Industrial & Infrastructure Fund Investment Corporation (3249.T) Earnings Call Transcript & Summary

Thank you for joining us today as we present IIF's results for the 27th fiscal period, the 6 months from August 1, 2020, to January 31, 2021. As far as today's proceedings are concerned, I would first like to comment on specific highlights for the fiscal period under review. After then, passing the microphone to Mr. Hidehiko Ueda, Executive Officer and Head of the Industrial Division, who will elaborate on the current status of IIF's operations. We will open the floor to questions. Without further ado, I would like to touch briefly on highlights for the 27th fiscal period and refer you to Page 3 of the presentation materials. During the fiscal period under review, IIF took positive steps to improve profitability by capturing diverse corporate real estate, or CRE, needs that emerged as a result of COVID-19. Today marks a milestone of sorts. It is just on 1 year since we held IIF's investor presentation for the 25th fiscal period and the pandemic took hold in earnest. While stock bucket trends exceed real economic conditions due in part to expectations of a recovery following the start of vaccinations, the spread of virus mutations and other factors leave no room for complacency. Looking back over the past 12 months, it has become increasingly clear that the impact of the pandemic differs considerably from other historic events, including lean shock. In addition to significantly changing people's lifestyles, COVID-19 has polarized corporate performance as well as the real estate sector, including the J-REIT market. IIF has been fortunate over the past year, thanks to a variety of factors, including the absence of tenant requests to reduce rent levels. The investment corporation has witnessed its investment unit price outperformed the market while conducting successful public offerings or POs. As a result, IIF reported substantial growth throughout the 26th and 27th fiscal periods. Turning to market conditions for the types of investment assets that IIF targets. Logistics properties are experiencing a brisk environment in terms of rising prices and new development together with supply and demand. This is mainly due to the shift in demand from dining out and shopping at retail stores to online purchases from the home or so-called nesting consumption. As far as manufacturing as well as R&D properties are concerned, we received numerous inquiries regarding the potential sale of properties due to the cash needs of businesses, seeking to secure liquidity owing to COVID-19. On a separate note, in the aftermath of the pandemic, corporate performance has been polarized due to a variety of factors, including company's efforts to promote a digital transformation and changes in individual lifestyles. At the same time, the CRE market has witnessed an increase in not only cash needs, but also a new investment by companies in good standing. While I will discuss in more detail later in this presentation, IIF is looking to launch redevelopment projects that utilize the surplus floor era ratios of existing properties. These projects are designed to address the aforementioned trends, and in particular, to capture cash, profit and loss management, new development and other CRE needs. Unable to undertake a large-scale project as a developer, any redevelopment plans will naturally be carried out within the framework of a REIT. In this context, we recognize the critical need to carefully manage risk. Moreover, we believe that it is equally important to properly address DPU and other policy issues during any period of development. In this instance, steps will be taken to introduce a temporary distribution in excess of profits and to implement measures aimed at capturing diverse CRE needs attributable to COVID-19. Returning to highlights of the 27 fiscal period, I draw your attention to the data at the left side of Page 3. First, and as far as new acquisitions are concerned, IIF conducted a PO in August last year and acquired 3 properties at a total acquisition price of JPY 46.3 billion; net operating income, or NOI, yield of 6%; and NOI yield after depreciation of 5.2%; IIF assets under management, or AUM, have reached approximately JPY 370 billion. As I mentioned at the start of this presentation, plans are also in place to initiate the reconstruction of IIF Atsugi Logistics Center 3 as well as IIF Nagoya Logistics Centers 1 and 2. And to extend IIF Atsugi Manufacturing Center as a part of efforts to redevelop existing properties. From a property disposition perspective, I have took steps to dispose of IIF Hitachinaka Port Logistics Center. Turning next to the existing portfolio. Steady progress has been made to increase the earnings of existing properties by capitalizing on various opportunities, including the termination of lease contracts. During the fiscal period under review, I have secured increases in rent levels at IIF Fukuoka Hakozaki Logistics Center 2 and IIF Koshigaya Logistic Center as well as IIF Haneda Airport maintenance center, which has attracted numerous increase from investors. Taking a quick look at the manner in which the Investment corporation is addressing environmental, social and governance, or ESG, concerns, IIF received the highest global real estate sustainability benchmark, or GRESB, 5-star rating. 