Nippon Building Fund Inc. (TSE: 8951), which owns 70 office buildings concentrated in central Tokyo, reported net income of ¥24.35bn for the six months to June 2026, up 26.2% from the ¥19.3bn recorded in the previous half-year, the six months to December 2025. Almost all of that increase came from a single transaction: selling an office building for ¥10.0bn in June produced a ¥5.19bn gain, more than a fifth of total net income for the period.
Strip that gain out and the underlying business looks flatter. Earnings per unit excluding disposal gains fell 2.6% to ¥2,173, down from ¥2,231 in the previous half-year. Distributions per unit still rose 1.4% to ¥2,489, but that increase leaned on the same one-off sale rather than on rising rents.
The financing side tells a less comfortable story. Average funding cost rose 15 basis points to 0.82% over the period, and the share of long-term debt locked at fixed rates fell to 76.9% from 83.9% six months earlier, a seven-point drop. Book-value loan-to-value eased slightly to 42.6% from 43.3%, leaving roughly ¥92.0bn of borrowing headroom before the fund's self-imposed 46% ceiling. A REIT relying more on floating-rate debt has less protection if the Bank of Japan keeps raising rates.
Management isn't projecting a quick rebound. For the following six months, ending December 2026, it forecasts revenue falling 6.2% to ¥50.5bn and distributions per unit dipping to ¥2,465, before recovering to ¥2,541 in the six months to June 2027.
| Period | DPU | EPU (ex. sale gains) |
|---|---|---|
| Six months to June 2026 (actual) | ¥2,489 | ¥2,173 |
| Six months to December 2026 (forecast) | ¥2,465 | ¥2,240 |
| Six months to June 2027 (forecast) | ¥2,541 | ¥2,310 |
The fund has been trading buildings to engineer that recovery. Since January it bought one Tokyo office building for ¥32.1bn and added to two existing holdings for ¥14.8bn and ¥0.2bn, while selling two properties, including the one behind June's gain, for a combined ¥11.9bn. Occupancy across the portfolio held at 98.2%, down from 98.9% a year earlier and 98.5% in the previous half-year.
The strategy trades older, lower-yielding buildings for gains that smooth today's payout. Whether that keeps working gets harder to answer as the fund's own cost of debt keeps climbing.