ファーストブラザーズ（3454） – [Delayed]Q1 FY11/22 Financial Earnings Summary

Q1 FY11/22 Financial Earnings SummaryF i r s t B r o t h e r s C o . , L t d . ( 3 4 5 4 )April 8, 2022Topics for Q1 FY11/22 (1)Portfolio of properties for lease / Overviewstable income over the medium to long term.preceding property sales.properties for lease.The First Brothers Group is expanding its portfolio by acquiring properties for lease that are projected to return aIn Q1 FY11/22, the balance of property holdings temporarily declined in comparison to end of FY11/21 due toThe following table contains the balance, book value, market value, unrealized gain and NOI yield of our portfolio of(Unit: million yen)FY11/20 (end of fiscal year)FY11/21 (end of fiscal year)FY11/22 (end of Q1)Change from end of FY11/21Change from end of FY11/21 (%)Balance*1(number of properties)55,618(55 properties)61, 421(95 properties)58,243(90 properties)-3,177-5.2%Increase*1Decrease*1Book value*2Market value*3Unrealized gain*3NOI yield*420,3238,08256,17964,4568,2766.6%18,17412,37261,95373,14311,1897.2%03,177—-58,674-3,27968,584-4,558-5.3%-6.2%9,910-1,278-11.4%7.2%–Breakdown of Our Portfolio of Properties for Lease by Location and UseClassification of Current and Non-current Assets on Our Balance SheetBy location(in terms of balance)In principle, we record properties for lease as current assets on our balance sheet to ensure that these properties can be promptly sold when we conduct portfolio rotation. However, we record properties with relatively high yields as non-current assets with the intention of generating long-term leasing income.By use*5Other majorcities54.0％TokyoMetropolitanarea46.0%Residential15.6%Offices24.7%Hotels30.4%Commercial29.3%(million yen)Current assetsNon-current assets40,934(59 properties)17,309(31 properties)Balance*1(number of properties)Book value*2Market value*3Unrealized gain*3NOI yield*441,69349,2847,5906.7%16,98119,3002,3198.3%1*1 Balance and increase/decrease values are based on acquisition price (before tax). Increase values include increases from M&A and from *2 Book value is adjusted by adding transaction costs at the time of acquisition to the acquisition price, and reflecting capital expenditures and *3 Market value is the most recent appraised value or assessment value based on the appraised value, and unrealized gain is the difference completion of development projects.depreciation for the investment period. between this value and book value. *4 Assumed APR for stable operation (cash-based net income from rents minus administrative expenses, etc., divided by acquisition price).*5 Mixed-use properties are calculated based on primary usage.© FIRST BROTHERS Co., Ltd. All Rights Reserved.Topics for Q1 FY11/22 (2)Portfolio of properties for lease / Stable incomeOur policy is to expand our portfolio of properties for lease in order to increase stable gross profit from leasing*1.However, gross profit from leasing is subject to temporary decline caused by property sales conducted inconnection with portfolio rotation and vacancy losses and other factors associated with activities aimed at addingvalue to properties.In Q1 FY11/22, gross profit from leasing temporarily declined due to preceding property sales conducted inconnection with portfolio rotation.Q1 FY11/19(three months)Q1 FY11/20(three months)Q1 FY11/21(three months)Q1 FY11/22(three months)Gross profit from leasing*1 (million yen)287461594587*2*1 Net income gained from properties for lease (NOI [excluding one-time factors] － depreciation expenses)*2 Correlation between NOI yield during stable operation (see p. 1) and gross profit from leasing (Q1 FY11/22)・NOI during stable operation in Q1 FY11/221,076 million yen(59,832 million yen [average balance of property holdings at beginning of year/end of Q1] x 7.2% [average NOI yieldat beginning of year/end of Q1] x 3/12 months)・Depreciation expenses in Q1・Vacancy losses incidental to work to add value to properties and rent for properties acquired during Q1, etc.—————————————————————————————————————————————————・Gross profit from leasing in Q1 FY11/22-191 million yen-298 million yen587 million yenPortfolio of properties for lease / Portfolio rotation through property saleWe manage the properties for lease that we acquire, adding value to them through enhancements, and also sellsome on the market as appropriate to achieve property rotation and generate capital gains.We sold several properties in Q1 FY11/22, generating corresponding gains.A summary of these transactions is shown below.