Invincible Investment : Financial Results Materials

Invincible Investment Corporation

June 2022 Fiscal Period Results

(January 1, 2022 to June 30, 2022)

TSE Code : 8963

August 25, 2022

Table of Contents

Ⅰ . Executive Summary	2～3
II. Summary of June 2022 FP Results
Ⅱ-1.	Financial Highlights	4
Ⅱ-2.	Operating Revenue Composition	5
Ⅱ-3.	Capital Expenditures and Depreciation	6
III. Status of Hotel Operations and Market
Ⅲ-1.	Hotel KPIs and NOI	7
Ⅲ-2.	COVID‐19 Situation in Japan and Changes in INV's Hotel
	Occupancy Rate	8
Ⅲ-3.	COVID‐19 Worldwide Situation	9
Ⅲ-4.	Preliminary Forecast of INV's Hotel Portfolio (December 2022	10
	Fiscal Period)
Ⅲ-5.	Initiatives by MHM amid COVID-19	11
Ⅲ-6.	MHM: Future Outlook and Strategy	12
Ⅲ-7.	Initiatives by Sheraton Grande Tokyo Bay Hotel (SGTB)	13
Ⅲ-8.	Update of the Status of the Cayman Islands	14
Ⅲ-9.	Stay-over visitation and Airline seat capacity to the Cayman	15
	Islands
Ⅲ-10.	Status of New Hotel Development in Japan	16
Ⅲ-11.	Status of Hotel Stock in Japan	17
Ⅲ-12.	Trial Calculation: Business vs. Leisure Demand	18
Ⅲ-13.	Inbound Market	19

Ⅳ. Status of Residential Operations

Ⅳ-1.	Performance of Residential Properties	20
Ⅳ-2.	Changes of Residential Rents	21
Ⅴ. Financial Condition	22

Ⅵ. ESG Initiatives

Ⅵ-1.	ESG Initiatives by INV	23
Ⅵ-2.	ESG Initiatives by MHM	24

Appendix (1)
1.	Unitholder Benefit Program for Invincible Unitholders	26
2.	Inbound Market: Inbound Visitors to Japan by Country	27
3.	Domestic Portfolio Map	28
4.	Track Record of External Growth	29
5.	Summary of Appraisal Value	30
6.	Portfolio Composition	31
Appendix (2) - Financial and Operational Data
1.	Key Operational Data for Variable Rent Hotels	33～34
2.	Financial Metrics	35
3.	Income Statement	36
4.	Balance Sheet	37～38
5.	Cash Flow Statement and Dividend Distribution	39
6.	Property Income	40～43
7.	Appraisal Value	44～47
8.	Portfolio Properties	48～51
9.	Borrowings and Investment Corporation Bonds	52～58
10.	Overview of Unitholders	59
11.	Unit Price Information	60

