Ichigo Inc. · TSE:2337
Ichigo — Q3 FY2019/2 Earnings Presentation
63 slides from Ichigo's earnings presentation, Jan 11, 2019
Slide 1: FY19/2 Q3 Corporate Presentation
FY19/2 Q3 Corporate Presentation January 2019 January 11, 2019 Ichigo (2337) © Ichigo Inc. All rights reserved. www.ichigo.gr.jp/en
Slide 2: Ichigo Preserves and Improves Real Estate
Ichigo Preserves and Improves Real Estate © Ichigo Inc. All rights reserved.
Slide 3: © Ichigo Inc. All rights reserved.
© Ichigo Inc. All rights reserved.
Slide 4: Contents
Contents FY19/2 Q3 Earnings Building a Foundation for Sustainable ‒ FY19/2 Q3 Summary Growth ‒ Operating Profit +24%, Net Income +11%, ‒ Core Business Growth EPS +12% (YOY) Value-Add: Stock Earnings +41% Over 3 Years (+15% YOY) ‒ Segment Earnings Details Value-Add: THE KNOT +20~60% ADR Powerful
Slide 5: FY19/2 Q3 Earnings
FY19/2 Q3 Earnings © Ichigo Inc. All rights reserved. 5
Slide 6: FY19/2 Q3 Summary
FY19/2 Q3 Summary Durable Earnings Model Stock Earnings Growth Stock Earnings/Fixed Expenses Stock Earnings Growing Across the Board 16.1B 243% Fixed Expenses (FY Forecast) +25% (Gross Profit: JPY B) JPY 5.18B Value-Add Asset Clean Energy 12.6B Management (FY Forecast) 2.0B 1.6B (FY Forecast) (FY Fo
Slide 7: Operating Profit +24%, Net Income +11%, EPS +12% (YOY)
Operating Profit +24%, Net Income +11%, EPS +12% (YOY) On Track to Deliver Record Earnings in FY19/2 (JPY million) FY18/2 Q3 FY19/2 Q3 Full-Year YOY Cumulative (9M) Cumulative (9M) Forecast Operating Profit 16,541 20,553 +24.3% 25,000 Recurring Profit 14,460 18,264 +26.3% 22,000 Net Income 10,944 12
Slide 8: Segment Earnings Details
Segment Earnings Details − Asset Management: Base AM Fees +11% YOY − Value-Add: Rental Income +15% YOY Gains on Sale +35% YOY − Clean Energy: 7 New Plants = Power Generation Revenues +148% YOY (JPY million) Operating Profit Earnings Drivers FY18/2 Q3 FY19/2 Q3 Segment Full-Year vs. Full-Year (Parent
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 Power Generation Revenues) 31.2 (JPY billion) Flow Earnings (Primarily Gains on Value-Add Real Estate Sales ) Fixed Expenses (Fixed SG&A + Interest Expenses) 27.9 27.0 25.0 15.1 20.8 14.1
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 2.2X Gains on Sales (Gross Profit) 4.4X GPM GPM 34% 31% 1.6X GPM 14% 2.2X GPM Unrealized Gains GPM 23% (vs. Book Value) 32% 9% Unr
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 10.0 years 9.6 years 1.96% 9.0 years 8.7 years 2.0% 9 8.3 years 8.3 years 7.
Slide 14: Building a Foundation for Sustainable Growth
Building a Foundation for Sustainable Growth © Ichigo Inc. All rights reserved. 14
Slide 15: Value-Add: Stock Earnings +41% Over 3 Years (+15% YOY)
Core Business Growth Value-Add: Stock Earnings +41% Over 3 Years (+15% YOY) − Acquisitions & Organic Growth Driving Growth in Rental Income − Continuing to be Selective on Acquisitions Value-Add Earnings (Q3 Cumulative) Value-Add Sales and Acquisitions Stock Earnings (Rental Income) (JPY billion) Sa
Slide 16: Value-Add: THE KNOT +20~60% ADR
Core Business Growth Value-Add: THE KNOT +20~60% ADR Transformed & Rebranded a 33-Year-Old and 39-Year-Old Hotel to Drive Significant ADR Increase +62% ADR (Average Daily Rate) Before Value-Add After Value-Add (Nov 2018 Actual) +22% JPY 15,700 JPY 11,300 JPY 9,300 JPY 9,700 (Occupancy (Occupancy (Oc
Slide 17: Clean Energy: Scaling Rapidly (In-Development Plants +78%)
Core Business Growth Clean Energy: Scaling Rapidly (In-Development Plants +78%) Operating Plants: 83.6MW In-Development Plants: 65.1MW (+78%) (Plus Ichigo Green Operating Plants: 29.4MW) 148.7 Power Generation (MW) 137.2 (+8%) Operating (+15%) In-Development 112.3 119.7 (+34%) (+7%) 65.1 53.6 (Wind
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% − Forecast Operation Start
Slide 19: AM: Ichigo Hotel REIT – First No Fixed Fee J-REIT
