Fukuoka REIT Corporation
2-25, 1-Chome, Sumiyoshi, Hakata Ward, Fukuoka City, Fukuoka, Japan

https://www.fukuoka-reit.jp/eng/@fukuokareit8968

facebook.com/fukuokarealty

fukuoka_realty

To better understanding of FRC and its operations, FRC is focusing efforts on IR activities. FRC uses its website to post press releases and various disclosurematerials and provide information on its portfolio of investment properties and other items. In addition, FRC uses social media such as Twitter, Facebook
and Instagram to disseminate a wide range of information on the Fukuoka and Kyushu area, including information on these regionsʼ economies, real-estatemarkets, retail facilities, tourist attractions and much more. We invite you to make use of these information resources.

Integrated Report

2020

Fukuoka REIT Corporation
December 2020

Corporate Profile / Characteristics

Introduction

Taking advantage of our strength in knowing the local
characteristics of real estate, which is a very regional-specificbusiness, to invest in the wider Kyushu region with a focus
on Fukuoka, on June 21, 2005, Fukuoka REIT Corporation(FRC) was listed as the first region-specific REIT in Japan.
FRC believes that attracting excellent domestic and foreign
investment funds to regional financial markets will stimulate
community development of the Fukuoka and Kyushu areas.
Moreover, we believe that possibilities in regional growth throughurban development will provide FRC with a continuous streamof investment opportunities as well as income from assets underownership for FRC while at the same time delivering profitable
returns to unitholders.

Corporate Profile
Name

Fukuoka REIT Corporation

Securities code

8968

Listed dateJune 21, 2005 FRC listed on Tokyo Stock Exchange and Fukuoka
Stock Exchange

Accounting periods

February, August

Asset management company

Fukuoka Realty Co., Ltd.

Sponsors

Fukuoka Jisho Co., Ltd.
Kyushu Electric Power Co., Inc.
Nishi-Nippon Railroad Co., Ltd.
ROYAL HOLDINGS Co., Ltd.
THE BANK OF FUKUOKA, LTD.
THE NISHI-NIPPON CITY BANK, LTD.
SAIBU GAS CO., LTD.
Kyudenko Corporation
Kyushu Railway Company
Development Bank of Japan Inc.

FRCʼs Characteristics

Japanʼs First Region-Specific REIT

1

Contents
01

01

28

Corporate Profile / Characteristics

Foundation Underpinning Management
28

Sustainability Policy and Materiality

02 Relationship with Fukuoka Realty Co., Ltd.

30 Environmental Issues

04 Macroeconomic Environment around Fukuoka City

34 Social Issues

08 J-REIT Mechanism and Fukuoka REIT Corporationʼs
Business Model

37

10

16

Editorial Policy

Introduction

History and Business Performance

12

Overview of Properties Owned

14

Financial/Non-Financial Highlights (5-Year Graph)

Value-Creation Activities
16

CEOʼs Message

20

Strategies of Each Department

24

Risks and Opportunities

26

Financial Strategies and TSR (Total Shareholder Return)40

Organizational Issues

Data Section
40

Financial/Non-Financial Highlights (11-Year/22-Period Summary)

42

Glossary

With the aim of conveying details of the Investment
Corporationʼs value creation process in an easy-tounderstand manner, we have issued this Integrated
Report since FY2019. In editing this report, the editors
adopt clear and accessible language, with reference tothe International Integrated Reporting Framework of theInternational Integrated Reporting Council (IIRC) and the
Guidance for Collaborative Value Creation of Japanʼs
Ministry of Economy, Trade and Industry (METI). We
consider that this and subsequent reports will lead toactive dialogue with investors and other stakeholders.

Taking advantage of our strength in knowing the local characteristics of real estate, which is a very
regional-specific business, we invest in real estate for rent in the Fukuoka and Kyushu areas, where
growth potential exists. By appropriately managing the invested real estate, we continue to securestable earnings over the medium- to long-term while providing stable dividends.

Excellent Portfolio

2

In order to build its portfolio, FRC selectively invests in a variety of investment property types,
including retail facilities, office buildings, and logistics properties etc., with a focus on the Fukuoka
metropolitan area, which maintains significant growth potential.

Support Structure Comprises Sponsor Companies

34Powerful companies that lead the business world in Fukuoka and Kyushu, and accept our wayof thinking, participate as shareholders of Fukuoka Realty Co., Ltd. FRC proactively utilizes the
support from its sponsor companies while aiming to steadily expand its asset scale.

Stable Financial Base
We are reducing refinancing risk (by the conservative control of LTV and extending debt duration).
We also maintain good relationships with financial institutions, including our three sponsor banks.

Payment of Stable Dividends Continuing Since Listing

5

Utilizing its sponsor pipeline and other advantages, FRC continues to distribute stable dividends
per unit through the acquisition of carefully selected excellent properties and effective asset
management in the Fukuoka and Kyushu area.

Fukuoka REIT Corporation 2020

01

FRCʼs Basic Policy

Corporate Profile of Fukuoka Realty Co., Ltd.

【Our Mission】
Taking advantage of our strength in knowing the local
characteristics of real estate, which is a very regional-specificbusiness, we invest in real estate for rent in the Fukuoka andKyushu areas. By appropriately managing the invested realestate, we will achieve stable earnings over the medium- to longterm while making efforts to keep providing stable dividends forthe future.
【Act Local】
We - FRC and Fukuoka Realty – are the only listed real estate
investment corporation and asset management company
registered outside the Tokyo metropolitan and Kansai areas.
As a region-specific REIT, FRC also seeks differentiation in theselection of investment target properties and the managementof owned assets through the enhancement of its informationgathering ability and ability to discern the profitability ofproperties by utilizing its speed and depth of information basedon knowledge of local land and broad network centering on thelocal government and business world.
【Think Global】
Regarding real estate and financial markets, FRC will keep closely
tracking movements occurring across the whole of Japan and theentire world, taking into consideration the logic of capital markets
with global ideas, and appropriately reflecting such in our asset
management. We will also keep diligently pursuing dialogue
with investors, focusing on fulfilling our accountability, andutilizing Fukuoka Realtyʼs fund management skills for investors
under a strict compliance policy. We will proactively engage in
IR activities to fulfill our accountability to global capital markets.
In conjunction, we will take heed of Fukuoka Realtyʼs corporate
governance and compliance.

Comprising employees with various experiences in real estate,finance, and other fields, Fukuoka Realty Co., Ltd. possesses ahigh level of expertise and makes full use of local knowledge andknow-how to manage FRCʼs assets.

Introduction

Introduction

Relationship with Fukuoka Realty Co., Ltd.

Real Estate Investment Trust

Fukuoka REIT Corporation

Real Estate

Investors［ Securities code : 8968 ］
Holdings

Investments

Rents, etc.

Dividends

Company
entrusted withasset
management

Asset management company

Contribution to Regional Revitalization and Development of Attractive Communities
FRC believes that attracting domestic and foreign excellent
investment funds to regional real estate financial markets will
stimulate community development of the Fukuoka and Kyushu
areas. Although we are not directly involved in community
development or real estate development, we expect that ouracquisition of properties will lead to new funds passing to sellers
and part of those funds being directed to new development,
etc. With funds injected into FRC from Japan and abroad, newinvestment funds will flow to the Fukuoka and Kyushu areas

Fukuoka Realty Co., Ltd.

as a whole. Based on this perspective, we believe that we cancontribute to regional revitalization and community developmentin the Fukuoka and Kyushu areas.
Funds will be returned to unitholders by distributing theearnings from owned assets.
Through the promotion of community development and therevitalization of regional economies in the Fukuoka and Kyushu
areas, we will aim for FRC earnings stability.

Investment Policy

Act Local
Real estate is a local business・Distinctive capability for gathering
qualitative information of real estatemarket (speed, in-depth information)
・Specialization in local properties
・Solid network among the local
government and business world

Our Mission
Region-Specific REIT
Featuring our expertise on
local real estate markets,
Fukuoka and Kyushu, maximize
profits of investors

Think Global
Capital market theory
・A ccountability and transparent
dialogue with investors
・Decent policy to comply
・Fund management skills

Investment target areas

Investment typeFukuoka
metropolitan area

Retail60-90%
Other Kyushu areas(including Okinawa andYamaguchi prefectures)

10-30%
Others0-10%

02

Fukuoka REIT Corporation 2020

40-70%

Leading companies in the Fukuoka and Kyushu region who arein agreement with FRCʼs concept participate as shareholders(sponsors) of Fukuoka Realty Co., Ltd. FRC aims to achievesustainable growth as a REIT through the expanded scale ofits assets through the contribution of excellent properties fromamong our sponsors and by actively leveraging the support,
including provision of relevant information and staffing to asset
management companies. With regard to the properties owned
and developed by the sponsor companies, Fukuoka Jisho Co.,
Ltd., FRC and Fukuoka Realty Co., Ltd. have concluded a pipeline
support memorandum of understanding (MOU) to seek stable
and continuous acquisition opportunities.

5%

5%

5%

5%

THE BANK OFFUKUOKA, LTD.

THE NISHI-NIPPONCITY BANK, LTD.

Development
Bank of Japan Inc.

SAIBU GASCO., LTD.

50%
Fukuoka Jisho
Co., Ltd. ＊Directors

Fukuoka Realty Co., Ltd.

Outsidedirectors

10%
Kyushu ElectricPower Co., Inc.

(Asset Manager)

Fukuoka Jisho overview : See p.23

Office buildings

20-50%

5%

5%

5%

5%

Others

Kyudenko
Corporation

Nishi-Nippon
Railroad Co., Ltd.

Kyushu Railway
CompanyROYAL
HOLDINGS Co., Ltd.

(hotels, residences,logistics, etc.)* Concluded MOU with FRC and Fukuoka Realty Co., Ltd. concerning pipeline support.

0-30%

Fukuoka REIT Corporation 202003

SeoulBusan

Shanghai

Osaka

Tokyo

Fukuoka
500km

TaipeiHong Kong

1,000km
1,500km

Fukuoka with a Large Youth Population

The total population of Fukuoka City has increased consistently
since 1985, and as of May 1, 2020, the current estimatedpopulation exceeds 1.60 million. This total population makes thecity the fifth most populous among the government-designatedcities, following upon Yokohama, Osaka, Nagoya, and Sapporo.
According to estimates from the National Institute of Populationand Social Security Research, the population of Fukuoka City is
expected to continue growing until 2035.

Compared with other cities, the population composition of
Fukuoka City is characterized by a higher proportion of young
people. Of the cities listed in the chart below, the ratio of young
people in Fukuoka City (the proportion of a cityʼs total populationaccounted for by people between the ages of 15 and 29) ranks
first at 17.4%. Fukuoka Cityʼs working-age population ratio (theproportion of the cityʼs total population made up of people
between the ages of 15 and 64) ranks third at 64.8%.

■ Total Population and Population Growth Ratio of Fukuoka City■ National and Major Citiesʼ Young People and Working Age Population Ratios〈2015〉

Total population of Fukuoka City（%）

(Thousands)
1,650
1.12

0.89

1,550

0.89
0.78

［Fukuoka Startup Consortium］（1）Initiatives for encouraging the creation of a startup ecosystem（2）Support for the creation and growth of startup companies
through industry-academia-government collaboration（3）Broadcast information to the world as a means of attracting
startup companies, companies, investors, sponsors, andhuman resources, etc.
（4）Initiatives for proof-of-concepts and social implementationsof new technologies and services（5）Initiatives that contribute to the goals of the Consortium, etc.

1,454

1,450
1,400

1,404

1,417

1,430

1,466

0.99 1,556 1,570
0.89

0.82

1,500 0.83

Fukuoka City applied for the Startup Ecosystem Hub City Creation
Project involved in the "Beyond Limits. Unlock Our Potential.:
Strategies for creation of startup ecosystem to compete with theworld top ecosystems" organized by the Cabinet Office of Japan.
This program began accepting applications on January 28, 2019, andFukuoka City was selected as a Global Hub City on July 14, 2020.
The Fukuoka Startup Consortium was established for the
purpose of creating a Startup Ecosystem Hub City that willproduce new value and give rise to startups that serve as engines
for sustainable urban growth and vitality through the exploration ofcollaborations between corporations, universities, and government.

1.02

0.99

0.99

Cabinet Office Startup Ecosystem Hub Creation Strategy: Fukuoka as a Global Hub City

1,482

1,497

1,541

1,512 1,526

1,582

1,595

1,603

0.90

1.2
1.0

0.84

0.95

0.77
0.8
0.6

1,441

0.4

SendaiOsaka

Kumamoto

16.0

Hiroshima

15.0

Tokyo
Metropolitan
area

Sagamihara

NagoyaSaitama
Yokohama

SapporoNiigata

Kobe
Sakai

Nationwide

Chiba

Hamamatsu

0* Total population for 2020 indicates the population as of September 1, and therefore does not reflect
the population growth rate.
Source: Prepared by Fukuoka Realty Co., Ltd. based on data from Fukuoka City Estimated Population
and Fukuoka City Registered Population, published by Fukuoka City

KawasakiOkayama

14.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Fukuoka

Kyoto

17.0

Kitakyusyu

・Youth population
14.5%
・Working-age population 60.0%

Shizuoka

0.2

1,350

0

・Youth population
17.4% (1st)・Working-age population 64.8% (3rd)

18.0

1.4

1,600

Hot Topics（%）

Population growth ratio

Youth population

Beijing

Blessed with a history and culture nurtured by the sea, anabundant natural environment, extensive urban functions, diverse
human resources, and various other assets, Fukuoka City isrecognized around the world as a livable city.
Under the “Fukuoka City Comprehensive Plan,” the basic
strategy for city management focuses on creating a virtuous
cycle of “urban growth” and “greater quality of life.” In aiming tobecome a “leading Asian city in which people, the environment,
and urban vitality are harmonized,” Fukuoka City is advancing
urban planning that recognizes its presence within Asia as acompact, sustainable city that balances economic growth with asafe, secure, high quality of life.

Population Continues to Grow in Fukuoka City

(Percentage of city population aged 15 to 29)

Fukuoka Cityʼs Standing: From Regional City to an Asian Economic Metropolis

Introduction

Introduction

Macroeconomic Environment around Fukuoka City

0

57.0

58.0

59.0

60.0

61.0

62.0

63.0

64.0

65.0

66.0 （%）

Working-age population(Percentage of city population aged 15 to 64)

Source: Prepared by Fukuoka Realty Co., Ltd. based on data from the Ministry of Internal Affairs andCommunications, Statistics Bureau Population Census of Japan.

Fukuoka as a Compact CityTEAM FUKUOKA established to attract international financial functions

Fukuoka as a Continuously Growing, Balanced City

The Japanese government aims to expand acceptance of foreign
financial institutions and overseas financial talents. In response,
TEAM FUKUOKA, a promotion organization of industryacademia-government collaboration throughout Fukuoka, wasestablished on September 29, 2020, so that a variety of entities
involved in attracting international financial functions to Fukuoka
will mutually share and exchange information and work by taking
advantage of respective features.

According to “Japan Power Cities: Profiling Urban Attractiveness
2020,” a survey conducted by the Mori Memorial Foundation thatanalyzes the urban vitality of 109 cities in Japan from a relativeand multifaceted perspective, Fukuoka City stands out in termsof economics and business, and has consistently received highmarks for “business vitality” and “business climate.” Fukuoka City
also received high marks for “access from outside the city” interms of transportation and access, and attracts many people andbusinesses as a city that aims to become a hub of exchange in Asia.
■ Category Rankings/Standard Deviation
Figures in parenthesis indicate
last yearʼs rankings

Economics/Business2nd 73.7
3rd 76.5

Transportation/Access(3rd)

As a compact city, the air, sea, and land transportation accesspoints of Hakata Station, the Port of Hakata, and Fukuoka Airport
are located within a three-kilometer radius of Tenjin, Fukuoka
Cityʼs central business district.
Currently, the city is working to improve the transport
infrastructure and enhance the transport functions to further

Fukuoka City
Island City

3
LegendJR（Conventional lines）
Shinkansen
Nishi-Nippon Railroad
Fukuoka Municipal Subway
Fukuoka Urban Expressway
Nishi Kyushu Expressway

Port of Hakata

4 Fukuoka Urban Expressway 3 extension (Airport Route)(scheduled for completion in FY2024)
4

(6th)

5th 72.6(63rd)(5th)
Culture/Exchange

Environment

2020 Standard Deviation by Category
50-point standard deviation line
* The shape of the graph expresses the standard deviation

Photo provided by the Fukuoka Keizai editorial department

04

Fukuoka REIT Corporation 2020

Source: Prepared by Fukuoka Realty Co., Ltd. based on data from
“Japan Power Cities: Profiling Urban Attractiveness 2020,”
a survey conducted by the Mori Memorial Foundation.

1 Planned extension of the Fukuoka City Nanakuma subway line
(scheduled for completion in FY2022)
2 Fukuoka Airport runway expansion(scheduled for completion in FY2024)5

5th 80.3
91st 42.4

Fukuoka City Infrastructure Enhancements

3 Fukuoka Urban Expressway 6 (Island City Route)(scheduled for completion in FY2020)

Research/
Development(3rd)increase convenience. Moreover, Fukuoka Cityʼs ratio of greeneryand water within a 10-kilometer radius of the city center, ameasure of the abundance of local nature, rivals that of cities
around the world recognized for their high “quality of life,"
including Melbourne and Seattle.

Tenjin1

Hakata Station

Fukuoka Airport

2

5 Waterfront zone redevelopment
Cruise ship terminal (completed in FY2015)
Port of Hakata Chuo Port extension construction(completed in FY2018)

6th 67.4(12th)
Lifestyle/Residence

Fukuoka REIT Corporation 202005

【Residential Land】
According to the official land price annual fluctuation rates (as of January
1 each year) for 2020 announced by the Ministry of Land, Infrastructure,
Transport and Tourism, the national average for residential land increased
0.8% year on year. Amid the ongoing improvement in the employment
and income environment, the continued low interest rate environment andhousing acquisition support measures underpinning demand for housing
have led demand to remain strong, primarily in highly convenient areas.
In Fukuoka City, land prices began to rise in 2013 due to strong housing
demand brought about by population inflow, and the rate of land priceincrease has risen every year up until 2020. Since the first quarter of 2020
land price trends have been impacted by the spread of COVID-19.

