) (Oct. 31, 2016)

Fiscal period
Total number of investment units authorized

10,000,000

10,000,000

10,000,000

10,000,000

Total number of investment units issued andoutstanding (units)

632,000

794,000

794,000

894,000

Unitholders’ capital (million yen)

67,07487,74387,743100,040

Number of unitholders (persons)

16,00518,08916,545

13,749(units)2.

Matters Concerning Investment Units
Of the unitholders as of the end of the fiscal period under review, the following are the top ten unitholders interms of investment unitholding ratio.

Number of units
owned(units)Percentage of
owned units tototal units issued
and outstanding(%)

Japan Trustee Services Bank, Ltd. (Trust Account)

269,581

30.15

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

93,268

10.43

Sekisui House, Ltd.

65,200

7.29

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

54,371

6.08

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

32,984

3.69

STATE STREET BANK AND TRUST COMPANY 505012

11,6681.31

11,152

1.25

Name

STATE STREET BANK - WEST PENSION FUND CLIENTS - EXEMPT
505233

The Hokuriku Bank, Ltd.

9,818

1.10

The Hyakujushi Bank, Ltd.

9,300

1.04

The Dai-ichi Life Insurance Company, Limited
Total(Note)

Matters Concerning Directors, etc.

(1) The following table sets forth information on the executive director, supervisory directors and independent
auditor of SHR in the fiscal period under review.

6,580

0.74

563,922

63.08

Percentage of owned units to total units issued and outstanding is rounded to the nearest second decimal place.

Position
Executive
Director

Name

Junichi Inoue

Key concurrently held position, etc.
President & Representative Director,

20－

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

Supervisory
Director

Shigeru Nomura

Tatsushi Omiya
Independent
AuditorDirector, Shigeru Nomura Certified Public
Accountant Office

1,800

Inspector, View Communications
Outside Director, Eiken Chemical Co., Ltd.
Auditor, QB Net Holdings Co., Ltd.
Partner, City Law Offices

Ernst & Young
ShinNihon LLC

1,800
14,000(Note 2)－

(Note 1) None of the executive director or supervisory directors owns SHR investment units in his own name or in the name of anotherperson. In addition, supervisory directors may be officers of other corporations other than those stated above, but none of suchcorporations, including those stated above, has vested interest in SHR.
(Note 2) The total amount of compensation for the Independent Auditor, as stated above, is an approximation and includes
compensation for preparing comfort letters for the issuance of new investment units in May 2016 and the issuance of the First
Series Unsecured Investment Corporation Bonds in September 2016, as well as compensation for auditing English financial
statements.

(2) Policy for determining whether to dismiss or refuse the Reappointment of Independent Auditor
Dismissal of the independent auditor is subject to consideration at a meeting of the board of directors of SHR inaccordance with the provisions of the Act on Investment Trusts and Investment Corporations (Act No. 198 of1951, as amended) (the “Investment Trusts Act”). Refusal of reappointment of the independent auditor is also

subject to consideration at a meeting of the board of directors of SHR by taking into account the quality of audits,amount of audit fee and various other circumstances in a comprehensive manner.
(3)

Matters concerning entities that have been ordered to suspend operations within the past two years
On December 22, 2015, SHR’s Independent Auditor received an order from the Financial Services Agency tosuspend operations relating to the conclusion of new contracts for three months (from January 1, 2016 to March
31, 2016).

4.

Asset Management Company, Asset Custodian and Administrative AgentsThe following table sets forth information on the asset management company, asset custodian andadministrative agents of SHR as of the end of the fiscal period under review.
Entrustment category

20

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

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

Administrative Agent (Administrative Agent for
Investment Corporation Bonds)

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

21

21

Condition of investment assets
1.

as of the end of each fiscal period has been concluded for the property, the lease agreements with the respective end tenants
concluded as of the end of the fiscal period under review).
(Note 4) “Occupancy rate” refers to the ratio of leased area to leasable area of each property as of the end of the fiscal period underreview, rounded to the nearest first decimal place. The figure indicated in the total column is the occupancy rate of the entire
portfolio, which is the ratio of total leased area of each property to total leasable area of each property, rounded to the nearest
first decimal place.
(Note 5) Figures under the heading “As a percentage of total property-related operating revenue” indicate the ratio of property-related
operating revenue of each property to total property-related operating revenue, rounded to the nearest first decimal place. As
such, the sum total of the figures in respect of each property may not match the figure indicated in the column for the total.
The same shall apply hereinafter.

Composition of Assets of the Investment Corporation
The following table sets forth the composition of assets of SHR as of the end of the fiscal period under review.
As of end of 3rd fiscal period(Apr. 30, 2016)
Type ofasset

Geographical area,
etc.

Real estate

Three major
metropolitan areas

in trust

As of end of 4th fiscal period(Oct. 31, 2016)

Total
amount held(million yen)
(Note 1)

As a percentage of
total assets(%)(Note 2)Total
amount held(million yen)
(Note 1)

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

151,817

91.3

177,986

94.0

－

－

－

－

Other areas

Total of real estate in trust

151,817

91.3

177,986

94.0

Deposits and other assets

14,486

8.7

11,271

6.0

Total amount of assets

166,303

100.0

189,257

100.0(Note 1) “Total amount held” is the carrying amount (or, 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 2) Figures under the heading “As a percentage of total assets” have been rounded to the nearest first decimal place.
(Note 3) SHR does not own any overseas real estate, etc. as of the end of the fiscal period under review.

2.

Major Portfolio Assets

The following table sets forth an overview of the portfolio assets of SHR as of the end of the fiscal period underreview.
Name ofreal estate, etc.

Garden City
Shinagawa Gotenyama

Book value(millionyen)(Note 1)
55,262

Leasablearea(m2)(Note 2)
29,235.95

Leasedarea(m2)(Note 3)29,235.95

Occupancy
rate(%)(Note 4)100.0

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

Main use

29.3

Officebuilding

Gotenyama SH
Building

51,002

19,999.97

19,999.97

100.0

26.8

Officebuilding

Hommachi Minami
Garden City

22,695

16,699.46

16,699.46

100.0

14.5

Officebuilding

Hommachi Garden
City38,242

17,006.94

17,006.94

100.0

22.3

Officebuilding

HK Yodoyabashi
Garden Avenue

4,413

4,554.52

4,492.58

98.6

3.2

Officebuilding

Hirokoji
Garden Avenue

6,370

4,442.75

4,442.75

100.0

3.9

Officebuilding

Total

177,986

91,939.59

91,877.65

99.9

100.0

－

3.

Details of Assets (Real Estate, etc.) in the Portfolio
The following table sets forth an overview of the assets held by SHR as of the end of the fiscal period underreview.

Name ofreal estate, etc.

