Fukuoka REIT Corporation
Q&A Summary for the 36th Fiscal Period (Period Ended August 2022)
Earnings Briefing Session for Institutional Investors/Analysts
Date: October 20, 2022 (Thu.), 11:30 AM – 12:34 PM (web conference)
Q1

As a recovery in inbound tourism is currently expected, are there any facilities similar

to LAOX at Canal City Hakata―which experienced brisk business before the COVID-19
pandemic ― where customer attraction and percentage-of-sales rent can be expected?
Furthermore, with regard to the evolution of Canal City, will we be seeing any additionsrelated to inbound tourism?
A1

There are currently no facilities specializing in inbound tourism similar to LAOX. However,

we believe that recognition of our properties among foreign tourists is still high and thus
have great expectations for the recovery of demand from inbound tourists in the future.
In the project to evolve Canal City Hakata, we are aware of the demand from inboundtourists and seek to realize a facility connecting Fukuoka and Asia given the proximity.
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Q2

Will the decrease in rent revenue at Canal City Hakata in the fiscal periods ending

February and August 2023 be caused by sluggish sales attributable to the intensifiedcompetitive environment? Or will it be due to the impact of the renovation?
A2

The decrease in rent revenue will occur due to the impact of downtime caused by therenovation.
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A3

Yes, we plan to allocate the proceeds mainly to the capital expenditure associated withthe renovation of Canal City Hakata. As of now, there are no plans to allocate the proceeds
to acquisition of new properties.

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Q4

When is the project to evolve Canal City Hakata expected to start and when is it

expected to finish? Furthermore, how much will rent revenue and NOI decrease during that
period and by how much will those items recover afterward?
A4

The project will start in the fiscal period ending February 2023 when a downtime isscheduled to occur due to the renovation. It will not finish after one or two years. Instead,renovation of each zone will occur in phases over several years. As for the effects after therenovation, we aim to bring NOI back to a level similar to when the effects of inbound tourism
were seen.
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Q5

We expected Canal City Hakata to be impacted by LaLaport Fukuoka in the fiscal periodended August 2022, but instead real estate leasing revenue increased from the previous
fiscal period. What is the cause of the increase?
A5Although Canal City Hakata was impacted by LaLaport Fukuoka in the fiscal period

ended August 2022, sales exceeding the assumption were recorded for the property basedon the recovery trend from the time of spread of COVID-19 infection. However, we are not
optimistic and intend to continue differentiating the property from competing facilities.
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Q6

What is the reason behind the successful leasing of Higashi Hie Business Center?

A6

We were able to successfully lease Higashi Hie Business Center because the location

with a direct connection to a station, the building specifications, the wide floor area on eachfloor and other features were very well received. We fielded many inquiries from IT
companies that were considering establishing new a base in Fukuoka.
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Q7

We understand the concept behind the renovation of Canal City Hakata, but what

exactly will you do?
A7Specifically, we intend to provide new communities through business categories

combining goods consumption and experiential consumption and experience value as wellas enhance places that produce a mixed culture of Asia and Fukuoka and restaurants.
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Q8

As for the project to evolve Canal City Hakata, how much investment effect do you

expect economically? Moreover, how long will the negative impact of the renovation on
business performance continue for?
A8

We would like to continue achieving the revenue that was recorded in around 2019

when there was high demand from inbound tourists. We plan to conduct renovation in eachzone, and although a negative impact on business performance is forecast over several fiscal
periods, we intend to absorb it with external and internal growth.
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Q9 It seems that remote work has not spread as widely in Fukuoka as it has in in Tokyo.
For what reason, then, is vacancy rate for office buildings in Fukuoka increasing?
A9We think that the vacancy rate has increased temporarily in line with the timing ofsupply of new office buildings. However, vacancies are gradually filled also at new officebuildings albeit after completion. In that respect, we believe that the vacancy rate in Fukuoka
is at a level lower than that in Tokyo.
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The decrease in revenue at Canal City Hakata is forecast to continue until the fiscal

period ending August 2023. Do you think that it is a temporary decrease due to the openingof LaLaport Fukuoka and expect rent to recover gradually based on the future vision? Or issuch sales level expected to continue constantly in the future?

