CEO’s Message

started to set down sustainability targets in terms of what
they engage in as part of real estate development. The

We aim to expand business with a focus ondevelopment targeting future stable growth.

Companyʼs Sustainability Promotion Ofﬁce and Fukuoka
I myself have absolutely no intention of allowing thecollaborate in facing issues such as determining the degree

assessment of FRC to deteriorate among the J-REIT

to which speciﬁc targets must be achieved in regard to thebrands, which is why I naturally believe in the importance ofassets of the Group. This year, we set speciﬁc KPIs andfollowing our Basic Policy as we actively engage in property

targets for materiality. And we intend to actively discloseacquisition or efforts to increase our market capitalizationthese targets along with our results.

and our total asset value, all while prioritizing stable

The Company’s vision and FRC’s strategy

our uncompromising stance of remaining a region-speciﬁc

Who We Are

Jishoʼs Corporate Planning Department must continue todividend distribution and the steady growth of NAV . Given
REIT, however, we intend to contribute to the development
The Companyʼs Basic Policy is to soundly manageof cities in the Kyushu region and Okinawa, centered oninvestment properties with a specialization in the Kyushu

Fukuoka, as our business ﬁeld.

President and CEO
Fukuoka Realty Co., Ltd.

Zenji Koike

dividends over the medium to long term. And contributing

area are similarly involved in contributing to urban

to regional revitalization and to the development ofdevelopment and local communities with their own

attractive communities based on the policy of Act Local

respective intentions. As one of our sponsors, Fukuoka

and Think Global is both our vision and a direction that we

Jisho Co., Ltd., also aims to increase the value of real estate

have no intention of changing into the future.

by making cities more interesting and by helping themIn other words, our position as a region-speciﬁc REIT–ourprimary deﬁning characteristic–is a unique quality with which
I can relate very well from the standpoint of someone who

Now in my second year as president of Fukuoka Realty Co.,

shift to considering real estate exit strategies.
In this sense, I see investment corporations andperspective alone. This past year was one in which I began

was previously involved in urban development. On the otherdevelopers as inseparable. After all, REITs acquire

to see this gap.

hand, I am concerned over the degree to which our investors

properties developed by developers and manage theseacknowledge the value of this unique quality. The price ofappropriately. Yet I believe that it is necessary to maintain a

We will work to address sustainability in unison with
our sponsors.

REIT investment units (valuation) varies depending on the

structure in which the Company and FRC act independently

assessment of growth potential (growth expectation). So, iffrom each other. With the most recent revisions to thewe see valuation as the growth potential for scale, then a slow

Asset Management Guidelines, we now have greater

Ltd. (the Company), the asset management company for
Amid the growing emphasis on sustainability as part ofreal estate acquisition pace by FRC as a region-speciﬁc REIT

ﬂexibility when investing in development properties. We

experiencing something different from my past involvement

investment and management, I have recently felt thewill result in a negative market assessment when comparedmade these revisions because we felt that engaging in

as a developer, which was very informative. In many cases,

importance of sincerely engaging in the question of how

to a REIT that invests in the Tokyo metropolitan area.

development projects together with our sponsor companies

those of us who are involved in the REIT industry report

we should address sustainability as a REIT. Which is why

Given our desire to contribute to a speciﬁc regionand other developers will contribute to the growth potential

our earnings twice a year, at which point we meet with ourI also intend to expand the scope of sustainability-related

through the assets that we own, however, simply

of dividends. In other words, the portion equivalent to theinvestors. And with each meeting, I experience ﬁrsthanddisclosures going forward. On the other hand, I haveconsidering growth in terms of asset scale alone would

capital gains for developers will help reduce the acquisition

the importance of dialogue with investors.

also recognized a fair amount of difference in the level of

not match with our vision. Although we could increase

book value, which we expect to enable us to acquire

enthusiasm in terms of our investorsʼ interest and questions

investment opportunities by expanding our investment

properties with relatively high NOI.

development under their own set of values, and undertake

regarding sustainability. I myself see sustainability initiatives

target to the Tokyo metropolitan and Kansai areas asrisk themselves as they develop and proﬁt from properties.

in a positive light.

a means of raising the growth potential demanded of

On the other hand, companies that employ the REIT

As one of the Companyʼs sponsors, Fukuoka Jisho

investors, this would conﬂict with our direction. Which is

Human resources for appropriate asset management
and growth of owned real estate

scheme own real estate using equity capital solicited fromCo., Ltd., is an unlisted company, which means it is us that

why we instead intend to invest in high-quality real estate ininvestors and loans borrowed from ﬁnancial institutions,engages with investors and the market. And this is why

the region of Kyushu and Okinawa, centered on Fukuoka,

The value of owned real estate varies depending on asset

so absolutely must achieve stable proﬁts. Which is also

it is important for us to hold dialogues with our investors,

and manage the REIT with a ﬁrm idea as to how we canmanagement after acquisition. Moreover, asset management

why we must not act solely upon our own set of values,

capture the interest of the market, and involve our sponsors

revitalize the region and contribute in other ways throughrequires a greater degree of manpower as the number ofbut must ensure investors accept the value of our actions.

in our efforts. Over the past year, I have also felt that thereal estate asset management.

properties increases with an expanding asset scale. The

Although I feel the perspective of investors is primarily

awareness of sustainability among our sponsors, as wellfocused on ﬁnancial results in the form of dividends, it

as their sustainability initiatives, have made progress.

can be difﬁcult to achieve such results from our own

Fukuoka Jishoʼs Corporate Planning Department has also

Glossary

Data Section

Fukuoka REIT Corporation (FRC), I have had the privilege ofDevelopers engage in urban and community

16

grow. And as real estate liquidity increases, developers will

Sustainability

Looking back over the past year of ongoing dialogue
with our investors, I felt the importance of taking a
different perspective from developers.

