Half Yearly Report

24 July 2015

Japan Residential Investment Company Limited

(the "Company")

Consolidated Financial Statements for the Six Months Ended 31 May 2015

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, its subsidiaries and entities in which it has a beneficial interest are referred to collectively as the "Fund". The Company presents its unaudited consolidated financial results for the six months ended 31 May 2015.

Highlights

· Profit for the period increased 9.9% to £7.0 million, reflecting value growth in the underlying assets. In Yen terms, profit for the period rose 17.5%.

· Unrealised valuation gains on investment property totalled £3.5 million (2.9% of NAV) for the six months ended 31 May 2015.

· Portfolio value increased 1.4% in Yen terms over the six months ended 31 May 2015, compared with 1.8% over the comparative six month period. Investment property values rose 3.1% during the twelve months ended 31 May 2015 on a like-for-like basis.

· Underlying profit rose 2.4% on the back of higher revenues and lower administrative expenses. In Yen terms, underlying profit per share increased 9.5%.

· NAV per share was 56.3p at period end, up modestly from 56.1p at the financial year end. In Yen terms, NAV per share increased 6.3%.

· Distribution of 1.8p per share in respect of the six months ended 31 May 2015.

The values of assets and liabilities are converted from Yen to Sterling at the period end exchange rate. Items in the Statement of Comprehensive Income are converted at the average exchange rate for the period.

(1) Profit excluding gains/losses from fair value adjustments, foreign exchange and other capital and one-off items. The Fund uses underlying profit in its internal financial reporting and provides the analysis as additional information (see note 6).

(2) Total debt less cash and restricted reserves as a proportion of total assets less cash and restricted reserves.

Chairman's Statement

I am pleased to present the interim report and unaudited condensed consolidated financial statements for the period ended 31 May 2015.

JRIC is closed-ended property company engaged in the acquisition and management of high quality Japanese residential properties in major cities in Japan. Our portfolio of assets is located primarily within the high density urban core of the largest metropolitan areas of Tokyo, Nagoya, and Osaka. These areas are benefiting from population and household formation growth while offering a diverse and vibrant quality of life for tenants, and for investors, superior risk-adjusted returns relative to other markets.

We are encouraged by improvements in the Japanese economy and continued robust demand in our markets for residential housing. Wages are rising and favourable demographics are driving demand for rental housing. Fundamentals for our business remain strong, and 2015 should be another solid year for the Japanese residential property industry. As a result we remain optimistic about the prospects for the continued success of the Fund.

Results

Gross rental income rose 3.5% to £8.7 million for the six months ended 31 May 2015 as compared with the same period one year prior. Increased revenues from new acquisitions outweighed the 6.9% decline in the average Yen/Sterling exchange rate. Property operating expenses rose as a result of the enlarged portfolio as well as from higher leasing expenses. Profit for the period rose 9.9% to £7.0 million or 3.3p per share, due primarily to the increase in unrealised valuation gains on investment property. In Yen terms, profit for the period rose 17.5%. Underlying profit increased 2.4% to £3.7 million or 1.7p per share for the period due to increased rental income and reduced administrative and other expenses. In Yen terms, underlying profit per share increased 9.5%.

Net asset value per share increased by a modest 0.2p to 56.3p during the six months ended 31 May 2015. Contributions from underlying profit of 1.7p and gains on fair value adjustments of 1.6p were largely offset by dividends paid in the amount of 1.8p, a net foreign exchange loss of 1.2p and losses from one-time adjustments totalling 0.1p. In Yen terms, NAV per share increased 6.3%. The Fund's NAV and the amount of income available for distribution in Sterling are directly affected by movements in the Yen against Sterling.

Borrowings

The Fund had loans payable in the amount of £140.7 million against investment property totalling £246.7 million at 31 May 2015. The loan-to-value ("LTV") ratio was 57.5%, calculated as total outstanding loan principal as a proportion of appraised portfolio value. Gearing, calculated as total debt less cash and restricted reserves over total assets less cash and restricted reserves, was 50.1%. The weighted average annual interest cost was 0.88%. Of the total debt outstanding, 48.6% was at floating rates, 20.4% was floating with a cap, and 31.0% was at fixed rates. The Fund's weighted average debt maturity was 3.4 years.