(million yen)Q1 FY11/19(three months)Q1 FY11/20(three months)Q1 FY11/21(three months)Q1 FY11/22(three months)Sales value*1Gross profit from sale*12,8006060094184,7551,128*1 Includes sales of real estate for sale in process (including land for development of properties for lease).■Fluctuations in sales value and gross profit from saleFor the purpose of portfolio rotation, we sell some of our properties to which we have successfully added significant value, or in cases where we find a buyer presenting favorable conditions. We select these properties by assessing our progress in value enhancement. Because the value of each property is relatively large and each sales transaction can be affected by a range of factors, total sales value on a quarterly or annual basis can fluctuate significantly depending on the number of executed transactions. Gross profit from sale also fluctuates, since the profit margin varies from property to property. © FIRST BROTHERS Co., Ltd. All Rights Reserved.2Topics for Q1 FY11/22 (3)Portfolio of properties for lease / Financing statusOur loan balance tends to increase as investment progresses, because we take out loans when acquiring properties.As a rule, we take out long-term loans and use interest rate swaps*1 to maintain a fixed interest rate for a certainportion of our loan balance.*1 *While the market price of an interest rate swap contract fluctuates according to interest rate and market trends, we utilize such contracts to fix interest payments over the long term and avoid the risk of interest rates going up; the swap contracts contribute to stabilizing our cash flow. Loan balance (million yen)*2(Of which, non-recourse loans)Leverage*3Weighted average residual periodWeighted average interest rate*4% of loans with fixed interest ratesFY11/19(end of fiscal year)FY11/20(end of fiscal year)FY11/21(end of fiscal year)Q1 FY11/22(end of Q1)37,64645,976 50,91747,41813.9 years12.1 years10.2 years9.6 years61359884.9%81.8%0.84%55.1%0.75%44.3%3,42082.2%0.99%29.5%3,42080.8%1.00%31.5%*2 Loans to fund acquisitions of properties for lease*3 Loan balance / Book value of properties for lease*4 Before fixing interest ratesReal estate asset managementIn Q1 FY11/22, competition to buy relatively large-scale properties—our funds’ target assets—was fiercecompared with the market for small to mid-size properties that we invest in on our own account. As such, theGroup refrained from new property acquisitions at the funds for which we manage investment independently.We are continuing our efforts to seek out new properties for acquisition at our funds for which we manageinvestment independently.(million yen)FY11/19(end of fiscal year)FY11/20(end of fiscal year)FY11/21(end of fiscal year)Q1 FY11/22(end of Q1)AUMIncrease*1Decrease*113,583 4,850011,82021,57023,33322,95811,138022,95800*1 Increase/decrease include conclusion and expiration of asset management agreements.Hospitality service initiativesAs an initial step toward expanding our business domain to include operations aimed at providing hospitalityservices from a medium- to long-term perspective, we have begun to conduct initiatives targeting the establishmentof a lodging and accommodations business.Moving forward, while maintaining respect for the values of our customers and working in harmony with localcommunities, we intend to develop a distinctly recognizable First Brothers business by creating completely uniqueexperiences that cannot be duplicated through our activities in the lodging and accommodations field.Following the luxury onsen ryokan (Japanese-style inn with hot spring baths) added during FY11/21, we welcomeda traditional classic hotel into the Group in Q1 FY11/22.© FIRST BROTHERS Co., Ltd. All Rights Reserved.3Q1 FY11/22 earnings summary (1) Consolidated income statement (summary)In Q1 FY11/22, sales and profits rose year on year thanks in part to the sale of several properties for lease. TheGroup’s quarterly earnings tend to fluctuate depending on the volume of properties sold.