Final Results

5 March 2012

JAPAN RESIDENTIAL INVESTMENT COMPANY LIMITED ("THE COMPANY")

Consolidated Financial Statements for the Year Ended 30 November 2011

Japan Residential Investment Company Limited (AIM: JRIC) is a closed-ended Guernsey registered company established to make and hold investments in residential property in Japan. The Company presents its audited consolidated annual financial results for the year ended 30 November 2011.

Highlights

·; Profit totalled £7.6 million for the year ended 30 November 2011, compared to a loss of £11.7 million in the previous financial year.

·; Underlying profit1 up 44.0% to £7.6 million or 4.0p per share for the year ended 30 November 2011.

·; Net rental income increased 9.9% to £14.8 million due to strong yen and lower operating expenses.

·; Occupancy rate improved to 94.9% for the year, up from 92.4% one year prior.

·; NAV per share rose 6.0p to 71.2p as at 30 November 2011.

·; In February 2012 refinanced ¥7.0 billion (£57.4 million) of debt for 5 years at a fixed rate of 1.58% bringing the Fund's weighted average debt maturity to 3.3 years and weighted average interest rate to 1.91%.

·; Cumulative interim distributions of 3.3p per share in respect of the 12 months ended 30 November 2011.

·; Share price discount to NAV has narrowed to approximately 10.0% based on the share price as at the date of this report2, down from 26.3% as at 30 November 2011.

Distribution timetable

The Directors are pleased to announce a further interim distribution of 1.8p per share, bringing the amount paid and payable in respect of the 12 months ending 30 November 2011 to 3.3p per share.

Enquiries:

Chairman's Statement

The Fund weathered natural disasters and a turbulent economy in 2011 to achieve the highest levels of profitability since launch, on the back of strong operating performance and stabilisation of asset values. Sustained efforts to increase occupancy rates and reduce expenses, combined with lower interest costs following deleveraging in 2010, provided a substantial boost to underlying profit. The successful refinancing of ¥7.0 billion (£57.4 million) debt in February 2012 at attractive terms underscores the sustainability of this income. Under the terms of the refinancing the Fund has exchanged floating rate debt for five-year fixed rate loans with no significant increase in funding costs.

Notably, all of this was accomplished amidst a Eurozone debt crisis and in an operating environment marred by natural disaster. The Great Tohoku Earthquake which struck Northeastern Japan on 11 March 2011 and the tsunami that followed devastated local communities and led to power rationing and supply chain disruptions throughout the country. The Fund portfolio did not sustain material physical damage. The property closest to the disaster - Antler Tachimachi - now plays an important role providing much needed housing to residents in the city of Sendai, a hub for reconstruction efforts in the region.

Results

Profit totalled £7.6 million for the year ended 30 November 2011, compared to a loss of £11.7 million in the previous year. Gross rental income rose 6.4% to £19.2 million reflecting higher occupancy and the stronger yen. Net rental income increased 9.9% to £14.8 million. This follows lower property operating expenses including lower costs associated with marketing and leasing of vacant units in a stronger rental market. Higher net rental income and lower interest expense helped to propel underlying profit up 44.0% year-on-year to £7.6 million or 4.0p per share. A modest increase in portfolio value allowed the Fund to post an unrealised valuation gain of £154,000 on investment properties.

NAV per share rose 6.0p to 71.2p as at 30 November 2011. Distributions paid in the amount of 3.0p were fully covered by underlying profit. Net foreign exchange gain of 4.9p and net gain on fair value adjustments of 0.1p further contributed to the increase in NAV per share.

The share price of 60.5p at the date of this report represents a discount of approximately 10.0% to NAV. This compares favourably to a discount of 26.3% as at 30 November 2011. Following the recent advance in share price, the Company was added to the FTSE AIM 100 Index on 27 February 2012.

Borrowings

The Fund carried debt in the amount of £133.9 million against investment property totalling£255.0 million, for a loan-to-value ('LTV') ratio of 53.1% as at 30 November 2011. Gearing was 43.3%, calculated as total debt less cash and restricted reserves as a proportion of total assets. The weighted average interest cost was 1.89%. Interest coverage was 3.5x (EBIT/Interest expense).

On 31 January 2011 the Fund made a voluntary partial loan repayment of ¥464 million (£3.8 million) and scheduled loan amortisation of ¥39 million (£0.4 million) to Mizuho Corporate Bank. This combined with annual debt amortisation in the amount of ¥90 million (£0.7 million) to Mizuho Bank resulted in a reduction of the Fund's total debt outstanding to ¥16.5 billion (£135.3 million) as at 30 November 2011.

