Global One Real Estate Investment Corp. (Code: 8958) Semiannual Report. For the 28 th Period. From 1 April 2017 to 30 September 2017

Transcription

1 Global One Real Estate Investment Corp. (Code: 8958) Semiannual Report For the 28 th Period From 1 April 2017 to 30 September

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 30 September 2017). Portfolio occupancy ratio 98.0 % Average building age 1 Approx years Total acquisition price 182,476 million yen Average acquisition price 16.5 billion yen Gross rentable area 123,723 m2 Average rentable area 11,247 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, GOR issued new investment units, with payment dates set on 19 April 2017 for new investment units through public offering (28,600 units) and 16 May 2017 for new investment units through third-party allotment (1,500 units), in order to fund repayment of loans borrowed in accordance with the acquisition of specified assets GOR acquired in March 2017 and for other purposes. By using the proceeds, GOR repaid on 28 April 2017 the 10,700 million yen in short-term loans with floating interest rates borrowed on 24 March GOR decided on 7 September 2017 to issue fresh bonds, as described below, in order to repay the Series No. 4 unsecured bonds (5,000 million yen) that expired 29 September The payment was completed on 28 September (a) Series No. 10 unsecured bonds Name of bond Series No. 10 unsecured bonds (with pari passu clause) Issue amount 3,000 million yen Issuance price 100 yen per 100 yen face value Interest rate 0.28% per annum Date of issuance 28 September 2017 Collateral/guarantee The bonds were issued on an unsecured and unguaranteed basis with no specific assets reserved. Redemption date and method The total amount to be redeemed on 28 September The investment corporation bonds may be repurchased and cancelled at any time after the date of payment unless otherwise specified by the transfer agent. Ratings AA (Japan Credit Rating Agency, Ltd.) (b) Series No. 11 unsecured bonds Name of bond Series No. 11 unsecured bonds (with pari passu clause) Issue amount 2,000 million yen Issuance price 100 yen per 100 yen face value Interest rate 0.63% per annum Date of issuance 28 September 2017 Collateral/guarantee The bonds were issued on an unsecured and unguaranteed basis with no specific assets reserved. Redemption date and method The total amount to be redeemed on 28 September The investment corporation bonds may be repurchased and cancelled at any time after the date of payment unless otherwise specified by the transfer agent. Ratings AA (Japan Credit Rating Agency, Ltd.) GOR also borrowed 5,000 million yen on 29 September 2017 to repay existing loans of 5,000 million yen that expired on 29 September As of 30 September 2017, the total capital contributed was 85,942 million yen, the total number of units issued and outstanding was 223,900, the unpaid loan balance was 76,500 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 30 September 2017: Rating agencies Rating descriptions Japan Credit Rating Agency, Ltd. Long-term Issuer Rating: AA- Outlook: Stable Bonds: AA- Significant Subsequent Events <Decision on acquisition of own investment units> At the board meeting held on 15 November 2017, GOR decided on matters regarding acquisition of its own investment units (the Acquisition of Own Investment Units ) based on the provisions of Article 80-2 of the Investment Trusts Act, which are applied in replacement pursuant to the provisions of Article of the Act. Furthermore, GOR plans to retire the entirety of own investment units it will have acquired by the end of the six-month period ending March (1) Reasons behind acquisition of own investment units 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 determined that increasing capital efficiency and return of profits to unitholders through acquisition and retirement of own investment units should lead to enhanced unitholder 3

5 value over the medium to long term. (2) Details of acquisition of own investment units Total number of : 3,000 units (upper limit) investment units that may be acquired Total acquisition price : 1,000 million yen (upper limit) Acquisition method : Market purchase at the Tokyo Stock Exchange based on a discretionary transaction contract concluded with a securities company Acquisition period : 16 November 2017 to 28 February