(million yen)Q1 FY11/20Q1 FY11/21Q1 FY11/22YoY changeProgress rate in Q1 FY11/22Net salesGross profitSelling, general and administrative expensesOperating profitOrdinary profitProfit attributable to owners of parentGross profit breakdown91845542332(264)(190)2,3036,345+175.5%25.5%595443152100601,736+191.4%32.8%607+36.9%-1,129+641.5%39.2%1,043+943.5%51.9%665+992.2%51.2%(million yen)Q1 FY11/20Q1 FY11/21Q1 FY11/22YoY changeSelling, general and administrative expenses breakdown(million yen)Q1 FY11/20Q1 FY11/21Q1 FY11/22YoY changeInvestment Management businessInvestment Banking businessGross profit from saleGross profit from leasingOtherOther businessTotal gross profitPersonnel expensesRentCommission expenses / remunerationTaxes and duesOtherTotal selling, general and administrative expenses124420450(7)0455247434012784232955985381265952844755114544332+11.7%1,690+201.9%1,128-+2.9%-41.3%+99.5%1,736+191.4%55471330548124*4188607+21+0+69+29+42+1634*Includes advisory fees (62 million yen) associated with the acquisition of shares in subsidiaries.© FIRST BROTHERS Co., Ltd. All Rights Reserved.Q1 FY11/22 earnings summary (2) Consolidated balance sheet (summary)In principle, we record properties for lease as current assets (real estate for sale) to ensure that they can be soldpromptly when conducting portfolio rotation. However, we record properties with relatively high yields as non-currentassets with the intention of generating long-term leasing income.In Q1 FY11/22, both real estate for sale and borrowings decreased due to the preceding sale of properties for lease.On the other hand, non-current assets increased as the number of lodging facilities operated by the Group grew inconjunction with its launch of hospitality services.End FY11/20End FY11/21End Q1 FY11/22ChangeTotal liabilities55,43161,74159,329End FY11/20End FY11/21End Q1 FY11/22ChangeConsolidated assets(million yen)Total current assetsCash and depositsDeposits in trustReal estate for saleReal estate for sale in processOtherTotal non-current assetsTotal assetsConsolidated liabilities and net assets (million yen)Total current liabilitiesShort-term borrowingsCurrent portion of long-termborrowingsCurrent portion of long-termnon-recourse loans payableOtherTotal non-current liabilitiesLong-term borrowingsLong-term non-recourseloans payableOtherTotal net assetsTotal shareholders’ equityOtherTotal liabilities and net assetsNet D/E ratio*171,8746,20756356,2056,4492,4491,88773,7626,0092,0001,741152,25349,42243,3185825,52118,33018,21111873,7622.2162,65510,76674044,9084,2751,96319,89682,5518,8703,4541,89003,52552,87144,3843,4205,06620,80920,66914082,5511.8541,693-3,21556,2918,4907083,2852,11324,14680,4376,3132,9051,91801,48953,01644,2643,4205,33221,10720,965142-6,363-2,275-31-990+149+4,249-2,114-2,411-2,557-548+27±0-2,036+145-120±0+266+297+295+280,437-2,1141.90-*1 Net D/E ratio = (Interest-bearing debt excluding non-recourse loans – [cash and deposits + deposits in trust]) / Shareholders’ equity© FIRST BROTHERS Co., Ltd. All Rights Reserved.5FY11/22 full-year earnings forecastThe First Brothers Group positions the expansion of its portfolio of properties for lease as the pillar of its growthstrategy. We will continue to acquire and manage properties that present opportunities for value enhancement,engage in real estate development as necessary, and seek to achieve sustainable corporate growth while coexistingharmoniously with local communities. We have begun conducting initiatives aimed at establishing a lodging andaccommodations business as part of our efforts to expand business domain and ensure that we can continue toprovide solutions through our hospitality services business over the medium to long term.In FY11/22, we forecast decline in consolidated sales and profits. Although leasing income will grow as our portfolioof properties for lease expands, we anticipate a year-on-year decline in proceeds and gains from the sale ofproperties for lease. This is because in comparison to FY11/21, we set a conservative forecast for the sale ofproperties related to portfolio rotation and project to sell fewer properties bearing relatively high unrealized gains.These forecasts for FY11/22 are attributable to temporary decline in proceeds from the sale of properties for lease inconnection with portfolio rotation. We believe that the downward trend demonstrated by these projections is atransitional condition in the course of promoting our growth strategy.Note: The Group manages earnings on a full-year basis, and thus only discloses a full-year earnings forecast.