On 16 February 2012, the Fund refinanced ¥7.0 billion (£57.4 million) of debt with loans from Resona Bank. These five-year loans carry a fixed interest rate of 1.58%. Following this refinancing, the weighted average debt maturity of the Fund was 3.3 years and the weighted average interest cost was 1.91%. Of the total debt outstanding, interest rates on 53.7% are fixed, 26.3% are fixed with a swap and 20.0% are floating. The next refinancing event is ¥4.4 billion (£36.1 million) of debt with Mizuho Corporate Bank maturing in December 2013.

Distributions

The Directors are pleased to announce a further interim distribution of 1.8p per share to be paid on 13 April 2012 to shareholders on the register on 16 March 2012, bringing the amount paid and payable in respect of the 12 months ending 30 November 2011 to 3.3p per share, an amount which is fully covered by underlying profit. At the time of writing, 2011 distributions represent an attractive 5.5% yield on the current share price of 60.5p, particularly when compared to ten-year Japanese government bonds that currently yield 0.99%. In accordance with the Fund objective of achieving both steady income and capital growth, the Board intends to maintain a prudent and sustainable distribution policy.

Outlook

The Fund's ability to achieve improved occupancy and operating income levels, despite a tumultuous 2011 is a testament to the strength of the portfolio, the defensive qualities of the residential property sector in Japan and the skill of the Investment Adviser. The Board commends and thanks all of our colleagues based in Japan for their outstanding contributions to the Company's success during a very challenging year. In addition to healthy operating performance, asset values have stabilised. The Fund has now experienced 12 months of modestly increasing asset valuations. We remain optimistic about the prospect for a continued upward trend in residential property values in Japan. Despite an uncertain macroeconomic environment, we believe that a combination of quality assets and conservative gearing has positioned the Fund to withstand future market stresses and to capitalise on potential opportunities.

Raymond Apsey

Chairman

2 March 2012

Report of the Manager and the Investment Adviser

Overview

2011 was a banner financial year for the Fund, demonstrating the strong earnings potential of a well managed, high quality and conservatively leveraged Japanese residential property portfolio. The Fund aims to provide shareholders with stable income and capital growth through the acquisition and management of quality residential properties in Japan. The focus over the past 12 months has been on increasing occupancy and gross rental income while reducing operating expenses including leasing and property management costs. The Investment Adviser worked proactively to secure replacement financing for ¥7.0 billion (£57.4 million) of debt scheduled to mature in May 2012. The successful arrangement of five-year fixed rate debt at 1.58% reflects the improvement in the credit markets, the strength of the residential sector and quality of the underlying Fund portfolio.

Market

Japanese real GDP is forecast at -0.8% for 2011, reflecting the impact of the Great Tohoku Earthquake that struck northeastern Japan on 11 March 2011. Economic recovery began in the third quarter as supply chain disruptions and power shortages eased. The strong yen combined with higher energy costs following a post-quake shift to fossil fuels, continue to weigh on the economy. However, substantial government expenditures for reconstruction of the Tohoku Region should contribute to growth in the range of 2.0% in 2012.

With the exception of properties in the direct path of the tsunami, the earthquake resulted in very limited physical damage to real estate. However, the economic contraction that followed did place a damper on what was widely seen in Q1 2011 as a nascent recovery in the property markets. This effect was compounded by floods in Thailand, which again disrupted Japanese manufacturing supply chains, yen strengthening and general economic uncertainty related to the European sovereign debt and currency crisis.

Despite these upheavals, Japanese residential property fundamentals have remained strong, underpinned by steady demand from both renters and owner-occupiers. Stable end-user demand combined with scarcity of new supply is supporting prices. Greater Tokyo new condominium supply totalled 44,500 units in 2011, roughly half of annual supply 10 years ago.

Income-driven investors are increasingly drawn to the stable cash flows that residential assets provide. Improved availability of credit for residential investments is also supporting demand. Residential is now the favoured sector for lenders who appreciate the diversified tenant base, low volatility of rents and the relative liquidity of the asset class. Limited supply of residential properties for sale combined with demand from investors is creating upward pressure on pricing.

Yields on Tokyo residential property have been trending down since June 2009 and currently range from 5.2% to 5.7%. Scarcity of product for sale in Tokyo is causing investors to seek out acquisitions in regional cities including Osaka and Nagoya where yields are higher and there is less competition from investors.

