Slide 1: FY19/2 H1 Corporate Presentation
FY19/2 H1 Corporate Presentation January 13, 2018 October 11, 2017 Ichigo (2337) © Ichigo Inc. All rights reserved. www.ichigo.gr.jp/en
Slide 2: Condolences for Japan's natural disasters
We express our deepest condolences to all those affected by Japan’s recent natural disasters, and our wishes for the earliest possible recovery. © Ichigo Inc. All rights reserved.
Slide 3: © Ichigo Inc. All rights reserved.
© Ichigo Inc. All rights reserved.
Slide 4: Contents
Contents FY19/2 H1 Earnings Building a Foundation for Sustainable ‒ FY19/2 H1 Summary Growth ‒ Operating Profit -28%, Net Income -37%, ‒ Core Business Growth EPS -36% (YOY) Value-Add: Stock Earnings +11% YOY Clean Energy: Scaling Rapidly ‒ Segment Earnings Details Clean Energy: Wind Power Expa
Slide 5: FY19/2 H1 Earnings
FY19/2 H1 Earnings © Ichigo Inc. All rights reserved. 5
Slide 6: FY19/2 H1 Summary
FY19/2 H1 Summary Durable Earnings Model Stock Earnings Growth Stock Earnings/Fixed Expenses Stock Earnings Growing Across the Board 243% 16,145 (Forecast) +25% (JPY million) Value-Add Asset Clean Energy Management 12,563 (Forecast) 1,988 1,594 (Forecast) (Forecast) Gross Profit 12.45B 12,960 8,245
Slide 7: Operating Profit -28%, Net Income -37%, EPS -36% (YOY)
Operating Profit -28%, Net Income -37%, EPS -36% (YOY) H1 Down YOY, but Strong H2 Visibility – Full-Year On-Track (JPY million) Full-Year FY18/2 H1 FY19/2 H1 YOY Forecast Operating Profit 13,236 9,581 -27.6% 25,000 Recurring Profit 11,562 8,293 -28.3% 22,000 Net Income 8,873 5,608 -36.8% 15,000 EPS
Slide 8: Segment Earnings Details
Segment Earnings Details − Asset Management: Base AM Fees +15% YOY − Value-Add: Rental Income +11% YOY Gains on Sale -50% YOY − Clean Energy: 7 New Plants = Power Generation Revenues +237% YOY (JPY million) Operating Profit Earnings Drivers Segment Full-Year vs. Full-Year (Parentheses show YOY chang
Slide 9: Powerful Value-Add Business Model Underpins Growth
Powerful Value-Add Business Model Underpins Growth © Ichigo Inc. All rights reserved. 9
Slide 10: Business Model (1) Stock + Flow Earnings
Business Model (1) Stock + Flow Earnings Gross Profit Stock Earnings (Primarily Rental Income, Base AM Fees, and FIT Solar Power Sales) 31.2 (JPY billion) Flow Earnings (Primarily Profits on Value-Add Real Estate Sales ) Fixed Expenses (Fixed SG&A + Interest Expenses) 27.9 27.0 15.1 20.8 14.1 13.0 9
Slide 11: Business Model (2) Embedded Forward Earnings
Business Model (2) Embedded Forward Earnings Full Economic Earnings from Value-Add are Generally Not Recognized during the Current Accounting Period – Value-Add Thus Generates Significant Unrealized Gains that are an “Earnings Bank” for Future Periods (JPY billion) 45.4 36.8 28.1 19.6 12.3 FY14/2 FY
Slide 12: Business Model (3) Value-Add Drives Durable Value Growth
Business Model (3) Value-Add Drives Durable Value Growth Gains on Sales Consistently Exceed Appraisal Value-Based Unrealized Gains Appraisal Value-Based Unrealized Gains 4.4X Gains on Sales (Gross Profit) GPM 34% 1.6X GPM 14% 2.2X GPM Unrealized Gains GPM 23% (vs. Book Value) 32% 9% JPY 12.0B JPY 10
Slide 13: Robust Financial Base