Location

Garden City
Shinagawa Gotenyama

6-7-29 Kitashinagawa,Shinagawa-ku, Tokyo

Gotenyama
SH Building

6-5-17 Kitashinagawa,

Hommachi Minami
Garden City

3-6-1 Kitakyuhojimachi,

Hommachi
Garden City

Shinagawa-ku, Tokyo

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

Osaka-shi, OsakaHK Yodoyabashi
Garden Avenue

4-3-9 Fushimimachi,

Hirokoji
Garden Avenue

4-24-16, Meieki, Nakamura-

Total

Chuo-ku, Osaka-shi, Osakaku, Nagoya-shi, Aichi－

Type of ownership
Real estate trust
beneficiaryinterests
Real estate trust
beneficiaryinterests
Real estate trust
beneficiaryinterests
Real estate trust
beneficiaryinterests
Real estate trust
beneficiaryinterests
Real estate trust
beneficiaryinterests－

Book value
at end of period(million yen)
(Note 1)

Estimated value
at end of period(million yen)
(Note 2)55,262

63,10051,002

56,90022,69527,20038,24242,800

4,413

5,190

6,370

6,920

177,986

202,110(Note 1) “Book value at end of period” refers to the book value after depreciation of each property as of the end of the fiscal period
under review, rounded down to the nearest million yen. As such, the sum total of the figures in respect of each property may
not match the figure indicated in the column for the total.
(Note 2) “Estimated value at end of period” refers to the value stated in each real estate appraisal report (based on real estateappraisal reports prepared by Daiwa Real Estate Appraisal Co., Ltd., The Tanizawa Sōgō Appraisal Co., Ltd., Rich Appraisal
Institute Co., Ltd. and Japan Real Estate Institute with the end of the fiscal period under review as the date of valuation),rounded down to the nearest million yen.

(Note 1) “Book value” refers to the depreciated book value of each property as of the end of the fiscal period under review, rounded
down to the nearest million yen. As such, the sum total of the “book value” of each property may not match the figure
indicated in the column for the total.
(Note 2) “Leasable area” refers to 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, rounded down to the second decimal place.
(Note 3) “Leased area” refers to the sum total of the leased area indicated in the respective lease agreements for each of the properties
that are valid as of the end of the fiscal period under review (or, if a pass-through type master lease agreement that is valid

22

22

23

23

The following table sets forth the status of leasing of real estate, etc. held by SHR.
3rd fiscal period
4th fiscal period
From: Nov. 1, 2015
From: May. 1, 2016
To: Apr. 30, 2016
To: Oct. 31, 2016
PropertyPropertyAs a
As a
relatedrelatedpercentage Number Occupancy
percentage
Number Occupancy
operatingoperatingofrateof totalof totalofrate
revenuerevenuetenants[at end of
propertypropertytenants[at end of[during[during
Name of[at endfiscalrelatedrelated[at endfiscalfiscalfiscalreal estate, etc.
of fiscal
period]operatingoperatingof fiscal
period]period]period]period](%)
revenuerevenueperiod](%)(million(million(Note 1)
(Note 2)(%)(%)
(Note 1)
(Note 2)yen)
yen)(Note 3)(Note 3)
Garden City
Shinagawa
1
100.0
887
25.6
1
100.0
1,190
29.3
Gotenyama
Gotenyama SH
1
100.0
1,088
31.4
1
100.0
1,088
26.8
Building
HommachiMinami
1
100.0
586
16.9
1
100.0
586
14.5
Garden City
Hommachi
1
100.0
903
26.1
1
100.0
904
22.3
Garden CityHK
Yodoyabashi
GardenAvenueHirokoji
GardenAvenue
Total

－

－

－

－

1 (6)

98.6

130

7.

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

Contract amount, etc.

CategoryType(thousand yen) (Note 1)
Amountdue after 1 year
Transaction other thanmarket transaction

Fair value(thousand yen)
(Note 2)

Interest rate swap transaction(Under which floating interest
rates are receivable and fixed

50,350,000

50,350,000－

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

8.

Status of Other Assets
Trust beneficiary interests with real estate as the main assets in trust are stated in “3. Details 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., asset-backed securities, etc. and infrastructure assets, etc. in the portfolio.

3.2
9.

－

－

－

－

1 (9)

100.0

158

3.9

2

100.0

3,467

100.0

2 (15)

99.9

4,059

100.0

Status of Holding of Assets by Country and Region
As of the end of the fiscal period under review, there are no portfolio real estate, etc. in any other country or
region besides Japan.

(Note 1) “Number of tenants” refers to the sum total of the number of tenants under, and indicated in, the respective lease agreements
for each property that are valid as of the end of each fiscal period (or, if a master lease agreement that is valid as of the end ofeach fiscal period has been concluded for the property, the number of lessees under the master lease agreement). If a passthrough type master lease agreement that is valid as of the end of each fiscal period has been concluded for the property, thenumber of end tenants for the property is indicated in parenthesis.
In the “Total” column, a tenant that leases spaces in multiple properties is counted as one. The sum total of the number of end
tenants for properties where pass-through type master lease agreements that are valid as of the end of each fiscal period
have been concluded is indicated in parenthesis.
(Note 2) “Occupancy rate” refers to the ratio of leased area to leasable area of each property as of the end of each fiscal period, rounded
to the nearest first decimal place. The total column indicates the occupancy rate of the entire portfolio, which indicates theratio of total leased area of each property to total leasable area of each property, rounded to the nearest first decimal place.
(Note 3) “Property-related operating revenue [during fiscal period]” refers to the sum total of property-related operating revenue ineach fiscal period in respect of each property, rounded down to the nearest million yen. As such, the sum of “Property-related
operating revenue [during fiscal period]” in respect of each property may not match the figure indicated in the column for the
total.

4.

Details of Renewable Energy Power Generation Facility, etc.
Not applicable.

5.

Details of Right to Operate Public Facility, etc.
Not applicable.

6.

Details of Investment Securities
Not applicable.

24

24

25

25

Capital expenditures for property

Condition of expenses

1.

Details of Expenses Pertaining to Management, etc.

Schedule of Capital Expenditures
The main capital expenditure amounts accompanying renovation work, etc. currently planned for assets held by
SHR, is as follows. However, a portion of such amounts may ultimately be classified as expenses in the course of
the accounting process.
Name of real estate,etc. (location)

Scheduled amount (million yen)
(Note)
PurposeScheduled period

TotalamountHommachi Garden

City (Chuo-ku, Osakashi, Osaka)
Hommachi Garden
City (Chuo-ku, Osakashi, Osaka)

Hommachi Minami

Garden City (Chuo-ku,
Osaka-shi, Osaka)
Garden City

Shinagawa Gotenyama(Kitashinagawa,Shinagawa-ku, Tokyo)
Hommachi Garden

City (Chuo-ku, Osakashi, Osaka)(Note)

Installation of integrated
energy-saving controlling
equipment for absorption
water cooling andFrom: September 2016
To: December 2016

Payment for

the fiscal period
under review

21－

Amountalready
paid

－

Item
Asset management fee

309,334

Asset custody fee

3,154

3,159

Administrative service fees

11,783

11,217

Directors’ compensations

3,600

3,600

Other expenses

36,51746,026

328,051

373,337

Total(Note)

From: March 2017
To: March 201711－

Upgrading of integrated
watt meters

From: January 2017
To: March 2017

7

－

－

Upgrading of integrated
watt meters

From: October 2016
To: January 2017

7

－

－

Upgrading of integrated
heat meters

From: October 2017
To: October 2017

6

－

－

4th fiscal period
From: May 1, 2016
To: Oct. 31, 2016

272,995

heating devices

Upgrading of integrated
heat meters(Unit: thousand yen)
3rd fiscal period
From: Nov. 1, 2015
To: Apr. 30, 2016

In respect of asset management fees, in addition to the amounts shown above, there are management fees for property
acquisition (not applicable in the 3rd fiscal period and amounting to 39,975 thousand yen in respect of the 4th fiscal period)－

included in the book value of real estate, etc.