Portfolio

The portfolio of 51 income generating residential properties was valued at ¥31.1 billion (£255.0 million) as at year end, up 0.1% year-on-year on a like-for-like basis. This represents the first year-on-year increase in portfolio value since Autumn 2008. Based on preliminary figures, we are forecasting an occupancy rate of 95.4% for February 2012. Portfolio value is down 20.1% from purchase price and the unleveraged net yield of the portfolio was 5.9% as at 30 November 2011. The average portfolio occupancy rate increased to 94.9%, up from 92.4% in the year prior. This improvement was achieved with no increase in leasing expenses. In fact, the operating expense ratio for the portfolio fell to 23.1% for the year ended 30 November 2011, down from 25.5% during the prior year.

Regional Allocation: Assets are well diversified in and around the major population centres of Japan. 86.1% of all properties by value are located in the top three markets: Tokyo 44.7%, Osaka 27.3% and Nagoya 14.1%. The remaining 13.9% of properties are located in or within commuting distance to a "key city" with population over 1 million or in a prefectural capital city.

Asset Diversification: The Fund is well diversified with the 10 largest assets comprising less than half of total portfolio value. The largest single asset represents 10.8% of portfolio value. Portfolio diversification and liquidity is reflected in the small average property size of ¥609 million (£5.0 million).

Asset Quality: All properties are held as fee simple ownership. All buildings have a reinforced concrete structure. On account of a variety of characteristics including quality of design, amenities and surrounding environment, they are expected to remain competitive in the marketplace for the foreseeable future. The majority of units, 93.7%, are Single and Compact Type, targeting the young, single demographic.

Tenant Risk: The portfolio offers broad tenant diversification with the largest tenant occupying a mere 0.7% the Fund's total leasable space. Due to overall tenant quality and third party guarantees on the majority of leases, uncollectable rent was limited to less than 0.1% of gross rental income for the year ended 30 November 2011.

Affordability: Units are concentrated in mid-level rent markets offering broad tenant affordability and appeal. 90.2% of the rents were below ¥150,000 (£1,231) per month. Average monthly rent on residential units was ¥90,000 (£738) as at 30 November 2011.

Building Age: The weighted average age of the portfolio was 5.8 years at the year end. However, a full 90.2% of properties are less than 10 years old and 68.6% are less than 5 years old. The modernity of the portfolio is expected to result in lower repair and maintenance costs, higher probability of renewal and greater competitiveness.

Access: All properties are located within walking distance (most within 10 minutes) of a train or subway station.

Outlook

The strength and resilience of the Fund portfolio was tested again in 2011 in the aftermath of the Great Tohoku Earthquake. Fortunately, the portfolio experienced only minimal physical damage and, despite the economic downturn that followed, was able to maintain target occupancy and revenue levels. The earthquake has resulted in an increased preference on the part of tenants for modern buildings, designed and constructed to the latest seismic resistance codes. This should support the Fund's portfolio of newer properties.

With residential properties yielding 5.2% to 5.7% in Tokyo and 6.0% to 7.0% in regional markets, we believe the asset class offers an attractive risk-adjusted return. We expect that limited new supply will continue to support rent and occupancy rates going forward. In the context of continued volatility in the equities markets, low interest rates on yen deposits and 10-year Japan government bond yields of 0.99%, we believe that the prospects for continued declines in property yields and higher asset values are strong.

KK Halifax Management Limited KK Halifax Asset Management

Manager Investment Adviser

JAPAN RESIDENTIAL INVESTMENT COMPANY LIMITED 

Consolidated Statement of Comprehensive Income

For the year ended 30 November 2011

All items in the above statement are derived from continuing operations.

The profit/(loss) is attributable to shareholders of the Company. There are no minority interests.

JAPAN RESIDENTIAL INVESTMENT COMPANY LIMITED 

Consolidated Statement of Financial Position

As at 30 November 2011

JAPAN RESIDENTIAL INVESTMENT COMPANY LIMITED 

Consolidated Statement of Changes in Equity

For the year ended 30 November 2011

The accompanying notes on pages 21 to 38 form an integral part of these financial statements.

