Japan Logistics Fund, Inc. Presentation Material For the Fiscal Period ended January 2018 Spring 2018 Mitsui & Co., Logistics Partners Ltd. http://8967.jp/eng/
Table of Contents Section 1 Executive Summary 3 2 Chapter 1: Our Growth Strategy 4 3 Chapter 2: Fiscal Period ended January 2018 15 4 Chapter 3: Earnings Overview and Forecasts 19 5 Chapter 4: Market Overview 24 6 To Our Investors 30 2
Executive Summary Pursue DPU growth through the continuous acquisition of properties. Our growth strategies (annual target of 20 billion 30 billion yen) Aim for an average NOI yield of 4.5% for properties to be acquired by promoting the two approaches in a well-balanced manner; independent sourcing and sourcing from the real estate market. All-out efforts for the optimization of the investment unit price. Fiscal period ended January 2018 Kashiwa Logistics Center II (building): A project with future upside potential through efforts from a long-term perspective Sendaiko-kita Logistics Center: Acquired at a high yield through off-market transactions Shiroi Logistics Center: JLF s independent sourcing utilizing its OBR know-how Internal growth through an improved occupancy rate by exercising leasing power DPU January 2018 Results: 4,376 DPU July 2018 Forecast: 4,450 DPU January 2019 Forecast: 4,500 DPU 3
Chapter 1 Our Growth Strategy
Achieving the Mid-Term Business Plan stable + Growth 2.0 Achieved stable + Growth 2.0. The policy of pursuing the stability and growth of distributions will remain unchanged. (yen) 5,000 stable + Growth stable + Growth 2.0 4,500 4,000 4,376 yen (Actual) 4,500 yen 4,450 yen (Forecast) (Forecast) 3,500 Floor: 3,600 yen Floor: Approx. 3,800 yen DPU 3,000 2013/07 (FP 16) 2014/01 (FP 17) 2014/07 (FP 18) 2015/01 (FP 19) 2015/07 (FP 20) 2016/01 (FP 21) 2016/07 (FP 22) 2017/01 (FP 23) 2017/07 (FP 24) 2018/01 (FP 25) 2018/07 (FP 26) 2019/01 (FP 27) (Note) Figures through Fiscal Period 17 (ended Jan. 2014) have been adjusted for investment unit splits. Our Growth Strategy: Chapter 1 5
DPU Growth through Continuous Acquisition of Properties Achieved stable and sustainable DPU growth through continued property acquisition over the past 12 years. JLF s total acquisition price and DPU (Note 1) (Note 2) Continuously acquired properties of 20 billion 30 billion yen a year for the stability and growth of DPU. Discerning eye for properties acquisition Determine value as a logistics property, regardless of its property type, size and age. (billion yen) 400 350 Total acquisition price (lhs) DPU (rhs) Target annual acquisition amount 20 billion 30 billion yen (yen) 5,000 4,500 Build a portfolio that is able to meet wide-ranging tenant needs by diversifying region and property type, size and age, etc. By region (by gross leasable area) Other 5.3% By property type (by number of properties) 300 250 200 270.8 billion yen 4,000 3,500 Osaka, Nagoya, Fukuoka 24.8% Tokyo Bay Area 36.5% Tokyo Metropolitan Area 33.4% Non-LMT 80.4% LMT (Note 3) 19.6% 150 3,000 By size (by number of properties) By age (by number of properties) 100 50 2,500 Over 30,000m 2 39.1% Less than 15,000m 2 32.6% Over 20 years 28.3% Less than 10 years 32.6% 0 2006/01 (FP 1) 2008/07 (FP 6) 2011/01 (FP 11) 2013/07 (FP 16) 2016/01 (FP 21) As of 2018/03 ~ ~ 2,000 Over 15,000m 2 less than 30,000m 2 28.3% Over 10 years less than 20 years 39.1% (As of March 13, 2018) (Note 1) Implemented a 5-for-1 investment unit split effective February 1, 2014. Historical DPU through the FP ended January 2014 have been adjusted for the investment unit split. (Note 2) DPU in the FP ended January 2006 is converted to one fiscal period (6 months). (Note 3) Compilation of logistics properties for lease with a GFA of at least 5,000 m 2 in the Tokyo Metropolitan Area. LMT refers to Large Multi-Tenant properties, or multitenant logistics properties with a GFA of at least 10,000 tsubo. The same applies below. Our Growth Strategy: Chapter 1 6
JLF s Acquisition Strategy Continuous external growth through independent sourcing and sourcing from the real estate market Independent sourcing Sourcing from the real estate market Promoting off-market transactions Generating acquisition opportunities Appropriate price = Base rate + Risk premium specific to property Risk premium specific to property = Stability of cash flows Realized higher yield compared with acquisition through sourcing from the real estate market, by leveraging the sponsor network and the knowledge of the asset manager. M-23 Kashiwa L.C. II O-5 Sendaiko-kita L.C. M-34 Shiroi L.C. Base rate changes with the financial environment and supply-demand trends of logistics properties. Realize external growth, leveraging an assessment ability concerning the stability of cash flows. M-32 Yokohama Machida L.C. M-19 Souka L.C. Acquired in September 2013/ March 2018 Joint investment with a lease company Anticipated NOI yield: 7.3% (Note) Acquired in March 2018 The manager s own network Anticipated NOI yield: 7.3% (Note) Asset to be acquired Applying OBR know-how Anticipated NOI yield: 5.1% (Note) Acquired in September 2017 Additionally acquired in February 2017 Aim to achieve an average NOI yield of 4.5% for properties to be acquired in the future by taking the two approaches in a well-balanced manner. (Note) Anticipated NOI yield = Anticipated NOI / (Planned) acquisition price. Anticipated NOI is an estimate of annual earnings stripping out extraordinary factors in the year of acquisition made by the asset manager. It does not represent forecasts for the FP ending July 2018 and the FP ending January 2019. The same applies below. Our Growth Strategy: Chapter 1 7
