Slide 1: FY18/2 Corporate Presentation
FY18/2 Corporate Presentation January 13, April 18, 2017 2018 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 FY18/2 Earnings Building a Foundation for Sustainable ‒ FY18/2 Summary Growth ‒ Operating Profit -4%, Net Income -6% (YOY) ‒ Power Up 2019 Key Initiatives ROE 16.5% ‒ Core Business Growth ‒ Segment Earnings Details Stock Earnings Growth ‒ Two Share Buybacks (JPY 324, JPY 394) Value-Add
Slide 5: FY18/2 Earnings
FY18/2 Earnings © Ichigo Inc. All rights reserved. 5
Slide 6: FY18/2 Summary
FY18/2 Summary Robust Earnings Model Core Business Growth Stock Earnings/Fixed Expenses Value-Add Asset Management Clean Energy 243% Fixed Expenses High Value-Add & GPM Growth in Ongoing AM Fees Launch of Tokyo Region’s Largest Solar Power Plant JPY 5.31B (JPY billion) (JPY million) (MW) +51% +88% +
Slide 7: Operating Profit -4%, Net Income -6% (YOY), ROE 16.5%
Operating Profit -4%, Net Income -6% (YOY), ROE 16.5% − Beat OP, RP, Net Income, EPS, & ROE forecasts − 44.8% GPM & 36.1% OPM Underscore Ongoing High Profitability (JPY million) Full-Year vs. Full-Year FY17/2 FY18/2 YOY Forecast Forecast Revenue 109,253 57,846 -47.1% 75,500 76.6% Gross Profit 26,806
Slide 8: Segment Earnings Details
Segment Earnings Details − Asset Management: Ongoing AM Fees +17% YOY − Value-Add: Rental Income +5%, Gains on Sales +14% YOY − Clean Energy: +21% vs. Forecast on Ichigo Showamura Plant Launch Ahead of Schedule (JPY million) Revenue Gross Profit Earnings Drivers Segment Full-Year vs. Full-Year Full-
Slide 9: Two Share Buybacks (JPY 324, JPY 394)
Two Share Buybacks (JPY 324, JPY 394) Purpose: Grow Value for Ichigo’s Shareholders Share Type Common shares Buyback Method In-market purchases via trust bank April 2017 Share Buyback Number of Shares 4,627,400 Average Share Price JPY 324 Amount JPY 1.5B October 2017 Share Buyback Number of Shares 3
Slide 10: 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 11: Powerful Value-Add Business Model Underpins Growth
Powerful Value-Add Business Model Underpins Growth © Ichigo Inc. All rights reserved. 11
Slide 12: Capital-Efficient Asset Turnover
Capital-Efficient Asset Turnover − 93 New Acquisitions (Book Value 54.3B) via Innovating in Acquisition Methods & Asset Types − Sold 18 Assets (Book Value JPY 23.6B), GPM 34% (JPY billion) FY18/2 Acquisitions Office 1.8 Self-Storage 2.1 Logistics 3.7 Retail 3.4 40% New Acquisition (JPY 21.7B) “Tradi
Slide 13: Business Model (1) Stock + Flow Earnings
Business Model (1) Stock + Flow Earnings Stock Earnings (Primarily Rental Income, AM Fees, and FIT Solar Power Sales) Gross Profit Flow Earnings (Primarily Profits on Value-Add Real Estate Sales ) 31.2 (JPY billion) Fixed Expenses (Fixed SG&A + Interest Expense) 26.8 25.9 15.1 19.9 14.0 13.0 9.0 12.