Robust Financial Base Average Interest Rate and Loan Term Weighted Average Loan Period Weighted Average Remaining Loan Maturity (Interest Rate) Weighted Average Interest Rate (Loan Term, Years) 2.5% 12 10.8 years 10.2 years 9.6 years 1.96% 9.0 years 8.7 years 9.3 years 2.0% 9 8.3 years 8.3 years 7.8
Slide 14: Continued Strengthening in Financial Position
Continued Strengthening in Financial Position New Uncollateralized Long-Term Mizuho Bank Commitment Line − Ongoing, revolving credit line − Enables Ichigo to flexibly and repeatedly borrow within the commitment line amount Lender: Mizuho Bank Commitment Line Amount: JPY 10 billion Use of Proceeds: R
Slide 15: Building a Foundation for Sustainable Growth
Building a Foundation for Sustainable Growth © Ichigo Inc. All rights reserved. 15
Slide 16: Value-Add: Stock Earnings +11% YOY
Core Business Growth Value-Add: Stock Earnings +11% YOY − Acquisitions & Organic Growth Driving Growth in Rental Income − Continuing to be Selective on Acquisitions H1 Value-Add Earnings Value-Add Sales and Acquisitions (JPY billion) Stock Earnings (Rental Income) Flow Earnings (Gains on Sale) H1 Sa
Slide 17: Clean Energy: Scaling Rapidly
Core Business Growth Clean Energy: Scaling Rapidly Operating Plants: 82.1MW In-Development Plants: 66.2MW (+81%) Ichigo Green Operating Plants: 29.4MW 148.3 136.8 (+8%) (+14%) Power Generation (MW) 119.7 (+43%) Operating 66.2 In-Development 54.7 (Wind 33.4) 37.6 (Wind 21.9) 83.6 (Wind 7.4) (+16%) 72
Slide 18: Clean Energy: Wind Power Expansion
Core Business Growth Clean Energy: Wind Power Expansion Ichigo’s First Wind Power Plant: Ichigo Yonezawa Itaya ECO Power Plant (Yamagata) − Output: 7.4MW（4 turbines) − FIT: JPY 22 − Average Wind Velocity: 8m/s (wind power generally attractive at >6m/s) − NOI Yield: c. 12% − Expected Operation Start
Slide 19: Lifestyle Hotel Market Growth Potential (1)
New Business Entry: Lifestyle Hotels Lifestyle Hotel Market Growth Potential (1) Robust Growth in Global Tourism – Asia Taking Increased Share UNWTO Global Tourism Forecast Middle Africa East 5% 4% Middle Forecast 600 million global East increase and 230 million Asia Americas 16% Pacific increase Af
Slide 20: Lifestyle Hotel Market Growth Potential (2)
New Business Entry: Lifestyle Hotels Lifestyle Hotel Market Growth Potential (2) Significant Latent Lifestyle Hotel Demand in Japan Global Lifestyle Hotel Supply (% of Guest Rooms) Lifestyle Hotels (including Small Luxury Hotels) Other (Luxury Hotels, Budget Hotels) 0.7% 18.8% 6.9% 6.9% 9.3% 0.7% Ne
Slide 21: Ichigo's THE KNOT TOKYO Shinjuku (1)
New Business Entry: Lifestyle Hotels Ichigo’s THE KNOT TOKYO Shinjuku (1) Total Renovation and Transformation of 39-Year-Old Hotel into New Lifestyle Hotel − Ichigo Lifestyle Hotel Attributes 1) High-quality interior design, aesthetics, comfort, & functionality 2) Provision of experiences and opport
Slide 22: Ichigo's THE KNOT TOKYO Shinjuku (2)
New Business Entry: Lifestyle Hotels Ichigo’s THE KNOT TOKYO Shinjuku (2) Full-scale renovation including new HVAC, plumbing, seismic reinforcement, and fiber-optic internet connectivity Space conversions to service community & guest needs & drive higher earnings − 1F PC/vending machine area -> 1F F