6 Financial Highlights (Yen in millions) 24 th Period 25 th Period 26 th Period 27 th Period 28 th Period ( From 01 April 2015 ( From 01 October ( From 01 April 2016 ( From 01 October ( From 01 April 2017 to 30 September 2015) 2015 to 31 March 2016) to 30 September 2016) 2016 to 31 March 2017) to 30 September 2017) Operating Revenues 3,893 4,076 4,435 4,424 5,140 Property-related Revenues Property-related Expenses 3,893 4,076 4,435 4,424 5,140 2,081 2,114 2,116 2,045 2,344 Operating Profit 1,398 1,537 1,884 1,937 2,298 Ordinary Profit 928 1,076 1,426 1,453 1,761 Net Income 928 1,075 1,425 1,452 1,760 Total Assets 168, , , , ,290 Net Assets 76,362 76,412 76,743 76,770 87,995 Unitholders Capital 75,026 75,026 75,026 75,026 85,942 Depreciation and Amortization NOI (Net Operating Income) ,600 2,757 3,122 3,197 3,687 Number of Units issued Cash Distributions per Unit 24 th Period ( From 01 April 2015 to 30 September 2015) 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) 193,800 units 193,800 units 193,800 units 193,800 units 223,900 units 5,289 yen 5,650 yen 7,357 yen 7,494 yen 7,864 yen Net Assets per Unit 394,027 yen 394,287 yen 395,994 yen 396,132 yen 393,010 yen FFO (Funds from Operation) per Unit 3 8,860 yen 9,652 yen 11,501 yen 11,717 yen 11,842 yen 2 (Property-related Revenues-Property-related Expenses)+Depreciation and Amortization 3 (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 5

7 Investment Unit Price Performance Market Price on the Tokyo Stock Exchange: (Unit) (Yen) 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Sept 2003 Sept 2004 Sept 2005 Sept 2006 Sept 2007 Sept 2008 Sept 2009 Trading Volume Investment Unit Price Sept 2010 Sept 2011 Sept 2012 Sept 2013 Sept 2014 Sept 2015 Sept 2016 Sept , , , , , , , , ,000 0 (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 01 April 2014 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 split of investment units was 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 6

8 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 7

9 Property Roster Name of building Type of ownership Year built Acquisition price 4 (yen in millions) Composition ratio 5 Appraisal value at end of period 6 (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 7 (Trust beneficial interest 8 ) Ownership 9 (Trust beneficial interest 8 ) Ownership 10 (Trust beneficial interest 8 ) Ownership (Trust beneficial interest 8 ) Ownership 11 (Trust beneficial interest 8 ) Ownership 12 (Trust beneficial interest 8 ) Ownership (50% quasi co-ownership of trust beneficial interest 8 ) Ownership (Trust beneficial interest 8 ) 50% co-ownership (Trust beneficial interest 8 ) , % 28, , % 23, , % 12, , % 33, , % 11, , % 18, , % 12, , % 20, , % 22,000 50% co-ownership , % 9,730 Ownership (Trust beneficial interest 8 ) , % 7,180 Total 182, % 199,610 4 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. 5 Composition ratio means a percentage of the property s acquisition price to the total acquisition price, which is rounded to the first decimal place. 6 Appraisals were rendered as of 30 September 2017 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. 7 Condo ownership and co-ownership of condo spaces 8 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.). 9 Building: Condo Land: Co-ownership 10 Building: Condo Land: Co-ownership 11 Building: Condo Land: Co-ownership 12 Building: Condo Land: Co-ownership 8

10 Property Roster Name of building Book value (yen in millions) Building area 13 Rentable area 14 ( m2 ) ( m2 ) Leased area ( m2 ) Occupancy ratio (%) 15 Otemachi First Square 23, , , , Hirakawacho Mori Tower 17,494 51, , , Ginza First Bldg. 11,729 12, , , TK Minami-Aoyama Bldg. 33,535 20, , , ARK Hills Sengokuyama Mori Tower 8, , , , Arca Central 16,039 49, , , Shinagawa Seaside West Tower 12,073 38, , , Yokohama Plaza Bldg. 17,745 19, , , Meiji Yasuda Life Insurance Saitama-Shintoshin Bldg. Meiji Yasuda Life Insurance Osaka Midosuji Bldg. 18,228 78, , , ,581 32, , , Yodoyabashi Flex Tower 6,703 10, , , Total 174, , , , Floor space of the entire building regardless of type and / or percentage of ownership 14 The gross rentable area owned by GOR 15 Rounded to the first decimal place 9