JAPAN RESIDENTIAL INVESTMENT COMPANY LIMITED 

Consolidated Statement of Cash Flows

For the year ended 30 November 2011

JAPAN RESIDENTIAL INVESTMENT COMPANY LIMITED 

Notes to the Consolidated Financial Statements

For the year ended 30 November 2011

1. General information

The Fund, which comprises the Company and its subsidiaries and special purpose entities as defined in note 2, has been established to make and hold investments in residential property in Japan.

The Company is incorporated and domiciled in Guernsey. The Company is listed on the AIM market of the London Stock Exchange.

These financial statements were approved for issue by the Board of Directors on 2 March 2012.

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been applied consistently from incorporation.

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'), which comprise standards approved by the International Accounting Standards Board ('IASB') and interpretations approved by the International Financial Reporting Standards Interpretation Committee that remain in effect and The Companies (Guernsey) Law, 2008.

The financial statements have been prepared in Sterling, which is the presentation currency of the Fund, and under the historical cost convention, except for investment property and certain financial instruments which are carried at fair value.

3. Segment reporting

The Board of Directors is of the opinion that the Fund is engaged in a single segment of business, being residential investment property, in one geographical area, Japan. The Board considers that it is the Fund's Chief Operating Decision Maker.

The Fund receives no revenues from external customers, nor holds any non-current assets, in any geographical area other than Japan.

4. Critical accounting estimates and judgements

Estimates and judgements used in preparing the financial statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant effect on the carrying amounts of assets and liabilities are discussed below.

(a) Investment properties

The fair values of investment properties are determined annually by independent qualified valuers using the income capitalisation basis and the discounted cash flow method.

In determining the fair values, consideration has been given to assumptions that are mainly based on market conditions existing at the year end date and appropriate capitalisation rates. These estimates are regularly compared to actual market data and actual transactions entered into by the Fund. In the event of a sale, the Fund might not realise the valuation price.

(b) Income taxes

The Fund is subject to income taxes in different jurisdictions. Significant judgement is required in determining the Fund's provision for income taxes and deferred taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. Tax provisions are determined based on the Fund's structure and tax legislation existing at the year end date. If a change in either one of these would result in significantly different amounts than those initially recorded, then any such change will impact the tax provisions in the period in which the change occurs. In recognising deferred taxes on revaluations of investment property, consideration has been given to their recoverability during the lifetime of the Fund based on current market data, historical experience and other factors.

5. Financial risk management objectives and policies

The Fund's activities expose it to a variety of financial risks in relation to the financial instruments it uses: liquidity risk, credit risk and market risk (including currency risk and cash flow interest rate risk). The financial risks relate to the following financial instruments: security deposits held, trade and other receivables, cash and cash equivalents, trade and other payables, restricted lender reserves, security deposits payable to tenants, bonds and loans payable, interest rate cap contracts and interest rate swap contracts.

The Fund's financial assets are categorised as either receivables or fair value through profit or loss in accordance with IFRS 7. Cash and cash equivalents, security deposits held, trade and other receivables and restricted lender reserves are categorised as loans and receivables.

The Fund's financial liabilities are categorised as either other liabilities or fair value through profit or loss in accordance with IFRS 7. Security deposits payable to tenants, bonds and loans payable and trade and other payables are categorised as other liabilities.

The Fund's derivative financial assets and liabilities, which comprise interest rate cap and swap contracts, are classified as financial assets at fair value through profit or loss.

(a) Liquidity risk

Liquidity risk is the risk that arises when the maturities of assets and liabilities do not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Fund monitors its risk exposure to shortage of funds using detailed cash flow reporting. This tool considers the maturity of both its cash resources and projected cash flows. Cash balances are placed with financial institutions on a short term basis reflecting the Fund's desire to maintain high levels of liquidity to enable timely completion of investment transactions.

The tables below summarise the maturity profile of the Fund's financial liabilities at 30 November based on contractual undiscounted payments:

Subsequent to the year end £57.4 million of the bonds and loans payable within 1 year were refinanced to mature in January 2017 (see note 30).

(b) Credit risk

Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the year end date.

In the event of a default by a tenant, the Fund will suffer a rental shortfall and incur additional costs, including legal expenses in maintaining, insuring and re-letting the property. To mitigate tenant default risk, the Fund obtains third party rental guarantees for the vast majority of leases. Screening procedures are in place to qualify tenants and tenant deposits are obtained where appropriate. The Fund also utilises property managers to monitor the tenants in order to anticipate, and minimise the impact of, defaults by tenants in occupation. The large number of tenants and the existence of lease guarantees effectively mitigates exposure to tenant defaults. The theoretical impact of potential defaults by the master lessee at the year end date was £873,000 (2010: £844,000). The master lessee is a third party contractor that sub-leases the property to end tenants, maintaining deposits and collecting rent incomes from tenants.

