Japan Logistics Fund : REIT Financial Report for the six-month period ended July 31, 2023 (The 36th Period)

REIT Financial Report for the six-month period ended July 31, 2023

(The 36th Period)

		September 13, 2023
Name of REIT issuer:	Japan Logistics Fund, Inc.	Stock exchange listing: Tokyo Stock Exchange
Security code:	8967	URL:https://8967.jp/en/
Representative:	Ryota Sekiguchi, Executive Director
Name of asset management company:	Mitsui & Co., Logistics Partners Ltd.
Representative:	Seiichi Suzuki, President & CEO
Contact:	Shintaro Miyata, Finance & IR Dept.
	TEL: [phone]

Scheduled date for submission of Securities Report:

October 30, 2023

Scheduled date for commencing dividend payments:

October 5, 2023

IR Material:

Will be posted on the website

IR Meeting:

Will be held for institutional investors and security analysts

(Figures are rounded down to the nearest million yen)

1．Performance for the six-month period ended July 31, 2023 (The 36th Period from February 1, 2023 to July 31, 2023)

(1) Operating Results

( % represents change from the previous period)

Operating Revenue

Operating Income

Ordinary Income

Net Income

Period ended

Millions of

%

Millions of

%

Millions of

%

Millions of

%

July 31, 2023

10,139

-0.2

5,238

-1.6

4,811

-1.6

4,810

-1.6

January 31, 2023

10,156

5.6

5,324

4.6

4,890

5.7

4,889

5.7

Net Income per Unit

Net Income to

Ordinary Income to

Ordinary Income to

Net Assets

Total Assets

Operating Revenue

Period ended

Yen

%

%

%

July 31, 2023

5,150

3.4

1.8

47.5

January 31, 2023

5,235

3.4

1.8

48.2

(2) Dividends

Dividends per

Total Dividends

Distributions

Total

Unit (excluding

(excluding

in excess of

Distributions in

Payout

Distributions

Distributions in

Distributions in

earnings per

excess of

Ratio

to Net Assets

excess of

excess of

Unit

earnings

earnings)

earnings)

Period ended

Yen

Millions of yen

Yen

Millions of yen

%

%

July 31, 2023

5,151

4,811

－

－

100.0

3.4

January 31, 2023

5,235

4,889

－

－

99.9

3.4

(Note)

Payout Ratio = Total Dividends/Net Income x 100 (figures are rounded down to the nearest decimal place)

(3) Financial Position

Total Assets

Net Assets

Net Assets to Total Assets

Net Assets per Unit

Period ended

Millions of yen

Millions of yen

%

Yen

July 31, 2023

274,933

143,294

52.1

153,419

January 31, 2023

274,670

143,427

52.2

153,562

(4) Cash Flows

Net Cash Provided by

Net Cash Provided by

Net Cash Provided by

Cash and Cash

(Used in) Operating

(Used in) Investing

(Used in) Financing

Equivalents at End of

Activities

Activities

Activities

Period

Period ended

Millions of yen

Millions of yen

Millions of yen

Millions of yen

July 31, 2023

7,405

-565

-4,889

14,753

January 31, 2023

7,349

-2,305

-4,630

12,803

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2．Forecasts for the six-month period ending January 2024 (the 37th Period from August 1, 2023 to January 31, 2024) and the six-month period ending July 2024 (the 38th Period from February 1, 2024 to July 31, 2024)

(% represents change from the previous period)

													Dividends
													per Unit	Distributions
	Operating	Operating		Ordinary		Net			(excluding	in Excess of
	Revenue	Income		Income		Income			distribution	Earnings per
													s in excess	Unit
													of earnings)
Period ended	Millions	%	Millions		%	Millions	%	Millions		%		Yen	Yen
of yen	of yen		of yen		of yen
July 31, 2023	10, 230	0.9	5, 270		0.6	4, 830	0.4		4,829		0.4		5,170	-
January 31, 2024	10, 205	-0.2	5, 275		0.1	4, 839	0.2		4,838		0.2		5,180	-
(Reference) Forecast for net income per unit	January 31, 2024:	5,170 yen				July 31, 2024:	5,180 yen

* Other

1. Changes in accounting policies, changes in accounting estimates, and restatement of prior period financial statements after error corrections

(i)	Changes in accounting policies due to revisions to accounting standards	None
(ii)	Changes in accounting policies other than (i)	None
(iii) Changes in accounting estimates	None
(iv) Restatement of prior period financial statements after error corrections	None

(2) Number of investment units issued and outstanding

(i) Number of investment units (including treasury investment units) issued and outstanding at the end of each period

July 31, 2023:	934,000 units	January 31, 2023:	934,000 units
(ii) Number of treasury investment units issued and outstanding at end of period
July 31, 2023:	0 unit	January 31, 2023:	0 unit

(Note) For the number of investment units serving as the basis of calculation of net income per unit, please refer to "Per Unit Information" on page26.