I believe that large developers in the Tokyo metropolitan

Growth Strategy

region, while our mission as a REIT is to distribute stable

NAV
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 the book value ofthe property owned and the appraised value.
[Calculation method] NAV: Net assets + Unrealized gains or losses – Dividends Market net assets value per unit: NAV / Total number of units issued
Fukuoka REIT Corporation 2022

17

CEO’s Message

Company believes we can effectively address this issue

In terms of creating value for our stakeholders, theregion” and our “close ties with the region” as a means

with thinking about what needs to be done in terms ofthrough human resources growth based on previously

tenants that occupy our properties, for example, eachof practicing Act Local, one of our missions. Although it

asset management afterward to realize that value, andaccumulated experience, human resources development

have their own set of values regarding the ESGs. And

is fairly difficult to connect these to economic value, I feelultimately how to enhance that value. And I feel that being

through training, and optimized personnel assignments.

that one of our strengths is our ability to help plan andloved by the community and the city residents as a result

those values. Moreover, if a property does not meetparticipate in various local activities and events. In 2022,of this approach will have a major impact on real estateof our founding. We therefore intend to enhance loyalty by

the prerequisites of the tenants, they will no longer

the Hakata Gion Yamakasa Kakiyama was held for the firstdevelopment and post-development management.

providing continuous service awards to those employees

choose that property in some cases, so we must have atime in three years. I was also allowed to play a part in the

FRC and the Company constantly think about thiswho have reached their 15th year of employment. In terms

strong awareness of the demand for sustainability. This

festival, and rode the Hachiban-yamakasa as part of thevalue and focus our energies on managing real estateof training, we have conducted overseas training to put

awareness, in other words, will necessarily have an impact

Oiyama float race on the final day of the event.

that is loved by the region. I therefore humbly ask for yourThink Global into practice, including overseas training inon the earnings of our properties.

continued support.

North America and observation with training in Shenzhen

As the basis for accepting all our clients, we must alsodelve deeply into a region from the stance of management

depending on the demands of each employeeʼs duties.

meet the required standards. The challenges differ in eachonce a property is developed. As the entity that manages

We also offer an extensive lineup as part of our certiﬁcationcase, however, where we must question the degree toproperties after development, FRC and the Company

acquisition support system, through which many of ourwhich we have addressed sustainability in properties underconsider our contributions to the local community together

employees have acquired certiﬁcations related to real estatedevelopment, or the degree to which we can address

with those developers who work with real estate here inand ﬁnance, including becoming ARES Certiﬁed Masters

sustainability after the fact in properties that we have alreadyFukuoka and Kyushu, which means we serve as landlords

and real estate brokers.

acquired. At the very least, we must indicate the value thatwith deep roots in the community. This, I believe, is aour properties create from the perspective of environmental

strength of region-specific REITs. And I feel that this aspect

action to our stakeholders, and primarily our tenants.

is particularly important. In essence, real estate should be

Company” in 2018, and were registered as a Fukuoka City

Hobbies: Running, golf

Proﬁle1988 Joined Fukuoka SOGO Bank (currently THE NISHI-NIPPON CITY
BANK, LTD.)
1991 Joined Fukuoka Jisho Co., Ltd.
2013 Appointed as Chairman of Canal Entertainment Works Co., Ltd.
(currently FJ. Entertainment Works Ltd.)2017 Appointed as Senior Executive Ofﬁcer of Fukuoka Jisho Co., Ltd.
Appointed as Chairman of Sunlife Co., Ltd.
2021 Joined Fukuoka Realty Co., Ltd.
Appointed as President and CEO of Fukuoka Realty Co., Ltd.
(current position)
2022 Appointed as Executive Director of FRC in May (current position)

considered as a series of stages, beginning with thinking
In conclusion:“Together with Local Communities and Cities”

We are currently advancing a range of work-style reforms,

about why land needs to be developed and what kind ofvalue can be offered through development, and ending

including eliminating all overtime, ensuring employees take

One thing I often say to our employees during morning

annual paid leave, and supporting a balance between childassemblies is that I want them to value our “focus on theraising and work. Developing human resources and making
because we hope to expand the areas in which we do

Ichiban-yama, and is the only yamakasa granted the privilege

Hakata Gion Yamakasa began when Shoichikokushi rode asegakidana and sprinkled perfumed holy water (honeydew

business going forward, we will strive to capture businessof singing the Hakata Iwaiuta (Iwaimedeta) during Kushidairi, so each year the order changes. The Hakata Iwaimedeta

water) to remove a pestilence from the city in 1241, which led to
the Gion Faith for warding off calamities and ultimately developed
into a yamakasa ritual. With its roots dating back to 1241,
Hakata Gion Yamakasa was registered as a UNESCO Intangible

opportunities for growth by strengthening our humanresources and assigning personnel appropriately.

overpowers as it reverberates throughout Kushida Shrine.
The race starts with the dedication of Ichiban-yamakasa upon
beginning Kushida-iri at 4:59 in the morning, from which time all
eight yamakasa perform Kushida-iri in succession before racing
off into the city of Hakata in the dim morning light.

