Global One Real Estate Investment Corp. (Code: 8958) Semiannual Report. For the 29th Period. From 1 October 2017 to 31 March 2018

Transcription

1 Global One Real Estate Investment Corp. (Code: 8958) Semiannual Report For the 29th Period From 1 October 2017 to 31 March

2 About GOR The investment theme of GOR is to acquire Class-A office buildings in Class-A markets Global One Real Estate Investment Corp. ( GOR ) is a Japanese Real Estate Investment Trust (J-REIT) listed on the Tokyo Stock Exchange (TSE: 8958) that builds upon considerable real estate expertise in pursuit of maximizing unitholders returns. GOR focuses on a mid- to long-term strategy of investment in prime office buildings at prime locations with an eye towards three key factors: CLOSER conveniently situated; NEWER newly or recently built; and LARGER large office buildings. Address: 4-1 Kojimachi, Chiyoda-ku Tokyo, Japan Phone: Table of Contents Corporate Profile / Milestones Financial Highlights Investment Unit Price Performance / Business Structure Property Locations Property Roster Property Overview Portfolio Highlights Financial Summary Balance Sheets Income Statements Statements of Unitholders Equity Dividend Distributions Statements of Cash Flows Notes to Financial Statements Disclaimer / Contact

3 Corporate Profile / Milestones GOR was established in April 2003 under the Act on Investment Trusts and Investment Corporations of Japan ( the Investment Trust Act ). In September 2003, GOR achieved an IPO on the Real Estate Investment Trust Section of the Tokyo Stock Exchange (Securities Code: 8958) where an additional 48,000 shares (hereinafter referred to as units ) were issued that raised 23,623 million yen in funds. The investment theme of GOR is to acquire Class-A office buildings in Class-A markets GOR primarily invests in real estate (comprising office buildings and parcels of land on which those buildings are situated), securities backed by that real estate, trust beneficial interests in that real estate, and other types of assets. Target regions include Japan s three major metropolitan areas (the Tokyo Metropolitan Area, the Chubu Area, and the Kinki Area) as well as other major cities with populations of over 500,000 that are identified as government-designated cities. GOR cautiously selects prime office buildings at prime locations with an eye towards three key factors: (1) CLOSER conveniently situated; (2) NEWER newly or recently built; and (3) LARGER large office buildings. GOR Portfolio includes 11 office buildings with the following features (as of 31 March 2018). Portfolio occupancy ratio 98.4 % Average building age 1 Approx years Total acquisition price 182,476 million yen Average acquisition price 16.5 billion yen Gross rentable area 123,662 m2 Average rentable area 11,242 m2 Sept 2003 Dec 2003 Oct 2004 Mar 2005 Oct 2005 Apr 2007 Oct 2007 Jan 2008 Mar 2011 Nov 2012 Dec 2013 Mar 2014 May 2014 Aug 2014 Oct 2014 Mar 2017 Acquired Sphere Tower Tennoz, Kintetsu Omori Building, and Kintetsu Shin-Nagoya Building, with the total acquisition price of 39,753 million yen. Acquired Otemachi First Square (office condo, approximately 9.1% of the dedicated area, with an acquisition price of 23,495 million yen). Sold Kintetsu Omori Building. Acquired Ginza First Building (office condo, approximately 92.1% of the dedicated area with an acquisition price of 12,282 million yen). Acquired TK Minami-Aoyama Building, with an acquisition price of 35,000 million yen. Acquired Meiji Yasuda Life Insurance Saitama-Shintoshin Building (50% of co-ownership with an acquisition price of 22,700 million yen). Sold a 33% share of the interest in Sphere Tower Tennoz. Acquired Yodoyabashi Flex Tower with an acquisition price of 7,834 million yen. Acquired Hirakawacho Mori Tower (office condo, approximately 26.2% of the ownership with an acquisition price of 18,200 million yen). Acquired ARK Hills Sengokuyama Mori Tower (office condo, approximately 5.6% of the ownership with an acquisition price of 8,423 million yen). Sold Sphere Tower Tennoz. Sold a 67% co-ownership of Kintetsu Shin-Nagoya Building. Acquired Arca Central (office condo, approximately 56.1% of the ownership with an acquisition price of 15,031 million yen). Acquired Arca Central (office condo, approximately 1.7% of the ownership with an acquisition price of 360 million yen) additionally. Acquired Yokohama Plaza Building, with an acquisition price of 17,950 million yen. Sold a 33% co-ownership of Kintetsu Shin-Nagoya Building. Acquired Shinagawa Seaside West Tower (Trust beneficial interests in real estate (50% quasi co-ownership), with an acquisition price of 12,000 million yen), and Meiji Yasuda Life Insurance Osaka Midosuji Building (50% of co-ownership with an acquisition price of 9,200 million yen). GOR s financing activities In order to procure funds, GOR may borrow funds and issue investment corporation bonds as well as issue investment units. With regard to interest-bearing liabilities, GOR makes it a principle to borrow long-term loans with fixed interest 1 Please see page 14 for Portfolio Highlights 2

