R Resorttrust / 4681

COVERAGE INITIATED ON: 2012.07.12 LAST UPDATE: 2018.02.14

Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.

Research Coverage Report by Shared Research Inc. Resorttrust / 4681

RCoverage LAST UPDATE: 2018.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

INDEX

How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report.

Executive summary ------3 Key financial data ------4 Recent updates ------5 Highlights ------5 Trends and outlook ------6 Business ------24 Business description ------24 Strengths and weaknesses ------40 Market and value chain ------41 Strategy ------44 Historical earnings results------47 Other information ------59 Income statement ------59 Balance sheet ------60 History ------62 News and topics ------63 Major shareholders ------65 Shareholder returns------66 Top management ------66 Employees ------66 By the way ------66 Company profile ------67

02/68 Resorttrust / 4681

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Executive summary

Business

Resorttrust develops and operates membership hotels and operates a medical examination club, selling hotel and medical club memberships to affluent households. As of May 2017, it operated 48 hotels, of which 39 were members-only. As of end FY03/17, the company had more than170,000 members, giving it the top share in the domestic resort club industry.

At the company's mainstay resort hotel series XIV, one type of membership (rights to 26 nights a year in a room jointly owned by 14 members) costs about JPY20mn. Members pay for hotel services and fractional property ownership. Most members are around 60 years old, and about 90% are owners of medium-sized companies or professionals such as doctors with a net worth of JPY100mn or more. According to the company, most customers buy memberships to use the resort facilities (not to resell for capital gains) and more than 80% of new members are referred by existing members. Resorttrust has increased the number of resort hotels, leading to membership growth of an average rate of 2.6% per annum over the ten years through FY03/17.

Resorttrust aims for the members-only medical examination club to provide members with safe and reliable diagnostic testing using advanced medical equipment such as PET (positron emission tomography) and CT (computed tomography) scanners. Customers pay JPY2.3mn to join and annual dues of JPY500,000. Medical examination club membership has grown at an average rate of 13.4% per annum over the ten years through FY03/17.

Segments: Membership (29.6% of sales and 51.7% of operating profit in FY03/17), Hotel and Restaurant (51.7% of sales and 22.3% of operating profit), and Medical (17.9% of sales and 22.3% of operating profit).

Membership segment revenues come from registration fees, property fees, and other fees such as golf course charges. Revenue from registration fees and property fees are calculated by multiplying the number of memberships sold by the registration fee or property fee per membership. Registration fees are booked in full as sales at the signing of a contract, while property fees for unopened hotels are only booked under sales when the facility opens.

Hotel and Restaurant segment revenues come from food and beverages sales, hotel room revenue, hotel shops and amenities sales, revenue from administrative fees, revenue from security deposit deduction, and other income. Food and beverage sales, hotel shops and amenities sales, and room revenue vary with the number of guests.

In the Medical segment, Resorttrust sells memberships to HIMEDIC medical centers, manages the facilities, and provides members with visiting nursing care services. Segment sales comprise registration fees and annual dues from HIMEDIC members, deduction of security deposits, and revenues from the senior life business.

Trends and outlook

For FY03/17, Resorttrust booked sales of JPY143.5bn (+0.9% YoY), operating profit of JPY13.5bn (-27.5%), recurring profit of JPY14.8bn (-23.8%), and net income attributable to parent company shareholders of JPY11.0bn (-15.6%).

FY03/18 full-year forecasts are sales of JPY171.0bn (+19.1% YoY), operating profit of JPY17.0bn (+25.8%), recurring profit of JPY18.2bn (+22.9%), and net income attributable to parent company shareholders of JPY11.8bn (+7.2%).

Strengths and weaknesses

Shared Research sees the company’s strengths as a solid membership base of high net-worth individuals, a short period to recoup investments, and predictable customer traffic and operating costs. Main weaknesses are the aging of existing members pushing down facility occupancy rates, Japan's declining population sapping growth, and volatile reported earnings due to the method of booking property fees (see Strengthens and weakness section).

03/68 Resorttrust / 4681

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Key financial data

Income statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Total sales 104,708 87,254 103,645 108,976 99,894 105,311 116,824 120,401 142,249 143,541 171,000 YoY 7.9% -16.7% 18.8% 5.1% -8.3% 5.4% 10.9% 3.1% 18.1% 0.9% 19.1% Gross profit 78,903 70,362 75,010 80,729 80,672 85,316 95,440 102,350 117,783 117,662 YoY 6.8% -10.8% 6.6% 7.6% -0.1% 5.8% 11.9% 7.2% 15.1% -0.1% GPM 75.4% 80.6% 72.4% 74.1% 80.8% 81.0% 81.7% 85.0% 82.8% 82.0% Operating profit 14,241 5,408 11,192 13,173 9,891 12,054 15,119 16,041 18,640 13,514 17,000 YoY 3.2% -62.0% 107.0% 17.7% -24.9% 21.9% 25.4% 6.1% 16.2% -27.5% 25.8% OPM 13.6% 6.2% 10.8% 12.1% 9.9% 11.4% 12.9% 13.3% 13.1% 9.4% 9.9% Recurring profit 14,354 5,444 10,917 13,342 9,443 12,976 16,731 20,206 19,439 14,806 18,200 YoY 4.3% -62.1% 100.5% 22.2% -29.2% 37.4% 28.9% 20.8% -3.8% -23.8% 22.9% RPM 13.7% 6.2% 10.5% 12.2% 9.5% 12.3% 14.3% 16.8% 13.7% 10.3% 10.6% Ne t in c o me 7,435 507 4,185 3,302 5,415 7,127 8,605 11,851 13,044 11,010 11,800 YoY 10.9% -93.2% 725.4% -21.1% 64.0% 31.6% 20.7% 37.7% 10.1% -15.6% 7.2% Net margin 7.1% 0.6% 4.0% 3.0% 5.4% 6.8% 7.4% 9.8% 9.2% 7.7% 6.9% Per Share Data (JPY, adjusted for stock splits) Shares issued ('000, year end) 51,645 51,706 51,706 51,706 51,706 51,706 103,411 106,015 108,519 108,159 EPS 4.6 45.3 35.7 58.0 75.4 89.7 120.3 123.3 103.4 110.8 EPS (fully diluted) 0.0 45.3 35.5 57.9 74.6 84.6 108.7 112.8 95.1 Dividend per share 12.5 17.5 15.0 20.0 27.5 31.0 43.0 46.0 46.0 46.0 Book value per share 451.4 576.4 585.9 628.2 686.9 758.4 964.0 1,019.4 1,068.2 Balance sheet (JPYmn) Cash and cash equivalents 36,276 28,268 38,251 28,513 30,949 57,842 61,849 95,880 53,208 45,278 Total Current assets 117,432 118,708 120,546 100,047 95,914 114,012 113,907 158,323 147,250 151,430 Tangible fixed assets 94,152 97,210 102,417 102,223 102,032 99,601 119,967 153,784 156,884 155,824 Investment and other assets 25,408 23,619 29,886 31,254 33,763 37,104 63,781 75,372 98,954 103,959 Intangible fixed assets 2,989 3,543 3,723 3,833 3,442 3,142 3,104 3,351 4,341 10,391 Total assets 239,981 243,080 256,572 237,359 235,151 253,861 300,761 390,832 407,430 421,606 Accounts payable 802 714 735 642 881 893 913 1,096 1,123 1,401 Short-term debt 33,933 35,989 28,056 13,903 11,776 9,377 9,514 12,113 13,292 14,066 Total current liabilities 63,067 70,902 65,476 45,648 37,610 35,186 48,532 61,595 61,596 61,596 Long-term debt 13,264 12,270 20,582 15,961 16,959 31,085 39,993 71,361 63,423 53,708 Total fixed liabilities 118,975 121,382 130,820 130,326 132,657 145,529 170,810 224,466 213,119 207,447 Total liabilities 182,042 192,284 196,296 175,979 170,268 180,716 219,343 286,062 294,914 303,226 Net assets 57,940 50,798 60,270 61,379 64,883 73,145 81,418 104,769 112,515 421,606 Total interest-bearing debt 47,197 48,259 48,638 29,864 28,735 40,462 49,507 83,474 76,715 67,774 Cash flow statement (JPYmn) Cash flows from operating activities 7,416 6,114 21,270 14,126 19,657 21,338 24,773 22,057 2,616 26,249 Cash flows from investing activities -22,687 -4,776 -5,341 -5,962 -15,546 -15,958 -33,747 -71,837 -33,824 3,881 Cash flows from financing activities 7,205 -6,506 -1,457 -19,131 -3,351 11,447 22,221 60,359 -8,624 -15,593 Financial ratios ROA (RP-based) 6.2% 2.3% 4.4% 5.4% 4.0% 5.3% 6.0% 5.8% 4.9% 3.6% ROE 13.0% 0.9% 8.1% 6.1% 9.5% 11.4% 12.4% 13.6% 12.5% 9.9% Equity ratio 24.1% 20.9% 20.7% 23.0% 25.0% 26.1% 24.7% 25.5% 26.6% 26.6% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods. Although the company changed its accounting methods as of Q1 FY03/15, YoY rates use figures from the previous accounting method.

04/68 Resorttrust / 4681

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Recent updates

Highlights

On February 14, 2018, Resorttrust Inc. announced changes to executive management.

New position Name Current position Founder and Group CEO Yoshiro Ito Chairman and CEO Chairman and CEO Katsuyasu Ito President and COO President and COO Ariyoshi Fushimi Executive vice president and head of medical business

Changes effective April 1, 2018

On February 8, 2018, the company announced earnings results for Q3 FY03/18; see the results section for details.

On December 13, 2017, the company announced it will launch hotels under a new brand Hotel Trusty Premier in Nihonbashi Hamacho (Tokyo) and Kumamoto City (Kumamoto Prefecture).

The company decided to introduce a new Hotel Trusty Premier brand (a sub-brand of Hotel Trusty) with plans to open Hotel Trusty Premier Nihonbashi Hamacho in July 2019 and Hotel Trusty Premier Kumamoto in September 2019.

Resorttrust currently operates Hotel Trusty hotels in Nagoya (three hotels), Osaka (two), and one each in Tokyo, Kobe, and Kanazawa. The portfolio will increase to 10 hotels when including the two new sub-brand hotels in Nihonbashi Hamacho and Kumamoto.