Redevelopment Trends in Fukuoka City

Nanakuma Subway
Line Extension(scheduled to start its
operation in the FY2022)

Nishitetsu Fukuoka(Tenjin) Station

Mid Station(tentative name)

Canal City Hakata

JR Hakata Station■ Average Year-on-Year Rates of Changes in Publicly Announced Price for Residential Land
Nationwide

Fukuoka

Tokyo Metropolitan area (23 wards)

Osaka

Nagoya（%）
8

Introduction

Introduction

Macroeconomic Environment around Fukuoka City

4
0
（4）
（8）

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Note: The publicly announced price indicates the land price disclosed by the Ministry of Land,
Infrastructure, Transport and Tourism as of January 1 of each year.
Source: Prepared by Fukuoka Realty Co., Ltd. based on data from Ministry of Land, Infrastructure,
Transport and Tourism Land Price Survey 2010-2020.

Fukuoka Office Market / Fukuoka Business District■ Vacancy Rates and Supply and DemandCompleted floor space (total floor space)■ Average Asking Rents（Y2005=100）（Tsubo）（%）
15.38

40,000

As of Sept. 2020

14.72

Sendai

13.23

35,000

11.98
10.86
10.99

25,000Having received special authorization to relax Civil Aeronautics Act-related buildingheight restrictions following the designation of the Fukuoka City Tenjin Region as a“National Strategic Special Zone for Global Startups & Job Creation,” Fukuoka City has
been advancing the “Tenjin Big Bang” project to create new spaces and employment.
This move includes implementing original policies to deregulate floor area ratios andworking to significantly improve urban functions. As the first stage of Tenjin Big Bang,
Fukuoka Jisho Co., Ltd., the main sponsor of FRC, is advancing development of “Tenjin
Business Center,” which is equipped with Fukuokaʼs first large-scale seismic isolation
structure, the highest level of BCP performance in Japan, and high-quality officespecifications, while also incorporating measures to address such infectious diseases
as COVID-19. This project is scheduled for completion during September 2021.
In aims of becoming the first city in the world designed to control infection, Fukuoka
City extended the completion deadline from 2024 to 2026 for buildings implementing
infection controls under development plans leveraging Tenjin Big Bang incentives.
This move is intended to induce new building initiatives, including those for securing
ventilation, non-contact operations, physical distancing, and telecommunications
environment enhancements.

In January 2019, Fukuoka City launched the “Hakata
Connected” project to better link the vitality andprosperity of Hakata Station to the surrounding area.
As the overland gateway to the Kyushu region, thearea surrounding Hakata Station, which is expected
to experience further development, will see transport
infrastructure enhancements, including an extension
to the Nanakuma subway line and redevelopment of
Hakata Ekimae Street. The project will also encouragereconstruction of older buildings into highly earthquakeresistant, high-tech buildings through floor area ratio
deregulation as a means of improving urban functions.
Along with THE NISHI-NIPPON CITY BANK, LTD.,
Fukuoka Jisho Co., Ltd., the main sponsor of FRC, will
also engage in a series of redevelopments of the Bankʼs
aging main branch, main branch annex, and head officebuildings to serve as a trigger for “Hakata Connected”.

【Commercial Land】
According to the official land price annual fluctuation rates (asof January 1 each year) for 2020 announced by the Ministry ofLand, Infrastructure, Transport and Tourism, the national averagefor commercial land increased 3.1% year on year, making for a fifth
consecutive year of positive growth. In Fukuoka City, land prices
began to rise in 2013 ahead of other cities. In addition to the increasein domestic and foreign tourists and the firm office market, progressin redevelopment projects has led the rate of increase to exceed thatof other cities since 2018. Since the first quarter of 2020 land pricetrends have been impacted by the spread of COVID-19.

06

Fukuoka REIT Corporation 2020

■ Average Year-on-Year Rates of Changes in Publicly Announced Prices for Commercial Land
Nationwide（%）

Fukuoka

Tokyo Metropolitan area (23 wards)

Osaka

Nagoya20

3.15%

NagoyaOsaka
Sapporo

3.05%
2.96%
2.25%

10

6

4.26
3.07

3.15

5,000
0

4

2.09

2.04

2
0

Impact of vacating large-scale buildings prior
to closures coinciding with redevelopment.

（5,000）Tenjin Business Center
Completed floor area (total floor area) includes thefloor area for common spaces, etc., and therefore
differs from the leasable floor area.

（10,000）
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Osaka

As of Sept. 2020
Fukuoka

11,018 yen

Central Tokyo (5 wards) 22,733 yen
Osaka11,944 yen(Yen/tsubo)

120
12

6.30

10,000Central Tokyo (5 wards)

14

8

15,000Land Price Trends in Fukuoka City

Fukuoka

Fukuoka

（%）
130

5.18%

7.70

20,000■ Hakata Connected

16Central Tokyo (5 wards) 3.43%

30,000■ Tenjin Big Bang

The average asking rent of the Fukuoka business district rose 6.1% in the 12 months from September 2019 to September 2020

Vacancy rate

Net absorption (absorption demand)

110
100
90
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

0Note: The figures from 2005 to 2019 are based on the figures as of December.
Source: Prepared by Fukuoka Realty Co., Ltd. based on data from Miki Shoji Co., Ltd. Office Market Data.

■ Trends in Leasable Floor Space and Occupancy Floor Space
Leasable Floor space

Occupancy floor space（Tsubo）
800,000
600,000

2021(Planned) (Planned)

400,000

Note: Vacancy rates from 2008 to 2019 are based on the figures as of December 31.
Note: Office building-related data for each city is data for areas and buildings included in surveys
conducted by Miki Shoji Co., Ltd.
Note: Net absorption (absorption demand) shows the change in the occupied floor space during a specificperiod. It is calculated by subtracting the occupied floor space on December 31 of the previous year
from the occupied floor space on December 31 of the applicable year.
Completed floor space (total floor space) figures for 2020 and 2021 have not been finalized, and thefloor space and expected completion dates are subject to change.
Source: Prepared by Fukuoka Realty Co., Ltd. based on data from Miki Shoji Co., Ltd. Office Market Data.

Note: The figures from 2005 to 2019 are based on the figures as of December.
Source: Prepared by Fukuoka Realty Co., Ltd. based on data from Miki Shoji Co., Ltd. Office Market Data.

Fukuoka City Commercial Climate

Northern Kyushu Logistics Facility Supply and Demand Trends■ Year-on-Year Sales Fluctuation Rate Trends■ Logistics Facility Supply/Demand and Vacancy Rates

Nationwide

Fukuoka

Government-Designated Cities

Kyushu and Okinawa

200,000
0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

New supply

New demand

Vacancy rate（%）

（Tsubo）（%）

6

60,00012

450,00010

240,0008

030,000

6（2）

20,0004

10,000

2

15
10
5
0
（5）
（10）
（15）

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Note: The publicly announced price indicates the land price disclosed by the Ministry of Land,
Infrastructure, Transport and Tourism as of January 1 of each year.
Source: Prepared by Fukuoka Realty Co., Ltd. based on data from Ministry of Land, Infrastructure,
Transport and Tourism Land Price Survey 2010-2020.

2020

（4）
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Source: Prepared by Fukuoka Realty Co., Ltd. based on the Japan Council of Shopping Centers “Annual
Report of Sales Statistical Research.”

0

2015

2016

2017

2018

2019

0

Note: The figures are covered total floor spaces (more than 5,000m²) which owned by real estate
investment company and real estate development company in Fukuoka and Saga.
Source: Prepared by Fukuoka Realty Co., Ltd. based on data of CBRE.

Fukuoka REIT Corporation 202007

Introduction

To contribute to the revitalization of Fukuoka and Kyushu and attractive urban

J-REIT Characteristics

development, FRC selects and procures funds for investment by utilizing local
government and business networks as well as its information-gathering ability

J-REIT Mechanism① Enables efficient diversified investment
in real estate

and know-how.
We aim to maximize the profits of investors by providing them with stable② Relatively stable high yields

earnings over the medium- to long-term.

③ Corporate taxes highly advantageous due
to conduit status

In addition, we place the utmost emphasis on dialogue with stakeholders and④ Enables daily trading on stock exchanges

promote sustainable management that takes into account economic, social⑤ Full and ample information disclosureand environmental concerns by incorporating ESG issues into our investment
management process as a part of our business model.

Real estate properties

F

Investment corporation
Fund procurement(debt)

Borrowings/bonds

Asset warehousing company
Company entrusted withbusiness

Management ofassetsOwned real estate for
rent

Payments ofprincipal and interest

Financial institutions
Bond investors

Investment

CapitalDividends

Commissioned
remuneration
Entrustment of asset
management services

Real estate managementcompany

Main Management Resources (Inputs)

Investments

Rental income

Property management

Introduction

J-REIT Mechanism and Fukuoka REIT Corporationʼs Business Model

Investors

Commissioned
remuneration

Asset management company

Investment

Sponsor companies

Financial
Strategy

cial Strategy
inan

Total 31 properties

See p.22

Created Value (Outcomes)

See pp.12-13* As of August 31, 2020

Our Mission

Act Local
Think GlobaloprIntellectual capital

cu

re
m

en

t (fi

n an

I nf

ce)

or

ti o
ma

n

Residences 5 properties

08

Fukuoka REIT Corporation 2020

37,648 million yen
0.8×

Human resource capital• Number of IR interviews during the year In Japan 147, Abroad 40 (including
telephone conferences)• Track record of winning awards
IR Excellent Company Encouragement Award <2014> /Nikko Best IR Website Award <2018>

Social relationship capital

Sustainability Policy

Logistics 4 properties

See p.28

Environmental Issues

Social Issues

Organizational Issues

See p.30

See p.34

See p.37

Natural capital• Land in properties held in the Fukuoka and Kyushu area (57.3ha)• Energy, water, air, and other natural resources used in the operation of properties owned• Natural environment and biodiversity in the areas around properties owned• Unrealized gain
• P/NAVIntellectual capitaldiResponse to
ESG issues

Social relationship capital

5,307 million yen
5.3%

ec

Sales

• A varied skill set formed through human resource training• Experience and knowledge of IR activities based on long years of practical implementation• Gathering of information deeply rooted in local communities• Co-creative and trusting relationships with tenants• Cooperative framework with property management (PM) companies• Coordination with local society, local communities• Maintenance of good relationships of trust with sponsors

Valuation

Annual rate 6.7%
0.69%
3,250 yen
4.7%
JCR: AA- (stable), R&I: A+ (stable)• Number of qualification holders: Real estate brokers 26 /ARES Certified Masters 23 / Certified building administrators 5• Average paid leave acquisition rate (FY2019) 70.9%omResearchnd• Number of officers and employees 41• Number of qualification holders:
Real estate appraisers 2 / Attorney 1 /First-class registered architects 2 / MBA 1• Proportion of female employees 51.2%

Fu• Excellent human resources withspecialized skills• Support framework for flexible working
styles• Support system for career development

Office buildings 9 propertiesmu

Human capital• NOI• NOI yieldni c aManagement• TSR for past 10 years• Average interest rate paid
• Dividends• Dividend yield• Credit Ratings

Manufacturing capitalti o n (IR )Contribution to regional
revitalization and developmentof attractive communities

Retail 11 propertiessur• Total leasable area
591,021.51m2• Total acquisition price 201,959 million yen

See p.21

Managementlo

The finding of excellent properties thatcan generate stable cash flow over thelong term

Acquisition

See p.20

a g eme n t S t r a t e g y

Manufacturing capital

Financial capitalManagement
Strategy

Investment
Strategy

Ma n• Total liabilities
97,478 million yen• Net assets
101,525 million yen• Total assets
199,004 million yen• Total debt
82,400 million yen• Average remaining
duration to maturity
5.9 years
• LTV
41.4%

sc

Building of a solid financial base throughconservative control of LTV* As of August 31, 2020

tment Strategy
Inves

Financial capital• Implementation of COVID-19 tenant support measures (rent exemptions andpayment deferrals, hosting of a bento (box lunch) market, etc.)• Participation in local clean-up activities *284 times in total (as of October 15, 2020)• Human resource exchanges with sponsors (4 people dispatched tosponsors, 2 people accepted from sponsors)

Natural capital
Hotels 2 properties• Green building certification rate (total floor space basis) 79.8％• Reduction of electricity usage and water consumption at in properties owned

Fukuoka REIT Corporation 202009

Introduction

Introduction

History and Business Performance

Carefully selecting and investing in properties that can generate stable cash flow over the years, FRC is working tocontinuously expand the scale of its assets. In addition to retail and office buildings, we are diversifying investment types by
expanding the scope of investment into such properties as residences, hotels and logistics facilities.
■ Retail■ Office buildings■ Residences■ Logistics■ Hotels

Granfore Yakuin Minami

Number of properties
Tosu Logistics Center(Acquired properties)
Canal City Hakata
Canal City Business Center Building
Park Place Oita
Gofukumachi Business Center

32,00014,60015,700
11,200SunLive City Kokura

D-Wing Tower
Hotel FORZA Oita
Tenjin North Front Building

6,633

Tenjin Nishi-Dori Center Building

Sanix Hakata Building
4,400
Kominedai Community Mall
740
Acquisition Price(Millions of yen)

1,100

LOGICITY Minato Kashii
8,150
Marinoa City Fukuoka (Marina Side Building) 5,250
Park Place Oita (adjacent land)
590

1,250
2,800
1,530
2,800

2,600

Aqualia Kego
2,800
Aqualia Chihaya 1,280

Taihaku Street Business Center

Higashi Hie Business Center III
LOGICITY Wakamiya
Park Place Oita (Home Plaza Nafco)

Konoha Mall Hashimoto
10,000Higashi Hie Business Center II 4,230
Park Place Oita (adjacent land)
860
Park Place Oita (Sports Club NAS) 1,470
Aeon Hara Shopping Center (sold) (5,410)
Aqualia Kego (sold)(2,800)

7,000

Tissage Hotel Naha

3,290
1,700
990

（Number of properties）

2,835

200,000

40
Amex Akasakamon Tower
Square Mall Kagoshima Usuki
Kumamoto Intercommunity SC

LOGICITY Hisayama

2,060
5,300
2,400

Canal City Hakata・B

5,050

28,700

Aeon Hara Shopping Center
5,410
Kominedai Community Mall (Sold) (740)Hanahata SC
City House Keyaki Dori
Kurume Higashi Kushiwara SC
150,000

1,130
1,111
2,500

Kʼs Denki Kagoshima

31

30

3,550

29

Higashi Hie Business Center

5,900

27

29

28

27

27

29

25

26

26

25

24
23

23

20

100,000

20

19
17

17
16
15

14

16

16

16

15

11

11

50,000

10
8
7
5
4

0

Listed

2nd

3rd

4th

5th

6th

7th

8th

9th

10th

11th

12th

13th

14th

15th

16th

17th

18th

19th

20th

21st

22nd

23rd

24th

25th

26th

27th

28th

29th

30th

31st

32nd

Jun. 2005

Aug. 2005

Feb. 2006

Aug. 2006

Feb. 2007

Aug. 2007

Feb. 2008

Aug. 2008

Feb. 2009

Aug. 2009

Feb. 2010

Aug. 2010

Feb. 2011

Aug. 2011

Feb. 2012

Aug. 2012

Feb. 2013

Aug. 2013

Feb. 2014

Aug. 2014

Feb. 2015

Aug. 2015

Feb. 2016

Aug. 2016

Feb. 2017

Aug. 2017

Feb. 2018

Aug. 2018

Feb. 2019

Aug. 2019Feb. 2020

Aug. 2020

Fukuoka REIT
Corporation andFukuoka Realty Co.,
Ltd. events• 1st Public Offering (Sept.)
Number of investment units: 15,000 (before 5:1 unit split)
Offer price (per unit): 766,360 yen (before 5:1 unit split)
Total issue price: 11,096 million yen• Canal City Hakata South Building renovation• 2 nd Public Offering (Mar.)
Number of investment units: 16,000 (before 5:1 unit split)
Offer price (per unit): 576,083 yen (before 5:1 unit split)
Total issue price: 8,913 million yen• Facebook launched (Mar.)• CSR study groups begin (Apr.)• Volunteer support for disaster-affected areas (July)• IR Kyushu subcommittee established (Nov.)• F ukuoka Urban Growth Strategy Project established (Apr.)•C anal City Hakata communal area environment renewal (treeplanting, additional benches, etc.)10

Fukuoka REIT Corporation 2020

• F irst course donated to Fukuoka
University held (Sept.)• 3rd Public Offering (Mar.)
Number of investment units: 14,950 (before 5:1 unit split)
Offer price (per unit): 710,580 yen (before 5:1 unit split)
Total issue price: 10,263 million yen• 4th Public Offering (Apr.)
Number of investment units: 57,000
Offer price (per unit): 212,257 yen
Total issue price: 11,701 million yen• Second issue of investment
corporation bonds (July)• 15th anniversary of

FRCʼs listing• 9th General Meeting of• First issue of investment corporation bonds (Dec.)• 5:1 investment unit split implemented (Mar.)• Integrated Report issued

0• Canal City Hakata 20th anniversary• Japan’s largest 3D projection mapping and new Aqua

• 5th Public Offering (Mar.)
Number of investment units: 49,000
Offer price (per unit): 164,414 yen
Total issue price: 7,795 million yen

Unitholders• f-JOY app released for use

at four retail facilities of the
Fukuoka Jisho Group

Panorama fountain installed at Canal City Hakata• Third issue of investment corporation bonds (July)• IR briefing held for Platinum WOMAN individual investors (Aug.)• Incorporated into the FTSE EPRA/NAREIT Global Real Estate Index (Sept.)• Receives the IR Excellent Company Encouragement Award (Dec.)• Fukuoka International House opens (Apr.)• Second course donated to Fukuoka University held (Aug.)• Fukuoka Realty Co., Ltd. 10th anniversary (Dec.)• 10th anniversary of FRC’s listing• T ax exemption procedure counter and free Wi-Fi set up for inboundcustomers at Canal City Hakata• Canal City Hakata inbound continues to perform well, sets new visitor records (17.02 million in fiscal 2017)• Formulation of sustainability policy (Jan.)• Park Place Oita 15th anniversary renovation

Fukuoka REIT Corporation 2020

11

FRC carefully selects and invests in properties with the potential to generate stable cash flow over the long term. To diversify
risk within a given area, we own properties with widely divergent uses, with a focus in particular on retail and office buildings.