4 rates from the perspective of managing assets over a long term and reducing future interest rate fluctuation risks. In the period under review, on 28 February 2018, 3,500 million yen in debt was taken out to be used for the repayment of 4,000 million yen of loans due on the same date, which was repaid using the debt and cash on hand. On 30 March 2018, 9,500 million yen in debt was taken out to be used for the repayment of 10,000 million yen of loans due on the same date, which was repaid using the debt and cash on hand. As of 31 March 2018, the total capital contributed (net amount) was 84,942 million yen, the total number of units issued and outstanding was 221,421, the unpaid loan balance was 75,500 million yen, and the total balance of investment corporation bonds issued and outstanding was 19,000 million yen. GOR s credit rating status as of 31 March 2018: Rating agencies Rating descriptions Japan Credit Rating Agency, Ltd. Long-term Issuer Rating: AA- Outlook: Stable Bonds: AA- Financial results and dividend distributions GOR recorded operating revenue of 5,110 million yen, operating profit of 2,258 million yen, ordinary profit of 1,808 million yen, and net income of 1,807 million yen for the 29th Period. Regarding dividends, the application of a tax exemption (under Article of the Act on Special Measures Concerning Taxation) means that profit distributions are expected to become tax deductible. It was decided to make the amount of profit distribution 1,807,681,044 yen, which is a multiple of 221,421, the number of investment units issued. As a result, dividend per investment unit is 8,164 yen. Furthermore, having considered the level of investment unit price, status of cash on hand, financial status, the market environment and other factors in a comprehensive manner, GOR has acquired own investment units through market purchase at the Tokyo Stock Exchange based on a discretionary transaction contract concluded with a securities company and implemented retirement of all the acquired units in the 29th Period for the purpose of increasing capital efficiency and return of profits to unitholders. Total number of investment units acquired and cancelled during the 29th Period was 2,479 units (1.1% of total number of investment units issued as of before the acquisition and retirement) and the total acquisition price was 999 million yen, leading dividend per unit to increase by 83 yen through the acquisition and retirement of own investment units. Significant Subsequent Events <Split of investment units> GOR implemented a four for one split of investment units with 31 March 2018 as the record date and 1 April 2018 as the effective date. 1. Objective of split By reducing the value of each investment unit through the split of investment units with the penetration of the NISA system (Japanese version of individual savings account) and such, GOR aims to create an environment in which investors can invest more easily, which should lead to increased diversity in terms of types of investors and enhanced liquidity for GOR investment units. 2. Method of split GOR investment units belonging to investors recorded or registered in the final list of unitholders on the record date of 31 March 2018 were split in a ratio of one to four. 3. Increase in number of investment units etc. due to split (1) No. of GOR investment units issued and outstanding before split: 221,421 units (2) Increase in no. of investment units due to split: 664,263 units (3) No. of GOR investment units issued and outstanding after split: 885,684 units (4) Total no. of issuable investment units after split: 16,000,000 units (Note) Pursuant to Article 81, paragraph 3, item 2 of the Act on Investment Trusts and Investment Corporations, which corresponds to article 184, paragraph 2 of the Companies Act, GOR s Articles of Incorporation were partially amended in order to increase the total number of issuable investment units in accordance with the split ratio. 3

5 Financial Highlights (Yen in millions) 25 th Period 26 th Period 27 th Period 28 th Period 29 th Period ( From 01 October ( From 01 April 2016 ( From 01 October ( From 01 April 2017 ( From 01 October 2015 to 31 March 2016) to 30 September 2016) 2016 to 31 March 2017) to 30 September 2017) 2017 to 31 March 2018) Operating Revenues 4,076 4,435 4,424 5,140 5,110 Property-related Revenues Property-related Expenses 4,076 4,435 4,424 5,140 5,110 2,114 2,116 2,045 2,344 2,342 Operating Profit 1,537 1,884 1,937 2,298 2,258 Ordinary Profit 1,076 1,426 1,453 1,761 1,808 Net Income 1,075 1,425 1,452 1,760 1,807 Total Assets 168, , , , ,209 Net Assets 76,412 76,743 76,770 87,995 87,042 Unitholders Capital (net amount) Depreciation and Amortization NOI (Net Operating Income) 2 75,026 75,026 75,026 85,942 84, ,757 3,122 3,197 3,687 3,653 Number of Units issued Cash Distributions per Unit 25 th Period ( From 01 October 2015 to 31 March 2016) 26 th Period ( From 01 April 2016 to 30 September 2016) 27 th Period ( From 01 October 2016 to 31 March 2017) 28 th Period ( From 01 April 2017 to 30 September 2017) 29 th Period ( From 01 October 2017 to 31 March 2018) 193,800 units 193,800 units 193,800 units 223,900 units 221,421 units 5,650 yen 7,357 yen 7,494 yen 7,864 yen 8,164 yen Net Assets per Unit 3 394,287 yen 395,994 yen 396,132 yen 393,010 yen 98,276 yen FFO (Funds from Operation) per Unit 3 4 9,652 yen 11,501 yen 11,717 yen 11,842 yen 3,041 yen 2 (Property-related Revenues-Property-related Expenses)+Depreciation and Amortization 3 GOR implemented a four for one split of investment units with 31 March 2018 as the record date and 1 April 2018 as the effective date. Net Assets per Unit and FFO (Funds from Operation) per Unit are calculated based on the assumption that the split of investment units was implemented at the beginning of the six month period ended March (Net Income+Depreciation and Amortization+Other Real Estate-related Amortization+Loss on Sale of Real Estate-Gain on Sale of Real Estate) / Number of Units issued 4

6 Investment Unit Price Performance Market Price on the Tokyo Stock Exchange: (Unit) (Yen) 52,000 48,000 44,000 40,000 36,000 32,000 28,000 24,000 20,000 16,000 12,000 8,000 4,000 0 Sept 2003 Mar Mar Mar 2006 Mar 2007 Mar 2008 Mar 2009 Trading Volume Investment Unit Price Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar , , , , , , ,000 80,000 60,000 40,000 20,000 0 Mar 2018 (Note) Prices used for this chart are based on the closing price. GOR implemented a two-for-one split of investment units with 31 March 2014 as the record date and 1 April 2014 as the effective date, and implemented a four-for-one split of investment units with 31 March 2018 as the record date and 1 April 2018 as the effective date. In the above chart, investment unit prices and trading volumes before the ex-rights date are calculated based on the assumption that the splits of investment units were implemented. Business Structure Dividend Distributions Tokyo Stock Exchange Investors Asset Manager Global Alliance Realty Co., Ltd. Asset Management Investment Corporation Global One Real Estate Investment Corp. Unitholders Meeting Board of Directors Issue of Units Investment Investors Investors Trade Trade Instruction Property Management Auditor (Ernst & Young Shin Nihon) Loans / Bonds Financial Institutions and Bond Holders Interest Payment Rent Payments Investment Asset Custody Administration Services Property Manager Real Estate Management Asset Custodian Administrator Mitsubishi UFJ Trust and Banking Corporation Office Buildings 5