Slide 23: Sustainable Real Estate (1)
Sustainable Real Estate (1) Ichigo Office (8975) Sustainable Real Estate Recognition − GRESB (ESG Performance): Ichigo Office – Green Star (2 years in a row) GRESB Assessment Key Points (1) Environmental Monitoring Ichigo Office is actively engaged in environmental impact reduction via implementatio
Slide 24: Sustainable Real Estate (2)
Sustainable Real Estate (2) Ichigo Sustainable Real Estate Recognition CASBEE: Two assets (A Rank) Hakata Ekimae Square Hakata MST Rank: A Rank: A CASBEE Assessment Key Points: CASBEE Assessment Key Points: (1) Reduced water consumption via increased use of recycled water (1) Reduced water consumpti
Slide 25: Disaster Response & Recovery
Disaster Response & Recovery No injuries or damages at any Ichigo assets or power plants from H1 natural disasters Robust Assets − Real estate: Continuous improvements to safety & functionality via value-add capex − Power plants: Power plant site selection and construction based on detailed specific
Slide 26: JPX-Nikkei Index 400 Inclusion
JPX-Nikkei Index 400 Inclusion Selected for inclusion in the JPX-Nikkei Index 400 in the 2018 annual index constituent rebalance for the third year in a row (2016, 2017, 2018) Note: The JPX-Nikkei Index 400 rank orders the top 1,000 companies from the joint set of the 1,200 highest market capitaliza
Slide 27: Appendix: Financial & Real Estate Data
Appendix: Financial & Real Estate Data © Ichigo Inc. All rights reserved. 27
Slide 28: Significant Unrealized Gains on Balance Sheet
Significant Unrealized Gains on Balance Sheet JPY 46.4B (Appraisal Value Basis), +3% vs. FY18/2-end Real Estate Directly Held by Ichigo (JPY million) Book Value Cap Rate Appraisal Value Unrealized Location Expected NOI (FY19/2 H1) (NOI/Book Value) (FY19/2 H1) Gains Tokyo 122,033 6,520 5.3% 147,943 +
Slide 29: Net Consolidated Risk-Based Balance Sheet
Net Consolidated Risk-Based Balance Sheet Mark-to-Market Consolidated Balance Sheet: JPY 363.5B (Book Value JPY 317.1B + Unrealized Gains JPY 46.4B) Cash & Cash Equivalents JPY 39.2B Non-Recourse Loans & Related Liabilities JPY 67.5B Net Consolidated Risk-Based Balance Sheet: JPY 256.6B Non-Recourse
Slide 30: Business Segments
Business Segments Asset Management generates fee income via management of Ichigo Office (8975), Ichigo Hotel (3463), and Ichigo Green (9282), and Asset Management providing real estate services related to real estate acquisition, operations, and disposition. Value-Add preserves and improves real est
Slide 31: Consolidated Balance Sheet: Segment Breakdown
Consolidated Balance Sheet: Segment Breakdown (JPY million) Cash and Operational Operational Power Real Estate Fixed Intangible Securities Other Segment Cash Loan Securities Plants for Total Assets for Sale Assets Assets Investments Assets Equivalents Investments Investments Sale Asset Management –
Slide 32: Asset Management – Ichigo REITs and YieldCo