Independent Sourcing: Actual Results of OBR and Application of OBR Know-How Generate acquisition opportunities, by leveraging OBR know-how as well as continuous implementation of OBR. Track records of OBR Application of OBR know-how Track record OBR #1 Daito L.C. OBR #2 Yachiyo L.C. Target properties Development ( ) JLF s role OBR Properties already held JLF OBR (Kasugai scheme) Land already held + New buildings Partner (Provide know-how) Application of OBR know-how New sourcing of properties held by partner Partner (Provide know-how) Leasing ( ) JLF s role JLF Partner (Provide support) Partner (Provide support) Post-OBR NOI yield (Note) 9.8% (Results FP Ended July 2011) 6.7% (Results FP Ended Jan. 2016) Reasons for high yield Utilization of low book value and no drain of development benefit Construction cost control and risk sharing with partner Development cost control and risk sharing with partner Track record OBR #3 Kiyosu L.C. OBR #4 Kasugai L.C. Generate acquisition opportunities by applying know-how on past OBR. Realize a higher yield than in the market while reducing risks by being involved in the project from the development stage. Track records of applying OBR know-how (assets to be acquired) Post-OBR Anticipated NOI yield 8.9% 6.6% Application of OBR know-how #1 Yachiyo L.C. III Application of OBR know-how #2 Shiroi L.C. 2 or 3 candidate properties for OBR (Note 2) Potential to add about 200,000 m 2 to gross floor area (equivalent to about 11% of the portfolio) (Note 3) Anticipated NOI yield: 5.3% Anticipated NOI yield: 5.1% (Note 1) NOI yield = Actual NOI / Book value at the end of the period / Number of investment days X 365 days (Note 2) The number of properties that JLF currently considers to be candidates for OBR based on the criteria for OBR projects is stated. It does not refer to the redevelopment of all of these properties. (Note 3) Represents an estimate of the maximum allowable building size per floor-to-area zoning allowances for current OBR candidates. May differ from the actual area resulting from any real OBR project. Our Growth Strategy: Chapter 1 8
JLF s Concept of Portfolio Management Concept of portfolio management of existing properties Thoroughly review and examine whether there are any signs of concern regarding the stability of cash flow based on the check points below. Check point 1 Check point 2 Check point 3 Difficulty in retenanting Properties for which difficulty in retenanting has arisen due to changes in needs for specifications Rise of maintenance cost Properties for which maintenance cost is expected to rise due to aging degradation Location advantage Properties for which there are signs of concern about location advantage due to changes in the competitive environment Flow chart of portfolio management STEP 1 STEP 2 STEP 3 Will the stability of cash flow of the property improve through value-up investments? No Does the property meet the criteria for OBR projects? No Is the property saleable? Yes Implementation of value-up investments Yes Implementation of OBR Yes Asset sale / reshuffle Kazo L.C. Installation of power generators Kadoma L.C. Expansion of warehouse for hazardous materials OBR #2 Yachiyo L.C. OBR #3 Kiyosu L.C. Funabashi Nishiura L.C. II Yokosuka L.C. Our Growth Strategy: Chapter 1 9
Asset Sale / Reshuffle Strategy: Utilization of Unrealized Gains Strategically utilize unrealized gains, a strength of JLF. (billion yen) 100 90 (%) 45.0 40.0 Unrealized gain as % of portfolio: Top-class in J-REITs (Note) 80 35.0 JLF 70 60 50 40 30 30.0 25.0 20.0 15.0 35.6% (Unrealized gain: 89.6 billion yen) Weighted average for J- REITs (excluding JLF) 15.6% 20 10 0 06/01 期 ( 第 (FP1) 1 期 ) 07/01 期 ( 第 (FP3) 3 期 ) 08/01 期 ( 第 (FP5) 5 期 ) 09/01 期 ( 第 (FP7) 7 期 ) 10/01 期 ( 第 (FP9) 9 期 ) 11/01期 ( 第 (FP11) 期 ) 12/01期 ( 第 (FP13) 期 ) 13/01期 ( 第 (FP15) 期 ) 14/01期 ((FP17) 第期 ) 15/01期 ((FP19) 第期 ) 16/01期 ((FP21) 第期 ) 17/01期 ((FP23) 第期 ) 10.0 5.0 0.0 18/01期 Estimate ((FP25) 第期 ) as of 18/03 Weighted average for logistics REITs (excluding JLF) 19.3% Unrealized gain (lhs) Unrealized gain as % of portfolio (rhs) Distributions to investors Allowance for write-off on fixed assets associated with valueup investments Allowance for break funding cost associated with the refinancing of loans with high interest rate (Note) Unrealized gain as % of portfolio is calculated by dividing unrealized gains by book value. Unrealized gain as % of portfolio of JLF is calculated by first adding the assumed unrealized gains of two properties acquired on March 1, 2018 to unrealized gains as of the end of January 2018, and then dividing the calculated unrealized gains by the book value that is obtained by adding the assumed book values of the two properties to the book value as of the end of January 2018. For Weighted average for J-REITs and Weighted average for logistics REITs, unrealized gain as % of portfolio is calculated based on the latest financial documents that are published as of March 1, 2018, and the weighted average calculated using the book value is stated by rounding off to the first decimal place. Our Growth Strategy: Chapter 1 10