7 Property Locations Otemachi First Square 2 Hirakawacho Mori Tower 3 Ginza First Bldg. 4 TK Minami-Aoyama Bldg. 5 ARK Hills Sengokuyama Mori Tower 6 Arca Central 7 Shinagawa Seaside West Tower 8 Yokohama Plaza Bldg. 9 Meiji Yasuda Life Insurance Saitama- Shintoshin Bldg. 10 Meiji Yasuda Life Insurance Osaka Midosuji Bldg. 11 Yodoyabashi Flex Tower 6

8 Property Roster Name of building Type of ownership Year built Acquisition price 5 (yen in millions) Composition ratio 6 Appraisal value at end of period 7 (yen in millions) Otemachi First Square Hirakawacho Mori Tower Ginza First Bldg. TK Minami-Aoyama Bldg. ARK Hills Sengokuyama Mori Tower Arca Central Shinagawa Seaside West Tower Yokohama Plaza Bldg. Meiji Yasuda Life Insurance Saitama-Shintoshin Bldg. Meiji Yasuda Life Insurance Osaka Midosuji Bldg. Yodoyabashi Flex Tower Ownership 8 (Trust beneficial interest 9 ) Ownership 10 (Trust beneficial interest 9 ) Ownership 11 (Trust beneficial interest 9 ) Ownership (Trust beneficial interest 9 ) Ownership 12 (Trust beneficial interest 9 ) Ownership 13 (Trust beneficial interest 9 ) Ownership (50% quasi co-ownership of trust beneficial interest 9 ) Ownership (Trust beneficial interest 9 ) 50% co-ownership (Trust beneficial interest 9 ) , % 28, , % 23, , % 12, , % 33, , % 11, , % 18, , % 12, , % 20, , % 22,150 50% co-ownership , % 9,730 Ownership (Trust beneficial interest 9 ) , % 7,000 Total 182, % 199,080 5 Miscellaneous costs / taxes are not included. Concerning Arca Central, the acquisition price is computed as the total trade value of 16,400 million yen described in the purchase agreement less total maintenance charges on the management association of 1,008 million yen which was succeeded from the sellers. 6 Composition ratio means a percentage of the property s acquisition price to the total acquisition price, which is rounded to the first decimal place. 7 Appraisals were rendered as of 31 March 2018 by external appraisers including Japan Real Estate Institute; Daiwa Real Estate Appraisal Co., Ltd.; Chuo Real Estate Appraisal Co., Ltd.; and The Tanizawa Sogo Appraisal Co., Ltd. 8 Condo ownership and co-ownership of condo spaces 9 The properties are placed in trust, of which the beneficial interests are owned by GOR. Trust agreements are entered into with trustees (Mitsubishi UFJ Trust and Banking Corporation; the Sumitomo Mitsui Trust Bank, Ltd.). 10 Building: Condo Land: Co-ownership 11 Building: Condo Land: Co-ownership 12 Building: Condo Land: Co-ownership 13 Building: Condo Land: Co-ownership 7

9 Property Roster Name of building Book value (yen in millions) Building area 14 ( m2 ) Rentable area 15 ( m2 ) Leased area ( m2 ) Occupancy ratio (%) 16 Otemachi First Square 23, , , , Hirakawacho Mori Tower 17,428 51, , , Ginza First Bldg. 11,692 12, , , TK Minami-Aoyama Bldg. 33,451 20, , , ARK Hills Sengokuyama Mori Tower 8, , , , Arca Central 16,121 49, , , Shinagawa Seaside West Tower 12,037 38, , , Yokohama Plaza Bldg. 17,634 19, , , Meiji Yasuda Life Insurance Saitama-Shintoshin Bldg. Meiji Yasuda Life Insurance Osaka Midosuji Bldg. 18,127 78, , , ,552 32, , , Yodoyabashi Flex Tower 6,645 10, , , Total 174, , , , Floor space of the entire building regardless of type and / or percentage of ownership 15 The gross rentable area owned by GOR 16 Rounded to the first decimal place 8

10 Otemachi First Square Property Overview Location: 5-1 Otemachi 1-chome, Chiyoda-ku, Tokyo Acquisition date: 25 December 2003 Completion: February 1992 Acquisition price: 23,495 million yen Term-end appraisal: 28,300 million yen Book value: 23,402 million yen Floor area of building: 141, m2 Rentable area: 8, m2 Leased area: 8, m2 Occupancy ratio: 98.5 % Hirakawacho Mori Tower Property Overview Location: 16-1 Hirakawacho 2-chome, Chiyoda-ku, Tokyo Acquisition date: 01 March 2011 Completion: December 2009 Acquisition price: 18,200 million yen Term-end appraisal: 23,700 million yen Book value: 17,428 million yen Floor area of building: 51, m2 Rentable area: 9, m2 Leased area: 9, m2 Occupancy ratio: % (Note) Master lease with Mori Building Co., Ltd. was shifted from fixed rent to pass-through on 01 April Ginza First Building Property Overview Location: 10-6 Ginza 1-chome, Chuo-ku, Tokyo Acquisition date: 29 March 2005 Completion: August 1998 Acquisition price: 12,282 million yen Term-end appraisal: 12,200 million yen Book value: 11,692 million yen Floor area of building: 12, m2 Rentable area: 7, m2 Leased area: 7, m2 Occupancy ratio: % 9