Cultural Heritage in 2016, thereby bringing the festival worldwide
recognition. This year, the festival was held for the 782nd time.
There are two types of yamakasa portable shrines, kazariyama
ornamental floats and Kakiyama floats. Kazariyama ornamental
floats are not carried, but are instead
displayed at specific locations inFukuoka city every year during the
HakataElementary
Schoolfestival from July 1 to July 15. The
different Kakiyama float events
begin on July 9 and culminate in the
Oiyama float race as the climax of

Setting sustainability targets and managing owned properties
Making sustainability-related disclosures is an urgent
challenge. Looking back over the past year, we havethe materiality related numerical targets for the properties
we currently manage. Going forward, we will work together

Gofukumachi
Subway Station

Ky

uh

iga

sh

i-m

ac

nu

e

with our sponsors, and cooperate with each company in* Kushida-iri refers to the act of carrying a yamakasa onto the grounds of Kushida Shrine, circling
a flag on the grounds, and leaving the grounds again.

the Hakata Gion Yamakasa.
The Kakiyama float race washeld for the first time in three years
during 2022 due to COVID-19.
Some of the yamakasa are called
the seven “Nagare,” each of whichis carried and compete for time
during Kushida-iri* and over the
Oiyama float race course. The firstyama to start the race is called

allow us to store and manage data. In April 2021, we raised
the targets of reducing CO2 emissions by 35%, recycling
75% of waste, and achieving a Green Building Certification
rate of 85% or higher, all by 2030. Moreover, in September
2022 we both publicly endorsed the Task Force on Climaterelated Financial Disclosures (TCFD) recommendations andjoined the TCFD Consortium, an association of companies
Riding on top of a ﬂoat (President Zenji Koike at far right) in the Oiyama ﬂoat eventof the Hakata Gion Yamakasa Festival on July 15, 2022

Shofukuji Temple

his

aA
ve

ow

the Fukuoka Jisho Group as we shift in a direction that will

Ky

uji

un

Turning
point

Data Section

established a data platform as the prerequisite for achieving

Sustainability

Column “What is Hakata Gion Yamakasa ?”various considerations will continue to be important. And

in Japan that has endorsed the recommendations.

Place of birth: Fukuoka City

Sh

Well-Being & SDGs Registration System “Master” this year.

Zenji Koike President and CEO Fukuoka Realty Co., Ltd.

Growth Strategy

As a result of our past initiatives and track record, wewere certiﬁed as a “Fukuoka ʻWork Style Reformʼ Promotion

18

Developers in large cities likely struggle when trying to

Who We Are

it is necessary for us to do what we can to address

The Company is now approaching the 20th anniversary

Myorakuji Temple

ish

i-m

ac

Nakasu-Kawabata
Subway Station

Ka

wa

ba

Ha

ta

ka

ta

his

Shotenji Temple

Tochoji
Templeuji

Shotenji Temple

Start
Sh

op

pin

Riv

er

KushidaShrinerca
deGion
SubwayStation

gA

Ha

ka

Canal City
HakataOiyama Float Race Course Mapta

Ek

Mangyoji
TempleHakataSennennomon
Gate

Ta
ih

ak

u-

do

ri

Av
e

nu

e

im

ae

St

ree

t

A Kazariyama ornamental ﬂoat is dedicated to Canal
City Hakata every year.

Fukuoka REIT Corporation 2022

19

External Environment (Initiatives of Fukuoka City)

Redevelopment Project

Fukuoka City’s Standing: From Regional City to an Asian Economic Metropolis

Beijing

Seoul
Busan Osaka Tokyo

ShanghaiFukuokaNanakuma Subway
Line Extension(scheduled to start
operation on March 27, 2023)

⑧

①⑦

④
②
③
⑤

Kushida Shrine
Station⑬
JR Hakata Station⑩ ⑪

Canal City Hakata⑥⑨

Nishitetsu Fukuoka(Tenjin) Station

Who We Are

Blessed with a history and culture nurtured by the sea, an abundant natural environment, extensive
urban functions, diverse human resources, and various other assets, Fukuoka City is recognizedaround the world as a livable city.
Under the “Fukuoka City Comprehensive Plan,” the basic strategy for city management focuseson creating a virtuous cycle of “urban growth” and “greater quality of life.” In aiming to become 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 a compact, sustainable
city that balances economic growth with a safe, secure, high quality of life.

⑫

Initiatives Aimed at Attracting Companies■ Attracting International Financial Functions, TEAM FUKUOKA
Note: Focus areas

Hakata Connected■ Redevelopment Projects■ Redevelopment Projects

Name
Photo provided by Fukuoka City①

Photo provided by Fukuoka City

M-DAQ, a globally expanding and Unicorn-class Singapore FinTech
company offering ﬁnancial services using foreign exchange, andE.SUN Bank, a leading ﬁnancial institution in Taiwan that holds thelargest share in ﬁnancing for SMEs, have decided to open ofﬁces
in Fukuoka City (in September 2022).

Fukuoka City Tops List of Business Opening
Rate in Japan for Three Consecutive Years■ Strong Demand for Creative-Related Industries and Call Centers(People)(Number of companies)

4,000

No. of companies
established

September 2021

Fukuoka City Hallʼs Former North Annex Utilization③
Project

November 2025
(scheduled)

④

58

57

57

53

3,000

2,500

60

50

2,600

1,334

1,058

1,000

20

665

10

500

)

Source: Prepared by Fukuoka Realty based on data from “The generalcondition of the Fukuoka City Economy, March 2022” by the Fukuoka
City Economy, Tourism & Culture Bureau.

0

FY2016FY2017FY2018FY2019FY2020

FY2021

Fukuoka City Special Zone for Global Start-Ups &Job Creation (National Strategic Special Zone)
Initiatives to support start-ups

Creative-related industries

28

40

38

38

30

41

• Tax Reduction for start-ups(municipal tax, national tax)

Foreign/foreign-affiliated

18

13

14

15

12

15

• Startup Visa

Call center

12

9

7

2

8

8

Headquarters functions, etc.

3

1

7

6

0

7

International finance

-

-

-

-

-

6

Source: Prepared by Fukuoka Realty based on data from “Headquarters functions/in growth area” by the Fukuoka City Economy,
Tourism & Culture Bureau.