Financial Strategies Reduce capital cost on both the liability and capital sides. Financial strategy on the liability side Stabilize LTV at a low level to maintain debt financing capacity. Strengthen the earning power with strategic refinancing. LTV control Financial strategy on the capital side All-out efforts for optimizing the investment unit price. P/NAV ratio (yen) (%) 5,000 4,500 4,000 3,500 Near-term goal LTV: 35% (appraisal value base) 34.9% 45.0 40.0 34.5% 34.5% 35.0 30.0 25.0 (times) 1.1 1.0 0.9 Remain significantly below P/NAV1x 3,000 13/01 (FP 15) 14/01 (FP 17) DPU (lhs) 15/01 (FP 19) 16/01 (FP 21) 17/01 (FP 23) 18/01 (FP 25) LTV (appraisal value base, rhs) 19/01 (FP 27) 20.0 0.8 17/01 17/02 17/03 17/04 17/05 17/06 17/07 17/08 17/09 17/10 17/11 17/12 18/01 Reduce liability cost (%) 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Refinancing for the next 3 years Total 20.5 billion yen Avg. debt cost 0.82% 18/07 (FP 26) 19/01 (FP 27) JCR AA+ (Stable) 6.5 billion yen 1.10% 19/07 (FP 28) 4.0 billion yen 0.56% 20/01 (FP 29) Credit rating (as of March 13, 2018) 3.0 billion yen 0.19% (Note) 20/07 (FP 30) R&I AA (Negative) 7.0 billion yen 0.99% 21/01 (FP 31) (Note) The latest values are stated because borrowings are made at a variable interest rate. Avg. term of loans 7.2 years 0.37% Actual borrowings after 2017 Moody s A1 (Negative) All-out efforts to optimize the investment unit price Diversify investment strategies Promote dialogue with investors Ensure transparency of fund management policy Appeal our growth strategy to investors All-out efforts Consider all measures such as asset reshuffle, utilization of unrealized gains, flexible financial strategies and cooperation with sponsors, leaving no area untouched. Enhance investor returns Consider continuous execution of investment unit buybacks Our Growth Strategy: Chapter 1 11
Cash Management Policy and Investment Unit Buyback Program Cash management policy Cash and deposits (excluding cash and deposits in trust) remain at around 7 billion yen on average. Consider optimum deployment of cash and deposits. Cash and deposits (excluding cash and deposits in trust) (billion yen) 15 10 Average for the past five fiscal periods: Approx. 7.2 billion yen (excluding funds for acquiring properties) Funds for acquiring properties Approx. 3.0 billion yen Continuous investment unit buyback Consider investment unit buyback every period when the investment unit price is significantly undervalued and when it will not be a burden for cash management. Investment unit buyback program (resolved on March 13, 2018) 1. Planned total number of investment units for this buyback program Up to 11,000 units 5 0 16/01 (FP 21) 16/07 (FP 22) 17/01 (FP 23) 17/07 (FP 24) 18/01 (FP 25) 2. Planned total amount of investment units for this buyback program Up to 2.5 billion yen 3. Buyback period From March 14, 2018 to June 29, 2018 Optimum deployment of cash and deposits STEP 1 Maintain sound LTV level Expense sufficient maintenance cost of properties STEP 3 STEP 2 Possibility of value-up investments Possibility of OBR execution Possibility of property acquisition Impacts on forecasted DPU (yen) 4,600 4,500 +1.1% 4,450 yen Effect of the buyback +50 yen (Note 1) (Note 2) +1.3% 4,500 yen 4,500 yen 4,560 yen Effect of the buyback +60 yen Investor returns Investment unit buyback program Points to consider when executing the investment unit buyback Secure funds necessary to maintain the value of the assets held Maintain LTV capacity Ensure sufficient liquidity on hand 4,400 (Note 1) (Note 2) Initial forecast 2018 年 After 7 月期 the buyback Initial forecast 2019 年 After 1 月期 the buyback FP 2018/7 FP 2019/1 Forecasted DPU is DPU as of March 13, 2018 calculated under certain conditions and could change due to factors such as changes in rent income associated with changes in tenants, the disposition and purchase of properties, and the additional issuance of investment units, etc. Forecasted DPU after the buyback is an estimate based on the assumption that JLF will acquire its own investment units until the number of purchased investment units reaches the planed total number of investment units for this buyback and that all the acquired investment units will be cancelled during the FP ending July 2018. Forecasted DPU after the buyback could change due to the actual number of investment units acquired. Our Growth Strategy: Chapter 1 12