The scheduled amount refers to the amount arrived at by multiplying (i) the full amount required for the work by (ii) the ratioof SHR’s ownership in the real estate trust beneficiary interest.

2.

Capital Expenditures During Period
An overview of capital expenditures conducted by SHR for its assets during the fiscal period under review is as
set forth in the following table. Total capital expenditures during the fiscal period under review was 7 million
yen and, together with 20 million yen of repair expenses charged to expenses in the fiscal period under review,
work amounting to 27 million yen was implemented.
Name of real estate, etc.
(location)

Garden City Shinagawa
Gotenyama(Kitashinagawa,Shinagawa-ku, Tokyo)

3.

26

26

Purpose

PeriodReplacement of parts for central

From: September 2016

Replacement of parts formechanical security systems

From: September 2016
To: September 2016

monitoring devices

Payment amount(million yen)

To: September 2016

2
2

Other capital expenditures

1

Total

7

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

27

27

Condition of investment transactions

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

1.

Acquisitionordisposition

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

Garden City
Shinagawa Gotenyama(portion of additional
acquisition) (Note 2)

Acquisitiondate

May 24,2016

HK Yodoyabashi

May 24,

Hirokoji

May 24,

Garden Avenue
Garden Avenue
Total

2016
2016
－

Disposition

Acquisition
price(million yen)
(Note 1)
15,900

Disposition
date

Disposition
price(million yen)
(Note 1)

Book value(million yen)

Gain (Loss)on sale(million yen)

－

－

－

－

Name ofreal estate,etc.
Garden City
Shinagawa
Gotenyama(portion of
additional
acquisition)

Acquisition

HK
4,400

－

－

－

－

6,350

－

－

－

－

26,650－－－－

Yodoyabashi
GardenAvenueAcquisition

Hirokoji
GardenAvenueAcquisition(Note 1) “Acquisition price” and “Disposition price” refer to the sale and purchase price as stated in the sale and purchase agreement
for each property (excluding consumption tax and local consumption tax, as well as commissions and other various expenses;
rounded down to the nearest million yen). The same shall apply hereinafter.
(Note 2) Concerning Garden City Shinagawa Gotenyama, SHR acquired the sectional ownership right to all of the exclusively-owned
portions of the 4th, 7th and 8th floors and part of the exclusively-owned portions of the 2nd, 3rd and 6th floors of the building,

Total(Note)

Acquisition
price or
disposition
price(million yen)Appraisalvalue(million yen)
(Note)

Appraisal
firm

Date ofvalue

16,900DAIWAREALESTATEAPPRAISAL
CO.,LTD.

March 31,2016

Transaction
dateType ofasset

May 24,
2016

Real estate
trust
beneficiaryinterests

May 24,
2016

Real estate
trust
beneficiaryinterests

4,400

5,100

May 24,
2016

Real estate
trust
beneficiaryinterests

6,350

6,780

－

－

26,65028,78015,900The
Tanizawa
Sōgō
Appraisal
Co., Ltd.
DAIWA
REAL
ESTATEAPPRAISAL
CO.,LTD.

March 31,2016

March 31,
2016

－

－

The appraisal stated above is derived by applying the “Real Estate Appraisal Standards; Particulars; Chapter 3: Appraisal on
Value of Real Estate Subject to Securitization.”

as well as the accompanying right of site (ratio of right of site: 2,103,349/3,857,806 (approximately 54.5%)) on December 3,
2014. Of the building of Garden City Shinagawa Gotenyama, SHR additionally acquired the sectional ownership right to partof the exclusively -owned portions of the 2nd, 3rd, 5th and 6th floors of the building, as well as the accompanying right of site(ratio of right of site: 820,252/3,857,806 (approximately 21.3%)) (the “Portion of Additional Acquisition”) on May 24, 2016.

2.

Status, etc. in respect of Sale and Purchase of Other Assets
Not applicable.

(2) Others
Not applicable.

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

Category

Main assets other than the abovementioned real estate, etc., asset-backed securities, etc., infrastructure assets,etc. and infrastructure related assets are essentially bank deposits or bank deposits within assets in trust.

Amount of purchase, etc.

Total amountAmount of sale, etc.
－ million yen

26,650 million yen

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

－ million yen

26,650 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)
24,404

Breakdown of transactions with interested persons, etc.
Payee

Sekisui House, Ltd.

Amount paid(B)(thousand yen)

As apercentage of
total amount(B /A)(%)

24,404100.0(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 (Order for Enforcement No. 480 of 2000, as amended) and Article 26, Item 27 of the Rules on
Investment Reports, etc. of Investment Trusts and Investment Corporations of The Investment Trusts Association, Japan.

28

28

29

29

(Note 2) There are no payments for repair work, etc. for orders placed to interested persons, etc. during the fiscal period under review
besides the commission fee, etc. indicated above.

Other information(Note 3) “Management fee” has been rounded down to the nearest thousand yen.

1.
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 as of the end of the fiscal period under review, the AssetManagement Company does not concurrently engage in any type I financial instruments or type II financial

Notice(1) General Meeting of Unitholders
During the fiscal period under review, on July 28, 2016, SHR held its Second General Meeting of Unitholders(the "General Meeting"). Items approved at the General Meeting are summarized below.
Approved Item

instruments business (as defined in the Financial Instruments and Exchange Act), building lots and buildings
transaction business, or specified joint real estate ventures.

Partial amendments
to the Articles ofIncorporation

Appointment of one
Executive Director
Appointment of one
Substitute Executive
Director
Appointment of two
Supervisory Directors