Core Business Growth AM: Ichigo Hotel REIT – First No Fixed Fee J-REIT − Ichigo Hotel is the First J-REIT to Adopt a No Fixed Fee, Performance Fee-Only Structure − Overwhelming Shareholder Support (99.3% Yes vote at AGM) Significantly increases alignment with shareholders Supports pro-active, dy
Slide 20: Hotel AI Revenue Management System
New Business Entry Hotel AI Revenue Management System Undergoing Testing for Full Launch − Algorithms used manually at 9 hotels for testing since 2017 ■ Manual Test Results (2018) Hotel Revenue Growth +11~38% (vs. pre-implementation) − Development of fully AI-based revenue management system complete
Slide 21: Smart Agriculture
New Business Entry Smart Agriculture Help Farmers Increase Production and Adapt to Climate Change by Supporting Introduction of Smart Greenhouses − IOT sensors make possible greenhouses that can adjust CO2, water, and temperature to individual plants, raising productivity − However, farmers have bee
Slide 22: Ichigo Sustainable Lab
New Business Entry Ichigo Sustainable Lab – R&D focus on identifying new ways in which real estate and public infrastructure can support a higher quality of life and a more sustainable society – Develop an open-community platform to foster social networks that work towards enhancing social and ecolo
Slide 23: Share Buyback (JPY 381)
Share Buyback (JPY 381) – Purpose: Grow Value for Ichigo’s Shareholders Share Type Common shares Buyback Method In-market purchases via trust bank – October – December 2018 Share Buyback No. of Shares 7,869,700 shares Average Share Price JPY 381 Amount JPY 3B Reference: 2017 Share Buybacks April 201
Slide 24: Appendix: Financial & Real Estate Data
Appendix: Financial & Real Estate Data © Ichigo Inc. All rights reserved. 24
Slide 25: Significant Unrealized Gains on Balance Sheet
Significant Unrealized Gains on Balance Sheet JPY 44.7B (Appraisal Value Basis), -0.9% vs. FY18/2-end Real Estate Directly Held by Ichigo (JPY million) Book Value Cap Rate Appraisal Value Unrealized Location Expected NOI (FY19/2 Q3) (NOI/Book Value) (FY19/2 Q3) Gains Tokyo 134,950 7,074 5.2% 161,966
Slide 26: Net Consolidated Risk-Based Balance Sheet
Net Consolidated Risk-Based Balance Sheet Mark-to-Market Consolidated Balance Sheet: JPY 368.9B (Book Value JPY 324.1B + Unrealized Gains JPY 44.7B) Cash & Cash Equivalents JPY 36.6B Non-Recourse Loans & Related Liabilities JPY 62.8B Net Consolidated Risk-Based Balance Sheet: JPY 269.4B Non-Recourse
Slide 27: 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 28: 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 29: 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 Assets JPY 203.0B 21 Hotels JPY 50.7B
Slide 30: 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 Q3 (12M) (12M) (12M) (12M) (12M) (9M) Ichigo Office AUM (Fiscal Year End) JPY 120.5B JPY 123.8B JPY 165.1B JPY 194.5B JPY 196.9B JPY 199.9B (8975) Base AM Fee Gross Profit (Actual) JPY 733M JPY 759M JPY 1,016M JPY 1,291M JPY
Slide 31: 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 32: 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 33: 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 34: Ichigo-Owned Real Estate Portfolio
Ichigo-Owned Real Estate Portfolio By Asset Type By Location (JPY billion) Ground Lease Nagoya 1% Logistics 2% 1% Other Okinawa 1% 1% Hokkaido 2% Mixed Hokkaido 9% Sendai 3% Other 4.6 Osaka 3% 7% Office 25% Tokyo Residence Metro * 17% Tokyo 12% 57% Tokyo Hotel 128.9 Retail 24% Fukuoka 21% 14% Sendai
Slide 35: Value-Add Asset Breakdown (1)
Value-Add Asset Breakdown (1) 171 Assets, JPY 226.2B, Forecast NOI JPY 13.7B (5.8% Book Value Yield) Acquisition Building Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Acquisition Price Date Age NOI/Year Investment Multiple 1 IRR2 1 Wholesale Market Fixed Ass
Slide 36: 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 3 years JPY 49M JPY 203M – – 27 Retail Fi
Slide 37: 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 Multiple 1 IRR2 46 Residence Real Estate for Sale Chiyoda-ku, Tokyo JPY 2B-3B 2014/12 15 years JPY 119M JPY 332M 2.