The Fund has no debt maturing prior to January 2017. Credit markets in Japan remain robust as lending terms continue to improve for borrowers, including increased leverage, longer tenors and lower interest rate spreads. In light of this, the Fund will continue to manage debt proactively with a view to mitigating interest rate and refinancing risk through early refinancing with extended maturities.

Our balance sheet remains strong as we continue to source attractively priced debt capital. We have more than halved the weighted average interest rate on total debt outstanding from 200bps in May 2010 to 88bps currently. We remain focused on maintaining a strong balance sheet and favourable financing to preserve the healthy investment return over financing costs.

Distributions

The Board has approved an interim distribution of 1.8p per share in respect of the first six months of the financial year to 31 May 2015. This amount is 96.9% covered by underlying profit during the period with the shortfall being covered by cash reserves. The interim distribution will be paid in cash only on 7 September 2015 to shareholders on the register on 7 August 2015.

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.

Consistent with policy established on admission of the Company to trading on AIM, the Directors do not intend to implement a policy of hedging the Yen against Sterling, the Company's presentation currency. Accordingly, shareholders should appreciate that the Company is essentially a Yen investment and that the net asset value in Sterling and the amount of income available for distribution in Sterling are directly affected by movements of Sterling against the Yen.

At the time of writing, the 2015 first interim distribution represents an annualised yield of 6.8% on the share price of 52.6p, compared with ten-year Japanese government bonds that currently yield 0.42%.

Outlook

The Fund holds a diversified portfolio of high quality residential properties with a property level yield of 5.2%. The attractiveness of these assets is heightened by the low interest rate environment. With annual interest costs of 0.88%, the portfolio is able to generate substantial amounts of free cash flow. We believe that investors will continue to be drawn to this sector in search of high levels of current income and good prospects for capital growth.

The Company's current 6.8% dividend compares favourably to Japanese Real Estate Investment Trusts ("JREITs"), whose shares trade at a 3.1% dividend yield and at a price to book value multiple of 1.3x.

The Company has an ongoing capital rotation strategy whereby the proceeds from non-core asset sales are used to purchase properties with enhanced operating efficiency and greater prospects for capital growth.

Since commencing its capital rotation strategy in April 2013, the Fund has sold five non-core assets for a combined total sale price of ¥2,158 million (£13.9 million), a 27% premium to their most recent appraised values and an average exit yield of 4.1%. The Fund's most recent disposal, the sale of Branche Kanamecho IV in Tokyo for ¥550 million (£3.1 million), was achieved in September 2014 at a 34% premium to appraised value and a 3.6% exit yield. Whilst helping to improve overall portfolio quality, capital rotation has also contributed significantly to profits in the past two financial years.

The Fund holds a further 23 small-scale properties (asset value less than ¥500 million (£2.6 million)) with an aggregate appraised value as at 31 May 2015 of ¥9,111 million (£48.0 million) - or 19.5% of the total investment property. These small-scale assets are in high demand from wealthy individuals, who purchase them for Japanese inheritance tax planning purposes.

Since December 2013, the Fund has purchased ten assets for ¥11,420 million (£66.6 million), a 5.2% prospective net operating income ("NOI") yield, and on average a 0.9% discount to external appraised value. In 2014, the Fund again demonstrated its ability to acquire quality assets, amidst a highly competitive sourcing environment, at attractive price levels. On 7 July 2015, the Fund purchased the Minamisuna 7 Chome property in Tokyo for ¥488 million (£2.5 million), representing a prospective 4.7% NOI yield and 2.4% discount to external appraised value. The acquisition of Minamisuna 7 Chome further demonstrates our ability to rotate capital out of non-core assets and into new acquisitions in a way that is accretive to earnings and NAV while enhancing overall portfolio quality.

