Ichigo Inc. · TSE:2337

Ichigo — Q1 FY19/2 Earnings Presentation

55 slides from Ichigo's earnings presentation, Jul 12, 2018

  1. Slide 1: FY19/2 Q1 Corporate Presentation

    FY19/2 Q1 Corporate Presentation January July 12,13, 2017 2018 Ichigo (2337) © Ichigo Inc. All rights reserved. www.ichigo.gr.jp/en

  2. Slide 2: Condolences for western Japan heavy rainfall

    We express our deepest condolences to all those affected by this month’s heavy rainfall in western Japan and our wishes for the earliest possible recovery. © Ichigo Inc. All rights reserved.

  3. Slide 3: © Ichigo Inc. All rights reserved.

    © Ichigo Inc. All rights reserved.

  4. Slide 4: Contents

    Contents FY19/2 Q1 Earnings Building a Foundation for Sustainable ‒ FY19/2 Q1 Summary Growth ‒ Operating Profit +90%, Net Income +59%, ‒ Core Business Growth EPS +60% (YOY)  Value-Add: Growing Both Stock and ‒ Segment Earnings Details Flow Earnings  Value-Add Case: Tokyo Retail Powerful Value-Add

  5. Slide 5: FY19/2 Q1 Earnings

    FY19/2 Q1 Earnings © Ichigo Inc. All rights reserved. 5

  6. Slide 6: FY19/2 Q1 Summary

    FY19/2 Q1 Summary Durable Earnings Model Stock Earnings Growth Stock Earnings/Fixed Expenses Stock Earnings Growing Across the Board 233% 16,145 (Forecast) (JPY million) +25% Value-Add Asset Clean Energy Management 12,563 (Forecast) 1,988 1,594 (Forecast) (Forecast) Gross Profit JPY 7.45B 12,960 1,9

  7. Slide 7: Operating Profit +90%, Net Income +59%, EPS +60% (YOY)

    Operating Profit +90%, Net Income +59%, EPS +60% (YOY) Earnings Up Across the Board – On Track to FY19/2 Record Earnings (JPY million) Full-Year FY18/2 Q1 FY19/2 Q1 YOY Forecast Operating Profit 3,150 5,992 +90.2% 25,000 Recurring Profit 2,097 5,217 +148.7% 22,000 Net Income 2,237 3,547 +58.5% 15,00

  8. Slide 8: Segment Earnings Details

    Segment Earnings Details − Asset Management: Performance Fees Down, but AM Fees +9% YOY − Value-Add: +96% YOY on Growth in Both Stock and Flow Earnings − Clean Energy: +708% YOY with Ichigo Showamura Plant Online (JPY million) Operating Profit Earnings Drivers Segment Full-Year (Parentheses show YOY

  9. Slide 9: Powerful Value-Add Business Model Underpins Growth

    Powerful Value-Add Business Model Underpins Growth © Ichigo Inc. All rights reserved. 9

  10. Slide 10: Business Model (1) Stock + Flow Earnings

    Business Model (1) Stock + Flow Earnings Gross Profit Stock Earnings (Primarily Rental Income, 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 Expense) 26.8 25.9 15.1 19.9 14.0 13.0 9.0 12.

  11. 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

  12. Slide 12: Business Model (3) Value-Add Durable Value Growth

    Business Model (3) Value-Add 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 10.5B 2.0

  13. Slide 13: Robust Financial Base

    Robust Financial Base Average Interest Rate and Loan Term Weighted Average Interest Rate Weighted Average Loan Period Weighted Average Remaining Loan Maturity (Interest Rate) (Loan Term, Years) 2.5% 12 10.8 years 10.2 years 9.9 years 9.6 years 1.96% 9.0 years 8.7 years 2.0% 9 8.3 years 8.3 years 7.8

  14. Slide 14: Building a Foundation for Sustainable Growth

    Building a Foundation for Sustainable Growth © Ichigo Inc. All rights reserved. 14

  15. Slide 15: Value-Add: Growing Both Stock and Flow Earnings

    Core Business Growth Value-Add: Growing Both Stock and Flow Earnings − Favorable Market Conditions & Ichigo Value-Add Driving FY19/2 Forecast Value-Add Stock Earnings +24% and Value-Add Flow Earnings +19% − Selective on Asset Acquisitions Value-Add Gains on Sale Value-Add Q1 Sales and Acquisitions (

  16. Slide 16: Value-Add Case: Tokyo Retail

    Core Business Growth Value-Add Case: Tokyo Retail Tokyo Retail (Machida) Holding Period: 3.4 Years ‒ Value-Add Strategy  Re-evaluated tenant mix based on inputs from existing tenants and leasing activities  Repositioned as beauty-centered retail, added entrance greenery and tenant signs, renovated

