results of operations - kenedix · overall earthquake did not materially impacted the results of...

Results of Operations for the Six Months Ended June 30, 2011

Table of Contents

1

1. First Half of 2011 Results Highlights

2. Business Environment

3. Kenedix Priority Issues

2

1. First Half of 2011 Results Highlights

Executive Summary

3

Return to positive net income for the first half of 2011 We recorded a first quarter net loss of ¥105 mm primarily due to a ¥604 mm extraordinary loss that included reserves for

damages caused by the Great East Japan Earthquake.

In the second quarter, earnings improved due to capital gains from continuous sales of our principal investment properties (properties were closed gas stations, rental condominiums, etc.) and gains on NPL collections. Distributions from overseas investments also contributed to earnings. In total, we generated positive net income of ¥662 mm in the first half.

However, there were some areas that require further improvements. Acquisition fees were low due to the slowdown in purchases of new properties, as the earthquake negatively impacted the volume of overall real estate transactions. Furthermore, asset management fees slightly declined mainly due to the sales of some AUM where these fees ware high.

Impact of the Great East Japan Earthquake was limited The Great East Japan Earthquake caused unprecedented and massive losses to Japan’s economy, but the primary impact

on Kenedix was only the estimated repair expenses of ¥311 mm at certain principal-account properties (including the Roseo Mito shopping center). Overall earthquake did not materially impacted the results of operations and the financial condition of Kenedix.

We will continue to monitor the potential effects of the changes in the post-earthquake macro economic environment on real estate market fundamentals and our performance, but, at this moment, we are not aware of any material factors.

Small net decrease in AUM ; aiming for growth in second half Due to the slump in real estate transaction volumes caused by the Great East Japan Earthquake, the first half acquisitions

of new properties fell short of our original plan, while the sales of some AUM were completed as planned.

AUM balance totaled ¥1,051.9 bn at the end of the first half, ¥46 bn less than that at the end of 2010.

Kenedix is determined to purchase new properties even more aggressively in order to increase stable income base through further growth in AUM.

9,724

12,176

77,831

38,589

21,900

0

25,000

50,000

75,000

100,000

2009 2010 2011

Revenue

5,166

5,734

13,51411,411 10,900

0

5,000

10,000

15,000

20,000

2009 2010 2011

Gross Operating Income

1,593225

2,202 2,107

3,700

0

1,250

2,500

3,750

5,000

2009 2010 2011

Ordinary Income

662

-2,542

1,338

2,000

-3,000

-1,500

0

1,500

3,000

2009 2010 2011

Net Income

4

FY2009 FY2010 FY2011

1H Full year 1H Full year 1H Full year (f.)

Revenue 60,334 77,831 23,177 38,589 9,724 21,900

Gross Profit 13,295 13,514 7,436 11,411 5,166 10,900

(Gross Profit Margin) 22.0% 17.4% 32.1% 29.6% 53.1% 49.8%

Operating Income 10,761 8,433 5,425 7,331 3,527 7,600

(Operating Income Margin) 17.8% 10.8% 23.4% 19.0% 36.3% 34.7%

Ordinary Income 6,552 225 2,918 2,202 1,593 3,700

(Ordinary Income Margin) 10.9% 0.3% 12.6% 5.7% 16.4% 16.9%

Income before Provision for Income taxes

-7,360 -16,566 842 -406 1,233 3,560

Net Income -8,840 -18,438 -535 -2,542 662 2,000

Summary of Consolidated Income Statements

(Millions of yen)

-18,438

(Millions of yen)

*

*

**

* Full-year forecasts

Kenedix recorded a ¥105 mm net loss in the first quarter due to a ¥604 mm extraordinary lossprimarily caused by earthquake related damages.

In the second quarter, our operational performance improved, which resulted in positive net incomeof ¥662 mm in the first half of 2011.

1,982

3,450

4,8075,432

0

2,000

4,000

6,000

8,000

2010 2011

Asset Management Business

1,193

430

3,060

1,623

0

1,000

2,000

3,000

4,000

2010 2011

Real Estate Investment Business

1,990

1,854

3,543 3,844

0

1,500

3,000

4,500

6,000

2010 2011

Real Estate Leasing Business

FY2010 FY2011

1H Full year 1H YoYchange

Full year (f.)