4 properties each also obtained comprehensive assessment system for built environment efficiency, or CASBEE; and building housing energy efficiency labeling system, or BHEELS, environmental certification during the 27th fiscal period. The last key highlight concerns IIF's financial strategy. As I mentioned during the previous investor presentation and in connection with its tenth PO, IIF undertook new borrowings of JPY 23.8 billion with an average buying period of 8.3 years at an average interest rate of 0.33%. Guided by its asset liability management, or ALM strategy, the Investment corporation is further reinforcing its financial stability. After undertaking the aforementioned new borrowings, IIF's loan-to-value or LTV ratio on a book value basis narrowed 2 percentage points compared with the end of the July 2020 fiscal period from 49.8% to 47.8%. And the LTV ratio on an appraisal value basis also declined 1.5 percentage points from 42.1% to 40.6%. Moreover, the average interest rate improved to 0.74%. Moving on to trends in DPU and net asset value, or NAV, over the past 5 years, I direct your attention to Page 4. As you can see, both DPU and NAV have experienced steady growth by an average of roughly 1.3 and 1.4x, respectively, over the most recent 5-year period. Here on Page 5, we provide details of trends in IIF's AUM growth. After acquiring the previously mentioned properties through the PO in this instance, IIF's AUM have come in at around JPY 370 billion, roughly 3.4x higher than the balance held as of December 31, 2011. In addition to this AUM growth, IIF is increasing the stability of its portfolio by diversifying the types of properties and regions in which assets are held. Here on Page 6, we provide an overview of trends in various indices as a result of the acquisition of properties. As of January 31, 2021, IIF's AUM have expanded to 77 properties at a total acquisition price of approximately JPY 370 billion. From a profit perspective, the average NOI yield and average NOI yield after depreciation have improved slightly, coming in at 5.9% and 4.9%, respectively. The unrealized gain on the portfolio has also expanded to JPY 72.2 billion. In addition, the LTV ratio has narrowed by 2 percentage points on a book value basis and 1.5 percentage points on an appraisal value basis. The weighted average interest rate has also declined by 0.05 of a percentage point, further enhancing the stability of the portfolio and finance. As far as unitholders' value is concerned and as is presented along the bottom right of the page, DPU on a stabilized basis has climbed 4.1% after adjusting for property-related taxes and other factors, with NAV per unit improving 9.3%. With this, I conclude my portion of the presentation and pass the microphone to Mr. Ueda.

Thank you, Mr. Okamoto. Moving on, I will comment on the current status of IIF's operations. IIF's DPU for the 27th fiscal period reached JPY 3,201, JPY 43 higher than the initial forecast due to a variety of factors, including the disposition of IIF Hitachinaka Port Logistics Center. DPU for the 28th fiscal period is projected to come in at JPY 3,178. Taking into account such factors as the full fiscal period contributions to revenue from properties acquired during the 27th fiscal period and the posting of a portion of property-related taxes as expenses, this is JPY 20 higher than the JPY 3,158 initially forecast. The graph on this page plots trends in DPU after deducting the effects of adjustments for property-related taxes, temporary revenue losses and other factors. After revising our initial forecast, DPU is estimated to come in at JPY 3,040, roughly JPY 3 higher than the previous forecast of JPY 3,037. During our last investor presentation, I commented that a certain amount of downtime to replace 3 tenants, logistics, manufacturing and office properties, would negatively impact DPU by approximately JPY 150. Despite completing steps to address the office vacancy at IIF Shinagawa IT Solution Center, we have experienced a decrease in revenue following the disposition of IIF Hitachinaka Port Logistics center. In addition, our forecast of JPY 3,040 includes an estimated negative impact of JPY 130, attributable to the 6-month downtime period required to replace tenants at a manufacturing property, and IIF Kobe Logistics center. Despite all of the aforementioned, our goal is to secure ongoing DPU growth to the tune of roughly 4% annually. Directing your attention to Page 10 of the presentation materials, I would like to elaborate on the status of tenant replacement at the 3 previously mentioned properties. Put simply, IIF implements measures aimed at minimizing the downtime associated with the replacement of tenants. Directing your attention to the left side of the page, I would first like to comment on the office property, IIF Shinagawa IT Solution Center. Despite receiving a notice of cancellation from the tenant leases a portion of the property, IIF was successful in attracting a replacement tenant at the same rent without any downtime. As a result, the occupancy rate at this property remains at 100%. While unable to disclose details, including the property's name in light of our relations with the tenant, IIF is looking at the possibility of an early lease cancellation around the fall of 2021 in connection with its land with leasehold interest in a manufacturing facility, owing to the business strategy of the tenant, as illustrated at the right side of the page. This property is situated in a highly versatile factory location in an industrial zone. While conducting site visits by several potential tenants, in addition to fielding letters of intent in acquiring the land, IIF will look to make a decision on whether