  17. Slide 17: Clean Energy: Scaling Rapidly

    Core Business Growth Clean Energy: Scaling Rapidly Operating Plants: 82.1MW In-Development Plants: 66.4MW (+81%) Ichigo Green Operating Plants: 29.4MW 148.5 (+8%) 137.0 (+14%) Power Generation (MW) 119.8 (+43%) Operating 66.4 In-Development 54.9 (Wind 33.5) 37.7 (Wind 22.0) 83.6 (Wind 7.5) (+16%) 72

  18. Slide 18: THE KNOT TOKYO Shinjuku

    New Business Entry: Boutique Hotels THE KNOT TOKYO Shinjuku Completed Full Renovation of the Historic Shinjuku New City Hotel via Ichigo Value-Add and Transformed into THE KNOT TOKYO Shinjuku, Grand Opening on August 8 − Beautiful hotel that opens directly onto Shinjuku Central Park − Includes resta

  19. Slide 19: Hotel AI System Autumn 2018 Launch

    New Business Entry Hotel AI System Autumn 2018 Launch Hotel AI System to Drive Increased Guest Satisfaction & Earnings − AI-based revenue management system based on Ichigo’s real estate know-how − Data analysis and optimized algorithms using Big Data gathered by Ichigo’s revenue management system &

  20. Slide 20: Appendix: Financial & Real Estate Data

    Appendix: Financial & Real Estate Data © Ichigo Inc. All rights reserved. 20

  21. Slide 21: Significant Unrealized Gains on Balance Sheet

    Significant Unrealized Gains on Balance Sheet Total Unrealized Gains: JPY 44.6B (Appraisal Value Basis), -1% vs. FY18/2-end Real Estate Directly Held by Ichigo (JPY million) Book Value as of Cap Rate Appraisal Value as Unrealized Location Expected NOI May 31, 2018 NOI/Book Value after Write-Down of

  22. Slide 22: Net Consolidated Risk-Based Balance Sheet

    Net Consolidated Risk-Based Balance Sheet Mark-to-Market Consolidated Balance Sheet: JPY 351.1B (Book Value JPY 306.5B + Unrealized Gains JPY 44.6B) Cash & Cash Equivalents JPY 45.4B Non-Recourse Loans & Related Liabilities JPY 71.6B Net Consolidated Risk-Based Balance Sheet: JPY 234.2B Non-Recourse

  23. Slide 23: 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

  24. Slide 24: 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 －

  25. Slide 25: Asset Management Growth – Ichigo REITs and YieldCo

    Asset Management Growth – 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 84 Offices JPY 198.0B 21 Hotels J

  26. Slide 26: 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 Q1 (12M) (12M) (12M) (12M) (12M) (12M) Ichigo Office (8975) AUM (Fiscal Year End) JPY 120.5B JPY 123.8B JPY 165.1B JPY 194.5B JPY 196.9B JPY 198.0B AM Fee % (Average) 0.65% 0.65% 0.64% 0.69% 0.70% 0.71%1 AM Fee Gross Profit

  27. Slide 27: 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) Sell Office Real Third- Estate Party Ichigo Office (8975) Value-Add Investors Real 不動産 Hotel Estate Pr

  28. Slide 28: 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

  29. Slide 29: 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

  30. Slide 30: Ichigo-Owned Real Estate Portfolio

    Ichigo-Owned Real Estate Portfolio By Location (JPY billion) By Asset Type Ground Lease Logistics 1% Nagoya Hokkaido Other 2% 2% 4.6 1% Mixed Hokkaido 5% Okinawa 2% Other 2% 8% Sendai Hotel 3% Retail 29% 18% Osaka 5% Tokyo Tokyo 50% Metropolitan Tokyo 12% 105.9 Residence 18% Office 26% Fukuoka Senda

  31. Slide 31: Value-Add Asset Breakdown (1)

    Value-Add Asset Breakdown (1) 166 Assets, JPY 210.7B, Forecast NOI JPY 13.3B (6.2% Yield) Acquisition Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Price Date Age NOI/Year Investment Multiple 1 IRR2 1 Wholesale Market Fixed Asset Matsudo,

  32. Slide 32: Value-Add Asset Breakdown (2)

    Value-Add Asset Breakdown (2) Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Acquisition Price Date Age NOI/Year Investment Multiple 1 IRR2 * 21 Residence Fixed Asset Minato-ku, Tokyo <JPY 1B 2013/06 2 years JPY 49M JPY 203M – – 26 Retail

  33. Slide 33: Value-Add Asset Breakdown (3)

    Value-Add Asset Breakdown (3) Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Acquisition Price Date Age NOI/Year Investment Multiple1 IRR2 45 Retail Real Estate for Sale Fukuoka JPY 1B-2B 2014/11 15 years JPY 74M JPY 135M 10.70X 33.8% 46 R