Gross Operating Income ¥7,436 ¥11,411 ¥5,166 -30.5% ¥10,900Asset Management Business 2,393 4,807 1,982 -17.2% 5,432

Acquisition Fees 122 619 38 -68.1% 796 Asset Management Fees 1,754 3,438 1,489 -15.1% 3,736

Disposition Fees 17 76 103 500.7% 39 Incentive Fees 158 292 140 -11.4% 228

Other Fees 340 380 209 -38.4% 634 Real Estate Investment Business 3,248 3,060 1,193 -63.3% 1,623

Rental Revenue 1,290 2,317 748 -42.0% 1,677

Gain on Sale of Properties 1,745 1,921 203 -88.4% 0 Dividend Income from Investment in TK 174 -784 -125 - -204

Gain on Sales of TK Investments 0 0 0 - -191 Valuation Loss of Properties -132 -596 -5 - 0 Gain on Sales /Collection Profits on NPL 50 -52 184 268.8% 178

Others 120 255 187 55.7% 164

Real Estate Leasing Business 1,794 3,543 1,990 10.9% 3,844 Rental Revenue 1,794 3,564 2,004 11.7% 3,874 Others 0 -21 -14 - -29

Business Segment Information

(Millions of yen) (Millions of yen)

5

*

*

*

•Full-year forecasts

Performance of our Asset Management Business was slightly down, due in part to the Great East JapanEarthquake. However capital gains on sales of properties and collection profits contributed to our earnings.

218,603

206,228

195,795

180,000

195,000

210,000

225,000

240,000

2009/12 2010/12 2011/06

Total Assets

54,525

71,147 71,512

40,000

50,000

60,000

70,000

80,000

2009/12 2010/12 2011/06

Net Assets

153,038

123,625

115,020

90,000

110,000

130,000

150,000

170,000

2009/12 2010/12 2011/06

Interest-bearing Debt

3.27x

2.06x

1.90x

1.0

2.0

3.0

4.0

5.0

2009/12 2010/12 2011/06

Debt Equity Ratio

Summary of Consolidated Balance Sheets

The balance of assets further decreased as Kenedix continued to sell properties held in its principalaccount, and our D/E ratio improved as the amount of interest-bearing liabilities was reduced.

6

Dec. 31, 2009 Dec. 31, 2010 Jun. 30, 2011

Total Assets 218,603 206,228 195,795

Net Assets 54,525 71,147 71,512(of which Minority Interests) (7,784) (11,080) (11,117)

Equity Ratio* 24.9% 34.5% 36.5%

Equity Ratio* (excluding Minority Interests) 21.4% 29.1% 30.8%

Interest-bearing Debt 153,038 123,625 115,020(of which Non-recourse Loans) (68,419) (69,764) (59,295)

Cash and Deposits 18,291 10,913 8,075

Net Debt* 66,327 42,947 47,650

Net Debt Equity Ratio* 1.42x 0.72x 0.79x(including minority interests) (1.21x) (0.60x) (0.66x)

Debt Equity Ratio 3.27x 2.06x 1.90x(including minority interests) (2.81x) (1.74x) (1.62x)

(Millions of yen, unless otherwise stated) (Millions of yen)

Note: Equity ratio = “Net Assets” / “Total Assets” “Net Debt” = “Interest-bearing Debt” – “Non-recourse Loans” – “Cash and Deposits“ “Net-Debt-Equity-Ratio” = “Net-Debt” / “Interest-bearing Debt (of which Non-recourse Loans)”

Kenedix has successfully diversified debt maturities overa long period by smoothly refinancing maturing interest-bearing debt and employing long-term sources of funds.

As expensive interest rate debts reach their maturities,Kenedix has been replacing them with lower-cost capitalto reduce overall interest costs.

7

Summary of Interest-bearing Debt –(1)

Schedule of Repayments of Interest-bearing Debts

Average Interest Rate on Interest-bearing Debts

Note: The average interest rate is calculated by dividing interest paid in each fiscal period (excluding up-front fees) by the average of interest-bearing liabilities at the beginning and end of the fiscal period.

(Millions of yen)

(Millions of yen)

8,030 7,708

15,719

10,294

17,545

7,6686,317

4,175

15,64917,799

50 50 251,000600 300

2,093

0

5,000

10,000

15,000

20,000

25,000

30,000

2011/2H 2012/1H 2012/2H 2013 2014 or later

Corporate Bonds (unsecured)Corporate Loans (unsecured)Corporate Loans (secured)Non-recource Loans

106,630

238,269

202,806

153,038

123,625117,901

115,020

1.47%

1.92%

2.61%2.38%

3.28%

3.86%

3.29%

0%

1%

2%

3%

4%

5%

0

60,000

120,000

180,000

240,000

300,000

2006 2007 2008 2009 2010 2011Q1

2011Q2

Loan Balance (left axis)

Average Interest Rate (right axis)

56.9% 56.7% 53.7% 55.3%49.6%

58.1%

42.4% 45.8% 44.0%

19.0% 19.2% 26.6% 20.3%23.1%

30.2%

26.6%26.9% 27.3%

16.7% 17.9%16.0%

21.6% 24.2%

11.7%

31.0% 23.6% 23.7%

7.4% 6.1% 3.7% 2.8% 3.1% 3.6% 4.9%

0%

25%

50%

75%

100%

09/6 09/9 09/12 10/3 10/6 10/9 10/12 11/3 11/6

Overseas Financial InstitutionsRegional BanksLeasing CompaniesDomestic Large Banks

