CEO s Message

Etsuo Matsuyuki
CEO & Representative Director
Fukuoka Realty Co., Ltd.

Q

What are the characteristics and strong points ofFukuoka REIT Corporation and Fukuoka Realty
Co., Ltd.?

FRC, the investment corporation, was listed in June 2005 withassets of ¥73.5 billion (four properties including retail facilities andoffice buildings). Over the ensuing period, we have achieved steady
growth, and as of August 31, 2019, assets stood at ¥195.9 billion (29properties including retail facilities, office buildings, residences, hotels
and logistics facilities). This represents an expansion of roughly 2.7
times over 14 years for an annual rate of growth in the 7% range.
Fukuoka Realty, the asset management company, was establishedin December 2003, and currently has over 40 employees.
We operate in a limited area, so our growth has come about
by being local professionals with a disciplined perspective, andby using the utmost care to select and invest in properties. Overthe years we have conducted five public offerings. Each time weundertake a PO, we emphasize two points, first, that the unit
price is over one times the net asset value, and that distributions
will increase after properties have been acquired. This reflects theimportance that we place on returning profits to new and existing
unitholders. → See p.20 Financial Strategies and TSR (Total Shareholder Return)Among 63 J-REIT issues (as of August 2019), FRC clearly
differentiates itself by its specialization in regional properties.
Fukuoka, our core area of operation, is undergoing organic
as well as inbound population growth, which is driving its
growth as a region. We well understand that linked to our own
expansion is the ability to skillfully seize upon such growth inour real estate investments.

12

Fukuoka REIT Corporation 2019

In addition, it goes without saying that for an asset managementcompany to create economic and social value, each and every oneof its employees must be a valuable resource. Critical here will beto elicit individual abilities and how to heighten value. This is why
every effort is being made to promote training and other activities.
Starting with elective language training and support for acquiring
qualifications, employees on a regular career track are required
to obtain master qualification from the Association for Real Estate
Securitization (ARES) as well certification as a real estate broker.
Support is also provided for short-term studies at Ritsumeikan Asia
Pacific University (APU) as well as a university in Singapore, theKyushu Asia Institute of Leadership (KAIL), and courses at Kyushu
University Business School.

Q

What value should Fukuoka Realty create?

REITs help diversify the ways in which players in the real estatemarket procure funds. With the aim of expanding the asset
formation methods of institutional investors such as pension funds
and individual investors, they also provide a financial schemethat has been recognized for their tax system merits, namely, asa pass-through (conduit) for returns that work to maintain social
infrastructure.
→ See p.6 J-REIT Mechanism and Fukuoka REIT Corporation s Business Model

Consequently, Fukuoka Realty creates value through its
core operations by helping to improve the efficiency of the realestate market.

Over the long term, REITs have an important role in maintaining
and raising the value of real estate. For example, Canal City Hakata
is entering its 24th year since completion, and we have beensystematically conducting exterior repair work and other operations
for the past seven years. Moreover, as a measure to counter the
threat of e-commerce to our retail facilities, steps were taken toinvest roughly ¥1.5 billion in the introduction of projection mapping,a fountain, and devices that make for acoustically and visuallyinteresting real-world shopping that has enjoyable experiencevalue in the autumn of 2016. The result was an increase in visitors.
On the other hand, we are now in an age where management
is expected to have a more conscious view of environmental,social and governance (ESG) concerns as a company or business
entity, as a way to address issues with regard to the environmentand society, such as climate change. Fukuoka Realty is no
exception, and from last year the asset management company has
participated in the Global Real Estate Sustainability Benchmark(GRESB) survey. For the second consecutive year, we acquired a
4 Star rating. In the past, Fukuoka faced difficulties with water
shortages, so proactive steps were taken to instill a thoroughconsciousness of water conservation, and to recycle or reusewater. Going forward, Fukuoka Realty is considering increasing
opportunities for employees to learn through sustainability activities
such as GRESB so as to further raise awareness within the
Company. With regard to social value, we are participating in theonce-a-month Clean-Up Day (Note 1) initiative. Through such efforts,
we are afforded the opportunity to realize a variety of insights toimprove ourselves in ways that we would not normally recognize.
This is the kind of thing I would like to see continue.

