Invincible Investment Corporation December 2023 Fiscal Period Results
(July 1, 2023 to December 31, 2023)
TSE Code : 8963
February 26, 2024
Table of Contents
Ⅰ . Executive Summary2~3 Ⅱ. Summary of December 2023 FP Results and 2024 Forecasts
Ⅱ-1. Financial Highlights for December 2023 FP4
Ⅱ-2. Operating Revenue Composition5
Ⅱ-3. Summary of June 2024 FP Forecast6
Ⅱ-4. Summary of December 2024 FP Forecast7
Ⅱ-5. Impact from the 2024 Noto Peninsula Earthquake8
Ⅱ-6. Domestic Hotel KPIs (Past performance and Forecasts for 2024)9
Ⅱ-7. Cayman Hotel KPIs (Past performance and Forecasts for 2024)10
Ⅱ-8. Capital Expenditures and Depreciation11
Ⅲ. Summary of Properties Acquired in August 2023
Ⅲ-1. Summary of Properties Acquired12
Ⅲ-2. Change in Hotel Portfolio13
Ⅲ-3. Actual KPI of the Properties Acquired in August 2023:Fusaki Beach Resort Hotel & Villas
Ⅳ. Status of Hotel Operations and Market
14
Ⅳ-1. Situation in Japan and Changes in INV's Hotel Occupancy Rate15
Ⅳ-2. Recovery Trends in KPIs for INV's 75 Domestic Hotels16
Ⅳ-3. Initiatives by MHM17
Ⅳ-4. Change in GOP for 73 Hotels Managed by MHM18
Ⅳ-5. MHM: Future Outlook and Strategy19
Ⅳ-6. Initiatives by Sheraton Grande Tokyo Bay Hotel (SGTB)20
Ⅳ-7. Update of the Status of the Cayman Islands21
Ⅳ-8. Airlines Serving the Cayman Islands and Moves to Alleviate the Pilot
Shortage in the U.S.22
Ⅳ-9. Status of New Hotel Development in Japan23
Ⅳ-10. Status of Hotel Stock in Japan24
Ⅳ-11. Trial Calculation: Business vs. Leisure Demand25
Ⅳ-12. Status of Overseas Travel26
Ⅳ-13. Inbound Market27~29
Ⅳ-14. Domestic Hotel Portfolio Map30
Ⅴ. Status of Residential Operations
V-1.
Performance of Residential Properties 31
V-2. Changes of Residential Rents 32
Ⅵ. Financial Condition 33 Ⅶ. ESG Initiatives
Ⅶ-1. ESG Initiatives by INV 34
Ⅶ-2. ESG Initiatives by MHM 35
Appendix (1)
1. Unitholder Benefit Program for Invincible Unitholders37
2. Inbound Market: Inbound Visitors to Japan by Country38
3. Domestic Portfolio Map39
4. Track Record of External Growth40
5. Sponsor Pipeline41
6. Summary of Appraisal Value and NAV per Unit42
Appendix (2) - Financial and Operational Data
1. Key Operational Data for Variable Rent Hotels44~45
2. Financial Metrics46
3. Income Statement47
4. Balance Sheet48~49
5. Cash Flow Statement and Dividend Distribution50
6. Property Income51~54
7. Appraisal Value55~58
8. Portfolio Properties59~62
9. Borrowings and Investment Corporation Bonds63~69
10. Overview of Unitholders70
11. Unit Price Information71
Results of December 2023 Fiscal Period (FP) |
|
Summary of Properties Acquired in August 2023 |
|
Domestic Portfolio |
|
Cayman Hotel
Portfolio
◼ RevPAR for the two Cayman hotels for this period was USD 273, 15.3% higher than USD 237 in the same period in 2019 due to a significant increase in ADR
◼ USD based Management Contract Revenue this period increased by 10.8% compared to the same period in 2022, and increased by 10.0% over the same period in 20191
◼ Average Occupancy rate for this period was 64.8%, 7.5 points lower than the same period in 2019. Going forward, a further recovery in air traffic to the Cayman Islands, which was reduced due to the Covid-19 pandemic, is expected to increase Occupancy to 2019 levels, leading to an increase in revenues
Financial Condition
◼ Executed bank loans (including refinancing) of JPY 141.5 billion in total this period and JPY 33.7 billion in January 2024
◼ Diversified financing sources through INV's first issuance of JPY 3.5 billion in total of green bonds in September and December 2023, and JPY 6.0 billion of investment corporation bonds for retail investors in February 2024
◼ Increased average duration of outstanding interest-bearing debt from 0.9 years (as of June 30, 2023) to 2.9 years (as of February 26, 2024) and diversified maturity dates
◼ Executed interest rate swap transactions to hedge the risk of rising interest rates, resulting in an increase in the fixed interest rate ratio from 21% (as of June 30, 2023) to 50% (as of February 26, 2024)
Forecasts for June 2024 Fiscal Period (FP) and December 2024 Fiscal Period