  34. Slide 34: Value-Add Asset Breakdown (4)

    Value-Add Asset Breakdown (4) Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Acquisition Price Date Age NOI/Year Investment Multiple 1 IRR2 63 Retail Fixed Asset Meguro-ku, Tokyo JPY 1B-2B 2014/12 11 years JPY 84M JPY 129M 3.98X 23.8% 64 R

  35. Slide 35: Value-Add Asset Breakdown (5)

    Value-Add Asset Breakdown (5) Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Acquisition Price Date Age NOI/Year Investment Multiple 1 IRR2 112 Hotel Real Estate for Sale Yokohama ≧JPY 3B 2016/03 30 years JPY 261M JPY 354M 10.64X 36.2% 113

  36. Slide 36: Value-Add Asset Breakdown (6)

    Value-Add Asset Breakdown (6) Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Acquisition Price Date Age NOI/Year Investment Multiple 1 IRR2 128 Hotel Real Estate for Sale Mito, Ibaraki JPY 1B-2B 2017/02 25 years JPY 103M JPY 602M 1.47X 47.

  37. Slide 37: Value-Add Asset Breakdown (7)

    Value-Add Asset Breakdown (7) Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Acquisition Price Date Age NOI/Year Investment Multiple 1 IRR2 145 Hotel Real Estate for Sale Fukuoka JPY 2B-3B 2018/03 1 year JPY 194M JPY 301M 3.37X 102.4% JPY

  38. Slide 38: Solar Power Plant Portfolio

    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 Itoshima

  39. Slide 39: Ichigo Power Plant Portfolio

    Ichigo 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 48 Plants (144MW) Ichigo

  40. Slide 40: 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 Kansai JPY 24 13% Starting

  41. Slide 41: 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

  42. Slide 42: Consolidated Balance Sheet: Assets

    Consolidated Balance Sheet: Assets (JPY million) FY15/2 FY16/2 FY17/2 FY18/2 FY19/2 Q1 vs. FY18/2 Assets Current Assets Cash and cash equivalents 19,383 28,779 47,678 45,510 53,045 +7,535 Trade notes and accounts receivable 519 691 913 1,097 1,426 +329 Operational loan investments 2,330 1,324 1,324

  43. Slide 43: 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 vs. FY18/2 Liabilities Current Liabilities Trade notes and accounts payable 124 80 110 – – – Short-term loans 1,416 2,188 805 1,042 4,929 +3,887 Short-term non-recourse loans 48 79 611 – – – Bond

  44. Slide 44: Consolidated P&L

    Consolidated P&L (JPY million) FY19/2 FY15/2 FY16/2 FY17/2 FY18/2 FY19/2 Q1 FY18/2 Q1 Change vs. Full-Year (12M) (12M) (12M) (12M) (3M) (3M) (YOY) Forecast Forecast Revenue 42,705 49,699 109,253 57,846 16,108 12,915 +3,193 – – Cost of Goods Sold 30,539 29,835 82,446 31,920 8,653 8,574 +79 – – Gross

  45. Slide 45: Consolidated Cash Flow from Operations

    Consolidated Cash Flow from Operations (JPY million) FY15/2 (12M) FY16/2 (12M) FY17/2 (12M) FY18/2 (12M) FY19/2 Q1(3M) Cash Flow from Operations Pre-tax net income 7,220 14,022 20,630 20,109 5,220 Depreciation 565 792 778 1,015 394 Share-based compensation expenses 112 174 223 215 51 Amortization of

  46. Slide 46: Consolidated Cash Flow from Investments & Financing

    Consolidated Cash Flow from Investments & Financing (JPY million) FY15/2 (12M) FY16/2 (12M) FY17/2 (12M) FY18/2 (12M) FY19/2 Q1 (3M) Cash Flow from Investments Payments into time deposits -325 – -6,100 -6 -54 Redemptions of time deposits 325 – 201 – 9 Acquisition of securities investments -210 -671

  47. Slide 47: Appendix: Power Up 2019 Mid-Term Business Plan

    Appendix: Power Up 2019 Mid-Term Business Plan © Ichigo Inc. All rights reserved. 47

  48. Slide 48: 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. Deepen Ichigo’s Core Capabilities and Corporate Strength Power Up 2019 KPIs (Key Performance Indicators) (JPY million) FY16/2 (Actual) FY17/2 (Actual) FY18/2 (

  49. Slide 49: 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) Note: While the JPX-Nikkei Index 400 does not provide an official ranking of its 400 constituents, it can be calculated based upon th

  50. Slide 50: 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

  51. Slide 51: 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

  52. Slide 52: 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

  53. Slide 53: MEMO

    MEMO © Ichigo Inc. All rights reserved. 53

  54. Slide 54: MEMO

    MEMO © Ichigo Inc. All rights reserved. 54

  55. Slide 55: 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

Ichigo — Q1 FY19/2 Earnings Presentation on 6ix