11 TK Minami-Aoyama Building Property Overview Location: 6-21 Minami-Aoyama 2-chome, Minato-ku, Tokyo Acquisition date: 21 October 2005 Completion: May 2003 Acquisition price: 35,000 million yen Term-end appraisal: 33,600 million yen Book value: 33,451 million yen Floor area of building: 20, m2 Rentable area: 14, m2 Leased area: 14, m2 Occupancy ratio: % ARK Hills Sengokuyama Mori Tower Arca Central Property Overview Location: Roppongi, Minato-ku, Tokyo Acquisition date: 20 November 2012 Completion: August 2012 Acquisition price: 8,423 million yen Term-end appraisal: 11,000 million yen Book value: 8,129 million yen Floor area of building: 140, m2 Rentable area: 3, m2 Leased area: 3, m2 Occupancy ratio: % (Note) Master lease with Mori Building Co., Ltd. was shifted from fixed rent to pass-through on 01 December The 16 floors from floors 32 to 47 are converted into the jointly-managed sections and the revenues and expenses from these sections are distributed to the sectional owners of floors 32 to 47 according to a business ratio based on area. Property Overview Location: Kinshi, Sumida-ku, Tokyo Acquisition date: 28 March 2014, 30 May 2014 Completion: March 1997 Acquisition price: 15,391 million yen Term-end appraisal: 18,200 million yen Book value: 16,121 million yen Floor area of building: 49, m2 Rentable area: 15, m2 Leased area: 15, m2 Occupancy ratio: 98.2 % 10

12 Shinagawa Seaside West Tower Property Overview Location: Higashi-Shinagawa, Shinagawa-ku, Tokyo Acquisition date: 24 March 2017 Completion: August 2004 Acquisition price: 12,000 million yen Term-end appraisal: 12,900 million yen Book value: 12,037 million yen Floor area of building: 38, m2 Rentable area: 12, m2 Leased area: 12, m2 Occupancy ratio: 98.2 % Yokohama Plaza Building Property Overview Location: Acquisition date: 01 August 2014 Completion: February 2010 Acquisition price: 17,950 million yen Term-end appraisal: 20,300 million yen Book value: 17,634 million yen Floor area of building: 19, m2 Rentable area: 14, m2 Leased area: 13, m2 Occupancy ratio: 93.8 % 2-6 Kinkoucho, Kanagawa-ku, Yokohama City, Kanagawa Prefecture Meiji Yasuda Life Insurance Saitama-Shintoshin Building Property Overview Location: 11-2 Shintoshin, Chuo-ku, Saitama City, Saitama Prefecture Acquisition date: 25 April 2007 Completion: March 2002 Acquisition price: 22,700 million yen Term-end appraisal: 22,150 million yen Book value: 18,127 million yen Floor area of building: 78, m2 Rentable area: 21, m2 Leased area: 21, m2 Occupancy ratio: 98.1 % 11

13 Meiji Yasuda Life Insurance Osaka Midosuji Building Property Overview Location: Fushimi-machi, Chuo-ku, Osaka City, Osaka Prefecture Acquisition date: 24 March 2017 Completion: July 2001 Acquisition price: 9,200 million yen Term-end appraisal: 9,730 million yen Book value: 9,552 million yen Floor area of building: 32, m2 Rentable area: 8, m2 Leased area: 8, m2 Occupancy ratio: % Yodoyabashi Flex Tower Property Overview Location: Acquisition date: 31 January 2008 Completion: November 2006 Acquisition price: 7,834 million yen Term-end appraisal: 7,000 million yen Book value: 6,645 million yen Floor area of building: 10, m2 Rentable area: 7, m2 Leased area: 7, m2 Occupancy ratio: % 3-11 Koraibashi 3-chome, Chuo-ku, Osaka City, Osaka Prefecture 12

14 Portfolio Highlights Age of Building Probable Maximum Loss (PML) (Year) Average Age of Building: 15.1 years % 10.0% 5.0% 0.0% Portfolio PML: 1.9% 2.7% 4.8% 4.4% 1.3% 3.3% 3.6% 1.7% 2.2% 2.1% 0.5% 5.4% 1.9% Acquisition Price by Property Rentable Area by Property Average Acquisition Price: 16.5 billion yen (Billion yen) ( m2 ) ,000 25,000 20,000 15,000 10,000 5,000 0 Average Rentable Area: 11,242 m2 8,131 9,843 7,718 14,012 3,937 15,746 14,148 12,255 21,704 11,242 8,730 7,432 <About PML> The term PML or probable maximum loss is used as an index to estimate the earthquake resistance of properties. The above PML valuations were provided by OYO RMS Corporation as a third party s opinion with the following assumptions: PMLs for individual properties: an estimate of the largest loss that the property is likely to suffer in the event of a major earthquake, expressed as a loss rate (the amount of loss divided by the replacement cost). The amounts of loss relating to equipment, furniture or stock goods, damage due to water or fire, disaster indemnities, or loss due to business interruption, etc., are not taken into consideration. Portfolio PML: the percentage represents a loss rate, which is arrived at by dividing the total loss amount by the total cost of replacing the 11 buildings. 13

15 Portfolio Highlights (sqm) 140, , ,000 80,000 60,000 40,000 20,000 (%) Apr 2017 May Jun Jul Aug Sep Oct Nov Dec Jan 2018 Feb Mar 60.0 Gross rentable area (sqm) Occupancy ratio (%) 28th Period 29th Period Number of Number of Gross rentable area ( m2 ) Occupancy ratio (%) properties tenants Apr , May , Jun , Jul , Aug , Sep , Oct , Nov , Dec , Jan , Feb , Mar , A tenant who leases multiple spaces within the portfolio is counted as one tenant. At Hirakawacho Mori Tower, the total number of end tenants has been stated from the 22 nd Period, as a result of shifting of the lease agreement with Mori Building Co., Ltd. from fixed rent type to pass-through type (whereby the rent is set as equal to the end-tenants rent). At ARK Hills Sengokuyama Mori Tower, the total number of end tenants of jointly managed sections has been stated from the 25 th Period, as a result of shifting of the lease agreement with Mori Building Co., Ltd. from fixed rent type to pass-through type. Jointly managed refers to the conclusion of an agreement with a term of approximately ten years (20 November 2012 to 30 November 2022) with the sectional owners of floors 32 to 47, including Mori Building Co., Ltd., the conversion of the 16 floors from floors 32 to 47 into jointly-manages sections, and the distribution of the revenues and expenses from these sections according to a business ratio based on area. 18 Occupancy Ratios are rounded to the first decimal place. 19 At ARK Hills Sengokuyama Mori Tower, the gross rentable area decreased by 0.86 m 2 as a result of some rentable sections being converted into common hallways. 20 At Yokohama Plaza Building, the gross rentable area decreased by m 2 as a result of some rentable sections being converted into common hallways. 21 At Meiji Yasuda Life Insurance Osaka Midosuji Building, the gross rentable area increased by m 2 as a result of recalculation of leased area when a tenant was changed. 14