One thing I always say to our employees is, Think with yourown head! Adopting the concept that this is the way we ve always
done it prevents employees from taking the initiative and thinking
proactively. I would hope that employees be more voracious. For thisreason, we are making efforts to support training and other activities.
In the days when I was in banking, no matter what the topic ofdiscussion I would be questioned on the process, such as Why isthis? Why did that happen? However, I would not have been very
persuasive if my answer was That s the way it s always been.
Without thinking for yourself about Why did that happen? , you
won t be able to explain things very well. By thinking with your own

Value-Creation Activities

Value-Creation Activities

Featuring our expertise on the local real estate markets of Fukuoka andKyushu to maximize the profits of investors.

head, you will become better attuned to when convention andconditions change. Independent thinking will enable you to elicit
conclusions and methods that differ from the past, giving rise to yourown ideas.
Moreover, it is important to communicate freely with fellow
employees, and to overcome the boundaries of rank or
department. When I came to the Company in 2011, there werepartitions separating desks, making for an environment where it
was difficult to talk freely. I observed the situation for a year, andfinally did away with the partitions and put in place an environment inwhich it was easier to communicate. By deepening communication
with other departments, a variety of cross-organizational projects
can be expected to emerge resulting in new ideas and reform in
the manner business is conducted.
(Note 2) In partnership with the Japan Investor Relations Association (JIRA).

Q

To which stakeholders would you like to provide
this Integrated Report?

→ See p.29 Initiatives for Local Communities(Note 1) Local community cleaning activities undertaken with the goal of taking action for safety andsecurity, and improving the environment.

Q

What is it that you see as insufficient, or would
like to enhance in order to foster future growthand create value?

Specializing in Japan s regions means that while we have strong
capabilities with gathering and providing local information,
disparities arise with regard to information with Tokyo. That s why
in 2011 we set up the IR Kyushu subcommittee (Note 2), throughwhich we learn about the latest IR trends, for use in our own IR
activities. This serves as a forum to learn, and in reality, has also
provided the trigger for publishing this Integrated Report.
→ See p.29 Initiatives for Local Communities

In addition, quite a few employees have recently participated in
ARES subcommittees, where they are enthusiastically exchanging
opinions among J-REIT asset management companies.

I expect this will be the first integrated report by an asset
management company for real estate investment corporations
and REITs. Important stakeholders for REITs are, foremost,investors and banks that are financial capital providers. We havebeen strengthening our efforts toward ESG for years now, butwith our acquisition of GRESB status we anticipate receiving
various comments and opinions from investors in and outside ofJapan. When engaging in investor relations activities in Europe,
we leveraged our ESG Evaluation analysis report as we met withinvestors. I am looking for this Integrated Report to provide theseinvestors with a deeper understanding of Fukuoka REIT.
For the very reason that we are a regionally focused REIT
company, demonstrating our efforts to create value will help deepen
understanding from a wide range of regional stakeholders. This inturn will earn us a great deal of support. Moreover, we are looking to
use this Integrated Report as a tool to boost the understanding of
not only employees, but also tenants, in our efforts to address ESG
concerns and value creation activities. Furthermore, we hope togarner support in this type of integrated-centric management.

Fukuoka REIT Corporation 201913

Investment Department

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

With property appraisal 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
continues to be favorable for the procurement of funds, and the investor
base that is considering investment in real estate is expanding. For thatreason, property prices continue to rise in the Fukuoka and wider Kyushu
regions, Fukuoka Realty's core areas of operation.
Against this backdrop, we engage in investments by leveraging our
expertise and ability to gather and provide information based on a familiarityof particular conditions on the ground in Fukuoka and throughout Kyushu.
The Company s strengths include the speed and density of its information,a feel for 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 insuch overlapping domains as markets with high growth potential as wellas fields in which we excel and that enable us to exert our competitive
advantage. As a general rule, our investments will be made in Fukuoka andthe 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 we adopt a flexible policythat covers a variety of properties.
We also utilize a network of sponsor companies in our pursuit of evenmore acquisition opportunities.
Selecting investment real estate 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 inwhich it is situated, physical surveys that take into account such factors as
the property s condition and ability to withstand earthquakes, and surveys
related to rights and legal issues, among others. Upon careful examinationof a particular property s price, we then decide whether or not to acquire it
based on an overall determination of its impact on our portfolio as a whole,the degree to which it will contribute to raising value, and other factors.
Going forward, we will steadily seize upon opportunities to invest in realestate in the Fukuoka and Kyushu areas, and ensure sound asset scopeand portfolio growth.

