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Overview of the 38th fiscal period performance［ 8968 ］ March 1st,2023～August 31st,2023

Hello, everyone. I’m Zenji Koike. I’m CEO of Fukuoka Realty. Thank you verymuch for tuning in to the performance overview of Fukuoka REIT Corporation forthe 38th fiscal period, which is from March 1st to the end of August this year.

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Let’s take a look at the executive summary on page 1. I’d like to begin with DPU
at the bottom of the page. The dividend payout for the 38th fiscal period was
3,753 yen per unit, beating our own expectations by 153 yen. By the way, this is
the largest dividend payout that we have made to our unit holders on a sixmonths basis to date. And it is in large part due to a rise in rent revenue from
Canal City Hakata following the stronger-than-expected recovery in the inboundtourism consumption. As you can see this graph, we expect we can continue to
pay the same level of dividend for the 39th fiscal period, 3,755 yen per unit. We
expect to pay 3,600 yen per unit for the 40th fiscal period even though we
anticipate no gain on sale of a property. I said in the last meeting that ourdividend target was 3,600 yen excluding the effect of a gain on sale. We expect
to achieve this target for the 40th fiscal period. We are committed to doing
everything we can to raise dividend for our unit holders so that we continue to bea stable dividend payer. Also, this time for the first time, we disclose our target
for the dividend level that we think should be normal going forward. I will explain
it in more detail later on.
Next, please take a look at the upper left part of the page for external growth. We
acquired an office building in Kumamoto Prefecture back in March, a residential
property in the city of Fukuoka in April, and a newly built office building, Hakata
FD Business Center, on September 1st, which is the beginning of the 39th fiscal
period. Tenants have been flocking to Hakata FD Business Center at a fasterpace than expected and at a comfortably high level of rent, so we are quite
confident that this newly office building will be a big revenue driver for the 39th2and 40th fiscal periods.
Next to the right is a summary for internal growth. Sales at all of our active retailproperties increased from a year earlier. Recovery in sales has been strong at
Canal City Hakata, our main retail property, up 18 percent from a year earlier,following the rebound in Korean tourists in particular. I’m going to share with you
more details about what’s been done for Canal City Hakata later on. Our officebuildings were 98.5 percent occupied as of the end of the 38th fiscal period. We
continued to raise rent on rent revisions or tenant turnovers by 1.3 million yen on amonthly basis.
When it comes to our finances, as you can see, we remain steadfast to ensure thestability of our financial structure. Total interest-bearing debt stood at about 86.5
billion yen at the end of the 38th fiscal period. We will continue to mitigate
refinancing risks through diversifying repayment dates and other means. We will
also consider ways to mitigate risk of higher funding costs as result of risinginterest rates by borrowing longer term and/or rebalancing the fixed and floating
rates.
Last but not least, here are our sustainability initiatives on the right side of theslide. We received four stars in the GRESB survey for three years in a row. We
also achieved a GRESB Public Disclosure Level of “A”, the highest level, for ouroutstanding disclosure of ESG activities, again. Also, 80.3 percent of ourproperties in the portfolio are now certified as “Green Buildings,” as of September
1st, 2023. For this performance overview meeting, we also disclose the results of
our qualitative as well as quantitative analyses of financial impact based on the
TCFD scenario analysis.
And that is a quick overview of the executive summary.

2Now let’s go to the next page to discuss more details about our dividend payouts.
I will talk about why the actual DPU for the 38th fiscal period was better than forthe previous period and our own expectations. I will also explain factors that form
the basis of our dividend forecast for the 39th and 40th fiscal periods. For the
38th fiscal period, we could successfully raise the DPU by 173 yen from thepreceding period to 3,753 yen in large part due to the gain on the disposal of
Kurume Higashi Kushiwara Shopping Center, which offset the drop in revenue
from Canal City Hakata under renovation and the associated increase in repair
expenses, as expected. Also at play were the recovery in inbound tourism
consumption in general and the rebound in the number of Korean tourists inparticular at Canal City Hakata, the fact that Higashi Hie Business Center’svacancy was completely filled during the previous period, and the properties weacquired in the previous period generating revenue for the full six months.
If you compare the DPU for the 38th period with our own expectations, you can
see almost the same factors at play. The biggest one is of course the fact that
rent revenue from Canal City Hakata increased following the stronger-thanexpected recovery in inbound demand. The DPU beat the expectations by 153
yen per unit.
When it comes to the DPU forecast for the 39th fiscal period, we expect that wewill pay almost the same level of dividend, 3,755 yen per unit, as the drop in thegain on the disposal of Kurume Higashi Kushiwara Shopping Center is going to3

be recouped with an increase in revenue from Canal City Hakata, a cutback on
repair expenses, and new properties generating revenue.
For the 40th fiscal period, we expect we can finally meet the target of paying
3,600 yen in DPU without relying on gain on sale of a property, thanks to anincrease in revenue from Canal City Hakata as well as revenue from newproperties such as Hakata FD Business Center.