A10

The decrease in revenue is not due to the impact of LaLaport Fukuoka but instead theimpact of downtime caused by the renovation. After the renovation, it is assumed that newtenants will move in and sales will recover. We do not think that there will be a constantnegative impact.
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How large will the impact on rent be if the sales of Canal City Hakata recover to thesame level as that in 2019?
A11In 2019, there were some tenants meeting the demand of inbound tourists, and tenantcomposition was different from the current composition. Although comparison is difficult, webelieve that rent will return to a level close to that in 2019.
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We recognize that Canal City Hakata was a retail facility with a high ratio of sales

driven mainly by inbound tourists from South Korea before the COVID-19 pandemic. Is there
any information on the future trend after the resumption of inbound tourism to Fukuoka
from South Korea following the lifting of the restriction on the maximum number of foreign
nationals allowed to enter Japan this month?
A12

Before the COVID-19 pandemic, there was strong demand from inbound tourists,

mainly from South Korea as well as China and Taiwan. At present, about three flights areoperated between Fukuoka and Seoul every week, and there are sometimes empty seats.
We have heard that flights will be operated almost daily and that a considerable number ofreservations have been made. Therefore, we are expecting a recovery of demand frominbound tourists from South Korea.
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Do you plan to offset the decrease in revenue caused by the renovation of Canal City

Hakata after the fiscal period ending February 2024 with the gain from additional property
sales?
A13

The split sale of Kurume Higashi Kushiwara SC will take place in the fiscal period endingFebruary 2024, and the decrease in revenue is scheduled to be offset by a part of the gainon sale from that transaction. After that, we aim to complete the renovation while stabilizing
distributions through external growth and recovery in the portions of Canal City Hakata
where renovation has been completed.
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Do you not think that you will fail to capture the demand from inbound tourists if you

implement renovation when inbound tourism starts to recover? Furthermore, do you plan torenovate Washington Hotel as well?
A14

We understand that there will be a negative impact on the section(s) subject torenovation. However, as shown in the future vision, we believe that it is necessary toimplement the project to evolve Canal City Hakata simultaneously over the medium to longterm.
Furthermore, plumbing work at Washington Hotel has already been carried out, and thehotel has been renovated in order to capture demand once inbound tourism recovers.
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Do you plan to continue selling properties and support DPU during the renovation ofCanal City Hakata even after the fiscal period ending August 2024? In such case, will you
set a lower limit of DPU?
A15We do not plan to sell properties at this stage. We intend to support DPU throughexternal and internal growth during the renovation. We mentioned that the lower limit is3,500 yen in the analyst meeting for the previous fiscal period, but we would also like toincrease distributions as we will enter a growth phase from now on.
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*This material contains statements on future business performance, plans, management targets, and strategies, etc. These forwardlooking statements are based on the latest judgments made by Fukuoka REIT Corporation and Fukuoka Realty Co., Ltd., and the actual
results of Fukuoka REIT Corporation may differ materially from those in the forward-looking statements due to various factors.
Therefore, Fukuoka REIT Corporation and Fukuoka Realty Co., Ltd. do not guarantee their respective future performances described inthis material or explanations based on this material. Although Fukuoka REIT Corporation and Fukuoka Realty Co., Ltd. have preparedthis material based on information that is believed to be reliable, no guarantee is made as to the accuracy, rationality, or completenessof the content. Please note that all the descriptions of this material are effective as of the date when this material was prepared, andmay be subject to change without prior notice. This material is solely for the purpose of providing information to investors, and is notintended for soliciting investment or other activities. When making a final decision on investment, investors are kindly requested to doso based on their own judgment and responsibility, fully recognizing and understanding the investment-related risks including adecrease in investment value.