8

Summary of Interest-bearing Debt –(2)

Interest-bearing Debts Composition of Loans by Lender Category(Millions of yen)

57,768 57,91568,420 71,544

64,285 68,198 69,76560,210 59,295

57,609 53,069

60,411 56,679

49,49348,075 48,403

53,147 51,607

3,4072,124

1,868 669

532 1,655 2,4651,150 1,125

41,65740,287

22,339 21,189

20,0034,803 2,993

3,393 2,993

160,441153,394 153,038

150,081

134,313

122,731 123,625117,900

115,020

50,000

100,000

150,000

200,000

09/6 09/9 09/12 10/3 10/6 10/9 10/12 11/3 11/6

Corporate Bonds (unsecured)

Corporate Loans (unsecured)

Corporate Loans (secured)

Non-recource Loans

Summary of Inventories

Breakdown of Inventories (as of June 30, 2011)（Millions of yen, number of properties in parentheses）

9

Office Residential CommercialFacilities

Gas Station(Operating) *1

Gas Station(Closed) *1

UndevelopedLand, etc Total

Tokyo MetropolitanArea

2,600(1) - 2,912(1) 5,368 (1) 433 (1) - 11,314(2)

Kansai Area 4,448(1) - 2,264(1) 1,861 (1) 276 (1) 1,170(1) 10,021(3)

Chubu - - - 1,832 (1) 58 (1) - 1,890(-)

Kyushu - - - 1,381 (1) 69 (1) - 1,450(-)

Others - - 13,417(2) 2,351 (1) 931 (1) 381(2) 17,081(4)

Total 7,048(2) - 18,594(4) 12,795 (1) 1,767 (1) 1,551(3) 41,758(10)

NOI Yield for Inventories and LTV(Loan to Value)

Average

Occupancy Rate*285.9% -% 82.8% 100% -% -% 85.2%*3

Appraised NOI Yield*4 8.4% -% 6.2% -% -% -% 6.8%*5

LTV 60.4% (Total Loans：¥25,240 mm yen, includes ¥20,699 mm yen of non-recourse loans)

Note： (1)Treated as a single holding for operating and closed locations because properties are held in bulk; includes 89 operating locations and 26 locations that are closed (2)Average Occupancy rate is as of June 30,2011 (3)Occupancy rate of Gas Stations is not reflected. (4) Appraised NOI return = Appraised NOI/Book value. Appraised NOI return for gas stations (operating properties) is not shown due to change to appraisal method that does not use an appraised NOI yield. (5) Book value-based weighted average

Disposition of 1 operating gas station (2Q)

Disposition of 4 closed gas stations(2Q)

Summary of Fixed Assets

Office Residential Senior Healthcare

RedevelopmentProjects

(Ginza/Roppongi)Data Center Others Total

Tokyo Metropolitan Area 33,720(10) 7,038(10) 2,900(2) 9,594(2) 6,279(2) 30(1) 59,560(27)

Kansai Area 12,824(2) 11,331(8) 1,876(2) - 1,139(1) 404(1) 27,575(14)

Chubu 3,764(3) 8,314(7) - - 1,076(1) - 13,154(11)

Kyushu - 2,189(2) - - - - 2,189(2)

Others 4,120(4) 6,203(7) - - 1,534(2) 840(2) 12,697(15)

Total 54,429(19) 35,075(34) 4,776(4) 9,594(2) 10,028(6) 1,275(4) 115,176(69)

NOI Yield for Fixed Assets and LTV (Loan to Value)

Average Occupancy Rate*1 76.9% 94.7% 100.0% 97.8% 100% 76.8% 89.7%

Appraised NOI Yield*2 5.8% 6.2% 7.1% 5.2% 5.4% 6.4% 5.9%*3

LTV 61.1% (Total loans: ¥70,411mm, includes ¥38,595 mm of non-recourse loans)

Breakdown of Fixed Assets (as of June 30, 2011)

10

(Millions of yen, number of properties in parenthesis)

Note: (1) Average occupancy rate is as of June 30, 2011. (2) Appraised NOI return = Appraised NOI/Book value. (3) Book value-based weighted average

48.3%

15.0%

9.3%11.3%

12.1%4.0%

Summary of Investment Securities

11

Investment Securities (as of June 30, 2011)

（Millions of yen）

Kenedix is making small joint investments (same boat investments) along with client investors in non-consolidated real estate funds. The balance of these investments was ¥11.2 bn as of June 30, 2011, i.e. 63.3% of all investment securities.