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Speaking of DPU, this slide explains the dividend level that we think should benormal going forward. If you take a look at this graph, you can see that the DPU
recovered more than 10 percent from the 32nd fiscal period’s 3,250 yen, when
the pandemic’s impact was in full force, to 3,580 yen for the 37th fiscal period. In
fact, the DPU continued to go up for the 38th fiscal period by 4.8 percent from thepreceding period at 3,753 yen. Now, when we exclude the gain on sale, it is3,210 yen. And we have plans to raise that to 3,600 yen, up 12 percent, in thenext twelve months. Furthermore, our target for the dividend level that we thinkshould be normal is 3,800 yen. As described at the bottom of the page, we wantto achieve this target by driving both internal and external growth but also by
selling properties as well as tapping internal reserves as appropriate.

4The next slide, page 4, is about our approach to external growth. Our current
asset size is about 221.6 billion yen as of September 1 2023, after the acquisitionof Hakata FD Business Center. The percentage of retail properties in theportfolio is below our 50-percent target. As I said before from time to time, ourimmediate goal is to reach 250 billion yen in asset size and the next target is 300
billion yen.
We will continue to grow our portfolio by acquiring office buildings, logistics
facilities, and residential properties not only from our sponsor but also byleveraging our local connections and external sources with a particular focus onsustainability of a property. Also, as a comprehensive REIT, we continue to
optimize our portfolio and pay attention to the balance between risk and return.

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The next slide, page 5, describes the leasing situation of Hakata FD BusinessCenter, which we acquired on September 1, 2023. Its occupancy rate was just
12.2 percent on a signed contract basis in March this year when we made adecision to acquire this property. But since then the building has been attracting
a lot of prospective tenants for its prime location, its space per floor, its design,and the powerful support of Fukuoka Jisho. And it’s been filled at a stronger andfaster pace than we expected. The occupancy rate is at 60.6 percent on a signed
contract basis as of October 1st and is expected to go up to 86.5 percent inJanuary next year. The tenant who’s going to move in on Levels 8 and 9 will sign
the contract at the end of October. As you can see the chart on the right of theslide, we successfully attracted a group of very selective companies as tenants
both Japanese and foreign, in finance and consultancy.

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The next slide, page 6, is about updates on the office market in Fukuoka. The
graph on the left-hand side shows that the vacancy rate for September rose 1.4
percentage points from the end of December last year to 5.8 percent due to the
big supply of new office buildings in the city during the first half of this year, whilethe vacancy rate for existing buildings remained low at 4.32 percent. And just for
the reference, the vacancy rate of Metropolitan Tokyo area is at 6.15 percent in
September.
And if you look at the upper right corner of the page, you can see average rents
as of September this year, within the orange lined box. The September averagerent for Fukuoka continued to rise, up 0.7 percent from a year earlier, showingthat the office market in Fukuoka remains strong. We’d also like to note that theoffice buildings owned by Fukuoka REIT are very competitive because they
maintain high occupancy rates despite the rising vacancy rates in the market.

7Please go to the next page. It is showing the historical and projected occupancy
rates for office buildings in our portfolio. The weighted-average occupancy rate
for the twelve office buildings in our portfolio, which excludes the land for Tenjin
Nishi-Dori Business Center, remains at a high level of 98.6 percent for the 38th
fiscal period. And, according to CBRE’s appraisal data, our portfolio rent is still
12.5 percent lower than the market rent, so we will continue to work hard to raise
rent, as illustrated in the chart you see at the bottom right of the page.