16 Balance Sheets As of 30 September 2017 and 31 March th Period (As of 30 September 2017) 29th Period (As of 31 March 2018) Assets Current Assets Cash and bank deposits 4,732,095 3,370,407 Cash in trust accounts and bank deposits in trust accounts 11,366,002 11,233,085 Tenant receivables 114, ,703 Prepaid expenses 464, ,859 Deferred tax assets Deposits paid Accrued income Advances paid Suspense payments Total current assets 16,677,776 15,206,280 Non-current Assets Fixed assets Buildings 2,176,305 2,179,236 Accumulated depreciation (34,725) (65,823) Buildings, net 2,141,580 2,113,412 Structures 1,711 1,711 Accumulated depreciation (143) (266) Structures, net 1,568 1,445 Land 7,438,106 7,438,106 Buildings in trust accounts 57,464,550 57,834,441 Accumulated depreciation (13,337,615) (14,146,071) Buildings in trust accounts, net 44,126,935 43,688,370 Structures in trust accounts 973, ,060 Accumulated depreciation (248,287) (265,780) Structures in trust accounts, net 724, ,280 Machinery and equipment in trust accounts 597, ,502 Accumulated depreciation (467,043) (487,101) Machinery and equipment in trust accounts, net 130, ,400 Tools, furniture, and fixtures in trust accounts 187, ,215 Accumulated depreciation (116,176) (124,658) Tools, furniture, and fixtures in trust accounts, net 71,391 65,557 Land in trust accounts 120,070, ,070,024 Construction in progress in trust accounts 3,309 27,265 Total fixed assets, net 174,708, ,222,862 Intangible assets Other intangible assets in trust accounts Total intangible assets Investments and other assets Long-term prepaid expenses 286, ,050 Long-term prepaid consumption tax 2,168 1,599 Guaranty money deposited 10,000 10,000 Reserve for repairs 508, ,285 Total investments and other assets 807, ,935 Total non-current assets 175,515, ,915,138 Deferred Assets Corporate bond issuance costs 97,542 87,767 Total deferred assets 97,542 87,767 Total Assets 192,290, ,209,186 15

17 As of 30 September 2017 and 31 March th Period (As of 30 September 2017) 29th Period (As of 31 March 2018) Liabilities Current Liabilities Accounts payable 406, ,066 Unsecured corporate bonds due within one year 4,000,000 4,000,000 Long-term loans due within one year 20,000,000 11,000,000 Other accounts payable Accrued expenses 114, ,657 Accrued income taxes Accrued consumption taxes 260,463 91,504 Rents received in advance 638, ,169 Deposits received 0 - Cash distributions payable 5,833 6,145 Total current liabilities 25,426,700 16,182,390 Non-current Liabilities Unsecured corporate bonds 15,000,000 15,000,000 Long-term loans 56,500,000 64,500,000 Tenant security deposits 329, ,669 Tenant security deposits in trust accounts 7,039,520 7,082,875 Total non-current liabilities 78,869,141 86,984,544 Total Liabilities 104,295, ,166,934 Net Assets Unitholders Equity Unitholders capital 85,942,682 85,942,682 Deduction from unitholders capital - (999,786) Unitholders capital, net 85,942,682 84,942,896 Surplus Voluntary reserve Reserve for reduction entry 291, ,610 Total voluntary reserve 291, ,610 Retained earnings 1,760,784 1,807,744 Total surplus 2,052,394 2,099,355 Total unitholders equity 87,995,077 87,042,251 Total Net Assets 87,995,077 87,042,251 Total Liabilities and Net Assets 192,290, ,209,186 16

18 Income Statements For the six-month periods ended 30 September 2017 and 31 March th Period (From 01 April 2017 to 30 September 2017) 29th Period (From 01 October 2017 to 31 March 2018) Operating Revenues Rental revenues 5,139,227 5,099,244 Non-rental revenues 1,757 11,353 Total operating revenues 5,140,985 5,110,597 Operating Expenses Property-related expenses 2,344,707 2,342,875 Asset management fees 379, ,626 Directors remuneration 10,638 10,638 Asset custody fees 23,747 23,725 Agent fees 50,792 52,013 Audit fees 10,600 10,000 Other operating expenses 22,619 29,301 Total operating expenses 2,842,703 2,852,180 Operating Profit 2,298,281 2,258,416 Non-operating Revenues Interest Revenues Reversal of cash distributions payable Interest on refund of consumption tax 1,085 - Total non-operating revenues 2,077 1,223 Non-operating Expenses Interest expense 340, ,031 Interest expense of corporate bonds 75,905 47,083 Amortization of corporate bond issuance costs 9,344 9,775 Unit issuance costs 19,535 - Borrowing related expenses 92,552 77,799 Other non-operating expenses 681 2,340 Total non-operating expenses 538, ,030 Ordinary Profit 1,761,510 1,808,609 Income before Income Taxes 1,761,510 1,808,609 Income taxes-current Income taxes-deferred 4 (2) Total income taxes Net Income 1,760,664 1,807,710 Retained Earnings at beginning of period Retained Earnings at end of period 1,760,784 1,807,744 17