20

7.2％

30

1,041

1,500

(

50

(FY2020)

40

2,989

2,000

of which,main fields and functions

70

1st
21 majorurban areas• Startup Café
• Fukuoka Growth Next
• Global Startup Center
Source: Prepared by Fukuoka Realty based on the section of Fukuoka Cityʼs
official site featuring “National Strategic Special Zone for Global Start-Ups& Job Creation.”

Tenjin 1-chome North 14th Block Building(provisional name)March 2025
(scheduled)⑤ New Fukuoka Building (provisional name)

December 2024
(scheduled)⑥ Tenjin1-7 plan (provisional name)March 2026
(scheduled)

Hulic Fukuoka Building Rebuilding Project(provisional name)

December 2024
(scheduled)
December 2022
(scheduled)⑧ Fukuoka Daimyo Garden City

Name

Completion month

The Nishi-Nippon City Bank Head Office Main⑨
Building Construction site⑩

Fukuoka Higashi General Prefectural
Office Building Site Utilization ProjectFebruary 2025
(scheduled)
March 2024
(scheduled)⑪ Hakata East Terrace

August 2022

⑫ Hakata Fukami Park Building

February 2021⑬

The Nishi-Nippon City Bank Administrative
Head Office Building

September 2028
(scheduled)

Source: Created by Fukuoka Realty based on each companyʼs press release.

Source: Created by Fukuoka Realty based on each companyʼs press release.

■ Main Deregulation in the Tenjin Big Bang Area
(National Strategic Special Zone)■ Hakata Connected Bonus① Special permission to relax Civil Aeronautics Act–relatedbuilding height regulations

Expand the system to relax the floor area ratio requirement(measure to facilitate renewal of city center functions)● AroundIncrease the ﬂoor area ratio (up to 50%) for buildings contributing
to expand the bustle, such as creation of open spaces thatgenerate connections and expanse.

Fukuoka
City Hall
approx. 67m(15 floors)● Tenjin Meiji-dori district(west of the center of Watanabe-dori)
approx. 115m (26 floors)

Data Section

No. of employees

3,500

64

Business
Opening Rate

May 2025(scheduled)② Tenjin Business Center⑦

Change in the Number of Companies with Headquarters Functions/in Growth Area Established in Fukuoka City

Completion month

Sumitomo Life Fukuoka Building/Nishi-dori BusinessCenter Reconstruction Project (provisional name)

Sustainability

With the aim of attracting international ﬁnancial functions toFukuoka, TEAM FUKUOKA was launched to conduct promotional
activities and create an environment that will generate momentum
for the city as a whole by leveraging the characteristics of industrial,academic, and government partners (in September 2020).

Growth Strategy

Tenjin Big Bang

● Tenjin Meiji-dori district(east of the center of Watanabe-dori)
approx. 76m (17 floors) 〜 approx. 100m (22 floors)● Tenjin 1-chome district

approx. 80m (18 floors) 〜 approx. 96m (21 floors)

Existing system torelax floor area ratio

New incentive
Floor area
ratio of up to50％② Deregulation of floor space ratios (Fukuoka City original)● Tenjin 1-chome south block

800％→1,400％ (maximum)● High-quality, high-value-added buildings● Tenjin 2-chome south block (along Meiji-dori Ave.) 700％→1,300％ (maximum)● Provide floors for tenant relocation● Tenjin 1-chome north block (14th Block)

600％→1,250％ (maximum)● Tenjin 1-chome district north area

Note: The projects are designed to solve problems specific to the area around Hakata Station (limited tothe period of Hakata Connected)

800％→1,400％ (maximum)

Fukuoka REIT Corporation 2022

21

Risks and Opportunities

To achieve sustainable growth, FRC keeps close track of highly signiﬁcant risks and opportunities while extracting signiﬁcantrisks and assessing their impact on the investment corporation and its stakeholders.
● Measures to Address Risks ● Opportunities

Significant risks• Response to climate change
Related Materiality• Reduction of environmental load

• Buildings might 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 could be
affected, with a decrease in rent due to thenon-operation of properties

Respond to risks and opportunities● Consider that it is possible to purchase insurance at a
relatively low cost compared to other areas; arrange
earthquake insurance coverage for all properties● Improve resilience (e.g., ability to respond to disasters) byengaging in a variety of activities; this includes conducting
disaster drills at each property, stockpiling emergency
food supplies, strengthening flood countermeasures, andformulating a business continuity plan (BCP)
See p.34

EnvironmentRelated Risks

Related Materiality• Reduction of environmental load
• Maintenance and enhancementof environmental and construction
performance

Human Resource
Related Risks

Related Materiality• Creation of pleasant workplaces(asset management company)

Infectious Disease, Epidemic,
and Other Related Risks• Pandemic
Related Materiality

Property Concentration
Risks• Region (Fukuoka/Kyushu)• Retail facilities
Related Materiality• Co-creation with the local community• Contributions to boosting theattractiveness and revitalization of
Fukuoka and Kyushu• Heavy reliance on FRCʼs directors andauditors as well as on the human resourcesof the asset management company;
the risk that the outflow of these humanresources could have an adverse effect on
operations• Risk that such external factors as infectious
diseases and epidemics in Japan andoverseas could interfere with the normal
operation and management of FRCʼs
properties• Decrease in rental income from real estate
due to such factors as a downturn invisitors, which might have an adverse effecton, for example, earnings● Conduct thorough physical investigations at the time ofproperty acquisition; acquire properties after confirming
the presence or absence of toxic substances and taking
appropriate measures● Improve organizational strength and increase employee
loyalty by hiring and fostering excellent human resources● Improve employee motivation by realizing a work-lifebalance and the stabilization of work through healthmanagement
See p.36

Related Materiality• Creation of pleasant workplaces(tenants)