(FP)
◼ Forecasts remain unchanged from those announced on December 19, 2023, with DPU expected to be JPY 1,767 for the June 2024 FP and JPY 1,739 for the December 2024 FP. Forecasted annual DPU of JPY 3,506 for 2024 is 3.7% higher than that of JPY 3,381 for 2019
◼ The forecast factors in a rebound in domestic demand following the end of the "National Travel Discount Campaign" program. Overall inbound demand continues to steadily recover despite a slow recovery in Chinese travelers
◼ The portfolio of 41 residential properties and one commercial property is expected to maintain stable returns
◼ The impact of the 2024 Noto Peninsula Earthquake is negligible
(Note 1) The ownership structure of the two Cayman hotels was changed from a Tokumei Kumiai structure to a direct ownership structure in the middle of June 2019 FP. Therefore, Management Contract Revenue in June 2019 FP is a hypothetical number, assuming INV has held two Cayman hotels in the current direct ownership structure from the beginning of 2019
Ⅱ. Summary of December 2023 FP Results and 2024 Forecasts Ⅱ-1. Financial Highlights for December 2023 FP
◼ Increase in revenues and income due to the contribution from the six hotels acquired on August 1, 2023 and the recovery in hotel business performance of the existing hotels this period, despite the decrease in the management contract revenue of the two Cayman from the previous period due to seasonal factors Operating revenue increased by 18% to JPY 18,819 million and DPU was 12% higher than the previous period reaching JPY 1,640
◼
Compared to the forecast for this fiscal period announced on December 19, 2023, operating revenue showed a slight increase and DPU increased by 3%
June 2023 FP | December 2023 FP | Variance | ||
Amount | (%) | |||
Operating revenue | 15,914 | 18,819 | 2,904 | 18.2% |
Real estate rental revenues Hotel Rents (Variable rent) Hotel Rents (Fixed rent) Residential Rents | 12,000 | 16,696 | 4,695 | 39.1% |
4,615 | 7,441 | 2,826 | 61.2% | |
5,498 | 7,469 | 1,971 | 35.9% | |
1,392 | 1,388 | -3 | -0.2% | |
Management contract revenue | 3,914 | 2,123 | -1,790 | -45.8% |
TMK Dividend amount | - | - | - | - |
Gain on sale of properties | - | - | - | - |
Operating expenses | 5,558 | 6,230 | 671 | 12.1% |
Real estate rental expenses Taxes and other public charges Depreciation expenses | 4,488 | 5,096 | 608 | 13.6% |
596 | 754 | 158 | 26.5% | |
3,311 | 3,776 | 465 | 14.1% | |
Management contract expenses Depreciation expenses | 649 | 734 | 85 | 13.2% |
435 | 441 | 6 | 1.4% | |
NOI | 14,523 | 17,205 | 2,681 | 18.5% |
NOI after depreciation | 10,777 | 12,987 | 2,210 | 20.5% |
Operating income | 10,356 | 12,588 | 2,232 | 21.6% |
Non-operating income | 182 | 0 | -181 | -99.8% |
Non-operating expenses | 1,624 | 1,556 | -68 | -4.2% |
Ordinary income | 8,914 | 11,033 | 2,118 | 23.8% |
Net income | 8,913 | 11,032 | 2,118 | 23.8% |
Distribution per Unit (JPY) | 1,464 | 1,640 | 176 | 12.0% |
Operating Days | 181 | 184 | - | - |
Major Causes for Variance
(JPY million)
Operating revenue
✓ Increase in revenue from six hotels newly acquired: +2,104
✓ Increase/decrease in revenue from existing portfolio: +2,590
(of which, hotel: +2,609 / residential: -18)
✓ Decrease in management contract revenue: -1,790 →50% decrease in USD basis and 45.8% decrease in JPY basis (FX
rate in Dec 2023 FP was USD 1 = JPY 145.4, an 8.4% depreciation of the yen from the previous period)
Operating expenses
✓ Increase in expenses for six hotels newly acquired: +457
(of which, increase in depreciation expenses: +447)
✓ Increase in expenses for existing portfolio: +150
(of which, increase in depreciation expenses: +18)
✓ Increase in management contract expenses (overseas hotels): +85
Non-operating income ✓ Decrease in foreign exchange gain: -178
Non-operating expenses
✓ Increase in loan-related costs: +81
✓ Increase in interest expenses: +95
✓ Increase in interest expenses on investment corporation bonds: +29
✓ Increase in foreign exchange losses: +76
✓ Decrease in derivative losses: -507
