Earnings Call: Q2 2026

Sep 17, 2025

Summary

The post-merger portfolio exceeded ¥500 billion in assets, with a three-year DPU CAGR target of at least 4%. Property sales lifted the 19th-period DPU forecast to ¥3,220, while rent growth, acquisitions and retained earnings underpin future distributions.

I am CEO Sakanoshita of Mitsui Fudosan Logistics REIT Management. Thank you for viewing the results briefing for the 18th fiscal period ended July 2025 for Mitsui Fudosan Logistics Park Inc. Let's get started. I will use the results briefing materials for the 18th fiscal period. As shown on page 4, Mitsui Fudosan Logistics Park Inc., hereafter MFLP, merged with Advance Logistics Investment Corporation, hereafter ADL, on November 1, 2024. The 18th fiscal period is the first fiscal period since the merger. As a result of the merger, asset size has grown significantly and now exceeds JPY 500 billion. This has enhanced our presence in the market as well as the liquidity of the investment units. In addition, we have established a dual sponsor structure with both comprehensive real estate developer, Mitsui Fudosan, and major trading house, ITOCHU, as sponsors. We have already begun to capitalize on this strength, the dual sponsor structure, by leveraging the platforms and networks of both sponsors to enhance our tenant leasing capability. We have also strengthened our ability to source properties from an abundant sponsor pipeline, reflecting the extensive development capabilities of the sponsors. In addition, we announced a medium-term growth strategy in April 2025, disclosing our new post-merger growth target. Over the next three years, we are targeting a DPU CAGR of 4% or more. Despite headwinds such as rising borrowing rates, climbing inflation, and persistently high vacancy rates in the logistics facility leasing market, particularly in the Greater Tokyo Area, we expect profit growth from internal and external growth will be the main driver for continued expansion of distributions. Please turn to page 6. These are the operational highlights for the 18th fiscal period. I will go into more detail on each of the items in the following pages, but we have been able to make solid progress on the three key strategies set out in the medium-term growth strategy announced this April: generating solid internal growth, strengthening the portfolio and achieving sustainable growth, and steady growth in distributions through the proactive use of profits generated from negative goodwill. Please turn to page 7. On this page, we cover the recently determined DPU for fiscal period 18, as well as the DPU forecast and the growth target for DPU set out in the medium-term growth strategy. DPU for the 18th fiscal period on a six-month equivalent basis was ¥2,406. This includes the impact of disposals of T&B Maintenance Center Matsue and a 30% stake in i Missions Park Inzai, and contributions from the profits generated on negative goodwill as a result of the merger. For the 19th fiscal period, we project a significantly higher DPU of ¥3,220, up 33.8% versus the previous fiscal period. This reflects the impact of disposals. The remaining 70% stake in i Missions Park Inzai, T&B Maintenance Center Toyama, and LOGITRES Sano, as well as contributions from the retained earnings related to the profits on negative goodwill. The DPU forecast for the 20th fiscal period is ¥2,503, up 4% versus the 18th fiscal period. With regard to the subsequent fiscal periods up to the 23rd fiscal period, we expect to achieve average annual DPU growth of 4% or more, backed by solid EPU growth and the use of retained earnings. We are projecting a DPU of ¥2,620 or higher for the 23rd fiscal period. Going forward, there is potential for further upside to DPU, subject to property disposals which result in profits that can be allocated to distributions. With regard to EPU, in the near term, there is likely to be a dip as property disposals outweigh acquisitions. However, in the 19th fiscal period and beyond, we aim to achieve solid growth driven primarily by internal growth as a result of solid increases in rent levels and external growth as a result of new property acquisitions that tap into our robust pipeline. NAV is also steadily growing, rising to JPY 127,753 as of the end of the 18th fiscal period. We project 19th fiscal period and NAV to be JPY 128,451, bringing cumulative annual average growth since our first fiscal period to 7.3%. Going forward, we aim to achieve continuous NAV growth alongside steady DPU growth. Please turn to page eight. I will now discuss the status of lease expiries. The graph on the left shows the status of lease negotiations with tenants. The vast majority of tenants are agreeing to higher rent levels in renewing their lease contracts. The average rent reversion rate for the 18th fiscal period is 5.2%. With regard to occupancy, near-term occupancy has dipped slightly as a result of longer vacant periods due to a more aggressive strategy to focus on raising rents. But almost all of the vacated space has been pre-leased and at rent levels that are significantly higher than standing rents. With regard to the 19th fiscal period, we are making steady progress on lease renewals. We are expecting to see higher rent reversion rates than the most recent fiscal period, at an average of around 6%-7%. By the end of the 20th fiscal period, we expect to see occupancy return