Slide 14: 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 15: 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 − Ichigo Value-Add generates durable ongoing value − Ichigo also has ongoing rental income earnings stream during Value-Add − Post-Value-Add, run efficient sales processes to m
Slide 16: Financing Details
Financing Details Weighted Average Interest Rate Average Interest Rate and Loan Term WeightedLoan Average Average Loan Term Period (Interest Rate) (Loan Term, Years) 2.5% 12 10.8 years 10.2 years 1.96% 9 years 2.0% 9 8.7 years 1.71% 1.5% 6 5.9 years 1.41% 1.24% 1.04% 1.0% 3 FY14/2 FY15/2 FY16/2 FY17
Slide 17: FY19/2 Full-Year Forecast
FY19/2 Full-Year Forecast © Ichigo Inc. All rights reserved. 17
Slide 18: FY19/2 Full-Year Forecast
FY19/2 Full-Year Forecast − OP +20%, RP +15%, Net Income & EPS +7% YOY − RP, Net Income, & EPS Forecast to Exceed MTP Targets − Dividend +17%, 7th Consecutive Dividend Increase (JPY million) FY19/2 FY18/2 vs. FY18/2 (Forecast) (Actual) Gross Profit 31,200 25,925 +20.3% Operating Profit 25,000 20,858
Slide 19: FY19/2 Full-Year Forecast Details
FY19/2 Full-Year Forecast Details (JPY million) Segment Profit (Gross Profit) Segment Profit (Operating Profit) FY19/2 FY18/2 FY19/2 FY18/2 vs. FY18/2 vs. FY18/2 (Forecast) (Actual) (Forecast) (Actual) Asset Management 2,216 2,427 -8.7% 1,752 2,043 -14.2% Value-Add 26,920 22,159 +21.5% 21,719 17,993
Slide 20: Building a Foundation for Sustainable Growth
Building a Foundation for Sustainable Growth © Ichigo Inc. All rights reserved. 20
Slide 21: Power Up 2019 Key Initiatives
Power Up 2019 Key Initiatives • 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 sales to Ichigo Office (8975) and Ichigo Hotel (3463) Core Business •
Slide 22: Stock Earnings Growth
Core Business Growth Stock Earnings Growth Stock Earnings Growth via Value-Add NOI Growth & Launch of Tokyo Region’s Largest Solar Power Plant Tradepia Odaiba Ichigo Showamura Ogose ECO Power Plant Value-Add Driven NOI Growth Ichigo Showamura NOI Growth on (FY19/2 free rent incentives mean further e
Slide 23: Value-Add Supporting Best Asset Use
Core Business Growth Value-Add Supporting Best Asset Use − Supporting Ichigo Office Transition to Pure Office REIT − Prime Location Serviced Apartment to Hotel Conversion (3-minute walk from JR Hamamatsucho Station) Ichigo’s second hotel brand: MusBee Termination of master lease & shift to Ichig
Slide 24: Asset Management Growth
Core Business Growth Asset Management Growth Office Hotel Green Infrastructure Ichigo Office Ichigo Hotel Ichigo Green (8975) (3463) (9282) 83 Assets, JPY 193.1B 21 Hotels, JPY 50.9B 15 Solar Plants, JPY 11.4B FY18/2 Achievements FY18/2 Achievements FY18/2 Achievements ・Strategic portfolio restructu
Slide 25: Stable, Long-Term Clean Energy Earnings
Core Business Growth Stable, Long-Term Clean Energy Earnings ‒ Solar: 35 Plants (101MW) in ‒ Wind: All wind power plants in operation pipeline (33MW) on track for launch 48 Plants (144MW) in operation First wind power plant start date: and development, with additional Dec 2019 (forecast) 50MW in
Slide 26: Ichigo Owners Accelerating Asset Acquisitions for Clients
New Business Entry: Real Estate Owner Services Ichigo Owners Accelerating Asset Acquisitions for Clients FY18/2 Acquisitions 2X Plan FY18/2 acquisitions: 45 Assets, JPY 21.4B Asset sales to end-clients: 4 Assets, JPY 2.3B FY19/2 Plan − Both acquisitions and sales > JPY 20B − Provide high-quality ass