30

30

Overview
A resolution was passed to approve the partial amendments to the Articles ofIncorporation, as indicated below.
(1) The following amendments shall be made in accordance with amendments to
the Investment Trusts Act:
1. Regarding provisions on the convening of SHR’s general meetings ofunitholders on specified dates and thereafter without delay,
amendments shall be made to the relevant provision to stipulate that
SHR’s general meeting of unitholders shall be convened on July 1, 2018or thereafter without delay, and subsequent convocation of the meetings
shall be made on July 1 or thereafter every two years without delay;
and, if necessary, the meetings may be convened at any time. A newprovision shall be established to stipulate that a general meeting ofunitholders be held before 25 months have passed since theimmediately preceding general meeting of unitholders that is convened
on July 1, 2018 or thereafter without delay, and the general meeting ofunitholders that is convened on July 1 or thereafter every two years
without delay and is held accordingly shall not require a public notice ofits convocation. In addition, amendments shall be made to the relevant
provision to establish the base date for determining matters related to
the relevant general meeting of unitholders.
2. A new provision shall be established to stipulate that the term of officeof the Executive Director and Supervisory Directors may be extended or
shortened to the extent provided by applicable laws and regulations,through the resolution of the general meeting of unitholders.
(2) Amendments shall be made to the relevant provision to allow SHR to acquire
shares in an overseas real estate holding corporation as stipulated in Article105-1 of the Ordinance for Enforcement of the Act on Investment Trusts andInvestment Corporations (Ordinance of the Prime Minister's Office No. 129 of2000, as amended), at such proportion that exceeds the limitation set forth in
Article 194 of the Investment Trusts Act.
(3) As the requirements for an investment corporation to apply for special
taxation measures have been changed due to revisions to the Ordinance for
Enforcement of the Act on Special Measures Concerning Taxation (Ordinanceof the Ministry of Finance No. 15 of 1957, as amended), a provision that has
become unnecessary shall be deleted.
(4) Amendments shall be made to the relevant provisions to clarify that, forassets that are formed based on or governed by foreign laws and regulations,evaluations shall be conducted through the use of the same methods andstandards as applied to domestic assets.
(5) Amendments shall be made to the relevant provision pursuant to the factthat following revisions to the fiscal 2015 tax system and revisions to theOrdinance on Accounting of Investment Corporations (Ordinance of the
Cabinet Office No. 47 of 2006, as amended), measures were taken to resolve
the issue of inconsistency between profits for accounting purposes and profits
for tax purposes at an investment corporation (the issue of incidence oftaxation). In addition, amendments shall be made to the relevant provision toallow SHR to make cash distributions in excess of earnings in order to reduce
its tax burdens.
(6) Amendments shall be made to the relevant provision to clarify that SHR’s
general meeting of unitholders shall be held at venues near the location of its
head office.
(7) Other than the above, expressions shall be changed to establish consistency
with expressions in applicable laws and regulations and to clarify the content
of the provisions, etc.; provisions that have become unnecessary shall bedeleted; and, the numbering of provisions shall be rearranged.
Junichi Inoue was appointed as Executive Director, with a term of office that expires
two years from August 1, 2016.
Atsuhiro Kida was appointed as Substitute Executive Director, with a term of officethat expires upon the expiration of the term of office of the Executive Director
referred to above.
Shigeru Nomura and Tatsushi Omiya were appointed as Supervisory Directors, withterms of office that expire two years from August 1, 2016.

3131

(2) Meeting of the Board of Directors of the Investment Corporation
In the fiscal period under review, regarding the matters, etc. provided in Items 2, 3, 5, 6 and 8 of Article 109,

Financial Section (Audited)

Paragraph 2 of the Investment Trusts Act, the following matters were approved at a meeting of the board of
directors of SHR, as well as other matters deemed important.
Approval date

Matters approved

Overview
Administrative functions pertaining tosolicitation of persons to subscribe for new
investment units and other business
operations related to the issuance of new

May 9, 2016

Conclusion of a new investment unit
underwriting agreement

investment units and secondary
distribution of investment units approvedat the meeting of the board of directors
held on the same date were entrusted to

Nomura Securities Co., Ltd., SMBC Nikko
Securities Inc., Mizuho Securities Co., Ltd.,
Daiwa Securities Co. Ltd. and Mitsubishi
UFJ Morgan Stanley Securities Co., Ltd.
Addition of investment targets and otherJuly 27, 2016

Conclusion of an agreement
concerning amendments to the asset
management agreement

arrangements were made on the condition
that partial amendments to the Articles ofFinancial Statements
Balance Sheet

34

held on July 28, 2016.

Statement of Income and Retained Earnings

36

Statement of Changes in Net Assets

37

Statement of Cash Distributions

38

Statement of Cash Flows

39

Notes to Financial Statements

40

Supplementary Schedules

51

Independent Auditor’s Report

55

Incorporation should be approved at SHR’s
Second General Meeting of Unitholders
With regard to the SHR First Series

Unsecured Investment Corporation Bonds(with pari passu clause among specified

August 29, 2016

Conclusion of a fiscal agency
agreement

Contents

investment corporation bonds), functionsof issuing agent and payment agent,functions pertaining to the investment
corporation bonds register, and functions

for accepting propositions from investment
corporation bond holders, including claims

regarding exercising their rights, etc. were
entrusted to The Bank of Tokyo-Mitsubishi

UFJ, Ltd.

Administrative functions pertaining tosolicitation of persons to subscribe for theAugust 29, 2016

Conclusion of an investment

corporation bond purchase andunderwriting agreement

SHR First Series Unsecured Investment
Corporation Bonds (with pari passu clauseamong specified investment corporation
bonds) and other business operations

were entrusted to Mitsubishi UFJ Morgan
Stanley Securities Co., Ltd., Mizuho

Securities Co., Ltd., Nomura Securities Co.,
Ltd. and SMBC Nikko Securities Inc.

2.

32

32

Handling of fractions of monetary amounts and percentage figures

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

－

2 －

33

(Thousands of yen)

1. Financial Statements

3rd Fiscal Period(1) Balance Sheet(Thousands of yen)

3rd Fiscal Period

AssetsCurrent assets
Cash and deposits
Cash and deposits in trust
Operating accounts receivable
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
Machinery and equipment in trust
Accumulated depreciation
Machinery and equipment in trust, net
Tools, furniture and fixtures in trust
Accumulated depreciation
Tools, furniture and fixtures 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
Deferred assets
Investment corporation bond issuance costs
Investment unit issuance costs
Total deferred assets
Total assets－

34

4th Fiscal Period(As of April 30, 2016)(As of October 31, 2016)

4,059,682
10,037,966－
82,84317－
6,333
14,186,844

2,537,620
7,805,438
24,252
88,117
10461,715464
10,917,618

45,895,496(1,399,667)
44,495,829
672,428(25,303)647,125－－－

53,265,090(2,038,527)
51,226,562
672,428( 34,346)
638,082
411
( 3)
407
996
( 181)
815
126,120,644
－

996
(97)
898
106,673,263
16,023
151,833,140(As of April 30, 2016)(As of October 31, 2016)

75,140319,477
69,909775
223,779
689,082

143,397
347,741
73,014815－
564,968－
68,100,000
7,803,586
75,903,586
76,592,668

2,000,000
75,300,000
9,031,712
86,331,712
86,896,680

87,743,594

100,040,294

1,967,034
1,967,034
89,710,628
89,710,628
166,303,297

2,321,003
2,321,003
102,361,297
102,361,297
189,257,978

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

177,986,512

5,352
5,352

4,617
4,617

10,000267,961
277,961
152,116,453

20,181
275,627
295,808
178,286,938－－－

18,38835,03253,420189,257,978

166,303,297

Liabilities
Current liabilities
Operating accounts payable
Accounts payable – otherAccrued expenses
Income taxes payable
Accrued consumption taxes
Total current liabilities
Non-current liabilities
Investment corporation bondLong-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