In June 2014, the Company announced its intention to migrate the quotation of its ordinary shares from AIM to the Main Market of the London Stock Exchange. In conjunction with preparation for this move, and in light of increased regulatory and compliance demands on collective investment schemes, as well as the practical requirements of managing a multi-jurisdictional investment structure, the Company has been engaged with its advisers in a wide-ranging review of its structure and investment management arrangements. As a result of this review, the Board has identified a number of initiatives which will help ensure that the Fund is well-positioned for its next growth phase with a robust and efficient operating structure. It is intended that these initiatives will be implemented in conjunction with the planned move to the Main Market, which the Company continues to progress. The Board notes that procedures and documentation required for the initiative are extensive and regrets that advances have not been more rapid. The Board believes that the prospects for the Company would be enhanced by a move of the listing of its shares onto the Main Market. Further progress has been made on the move to the Main Market and further announcements will be made in due course to update shareholders on the application process.

Ray Apsey

Chairman

23 July 2015

Report of the Manager and the Investment Adviser

Market

Japan's GDP growth accelerated to an annualized 3.9% in Q1 2015 fueled by increased capital spending and exports. Consensus forecasts for 2015 GDP growth is 0.9%. The Japanese government has adopted three fiscal stimulus packages totalling ¥19.3 trillion (£101.7 billion) since January 2013. In October 2014, the Bank of Japan increased its asset purchase plan to ¥80.0 trillion (£421.4 billion) per year in an effort to achieve its 2% inflation target. Household spending gained 4.8% in May, the first increase following the consumption tax hike in April last year.

Unemployment declined to 3.32% in May 2015, an 18-year low. The closely-tracked ratio of jobs to job seekers rose to 1.19 in May 2015, the highest level in 23 years. Signs of wage growth are emerging as Japanese wages grew faster than the cost of living in April 2015 for the first time in two years, as the impact of last year's sales-tax hike diminished. The income of salaried households increased 1.5% in May, up for the second straight month. It is unclear whether wage increases will be sufficient to make up for rising living costs and the impact these trends will have on domestic consumption.

Residential land values in Tokyo 23 Wards rose 2.1% and 1.0% in the six large cities for the year ended March 2015. Land values remain substantially below both recent and long-term peaks, down 11.7% from pre-credit crisis levels in the six large cities and down 66.7% from levels in 1990.

Increased demand and a general scarcity of investment properties is compressing yields and putting upward pressure on asset prices. Sales prices of condominiums continue to rise in metropolitan Tokyo. Used condominium prices rose 4.0% for the year ending 30 April 2015. This compares with an increase of 4.8% over the same period one year prior.

Price per square metre of new condominiums was up 0.9% year-on-year to ¥873,000 (£4,600) in Tokyo 23 Wards in 2014. In Osaka, prices were up 5.4% to ¥528,000 (£2,800) over the same period. Prices on new, for-sale condominiums have recovered and now exceed pre-credit crisis levels. Nevertheless, 2014 new condominium prices remained 44% below their 1991 peaks in Tokyo. In Osaka prices were 42% below peak.

Signs of rent growth are emerging, with rents in Tokyo 23 Wards increasing in 2014 by 0.4%, the first year-on-year increase since the financial crisis. Rents in Osaka fell 0.2% and rents in Nagoya were flat.

Portfolio

The Fund portfolio of 57 properties (2,697 rentable units) was externally valued at ¥46.8 billion (£246.7 million) at 31 May 2015. This represents an increase of ¥981 million (£5.2 million) or 2.1% over the portfolio valuation one year prior, despite the previously announced disposal of Branche Kanamecho IV in Toshima Ward, Tokyo in September 2014. This property was sold at a 34.1% premium over its 31 May 2014 valuation of ¥410 million (£2.2 million).

The regional allocation of the property portfolio by value at 31 May 2015 was: Tokyo 59%; Osaka 19%; Nagoya 10%; and Other 12%. The unleveraged net yield of the portfolio (appraised net operating income over value) was 5.2% at 31 May 2015, down from 5.3% six months prior. With ten-year Japanese government bonds currently yielding 0.42%, property value growth expectations are supported by the substantial yield premium they offer over the risk-free rate.

On a like-for-like basis, investment property value increased 3.1% during the twelve months ended 31 May 2015. The largest gains in percentage terms were in Tokyo (+3.5%), where the majority of the Fund's assets are located. This was followed by gains in Other (+2.6%), Osaka (+2.5%) and Nagoya (+2.4%).