Slide 27: Self-Storage Business Growth
New Business Entry: Self-Storage Self-Storage Business Growth Goal: Industry No.1, Backed by a Safe, Secure, & Clean Brand − Dec 31, 2016: 14 facilities, c. 1,900 rooms → Feb 28, 2018: 27 facilities, c. 3,600 rooms (including in- development Synergies with Ichigo Owners and Ichigo Land Storage Plus
Slide 28: AI Alliance with Fujitsu Kyushu Systems
New Business Entry: Hotel AI System AI Alliance with Fujitsu Kyushu Systems Develop Hotel AI System to Increase Guest Satisfaction & Earnings − Develop AI-based revenue management system using Ichigo’s know how − Conduct data analysis and optimize algorithms using Big Data gathered by Ichigo’s reven
Slide 29: Second THE KNOT Hotel in Pipeline
New Business Entry: Boutique Hotels Second THE KNOT Hotel in Pipeline Full Renovation via Ichigo Value-Add of the Historic Shinjuku New City Hotel to Create THE KNOT TOKYO (provisional) − Designed for close integration with Shinjuku Central Park facing hotel − Features restaurant, bakery, lounges, c
Slide 30: Appendix: Financial & Real Estate Data
Appendix: Financial & Real Estate Data © Ichigo Inc. All rights reserved. 30
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) Sell Office 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: Consolidated Risk-Based Balance Sheet
Consolidated Risk-Based Balance Sheet Mark-to-Market Consolidated Balance Sheet: JPY 341.9B (Book Value JPY 296.5B + Unrealized Gains JPY 45.4B) Non-Recourse Loans & Non-Recourse Loan- Related Liabilities Consolidated Risk-Based Balance Sheet: JPY 267.0B JPY 74.8B Related Assets (Book Value JPY 221.
Slide 35: Significant Unrealized Gains on Balance Sheet
Significant Unrealized Gains on Balance Sheet Total Unrealized Gains: JPY 45.4B (Appraisal Value Basis), +24% YOY Real estate directly held by Ichigo (JPY million) Book Value as of Cap Rate Appraisal Value as of Unrealized Location Expected NOI Feb 28, 2018 NOI/Book Value after Write-Down Feb 28, 20
Slide 36: 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 37: Consolidated Balance Sheet
Consolidated Balance Sheet (JPY million) FY18/2 Unrealized Gains FY17/2 Outside YOY Market Value Unrealized Gains on Listed B/S Investors' Securities 2 Interest Cash and Cash Equivalents 47,678 45,510 843 -2,168 45,510 – – Operational Loan Investments (Value-Add) 1,324 1,324 – – 1,890 +565 – Operati
Slide 38: 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 Total Assets for Sale Assets Assets Investments Assets Equivalents Investments Investments for Sale Asset Management –
Slide 39: Consolidated P&L: Gross Profit Segment Breakdown
Consolidated P&L: Gross Profit Segment Breakdown (JPY million) FY18/2 (12M) FY18/2 Full-Year Forecast (12M) Segment vs. Full-Year Gross vs. Full-Year Operating vs. Full-Year Operating Revenue Revenue Gross Profit Forecast Profit Forecast Profit Forecast Profit Asset Management 2,433 97.9% 2,427 98.8
Slide 40: Asset Management AUM Detail
Asset Management AUM Detail FY13/2 FY14/2 FY15/2 FY16/2 FY17/2 FY18/2 (12M) (12M) (12M) (12M) (12M) (12M) Ichigo Office AUM (Fiscal Year End) JPY 104.3B JPY 120.5B JPY 123.8B JPY 165.1B JPY 194.5B JPY 196.9B (8975) AM Fee % (Average) 0.63% 0.65% 0.65% 0.64% 0.69% 0.7% AM Fee Gross Profit (Actual) JP
Slide 41: Asset Management – Ichigo REITs and YieldCo