Market-Related Risks• Increase in interest rates• Fluctuations in the investment unit
price
Related Materiality• Information disclosure and dialogue
with stakeholders

Risks from Property
Degradation, Deterioration• Increase in repair and maintenanceexpenses• Decline in property competitiveness
Related Materiality• Maintenance and enhancementof environmental and construction
performance● In addition to physical infectious disease
countermeasures, expand the COVID-19 workplacevaccination program scope to cover retail facility tenant
employees as a means of promoting a safe and secure
facility environment for asset management company
employees, tenants, and consumers

Regulatory Risks• New laws and regulations• Changes in the tax system
Related Materiality• Compliance/Risk management• Possibility of adverse effects on profits due
to overall consumer consumption as wellas other overall trends in the retail industry
that reflect the nature of retail facilities as amain investment target

IT-Related Risks● Invest in various types of properties to reduce the risk of
portfolio fluctuation by diversifying rental market cycles
and tenant industries• Compliance/Risk management• Information leaks

See pp.12–13

See pp.42–43● In retail facilities, such as Canal City Hakata/Canal
City Hakata・B, operate bustling facilities by replacing
tenants and providing new experiences and othervalue, thereby reducing the risk of profit fluctuation bydispersing tenants● Revitalize the entire region and connect this growth to thegrowth of properties owned

Compliance Risks• Violations of organizational laws andregulations• Conflicts of interest
Related Materiality• Compliance/Risk management

Glossary22• Vacancy rate increases associated withworsening real estate market conditions;decrease in dividends due to rent
decreases• Rent reduction, rent nonpayment, andvacating risks due to deterioration of alesseeʼs financial situation• Risk of increase in interest payment due toincrease in interest rates caused by market
trends at the time of borrowing• Risk that FRCʼs investment unit pricemight fluctuate due to factors that include
unitholder supply and demand, interest rate
conditions, economic conditions, and realestate market conditions• Risk of not being able to acquire planned
assets because additional units cannot be
issued at the desired time and under desiredconditions due to fluctuations in unit price• Increase in expenses required for suchitems as large-scale repairs, due to thedeterioration of properties, and large capital
expenditures could reduce cash flows• Possibility of tenants vacating and areduction in rent due to a loss of property
competitiveness resulting from changes inthe surrounding environment• Possibility of a limitation on rights withrespect to properties owned and anincrease in property management expenses
and other items, due to newly established,revised, or abolished laws and regulations• Possibility of an increased burden fromtaxes and fees due to tax reform● Appropriate occupancy screening when tenants move inas well as monitoring of operating status and thoroughcredit management during the lease period● Deposits and security deposits against items including
rent delinquency; collateral by such means as guarantor
companies● Treat deterioration in the real estate market as anopportunity to acquire excellent properties and executestrategic investments through appropriate financial
management utilizing information-gathering capabilities● Long-term fixing of interest-bearing debt and repayment
period limit diversification● Conservative interest-bearing debt management andcommitment lines to ensure flexibility and agility infunding● Conduct proactive IR activities
See p.27● 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 conditions including realestate market trends and the capital market environment,
if the strategic holding of a property becomes lesssignificant from the perspective of property performance,competitiveness, and future profitability, consider
replacement of that property if it is determined that selling
it is in the interest of unitholders● In addition to receiving information from such sources as
Fukuoka Realtyʼs affiliated organizations, tax accountants,
and law firms, participate in external training, obtain
information, and take measures to reduce any impact
from an early stage

See p.36● Set up satellite offices at the asset managementcompany and introduce a telework system with a view toensuring business continuity

Related Materiality• As FRCʼs properties owned areconcentrated in Fukuoka and Kyushu,
the vacancy rate might increase due toa worsening economic situation in that
region, and profitability could deteriorate
due to a decrease in rent

● Consider extending lease agreement terms, fixing of suchitems as rent, according to property characteristics• Risk of leakage of personal and confidential
information due to delays in strengthening
cybersecurity• If Fukuoka Realty Co., Ltd. (asset
management company), violates its duty ofcare 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 withsponsorCommitment lines
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 withthe bank. Commitment in this case indicates a contracted promise. The
borrower can secure stable working capital regardless of business conditions.

● Strengthen confidential information management systems
by introducing two-factor authentication for software
as well as applications and by conducting training on
cybersecurity and information management● Enable property differentiation by introducing advanced
technologies into properties owned

Data Section• Maintenance and enhancementof environmental and construction
performance• Creation of pleasant workplaces(asset management company)• Creation of pleasant workplaces (tenants)• Risk of deterioration in the organizational
strength of Fukuoka Realty Co., Ltd. (asset
management company), due to a failure
to maintain the human resources base, interms of such factors as ability, experience,and know-how of the asset managementcompany for smooth business operations

See p.35● Aim to reduce vacancy rates by pursuing healthfuland comfortable conditions in properties owned andby increasing leasing demand for properties with highenvironmental performance• Increase in vacancy rates• Decrease in rent

Respond to risks and opportunities

Sustainability• Deterioration in the caliber of humanresources• Dependence on human resources• Risk of damage to the health of building
users due to the presence of toxic
substances in the soil or in building
materials, and other items, of properties
owned; risk of bearing the cost ofcompensation for damage to health orfor removal of toxic substances

Risks from Changes in
Business Conditions

Impact on stakeholders

Growth Strategy• Reduction of environmental load
• Soil pollution and toxic substances• Increase in property management costs
due to more stringent environmental laws
and regulations, such as the strengtheningof the Building Energy Conservation Law● Work to maintain and improve environmental performancethrough renovation opportunities for properties owned;
acquire Green Building and other certifications to obtain
the results of environmental/social initiatives in visual form
and improve property competitivenessSignificant risks