With respect to credit risk arising from other financial assets of the Fund, which comprise cash at bank, restricted lender reserves, interest rate cap contracts and trade and other receivables, the Fund's exposure to credit risk arises from default of the counterparty with a maximum exposure equal to the carrying value of these instruments. The Directors believe that the financial institutions that hold these financial assets are financially sound and, accordingly, minimal credit risk exists to these financial assets. Trade and other receivables are neither concentrated nor impaired, with security deposits held by the Fund for rent receivables.

At the year end date the Fund held its cash balances and restricted lender reserves at banks with a minimum Standard and Poor's long term credit rating of 'A'. The Fund monitors the placement of cash balances on an on-going basis. At 30 November 2011 the Fund had allocated its cash and cash equivalents amongst various financial institutions and the majority of funds were kept at the following: 5.6% with HSBC with a credit rating of AA-; 37.8% with Sumitomo Mitsui Banking Corporation with a credit rating of A+; 12.0% with Mizuho Bank with a credit rating of A+; 17.8% with Royal Bank of Scotland International with a credit rating of A; and 18.1% with Bank of Tokyo-Mitsubishi UFJ with a credit rating of A+ (30 November 2010: 37.7% of the cash balances were held with HSBC, credit rating AA; 24.8% with Sumitomo Mitsui Banking Corporation, credit rating A+); and 14.7% with Bank of Tokyo-Mitsubishi UFJ with a credit rating of A+.

(c) Interest rate risk

Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. Financial instruments with floating rates expose the Fund to cash flow interest rate risk. Financial instruments with a fixed interest rate expose the Fund to fair value interest rate risk. The Fund monitors its exposure to interest rate risk on an on-going basis and has entered into interest rate cap and interest rate swap contracts to minimise the cash flow interest rate risk related to a portion of its floating rate bonds and loans payable.

At the year end date 11.2% (2010: 10.8%) of the Fund's bonds and loans payable was fixed rate, 26.2% (2010: 25.3%) was floating rate with swap into fixed rate, 42.5% (2010: 41.0%) was floating rate with a cap and 20.1% (2010: 22.9%) was floating rate. Cash balances and restricted lender reserves are at floating rates.

The effect of a 10 basis point increase/decrease in the Yen interest rate, with all other variables held constant, would be a decrease/increase of £15,000 in total comprehensive income (2010: increase/decrease of £14,000), based on the position at the year end date. This calculation takes into account the effect of the movement in interest rates on interest payments and on the fair valuation of the interest rate swap. The effect on the fair value of the interest rate cap contract has not been determined and the Directors consider it to be immaterial.

(d) Fair values

The fair values of the Fund's financial assets and liabilities and their carrying amounts at the year end date are not materially different. The fair value of bonds and loans payable is £134 million (2010: £124 million) compared to their carrying amount of £134 million (2010: £128 million). Market interest rates prevailing at the year end date were applied to the discounted cash flow method to determine the fair value of the bonds and loans.

Fair value hierarchy

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

·; Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

·; Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

·; Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

(e) Currency risk

Currency risk is the risk that the value of financial assets and liabilities will fluctuate due to changes in foreign exchange rates. Currency risk for the Fund arises when future commercial transactions and recognised financial assets and liabilities are denominated in a currency other than Yen, the Fund entities' functional currency. The Fund has some exposure to foreign exchange risk arising from various currency exposures primarily with respect to the Euro and Sterling. The Fund declares and pays dividends in Sterling and therefore the Fund's ability to maintain dividend streams is also exposed to foreign exchange risk as investments and income are in Yen.

The Directors have not implemented any currency hedging policies and do not propose to do so. Substantially all assets of the Fund, and its liabilities, are denominated in Yen. As a result, shareholders should be aware that, while the Fund's accounts are reported in sterling, they in fact own a Yen based instrument. The Board has no intention of managing any foreign exchange exposure to shareholders that may result from this.

The Fund's assets and liabilities were 98.8% (2010: 99.6%) Yen denominated at the year end date and hence the Directors do not consider the operating currency risk to be material.

(f) Capital management

The Fund's objectives when managing capital are to safeguard the Fund's ability to provide returns for shareholders and to maintain an optimal capital structure to minimise the cost of capital.