• This Financial Report is outside the scope of audit by a certified public accountant or an audit corporation.
• Remarks:

(Note to forward-looking statements)

This document contains forecasts and other forward-looking statements based on the information currently available and on certain assumptions judged as rational by Japan Logistics Fund, Inc. (hereafter referred to as "JLF"), and the actual operating results, etc. may differ significantly from that anticipated by JLF due to various factors. Moreover, the forecasts are not intended to guarantee any amount of dividend distribution and distribution in excess of earnings. For notes regarding assumptions underlying these forecasts, please refer to "1. Management Discussions and Analysis (1) Asset Management Status (ii) Outlook for the Next Six-month Period D. Forecasts" on page 7.

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Table of Contents

1. Management Discussions and Analysis …………………………………………………… 4

1. Asset Management Status …………………………………………………………………. 4

1. Summary of Results for the six-month period ended July 31, 2023 (The 36th Period) …. 4

(ii) Outlook for the Next Six-month Period …………….….….………………………….. 5

1. Investment risks …………………………………………………………………………. 9

2. Financial Statements ………………………………………………………………………. 10

1. Balance Sheet …………………………………………………………………………… 10

(2) Statement of Income and Retained Earnings …………………………………………….	12
(3) Statement of Changes in Net Assets ……………………………………………………..	13

1. Distribution Information …………………………………………………………………... 15
2. Statement of Cash Flows ………………………………………………………………… 16
3. Notes on Assumption of Going Concern ………………………………………………….. 17
4. Summary of Significant Accounting Policies ……………………………………………... 17
5. Notes to Financial Statements ……………………………………………………………... 18
6. Changes in the total number of investment units issued and outstanding…………………. 27

3. Reference Information ……………………………………………………………………... 29

1. Asset composition of JLF ………………………………………………………………….. 29

(2) Investment Securities ………………………………………………………………………	30
(i) Major investment securities	…………………………………………………………….	30
(ii) List of portfolio properties	……………………………………………………………..	31
(iii) Diversification of portfolio	……………………………………………………………	37
(iv) Performance of portfolio properties …………………………………………………...	38
(3) Capital expenditure for assets under management …………………………………………	50
(i) Scheduled capital expenditure …………………………………………………………	50
(ii) Capital expenditure during the six-month period………...………………………………	50
(iii) Reserve for long-term repair plan (reserve for repairs) ……………………………….	50
(4) Overview of tenants and major real estate and other properties …………………………	51

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Japan Logistics Fund, Inc. (8967) Financial Report for the six-month period ended July 31, 2023 (The 36th Period)

1. Management Discussions and Analysis

1. Asset Management Status

1. Summary of Results for the six-month period ended July 31, 2023 (The 36th Period)
2. 1. Background of JLF
      JLF is the first J- REIT dedicated to "logistics properties" with real estate and other assets used for logistic facilities primarily in the Tokyo Metropolitan, Osaka, Nagoya and Fukuoka areas as investment targets. Based on the Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951; including revisions enforced thereafter) (hereinafter, "the Investment TrustAct"), JLF was founded on February 22, 2005 with Mitsui & Co., Logistics Partners Ltd. as the founding planner, and was listed on the REIT section of the Tokyo Stock Exchange, Inc. (hereinafter, "Tokyo Stock Exchange") on May 9 of the same year (security code: 8967).
      As of July 31, 2023 (the end of The 36th Period), JLF owns 52 properties under management with a total acquisition price of 290,590 million yen and total assets of 274,933 million yen.
   2. Investment Environment and Management Performance
      During the six-month period under review, Japan's economy recovered moderately. Despite the impact from rising prices for goods, the recategorization of COVID-19 into a Class 5 infectious disease brought to the surface pent-up demand. The economy also got support from accommodative monetary policy and government economic measures. Corporate earnings continued at high levels, and business sentiment improved mildly. Against this backdrop, capital expenditures rose modestly. Looking at the price of goods, prices of consumer goods (excluding fresh foods) grew at a slower pace compared to the previous year, thanks in part to the downward pressure on energy prices from the government's economic policies. However, the forecasted price increase is trending upward again, recently in the low 3% range, as importers pass on higher prices on imported goods. In terms of the financial environment, interest rates in Japan are on the rise following the Bank of Japan's decision in July 2023 to implement flexibility in operations of yield curve control. In response, the TSE REIT Index continues to fluctuate.
      Looking at the logistics leasing market, in the Tokyo Metropolitan Area, there continues to be historically solid demand from e- commerce players, as well as a diverse range of demand from furniture, construction materials, machinery, electronic components, home appliances, beverages, printed matter and apparel. New demand in the Tokyo Metropolitan Area reached a new record high in the April-June quarter of 2023. Despite the strong demand, there are some submarkets along the Tokyo Gaikan and the Metropolitan Central expressways where increased supply has led to slower absorption of vacancy. As a result, the supply-demand environment is lax. In Osaka and Fukuoka, vacancies are being absorbed. In Nagoya, where supply has increased, tenants have been pre-leasing space before delivery, indicating strong demand.
      Amid this environment, JLF continues to pursue stability and sustainable growth in DPU and NAVPU. In terms of external growth, we have made progress securing a pipeline of logistics facilities through joint development projects with business partners (Note 2), leveraging the know-how we have accumulated through OBR (Own Book Redevelopment) projects. Meanwhile, portfolio operations remained favorable as the occupancy rate posted 100.0% as of the end of the period under review. Furthermore, strong internal growth

was achieved as multiple existing properties had leases that were renewed at higher rents.