Who We Are

Risks from Natural
Disasters

Impact on stakeholders● Prevent violations including those of laws and regulations
as well as transactions involving conflicts of interest,
through deliberations and audits by the Compliance
Assessment Committee● Improve employee awareness of compliance byconducting regular compliance trainings
See p.39

Conflicts 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 a conflict between
a unitholder and the interests of the investment corporation or asset management company.
Fukuoka REIT Corporation 2022

23

Investment Strategy

Management Strategy

Real EstateManagement
Department

Investment
Department

Who We Are

General Manager of the Real EstateManagement Department

Hideya Kanno

The Real Estate Management Department draws up plans
for asset management with the aim of ensuring long-termand stable expansion in proﬁts from the assets held by FRC.
The Fukuoka metropolitan area, our primary destination
for investing, manifests potential for growth due to a rising
population and an increasing number of companies locating
operations there. Accordingly, as a comprehensive REIT, we areinvesting in the region in a diverse range of asset types. REITs
consist of two types of growth: external growth in which we aim
to increase dividends through investment, and internal growthin which we strive to enhance the proﬁtability of the assets in
our portfolio. The Real Estate Management Department seeks
to maximize the value of our property portfolio over the longterm through renovations and other innovative operational
initiatives that enhance the appeal of our assets.
Although the business environment remained extremely
difﬁcult for a portion of our portfolio in 2022 due to the lingering
effects of the COVID-19 pandemic, we implemented various
measures to maintain and improve the long-term value of all
the properties we own.
At Park Place Oita, we overhauled the outdoor environment
with Shangri-la, a playground for children that stimulates
their curiosity for play and introduced large new stores toenhance our ability to attract customers. At Canal City Hakata,we signed an agreement with a major new retail tenant andembarked on a plan to systematically overhaul the premises
based on a medium- to long-term business strategy draftedwith a view to co-creation with the local community. At Konoha
Mall Hashimoto, we endeavored to ensure that tenants andvisitors can utilize our facilities with peace of mind by continuing
to take measures to prevent the spread of COVID-19 infections
and providing a safe and hygienic environment throughout.

Efforts included upgrading the food court, introducing a large
new store (GU), and replacing certain drinking and eating
establishments with Komedaʼs Coffee and other stores.
In terms of ofﬁce building tenants, we are making steadyprogress in planned backﬁlling in line with the closure ofcertain large-scale tenants. We are also striving to maintainand improve environmental and construction performance, notonly in commercial facilities but also in hotels, ofﬁce buildings,
and other assets to maintain their competitiveness. We areupgrading critical facilities such as water supply, drainage, andair conditioning as well as gradually shifting to LED lighting.
Other efforts are focused on ensuring a safe and hygienic
environment and pursuing energy conservation.
We will strive to effectively identify greenhouse gas andwaste emissions and implement measures to reduce theseto further emphasize our stance toward sustainability andpromote environmental preservation in the real estate sector.
We also intend to take steps to enhance the work andbusiness environments for tenants and employees.

Data Section

FRC revised the methods for acquiring investments
within our management guidelines in 2022 to ensure
adequate diversiﬁcation. As a result, even as a REIT, FRC
can now consider certain other development projects inaddition to the acquisition of buildings that have been
completed, premised on deﬁned risk management andcollaboration with business partners. Diversifying property
acquisition methods in this way is expected to lead tofurther investment opportunities. FRC plans to increase
the proportion of projects that allow involvement fromthe development stage to around 10% of all acquired
properties.
We are also targeting other regions in Kyushu to invest
in based on a careful analysis of conditions and changes
in the business environment in each region. The local
government is currently implementing policies to attract
companies to the Kyushu area, and there has been amarked uptick in activity by companies that have entered aswell as by businesses associated with them. FRC intends
to take advantage of this trend to enhance our portfolio,
diversify risk, and drive continued internal growth, pursuant
to our investment criteria. We also recognize sustainability
as a key factor that needs to be considered when acquiringproperty. Although recently constructed properties havefew issues in this regard, it can be relatively difﬁcult toobtain environmental certiﬁcation for older properties, andthis might not be sufﬁciently reﬂected in the CAP rate.
Even though the real estate market is mildly overheatedat present, we remain committed to realizing stable growthfor our unitholders over the medium to long term andcontributing to the revitalization of regional economies
through our investments and operations.

Sustainability

The Investment Department leverages its capabilities
in information gathering, relationship building with local
communities, and property observation that are unique toa region-speciﬁc REIT to acquire excellent properties thatgenerate stable cash ﬂow over the medium to long term, agoal that cannot be realized with investment from outside
the region.
The real estate market in the Kyushu area remains briskon the back of rising land prices and construction costs,
solid rental demand, and robust investment demand. In
Fukuoka City, real estate values continue to rise amid
positive macroeconomic indicators. Against this backdrop,
it is becoming increasingly difﬁcult each year to acquire
investment properties with an emphasis on yield. We are
therefore striving to secure investment opportunities forpremium real estate by swiftly attaining useful information
through community-based management and ourcommunity ties so we can make informed decisions on
investment potential.
Recently, FRC signed an agreement with Fukuoka
City to acquire a site on Island City, an artiﬁcial islandin Hakata Bay, Fukuoka City, that has beneﬁts from alogistics perspective, jointly with Fukuoka Jisho Co.,
Ltd., one of our sponsors. The project will enable us
to avoid excessive competition and secure investment
opportunities in the Fukuoka market, where we forecast
ongoing competition in the investment property sector. Thisis expected to contribute to the stable external growth of
FRC. It is also anticipated that the project will help improvelogistics operations in the Fukuoka metropolitan area andfacilitate the distribution of goods while also providing new
employment opportunities and thus revitalizing the region.