Introduction

Introduction

Overview of Properties Owned■ Other properties (Hotels, Residences, Logistics): 11
21

22

23

24

25

26

Amex Akasakamon Tower (Residences)
1/9/2006/2,060

City House Keyaki Dori (Residences)
20/12/2007/1,111

Aqualia Chihaya (Residences)
1/3/2012/1,280

D-Wing Tower (Residences)
1/3/2013/2,800

Granfore Yakuin Minami (Residences)
4/11/2014/1,100

Hotel FORZA Oita (Hotels)
1/3/2013/1,530

27

28

29

30

31

Tissage Hotel Naha (Hotels)
7/12/2018/2,835

Tosu Logistics Center (Logistics facility)
28/3/2014/1,250

LOGICITY Minato Kashii (Logistics facility)
27/3/2015/8,150

LOGICITY Hisayama (Logistics facility)
1/6/2017/5,050

LOGICITY Wakamiya (Logistics facility)
30/6/2020/1,700

Asset Ratio (As of August 31, 2020)■ Investment Target Areas (Acquisition price basis)■ Investment Type (Acquisition price basis)
RetailOffice buildings

OthersFukuoka metropolitan area

Other Kyushu area

58.0%

27.7%

14.3%

76.6%

23.4%

Number of properties owned:

31

Total acquisition price:

201,959 million yen* Acquisition price data is rounded
down to the nearest million yen.

Property name / acquisition date / acquisition price (million yen)

■ Retail: 11
1

2

3

4

5

Sta.

6
Sta.

Sta.

Canal City Hakata
9/11/2004/32,000

Canal City Hakata・B
2/3/2011/28,700

Park Place Oita
9/11/2004/19,610

SunLiveCity Kokura
1/7/2005/6,633

Konoha Mall Hashimoto
1/3/2018/10,000

7

8

9

10

11

Square Mall Kagoshima Usuki
28/9/2006/5,300

Across Kyushu

Sta.

FUKUOKA
PayPay DOME

Sta.

Sta.

Sta.
Sta.

Sta.

Sta.

Sta.

BEST DENKI
Stadium

Sta.
Sta.

Sta.
Sta.
Sta.

Kumamoto Intercommunity SC
30/11/2006/2,400

Hanahata SC
3/9/2007/1,130

Kurume Higashi Kushiwara SC
1/2/2008/2,500

Kʼs Denki Kagoshima
27/3/2008/3,550

Sta.

Marinoa City Fukuoka (Marina Side Building)
1/5/2015/5,250
Sta.

Fukuoka City

■ Office buildings: 9
12

13

14

15

16

17

■ Trends in Appraisal Value
Period-end book value (note)

Unrealized gain = (Period-end appraisal value – Period-end book value (note))millions of yen
250,000
Canal City Business Center Building
9/11/2004/14,600
18

Gofukumachi Business Center
9/11/2004/11,200
19

Sanix Hakata Building
30/9/2005/4,400
20

Taihaku Street Business Center
16/3/2006/7,000

Higashi Hie Business Center13/3/2009/5,900

Tenjin Nishi-Dori Center Building
1/2/2013/2,600

16,777 19,830 24,255 21,152 22,878 25,541

200,000
150,000
100,000

18,742

20,7996,498

21,07012,465

9,300

8,953

9,394

5,543

6,006

6,989 146,621 146,246 150,603

13,955120,299 119,486 118,686 118,411
1,893 7,894
112,001 115,560 115,195
103,025 107,338（411）
86,777 93,556
81,771

6,522

8,243

9,138

11,097 14,434

152,422 158,851 158,007 159,128 159,246

172,406 171,555 168,902

164,527 169,031 168,138

36,923 37,648
29,467 31,804 34,087
182,352 184,715 183,532 182,336 187,891

50,0000Tenjin North Front Building
28/3/2013/2,800

12

Fukuoka REIT Corporation 2020

Higashi Hie Business Center II
1/3/2018/4,230

Higashi Hie Business Center III
29/5/2020/3,290

2nd

3rd

4th

5th

6th

7th

8th

9th

10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th 29th 30th 31st 32nd

Aug.
2005

Feb.
2006

Aug.
2006

Feb.
2007

Aug.
2007

Feb.
2008

Aug.
2008

Feb.
2009

Aug.
2009

Feb.
2010

Aug.
2010

Feb.
2011

Aug.
2011

Feb.
2012

Aug.
2012

Feb.
2013

Aug.
2013

Feb.
2014

Aug.
2014

Feb.
2015

Aug.
2015

Feb.
2016

Aug.
2016

Feb.
2017

Aug.
2017

Feb.
2018

Aug.
2018

Feb.
2019

Aug.
2019

Feb.
2020

Aug.
2020

(Note) Period-end book value does not include trust construction in progress. Renovation work at LOGICITY Wakamiya had not been completed as of the end of the 32nd fiscal period. Accordingly, the estimated renovation
amount has been added to the period-end book value.

Fukuoka REIT Corporation 202013

Financial Highlights

Non-Financial Highlights

Total Operating Revenues(Millions of yen)

9,730 (Note 1)

10,000
8,343

8,234

Introduction

Introduction

Financial/Non-Financial Highlights (5-Year Graph)

9,178

8,122

9,242

Profit
9,231

9,162

8,000

Percentage of Female Employees (Note 4)(Millions of yen)（People）

(%)

5,000

５0

60

8,518

8,194

Number Officers and Employees (Note 3)

4,198 (Note 1)

41

４０

4,000

6,000

3,000

4,000

2,000

2,000

1,000

39

2,669

2,556

2,623

2,860

2,934

2,939

2,899

2,586

40

38

38

41

39

42

41

48.7

41

45.0

43.9

44.7

44.7

46.2

46.3

46.3

47.6

51.2

45

30
30

0

23rd

24th

25th

26th

27th

28th

29th

30th

31st

32nd

Feb. 2016

Aug. 2016

Feb. 2017

Aug. 2017

Feb. 2018

Aug. 2018

Feb. 2019

Aug. 2019Feb. 2020

Aug. 2020020
938 (Note 1)

23rd

24th

25th

26th

27th

28th

29th

30th

31st

32nd

Feb. 2016

Aug. 2016

Feb. 2017

Aug. 2017

Feb. 2018

Aug. 2018

Feb. 2019

Aug. 2019Feb. 2020

Aug. 2020

NOI

5,237

5,493
5,010

4,998

5,591

5,633

5,596

5,079

5,307

4,500

3,574

3,479

3,398

3,422

3,512

3,593

3,687

3,693

3,642

24th

25th

26th

27th

28th

29th

30th

31st

32nd

Aug. 2016

Feb. 2017

Aug. 2017

Feb. 2018

Aug. 2018

Feb. 2019

Aug. 2019Feb. 2020

Aug. 2020

0

26th

27th

28th

29th

Aug. 2017

Feb. 2018

Aug. 2018

Feb. 2019(Meetings)

7.7
6.5

6.9

7.11

7.10

8.10

8.6

30th

31st

32nd

Aug. 2019 Feb. 2020 Aug. 2020

Number of IR Meetings in Japan and Abroad (Note 6)
200

6.2

1,000

23rd

24th

25th

26th

27th

28th

29th

30th

31st

32nd

Feb. 2016

Aug. 2016

Feb. 2017

Aug. 2017

Feb. 2018

Aug. 2018

Feb. 2019

Aug. 2019Feb. 2020

Aug. 2020

0

23rd

24th

25th

26th

27th

28th

29th

30th

31st

32nd

Feb. 2016

Aug. 2016

Feb. 2017

Aug. 2017

Feb. 2018

Aug. 2018

Feb. 2019

Aug. 2019Feb. 2020

Aug. 2020

8.10

169

160

6.11

120

4

80

2

40

149

148

147
126

6

0

23rd

24th

25th

26th

27th

28th

29th

30th

31st

32nd

Feb. 2016

Aug. 2016

Feb. 2017

Aug. 2017

Feb. 2018

Aug. 2018

Feb. 2019

Aug. 2019Feb. 2020

Aug. 2020

Power Consumption (Note 7)

LTV

0

106

133

129
116

(Millions of yen)

(%)

（Mwh）

（m3）

50

80,000600,000

1,471

1,470

1,455

1,474

1,500

1,602

1,622

1,651

1,660

1,686

39.9

40.1

40

38.1

39.3

38.9

39.1

39.7

39.7

39.8

68,11441.4

66,584533,920519,60960,000450,000

40,000300,000

30

20
500

23rd

24th

25th

26th

27th

28th

29th

30th

31st

32nd

Feb. 2016

Aug. 2016

Feb. 2017

Aug. 2017

Feb. 2018

Aug. 2018

Feb. 2019

Aug. 2019Feb. 2020

Aug. 2020

Fukuoka REIT Corporation 20200

150,000

20,000

10

23rd

24th

25th

26th

27th

28th

29th

30th

31st

32nd

Feb. 2016

Aug. 2016

Feb. 2017

Aug. 2017

Feb. 2018

Aug. 2018

Feb. 2019

Aug. 2019Feb. 2020

Aug. 2020

0

28th・29th

March 2018February 2019

30th・31st

March 2019February 2020

54

23rd

24th

25th

26th

27th

28th

29th

30th

31st

32nd

Feb. 2016

Aug. 2016

Feb. 2017

Aug. 2017

Feb. 2018

Aug. 2018

Feb. 2019

Aug. 2019Feb. 2020

Aug. 2020

Water Consumption (Note 7)

2,000

1,000

14

25th
Feb. 2017(Years/Months)

8

Depreciation and Amortization Expenses

0

24thAug. 2016

2,000

1,500

1,500

23rd
Feb. 2016

10
3,250

3,000

3,000

0

4,000

23rd
Feb. 2016

Average Number of Years of Employment (Note 5)

(Yen)
5,164

0

Dividend per Unit (Note 2)(Millions of yen)

6,000

15

10

28th・29th

March 2018February 2019

30th・31st

March 2019February 2020

0(Note 1) Due to differences in accounting and tax treatment, the gain and loss on sale of AEON Hara
Shopping Center and Aqualia Kego transferred in the 25th fiscal period were handled as follows:(1) The amount of impairment loss for AEON Hara Shopping Center recorded in the profit and loss
statement for the 24th fiscal period was recorded as reserve for temporary difference adjustments.
(2) The gain on sale of Aqualia Kego was recorded in the income statement for the 25th fiscal period.
(3) Reversal of reserve for temporary difference adjustment was recorded in the statement on cash
dividend for the 25th fiscal period.
(Note 2) Dividends per unit for the 24th and 25th periods were calculated as follows:
Dividend for the 24th term: Profit + Reserve for temporary difference adjustments – Surplus brought forward
Dividend for the 25th term: Profit - Reversal of the reserve for temporary difference adjustments – Surplus brought forward(Note 3) The number of officers and employees indicates the total number of directors and auditors,
permanent employees, contract employees, temporary employees, secondees, etc. who areemployed on a full-time basis at Fukuoka Realty Co., Ltd.
(Note 4) The percentage of female employees are calculated as the ratio of women to the number of
directors, auditors and employees(Note 5) Average number of years of employment is calculated as the average service years of permanentand contract employees of Fukuoka Realty Co., Ltd.
(Note 6) The number of IR meetings in Japan and abroad shows the total number of IR meetings withinstitutional investors and analysts through interviews and telephone conferences.
(Note 7) Total value of five properties: Canal City Hakata, Canal City Hakata•B, Canal City Business Center
Building, Park Place Oita, and Konoha Mall Hashimoto

Fukuoka REIT Corporation 2020

15

Q

How did FRC respond to the “before” COVID-19

investment caps on asset types expected to grow later

period? What steps are being taken to address theon, including logistic properties under development. In line“with” and “post” pandemic periods?

with these policy changes, we acquired office buildings andlogistics facilities such as Higashi Hie Business Center III and
LOGICITY Wakamiya in 2020.

We did not give much thought to the risks posed by

Value-Creation Activities

Value-Creation Activities

CEOʼs Message

Fukuoka REITʼs assets have grown 200 billion yen in theinfectious diseases prior to the COVID-19 outbreak. After the

15 years since being listed, though this is perhaps not that

State of Emergency was declared, however, we offered ourfast. Given the limited area in which we operate, we haveutmost cooperation to help stop the spread of COVID-19,

been discerning about investments, and I think this has

deciding to temporarily close “Canal City Hakata”, “Konoha

enabled us to pay relatively stable dividends. Looking ahead,

Mall Hashimoto”, and “Marinoa City Fukuoka” along with

we aim to reach an asset size of 250 billion yen as the next

“Park Place Oita” in Oita City after taking into consideration

stage through continued stringent investments and sponsor-

the health and safety of tenant employees. Moreover, wedeveloped projects.

have partially deferred rent payments and reduced rents inorder to maintain our relationships of trust with tenants aswell as stable earnings over the medium- to long-term.

Q

Please tell us the timeline for completing Tenjin
Big Bang and its benefits.

We also took into account notification from the Financial

Q

Please discuss the impact of the novel coronavirus(COVID-19) on the real estate industry.

Q

CEO & Representative Director
Fukuoka Realty Co., Ltd.

Services Agency to examine flexible measures such

Etsuo Matsuyuki

as reductions or the deferment of rent payment of rent

According to a newspaper article dated August 28, 2020,

for tenants having serious difficulties, while fulfilling our

Fukuoka City has announced that it will extend the completion

responsibility to provide explanations to investors as needed.

deadline for the Tenjin Big Bang project from 2024 to 2026

Except for retail facilities (including hotels with adjoining

in order to encourage the introduction of new coronavirus

How has COVID-19 impacted the economies ofretail facilities), we did not reduce or defer rent payments

countermeasures. Moving forward, we believe that the

Fukuoka and Kyushu in your view?

for offices, logistics facilities, hotels, or residences inreconstruction of Tenjin Big Bang will continue to progress inthe 32nd fiscal period (ended August 2020). In Fukuoka

the future. Drawing from announcements made by Fukuoka

City, disruptions were relatively negligible as assistance

City, the economic ripple effect of reconstruction is expected

The degree of COVID-19ʼs impact varies by asset type.

Inbound tourism benefits drying up has been a major blow.

was provided to restaurants and bars relatively early on,

to total around 850 billion yen each year. With work on “Tenjin

The pandemic has impeded the flow of people to hotels

In 2018, Fukuoka City completed upgrades to the Chuo Port

underscoring the cityʼs responsiveness as a strength.

Business Center,” the first stage of Tenjin Big Bang that isand retail facilities, whereas the impact on Fukuoka

enabling it to accommodate the worldʼs largest cruise ships.

office buildings remains minor, and residential properties

However, municipal regulations forbid cruise ships fromare unchanged. Meanwhile, logistics facility demand isdocking until effective ways to treat COVID-19 are found.

strong, so we acquired “LOGICITY Wakamiya” in June.

Nevertheless, Fukuoka is a regional city that is less densethat it will take up three floors of space (approximately 7,000

We considered purchasing “LOGICITY Wakamiya” after

than Tokyo, and I think its economic fundamentals are strongsquare meters) with the aim of decentralizing its Tokyo-based

conducting surveys of property data, ultimately acquiringin light of transportation infrastructure upgrading led by

We revised our investment policy in March 2019, loweringfunctions. Amid a review of the way of work is conducted

the facility on the condition that it has a net operating

improvements to Fukuoka Airport passenger terminals andinvestment ratio caps by 10% for retail facilities and raisingin the wake of COVID-19, the fact that Fukuoka has a

income, or NOI, yield of 7.0% on an appraisal value basis

construction to extend the Nanakuma subway line directly

them by 10% for offices buildings and other properties. Whilecommuting time of less than half that of Tokyo and the ability

based on value upgrades to attract a new tenant sourced

to Canal City Hakata. In addition, Japanʼs 2015 census

investment in retail facilities had been capped at 80%, it was

to secure a diverse workforce as the center of Kyushu wereby the company. This purchase demonstrates the slightshowed Fukuoka City had the highest proportion of young

limited to 70% or below, which is still a record high. The ratio

some of the deciding factors. Looking ahead, we expect

alteration to our purchasing approach to date and, in turn,people among government-designated cities, demonstratingof retail facilities in the current portfolio is 58%.

that a growing number of companies will consider moving toFukuoka Realtyʼs strength.

yet another area where the city excels. Having said that, wecannot let down our guard amid the spread of COVID-19.

16

Fukuoka REIT Corporation 2020

being developed by Fukuoka Jisho Co., Ltd., progressing

Q

Please explain the thinking behind the current

steadily with completion scheduled for September 2021,

investment policy, which changed last year.

JAPANET HOLDINGS Co., Ltd. announced in November

On the other hand, our sponsor Fukuoka Jisho Co., Ltd.
is developing offices at Tenjin Big Bang, while we raised

Fukuoka as the trend toward concentration in Tokyo shifts
triggering increasingly active relocation to other regional cities.

Fukuoka REIT Corporation 2020

17

Q

Please discuss Fukuoka REITʼs medium-

employee awareness of the Investment Corporationʼs̶and travelled to Shenzhen, China to conduct researchthat include gathering such data in cooperation withto long-term strategies along with Fukuoka

medium- to long-term direction, since we drafted it using

on the shift to cashless payment. Now, however, gathering

Fukuoka Jisho Co., Ltd.

Realtyʼs future vision and direction.

a bottom-up rather than a top-down approach, also

employees together to perform such tasks is no longer

gaining cooperation from departments not directly involved.

possible, and we are considering how to communicate

Drafting the Integrated Report has increased opportunities

online, including social gatherings.

Q

Q

We are earnestly working in every way possible to help

I think the spread of COVID-19 has reaffirmed the benefits

for exchanging information with sponsor Fukuoka Jishoof the Investment Corporation dispersing its assets as aCo., Ltd., which has appointed an internal ESG manager

diversified REIT. We have worked to hedge risks to a certain

to raise awareness of the importance of ESG based on theextent mainly by changing our investment policy, increasing

Integrated Report.

What are your thoughts on ESG investment trends?

In conclusion, is there anything else you would like to say?

alleviate difficulties arising from the pandemic. While nothingcan be done about externals like the fall in inbound tourism

logistics properties, and mitigating the high weighting of

Looking ahead, I think integrated reports will promote“Canal City Hakata” in retail facilities with the purchase ofunderstanding of an integrated approach among property

I believe this a critical time to seriously examine ESG-related

for now, I am certain that tourists will return. We will pursue

the community-based “Konoha Mall Hashimoto.”

management companies and tenants. The idea for drafting

risks and opportunities arising amid the global pandemic.

measures with this in mind since tourism will highlight theIn addition, while Fukuoka is a smaller regional city versus

an integrated report came from research on themes for the

In fact, during the earnings roadshow for the 32nd fiscal

regional strengths of Fukuoka and Kyushu. Surveys show

Tokyoʼs 23 wards and Osaka, it is without doubt poised to

IR Workshop, which we have jointly hosted with the Japan

period (ended August 2020), questions from investors

that people around the world are very keen on visiting

enter the spotlight. Osaka and Fukuoka have recently been

Investor Relations Association since 2011. This organization

about ESG increased considerably. It is also important toJapan, which is seen as safer and more secure than everlisted as candidates for international financial hubs. The

has raised awareness of the need for integrated reports

manage corporate risks regarding environmental and social

before. In light of the difficulties we face, I want to impress

strengths of Fukuoka and Kyushu lie in their closeness to Asia

among participating company IR managers.

issues highlighted by the outbreak.

upon investors that we are examining strategies to maintainin various ways, so we will pursue initiatives with this in mind.

