Ratio of net income to unitholders equity 6, % 1.0% 35.0% Ratio of distribution amount to net assets 9th Period. per unit

Transcription

1 This translation of the original Japanese Notice is provided solely for purposes. Should there be any discrepancy between this translation and the Japanese original, the latter shall prevail. REIT Financial Report for the 9th Fiscal Period July 13, 2010 Name of REIT Issuer: DA Office Investment Corporation Stock Exchange Listing: TSE Stock Code No.: 8976 URL: Representative: Yoshiki Nishigaki, Executive Director Name of Asset Manager: Daiwa Real Estate Asset Management Co., Ltd. Representative: Akira Yamanouchi, President and Representative Director Inquiries to: Yoji Ueda, Director and Head of Finance Department TEL: (03) Scheduled date of submission of periodic securities report (yuka shoken hokokusho): August 26, 2010 Scheduled date of start of distribution payments: August 6, Status of Management and Assets for the 9th Fiscal Period [Amounts are rounded down to the nearest million yen, except for per unit figures] 9th Fiscal Period: Fiscal period ended May 2010 (from December 1, 2009 to May 31, 2010) 8th Fiscal Period: Fiscal period ended November 2009 (from June 1, 2009 to November 30, 2009) (1) Management [% figures show the period-on-period increase (decrease)] Operating revenue Operating income Ordinary income Net income 9th Period 6,985 million (9.8%) 2,959 million (24.2%) 1,773 million (34.6%) 2,076 million (23.4%) 8th Period 7,744 million (5.3%) 3,903 million (8.8%) 2,710 million (9.6%) 2,709 million (14.2%) 9th Period 8th Period (2) Distributions Net income per unit Distribution amount per unit (excluding distribution amount in excess of earnings) Ratio of net income to unitholders equity Ratio of ordinary income to total assets Ratio of ordinary income to operating revenue 5, % 0.6% 25.4% 6, % 1.0% 35.0% Total distribution amount [Total distribution amounts are rounded down to the nearest million yen] Distribution Total Ratio of amount distribution Dividend distribution in excess of amount payout amount to earnings in excess of (Note) net assets per unit earnings 9th Period 5,246 2,076 million 0 million 100.0% 1.0% 8th Period 6,847 2,710 million 0 million 100.0% 1.3% (Note) Dividend payout = Total distribution amount (excluding total distribution amount in excess of earnings) Net income 100 (3) Financial Position 9th Period 8th Period Total assets Net assets Ratio of unitholders equity to total assets Net assets per unit 283,866 million 200,857 million 70.8% 507, ,901 million 201,491 million 70.2% 509,

2 (4) Cash Flows Net cash provided by (used in) operating activities Net cash provided by (used in) investing activities Net cash provided by (used in) financing activities Cash and cash equivalents at end of period 9th Period 3,193 million ( 6,578 million) ( 2,834 million) 16,003 million 8th Period 4,085 million ( 1,211 million) 9,291 million 22,222 million 2. Management Status Forecasts for the 10th Fiscal Period 10th Fiscal Period: Fiscal period ending November 2010 (from June 1, 2010 to November 30, 2010) 10th Period 10th Period [% figures show the period-on-period increase (decrease)] Operating revenue Operating income Ordinary income Net income 6,317 million (9.6%) 2,465 million (16.7%) 1,259 million (29.0%) 1,257 million (39.5%) Distribution amount per unit (excluding distribution amount in excess of earnings) (Reference) Estimated net income per unit for 10th Fiscal Period: 3, Other (1) Changes in Accounting Policies (i) Changes accompanying amendments to accounting standards, etc.: None (ii) Changes other than (i): None Distribution amount in excess of earnings per unit 3,176 0 (2) Number of Investment Units Issued and Outstanding (i) Number of investment units issued and outstanding at end of period (including own investment units): 9th Fiscal Period: 395,798 units 8th Fiscal Period: 395,798 units (ii) Number of own investment units at end of period: 9th Fiscal Period: units 8th Fiscal Period: units (Note) Please refer to Notes on Per Unit Information on page 25 for the number of investment units used as the basis for calculating the net income per unit. *Explanation on the Appropriate Use of the Management Status Forecasts, and Other Matters of Special Note The forecast figures set forth herein are the current prospects based on currently available to the Investment Corporation and contain elements of uncertainty. Accordingly, the actual operating revenue, operating income, ordinary income, net income and distribution amount per unit may vary due to changes in the status. Moreover, the forecasts set forth herein should not be construed as a guarantee of distribution amounts. For details on the assumptions underlying the forecast figures above, please refer to 2. Management Policy and Management Status; 2.2. Management Status; Assumptions for the Management Status Forecasts for the 10th Fiscal Period and 11th Fiscal Period on page

