First Brothers : FY11/21 Financial Earnings Summary

FY11/21

Financial Earnings Summary

Notice: This document is a translation of the original Japanese document and is only for reference purposes. In the event of any discrepancy between this translated document and the original Japanese document, the latter shall prevail.

F i r s t B r o t h e r s C o . , L t d . ( 3 4 5 4 )

January 12, 2022

Message from the management

We at First Brothers would like to express our sincere gratitude to all our stakeholders for your continued support.

First Brothers has developed its business in response to the needs of its customers in accordance with the times. Our current mainstay business of real estate investment is just one of the businesses we have expanded while fulfilling these needs; we have now reached a stage at which we must step outside the boundaries of our existing business domains and reevaluate the way we express ourselves.

Moving forward, we aim to achieve sustainable management that will lead us into our next stage of development through expansion of our business domain while we continue our pursuit of economic value and leverage this value to create social value.

In FY11/21, we outperformed earnings projections formulated during FY11/20, generating gross profit of 6.84 billion yen, operating profit of 4.94 billion yen, ordinary profit of 4.37 billion yen, and profit attributable to owners of parent of 2.79 billion yen.

One pertinent theme of FY11/21 was our launch of a hotel management company (From First Hotels Co., Ltd.), and our full-scale establishment of a hospitality services business through which we provide accommodations and other forms of support.

In FY11/22, we forecast 5.30 billion yen in gross profit, 2.88 billion yen in operating profit, and 1.30 billion yen in profit attributable to owners of parent. These projections are largely based on conservative estimates regarding YoY change in portfolio rotation within our core real estate investment business.

First Brothers will strive to create social value through the development of its hospitality services business while maintaining respect for the values of its customers and working in harmony with local communities. We believe that the hospitality business is a promising area of business, and that it will become a part of our business portfolio in the medium to long term, although its contribution to earnings may be limited in the near term as it is at a start-up stage.

Performance generated through the businesses in which we engage can vary substantially from year to year. To ensure ongoing support from our shareholders in accordance with medium-tolong-term perspectives, we maintain a policy of conducting stable and ongoing profit distribution and have accordingly established a target dividend on equity (DOE) of 2.0%. Our shareholders' equity increased steadily in FY11/21, and, in accordance with our initial projections, we will pay a year-end dividend of 27 yen per share (+3 yen per share compared to FY11/20). In FY11/22, we plan to raise our year-end dividend by another 3 yen per share, paying a total year- end dividend of 30 yen per share.

As part of our overall shareholder benefit plan, we have introduced the "First Brothers Premium Benefits Club". Shareholders who meet shareholding requirements associated with this club can utilize a special website to exchange points for complimentary products such as food and electrical appliances. As with our approach to dividends, we will continue to consider and implement measures aimed at distributing appropriate levels of profit to our shareholders with a view to having them as a vital source of medium-tolong-term support.

We ask for your continued understanding and support.

January 12, 2022

Tomoki Yoshihara

President

First Brothers Co., Ltd.

© FIRST BROTHERS Co., Ltd. All Rights Reserved.

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balance)

(in terms of

Topics for FY11/21 (1)

Portfolio of properties for lease (overview)

The First Brothers Group is expanding its portfolio by acquiring properties for lease that are projected to return a stable income over the medium to long term.

The following table contains the balance, book value, market value, unrealized gain and NOI yield of our portfolio of properties for lease.

	FY11/19	FY11/20	FY11/21	Change	Change
	from end	from end
	(end of fiscal year)	(end of fiscal year)	(end of fiscal year)
(Unit: million yen)	of FY11/20	of FY11/20

Balance*1	43,377	55,618	61, 421	+5,802	+10.4%
(number of properties)	(49 properties)	(55 properties)	(95 properties)
Increase*1	22,171	20,323	18,174	-	-
Decrease*1	11,807	8,082	12,372	-	-
Book value*2	44,340	56,179	61,953	+5,774	+10.3%
Market value*3	49,990	64,456	73,143	+8,686	+13.5%
Unrealized gain*3	5,650	8,276	11,189	+2,912	+35.2%
NOI yield*4	6.9%	6.6%		7.2%	-	-
Breakdown of Our Portfolio of Properties for
Classification of Current and Non-current Assets

Lease by Location and UseBy location

Other major	Tokyo
cities	Metropolitan
51.3%	area
	48.7%
	首都圏
	88.1%

By use*5

Residential

15.8% Offices

27.6%

Hotels商業

28.8%52.5％ Commercial

27.8%

on Our Balance Sheet

In principle, we record properties for lease as current assets on our balance sheet to ensure that these properties can be promptly sold when we conduct portfolio rotation. However, we record properties with relatively high yields as non-current assets with the intention of generating long-term leasing income.

(million yen)	Current assets	Non-current assets
Balance*1	44,111	17,309
(number of
(64 properties)	(31 properties)
properties)
Book value*2	44,908	17,045
Market value*3	53,842	19,300
Unrealized gain*3	8,933	2,255
NOI yield*4	6.7%	8.3%

*1 Balance and increase/decrease values are based on acquisition price (before tax). Increase values include increases from M&A and from completion of development projects.

*2 Book value is adjusted by adding transaction costs at the time of acquisition to the acquisition price, and reflecting capital expenditures and depreciation for the investment period.

*3 Market value is the most recent appraised value or assessment value based on the appraised value, and unrealized gain is the difference between this value and book value.