to more than 99%, which will allow us to achieve solid internal growth. As shown on the pie chart in the upper right, for roughly 90% of the leases in our current portfolio, we have the potential to achieve rent increases as a result of inflation and the impact of rising interest rates. Tenants accounting for around 40% of leased space will see their leases expire in the next three years. In addition, even on leases with more than three years remaining, contracts for roughly 40% of the leased space include clauses that allow for rent increases during the lease period. As shown on the lower right, there have been cases where we have already been able to utilize these clauses. If we include contracts with step-up features, we believe we can achieve solid rent growth. Please turn to page nine. I will now turn to near-term leasing market conditions. As a result of high levels of supply in 2022 and 2023, mainly in the Greater Tokyo area, vacancy rates have remained persistently high. However, if you look at the individual submarkets in the Greater Tokyo area, as shown on the map, there is a polarization in vacancy rates. In particular, in the parts of the outer edges of the region where there has been a concentration of supply in excess of demand, vacancy rates for newly completed properties have remained high over long periods, a major factor pushing up the overall vacancy rate. However, with regard to new supply, the impact of surging construction costs on the back of inflation have led to declines from 2024 onward. New supply for 2025 and 2026 is also expected to decline. At the same time, demand is expected to remain firm, supported by sustained growth related to e-commerce and continued measures to improve logistics efficiency. Given this, as supply-demand improves going forward, we expect this to lead to gradual declines in vacancy rates. Please turn to page 10. I will now talk about interest-bearing debt. As shown in the upper half of the page, outstanding interest-bearing debt was JPY 222 billion as of the end of the 18th fiscal period. LTV was 39.3%, the average interest rate was 0.70%, and the average maturity of debt was 8.1 years. We estimate our acquisition capacity at an LTV of 50% to be JPY 121 billion. Our LTV is low even amongst the J-REITs, so we continue to maintain sufficient leverage capacity. The lower half of the page shows our financial strategy in a rising interest rate environment. There is no change to our policy on financial operations. We continue to take a stable approach, focusing on long-term, fixed-rate debt. That said, we will respond agilely to rising base and market interest rates. We will consider shorter debt maturities and variable rate borrowings, as well as tapping into sustainability-linked loans as spreads tighten, proactively seeking to defend against sudden interest rate rises. Please turn to page 11. The chart on the upper part of the page shows the diversification of lease expiries, while the lower chart shows the diversification of interest-bearing debt maturities. We seek to control the maturity or expiry cycles for assets and liabilities. Our policy remains unchanged. While there is a skewing of lease expiries in the near future, we are also diversifying the maturities of interest-bearing debt to both lock in opportunities to raise rents, as well as control increases in interest expense to maintain a structure that enables sustainable profit growth. With regard to leases, roughly 40% will expire within the next three years. Roughly 70% will expire in the next five years. Lease expiries are particularly concentrated in the next few fiscal periods, giving us the opportunity to lock in rent increases. In response to uncertainty about the macro backdrop as a result of continued inflation, we aim to achieve solid internal growth by consistently raising rents as leases are renewed. At the same time, we have successfully diversified the maturities of our interest-bearing debt. In the next few fiscal periods in particular, our expected refinancing needs are limited, partly on the impact of the early repayment of debt made possible by proceeds from property disposal. As such, the impact of rising interest rates is likely to be limited. Please turn to page 12. On the upper left of the page, we show an overview of the property disposals as announced on July 25, 2025. We transferred a 30% stake in I Missions Park Inzai in July 2025 and expect to sell the remaining 70% in September. We also plan to dispose of LOGITRES Sano in September as well. In addition to disposing of a large-scale single-tenant property and a property located outside of our strategic focus area at prices in excess of the appraisal price, we aim to strengthen the portfolio through new acquisitions going forward. Two new properties were added to our pipeline this time, bringing the total to 11 properties of 1.12 million square meters. We will use a bridge fund structure for some of the property acquisitions. We have been able to strengthen our ability to source properties as a result of the dual sponsor structure and have also been able to secure flexibility in terms of the timing of acquisitions. In terms of the uses of the proceeds from the sale of properties this time, we will give serious consideration to choosing the most effective alternative from the perspective of enhancing investment unit value, be that acquisitions from