3 1. Affiliated Juridical Persons of the Investment Corporation Please refer to page 47 later in this document. 2. Management Policy and Management Status 2.1. Management Policy Disclosure is omitted because there are no significant changes from the Investment Policy, Investment Target and Distribution Policy set out in the most recent periodic securities report (yuka shoken hokokusho) (submitted on February 22, 2010) Management Status Overview of the Fiscal Period under Review Brief History of the Investment Corporation DA Office Investment Corporation (the Investment Corporation ) was established on July 11, 2005 in accordance with the Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951; including amendments thereto) (the Investment Trust Act ) with K.K. davinci Select (now, Daiwa Real Estate Asset Management Co., Ltd.) (the Asset Manager ) as the organizer. After its establishment, the Investment Corporation implemented an additional issuance of investment units through a public offering (99,600 units) on October 18, 2005 and then listed on the Tokyo Stock Exchange, Inc. (TSE) Real Estate Investment Trust Section (stock code: 8976) on the following day. Subsequent activities, such as additional acquisition of properties and replacement of portfolio properties, resulted in the assets under management amounting to 269,195 million yen (sum total of acquisition prices) as of the last day of May The Investment Corporation strives to secure stable revenue and maximize returns for unitholders based on a clear portfolio development policy of specializing in investment in office buildings, with a particular focus on investment in A Class buildings (refers to buildings with a total floor area of 30,000m 2 or more) and B Class buildings (refers to buildings with a total floor area of 2,000m 2 or more, but less than 30,000m 2 ) situated in downtown Tokyo, as well as through dedicated efforts to heighten tenant satisfaction levels Investment Environment and Management Performance (a) Investment Environment In the fiscal period under review (9th Fiscal Period: fiscal period ended May 2010 (from December 1, 2009 to May 31, 2010)), the Japanese economy is on the road to steady recovery. This was evident, for example, by the increase in exports and turnaround in corporate earnings backed by such factors as the economic growth of China and other developing countries, and pick-up in personal consumption thanks to economic packages. On the other hand, employment-related indicators remain harsh and, although moderate, in a state of deflation. In addition, overseas economies, centering on Europe, faced downward risks. These, among other factors, left the economy in a state in which future economic uncertainty failed to be fully eliminated. In spite of the described prolonged severe economic environment, the office leasing market is marking a break in the upward trend of vacancy rates and is on the road to, although moderate, recovery. This was evident, for example, by the downward trend in corporate downsizing efforts to consolidate or relocate offices and there being corporate moves to expand floor area or newly occupy space. In addition, signs of recovery in vacancy rates suggest the fall in newly advertised rent levels, too, are also ceasing. Meanwhile, rent levels at which tenants renew their lease agreements are on a downward trend due to disparities between newly advertised rent and current rent. In the office transaction market, while transaction volume was on a weak note at the beginning of the 9th Fiscal Period, there were several cases of REITs acquiring properties in correlation with capital increases or issuances of investment corporation bonds as well as private funds and real estate companies acquiring large properties starting from around March Consequently, transaction volume and transaction amount were on the road to recovery. This is thought to be primarily attributable to improvements in the financing environment, as indicated by initiatives to sell properties that have little disparity between newly advertised rent and current rent levels and thus regarded as being relatively easy to contract being implemented by sellers in light of corporate financial performance and fund redemption deadlines, and the Diffusion Index of Lending Attitude of Financial Institutions (large enterprises in the - 3 -

4 real estate industry) in the Bank of Japan s Short-Term Economic Survey of Enterprises in Japan improving from 26 as at June 2009 to 11 as at June (b) Management Performance In view of increasing the long-term EPS (EPS after deducting gain on sales of properties (net income per unit)) over the medium and long term, the Investment Corporation worked on external growth, which aims to boost revenue through acquiring and selling properties, and internal growth, which aims to maximize income generating from existing properties. Notably, recognizing that the environment is one in which internal growth is difficult and thus external growth is imperative to restore the long-term EPS level, the Investment Corporation proactively engaged in property acquisition activities and purchased ORIX Jimbo-cho Building (acquisition price: 4.15 billion yen). As a result, the Investment Corporation s assets under management as of the end of the 9th Fiscal Period (May 31, 2010) totaled 31 properties, the sum total of acquisition prices of which amounted to 269,195 million yen. Moreover, this results in investments in the five central wards of Tokyo, which the Investment Corporation positions as a top priority investment area, accounting for 91.1% of the entire portfolio (based on acquisition price). Concerning internal growth, on the other hand, occupancy rate at the end of the 9th Fiscal Period reflected the severe office leasing market conditions with a drop to 85.7%. In order to avoid further worsening of occupancy rates, the Investment Corporation proactively engaged in leasing, such as continuing to pursue heightened tenant satisfaction levels and strengthening collaboration with leasing brokers and property managers. As a result, the Investment Corporation has paved the way for achieving a recovery in occupancy rates in the next fiscal period (10th Fiscal Period: fiscal period ending November 2010 (from June 1, 2010 to November 30, 2010)) to a certain degree Overview of Capital Procurement On February 26, 2010, the Investment Corporation borrowed 5,500 million yen in total from Aozora Bank, Ltd., The Kagawa Bank, Ltd. and The Shizuoka Bank, Ltd. to fund the repayment of a loan borrowed from Aozora Bank, Ltd. with its principal repayment due on said date (5,500 million yen). In addition, a contractual repayment of 37.5 million yen was made to Development Bank of Japan Inc. on the same date. Moreover, on May 31, 2010, contractual repayments of million yen in total were made to Sumitomo Mitsui Banking Corporation, The Sumitomo Trust and Banking Co., Ltd., Development Bank of Japan Inc., The Chuo Mitsui Trust and Banking Company, Limited, Taiyo Life Insurance Company and The Gunma Bank, Ltd. As a result, the balance of interest-bearing liabilities outstanding as at the end of the 9th Fiscal Period stood at 72, million yen (long-term loans payable: 68, million yen; subordinated investment corporation bonds: 3,500 million yen). Furthermore, of long-term loans payable, the balance of the current portion of interest-bearing liabilities outstanding stood at 2, million yen (including million yen in contractual repayments). In addition, for the purpose of hedging the risks of rises in interest rates, of the loans with floating interest rates, the interest rate has been capped for the 7,100 million yen loan whose principal repayment is due on February 20, Overview of Financial Performance and Distributions As a result of the management described above, the Investment Corporation posted financial performance for the 9th Fiscal Period of 6,985 million yen in operating revenue, 2,959 million yen in operating income, 1,773 million yen in ordinary income and 2,076 million yen in net income. Concerning distributions, to ensure that the amount equivalent to distributions from earnings would be included in the amount of tax-deductible expenses based on application of special provisions for taxation of corporation tax (Article of the Act on Special Measures Concerning Taxation (Act No. 26 of 1957; including amendments thereto) (the Special Taxation Measures Act )), the Investment Corporation decided to distribute the entire amount of unappropriated retained earnings, excluding fractions of the distribution amount per unit that are less than 1 yen. Accordingly, the Investment Corporation declared a distribution amount per unit of 5,246 yen