19 Statements of Unitholders Equity For the six-month period ended 30 September 2017 Unitholders capital Unitholders equity Surplus Voluntary reserve Reserve for reduction entry Total voluntary reserve Retained earnings Total surplus Total unitholders equity Total net assets Balance at the beginning of the period 75,026, , ,610 1,452,456 1,744,067 76,770,382 76,770,382 Changes during the period Issuance of new investment units 10,916,367 10,916,367 10,916,367 Dividends from surplus (1,452,337) (1,452,337) (1,452,337) (1,452,337) Net income 1,760,664 1,760,664 1,760,664 1,760,664 Total changes during the period 10,916, , ,327 11,224,694 11,224,694 Balance at the end of the period 85,942, , ,610 1,760,784 2,052,394 87,995,077 87,995,077 For the six-month period ended 31 March 2018 Unitholders capital Unitholders capital Deduction from unitholders capital Unitholders capital, net Unitholders equity Voluntary reserve Reserve for reduction entry Total voluntary reserve Surplus Retained earnings Total surplus Balance at the beginning of the period 85,942,682-85,942, , ,610 1,760,784 2,052,394 Changes during the period Dividends from surplus (1,760,749) (1,760,749) Net income 1,807,710 1,807,710 Acquisition of own investments units - Retirement of own investment units (999,786) (999,786) - Total changes during the period - (999,786) (999,786) ,960 46,960 Balance at the end of the period 85,942,682 (999,786) 84,942, , ,610 1,807,744 2,099,355 Unitholders equity Own investment units Total unitholders equity Total net assets Balance at the beginning of the period - 87,995,077 87,995,077 Changes during the period Dividends from surplus (1,760,749) (1,760,749) Net income 1,807,710 1,807,710 Acquisition of own investments units (999,786) (999,786) (999,786) Retirement of own investment units 999, Total changes during the period - (952,825) (952,825) Balance at the end of the period - 87,042,251 87,042,251 18

20 Dividend Distributions For the six-month periods ended 30 September 2017 and 31 March 2018 (Yen) 28th Period (From 01 April 2017 to 30 September 2017) 29th Period (From 01 October 2017 to 31 March 2018) I Retained earnings at end of period 1,760,784,385 1,807,744,825 II Total cash distribution 1,760,749,600 1,807,681,044 (Cash distribution per unit) (7,864) (8,164) III Retained earnings carried forward 34,785 63,781 Calculation of the total cash distribution amount According to the distribution policy stipulated in Article 27-1 of the Articles of Incorporation, the total cash distribution for the Period should not exceed the retained earnings at the end of the Period; and also the distribution should exceed 90% of the distributable income for the Period as stipulated by Article of the Act on Special Measures Concerning Taxation of Japan. Therefore, the amount of the total cash distribution was determined to be 1,760,749,600 yen, which is the integer multiple of the total number of units issued at the end of the Period (223,900 units), and not in excess of unappropriated retained earnings at the end of the Period. GOR will not make cash distributions in excess of accounting profit, as prescribed in Article of the Articles of Incorporation. According to the distribution policy stipulated in Article 27-1 of the Articles of Incorporation, the total cash distribution for the Period should not exceed the retained earnings at the end of the Period; and also the distribution should exceed 90% of the distributable income for the Period as stipulated by Article of the Act on Special Measures Concerning Taxation of Japan. Therefore, the amount of the total cash distribution was determined to be 1,807,681,044 yen, which is the integer multiple of the total number of units issued at the end of the Period (221,421 units), and not in excess of unappropriated retained earnings at the end of the Period. GOR will not make cash distributions in excess of accounting profit, as prescribed in Article of the Articles of Incorporation. 19

21 Statements of Cash Flows For the six-month periods ended 30 September 2017 and 31 March th Period (From 01 April 2017 to 30 September 2017) 29th Period (From 01 October 2017 to 31 March 2018) Cash flows from operating activities Income before income taxes 1,761,510 1,808,609 Depreciation and amortization 890, ,756 Amortization of investment corporate bond issuance costs 9,344 9,775 Unit issuance costs 19,535 - Interest revenues (281) (374) Interest expenses 416, ,115 Decrease (increase) in tenant receivables (24,523) 10,553 Decrease (increase) in deposits paid Decrease (increase) in consumption tax receivables 374,401 - Increase (decrease) in accounts payable 56,882 (7,189) Increase (decrease) in accrued expenses 17,977 3,131 Increase (decrease) in accrued consumption taxes 260,463 (168,959) Increase (decrease) in rents received in advance 2,337 (29,250) Increase (decrease) in deposits received 0 (0) Decrease (increase) in prepaid expenses 54,455 (35,903) Decrease (increase) in long-term prepaid expenses 28,504 (37,266) Decrease (increase) in long-term prepaid consumption tax Others, net (30,065) (60,812) Subtotal 3,838,867 2,739,752 Interest revenues received Interest expenses paid (417,668) (358,880) Income taxes paid (895) (834) Net cash provided by (used in) operating activities 3,420,719 2,380,414 Cash flows from investing activities Purchases of fixed assets (209,054) (7,280) Purchases of fixed assets in trust accounts (131,275) (263,849) Proceeds from tenant security deposits (including trust accounts) 236, ,586 Repayments for tenant security deposits (including trust accounts) (117,863) (334,601) Proceeds from bank deposits corresponding to tenant security deposits (including trust accounts) 159, ,471 Repayments for bank deposits corresponding to tenant security deposits (including trust accounts) (236,535) (388,870) Net cash provided by (used in) investing activities (299,159) (131,544) Cash flows from financing activities Repayments of short-term loans (10,700,000) - Proceeds from long-term loans 5,000,000 13,000,000 Repayments of long-term loans (5,000,000) (14,000,000) Proceeds from issuance of corporate bonds 4,961,892 - Redemption of corporate bonds (5,000,000) - Proceeds from issuance of investment units 10,872,142 - Payment of own investment units acquisition - (1,001,285) Dividends paid (1,451,429) (1,759,589) Net cash provided by (used in) financing activities (1,317,394) (3,760,874) Net increase (decrease) in cash and cash equivalents 1,804,165 (1,512,003) Cash and cash equivalents at beginning of period 7,318,105 9,122,270 Cash and cash equivalents at end of period 9,122,270 7,610,266 20