Mitsui & Co. Asset Management Business Strengthen the commitment of the Mitsui & Co. Group, the main sponsor. Domestic Asset Management Business Overseas Asset Management Business Investing equity in multiple asset managers overseas CIM Group, LLC ESR Funds Management (S) Limited TICON Management and others Internal growth Sharing the know-how and network of professionals, such as leasing team and architects in the properties management department gathered in MAH. Making maximum use of the customer network of Mitsui & Co. for leasing. Internal growth External growth Sumitomo Mitsui Trust Bank, Limited Kenedix, Inc. External growth Increase in the number of projects brought into the MAH Group and expectation for joint investment projects with private funds within the Group Expansion of property sourcing routes using the MAH Group s network Mitsui & Co., Asset Management Holdings Ltd. (MAH) 29% 20% (Note3) 20% 10% (Note 3) Business transformation Create new business opportunities in cooperation with MAH. 50% 100% 51% 70% (Note 3) Mitsui Bussan & Mitsui (Note 1) Idera Partners Co., Ltd. & Co., Realty (Note 2) Management Ltd. Mitsui & Co., Logistics Partners (Note 1) Real estate management company of the Mitsui & Co. Group that is managing the diversified J-REIT Mirai. (Note 2) Real estate management company of the Mitsui & Co. Group, with a track record of forming numerous private equity funds, that is managing the Mitsui & Co., Private Investment Corporation. (Note 3) On March 13, 2018, some of the shares held by Sumitomo Mitsui Trust Bank and Kenedix were transferred to MAH, and their investment ratios have been changed. Our Growth Strategy: Chapter 1 13
CSR Efforts Conducted activities to fulfill our social responsibility, such as contributing to the environment and society through holding logistics properties. Worked on environmental and energy-saving measures and acquired the environment certification and assessment below. Acquisition of DBJ Green Building certification (3 properties) (Note 1) M-24 Shin-Koyasu L.C. M-11 Yachiyo L.C. T-8 Tajimi L.C. Participation in GRESB Real Estate Assessment for the fifth consecutive year (Note 2) Acquisition Acquisition of Rank A in CASBEE for Buildings (New Construction) (3 properties) (Note 3) of assessment based on the SMBC Sustainable Building Assessment Loan System (Note 4) M-11 Yachiyo L.C. M-18 Ichikawa L.C. II M-32 Yokohama Machida L.C. Logistics property that gives consideration to sustainability including the environment M-25 Misato L.C. (Note 1) A system that selects and certifies real estate (Green Building) that gives consideration to the environment and society based on the comprehensive assessment system including consideration for societal demand from various stakeholders surrounding the target property, in addition to its environmental performance. (Note 2) GRESB stands for Global Real Estate Sustainability Benchmark. It is a benchmark for assessing the environmental consideration and sustainability of real estate companies including REITs that was established mainly by major pension funds in Europe for the purpose of increasing shareholder value by applying consideration for the environment, society and governance to real estate investment as well. (Note 3) A system that was developed under the initiative of the Ministry of Land, Infrastructure, Transport and Tourism to assess and rate the environmental performance of buildings. It comprehensively assesses the environmental performance of architectural structures, including consideration for indoor comfort and landscapes, in addition to aspects to reduce the environmental burden, such as energy savings, resource savings and recycling performance. (Note 4) A system that assesses real estate that gives consideration to sustainability, including environmental performance, efforts for risk management that are necessary to secure sustainability, and the policy and practice of the sustainable management of the target property to promote these initiatives, based on its own assessment criteria prepared by SMBC and CSR Design & Landscape Inc. Our Growth Strategy:Chapter 1 14
Chapter 2 Fiscal Period ended January 2018
Fiscal Period Ended January 2018: Newly Acquired Assets Acquired properties with future upside potential through initiatives with a long-term perspective. M-23 Kashiwa Logistics Center II (Note) Joint investment with a financial lease company Initiatives with a long-term perspective 1 Before acquiring the building (September 2013) JLF acquired land, and the financial lease company acquired the building. Tenants 2 The period with the right of first refusal (September 2013 February 2018) Depreciation progresses due to the holding of the building by the financial lease company, and the price of the building declines. Within a specific time period, JLF becomes able to acquire the building if it makes an offer. Tenants After acquiring the 3 building (March 2018) At the stage where JLF can secure a sufficient yield as a result of the certain progress of depreciation, JLF acquires the building from the financial lease company and owns the land and the building as one. Tenants Rent Rent Rents Date of