The Fund actively monitors capital on the basis of the gearing ratio. Fund gearing calculated as net debt (borrowing less bank balances) divided by total assets was 43.3% as at 30 November 2011 (43.5% at 30 November 2010). The debt to equity ratio calculated as net debt (borrowings less bank balances) divided by total equity was 0.88x (0.91x at 30 November 2010). The Articles of Incorporation place no limit to the amount of borrowings the Fund may incur but restrict the Fund to borrowing up to a maximum of 85% of the value of each investment. Historically, on Admission, the Fund targeted a loan to value ('LTV') ratio of 70%, however in the current environment a more conservative policy has been adopted. The current LTV ratio is 53.1% (2010: 55.0%). The Fund is not subject to externally imposed capital requirements.

6. Significant agreements

The Fund has entered into the following significant agreements:

(a) The Company has entered into an agreement with KK Halifax Management Limited ('KKHML') whereby KKHML provides management services for a fee of £50,000 per annum.

(b) The Japan-domiciled firms in which the Company is the ultimate beneficiary have entered into agreements with KK Halifax Asset Management ('KKHAM') whereby KKHAM provides investment advisory services for a management fee of 0.5% of Gross Assets under management calculated and paid quarterly, which is subject to a minimum fee of ¥200 million (£1,555,000) per annum. KKHAM is also entitled to a performance fee equivalent to 20% of the performance of the investments in excess of 10% per annum, which will be calculated on the basis of the average annual return on a three year rolling basis. No performance fee was paid during the year (2010: Nil).

(c) The Company entered into an agreement with Praxis Property Fund Services Limited ('PPFSL') whereby, until 30 April 2011, PPFSL provided administration and company secretarial services for a fee equal to 0.10% of the net asset value of the Fund, calculated and paid quarterly, subject to a minimum fee of £50,000 per annum. With effect from 1 May 2011 this agreement was novated to Praxis Fund Services Limited ('PFSL') under the same terms.

(d) The Company has entered into an agreement with Smith & Williamson Corporate Finance Limited ('SWCFL') whereby SWCFL acts as the Nominated Adviser for an annual fee of £30,000.

(e) The Company had entered into an agreement with Fairfax I.S. Limited ('FISL') whereby FISL acts as financial adviser and nominated broker to the Company for an annual fee of £40,000. With effect from 26 September 2011 FISL acted as joint financial adviser and corporate broker (see note 6(f) below) and the annual fee was reduced to £30,000.

(f) With effect from 26 September 2011 the Company has entered into an agreement with Westhouse Securities Limited ('WSL') whereby WSL acts as joint financial adviser and corporate broker, in conjunction with FISL, for an annual fee of £30,000 (see note 6(e) above).

(g) The Japan-domiciled firms in which the Company is the ultimate beneficiary have entered into agreements with Colliers International ('CI') whereby CI provides accounting and administrative services for a fixed fee of ¥34.6 million (£269,000), with an additional variable fee based on the number of properties held.

7. Related party transactions

Transactions between the Company and its subsidiaries which are related parties have been eliminated on consolidation and are not disclosed in this note.

Directors' fees have been disclosed in the Directors' Report. Outstanding fees of £36,375 (2010: £Nil) were payable to Directors at the year end. There are no key personnel working on behalf of the Fund other than the Directors, Manager and Investment Adviser.

The Fund pays fees to KKHML for its management services. The total charge to the Statement of Comprehensive Income during the year was £50,000 (2010: £50,000), of which £12,500 (2010: £12,500) was outstanding at the end of the year. Paul Hammerstad, a Director of the Company until his resignation on 3 March 2011, is also a director of KKHML.

The Japan-domiciled firms in which the Company is the ultimate beneficiary pay fees to KKHAM for its investment advisory services. The total charge to the Statement of Comprehensive Income during the year was £1,555,000 (2010: £1,329,000) of which £Nil (2010: £Nil) was outstanding at the year end. Paul Hammerstad, a Director of the Company until his resignation on 3 March 2011, is also a director of KKHAM. A contribution to office rent of £10,000 (2010: £6,000) was paid to KKHAM by the Japan-domiciled firms in which the Company is the ultimate beneficiary.

The Japan-domiciled firms in which the Company is the ultimate beneficiary pay fees to CI for its accounting and administrative services. The total charge to the Statement of Comprehensive Income during the year was £452,000 (2010: £433,000) of which £Nil (2010: £Nil) was outstanding at the year end. Paul Hammerstad, a Director of the Company until his resignation on 3 March 2011, is also a director of CI.