Holding FY2010(Dec. 31, 2010)

1H FY2011(Jun. 30, 2011)

Composition Description

Same Boat Investments

TK Investments 9,577 8,578 48.3% TK investments in SPC

Other Investments 2,652 2,669 15.0% TMK investments and other

Overseas Investments 2,337 1,656 9.3%Investments in U.S. apartment buildings, Chinese real estate funds and other investments

Mezzanine Loans 2,000 2,000 11.3% Mezzanine loans to SPCs that invest in Tokyo office buildings

Equity Ownershipin Affiliated Companies 2,156 2,144 12.1% MAX-REALTY, Mitsui & Co Logistics

Partners, and others

Others 721 719 4.0% REIT investment units and others

Total 19,442 17,766

Down due to sales of investments, equitydistributions, earnings distributions andother items

Same Boat Investments

Timing of Same-Boat Investments

Composition of Investments in Securities

Sold a portion of overseas project

7.5%

21.3%

19.3%25.9%

8.1%

14.0%3.8%

Prior to 2004200520062007200820092010

TK Investments

Other Investments

Overseas Investments

Mezzanine Loans

Equity Ownership in Affiliated CompaniesOther

49.515.3 22.1

134.5 145.3 158.7190.5

109.4 95.6158.0

-46.0-100

0

100

200

00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12 11/6

Growth in Assets Under Management (AUM)

The total AUM was ¥1,051.9 bn, decreasing by ¥46.0 bn in the first half of 2011. Gross increase of ¥9.2 bn and a gross decrease of ¥55.2 bn.

(Billions of yen)

12

otes: The Kenedix Group uses the following standards for calculating the balance of assets under management (AUM)- AUM includes real estate properties where the Kenedix Group performs asset management services, but does not include development projects prior to completion- AUM uses the acquisition cost of a property (net of taxes). Costs associated with acquisitions, capital expenditures to raise a property’s value and other related items are included in the book value of a property for accounting purposes. However, these items are not included in AUM- AUM includes properties that the Kenedix Group holds itself for a short period of time. AUM also includes properties held by J-REITs (Kenedix Realty Investment and Japan Logistics Fund) and LPT (Challenger Kenedix Japan Trust) that are managed by Kenedix affiliates

Net Increase in AUM

AUM

19.068.5 83.8 105.9

240.4

385.7

544.4

734.9

844.3

939.9

1,097.91,051.9

0

200

400

600

800

1,000

1,200

00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12 11/6

LehmanCrisis

The Great East Japan Earthquake

Historical Cycle of Changes in AUM

13

In the past, there has often been a downturn in new acquisitions whenever a severe negative event occurred in the business environment.

We believe that the net decrease in AUM this year was primarily attributable to the stagnant volume of real estate transactions after the Great East Japan Earthquake.

Quarterly Changes in AUM AUM Changes by Client Investor CategoryAcquisitions by Client Investor Category

Dispositions by Client Investor Category

(Billions of yen)

(Billions of yen)

(Billions of yen)

0

400

800

1,200

1,600

2004 2005 2006 2007 2008 2009 2010

On-balancePrivate FundJ-REIT

0

400

800

1,200

1,600

2004 2005 2006 2007 2008 2009 2010

On-balancePrivate FundJ-REIT

160

120

80

40

160

120

80

40

74.1

48.357.5 62.9

82.5

60.8

12.7 9.020.1 26.0

34.442.3 38.5

63.7 69.0

26.9

6.7 2.7

-37.6-32.2 -26.3

-4.3 -3.9 -7.8 -10.4 -8.7 -11.1 -8.6 -9.8 -5.3 -5.1 -7.7 -9.6-17.9

-31.0-24.2-50.0

-25.0

0.0

25.0

50.0

75.0

100.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2007 2008 2009 2010 2011

DispositionsAcquisitions

42.022.0

53.1 59.0 74.7

23.12.3 0.3 9.0 17.5 24.6 37.0 33.4

56.0 59.4

8.9

-24.3-21.6-50.0

0.0

50.0

100.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2007 2008 2009 2010 2011

Net Increase in AUM

Diversification of AUM (1): Client Investors

Growth in AUM Breakdown of AUM(Billions of yen)