to lease or sell the property after taking into consideration a variety of factors, including terms and conditions as well as timeframes. Given the aforementioned and the considerable possibility of a certain period of tenant replacement downtime, our current endeavors revolved largely around the principal scenario of disposition. As I mentioned a moment ago, we have already received several letters of intent and are in the process of selecting a final buyer. Shifting our attention to the third property, I would like to elaborate on the status of tenant replacement at IIF Kobe Logistics center. Our plans are to convert IIF Kobe Logistics Center into a multi-type facility and to lease-up the property after completing construction work. As far as time lines are concerned, the end tenant vacated the property at the end of February 2021. From a leasing perspective, demand is high for floor space between 4,000 and 5,000 tsubo. For the purpose of these discussions, floor space is presented on a tsubo basis, a unit of area that is commonly used in Japan. One tsubo is equivalent to approximately 3.3 square meters. Taking into consideration the 12,000 tsubo floor space at IIF Kobe Logistics Center, the decision was made to convert the property into a multi-type facility. Accounting for the custom nature of additional specifications, including elevators and vertical conveyors and the time required for renovation and other work, our downtime of roughly 1 year is anticipated. Leasing activities continue to progress steadily with several prospective tenants having visited the site. Once again, our goal is to lease the property after construction is completed. Changing tech, I would like to explain our investment strategy going forward, starting from Page 13. During the first half of this presentation, Mr. Okamoto touched on the polarization of corporate performance attributable to COVID-19. As a result, CRE proposals put forward are designed to address a mix of cash as well as new investment needs. The graph at the bottom left of this page provides a comparison of total net profit for all listed companies from the first quarter to the third quarter of the 2020 fiscal period compared with the corresponding period of the previous year. As you can see, total net profit over this period declined 15.4 points. The pie chart at the bottom right of the page shows whether ordinary income increased or decreased during the same period compared with the previous year. As illustrated, roughly 40% of companies reported an increase in ordinary income and around 60%, a decrease. IIF is witnessing a growing number of new investment need inquiries as opposed to temporary cash needs of the past. Moreover, we are also seeing the incidence of increase that entail a mix of cash and new investment needs. This includes the leaseback of properties held for the purpose of new investment. We see these changes in the environment as a chance to expand acquisition opportunities. Against this backdrop, IIF will put forward a variety of CRE solutions and take action. So it's not squander these circumstances. As indicated on this page, IIF acquisition pipeline continues to accumulate. The Investment Corporation maintains a long list of 40 properties under consideration with a total value of JPY 238.9 billion. The number of properties currently under detailed consideration, or so-called shortlist, comes to 12. Properties that fall outside the logistics field, mainly manufacturing and R&D facilities, accounted for 53.8% of the total. And by acquisition method, projects developed through CRE proposals accounted for 94.6%. As you can see, the status of acquisitions remain steady. At the left side of the page, we provide details of certain projects over which we have acquired preferential negotiating rights. As IIF responds skillfully to CRE needs to continue to change, successful steps are being taken to further expand the pipeline. Since our last investor presentation, several properties have been added to the pipeline, including land with leasehold interest in Saitama manufacturing property and a logistics center in Higashimatsuyama. At the same time, we have initiated steps to conduct due diligence at several other properties. With the further addition of a development property pipeline, IIF is confident in its ability to continue acquiring properties that are typical of the fund. As the acquisition environment continues to change, IIF will adopt a more aggressive approach toward development projects. Here on Page 16, we provide a list of the investment corporation to new development and extension achievements. In pursuing several proposals and development projects to date, IIF has utilized external partners, including these companies, together with special purpose company, or SPC schemes, to achieve a solid track record. In securing AUM growth, we have also witnessed the growing need for flexible operations and management. In this instance, we have, therefore, introduced an allowance for on balance sheet development. Coupled with the aforementioned, we intend to further build up our acquisition pipeline by employing our development management capabilities that underpin our achievements to date and advance various initiatives, including solution proposals that utilize the surplus floor air ratios at existing properties. Turning now to Pages 17 to 21 of the presentation materials. I would like to comment on 3 redevelopment and extension projects in the development pipeline. The first of the 3 projects is the redevelopment of IIF