5 Outlook for the Next Fiscal Period Investment Environment The Japanese economy ahead is expected to continue to be on the road to recovery, backed by the economic growth of developing countries and impact of economic packages. On the other hand, with concerns of worsening employment situation and deteriorating overseas economies, centering on Europe, the stock market slump and increasing appreciation of the yen, among other factors, there are also corresponding risks of downward pressures on the economy. Under such prospects, the office leasing market is expected to see an increase in leasing demand and improvement in market conditions, backed by the recovery in the Japanese economy. Meanwhile, with construction of several new buildings scheduled to be completed in the next few years, there will be a need to pay heed to concerns of oversupply and other downward pressures. In the office transaction market, amid improvements in the financing environment, the gap between the target price of sellers and buyers is expected to narrow and thereby boost transaction volume. Meanwhile, the stock market slump and corporate bond market modulation could possibly cause the financing environment to deteriorate Future Management Policy and Tasks (a) Strategy for Managing Existing Properties Under such office leasing market conditions, the tenant side is also expected to become more selective with properties. Consequently, the Investment Corporation will carry out operational management under the following policy in an aim to enhance the competitiveness of existing properties and thereby increase the long-term EPS over the medium and long term. (i) Achieve recovery in occupancy rates Strive to achieve recovery in occupancy rates through the provision of office environments of high tenant satisfaction levels by maintaining the quality of buildings and equipment and proactively implementing renovations, etc. of common-use areas and thereby lowering vacancy risks. (ii) Maintain and raise profitability Aim to secure stable revenue over the medium and long term through further strengthening of good relationships with existing tenants, as well as proactively tapping the needs of new tenants by discerning the market environment. (iii) Lower operational management costs Strive to lower operational management costs based on maintaining office environments of high tenant satisfaction levels through implementing efficient operational management and reviewing systematic construction work by optimally leveraging the economies of scale achieved from proactively realizing external growth. (b) Strategy for New Property Investments In light of the real estate transaction market conditions described above, the Investment Corporation will concentrate its investment in Tokyo, with a particular focus on A Class and B Class buildings in the five central wards of Tokyo, by maintaining a balance with the financing situation and based on various external growth strategies. As pipeline support, in addition to expanding its own -sourcing channels, the Investment Corporation will search for properties that meet its investment criteria by proactively gathering real estate transaction market through greater collaboration with the Asset Manager and Sponsor Group and utilizing the Group s extensive network of clients, partners, etc. During the 9th Fiscal Period, the Investment Corporation acquired ORIX Jimbo-cho Building, which is situated in the five central wards of Tokyo. The Investment Corporation believes acquisition of this property will contribute to further stabilization and enhancement of the portfolio, and it will continue to strive to acquire properties that are in line with the investment strategy hereafter. (c) Financial Strategy The Investment Corporation will conduct disciplined financial management based on a medium-term financial strategy of the following basic content. (i) Keep leverage down at a ratio of interest-bearing liabilities levels within the range of 40% to 50% at maximum

6 (ii) Diversify repayment deadlines, targeting 20.0 billion yen as the maximum amount of interest-bearing liabilities that shall become due during any single fiscal period. (iii) Aim to have long-term loans account for at least 60% to 70% of total loans. (iv) Achieve diversification of lenders, which shall mainly be Japanese financial institutions. (v) Pursuant to its fund management rules, maintain stability in its financial standing by managing necessary funds, such as the amount equivalent to distributions paid, separately from working capital. While the Investment Corporation will continue to conduct disciplined financial management based on the medium-term financial strategy, the ratio of interest-bearing liabilities will be kept down at a conservative level of around 35% at maximum in the 10th Fiscal Period. The Investment Corporation will also continue to diversify lenders, which shall mainly be Japanese financial institutions Material Subsequent Events (a) Decision on Acquisition of Asset The Investment Corporation decided on June 14, 2010 to acquire a trust beneficial interest in real estate as follows. Summary of Asset to Be Acquired (1) Type of asset Trust beneficial interest in real estate (2) Property name Kyodo Building (Kudan Ichigo-kan) (3) Location Kudan Minami, Chiyoda-ku, Tokyo (4) Acquisition price 4.0 billion yen (excluding acquisition costs, consumption tax, etc.) (5) Date of execution of agreement June 14, 2010 (6) Date of delivery (scheduled) September 13, 2010 or any other date to be separately agreed upon by the Seller and the Investment Corporation (7) Seller Shining Nova the Fifth B TMK (b) Issuance of Investment Corporation Bonds Based on a comprehensive resolution on issuance of investment corporation bonds adopted at a meeting of its board of directors held on May 17, 2010, the Investment Corporation issued investment corporation bonds on June 24, 2010 as described below to fund future acquisition of specified assets, payment of repairs, etc., repayment of loans and expenditure of working capital. Overview of the Investment Corporation Bonds (1) Name of the bonds DA Office Investment Corporation Second Series of Unsecured Investment Corporation Bonds (ranking pari passu with specified investment corporation bonds) (2) Total issue amount 5.0 billion yen (3) Issue price 100 yen per 100 yen of the bonds (4) Redemption value 100 yen per 100 yen of the bonds (5) Interest rate 1.87% per annum (6) Collateral, etc. The bonds will be issued on an unsecured, unguaranteed basis and without withholding any specific assets. (7) Redemption method The total amount of the bonds will be redeemed on June 24, and redemption date (Note) The bonds may be repurchased and cancelled at the option of the Investment Corporation at any time from the next day of the payment date, unless otherwise provided for by the book-entry transfer agent. (8) Interest payment dates June 24 and December 24 of each year Outlook for Management Status The Investment Corporation forecasts the following management status for the 10th Fiscal Period (fiscal period ending November 2010 (from June 1, 2010 to November 30, 2010). For the assumptions underlying the management status forecasts, please refer to the Assumptions for the Management Status Forecasts for the 10th Fiscal Period and 11th Fiscal Period on page