On December 4, 2017, Shared Research updated the report following interviews with the company.

For corporate releases and developments more than three months old, please refer to the News and topics section.

05/68 Resorttrust / 4681

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Trends and outlook

Quarterly trends

Cumulative FY03/17 FY03/18 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of FY FY Es t . Sales 31,251 65,207 98,480 143,541 33,808 70,110 106,262 62.1% 171,000 YoY -1.4% -0.8% -0.3% 0.9% 8.2% 7.5% 7.9% 19.1% Gross profit 26,970 56,700 86,120 117,662 29,438 61,148 92,684 YoY -3.4% -2.1% -1.6% -0.1% 9.2% 7.8% 7.6% GPM 86.3% 87.0% 87.4% 82.0% 87.1% 87.2% 87.2% SG&A expenses 26,221 51,972 77,553 104,148 27,822 55,695 83,563 YoY 7.1% 5.9% 5.5% 5.0% 6.1% 7.2% 7.7% SG&A rat io 83.9% 79.7% 78.8% 72.6% 82.3% 79.4% 78.6% Operating profit 748 4,727 8,566 13,514 1,616 5,452 9,121 53.7% 17,000 YoY -78.2% -46.7% -38.7% -27.5% 116.0% 15.3% 6.5% 25.8% OPM 2.4% 7.2% 8.7% 9.4% 4.8% 7.8% 8.6% 9.9% Recurring profit 442 4,761 9,405 14,806 2,097 6,400 10,521 57.8% 18,200 YoY -88.9% -50.3% -38.6% -23.8% 374.4% 34.4% 11.9% 22.9% RPM 1.4% 7.3% 9.6% 10.3% 6.2% 9.1% 9.9% 10.6% Net income 218 3,612 7,181 11,010 1,148 3,787 6,350 53.8% 11,800 YoY -93.4% -48.9% -35.8% -15.6% 426.6% 4.8% -11.6% 7.2% Net margin 0.7% 5.5% 7.3% 7.7% 3.4% 5.4% 6.0% 6.9% Quarterly FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 31,251 33,956 33,273 45,061 33,808 36,302 36,152 YoY -1.4% -0.2% 0.6% 3.7% 8.2% 6.9% 8.7% Gross profit 26,970 29,730 29,420 31,542 29,438 31,710 31,536 YoY -3.4% -0.9% -0.5% 4.1% 9.2% 6.7% 7.2% GPM 86.3% 87.6% 88.4% 70.0% 87.1% 87.4% 87.2% SG&A expenses 26,221 25,751 25,581 26,595 27,822 27,873 27,868 YoY 7.1% 4.8% 4.6% 3.8% 6.1% 8.2% 8.9% SG&A rat io 83.9% 75.8% 76.9% 59.0% 82.3% 76.8% 77.1% Operating profit 748 3,979 3,839 4,948 1,616 3,836 3,669 YoY -78.2% -26.8% -24.9% 6.2% 116.0% -3.6% -4.4% OPM 2.4% 11.7% 11.5% 11.0% 4.8% 10.6% 10.1% Recurring profit 442 4,319 4,644 5,401 2,097 4,303 4,121 YoY -88.9% -22.5% -19.1% 30.8% 374.4% -0.4% -11.3% RPM 1.4% 12.7% 14.0% 12.0% 6.2% 11.9% 11.4% Net income 218 3,394 3,569 3,829 1,148 2,639 2,563 YoY -93.4% -10.2% -13.4% 106.0% 426.6% -22.2% -28.2% Net margin 0.7% 10.0% 10.7% 8.5% 3.4% 7.3% 7.1% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: In Q1 FY03/15, the company changed its accounting methods, but year-on-year comparisons use the former methods to ensure like-for-like comparison.

06/68 Resorttrust / 4681

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Quarterly results by segment (before allocating company-wide (indirect) expenses)

Cumulative FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q1 YoY Q2 YoY Q3 YoY Sales 31,251 65,207 98,480 33,808 8.2% 70,110 7.5% 106,262 7.9% Membership 6,784 13,804 20,749 7,764 14.4% 14,977 8.5% 22,594 8.9% Hotel and Restaurant 17,871 37,863 57,503 18,591 4.0% 39,611 4.6% 60,096 4.5% Medical 6,276 12,903 19,301 7,268 15.8% 15,153 17.4% 23,032 19.3% Other 319 636 926 183 -42.6% 367 -42.3% 539 -41.8% Operating profit 748 4,727 8,566 1,616 116.0% 5,452 15.3% 9,121 6.5% Membership 583 2,170 4,633 1,850 217.3% 3,510 61.8% 5,820 25.6% Hotel and Restaurant 430 2,921 4,884 481 11.9% 2,865 -1.9% 4,432 -9.3% Medical 1,454 2,728 3,665 1,084 -25.4% 2,590 -5.1% 3,974 8.4% Other 135 388 612 49 -63.7% 216 -44.3% 378 -38.2% Company-wide expenses -1,854 -3,481 -5,228 -1,849 - -3,731 - -5,484 - Quarterly FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q1 YoY Q2 YoY Q3 YoY Sales 31,251 33,956 33,273 33,808 8.2% 36,302 6.9% 36,152 8.7% Membership 6,784 7,020 6,945 7,764 14.4% 7,213 2.7% 7,617 9.7% Hotel and Restaurant 17,871 19,992 19,640 18,591 4.0% 21,020 5.1% 20,485 4.3% Medical 6,276 6,627 6,398 7,268 15.8% 7,885 19.0% 7,879 23.1% Other 319 317 290 183 -42.6% 184 -42.0% 172 -40.7% Operating profit 748 3,979 3,839 1,616 116.0% 3,836 -3.6% 3,669 -4.4% Membership 583 1,587 2,463 1,850 217.3% 1,660 4.6% 2,310 -6.2% Hotel and Restaurant 430 2,491 1,963 481 11.9% 2,384 -4.3% 1,567 -20.2% Medical 1,454 1,274 937 1,084 -25.4% 1,506 18.2% 1,384 47.7% Other 135 253 224 49 -63.7% 167 -34.0% 162 -27.7% Company-wide expenses -1,854 -1,627 -1,747 -1,849 - -1,882 - -1,753 - Source: Shared Research based on company data Notes: Figures may differ from company materials due to differences in rounding methods. Starting in F03/18, the operating profit figures reported for individual segments will not include allocated corporate overhead (indirect costs), which will be reported separately.

07/68 Resorttrust / 4681

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Quarterly results by segment (after allocating company-wide (indirect) expenses)

Segments (cumulative) FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 31,251 65,207 98,480 143,541 33,808 70,110 106,262 YoY -1.4% -0.8% -0.3% 0.9% 8.2% 7.5% 7.9% Membership 6,784 13,804 20,749 42,530 7,764 14,977 22,594 YoY -23.9% -22.2% -17.7% -8.1% 14.4% 8.5% 8.9% Hotel and Restaurant 17,871 37,863 57,503 74,193 18,591 39,611 60,096 YoY 2.8% 2.1% 1.7% 1.9% 4.0% 4.6% 4.5% Medical 6,276 12,903 19,301 25,702 7,268 15,153 23,032 YoY 24.9% 26.4% 20.5% 17.9% 15.8% 17.4% 19.3% Other 319 636 926 1,114 183 367 539 Segment profit 748 4,727 8,566 13,514 1,616 5,452 9,121 YoY -78.2% -46.7% -38.7% -27.5% 116.0% 15.3% 6.5% Membership 167 1,249 2,877 6,988 862 2,084 3,634 YoY -89.9% -68.7% -52.4% -29.4% 416.2% 66.9% 26.3% Hotel and Restaurant 123 1,682 3,033 3,010 224 1,701 2,768 YoY -86.6% -44.6% -37.0% -34.1% 82.1% 1.1% -8.7% Medical 418 1,571 2,276 3,011 505 1,538 2,482 YoY -46.5% -3.7% -17.0% -17.0% 20.8% -2.1% 9.1% Other 38 223 380 503 23 128 236 Segments (quarterly) FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 31,251 33,956 33,273 45,061 33,808 36,302 36,152 YoY -1.4% -0.2% 0.6% 3.7% 8.2% 6.9% 8.7% Membership 6,784 7,020 6,945 21,781 7,764 7,213 7,617 YoY -23.9% -20.5% -6.9% 3.3% 14.4% 2.7% 9.7% Hotel and Restaurant 17,871 19,992 19,640 16,690 18,591 21,020 20,485 YoY 2.8% 1.5% 0.9% 2.6% 4.0% 5.1% 4.3% Medical 6,276 6,627 6,398 6,401 7,268 7,885 7,879 YoY 24.9% 27.9% 10.1% 10.6% 15.8% 19.0% 23.1% Other 319 317 290 188 183 184 172 Operating profit 748 3,979 3,839 4,948 1,616 3,836 3,669 YoY -78.2% -26.8% -24.9% 6.2% 116.0% -3.6% -4.4% Membership 167 1,082 1,628 4,111 862 1,222 1,550 YoY -89.9% -53.6% -20.5% 6.5% 416.2% 12.9% -4.8% Hotel and Restaurant 123 1,559 1,351 -23 224 1,477 1,067 YoY -86.6% -26.4% -24.0% - 82.1% -5.3% -21.0% Medical 418 1,153 705 735 505 1,033 944 YoY -46.5% 35.6% -36.4% -17.2% 20.8% -10.4% 33.9% Other 38 185 157 123 23 105 108 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Membership contracts