4th Fiscal Period

1 －
－

4 －

35

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

Operating revenue
Rent revenue – real estate (Note 5)
Other lease business revenue (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
Interest on refund
Total non-operating income
Non-operating expenses
Interest expenses
Interest expenses on investment corporation bond
Borrowing related expenses
Amortization of investment unit issuance costs
Amortization of investment corporation bond issuance costs
Other
Total non-operating expenses
Ordinary income
Income before income taxes
Income taxes – current
Income taxes – deferred
Total income taxes
Net income
Retained earnings brought forward
Unappropriated retained earnings

3rd Fiscal Period(From November 1,
2015 toApril 30, 2016 )(3) Statement of Changes in Net Assets
3rd Fiscal Period (From November 1, 2015 to April 30, 2016)(Thousands of yen)

4th Fiscal Period(From May1, 2016 to
October 31, 2016 )3,467,176
379
3,467,556

4,032,189
27,097
4,059,286

860,922272,995
3,154
11,7833,600
36,517
1,188,973
2,278,582

1,021,071
309,334
3,159
11,2173,600
46,026
1,394,409
2,664,877

1,267
197
1,465

58
－

275,257－
36,447－－499
312,204
1,967,842
1,967,842
969
(7)
961
1,966,880
153
1,967,034

283,943995
48,898
7,006
311
2,241
343,397
2,321,537
2,321,537824
6
831
2,320,706
296
2,321,003

Unitholders’ equity
Total
unitholders’equityTotal
net assets

1,951,805)

1,951,805) 89,695,399)

89,695,399)

Distribution from surplus(1,951,652)(1,951,652)(1,951,652)(1,951,652)

Net income

1,966,880

1,966,880

1,966,880

1,966,880－

15,22815,22815,22815,22887,743,594)

1,967,034

1,967,034

89,710,628

89,710,628

Unitholders’capitalBalance at beginning of period

Surplus
Unappropriatedretained earnings

87,743,594)

Total
surplus

Changes of items during period

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

4th Fiscal Period (From May 1, 2016 to October 31, 2016)(Thousands of yen)

Unitholders’ equity
Unitholders’capital58
Balance at beginning of period

Total
surplusTotal
unitholders’equityTotal
net assets

1,967,034

1,967,034

89,710,628

89,710,628

12,296,700

12,296,700(1,966,738)(1,966,738)(1,966,738)(1,966,738)

Surplus
Unappropriatedretained earnings

87,743,594

Changes of items during period
Issuance of new investment units

12,296,700

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

2,320,706

2,320,706

2,320,706

2,320,706

12,296,700

353,968

353,968

12,650,668

12,650,668

100,040,294

2,321,003

2,321,003 102,361,297 102,361,297

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

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

－

36

－

5 －

6 －

37

(4) Statement of Cash Distributions
Item(5) Statement of Cash Flows
3rd Fiscal Period(From November 1, 2015 toApril 30, 2016 )Ⅰ. Unappropriated retained earnings

1,967,034,548 yen

Ⅱ. Cash distributions

1,966,738,000 yen[2,477 yen]

[Cash distributions per unit]

Ⅲ. Retained earnings brought forward
Method of calculating amount of distribution

296,548 yen

4th Fiscal Period(From May 1, 2016 to

October 31, 2016 )2,321,003,281yen

2,320,824,000yen[2,596yen]
179,281yen

The basic policy is to distributein excess of an amountThe basic policy is to distributein excess of an amountfor distribution of SHR
provided in Article 67-15,

for distribution of SHR
provided in Article 67-15,

equivalent to 90% of theamount of earnings available

Paragraph 1 of the Act on
Special Measures Concerning

Taxation as set forth in Article
46, Paragraph 1, Item 2 of the
Articles of Incorporation of
SHR.
Based on such policy, SHR
decided to pay out a

distribution of earnings of
1,966,738,000 yen, which is thelargest integral multiple of thetotal number of investment
units issued and outstanding(794,000 units) in an amountnot in excess of unappropriatedretained earnings for theperiod.
SHR will not distribute cash inexcess of earnings as set forthin Article 46, Paragraph 2 of

the Articles of Incorporation ofSHR.

3rd Fiscal Period

equivalent to 90% of theamount of earnings available

Paragraph 1 of the Act on
Special Measures Concerning

Taxation as set forth in Article
46, Paragraph 1, Item 2 of the
Articles of Incorporation of
SHR.
Based on such policy, SHR
decided to pay out a

distribution of earnings of
2,320,824,000 yen, which is thelargest integral multiple of thetotal number of investment
units issued and outstanding(894,000 units) in an amountnot in excess of unappropriatedretained earnings for theperiod.
SHR will not distribute cash inexcess of earnings as set forthin Article 46, Paragraph 2 of

the Articles of Incorporation of
SHR.

Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Amortization of investment corporation bond issuance costs
Amortization of investment unit issuance costs
Interest income
Interest expenses
Decrease (increase) in operating accounts receivable
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
Increase (decrease) in accrued consumption taxes
Other, net
SubtotalInterest income received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities
Purchase of property, plant and equipment in trust
Proceeds from tenant leasehold and security deposits in trust
Repayments for lease and guarantee deposits
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from short-term loans payable
Repayments of short-term loans payable
Proceeds from long-term loans payable
Proceeds from issuance of investment corporation bondProceeds from issuance of investment units
Dividends paid
Net cash provided by (used in) 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)(From November 1, 2015
to April 30, 2016)(Thousands of yen)

4th Fiscal Period(From May 1, 2016
to October 31, 2016)

1,967,842
560,904－－(1,267)275,257－
1,000,376(3,108)38,5309,246
39,208
223,779(6,273）
4,104,497
1,267(273,974)(780)
3,831,009

2,321,537
648,726
311
7,006
(58)
284,939(24,252)(461,715)(5,273)(7,666)
74,61526,823(223,779)
5,869
2,647,084
58(281,834)(783)
2,364,523(9,559)14,603－
5,044(26,807,722)
1,228,125(10,181)(25,589,778)

－
－
－
－
－
(1,949,114)(1,949,114)
1,886,939
12,210,709
14,097,649

9,200,000(9,200,000)
7,200,000
1,981,300
12,254,660(1,965,296)
19,470,663(3,754,590)
14,097,649
10,343,058

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

－

38

7 －

－

8 －

39

(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 day.
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 and Exchange 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 ReportingStandards.
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
have been made to the financial statements issued domestically in order to present them in a format which is morefamiliar 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(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
15-65 years
Structures
37-40 years
Machinery and equipment
10 years
Tools, furniture and fixtures
6 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) Investment corporation bond issuance costs
Investment corporation bond issuance costs are amortized utilizing thestraight-line method over the redemption periods.
(2) Investment unit issuance costs
Investment unit issuance costs are amortized utilizing the straight-line
method (over 3 years).
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 realestate or trust beneficiary interests of real estate as assets in trust, is notrecognized as expenses related to rent business in the corresponding fiscal
period but included in the acquisition cost of the property.
Property taxes capitalized as a part of the acquisition cost amounted to 71,558
thousand yen for the 4th fiscal period, and there were no property taxes
capitalized for the 3rd fiscal period.

－

40

9 －

4. Method of hedge
accounting

5.

6.