7 Operating revenue Ordinary income Net income Distribution amount per unit Distribution amount in excess of earnings per unit 6,317 million yen 1,259 million yen 1,257 million yen 3,176 yen 0 yen In addition, on the basis that the Assumptions for the Management Status Forecasts for the 10th Fiscal Period and 11th Fiscal Period will remain unchanged, the Investment Corporation forecasts the following management status for the 11th Fiscal Period (fiscal period ending May 2011 (from December 1, 2010 to May 31, 2011)). Operating revenue Ordinary income Net income Distribution amount per unit Distribution amount in excess of earnings per unit 6,320 million yen 1,260 million yen 1,258 million yen 3,180 yen 0 yen (Note) The forecast figures above are the current forecasts calculated based on certain assumptions. Accordingly, the actual operating revenue, operating income, ordinary income, net income, distribution amount per unit and distribution amount in excess of earnings per unit may vary due to changes in the status. Moreover, the forecasts set forth herein should not be construed as a guarantee of distribution amounts

8 Assumptions for the Management Status Forecasts for the 10th Fiscal Period and 11th Fiscal Period Item Assumptions 10th Fiscal Period: Fiscal period ending November 2010 (from June 1, 2010 to November 30, 2010) Fiscal periods 11th Fiscal Period: Fiscal period ending May 2011 (from December 1, 2010 to May 31, 2011) 10th Fiscal Period: Assets under management are assumed to be the 31 properties held as of May 31, 2010 plus the 1 property scheduled for delivery on September 13, 2010 to total 32 properties. Assets under 11th Fiscal Period: management Assets under management are assumed to be the abovementioned 32 properties. It is assumed that there are no changes in the assets under management (new property acquisitions, sale of portfolio properties, etc.) through to the end of the 11th Fiscal Period. The actual number of properties may vary due to changes in the assets under management. Operating revenue Operating expenses Non-operating expenses Interest-bearing liabilities Rent revenue (rent revenue real estate) from existing properties is calculated based on historical data and taking into account variable factors. It is assumed that there is no gain (loss) on sales of real estate properties. Expenses related to rent business, which constitute a major component of operating expenses, are calculated based on historical data and taking into account variable factors. Repair expenses for buildings are recorded as expenses in the amount expected to be necessary in the respective fiscal period based on the medium- and long-term repair plan established by the Asset Manager. Operating income from property leasing (excluding gain on sales of real estate properties) after deducting expenses related to rent business (including depreciation) is expected to be 3,229 million yen in the 10th Fiscal Period and 3,276 million yen in the 11th Fiscal Period. Consignment expenses are expected to be 509 million yen in the 10th Fiscal Period and 452 million yen in the 11th Fiscal Period. Taxes and dues (fixed property tax, city planning tax, etc.) are expected to be 561 million yen in the 10th Fiscal Period and 596 million yen in the 11th Fiscal Period. Depreciation is expected to be 1,232 million yen in the 10th Fiscal Period and 1,258 million yen in the 11th Fiscal Period. Non-operating expenses in the 10th Fiscal Period are expected to be 1,206 million yen, of which the interest expenses and borrowing related expenses are expected to be 1,196 million yen. Non-operating expenses in the 11th Fiscal Period are expected to be 1,244 million yen, of which the interest expenses and borrowing related expenses are expected to be 1,234 million yen. The total amount of interest-bearing liabilities is assumed to be 77, million yen at the end of the 10th Fiscal Period and 77,150 million yen at the end of the 11th Fiscal Period. The total amount of interest-bearing liabilities in the 10th Fiscal Period is based on the assumption that funds in the amount of 5,000 million yen will be procured through issuance of its Second Series of Unsecured Investment Corporation Bonds (payment on June 24, 2010). The total amount of interest-bearing liabilities in the 10th Fiscal Period is also based on the assumption that the million yen that is to become due for contractual repayment (41.25 million yen due by August 31, 2010; 7.5 million yen due by September 17, 2010; million yen due by November 30, 2010) will be repaid using cash reserves. The total amount of interest-bearing liabilities in the 11th Fiscal Period is based on the assumption that, of the 2,000 million yen that is to become due for repayment, 2,000 million yen (due by March 18, 2011) will be refinanced in the entire amount. The total amount of interest-bearing liabilities in the 11th Fiscal Period is also based on the assumption that the million yen that is to become due for contractual repayment (41.25 million yen due by February 28, 2011; million yen due by May 31, 2011) will be repaid using cash reserves

9 Item Number of investment units issued and outstanding Distribution amount per unit Distribution amount in excess of earnings per unit Other Assumptions The number of investment units issued and outstanding is assumed to be the 395,798 units issued and outstanding as of the date of submission of this document, and there is assumed to be no additional issuance of investment units through to May 31, The distribution amount per unit is calculated based on the cash distribution policy as set out in the articles of incorporation of the Investment Corporation. The distribution amount per unit may vary depending on a variety of factors, such as changes in the assets under management, changes in the rent revenue (rent revenue real estate) due to tenant changes and other causes, and incurrence of unforeseen repairs. At present, there is no plan to make any distribution in excess of earnings (distribution amount in excess of earnings per unit). It is assumed that there are no changes to laws and ordinances, the tax system, accounting standards, listing regulations, the rules of The Investment Trusts Association, Japan, etc. that will affect the abovementioned forecast figures. It is assumed that there will be no major unforeseen changes in general economic trends, real estate market conditions, etc Investment Risks Disclosure is omitted because there are no significant changes from the Investment Risks set out in the periodic securities report (yuka shoken hokokusho) submitted on February 22,