Asset Management – Ichigo REITs and YieldCo Office Hotel Green Infrastructure Ichigo Office Ichigo Hotel Ichigo Green (8975) (3463) (9282) Listing Date Listing Date Listing Date October 12, 2005 November 30, 2015 December 1, 2016 Portfolio Portfolio Portfolio 85 Offices JPY 199.9B 21 Hotels JPY 50.7
Slide 33: Asset Management AUM Detail
Asset Management AUM Detail FY 14/2 FY 15/2 FY 16/2 FY 17/2 FY 18/2 FY 19/2 H1 (12M) (12M) (12M) (12M) (12M) (6M) Ichigo Office AUM (Fiscal Year End) JPY 120.5B JPY 123.8B JPY 165.1B JPY 194.5B JPY 196.9B JPY 198.0B (8975) AM Base Fee Gross Profit (Actual) JPY 733M JPY 759M JPY 1,016M JPY 1,291M JPY
Slide 34: Powerful Value-Add Business Model
Powerful Value-Add Business Model Significant Synergies between Ichigo’s Value-Add and Asset Management Businesses Value-Add Business Model Green Infrastructure Solar Plants Buy Ichigo Green (9282) Office Sell Real Third- Estate Party Ichigo Office (8975) Value-Add Investors Real 不動産 Hotel Estate Pr
Slide 35: Value-Add Social Significance
Value-Add Social Significance Sustainable Real Estate Serving a Sustainable Society End Demolish and Rebuild and Embrace Value-Add ‒ Preserve and enhance high-function real estate ‒ Lengthen useful life and improve quality of existing assets via Value-Add Preserve & Improve Value-Add ・ Higher-Qualit
Slide 36: Value-Add Sample Earnings Model
Value-Add Sample Earnings Model 5.5% NOI yield, JPY 2B purchase, LTV 75%, 1.5% interest rate on borrowings, JPY 50M Capex, 15% increase in NOI, 3-year Value-Add period NOI at Acquisition (JPY 110M NOI/year) － (JPY 22.5M interest/year) ＝ JPY 87.5M NOI/year NOI÷ Initial Investment ＝17.5% NOI return du
Slide 37: Ichigo-Owned Real Estate Portfolio
Ichigo-Owned Real Estate Portfolio By Asset Type By Location (JPY billion) Ground Logistics Lease Other Nagoya 2% 1% 1% Hokkaido 2% 2% Mixed Okinawa Hokkaido 5% 2% Other 4.6 8% Sendai Hotel 3% Retail 29% 18% Osaka 4% Tokyo Tokyo Metropolitan * 52% 12% Tokyo Residence 115.8 19% Office Fukuoka 25% 15%
Slide 38: Value-Add Asset Breakdown (1)
Value-Add Asset Breakdown (1) 174 Assets, JPY 223.5B, Forecast NOI JPY 13.8B (6.0% Yield) Acquisition Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location 1 2 Price Date Age NOI/Year Investment Multiple IRR 1 Wholesale Market Fixed Asset Matsudo
Slide 39: Value-Add Asset Breakdown (2)
Value-Add Asset Breakdown (2) Acquisition Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Price Date Age NOI/Year Investment 1 Multiple IRR 2 * 21 Residence Fixed Asset Minato-ku, Tokyo <JPY 1B 2013/06 3 years JPY 49M JPY 203M – – 26 Retail
Slide 40: Value-Add Asset Breakdown (3)
Value-Add Asset Breakdown (3) Acquisition Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location 1 2 Price Date Age NOI/Year Investment Multiple IRR 45 Retail Real Estate for Sale Fukuoka JPY 1B-2B 2014/11 15 years JPY 74M JPY 135M 10.70X 33.8% 46
Slide 41: Value-Add Asset Breakdown (4)
Value-Add Asset Breakdown (4) Acquisition Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location 1 2 Price Date Age NOI/Year Investment Multiple IRR 64 Retail Real Estate for Sale Shinagawa-ku, Tokyo <JPY 1B 2015/01 64 years JPY 40M – – – 66 Retai
Slide 42: Value-Add Asset Breakdown (5)