22 <Notes to Financial Statements> Note 1 - Summary of Significant Accounting Policies Fixed assets Fixed assets are stated at cost, less accumulated depreciation. The costs of land, buildings, and building improvements include the acquisition price of property, legal fees, and acquisition costs. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, which range as follows: Buildings, Buildings in trust accounts 2-76 years Structures, Structures in trust accounts 2-58 years Machinery and equipment in trust accounts 3-16 years Tools, furniture, and fixtures in trust accounts 2-15 years Expenditures for repairs and maintenance are charged to operations as incurred. Major renovations and improvements are capitalized. Deferred Assets Deferred assets include corporate bond issuance costs and unit issuance costs. The corporate bond issuance costs are amortized using the straight-line method over the respective terms of the bonds. The unit issuance costs are expensed as incurred. Taxes on property and equipment Property and equipment is subject to Japanese property taxes and city planning taxes on a calendar-year basis. These taxes are generally charged to expenses during the period. The sellers of the properties are liable for property taxes for the calendar year including the period from the date of purchase by GOR through to the end of the year since the taxes are imposed on the owner registered in the record as of 01 January based on the assessment made by the local government. GOR pays the amount equivalent to the property taxes and the city planning taxes to the sellers applicable to the period since acquisition, which is included in the acquisition cost of each property. For the 28th and 29th Period, the amounts of property taxes etc. included in the acquisition cost were none. Accounting treatment of trust beneficial interests in real estate For trust beneficial interests in real estate, all accounts of assets and liabilities with respect to assets in trust, as well as all income generated and expenses incurred with respect to assets in trust, are recorded in the relevant balance sheet and income statement accounts of GOR in proportion to the percentage interest of the trust that the trust beneficial interests represent. The following accounts with respect to significant assets in trust are individually presented on the balance sheets: 1. Cash in trust accounts and bank deposits in trust accounts. 2. Buildings in trust accounts; Structures in trust accounts; Machinery and equipment in trust accounts; Tools, furniture, and fixtures in trust accounts; Land in trust accounts; Construction in progress in trust accounts. 3. Other intangible assets in trust accounts. 4. Tenant security deposits in trust accounts. Consumption taxes Consumption taxes received and paid are not included in the income statements. Non-deductible consumption taxes related to non-current assets are recorded as long-term prepaid consumption tax and are amortized using the straight-line method over 5 years. Cash and cash equivalents Cash and cash equivalents consist of cash on hand, cash in trust accounts, bank deposits and bank deposits in trust accounts that can be withdrawn on demand and short-term investments, which are highly liquid and readily convertible to cash, with insignificant risk of price fluctuation and with original maturity of three months or less from the date of acquisition. 21

23 Note 2 - Long-Term Loans Long-term loans as of 30 September 2017 and 31 March 2018 consisted of the following: As of 30 September 2017 As of 31 March % unsecured loan from a bank due on 28 February ,000,000 - Unsecured loans from banks and a trust bank with floating interest rates due on 30 March ,000, % unsecured loans from banks and a trust bank due on 28 September ,000,000 6,000, % unsecured loans from banks and a trust bank due on 29 March ,000,000 2,000, % unsecured loans from a bank and a trust bank due on 29 March ,000,000 3,000, % unsecured loans from banks and a trust bank due on 30 September ,500,000 4,500, % unsecured loans from banks and a trust bank due on 30 September ,000,000 9,000, % unsecured loans from banks, a trust bank, and an insurance company, due on 31 March ,000,000 9,000, % unsecured loans from banks and a trust bank due on 30 September ,500,000 1,500, % unsecured loan from an insurance company due on 30 September ,000,000 1,000,000 Unsecured loans from banks and a trust bank with floating interest rates due on 31 March ,750, % unsecured loans from banks, a trust bank, and an insurance company, due on 31 March ,000,000 6,000, % unsecured loans from banks, a trust bank, and an insurance company, due on 30 September ,000,000 5,000,000 Unsecured loans from banks and a trust bank with floating interest rates due on 31 March ,750, % unsecured loans from banks, a trust bank, and an insurance company, due on 29 March ,500,000 10,500, % unsecured loan from a bank due on 30 September ,000,000 5,000, % unsecured loan from a bank due on 31 March ,500,000 Total 76,500,000 75,500,000 22

24 Note 3 - Unsecured Corporate Bonds Unsecured Corporate Bonds as of 30 September 2017 and 31 March 2018 consisted of the following: As of 30 September 2017 As of 31 March 2018 Series No. 6 unsecured corporate bonds, maturing on 28 September 2018, with a coupon of 0.29% 4,000,000 4,000,000 Series No. 8 unsecured corporate bonds, maturing on 25 February 2022, with a coupon of 0.56% 3,000,000 3,000,000 Series No. 10 unsecured corporate bonds, maturing on 28 September 2022 with a coupon of 0.28% 3,000,000 3,000,000 Series No. 7 unsecured corporate bonds, maturing on 27 September 2024, with a coupon of 0.86% 3,000,000 3,000,000 Series No. 9 unsecured corporate bonds, maturing on 16 October 2026, with a coupon of 0.47% 4,000,000 4,000,000 Series No. 11 unsecured corporate bonds, maturing on 28 September 2027, with a coupon of 0.63% 2,000,000 2,000,000 Total 19,000,000 19,000,000 Note 4 - Net Assets GOR is required to maintain net assets of at least 50 million yen, pursuant to the Investment Trust Act. Note 5 - Income Taxes 1. Breakdown of major causes of deferred tax assets and deferred tax liabilities As of 30 September 2017 As of 31 March 2018 Deferred tax assets Enterprise tax not deductible Total deferred tax assets Deferred tax assets, net The reconciliations of tax rate differences between the adjusted statutory tax rate and the effective tax rate for the periods ended 30 September 2017 and 31 March 2018 were as follows: Statutory tax rate Deductible cash distributions Others. As of 30 September 2017 As of 31 March % (31.73 %) 0.04 % % (31.72 %) 0.03 % Effective tax rate % 0.05 % 23