■ Trends in FRC Property Occupancy Rates
（%）

99.8

99.7

100

99.4

99

99.3
99.2

99.0

99.1

99.0

99.0

99.1

99.3
99.0

98.1

97

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

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

The Property Management Department draws up plans for management
and investment so as to maximize the value of real estate owned by theInvestment Corporation.
FRC s portfolio currently consists of retail, office buildings, hotels,
residences, and logistics facilities. Given the constant changes in theenvironment surrounding these real estate properties, we systematicallyconduct research into the reorganization of delivery bases and delivery
methods, and keep a close eye on the future potential of respective asset
types. In carrying out these tasks, we constantly keep in close touch withthose in the local community, bringing to bear FRC s specialization in the area.

14

Fukuoka REIT Corporation 2019

In operating and managing real estate held, we maintain a management
strategy that is characterized by its ongoing organic growth and that
presupposes a consistently high occupancy rate, based on management
plans that reflect the results of our research. We work to secure rental income
and NOI growth through a variety of measures including the replacement of
tenants of properties held, the cutting of costs, and re-investments intended
to raise the value of assets. At the flagship retail facility Canal City Hakata,we especially focus on management that ensures the property remains
bustling with activity. To this end, we engage in the proactive replacement of
tenants, creation of new experience value, and provision of events that areboth popular and topical with the aims of increasing visitors and bolstering
revenues.
In addition, while we seek organic growth, we also consider replacing realestate held depending upon building age, the various conditions associatedwith the real estate leasing contracts we have with tenants, the amount of
future anticipated re-investment, and conditions in the real estate buying andselling market. Our aim is to achieve value maximization for FRC over the
medium to long term by optimizing the real estate portfolio.

99.5

99.6

99.6

99.8

99.7

99.4

99.6

99.7

99.6

99.1
98.7

96

0

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

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* FRC s occupancy rates from the second to fourth fiscal periods represent occupancy rates as of the end of each period. The fifth to the 30th fiscal periods are calculated as a weighted average occupancy rate during theperiod. Total leased area is stated as a percentage of total leasable area.

Finance Department

Keishi Tamura

Tissage Hotel Naha(acquired December 2018)

98.9

98

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

Higashi Hie Business Center II(acquired March 2018)

99.1

99.2

■ Properties Acquired

Konoha Mall Hashimoto(acquired March 2018)

99.5

99.3

Value-Creation Activities

Value-Creation Activities

Strategies of Each Department

The Finance Department draws up capital and finance strategies so as tomaximize profits for all unitholders.
The J-REIT market environment continues to benefit from favorable conditions
with respect to the procurement of funds owing to sustained capital inflows.
Meanwhile, the investor base is expanding on account of new entrants, chiefly
regional financial institutions. In addition, the monetary easing policy adopted by
the Bank of Japan is expected to continue with a low interest rate environment
for the foreseeable future. For the medium to long term, though, we recognize
the need for prudent financial management are an acute awareness toward thesudden risks that may occur in financial markets.
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■ LTV Trends

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.
Our financial policy aims to build a firm financial foundation through conservative
LTV management. At 39.7% as of the end of the 30th fiscal period (August 2019),
we successfully maintain a relatively low and conservative LTV. At the same time,
a commitment line limit has been set at ¥13.0 billion. Through these and othermeans, we are securing the flexible and fluid procurement of funds.
In undertaking new borrowings and refinancing, we seek to fix interest-bearing
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, startingwith our three sponsor banks, regional banks that operate primarily in Kyushu,
central financial institutions and others, while gaining an ample amount of new
procurement sources. In addition, in July 2019, FRC conducted its first funds
procurement through a green loan, as green finance. We will continue to move
forward with endeavors that support sustainability.