8. Underlying profit

9. Gross rental income

The Fund leases out its investment property under operating leases. All operating leases are for original terms of two years or more. Service and management charges include common area maintenance fee income, non-refundable deposits received and other income.

The future aggregate minimum rentals receivable under operating leases as at the year end date are as follows:

10. Property operating expenses

All property operating expenses relate to investment properties that generated rental income.

11. Administrative and other expenses

Auditors' remuneration relates entirely to the provision of audit services. In addition the following fees were earned (in the current year) by the current auditors, PricewaterhouseCoopers CI LLP, and (in the prior year) by the previous auditors, Ernst & Young:

12. Taxation charge

The Company is exempt from Guernsey taxation on income derived outside of Guernsey and bank interest earned inside Guernsey under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989, as amended. A fixed annual fee of £600 is payable to the States of Guernsey in respect of this exemption. No charge to Guernsey taxation will arise on capital gains.

The Fund's SPEs (see note 29) are subject to Japanese withholding tax on profit distributions and interest payments originating from Japan. Deferred taxes have been provided on the undistributed profits of the Japanese entities and interest receivable by the subsidiaries at the expected tax rate on the future payments by the Japanese entities.

The fair value adjustments of the investment properties result in a temporary difference between the carrying value of the properties and their tax basis. Deferred taxes on these differences are based on the expected tax rate on the future distributions made on disposal of the investment property.

The Fund is liable to Japanese tax arising on activities of its Japanese operations. The Fund is liable to Dutch tax arising on the activities of its Dutch operations.

The charge for the year can be reconciled to the profit/(loss) per the Statement of Comprehensive Income as follows:

The applicable country rate above is a blended rate of those applicable in different jurisdictions, weighted by the profits and losses arising therein. No deferred tax assets have been recognised in respect of losses due to the unpredictability of future taxable profits.

13. Earnings/(loss) per share - basic and diluted

The Fund does not have any dilutive potential shares.

14. Investment property

The total cost (purchase price plus acquisition costs) of the investment property held at the year end date was £334.7 million (¥40.8 billion) (2010: 311.1 million (¥40.8 billion)).

Investment property consists of residential properties that are leased to third parties under operating leases. The fair value of the Fund's investment property at 30 November 2011 has been calculated on the basis of valuations carried out at that date by the following independent professionally qualified valuers with relevant recent experience:

The valuation basis has been fair market value as defined by Japanese Real Estate Appraisal Standards calculated using the income capitalisation approach. This approach consists of both the direct capitalisation method which applies a market capitalisation rate to net operating income ('NOI') and the discounted cash flow method which applies a discount rate to both NOI and a forecast terminal property value. NOI is calculated with reference to in place lease contracts as well as monthly reports of actual property income and expenses.

The Fund has pledged approximately £246.8 million (2010: £229.1 million) of its investment property as security for bonds and loans payable (see note 20). Income generated by the pledged investment properties is distributable subject to the Fund meeting its interest obligations on the bonds and loans payable. The bonds and loans payable also include covenants that require maintenance of maximum loan to value ('LTV') ratios ranging between 73% and 80% and minimum stressed debt service coverage ratio tests of between 1.2x and 1.6x.

Any changes in market conditions will directly affect the profit or loss reported through the Statement of Comprehensive Income. A 5% increase in the value of the investment properties as at 30 November 2011 would have increased total comprehensive income for the year by £12.7 million (2010: £11.8 million). A decrease of 5% would have had an equal but opposite effect. It is expected that increases or decreases would be primarily the result of changes in capitalisation rates, the primary variables in the fair value calculations.

16. Interest rate derivatives

The Fund utilises derivative financial instruments, in the form of interest rate cap contracts and interest rate swap contracts, to hedge its exposure to interest rate risk.

The interest rate cap contracts hedge the interest payments on the bonds issued to ORIX Corporation against movements in Japanese Yen LIBOR rates. These contracts expire on 21 May 2012 and ensure that the Fund's interest cost from bonds issued to ORIX Corporation does not exceed 4%.

An interest rate swap contract was taken out on 29 March 2010 in order to hedge floating rate interest payments on ¥4,327 million (£35.5 million) of the loan payable to Mizuho Corporate Bank. Under the terms of the contract the Fund pays interest quarterly at a fixed rate of 2.349%. The contract matures on 30 December 2013.