Cumulative FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total 11,900 27,400 44,300 59,300 14,300 28,100 43,500 YoY -30.0% -25.9% -20.8% -17.1% 20.2% 2.6% -1.8% Membership segment total 10,600 24,900 41,000 55,200 13,200 25,600 39,800 YoY -32.5% -28.2% -21.6% -17.0% 24.5% 2.8% -2.9% Hotel memberships 10,500 24,700 40,700 54,900 13,100 25,500 39,500 YoY -27.6% -25.6% -19.7% -15.3% 24.8% 3.2% -2.9% Unopened hotels 6,700 18,500 34,500 35,700 9,100 17,900 28,600 Existing hotels 3,800 6,300 6,200 19,200 4,100 7,700 10,900 Golf 100 200 200 300 100 100 300 HIMEDIC 1,300 2,500 3,300 4,200 1,100 2,500 3,700 YoY 0.0% 8.7% -10.8% -16.0% -15.4% 0.0% 12.1% Quarterly FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total 11,900 15,500 16,900 15,000 14,300 13,800 15,400 YoY -30.0% -22.5% -10.6% -3.8% 20.2% -11.0% -8.9% Membership segment total 10,600 14,300 16,100 14,200 13,200 12,400 14,200 YoY -32.5% -24.7% -8.5% 0.0% 24.5% -13.3% -11.8% Hotel membership 10,500 14,200 16,000 14,200 13,100 12,400 14,000 YoY -27.6% -24.1% -8.6% 0.7% 24.8% -12.7% -12.5% Unopened hotels 6,700 11,800 16,000 1,200 9,100 8,800 10,700 Existing hotels 3,800 2,500 -100 13,000 4,100 3,600 3,200 Golf 100 100 - 100 100 - 200 HIMEDIC 1,300 1,200 800 900 1,100 1,400 1,200 YoY 0.0% 20.0% -42.9% -30.8% -15.4% 16.7% 50.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods

Membership segment sales

Cumulative FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Membership segment total 6,800 13,800 20,700 42,500 7,800 15,000 22,600 YoY -23.6% -22.0% -17.9% -8.2% 14.7% 8.7% 9.2% Hotel total 5,900 12,700 19,000 40,600 7,100 13,800 20,900 YoY -15.7% -18.1% -15.6% -6.7% 20.3% 8.7% 10.0% Hotel membership total 9,100 21,400 35,700 48,500 11,700 22,800 35,300 Unopened hotels 5,800 16,100 30,500 32,400 8,100 16,200 25,900 Existing hotels 3,300 5,300 5,200 16,100 3,400 6,600 9,300 Deferred hotel membership sales -3,100 -8,700 -16,600 -18,100 -4,500 -8,900 -14,300 Realized earnings on hotel membersh - - - 10,200 - - - Golf - 100 100 100 - 100 100 Others 800 1,000 1,700 1,800 600 1,100 1,600 Quarterly FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Membership segment total 6,800 7,000 6,900 21,800 7,800 7,200 7,600 YoY -23.6% -20.5% -8.0% 3.3% 14.7% 2.9% 10.1% Hotel total 5,900 6,800 6,300 21,600 7,100 6,700 7,100 YoY -15.7% -20.0% -10.0% 2.9% 20.3% -1.5% 12.7% Hotel membership total 9,100 12,300 14,300 12,800 11,700 11,100 12,500 Unopened hotels 5,800 10,300 14,400 1,900 8,100 8,100 9,700 Existing hotels 3,300 2,000 -100 10,900 3,400 3,200 2,700 Deferred hotel membership sales -3,100 -5,600 -7,900 -1,500 -4,500 -4,400 -5,400 Realized earnings on hotel membersh - - - 10,200 - - - Golf - 100 - - - 100 - Others 800 200 700 100 600 500 500 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods

In the case of memberships to resort hotels that have not yet opened, approximately 10% of the membership price is booked under sales in the Hotel and Restaurant segment as a security deposit. About 40% of the membership price is booked to sales under the Membership segment as a registration fee when the contract is signed. The remaining 50% is booked to sales under the Membership segment as a property fee once the hotel is opened. In the case of existing resort hotels, after taking out 10% for the security deposit, 90% of the membership price is booked as sales under the Membership segment. In other words, in the case of hotels that have not yet opened, after subtracting the property fee (50% of the membership price), the remaining 40% of the membership price is booked to sales under the Membership segment as a registration fee.

09/68 Resorttrust / 4681

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Hotel and Restaurant segment sales

Cumulative FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total 17,871 37,863 57,503 74,193 18,591 39,611 60,096 YoY 2.8% 2.1% 1.7% 1.9% 4.0% 4.6% 4.5% XIV 7,809 17,593 26,523 33,664 8,397 18,951 28,527 YoY 3.9% 4.5% 4.2% 5.2% 7.5% 7.7% 7.6% Sun Members 1,022 2,286 3,549 4,707 1,068 2,366 3,616 YoY -6.2% -0.8% 1.0% 1.1% 4.5% 3.5% 1.9% Hotel Trusty 1,560 3,238 4,960 6,460 1,686 3,434 5,244 YoY 7.0% 5.8% 5.5% 4.8% 8.1% 6.1% 5.7% Baycourt 1,050 2,129 3,349 4,443 1,066 2,199 3,436 YoY -3.0% -4.4% -3.5% -2.5% 1.5% 3.3% 2.6% Membership sales 1,746 3,460 5,211 6,927 1,787 3,534 5,315 YoY 2.6% 2.7% 2.6% 2.6% 2.3% 2.1% 2.0% Security deposit deduction 718 1,442 2,213 2,929 741 1,485 2,234 YoY -0.3% 0.1% 2.4% 1.5% 3.2% 3.0% 0.9% Others 3,966 7,715 11,698 15,063 3,846 7,642 11,724 Quarterly FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total 17,871 19,992 19,640 16,690 18,591 21,020 20,485 YoY 2.8% 1.5% 0.9% 2.6% 4.0% 5.1% 4.3% XIV 7,809 9,784 8,930 7,141 8,397 10,554 9,576 YoY 3.9% 5.1% 3.5% 9.3% 7.5% 7.9% 7.2% Sun Members 1,022 1,264 1,263 1,158 1,068 1,298 1,250 YoY -6.2% 3.9% 4.5% 1.2% 4.5% 2.7% -1.0% Hotel Trusty 1,560 1,678 1,722 1,500 1,686 1,748 1,810 YoY 7.0% 4.7% 4.9% 2.8% 8.1% 4.2% 5.1% Baycourt 1,050 1,079 1,220 1,094 1,066 1,133 1,237 YoY -3.0% -5.8% -1.9% 1.0% 1.5% 5.0% 1.4% Membership sales 1,746 1,714 1,751 1,716 1,787 1,747 1,781 YoY 2.6% 2.8% 2.5% 2.6% 2.3% 1.9% 1.7% Security deposit deduction 718 724 771 716 741 744 749 YoY -0.3% 0.4% 7.1% -1.2% 3.2% 2.8% -2.9% Others 3,966 3,749 3,983 3,365 3,846 3,796 4,082 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods

Hotel and Restaurant segment: operations

Hotel operations (cumulative) FY03/17 FY03/18 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Visitors ('000) XIV 395 987 1,430 1,812 406 1,014 1,471 YoY 0.0% -0.2% -0.1% 1.5% 2.8% 2.7% 2.9% Sun Members 99 221 336 444 99 217 325 YoY -13.9% -10.9% -8.7% -6.9% 0.0% -1.8% -3.3% Hotel Trusty 156 334 506 662 173 356 532 YoY 1.3% 4.4% 5.0% 3.9% 10.9% 6.6% 5.1% Baycourt 31 68 107 143 32 68 104 YoY -8.8% -6.8% -7.0% -4.7% 3.2% 0.0% -2.8% Occupancy rate XIV 47.5% 56.4% 55.2% 52.6% 45.7% 54.6% 53.4% YoY change -1.2% -1.5% -1.5% -1.4% -1.8% -1.8% -1.8% Sun Members 59.7% 62.1% 63.2% 62.7% 57.7% 60.2% 60.8% YoY change -4.1% -3.4% -3.0% -2.5% -2.0% -1.9% -2.4% Hotel Trusty 91.1% 92.0% 91.6% 91.2% 92.1% 93.1% 92.9% YoY change -0.2% -0.9% -1.4% -1.3% 1.0% 1.1% 1.3% Baycourt 52.2% 54.5% 56.6% 57.1% 54.7% 55.2% 56.5% YoY change -3.5% -3.5% -3.8% -2.4% 2.5% 0.7% -0.1% Customer spend (JPY) XIV 19,726 17,820 18,538 18,573 20,673 18,674 19,381 YoY 3.8% 4.7% 4.3% 3.8% 4.8% 4.8% 4.5% Sun Members 10,229 10,329 10,547 10,589 10,746 10,897 11,106 YoY 8.3% 11.3% 10.5% 8.5% 5.1% 5.5% 5.3% Hotel Trusty 10,001 9,669 9,803 9,754 9,718 9,636 9,843 YoY 6.2% 1.4% 0.6% 0.9% -2.8% -0.3% 0.4% Baycourt 32,951 30,864 31,153 30,898 32,645 32,207 32,826 YoY 4.0% 2.4% 3.3% 2.3% -0.9% 4.4% 5.4% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods

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Medical segment sales breakdown

Cumulative FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q1 YoY Q2 YoY Q3 YoY Sales 6,276 12,903 19,301 7,268 15.8% 15,153 17.4% 23,032 19.3% HIMEDIC 3,377 6,661 9,603 3,213 -4.9% 6,865 3.1% 10,458 8.9% Medical service – Corporations 732 1,797 2,854 1,243 69.8% 2,530 40.8% 3,846 34.8% Aging care 411 857 1,370 579 40.9% 1,183 38.0% 1,785 30.3% Senior lifestyle 1,743 3,562 5,440 2,222 27.5% 4,557 27.9% 6,916 27.1% Others 10 25 32 9 -10.0% 16 -36.0% 25 -21.9% Quarterly FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q1 YoY Q2 YoY Q3 YoY Sales 748 6,627 6,398 1,616 116.0% 7,885 19.0% 7,879 23.1% HIMEDIC 3,377 3,284 2,942 3,213 -4.9% 3,652 11.2% 3,593 22.1% Medical service – Corporations 732 1,065 1,057 1,243 69.8% 1,287 20.8% 1,316 24.5% Aging care 411 446 513 579 40.9% 604 35.4% 602 17.3% Senior lifestyle 1,743 1,819 1,878 2,222 27.5% 2,335 28.4% 2,359 25.6% Others 10 15 7 9 -10.0% 7 -53.3% 9 28.6% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods

Membership numbers

FY03/17 FY03/18 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total 170,380 171,343 171,742 171,983 173,171 173,973 175,173 YoY 3.0% 2.7% 2.2% 1.6% 1.6% 1.5% 2.0% Baycourt 11,019 11,444 12,183 13,115 13,860 14,395 15,134 YoY 27.1% 19.3% 18.2% 23.2% 25.8% 25.8% 24.2% XIV 77,036 77,320 77,038 76,517 76,854 76,958 77,212 YoY 1.7% 1.8% 1.4% 0.0% -0.2% -0.5% 0.2% Sun Members 34,982 34,840 34,635 34,429 34,205 33,976 33,777 YoY -1.4% -1.5% -1.6% -1.9% -2.2% -2.5% -2.5% Golf 31,285 31,280 31,195 31,032 30,981 30,914 30,831 YoY -0.4% -0.6% -0.8% -1.0% -1.0% -1.2% -1.2% Medical 15,603 16,021 16,264 16,473 16,855 17,328 17,816 YoY 14.4% 14.2% 10.9% 8.9% 8.0% 8.2% 9.5% Cruiser 455 438 427 417 416 402 403 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods

Q3 FY03/18 results

Sales: JPY106.3bn (+7.9% YoY) ▷ Operating profit: JPY9.1bn (+6.5%) ▷ Recurring profit: JPY10.5bn (+11.9%) ▷ Net income*: JPY6.4bn (-11.6%) ▷ * Net income attributable to parent company’s shareholders

The XIV Yugawara Rikyu resort, opened in March 2017, added to sales and earnings at both the Hotel and Restaurant segment and the Membership segment. The company also saw continued strong sales of memberships in the Laguna Baycourt Club, a members-only resort hotel (located in Gamagori City, Aichi Prefecture) that began selling memberships in August 2016.

Sales were 4.0% below the target; on the other hand, operating profit, recurring profit, and net income attributable to parent company shareholders exceeded each target by 11.2%, 14.4%, and 9.5% respectively. Following the opening of Ashiya Baycout Club in Q4, the company expects to book in full a real estate revenue of JPY21.4bn that had been deferred until the opening, along with JPY7.7bn in corresponding profit.

With regard to the results reported for individual segments (discussed below), note that starting Q1 FY03/18 the company has changed the way it reports the allocation of corporate overhead expenses. For purposes of comparison, the figures for cumulative Q3 FY03/17 have been calculated based on the same accounting method.

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Membership

Sales: JPY22.6bn (+8.9% YoY) ▷ Segment operating profit: JPY5.8bn (+25.6%) ▷

The gains at the Membership segment are attributable in large part to the strong sales of memberships in the Laguna Baycourt Club, a members-only resort hotel (located in Gamagori City, Aichi Prefecture) that began selling memberships in August 2016. Segment sales came in 4.1% below plan and operating profit 35.0% above plan.

Hotel and Restaurant

Sales: JPY60.1bn (+4.5% YoY) ▷ Segment operating profit: JPY4.4bn (-9.3%) ▷

Contributions from the XIV Yugawara Rikyu resort, opened in March 2017, underpinned the YoY gains. Meanwhile overseas renovations on hotel restaurants and the like led to increased sales and decreased profits, with segment sales finishing 3.1% below plan and operating profit 11.3% below plan.

Medical

Sales: JPY23.0bn (+19.3% YoY) ▷ Segment operating profit: JPY4.0bn (+8.4%) ▷

The double-digit growth in sales at the Medical segment reflects contributions from a number of areas, starting with the inclusion of recently acquired Activa Co., Ltd. (which owns and operates Activa Biwa private nursing home for seniors) in consolidated results. The company also saw growth in annual membership dues and other fees stemming from the addition of new members to its comprehensive medical support club (Grand HIMEDIC Club) and growing revenues from medical examination services and sales of cosmetics, dietary supplements, and other products. Segment sales and operating profit increased YoY; sales finished 6.2% below plan and operating profit 7.8% below plan.

Others

Sales: JPY539mn (-41.8% YoY) ▷ Segment operating profit: JPY378mn (-38.2%) ▷

The drop in segment sales and earnings reflects the decline in office building rental income at consolidated subsidiary R.T. Development Co., Limited. Segment sales finished 3.7% below plan and operating profit 0.4% above plan.

For details on previous quarterly and annual results, please refer to the Historical earnings releases section.

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Full-year company forecasts

FY03/17 FY03/18 (JPYmn) 1H Act. 2H Act. FY A ct . 1H Act. 2H Est. FY Est . Sales 65,207 78,334 143,541 70,110 100,890 171,000 YoY -0.8% 2.4% 0.9% 7.5% 28.8% 19.1% Cost of sales 8,506 17,372 25,878 8,962 Gross profit 56,700 60,962 117,662 61,148 YoY -2.1% 1.8% -0.1% 7.8% GPM 87.0% 77.8% 82.0% 87.2% SG&A expenses 51,972 52,176 104,148 55,695 SG&A-to-sales ratio 79.7% 66.6% 72.6% 79.4% Operating profit 4,727 8,787 13,514 5,452 11,548 17,000 YoY -46.7% -10.1% -27.5% 15.3% 31.4% 25.8% OPM 7.2% 11.2% 9.4% 7.8% 11.4% 9.9% Recurring profit 4,761 10,045 14,806 6,400 11,800 18,200 YoY -50.3% 1.8% -23.8% 34.4% 17.5% 22.9% RPM 7.3% 12.8% 10.3% 9.1% 11.7% 10.6% Net in co me 3,612 7,398 11,010 3,787 8,013 11,800 YoY -48.9% 23.7% -15.6% 4.8% 8.3% 7.2% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

FY03/18 full-year forecasts are sales of JPY171.0bn (+19.1% YoY), operating profit of JPY17.0bn (+25.8%), recurring profit of JPY18.2bn (+22.9%), and net income attributable to parent company shareholders of JPY11.8bn (+7.2%).

XIV Yugawara Rikyu (opened in March 2017) will operate for a full year, and with the opening of Ashiya Baycourt Club in February 2018, the company will book all of the real estate revenue it had deferred until now. The company also plans to develop and begin construction in the Kanto region as well as sell memberships for these locations. In the medical segment, the company expects that registration fee revenue and annual membership revenue will rise after the company increases the number of memberships sold for its comprehensive medical support club, Grand HIMEDIC Club. The company also forecasts an expansion in the number of operated senior residence facilities as well as higher sales in the medical examination, cosmetics, and supplement sales businesses.

Earnings forecast by segment

FY03/17 FY03/18 Yo Y (JPYmn) Act. Est. Sales 143,541 171,000 19.1% Membership 42,530 57,650 35.6% Hotel and Restaurant 74,193 80,090 7.9% Medical 25,702 32,500 26.4% Other 1,114 760 -31.8% Gross profit 13,514 17,000 25.8% Membership 6,988 9,440 35.1% Hotel and Restaurant 3,010 3,140 4.3% Medical 3,011 4,030 33.8% Other 503 390 -22.5% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

Starting in F03/18, the operating profit figures reported for individual segments will not include company-wide expenses (indirect costs), which will be reported separately.

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Company forecasts for individual segments (before company-wide expense adjustments)

FY03/17 FY03/18 Yo Y (JPYmn) Act. Est. Sales 143,541 171,000 19.1% Membership 42,530 57,650 35.6% Hotel and Restaurant 74,193 80,090 7.9% Medical 25,702 32,500 26.4% Other 1,114 760 -31.8% Gross profit 13,514 17,000 25.8% Membership 10,572 13,770 30.2% Hotel and Restaurant 4,554 4,570 0.4% Medical 4,556 5,860 28.6% Other 761 560 -26.4% Company-wide expenses -6,930 -7,760 - Source: Shared Research, based on company data Notes: Figures may differ from company materials due to differences in rounding methods.

Membership sales value in Membership business

FY03/17 FY03/18 YoY (JPYmn) Act. Est. Total 59,300 60,800 2.5% Membership segment 55,200 55,800 1.1% Hotel 54,900 55,700 1.5% Unopened hotel 35,700 32,400 -9.2% Opened hotel 19,200 23,400 21.9% Golf 300 100 -66.7% HIMEDIC 4,200 4,900 16.7% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

Revenue in Membership business

FY03/17 FY03/18 YoY (JPYmn) Act. Est. Membership segment 42,500 57,700 35.8% Hotel 40,600 55,600 36.9% Hotel membership 48,500 50,500 4.1% Revenue, % of membership sales value 88% 91% - Unopened hotels 32,400 29,300 -9.6% Revenue, % of membership sales value 91% 90% - Opened hotels 16,100 21,100 31.1% Revenue, % of membership sales value 84% 90% - Hotel membership deferred sales -18,100 -16,300 -9.9% Revenue, % of membership sales value -56% -56% - Hotel membership realized sales 10,200 21,400 109.8% Golf 100 100 0.0% Other 1,800 2,000 11.1% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

Membership segment For the Membership segment, the company forecasts a 35.5% YoY increase in sales to JPY57.7bn, and a 35.1% increase in operating profit to JPY9.4bn.

Membership contract value The company expects a membership contract value of JPY55.8bn (+1.1% YoY; includes golf course charges) at the Membership segment. The company expects to sell memberships for the Ashiya Baycourt Club, Laguna Baycourt Club, and a facility being planned in the Kanto region.

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In FY03/16, membership contract value was JPY66.5bn (+38.5% vs. FY03/15) owing to the sale of Ashiya Baycourt Club, the first Baycourt series hotel in ten years. In FY03/17, however, the effect of the sale wore off, which led to a membership contract value of JPY55.2bn (-17.1% vs. FY03/16). For FY03/18, the company forecasts a value close to that of FY03/17. That said, except for a temporary increase in contract value due to the sale of Ashiya Baycourt Club, average annual growth of membership contract value between FY03/14 and FY03/18 is over 8%, which exceeds the company’s medium-term forecast of 5%.

For FY03/18, the company expects a contract value of JPY13.5bn (vs. zero in FY03/17) on the sale of memberships to a resort hotel in the Kanto area, JPY14.9bn (vs. JPY20.0bn) on the sale of Laguna Baycourt Club memberships since August 2016, JPY10.7bn (vs. JPY12.5bn) from Ashiya Baycourt Club, JPY4.0bn (vs. JPY3.2bn) from XIV Rokko Sanctuary Villa (opened in April 2018), JPY4.9bn (vs. JPY14.4bn) from XIV Yugawara Rikyu, and JPY7.8bn (vs. JPY4.8bn) from XIV Toba Annex (opened in March 2016) and existing hotels.