10 3. Financial Statements 3.1. Balance Sheets (Unit: thousand yen) 8th Fiscal Period 9th Fiscal Period [As of November 30, 2009] [As of May 31, 2010] Assets Current assets Cash and deposits 15,467,439 11,290,130 Cash and deposits in trust 6,754,925 4,713,508 Operating accounts receivable 193, ,101 Consumption taxes receivable 32,529 Prepaid expenses 808, ,103 Deferred tax assets Other 246, ,103 Total current assets 23,471,813 17,178,499 Noncurrent assets Property, plant and equipment Tools, furniture and fixtures 1,875 1,875 Accumulated depreciation (1,407) (1,576) Tools, furniture and fixtures, net Other 3,456 3,456 Accumulated depreciation (3,456) (3,456) Other, net Buildings in trust 53,846,910 55,023,264 Accumulated depreciation (6,950,081) (8,094,959) Buildings in trust, net 46,896,828 46,928,304 Structures in trust 748, ,065 Accumulated depreciation (49,886) (59,692) Structures in trust, net 698, ,373 Machinery and equipment in trust 431, ,855 Accumulated depreciation (166,131) (193,111) Machinery and equipment in trust, net 265, ,744 Tools, furniture and fixtures in trust 39,752 41,688 Accumulated depreciation (9,920) (13,076) Tools, furniture and fixtures in trust, net 29,831 28,612 Other in trust 6,302 6,302 Accumulated depreciation (6,302) (6,302) Other in trust, net Land in trust 209,399, ,726,823 Construction in progress in trust 5,102 11,190 Total property, plant and equipment 257,295, ,901,349 Intangible assets Right of trademark 1,651 1,517 Leasehold rights in trust 4,970,290 4,970,290 Other 2, Total intangible assets 4,974,304 4,972,807 Investments and other assets Lease and guarantee deposits in trust 113, ,684 Long-term prepaid expenses 993, ,267 Other 24,728 21,427 Total investments and other assets 1,132, ,379 Total noncurrent assets 263,401, ,663,536 Deferred assets Investment corporation bond issuance costs 27,606 24,738 Total deferred assets 27,606 24,738 Total assets 286,901, ,866,

11 (Unit: thousand yen) 8th Fiscal Period 9th Fiscal Period [As of November 30, 2009] [As of May 31, 2010] Liabilities Current liabilities Operating accounts payable 699, ,812 Current portion of long-term loans payable 5,751,250 2,258,750 Accounts payable other 280, ,094 Income taxes payable Accrued consumption taxes 114,112 40,750 Advances received 706, ,719 Other 102, ,078 Total current liabilities 7,656,266 3,882,869 Noncurrent liabilities Investment corporation bond 3,500,000 3,500,000 Long-term loans payable 63,279,375 66,650,000 Tenant leasehold and security deposits 5,038,392 4,892,275 Tenant leasehold and security deposits in trust 5,924,911 4,075,204 Other 11,419 8,980 Total noncurrent liabilities 77,754,098 79,126,460 Total liabilities 85,410,365 83,009,329 Net Assets Unitholders equity Unitholders capital 198,780, ,780,951 Surplus Unappropriated retained earnings (undisposed loss) 2,710,053 2,076,493 Total surplus 2,710,053 2,076,493 Total unitholders equity 201,491, ,857,444 Total net assets *2 201,491,004 *2 200,857,444 Total liabilities and net assets 286,901, ,866,

12 3.2. Statements of Income 8th Fiscal Period [From: June 1, 2009 To: November 30, 2009] (Unit: thousand yen) 9th Fiscal Period [From: December 1, 2009 To: May 31, 2010 ] Operating revenue Rent revenue real estate 7,651,615 6,610,024 Other lease business revenue 92, ,937 Total operating revenue 7,744,480 6,985,961 Operating expenses Expenses related to rent business 3,009,749 3,248,661 Asset management fees 613, ,092 Asset custody fees 14,235 14,251 Administrative service fees 82,248 84,370 Trust fees 25,464 25,567 Directors compensation 4,200 4,200 Other operating expenses 91,749 89,491 Total operating expenses 3,841,441 4,026,635 Operating income 3,903,039 2,959,325 Non-operating income Interest income 2,215 4,791 Reversal of distribution payable 3,226 1,981 Miscellaneous income 4, Total non-operating income 9,536 6,855 Non-operating expenses Interest expenses 741, ,933 Investment unit issuance expenses 27,593 Borrowing expenses 429, ,565 Other 3,181 2,867 Total non-operating expenses 1,201,648 1,192,366 Ordinary income 2,710,927 1,773,814 Extraordinary income Settlements received 45,844 Gain on donation of noncurrent assets 257,880 Total extraordinary income 303,724 Income before income taxes 2,710,927 2,077,538 Income taxes current 955 1,075 Income taxes deferred 2 (5) Total income taxes 957 1,069 Net income 2,709,969 2,076,468 Retained earnings brought forward Unappropriated retained earnings (undisposed loss) 2,710,053 2,076,