Atsugi Logistics Center 3, starting here on 2017. The property is located in an Atsugi Inland industrial Park, close to the King Sagamihara Ika interchange. Acquired in March 2012, the main building and extension of a building age of 39 years and 20 years, respectively. The floor area ratio currently stands at 94% of the designated floor air ratio of 200%. Drawing your attention to Page 18, this redevelopment project is based on a CRE proposal that captures the need for new construction in response to strong logistics demand. As indicated by the timeline that runs across the top of the page, we are currently in the process of finalizing the details of building specifications. Plans are in place to increase the total shore area by 40% and to transform this property into a state-of-the-art logistics facility. While not necessarily requiring immediate action, one original issue with this property was the fear of a decline in profitability due to work required to largely upgrade electric and other equipment in the future. Plans for redevelopment will not only eliminate this risk, but also significantly improve annual NOI. IIF is currently in the process of negotiating a lease contract. While we are yet to obtain an appraisal report, we are confident in our ability to substantially reduce any risk premium over current levels, thanks to the highly competitive nature of this redevelopment as a new logistics facility. We anticipate the appraisal value will come in at around JPY 7 billion, an increase of more than 20% over development costs. Should this be the case, the unrealized gain and unrealized gain ratio will total approximately JPY 2.5 billion and exceed 50%, respectively. As an investment, this, in turn, is expected to help boost NAV. Bringing here on Page 19, I would like to elaborate on IIF Narashino Logistics Centers I and II, an integrated redevelopment project. Among the logistics properties that it earns, this project represents the Investment Corporation's largest distribution center endeavor. After acquiring land with leasehold interest in IIF Nishinomiya Logistics Center 1 in 2010, IIF acquired in successive lots land with leasehold interest in and the building at IIF Nishinomiya Logistics Center 2 in 2011 and 2014, respectively. Despite its excellent access to a major expressway and favorable location as a large-scale distribution base, these facilities have an extremely low floor area ratio. As you can see here on Page 20, IIF is looking to break ground on an integrated development at the time the business use, land lease agreement expires at IIF Nishinomiya Logistics Center 1, in a bid to capture the business expansion needs of Sapporo Breweries Limited, the tenant at IIF Nishinomiya Logistics Center 2. Plans are in place to develop a build-to-suit, or BTS, and multi type logistics facility catering to the needs of Sapporo Breweries. While we will finalize detailed plans in the future, we expect to roughly triple the current lease area. Directing your attention to Page 21, I would now like to comment on plans to expand our third and final property. IIF Atsugi Manufacturing Center is a new factory developed in conjunction with Ichikoh Industries Limited, a manufacturer of automotive parts, including head lamps. Ichikoh Industries continues to expand its business, the company has been consolidating its manufacturing operations from its original main plant in Isehara City to the new factory. In order to improve productivity, the decision has been made to expand the factory to include such facilities as laboratory and testing room. At the top right of the page, we provide details of key indices before and after expansion. While the amount of investment at JPY 300 million is not considered large, we expect to generate sufficient rents to match the level of investment. Looking at other key indices, we expect to see an increase in the appraisal value and NOI per annum. Here on the next page, I draw your attention to our introduction of distributions in excess of profits. This reflects a change in IIF's distribution policy due to the start of redevelopment projects. Distributions in excessive profits can largely be categorized into 2 types. The first is a temporary distribution in excess of profits to stabilize the drop in DPU due to a variety of factors, including demolition costs, and downtime associated with redevelopment. The second is an optimal payable distribution during the new operating phase after construction is completed. A redevelopment schedule for IIF Atsugi Logistics Center 3 is provided in the diagram on this page. For your information, the introduction of an optimal payable distribution is subject to approval at is General Meeting of Unitholders. As such, the Investment Corporation will introduce this initiative after October 2022. Here on Page 24, I would like to comment on distributions and excess or profits in more detail. On top of current events that only cover temporary decreases in DPU as a result of such activities as the procurement of funds for the acquisition of assets as well as the issuance of new investment units, IIF is looking to add certain items including redevelopment costs, major repair expenses due to natural and other disasters and other large temporary costs to the list of events. Moving on to the details of optimal payable distribution presented on Page 25, depending on the characteristics of a property to be redeveloped or newly acquired, instances may emerge where the proportion of building price is high while capital expenditures are