our robust pipeline, the repayment of debt to control interest expense or lower LTV, or capital allocation based on the investment unit price level. Please turn to page 13. I will go into more detail on the DPU for the 18th fiscal period, as well as our forecast for the 19th fiscal period. The 18th fiscal period DPU of ¥3,629 is in line with our previous forecast, but the breakdown is different. There was a negative impact of ¥119 on EPU, excluding the impact of disposals. As explained earlier in discussing lease expiries, some vacancies arose in a few properties, temporarily depressing occupancy rates. However, we have already completed leasing for the vast majority of the vacated space. At the same time, we were able to exceed our previous forecast for rent increases on expiring leases with a positive contribution of ¥13. In addition, we reported 55.2 billion yen in profits on the sale of properties from the disposal of T&B Maintenance Center Matsue in May and the sale of a 30% stake in i Missions Park Inzai. We chose to reduce the contribution to DPU from the profits on negative goodwill to ¥735, down ¥485, keeping our retained earnings powder dry. We intend to use retained earnings to stabilize DPU going forward. In the 19th fiscal period, the impact of gains on the sale of three properties, the remaining 70% stake in i Missions Park Inzai, LOGITRES Sano, and T&B Maintenance Center Toyama, drove a strong upward revision to our DPU forecast from ¥2,478 to ¥3,220. The breakdown of our previous ¥2,478 forecast was EPU of ¥1,876 and reversal of retained earnings of ¥602. But the breakdown for the new forecast of ¥3,220 is ¥1,511 for EPU, excluding the impact of disposals, ¥1,227 in profits on the sale of properties, and ¥482 from the reversal of retained earnings. With regard to the decline in EPU, similar to the 18th fiscal period, on the back of vacancies on a few units, we project a temporary negative impact of ¥211. However, the vast majority of vacated units have already been re-leased, and we have also revised up our forecast for the impact of rent increases on units with expiring leases by a further ¥6. Also, in conjunction with the sale of i Missions Park Inzai, there is a mismatch between tax and management accounting. To avoid a tax outflow, we are planning a reversal of retained earnings. Please turn to page 14. Our forecast for the 20th fiscal period is for a DPU of ¥2,503. While the push-up from property disposals will drop out, we are planning a reversal of retained earnings of ¥805 to achieve our aim of annual growth in DPU versus the 18th fiscal period of 4%. EPU, excluding the impact of property disposals, is projected to increase JPY 187 versus the 19th fiscal period, of which internal growth is expected to make a JPY 182 contribution on the re-leasing of vacancies at existing properties and positive rent reversions. Going forward, we will aim for further upside to EPU on further internal growth, as well as property acquisitions or investment unit repurchases funded by the proceeds of property disposals. This completes my discussion of the 18th fiscal period results, but there are two more points I would like to highlight. The first is our initiatives in ESG. Please turn to page 15. MFLP established its environmental KPIs in 2021 and has managed its properties with a focus on reducing the environmental burden. However, as a result of the portfolio expansion due to the merger and operating conditions, we have reset our environmental KPIs. We have changed the base year for comparison from 2016 to 2021 and have also added a net zero target to be achieved by 2050. In addition, our CO2 emissions intensity for 2024 exceeded our reduction target, which allowed us to partially reduce the interest rate on sustainability-linked loans. In other areas, we have maintained the highest rating under GRESB, have newly been certified for Eco-Action 21, and have implemented new quantitative analysis disclosures as promoted by TCFD. In addition, under the social heading, we have implemented cleanup activities in the neighborhoods around our properties and are opening up the green spaces around our properties for the use of local communities. Please turn to page 16. The second point is our initiatives to grow the investor base. At the time of the merger, we undertook a one-for-four unit split effective on November 1, 2024, to ensure that all investors in ADL prior to the merger would be allocated investment units in MFLP. As a result of the split, our investment unit price is now around JPY 100,000, which has led to growth in our investor base, particularly individual investors. We have also implemented initiatives targeted at individual investors, such as participating in joint briefings sponsored by brokers or appearing on radio programs to enhance recognition of MFLP and deepen understanding amongst individual investors. To strengthen our communications capabilities, we also revamped our website in August of 2025, as well as creating a dedicated page for individual investors. We will continue our efforts to improve our disclosure to provide easy-to-understand information about MFLP. This completes my presentation. Going forward, we remain committed to achieving growth through strong internal growth, strengthening our portfolio, and enhancing our future growth capability, and managing MFLP to maximize unitholder interest. Thank you.