Occupancy averaged 94.8% for the six months ending 31 May 2015. This is down from 95.1% during the period one year prior. The portfolio occupancy rate was 95.1% at 30 June 2015. Average occupancy for the 3 years ended 31 May 2015 was 95.1%.

Post Balance Sheet

On 7 July 2015, the Fund acquired Minamisuna 7 Chome Building, a seven story apartment complex located in Koto Ward, Tokyo. The purchase price was ¥488 million (£2.5 million), excluding tax and other acquisition costs, and has an estimated prospective net operating yield of 4.7%. The property was purchased at a 2.4% discount to a recent externally appraised value of ¥500 million (£2.6 million).

The property is newly-constructed, having been completed in November 2014. It has 539 square metres of net leasable area and is currently 95.8% occupied. In addition to 14 residential units, the property has one retail unit tenanted by Seven Eleven Japan. The property fronts Minamisuna Sanchome Park, is in close proximity to schools, shopping and other lifestyle amenities and is a 3-minute walk from Minamisunamachi Station, on the Tokyo Metro Tozai subway line.

In conjunction with this acquisition, the Fund obtained additional debt financing in the amount of ¥318 million (£1.7 million). The loan has been extended by licensed lending businesses in Japan that are affiliates of U.S.-based Prudential Financial, Inc. (NYSE: PRU). The debt has a fixed interest rate of 1.25% per annum, a loan-to-value ("LTV") ratio of 63.6%, and a remaining tenor of 5 years and 8 months. The lender is not affiliated in any manner with Prudential plc of the UK.

With this acquisition and this new financing, the Company will have an LTV ratio at the Fund level of 57.6%. Gearing (calculated as net debt less cash and restricted reserves as a proportion of total assets less cash and restricted reserves) at the Fund level will be approximately 50.7%. The weighted average interest rate of the Fund will be 0.87% and the average maturity on loans outstanding is 3.4 years.

Since commencing its capital rotation strategy in April 2013, the Fund has sold five non-core assets for a combined total sale price of ¥2,158 million (£11.2 million), an average 27% premium to the most recent appraised values at the time of sale and at an average exit yield of 4.1%. The Fund's most recent disposal, the sale of Branche Kanamecho IV in Tokyo for ¥550 million (£3.1 million) was achieved in September 2014 at a 34% premium to appraised value and a 3.6% exit yield.

Outlook

Fund investment property values have made steady gains over the past three years, while values remain substantially below pre credit crisis levels. Properties purchased before the financial crisis - which represent 70% of the portfolio by value - remain down 12% on average from initial purchase price. The portfolio of investment property as a whole, including recent acquisitions, is valued at 7% below initial purchase price. At these price levels, the portfolio generates a 5.2% operating income yield over valuations - a highly attractive 478 basis point premium over 10-year Japanese government bonds.

Our disciplined research-driven approach to investing in supply-constrained markets has resulted in a high quality portfolio concentrated primarily in select submarkets of Tokyo, Osaka and Nagoya. Overseen by a strong management team with a well-defined strategy, we are confident that the Fund is well-positioned for continued success going forward.

KK Halifax Management Limited KK Halifax Asset Management

Manager Investment Adviser

Independent Review Report to Japan Residential Investment Company Limited

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the interim report for the six months ended 31 May 2015, which comprises the Condensed Interim Consolidated Statement of Comprehensive Income, Condensed Interim Consolidated Statement of Financial Position, Condensed Interim Consolidated Statement of Changes in Equity, Condensed Interim Consolidated Statement of Cash Flows and related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim report in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the Company's annual financial statements.

As disclosed in note 1, the annual financial statements of the Fund are prepared in accordance with International Financial Reporting Standards ("IFRS"). The condensed set of financial statements included in this interim report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting".

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purposes of the AIM Rules for Companies and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the International Auditing and Assurance Standards Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim report for the six months ended 31 May 2015 are not prepared, in all material respects, in accordance with International Accounting Standard 34, "Interim Financial Reporting" and the AIM Rules for Companies.