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The next slide, page 8, describes the latest developments surrounding our main
retail property, Canal City Hakata. Sales at Canal City Hakata has recovered to
80 percent of pre-COVID levels since the period ended August 2022, when Canal
City Hakata’s results were hit hard by the pandemic. The recovery was driven by
the rebound in domestic traffic, foreign tourist consumption, especially by South
Korean tourists, and the opening of a new subway station near Canal City
Hakata. We expect to see a further recovery in sales for Canal City Hakata on
the back of an anticipated recovery in the number of Chinese tourists, theongoing renovation project called “Future Vision,” and the improved accessibility
and traffic from its adjacent facilities.
And as you can see the numbers just below that, there is a huge rebound in
Korean tourists whereas the number of visitors from Chinese mainland still
remains very small. So, when Chinese tourists begin come back to Fukuoka, itwill further boost sales for Canal City Hakata.

9Here are more updates on Canal City Hakata’s renovation project or the Future
Vision, as we call it. Alpen Fukuoka, a premier general sporting goods store andone of the group’s biggest in Kyushu, was opened on Level 1 through Level 3 of
the South Building on September 15, and the weekly traffic to Canal City Hakata
increased more than expected, by 30 percent, between before and after thestore’s opening. And for the first time in four years, Canal Splash was back thissummer. This is a water attraction with a big fountain and is open during school
summer break. So, our activities to increase traffic have also resumed. As for
Canal City Opa, American outdoor apparel brand, the North Face’s store wasrenovated and expanded back in April. And from this fall to winter we willrenovate the area called La Festa, on the first basement level. This is an area of
tenants that sell fashion goods and accessories. These renovations speak to thelevel of the partnership we have with our major tenants who share the Future
Vision for Canal City Hakata.
In addition, I talked about the renovation of the entire dining zone on the first
basement level of the Grand Building in the last performance briefing. We areworking on the design of the entire floor and have started our leasing activity as
well. Construction will begin in early January next year and will be completed in
twelve months.
The photo at the bottom right corner of the slide shows a public park located rightnext to Canal City Hakata. This is Seiryu Park and managed by the City of10

Fukuoka. The park is going to be redeveloped as a place of recreation for thecommunity, with the ability to accommodate various events, and is scheduled to
be open in the spring of 2025. Our sponsor, Fukuoka Jisho, is leading theconsortium for this park-PFI project as they were granted preferential negotiationrights by the city. Once this project is completed, it will significantly improve theaccessibility and traffic to Canal City Hakata from Tenjin and boost theattractiveness of the area.

10The next slide, page 10, describes the situation of our logistics assets. The
logistics property market in Fukuoka has been very bullish with very low vacancy
rates between 2019 and 2022. Despite the significant amount of new supply
since 2022, CBRE expects only a modest rise in the vacancy rate and thatdemand continues to be strong. Also, it is very likely that the market continues tobe extremely bullish not only in Fukuoka suburban areas but also in Tosu area,
Saga Prefecture, and the rent unit price is expected to go up even in the face ofthe large supply of new logistics facilities. And we will raise rent for our logistics
properties at the time of leasing contract renewals. Currently we own four
logistics properties and every single one of them is running at 100 percent
occupancy.

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The next slide, page 11, is about the situation of our residences and hotels. The
average occupancy rate of our five residential properties remained stably high at
97.5 percent for the 38th fiscal period. And we keep trying to raise rent at thetime of tenant turnovers.
Axion Befu Ekimae Premium, which we acquired during the 38th fiscal period, islocated in Jonan Ward, where the population and the number of households are
growing. Access to the city center from Befu Station, the nearest station of thisbuilding, has been improved following the extension of the Fukuoka City Subway
Nanakuma Line, and we expect it to be increasingly more popular as a residential
area. Because this is a newly built property, the occupancy rate is still just over
50 percent today. But more tenants are moving in as we speak and we areconfident that it is going to be fully occupied sooner than expected.
All the hotels in our portfolio are room-only hotels. The ADR of Fukuoka
Washington Hotel has recently recovered to the pre-COVID levels. And we had avariable rent revenue from Tissage Hotel Naha for the 38th fiscal period as well
despite the fact that recovery in inbound tourists is slower in Okinawa than inother areas. We are of course anticipating a stronger recovery in inboundtourists in Okinawa going forward.

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Please go to the next slide. From here I’m going to talk about our finances. Let’stake a look at page 12. In anticipation of possible higher financing costs due tothe recent rise in base rates, we will make sure to bring our financing costs undercontrol by diversifying debt maturities, adjusting borrowing terms, and rebalancing
the fixed and floating rates.
If and when we do refinancing or require a new borrowing going forward, we willborrow for a shorter period of time, not for seven or ten years as we did in thepast, and at floating rates at least for some part of the borrowing to minimize any
possible impact on the dividend. We stuck to this policy for the borrowings wemade during the 38th fiscal period.