✓ Increase in investment unit issuance costs: +152
Distribution per Unit (JPY)
✓ Increase from the previous period: +176
4
Ⅱ-2. Operating Revenue Composition
◼ Operating revenue increased by 18.2% from the previous period due to a significant increase in both variable and fixed rents for domestic variable-rent hotels driven by the recovery of the performance and external growth
◼
In addition, operating revenue increased 13.3% from the December 2019 FP exceeding the pre-pandemic period level, despite a decrease in revenue from the disposition of residential and commercial properties
Portfolio Composition by Operating Revenue1
Variable Rent HotelManagement Contract Revenue (Cayman hotels)
TMK Dividend Amount (SGTB)
(variables)
Variable Rent Hotel
(fixed)Fixed Rent Hotel
Residential
Commercial properties
CY2019
CY2020
June FP
December FP
June FP
December FPCY2021
June FPCY2022
June FP
December FPCY2023
June FP
December FP
Management Contract Revenue2 (Cayman hotels) TMK Dividend Amount (SGTB)
20.0%
8.4%
12.1%
0.0%
0.0%
0.0%
16.3%
14.6%
24.6%
5.1%
4.1%
8.6%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0 0.0%
Hotel
Variable Rent Hotel (variables) Variable Rent Hotel
(fixed)
Fixed Rent Hotel
Residential
Commercial properties
26.6%
32.1%
17.0%
19.4%
2.1%
23.1%
33.3%
26.5%
30.2%
23.6%
37.0%
22.9%
31.7%
31.9%
37.0%
17.9%
41.9%
32.6%
2.4%
2.3%
5.2%
6.6%
9.8%
6.4%
6.0%
3.2%
281 1.5%
20.4%
14.3%
30.0%
37.1%
48.4%
30.9%
24.2%
12.5%
1.9%
1.9%
4.1%
5.2%
7.9%
2.5%
2.3%
1.2%
141 0.8%
5
Total
100.0%
100.0%
(Note 1) Based on the properties owned by INV during each fiscal period respectively. The gain on sale is excluded
100.0%
(Note 2) The figure for June 2019 FP includes the amount of TK dividends INV received for the fiscal period before INV owned Cayman hotels directly
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Ⅱ-3. Summary of June 2024 FP Forecast
◼ For the June 2024 FP, operating revenue is expected to increase by 26.9% to JPY 20,199 million and DPU is expected to increase by 20.7% to JPY 1,767 from the same period last year, reflecting a further recovery of hotel earnings driven by inbound tourism and the impact of Covid-19 being completely removed
◼ Further upside is expected depending on the recovery of demand created by the increase in Chinese tourists visiting Japan during and after Chinese New Year when the timetables of airline flights switch to the summer schedule
◼ TMK dividend amount (Sheraton), which will be recorded for the first time in eight fiscal periods, is expected to be JPY 404 million higher than in the same period in 2019 due to the inclusion of special factors
Variance
Major Causes for Variance (June 2024 FP vs June 2023 FP)
June 2023 FP
June 2024 FP
(JPY million)
Amount
(%)
Operating revenue
Real estate rental revenues
Hotel Rents (Variable rent)
15,914 12,000 4,615
20,199 14,603 6,982
4,284 2,602 2,367
26.9%
21.7%
51.3%
Hotel Rents (Fixed rent)
5,498
5,853
355
6.5%
Residential Rents
1,392
1,409
17
1.2%
Management contract revenue
3,914
4,363
449
11.5%
TMK Dividend amount
Gain on sale of properties
- -
1,231
1,231
-
-
- -
Operating expenses
Real estate rental expenses
5,558 4,488
6,481 5,082
923 594
Taxes and other public charges
596
649
53
Depreciation expenses
3,311
3,856
545
Management contract expenses
Depreciation expenses
649 435
731 459
82 24
16.6% 13.2% 8.9% 16.5% 12.6%
Operating revenue
✓
Increase in existing hotel rents (variable rent and fixed rent): +1,334
✓ Increase in rents from six hotels newly acquired (variable rent and fixed rent in total): +1,388
✓ Increase in residential rents: +17
✓ Increase in management contract revenue: +449 →10.8% increase in USD basis and 11.5% increase in JPY basis
(estimated with FX rate for June 2024 FP of USD 1= JPY 135.0, a 0.7% depreciation of the yen from the same period last year)
5.6%
NOI
14,523
18,701
4,177
28.8%
NOI after depreciation
Operating income
10,777 10,356
14,385 13,717
Non-operating income
182
-3,607 3,360 -182
33.5%
32.5%
Operating expenses/Non-operating expenses
✓ Increase in real estate rental expenses : +594