11 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: 28,800 million yen Book value: 23,415 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: 17,494 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: 11,729 million yen Floor area of building: 12, m2 Rentable area: 7, m2 Leased area: 7, m2 Occupancy ratio: % 10

12 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: 33,535 million yen Floor area of building: 20, m2 Rentable area: 14, m2 Leased area: 14, m2 Occupancy ratio: % ARK Hills Sengokuyama Mori Tower 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: 8,161 million yen Floor area of building: 140, m2 Rentable area: 3, m2 Leased area: 3, m2 Occupancy ratio: 98.5 % Arca Central (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: 16,039 million yen Floor area of building: 49, m2 Rentable area: 15, m2 Leased area: 15, m2 Occupancy ratio: % 11

13 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: 12,073 million yen Floor area of building: 38, m2 Rentable area: 12, m2 Leased area: 10, m2 Occupancy ratio: 89.4 % 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: 17,745 million yen Floor area of building: 19, m2 Rentable area: 14, m2 Leased area: 13, m2 Occupancy ratio: 94.8 % 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: 22,000 million yen Book value: 18,228 million yen Floor area of building: 78, m2 Rentable area: 21, m2 Leased area: 21, m2 Occupancy ratio: 98.7 % 12

14 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: 9,581 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: 7,180 million yen Book value: 6,703 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 13

15 Portfolio Highlights (Year) Age of Building Average Age of Building: 14.6 years % 10.0% 5.0% 0.0% Probable Maximum Loss (PML) 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: 11,247 m2 8,131 9,843 7,718 14,012 3,937 15,746 14,222 12,255 21,704 11,247 8,717 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. 14

16 Portfolio Highlights (sqm) 140, , ,000 80,000 60,000 40,000 20,000 (%) Oct 2016 Nov Dec Jan 2017 Feb Mar Apr May Jun Jul Aug Sep 60.0 Gross rentable area (sqm) Occupancy ratio (%) 27 th Period 28 th Period Number of properties Number of tenants 16 Gross rentable area ( m2 ) Occupancy ratio (%) 17 Oct , Nov , Dec , Jan , Feb , Mar , Apr , May , Jun , Jul , Aug , Sep , 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. 17 Occupancy Ratios are rounded to the first decimal place. 18 The gross rentable area increased as a result of the acquisition of Shinagawa Seaside West Tower and Meiji Yasuda Life Insurance Osaka Midosuji Building. 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. 15

17 Balance Sheets As of 31 March 2017 and 30 September th Period (As of 31 March 2017) 28 th Period (As of 30 September 2017) Assets Current Assets Cash and bank deposits 3,514,001 4,732,095 Cash in trust accounts and bank deposits in trust accounts 10,702,429 11,366,002 Tenant receivables 106, ,117 Prepaid expenses 519, ,955 Deferred tax assets Consumption tax receivables 374,401 - Deposits paid Accrued income Advances paid Suspense payments Total current assets 15,217,584 16,677,776 Non-current Assets Fixed assets Buildings 2,014,128 2,176,305 Accumulated depreciation (4,517) (34,725) Buildings, net 2,009,610 2,141,580 Structures 1,699 1,711 Accumulated depreciation (20) (143) Structures, net 1,679 1,568 Land 7,386,890 7,438,106 Buildings in trust accounts 57,239,388 57,464,550 Accumulated depreciation (12,523,315) (13,337,615) Buildings in trust accounts, net 44,716,073 44,126,935 Structures in trust accounts 970, ,065 Accumulated depreciation (230,756) (248,287) Structures in trust accounts, net 740, ,778 Machinery and equipment in trust accounts 596, ,502 Accumulated depreciation (445,824) (467,043) Machinery and equipment in trust accounts, net 150, ,459 Tools, furniture, and fixtures in trust accounts 168, ,567 Accumulated depreciation (108,719) (116,176) Tools, furniture, and fixtures in trust accounts, net 59,447 71,391 Land in trust accounts 120,070, ,070,024 Construction in progress in trust accounts 1,294 3,309 Total fixed assets, net 175,135, ,708,152 Intangible assets Other intangible assets in trust accounts Total intangible assets Investments and other assets Long-term prepaid expenses 315, ,783 Long-term prepaid consumption tax 2,736 2,168 Guaranty money deposited 10,000 10,000 Reserve for repairs 508, ,108 Total investments and other assets 836, ,060 Total non-current assets 175,972, ,515,599 Deferred Assets Corporate bond issuance costs 68,779 97,542 Total deferred assets 68,779 97,542 Total Assets 191,258, ,290,919 16