Asset Management – Ichigo REITs and YieldCo Forecast Dividend Yield REIT/YieldCo Listing Date Characteristics (Based on Closing Share Price on Portfolio March 30, 2018) ・Specialized Office REIT focused on mid- 83 assets JPY 193.1B size offices with return stability and upside potential Ichigo Office
Slide 42: Ichigo-Owned Real Estate Portfolio
Ichigo-Owned Real Estate Portfolio By Asset Type By Location Ground Logistics Lease Other (JPY billion) 2% 1% 2% Nagoya Mixed 2% 5% Sendai Other 3% 11% Office Osaka Residence 28% 5% 17% Tokyo Kanto 51% Sendai 13% 6.0 Retail Tokyo 18% 108.2 Hotel Fukuoka 27% 15% Kanto 26.9 By Asset Size Nagoya Osaka
Slide 43: Value-Add Asset Breakdown (1)
Value-Add Asset Breakdown (1) 165 Assets, JPY 210.2B, Forecast NOI JPY 13.3B (6.2% Yield) Building Acquisition Acquisition Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Age Price Date NOI/Year Investment Multiple 1 IRR2 1 Wholesale Market Fixed Asset Matsudo,
Slide 44: Value-Add Asset Breakdown (2)
Value-Add Asset Breakdown (2) Building Acquisition Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Acquisition Price Age Date NOI/Year Investment Multiple 1 IRR2 * 21 Residence Fixed Asset Minato-ku, Tokyo 2 years <JPY 1B 2013/06 JPY 49M JPY 203M – – 24 Office
Slide 45: Value-Add Asset Breakdown (3)
Value-Add Asset Breakdown (3) Building Acquisition Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Acquisition Price Age Date NOI/Year Investment Multiple1 IRR2 42 Retail Real Estate for Sale Fukuoka 17 years <JPY 1B 2014/09 JPY 54M JPY 177M 5.54X 26.2% 43 Reta
Slide 46: Value-Add Asset Breakdown (4)
Value-Add Asset Breakdown (4) Building Acquisition Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Acquisition Price Age Date NOI/Year Investment Multiple 1 IRR2 58 Residence Real Estate for Sale Shibuya-ku, Tokyo 13 years <JPY 1B 2014/12 JPY 49M JPY 157M 1.89X
Slide 47: Value-Add Asset Breakdown (5)
Value-Add Asset Breakdown (5) Building Acquisition Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Acquisition Price Age Date NOI/Year Investment Multiple 1 IRR2 98 Hotel Real Estate for Sale Naha, Okinawa 29 years JPY 2B-3B 2015/11 JPY 223M JPY 640M 1.91X 25.9
Slide 48: Value-Add Asset Breakdown (6)
Value-Add Asset Breakdown (6) Building Acquisition Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Acquisition Price Age Date NOI/Year Investment Multiple 1 IRR2 123 Hotel Real Estate for Sale Shibuya-ku, Tokyo 23 years ≧JPY 3B 2016/12 JPY 170M JPY 1,123M 1.25X
Slide 49: Value-Add Asset Breakdown (7)
Value-Add Asset Breakdown (7) Building Acquisition Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Classification Location Acquisition Price Age Date NOI/Year Investment Multiple 1 IRR2 130 Retail Real Estate for Sale Taito-ku, Tokyo 24 years JPY 1B-2B 2017/04 JPY 99M JPY 297M 4.42X 2
Slide 50: Value-Add Asset Breakdown (8)
Value-Add Asset Breakdown (8) No. of Acquisition Acquisition Expected Ichigo Equity Forecast Equity Forecast No. Asset Type Assets Price Date NOI/Year Investment Multiple 1 IRR2 A Ichigo Owners (Office & Residence) 36 Assets JPY 15,250M FY18/2 JPY 902M – – – B Centro (Primarily Office & Residence) 1
Slide 51: 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 52: 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
Slide 53: Ichigo Power Plant Portfolio