Sales at the Membership segment Sales are forecasted to be JPY57.7bn (+35.5% YoY). Although the contract value at the Membership segment is expected to rise 1.1% YoY, the company expects Ashiya Baycourt Club, slated to open in February 2018, to cause a lump-sum recording of deferred real estate revenues, resulting in higher sales. The impact of deferred revenues is expected to cause a JPY12.6bn increase in sales and JPY4.8bn rise in operating profit YoY.

Impact of deferred revenues from unopened hotels and realized deferrals Due to the opening of Ashiya Baycourt Club in February 2018, deferred real estate revenues (sales: about JPY21.4bn; profit: about JPY7.7bn) are expected to be booked as a lump sum. As for the impact of deferred real estate revenues from membership sales for unopened hotels, real estate revenues (sales: about JPY16.3bn; operating profit: about JPY5.2bn) from a resort hotel in the Kanto area, XIV Rokko Sanctuary Villa, and Laguna Baycourt Club are deferred until the opening.

As the sum of realized deferrals and deferred revenues, the company forecasts sales of JPY5.1bn (vs. -JPY7.5bn in FY03/17) and an operating profit of JPY2.5bn (vs. -JPY2.3bn in FY03/17). The impact of deferred revenues causes an increase of JPY12.6bn in sales YoY and an increase of JPY4.8bn in operating profit YoY.

Impact of deferred real estate revenues from membership sales of unopened hotels

FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Act. Act. Est. Plans Sales OP Sales OP Sales OP Sales OP XIV Toba Bettei Deferred revenues Realized deferrals 9,800 3,000 XIV Yugawara Rikyu Deferred revenues -5,500 -1,700 Realized earnings 10,200 3,400 Ashiya Baycourt Club Deferred revenues -15,300 -5,400 -6,100 -2,200 Realized earnings 21,400 7,700 XIV Rokko Sanctuary Villa Deferred revenues -2,100 -400 -1,400 -300 -2,000 -400 Realized earnings 5,500 1,100 Laguna Baycourt Club Deferred revenues -10,200 -3,200 -7,500 -2,500 Realized earnings 17,700 5,700 A resort hotel in the Kanto region Deferred revenues -6,800 -2,300 Realized earnings The effect of deferred earnings Deferred revenues -22,900 -7,500 -17,700 -5,700 -16,300 -5,200 - - Realized earnings 9,800 3,000 10,200 3,400 21,400 7,700 23,200 6,800 Source: Shared Research based on company data Profit at the Membership segment At the membership segment, the company expects an increase of JPY2.5bn in operating profit YoY. The impact of deferred revenues is expected to cause a JPY4.8bn YoY increase in operating profit. On the other hand, opening costs for Ashiya Baycourt Club and part of the opening costs for XIV Rokko Sanctuary Villa are expected to total JPY2.5bn (vs. JPY1.2bn in FY03/17 as opening cost for XIV Yugawara Rikyu), causing a profit decline of JPY1.3bn YoY.

Hotel and Restaurant segment For the Hotel and Restaurant segment, the company is forecasting a 7.9% YoY increase in sales to JPY80.1bn, and a 4.3% increase in operating profit to JPY3.0bn.

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The company expects that upfront expenses such as personnel expenses will rise about JPY1.9bn with the opening of new hotels such as Ashiya Baycourt Club and XIV Rokko Sanctuary Villa as it will increase personnel and incur costs from hiring and training. Utilities cost s are expected to rise as well. However, the company still forecasts higher sales and profits in this segment due to XIV Yugawara Rikyu (opened in March 2017; 187 rooms) contributing to full-year results and the effects of higher average spend per customer due to raising fees and occupancy rate improvement through strengthening its sales and promotion structure.

Number of guests, occupancy rates, and average spend per guest (company forecasts)

Hotel performance FY03/17 FY03/18 YoY Act. Est. No. of guests ('000) XIV 1,812 1,956 7.9% Sun Members 444 453 2.0% Hotel Trusty 662 688 3.9% Baycourt 143 144 0.7% Occupancy rate XIV 52.6% 53.7% 2.1% Sun Members 62.7% 63.4% 1.1% Hotel Trusty 91.2% 91.8% 0.7% Baycourt 57.1% 57.8% 1.2% Average spend per guest (JPY) XIV 18,573 19,279 3.8% Sun Members 10,589 10,787 1.9% Hotel Trusty 9,754 9,751 0.0% Baycourt 30,898 32,025 3.6% Source: Shared Research based on company data Note: YoY change for occupancy rates represents percentage point change versus previous year

Hotel and Restaurant segment sales breakdown (company forecasts)

Hotel and restaurant sales FY03/17 FY03/18 YoY (JPYmn) Act. Est. Total 74,193 80,090 7.9% XIV 33,664 37,718 12.0% Sun Members 4,707 4,892 3.9% Hotel Trusty 6,460 6,717 4.0% Baycourt 4,443 4,611 3.8% Golf courses 2,951 3,068 4.0% Membership sales 6,927 7,194 3.9% Guarantee deposit deduction 2,929 3,041 3.8% THE KAHARA 7,950 8,339 4.9% Others 4,156 4,506 8.4% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

Medical segment For the Medical segment, the company is forecasting a 26.4% YoY increase in sales to JPY32.5bn, and a 33.8% increase in operating profit to JPY4.0bn.

The company forecasts higher registration fee revenue and annual membership revenue due to an increase in membership sales for HIMEDIC Kyoto University Hospital club (opened in June 2016) and HIMEDIC Nagoya club (opened in July 2016), part of the company’s comprehensive medical support club, Grand HIMEDIC Club. The company also expects that both profits and sales will rise due to an expansion in the number of operated senior residence facilities as well as higher sales in the medical examination, cosmetics, and supplement sales businesses.

For HIMEDIC clubs, the company expects a membership contract value of JPY4.9bn (+16.7% YoY). With an increase in members, it expects an increase in sales from annual dues (JPY500,000/member). At the senior residence business, the company started operating Activa Biwa in April 2017, resulting in a total of 1,517 rooms (+40.7% YoY). It forecasts an overall occupancy rate of 89.3% (-0.7pp YoY) for all the facilities.

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Dividends Resorttrust plans to pay an annual dividend of JPY46 a share in FY03/18 (unchanged from FY03/17), with a payout ratio of 41.5%.

Sales and OP excluding impact of deferred revenues from sales of memberships to unopened hotels At the Membership segment, when new members sign a contract for hotels that have not yet opened, the registration fee is immediately booked under sales, but the property fee (as well as the associated cost) is deferred and not recognized as sales until the hotel is opened.

The company provides pro forma figures so investors can see what sales and operating profit would be if the property fees from new memberships in unopened hotels were not deferred. The figures are as follows: Sales would be JPY165.9bn (+9.9% YoY) and operating profit would be JPY14.6bn (-7.6%). After excluding expenses related to opening hotels, operating profit would be JPY17.1bn (+0.6%).

Reported sales and earnings versus pro forma sales and earnings*

FY03/16 FY03/17 FY03/18 (JPYbn) Act. Act. Est. Operating Operating Operating Sales Sales Sales profit profit profit Reported sales and profit 142,200 18,600 143,500 13,500 171,000 17,000 YoY 18.1% 16.3% 0.9% -27.4% 19.2% 25.9% Pro forma figures excl. the effect of deferred earnings 155,400 23,200 151,000 15,800 165,900 14,600 YoY 18.3% 21.5% -2.8% -31.9% 9.9% -7.6% Pro forma figures excl. deferred earnings and opening expenses 155,400 23,800 151,000 17,000 165,900 17,100 YoY 18.3% 24.6% -2.8% -28.6% 9.9% 0.6% Source: Shared Research, based on company data *Excludes impact of deferred revenues on membership sales for unopened resort hotels

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Outlook

April 2013 marked the company’s 40th anniversary. Resorttrust formulated a medium-term plan, “Next 40,” from FY03/14 through FY03/18. The plan laid out four core strategies:

Further strengthen Membership segment and establish a long-term sustainable business model; ▷ Expand the Medical segment and senior life business; ▷ Accelerate peripheral services leveraging the group’s strengths; ▷ Enhance group-wide human resources and capabilities. ▷

In FY03/18, the final year of the new plan, Resorttrust targets sales of JPY150bn, operating profit of JPY24bn, and net income of JPY15bn. With the Membership segment driving growth, the company aims to double its FY03/13 operating profit during the five-year period, targeting an annual growth rate of 14.9%.

FY03/14 FY03/16 FY03/18

(JPYmn) Act. Target Target

Sales 116,824 120,000 150,000 Operating profit 15,119 16,000 24,000 Recurring profit 16,731 16,000 24,000 Net income 8,605 10,000 15,000 Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

FY03/14 performance

Hot el and (JPYmn) Membership Golf Medical Others Total Restaurant

Sales 32,171 57,784 8,623 17,341 904 116,824 % of Total 28% 49% 7% 15% 1% 100% Operating profit 5,839 4,733 549 3,743 253 15,119 % of Total 39% 31% 4% 25% 2% 100% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

FY03/18 targets (final year of plan)

Hot el & (JPYmn) Membership Golf Medical Others Total Restaurant Sales 49,000 70,000 9,500 20,000 1,500 150,000 % of Total 33% 47% 6% 13% 1% 100%

Operating profit 12,000 6,000 900 4,400 700 24,000

% of Total 50% 25% 4% 18% 3% 100% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

The company plans for operating profit to double FY03/13 levels within five years, but Shared Research sees the company’s plan to develop, start construction (and membership sales), and open about one new facility a year, as well as the projected hotel occupancy rate, as modest.