Kuniaki Mishima

Growth Strategy

Executive Director andGeneral Manager of theInvestment Department

Ceremony to mark therenewal of Park Place Oita

April 2022

24

Fukuoka REIT Corporation 2022

25

Financial Strategy

Finance
Department

July 2019

Procured funds through green finance, a first for FRC
Procured funds via a mechanism for financial institutions to donate a part of the profits obtained through borrowing as funds for

March 2021

research into the development of a new COVID vaccine at national universities→Newly borrowed 2 billion yen from The Juhachi-Shinwa Bank that was donated to Nagasaki University

August 2022

Procured funds through green finance (1.6 billion yen in refinancing from Sumitomo Mitsui Banking Corporation)

See p.33

Procured funds through a syndicated sustainability-linked loan from the three sponsor banks of our asset management company, afirst for a J-REIT (4.9 billion yen from the Development Bank of Japan, The Nishi-Nippon City Bank, and The Bank of Fukuoka)*1

Who We Are

June 2022*1. A 35% reduction in CO2 emissions (basic unit) compared with 2019 has been set as a sustainability performance target (SPT) to be attained by 2030, and the achievement of the target will be linked to the conditions of theloan. When the SPT is achieved, the contract will offer a preferential interest rate from the interest rate determined at the time of borrowing from August 2031 until the repayment date, as an incentive.

Investor Relations (IR) Activities

Hiroyuki Ayabe

following the impact of the pandemic. While the low interest
rate environment is forecast to continue due to the ongoingmonetary easing policy of the Bank of Japan, the markets
are pricing in future interest rate hikes. As such, I believethat it will be necessary to practice ﬁnancial managementwith an even greater awareness of the risks posed by risinginterest rates.
Under such circumstances, the financial strategy, capital
strategy, and IR activities that we have conceived are as
follows.

Financial Strategy/Capital Strategy
regional banks that operate primarily in Kyushu and themegabanks̶we will strive to diversify our procurement
sources.
We will also actively incorporate consideration for theUnited Nations Sustainable Development Goals (SDGs) andenvironmental, social, and governance (ESG) issues from aﬁnancial perspective and look to contribute to the resolutionof all related challenges.
The ratio of sustainable ﬁnance to total borrowings was
11.6%.
Regarding our capital strategy, we will look for thebest timing relative to market conditions to raise capitalalongside external growth, which is one of the driversof growth for FRC. We will also adequately consider
the balance between increasing dividends after capitalprocurement and LTV control as well as other factors.

*2. Hosted by the Japan Investor Relations Association*3. All Japanese Listed Companiesʼ Website Ranking by Nikko Investor Relations Co., Ltd.

■ FRCʼs IR Activities

September 2019–
August 2020

September 2020–
August 2021

September 2021–
August 2022

Results briefings

2

2

2

IR in Japan*4

147

166

184

IR overseas*4

40

38

22

IR for individual
investors*5

6

7

5

Data Section

Regarding our ﬁnancial strategy, we will ﬁrst and foremost
maintain a conservative interest-bearing debt ratio from theperspective of building a solid ﬁnancial base. The interestbearing debt ratio at the end of August 2022 was 41.7%.
Next, from the perspective of ensuring ﬂexibility andagility in ﬁnancing, we have set a commitment line with amaximum amount of 13 billion yen. We have also decided
on a three-year commitment period, enabling us to address
unexpected deterioration in the ﬁnancing environment.
In addition, from the perspective of reducing the risks
from interest rate rises 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 ratelevels. While maintaining good relationships with financial
institutions with which we have existing relationships̶
starting with our three sponsor banks and includingSpecifically, we are incorporating innovative ideas, such as
making full use of a range of Internet tools to hold efficientmeetings. In-person meetings are gradually becoming
possible again, and I would like us to consider actively
holding briefing sessions for individual investors as well. In
addition, we are very particular about the stories and visuals
we use in our financial briefing documents for unitholders
so that they can fully grasp the appeal of a region-specific
REIT. FRC has been highly praised for our efforts over theyears, winning the IR Excellent Company Encouragement
Award in 2014*2 and the IR Good Visual Award in 2017and 2019*3. Our website was recognized as outstanding in
general and industry rankings in fiscal 2021.
In closing, I believe that taking a long-term view inproactively working to raise the level of sustainability will be
indispensable to ensure the best interests of unitholders.
We will convey our efforts in an easy-to-understand manner
through, for example, integrated reports, our website andfinancial briefing documents, and other materials.

Sustainability

In addition to drawing up and executing ﬁnancial and capital
strategies that are in the best interests of our unitholders,the Finance Department is responsible for investor relations(IR; including shareholder relations (SR) and public relations)activities to convey FRCʼs situation in a timely, fair, andaccurate manner.
Although the Tokyo Stock Exchange (TSE) REIT Index
temporarily saw a precipitous decline at the start of 2021
and again in June of that year, it has since returned toa level exceeding 2,000 points, the pre-COVID level, as
of September 2022, amid signs of a gradual recovery

Coupled with compiling the various types of informationnecessary for investment decisions, our primaryconsideration is to offer a steady stream of timely, fair,accurate, and easy-to-understand information, which isthe basic policy of IR activities. As one measure, while
proactively disclosing (increasing the amount of) nonﬁnancial information that does not appear in the income
statement or balance sheet, such as publicizing ourstrengths as a REIT specializing in regional properties andthe real estate situation in Kyushu and Fukuoka, we will
work to improve the content. I believe that doing so will leadto a deepening of mutual understanding with all unitholders,the building of relationships of trust, and ensuring positive
steps toward attracting outstanding investment funds fromother parts of Japan and overseas to Kyushu and Fukuoka.
Before the COVID pandemic, we held meetings inperson with more than 200 institutional investors each year.
Due to restrictions placed on face-to-face IR activities,
we are continuing our IR activities with the highest priority
placed on preventing the spread of COVID-19 infections.