13 3.3. Statements of Unitholders Equity Unitholders equity Unitholders capital 8th Fiscal Period [From: June 1, 2009 To: November 30, 2009] (Unit: thousand yen) 9th Fiscal Period [From: December 1, 2009 To: May 31, 2010 ] Balance at end of previous period 188,780, ,780,951 Changes of items during period Issuance of new investment units 10,000,040 Total changes of items during period 10,000,040 Balance at end of current period 198,780, ,780,951 Surplus Unappropriated retained earnings (undisposed loss) Balance at end of previous period 3,156,788 2,710,053 Changes of items during period Dividends from surplus (3,156,703) (2,710,028) Net income 2,709,969 2,076,468 Total changes of items during period (446,734) (633,560) Balance at end of current period 2,710,053 2,076,493 Total surplus Balance at end of previous period 3,156,788 2,710,053 Changes of items during period Dividends from surplus (3,156,703) (2,710,028) Net income 2,709,969 2,076,468 Total changes of items during period (446,734) (633,560) Balance at end of current period 2,710,053 2,076,493 Total unitholders equity Balance at end of previous period 191,937, ,491,004 Changes of items during period Issuance of new investment units 10,000,040 Dividends from surplus (3,156,703) (2,710,028) Net income 2,709,969 2,076,468 Total changes of items during period 9,553,305 (633,560) Balance at end of current period 201,491, ,857,444 Total net assets Balance at end of previous period 191,937, ,491,004 Changes of items during period Issuance of new investment units 10,000,040 Dividends from surplus (3,156,703) (2,710,028) Net income 2,709,969 2,076,468 Total changes of items during period 9,553,305 (633,560) Balance at end of current period 201,491, ,857,

14 3.4. Statements of Cash Distributions 8th Fiscal Period 9th Fiscal Period Item [From: June 1, 2009 [From: December 1, 2009 To: November 30, 2009] To: May 31, 2010 ] Amount (yen) Amount (yen) I. Unappropriated retained earnings 2,710,053,589 2,076,493,484 II. Distribution amount 2,710,028,906 2,076,356,308 [Distribution amount per unit] [6,847] [5,246] III. Retained earnings carried forward 24, ,176 Method for calculating distribution amount Pursuant to the policy that the Investment Corporation shall distribute an amount in excess of the amount equivalent to 90% of its distributable earnings as defined in Article of the Act on Special Measures Concerning Taxation but no more than the amount of earnings as specified in Article 32, Item 1 of the Investment Corporation s articles of incorporation, the Investment Corporation decided the distributions from earnings that it shall pay out shall be the maximum value of the integral multiple of the number of units issued and outstanding (395,798 units) in an amount that is not in excess of unappropriated retained earnings. Accordingly, the Investment Corporation declared a distribution amount of 2,710,028,906 yen. Furthermore, the Investment Corporation shall not distribute cash in excess of earnings as stipulated in Article 32, Item 2 of its articles of incorporation. Pursuant to the policy that the Investment Corporation shall distribute an amount in excess of the amount equivalent to 90% of its distributable earnings as defined in Article of the Act on Special Measures Concerning Taxation but no more than the amount of earnings as specified in Article 32, Item 1 of the Investment Corporation s articles of incorporation, the Investment Corporation decided the distributions from earnings that it shall pay out shall be the maximum value of the integral multiple of the number of units issued and outstanding (395,798 units) in an amount that is not in excess of unappropriated retained earnings. Accordingly, the Investment Corporation declared a distribution amount of 2,076,356,308 yen. Furthermore, the Investment Corporation shall not distribute cash in excess of earnings as stipulated in Article 32, Item 2 of its articles of incorporation

15 3.5. Statements of Cash Flows 8th Fiscal Period [From: June 1, 2009 To: November 30, 2009] (Unit: thousand yen) 9th Fiscal Period [From: December 1, 2009 To: May 31, 2010 ] Net cash provided by (used in) operating activities Income before income taxes 2,710,927 2,077,538 Depreciation and amortization 1,182,187 1,184,842 Investment unit issuance expenses 27,593 Amortization of investment corporation bond issuance costs 1,181 2,867 Interest income (2,215) (4,791) Interest expenses 741, ,933 Decrease (increase) in operating accounts receivable (32,453) 51,870 Decrease (increase) in accounts receivable other 658 Decrease (increase) in consumption taxes refund receivable 162,295 (32,529) Decrease (increase) in prepaid expenses (72,120) 42,859 Increase (decrease) in operating accounts payable 113,071 (139,198) Increase (decrease) in accounts payable other (3,898) (11,832) Increase (decrease) in accrued consumption taxes 67,639 (73,361) Increase (decrease) in advances received (59,789) (54,095) Decrease (increase) in long-term prepaid expenses 129, ,564 Increase (decrease) in long-term advances received (2,452) (2,439) Other, net (149,712) (215,847) Subtotal 4,814,509 3,934,380 Interest income received 2,215 4,791 Interest expenses paid (729,997) (743,714) Income taxes paid (820) (1,510) Net cash provided by (used in) operating activities 4,085,906 3,193,946 Net cash provided by (used in) investing activities Purchase of property, plant and equipment in trust (636,594) (4,582,663) Proceeds from tenant leasehold and security deposits 431, ,592 Proceeds from tenant leasehold and security deposits in trust 213, ,059 Repayments of tenant leasehold and security deposits (791,689) (694,747) Repayments of tenant leasehold and security deposits in trust (427,702) (1,972,728) Net cash provided by (used in) investing activities (1,211,516) (6,578,487) Net cash provided by (used in) financing activities Proceeds from long-term loans payable 17,900,000 5,500,000 Repayment of long-term loans payable (18,891,875) (5,621,875) Proceeds from issuance of investment units 10,000,040 Proceeds from issuance of investment corporation bonds 3,500,000 Redemption of investment corporation bonds (28,788) Payments for investment unit issuance expenses (27,593) Dividends paid (3,160,208) (2,712,310) Net cash provided by (used in) financing activities 9,291,575 (2,834,185) Net increase (decrease) in cash and cash equivalents 12,165,965 (6,218,725) Cash and cash equivalents at beginning of period 10,056,399 22,222,364 Cash and cash equivalents at end of period 22,222,364 16,003,