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Development schedule

FY03/14 FY03/15 FY03/16 FY03/17 FY03/18

Membership resort hotels (RH) XIV Toba Annex

XIV Yugawara Rikyu

Ashiya Baycourt Club

XIV Rokko Sanct uary V illa

Laguna Baycourt Club

RH⑤ (Kanto)

Overseas

The Kahala Hotel & Resort Hotel Trusty （HT） Kanazawa Korinbo Nagoya Shirakawa

Senior residences Trust Garden Todoroki Trust Garden Hongo Act iva Biw a （SR） Trust Grace Mikage Trust Garden Higashiminemachi Trust Garden Tokiwamatsu

Kyoto Members-only Kyot o Universit y Hospit al (Shijo) medical examination Midt ow n Tokyo Bay Tokyo Bay club (HM) Imaging Center Nagoya

Start construction and sales Opening or acquisit ion Source: Shared Research, based on company data

Note: Resorttrust changed its segment classification in FY03/15. Golf courses with hotels, as well as restaurants inside golf courses, have been reassigned to the Hotel Restaurant segment from the Golf segment. Golf course management and golf membership sales operations have been transferred to the Membership segment. The following segment targets are based on the old segmentation.

Membership The company started construction of five membership-based resort hotels to grow its contract volume by at least 5% CAGR over the course of the new five-year plan’s period. As of May 2017, the following six hotels were expected to be built in the five years between FY03/14 and FY03/18: XIV Toba Annex opened in FY03/16 (Toba City, Mie Pref.; 121 rooms), XIV Yugawara Rikyu opened in March 2017 (Yugawara Town, Ashigarashimo District, Kanagawa Pref.; 187 rooms), Ashiya Baycourt Club, XIV Rokko Sanctuary Villa, Laguna Baycourt Club, and one resort hotel in the Kanto area whose construction will start in FY03/18. The company forecasts the number of contracts to grow by an average annual growth rate of 8%.

Ashiya Baycourt Club

Location: Ashiya City, Hyogo Prefecture ▷ Rooms: 200 ▷ Scheduled opening: February 2018 ▷ Room types and prices: royal suite 24-night-type (area: 95.79-156.78sqm; price: JPY36.3mn, administrative fee: JPY294,840/year), ▷ luxury suite (area: 71.30-101.60sqm; price: JPY23.6mn, administrative fee: JPY230,040/year), and bay suite (area: 48.45-75.73sqm; price: JPY15.1mn, administrative fee: JPY181,440/year).

XIV Rokko Sanctuary Villa

Location: Kobe City, Hyogo Prefecture ▷ Rooms: 48 ▷ Scheduled opening: March 2018 ▷

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Laguna Baycourt Club

Location: Gamagori City, Aichi Prefecture ▷ Rooms: 193 ▷ Scheduled opening: January 2019 ▷ Scheduled hotel openings: rooms, membership price, and estimated sales

Room type No. of rooms Membership price Estimated sales

JPYmn JPYmn （ ） （ ） XIV Yugawara Rikyu 187 - 55,441

S-type 59 35.5 29,323 SE-type 32 26.1 11,670

CB-type 96 10.8 14,448

XIV Rokko 48 35.1 23,587

Ashiya Baycourt Club 201 - 68,908

Royal Suite 76 34.0 36,176

Luxury Suite 53 23.6 17,511

Bay Suite 72 15.1 15,221

Laguna Baycourt Club 193 - 64,837

Royal Suite 76 34.0 36,176

Luxury Suite 33 23.6 10,903

Bay Suite 84 15.1 17,758 Source: Shared Research, based on company data Note: XIV membership price for 26-night plan; Baycourt Club membership price for 24-night plan

As of May 2017, the company owned land in the following areas for potential hotel developments:

Kanto (Eastern Japan): Kinugawa (Tochigi), Gora (Kanagawa), Karuizawa (Nagano), Uchiboso (Chiba), Minamiboso (Chiba) ▷ Chubu (Central Japan): Hamanako (Shizuoka) ▷ Kansai (Western Japan): Biwako (Shiga) ▷ The acquired land that was announced are as follows. Acquisition cost Location Acquired (JPYmn) Land area (sqm)

Gora, Hakone-machi, Kanagawa Sep. 2013 806 12,294

Nishi-ku, Hamamatsu, Shizuoka Jul. 2014 409 21,959

Minatomirai, Nishi-ku, Yokohama, Kanagawa Aug. 2015 - 9,475 (planned) (via auction)

Adogawa-cho, Takashima, Shiga Oct. 2014 - 93,747

Atami, Shizuoka Oct. 2016 - 181,470 Source: Shared Research based on company data

According to the medium-term plan, for FY03/18, sales were expected to rise to JPY49.0bn (vs. JPY32.2bn in FY03/13) and operating profit expected to significantly rise to JPY12.0bn (vs. JPY4.0bn in FY03/13). But under FY03/18 company forecasts, operating profit is expected to be JPY9.4bn, undershooting the forecast in the medium-term plan, while sales are expected to be JPY57.7bn, outperforming the sales forecast of the medium-term plan (technically, the Golf segment is classified differently in the medium-term plan compared to FY03/18 company forecasts).

Although membership contracts are expected to increase more quickly than forecast in the medium-term plan, the company believes that since membership sales for unopened hotels are showing steady progress, revenues booked in FY03/19 onward will accumulate more than projected by the medium-term plan, as will costs related to opening.

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Hotel and Restaurant In the Hotel and Restaurant segment, in addition to the members-only hotel resorts that were mentioned, Resorttrust opened Hotel Trusty Korinbo, Kanazawa City in June 2013 and Hotel Trusty Nagoya Shirakawa in June 2016. The company also acquired The Kahala Hotel & Resort in September 2014, which led it to outperform medium-term targets.

Because the company did not open any new membership hotels during the four-year stretch between the opening of the 48-room XIV Karuizawa (in Nagano Prefecture) in FY03/12 and the 121-room XIV Toba Bettei (in Mie Prefecture) in FY03/16, the number of employees working in the Hotel and Restaurant segment (parent company) stayed between 2,500 and 3,000 from FY03/11 through the end of FY03/15. After ending FY03/15 with 2,977 employees at the Hotel and Restaurant segment, the company stepped up hiring in advance of the opening of the XIV Toba Bettei (FY03/16) and the XIV Yugawara Rikyu (FY03/17), boosting its employee headcount to 3,349 at the end of FY03/16. According to the company, in FY03/16, the increase in hiring ahead of the opening of these two new hotels increased personnel-related costs in FY03/16 by about JPY2.0bn over FY03/15. With more hotel openings in the pipeline, the company hired about 500 more employees in April 2016. This increased personnel-related costs in FY03/17 by about JPY1.9bn compared to FY03/16.

According to the medium-term plan, for FY03/18, the company forecasted higher sales and operating profit: sales of JPY70.0bn (vs. JPY54.8bn in FY03/13) and operating profit of JPY6.0bn (vs. JPY4.8bn in FY03/13). In contrast, according to FY03/18 company forecasts, operating profit is expected to be JPY3.1bn, which undershoots the target in the medium-term plan, while sales are expected to be JPY80.1bn, which outperforms the sales target in the medium-term plan (strictly speaking, the Golf and Membership segment classifications differ between the medium-term plan and FY03/18 company forecasts).

According to the company, operating profit targets differ between the medium-term plan and FY03/18 forecasts because costs are expected to rise more than projected in the medium-term plan. This is due to spending to strengthen the human resource foundation (such as enhancing hiring and improving welfare benefits) and creating and improving a compliance structure.

Medical In the Medical segment, the company planned to open five new senior residences and two members-only medical exam facilities over the five-year term. As of May 2017, it expects to open four members-only exam facilities and eight senior residences in the five years between FY03/14 and FY03/18.

In Q1 FY03/17, Kosei and CICS became a consolidated subsidiary.

For FY03/18, the medium-term plan projected higher sales and operating profit: sales of JPY20.0bn (vs. JPY12.7bn in FY03/13) and operating profit of JPY4.4bn (vs. JPY2.3bn in FY03/13). FY03/18 company forecasts, in contrast, project operating profit of JPY4.0bn, slightly under the target of the medium-term plan, and sales of JPY32.5bn, significantly above the target in the medium-term plan.

Sales are expected to outperform targets in the medium-term plan due to the company opening more membership-based exam facilities than expected under the plan, increasing the number of senior residences, and seeing contribution by the new consolidated subsidiaries. Operating profit is predicted to be nearly in line with the target in the medium-term plan due to higher than expected initial costs of new facilities. According to the company, it costs between JPY1.0bn and JPY1.2bn per annum to run one of its exam centers and takes about three years for a new facility to turn profitable.

Members-only medical examination club Working under its medium-term plan, the company has opened four members-only medical exam facilities by June 2017, as outlined in the following table.

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New medical exam facilities according to the medium-term plan

Facility name Opening Notes

HIMEDIC Tokyo Bay Imaging Center April 2015 PET and MRI facilities Accessible to a portion of HIMEDIC Midtown course members and to HIMEDIC Tokyo Bay members

HIMEDIC Tokyo Bay December 2015 PET and MRI to be referred to HIMEDIC Tokyo Bay Imaging Center

HIMEDIC Kyoto University Hospital June 2016 Providing diagnostic imaging services utilizing PET/CT, mammographic PET, MRI and other advanced diagnostic imaging and biofunctional measurement technologies, and advanced diagnostic services using NBI equipped endoscopes. Expects to do about 4,000 exams a year.

HIMEDIC Nagoya July 2016 PET/MRI, state-of-the-art equipment such as 3D mammography systems to handle regular exams of female patients. Equipped to do up to 5,000 exams a year. Source: Shared Research based on company data

The number of members of the members-only medical examination facilities (based on the facility's capacity) under the medium-term business plan are shown in the following graph. The combined exam capacity of the company's medical examination facilities has risen steadily from around 10,000 patients in FY03/13 and is expected to reach around 25,000 by FY03/18.

Expansion plans for members-only medical examination facilities

(People) Capacity

28,000 Members at year-end 100.0% Capacity utilization rate (right axis) 90.0% 24,000 80.0%

20,000 70.0%

60.0% 16,000 50.0% 12,000 40.0%

8,000 30.0%

20.0% 4,000 10.0%

- 0.0% FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Est. FY03/18 Est.