■ Average Interest Rate in the Fiscal Period (Note 1) and Average
Remaining Duration to Maturity
Average remaining duration to maturity (Year)

Average interest rate paid in the fiscal period (%)

（%）

（%）

（year）

45

1.0

10

39.3

38.9

39.1

39.7

39.7

40

0.9
0.79

6.4

6.3

6.0

8

6.0

35

0.8

30

0.7

4

25

0.6

2

0

26th

Aug. 201727th

Feb. 2018

28th

Aug. 201829th

Feb. 201930th

Aug. 2019

026th

Aug. 2017

0.73

0.73

5.4

27th

Feb. 2018

28th

Aug. 2018

0.73

29th

Feb. 2019

0.72

30th

Aug. 2019

60(Note 1) Interest is stated as rounded to two decimal places.

Fukuoka REIT Corporation 201915

Overview of Properties Owned

FRC carefully selects and invests in properties with the potential to generate stable cash flow over the long term. To diversify

Number of properties owned:

29

Value-Creation Activities

Value-Creation Activities

risk within a given area, we own properties with widely divergent uses, with a focus in particular on retail and office buildings.

Total acquisition price:¥195.9(August 31, 2019)* Acquisition price data is rounded down to the nearest ¥100 million.

billion■ Retail: 11
1

2

3

4

5

6

Across Kyushu

Canal City Hakata

Park Place Oita

Canal City Hakata・B

7

8

Kumamoto Intercommunity SC

9Hanahata SC

SunLiveCity Kokura
10

Kurume Higashi Kushiwara SC

Konoha Mall Hashimoto

Square Mall Kagoshima Usuki

11

K s Denki Kagoshima

Marinoa City Fukuoka (Marina Side Building)

Fukuoka City

■ Office buildings: 8
12

13

14

15

16

17

Asset Ratio (As of August 31, 2019)■ Investment Target Areas (Acquisition price basis)■ Investment Type (acquisition price basis)
Canal City Business Center Building

Gofukumachi Business Center

18

19

Sanix Hakata Building

Taihaku Street Business Center

Higashi Hie Business Center

Tenjin Nishi-Dori Center Building

Office buildings
26.9%

Retail 59.2%

Higashi Hie Business Center II■ Other properties (hotels, residences, logistics): 10 (plus 1 facility expected to be acquired)
20

21

22

23

24

Property nameAcquisition date

Acquisition price(Millions of yen)
(Note 1)

Canal City Hakata

Nov. 9, 2004

32,00016.3%

Canal City Hakata・B

Mar. 2, 2011

28,70014.6%

Park Place Oita
25

SunLiveCity Kokura

Amex Akasakamon Tower (residences)

City House Keyaki Dori (residences)26

27

Aqualia Chihaya (residences)
28

D-Wing Tower (residences)29

Granfore Yakuin Minami (residences)■ Property planned for
acquisition

Hotel FORZA Oita (hotels)
30

Planned acquisition date:June 30, 2020
Planned acquisition price:¥1.7 billion
Tissage Hotel Naha (hotels)

16

Fukuoka REIT Corporation 2019

Tosu Logistics Center (logistics facility)

LOGICITY Minato Kashii (logistics facility)

LOGICITY Hisayama (logistics facility)

LOGICITY Wakamiya (logistics facility)

Fukuoka metropolitan area (Acquisition price basis) 77.2%■ Office Buildings■ Retail

Tenjin North Front Building

Others13.9%

Investment
ratio(Note 2)

Park Place Oita acquiredon November 9, 2004
Additional land acquired
on May 28, 2015
Additional land and building
acquired on September 1, 2016
Additional land acquiredon July 6, 2018

18,620Jul. 1, 2005

6,633

3.4%

Property name

Canal City BusinessCenter Building
Gofukumachi BusinessCenterSanix Hakata Building

9.5%

Taihaku Street
Business Center
Higashi Hie BusinessCenterTenjin Nishi-Dori
Center Building
Tenjin North Front
Building
Higashi Hie BusinessCenter II

Other Kyushu area
22.8%

■ Others
Acquisition date

Acquisition price(Millions of yen)
(Note 1)