PricewaterhouseCoopers CI LLPChartered AccountantsGuernsey, Channel Islands

23 July 2015

Publication of Interim financial statements

(a) The maintenance and integrity of the Company's website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b) Legislation in the Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Condensed Interim Consolidated Statement of Comprehensive Income

For the six months ended 31 May 2015

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

The total comprehensive income is attributable to shareholders of the Company. There are no minority interests.

The accompanying notes form an integral part of these financial statements.

Condensed Interim Consolidated Statement of Financial Position

At 31 May 2015

The accompanying notes form an integral part of these financial statements.

Condensed Interim Consolidated Statement of Changes in Equity

For the six months ended 31 May 2015

The accompanying notes form an integral part of these financial statements.

Condensed Interim Consolidated Statement of Cash Flows

For the six months ended 31 May 2015

The accompanying notes form an integral part of these financial statements.

Notes to the Condensed Interim Consolidated Financial Statements

For the six months ended 31 May 2015

1. Basis of accounting

Basis of Preparation

These condensed interim consolidated financial statements ('the financial statements') have been prepared in accordance with International Accounting Standard (IAS) 34 'Interim Financial Reporting'.

The financial statements do not include all the information and disclosures required in annual financial statements, and should be read in conjunction with the Fund's annual financial statements for the year ended 30 November 2014.

Going concern

On 19 July 2013, the shareholders of the Company voted in favour of a resolution releasing the Directors from the obligation to hold an extraordinary general meeting to wind up the Company. As a result the life of the Company is now indefinite, subject to a continuation vote to be held in 2018 and subsequently in every fifth calendar year thereafter.

The Directors have a reasonable expectation that the Fund has adequate resources to continue in operational existence for at least twelve months from the date of approval of this document. The Fund has high levels of liquidity and has refinanced all of its short-term debt such that it now has no further debt maturing until January 2017.

Accordingly, the Directors are satisfied that it is appropriate to adopt the going concern basis in preparing the financial statements.

Significant accounting policies

Except as described below, the accounting policies applied by the Fund in these interim financial statements are the same as those applied by the Fund in its annual financial statements at and for the year ended 30 November 2014.

Significant judgements and estimates

The preparation of the financial statements requires the Directors to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the date of the financial statements. If in the future such estimates and assumptions, which are based on the Directors' best judgement at the date of the financial statements, deviate from actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change.

In preparing the financial statements, the significant judgements made by management in applying the Fund's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements at and for the year ended 30 November 2014.

New accounting policies effective and adopted

The following new standards or amendments have been applied for the first time in these financial statements:

• IFRS 10, "Consolidated Financial Statements" (amendments for investment entities effective for periods commencing on or after 1 January 2014);

• IFRS 12, "Disclosures of Interests in Other Entities" (amendments for investment entities effective for periods commencing on or after 1 January 2014);

• IAS 27, "Separate Financial Statements" (amendments for investment entities effective for periods commencing on or after 1 January 2014);

• IAS 32, "Financial Instruments: Presentation" (amendments effective for periods commencing on or after 1 January 2014);

• IAS 36, "Impairment of Assets" (amendments effective for periods commencing on or after 1 January 2014);

• IAS 39, "Financial Instruments: Recognition and Measurement" (amendments effective for periods commencing on or after 1 January 2014).

The Board does not expect that the adoption of these standards and amendments will have any material impact on the financial statements of the Group for the year ended 30 November 2015.

2. 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.

The Directors of the Company received fees for their services. The total charge to the Consolidated Statement of Comprehensive Income during the period was £105,650 (2014: £79,000) of which £42,625 (2014: £42,625) was outstanding at the end of the period. There are no key personnel working on behalf of the Fund other than the Directors, Manager and Investment Adviser.

The Fund pays fees to KK Halifax Management Limited ("KKHML") for its management services. The total charge to the Consolidated Statement of Comprehensive Income during the period was £25,000 (2014: £25,000), of which £12,500 (30 November 2014: £12,500) was outstanding at the end of the period.