Particularly with responsiveness to society getting

As for asset types, we intend to focus our efforts on

more attention, the health and safety of employees andlogistics. While residences are attractive, many of them areon the smallish side and remain unsold due to the tendency

Q

Please share your thoughts on human capital.

for prices to surge with multiple bidding. We currently own

Value-Creation Activities

Value-Creation Activities

CEOʼs Message

other business associates along with labor conditions

steady dividends and growth by going back to basics (i.e.,
Act Local, Think Global).
Changing the subject, while the Olympics have been

are important. Against this backdrop, I think corporate

delayed to 2021, sports are extremely popular in the Fukuoka

managers are adopting strategies that enhance

and Kyushu areas. In baseball, the Fukuoka Softbank

five residential properties, but high-rent homes remain

The COVID-19 outbreak made me think deeply about humancompetitiveness by shifting from pursuing short-term profits

Hawks has been around for 15 years and are nearly always

unoccupied, and it takes some time to find new tenants. In

resources. While occurring at the worst time with results

to long-term value creation.

in the pennant race. In soccer, Sagan Tosu and Oita Trinita

contrast, demand is relatively steady for rental properties

underway, the outbreak prompted us to establish satellite

in high demand volume zones such as “Aqualia Chihaya”

As for the environment, we must view real estatecompete in the J1 soccer league, while Avispa Fukuoka,

offices and employ staggered work hours to keep employees

as social infrastructure that should be developed and

V-Varen Nagasaki, Giravanz Kita Kyushu, and FC Ryukyu

and “Granfore Yakuin Minami.” We are also examining newsafe. In light of this, we developed remote platforms to enable

managed in a manner that reduces environmental burdens.

compete in the J2 league. The region also boasts strong highasset types that include data centers.

all employees to participate in the Monday morning assembly.

The Company still has to compile more environmental data

school and adult rugby teams. All told, this lively sports scene

Following the announcement of results, while investors posed

but intends to operate ESG-oriented real estate businesses

should lift the spirits of those living in Fukuoka and Kyushu.

a variety of questions at the teleconference, we received highQ

The initial Integrated Report was published lastmarks for maintaining Fukuoka REITʼs stable management

year; how has it been received both within andperformance. Moral increased after relaying details of thisoutside the Investment Corporation?

high praise back to employees.
We cannot be complacent amid rapidly changing
conditions, keeping employees regularly informed of

I think it has served as good opportunity for employees

any information we gather. I was elated to see younger

to unify their approach for creating value in both financial

employees subsequently pickup on this and become moreand non-financial areas. Unfortunately, we have made little

focused. During the pandemic, direct communication has

progress on investor meetings featuring the Integrated

declined, and internal recreational activities have become

Report due to COVID-19.

impossible. Last year, employees visited Busan, SouthI believe the Integrated Report has fostered shared

18

Fukuoka REIT Corporation 2020

Korea̶from where many tourists visit Canal City Hakata

Fukuoka REIT Corporation 202019

Investment Department

Property Management Department
Keitaro Otsubo

Hideya Kanno

General Manager of the Investment Department
Fukuoka Realty Co., Ltd.

General Manager of the Property Management Department
Fukuoka Realty Co., Ltd.

With property selection skills that can only be possessed by a local hand,
the Investment Department strives to discover those properties that have thepotential to generate stable cash flow over the medium- to long-term.
The environment which surrounds the real estate investment market is
experiencing conditions of chaos and fragmentation emerging on a global
scale, primarily with the pandemic, natural disasters, and geopolitical risks. The
Fukuoka and wider Kyushu regions, Fukuoka Realty's core areas of operation,
are also seeing a decline in the number of property transactions, and acontinuing shift toward price stagnation from prices that had been on an upward
trajectory.
Against this backdrop, we engage in ongoing investments by leveraging our
expertise and ability to gather and provide information based on a familiarity ofparticular conditions on the ground in Fukuoka and throughout Kyushu. The
Companyʼs strengths include the “speed and density of its information,” “a feelfor the local market,” “a powerful local network across a broad area including
administrative and economic authorities,” and “a real estate management
structure with a long-term commitment to the local community.”
As for our investment policy, we continue to execute investments basedon a fundamental consideration, namely making targeted investments in suchoverlapping domains as “markets with high growth potential” as well as “fields

in which we excel and that enable us to exert our competitive advantage.” As ageneral rule, our investments will be made in Fukuoka and the greater Kyushu
region, and among these, there is a particular focus on the Fukuoka Metropolitan
Area, in which a majority of our investments are made. That said, with regard
to investment type, while continuing to keep a careful eye on the potential for
growth in the COVID-19 pandemic era, we adopt a flexible policy that covers avariety of properties.
We also utilize a network of sponsor companies in our pursuit of even moreacquisition opportunities.
Selecting real estate for investment entails conducting a range of meticulous
surveys, such as economic-type surveys that cover projected revenue streams
for each individual property and future potential of the area in which it is situated,
physical surveys that take into account such factors as the propertyʼs condition
and ability to withstand earthquakes, and surveys related to rights and legal
issues, among others. Upon careful examination of a particular propertyʼs price,
we then decide whether or not to acquire it based on an overall determinationof its impact on our portfolio as a whole, the degree to which it will contribute toraising value, and other factors.
Going forward, we will steadily seize upon opportunities to invest in real estate in
the Fukuoka and Kyushu areas, and ensure sound asset scope and portfolio growth.

Acquisition Case Study “LOGICITY Wakamiya”
In June 2020, we acquired a logistics facility in Miyawaka City, Fukuoka
Prefecture. This facility is positioned in the vicinity of the WakamiyaInterchange on the Kyushu Expressway, and is situated in an industrial parkthat brings together an auto factory operated by Toyota Motor Kyushu andlogistics companiesʼ warehouses. In making the acquisition, we provided asales and leaseback proposal to the owner (seller) that had previously beenutilizing the property as its own delivery base, and considered acquiring
the property. As a last step, it was decided that the owner (seller) would
vacate the property by consolidating its bases, and that we would search
for a new tenant. However, by enabling the owner (seller) to take sufficient
time to consider its business reorganization, and through our independent
involvement in this project, we took pride in having been able to play a part inValue-Creation Activities

Value-Creation Activities

Strategies of Each Department

the optimal use of a logistics asset in the Kyushu region.
In addition, our consideration to acquire the property was based on
the premise that we would undertake its renovation following acquisition.
By having the new candidate tenant participate in the renovation from theplanning stage and putting in place their preferred specifications, we wereable to conclude a long-term lease agreement that was mutually beneficial,prior to property acquisition. In June 2020, we undertook the acquisition,and renovation work was concluded at the end of October, while the leaseagreement commenced from November. We were able to enhance property
value by utilizing our long-cultivated expertise, and anticipate an NOI yield of
7.0% on the acquisition cost (including renovation expense). This transaction
sufficiently seized upon our strengths as a regionally specialized REIT, andwe believe it serves as a good example of efforts that led to a satisfying
experience for both the seller and tenant.
October 2019
Assetacquisition

Renovation
Tenant lease Lease option agreement

November 2019June 2020

July-October
2020

November
2020

Contract Forward commitment
period Settlement/delivery■ Trends in FRC Property Occupancy Rates

（%）

99.8

Contract

99.7

100

99.8

99.4

99
Restoration to former state/
renewal work

to prevent the spread of infections, there has been a situation inwhich we had no choice but to temporarily close certain assets undermanagement, notably Canal City Hakata, our flagship property. Under
these circumstances, together with eliminating concerns as they pertain
to leasing agreements and business operations by promptly responding torequests from our lessees, we remain focused on making improvements
to facilitiesʼ environments so that each of our tenants, tenant employees,
and consumers can feel at ease. At present as well, our efforts to address
this situation is ongoing. In addition to our basic strategy, we will remain
conscious of safety and security,
and will maintain sustainable tenant
relationships.

The Property Management Department aims for the long-term and stable
optimization of assets managed by FRC, while drawing up plans for asset
management. FRCʼs portfolio currently consists of retail facilities, officebuildings, residences, logistics properties, and hotels. As a comprehensive
REIT investing in a diverse range of asset types, we have continued toachieve internal growth based on the proper management of our portfolio ofassets against the backdrop of the regionʼs potential for growth, specificallythe rising population in our primary destination for investments, theFukuoka Metropolitan Area, which is also home to an increasing number ofcompanies. We strive to gain a grasp of the economic situation, consumer
and social trends, and changes to real estate market conditions in a bid tosecure a stable revenue stream from all assets under management over the
medium- to long-term, and appropriately maintain the leasing status of theassets we manage.
In managing assets, we keep a close eye on the period remaining
on the leasing agreement with the lessee, the lesseeʼs business andcredit conditions, replace tenants or extend lease agreement terms,
and take other measures to maintain stable leasing revenue. In addition,
we endeavor to regularly upgrade equipment and to optimize spending
through energy management, and to thoroughly manage expenses. We
make plans for asset renewal in accordance with evolving consumer andsocial trends, while aggressively undertaking investments, as well as
taking into consideration the need to optimize our portfolio based on asset
replacement. Recent years have seen a rising level of wind, flooding, andother types of damage from natural disasters, and we periodically review
risk holding capacity for all assets held in our portfolio while striving tomanage risks by considering earthquake insurance coverage and othermeasures.
FRCʼs basic strategy is to promote the internal growth of assets undermanagement. To this end, we work to maintain a high occupancy rate bypaying particular attention to our tenant relationships, make every effort sot
control income and expenditures and engage in ongoing investments.
A result of the major changes in consumer behavior and corporate
activities brought about by COVID-19, in addition to measures taken

99.3
99.2

99.0

99.1

99.0

99.0

99.1

99.3
99.0

99.5

99.3

99.1

98.9

99.2

98

98.1

97

Temporarily dipped on theimpact of store closuresdue to Canal City Hakata
South Building renovation

Lease begins

99.5

99.6

99.6

99.7

99.7

99.7
99.6

99.4

99.6

99.6

99.1
98.7

96

0

Exterior after renovation

20

Fukuoka REIT Corporation 2020

2nd

3rd

4th

5th

6th

7th

8th

9th

10th

11th

12th

13th

14th

15th

16th

17th

18th

19th

20th

21st

22nd

23rd

24th

25th

26th

27th

28th

29th

30th

31st

32nd

Aug. 2005

Feb. 2006

Aug. 2006

Feb. 2007

Aug. 2007

Feb. 2008

Aug. 2008

Feb. 2009

Aug. 2009

Feb. 2010

Aug. 2010

Feb. 2011

Aug. 2011

Feb. 2012

Aug. 2012

Feb. 2013

Aug. 2013

Feb. 2014

Aug. 2014

Feb. 2015

Aug. 2015

Feb. 2016

Aug. 2016

Feb. 2017

Aug. 2017

Feb. 2018

Aug. 2018

Feb. 2019

Aug. 2019Feb. 2020

Aug. 2020* FRCʼs occupancy rates from the second to fourth fiscal periods represent occupancy rates as of the end of each period. The fifth to the 32nd fiscal periods are calculated as a weighted average occupancy rate during the period. Totalleased area is stated as a percentage of total leasable area.

Fukuoka REIT Corporation 202021

Strategies of Each Department

Finance Department（Units）

80,00070,000Keishi Tamura

60,000General Manager of the Finance Department
Fukuoka Realty Co., Ltd.

50,000The Finance Department draws up finance and capital strategies so as tomaximize profits for all unitholders.
Given the environment which surrounds the J-REIT market, and with
COVID-19, the Tokyo Stock Exchange REIT Index saw precipitous decline in
March 2020, and following that point, a gradual recovery. With the Bank ofJapan maintaining monetary easing, low interest rates are thought to continue
for the immediate future, although it will be necessary to practice financial
management conscious of suddenly changing risks in the financial market overthe medium- to long-term.
Under these circumstances, we will proactively engage in investor and public
relations to support our capital policy. Coupled with efforts to set a basic policy
for investor relations activities that offers a steady stream of timely, fair, accurate
and easy-to-understand information that covers a variety of issues necessary
for investment decisions, we will publicize our strengths as a REIT specializing
in regional properties and actively disclose non-financial matters as well as otherinformation. We will continue to fully disclose information, and conduct investor
relations through conversations with a medium- to long-term perspective.
Doing so will lead to a deepening of mutual understanding with all unitholders,the building of relationships of trust, and positive steps to attract outstanding
investment funds from both in and outside Japan.
In terms of investor relations, we have been meeting directly with over 200
institutional investors per year. However, in our efforts to as much as possible
prevent the spread of COVID-19, we have changed our methods and devised
different ways to streamline meetings through the use of a variety of tools.
Similarly, with briefings held for individual investors, we are actively consideringholding such meetings based on an array of tools.
Our financial policy aims to build a firm financial foundation through■ Breakdown of debt by lenders

conservative LTV management. At 41.4% as of the end of the 32nd fiscal period(August 2020), we successfully maintain a relatively low and conservative LTV. At
the same time, a commitment line limit has been set at 13.0 billion yen. Throughthese and other means, we are securing the flexible and fluid procurement offunds.
We are working to extend the commitment line over the long term fromthe perspective of further securing the stability of funds procurement, andhave extended the agreement term to three years for both the 7.0 billion yen
commitment line limit, and the 6.0 billion yen commitment line limit.
In undertaking new borrowings and refinancing, we seek to fix interestbearing debt over the long term and to diversify repayment dates while keeping
a close eye on interest rate levels. Going forward, we strive to maintain good
relationships with financial institutions with which we have existing relationships,
starting with our three sponsor banks, regional banks that operate primarily in
Kyushu, central financial institutions and others, while gaining an ample amountof new procurement sources. In July 2019, FRC conducted its first funds
procurement through a “green loan,” as green finance.
We will continue our endeavors that raise the level of sustainability, which we
believe are indispensable to achieving optimal profits for investors. To convey
these initiatives in an easy-to-understand manner, we actively promote thedisclosure of information through this Integrated Report and Website, financial
briefing documents, and other materials.

■ Fixed rates

Investment corporation bonds

Floating
7.6％

6.1％
Regional banks
14.2％

77,500

As of Aug.
31, 2020

Fixed
92.4％

82,400

million yen

2.4％
Others

As of Aug.
31, 2020

3.0％
5.0％

13.7％

million yen

3.2％（82,909Units）（78,972Units）

15.26％

14.82％

14.19％

14.55％（121,489Units）（118,040Units）（113,013Units）（115,855Units）

12.33％

12.34％

12.81％

12.95％（98,217Units）（98,295Units）（102,039Units）（103,148Units）

2.58％

3.88％

4.70％

5.53％

（20,588Units）（471,244Units）（30,940Units）（37,482Units）（44,063Units）

58.11％

57.85％

57.03％（462,561Units）

13.68％（108,922Units）（460,557Units）

Custody Bank of Japan, Ltd. (Trust account)

169,65421.31%（108,709Units）

2

The Master Trust Bank of Japan, Ltd.
(Trust account)

86,221

10.83%

13.41％

3

Fukuoka Jisho Co., Ltd.

73,136

9.18%

4The Nomura Trust and Banking Co., Ltd.
(Investment trust account)

37,002

4.64%

5

Custody Bank of Japan, Ltd.
(Securities investment account)

19,059

2.39%

6

NORTHERN TRUST Co．
(AVFC) RE HCR00

14,083

1.76%

7

STATE STREET BANK WEST
CLIENT – TREATY 505234

11,597

1.45%

8MetLife, Inc.

10,227

1.28%

9

Shikoku Railway Company

9,130

1.14%

10

Nomura Securities Co., Ltd.

8,961

1.12%

（106,781Units）

4.22％（33,625Units）

55.02％（437,963Units）

30,00020,00044.66％（355,509Units）

42.27％（336,533Units）

40.15％（319,608Units）

42.22％（336,145Units）

41.34％（329,071Units）

10,000028th
Aug. 201829th
Feb. 201930th
Aug. 2019

Percentage

1

13.65％（453,962Units）(As of August 31, 2020)

Investment
units held

Name

9.92％

10.41％（86,164Units）■ Major investors (at the end of the 32nd fiscal period)

796,000 Units

31stFeb. 2020

32nd
Aug. 2020■ Financial institutions ■ Of which held by trust banks ■ Stock brokers■ Other corporations ■ Foreign corporations ■ Individual* Percentages and ratio are rounded off to two decimal places.

Main sponsor Introducing Fukuoka Jisho Co., Ltd.
Overview of Fukuoka Jisho Co., Ltd.

Corporate philosophy

Name

Fukuoka Jisho Co., Ltd.

Established

July 1961

Industries

Real estate (comprehensive developer)

We are committed to create attractive towns andregions with steadfast devotion.

Representative

Ichiro Enomoto, President and C.E.O.

Employees

213 (as of May 31, 2020)

Net sales

30.3 billion yen (as of May 31, 2020; same below)

Ordinary income

5.8 billion yen

Total assets

198.3 billion yen

Borrowings

106.0 billion yen

Equity ratio

31.0%

https://fukuokajisho.com/company/history.html

million yen

Main Businesses
・Development Division (Retail Facilities, Offices, Business Hotels, Logistics facilities)
・Realty Management Division (Leasing and management, Property management, Brokerage)
・Residential Business Division (Condominiums, Housing information total service)■ Diversification of debt maturities (as of August 31, 2020)
Floating

4.0％

10.82％

10.61％

796,000 Units（84,462Units）

59.20％

40,000796,000 Units

Fukuoka Jisho Co., Ltd. History and Milestones
Fixed
94.1％

Sponsorbanks

82,400796,000 Units

Floating
5.9％

As of Feb.
29, 2020

21.6％

796,000 Units

Value-Creation Activities

Value-Creation Activities■ Distribution by investor category (breakdown of investment units)

Fixed

Main Properties Held and Development Properties

Investment corporation bonds(Millions of yen)

5.9％

12.1％

Megabanks, Trust banks

15,000Committed line of credit 13,000 million yen

13,0008.7％

10,000■ Development Bank of Japan Inc.