18 Balance Sheets As of 31 March 2017 and 30 September th Period (As of 31 March 2017) 28 th Period (As of 30 September 2017) Liabilities Current Liabilities Accounts payable 228, ,265 Short-term loans 10,700,000 - Unsecured corporate bonds due within one year 5,000,000 4,000,000 Long-term loans due within one year 19,000,000 20,000,000 Other accounts payable 32, Accrued expenses 97, ,291 Accrued income taxes Accrued consumption taxes - 260,463 Rents received in advance 636, ,420 Deposits received - 0 Cash distributions payable 5,636 5,833 Total current liabilities 35,700,470 25,426,700 Non-current Liabilities Unsecured corporate bonds 14,000,000 15,000,000 Long-term loans 57,500,000 56,500,000 Tenant security deposits 326, ,621 Tenant security deposits in trust accounts 6,960,971 7,039,520 Total non-current liabilities 78,787,595 78,869,141 Total Liabilities 114,488, ,295,842 Net Assets Unitholders Equity Unitholders capital 75,026,315 85,942,682 Surplus Voluntary reserve Reserve for reduction entry 291, ,610 Total voluntary reserve 291, ,610 Retained earnings 1,452,456 1,760,784 Total surplus 1,744,067 2,052,394 Total unitholders equity 76,770,382 87,995,077 Total Net Assets 76,770,382 87,995,077 Total Liabilities and Net Assets 191,258, ,290,919 17

19 Income Statements For the six-month periods ended 31 March 2017 and 30 September th Period (From 01 October 2016 to 31 March 2017) 28 th Period (From 01 April 2017 to 30 September 2017) Operating Revenues Rental revenues 4,423,976 5,139,227 Non-rental revenues 659 1,757 Total operating revenues 4,424,636 5,140,985 Operating Expenses Property-related expenses 2,045,977 2,344,707 Asset management fees 330, ,598 Directors remuneration 10,638 10,638 Asset custody fees 21,269 23,747 Agent fees 45,078 50,792 Audit fees 10,000 10,600 Other operating expenses 23,843 22,619 Total operating expenses 2,486,973 2,842,703 Operating Profit 1,937,662 2,298,281 Non-operating Revenues Interest Revenues Reversal of cash distributions payable Interest on refund of consumption tax - 1,085 Total non-operating revenues 1,172 2,077 Non-operating Expenses Interest expense 304, ,829 Interest expense of corporate bonds 76,916 75,905 Amortization of corporate bond issuance costs 9,772 9,344 Unit issuance costs 24,688 19,535 Borrowing related expenses 69,208 92,552 Other non-operating expenses Total non-operating expenses 485, ,848 Ordinary Profit 1,453,383 1,761,510 Income before Income Taxes 1,453,383 1,761,510 Income taxes-current Income taxes-deferred (2) 4 Total income taxes Net Income 1,452,446 1,760,664 Retained Earnings at beginning of period Retained Earnings at end of period 1,452,456 1,760,784 18