25 Note 6 - Breakdown of Property-Related Revenues and Expenses For the six month periods ended 30 September 2017 and 31 March 2018 For the period from 01 April 2017 to 30 September 2017 For the period from 01 October 2017 to 31 March 2018 Property-related Revenues Rental Revenues Rental revenues 4,087,126 4,087,354 Common area charges 578, ,571 Utility charges 341, ,156 Parking revenues 106, ,435 Other rental revenues 25,772 25,725 Non-rental Revenues Other miscellaneous revenues 1,757 11,353 Total Property-related Revenues 5,140,985 5,110,597 Property-related Expenses Property management fees 585, ,224 Utilities expenses 329, ,932 Property and other taxes 428, ,684 Casualty insurance 9,927 9,796 Repairs and maintenance 94, ,040 Depreciation and amortization 890, ,756 Other rental expenses 6,210 8,438 Total Property-related Expenses 2,344,707 2,342,875 Property-related Profits and Losses 2,796,277 2,767,721 Note 7 Cash and cash equivalents The following table represents a reconciliation of cash and cash equivalents as of 30 September 2017 and 31 March For the period from 01 April 2017 to 30 September 2017 For the period from 01 October 2017 to 31 March 2018 Cash and deposits 4,732,095 3,370,407 Cash in trust accounts and bank deposits in trust accounts 11,366,002 11,233,085 Bank deposits corresponding to tenant security deposits (including trust accounts) (Note) (6,975,828) (6,993,226) Cash and cash equivalents 9,122,270 7,610,266 (Note) Security deposits received from tenants retained in bank deposits or bank deposits in trust accounts for repayment when tenants vacate properties. 24

26 Note 8 - Financial instruments 1. Matters concerning the status of financial instruments (1) Policy on financial instruments GOR may implement effective management of surplus funds by using various kinds of deposits, etc. In order to procure funds, GOR may principally issue investment units, borrow funds or issue corporate bonds. Derivative instruments are used only for the purposes of hedging interest-rate fluctuation risk related to the corporate bonds or loans and other risks, and no speculative transactions are conducted. At present, GOR is not engaged in any derivative transactions. (2) Nature and extent of risks arising from financial instruments and risk management Issuance of corporate bonds and loans are executed for fundraising purposes associated with the acquisition of real estate-related assets and the repayment of previous borrowings, etc., and are exposed to liquidity risk, which GOR manages by way of cash management plans prepared by its asset manager, etc. While loans with floating interest rates are subject to fluctuations in market interest rates, the impact of rising market interest rates on the operations of GOR is minimized by keeping the ratio of interest-bearing liabilities to total assets at a low level in contrast to the ratio of loans with long-term fixed interest rates kept at a high level. Tenant security deposits and tenant security deposits in trust accounts are deposits received from tenants, and they are exposed to liquidity risk arising from tenants moving out before the expiration of their contracts. The relevant risk is managed by the asset manager which prepares monthly schedules for tenants moving in and out and a list of all leasehold contracts, etc. to control the schedules and the balance. (3) Supplementary explanations on matters regarding the fair value of financial instruments, etc. Determination of the fair value of financial instruments includes values derived from market prices, and reasonably calculated values if no such market price is available. In calculating such value, certain assumptions, etc. are applied, and therefore, the relevant value may differ if other assumptions, etc. are used. 2. Matters concerning the fair value of financial instruments The following table summarizes the carrying amounts on the balance sheets, fair value, and the differences as of 30 September Please note that the table does not include the financial instruments whose fair value is extremely difficult to measure (Note 2). Carrying amount Fair value Differences (1) Cash and bank deposits 4,732,095 4,732,095 - (2) Cash in trust accounts and bank deposits in 11,366,002 11,366,002 - trust accounts (3) Unsecured corporate bonds due within one year (4,000,000) (4,004,800) (4,800) (4) Long-term loans due within one year (20,000,000) (20,066,825) (66,825) (5) Unsecured corporate bonds (15,000,000) (15,004,100) (4,100) (6) Long-term loans (56,500,000) (57,355,282) (855,282) The following table summarizes the carrying amounts on the balance sheets, fair value, and the differences as of 31 March Please note that the table does not include the financial instruments whose fair value is extremely difficult to measure (Note 2). Carrying amount Fair value Differences (1) Cash and bank deposits 3,370,407 3,370,407 - (2) Cash in trust accounts and bank deposits in 11,233,085 11,233,085 - trust accounts (3) Unsecured corporate bonds due within one (4,000,000) (4,002,400) (2,400) year (4) Long-term loans due within one year (11,000,000) (11,060,846) (60,846) (5) Unsecured corporate bonds (15,000,000) (15,045,600) (45,600) (6) Long-term loans (64,500,000) (65,287,323) (787,323) (Note 1) The following methods and assumptions are used to estimate the fair value of the above (1) through (6): (1) Cash and bank deposits, and (2) Cash in trust accounts and bank deposits in trust accounts The carrying amount approximates fair value because of the short maturity of these instruments. (3) Unsecured corporate bonds due within one year, and (5) Unsecured corporate bonds Fair values are calculated based on market values: in the case where market values are not available, 25