(million yen)FY11/20Full-year resultsFY11/21Full-year resultsFY11/22Full-year forecastYoY changeNet salesGross profitInvestment Management businessInvestment BankingbusinessOtherOperating profitOrdinary profitProfit attributable to owners of parent15,6424,2933533,916232,5411,8162,31326,6856,8402386,523784,9404,3792,79524,900-6.7%5,300-22.5%183-23.1%5,065-22.4%50-35.9%2,880-41.7%2,010-54.1%1,300-53.5%About the Group’s earnings performanceThe Group’s policy is to expand its portfolio of properties for lease while increasing profits and shareholders’ equity,but its earnings performance has the following characteristics at present because of the relatively large weighting ofprofit from property sale.(1) Short-term earnings fluctuationsOur quarterly and annual earnings performance can fluctuate significantly depending on the status of property sales.This is because large sales and profits tend to be recorded when we sell properties, whereas most of our SGAexpenses are fixed expenses.Also, Group consolidated profit margins at all levels tend to fluctuate, because profit margins at the time of sale varyWhile real estate transactions are influenced by various circumstances, there are no obvious seasonal patterns according to individual properties.(such as net sales being skewed toward 1H).(2) Gross profit over net salesWe prioritize gross profit over net sales, because net sales include the sales value of properties. This means we prefer investments with a small transaction value and a large profit over those with a large transaction value and lower profit. © FIRST BROTHERS Co., Ltd. All Rights Reserved.6Shareholder returns / Dividend policyBasic dividend policy⚫ Dividends are paid once a year (end of fiscal year)⚫ Stable and continuous dividends regardless of short-term earnings fluctuations⚫ Dividends to increase in the medium to long term as the company grows⚫ Target dividend on equity (DOE) of around 2.0%Formula for calculating dividend per shareshares for fiscal yearConsolidated shareholders’ equity (average of beginning and end of fiscal year) x 2.0% / Average number ofAlthough the dividend payout ratio is generally used as a standard for calculating dividends, we use consolidatedshareholders’ equity (a balance sheet item) instead. This is because the dividend payout ratio is linked to annualprofit, whereas we intend to provide stable and continuous dividends regardless of short-term earnings fluctuations.Provided net income is in profit and exceeds the dividends amount, consolidated shareholders’ equity willgradually rise every fiscal year. We can therefore increase our dividends over the medium to long term in line withthe company’s growth.We also consider share buy-backs as a flexible method for providing shareholder returns.Dividend per share18.0 yen15.0 yen30.0 yen27.0 yen24.0 yen21.0 yenFY11/17FY11/18FY11/19FY11/20FY11/21FY11/22(Forecast)Note: We plan to pay a dividend of 30.0 yen per share for FY11/22.© FIRST BROTHERS Co., Ltd. All Rights Reserved.7Shareholder returns / Shareholder benefit planWe have adopted the following shareholder benefit plan to show our appreciation for the continuous support of ourshareholders and make investment in our stock more attractive so that we can engage a greater number of long-termshareholders.Shareholder benefit plan (overview)Each year, we make the shareholder benefit plan, “First Brothers Premium Benefits Club,” available to all shareholderswho are registered in our shareholder ledger and meet certain conditions as of November 30.Details of the First Brothers Premium Benefits ClubThe plan extends shareholder benefit points to shareholders commensurate with the quantity and duration of theirholdings.Through the exclusive “First Brothers Premium Benefits Club” website, shareholders can exchange their points forrewards such as local specialties from areas associated with the Group, Amazon gift certificates, food products, electricalappliances, and various opportunities for travel and personal experiences.Shareholder Benefit Points TableShareholders with shares held continuously for at least one year*Shareholders with shares held for less than one yearNo. of shares heldBenefitsNo. of shares heldBenefitsAt least 500 shares 5,000 pointsAt least 3,000 shares5,000 pointsAt least 600 shares6,000 pointsAt least 3,100 shares6,000 pointsAt least 700 shares7,000 pointsAt least 3,200 shares7,000 pointstoAdditional 1,000 points for each additional 100 sharestoAdditional 1,000 points for each additional 100 sharesAt least 5,000 shares50,000 pointsAt least 5,000 shares25,000 points* Applies to shareholders registered in the company shareholder ledger at least three consecutive times underthe same shareholder number each year on May 31 and November 30.How to applyEach year, eligible shareholders receive a “Notice of Shareholder