1

Ⅰ . Executive Summary-1

	 Due to the influence of COVID-19, the total GOP for the portfolio of 73 domestic hotels operated by MyStays Hotel Management Group
	(MHM), the major tenant of INV, continued to be at an insufficient level to meet fixed rent payment obligations this period as set out in the
	original agreements
	 Accordingly, INV and MHM agreed to reduce the rent payment from MHM this period and MHM paid fixed rent of ¥900 million
Results of June	(approximately 18% of the original fixed rent agreements). In addition, MHM paid variable rent of ¥1,996 million in this fiscal period and
thus paid ¥2,896 million in total, which is approximately 58% of the original fixed rent agreements for this period
2022 Fiscal	 Secured ¥1,468 million of gain on sales this fiscal period by selling six residential properties for ¥4,450 million (0.5% higher than the
Period
	appraisal value) in January 2022
	 As a result, the net income this period is ¥1,015 million. INV will distribute approximately the entire net income, ¥166 per unit this period
	 The total appraisal value of the 127 properties held at the end of June 2022 was ¥530,212 million, a 2.1 % increase from the end of December
	2021 appraisal
	 INV has never violated any financial covenants since the outbreak of COVID-19 up to the date hereof
	 As loans are being refinanced at shorter maturities, the amount of loans due in one fiscal period has increased. INV refinanced bank loans
	of ¥27.0 billion in total during this period and in addition, INV refinanced ¥50.2 billion of bank loans for the same amount that became due
Financial	in July 2022
Condition	 In order to enhance the financial soundness, INV has repaid part of the existing loans by utilizing part of the cash on hand (¥3.5 billion)
	which increased due to the sale of properties and lowered LTV from 45.8% on February 24, 2022 to 44.9% at the end of this period
	 INV has ¥12.6 billion in cash on hand at the end of July 2022 after subtracting the partial repayment of the loan above, which is more than
	enough to pay interest expenses and other payments
	 The occupancy rate of 75 domestic hotels owned by INV improved to 61.6% in December 2021, the highest level since March 2020.
	However, due to the surge of a new COVID‐19 (Omicron) variant from the beginning of 2022, the occupancy rate of 75 domestic hotels
	plummeted to 48.5% in January
	 The government issued quasi-state of emergency ordinances for three prefectures from January 9 and further applied the measures to 36
	prefectures at the peak. Quasi-state of emergency ordinances were lifted from March 21 through the end of this fiscal period and the
	average occupancy rate in 2Q 2022 improved to 68.6%. People appear to be more accepting of life amid COVID-19, and thus the
Domestic Hotel	government did not issue a state of emergency ordinance despite recording the largest number of newly confirmed infections per day
during the sixth wave. The occupancy rate has improved mainly from leisure demand, such as people using Prefectural Residents'
Portfolio	Discount, after the lifting of quasi-state of emergency
	 The number of inbound visitors this period was 507,600 (preliminary estimate by JNTO), a 96.9% reduction from the same period in 2019.
	Inbound visitors have virtually vanished since March 2020
	 The government has started to gradually relax restrictions of border entry, and has resumed sightseeing tours for foreigners, limited to
	guided group tours from June 10. The number of entries to Japan per day was 3,500 at the beginning of this period, increased to 20,000
	(including Japanese) from June but is still far below the level of the roughly 140,000 average entries per day in 2019	2

Ⅰ . Executive Summary-2

	 MHM continues to undertake thorough cost reductions amid the Corona crisis. Further, MHM has been proactively implementing plans to
	capture changes in customer demand under the "With Corona" environment
Domestic Hotel	 Based on the semiannual survey, plans for new hotel room supply have been clearly declining six consecutive times since the December
Portfolio	2019 survey was conducted. Further, according to Nikkei survey announced on August 2, approximately 10% (about 5,000) tourism-related
	businesses such as hotels, inns, and travel agencies closed in the two years between May 2020 and May 2022 from the influence of COVID-
	19
	 From January 20, 2022, unvaccinated children under the age of 12 years old "assume" the vaccination status of their adult travel
	companions. Further, the once onerous COVID-19 testing for travelers aged 5 and over that required lateral flow tests on days 2, 5, and 7
	(resulting in a 10-day quarantine if positive), clearly major factor to avoid travel to the Cayman Islands, was lifted as of February 17, 2022
Cayman Hotel	 The administration of the second vaccination has reached 80% of the population in the Cayman Islands at the beginning of 2022 and the
number of flights to the Cayman Islands has increased from the middle of February. Management contract profits of the two hotels in
Portfolio	Cayman resulted in ¥1,013 million this period, a significant improvement from ¥176 million of management contract losses in the previous
	period
	 The Cayman Islands government has gradually relaxed COVID-19 regulations, lifting measures such as a pre-arrival testing requirement
	for travelers to the Cayman Islands, and mandatory mask requirements in indoor public areas from June 30. We expect the performance of
	our hotels in Cayman to improve further from the next peak season starting in Thanksgiving day in late November
Residential/	 Recorded ¥1,113 million of NOI for 41 residential properties this period, -0.2% compared to the June 2021 fiscal period, +1.2% compared to
Commercial	June 2019 fiscal period for the same portfolio
Portfolio	 The portfolio of 41 residential properties and one commercial property owned today is expected to maintain stable returns
	 We have experienced alternating periods of both surging and waning COVID-19 cases, while government restrictions on movement with
	each wave are gradually shortening and becoming more tolerable. Assuming the continuation of relaxed restrictions, we aim for positive
	net income in the December 2022 fiscal period without a gain on sales of properties
	 However, according to a correspondence from the Ministry of Land, Infrastructure, Transport and Tourism on August 1, "The number of
Forecast for	newly confirmed infections throughout Japan has surpassed all previous highs, and the number of newly confirmed infections in each
December 2022	prefecture is larger than the one in the previous pandemic; the rapid increase of infections has been continuing", and "We will need to
closely watch the situation including the influence of COVID-19 on the medical care system with the maximum sense of caution". Under
Fiscal Period	such circumstances, it is extremely difficult to make a reasonable forecast for the December 2022 fiscal period, and future forecasts are
	undetermined at this time
	 Due to the ongoing uncertainty and challenging environment for the hotel business, some level of fixed rent payment waivers for MHM
	from July 2022 will be required but have not been determined yet, and we expect to conclude and announce the agreement by the middle of
	September 2022