*4 Assumed APR for stable operation (cash-based net income from rents minus administrative expenses, etc., divided by acquisition price).

*5 Mixed-use properties are calculated based on primary usage.

© FIRST BROTHERS Co., Ltd. All Rights Reserved.

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Topics for FY11/21 (2)

Portfolio of properties for lease / Stable income and SGA cover rate

Our policy is to expand our portfolio of properties for lease in order to increase stable gross profit from leasing*1. In FY11/21, gross profit from leasing increased steadily in line with portfolio expansion and substantially exceeded our selling, general and administrative (SGA) expenses.

Gross profit from leasing is subject to temporary decline caused by property sales conducted in connection with portfolio rotation and vacancy losses and other factors associated with activities aimed at adding value to properties.

	FY11/18	FY11/19	FY11/20		FY11/21
	(12 months)	(12 months)	(12 months)		(12 months)
Gross profit from	1,156	1,591	2,190		2,439*3
leasing*1 (million yen)
SGA cover rate*2	85%	104%	137%		131%
*1 Net income gained from properties for lease (NOI [excluding one-time factors] － depreciation expenses)
*2 Gross profit from leasing / Selling, general and administrative expenses (excluding one-time factors)
*3 Correlation between NOI yield during stable operation (see p. 2) and gross profit from leasing (cumulative FY11/21)
・NOI during stable operation in cumulative FY11/21	4,037 million yen
(58,519 million yen [average balance of property holdings at beginning/end of FY11/21] x 6.9% [average NOI yield
at beginning/end of FY11/21])
・Depreciation expenses in FY11/21		-796 million yen
・Vacancy losses incidental to work to add value to properties and rent for properties acquired during FY11/21, etc.
			-802 million yen
---------------------------------------------------------------------------------------------------------------------------------------------------
・Gross profit from leasing in FY11/21		2,439 million yen

Portfolio of properties for lease / Portfolio rotation through property sale

We manage the properties for lease that we acquire, adding value to them through enhancements, and also sell some on the market as appropriate to achieve property rotation and generate capital gains.

We sold several properties in FY11/21, generating corresponding gains. A summary of these transactions is shown below.

(million yen)	FY11/18	FY11/19	FY11/20	FY11/21
(12 months)	(12 months)	(12 months)	(12 months)
Sales value*1	19,646	16,541	10,654	20,716
Gross profit from	5,332	3,833	2,174	4,541
sale*1
*1 Includes sales of real estate for sale in process (including land for development of properties for lease).

■ Fluctuations in sales value and gross profit from sale

For the purpose of portfolio rotation, we sell some of our properties to which we have successfully added significant value, or in cases where we find a buyer presenting favorable conditions. We select these properties by assessing our progress in value enhancement. Because the value of each property is relatively large and each sales transaction can be affected by a range of factors, total sales value on a quarterly or annual basis can fluctuate significantly depending on the number of executed transactions. Gross profit from sale also fluctuates, since the profit margin varies from property to property.

© FIRST BROTHERS Co., Ltd. All Rights Reserved.

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Topics for FY11/21 (3)

Portfolio of properties for lease / Financing status

Our loan balance tends to increase as investment progresses, because we take out loans when acquiring properties.

As a rule, we take out super long-term loans with repayment terms of 10 years or longer and use interest rate swaps *1 to maintain a fixed interest rate for a certain portion of our loan balance. In FY11/21, the share of loans with fixed interest rates decreased due to the expiry of some interest rate swap agreements.

*1 *While the market price of an interest rate swap contract fluctuates according to interest rate and market trends, we utilize such contracts to fix interest payments over the long term and avoid the risk of interest rates going up; the swap contracts contribute to stabilizing our cash flow.

	FY11/18	FY11/19	FY11/20	FY11/21
	(end of fiscal year)	(end of fiscal year)	(end of fiscal year)	(end of fiscal year)
Loan balance	27,930	37,646	45,976	50,917
(million yen)*2
(Of which, non-	629	613	598	3,420
recourse loans)
Leverage*3	82.1%	84.9%	81.8%	82.2%
Weighted average	16.2 years	13.9 years	12.1 years	10.2 years
residual period
Weighted average	0.79%	0.84%	0.75%	0.99%
interest rate*4
% of loans with fixed	61.6%	55.1%	44.3%	29.5%
interest rates
*2 Loans to fund acquisitions of properties for lease
*3 Loan balance / Book value of properties for lease
*4 Before fixing interest rates

Real estate asset management

In FY11/21, competition to buy relatively large-scaleproperties-our funds' target assets-was fierce compared with the market for small to mid-size properties that we invest in on our own account. As such, the Group refrained from new property acquisitions at the funds for which we manage investment independently. However, the Group's AUM balance rose due to real estate investment activities undertaken independently by investor clients, for which we provide asset management on contract for the duration of the investment period.

We are continuing our efforts to seek out new properties for acquisition at our funds for which we manage investment independently.

(million yen)	FY11/18	FY11/19	FY11/20	FY11/21
(end of fiscal year)	(end of fiscal year)	(end of fiscal year)	(end of fiscal year)
AUM	8,733	13,583	11,820	22,958
Increase*1	8,733	4,850	21,570	11,138
Decrease*1	0	0	23,333	0

*1 Increase/decrease include conclusion and expiration of asset management agreements.

© FIRST BROTHERS Co., Ltd. All Rights Reserved.

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