The Japan-domiciled firms in which the Company is the ultimate beneficiary pay fees to KK Halifax Asset Management Limited ("KKHAM") for its investment advisory services. The total charge to the Consolidated Statement of Comprehensive Income during the period was £636,556 (2014: £621,398) of which £Nil (30 November 2014: £Nil) was outstanding at the end of the period. A reimbursement of office rent paid to Colliers International ("CI"), a sister company of KKHAM, on behalf of various Fund SPEs, of £6,646 (2014: £4,802) 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 beneficiary pay fees to CI for its accounting and administrative services. The total charge to the Consolidated Statement of Comprehensive Income during the period was £157,222 (2014: £175,973) of which none (30 November 2014: none) was outstanding at the end of the period.

3. Segment reporting

The Board of Directors considers that it is the Fund's Chief Operating Decision Maker. The Board is of the opinion that the Fund is engaged in a single segment of business, being residential investment property, in one geographical area, Japan, and that segment reporting is therefore not applicable.

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

4. Financial risk management

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).

These financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Fund's annual financial statements at 30 November 2014. There have been no changes in risk management policies since the year end.

Fair value hierarchy

The following table analyses financial assets and liabilities carried at fair value, by valuation method. The different levels have been defined as follows:

Fair value hierarchy (continued)

Interest rate cap contracts are valued on a mark-to-market basis, based on a price supplied by market participants. Similar contracts are traded in active markets and the values used reflect actual transactions in similar instruments.

There have been no transfers between levels of the fair value hierarchy in the current or comparative period.

5. Earnings per share

The Fund does not have any share options, warrants or other potentially dilutive instruments currently in issue.

6. Underlying profit

Underlying profit excludes gains/(losses) from fair value adjustments, foreign exchange and other capital and one-off items. The Fund uses underlying profit in its internal financial reporting and provides this analysis as additional information.

7. Investment property

The total cost (purchase price plus acquisition costs) of the investment property held at the period end date was £277.3 million (¥52.6 billion) (30 November 2014: £283.5million (¥52.6 billion)).

All of the Fund's investment property is pledged as security for loans payable (see note 8). Income generated by the pledged investment properties is distributable subject to the Fund meeting its interest obligations on the loans payable. The loans payable include covenants that require LTV ratios to be maintained at or below 80% and minimum stressed debt service coverage ratio ("DSCR") tests of 1.2x free cash flow at the date of this Interim Report. All debt is compliant with lender LTV and DSCR requirements. The Board monitors compliance with these requirements on a regular basis.

Any changes in market conditions will directly affect the profit or loss reported through the Condensed Interim Consolidated Statement of Comprehensive Income. A reasonably possible increase/decrease in the value of the investment property at 31 May 2015 of 5% would have increased/decreased total comprehensive income for the period by £12.3 million (31 May 2014: £13.4 million). 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.

The following tables show the valuation techniques used in measuring the fair values of investment properties, as well as the significant unobservable inputs used and their effects on the fair value measurements:

8. Loans payable

The loans payable are secured by investment properties with a fair market value of ¥46.8 billion (£246.7 million) (30 November 2014: ¥46.2 billion (£248.8 million)) at the period end date.

Total debt is stated net of unamortised finance costs. Gross debt is ¥26.9 billion (£141.9 million) (30 November 2014: ¥27.0 billion (£145.3 million)).

9. Derivative financial instruments

The Fund utilises interest rate cap contracts to hedge its exposure to cash flow interest rate risk associated with its floating rate bank loans, not for speculative purposes. Changes in the fair value of derivatives are recognised in the Condensed Interim Consolidated Statement of Comprehensive Income.

10. Taxation

Deferred tax liabilities

The taxation charge for the period of £488,000 (31 May 2014: £457,000) comprises withholding tax charged on undistributed income and interest.

11. Commitments

The Fund did not have any capital commitments at the period end date.

12. Events after the reporting date

On 7 July 2015, the Fund acquired Minamisuna 7 Chome Building (the "Property"), a seven story apartment complex located in Koto Ward, Tokyo. The purchase price was ¥488 million (£2.5 million), excluding tax and other acquisition costs, and has an estimated prospective net operating yield of 4.7%. The property was purchased at a 2.4% discount to a recent externally appraised value of ¥500 million (£2.6 million).

There were no other significant post period end events which require disclosure in these financial statements.