14

100%

54%

40% 37%

19%15%

10%15% 17%

22%29% 29%

45%

47%

41%

47%

25%

15% 6% 5%

7%

7% 6%

21%

26%

22%

21%

17%19%

17%

14% 14%

28%

41%

40%38%

37%35% 37%

1%

14%8% 10% 13%

22% 20% 17% 15% 15%

0%

20%

40%

60%

80%

100%

00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12 11/06

5%

19.0 36.9 33.2 39.6 44.8 56.4 55.7113.0 143.8

209.8316.4 303.9

30.6 39.2 43.9113.3 95.8 81.9

44.543.8

63.2

77.258.2

22.4

63.4 86.2 113.5123.8

162.2

159.8

154.9148.9

107.0

221.0

291.3

322.5

344.8

387.7384.5

1.0 11.3

19.0

40.2

72.4

162.4

172.0

162.3

161.8156.5

0

200

400

600

800

1,000

1,200

00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12 11/06

Principal Account

J-REIT

Pension Funds

Domestic Institutional Investors

Foreign Investors

Diversification of AUM (2): Property Category


15

100%

62%

79%70%

56%51%

47%40% 40% 40% 39% 39%

18%

13%

20%

19%21%

21%

21% 21% 19% 20% 20%

20%

8%6%

13%11% 17%

15% 17% 19% 18% 19%

4%

12%15% 13%

13% 12% 12% 13% 14%

2% 2%11% 10% 9% 9% 9%

0%

20%

40%

60%

80%

100%

00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12 11/06

18%

19.0 42.6 66.0 74.2134.8

198.4256.7 297.4 337.4 375.1

426.6 413.8

12.111.1 21.2

44.7

81.4

112.2

152.7176.2

180.8

225.0 207.9

13.96.7 6.7

30.8

40.8

91.9

109.7

143.1

182.7

199.6195.2

3.8

29.3

58.4

71.0

94.2

100.4

116.6

145.2144.2

0.9

6.7

12.6

80.9

87.2

84.7

101.690.7

0

200

400

600

800

1,000

1,200

00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12 11/06

Others

Logistics

Commercial Facilities

Residence

Office

Diversification of AUM (3): Geographic Coverage


16

100%

73% 75% 78%

67%74%

70%66% 67% 63%

69% 69%

20%

25% 21%

20%13%

15%15% 14%

16%14% 14%

2% 1%2%

4% 5% 5%4% 5%

2% 2% 8%5% 4% 4%

3% 3%

7%1%

9% 9%5%

10% 10% 11% 10% 10%

0%

20%

40%

60%

80%

100%

00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12 11/06

2%

19.0 49.7 62.7 82.7161.6

286.9379.2

482.8564.0 595.8

755.3 721.1

13.9 20.9 22.2

48.4

51.2

79.0

112.4

116.2153.4

156.2145.7

0.0

3.8

5.6

13.4

28.9

43.8

49.1

48.449.5

3.9

8.8

45.9

38.4

36.4

34.7

28.426.5

4.9 0.2 1.1

22.7

33.2

26.9

72.6

84.0

106.9

109.7109.1

0

200

400

600

800

1,000

1,200

00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12 11/06

Other AreaKyushu AreaChubu AreaKansai AreaTokyo Metropolitan Area

32

3

11

15

9

39

47

37

50 51 52

3330

64

58

7

0

10

20

30

40

50

60

70

80

1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H

Foreign Investors

Domestic Pensions

Domestic Institutional Investors

3 2 3 614 9

37

1325 23

9 5

010203040506070


Domestic Pensions

2001 20092002 2003 2004 2005 20102006 2007 2008 2011(Billions of yen)

Timing of Fund Procurement

(TSE REIT Index)

2001 20092002 2003 2004 2005 20102006 2007 20112008

TSE REIT Index

704.46

2612.98

Phase 22007~2008

Phase 32009~2011

2005

2006

2007~200836.5%

2009以降31.2%

20072008

2004

Phase 12001~2006

1

20042005

2006

20072008

2009

20102011

2001~2003

Despite the volatility and cyclical trends of real estate and financial market, the timing of fund procurement of current AUM (excluding J-REITs) is well diversified.

(Billions of yen)(Billions of yen)

(Billions of yen)2001 20092002 2003 2004 2005 20102006 2007 2008 2011

2001 20092002 2003 2004 2005 20102006 2007 2008 201117

5 1

15 11

23

3947

29 30

55

42

7

010203040506070


Foreign Investors

2

18

1 4 3 1 310

16

010203040506070


Domestic Institutinal Investors

0

400

800

1,200

1,600

2,000

2,400

2,800

3,200

2. Business Environment

18

19

Executive Summary

1We have not observed any material change of stance of investors and lenders towardreal estate before and after the Great East Japan Earthquake. They are generallyretaining aggressive positions with affluent liquidity.

2 REITs have become the major players in the real estate investment market as they havereconvened fund procurement activities.

33At the same time, there remains a gap of price expectations between buyers and sellers,both with ample volume of capital. As a result, the growth in the volume of real estatetransactions appears stagnant.

45As a result of US Treasury downgrade on August 5th, the uncertainly of global financialmarket is rising. In this environment, Kenedix will take sensible measures to maximize ourperformances.

44The office building market is demonstrating signs of bottom out. Additionally, we observe a shift in tenants’ needs due to the earthquake disaster, which is creating favorable market conditions for newer buildings.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0 2 4 6 8 10

Before Earthquake Jan 1 - Mar 10After Earthquake Mar-11 - Jun 15

Financial Institution Loan Stance Diffusion Index

20

Stance of Lenders toward Real Estate Loans

The stance of Japanese financial institutionstoward real estate loans is improving as theyhave considerable excess capacity to extendloans amidst a shortage of borrowers.