Growth Strategy

Executive Director and General Managerof the Finance Department*4. Includes telephone conferences*5. Includes results briefings for individual investors

26

Fukuoka REIT Corporation 2022

27

Financial Strategy

Sustainability

Dividends and TSR

Planning
Department
Table 1 and Figure 2 show the total shareholder return(TSR), taking into account FRCʼs dividends and capitalgains. TSR performance has been 8.1% annually over the
past 10 years. In contrast, returns have remained flat overthe past year as the TSE REIT Index weakened.

■ Figure 1. Past Dividends and Dividend Yields■ Table 1. TSR Over the Past 10 Years

Dividend per investment unit (Yen)Dividend yield (as of the end of the fiscal period) (%)

4,000

3,574

3,479

3,398 3,422

3,512

3,593

3,687 3,693 3,642

3,539 3,536 3,523
3,250

Past 1 year

（％）

(Yen)

8

3,361

Past 3 years

Past 5 years

Who We Are

Figure 1 shows FRCʼs past dividends and dividend yields.
Among listed REITs, our dividends are extremely stable.
In contrast, the dividend yield has ﬂuctuated between
3.8% and 4.7% over the past eight years, indicating thatinvestment unit prices have shifted due to changes inthe stock market, interest rate trends, and ﬂuctuations inmarket supply and demand.

Past 10 years

Cumulative
total

Annualrate

Cumulative
total

Annualrate

Cumulative
total

Annualrate

FRC(0.9)%

7.2%

2.3%

25.2%

4.6%

118.6%

8.1%

TOPIX Real
Estate Index

6.9%

14.0%

4.5%

25.0%

4.6%

126.5%

8.5%

TSE REIT
Index(1.5)%

19.3%

6.1%

60.0%

9.9%

232.3%

12.8%

3,000

3.7

3.7

3.9

4.1

4.1

4.2

4.4

4.7
4.1

4.3

6
4.5

4.0

4.1

4.0

2,000

4

Growth Strategy

ery

v
Reco

General Manager of the Planning Department andGeneral Manager of Sustainability Promotion Office

Keishi Tamura

Note: Annual rate conversion is the geometric mean of cumulative returns.

1,000

The Role of the Planning Department

20Note: Dividend yield = (Dividend per investment unit / Operating days x 365) / Investment unit price asof the end of the fiscal period

Investment Unit Price Performance for
the Most Recent Fiscal Year
FRC

TOPIX Real Estate Index

TSE REIT Index(Index)120
110■ Figure 2. Investment Unit Price Performance (10 years, including dividends)
FRC

TOPIX Real Estate Index

Sustainability

The Planning Department is in charge of matters relating to management policy,
general affairs, personnel affairs, accounting, and sustainability. We believe in
the importance of creating an environment in which all employees can fulfill theirpotential in order to contribute to regional revitalization and the development of
attractive communities, based on an understanding of the activities of our asset
management company and under the basic policy of Act Local, Think Global.

0

23rd 24th 25th 26th 27th 28th 29th 30th 31st 32nd 33rd 34th 35th 36th

Feb. 2016 Aug. 2016 Feb. 2017 Aug. 2017 Feb. 2018 Aug. 2018 Feb. 2019 Aug. 2019 Feb. 2020 Aug. 2020 Feb. 2021 Aug. 2021 Feb. 2022 Aug. 2022

100
90

TSE REIT Index

80(Index)

August 2021

400

February 2022

August 2022

Framework for Sustainable Initiatives

200with outside parties, examines speciﬁc goals and measuresrelating to information disclosure policy and other matters,
and identiﬁes the progress made in measures being
implemented. Sustainability ofﬁcers are responsible forpractical matters relating to achieving the goals set by
the committee with the General Manager of the Planning
Department providing general oversight.

Data Section

In 2018, FRC established the Sustainability Policy andRegulations Concerning Sustainability Management topromote sustainability in consideration of environmental,social, and governance (ESG) issues and set up the
Sustainability Promotion Committee comprised of full-time
directors, executive directors, and general managers. The
committee establishes internal organizations, collaborates

300

100

Sustainability Initiatives and GRESB
0

Aug.
2012

Dec.
2012

Apr.
2013

Aug.
2013

Dec.
2013

Apr.
2014

Aug.
2014

Dec.
2014

Apr.
2015

Aug.
2015

Dec.
2015

Apr.
2016

Aug.
2016

Dec.
2016

Apr.
2017

Aug.
2017

Dec.
2017

Apr.
2018

Aug.
2018

Dec.
2018

Apr.
2019

Aug.
2019

Dec.
2019

Apr.
2020

Aug.
2020

Dec.
2020

Apr.
2021

Aug.
2021

Dec.
2021

Apr.
2022

Aug.
2022

Note: FRCʼs investment unit price performance is expressed as an index, using the investment unit price as of August 31, 2012, as 100. TSR over the past 10 years considers dividends and investment unit prices in indicating
the profitability of investments made on August 31, 2012, as of August 31, 2022. The TOPIX Real Estate Index and the TSE REIT Index are indexed in the same way, using dividend-included data. Similarly, the graph forthe most recent fiscal year is indexed with the investment unit price as of August 31, 2021, as 100.

28

FRC has been conducting sustainability initiatives since
our listing that include obtaining DBJ Green Building
Certiﬁcation. ESG-related inquiries from investors started
to increase in 2017 at investor relations activities overseas.

We believe it is necessary to make efforts in line with
global standards, and in 2017 we decided to take part in
the Global Real Estate Sustainability Benchmark (GRESB)
system to further promote our sustainability initiatives.

Fukuoka REIT Corporation 2022

29