acquisition Location September 20, 2013 (land) March 1, 2018 (building) Kashiwa, Chiba Anticipated NOI yield 7.3% Building Financial lease company Land rent JLF Land Upside potential Building Financial lease company Land rent JLF Land JLF The building + the land Acquisition price 3,795 Upside potential in rents Upside potential in development Appraisal value Tenants Gross leasable area 4,310 Nakano Shokai Co., Ltd. 50,126.79 m 2 Area with high tenant needs Upside potential in rents in case of tenant replacement Significant improvement in profitability by the optimizing unused floor-area ratio Statutory floor-area ratio: 200% Used floor-area ratio: 92% (Note) Because JLF will own both the land and the building after acquiring the building on March 1, 2018, information that includes the land that was acquired on September 20, 2013 is stated. Fiscal Period ended January 2018: Chapter 2 16
Fiscal Period Ended January 2018: Newly Acquired Assets and Assets to be Acquired Sendaiko-kita: Acquired at a high yield through off-market transaction. Shiroi: JLF s independent sourcing, utilizing OBR know-how O-5 Sendaiko-kita Logistics Center M-34 Shiroi Logistics Center (to be acquired) (Note 1)(Note 2) Off-market transactions Anticipated NOI yield 7.3% Application of OBR know-how Anticipated NOI yield 5.1% Date of acquisition March 1, 2018 Expected date of acquisition Not yet determined Location Sendai, Miyagi Location Shiroi, Chiba Acquisition price 1,600 Expected acquisition price 4,052 Appraisal value 1,900 Appraisal value 4,980 Tenants Nichirei Logistics Group Inc. Tenants Not yet determined Gross leasable area 9,626.21 m 2 Gross leasable area 24,459.90 m 2 JLF s first refrigerated warehouse in excellent location for logistics in Tohoku area Truck berths on three sides of the property, focusing strong attention on tenant convenience Acquired at a high yield through off-market transaction Area with high tenant needs JLF s independent sourcing, applying its OBR know-how Scheme with high resistance to changes in the market environment (Note 1) The sale and purchase agreement for the acquisition of this property qualifies as a forward commitment as stipulated in the Comprehensive Guidelines for the Supervision of Financial Instruments Operations and others stipulated by the Financial Services Agency. (Note 2) It is based on the current plan and could change in the future. Fiscal Period ended January 2018: Chapter 2 17
Stable Earning Base and Financial Standing (Note 1) Occupancy rate 96.9% Average remaining life of leases 5.6 years Anticipated portfolio NOI yield 6.1% Percentage of debt on fixed rates (Note 2) 97.5% Average remaining maturity of debt 5.7 years Average debt cost 0.72% (%) 12.0 10.0 8.0 6.0 4.0 2.0 Lease expiration ladder (based on annual rental revenue) Debt maturity (redemption) ladder (billion yen) 10 8 6 4 2 Interest-bearing debt outstanding: 117.7 billion yen Loans Bonds 0.0 18/07 (FP 26) 21/01 (FP 31) 23/07 (FP 36) 26/01 (FP 41) 28/07 (FP 46) 31/01 (FP 51) 33/07 (FP 56 ) 0 18/07 (FP 26) 21/01 (FP 31) 23/07 (FP 36) 26/01 (FP 41) 28/07 (FP 46) 31/01 (FP 51) 33/07 (FP 56 ) (%) 100.0 99.0 98.0 97.0 96.0 95.0 94.0 Occupancy rate 16/01 (FP 21) 16/07 (FP 22) (Note 1) Figures as of March 13, 2018 17/01 (FP 23) Results Assumption of forecasts announced in 17/07 (FP 24) Assumption of forecasts announced in 18/01 (FP 25) 17/07 (FP 24) 96.9% 96.0% 18/01 (FP 25) 97.7% 97.7% 94.7% 18/07 (FP 26 forecast) Improvement in occupancy rate 19/01 (FP 27 forecast) Lender distribution The Bank of Fukuoka 2.1% Resona Bank 3.4% Mizuho Bank 5.5% The Bank of Tokyo- Mitsubishi UFJ 5.5% Nippon Life Insurance 7.2% Investment corporation bonds 8.2% Other 6 institutions 8.5% Breakdown of other 6 institutions Sumitomo Mitsui Banking 20.4% Development Bank of Japan 16.1% Sumitomo Mitsui Trust Bank 12.7% Mizuho Trust & Banking 1.7% Mitsui Sumitomo Insurance Mitsubishi UFJ Trust and Banking 10.2% (Note 2) Percentage of interest-bearing liabilities for which the interest rate is fixed 1.7% The Norinchukin Bank 1.7% Tokio Marine & Nichido Fire Insurance 1.7% Shinkin Central Bank 1.3% The 77 Bank 0.4% Subtotal 8.5% Fiscal Period ended January 2018: Chapter 2 18
Chapter 3 Earnings Overview and Forecasts
Fiscal Period Results Ended Jul. 2017 Ended Jan. 2018 Period-on-period FP 25 Forecast FP 24 actual FP 25 actual change as of Sep. 11, 2017 Vs. forecast at beginning of period (A) (B) (B-A) (C) (B-C) Operating revenue (Million yen) 7,995 8,857 +862 8,801 +56 NOI (Million yen) 6,691 7,406 +714 7,456-50 Depreciation/Loss on writeoffs (Million yen) 1,858 2,015 +156 2,060-45 Net income (Million yen) 3,678 4,048 +370 4,023 +24 DPU (Yen) 4,180 4,376 +196 4,350 +26 FFO per unit (Yen) 6,291 6,555 +264 6,570-15 Investment units outstanding (Units) 880,000 925,000 +45,000 925,000 - Number of properties (Properties) 43 45 +2 45 - Appraisal values (Million yen) 306,590 337,660 +31,070 Unrealized gain as % of portfolio (%) 39.2 35.8-3.4 Interest-bearing liabilities (Million yen) 94,700 117,700 +23,000 117,700 - LTV (%) 30.9 34.9 +4.0 BPS (Yen) 146,257 149,260 +3,003 NAV per unit (Yen) 244,322 245,439 +1,117 Vs. previous period (impact on net income) (Million yen) Vs. forecast at beginning of period (impact on net income) (Million yen) New acquisitions (Yokohama Machida, Takatsuki) Completion of Kasugai OBR project 6 months full-contribution of properties acquired in the previous period (Soka, Shinkiba II, Kiyosu OBR) Existing properties (tenant turnover and others) G&A expenses Non-operating P/L (higher debt costs, PO costs and others) +374 +95 +91-4 -86-101 Existing properties (tenant turnover, operating expenses and others) G&A expenses Non-operating P/L (lower debt costs and others) -5 +7 +22 Earnings Overview and Forecasts: Chapter 3 20