This change in the lending environment willmost likely lead to better terms and conditionsof loans to the Japanese real estate industry.

Deposit-Loan Gap of Japanese Banks

Source: Bank of Japan

Source: Bank of Japan

J-REIT Refinancing Activities

Source: Prepared by Kenedix based on REIT data

（Trillion of yen)

year

Interest

60%

70%

80%

90%

100%

0

50

100

150

200

99 00 01 02 03 04 05 06 07 08 09 10

Deposit Loan Gap (left axis)Loan to Deposit Ratio (right axis)

-40

-30

-20

-10

0

10

20

30

40

06/6 06/12 07/6 07/12 08/6 08/12 09/6 09/12 10/6 10/12 11/6

Real Estate Industry/Large-capReal Estate Industry/Mid-capReal Estate Industry/Small-capAll Industries/All Company Sizes

2,000

1,600

1,200

800

400

Announced onAmount

(¥100 mm)

Nippon Building Fund Inc. Jan 11 289Japan Excellent, Inc. Jan 13 150Fukuoka REIT Corporation Feb 7 89Nippon Accommodations Fund Feb 10 221Industrial & Infrastructure Fund Investment Corporation Feb 21 57

ORIX JREIT Inc. May 9 136United Urban Investment Corporation May 23 594Kenedix Realty Investment Corporation July 5 140Invincible Investment Corporation July 15 69

2%

3%

4%

5%

6%

7%

8%

9%

08/09 08/12 09/03 09/06 09/09 09/12 10/03 10/06 10/09 10/12 11/03 11/06

Activities of J-REITs

Property acquisitions by J-REITs are increasing as REITs have resumed public equity offerings. At the same time, their transaction cap rates are converging.

21

J-REIT Index and Public Equity Offerings

J-REIT Transaction Cap Rates (Tokyo office buildings)

J-REIT Equity Financings in 2011

Source: Prepared by Kenedix based on Bloomberg

Commercial Real Estate Transactions

(Billions of yen)

Post Earthquake


(Billions of yen)

Source: Prepared by Kenedix based on DTZ, Nikkei Fudosan Market REIT data Source: Prepared by Kenedix based on REIT data2011201020092008

0

40

80

120

160

08H1 08H2 09H1 09H2 10H1 10H2 11H1

Public Equity Offering Volume (left axis)TSE REIT Index (right axis)

0

100

200

300

400

0

250

500

750

1,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Transactions by non REIT EntitiesTransactions by J-REITsNumber of Transactions

0

5

10

15

20

25

Lower No change Under 0.25% ~0.5% ~0.75% ~1% 1% or more

Office (downtown/A-class)

Residential (downtown)

Retail (downtown/multi-tenant)

Logistics (bayside/multi-tenant)

Hotels (downtown/city hotels)

3

4

5

6

7

8

9

04/4 05/4 06/4 07/4 08/4 09/4 10/4 11/4

Marunouchi/Otemachi ToranomonOsaka NagoyaSendai Fukuoka

3

4

5

6

7

8

9

04/4 05/4 06/4 07/4 08/4 09/4 10/4 11/4

Jonan area Joto area NagoyaOsaka Sendai Fukuoka

Status of Real Estate Investment Market

Despite the current stagnant real estate transaction volume, investors remain highly interested inJapan’s real estate market even after the Great East Japan Earthquake.

There appears almost no change in investors’ expected return on real estate except Sendai City.

22

Expected ReturnsExpected Returns for Office Buildings

Expected Return for Residences

Status of Investor SentimentSurvey Concerning Change in Cap Rates Willingness to Maintain

Business/Investment in Japan

Source : Prepared by Kenedix based on Japan Real Estate Institute data.

Source : Prepared by Kenedix based on Japan Real Estate Institute data. Source: Nikkei Real Estate Market Report

Earthquake

Earthquake

Survey from foreign corporations withglobal real-estate business platform

Survey from corporations with globalreal-estate business (both domesticand foreign corporations)

(quantity of responses)(%)

(%)

Considering entry6%

Planning to expand

20%

Continue with current size

60%

Considering exit6%

Not certain9%

-6

-4

-2

0

2

4

6

-150,000

-100,000

-50,000

0

50,000

100,000

150,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2006 2007 2008 2009 2010 2011

New Demand Floor Area (left axis)Actual GDP Growth (QoQ, right axis)

0

2

4

6

8

10

15,000

17,000

19,000

21,000

23,000

25,000

02/1 03/1 04/1 05/1 06/1 07/1 08/1 09/1 10/1 11/1

Average Asking Rent (left axis)Average Vacancy Rate (right axis)

0

2

4

6

8

10

07/1208/3 08/6 08/9 08/1209/3 09/6 09/9 09/1210/3 10/6 10/9 10/1211/3 11/6

S-Class A-Class Average (All Classes)

Status of Office Building Market

While vacancy rate of Tokyo office building market remains high, we observe signs of its peak-out. In particular, there is an upturn in new demand for office space.