Benefits” by mail in early February.After registering through the website as members of the “First Brothers Premium Benefits Club” in accordance with theprocedures described in the “Notice of Shareholder Benefits,” shareholders can apply for their desired products using thewebsite’s product selection screen.For details of the shareholder benefit plan, please visit the following website.https://firstbrothers.premium-yutaiclub.jp/© FIRST BROTHERS Co., Ltd. All Rights Reserved.8About usCompany overviewCompany nameFirst Brothers Co., Ltd.EstablishedFebruary 4, 2004AddressMarunouchi Bldg., 25th Fl., 2-4-1 Marunouchi, Chiyoda-ku, TokyoCapital1,589,830,800 yenStock code3454 (Tokyo Stock Exchange Prime Market)Number of staff212 (as of February 28, 2022; consolidated group basis) Major subsidiariesFirst Brothers Capital Co., Ltd. First Brothers Asset Management Co., Ltd.First Brothers Development Co., Ltd.Higashinihon Fudosan Co., Ltd.THE FUJI FACILITY SERVICE, INC.From First Hotels Co., Ltd.Group’s major businessesOwnership and management of real estate for leaseFirst Brothers carefully selects and purchases real estate for lease expected to generate stable earnings in the medium to long term. Through accumulating these properties, we own and manage a portfolio of real estate for lease. We add value to each of these properties in various ways to draw out their maximum potential. We also develop new properties in cases where doing so would contribute to regional development of the area the properties are located in. The portfolio is reshuffled as necessary to secure unrealized gains from the value-added properties, and these gains are in turn utilized to purchase new real estate for lease. In this way, First Brothers is sustainably expanding its portfolio of real estate for lease. Real estate asset management In this business, First Brothers primarily provides asset management services to institutional investors. We target relatively large real estate worth several tens of billions of yen, and manage these assets for the purpose of generating investment income as well as capital gains. We also provide asset management services on contract for real estate investment activities undertaken independently by investors for the duration of the investment period. Renewable energy developmentUtilizing the Group’s expertise, we are engaged in the development of various forms of renewable energy. We are particularly focused on the development of geothermal energy, which with its stable output, is much anticipated to become the source of baseload power. Hospitality servicesPrivate equity investment The Group manages hotels, inns, and other lodging facilities with a view to providing hospitality services from a medium- to long-term perspective.First Brothers invests in an array of businesses, including startups and businesses with social causes. © FIRST BROTHERS Co., Ltd. All Rights Reserved.9Disclaimer⚫ These materials are prepared for the purpose of providing information about the First Brothers Group, but the Group makes no representations or warranties concerning the content of these materials. ⚫ The Group takes the utmost care in preparing these materials, but shall bear no liability whatsoever for any losses or damages incurred due to an error in published information or due to data modification or downloads by a third party. ⚫ The information included in these materials are prepared based on certain assumptions that the Group deemed reasonable, but changes may be made without notice due to circumstances such as changes in the external or internal environment. ⚫ Forward-looking statements by the Group contained in these materials were based on information available at the time of writing. As these statements come with inherent risks or uncertainties such as changes in the internal or external environment, actual earnings performance may differ from the forward-looking statements contained in these materials. ⚫ Even in the event of new information or future developments, the Group undertakes no obligation to update or revise any information contained in these materials.⚫ These materials were not prepared for the purpose of soliciting investment. We ask that investors do not rely solely on these materials and instead use their own judgement and discretion when making investment decisions.Business Planning Dept., First Brothers Co., Ltd.+81-3-5219-5370IR@firstbrothers.comInquiries10© FIRST BROTHERS Co., Ltd. All Rights Reserved.