Forecasts Ended Jan. 2018 Ending Jul. 2018 Period-on-period Ending Jan. 2019 FP 25 actual FP 26 forecast (Note) change FP 27 forecast (Note) Period-on-period change (A) (B) (B-A) (C) (C-B) Operating revenue (Million yen) 8,857 9,091 +233 9,127 +36 NOI (Million yen) 7,406 7,513 +107 7,551 +37 Depreciation/Loss on write-offs (Million yen) 2,015 2,068 +53 2,050-18 Net income (Million yen) 4,048 4,119 +71 4,164 +44 DPU (Yen) 4,376 4,450 +74 4,500 +50 FFO per unit (Yen) 6,555 6,689 +134 6,718 +28 Investment units outstanding (Units) 925,000 925,000-925,000 - Number of properties (Properties) 45 46 +1 46 - Appraisal values (Million yen) 337,660 Interest-bearing liabilities (Million yen) 117,700 117,700 ±0 117,700 - LTV (%) 34.9 (Note) These forecasts have been calculated based on certain assumptions made as of March 13, 2018, and are subject to change as a result of factors, including fluctuations in rental revenue resulting from tenant turnover, the purchase or sale of real estate, and the issuance of additional investment units. Furthermore, these forecasts do not guarantee the amount of cash distributions. FP 26 forecast (impact on net income. Vs. previous period results) (Million yen) FP 27 forecast (impact on net income. Vs. previous period results) (Million yen) New acquisitions (Kashiwa II building, Sendaiko-kita) 6 months full-contribution of properties acquired in the previous period (Yokohama Machida, Takatsuki, Kasugai) Existing properties (tenant turnover and others) G&A expenses Non-operating P/L (lower debt costs, reversal of PO costs and others) +79 +14-39 -40 +56 6 months full-contribution of properties acquired in the previous period (Kashiwa II building, Sendaiko-kita) Existing properties (tenant turnover and others) G&A expenses Non-operating P/L +15 +40-3 -7 (Reference) An increase in the burden of fixed asset tax and city planning tax on six properties acquired in 2017-137 Earnings Overview and Forecasts: Chapter 3 21
Factors for Changes in Net Income from the Previous Period 2018/1 (FP 25) Results 2018/7 (FP 26) Forecasts 2019/1 (FP 27) Forecasts () 4,300 +91 4,200 4,100 4,000 +374 +95-4 -50-46 -91 4,048 +14 +79-39 +46 +11-40 +15 4,119 +40-11 4,164 3,900 3,800 3,700 3,678 3,600 3,500 FP 24 Net income Properties acquired (two properties) Kasugai OBR of properties acquired in the previous period Existing properties Higher debt costs PO costs Other FP 25 Net income Properties acquired (two properties) of properties acquired in the previous period Existing properties Lower debt costs Reversal of PO costs Other FP 26 Net income Fullcontribution Fullcontribution Fullcontribution of properties acquired in the previous period Existing properties Other FP 27 Net income Earnings Overview and Forecasts: Chapter 3 22
(Reference) Portfolio Map A portfolio of 46 properties with an AUM of 270.8 billion yen Earnings Overview and Forecasts: Chapter 3 23
Chapter 4 Market Overview
Supply & Demand Balance of Logistics Properties 4 Major Metropolitan Area Kinki Area (Osaka) (thousand m 2 ) (%) Forecasts (thousand m 2 ) (%) 3,500 14.0 1,400 Forecasts 14.0 3,000 12.0 1,200 12.0 2,500 10.0 1,000 10.0 2,000 8.0 800 8.0 1,500 6.0 600 6.0 1,000 4.0 400 4.0 500 2.0 200 2.0 0 (thousand m 2 ) 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 (Source) CBRE 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 New supply area (lhs) New demand area (lhs) Vacancy rate (rhs) Tokyo Metropolitan Area Forecasts 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 New supply area (lhs) New demand area (lhs) Vacancy rate (rhs) 0.0 (%) 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 0 (thousand m 2 ) 300 250 200 150 100 50 0 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 New supply area (lhs) New demand area (lhs) Vacancy rate (rhs) Chubu Area (Nagoya) Forecasts (%) 30.0 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 New supply area (lhs) New demand area (lhs) Vacancy rate (rhs) 25.0 20.0 15.0 10.0 5.0 Market Overview: Chapter 4 25
Vacancy Rate on LMT and Non-LMT in Tokyo Metropolitan Area Vacancy rates of LMT and non-lmt in Tokyo Metropolitan Area (Reference) JLF portfolio as of March 2018 (%) 25.0 LMT Non-LMT By number of properties LMT 19.6% 20.0 15.0 Non-LMT 80.4% 10.0 5.0 By gross leasable area (GLA) (Note) LMT 31.3% 0.0 06/03 07/03 08/03 09/03 10/03 11/03 12/03 13/03 14/03 15/03 16/03 17/03 17/12 Non-LMT 68.7% (Source) Prepared by the asset manager based on information provided by CBRE. (Note) Percentages shown here reflects JLF s stake of ownership in case where JLF owns a partial stake in the property. Market Overview: Chapter 4 26