■ THE NISHI-NIPPON CITY BANK, LTD.
■ THE BANK OF FUKUOKA, LTD.
■ Mizuho Bank■ MUFG Bank

■ Sumitomo Mitsui Trust Bank

■ The Norinchukin Bank

■ Other financial institutions■ Sumitomo Mitsui Banking Corporation ■ Regional Banks (excl. sponsor banks)■ Resona Bank
■ Investment corporation bonds

6,300

6,600

5,900 2,000

5,600

5,000

2,500
0

0

400

0

2,000

7,000 7,000
4,400

4,200

700

2,000 1,900

5,400
4,200
1,200 2,700

300

1,500

700

4,900

（image）
2,000

1,000

34th 35th 36th 37th 38th 39th 40th 41st 42nd 43rd 44th 45th 46th 47th 48th 49th 50th 51st 52nd 56th 68th
0 33rdAug. Feb. Aug. Feb. Aug. Feb. Aug. Feb. Aug. Feb. Aug. Feb. Aug. Feb. Aug. Feb. Aug. Feb. Aug. Feb. Feb. Feb.

Tenjin Business Center(scheduled for completion in September 2021)

LOGICITY Minato Kashii North

Hotel FORZA Hakataeki Chikushi-guchi I

Naha Business Center2020 2021 2021 2022 2022 2023 2023 2024 2024 2025 2025 2026 2026 2027 2027 2028 2028 2029 2029 2030 2032 2038

22

Fukuoka REIT Corporation 2020

Fukuoka REIT Corporation 202023

To achieve sustainable growth, FRC keeps close track of highly significant risks and opportunities while assessing theirimpact on the Investment Corporation and its stakeholders.
● Measures to Address Risks

Significant Risks

Risks from Changes
in BusinessConditions• Increase in vacancy rates• Decrease in rent

Impact on Stakeholders● Opportunities

Measures to Address Risks and Opportunities• Consider extending lease agreement terms, fixing ofrent, etc. according to property characteristics• Appropriate occupancy screening when tenants• Vacancy rate increases associated with worsening
real estate market conditions, decrease in dividends
due to rent decreases• Rent reduction, rent nonpayment and vacating risks
due to deterioration of lesseeʼs financial situation

move in as well as monitoring of operating status andthorough credit management during the lease period• Deposits and security deposits against rent

Significant Risks

Impact on Stakeholders

Measures to Address Risks and Opportunities

Property
Concentration Risks• As FRCʼs properties owned are concentrated in
Fukuoka and Kyushu, the vacancy rate may increase
due to a worsening economic situation in that region,and profitability may deteriorate due to a decrease inrent• Invest in various types of properties to reduce the risk

• Possibility of adverse effects on profits due to overall
consumer consumption as well as other overall trends
in the retail industry that reflect the nature of retailfacilities as a main investment target

City Hakata・B, operate bustling facilities by replacing
tenants and providing new experience value, etc.,
thereby reducing the risk of profit fluctuation bydispersing tenants• Region (Fukuoka/Kyushu)• Retail facilities

delinquency, etc., collateral by means of guarantor
companies, etc.

• Treat deterioration in real estate market as opportunity

to acquire excellent properties and execute strategic
investments through appropriate financial management
utilizing information-gathering ability (opportunity)

Market-Related
Risks• Increase in interest rates• Fluctuations in theinvestment unit price• Risk of increase in interest payment due to increase ininterest rates caused by market trends at the time ofborrowing• Risk that FRCʼs investment unit price may fluctuate
due to factors that include unitholder supply
and demand, interest rate conditions, economic
conditions, and real estate market conditions• Risk of not being able to acquire planned assets
because additional units cannot be issued at thedesired time and under desired conditions due tofluctuations in unit price• Response to climatechange• Long-term fixing of interest-bearing debt and• New laws and regulations• Conservative interest-bearing debt management and• Changes in the tax
systemrepayment period limit diversificationcommitment lines to ensure flexibility and agility infunding• Buildings may be lost, suffer deterioration or damage
due to the occurrence of natural disasters, such as
earthquakes, storms and floods, or severe weather
due to climate change, and their value may beaffected, with a decrease in rent due to the nonoperation of properties

See P.22• Reduction ofenvironmental load
• Soil pollution and toxic
substances• Risk of damage to health of building users due to thepresence of toxic substances in the soil or in building
materials, etc. of properties owned, risk of bearing thecost of compensation for damage to health or for removalof toxic substances• Increase in repair andmaintenance expenses• Possibility of tenants vacating and a reduction in rent
due to a loss of property competitiveness resulting
from changes in the surrounding environment• Decline in property
competitiveness24

Fukuoka REIT Corporation 2020

Realtyʼs affiliated organizations, tax accountants,
law firms, etc., participate in external training, obtain
information, and take measures to reduce any impact
from an early stage• Risk of leakage of personal and confidential
information due to delays in strengthening cybersecurity

systems by introducing two-factor authentication forsoftware as well as applications and by conducting
training on cyber security and information management• Enable property differentiation by introducing advanced
technologies into properties owned (opportunity)etc.) by engaging in a variety of activities. This
includes conducting disaster drills at each property,
stockpiling emergency food supplies, strengthening
flood countermeasures, and formulating a business
continuity plan (BCP)

performance through renovation opportunities forproperties owned; acquire Green Building certification,etc. to obtain results of environmental/social initiatives
in visual form and improve property competitiveness
See P.30• Aim to reduce vacancy rates by pursuing healthfuland comfortable conditions in properties owned andby increasing leasing demand for properties with highenvironmental performance (opportunity)• Conduct thorough physical investigations at theCompliance Risks• Violations oforganizational laws andregulations• Conflicts of interest

appropriate maintenance and repair work, value-up
investment, and extending the number of service life
years

• Based on an understanding of real estate market

trends, capital market environment, etc., in the eventthat the strategic holding of a property becomesless significant from the perspective of property
performance, competitiveness, and future profitability,
consider replacement of that property if it is determinedthat selling it is in the interest of unitholders• In the event that Fukuoka Realty（Asset Management
Company) violates its duty of care as a good manager(duty of care) and its duty to faithfully perform tasks
for FRC (duty of fidelity) under the law or specified
contracts, the possibility exists that this could
adversely affect FRCʼs survival and profitability• Potential conflict of interest issues with sponsors

Human ResourceRelated Risks• Deterioration in thecaliber of humanresources• Risk of deterioration in organizational strength of
Fukuoka Realty (Asset Management Company) due
to a failure in maintaining the human resources base,in terms of such factors as ability, experience, andknow-how of the asset management company forsmooth business operations• Dependence on humanresources• Heavy reliance on FRCʼs directors and auditors
as well as on the human resources of the asset
management company; and the risk that the outflow
of these human resources could have an adverse
effect on operations

Infectious Disease-,
Epidemic-, and• Risk that such external factors as infectious diseases
and epidemics in Japan and overseas may interferewith the normal operation and management of FRCʼs
properties• Maintain/improve property competitiveness through• Increase in expenses required for large-scale repairs,
etc. due to the deterioration of properties, and large
capital expenditures may reduce cash flows• In addition to receiving information from Fukuoka• Improve resilience (ability to respond to disasters,

time of property acquisition; property acquisition
after confirming the presence or absence of toxic
substances and taking of measures

Risks from Property
Degradation,
Deterioration

See PP.10-13• In retail facilities, such as Canal City Hakata/Canal• Strengthen confidential information management

relatively low cost compared with other areas, arrange
earthquake insurance coverage for all properties• Work to maintain and improve environmental• Increase in property management costs due to more
stringent environmental laws and regulations, such as thestrengthening of the Building Energy Conservation Law• Possibility of an increased burden from taxes and fees
due to tax reform

IT-Related Risks• Information leaks

See P.33

Environment-Related
Risks• Possibility of a limitation on rights with respect
to properties owned and an increase in property
management expenses, etc. due to newly
established, revised or abolished laws and regulationsof portfolio fluctuation by diversifying rental market
cycles and tenant industries• Conducting of proactive IR activities• Consider that it is possible to purchase insurance at a

Risks from Natural
Disasters

Regulatory Risks

Value-Creation Activities

Value-Creation Activities

Risks and Opportunities

Other-Related Risks• Pandemic• Decrease in rental income from real estate due tosuch factors as a downturn in visitors, which may
have an adverse effect on earnings, etc.

• Prevent violations of laws and regulations, transactions

involving conflicts of interest, etc. through deliberations
and audits by the Compliance Assessment Committee• Improve employeesʼ awareness toward compliance byconducting regular compliance training
See P.39• Improve organizational strength and increase employee
loyalty by hiring and fostering excellent humanresources• Improve employee motivation by realizing work-lifebalance and the stabilization of work through healthmanagement (Opportunity)
See P.35• Implement infectious disease countermeasures andpromote a safe and secure facility environment for
tenants, tenant employees, and consumers• Set up satellite offices at the Asset managementcompany and introduce a telework system with a viewto ensuring business continuity
See P.34

Fukuoka REIT Corporation 202025

Increasing the scale of its assets by incorporating low-cost borrowings in its fund procurement on the markets, FRC is aiming

Dividends and TSR

to return higher dividends to its unitholders.
Basic Approach to Financial Strategy
A feature of J-REITs is that, if certain conditions are met, such as
the dividend of more than 90% of revenue, there is virtually no
corporate tax and there are no retained earnings, so revenue will
be distributed as a dividend almost as it is. In the case of generalstock companies, etc., corporate tax will be imposed on the tax
income raised by the company, internal reserves for the next
business will be deducted, and the remainder paid as dividends.
Therefore, J-REITs tend to have higher dividend yields than generalstock companies.
Another characteristic is that financing (funds procurement)is based on certain financial disciplines, taking into account thebalance between capital and debt (to achieve an optimal capital

structure).
To date, FRC has maintained its management with an emphasis
on financial stability. Going forward, we will continue to build asolid financial base through the conservative management of LTV.
Specifically, the Investment Corporation's financial policy is to keep
LTV below a certain level and to use long-term fixed interest rate
entities to reduce the risk from future interest rate hikes.
In the years to come, we will place an even greater emphasis on
the role of finance in supporting the expansion of our assets andwork to expand our fund procurement sources and methods while
maintaining financial stability.

External Growth and Internal Growth
Through the steady growth of the scale of its assets (external
growth) by means of the acquisition of carefully selected real estatein the Fukuoka and Kyushu area utilizing the sponsor pipeline, etc.
―and effective asset management (internal growth), FRC has been
distributing stable dividends per unit since its listing. Going forward,
we will strive to maintain and improve our dividend per unit throughthe creation of stable cash flows by the acquisition of excellent
properties and the continuation of strategic initiatives.
The acquisition of real estate, etc. to expand the scale of assets
and increase the cash flow to fund dividends offers the following
advantages:• Ability to diversify risks for properties and tenants• Enables efficient management of properties by taking
advantage of economies of scale

As a capital policy for external growth when raising capital, FRC
conducts management while bearing in mind two criteria:• The value obtained by dividing the investment unit priceby net asset value (NAV) per unit (NAV ratio) is almost to or
greater than one• To grow stabilized dividends after property acquisition

Figure 1 shows FRCʼS past dividends and dividend yields.
Among listed REITs, dividends are characteristically very stable.
In contrast, the dividend yield has fluctuated between 3.8% and4.7% over the past seven years, indicating that investment unit
prices have fluctuated due to fluctuations in the stock market,
interest rate trends, and fluctuations in market supply and demand.
Figure 2 shows the total shareholder return (TSR), taking into
account FRCʼs dividends and capital gains.
One of the reasons for the deterioration in TSR over the past fiveto six years is that investment unit prices were rising due to shopping
spree cruise passengers five years ago. With regard to dividends,
in 2017, we considered it best practice to avoid future risks when
the real estate market is booming, and this included the sale of two
properties and a dividend decrease in the 25th fiscal period.
While dividends have been continuously improving up until theend of the 30th fiscal period after bottoming out in the 25th fiscal
period due to both internal and external growth, FRCʼs most recent
dividend per unit declined to 3,250 yen owing to a variety of factors
including the drop in rental income in the wake of COVID-19. In
addition, our investment unit price plummeted in March 2020 due
to fluctuations in the stock market, from which there has been a
gradual recovery. On a positive note, we are witnessing a modest
recovery. Based on the aforementioned, FRCʼs has experienced asubstantial deterioration in TSR over the past year.
Looking ahead, we aim to increase unitholder value by securinga recovery and increase in dividends. In specific terms, we will
implement a variety of internal and external growth measures,
while engaging in management that focuses on dividend stability.

Value-Creation Activities

Value-Creation Activities

Financial Strategies and TSR (Total Shareholder Return)■ Figure 1：Past Dividends and Dividend Yields
Dividend per investment unit (Yen)Dividend yield (as of the end of the fiscal period) (%)

（Yen）

（％）

4,000
3,435

3,243 3,278

3,563 3,574

3,479

3,398 3,422

3,512

8

3,687 3,693 3,642

3,593

3,250

3,000

6

3.8

2,000

3.7
3.3

3.7

3.7

4.1

3.9

4.1

4.4

4.2

4.7
4.1

4.3

4

3.1

1,000

2

0 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th 29th 30th 31st 32nd

Feb. 2014 Aug. 2014 Feb. 2015 Aug. 2015 Feb. 2016 Aug. 2016 Feb. 2017 Aug. 2017 Feb. 2018 Aug. 2018 Feb. 2019 Aug. 2019 Feb. 2020 Aug. 2020

0Note: With March 1, 2014, as the effective date, FRC investment units were split at a ratio of 5:1. Dividends
prior to the 19th fiscal period are shown as values divided by five.
Note: Dividend yield = (Dividend per investment unit / Operating days x 365) / Investment unit price as ofthe end of the fiscal period■ Figure 2：Investment Unit Price Performance (10 years, including dividends)

The difference (unrealized gain or loss) between the total realestate appraisal value and the total real estate book value (excluding
trust construction in progress) added to total net assets, NAV is
calculated based on market value-based net assets. An NAV ratioof one or less is considered to be undervalued. Were the situation
to continue, we would consider acquiring our own investment units,etc., and believe that we should be cautious about raising capital.

FRC

TOPIX Real Estate Business Index

TSE REIT Index

（%）
400

300

■ Trends in NAV per Investment Unit

■ NAV Ratio Trends（Yen）（Times）

200,000

150,000

2.0

128,375 131,215

136,051

144,472

148,558

156,204
152,259 150,328 152,639

1.67

171,592
167,118 170,680
161,315 164,250

200

1.52

1.5

1.34
1.22
1.31

100,000

1.31

1.18
1.08

1.11

1.06

1.03

1.07

1.0

■ TSR over the past 10 years

0.98

Past 1 year

0.80

0.5

Past 5 years

Past 10 years

Annual rate

Cumulative total

Annual rate

Cumulative total

Annual rate

（19.6）
%

（3.9）
%

（1.3）
%

（9.0）
%

（1.9）
%

90.9%

6.7%

TOPIX Real Estate Business Index （13.0）
%

（4.6）
%

（1.6）
%

（20.7）
%

（4.5）
%

94.0%

6.9%

（4.8）
%

27.6%

8.5%

41.3%

7.2%

216.9%

12.2%

Feb.
2019

Aug.
2019

FRC
50,000

Past 3 years
Cumulative total

100

TSE REIT Index* Annual rate conversion is the geometric mean of cumulative returns.

0 19th 20th

21st 22nd 23rd 24th 25th 26th 27th 28th 29th 30th

31st 32nd

Feb. 2014 Aug. 2014 Feb. 2015 Aug. 2015 Feb. 2016 Aug. 2016 Feb. 2017 Aug. 2017 Feb. 2018 Aug. 2018 Feb. 2019 Aug. 2019 Feb. 2020 Aug. 2020

* NAV per investment unit = (Net assets + unrealized gain/loss - Total Dividends) / Total number ofinvestment units issued as of the end of the period

26

Fukuoka REIT Corporation 2020

0

19th 20th

21st 22nd 23rd 24th 25th 26th 27th 28th 29th 30th

31st 32nd

Feb. 2014 Aug. 2014 Feb. 2015 Aug. 2015 Feb. 2016 Aug. 2016 Feb. 2017 Aug. 2017 Feb. 2018 Aug. 2018 Feb. 2019 Aug. 2019 Feb. 2020 Aug. 2020

* NAV ratio = Investment unit price as of the end of the period / NAV per investment unit

0

Aug.
2010

Feb.
2011

Aug.
2011

Feb.
2012

Aug.
2012

Feb.
2013

Aug.
2013

Feb.
2014

Aug.
2014

Feb.
2015

Aug.
2015

Feb.
2016

Aug.
2016

Feb.
2017

Aug.
2017

Feb.
2018

Aug.
2018

Feb.
2020

Aug.
2020

Note: FRCʼs investment unit price performance is expressed as an index, using the investment unit price as of August 31, 2010 as 100. TSR over the past 10 years indicates profitability based on dividends from andinvestment unit price made on August 31, 2010, as of August 31, 2020. The TOPIX real estate index and TSE REIT index are indexed in the same way, using dividend-included data.

Fukuoka REIT Corporation 2020

27

FRC and Fukuoka Realty believe maximizing profits for unitholders over the medium- to long-term requires not only the
pursuit of profitability, but also consideration for the environment, society, and governance. With this in mind, we focus on
ESG issues as part of the real estate investment management process.

3. Contributing to the Creation of a Recycling Society• We will monitor water consumption and waste management at theproperties we manage and promote water saving and recycling throughbetter management, in an effort to utilize limited resources efficiently.
• We will investigate the adoption of water-saving equipment and waterreuse systems at the opportunities of renovating buildings.
4. Pursuing Well-Being and Safety• We will endeavor to provide healthy and comfortable indoor spaces atthe properties we manage, striving to enhance tenant satisfaction andproperty competitiveness• We will implement measures to prevent and reduce disasters at theproperties we manage, such as ensuring earthquake resistance and fully
preparing emergency equipment, to provide safe and secure buildings.