Slide 38: 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 66 Retail Real Estate for Sale Sendai <JPY 1B 2015/02 14 years JPY 48M JPY 8M 42.58X 198.9% 68 Reta
Slide 39: 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 116 Retail Fixed Asset Sendai <JPY 1B 2016/04 30 years JPY 47M JPY 86M – – 118 Retail Real Estate f
Slide 40: 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 135 Logistics Real Estate for Sale Narashino, Chiba JPY 1B-2B 2017/04 27 years JPY 97M JPY 188M 6.1
Slide 41: Value-Add Asset Breakdown (7)
Value-Add Asset Breakdown (7) Acquisition Expected Ichigo Equity Forecast Equity Forecast No. Asset Type vs. FY18/2 Q4 Price NOI/Year Investment Multiple IRR A Ichigo Owners (Office & Residence) 43 Assets JPY 26,508M +JPY 11,256M JPY 1,368M JPY 7,938M – – B Centro (Primarily Office & Residence) 15 A
Slide 42: 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 S
Slide 43: 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 44: Ichigo-Owned Solar Power Plant Details
Ichigo-Owned Solar Power Plant Details Total Operating and In-Development Ichigo-Owned Solar Power Plants: 33 Plants (115.26MW) By Customer By Feed-In-Tariff By Operating Timeline (Electric Power Utility Co) Hokkaido Shikoku Tohoku 4% 2% 4% Kyushu JPY 21 JPY 40 5% 9% 13% Starting JPY 24 operatiion K
Slide 45: 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 46: Sustainable Real Estate (1)
Sustainable Real Estate (1) Ichigo Sustainable Real Estate Recognition CASBEE: Three Assets (S Rank and A Rank) Kakyoin Plaza Hakata Ekimae Square Hakata MST Rank: S Rank: A Rank: A CASBEE Assessment Key Points: CASBEE Assessment Key Points: CASBEE Assessment Key Points: (1) Equipped with seismic da
Slide 47: Sustainable Real Estate (2)
Sustainable Real Estate (2) 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 48: Disaster Response & Recovery
Disaster Response & Recovery No injuries or damages at any Ichigo asset or power plant from 2018 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 49: JPX-Nikkei 400 Index Inclusion
JPX-Nikkei 400 Index Inclusion Selected for inclusion in the JPX-Nikkei 400 in the 2018 annual constituent rebalance for the third year in a row (2016, 2017, 2018) Note: The JPX-Nikkei 400 rank orders the top 1,000 companies from the joint set of the 1,200 highest market capitalization and 1,200 hig
Slide 50: Consolidated Balance Sheet: Assets
Consolidated Balance Sheet: Assets (JPY million) FY15/2 FY16/2 FY17/2 FY18/2 FY19/2 H1 FY19/2 Q3 vs. FY19/2 H1 Assets Current Assets Cash and cash equivalents 19,383 28,779 47,678 45,510 46,676 45,067 -1,609 Trade notes and accounts receivable 519 691 913 1,097 1,550 1,440 -110 Operational loan inve
Slide 51: Consolidated Balance Sheet: Liabilities & Net Assets
Consolidated Balance Sheet: Liabilities & Net Assets (JPY million) FY15/2 FY16/2 FY17/2 FY18/2 FY19/2 H1 FY19/2 Q3 vs. FY19/2 H1 Liabilities Current Liabilities Trade notes and accounts payable 124 80 110 – – – – Short-term loans 1,416 2,188 805 1,042 6,985 6,096 -889 Short-term non-recourse loans 4
Slide 52: Consolidated P&L
Consolidated P&L (JPY million) FY19/2 FY15/2 FY16/2 FY17/2 FY18/2 FY19/2 Q3 FY18/2 Q3 Change vs. Full-Year (12M) (12M) (12M) (12M) (9M) (9M) (YOY) Forecast Forecast Revenue 42,705 49,699 109,253 57,846 58,282 44,755 +13,527 – – Cost of Goods Sold 30,539 29,835 82,446 31,920 33,332 24,597 +8,735 – –
Slide 53: 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 Q3 (9M) Cash Flows from Operations Pre-tax net income 7,220 14,022 20,630 20,109 18,266 Depreciation 565 792 778 1,015 1,217 Share-based compensation expenses 112 174 223 215 155 Amortiza
Slide 54: 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 Q3 (9M) Cash Flows from Investments Payments into time deposits -325 – -6,100 -6 -63 Redemptions of time deposits 325 – 201 – 1,010 Acquisition of securities investments -210
Slide 55: Appendix: Power Up 2019 Mid-Term Business Plan
Appendix: Power Up 2019 Mid-Term Business Plan © Ichigo Inc. All rights reserved. 55
Slide 56: 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 57: 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 Ranking Calculation: While the JPX-Nikkei 400 does not provide an official ranking of its 400 constituents, it can be calculated based upon the JPX-Nikkei 400’s public
Slide 58: 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 59: Dividend +20% – 7 Consecutive Years of Dividend Growth
Dividend +20% – 7 Consecutive Years 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 60: 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 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