(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.
(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
financial statementsof 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; Machinery and equipment in trust;Tools, furniture and fixtures 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.

－

10 －

41

4. Notes to Balance Sheet

7. Notes to Statement of Cash Flows*1. Reconciliation of cash and cash equivalents at end of period to the corresponding balance sheet items*1. Minimum net assets designated in Article 67-4 of the Investment Trust Act(Thousands of yen)(Thousands of yen)

3rd Fiscal Period

4th Fiscal Period

3rd Fiscal Period(As of April 30, 2016)(From November 1, 2015
to April 30, 2016)(As of October 31, 2016)

50,00050,0005. Notes to Statement of Income and Retained Earnings*1. Breakdown of property-related operating revenue and expenses(Thousands of yen)

3rd Fiscal Period

4th Fiscal Period(From May 1, 2016
to October 31, 2016)(From November 1, 2015
to April 30, 2016)

A. Property-related operating revenue
Rent revenue – real estate

4th Fiscal Period(From May 1, 2016
to October 31, 2016)

Cash and deposits

4,059,682

2,537,620

Cash and deposits in trust

10,037,966

7,805,438

Cash and cash equivalents

14,097,649

10,343,058

3rd Fiscal Period(As of April 30, 2016)

4th Fiscal Period(As of October 31, 2016)

Due within 1 year

6,934,353

8,162,252

Due after 1 year

43,272,692

42,398,483

50,207,045

50,560,736

8. Lease Transactions

Operating lease transactions as lessor
Future minimum lease payments(Thousands of yen)

Rental income
Other

3,467,176－

3,467,176

4,021,627
10,561Other lease business revenue
Utilities revenue
Other

－
379

Total property-related operating revenue

379

21,811
5,285

3,467,556

B. Property-related operating expenses
Expenses related to rent business
19,20021,686
24,404

Property and other taxes
Insurance expenses

250,042
5,149

277,169
6,145

Trust fees
Utilities expenses

1,550
－

Repair expenses
Depreciation

21,242560,169

Other expenses related to rent business

3,569

27,097
4,059,286

Subcontract expenses
Property management fees－

4,032,189

9. Financial Instruments
1. Status of financial instruments(1) Policy for financial instruments

2,177
16,189860,922

20,898647,991
4,409

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
such funds for the acquisition of assets, payments of repair expenses or distributions, operations of SHR,

1,021,071

Total property-related operating expenses

860,922

1,021,071

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

2,606,633

3,038,214

6. Notes to Statement of Changes in Net Assets*1. Total number of authorized investment units and total number of investment units issued
3rd Fiscal Period(From November 1, 2015
to April 30, 2016)

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

Total

4th Fiscal Period(From May 1, 2016 to
October 31, 2016)

10,000,000 units

10,000,000 units

794,000 units

894,000 units

repayment of obligations or other.
For derivative transactions, the policy is that derivative transactions shall be limited to those for the

purpose of hedging the risk of fluctuations in interest rates on liabilities and foreign currency risk in thecase of overseas 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, andthere is 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 withsuch fund procurement by diversifying fund procurement sources and means and by maintaining the ratio
of interest-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
based on rules that set forth the basic policy for handling derivative transactions and risk management.

－

42

11 －

－

12 －

43

(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(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 no market price and the difficulty of calculating the actual
deposit period from when lessees move in to when they move out.

addition, the contract amounts 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, 2016 and(Thousands of yen)
(As of October 31, 2016)

7,803,586

9,031,712(Note 3) Redemption schedule of monetary claims after the closing date

determine (please refer to (Note 2)).

3rd Fiscal Period (As of April 30, 2016)

3rd Fiscal Period (As of April 30, 2016)
Book value
recorded on thebalance sheet(1) Cash and deposits

4,059,682(2) Cash and deposits in trust
Total assets

Total liabilities

Cash and deposits

Difference

4,059,682－

10,037,966

10,037,966－

14,097,649

14,097,649

－

－

－

－

(3) Investment corporation bond(4) Long-term loans payable(Thousands of yen)

Fair value

68,100,000

70,039,383

1,939,383

68,100,000

70,039,383

1,939,383－－－(5) Derivative transactions
4th Fiscal Period (As of October 31, 2016)

Book value
recorded on thebalance sheet(1) Cash and deposits

2,537,620(2) Cash and deposits in trust(Thousands of yen)

Fair value
2,537,620－

7,805,438

7,805,438－

10,343,058－(3) Investment corporation bond

2,000,000

1,994,000(6,000)(4) Long-term loans payable

75,300,000

77,317,266

2,017,266

77,300,000

79,311,266

2,011,266－－－

Total liabilities(5) 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 thusstated at that book value.
(3) Investment corporation bond
The fair value of investment corporation bond is based on the quoted market price.
(4) Long-term loans payableAs long-term loans payable with floating interest rates reflect interest rate changes within a short period of time, the fairvalue is approximately the same as the book value and is thus stated at that book value (provided, however, that for long-termloans 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 ofprincipal and 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 amount of principal and interest is discounted by the rate assumed in the event of a similar new drawdown
corresponding to the remaining period.
(5) Derivative transactions
Please refer to “11. Derivative Transactions”.

－

13 －

(Thousands of yen)
Due after
5 years

Due in1 year or less

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years

4,059,682

－

－

－

－

－

Cash and deposits in trust

10,037,966

－

－

－

－

－

Total

14,097,649

－

－

－

－

－

Due in1 year or less

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years

Cash and deposits

2,537,620

－

－

－

－

－

Cash and deposits in trust

7,805,438

－

－

－

－

－

Total

10,343,058

－

－

－

－

－

4th Fiscal Period (As of October 31, 2016)(Thousands of yen)
Due after
5 years(Note 4) Repayment schedule of investment corporation bond and loans after the closing date

3rd Fiscal Period (As of April 30, 2016)

Difference

10,343,058

Total assets

4th Fiscal Period(As of April 30, 2016)

Tenant leasehold and security deposits in trust

October 31, 2016, and the difference between them.
The following table does not include those for which fair value is recognized to be extremely difficult to44

3rd Fiscal Period

Item

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years－

14,000,000－

14,000,000

7,000,000

Due in1 year or less

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years

－

－

－

－

－

2,000,000－

14,000,000－

14,000,000

11,050,000

36,250,000

Long-term loans payable
4th Fiscal Period (As of October 31, 2016)

Investment corporationbondLong-term loans payable(Thousands of yen)
Due after
5 years

Due in1 year or less

33,100,000(Thousands of yen)
Due after
5 years

10. Securities
3rd Fiscal Period (From November 1, 2015 to April 30, 2016)
Not applicable.
4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Not applicable.

－

14 －

45

11. Derivative Transactions
1. Derivatives to which hedge accounting is not applied
3rd Fiscal Period (As of April 30, 2016)
Not applicable.

13. Income Taxes
1. Breakdown of deferred tax assets and deferred tax liabilities by major cause(Thousands of yen)

3rd Fiscal Period

4th Fiscal Period (As of October 31, 2016)
Not applicable.

of the closing date for each method of hedge accounting.