Value-Add Asset Breakdown (5) Acquisition Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location 1 2 Price Date Age NOI/Year Investment Multiple IRR 113 Hotel Real Estate for Sale Yokohama ≧JPY 3B 2016/03 31 years JPY 231M JPY 344M 5.84X 25.5% 114
Slide 43: Value-Add Asset Breakdown (6)
Value-Add Asset Breakdown (6) Acquisition Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location 1 2 Price Date Age NOI/Year Investment Multiple IRR 131 Hotel Real Estate for Sale Fukuoka JPY 1B-2B 2017/04 1 year JPY 144M JPY 236M 2.07X 49.9% 132
Slide 44: Value-Add Asset Breakdown (7)
Value-Add Asset Breakdown (7) Acquisition Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location 1 2 Price Date Age NOI/Year Investment Multiple IRR 145 Hotel Real Estate for Sale Fukuoka JPY 2B-3B 2018/03 1 year JPY 194M JPY 301M 3.37X 102.4% 146
Slide 45: Ichigo Solar Power Plant Portfolio
Ichigo Solar Power Plant Portfolio Ichigo (Operating) Ichigo (In-Development) Panel Panel FIT Operation FIT Operation Solar Power Plant Area Output Solar Power Plant Area Output (Pre-tax) Start Date (Pre-tax) Start Date (MW) (MW) Ichigo Tokushima Higashi-Okinosu Shikoku 2.52 JPY 40 Aug 2013 Ichigo I
Slide 46: Ichigo Solar & Wind Power Plant Portfolio
Ichigo Solar & Wind Power Plant Portfolio Serving Local Communities and the Environment Chugoku Hokkaido Total Operating and In-Development Ichigo Yonago Izumi 2.61MW Ichigo Yubetsu Barou 0.80MW Ichigo Solar Power Plants Ichigo Kasaoka Takumicho 1.11MW Ichigo Betsukai Kawakamicho 0.88MW 49 Plants (1
Slide 47: Ichigo-Owned Solar Power Plant Details
Ichigo-Owned Solar Power Plant Details Total Operating and In-Development Ichigo-Owned Solar Power Plants: 33 Plants (114.94MW) By Customer By Feed-In-Tariff By Operating Timeline (Electric Power Utility Co) Hokkaido Shikoku Tohoku 4% 2% 4% Kyushu JPY 21 4% 9% JPY 40 Starting Kansai JPY 24 13% opera
Slide 48: Reference: Japan's Feed-in-Tariff (FIT)
Reference: Japan’s Feed-in-Tariff (FIT) What is a FIT? ‒ A policy mechanism designed to accelerate the deployment of renewable energy such as solar and wind, guaranteeing a long-term sale price for electricity (in Japan, 20 years) at a fixed price. ‒ Japan’s FIT is updated every year. Solar Power FI
Slide 49: Consolidated Balance Sheet: Assets
Consolidated Balance Sheet: Assets (JPY million) FY15/2 FY16/2 FY17/2 FY18/2 FY19/2 Q1 FY19/2 H1 vs. FY19/2 Q1 Assets Current Assets Cash and cash equivalents 19,383 28,779 47,678 45,510 53,045 46,676 -6,369 Trade notes and accounts receivable 519 691 913 1,097 1,426 1,550 +124 Operational loan inve
Slide 50: Consolidated Balance Sheet: Liabilities & Net Assets
Consolidated Balance Sheet: Liabilities & Net Assets (JPY million) FY15/2 FY16/2 FY17/2 FY18/2 FY19/2 Q1 FY19/2 H1 vs. FY19/2 Q1 Liabilities Current Liabilities Trade notes and accounts payable 124 80 110 – – – – Short-term loans 1,416 2,188 805 1,042 4,929 6,985 +2,056 Short-term non-recourse loans
Slide 51: Consolidated P&L
Consolidated P&L (JPY million) FY19/2 FY15/2 FY16/2 FY17/2 FY18/2 FY19/2 H1 FY18/2 H1 Change vs. Full-Year (12M) (12M) (12M) (12M) (6M) (6M) (YOY) Forecast Forecast Revenue 42,705 49,699 109,253 57,846 26,084 33,386 -7,302 – – Cost of Goods Sold 30,539 29,835 82,446 31,920 13,629 17,786 -4,157 – – G
