Nippon Building Fund Inc. 50th Fiscal Period (June 2026) Earnings Deep Dive: A Scenario for Sustainable EPU/DPU Growth Driven by Accelerated Rent Hikes and Strategic Asset Recycling

Nippon Building Fund Inc. (NBF) delivered strong results for the 50th fiscal period (ended June 2026), underpinned by a robust recovery in office demand and strategic asset recycling, signaling solid earnings foundations and future growth momentum. This report provides a detailed analysis of the earnings highlights, progress in internal and external growth, financial strategy, and the mid-to-long-term growth strategy for EPU (Earnings Per Unit, excluding gains on sales) and DPU (Distribution Per Unit).

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1. 50th Fiscal Period Earnings Results and Highlights

In the 50th fiscal period (ended June 2026), operating revenue reached ¥53.858 billion (+10.9% period-on-period), operating profit was ¥26.694 billion (+25.8%), and net income was ¥24.354 billion (+26.2%). Earnings were significantly bolstered by ¥5.192 billion in gains on the sale of real estate , primarily from the divestment of the Sumitomo Densetsu Building, alongside increased rental income from existing properties.

Distribution Per Unit (DPU) stood at ¥2,489 (+¥35, +1.4% period-on-period), maintaining a steady distribution level even while allocating a portion of the sales gains to the reserve for reduction entry. Furthermore, EPU, which represents the underlying earning power on a recurring basis excluding gains on sales, reached ¥2,173 .

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2. Earnings Outlook and Revenue Momentum

As shown in the slide above, the earnings outlook projects a ¥2.207 billion (+4.9%) increase in real estate rental revenue from the 50th period actuals to the 52nd period (ending June 2027) forecast, while maintaining property occupancy rates at a high level of 98% . The majority of this growth is driven by internal growth, accounting for ¥1.957 billion (+4.3%) through rent revisions and tenant replacements in existing properties.

For the next period (51st period: ending December 2026), the forecast anticipates operating revenue of ¥50.502 billion, net income of ¥19.968 billion, DPU of ¥2,465 , and EPU of ¥2,240 . While net income will temporarily decline due to the absence of one-time sales gains, the recurring-basis EPU is expected to continue its expansion trend, up 3.1% period-on-period. Furthermore, in the 52nd period (ending June 2027), further profit growth is projected, with operating revenue of ¥51.016 billion, net income of ¥20.363 billion, DPU of ¥2,541 , and EPU of ¥2,310 .

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3. Office Leasing Market Environment and Accelerated Internal Growth

The backdrop for strong internal growth is the rapid improvement in supply-demand dynamics in the office leasing market, particularly in central Tokyo. As indicated by the market data above, the average vacancy rate in Tokyo business districts has dropped significantly from a peak of 6.48% (June 2023) to 1.95% (July 2026) , reflecting an extremely tight supply-demand relationship. Consequently, the average asking rent is following a strong upward trend, reaching ¥23,287 per tsubo .

Capturing this favorable market environment, NBF’s internal growth KPIs have progressed as follows:

• Rent Revision Breakdown (by number of cases) : In rent revisions from January to June 2026, the ratio of agreed rent increases reached 90.6% , and the rent increase rate by floor area recorded 92.1% .
• Expansion of Rent Gap : The rent gap, which indicates the divergence between market rent and existing contract rent, has expanded to 20.4% in the 50th period , up from 8.1% in the 48th period and 12.5% in the 49th period, further increasing the potential for future rent hikes.
• Stability of Contract Structure : The ratio of fixed-term lease contracts remains at 58.2% , with an average lease term of 4.0 years , balancing portfolio stability with opportunities for rent revisions.

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4. Update on Growth Strategy: Upward Revision of EPU/DPU Growth Targets

In anticipation of a rising interest rate environment, NBF has revised its mid-to-long-term growth targets upward. Previously, based on the premise of an annual increase of +2.0% or more in rental revenue from existing properties, the target was an annual increase of +3.0% or more in EPU/DPU, combining internal growth of +2.0–2.5% and external growth of +0.5–1.0%.

In this revision, backed by the expanding rent gap and robust leasing capabilities, the pace of increase in rental revenue from existing properties has been raised to +3.0% or more per year . This establishes a clear structure where "increase in rental revenue > increase in interest costs," setting an aggressive policy to aim for annual EPU/DPU growth of +3.5% or more , comprising internal growth of +2.5–3.0% and external growth of +0.5–1.0%.

A scheme is in place to achieve sustainable, step-by-step DPU growth by flexibly drawing down and allocating internal reserves (¥19.2 billion balance at the end of the 50th period) to smooth out the volatility of gains on sales.

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5. Qualitative Portfolio Enhancement and Strategic External Growth

NBF is promoting not only the expansion of asset size but also the rejuvenation and profitability improvement of its portfolio through asset recycling.

• Acquisitions : Acquired "Nihonbashi Honcho M-SQUARE" (acquisition price ¥32.1 billion, NOI yield 3.3%), "Toyosu Bayside Cross Tower (additional acquisition)" (¥14.8 billion, NOI yield 3.7%), and "Nishi-Shinjuku Mitsui Building (additional acquisition)" (¥0.2 billion, NOI yield 9.4%).
• Divestments : Sold "Sumitomo Densetsu Building" (sale price ¥10.0 billion, NOI yield 2.3%, gain on sale ¥5.1 billion) and "NBF Sapporo Minami-Nijo Building" (¥1.9 billion, NOI yield 4.8%, gain on sale ¥0.2 billion).

By selling older, lower-yield properties to realize significant gains while acquiring or adding to high-spec, prime-location flagship properties, NBF is enhancing the quality of both its portfolio and cash flows.

As of the end of the 50th period, total assets reached ¥1.5608 trillion (70 properties), with an appraised value of ¥1.824 trillion , maintaining record-high unrealized gains of ¥373.4 billion (unrealized gain ratio of 25.7%).

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6. Financial Management and ESG/Sustainability

• Solid Financial Position : LTV (total asset basis) is 42.6% (target range 36–46%), and appraisal LTV is 44.0% , both at extremely healthy levels. Borrowing capacity stands at approximately ¥92 billion (based on 46% LTV).
• Interest Rate Strategy : The long-term fixed interest rate ratio is 76.9% , the average procurement interest rate is 0.82% , and the average remaining duration is 5.12 years . Credit ratings are maintained at the highest domestic levels: JCR "AA+", R&I "AA", and S&P "A+".
• Deepening Sustainability : Achieved a 100% green building certification rate for properties held (based on total floor area). The LED lighting conversion rate has reached 77%, with a plan to increase it to 92% by 2028. GHG emissions (Scope 1+2) have been reduced by 74.4% compared to 2021, clearing the 2030 target (42% reduction) ahead of schedule.

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Summary

Nippon Building Fund's 50th fiscal period results clearly demonstrate an acceleration in rent increases by accurately capturing the tightening supply-demand balance of central Tokyo offices, the realization of unrealized gains through strategic asset recycling, and an evolution toward a top-line growth model that outpaces rising interest rates. Leveraging a rock-solid financial foundation and the comprehensive strength of the Mitsui Fudosan Group, the mid-to-long-term expansion trend for EPU and DPU continues.