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (People) Act. Act. Act. Act. Act. Act. Act. Est. Est. Capacity 10,000 10,000 10,000 10,000 13,000 14,000 17,000 25,000 25,000 Members at year-end 5,964 6,328 6,983 8,235 10,523 13,070 15,132 17,000 19,500 Capacity utilization rate (right axis) 59.6% 63.3% 69.8% 82.4% 80.9% 93.4% 89.0% 68.0% 78.0% Source: Shared Research, based on company data Notes: Capacity utilization rate = Number of members at year-end/capacity; capacity estimate based on Shared Research analyst's notes of figures contained in company materials Consolidation of Kosei Kosei was a joint venture between Resorttrust and Orix (TSE: 8591), with each having a 50% stake. In Q1 FY03/17, Kosei became a consolidated subsidiary of Resorttrust. Kosei is involved in accounting, finance, financial record keeping, and general business for medical institutions, as well as the development, sale, and maintenance of medical computer system devices and software.

The goodwill from acquiring Kosei shares was about JPY3.8bn, and the company intends to amortize that goodwill over ten years.

Consolidation of CICS In Q2 FY03/17, CICS became a consolidated subsidiary of Resorttrust. In December 2010, CICS entered into a joint research agreement with the National Cancer Center, an independent administrative agency, and in 2011 began conducting joint research on boron neutron capture therapy (BNCT) accelerometers.

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BNCT is a cancer treatment with minimal invasiveness that uses boron compounds and neutrons. The treatment can selectively destroy cancer cells with little impact on normal cells, making it potentially viable as a way to treat invasive tumors with both cancer cells and normal cells present and other forms of cancer that are difficult to treat with surgery and other forms of radiation therapy.

Conventional BNCT uses neutrons, requiring a large nuclear reactor, but CICS says that by using an accelerometer, it can provide a BNCT device that is safer, more compact, and lower-cost than conventional BNCT devices.

Since 2011, CICS worked with the National Cancer Center to create a compact BNCT system, and in March 2016, Resorttrust announced that the device passed the equipment screening conducted by the Nuclear Safety Technology Center, opening the door to potential clinical studies of the BNCT accelerometer.

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Business

Business description

Resorttrust develops and operates members-only hotels, runs members-only medical examination clubs, and sells hotel and medical club memberships, targeting affluent households. As of May 2017, the company operated hotels in 48 locations (of which 39 were members-only facilities). Member count was more than 170,000 (as of the end of March 2017), giving the company the top share in the Japanese membership resort industry.

Resort Hotel Membership (part of Membership and Hotel and Restaurant segments)

Resorttrust sells resort hotel memberships to affluent consumers. The price depends on membership type, but a 26-night membership (room ownership shared by 14 members) in the mainstay XIV series facilities costs roughly JPY20mn. Members acquire the right to use the company’s services (by paying a registration fee) and facilities (property fee).

In addition registration fees to acquire memberships, members pay annual membership dues for facility maintenance. When using a resort, members also incur a room charge (hotel room fee) and other charges such as dining at resort restaurants or using beauty salons.

Business Flow SELL Memberships Cash Flow

■Revenue from membership sales Membership ■Securit y deposit s Facility Use Sales

■Room charges ■Revenue from restaurants Resorttrust ■Income from peripheral facilit ies ■Operations and management fees

Investment in resort development PLAN/ OPERATE DEVELOP Resort Resorts and Facilities Other

Reflecting needs of existing members Source: Shared Research based on company data Outline for the company’s typical facility (XIV Series):

▷ Memberships JPY10mn (13-nights use)–JPY20mn (26-nights use)

Average spend per stay JPY12,000-30,000

Number of guest rooms 100-200

Initial investment JPY15bn–25bn (about two years to recoup investment)

Occupancy rate 50–60%

Number of employees Approx. 200 (for a 200-room facility, full-time employees: about 60%; temp staff: about 40%) Products and services The company’s standard model is a timeshare system in which each hotel room is shared by 14 members. The 365 days of the year are divided among each member, resulting in 26 nights guaranteed annually. There are typically three or four types of rooms for the company’s mainstay XIV series: 40–50sqm, 70sqm, 90sqm, and 120sqm (suites).

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When the membership is purchased, each member’s occupancy days for 14 years are specified. Occupancy days for the year are allocated according to 14 different patterns, and every pattern includes equal allocation for such periods as New Years, weekends, and national holidays. Members can check their occupancy days using the time share calendar, and take advantage of various programs, such as to swap occupancy days or exchange for days at other hotels operated by the company. A “floating reservation” system allows members to reserve a room on a first-come-first-served basis on days that have not been reserved by the allocated owner at least one month in advance.

In addition to the XIV series, the company operates other brands such as Sun Members and Baycourt.

Facility Description The company’s mainstay series of membership resort hotels. Located two or three hours from major cities, generally in XIV major tourist areas. The 14 members (owners) of each room are guaranteed 26 nights annually.

Scaled-up version of XIV series hotels, these multi-purpose resorts provide facilities for golf, spas, marine sports, and skiing Grand XIV (use of golf courses and cruisers are paid for separately).

These resorts feature spacious “super suites” of around 100sqm. Examples include XIV Yamanakako Sanctuary Villa and XIV Sanctuary Villa Karuizawa Sanctuary Villa.

Urban resort hotels marketed as an “exclusive relaxation space in the heart of the metropolis.” Core membership comprises Baycourt Club people in their 40s and 50s, about 10 years younger than for the company’s XIV resorts. The 15 members (owners) of each room are guaranteed 24 nights annually.

Non-membership hotels catering to tourists and businesspeople. They include facilities in the Tokyo bayside area (2008), Hotel Trusty Kobe Kyukyoryuchi (2009), Osaka’s Abeno district (2012), and Kanazawa Korinbo (2013).

As of May 2017, there were 13 Sun Members hotels, the company’s first membership resort brand, all located within Japan Sun Members in urban or resort areas.

Membership plans

13-Nights Use (XIV) Membership rights guarantee 13 nights annually. Members own the property rights. This plan and the Version L plan collectively account for about 90% of total contracts signed each year.

Version L (XIV) Membership rights of existing members are bought, split in half, and resold (producing 28 members each with 13 nights annually). As such, low-utilization members are replaced, resulting in an increased membership base and elevated occupancy rates. Sales of the service started in October 2007. The service has a contract fee of JPY2mn (split between a registration fee and security deposit, each JPY1mn). A sum is deducted from the security deposit over 20 years. Use is limited to 20 years, and the service provides no property ownership rights.

TBCC (Tokyo Baycourt 30 members have ownership rights of a room in the Tokyo Baycourt and each are guaranteed 12 nights annually. Club) 12-Nights Use

FLEX CLUB (Sun Seeks to add new members to the decreasing membership of Sun Members and raise the occupancy rates of Sun Members) Members facilities. Members of this service can use any of the company’s 23 resort facilities and city hotels located across the country for up to 25 nights per year. These resort facilities include not only Sun Members and Resorpia but certain XIV facilities.

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Resort Lineup

XIV series Opened Rooms Sun Members series (including Resorpia) Opened Rooms XIV Toba 1987 207 Sun Members Hirugano 1974 36 XIV Izu 1988 227 Sun Members Nagoya Shirakawa 1974 87

XIV Shirahama 1989 104 Sun Members Osaka Umeda 1978 69

XIV Karuizawa 1990 200 Sun Members Nagoya Nishiki 1979 79

XIV Toba ANNEX 1991 198 Sun Members Tokyo Shinbashi 1980 23

XIV Awajishima 1992 109 Sun Members Kyoto Saga 1980 67

XIV Yamanakako 1993 252 Sun Members Kagoshima 1980 105

XIV Shirahama ANNEX 1993 144 Sun Members Tokyo Shinjuku 1982 181

XIV Biwako 1997 268 Sun Members Kobe 1985 53

XIV Tateshina 1999 230 Resorpia Atami 1983 206

XIV Hatsushima 2000 200 Resorpia Hakone 1984 200

XIV Naruto 2001 135 Resorpia Kumihama 1984 57

XIV Naruto Sanctuary Villa 2003 22 Resorpia Beppu 1984 57

XIV Hamanako 2004 193 Hotel Trusty series Opened Rooms

XIV Karuizawa Sanctuary Villa 2004 40 Hotel Trusty Nagoya 1997 250

XIV Naruto Sanctuary Villa II 2005 22 Hotel Trusty Nagoya Sakae 2003 204

XIV Nasu Shirakawa 2005 58 Hotel Trusty Shinsaibashi 2005 211

XIV Kyoto Yase Rikyu 2006 210 Hotel Trusty Tokyo Bayside 2008 200

XIV Yamanakako Sanctuary Villa 2009 28 Hotel Trusty Kobe Kyukyoryuchi 2009 141

XIV Hakone Rikyu 2010 187 Hotel Trusty Osaka Abeno 2012 202

XIV Arima Rikyu 2011 175 Hotel Trusty Kanazawa Korinbo 2013 207

XIV Karuizawa PASEO 2012 32 Hotel Trusty Nagoya Shirakawa 2016 105

XIV Karuizawa Sanctuary Villa MUSEO 2012 16 The Kahala Hotel & Resort Opened Rooms

XIV Toba Bettei 2016 121 The Kahala Hotel & Resort Hawaii 2014 338 The Kahala Hotel & Resort Yokohama XIV Yugawara Rikyu 2017 187 2020 146 (under development)

XIV Rokko Sanctuary Villa (under development) 2018 48 Bar and restaurant Opened Rooms

Baycourt Opened Rooms Excellent Club Shinjuku

Tokyo Baycourt Club 2008 292 Excellent Club Atami

Ashiya Baycourt Club (under development) 2018 201 Excellent Club ROSE ROOM Nagoya

Laguna Baycourt Club (under development) 2019 193 Excellent Club Kyoto Saga

Yokohama Baycourt Club (under development) 2020 138 Excellent Club ROSE ROOM Osaka

Excellent Club Kobe

Source: Shared Research based on company data

Tokyo Baycourt Club Hotel & Spa Resort XIV Arima Rikyu Grand XIV Karuizawa

Source: Company data

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Facility development More than JPY20bn investment required to build 200-room resort hotel The company typically procures land and develops facilities from scratch, and a large-scale hotel with around 200 rooms typically requires an investment of more than JPY20bn. When renovating an existing property, investment may reach JPY10bn. If an existing structure is demolished before development starts, the investment would likely exceed JPY20bn. Land in the outskirts of urban areas is less expensive than land in city centers, so the company often buys promising property in advance, and can decide the development timing of a facility considering its inventory (available memberships).

