Frontier Real Estate Investment Corporation

Code 8964

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FAQ on IR

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Investment and Management Policies

Q1.Regarding investment targets, is there a possibility for investment in properties other than commercial facilities?
Frontier Real Estate Investment Corporation ("FRI") specializes in targeting commercial facilities as investment properties. At present, FRI is not considering investment in properties other than commercial facilities, namely, offices or residential properties.
Q2.What areas are targeted for investment?
FRI targets investment properties located in urban centers throughout the country, with the aim of reducing risks related to regional economic conditions as well as risks of earthquakes and other disasters. Although we have not set investment target ratios for particular areas, investment properties must be highly competitive in terms of their location.
Q3.Could you explain FRI's specific investment criteria?
FRI is a commercial facility specified REIT. When selecting investment properties, FRI takes due consideration of numerous factors including profitability, competitiveness of local conditions, potential of the area, future outlook, and the reliability of tenants.
Q4.What kind of support does Mitsui Fudosan Co., Ltd. offer?
FRI aims to achieve external growth by utilizing the development capability and networks of Mitsui Fudosan Co., Ltd. ("Mitsui Fudosan"). FRI has acquired properties from Mitsui Fudosan and its subsidiaries as well as from special-purpose companies invested by Mitsui Fudosan. In addition, FRI has acquired from non-sponsoring third parties, with Mitsui Fudosan as an intermediate agent and networks of asset management company. FRI and Mitsui Fudosan has also concluded a basic agreement concerning SC management covering all properties (excluding land interest-only properties) that will enable the effective utilization of Mitsui Fudosan's expertise in operation and management of properties.
Q5.How would you describe FRI's strengths?
FRI can achieve external growth by utilizing the development capabilities and networks of Mitsui Fudosan, FRI's sponsor. Speaking of internal growth, FRI can benefit from Mitsui Fudosan's expertise in retail facilities management. In addition, FRI owns many competitive, "best in town" stores and concludes long-term lease contracts with fixed rents with tenants.
For more information regarding FRI's distinctive features, please refer to "Features and Investment Policy" within this Web site.
Q6.Are there any plans for investment in real estate overseas?
Because of country risk and various risks associated with different real estate systems, FRI is not considering investment in real estate overseas at the present time.

Tenants

Q1.What sorts of tenants are housed in the portfolio properties?
In order to minimize the risk of tenant move-outs, tenants are diversified, centering on Mitsui Fudosan, the sponsor, and major retailers. For details, please refer to "Portfolio Data" on our website.
Q2.Could you explain different types of lease contracts with tenants?
There are ordinary building lease contracts and fixed-term building lease contracts. For details of contract status with major tenants of portfolio properties, please refer to "Lease Agreements" on our website.

Governance Structure

Q1.Could you tell us about FRI's asset management company?
The asset management company was established in August 2003 as a wholly owned subsidiary of JT. On March 24, 2008, all shares were transferred to Mitsui Fudosan Co., Ltd., and the company was renamed Mitsui Fudosan Frontier REIT Management Inc. ("MFF"). The organizational structure comprises the Compliance Department, Investment Management Department, Finance Department, and Planning Department.
Q2.What systems are in place for compliance?
MFF is establishing internal regulations concerning compliance, while adhering to all laws and regulations related to asset management and diligently protecting unitholders' interests.
Q3.What about conflicts of interest?
In the event of transactions with interested parties, FRI undertakes such activities in accordance with its "Rules Concerning Conflicts of Interest", which have been established internally.
Q4.Please explain FRI's policy for selecting property managers, as well as its policy regarding oversight.
Based on the Basic Agreement Concerning Shopping Center (SC) Management concluded with Mitsui Fudosan Co., Ltd. FRI will make effective use of Mitsui Fudosan's expertise in the operation and management of retail facilities.

SC management indicates comprehensive management of retail facilities provided by Mitsui Fudosan, including so-called property management along with other wide-ranging operations and expertise. FRI entered into the Basic Agreement Concerning SC Management for all properties excluding land interest-only properties.
Q5.What remuneration systems are in place?
FRI has adopted the following three remuneration systems: 1) total-assets-linked remuneration (maximum of 0.3% of previous period-end total assets); 2) profit-linked remuneration (maximum of 2.0% of previous period-end operating income before depreciation); and 3) acquisition/transfer remuneration (maximum of 0.5% of the value of an acquisition or transfer, or a maximum of 0.25% in the case of an interested-party transaction).
Q6.What is FRI's approach to earthquake risk?
In order to reduce the risk of earthquakes and other disasters, FRI targets investment in cities throughout Japan while maintaining properties in all regions of the country as a means to diversify its portfolio. Going forward, we will work to lower the portfolio PML when acquiring new properties. In the event that acquisitions of investment assets raise PML above 20%, we will treat such a situation with the utmost seriousness and consider the purchase of earthquake insurance.

Financial Policy

Q1.What loan-to-value ratio does FRI target?
With respect to its investments, FRI defines the loan-to-value (LTV) ratio as follows:

(Amount of loans + Security and guarantee deposits received in advance from tenants) / Amount of total assets ×100

Although the LTV ratio is capped at 60% under FRI's investment guidelines, FRI aims for a more conservative level, in order to ensure a sound financial structure in accordance with its basic policy for ensuring stable earnings over the medium and long terms.
Q2.How will rising interest rates affect FRI?
Bank borrowings are considered as interest-bearing debt of FRI, and their interest rates are fixed to some degree over the long term. Therefore, rising interest rates will have a limited effect on FRI. Nevertheless, we are paying close attention to changes in the financial environment.
Q3.How does FRI approach the issuance of additional investment units?
The LTV ratio is not the only standard for determining whether to issue additional investment units; a combination of factors must be taken into account, including the amount of interest-bearing debt, the amount of reimbursed security and guarantee deposits, as well as financial conditions such as short- and long-term interest rates. Therefore, with respect to the timing of a public offering, we will consider the market environment and the dilution of the value of investment units.
Q4.Could you tell us about FRI's distribution policy?
By distributing more than 90% of its profit available for divident, FRI takes full advantage of the taxation benefits granted to J-REITs, specifically the treatment of cash distributions as expenses. In principle, FRI shall target a cash distribution of 100% of its profit.

Investment Unit

Q1.What is FRI’s securities code?
It is 8964.
Q2.When does your fiscal period end and when do you make distributions to the unitholders?
Our fiscal periods end on June 30 and December 31 of each year. We make distributions within three months of the end of each fiscal period. For more details, please refer to the IR Calendar.
Q3.When are General Meetings of Unitholders held?
Certain matters (including revisions to agreements and the selection of executive and supervisory directors) related to the Investment Trust Law and other regulations governing FRI are determined at the General Meeting of Unitholders. In accordance with these rules, the General Meeting of Unitholders is held at least once every two years. Details of the meetings are publicly announced in newspapers and on this Web site.
Q4.How are requests to change names and addresses handled?
There are procedures for using the hofuri (custody transfer system) when changing addresses, names and official seals. Those who do not possess investment unit certificates should contact their securities company; those who possess investment unit certificates should contact the Transfer Agent Department of the Mitsubishi UFJ Trust and Banking Corporation.
Q5.Has FRI considered conducting a stock split of investment units?
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