6. Enlightening Employees• To implement the Policy, we will provide our employees with educationand training sessions on ESG awareness in real estate investment andmanagement operations, heightening their awareness and enriching theirexpertise.
7. Collaboration with Tenants and Suppliers• In implementing the Policy, assuming that it is essential to obtainunderstanding and cooperation from the tenants of respective properties
and our major business partners including property managementcompanies, we will work to build good relations with each of them in aneffort to establish a collaborative structure.
8. Establishing Internal Organizations• In order to manage the implementation of what is provided in the Policy,
we will organize a sustainability promotion committee within the Company.
• We will set up specific objectives, etc. for each of our initiatives andreview them periodically.
9. Monitoring and Disclosing Environmental and Social Performances• We will continuously grasp the status and results of our efforts based on
the Policy, while monitoring the status of ESG initiatives on our own by
utilizing external assessment systems and surveys including GRESB.
• We will disclose information and achievements regarding our ESG
initiatives to unitholders and other stakeholders in a timely andappropriate manner.
Established January 29, 2018

System for Promoting Sustainability
Fukuoka Realty has established the Sustainability Promotion
Committee to promote sustainability initiatives in a continuous andsystemic manner based on its Sustainability Policy. To achieve thegoals of the Sustainability Policy, the Company has put in place the"Regulations Concerning Sustainability Management" manual. In
the context of the Companyʼs internal systems, collaboration withstakeholders, and information disclosure policy, the Committee
in principle meets at least twice a year to examine goals andmeasures related to sustainability. The Sustainability Promotion
Committee includes the CEO & Representative Director, and eachgeneral manager of the Property Management Dept., Investment
Dept., Finance Dept., Planning Dept., and Compliance Dept. The
CEO & Representative Director, who chairs the Committee, makes
a decision regarding the implementation of sustainability-related
measures. The chair of the Committee also periodically reports on
targets and results, as well as progress in certain issues, to theBoards of Directors of both the Company and FRC.

Fukuoka REIT Corporation 2020

Materiality significant issues

promoting initiatives based on materiality policies and targets
derived through cooperation with stakeholders, the Company
targets sustainable growth at FRC alongside contributions toward
solving social issues.
Policies and targets

Related SDGs

Reduction of environmental load

・Coordinate with Property Management and Building Management on promotion of management andreduction of energy consumption, greenhouse gas emissions, water consumption, and waste output

Maintenance and enhancementof environmental and construction
performance

・Carry out performance and function evaluation of properties on a regular basis and ameliorate any
deterioration in performance, etc.
・Maintain and improve competitiveness by acquiring green building certifications and through visual
representation of building performance

Creation ofpleasant
workplaces

Asset
managementcompany・Improve quality of operations by enhancing and expanding employee education systems and promoting
acquisition of qualifications
・Continue to improve office environments and work on providing pleasant working environments
・Give consideration to work-life balance and boost employee satisfaction

Tenants

・Promote improvement of employee satisfaction and work toward increasing the job satisfaction of tenant
employees

Contributions to boosting theattractiveness and revitalization of
Fukuoka and Kyushu

・Enhance dissemination of information regarding the strengths and charms of Fukuoka and Kyushu
・Support research and studies on the local economy and industries; promote attractive urban development incollaboration with local business circles

Co-creation with the local community

・Deepen dialogue and collaboration with the local community through participation in community activities
and various initiatives using properties under our management to grow and develop together with the local
community

Information disclosure and dialogue
with stakeholders

・Disclose financial and non-financial information to stakeholders in an appropriate and timely manner
・Build relationships of trust through proactive dialogue with stakeholders and reflect stakeholder feedback in
our management strategy

Compliance / Risk Management

・Ensure thorough compliance, including with laws and ordinances, and the elimination of any conflict ofinterest with interested parties, and develop and operate an appropriate internal risk management system tomaintain and improve corporate value

Process for Identifying Materiality■ Organizational Chart for the Asset Management Company
General Meeting of Shareholders
Auditors
Board of Directors
Compliance Assessment Committee

Compliance Department

Deliberations on compliance-related matters• General Manager of Compliance Dept. (Attorney)• Outside Compliance Committee Members (Attorneys,
Certified Public Accountant and Tax Accountant, Real
Estate Appraisers)

STEP 1

STEP 2

STEP 3

Identify social issues
Based on the needs of society and the expectationsof stakeholders within and outside of the Company,
prepare a list of social issues taking into accountconditions at other companies in the same industry,
items used at assessment agencies, ESG disclosure
standards, and SDGs.

Narrow and prioritize issues
Narrow and prioritize identified issues based on theirimportance to stakeholders and the importance toand degree of impact on the FRCʼs business basedon potential risks and opportunities. Prepare draft
proposals regarding materiality.

Deliberate at the management level, confirm appropriateness
Ensure that the Sustainability Promotion Committee, established by
the asset management company, deliberates on all draft proposals
regarding materiality. Materiality is identified after investigating
appropriateness based on the opinions and advice of experts acting
on behalf of stakeholders. Reports are ultimately delivered to theBoard of Directors of the asset management company and the Boardof Directors of the Investment Corporation.

CEO & Representative Director
Risk Management Committee
Deliberations regarding risk management

Executive Committee

Investment Committee

Decision-making on management matters ingeneralDecision-making in regard to the investment in andoperation of assets owned by FRC

Sustainability Promotion Committee
Decision-making in regard to the promotion ofsustainability

Akira Eguchi
Executive Managing Director
Fukuoka Realty Co., Ltd.

Property Management Department

28

Fukuoka Realty is taking steps to identify materiality (important
issues to address) in its sustainability initiatives based on therequests and expectations of its stakeholders and the expected
impact on and importance to the Investment Corporation. By

Environment

2. Responding to Climate Change Risks• We will endeavor to help mitigate climate change risks by working to
reduce greenhouse gas emissions from the properties we manage
through utilization of renewable energy and other energy conservation
measures.

5. Utilizing Green Building Certifications• We will investigate the obtainment of green building certifications andother environmental assessments in order to visualize the results of ourinitiatives on the environment and society at the properties we manage
as well as to enhance property competitiveness.

Society

1. Promoting Energy Conservation of Portfolio Properties• We will monitor the energy consumption levels of the properties wemanage, and work to improve management to lower the levels over the
medium- to long-term.
• We will endeavor to improve the energy consumption efficiency ofbuildings and facilities when undertaking renovations, so as to enhance
property value and mitigate environment-related risks as well as reduce
operating costs.

Identification of Materiality significant issues

Governance

Sustainability Policy

Foundation Underpinning Management

Foundation Underpinning Management

Sustainability Policy and Materiality

Investment Department

Finance Department

In 2019, Fukuoka Realty reorganized its materiality matrix taking into consideration “events thatare important to stakeholders” and “issues that have a significant impact on the companyʼs
management.” In addition to identifying seven key “material issues,” Fukuoka Realty announced
details of its activity policy and targets. Amid the growing importance of sustainability worldwide,
events that could affect the companyʼs operations including climate change and COVID-19
continue to evolve. As a result, ongoing steps are being made to review the content and details ofmaterial issues. As the asset management company for Japanʼs first regionally specialized REIT,
we recognize the need to factor ESG considerations into our real estate investment management
process is part of our overarching mission.

Planning Department

Fukuoka REIT Corporation 202029

Acquiring External Certifications

Environmental Performance Data and Green Finance■ Participation in GRESB Assessment 2020
( “Green Star” and “3 Star” Ratings)
The Global Real Estate Sustainability Benchmark (GRESB) wasestablished by a group of European pension funds and is thebenchmark for measuring sustainability in real estate companies
and managing organizations. FRC was given "Green Stars" andthree stars in the five-level GRESB Real Estate Assessment
conducted in 2020.

■ Initiatives We Support

Environmental Performance Data (Total for five major retail facilities)

In September 2018, Fukuoka Realty endorsed the Principles
for Responsible Investment (PRI) and Principles for Financial
Action for the 21st Century (PFA21) and became a signatory tothese initiatives. Through ESG-conscious asset management,
the company is contributing still further to the achievement of asustainable society.

■ Electricity Usage■ Water Consumption

（Mwh）

（m3）

68,11480,00066,584600,000

60,000450,000

40,000300,000

20,000150,000

0

28th Fiscal Period-29th Fiscal Period
March 2018-February 2019

0

30th Fiscal Period-31st Fiscal Period
March 2019-February 2020

* Total value for the five properties of Canal City Hakata, Canal City Hakata・B, Canal City Business Center
Building, Park Place Oita, and Konoha Mall Hashimoto.
* The figure for electricity consumption for Canal City Hakata, Canal City Hakata・B, and Canal City
Business Center Buildings reflects usage for all of the buildings, including electricity usage for the portion,
which is not owned by the investment corporation.
* The figure for Park Place Oita covers only the main building section and excludes the section for
independently run stores.

■ Ratio of Properties Certified as Green Buildings
As of the end of August 2020, the ratio of properties within theentire portfolio certified as green buildings was 79.8%.
The DBJ Green Building Certification is a third-party certification
system established by the Development Bank of Japan forreal estate properties that feature excellent environmental andsocial considerations. FRC has acquired certification for 11 of its

properties owned that exhibit environmental and social awareness.
In addition, the Building Energy-Efficiency Labeling System (BELS)
is a system in which third parties evaluate, indicate, and certify
the energy conservation performance of non-residential buildings,
based on the Evaluation Guidelines for the Building EnergyEfficiency Labeling System for Non-Residential Buildings (2013).
FRC has acquired certification for four of its properties owned.

Canal City Hakata（2018）★★★★★ Canal City Hakata・B（2018）
Green Building
Certification

79.8%

★★★★

Park Place Oita
（2018）
Canal City Business Center Building（2018）LOGICITY Hisayama（2017）
Konoha Mall Hashimoto（2017）★★★

Gofukumachi Business Center（2018）
Higashi Hie Business Center（2018）
Higashi Hie Business Center Ⅱ（2017）★

SunLive City Kokura（2019）
Marinoa City Fukuoka (Marina Side Building) (2019)(total floor space basis)533,920519,609

28th Fiscal Period-29th Fiscal Period

30th Fiscal Period-31st Fiscal Period

March 2018-February 2019

Foundation Underpinning Management

Foundation Underpinning Management

Environmental Issues

March 2019-February 2020

* Total value for the five properties of Canal City Hakata, Canal City Hakata・B, Canal City Business Center
Building, Park Place Oita, and Konoha Mall Hashimoto.
* The figure for water consumption for Canal City Hakata, Canal City Hakata・B, and Canal City
Business Center Buildings reflects usage for all of the buildings, including water consumption for the
portion, which is not owned by the investment corporation.
* The figure for Park Place Oita covers only the main building section and excludes the section for
independently run stores.

Green FinanceWith the goal of further promoting ESG activities and expanding
financing options through an enhanced investor base, FRC
established the Green Finance Framework in June 2019 in line with
the Green Loan Principles, the Green Bond Guidelines 2017 from
the Ministry of the Environment, and the Green Bond Principles
2018 in order to ensure implementation of green financing,including green loans. The funds procured through green financewill be allocated toward the acquisition of Eligible Green Projects,
the repayment of borrowings required in the acquisition of eligible
green assets, or the redemption of investment corporation bonds

issued and outstanding.
Eligible Green Projects are specified assets held by FRC thathave received or are scheduled to receive one of the following
certifications from third-party certification organizations at the timeof procurement or the reporting date.
(1) DBJ Green Building certification of 4 or 5 stars or a 3-star evaluation(2) CASBEE certification of S, A or B+ rank
(3) BELS evaluation of 3, 4 or 5 stars★★★
(3-star)

Total properties
owned
201.9 billion yen

Eligible Green
Projects
139.4 billion yen(acquisition price)

69.0%

31 properties★★★★
(4-star)Eligible Green
Projects
139.4 billion yen
10 properties★★★★★
(5-star)

Total assets LTV

41.4%

Maximum green financeprocurement amount
Eligible Green Project liability

57.7 billion yen

After procuring green finance, FRC will announce the total amount of Eligible Green Projects, the amount of liabilities related to Eligible Green
Projects and the amount of funds from green finance as of the end of each fiscal period (February and August each year). The Investment
Corporation will also announce the following indicators related to Eligible Green Projects as of the end of February each year.
• The number of properties classified as Eligible Green Projects, and the number and type of obtained environmental certifications.

Higashi Hie Business Center

Higashi Hie Business Center II

LOGICITY Minato Kashii

LOGICITY Hisayama■ Green Finance (Actual)Type

LenderAmount borrowed(Millions of yen)Interest rate (annualized)

Loan date

Notes

Long-term loan
(Green loan)

Mizuho Bank
The Bank of Saga
The Higo Bank

2,200

0.521%＊1

July 31, 2019

Unsecured/unguaranteed
Lump-sum repayment
Fixed interest rate
Green loan assessment: Green 1＊2*1: FRC has concluded a swap agreement to establish a fixed interest rate on debt. The indicated interest rate reflects the effects of the swap agreement.
*2: FRC has received the highest “Green 1” rating from Japan Credit Rating Agency for our adherence to the Green Loan Principles.

30

Fukuoka REIT Corporation 2020

Fukuoka REIT Corporation 202031

Environmental initiatives

Disaster risk countermeasures［Retail］
Canal Water Filtration System (rainwater reuse system)
Canal City Hakataʼs symbolic canal has both a recreational
function and is a source of water to fight fires in the case of an
emergency. At all times, this canal holds roughly 1,200 tons ofwater, and rainwater is used in order to conserve resources.

Earthquake risk countermeasures
Greywater Plant (kitchen drainage reuse system)
At Canal City Hakata and Konoha Mall Hashimoto, kitchen
wastewater discharged by restaurants is collected and processed
as reclaimed water. It is then used as tap water in on-site
restrooms.

Fukuoka Prefecture is an area in which there are relatively few
earthquakes. According to the probabilistic earthquake prediction map
from the Office of the Headquarters for Earthquake Research Promotion,
Earthquake and Disaster-Reduction Research Division, Research andDevelopment Bureau, Ministry of Education, Culture, Sports, Science andTechnology, the probability of an earthquake with an intensity of six orgreater over the next 30 years is lower in Fukuoka Prefecture than in the
Kanto, Chubu, and Kansai areas. FRC establishes the insurance value ofeach property based on its replacement value, earthquake PML value, andother factors, and maintains earthquake insurance for all its properties.

■ Probabilistic Earthquake Prediction Map■ Earthquake PML Value (full portfolio) 4.9%

Probability of an earthquake with an intensity of six or greater over the next 30 years(average case / all earthquakes) (Reference date: January 1, 2018) (Updated in January 2019)

Foundation Underpinning Management

Foundation Underpinning Management

Environmental Issues■ Basic Earthquake Insurance Rate
Earthquake insurance with coverage beginning on January 1, 2019
Earthquake insurance can be purchased in Fukuoka Prefecture at a relatively
lower cost than in other areas.

25,000

Tokyo
Aichi
Osaka

Renovation of the Rooftop Garden
The rooftop garden at Grand Hyatt Fukuoka, which has beenused as a place for guests to relax and talk, was renovated in
May 2020. As part of
the renovations, we arepreserving biodiversity
by planting several
different species of
medium-sized to talltrees, shrubs, andgroundcover.

Sixth Annual Green Social Contribution Award (2018)
Canal City Hakata
With the aim of creating an environmentally friendly facility,
Canal City Hakata is engaged in greening, recycling, and energy
and resource saving activities. Canal City Hakata received a
Sixth Annual Green Social Contribution Award in recognition of
its efforts to contribute to the regional community and improvethe environment since its opening. These efforts include thecreation of an area where visitors can relax, focusing on artificial
canals, and installing a rooftop garden at the facility hotel.

Energy-Saving Initiatives Based on the Promotion of LED Lighting

Introducing Renewable Energy Equipment

We are focused on converting each property to LED-based lighting
in order to reduce energy consumption.

At LOGICITY Hisayama and LOGICITY Minato Kashii, we haveinstalled solar panels on the rooftops to generate renewable energy
and contribute to the formation of a recycling-based society.

Severe damage from flooding in Fukuoka City on June 29, 1999
contributed to the formulation of the Storm Water Management
Action Plan and the upgrading of rainwater drainage facilities in theareas where the flooding was particularly harsh. Ongoing efforts
to implement anti-flooding measures have greatly improved flood
safety within the city limits.

20,00025,00030,000 （yen）■ Replacing and Installing New Water Stops (July 2020)

We reviewed the specifications and installation locations of existing water
stops throughout the Canal City Hakata premises and either repaired or
installed equipment as part of our countermeasures to river flooding asa result of typhoons and locally heavy rains, which appear likely to comemore frequently and increase in severity due to global warming.

■ Storm Water Storage Facilities
Storm water storage capacity
FY 2018: 128,300m3

FY 1999: No storm water storage facilities

Storm water management capacity improved from 59.1mm/h to 79.5mm/h (city center)

From FY 2000 to FY 2018…
3,173

A steady decline inbuilding inundations

3,000

1,122

Since the launch of the
project in FY 2000…

1,000
3

Maximum hourly
precipitation (mm/h)

Storm waterdrainage capacity
increased sharply.

1,721

2,000

Fukuoka REIT Corporation 2020

15,000Countermeasures to Flooding Risks

4,000

LOGICITY Hisayama

10,000* The mesh for zero probability based on the model calculation conditions is shown in white.
Source: Office of the Headquarters for Earthquake Research Promotion, Earthquake and DisasterReduction Research Division, Research and Development Bureau, Ministry of Education, Culture,
Sports, Science and Technology■ Instances of Building Inundation in Fukuoka City (number of buildings)

Solar panels

5,000* The basic rate is 10 million yen for one year of insurance, mainly for steel-frame and concrete buildings.
Source: Fukuoka Realty Co., Ltd., based on data from the Ministry of Financeʼs Basic Rates for Earthquake
Insurance (earthquake insurance with contracts starting on January 1, 2019).

Building

32

7,100

0

［Others（logistics facilities）］

LED lighting being used at the Sanix Hakata Building

12,600Fukuoka［Office Buildings］• Gofukumachi Business Center (interior shared spaces, some external areas, etc.)• Sanix Hakata Building (interior recessed lighting)• Taihaku Street Business Center (entrance, interior shared spaces, etc.)

14,400June 29,
1999

July 19,
2003

July 24,2009

August 30,
2013

79.5

104

116

72.5

Instances ofinundation havesteadily declined.

* Number of buildings: Total number of buildings inundated above and below the floor level. Period coveredis between June 29, 1999 and December 31, 2018.
Source: Fukuoka Realty Co., Ltd., based on data from the “Storm Water Management Action Plan 2026”
pamphlet for the Fukuoka City Storm Water Emergency Control Plan.

Canal City Hakata (north side of the building)

Canal City Business Center Building

Other Disaster Prevention Measures
Disaster Prevention Drills
We conduct comprehensive disaster drills
at Canal City Hakata, with all tenants
participating. We conduct fire and earthquake
evacuation drills to improve fire and disasterprevention awareness and strengthen
cooperation between tenants.

Disaster Prevention Products for the Office
We have prepared a lineup of disasterprevention products for all our employees touse in case of a emergency. As a company,
we are focused on corporate disasterprevention measures, including the creationof a business continuity plan (BCP) and thecontinued safety of our employees.