Specialaccounting
treatment forinterest rate
swaps

Interest rate swap
transaction
Receivable floating;
Payable fixed(Thousands of yen)Contract amountMain
hedgeditem

Of which,over
1 yearFair value

Calculation
method offair value

50,350,000

50,350,000

*

10

17

10

17

10

－

(Thousands of yen)Type ofderivative transactions

Main
hedgeditem

Interest rate swap
transaction
Receivable floating;
Payable fixedLong-term
loans
payableTotal deferred tax assets

2. Breakdown of major items that caused significant differences between the statutory tax rate and theeffective income tax rate after application of tax-effect accounting

Contract amount

50,350,000

Of which,over
1 yearFair value

50,350,000*

Calculation
method offair value－* 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 of financial instruments (Note 1)”).

12. Retirement Benefits
3rd Fiscal Period (From November 1, 2015 to April 30, 2016)
Not applicable.
4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Not applicable.

(%)

3rd Fiscal Period

4th Fiscal Period(As of April 30, 2016)(As of October 31, 2016)

32.31

31.74

(32.29)(31.73)

0.03

0.03

0.05

0.04

[Adjustments]
Deductible cash distribution

4th Fiscal Period (As of October 31, 2016)

Specialaccounting
treatment forinterest rate
swaps

17

Accrued business taxes not deductible fromtaxable income

Statutory tax rateLong-term
loans
payable* 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 of financial instruments (Note 1)”).

Method ofhedge
accounting(As of October 31, 2016)

Net deferred tax assets

3rd Fiscal Period (As of April 30, 2016)

Type ofderivative transactions(As of April 30, 2016)

Deferred tax assets

2. Derivatives to which hedge accounting is applied
The following is the contract amount or the amount equivalent to the principal provided in the contract as

Method ofhedge
accounting

4th Fiscal Period

Other
Effective income tax rate
after application of tax-effect accounting
14. Profit or Loss of Affiliates Accounted for Under the Equity Method
3rd Fiscal Period (From November 1, 2015 to April 30, 2016)
Not applicable.
4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Not applicable.
15. Transactions with Related Parties

1. Parent company and major corporate unitholders.
3rd Fiscal Period (From November 1, 2015 to April 30, 2016)
Not applicable.
4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Not applicable.
2. Subsidiaries and affiliates.
3rd Fiscal Period (From November 1, 2015 to April 30, 2016)
Not applicable.
4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Not applicable.
3. Sister companies.
3rd Fiscal Period (From November 1, 2015 to April 30, 2016)
Not applicable.
4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Not applicable.

－

46

15 －

－

16 －

47

4. Directors and major individual unitholders.
3rd Fiscal Period (From November 1, 2015 to April 30, 2016)
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
held by (in) SHR

Description oftransaction－

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

Transaction
amount(Thousands ofyen)

272,995

Account
item

Accounts
payable– other

Balanceat end of period(Thousands ofyen)

Directoror close
relative

Description ofbusiness or
occupation

JunichiInoue

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

Percentage ofvoting rights
held by (in) SHR

Description oftransaction－

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

investment and rental properties.

(Thousands of yen)
(From November 1, 2015

294,835

to April 30, 2016)

Transaction
amount(Thousands ofyen)

349,309(Note 2)

Account
item

Accounts
payable– other

Balanceat end of period(Thousands ofyen)

334,080

Balance at beginning of period(From May 1, 2016
to October 31, 2016)

152,371,380

Amount of increase (decrease) during period
Balance at end of period
Fair value at end of period

151,817,116(554,263)

26,169,395

151,817,116

177,986,512

169,700,000

202,110,000(Note 1) Carrying amount is the book value less accumulated depreciation.
(Note 2) Net decrease during the 3rd fiscal period is mainly attributable to depreciation (560,169 thousand yen).
Net increase during the 4th fiscal period is mainly attributable to the acquisition of new properties (26,810,379 thousandyen), offset by depreciation (647,991 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 3rd and 4th fiscal periods for investment and rental properties ispresented in “5. Notes to Statement of Income and Retained Earnings”.

(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) The amount includes 39,975 thousand yen of asset management fees pertaining to real estate acquisitions included in thebook value of property, plant and equipment.
(Note 3) Consumption taxes are not included in the transaction amount but are included in the balance at end of period.

18. Segment Information
1. Segment information

16. Asset Retirement Obligations
3rd Fiscal Period (From November 1, 2015 to April 30, 2016)
Not applicable.

2. Related information
3rd Fiscal Period (From November 1, 2015 to April 30, 2016)(1) Information about products and services

4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Not applicable.

4th Fiscal Period

Carrying amount4th Fiscal Period (From May 1, 2016 to October 31, 2016)Name

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 these

3rd Fiscal Period(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.

Type

17. Investment and Rental Properties

Segment information is omitted because SHR operates a single segment, which is the real estate leasing
business.

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 are in excessof 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 andequipment 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

48

17 －

Name of related segment

Sekisui House, Ltd.

2,378,178

Real estate leasing businessNot disclosed (Note)

1,088,998

Real estate leasing business(Note)－

Operating revenue

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.

－

18 －

49

4th Fiscal Period (From May 1, 2016 to October 31, 2016)(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 are in excessof 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(7) Supplementary Schedules
4th Fiscal Period (From May1, 2016 to October 31, 2016)
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)equipment located in Japan is in excess of 90% of property, plant and equipment on the balance sheet.
(3) Information about major customers

Category(Thousands of yen)

Name of customer

Operating revenue

Name of related segment

2,681,511

Real estate leasing businessNot disclosed (Note)

1,088,998

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

3rd Fiscal Period(From November 1, 2015
to April 30, 2016)

market transaction

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

50,350,000

50,350,000

－

Total

50,350,000

50,350,000－(Note 1) The contract amount of interest rate swap transactions is based on the notional principal.
Accounting Standards for Financial Instruments.

4th Fiscal Period(From May 1, 2016
to October 31, 2016)

112,985 yen

114,498 yen

Net income per unit

2,477 yen

2,634 yen

3. Schedule of property, plant and equipment and intangible assets

4th Fiscal Period(From November 1, 2015
to April 30, 2016)(From May 1, 2016
to October 31, 2016)

1,966,880

2,320,706

Amount not attributable to common unitholders (Thousands of yen)－－

Net income attributable to common investment units (Thousands ofyen)

1,966,880

2,320,706

794,000

880,769

Balanceat beginningof period

Amount ofdecreaseduringperiodBalanceat end ofperiod45,895,496

7,369,593－

53,265,090

2,038,527

672,428－－

672,428

－

411

－

996

－

106,673,263

Notes

638,860

51,226,562(Note)

34,346

9,043

638,082

－

411

3

3

407

－

－

996

181

83

815

－

19,447,381－

126,120,644－－

126,120,644

16,023－16,023

－

－

－

－

－

Subtotal

153,258,208

26,817,386

16,023

180,059,571

2,073,059

647,991

177,986,512－

Intangible Other
assetsSubtotal

7,350

－

－

7,350

2,732

735

4,617

－

Buildings
in trust

3rd Fiscal Period(Thousands of yen)
Accumulated depreciation

Amount ofincreaseduringperiodNet balanceat end ofperiodType of assets(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.