→ of which, increase from six hotels newly acquired : +583
✓ Increase in management contract expenses : +82
→ Increase in insurance premiums, etc : +58, depreciation expenses: +24
✓ Increase in non-operating expenses : +205
→Increase in interest expenses : +546, Interest expenses on investment corporation bonds: +70, loan-related costs: +26, decrease in derivative
losses: -444
-100.0%
Non-operating expenses
1,624
1,830
205
12.7%
Ordinary income
8,914
11,887
2,972
33.3%
Non-operating income ✓ Decrease in non-operating income: -182
Net income
8,913
11,886
2,972
33.4%
→Decrease in foreign exchange gain: -178
Distribution per Unit (JPY)
1,464
1,767
303
20.7%
Operating Days
181
182
-
-
Ⅱ-4. Summary of December 2024 FP Forecast
◼ For the December 2024 FP, operating revenue is expected to increase by 7.6% to JPY 20,255 million and DPU is expected to increase by 6.0% to JPY 1,739 from the same period last year, reflecting the rent increase from the existing hotels and the full-period contribution from newly acquired hotels on August 1, 2023, as well as rent increase from the residential portfolio
◼
TMK dividend amount (Sheraton) is expected to reach JPY 679 million, its approximate stabilized level, which is about 1% (JPY 6 million) higher than the same period in 2019
December 2023 FP | December 2024 FP | Variance | ||
Amount | (%) | |||
Operating revenue | 18,819 | 20,255 | 1,436 | 7.6% |
Real estate rental revenues Hotel Rents (Variable rent) Hotel Rents (Fixed rent) Residential Rents | 16,696 | 17,617 | 921 | 5.5% |
7,441 | 8,241 | 800 | 10.8% | |
7,469 | 7,623 | 153 | 2.1% | |
1,388 | 1,413 | 24 | 1.7% | |
Management contract revenue | 2,123 | 1,958 | -164 | -7.8% |
TMK Dividend amount | - | 679 | 679 | - |
Gain on sale of properties | - | - | - | - |
Operating expenses | 6,230 | 6,745 | 515 | 8.3% |
Real estate rental expenses Taxes and other public charges Depreciation expenses | 5,096 | 5,292 | 195 | 3.8% |
754 | 841 | 87 | 11.6% | |
3,776 | 3,891 | 115 | 3.1% | |
Management contract expenses Depreciation expenses | 734 | 788 | 53 | 7.3% |
441 | 481 | 39 | 9.0% | |
NOI | 17,205 | 18,547 | 1,341 | 7.8% |
NOI after depreciation | 12,987 | 14,174 | 1,186 | 9.1% |
Operating income | 12,588 | 13,509 | 921 | 7.3% |
Non-operating income | 0 | - | 0 | -100.0% |
Non-operating expenses | 1,556 | 1,810 | 254 | 16.3% |
Ordinary income | 11,033 | 11,699 | 666 | 6.0% |
Net income | 11,032 | 11,698 | 666 | 6.0% |
Distribution per Unit (JPY) | 1,640 | 1,739 | 99 | 6.0% |
Operating Days | 184 | 184 | - | - |
Major Causes for Variance (December 2024 FP vs December 2023 FP)
Operating revenue
(JPY million)
✓ Increase in existing hotel rents (variable rent and fixed rent in total) : +558
✓ Increase in rents (variable rent and fixed rent in total) from full-period contribution from six hotels newly acquired on August 1, 2023: +395
✓ Increase in residential rents: +24
✓ Decrease in management contract revenue due to the large-scale renovation at Sunshine Suites, etc.: -164 → 0.6% decrease in USD basis and 7.8% decrease in JPY basis (estimated with FX rate for December 2024 FP of USD 1 = JPY 135.0, a 7.2% appreciation of the yen from the same period last year)
✓ Increase in TMK dividend amount: +679
Operating expenses/Non-operating expenses
✓ Increase in real estate rental expenses : +195
→ of which, increase from six hotels newly acquired : +147
✓ Increase in management contract expenses : +53
→ Increase in insurance premiums, etc.: +13, depreciation expenses: +39
✓ Increase in non-operating expenses : +254
→ Increase in interest expenses : +462, interest expenses on investment corporation bonds: +51, decrease in loan-related costs: -44, foreign exchange losses: -76, increase in derivative losses: +9, decrease in
investment unit issuance costs: -152
Ⅱ-5. Impact from the 2024 Noto Peninsula Earthquake
Overall impact of the earthquake throughout 2024 is expected to be negligible
◼ No material damage occurred at INV's six hotels located in the affected areas, though the earthquake caused some damage to facilities and equipment