Fukuoka REIT Corporation 202033

Measures to prevent the spread of COVID-19

Initiatives for Employees and Tenants

Measures to prevent the spread of COVID-19

Initiatives for Employees and Tenants

We have strengthened measures aimed at preventing the further spread of COVID-19 at FRC properties in line with the guidelines issued by
the Ministry of Health, Labour and Welfare. The safety of our employees, customers, and tenants is our first priority and we are working tocreate the safest and most secure environment for them as possible.

FRC and Fukuoka Realty actively push forward initiatives for its employees and tenants. Through dialogue, every effort is made to provide
an attractive work environment where employees can continue to work with peace of mind as well as opportunities for human resource
development. From a tenant perspective, both FRC and Fukuoka Realty are committed to ensuring safe, secure, and comfortable spaces
while improving satisfaction.

［Retail］［Office Buildings］

Principal measures aimed at preventing the spread of COVID-19

Principal measures aimed at preventing the spread of COVID-19• Installation of alcohol-based sanitizing stations and splash guards• Posting of social distancing reminders• Comprehensive health management through tenant employee temperature checks• Clearing of common-area chairs and tables• Installation of alcohol-based sanitizing stations at office entrances• Enhanced ventilation in common areas• Posting of notices regarding efforts to prevent the spread of COVID-19 in elevators

Initiatives for Employees
Fukuoka Realty: Number of officers and employees,
number of credentialed employees
Average number of years of continuous (* As of August 31, 2020)
service by permanent employees:
8 years and 10 months

Number of full-time officers and employees:
41 (20 male and 21 female) * Percentage of female employees 51.2%
・Employees seconded from sponsors: 2
・Employees seconded to sponsors: 4

Tenant (restaurant) support
Canal City Bento Market
Canal City Hakata restaurants sell

Number of credentialed personnel (aggregate total)

weekday-only take-out bento boxes

・Real estate brokers: 26
・Certified building administrators: 5
・First-class registered architects: 2・Real estate appraisers: 2
・ARES certified masters: 23
・Attorney: 1
・MBA: 1・Administrative scrivener: 1
・SME management consultant: 1(June 22–July 17, September 28–October 9)

Location-Specific Initiatives
Sanitizing Measures

Measures to Prevent the Spread of COVID-19 in Food Courts■ Canal City Hakata■ Park Place Oita

We have implemented measures to prevent the spread of COVID-19 andstrengthen safety and security, including the installation of Air Buster units near theelevators and pedal-operated sanitizing stations in 32 places around the building.

With the goal of ensuring the safety and security of visitors, we haveinstalled splash guards on the Park Place Oita and Konoha Mall
Hashimoto food court tables■ Konoha Mall HashimotoSupporting flexible work styles

Support for career development

・Child-rearing support (maternity leave,
childcare leave system)
・Nursing care leave
・Leave for voluntary work
・No overtime days
・Employee welfare (401K, cumulative
investment system, etc.)
・Encouraging use of paid holidays, etc.

・Employee satisfaction survey
・Career interview
・Secondment system (dispatching employees to sponsor companies)
・Promotion from contract employee to permanent employee status
・Offering of training programs tailored to each management level
・System for supporting acquisition of qualifications (Real Estate
Securitization Master, Real Estate Transaction Agent, etc.)
・Support for language learning, etc.

Employee training
・Regular study groups by the Kyushu
Economic Research Center・Compliance training
・ESG training
・Nursing care training
・In-house recreation, etc.

Work style reforms at the Asset Management Company

Fukuoka Realty was certified as a “Fukuoka ʻWork Style ReformʼPromotion Company” on August 28, 2018. This system recognizes
companies that have achieved at least a certain number of the“initiative items” that were selected by Fukuoka City as indicators
to advance work style reforms.
Recognized initiatives

Pedal-operated
sanitizing stand34

Tenant Initiatives

Fukuoka Realty Co., Ltd. is working on a variety of measures aims
at preventing the spread of COVID-19 and protecting the health of
our employees.
In particular, we are working to establish satellite offices, considering
alternate schedules for commuting, implementing thorough measures
to prevent the spread of the virus to individuals, and strengthening
measures aimed at preventing the spread of the virus in the office.

With a focus on the health and comfort of tenant employees, weare improving the employee lounge environments within retailfacilities and renovating office building common areas.
Moreover, FRC is engaging in a variety of initiatives for tenants
as a part of efforts to promote sustainability.

Fukuoka REIT Corporation 2020

・There is a training system for employees
・There is a support system for self-development
initiatives
・There is a system to support career advancement andto consult about career building
・There is a certification acquisition support system aswell as subsidized English and bookkeeping training
systems
・The company has measures in place to encourage
shorter working hours
・There is a system in place allowing employees to taketime off in increments of hours or half-days・There is a personnel development system, including
training contributing to career advancement, etc.

Average paid leave acquisition rate (FY2019) 70.9%

Employee Initiatives

・Establishment of a satellite office in Tenjin, Chuo Ward, Fukuoka City
・Telecommuting, staggered commuting
・Distribution of masks and thermometers
・Shifting of morning and other meetings to an online format
・Ensuring social distancing in offices
・Regular disinfecting of tables, chairs, and doorknobs

Overseas inspection tour
(Shenzhen DJI Showroom)

Creating a Comfortable Working Environment

・The average annual paid leave taken by permanent employees for the most recent
fiscal year is 70% or more
Air Buster unit

Foundation Underpinning Management

Foundation Underpinning Management

Social Issues(Fukuoka Realty Co., Ltd. reception)
Installation of splash guards and sanitizing
stations

Installation of splash guards and ozone
generators (disinfection equipment) inconference rooms

・Undertaking of emergency drills intended to improve tenant safety and security
・Implementation of tenant satisfaction surveys
・Distribution of sustainability guidebooks
・Sponsoring of events to improve sustainability awareness・Sustainability training, etc.

Improvements made to the employee lounge environment at Park Place Oita (September 2020)

Before renovation

After renovation

Fukuoka REIT Corporation 202035

Foundation Underpinning Management

Organizational Issues

Initiatives for Local Communities

Stakeholder Engagement

Initiatives for Local Communities
Environment Promotion Events

Safety Town Council

Clean-Up Days

Participation in Community Events

FRC engages in proactive dialogue with its various stakeholders aimed at sustainable growth and higher corporate value. At the same time,
the Investment Corporation recognizes that fulfilling its required social responsibilities leads to sustainable business activities. Valuing our
relationships of trust with stakeholders, we will leverage this concept in our ESG initiatives.

Environment

At Canal City Hakata, employees participate in
events that involve sprinkling water on sidewalks tocool them down and promote well-being. (Initiativesuspended in 2020 to prevent the spread of
COVID-19.)

At Park Place Oita, we established a “Safety Town
Council” that partners with related institutions andgroups to conduct crime-prevention patrols andproactively strives to prevent youth misconduct.

Executives and employees actively participate inclean-up activities, of which there have been 284 asof October 15, 2020.

Every year, male employees of the Company participate
in the Hakata Gion Yamakasa festival (Hachiban
Yamakasa Kasariyama, Kamikawabata-dori). CEO Etsuo
Matsuyuki rode on a float at the event in 2018. (Initiativesuspended in 2020 to prevent the spread of COVID-19.)

Real Estate, Finance, and the Economy Gathering

The Kyushu Economic Research Center

We have held gatherings to exchange information and opinions on real estate,finance, and the economy annually since 2008 with the cooperation of the Japan
Real Estate Institute (not held in 2020 in light of concerns over COVID-19).
Local real estate companies, financial institutions, and government
agencies participate in the conference,
which contributes to networking and further
stimulation of the local economy.
It has been designated as a continuing
education course for ARES masters.

Fukuoka Realty and the Kyushu Economic Research Center have concluded
a memorandum of understanding in a bid to promote increased cooperationin the macroeconomic analysis and the Kyushu economy. Through thisinitiative, both signatories to the memorandum will share information on
the current state of the Fukuoka-Kyushu
economy as well as issues to be faced
thereby revitalizing economic activity
throughout the region. In addition, study
groups on seasonal topics that are specificto Fukuoka and Kyushu are held on a regularbasis.

・Customer satisfaction surveys at retailfacilities
・Tenants satisfaction surveys
・Collaboration in environmental and social
initiatives

・Steps to share issues through regularmeetings
・Management firm evaluation andfeedback
・ESG training

Property
Clients
Tenants

Region andSociety

Property
Management
Firms

Unitholders
andInvestors

Foundation Underpinning Management

Social Issues

・Organizing community and other events
utilizing facility common areas
・Active participation in the Hakata Town
Planning Promotion Councilʼs activities
・Real estate, finance, and economic
education

・General Meeting of Unitholders
・Results briefings for investors (institutional
and individual investors)
・1on1 meetings (Japan and overseas)

Employees
・Various employee education systems
・Employee satisfaction surveys
・Career interviews with employees

Other Activities• IR Workshop

The Kyushu IR Group, which entered its 10th year in 2020, was established in cooperation with the Japan Investor Relations Association. The
Group assists in learning about the latest IR trends with IR employees of companies located in Fukuoka and Kyushu, and fosters the forming of
networks between participating companies. Impacted by the COVID-19 pandemic, a study group was held also using online tools this year.
■ Details of the Study Group
Schedule

First Study Workshop(August 2020)

Initiatives Aimed at Promoting Constructive Dialogue between Institutional Investors and Issuers
OMRON Corporation
General Manager, Investor Relations Dept., Global Investor & Brand Communication Headquarters• Participation in the ESG Dialogue Platform Provided by Japanʼs Ministry of the Environment
Japanʼs Ministry of the Environment provides the ESG Dialogue Platform
as an Environmental Reporting Platform Development Pilot Project for the
purpose of supporting effective disclosure of environmental information andsubstantive dialogue between parties including companies and investors.
In fiscal 2019, we participated in “ESG consultation meetings” targeted atcompanies that aim to directly engage in dialogue with investors concerning
ESG-related issues.

• Participation in the Kyushu SDGs Management Promotion ForumWe are also participating in the Kyushu SDGs Management Promotion
Forum, an industry-academic-government-funded platform establishedby the Kyushu Bureau of Economy, Trade and Industry. As a participant
in this forum, energies are directed toward providing information between
companies and supporting SDG management endeavors aimed at solving
regional and social issues.

• Participation in the Hakata Town Planning Promotion Councilʼs Activities
We are an active participant in the Hakata Town Planning Promotion
Councilʼs activities and efforts to promote urban development mainly aroundthe Hakata Station area, the gateway to Kyushu and Asia. Through various
initiatives that comply with Hakata Cityʼs development guidelines, our goal is
to assist with efforts that lead to the development and growth of Hakata City
as well as Fukuoka as a whole.

• Sponsoring the Fukuoka International Architectural Design Competition
In conjunction with the main sponsor, Fukuoka Jisho Co., Ltd., we are aco-organizer in the Fukuoka International Design Competition. With the
Residential Suites Fukuoka, a hostel located in Seaside Momochi, as thesite for the competition, participants are asked to submit entries based on
the concepts of “work” + “home” + “added value appropriate for Seaside
Momochi.”Fukuoka REIT Corporation 2020

Dialogue with Employees

FRC works to disclose information in a timely manner to reflect
the importance of dialogue with its unitholders and investors. To
prevent the spread of COVID-19, FRC undertakes various investor
relation activities mainly in an online format for domestic/overseas
institutional investors and individual investors.

FRC and Fukuoka Realty Co., Ltd. recognize that human resources
are our greatest asset. As part of our efforts to create comfortable
and healthy workplaces, we are endeavoring to improve theefficiency of our operations by strengthening the office environment
and enhancing our systems. In addition, we provide IR informationinternally and disseminate details of results announcements online
as part of our efforts to facilitate internal communication.

Theme and Lecturer

Mr. Shunji Okumura

36

Dialogue with Investors & Unitholders

・General Meeting of Unitholders (once every two years)
・Results briefings for analysts, institutional investors
・IR for overseas investors
・IR for individual investors
・Enhanced IR tools, information disclosure, etc.

・Employee satisfaction survey
・President interviews, career interviews
・Internal IR・Counseling with public health nurses, etc.

Fukuoka REIT Corporation 202037

Basic Policy on Customer-Oriented Business Operations

Corporate Governance

Basic Policy on Customer-Oriented Business Operations

Risk Management & Compliance Initiatives

Fukuoka Realty has adopted all seven principles set forth in the Principles for Customer-Oriented Business Conduct, announced by
the Financial Services Agency on March 30, 2017, and formulated a basic policy to realize customer-oriented business operations on
September 20, 2017.

■ Managing Conflicts of Interest■ Fukuoka Realtyʼs Basic Policy

1

Fukuoka Realty is a financial business operator that operates listed REITs. We will constantly strive to provide high-quality services so that we canmeet the investment needs of unitholders.

2

Fukuoka Realty, as an asset management company knowledgeable about the particular circumstances of the region, strives to maximize the profit of
our unitholders by utilizing information and expertise, to provide investors with stable earnings over the medium- to long-term.

3

Fukuoka Realty will make the fiduciary duty entrusted to it by unitholders its primary consideration and appropriately manage any conflict of interest.

4

Fukuoka Realtyʼs officers and employees will engage in honest and fair operations on a daily basis and act responsibly toward the Companyʼs
investors and other stakeholders.

5

Fukuoka Realty will proactively engage in voluntary IR activities in addition to statutory disclosure and timely disclosure and increase the fairness andtransparency of information disclosure.

■ Decision-Making Process

Principle 2 Pursuit of Customers' Best Interest
As a financial business operator, we maintain a high level of professionalism and professional ethics, and conduct operations with integrity and fairness forunitholders in an effort to secure their best interests. We also strive to ensure that such business conduct will be deeply rooted in our corporate culture.

■ Changes in Asset Management Fee Structure

We do not solicit the sale or recommendation, etc. of financial instruments or financial services. However, as an asset management company of a listed REIT, we
provide important information that relates to investment decision-making for unitholders in an easy-to-understand manner through statutory and timely disclosure
as well as voluntary disclosure so that such information can be readily understood. We also post such information on our website in a timely manner in an effort toprovide information desirable for investors from an investor-oriented perspective.
Principle 6 Provision of Services Suitable for Unitholders
We strive to understand the needs and requirements of unitholders, and conduct asset management taking into account such needs and requirements. Specifically,
we aim to secure stable dividends, increase dividends over the medium- to long-term and conduct investment that can contribute to society, among other endeavors.
Principle 7 Preparing a Framework, etc. for Appropriately Motivating Employees
We established a "Code of Conduct" to ensure our officers and employees always act in the best interest of unitholders. In addition, we regularly and continuously
carry out education and training on compliance for all of our employees so that they can secure fairness in business conduct and thoroughly implement appropriate
management for transactions that may involve conflicts of interest, as well as enhance their awareness on compliance.

38

Fukuoka REIT Corporation 2020

［Market reports］• Analysis on trade areas andcompetitive environment• Adequate rent levels, etc.

Deliberations by the Investment
Management Committee
Deliberations and resolution by theCompliance Assessment Committee
Resolution/decision-making reportby the Board of Directors
FRC Board of Executive Officers［Engineering reports］• Compliance with statutory andregulatory requirements andearthquake resistance• Check of soil contamination, toxic
substances, and the status of use• Replacement price, expenses for longterm maintenance and repairs, etc.

FRC revised management fees 1 and 3 with the aim ofincreasing linkage between asset management fees for the asset
management company and investor profits. The changes listed
below were approved at the Ninth General Meeting of Unitholders
held on May 26, 2020 and became effective on September 1,
2020 (33rd fiscal period start).
Management fees

Calculation Method［Three months following the day after the last fiscal period-end］

Total assets at last fiscal period-end x 0.25% (previously 0.3%) x No. of days/365 days

Management fee 1 ［From the day after the aforementioned fiscal period-end to the next
(total asset basis)
fiscal period-end］
Supervisory Director

Executive Director

Supervisory Director

Yasuo Kawasho

Etsuo Matsuyuki

Takashi Tanabe■ Fukuoka Realty Directors(Total assets at the last fiscal period-end + acquired asset value – disposal
asset value) x 0.25% (previously 0.3%) x No. of days/365 days

Management fee 2
Operating revenue for the last fiscal period x 2.0%
(operating revenue basis)
Management fee 3 (Distributable profit amount before payment of management fee 3 for the last
(distributable profit basis) fiscal period) x 3.6% (previously 2.0%)

For transactions with our interested parties including Fukuoka Jisho Co., Ltd., one of our sponsors having 50% equity, which may cause conflicts of interest,
we work to accurately grasp the possibility of conflicts of interest with unitholders pursuant to laws and regulations as well as our internal rules, etc. If any suchpossibility is found, our Compliance Department investigates the matter in advance before the relevant transaction takes place, and deliberation is made in advanceat the Investment Committee and the Compliance Assessment Committee which invites outside experts if necessary. Through these steps, we appropriately
manage transactions that may have conflicts of interest. Specifically, when acquiring real estate from any interested party, for example, we follow the processes
established in our in-house rules for determining whether a certain deal is a transaction with a conflict of interest as stipulated in our Asset Management Guidelines.
By doing so, we prevent any disadvantage to unitholders from arising. When acquiring real estate from any interested party, we conduct an investigation and givefull consideration, for instance conducting the transaction at a price equal to or less than the appraisal value provided by a third party, before deciding on theinvestment.

Principle 5 Provision of Important Information in an Easy-to-Understand Manner

General Manager of Compliance Dept.

• Japan Real Estate Institute• The Tanizawa Sogo Appraisal Co., Ltd.
• Daiwa Real Estate Appraisal Co., Ltd.

■ FRC Directors

Principle 3 Appropriate Management of Transactions with Conflicts of Interest

Principle 4 Clarification of Fees and Commissions
We provide information through statutory and timely disclosure and voluntary disclosure so that unitholders can understand our asset management fees and othercommissions or expenses to be borne by the Investment Corporation, including what types of services are paid for.

Third-party assessment by external
experts (Real estate appraisals)(Note) The prior consent of the Investment Corporationʼs Board of Directors is obtained in cases falling under
the provisions of Article 201-2 (1) of the Act on Investment Trusts and Investment Corporations.

■ Seven Principles
Principle 1 Establishment and Announcement of Policy on Customer-Oriented Business Conduct
Fukuoka Realty is a financial business operator managing a listed REIT which, through investing in real estate properties, supports and facilitates asset formationof a wide range of investors. As such, we have established a clear basic policy to implement customer-oriented business conduct throughout the investment chain
and have publicized it on our website, etc. Moreover, we continuously check on the status of our endeavors in order to realize better customer-oriented businessconduct.