3

Ⅱ. Summary of June 2022 FP Results

Ⅱ-1. Financial Highlights

• The net income this period is ¥1,015 million. INV will distribute approximately the entire net income, or ¥166 per unit this period. While the net income increased slightly compared to the previous period, the gain on sale of properties decreased by ¥1.1 billion, and the earnings of the portfolio are on a recovery trend
• MHM paid fixed rent of ¥900 million (approximately 18% of the original fixed rent agreements) and variable rent of ¥1,996 million in this period and thus paid ¥2,896 million in total, which is approximately 58% of the original fixed rent agreements for this period
• Assuming restrictions may not become stricter in the future, we aim for positive net income in the December 2022 fiscal period without a gain on sales of properties

												Major Causes for Variance	(¥ million)
			December	June 2022	Variance
			2021 FP	FP
			Amount	(％)						Operating revenue
Operating revenue	8,406	7,680	-726	-8.6%						 Decrease in revenue by property disposition in the previous fiscal
	Real estate rental revenues	5,837	5,198	-639	-11.0%						period : -194
						 Decrease in revenue by property disposition in this fiscal period : -129
		Hotel Rents (Variable rent)
		1,279	2,038	+758	+59.3%
							 Increase/decrease in revenue of existing portfolio : -315
		Hotel Rents (Fixed rent)	2,489	1,439	-1,050	-42.2%
							(Decrease in Hotel Rents: -330)
		Residential Rents	1,679	1,382	-296	-17.7%
							(Increase in Residential Rents: +15)
	Management contract revenue	ー	1,013	+1,013	ー						 Increase in management contract revenue: +1,013
	TMK Dividend amount	ー	ー	ー	ー						 Decrease in gain on sale of properties: -1,100
	Gain on sale of properties	2,568	1,468	-1,100	-42.8%
Operating expenses	6,113	5,565	-548	-9.0%						Operating expenses
					 Decrease in expenses by property disposition in the previous fiscal
	Real estate rental expenses	4,777	4,498	-278	-5.8%
						period : -104
		Taxes and other public charges	753	588	-164	-21.9%						(Decrease in depreciation expenses : -40)
		Depreciation expenses	3,420	3,335	-85	-2.5%						 Decrease in expenses by property disposition in this fiscal period : -
	Management contract expenses	709	543	-166	-23.5%						62
												(Decrease in depreciation expenses : -38)
		Depreciation expenses	429	430	+0	+0.2%
							 Decrease in expenses for existing portfolio: -116
NOI	4,201	4,936	+734	17.5%
					(Decrease in depreciation expenses : -6)
NOI after depreciation	351	1,170	+819	233.4%						 Decrease in management contract expenses due to reduction of
Operating income	2,292	2,114	-177	-7.8%						management contract loss: -166
Non-operating income	7	4	-3	-43.5%						Non-operating expenses
Non-operating expenses	1,284	1,102	-181	-14.2%						 Decrease in debt cost: -91
Ordinary income	1,014	1,015	+0	+0.1%						 Decrease in foreign exchange losses: -40
Net income	1,014	1,015	+0	+0.1%						 Decrease in interest cost: -39
Distribution per Unit (¥)	166	166	ー	ー						Distribution per Unit (¥)		4
Operating Days	184	181	ー	ー						 Same as the previous fiscal period