23

Vacancy Rates by Office Office Grade

GDP Growth Rate and New Floor Area Demand Trends of Post-Earthquake Office Leasing MarketSource: Miki Shoji Co., Ltd.

Source: Prepared by Kenedix based on Cabinet Office data and Miki Shoji Co., Ltd.

出所：CBRE

Office Vacancy Rates and Rental Rates(Yen/Tsubo)

(Tsubo) (%)

(%) (%)

Earthquake

Earthquake

Class S&A Offices

Class B&C Offices（New Earthquake Code）

Class B&C Offices（Old Earthquake Code）

Tenants are focusing on building qualify and location

Newer/Inland Buildings Preferred

-4.0

-2.0

0.0

2.0

4.0

6.0

88

90

92

94

96

98

04/1 05/1 06/1 07/1 08/1 09/1 10/1 11/1

Occupancy Rates (left axis)Monthly YoY Change (right axis)

-0.6

-0.3

0.0

0.3

0.6

0.9

1.2

85

90

95

100

105

110

115

06/1 07/1 08/1 09/1 10/1 11/1

All-Tokyo (left axis)Tokyo 23 Wards (left axis)Monthly Change (All-Tokyo, right axis)Monthly Change (Tokyo 23 Wards, right axis)

4.0

5.0

6.0

7.0

8.0

11/01 11/02 11/03 11/04 11/05 11/06 11/07

Tokyo Metropolitan

Sub-urban Markets

Status of Rental Residential Properties Market

Rental residential property occupancy rate hit its bottom in the winter of 2009, and has been improving to date.

Overall occupancy rate is currently declining due to seasonal factors and the impact of the earthquake, but occupancy rates remain high at quality properties owned by REITs.

Residential property acquisition cap rates of REITs have been stable after the earthquake.

24

Rental Residential Property Occupancy RatesResidential Property Rental Rate Index

Source: Prepared by Kenedix based on IPD and RECRUIT CO.,LTD. Source: Prepared by Kenedix based on REIT data

Pre and Post Earthquake J-REIT Residential Transaction Cap Rates

(%) (%) (%)

(%)


Earthquake

Earthquake Earthquake

3. Kenedix Priority Issues

25

26

Profit Drivers of Kenedix

Principal account*3Private fundsKRI*2JLF*1

Inventories

Fixed Assets

Investment SecuritiesSame Boat Investments

Cash and Others

Interest-bearing Debt

Minority Interests

Shareholders’ Equity

Revenue

Gross profit

Operatingincome

Ordinary Income

Net Income

AUM（as of June 30,2011）

BS(as of June 30, 2011)

Cost of Revenue

SG&A

Non-operatingExpenses

Extra-ordinary IncomeIncome Taxes and Minority Interests in Income, etc.

Non-operatingIncome

Fee

Fee

Rent

(Billions of yen)

PL（ 1H 2011 ）

Interest

9.7

5.1

3.5

0.4

1.5

0.6

(4.5)

(1.6)

(2.4)

(0.3)(0.5)

41.7

115.1

17.711.2

11.9

115.0

11.1

60.3

156.4510.9241.2143.2

*1 Mitsui & Co., Logistics Partners Ltd., which manages Japan Logistics Fund, Inc. (“JLF”), is accounted for under the equity method. *2 “KRI” is Kenedix Realty Investment Corporation. *3 AUM of Principal account investments,in which capex and depreciation cost are not reflected, accounted for based on acquisition price, and the values therefore do not match the current book values.

Personnel expensescommissions paid

Growth in AUM and Diversification of Fees

27

Larger acquisition and asset management teams We will build a stronger platform for faster investment decision making for steady

growth of AUM, taking advantage of Kenedix real estate industry network.

Approaching new client investors

Build a stronger pipeline of AUM by establishing relationships with a numberof new client investors who cover a broad spectrum of risk-return profiles.

Diversify opportunities for earning fees

We are leveraging our know-how, not only to establish new funds, but alsoto aggressively seek opportunities to generate fees from transactions inwhich we serve as an intermediary, financial adviser, etc.

Establish Stable Asset Management Business

Increase revenues of fee businesses. Build a framework that will not miss

any opportunities to increase AUMand capture fees in any marketenvironment.

Strong commitment by management and unrelenting efforts to improve satisfaction among client investorsare required to achieve further improvements and growth in the Asset Management Business.

Kenedix has one of Japan’s most powerful asset management platforms, and is taking appropriate actionsaimed at achieving additional growth in AUM.