17. Trade and other receivables

All amounts are receivable within 90 days. A total of £86,000 (2010: £80,000) has been outstanding for more than 90 days, against which a provision of £20,000 (2010: £25,000) has been made for impairment in respect of amounts not expected to be recovered.

18. Restricted lender reserves

The restricted lender reserves, which belong to the Fund, comprise bank deposits that are held as reserves in lender restricted accounts against future expenses and liabilities including interest, taxes, capital expenditure, insurance and tenants' deposits. The restricted lender reserves are governed by lender agreements that stipulate the terms under which the Fund may withdraw funds subject to lender approval.

19. Cash and cash equivalents

20. Bonds and loans payable

The bonds and loans payable are secured by certain investment properties with a fair market value of ¥30,088 million (£246.8 million) (2010: ¥30,054 million (£229.1 million)) at the year end date.

All floating interest rates are reset every three months based on the prevailing base rate (3 months TIBOR or 3 months LIBOR) at the time.

During the year the Fund repaid or refinanced its loan portfolio as follows:

·; Reduced the outstanding balance of the loan payable to Mizuho Corporate Bank from ¥4,835 million (£36.9 million) at 30 November 2010 to ¥4,367 million (£35.8 million) at the year end and removed the requirement to make amortisation payments on the loan;

·; Reduced the outstanding balance of the loan payable to Mizuho Bank from ¥3,186 million (£24.3 million) at 30 November 2010 to ¥3,126 million (£25.6 million) at the year end.

Total debt is stated net of unamortisedfinancing costs. Gross debt is ¥16,497 million (£135.3 million) (2010: ¥17,090 million (£130.3 million))

21. Deferred tax assets and liabilities

The deferred tax charge for the year has been reduced by the write back of £113,000 in respect of deferred tax over-accrued at the end of the 2010 financial year.

Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit through future taxable profits is probable.

The Fund did not recognise deferred income tax assets of ¥63 million (£0.5 million) (2010: ¥112 million (£0.9 million)) in respect of losses amounting to ¥150 million (£1.2 million) (2010: ¥268 million (£2.0 million)) that can be carried forward against future taxable income.

Losses amounting to ¥107 million (£0.8 million), ¥36 million (£0.3 million) and ¥7 million (£0.1 million) expire in 2013, 2014 and 2015 respectively (2010: ¥87 million (£0.7 million), ¥137 million (£1.0 million) and ¥36 million (£0.3 million) expire in 2012, 2013 and 2014 respectively).

22. Trade and other payables

23. Share capital

The total authorised number of ordinary shares is 250 million, each with a par value of 10p. Ordinary shares carry no right to fixed income but are entitled to dividends as declared from time to time. Each share is entitled to one vote at meetings of the Company.

24. Share premium

On 12 January 2007 the Royal Court of Guernsey confirmed the reduction of the share capital of the Company by way of cancellation of the Company's share premium account, which under Guernsey company law at the time was an undistributable reserve. An amount of £85,067,000 was transferred to the special reserve, which is distributable. With effect from 1 July 2008, Guernsey company law no longer makes any distinction between distributable and non-distributable reserves, requiring instead that a company pass a solvency test in order to be able to make distributions to shareholders.

On the issue of new ordinary shares during the prior year, the excess of the proceeds over the nominal value of the shares issued, less the share issue costs, was credited directly to the special reserve (see note 25).

25. Special reserve

The special reserve is a distributable reserve to be used for all purposes permitted under Guernsey company law, including the buy back of shares and the payment of dividends.

26. Distributions paid from special reserve

27. Commitments

The Fund did not have any capital commitments at the year end date (2010: Nil).

28. Contingent liabilities

The Fund did not have any contingent liabilities at the year end date (2010: Nil).

29. Fund entities

The Fund consists of the Company and the following entities:

30. Post year end events

On 16 February 2012 debt scheduled to mature in May 2012 in the amount of ¥7.0 billion (£57.4 million) was successfully refinanced with Resona Bank. The refinanced loan is in the amount of ¥7.0 billion (£57.4 million) at a fixed interest rate of 1.58% with an LTV ratio of 61.3%, maturing on 31 January 2017.

31. Copies of Annual Report and Consolidated Financial Statements

The Financial Statements for the year ended 30 November 2011 will be sent to shareholders in due course and will be available from the Company's registered office at Sarnia House, Le Truchot, St Peter Port, Guernsey GY1 4NA and on its website www.jricl.com.