Summary of Consolidated Financial Results for the Fiscal Year ended December 31, 2021

Accompanying Material - Contents

1. Operating Results and Financial Position

3. Consolidated Financial Statements

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1. Operating Results and Financial Position

(1) Analysis of Operating Results

During the consolidated fiscal year under review (January 1 through December 31, 2021), there were signs of recovery in the Japanese economy as the challenging conditions created by COVID-19 gradually eased. Although the economy is expected to recover thanks to policy measures and improving overseas economies, the Group needs to closely monitor downside risks attributable to restrictions in supply and trends in raw materials prices, as well as the effects of the pandemic on domestic and overseas economies and trends in financial markets.

In the real estate industry, where the MUGEN ESTATE Group operates, demand was firm and trading prices were on an upward trend given the continuing monetary easing policy and changing needs as a result of shifts in the ways of working. COVID-19 caused rising materials prices and supply shortages, and tighter markets, which were also factors for the increases in trading prices. Demand for residential-type properties increased in and outside the central Tokyo area, reflecting changes in lifestyles and ways of working. The demand for used condominiums remained high as the prices of new condominiums remained high. According to the Real Estate Information Network for East Japan (East Japan REINS), the number of contracts concluded for used condominium units in the Tokyo metropolitan area stood at 39,812 (up 11.1 ％ year on year) in FY2021. The average unit price per square meter of contracted condominium units rose 8.4% year on year, to 598,100 yen. The average unit price increased 7.5%, to 38.69 million yen. Both the average unit price per square meter and average unit price climbed for the ninth consecutive year. Looking at investment-type properties, the vacancy rate rose and rent fell at office buildings in central Tokyo, but the investment appetite remained high, reflecting the continued policy of monetary easing.

In this business environment, the Group has endeavored in its core Real Estate Trading Business to increase the occupancy rates of investment type properties and improve inventory turnover by boosting sales with measures such as increasing the added value provided by properties. However, sales from investment properties declined from a year ago, reflecting sales activities emphasizing profitability. The Group opened five sales offices. The Kitasenju and Funabashi sales offices opened in September and October 2021, respectively. The Ogikubo and Akabane sales offices opened in November, and the Ikebukuro sales office opened in December. The Group opened those offices to step up efforts to market residential-type properties and expedite payment procedures for purchases and sales. As a result, sales and income rose from a year ago. Meanwhile, the Group tightened conditions for purchasing investment-type properties, and inventory declined. As a result, rent income declined. In the Real Estate Specified Joint Ventures Business, which the Group started in FY2020, the Group established two associations, which are successfully operating projects.

As a result, consolidated net sales decreased 2.6% year on year, to 33,956 million yen, consolidated operating income fell 5.0% year on year, to 2,342 million yen, consolidated ordinary income decreased 0.8% year on year, to 1,770 million yen, and consolidated profit attributable to owners of parent soared 113.0%, to 1,276 million yen in the fiscal year under review.

The following is an overview of the results by segment. [Real Estate Trading Business]

In the Real Estate Trading Business, the number of units sold in investment-type properties came to 142 (down 42 units year on year) and the average unit selling price was 173 million yen (up 23.3% year on year), registering net sales of 24,638 million yen (down 4.9% year on year). Meanwhile, the number of units sold in residential-type properties came to 189 (up 41 units year on year) and the average unit selling price was 37 million yen (down 5.0% year on year), registering net sales of 7,051 million yen (up 21.4% year on year).

As a result, net sales for the segment decreased 0.1% year on year, to 31,842 million yen, and segment profit (operating income for the segment) grew 10.9% year on year, to 3,119 million yen.

[Real Estate Leasing and Other Business]

In the Real Estate Leasing and Other Business, revenue from real estate leasing decreased 31.0% year on year, to 2,008 million yen. As a result, net sales for the segment decreased 29.4% year on year, to 2,113 million yen, and segment profit (operating income for the segment) fell 33.3% year on year, to 736 million yen.

Note: The "investment-type properties" are classified as real estate generating rental income, including rental condominiums and office blocks, which are used by buyers for the purpose of investment. The "residential-type properties" are classified as real estate used by buyers as their housing units, most of which are owned condominiums.

(2) Analysis of Financial Position

The financial position of the MUGEN ESTATE Group at the end of the consolidated fiscal year under review included assets of 62,778 million yen (up 0.5% from the end of the previous fiscal year), liabilities of 39,232 million yen (down 1.6% from the end of the previous fiscal year), and net assets of 23,546 million yen (up 4.2% from the end of the previous fiscal year).

Principal factors contributing to the increase in assets included increases of 1,500 million yen in cash and deposits, 3,776 million yen in property, and 486 million yen in other current assets, and a decrease of 5,526 million yen in real estate properties for sale.

The decrease in liabilities was attributable primarily to increases of 2,689 million yen in short-term loans payable, more than offsetting decreases of 2,731 million yen in long-term loans payable (including the current portion of long-term loans payable) and 285 million yen in income taxes payable.

The growth in net assets resulted in large part from a rise of 1,276 million yen in retained earnings due to the recording of profit attributable to owners of parent, partly offset by a decrease of 239 million yen in retained earnings attributable to dividends paid.