16 3.6. Notes on the Going Concern Assumption 8th Fiscal Period [From: June 1, 2009 To: November 30, 2009] Not applicable. 9th Fiscal Period [From: December 1, 2009 To: May 31, 2010 ] Not applicable Significant Accounting Policies 8th Fiscal Period 9th Fiscal Period Item [From: June 1, 2009 [From: December 1, 2009 To: November 30, 2009] To: May 31, 2010 ] 1. Accumulated (1) Property, plant and equipment (1) Property, plant and equipment depreciation method The straight-line method is adopted. The straight-line method is adopted. for noncurrent assets The useful life of primary property, plant and equipment are as follows: The useful life of primary property, plant and equipment are as follows: Tools, furniture and fixtures 5 years Buildings in trust 2~50 years Structures in trust 2~50 years Machinery and equipment in trust 2~22 years Tools, furniture and fixtures in trust 6~10 years Tools, furniture and fixtures 5 years Buildings in trust 2~49 years Structures in trust 4~50 years Machinery and equipment in trust 2~22 years Tools, furniture and fixtures in trust 3~18 years 2. Accounting for deferred assets 3. Standards for recording revenues and expenses (2) Intangible assets (2) Intangible assets The straight-line method is adopted. The straight-line method is adopted. (3) Long-term prepaid expenses (3) Long-term prepaid expenses The straight-line method is adopted. The straight-line method is adopted. (1) Investment unit issuance expenses (1) Investment unit issuance expenses Entire amount is expensed as incurred. (2) Investment corporation bond issuance (2) Investment corporation bond issuance costs costs Amortized using the straight-line method Amortized using the straight-line method over the period up to redemption. over the period up to redemption. Accounting for fixed property tax, etc. Accounting for fixed property tax, etc. Concerning fixed property tax, city Concerning fixed property tax, city planning tax, depreciated asset tax, etc. planning tax, depreciated asset tax, etc. for owned real estate in trust, of the tax for owned real estate in trust, of the tax amount that has been broken down into amount that has been broken down into installments, the method of accounting installments, the method of accounting for the amount corresponding to the for the amount corresponding to the concerned fiscal period as expenses concerned fiscal period as expenses related to rent business is adopted. related to rent business is adopted. Concerning the amount equivalent to fixed property tax, etc. for the initial fiscal year that shall be borne by the Investment Corporation in correlation with acquisitions of real estate or trust beneficial interest that have real estate as assets in trust, the amount is not expensed but is rather included in the cost of acquisition of the concerned real estate property. The amount equivalent to fixed property tax, etc. that was included in the cost of acquisition of real estate properties in the fiscal period under review is nil. Concerning the amount equivalent to fixed property tax, etc. for the initial fiscal year that shall be borne by the Investment Corporation in correlation with acquisitions of real estate or trust beneficial interest that have real estate as assets in trust, the amount is not expensed but is rather included in the cost of acquisition of the concerned real estate property. The amount equivalent to fixed property tax, etc. that was included in the cost of acquisition of real estate properties in the fiscal period under review is 18,648 thousand yen

17 8th Fiscal Period 9th Fiscal Period Item [From: June 1, 2009 [From: December 1, 2009 To: November 30, 2009] To: May 31, 2010 ] 4. Hedge accounting (1) Hedge accounting approach (1) Hedge accounting approach approaches Special accounting is adopted for interest rate caps that meet the requirements for special accounting. Special accounting is adopted for interest rate caps that meet the requirements for special accounting. (2) Hedging instruments and hedged items (2) Hedging instruments and hedged items Hedging instruments: Hedging instruments: Interest rate cap transactions Interest rate cap transactions Hedged items: Hedged items: Interest on loans Interest on loans 5. Scope of funds in the statements of cash flows (3) Hedging policy (3) Hedging policy The Investment Corporation conducts derivative transactions to hedge risks stipulated in the Investment Corporation s articles of incorporation in accordance with the Investment Corporation s risk management policy. The Investment Corporation conducts derivative transactions to hedge risks stipulated in the Investment Corporation s articles of incorporation in accordance with the Investment Corporation s risk management policy. (4) Method for assessing the effectiveness of (4) Method for assessing the effectiveness of hedging hedging Assessment of the effectiveness is Assessment of the effectiveness is omitted because interest rate caps meet omitted because interest rate caps meet the requirements for special accounting. the requirements for special accounting. The funds (cash and cash equivalents) in the statements of cash flows consist of cash on hand and cash in trust; deposits that can be withdrawn at any time and deposits in trust; and short-term investments with a maturity of 3 months or less from the date of acquisition, which are readily convertible to cash and bear only an insignificant risk of price fluctuation. The funds (cash and cash equivalents) in the statements of cash flows consist of cash on hand and cash in trust; deposits that can be withdrawn at any time and deposits in trust; and short-term investments with a maturity of 3 months or less from the date of acquisition, which are readily convertible to cash and bear only an insignificant risk of price fluctuation