Investment
ratio(Note 2)

Nov. 9, 2004

14,6007.4%

Nov. 9, 2004

11,2005.7%

Sept. 30, 2005

4,400

2.2%

Mar. 16, 2006

7,000

Mar. 13, 2009

Property name

Amex Akasakamon
Tower
City House Keyaki
Dori

Acquisition date

Acquisition price(Millions of yen)
(Note 1)

Investment
ratio(Note 2)

Sept. 1, 2006

2,060

1.1%

Dec. 20, 2007

1,111

0.6%

Aqualia Chihaya

Mar. 1, 2012

1,280

0.7%

3.6%

D-Wing Tower

Mar. 1, 2013

2,800

1.4%

5,900

3.0%

Granfore Yakuin Minami

Nov. 4, 2014

1,100

0.6%

Feb. 1, 2013

2,600

1.3%

Hotel FORZA Oita

Mar. 1, 2013

1,530

0.8%

Mar. 28, 2013

2,800

1.4%

Tissage Hotel Naha

December 7, 2018

2,835

1.4%

Mar. 1, 2018

4,230

2.2%

Tosu Logistics Center

Mar. 28, 2014

1,250

0.6%

Konoha Mall
HashimotoSquare Mall
Kagoshima Usuki
Kumamoto
Intercommunity SC

Mar. 1, 2018

10,0005.1%

Sept. 28, 2006

5,300

2.7%

LOGICITY Minato Kashii

Mar. 27, 2015

8,150

4.2%

Nov. 30, 2006

2,400

1.2%

LOGICITY Hisayama

Jun. 1, 2017

5,050

2.6%

Hanahata SC

Sept. 3, 2007

1,130

0.6%

Total acquisition price−

195,979

100.0%

Kurume Higashi
Kushiwara SC

Feb. 1, 2008

2,500

1.3%

K s Denki Kagoshima

Mar. 27, 2008

3,550

1.8%

Marinoa City Fukuoka(Marina Side Building)

May 1, 2015

5,250

2.7%

(Note 1) Acquisition price data is the sales price identified in purchase and sale agreement between FRC and the seller, and exclude acquisition charges, taxes and other expenses.
(Note 2) Investment ratio data is rounded to the first decimal place.

Fukuoka REIT Corporation 201917

Risks and Opportunities

To achieve sustainable growth, FRC keeps close track of highly significant risks and opportunities while assessing their

Significant Risks

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

Market-Related
Risks• Increase in interest rates• Fluctuations in theinvestment unit priceImpact on Stakeholders• Consider extending lease agreement terms, fixing ofrent, etc. according to property characteristics• Vacancy rate increases associated with worsening realestate market conditions, decrease in distributions
due to rent decreases• Rent reduction, rent nonpayment and vacating risks
due to deterioration of lessee s financial situation• Risk of increase in interest payment due to increase ininterest rates caused by market trends at the time ofborrowing• Risk that FRC s 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

Risks from Natural
Disasters• Response to climatechangeEnvironmentRelated Risks• Reduction ofenvironmental load
• Soil pollution and toxic
substances

Risks from Property
Degradation,
Deterioration• Increase in repair andmaintenance expenses• Decline in property
competitiveness18

Fukuoka REIT Corporation 2019

Measures to Address Risks (Opportunities)• 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• Increase in property management costs due to more
stringent environmental laws and regulations, such as thestrengthening of the Building Energy Conservation Law• 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 expenses required for large-scale repairs,
etc. due to the deterioration of properties, and large
capital expenditures may reduce cash flows• Possibility of tenants vacating and a reduction in rent
due to a loss of property competitiveness resulting
from changes in the surrounding environment• Appropriate occupancy screening when tenants movein and thorough credit management during period oflease• Deposits and security deposits against rent
delinquency, etc., collateral by means of guarantor
companies, etc.