20 Statements of Unitholders Equity For the six-month period ended 31 March 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 1,425,796 1,717,407 76,743,722 76,743,722 Changes during the period Dividends from surplus (1,425,786) (1,425,786) (1,425,786) (1,425,786) Net income 1,452,446 1,452,446 1,452,446 1,452,446 Total changes during the period ,660 26,660 26,660 26,660 Balance at the end of the period 75,026, , ,610 1,452,456 1,744,067 76,770,382 76,770,382 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 19

21 Dividend Distributions For the six-month periods ended 31 March 2017 and 30 September th Period (From 01 October 2016 to 31 March 2017) (Yen) 28 th Period (From 01 April 2017 to 30 September 2017) I Retained earnings at end of period 1,452,456,799 1,760,784,385 II Total cash distribution 1,452,337,200 1,760,749,600 (Cash distribution per unit) (7,494) (7,864) III Retained earnings carried forward 119,599 34,785 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 1,452,337,200 yen, which is the integer multiple of the total number of units issued at the end of the Period (193,800 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 1,760,749,600 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. 20

22 Statements of Cash Flows For the six-month periods ended 31 March 2017 and 30 September th Period (From 01 October 2016 to 31 March 2017) 28 th Period (From 01 April 2017 to 30 September 2017) Cash flows from operating activities Income before income taxes 1,453,383 1,761,510 Depreciation and amortization 818, ,886 Amortization of investment corporate bond issuance costs 9,772 9,344 Unit issuance costs 24,688 19,535 Interest revenues (695) (281) Interest expenses 381, ,734 Decrease (increase) in tenant receivables (5,084) (24,523) Decrease (increase) in deposits paid (158) 133 Decrease (increase) in consumption tax receivables (374,401) 374,401 Increase (decrease) in accounts payable (17,486) 56,882 Increase (decrease) in accrued expenses 1,626 17,977 Increase (decrease) in accrued consumption taxes (104,986) 260,463 Increase (decrease) in rents received in advance 43,203 2,337 Increase (decrease) in deposits received - 0 Decrease (increase) in prepaid expenses (79,813) 54,455 Decrease (increase) in long-term prepaid expenses (130,831) 28,504 Decrease (increase) in long-term prepaid consumption tax Others, net 13,973 (30,065) Subtotal 2,033,215 3,838,867 Interest revenues received Interest expenses paid (381,910) (417,668) Income taxes paid (965) (895) Net cash provided by (used in) operating activities 1,651,035 3,420,719 Cash flows from investing activities Purchases of fixed assets (9,402,719) (209,054) Purchases of fixed assets in trust accounts (12,201,283) (131,275) Proceeds from tenant security deposits (including trust accounts) 957, ,535 Repayments for tenant security deposits (including trust accounts) (52,242) (117,863) Proceeds from bank deposits corresponding to tenant security deposits (including trust accounts) 52, ,034 Repayments for bank deposits corresponding to tenant security deposits (including trust accounts) (957,052) (236,535) Net cash provided by (used in) investing activities (21,604,002) (299,159) Cash flows from financing activities Proceeds from short-term loans 10,700,000 - Repayments of short-term loans - (10,700,000) Proceeds from long-term loans 16,500,000 5,000,000 Repayments of long-term loans (6,000,000) (5,000,000) Proceeds from issuance of corporate bonds 3,971,368 4,961,892 Redemption of corporate bonds (4,000,000) (5,000,000) Proceeds from issuance of investment units - 10,872,142 Dividends paid (1,426,084) (1,451,429) Net cash provided by (used in) financing activities 19,745,283 (1,317,394) Net increase (decrease) in cash and cash equivalents (207,683) 1,804,165 Cash and cash equivalents at beginning of period 7,525,788 7,318,105 Cash and cash equivalents at end of period 7,318,105 9,122,270 21

23 <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 27 th and 28 th Period, the amounts of property taxes etc. included in the acquisition cost were 120,034 thousand yen and none, respectively. 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. 22