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When it comes to LTV at the bottom of page 13, it will go up as a result of the
new acquisition, Hakata FD Business Center. However, it will still remain below
the upper threshold of 50 percent.

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The next slide, page 14, is about the appraisal value of our portfolio. The total
unrealized gains increased 1.9 billion yen from the previous fiscal period to 48.4
billion yen as of the end of the 38th fiscal period, as the headline shows. For
some properties, their book value is higher than the appraisal value, but the cap
rates for our office buildings, residential properties, and logistic facilities continue
to decline.

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From pages 15 to 17, I’m going to talk about what we are doing with respect tosustainability. Sustainability is one of our management priorities, and we’ve
added headcounts to Sustainability Promotion Office, as you can read theheadline. When it comes to our actions for the environment, we successfully got
a DBJ Green Building certification for Hakata FD Business Center, which we
acquired on September 1st, and that raised the percentage of certified “Green
Buildings” within our portfolio to 80.3 percent.

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The next two slides, pages 16 and 17, describe the results of our qualitative as
well as quantitative analyses of financial impact based on the TCFD scenario
analysis. Fukuoka REIT has been a TCFD supporter since September last year
and already conducted a qualitative assessment of financial impact based on
scenario analysis for TCFD. But this time we focused on climate-related risks
and opportunities and updated the qualitative assessment of financial impact.

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The next slide, page 17, describes the results of a quantitative analysis offinancial impact based on climate-related risk and opportunities. The numbers
you see on the slide are only projections calculated based on our past asset
management performance and data from climate-related scenarios and studies,and so there is no guarantee that these numbers will actually come true.
However, it is vital to quantitatively assess climate-related risks and be ready toaddress them if we continue to be a viable REIT in the mid-to-long term, andthese assessments will be incorporated into our management strategy. Also, wewill publish on our website what we are doing in terms of governance, strategy,
risk management, and KPIs as well goals within the framework of the TCFD
recommendations.

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The next topic I want to talk about is our income statements and dividend payouts
for the 38th fiscal period and the forecast for the next two fiscal periods. Let’stake a look at page 18 for the results of the 38th fiscal period and compare themwith those of the 37th fiscal period.
Factors that affected the operating profit and loss are described in the text within
the orange box. Operating revenues excluding gain on sale dropped 69 million
yen from the 37th fiscal period. The drop in revenue from Canal City Hakata dueto the ongoing renovation was partially offset by incremental revenue from a newacquisition and a recovery in rent revenue from Higashi Hie Business Center.
The gain on sale came from the second tranche of the disposition of Kurume
Higashi Kushiwara Shopping Center. Operating expenses increased 84 million
yen from the previous fiscal period due in large part to an increase in renovationrelated repair expenses and acquisition costs for new properties. The DPU forthe 38th fiscal period was up 173 yen from the previous period to 3,753 yen.

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The next slide, page 19, compares the results of the 38th fiscal period to our own
expectations. Again, factors that affected the operating profit and loss aredescribed in the text within the orange box. Operating revenues rose 84 million
yen and operating expenses fell 34 million yen. Repair and maintenanceexpenses went up more than expected, but the increase in rent revenue from
Canal City Hakata on the upsurge in customer traffic was more than enough tocover the rising expenses. The actual payout beat our expectations by 153 yen
per unit.

20Here is our business forecast for the 39th fiscal period on page 20. You can findthe main assumptions for the forecast within the green lined box. A gain on saleof Kurume Higashi Kushiwara Shopping Center will become smaller, but we
expect that incremental rent revenue from newly acquired properties and anincrease in rent revenue from Canal City Hakata following the opening of Alpen
Fukuoka will cover the shortfall. The DPU for the 39 fiscal period is expected to
go up by 2 yen per unit from the 38th fiscal period to 3,755 yen.

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The next slide, page 21, is about our forecast for the 40th fiscal period. Again,
the main assumptions are found within the green lined box. There will be no
more gain on sale of Kurume Higashi Kushiwara Shopping Center, but the
shortfall will be covered by incremental rent revenue from the newly acquired
properties and a further recovery in rent revenue from our Active Retailproperties. We expect that the DPU for the 40th fiscal period will meet the lower
end of the target of 3,600 yen, which I talked about in the last performanceoverview briefing.
And that brings to an end to the performance overview for the 38th fiscal period.
Thank you very much for watching.

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