Significant Risks

Property
Concentration
Risks• Region (Fukuoka/Kyushu)• Retail facilities• 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)

Regulatory Risks• Long-term fixing of interest-bearing debt andrepayment period limit diversification• Conservative interest-bearing debt management andcommitment lines to ensure flexibility and agility infunding• New laws and regulations• Changes in the tax
system

Impact on Stakeholders• As FRC s 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• 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• 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 regulations• Possibility of an increased burden from taxes and fees
due to tax reform

Measures to Address Risks (Opportunities)• Invest in various types of properties to reduce the riskof portfolio fluctuation by diversifying rental market
cycles and tenant industries

Value-Creation Activities

Value-Creation Activities

impact on the Investment Corporation and its stakeholders.

• In retail facilities, such as Canal City Hakata/Canal
City Hakata・B, operate bustling facilities by replacing
tenants and providing new experience value, etc.,
thereby reducing the risk of profit fluctuation bydispersing tenants• In addition to receiving information from Fukuoka
Realty s affiliated organizations, tax accountants,
law firms, etc., participate in external training, obtain
information, and take measures to reduce any impact
from an early stage• Conducting of proactive IR activities• Consider that it is possible to purchase insurance at a
relatively low cost compared with other areas, arrange
earthquake insurance coverage for all properties

IT-Related Risks• Information leaks• Risk of leakage of confidential information due todelays in strengthening cyber security• Improve resilience (ability to respond to disasters,etc.) by conducting disaster drills at each property,
stockpiling emergency food and formulating business
continuity plans (BCPs)• Work to maintain and improve environmental
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• 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 thetime of property acquisition; property acquisition
after confirming the presence or absence of toxic
substances and taking of measures• Maintain/improve property competitiveness throughappropriate 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• Strengthen confidential information management
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)

Compliance Risks• Violations oforganizational laws andregulations• Conflicts of interest• In the event that Fukuoka Realty violates its duty of careas 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 FRC s survival and profitability• Potential conflict of interest issues with sponsors

Human ResourceRelated Risks• Deterioration in thecaliber of humanresources• Dependence on humanresources• Risk of deterioration in organizational strength 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• Heavy reliance on FRC s 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• Prevent violations of laws and regulations, transactions
involving conflicts of interest, etc. through deliberations
and audits by the Compliance Assessment Committee• Improve employees awareness toward compliance byconducting regular compliance training• 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)

Fukuoka REIT Corporation 201919

150,000
123,041

131,215
127,080 128,375

136,051

144,472

148,558

152,259 150,328 152,639

1.5

1.25
1.14

100,000

1.0

500,000

0.5

Financial Strategies and TSR (Total Shareholder Return)0 17th

18th

19th

20th

21st

22nd

23rd

24th

25th

26th

27th

28th

29th

30th

0

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

17th

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

Dividends and TSR

A feature of J-REITs is that, if certain conditions are met, such as the

To date, FRC has maintained its management with an emphasis

Figure 1 shows FRC S past dividends and dividend yields.

■ Figure 1：Past Dividends and Dividend Yields

dividend of more than 90% of revenue, there is virtually no corporate

on financial stability. Going forward, we will continue to build a

tax and there are no retained earnings, so revenue will be distributed

solid financial base through the conservative management of LTV.

contrast, the dividend yield has fluctuated between 3.1% and 4.5%

(Yen)

as a dividend almost as it is. In the case of general stock companies,

Specifically, the Investment Corporation's financial policy is to keep LTVover the past seven years, indicating that investment unit prices have

4,000

etc., corporate tax will be imposed on the tax income raised by the

below a certain level and to use long-term fixed interest rate entities tofluctuated due to fluctuations in the stock market, interest rate trends,

company, internal reserves for the next business will be deducted, andreduce the risk from future interest rate hikes.

and fluctuations in market supply and demand.

the remainder paid as dividends. Therefore, J-REITs tend to have higher
dividend yields than general stock companies.

Among listed REITs, dividends are characteristically very stable. Inrole of finance in supporting the expansion of our assets and work to

Another characteristic is that financing (funds procurement) is basedon certain financial disciplines, taking into account the balance between

Figure 2 shows the total shareholder return (TSR), taking into

In the years to come, we will place an even greater emphasis on theyears is that investment unit prices were rising due to shopping spree

capital and debt (to achieve an optimal capital structure).