(Note 1)	"OBR" (Own Book Redevelopment) is the redevelopment of properties owned by JLF itself.
	"Redevelopment" refers to the act of JLF building a new building on land that JLF owns after the existing building has been demolished. JLF
	collaborates with players such as construction companies, who build the new building on land JLF owns. After the building is complete, JLF
	acquires said building at a timing of its discretion. The same applies hereinafter.
(Note 2)	"Joint developments with business partners" refers to initiatives where JLF is involved from the initial phases of the development of a logistics
	facility and thereby aims to acquire the property at a discounted price compared to bidding in the real estate acquisition market.

C. Overview of Financial Strategy

During the six-month period under review, JLF refinanced 7,500 million yen of long-term borrowings that matured in February 2023. Through these efforts, JLF has increased its resistance to rising interest rate fluctuations by fixing interest rates and diversifying repayment dates and has also reduced funding costs and diversified its sources of funding.

As a result, as of the end of the period under review, total interest-bearing liabilities stood at 119,700 million yen, and LTV (loan to value) was 43.5% based on total assets (Note1) and 29.2% based on appraisal value (Note2), maintaining stable financial operations.

(Note 1)	Total assets-based LTV (%) = Interest-bearing debt / total assets x 100 (figures are rounded off to one decimal place)
(Note 2)	Appraisal value-based LTV (%) = Interest-bearing debt / appraisal value at the end of the six-month period x 100 (figures are rounded off to one
	decimal place)
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Japan Logistics Fund, Inc. (8967) Financial Report for the six-month period ended July 31, 2023 (The 36th Period)

Credit rating of JLF as of July 31, 2023

	Credit Rating Agency			Rating
			Issuer rating	AA-
			(Outlook: Stable)
	Rating and Investment Information,			#2nd unsecured investment corporation bonds
	Inc. (R&I)		Long-term bond rating	#3rd unsecured investment corporation bonds
			#5th unsecured investment corporation bonds
				AA-
			Long-term Issuer rating	AA
			(Outlook: Stable)
	Japan Credit Rating Agency, Ltd.			#6th unsecured investment corporation bonds
			AA
	(JCR)
		Bond rating	#7th unsecured investment corporation bonds
				(Green Bonds)
				AA

D. Performance and Distributions

As a result of the above, JLF posted operating revenue of 10,139 million yen, operating income of 5,238 million yen, ordinary income of 4,811 million yen and net income of 4,810 million yen.

Distributions are subject to special taxation provisions (Special Taxation Measures Law (Act No. 26 of 1957,including subsequent amendments, hereinafter referred to as "Special Taxation Measures Law"), JLF decided to distribute the entire amount of unappropriated retained earnings for the fiscal period, excluding fractions of less than one yen per unit, in an attempt to make the maximum amount of profit distribution deductible for tax purposes, resulting in a distribution per unit of 5,151 yen.

1. Outlook for the Next Six-month Period
2. 1. Recognition of the Environment
      Looking forward, the Japanese economy is expected to recover moderately as pent-up demand surfaces, bolstered by a loose financial environment and economic support from the government. Together, these factors should overcome downward pressures from rising prices for natural resources and decelerating economies overseas. However, as central banks worldwide continue to raise rates, there are uncertainties that require caution, including the risk of sustained inflation driven by higher wages mainly in advanced nations, a correction to asset prices and volatility in foreign exchange markets, changes in lending stances from financial institutions, and increased difficulties achieving both inflation-fighting and economic growth as capital flows out of emerging nations.
      In the logistics leasing market, the spread of the e-commerce market, the expansion of logistics networks, and the shift among manufacturers and retailers from just-in-time to just-in-case have combined to feed healthy demand for logistics space. However, in 2023 and beyond, high levels of new supply are planned for mainly the Tokyo and Osaka metropolitan areas, giving tenants more choice. As a result, uptake of this new space may decelerate as tenants become choosy on properties and submarkets, leading to prolonged slack in the relationship between supply and demand.
      In the logistics acquisition market, the environment is expected to remain harsh, backed by demand from many investors for the defensive nature of cash flows from logistics properties and the large yield gap relative to global comparators.
      Amid this environment, JLF has put forth its new strategy, Develop the Value, in March 2023. The new strategy builds on past operational strategies to target more stability and growth in DPU and NAVPU and aims to achieve a DPU target of 5,600 to 5,700 yen. Moving forward, we will strive to enhance unitholder value by reducing risk considering all business environments, maintaining stability, and creating growth opportunities leveraging our unique competitive edge.
   2. Future Asset Management Policies and Issues to be Addressed
      In such an investment environment, JLF will pursue asset management aimed at achieving stable earnings over the medium to long term based on the following policies.
   3. 1. Operational management of portfolio properties

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