Average number of investment units during period (Units)

Fair value(Note 2)

Of which,over 1 year

(Note 2) The fair value is omitted because the transaction meets the criteria for the special accounting treatment under the

Net assets per unit

Net income (Thousands of yen)

Type

Transaction other thanSekisui House, Ltd.

Contract amount (Note 1)

Structuresin trust

oraccumulated
amortization

For theperiodMachineryandequipment in
Property,plant andequipment

trust
Tools,
furniture andfixtures intrust

20. Significant Subsequent Events
Not applicable.

Land in trust(Note)

Constructionin progressin trust

Total(Note)

－

50

19 －

7,350

－

－

7,350

2,732

735

4,617

－

153,265,558

26,817,386

16,023

180,066,921

2,075,791

648,726

177,991,130－

The increase during the period is attributable to the acquisition of Garden City Shinagawa Gotenyama (additional
acquisition), HK Yodoyabashi Garden Avenue, and Hirokoji Garden Avenue.

－

20 －

51

Category

4. Schedule of other specified assets
Real estate trust beneficiary interests are included above in “3. Schedule of property, plant and equipment
and intangible assets”.

5. Schedule of investment corporation bondName

Issue date

First Series
September 8,
Unsecured Investment
2016
Corporation Bond

Balance at
Amount ofBalance
beginning ofdecrease during
at end of period
periodperiod(Millions of yen)
(Millions of yen) (Millions of yen)

Couponrate(%)

Redemption Use of
dateproceeds

0.340

September 8,(Note 1) Unsecured
2026

Total

－

－

2,000

－

－

2,000

Security

Investment Corporation Bond

－

－

－

1,000,000

900,000－－

900,000

4,200,000－－

4,200,000

800,000－－

800,000

700,000－－

700,000

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

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

3 to 4 years－

4 to 5 years－－

Resona Bank, Limited(Thousands of yen)

Average
Balanceinterest
Repayment Repayment Use ofat end ofrate
Security
due date
method proceeds
period(%)(Note 1)
Purchase Un－
May. 23, Lump-sum of assets secured
2017
0.25207
payment
andUn（Note 2） at maturity related guaran－
expenses teed

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

Amount ofincreaseduringperiodAmount ofdecreaseduringperiodThe Bank of TokyoMitsubishi UFJ, Ltd.

－

6,440,000

6,440,000

Sumitomo Mitsui Banking
Corporation－

2,760,000

2,760,000

Subtotal－

9,200,000

9,200,000－

1,500,000－－

1,500,000

Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited
Mitsubishi UFJ Trust andBanking Corporation
The Bank of TokyoMitsubishi UFJ, Ltd.

1,100,000－－

1,100,000

1,500,000－－

1,500,000

The Norinchukin Bank
Mizuho Bank, Ltd.

Long-term loans payable

1,000,000

Balanceat beginningof period

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

2,100,000

－

－

－

－

－

1,300,000 0.28286

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－－－

1,800,000－－

600,000－－

3,000,000
1,800,000

－

－

－

－

－

－

－

Nov. 30,
2017

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

800,000
1,800,000 0.65830

Mizuho Bank, Ltd.

Nov. 30,
2019

Balanceat end ofperiodAverageinterest
Repayment Repayment Use ofrate
Security
due date
method proceeds(%)(Note 1)0.65830

Nov. 30,2019

900,000 0.94060

Nov. 30,
2021
Purchaseof assets
andrelatedexpenses

700,000－－

700,000

3,700,000－－

3,700,000

700,000－－

700,000

400,000－－

400,000

1,650,000－－

The Norinchukin Bank

650,000－－

650,000

Mizuho Bank, Ltd.

950,000－－

950,000

500,000－－

500,000

1,650,000－－

850,000－－

850,000

200,000－－

200,000

550,000－－

550,000

700,000－－

700,000 0.88470

650,000－－

650,000 0.88500

350,000－－

350,000

650,000－－

650,000

350,000－－

350,000

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.

800,000－

800,000－

2,100,000

1,300,000－

52

Mitsubishi UFJ Trust andBanking Corporation

Mizuho Bank, Ltd.

Long-term loans payable

Short-termloans payable

Category

6. Schedule of loans payable

Amount ofdecreaseduringperiodThe Norinchukin Bank

2 to 3 years－

Amount ofincreaseduringperiodThe Bank of TokyoMitsubishi UFJ, Ltd.
Development Bank ofJapan Inc.

(Millions of yen)

1 to 2 years

Balanceatbeginningof period

Resona Bank, Limited(Note 1) The proceeds are used as funds for repayment of loans payable.
(Note 2) This investment corporation bond is equipped with pari passu clause among specified investment corporation bond.
(Note 3) The following is the maturity schedule of investment corporation bond within five years of the balance sheet date.
Due in1 year or lessLenderSumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited

1.47450

1,650,000 0.62760

Nov. 30,
2020

Repayment ofloans
payableNov. 30,2022
0.89470

Resona Bank, Limited

300,000－－

300,000

3,000,000

The Bank of TokyoMitsubishi UFJ, Ltd.

750,000－－

750,000 1.00850

1,800,000

Mizuho Bank, Ltd.

400,000－－

400,000 1.01850－

Unsecured
Unguaranteed

Lump-sumpayment
at maturity

1,650,000 0.61760

600,000

21 －Nov. 30,
2024

Nov. 30,
2023

22 －

53

Category

LenderAmount ofincreaseduringperiodAmount ofdecreaseduringperiod300,000－－

300,000

700,000－－

700,000

350,000－－

350,000

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

Long-term loans payable

Averageinterest
Repayment Repayment Use ofrate
Security
due date
method proceeds(%)

Balanceatbeginningof period

Balanceat end ofperiod(Note 1)500,000－－

500,000

Resona Bank, Limited

100,000－－

100,000

The Bank of TokyoMitsubishi UFJ, Ltd.

－

1,810,000－

Mizuho Bank, Ltd.

－

900,000－

900,000－

440,000－

440,000－

1,560,000－

1,560,000－

830,000－

830,000

Resona Bank, Limited－

550,000－

550,000

Development Bank ofJapan Inc.

－

370,000－

370,000

The Norinchukin Bank－

370,000－

370,000

Mitsubishi UFJ Trust andBanking Corporation
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited

Mizuho Trust & Banking
Co., Ltd.

1.01850

Nov. 30,2023

1,810,000 0.60500
Sep. 8,2026

0.67000

0.25574

Nov. 30,
2020

UnRepayme
securedLump-sumnt ofpayment
Unloans
at maturity
guaranpayable
teed－

370,000－

370,000

Subtotal

68,100,000

7,200,000－

75,300,000

－

－

－

－

－

Total

68,100,000

16,400,000

9,200,000

75,300,000

－

－

－

－

－

(Note 1) Average interest rate is the weighted average interest rate during the period. Interest rates are rounded to six 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) Early repayment was made on September 9, 2016.
(Note 3) 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
14,000,000

－

－

54

2 to 3 years

3 to 4 years－

14,000,000

4 to 5 years
11,050,000

23 －55