Fee

80%

85%

90%

95%

100%

200,000

250,000

300,000

350,000

400,000

09/09 09/12 10/03 10/06 10/09 10/12 11/03 11/06

Vacant Area (lef t axis, sqm)Occupied Area (lef t axis, sqm)Occupancy Rate (right axis, %)

Blanc EspaGinza Ikebukuro 261 KDX Minami-

honmachiPath

Omotesando

Appearance

Asset Class Office Office Office Retail

Location Chuo-ku, Tokyo Toshima-ku,Tokyo

Chuo-ku,Osaka

Shibuya-ku,Tokyo

AcquisitionDate Oct 2010 Mar 2010 Nov 2009

(Completion)Sep 2010

(Completion)Gross Floor

Area 3,979.62m2 3,858.25m2 7,694.03m2 1,915.05m2

Net Rentable Area 3,370.87m2 3,110.68m2 5,284.67m2 1,843.43m2

OccupancyRate 7.0% 79.0% 39.9% 50.3%

Increase Revenues from On-Balance Sheet Properties

Certain on-balance sheet properties are in the middle of lease-up periods, and we plan to improvethe profitability of Leasing and Investment Businesses by raising occupancy of these assets withhighest achievable rental rates.

28

Total Net Rentable Area and Occupancy Rate of Kenedix On-Balance Sheet Properties

As of Jun 30, 2011:Net Rentable Area 361,683m2

Occupied Area 319,716m2

Occupancy Rate 88%

Kenedix Principal Investments with Low Occupancy Rates (Examples, as of Jun 30)

Rent

Cost Reduction to Improve Profitability

We are reducing expenses by refinancing loans with high interest rates, which were obtained during the post-Lehman-crisis credit crunch, with lower interest rate loans.

To control costs even more rigorously, we have launched an internal budget management project. This includes cost-reduction targets for departments and individuals.

29

Utilize refinancing schemesto reduce interest expenses

Rigorously manage budgets to reduce costs

Example of refinancing (conducted in March to May 2011)

Partial repayment and refinancing

Repaid principal

Medium-term management plan / publicly announced budgets

Segment budgets

Department budgets/Targets for individuals

Break corporate-level targets down to goals of individual employees

Transform Kenedix cost structure in order to generate stable profit

Mezzanine bond¥4.4 bn, 22% coupon

Mezzanine loan¥1.4 bn, 5% interest rate

AchieveCost Reduction Target

Cost

Requests to tenants at Kenedix-managed buildings to cutelectricity use Use of energy conservation publications and posters

Reduced electricity use by switching to LED illuminationand installing motion sensors to control lights

Established plan to cut use of electricity, and executed theplan with the cooperation of property managers

Launched conservation measures at Kenedix offices, withthe goal of cutting power use by approximately 17% fromthe previous year.

Conservation of Electricityand Anti-Earthquake Work

30

In response to social demands to cut energy consumption following the Great East JapanEarthquake, the Kenedix Group companies are reducing use of electricity both within the group andalso at the properties it manages.

As a part of various measures to increase the value of buildings owned by Kenedix, buildings arebeing reinforced to be more resistant to earthquakes. This will allow Kenedix to supply highlycompetitive buildings that match needs of the post-earthquake real estate market. Of the 78 assets that Kenedix owns, 8 are compliant with the old earthquake resistance standards, three of them have

already been reinforced, and one of them is currently being reinforced.Value-up Remodeling of Shuwa Tameike Building(as of Jun 30)Electricity Conservation InitiativesBefore After

Use of energy conservation posters

Distribution of flyers

Letter asking for cooperation in conserving electricity

Increasing the value of the Shuwa Tameike Building, which is adjacentto the Prime Minister’s official residence The building became more competitive due to earthquake

reinforcement work (building formerly complied only with oldstandards), upgrades to HVAC and lighting systems, and anupdated interior design.

A subsidy of about ¥25 mm was received as the new energy-conserving glass curtain wall was recognized as a building energyconservation improvement project by the Construction Ministry.This reduced the cost of this value-up project.

本資料の取り扱いに関してDisclaimer and Precautions

31

The contents of this document, including summary notes, quotes, data and other information, are provided solely for informational purpose and not intended for the purpose of soliciting investment in, or as a recommendation to purchase or sell, any specific products.

Please be aware that matters described herein may change or cease to exist without prior notice of any kind. This document contains forward-looking statements, including anticipations of future results, based on current assumptions and beliefs in the light of currently available information and resources. Risks and uncertainties, both known and unknown, including those relating to interest rate fluctuations, competitive scenarios, and changing regulations or taxations, may cause Kenedix, Inc. actual results, performance, achievements and financial performance to be materially different from those as explicitly or implicitly expressed in this document.

With respect to any and all terms in this document, the information provided is intended to bethorough. However, no absolute assurance or warranties are given with respect to the accuracy or completeness thereof.

Kenedix, Inc. shall not be liable for any errors, inaccuracies, losses or damages, or for any actions taken in reliance thereon, or undertake any obligation to publicly update the information contained in this document after the date of this document.

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