24 Note 2 - Short-Term Loans Short-term loans as of 31 March 2017 and 30 September 2017 consisted of the following: As of 31 March 2017 As of 30 September 2017 Unsecured loans from a bank and a trust bank with floating interest rates due on 29 September 2017 (Note) 10,700,000 - Total 10,700,000 - (Note) GOR made early repayment of loans on 28 April Note 3 - Long-Term Loans Long-term loans as of 31 March 2017 and 30 September 2017 consisted of the following: As of 31 March 2017 As of 30 September % unsecured loan from a bank due on 29 September ,000, % unsecured loan from a bank due on 28 February ,000,000 4,000, % 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 ,500,000 1,500, % 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 loan from an insurance company due on 30 September ,000,000 1,000, % unsecured loans from banks and a trust bank due on 28 September ,000,000 6,000,000 Unsecured loans from banks and a trust bank with floating interest rates due on 30 March ,000,000 10,000, % 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, a trust bank, and an insurance company, due on 30 September ,000,000 5,000, % unsecured loans from banks, a trust bank, and an insurance company, due on 29 March ,500,000 10,500, % unsecured loans from banks, a trust bank, and an insurance company, due on 31 March ,000,000 6,000, % unsecured loan from a bank due on 30 September ,000,000 Total 76,500,000 76,500,000 23

25 Note 4 - Unsecured Corporate Bonds Unsecured Corporate Bonds as of 31 March 2017 and 30 September 2017 consisted of the following: As of 31 March 2017 As of 30 September 2017 Series No. 4 unsecured corporate bonds, maturing on 29 September 2017, with a coupon of 1.59% 5,000,000 - 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. 7 unsecured corporate bonds, maturing on 27 September 2024, with a coupon of 0.86% 3,000,000 3,000,000 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. 9 unsecured corporate bonds, maturing on 16 October 2026, with a coupon of 0.47% 4,000,000 4,000,000 Series No. 10 unsecured corporate bonds, maturing on 28 September 2022 with a coupon of 0.28% - 3,000,000 Series No. 11 unsecured corporate bonds, maturing on 28 September 2027, with a coupon of 0.63% - 2,000,000 Total 19,000,000 19,000,000 Note 5 - Net Assets GOR is required to maintain net assets of at least 50 million yen, pursuant to the Investment Trust Act. Note 6 - Income Taxes 1. Breakdown of major causes of deferred tax assets and deferred tax liabilities As of 31 March 2017 As of 30 September 2017 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 31 March 2017 and 30 September 2017 were as follows: As of 31 March 2017 As of 30 September 2017 Statutory tax rate Deductible cash distributions Others % (31.72 %) 0.04 % % (31.73 %) 0.04 % Effective tax rate % 0.05 % 24

26 Note 7 - Breakdown of Property-Related Revenues and Expenses For the six month periods ended 31 March 2017 and 30 September 2017 For the period from 01 October 2016 to 31 March 2017 For the period from 01 April 2017 to 30 September 2017 Property-related Revenues Rental Revenues Rental revenues 3,571,316 4,087,126 Common area charges 479, ,017 Utility charges 264, ,688 Parking revenues 91, ,621 Other rental revenues 16,021 25,772 Non-rental Revenues Other miscellaneous revenues 659 1,757 Total Property-related Revenues 4,424,636 5,140,985 Property-related Expenses Property management fees 479, ,648 Utilities expenses 219, ,191 Property and other taxes 427, ,803 Casualty insurance 8,843 9,927 Repairs and maintenance 85,544 94,039 Depreciation and amortization 818, ,886 Other rental expenses 7,154 6,210 Total Property-related Expenses 2,045,977 2,344,707 Property-related Profits and Losses 2,378,658 2,796,277 Note 8 Cash and cash equivalents The following table represents a reconciliation of cash and cash equivalents as of 31 March 2017 and 30 September For the period from 01 October 2016 to 31 March 2017 For the period from 01 April 2017 to 30 September 2017 Cash and deposits 3,514,001 4,732,095 Cash in trust accounts and bank deposits in trust accounts 10,702,429 11,366,002 Bank deposits corresponding to tenant security deposits (including trust accounts) (Note) (6,898,326) (6,975,828) Cash and cash equivalents 7,318,105 9,122,270 (Note) Security deposits received from tenants retained in bank deposits or bank deposits in trust accounts for repayment when tenants vacate properties. 25

