First Brothers : Q2 FY11/22 Financial Earnings Summary

Q2 FY11/22

Financial Earnings Summary

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

July 8, 2022

Topics for Q2 FY11/22 (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.

In cumulative Q2 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.

	FY11/20	FY11/21	FY11/22	Change	Change
	from end of	from end of
	(end of fiscal year)	(end of fiscal year)	(end of Q2)
(million yen)	FY11/21	FY11/21 (%)

Balance*1	55,618	61,421	59,009	-2,411	-3.9%
(number of properties)	(55 properties)	(95 properties)	(90 properties)
Increase*1	20,323	18,174	1,367	-	-
Decrease*1	8,082	12,372	3,778	-	-
Book value*2	56,179	61,953	59,404	-2,549	-4.1%
Market value*3	64,456	73,143	69,880	-3,262	-4.5%
Unrealized gain*3	8,276	11,189	10,475	-713	-6.4%
NOI yield*4	6.6%	7.2%			7.2%		-	-
Breakdown of Our Portfolio of Properties	Classification of		Current and Non-current Assets

for Lease by Location and Use

(in terms of balance)

By location

Other major	Tokyo
cities	Metropolitan
52.2%	area
	47.8%

By use*5

Residential Offices

15.4% 24.4%

Hotels and

other lodging

facilities Commercial

30.3% 29.9%

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-currentassets
Balance*1	41,699	17,309
(number of
(59 properties)	(31 properties)
properties)
Book value*2	42,476	16,927
Market value*3	50,579	19,300
Unrealized gain*3	8,103	2,372
NOI yield*4	6.8%	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 Q2 FY11/22 (2)

Portfolio of properties for lease / Lease income

Our policy is to expand our portfolio of properties for lease in order to increase stable gross profit from leasing*. However, property sales conducted in connection with portfolio rotation and vacancy losses incidental to value enhancement activities may lead to a temporary decline in gross profit from leasing.

In cumulative Q2 FY11/22, gross profit from leasing temporarily fell due to property sales preceding acquisitions in portfolio rotation.

		Q2 FY11/19	Q2 FY11/20	Q2 FY11/21	Q2 FY11/22
		(six months)	(six months)	(six months)	(six months)
Gross profit from	664	953	1,186	1,179*2
leasing*1	(million yen)

*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 (cumulative Q2 FY11/22)

・NOI during stable operation in cumulative Q2 FY11/222,167 million yen

(60,215 million yen [average balance of property holdings at beginning of year/end of Q2] x 7.2% [average NOI yield at beginning of year/end of Q2] x 6/12 months)

・Depreciation expenses in cumulative Q2-385 million yen

・Vacancy losses incidental to work to add value to properties and rent for properties acquired during cumulative Q2, etc. -603 million yen

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・Gross profit from leasing in cumulative Q2 FY11/22

1,179 million yen

Portfolio of properties for lease / Sales income (portfolio rotation)

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 cumulative Q2 FY11/22, generating corresponding gains. A summary of these transactions is shown below.

(million yen)	Q2 FY11/19	Q2 FY11/20	Q2 FY11/21	Q2 FY11/22
(six months)	(six months)	(six months)	(six months)
Sales value*1	2,800	4	11,300	5,344
Gross profit from	606	0	2,562	1,136
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 Q2 FY11/22 (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 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.

	FY11/19	FY11/20	FY11/21	Q2 FY11/22
	(end of fiscal year)	(end of fiscal year)	(end of fiscal year)	(end of Q2)
Loan balance	37,646	45,976	50,917	47,929
(million yen)*2
(Of which, non-	613	598	3,420	3,420
recourse loans)
Leverage*3	84.9%	81.8%	82.2%	80.7%
Weighted average	13.9 years	12.1 years	10.2 years	9.5 years
residual period
Weighted average	0.84%	0.75%	0.99%	1.00%
interest rate*4
% of loans with fixed	55.1%	44.3%	29.5%	28.4%
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 cumulative Q2 FY11/22, 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. 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	FY11/20	FY11/21	Q2 FY11/22
(end of fiscal year)	(end of fiscal year)	(end of fiscal year)	(end of Q2)
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.

Facility Operation business

With the aim of expanding the scope of the Group's business, we have launched the Facility Operation business, whereby we operate our own properties (hotels and other lodging facilities).

In cumulative Q2 FY11/22, the business posted an operating loss of 265 million yen due to advisory fees arising from share acquisitions in a hotel management company and sluggish accommodation demand caused by the COVID-19 pandemic.

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

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Q2 FY11/22 earnings summary (1)

Consolidated income statement (summary)

The Group's policy is to increase lease income by enhancing our portfolio of properties for lease. Quarterly performance tends to fluctuate depending on the volume of properties sold for the purpose of portfolio rotation.

We plan to sell less number of properties in FY11/22 than we did in FY11/21, and in cumulative Q2 FY11/22, the number of properties sold was less than that a year ago. As a result, sales and profits declined.

(million yen)	Cumulative Q2	Cumulative Q2	Cumulative Q2	YoY	Progress rate in
cumulative Q2
FY11/20	FY11/21	FY11/22	change
	FY11/22
Net sales	1,997	14,176	8,600	-39.3%	34.5%
Gross profit	1,005	3,772	2,323	-38.4%	43.8%
Selling, general and	813	904	1,129	+24.9%	-
administrative expenses
Operating profit	192	2,867	1,193	-58.4%	41.5%
Ordinary profit	(159)	2,615	1,007	-61.5%	50.1%
Profit attributable to owners	(92)	1,748	593	-66.1%	45.7%
of parent

Gross profit breakdown

	Cumulative Q2	Cumulative Q2	Cumulative Q2	YoY change
(million yen)	FY11/20	FY11/21	FY11/22
Investment Management	97	151	72	-52.1%
business
Investment Banking	908	3,602	2,270	-37.0%
business
Gross profit from sale	0	2,562	1,136	-55.7%
Gross profit from leasing	878	1,010	1,096	+8.5%
Other	29	28	37	+31.3%
Facility Operation	-	-	(62)	N/A
business
Other business	-	17	42	+144.5%
Total gross profit	1,005	3,772	2,323	-38.4%

Selling, general and administrative expenses breakdown

	Cumulative Q2	Cumulative Q2	Cumulative Q2	YoY change
(million yen)	FY11/20	FY11/21	FY11/22
Personnel expenses	490	551	609	+57
Rent	86	95	97	+1
Commission expenses /	95	99	198*	+99
remuneration
Taxes and dues	37	75	43	-31
Amortization of goodwill	-	-	50	+50
Other	103	83	130	+47
Total selling, general and	813	904	1,129	+225
administrative expenses
*Includes advisory fees (62 million yen) associated with the acquisition of shares in subsidiaries.

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

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