18 8th Fiscal Period Item [From: June 1, 2009 To: November 30, 2009] (1) Accounting method for trust beneficial interest that have real estate properties as assets in trust 6. Other significant matters forming basis for preparation of financial statements Concerning owned trust beneficial interest that have real estate properties as assets in trust, all accounts of assets and liabilities within assets in trust as well as all accounts of revenues and expenses incurred from the assets in trust are recorded in the relevant account item of the balance sheets and statements of income. The following material items of the assets in trust recorded in the relevant account item are separately listed on the balance sheets. (i) Cash and deposits in trust (ii) Buildings in trust; structures in trust; machinery and equipment in trust; tools, furniture and fixtures in trust; other tangible assets in trust; land in trust; and construction in progress in trust (iii) Leasehold rights in trust (iv) Lease and guarantee deposits in trust (v) Tenant leasehold and security deposits in trust 9th Fiscal Period [From: December 1, 2009 To: May 31, 2010 ] (1) Accounting method for trust beneficial interest that have real estate properties as assets in trust Concerning owned trust beneficial interest that have real estate properties as assets in trust, all accounts of assets and liabilities within assets in trust as well as all accounts of revenues and expenses incurred from the assets in trust are recorded in the relevant account item of the balance sheets and statements of income. The following material items of the assets in trust recorded in the relevant account item are separately listed on the balance sheets. (i) Cash and deposits in trust (ii) Buildings in trust; structures in trust; machinery and equipment in trust; tools, furniture and fixtures in trust; other in trust; land in trust; and construction in progress in trust (iii) Leasehold rights in trust (iv) Lease and guarantee deposits in trust (v) Tenant leasehold and security deposits in trust (2) Accounting for consumption taxes (2) Accounting for consumption taxes Consumption tax and local consumption Consumption tax and local consumption tax are accounted for by the taxexclusion method and consumption taxes exclusion method and consumption taxes tax are accounted for by the tax- that are not tax-deductible are expensed that are not tax-deductible are expensed in the fiscal period under review. in the fiscal period under review. The consumption taxes relating to noncurrent assets, etc. that are not taxdeductible are recorded as long-term prepaid expenses and amortized in equal installments over 5 years. The consumption taxes relating to noncurrent assets, etc. that are not taxdeductible are recorded as long-term prepaid expenses and amortized in equal installments over 5 years

19 3.8. Notes to Financial Statements Concerning notes on lease transactions, securities, retirement benefits, tax-effect accounting and derivative transactions, disclosure is omitted because there is thought to be no substantial need for such disclosure in the financial report (kessan tanshin). [Notes to Balance Sheets] 8th Fiscal Period 9th Fiscal Period [As of November 30, 2009] [As of May 31, 2010]. Pledged assets and secured liabilities. Pledged assets and secured liabilities The following are the assets that are pledged as collateral. (Unit: thousand yen) Buildings in trust 43,507,093 Structures in trust 614,282 Machinery and equipment in trust 253,547 Tools, furniture and fixtures in trust 29,781 Other in trust Land in trust 190,766,117 Construction in progress in trust 4,995 Leasehold rights in trust 4,970,290 Total 240,146,109 The following are the liabilities secured by pledged assets. (Unit: thousand yen) Current portion of long-term loans payable 5,751,250 Long-term loans payable 63,279,375 Total 69,030,625 The following are the assets that are pledged as collateral. (Unit: thousand yen) Buildings in trust 42,710,198 Structures in trust 612,551 Machinery and equipment in trust 454,355 Tools, furniture and fixtures in trust 28,567 Other in trust Land in trust 190,766,117 Construction in progress in trust 11,190 Leasehold rights in trust 4,970,290 Total 239,553,272 The following are the liabilities secured by pledged assets. (Unit: thousand yen) Current portion of long-term loans payable 2,258,750 Long-term loans payable 66,650,000 Total 68,908,750 *2. Minimum net assets as provided in Article 67, *2. Minimum net assets as provided in Article 67, Paragraph 4 of the Act on Investment Trusts and Paragraph 4 of the Act on Investment Trusts and Investment Corporations Investment Corporations 50,000 thousand yen 50,000 thousand yen

20 [Notes to Statements of Income] 8th Fiscal Period [From: June 1, 2009 To: November 30, 2009]. Breakdown of operating income (loss) from property leasing (Unit: thousand yen) A. Property leasing revenue Rent revenue real estate 7,651,615 Other lease business revenue 92,864 Total property leasing revenue 7,744,480 B. Property leasing expenses Consignment expenses 497,288 Utilities expenses 585,394 Taxes and dues 540,355 Non-life insurance expenses 13,487 Repair expenses 138,797 Depreciation 1,180,326 Other lease business expenses 54,099 Total property leasing expenses 3,009,749 C. Operating income (loss) from property leasing [A B] 4,734,730 9th Fiscal Period [From: December 1, 2009 To: May 31, 2010 ]. Breakdown of operating income (loss) from property leasing (Unit: thousand yen) A. Property leasing revenue Rent revenue real estate 6,610,024 Other lease business revenue 375,937 Total property leasing revenue 6,985,961 B. Property leasing expenses Consignment expenses 469,842 Utilities expenses 522,664 Taxes and dues 573,864 Non-life insurance expenses 12,945 Repair expenses 429,305 Depreciation 1,184,842 Other lease business expenses 55,196 Total property leasing expenses 3,248,661 C. Operating income (loss) from property leasing [A B] 3,737,299 [Notes to Statements of Unitholders Equity] 8th Fiscal Period [From: June 1, 2009 To: November 30, 2009]. Total number of investment units authorized and number of investment units issued and outstanding 9th Fiscal Period [From: December 1, 2009 To: May 31, 2010 ]. Total number of investment units authorized and number of investment units issued and outstanding Total number of investment units authorized Total number of investment units authorized 2,000,000 units 2,000,000 units Number of investment units issued and outstanding Number of investment units issued and outstanding 395,798 units 395,798 units [Notes to Statements of Cash Flows] 8th Fiscal Period 9th Fiscal Period [From: June 1, 2009 [From: December 1, 2009 To: November 30, 2009] To: May 31, 2010 ]. Relationship between cash and cash equivalents at end. Relationship between cash and cash equivalents at end of period in the statements of cash flows and the amount stated in the balance sheets of period in the statements of cash flows and the amount stated in the balance sheets (As of November 30, 2009) (As of May 31, 2010) (Unit: thousand yen) (Unit: thousand yen) Cash and deposits 15,467,439 Cash and deposits 11,290,130 Cash and deposits in trust 6,754,925 Cash and deposits in trust 4,713,508 Cash and cash equivalents 22,222,364 Cash and cash equivalents 16,003,