27 Note 9 - 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 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 3,514,001 3,514,001 - (2) Cash in trust accounts and bank deposits in trust accounts 10,702,429 10,702,429 - (3) Short-term loans (10,700,000) (10,700,000) - (4) Unsecured corporate bonds due within one year (5,000,000) (5,035,500) (35,500) (5) Long-term loans due within one year (19,000,000) (19,102,056) (102,056) (6) Unsecured corporate bonds (14,000,000) (14,028,300) (28,300) (7) Long-term loans (57,500,000) (58,536,807) (1,036,807) 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) Short-term loans (4) Unsecured corporate bonds due within one year (4,000,000) (4,004,800) (4,800) (5) Long-term loans due within one year (20,000,000) (20,066,825) (66,825) (6) Unsecured corporate bonds (15,000,000) (15,004,100) (4,100) (7) Long-term loans (56,500,000) (57,355,282) (855,282) (Note 1) The following methods and assumptions are used to estimate the fair value of the above (1) through (7): (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. 26

28 (3) Short-term loans Fair values of short-term loans are based on carrying amounts because short-term loans are settled within a short time period and have floating interest rates. (4) Unsecured corporate bonds due within one year, and (6) Unsecured corporate bonds Fair values are calculated based on market values: in the case where market values are not available, the fair values are calculated by discounting back the total principal and interest amount to the present values at a rate that takes into account the factors i.e., years to maturities and credit risks. (5) Long-term loans due within one year, and (7) Long-term loans Fair values of fixed long-term loans are calculated by discounting the total principal and interest amount at an interest rate applicable to a loan under similar conditions that can be obtained at the end of reporting period date: those of floating long-term loans are based on carrying amounts because the market interest rate is reflected within a short time period. (Note 2) GOR assumes that tenant security deposits (the carrying amount is 326,624 thousand yen and 329,621 thousand yen, as of 31 March 2017 and 30 September 2017, respectively) and tenant security deposits in trust accounts (the carrying amount is 6,960,971 thousand yen and 7,039,520 thousand yen, as of 31 March 2017 and 30 September 2017, respectively) are not subject to the fair value disclosure requirements: Lease agreements have the risk of earlier termination at any time during the contractual period, as well as the possibilities of renewal and/or re-signing. According to GOR s historical tenant turnover record, it is extremely difficult to identify a specific tenant turnover trend. This makes it difficult to foresee the timing of refund of security deposits. It is therefore deemed to be impossible to estimate future cash flows, and consequently, the fair value. (Note 3) Redemption schedule of monetary claims as of 31 March 2017 Due within 1 year Cash and bank deposits 3,514,001 Cash in trust accounts and bank deposits in trust accounts 10,702,429 Redemption schedule of monetary claims as of 30 September 2017 Due within 1 year Cash and bank deposits 4,732,095 Cash in trust accounts and bank deposits in trust accounts 11,366,002 (Note 4) Repayment schedule of unsecured corporate bonds and loans as of 31 March 2017 Due within 1 year Due after 1 to 2 years Due after 2 to 3 years Due after 3 to 4 years Due after 4 to 5 years Due after 5 years Short-term loans 10,700, Unsecured corporate bonds due within one 5,000, year Long-term loans due within one year 19,000, Unsecured corporate bonds - 4,000, ,000,000 7,000,000 Long-term loans - 11,000,000 22,500,000 2,500,000 6,000,000 15,500,000 Repayment schedule of unsecured corporate bonds and loans as of 30 September 2017 Due within 1 year Due after 1 to 2 years Due after 2 to 3 years Due after 3 to 4 years Due after 4 to 5 years Due after 5 years Unsecured corporate bonds due within one 4,000, year Long-term loans due within one year 20,000, Unsecured corporate bonds ,000,000 9,000,000 Long-term loans - 18,500,000 11,500,000-11,000,000 15,500,000 27