Market Data on Logistics Properties Real Estate Investors Expected Cap Rate (%) 6.0 Large Logistics Properties in Tokyo Metropolitan Area w/ More Than 90% Occupancy Rate By Region (Gross leasable area base) By Property Type (Number of properties base) 5.5 5.0 Other Regions 28.1% Tokyo Metropolitan Bay Area 30.5% Tokyo Metropolitan In-land Area 41.4% Multi-tenant Type 32.9% Single-tenant Type 67.1% 4.5 4.0 Real Estate Investors' Expected Cap Rate 3.5 05/01 06/01 07/01 08/01 09/01 10/01 11/01 12/01 13/01 14/01 15/01 16/01 17/01 18/01 By Size (Number of properties base) Over 30,000m 2 55.8% Under 15,000m 2 18.9% Over 15,000m 2 Under 30,000m 2 25.3% By Age (Number of properties base) Unknown LMT 1.7% Over 31.3% 20 years 19.9% Over 10 years Under 20years 18.4% Under 10 years 60.0% (Source) CBRE (Note) Lower side of to 20% answers in CBRE Quarterly Survey toward expected cap rate of multi-tenant type logistics centers in Tokyo Metropolitan Bay Area. (Source) CBRE (Note) Classified large logistics properties (larger than 5,000m 2 of GFA) in Tokyo Metropolitan Area with occupancy rate of more than 90%. Market Overview: Chapter 4 27
Development Projects in Tokyo Metropolitan Area (Properties to be completed in or after March 2018) Dec. 2019 79,000m² May. 2018 56,000m² Jun. 2018 56,000m² Aug. 2018 33,000m² After 2022 Total 655,000m² Jan. 2020 179,000m² Nov. 2018 61,000m² Sep. 2020 79,000m² Winter 2019 72,000m² Jan. 2019 79,000m² Oct. 2018 45,000m² Mar. 2020 96,000m² Sep. 2018 156,000m² Jul. 2019 46,000m² Oct. 2018 131,000m² Fall 2019 131,000m² Fall 2019 39,000m² Jun. 2018 49,000m² Nov. 2019 96,000m² Aug. 2018 31,000m² Spring 2019 31,000m² Mar. 2019 53,000m² Spring 2019 77,000m² Mar. 2020 76,000m² Jun. 2019 81,000m² Jun. 2020 32,000m² Jul. 2018 97,000m² 2024 169,000m² Oct. 2018 140,000m² Apr. 2019 54,000m² May. 2019 297,000m² Oct. 2020 323,000m² Feb. 2019 67,000m² Mar. 2022 139,000m² Aug. 2020 176,000m² Feb. 2020 23,000m² Oct. 2021 161,000m² 2019 204,000m² 2022 304,000m² Mar. 2022 109,000m² 2022 86,000m² 2022 226,000m² May. 2018 96,000m² Jul. 2018 43,000m² Jul. 2018 133,000m² Feb. 2019 89,000m² Jan. 2019 199,000m² Sep. 2018 70,000m² Sep. 2019 71,000m² Feb. 2019 140,000m² Aug. 2019 73,000m² Mar. 2018 39,000m² Dec. 2019 142,000m² Mar. 2018 112,000m² Oct. 2019 225,000m² Fall 2019 146,000m² 2019 66,000m² 10km Legend Planned completion GFA Sep. 2018 43,000m² (Source) Prepared by the asset manager based on information CBRE and ICHIGO Real Estate Service. (Note) Properties at least 30,000m 2 scheduled for completion in or after March 2018. Market Overview: Chapter 4 28
Development Projects in Kinki and Chubu Area (Properties to be completed in or after March 2018) Kinki Area (Osaka) Chubu Area (Nagoya) Spring ~ Summer 2021 150,000m² 2020 32,000m² Jan. 2019 37,000m² Oct. 2018 161,000m² Summer 2019 36,000m² Mar. 2019 60,000m² Apr. 2018 64,000m² 2021 125,000m² Sep. 2018 119,000m² Spring 2020 46,000m² Sep. 2018 39,000m² Nov. 2019 39,000m² Apr. 2020 48,000m² Spring 2019 158,000m² Jan. 2019 81,000m² Dec. 2019 394,000m² Jul. 2018 35,000m² Oct. 2018 64,000m² 5km 2km (Source) Prepared by the asset manager based on information CBRE and ICHIGO Real Estate Service. (Note) Properties at least 30,000m 2 scheduled for completion in or after March 2018. Legend Planned completion GFA Market Overview: Chapter 4 29
To Our Investors
To Our Investors Shifts and changes Recently, somewhat unstable conditions have persisted in the financial market because the stock market has undergone a correction, reflecting a stronger sense of caution against rising stock market prices since last year due to concerns about a rise in interest rates in the United States. While this appeared to have thrown cold water on market participants for a brief moment, at a time when memories of the financial crisis of 2007 and 2008 had faded, it does not appear to have had a sufficiently strong impact to influence the policy operation of the central bank for now. Shifts and changes means that nothing in this world is static and everything changes constantly. Like the stock market since last year, what exists now will not continue as it is, but will change. The market environment in which we are operating is also in dynamic motion. However, there are times when we can change things and times when we cannot. We experience this in our work, sports and personal life. The time when we are given choices, such as deciding schools, jobs, or even marriage partners, tends to be short, but the impact of the decisions last for a long time, even throughout for life. Therefor, we need to show our ability to the fullest without missing any opportunities during a time when we can make a choice and during a time when we can change things. For REITs, it may be a matter of course to aim for stability and growth in distributions, but we have been adhering and will continue to adhere