◼ Cancellations from general travelers were observed just after the earthquake but demand from disaster recovery work has been generated by media, communication companies, insurers and other construction related workers. Slow down of demand for the banquet business was observed in addition to the cancellations caused by the earthquake
◼ Recovery of tourism demand is expected from the "Hokuriku Support Discount" program and the extension of the Hokuriku Shinkansen Line
Impact from the earthquake
• Temporary decrease in demand caused by the cancellations from general travelers
• Increase in demand from media, communication companies, insurers and other construction related workers
Banquet
• Temporary decrease in demand due to the voluntary restraint from organizing new events/parties in addition to the cancellations caused by the earthquake
Facilities
• Some increase in maintenance cost, CAPEX and depreciation expenses due to damage to the facilities and equipment is expected
➢ Expect almost no impact from the earthquake on the operation of INV's hotels located in the affected areas
➢ Expect recovery in tourism demand from the "Hokuriku Support Discount"
program which subsidizes up to 50% of travel costs and extension of the Hokuriku Shinkansen Line
Art Hotel Niigata
Station
Full Service Hotel
Ⅱ-6. Domestic Hotel KPIs (Past Performance and Forecasts for 2024)
◼ Comparing the KPIs of the 75 domestic hotels owned by INV between this period and the same period in 2019, ADR was 19.2% higher than in the same period in 2019. Although the Occupancy rate is still below the December 2019 FP, RevPAR achieved JPY 10,462, 11.5% higher than the December 2019 FP while GOP increased 1.09 times compared to the same period in 2019
◼ 2023 full year Occupancy is still 5.9 points lower than that of 2019, however all other KPIs all exceeded the 2019 full year level
◼ No impact from Covid-19 is expected in 2024, and annual GOP is expected to increase by approximately 8% in 2024 compared to 2023
Domestic 75 hotels1 (excluding those described as "Domestic 81 hotels")
(Note 1)Simulated KPI based on 75 hotels; of the 84 domestic hotels (including Sheraton Grande Tokyo Bay Hotel, the underlying asset of preferred equity interest held by INV) owned at the beginning of the December 2023 FP, nine hotels with fixed-rent lease agreements are excluded, assuming all properties were owned since the beginning of 2019. The performance for the pre-acquisition period, which is based on actual results provided by sellers with certain adjustments assuming INV owned them, are subject to change caused by the adjustments based on differences in accounting treatments, since it is difficult to adjust them due to the timing even if the figures are based on actual performance. In calculating the GOP, added the 49% of GOP for Sheraton Grande Tokyo Bay Hotel, which means INV's pro rata portion of the amount of JV TMK's preferred equity owned by INV. The rent paid for APA Hotel Yokohama‐Kannai, is regarded as GOP of the hotel. Furthermore, among the nine hotels excluded, the contract with the major tenant TOKYU HOTELS CO., LTD. for "Takamatsu Tokyu REI Hotel" has been modified to "fixed-rent plus variable rent" since April 25, 2023. However, from the viewpoint of the continuity of data, it is treated as a hotel with fixed rent and continues to be excluded. The same shall apply hereinafter. Domestic 81 hotels; the above 75 hotels plus the six hotels acquired in August 2023.
(Note 2)The GOP for the period from June 2020 FP to December 2022 FP includes the employment adjustment subsidies received by the operator, and there is a slight discrepancy with the previous disclosure since the amount was not finalized. There is no change in the variable rent for each fiscal period due to the confirmation of the amount received
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Invincible Investment Corporation published this content on 29 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 March 2024 08:37:03 UTC.