Ichigo Power Plant Portfolio Serving Local Communities and the Environment Hokkaido Total Operating and In-Development Chugoku Ichigo Yubetsu Barou 0.8MW Ichigo Yonago Izumi 2.61MW Ichigo Betsukai Kawakamicho 0.88MW Ichigo Solar Power Plants Ichigo Kasaoka Takumicho 1.11MW Ichigo Akkeshi Shirahama 0
Slide 54: Ichigo-Owned Solar Power Plant Details
Ichigo-Owned Solar Power Plant Details Total Operating and In-Development Ichigo-Owned Solar Power Plants: 29 Plants (104.75MW) 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
Slide 55: Consolidated Balance Sheet: Assets
Consolidated Balance Sheet: Assets (JPY million) FY14/2 FY15/2 FY16/2 FY17/2 FY18/2 vs. FY17/2 Assets Current Assets Cash and cash equivalents 24,991 19,383 28,779 47,678 45,510 -2,168 Trade notes and accounts receivable 451 519 691 913 1,097 +184 Operational loan investments 1,100 2,330 1,324 1,324
Slide 56: Consolidated Balance Sheet: Liabilities & Net Assets
Consolidated Balance Sheet: Liabilities & Net Assets (JPY million) FY14/2 FY15/2 FY16/2 FY17/2 FY18/2 vs. FY17/2 Liabilities Current Liabilities Trade notes and accounts payable 132 124 80 110 – -110 Short-term loans 950 1,416 2,188 805 1,042 +237 Short-term non-recourse loans – 48 79 611 – -611 Bon
Slide 57: Consolidated P&L
Consolidated P&L (JPY million) FY14/2 FY15/2 FY16/2 FY17/2 FY18/2 Change FY18/2 vs. (12M) (12M) (12M) (12M) (12M) (YOY) Forecast Forecast Revenue 35,101 42,705 49,699 109,253 57,846 -51,407 75,500 76.6% Cost of Goods Sold 27,666 30,539 29,835 82,446 31,920 -50,526 – – Gross Profit 7,435 12,166 19,86
Slide 58: Consolidated Cash Flow from Operations
Consolidated Cash Flow from Operations (JPY million) FY14/2 (12M) FY15/2 (12M) FY16/2 (12M) FY17/2 (12M) FY18/2 (12M) Cash Flow from Operations Pre-tax net income 3,933 7,220 14,022 20,630 20,109 Depreciation 304 565 792 778 1,015 Share-based compensation expenses 69 112 174 223 215 Amortization of
Slide 59: Consolidated Cash Flow from Investments & Financing
Consolidated Cash Flow from Investments & Financing (JPY million) FY14/2 (12M) FY15/2 (12M) FY16/2 (12M) FY17/2 (12M) FY18/2 (12M) Cash Flow from Investments Payments into time deposits – -325 – -6,100 -6 Redemptions of time deposits – 325 – 201 – Acquisition of securities investments – -210 -671 -3
Slide 60: Appendix: Power Up 2019 Mid-Term Business Plan
Appendix: Power Up 2019 Mid-Term Business Plan © Ichigo Inc. All rights reserved. 60
Slide 61: 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 (
Slide 62: 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
Slide 63: Power Up 2019 Key Initiatives
Power Up 2019 Key Initiatives Profitability Sustainability • List Ichigo’s solar assets on the TSE’s new • Grow both financial stability and earnings Infrastructure Market (3) Finance as a • De-collateralize loans, lengthen loan • Support the ongoing growth of Ichigo Office Strategic Measure maturit
Slide 64: Adoption of Progressive Dividend & DOE Policy
Adoption of Progressive Dividend & DOE Policy Progressive Dividend: The previous year’s dividend is the floor for the current year’s dividend. Dividend will be raised (or kept flat) but not cut, providing shareholders with downside dividend protection Newly set a minimum DOE (dividend on equity)
Slide 65: MEMO
MEMO © Ichigo Inc. All rights reserved. 65
Slide 66: MEMO
MEMO © Ichigo Inc. All rights reserved. 66
Slide 67: 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