First Brothers : Q1 FY11/22 Financial Earnings Summary

Q1 FY11/22

Financial Earnings Summary

First Brothers Co., Ltd. (3454)

April 8, 2022

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.

In Q1 FY11/22, the balance of property holdings temporarily declined in comparison to end of FY11/21 due to preceding property sales.

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

(Unit: million yen)	FY11/20 (end of fiscal year)	FY11/21 (end of fiscal year)	FY11/22 (end of Q1)	Change from end of FY11/21	Change from end of FY11/21 (%)
Balance*1 (number of properties)	55,618 (55 properties)	61, 421 (95 properties)	58,243 (90 properties)	-3,177	-5.2%
Increase*1	20,323	18,174	0	-	-
Decrease*1	8,082	12,372	3,177	-	-
Book value*2	56,179	61,953	58,674	-3,279	-5.3%
Market value*3	64,456	73,143	68,584	-4,558	-6.2%
Unrealized gain*3	8,276	11,189	9,910	-1,278	-11.4%
NOI yield*4	6.6%	7.2%	7.2%	-	-
Breakdown of Our Portfolio of Properties forClassification of Current and Non-cu	rent Asset

current Assets

Lease by Location and Use

on Our Balance Sheet

By location

(in terms of balance)

In principle, we record our balance sheet to promptly sold when w record properties with assets with the intenti

properties for lease as current assets on nsure that these properties can be e conduct portfolio rotation. However, we relatively high yields as non-current on of generating long-term leasing income.

By use*5

(million yen)	Current assets	Non-current assets
Balance*1 (number of properties)	40,934 (59 properties)	17,309 (31 properties)
Book value*2	41,693	16,981
Market value*3	49,284	19,300
Unrealized gain*3	7,590	2,319
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.

Portfolio of properties for lease / Stable income

Our policy is to expand our portfolio of properties for lease in order to increase stable gross profit from leasing*1. However, 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.

In Q1 FY11/22, gross profit from leasing temporarily declined due to preceding property sales conducted in connection with portfolio rotation.

Q1 FY11/19 (three months)	Q1 FY11/20 (three months)	Q1 FY11/21 (three months)	Q1 FY11/22 (three months)
Gross profit from leasing*1 (million yen)	287	461	594	587*2
*1 Net income gained from properties for lease (NOI [excluding one-time factors] － depreciation expenses) *2 Correlation between NOI yield during stable operation (see p. 1) and gross profit from leasing (Q1 FY11/22) ・NOI during stable operation in Q1 FY11/22 1,076 million yen (59,832 million yen [average balance of property holdings at beginning of year/end of Q1] x 7.2% [average NOI yield at beginning of year/end of Q1] x 3/12 months) ・Depreciation expenses in Q1 -191 million yen ・Vacancy losses incidental to work to add value to properties and rent for properties acquired during Q1, etc. -298 million yen ---------------------------------------------------------------------------------------------------------------------------------------------------・Gross profit from leasing in Q1 FY11/22 587 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 Q1 FY11/22, generating corresponding gains.

A summary of these transactions is shown below.

(million yen)	Q1 FY11/19 (three months)	Q1 FY11/20 (three months)	Q1 FY11/21 (three months)	Q1 FY11/22 (three months)
Sales value*1	2,800	0	941	4,755
Gross profit from sale*1	606	0	8	1,128
*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.

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 long-term loans and use interest rate swaps*1 to maintain a fixed interest rate for a certain portion of our loan balance.

*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.

*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 Q1 FY11/22, competition to buy relatively large-scale properties-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. We are continuing our efforts to seek out new properties for acquisition at our funds for which we manage investment independently.

(million yen)	FY11/19 (end of fiscal year)	FY11/20 (end of fiscal year)	FY11/21 (end of fiscal year)	Q1 FY11/22 (end of Q1)
AUM	13,583	11,820	22,958	22,958
Increase*1	4,850	21,570	11,138	0
Decrease*1	0	23,333	0	0
*1 Increase/decrease include conclusion and expiration of asset management agreements.

Hospitality service initiatives

As an initial step toward expanding our business domain to include operations aimed at providing hospitality services from a medium- to long-term perspective, we have begun to conduct initiatives targeting the establishment of a lodging and accommodations business.

Moving forward, while maintaining respect for the values of our customers and working in harmony with local communities, we intend to develop a distinctly recognizable First Brothers business by creating completely unique experiences that cannot be duplicated through our activities in the lodging and accommodations field.

Following the luxury onsen ryokan (Japanese-style inn with hot spring baths) added during FY11/21, we welcomed a traditional classic hotel into the Group in Q1 FY11/22.

Q1 FY11/22 earnings summary (1)

Consolidated income statement (summary)

In Q1 FY11/22, sales and profits rose year on year thanks in part to the sale of several properties for lease. The Group's quarterly earnings tend to fluctuate depending on the volume of properties sold.

(million yen)

Net sales

Gross profit

Selling, general and administrative expenses

Operating profit

Ordinary profit

Profit attributable to owners of parent

(190)

Gross profit breakdown

(million yen)	Q1 FY11/20	Q1 FY11/21	Q1 FY11/22	YoY change
Investment Management business	12	29	32	+11.7%
Investment Banking business	442	559	1,690	+201.9%
Gross profit from sale	0	8	1,128	-
Gross profit from leasing	450	538	554	+2.9%
Other	(7)	12	7	-41.3%
Other business	0	6	13	+99.5%
Total gross profit	455	595	1,736	+191.4%

Selling, general and administrative expenses breakdown

(million yen)	Q1 FY11/20	Q1 FY11/21	Q1 FY11/22	YoY change
Personnel expenses	247	284	305	+21
Rent	43	47	48	+0
Commission expenses / remuneration	40	55	124*	+69
Taxes and dues	12	11	41	+29
Other	78	45	88	+42
Total selling, general and administrative expenses	423	443	607	+163
*Includes advisory fees (62 million yen) associated with the acquisition of shares in subsidiaries.