(3) Analysis of Cash Flows

Cash and cash equivalents ("cash") at the end of the consolidated fiscal year under review increased 1,466 million yen from the end of the previous consolidated fiscal year, to 16,116 million yen. The cash flow positions and contributing factors are as follows:

[Cash flows from operating activities]

Net cash provided in operating activities during the consolidated fiscal year under review totaled 3,307 million yen (net cash used in operating activities during the previous consolidated fiscal year was 10,981 million yen). This mainly reflects inflows in the form of a 2,270 million yen decrease in inventories, profit before income taxes of 1,776 million yen, which more than offset income taxes paid of 788 million yen.

[Cash flows from investing activities]

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Net cash used in investing activities during the consolidated fiscal year under review amounted to 1,218 million yen (net cash used in investing activities during the previous consolidated fiscal year was 1,944 million yen). This was primarily the result of proceeds of 1,934 million yen from the withdrawal of time deposits, offset by payments into deposits of 1,967 million yen and purchases of property, plant and equipment of 1,162 million yen.

[Cash flows from financing activities]

Net cash used in financing activities during the consolidated fiscal year under review totaled 621 million yen (net cash used by financing activities during the previous consolidated fiscal year was 6,656 million yen). This primarily reflects proceeds from loans payable of 20,269 million yen and proceeds from the issuance of corporate bonds of 684 million yen, while the repayment of loans payable was 20,311 million yen and the redemption of Bonds payable was 921 million yen.

(Reference) Cash flow indicators

Equity ratio: shareholders' equity / total assets

Market value equity ratio: market capitalization / total assets

Interest-bearing debt to cash flow ratio: interest-bearing debts / cash flow

Interest coverage ratio: cash flow / interest payment

Note 1: The market capitalization has been calculated by multiplying the closing stock price at the fiscal year-end by the number of shares outstanding at the fiscal year-end.

(4) Outlook for FY2022 (January 1, 2022 to December 31, 2022)

As the number of people vaccinated against COVID-19 increased and the number of new COVID-19 cases declined, declarations of a state of emergency related to COVID-19 were rescinded, and there are signs of a recovery in the economy. However, uncertainty over the economy is increasing, reflecting a resurgence of COVID-19 due to variants and rising prices linked to higher raw materials prices.

In the real estate industry where the MUGEN ESTATE Group operates, demand for new homes are stimulated by changes in lifestyles and ways of working associated with the the COVID-19 pandemic. The appetite for housing purchases remains strong. As prices of new homes remain high and supply is limited, the Group expects demand for used housing properties to persist. Looking at real estate investment, the investment appetite for residential assets, particularly rental condominiums, is high as an accommodative financial environment continues, despite rising vacancy rates and falling rents at offices in the central Tokyo area. Active trading is expected to continue.

Although demand is expected to be strong, there are delays in the delivery of housing materials and housing equipment due to COVID- 19. The Group needs to closely monitor delays in refurbishment.

In this environment, the Group has prepared the Second Medium-Term Management Plan. The basic policies of the management plan are strengthening the revenue base to expand businesses, building networks to seize revenue opportunities, increasing organizational strength to drive business growth, and advancing digital transformation, which will support business expansion and growth. The Group will strive to strengthen the Purchase and Resale Business, a core business, and generate a profit early in the Development Business and Real Estate Specified Joint Ventures Business. The Group will also seek to strengthen infrastructure, including finance, human resources development, and IT. For details of the Second Medium-Term Management Plan, please refer to the Notice of Formulation of a Medium- Term Management Plan published on February 14, 2022.

Through the above measures, for the fiscal year ending December 31, 2022, the first year of the Second Medium-Term Management Plan, we forecast consolidated net sales of 38,847 million yen (up 14.4% year on year), operating income of 2,624 million yen (up 12.1% year on year), ordinary income of 2,066 million yen (up 16.7% year on year), and profit attributable to owners of parent of 1,314 million yen (up 3.0% year on year).

The above forecasts regarding future performance are based on information available when this material was announced, and actual results may differ from the forecasts due to a variety of factors in the future.

(5) Basic Policy for Dividend Distribution and Dividends for FY2021 and FY2022

The Group considers the return to shareholders to be one of its most important management initiatives. Its basic policy is to continue to pay stable dividends, while simultaneously working to strengthen its financial conditions and enhance its internal reserves for the expansion of businesses on a long-term basis. With this in mind, it will determine the distribution of profit after comprehensively taking a range of factors into account, including the level of its business performance. As described in the Notice of Formulation of a Medium- Term Management Plan published on February 14, 2022, the Group has changed its payout ratio target from around 20% to 30% or more. This is because the financial base has been strengthened under the First Medium-Term Management Plan and increasing shareholder returns is a priority in the Second Medium-Term Management Plan.

As stated above, the Group determines dividends per share after comprehensively assessing annual results, and in principle, distributes dividends once a year as year-end dividends. Year-end dividends are determined at the general shareholders' meeting. Interim dividends are determined by the Board of Directors.

Under the basic policy above, the Group will pay a dividend of 15 yen per share for the fiscal year ended December 31, 2021. The consolidated payout ratio will be 28.2％. The Group plans to pay a year-end dividend of 17 yen per share for the fiscal year ending December 31, 2022 based on the present forecast. The consolidated payout ratio will be 30.2％.

The Group will actively use internal reserves to purchase properties to expand its core businesses, namely the Purchase and Resale Business and the Leasing Business, and its growth businesses, the Development Business and Real Estate Specified Joint Ventures Business, while investing in human resources and in IT systems.

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