Slide 52: Consolidated Cash Flows from Operations
Consolidated Cash Flows from Operations (JPY million) FY15/2 (12M) FY16/2 (12M) FY17/2 (12M) FY18/2 (12M) FY19/2 H1(6M) Cash Flows from Operations Pre-tax net income 7,220 14,022 20,630 20,109 8,296 Depreciation 565 792 778 1,015 795 Share-based compensation expenses 112 174 223 215 107 Amortization
Slide 53: Consolidated Cash Flows from Investments & Financing
Consolidated Cash Flows from Investments & Financing (JPY million) FY15/2 (12M) FY16/2 (12M) FY17/2 (12M) FY18/2 (12M) FY19/2 H1 (6M) Cash Flows from Investments Payments into time deposits -325 – -6,100 -6 -57 Redemptions of time deposits 325 – 201 – 10 Acquisition of securities investments -210 -6
Slide 54: Appendix: Power Up 2019 Mid-Term Business Plan
Appendix: Power Up 2019 Mid-Term Business Plan © Ichigo Inc. All rights reserved. 54
Slide 55: Power Up 2019 Key Goals & KPIs
Power Up 2019 Key Goals & KPIs Key Goals 1. Drive Further Sustainable Growth in Ichigo’s Core Businesses 2. Develop New Ichigo Businesses 3. Record Earnings Forecast for FY19/2 Power Up 2019 KPIs (Key Performance Indicators) (JPY million) FY16/2 (Actual) FY17/2 (Actual) FY18/2 (Actual) FY19/2 (Plan)
Slide 56: Target: Top 200 Ranking within the JPX-Nikkei 400 Index
Target: Top 200 Ranking within the JPX-Nikkei 400 Index Ichigo Targeting Ranking Within the Index’s Top 200 Companies by August 2019 (the Final Year of Power Up 2019) Score Calculation: While the JPX-Nikkei Index 400 does not provide an official ranking of its 400 constituents, it can be calculated
Slide 57: Power Up 2019 Key Initiatives
Power Up 2019 Key Initiatives Steady Progress to Achieve Mid-Term Plan (As of February 28, 2018) • List Ichigo’s solar assets on the TSE’s new Infrastructure Market • Support the ongoing growth of Ichigo Office (8975) and Ichigo Hotel (3463) • Listing of Ichigo Green (9282) on Dec 1, 2016 • Asset sa
Slide 58: Dividend +20%, 6th Consecutive Year of Dividend Growth
Dividend +20%, 6th Consecutive Year of Dividend Growth Ichigo Dividend Policy: Growth, Certainty, and Stability − DOE (Dividend on Equity) payout ratio of >3% − Stable and growing dividend unaffected by short-term earnings volatility − Progressive Dividend Policy − Previous year’s dividend is floor
Slide 59: Effective Governance Structure
Effective Governance Structure ‒ Early adoption of the Company with Committees governance structure − Adopted in 2006 with a focus on global best practices − Voluntarily established a Compliance Committee in addition to the Nominating, Audit, and Compensation Committees • Nominating Committee: 5 (of
Slide 60: MEMO
MEMO © Ichigo Inc. All rights reserved. 60
Slide 61: MEMO
MEMO © Ichigo Inc. All rights reserved. 61
Slide 62: MEMO
MEMO © Ichigo Inc. All rights reserved. 62
Slide 63: Contact: Ichigo Investor Relations
These materials were prepared to explain Ichigo’s businesses and are not for the purpose of soliciting investment in marketable securities issued by Ichigo. Ichigo does not guarantee the accuracy of the figures, information, estimates, or other statements included herein, and accepts no responsibili