Proposals from the responsible department

When a transaction such as the purchase and sale of a property
between FRC and a stakeholder, including a sponsor, takes place,the asset management company must address any possibilityof prioritizing the interests of interested parties over investors.
Fukuoka Realty has accordingly established a Basic Policy on
Compliance, as well as compliance regulations and other internal
rules to prevent any conflict of interest. Based on these rules, we
obtain a preliminary assessment from the Compliance Department
General Manager and ensure deliberations by the Compliance
Assessment Committee, consisting of the Compliance Department
General Manager and three outside experts in order to engage
in the management of any conflict of interest pertaining to ourdealings with stakeholders in an appropriate manner.

Foundation Underpinning Management

Foundation Underpinning Management

Organizational Issues

Management fee 4 Acquisition fee x 0.5%(acquisition remuneration) (0.25% in the event of acquisition from interested parties)
Management fee 5(sale remuneration)

Sale fee x 0.5%
(0.25% in the event of sale from interested parties)■ Compliance Training (including e-learning)

Director(Non-Executive)

Director(Non-Executive)

Hiroshi Shimuta

Hidenori Hara

Director(Non-Executive)

CEO and
Executive Managing Director,
Representative Director General Manager of Planning Dept.

Noboru Hashimoto Etsuo Matsuyuki

Daisuke Yokoyama
General Manager of theCompliance Department
Fukuoka Realty Co., Ltd.

Akira Eguchi

Auditor(Non-Executive)

October 2017September 2018

October 2018September 2019

October 2019September 2020

8 times

7 times

6 times

Masanori Tasaka

The company prevents transactions with conflicts of interest based on strict rules for transactions
with interested parties in order to fulfill responsibilities entrusted to it on behalf of investors.
We naturally do not engage in transactions that unfairly benefit the company and interested parties
and believe that it is important to not avoid the appearance of impropriety. Accordingly, we take steps
to clearly record the decision-making process behind transactions to enable verification after the fact.
In addition, we verify the objective validity of transactions by receiving evaluations fromindependent third parties, including internal audits conducted by outside specialists.
Beyond this, we work to raise awareness of these issues by regularly conducting compliance training
aimed at ensuring that each employee is cognizant about managing assets entrusted to us by investors.

Fukuoka REIT Corporation 202039

Data Section

Data Section

Financial/Non-Financial Highlights (11-Year/22-Period Summary)

11th

12th

13th

14th

15th

16th

17th

18th

19th

20th

21st

22nd

23rd

24th

25th

26th

27th

28th

29th

30th

31st

32nd

Feb. 2010

Aug. 2010

Feb. 2011

Aug. 2011

Feb. 2012

Aug. 2012

Feb. 2013

Aug. 2013

Feb. 2014

Aug. 2014

Feb. 2015

Aug. 2015

Feb. 2016

Aug. 2016

Feb. 2017

Aug. 2017

Feb. 2018

Aug. 2018

Feb. 2019

Aug. 2019Feb. 2020

Aug. 2020

Financial information
Earnings (Millions of yen)
Operating revenue

5,640

5,663

5,662

7,045

6,931

7,094

7,200

7,565

7,574

7,779

7,789

8,423

8,343

8,234

9,730

8,122

8,194

9,178

9,242

9,231

9,162

8,518

Operating income

2,408

2,412

2,317

2,729

2,637

2,595

2,622

2,848

2,801

2,824

2,860

3,167

3,141

3,069

4,585

2,920

2,965

3,238

3,306

3,318

3,273

2,966

Ordinary income

1,863

1,797

1,763

2,083

2,046

2,005

2,005

2,272

2,239

2,263

2,370

2,663

2,670

2,616

4,199

2,562

2,624

2,861

2,935

2,939

2,900

2,587

Profit

1,862

1,796

1,762

2,082

2,045

1,992

2,004

2,271

2,238

2,262

2,369

2,661

2,669

938

4,198

2,556

2,623

2,860

2,934

2,939

2,899

2,586

NOI

3,698

3,637

3,537

4,406

4,351

4,372

4,444

4,751

4,732

4,800

4,829

5,229

5,237

5,164

5,010

4,998

5,079

5,493

5,591

5,633

5,596

5,307

130,705

132,349

132,497

155,657

155,792

159,601

160,574

167,857

167,492

167,824

167,369

181,597

181,445

179,513

175,063

178,063

177,283

193,112

195,433

195,106

194,795

199,004

Financial conditions (Millions of yen)
Total assets
Net assets

62,126

62,061

62,026

71,25971,222

71,17071,182

81,712

81,67981,70381,81193,804

93,812

92,081

93,681

93,69993,766

101,799

101,874

101,878

101,837

101,525

Interest-bearing debt

57,22559,15059,07569,50069,42573,35074,675

71,10071,025

71,15070,77572,40072,32571,95066,67569,90068,90075,50077,50077,50077,50082,400Interest-bearing debt ratio（%）

43.8

44.7

44.6

44.6

44.6

46.0

46.5

42.4

42.4

42.4

42.3

39.9

39.9

40.1

38.1

39.3

38.9

39.1

39.7

39.7

39.8

41.4

Depreciation

954

953

958

1,164

1,177

1,242

1,268

1,343

1,354

1,387

1,390

1,458

1,471

1,470

1,455

1,474

1,500

1,602

1,622

1,651

1,660

1,686

Capital expenditures

141

154

685

254

1,031

1,285

431

612

848

740

328

445

630

665

1,789

741

600

657

947

476

465

790

3,150

2,394

2,545

3,294

3,677

3,617

3,120

3,609

3,699

3,890

3,735

4,167

4,174

4,336

3,685

3,590

4,292

4,149

4,832

4,863

3,985

3,450

Cash flow (Millions of yen)
Cash flow provided by (used in) operating activities
Cash flow provided by (used in) investing activities(233)(3,398)(162)(20,086)(566)(6,016)(3,067)(7,897)(916)(2,312)(1,452)(14,488)

(606)

(772)

4,220

(6,029)(478)(15,326)(3,604)(1,043)(220)(7,136)

Cash flow provided by (used in) financing activities(1,928)56(1,871)

17,548(2,153)

1,881

(666)

4,651

(2,359)(2,115)(2,635)

10,934(2,747)(3,043)(7,872)667(3,555)

11,734(859)(2,933)(2,938)2,000

Cash and cash equivalents at year-end

6,877

5,928

6,440

7,197

8,154

7,637

7,024

7,387

7,810

7,273

6,920

7,533

8,353

8,873

8,905

7,134

7,392

7,950

8,319

9,205

10,032

8,348

3,479

3,356

3,293

3,384

3,324

3,238

3,257

3,291

3,243

3,278

3,435

3,563

3,574

3,479

3,398

3,422

3,512

3,593

3,687

3,693

3,642

3,250

Per-unit indicators (Yen)Dividend per unit
EPS per unit

3,479

3,356

3,293

3,384

3,324

3,238

3,257

3,291

3,243

3,278

3,434

3,563

3,573

1,256

5,621

3,422

3,512

3,593

3,687

3,692

3,642

3,249

BPS per unit

116,070

115,947

115,884

115,822

115,762

115,676

115,696

118,423

118,376

118,410

118,567

125,574

125,585

123,267

125,410

125,434

125,524

127,888

127,982

127,987

127,937

127,544

NAV per unit

129,320130,141

125,647

123,001

121,447

122,299

123,041

127,080

128,375

131,215

136,051

144,472

148,558

152,259

150,328

152,639

156,204

161,315

164,250

167,118

170,680

171,592

FFO per unit

5,263

5,137

5,083

5,276

5,237

5,258

5,319

5,238

5,207

5,288

5,450

5,515

5,543

5,448

5,351

5,395

5,520

5,606

5,725

5,767

5,728

5,368

Investment unit information
Investment unit price (Yen)

98,200107,400

120,800

108,400

107,200

109,600

153,600

145,000

171,400

199,000

227,000

188,700

194,200

186,100

177,100

164,300

173,100

170,400

169,300

178,300

167,900

136,500

Total number of investment units issued

535,250535,250535,250

615,250

615,250

615,250

615,250

690,000

690,000

690,000

690,000

747,000

747,000

747,000

747,000

747,000

747,000

796,000

796,000

796,000

796,000

796,000

Non-financial information
35

36

36

37

38

35

36

40

40

34

35

38

41

39

40

38

38

39

41

41

42

41

Percentage of female employees（%）

Number of employees

40.0

36.1

36.1

37.8

39.5

42.9

36.1

37.5

35.0

38.2

40.0

44.7

43.9

48.7

45.0

44.7

44.7

46.2

46.3

46.3

47.6

51.2

Average number of years of employment（Years/Months）

3.10

4.2

4.6

4.10

5.2

5.8

5.7

6.1

6.2

7.1

7.5

6.0

6.2

6.5

6.9

6.11

7.7

7.10

7.11

8.6

8.10

8.10

The number of IR meetings（Note 1）

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

122

154

147

106

126

116

169

129

148

149

133

54

＊ Gains and losses on the sale of the Aeon Hara Shopping Center and Aqualia Kego, which were transferred in the 25th fiscal period, were handled in the following manner due to differing tax and accounting standards.
1）An amount equivalent to impairment losses on the Aeon Hara Shopping Center booked in the profit and loss statement in the 24th fiscal period was booked as an allowance for a temporary difference adjustment on thestatement concerning the allotment of funds, for the 25th fiscal period2）Gains on the sale of Aqualia Kego were recorded on the profit and loss statement for the 25th fiscal period.
3）The return of allowances for a temporary difference adjustment was booked on the statement concerning the allotment of funds, for the 25th fiscal period.
＊ Dividends per unit are calculated as follows.
24th fiscal period: [net profit] + [reserve for temporary difference adjustment] – [earnings carried forward to the next period]
25th fiscal period: [net profit] - [ return of reserve for temporary difference adjustment] – [earnings carried forward to the next period]＊ The Investment Corporation undertook a five-for-one split effective March 1, 2014. Dividends and NAV per unit up to the 19th fiscal period have been retroactively adjusted to reflect this split.
(Note 1) The number of IR meetings convened in Japan and abroad from the 11th to 20th fiscal periods is not recorded, as records do not exist for these periods.

40

Fukuoka REIT Corporation 2020

Fukuoka REIT Corporation 2020

41

Asset type
Refers to the type of asset application, such as office buildings, retail facilities, and residences.
BPS
An abbreviation of Book-Value Per Share. This shows net assets per unit and is viewed as an indicator for stability.
Calculation method for BPS: net assets/total number of units issued
Cap rate
This is also referred to as the return yield and represents the return on a real estate investment used when determining the appraisal price or theoretical price of areal estate property. In general, NOI or NCF (Net Cash Flow) divided by the cap rate is considered the theoretical price of a real estate property. The cap rate varies
depending on the characteristics of a property, such as whether it is new or older, grade and size, as well as factors such as proximity to transportation and location.
Capital expenditureThis refers not only to the maintenance and repair of real estate or equipment, but also the costs of maintaining and improving the value of these assets, which arerecorded by the investment corporation as assets and are subject to depreciation.
Commitment line
This refers to the upper loan limit a borrower can receive at any time without going through a defined review, within a range agreed upon in advance with the bank.
Commitment in this case indicates a contracted promise. The borrower can secure stable working capital regardless of business conditions.
Conflict of interest
In general, this refers to when an act is in oneʼs own interest, while at the same time disadvantageous to the interests of another. For a J-REIT, this often refers to aconflict between a unitholder and the interests of the investment corporation or asset management company.
Credit rating
A grade that reflects the safety and creditworthiness of a company and its ability to pay the principal and interest of bonds issued by the company based on an
analysis of the companyʼs performance and financial condition.
FRC has obtained a long-term issuer rating from Japan Credit Rating Agency, Ltd. and an issuer rating from Rating and Investment Information Inc.
Earthquake PML
Refers to the probable maximum loss as a percentage of the expected maximum damage (Probable Maximum Loss) caused by an earthquake. The higher the PML
value, the higher the buildingʼs seismic risk.
[Calculation method] PML = Expected maximum damage / Replacement cost
Engineering reports
Reports outlining the results of a physical survey of a property. These often include surveys on building conditions, soil contamination, long-term repair andrefurbishing costs, and earthquake risk.
EPS
An abbreviation of Earnings Per Share. This shows net profit per unit and is viewed as an indicator of a companyʼs ability to generate earnings.
Calculation method for EPS: net profit/ total number of units issued
ESG
ESG is an abbreviation for Environment, Social, and Governance. The idea that a company needs to maintain focus on these three concepts to ensure long-term
growth is gaining ground throughout the world. With an emphasis on sustainability, ESG management is focused on pursuing strategies with the environment andsociety in mind.
External growth/Internal growth
For J-REITs, per-unit profit growth achieved through new real estate acquisitions is referred to as external growth. This growth is achieved by the investment
corporation acquiring new real estate that is expected to produce high yields at relatively low funding costs. The acquisition of new real estate can also expand thescale of the business and diversify risk, with reduced transaction costs thanks to scale merits also contributing to growth. In contrast, internal growth is profit growthachieved through the efficient management of existing real estate.
FFO/FFO ratio
An abbreviation of Funds From Operations. This shows how much cash flow is generated from rental income. The larger FFO per unit, the greater the companyʼs
profitability.
Calculation method for FFO: net profit – gains/losses from the sale of real estate + depreciation; FFO per unit: FFO/total number of units issued
The FFO ratio is similar to PER. A lower value indicates an attractive share price versus fund profitability.
Calculation method for FFO ratio: Investment unit price/FFO per unit
Green bonds
These are bonds issued by companies and local governments in order to raise the funds necessary for green projects in Japan and overseas.

LTV
An abbreviation for Loan to Value, and an indicator of a companyʼs borrowing ratio as well as a measure of stability in borrowing. The lower the value, the greater the
degree of safety against redemption of debt.
Calculation method for LTV (%): Interest-bearing debt /total assets multiplied by 100

Data Section

Data Section

Glossary

Materiality
Materiality involves the identification of related important issues and an evaluation of the impact of corporate activity on social issues. The process involves prioritizing
and providing an easy-to-understand picture of the importance of each of the issues being confronted.
NOI
An abbreviation for Net Operating Income. This reflects net income stemming from the real estate leasing and REIT business, deducting expenses such asadministrative costs and property taxes from rents in a given fiscal period. Costs not related to cash expenditures, including depreciation, interest paid on borrowings,
or taxes are not deducted. This is used to assess real estate and REIT asset value and is similar to EBITDA, which focuses on operating cash flow in assessing
corporate value. When determining the theoretical real estate property price, it is a common practice to divide NOI by the capitalization yield (cap rate).
NOI yield
This refers to annual NOI divided by property price and is an indicator for the investment yield of the real estate leasing business. If can also be used as a REIT
investment metric. A higher NOI yield indicates greater profitability, with greater dividends to the investor.
Calculation method for NOI yield: NOI/acquisition price multiplied by 100
NAV/NAV ratio
NAV is an abbreviation for Net Asset Value at an investment trust. Net assets are defined as total investment trust balance sheet assets minus liabilities, with the baseprice based on the number of units. For REITs, the term net assets refers to net assets plus unrealized gains or losses reflecting the difference between book value ofthe property owned and the appraised value.
Calculation method for NAV: Net assets + unrealized gains or losses – dividends
NAV/unit is NAV/total number of units issued
NAV ratio is somewhat similar to PBR (stock price/net asset ratio) taking into account the market value of real estate. It can be used to assess whether an investment
unit is under or overvalued.
Calculation method for NAV ratio: investment unit price/NAV per unit
Pipeline support agreement
Pipeline support agreements refer to contracts that provide the opportunity to acquire a property form a sponsor in advance of and in priority to a third party.
Public offering (PO)This is one way to secure financing. A public offering targets general investors as shareholders, offering new shares for an established price based on current
market value.
Real Estate Securitization Master Certification System
An educational program conducted by the Association for Real Estate Securitization. Certification that the recipient has broad practical expertise across the realestate and finance fields.
Renewable energy
Unlike limited fossil-based energy resources such as natural gas, crude oil, and coal, renewable energy sources are always present in nature, and include solar, windand geothermal resources.
Replacement costThis refers to the construction costs required if a building is re-built to a structure equivalent to the current building. Replacement cost is often used in engineering
reports.
SponsorA J-REIT sponsor is a shareholder of the company (asset management company) managing the assets of the investment corporation. Sponsors (shareholders) of
Fukuoka Realty include leading companies in the Kyushu Economy, such as Fukuoka Jisho Co., Ltd., and Kyushu Electric Power Co., Inc.
Stakeholder engagement
Efforts undertaken by a company to better understand matters that are of interest tor stakeholders in the conduct of activities and decision-making.
Sustainability
Sustainability is often used in reference to environmental issues, but has recently become a key word in reference to corporate social responsibilities.
TSR
An abbreviation for Total Shareholder Return. This can also be called total shareholder (investor) yield and reflects combined capital gains and dividends, reflecting theoverall investment yield for investors.
Calculation method for TSR (%): (Dividends per unit + increase in investment unit price)/initial investment unit price multiplied by 100

Green loan
A loan in which the use of funds is limited to environmentally friendly businesses.
Interest-bearing debt
This refers to liabilities with interest that must be repaid. Specifically, this refers to long- and short-term loans from banks and funds procured on the market, including
through the issuance of corporate bonds.
Investment corporation bonds
These are bonds issued by investment corporations in accordance with the Act on Investment Trusts and Investment Corporations and are equivalent to corporate
bonds. Investment corporation bonds are issued to secure financing, with funds used to acquire real estate, undertake repairs on existing buildings, repay borrowings
and fund reimbursements.
IR
IR refers to Investor Relations, which is essentially public relations activities aimed at investors. These include the provision of information necessary to making soundfinancial decisions, including financial conditions at the company, to shareholders and investors.

42

Fukuoka REIT Corporation 2020

* Regarding amount, percentage, and ratio rounding: Unless otherwise noted, in these materials, monetary amounts are rounded down to the nearest whole unit, and percentages and ratios are rounded off to one
decimal places.

These materials may contain future performance, plans, management targets and strategies. These forward-looking descriptions are based on present assumptions on future eventsand trends in the business environment, but such assumptions may not necessarily be accurate. Actual results may differ materially due to various factors. Neither Fukuoka REIT
Corporation nor Fukuoka Realty shall be liable for the accuracy, rationality and completeness of information contained in these materials, whether they were prepared by Fukuoka
REIT Corporation or Fukuoka Realty or provided by a third party. These materials have not been prepared to entice investment. When applying to purchase investment units issued by
Fukuoka REIT Corporation, do so based on your own judgment and responsibility.

Fukuoka REIT Corporation 2020

43

MEMO

MEMO