to this goal. We will also work on investor returns this time based on the track record we have been building. In the meantime, we have been showing our maximum performance in OBR, in which we increase the value and profitability of the assets we hold and in our independent resourcing including our commitment to the development projects of our business partners, which we are working on as a developed form of OBR. We will materialize our obsession with these approaches by continuing our external growth, taking advantage of the knowledge and know-how we have been cultivating. In response to the public offering at a price below the P/NAV ratio that we undertook to increase our capital, we received the harsh feedback that it was an act for impairing investor value. Taking this opinion on board sincerely, we have renewed our resolve to increase investor value. In this era of shifts and changes, we will also change. With the aim of increasing investor value, we will manage the portfolio by leveraging the strengths of JLF. We appreciate your continued support and consideration. Keita Tanahashi President Mitsui & Co., Logistics Partners Ltd. To Our Investors 31
Disclaimer Disclaimer Monetary amounts are rounded down to millions or thousands of yen. Percentage figures are rounded off to the first decimal place. This material contains forward-looking business results, plans, and management targets and strategies. Such forward-looking statements are based on current assumptions and premises, including those regarding anticipated future developments and business environment trends, and these assumptions and premises may not always be correct. Actual results could differ considerably because of a variety of factors. This material has not been prepared for the purpose of soliciting the purchase of the investment units of Japan Logistics Fund ( JLF ) or to solicit the signing of other financial product transaction contracts. In making investments, investors should do so based on their own judgment and responsibility. The investment units of JLF are closed-end fund investment units, whereby investment units are not redeemable at the request of investors. Investors wishing to liquidate their investment units will in principle need to sell them to third parties. The market value of the investment units will be influenced by investor supply and demand at securities exchanges and will fluctuate in accordance with the situation for interest rates, economic circumstances, real estate prices, and other market factors. It is therefore possible that investors will not be able to sell the investment units at their acquisition price and, as a result, will suffer losses. JLF plans to make cash distributions to investors, but whether distributions are made and the amount thereof are not guaranteed under any circumstances. Gains or losses on the sale of real estate, losses on the disposal of fixed assets accompanying the replacement of structures, and other factors can cause fiscal-period income to vary greatly, causing the amount of distributions paid to investors to change. Information provided herein does not constitute any of the disclosure documents or performance reports required by the Financial Instruments and Exchange Act or the Act on Investment Trusts and Investment Corporations or by the Securities Listing Regulations of the Tokyo Stock Exchange. This material is to be read and used at the responsibility of customers. JLF and related persons involved in the preparation and publication of this material will not bear any responsibility for any damage arising from the use of this material (whether for direct or indirect damage, and regardless of the cause thereof). While every effort has been made to avoid errors and omissions regarding the information presented in this material, the material has been created as an easy reference for customers, and the presented information may contain inaccuracies or misprints. JLF bears no responsibility for the accuracy, completeness, suitability, or fairness of the information in this material. JLF holds the copyright to the information appearing in this material. Copying, altering, publishing, distributing, appropriating, or displaying this information or using it for commercial purposes without the prior approval of JLF is prohibited. Also, trademarks (trademarks, logos, and service marks) related to JLF appearing in this material are owned by JLF, and copying, altering, publishing, distributing, appropriating, or reproducing such trademarks or using them for commercial purposes without the permission of JLF is prohibited. Photographs appearing on the cover or within this material are used as illustrations of logistics and they may not be properties held by or planned to be acquired by JLF. Japan Logistics Fund, Inc. All rights reserved. Asset Management Company: Mitsui & Co., Logistics Partners Ltd. - Financial instrument business registered with the Director of the Kanto Local Finance Bureau registration No.400 (financial instruments) - Member of The Investment Trusts Association, Japan