limited. Taking into consideration such factors as financial stability, cash management efficiency and the flexibility of management, IIF plans to undertake an optimal payable distribution up to 30% of the subject properties depreciation. Estimates of yield improvement and needed cash are provided on this next page. Based on calculations for 3 properties developed in the past, IIF Kawasaki Science Center, IIF Gifu Kakamigahara Logistics Center and IIF Hiroshima Seifushinto Logistics Center. The depreciation ratio for development projects comes in at around 1.8%, which is slightly higher than the portfolio average of 1%. As indicated in the table at the bottom left of the page, an optimal payable distribution equivalent to 30% of depreciation helps improve profitability by roughly 0.6%. Accounting for the aforementioned, the funds required for this optimal payable distribution totals approximately JPY 21 million. Moving on to Page 28 of the presentation materials, I would like to comment on the existing portfolio. As you can see from the timeline summary detailing IIF Fukuoka Hakozaki Logistics Center 2's internal growth, successful steps are being taken to steadily realize the Investment corporation's investment strategy that focuses on upside potential. IIF acquired the 60% co-ownership interest in the main building in 2017, and the remaining 40% as well as extension in 2018, completing our first round of efforts to increase revenue. As a second step, the Investment Corporation then revised lease contract for the main buildings floor A in 2020 and the lease contract for floor C and D in 2021. Through this value up initiative, IIF successfully improved profitability. The data at the bottom right of the page provides a comparison of key indices as of acquisition and after the implementation of value up initiatives. In specific terms, NOI climbed from 4.4% to 5.3%. In addition to an increase in appraisal value, the unrealized gain came in at 12.2%. Here on Page 29, we touch on the status of actions taken toward key tenants facing these expiration. As illustrated by the pie chart at the top left of this page, 68.7% of all lease contracts have a remaining lease period of 5 or more years with 9.5% scheduled to expire in less than 2 years. Drawing your attention to the table that runs along the bottom of the page, we list details of our response to key tenants facing lease expiration over the next 2 years, where rent levels exceed more than 1% of the portfolio as a whole. For IIF Mitaka Card Center, the property listed in the first line of the table, we have concluded a change in the ordinary building lease with the existing tenant, extending the lease term an additional 10 years. For IIF Zama IT solution center, listed second, we have also concluded a fixed-term building lease contract for a 5-year period. Turning to the third and last line in the table, we plan to negotiate contract terms and mutations in the future for IIF Shinagawa Data Center. Next, on Page 30, we provide a summary of IIF's internal growth and revision of rents going forward. Looking at the first line of the table that runs across the top half of the page, IIF has secured an increase in rent while increasing the NOI yield to 7.7% at IIF Koshigaya Logistics Center following the conclusion of a new contract, the tax effect from January 2021. Details of IIF Fukuoka Hakozaki Logistics Center 2, outlined a moment ago, are summarized in lines 2 and 5 of the table. As indicated in line 3, IIF has secured a rent increase of 3% at IIF Haneda Airport maintenance center based on existing contract terms and conditions. Referring to line 4 and as outlined earlier in this presentation, revenue from IIF Mitaka Card center is projected to increase owing to the introduction of measures aimed at generating partial benefits from reduced electricity charges due to the installation of LED lighting, following renewal of the lease contract. Once again, details of IIF Atsugi Manufacturing Center in line 6, as previously explained. Directing your attention to the data provided along the bottom half of the page, we outline the status of rent revisions. As you can see, the rents of properties that are subject to negotiation based vision are expected to fall broadly within the range of market rents. We also anticipate maintaining the current status of budgets. Jumping slightly ahead, I will now touch briefly on IIF's financial strategy. As illustrated here on Page 33, IIF LTV continues to decline in small increments on the back of successive POs. IIF book value and appraisal LTV ratios came in at 47.8% and 40.6%, respectively, as of the end of the 27 fiscal period. Moving forward, IIF's policy is to maintain the LTV ratio at past levels. As you can see here on Page 34, IIF was once again successful in reducing its debt cost in the fiscal period under review. The line graph at the top left of the page shows the weighted average interest rate for new borrowings at the time of the last 4 POs and a steady improvement to 0.33%. And as illustrated by the maturity letter that runs along the bottom half of the page, the amount that needs to be refinanced through to 2024 is relatively small. Against this backdrop, IIF will continue to undertake the refinancing of debt with interest rates close to 1.5% for the foreseeable future. Should the refinance market remain unchanged, we are confident in our ability to reduce debt costs even further. Put another way, given conditions as they currently stand, IIF is fairly resilient to an increase in costs attributable