QHow 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 202027