3,291 3,243 3,278

3,435

3,563 3,574

3,479

3,512

3,398 3,422

3,593

3,687 3,693

4.5
3.8

3.7

2,000

3.3

3.7

3.9

3.7

4.1

4.1

4.2

4.4

4.1

4

3.1

cruise passengers five years ago. With regard to dividends, in 2017,
we considered it best practice to avoid future risks when the real

2

1,000

estate market is booming, and this included the sale of two properties
and a dividend decrease in the 25th fiscal period. Dividends have

External Growth and Internal Growth

been continuously improving up until the end of the 30th fiscal period,

Through the steady growth of the scale of its assets (external growth)
̶by means of the acquisition of carefully selected real estate in the
Fukuoka and Kyushu area utilizing the sponsor pipeline, etc.̶andeffective asset management (internal growth), FRC has been distributing
stable dividends per unit since its listing. Going forward, we will strive tomaintain and improve our dividend per unit through the creation of stable
cash flows by the acquisition of excellent properties and the continuationof strategic initiatives.
The acquisition of real estate, etc. to expand the scale of assets andincrease 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

The difference (unrealized gain or loss) between the total real estateappraisal 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 ratio of 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 weshould be cautious about raising capital.

(Yen)(Times)200,000

2.0

150,000
123,041

131,215
127,080 128,375

136,051

156,204
152,259 150,328 152,639
148,558

Fukuoka REIT Corporation

21st

22nd

23rd

24th

25th

26th

27th

28th

29th

30th

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

20

Fukuoka REIT Corporation 2019

24th

25th

26th

27th

28th

29th

30th

0

TOPIX Real Estate Business Index

TSE REIT Index

250

150

1.25

1.22
1.31

1.31

■ TSR over the past 10 years

1.18
1.08

1.11

1.06

1.03

1.07

0

Past year

100

Past 3 years

Past 5 years

Past 10 years

Cumulative total Annual rate Cumulative total Annual rate Cumulative total Annual rate

Fukuoka REIT Corporation

9.0%

7.3%

2.4%

7.4%

1.4% 149.8%

9.6%

TOPIX Real Estate Business Index

1.6%

21.0%

6.6%

-2.5%

-0.5%

77.0%

5.9%

TSE REIT Index

23.6%

28.5%

8.7%

51.9%

8.7% 219.7%

12.3%* Annual rate conversion is the geometric mean of cumulative returns.

0

20th

23rd

300

50

19th

22nd

350

0.5

18th

21st

（％）

1.34
1.14

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. 201920th

■ Figure 2：Investment Unit Price Performance (10 years, including dividends)

1.0

0 17th

19th

1.67
1.52

1.5

500,000

18th

200

167,118
161,315 164,250

100,000

17th

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

Note: 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 periodbottoming out.

• The value obtained by dividing the investment unit price by net
asset value (NAV) per unit (NAV ratio) is almost to or greaterthan one• To grow stabilized dividends after property acquisition■ NAV Ratio Trends0

the most recent term, with the 25th fiscal period regarded as a

As a capital policy for external growth when raising capital, FRC
conducts management while bearing in mind two criteria:■ Trends in NAV per Investment Unit

144,472

8

6

3,000
4.3

One of the reasons for the deterioration in TSR over the past five

Dividend yield (as of the end of the fiscal period) (%)

（％）

3,257

account FRC s dividends and capital gains.

expand our fund procurement sources and methods while maintaining
financial stability.

Dividend per investment unit (Yen)

Value-Creation Activities

Value-Creation Activities

FRC is aiming to return higher dividends to its unitholders.

Basic Approach to Financial Strategy

17th

18th

19th

20th

21st

22nd

23rd

24th

25th

26th

27th

28th

29th

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. 201930th

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

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

Note: FRC s investment unit price performance is expressed as an index, using the investment unit price as of August 31, 2009 as 100. TSR over the past 10 years indicates profitability based on dividends from andinvestment unit price made on August 31, 2009, as of August 31, 2019. The TOPIX real estate index and TSE REIT index are indexed in the same way, using dividend-included data.
Source: Prepared by Fukuoka Realty Co., Ltd. based on data provided by Bloomberg L.P.

Fukuoka REIT Corporation 201918th

Feb. 2013 Aug. 201321