to an upswing in interest rates should levels increase in the future. In closing, I would like to comment on initiatives aimed at addressing environmental, social and governance, or ESG, concerns here on Page 36. Details of the most recent initiatives and achievements are listed briefly at the right of the page. In specific terms, IIF was once again included in the MSCI Japan ESG Select Leaders Index in 2020. Marking another milestone, the Investment Corporation was designated the highest 5 Star Ranking in the GRESB real estate assessment announced in November last year. Turning next to the data presented at the left of Page 37, we provide an example of a recent ESG initiative designed to address COVID-19. IIF shown on Health Innovation Park provided grounds recharge to help the adjacent Shonan Kamakura General Hospital, construct a temporary medical facility to assist in the treatment of patients infected by the pandemic. As indicated at the right of the page, IIF also published an ESG report on March 16, 2021. For more details, we direct you to the Investment Corporation's website. From Page 40 of the presentation materials, we provide operating results data for the January 2021, 27 fiscal period, earnings forecast for the July 2021, 28 fiscal period, and major factors were changes from fiscal period to fiscal period. We ask that you review at your leisure. This then concludes the presentation. We thank you for your interest and attention.

A brief Q&A session on IIF's January 2021, 27 fiscal period results following the presentation on March 18, 2021. Two participants put forward a total of 4 questions. The following is a summary of the questions raised and answers provided. Question. As far as is pipeline is concerned, both the number of properties and the total amount under consideration have increased, are there any pipeline properties where the investment corporation has abandoned any thought of acquisition? In addition, are there any changes in IIF's property acquisition policy, similar to the proportion of redevelopments going forward? Answer. While the pipeline continues to evolve, IIF's investment strategy remains largely unchanged. Despite the introduction of property proposals that seek to address cash needs at the time of our last investor presentation, we have witnessed a slight change in the stance adopted by financial institutions towards lending from autumn and over the winter. Rather than providing COVID-19-related loans while requesting businesses to dispose of properties by March, there are signs of a change in the stance that allows companies to maintain their approach towards the disposition of properties and to slide the timing into the next fiscal period. Moreover, changes have also occurred on the part of business companies. With certain competitors experiencing poor operating results in the current term, we are seeing the postponement of property proposal schedules due to extensions and the timing of disposal from the current to the next fiscal period. This, of course, does not apply to all property proposals. There are properties that remain under consideration. While IIF continues to assess certain opportunities as it looks to the next fiscal period, there have been replacements within the pipeline owing key aforementioned factors. Question. In addition to external growth, could redevelopment projects become a growth driver for IIF? Are redevelopment projects included in DPU growth target of 4%? Answer. Recognizing the profitable nature of each proposal, we believe that redevelopment projects will serve as a growth driver. Looking beyond the revised forecast of JPY 3,040 for the 28th fiscal period outlined on Page 9 of the presentation materials, our goal is to achieve DPU growth of 4%, comprising contributions from IIF Kobe Logistics Center of roughly 3% and other internal growth of around 1%, while excluding the positive flow and effects of redevelopment projects. While the aforementioned development properties are all scheduled for the future, the target 4% DPU growth reflects each property's perceived profitability. In addition, we are looking at further DPU growth on the back of external growth and redevelopment projects. Taking these factors into consideration, a short-term target of 4% growth does not include redevelopment projects. Question. Can you tell us about redevelopment funding methods? Answer. With roughly JPY 20 billion cash on hand and a commitment line of JPY 25 billion, we do not view peers as an asset. In light of other acquisition opportunities under consideration, we will evaluate each property and assess the most appropriate procurement method, whether it be cash, debt or equity. Question. In addition to the 3 redevelopment properties identified in this instance, to what extent are there other projects with redevelopment potential, such as properties with surplus floor area ratios or the reflect originated investment needs. Answer. There are other properties with surplus floor area ratios. Rather than undertake new construction after an existing tenant vacates, we are promoting redevelopment that also addresses existing tenant needs in similar fashion to IIF Narashino Logistics Centers 1 and 2, identified in this investor presentation. While there are other proposals also being put forward, we are currently working on only the 3 properties announced in this instance. Owing to such factors as our relationships with existing tenants. [Statements in English on this transcript were spoken by an interpreter present on the live call.]