Can recoup investment even if it sells fewer than half of available memberships Shared Research notes that the company can quickly recover investments in hotels. In the case of large-scale hotels with roughly 200 rooms, while the initial investment is JPY20bn–25bn, the company can generate JPY55bn–56bn in sales per year if all memberships are sold. (Example: JPY20mn × 14 members × 200 rooms = JPY56bn.) This yields a return of 2.2x the initial investment. The company could recoup its investment if it sold around 45% (JPY56bn × 45% = JPY25bn) of its membership capacity. In many cases, the company has been able to recover its investment even before hotels open.

For example, XIV Yugawara Rikyu (Kanagawa Prefecture) opened in March 2017. It has 187 rooms and its total project cost was JPY26.3bn. When calculating the total membership contract value for a plan for 26 nights/year (one of two plans: 26 nights/year or 13 nights/year) at this hotel, estimated sales are JPY55.4bn, which means a return 2.1x the total project cost.

Room types, no. of rooms, and membership prices of XIV Yugawara Rikyu (plan for 26 nights/year)

Room type Area No. of rooms Membership price Estimated sales

(JPYmn) (JPYmn)

S 97-137sqm 59 35.5 29,323

SE 77-113sqm 32 26.1 11,670

CB 50-66sqm 96 10.8 14,448

Total 187 55,441 Source: Shared Research based on company data

Resort hotel member count Resort hotel members continue to increase as the number of facilities grows. The average annual growth rate was 2.6% in the 10 years through FY03/17.

Members of Resort Hotels (people)

130,000 124,061 122,295 118,935 120,000 114,979 112,129 109,324 110,000 106,605 104,157 102,296 100,290 100,000 95,842 91,518 90,000 87,468

80,000

70,000

60,000 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17

FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17

Hotel members 100,290 102,296 104,157 106,605 109,324 112,129 114,979 118,935 122,295 124,061 Baycourt 2,839 3,331 4,659 6,286 7,095 8,209 8,424 8,493 10,646 13,115 XIV 57,145 59,443 60,659 62,127 64,800 67,232 70,431 74,870 76,546 76,517 Sun Members 40,306 39,522 38,839 38,192 37,429 36,688 36,124 35,572 35,103 34,429 Source: Shared Research based on company data

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Customers The company’s core customer base is affluent individuals around 60 years old. According to the company, members between 70 and 75 years of age seem to be the most frequent users. Concentrated in the Chubu (Nagoya) region and to a lesser extent the Tokyo/Yokohama and Osaka/Kyoto regions, members tend to be owners of medium-sized companies or professionals such as lawyers and doctors. Customers hold at least JPY100mn in financial assets per household. According to the company, most members purchase memberships to use resort hotel facilities (instead of to resell for capital gains), and more than 80% of new members are referred by existing members.

Members-only medical examination club (part of the Medical segment)

Resorttrust’s members-only medical examination club focuses on reliable diagnostic testing services in a relaxing resort environment. Resorttrust’s Medical segment uses PET (positron emission tomography)/CT (computed tomography) scanners and other advanced equipment.

PET/MRI

Source: Company data

A PET scan is used to detect cancer and other diseases. By infusing a test drug with an intravenous drip to mark cancer cells in the body and scanning with high-end equipment, even early stage cancer cells can be detected. Equipment for PET/CT can construct images of both PET and CT at the same time, giving advantages over PET-only scanning such as providing multi-purpose, multi-angle images with higher accuracy and shortened testing time.

As of May 2017, the company has medical examination facilities for club members as outlined in the following table.

Medical examination facilities

Facility Opened Location

HIMEDIC Yamanakako 1994 Minamitsuru, Yamanashi

HIMEDIC Osaka 2005 Chuo-ku, Osaka

HIMEDIC The University of Tokyo Nov. 2006 Bunkyo-ku, Tokyo Hospital

HIMEDIC Midtown Oct. 2013 Minato-ku, Tokyo

HIMEDIC Tokyo Bay Imaging Center Apr. 2015 Koto-ku, Tokyo

HIMEDIC Tokyo Bay Dec. 2015 Koto-ku, Tokyo

HIMEDIC Kyoto University Hospital Jun. 2016 Sakyo-ku, Kyoto

HIMEDIC Nagoya Jul. 2016 Naka-ku, Nagoya, Aichi Source: Shared Research based on company data

According to the company, HIMEDIC Yamanakako has achieved a malignancies discovery rate of 2.40% (PET-positive: 1.27%; PET-negative: 1.13%), significantly higher than conventional checkup methods. The method at HIMEDIC Yamanakako has been recognized as the “Yamanakako Technique.”

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Services and payment structure of the members-only medical examination club The service lineup includes HIMEDIC (one annual medical exam, helical CT, MRI, PET), Grand HIMEDIC (medical consultations and second opinions), as well as anti-aging and other advanced treatments.

There are two payment plans.

Deposit payment plan: a deposit of JPY3.75mn when signing the contract, from which JPY250,000 is deducted annually over ◤ 15 years, plus a JPY2.25mn initiation fee. There is also an annual membership fee of JPY250,000, so each year the company books sales of JPY500,000 per member. Annual membership payment plan: members pay the same JPY2.25mn initiation fee but do not pay a deposit. However, ◤ annual membership dues are JPY500,000 per year. While both plans feature the same total annual sales of JPY500,000 per member, they differ from a cash-flow standpoint as shown below.

Payment Structure

Deposit Plan Annual Membership Plan Cash flow Cash flow At contract At contract Initial fee JPY2.25mn Initial fee JPY2.25mn Deposit JPY3.75mn Total JPY6.00mn Total JPY2.25mn

Annual membership fee JPY250,000 Annual membership fee JPY500,000 15 years JPY3.75mn 15 years JPY7.50mn Total cash flow JPY9.75mn Total cash flow JPY9.75mn

Amount booked as sales Amount booked as sales At contract JPY2.25mn At contract JPY2.25mn Annual JPY500,000 Annual JPY500,000 Source: Shared Research based on company data Medical examination club membership count Memberships in the medical examination club are growing, marking an average annual rise of 13.4% in the 10 years through FY03/17.

Medical examination club memberships (people)

18,000 16473

16,000 15,132

14,000 13,070

12,000 10,523

10,000 8,235 8,000 6,983 6,328 5,782 5,964 6,000 5,136 4,703 4,279 3,657 4,000

2,000

0 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17

Source: Shared Research based on company data

Senior life business (part of the Medical segment)

The senior life business primarily targets Resorttrust’s existing customers in the Hotel segment, offering high-end, fee-based (not membership-based) senior residences with medical and nursing care. Resorttrust hopes to develop a business targeting senior citizens that offers services on par with its high-end resorts by combining accumulated hospitality expertise (by serving roughly 170,000 members at XIV and other resorts), with experience gained through its medical service network. As of May 2016, the company had 11 senior residences for a total of 1,025 rooms.

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Location Senior residence facility Rooms

Tokyo Trust Garden Suginami Miyamae 100 Trust Garden Nanpeidai 41 Trust Garden Sakurashinmachi 86

Trust Garden Yoga no Mori 129

Trust Garden Todoroki 57

Trust Garden Higashiminemachi 32

Trust Garden Hongo 118

Trust Garden Tokiwamatsu 50

Classic Garden Bunkyo Nezu 51

Aichi Prefecture Morning Park Chikara-machi 41

Shiga Prefecture Activa Biwa (rooms for independent living and rooms with medical or nursing care) 384

Kyoto Trust Garden Kyoto Shijo (scheduled opening: 2018) 54

Hyogo Prefecture Trust Garden Takarazuka (formerly Sunvenus Takarazuka) 86

Trust Grace Mikage (rooms without medical or nursing care) 281

Trust Grace Mikage (rooms with medical or nursing care) 63

Total 1,459 Source: Shared Research based on company data In April 2017, the company acquired shares of Activa Biwa (Shiga Prefecture; 384 rooms) to take over its business Total does not include properties under development

Within Japan, the strategy is to continue investing and acquiring high-end senior residences that provide nursing care services. Targeting moderately affluent seniors and those who require only light nursing care, the company seeks to offer a comprehensive service that leverages the brand recognition of the Resorttrust Group’s food and medical care offering.

The company also plans to offer customized care, including in-home services. It has been developing a consolidated in-home health management system from 2011 to provide medical treatment, nursing care, and general everyday assistance. Along with advancing the state of in-home medical assistance, the company plans to provide support through multiple life stages, from healthy individuals through those requiring primary nursing care. It plans to expand to 2,500 rooms under management via new investments, with a focus on facilities for individuals in need of primary nursing care, as well as some for healthy seniors.

Golf operations (part of the Membership and Hotel and Restaurant segments)

Golf operations involve managing members-only, professional-level golf courses. Most of the courses have hosted professional tournaments. Considering the significant member count, Resorttrust seeks locations close to cities and its hotels. It had a network of 13 courses as of May 2017. There were 31,343 members at end FY03/16.

The company also handles contracted restaurant operations at golf courses. The company operated 17 restaurants including eight at golf courses owned by third parties (as of May 2017). Average annual sales per restaurant are about JPY100mn.

30/68 Resorttrust / 4681

RCoverage LAST UPDATE: 2018.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Business segments

The Company’s business segments are Membership, Hotel and Restaurant, and Medical. Segment Businesses

Membership Sales of resort hotel and golf club memberships, loans to hotel and golf club members, golf course construction and management

Hotel and Restaurant Hotel and restaurant management, hotel cleaning services, member services, property and casualty insurance agency business, "Total Beauty" business including manufacturing and sale of hair accessories.

Medical Sales of medical club memberships, management of medical facilities, loans to medical club members, medical facilities management consulting service, medical equipment leasing, visiting nurse services

Resorttrust changed its business segment classification in FY03/15, along with an internal reorganization that took place on April 1, 2014. Golf courses with hotels, as well as restaurants inside golf courses, have been reassigned to the Hotel and Restaurant segment from the Golf segment. Golf Club Operations and Golf Membership Sales Operations have been transferred to the Membership segment.

Sales and earnings trends by segment

Earnings performance by segment FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Act. Act. Act. Act. Pre-revision Post-revision Act. Act. Act. Sales 103,645 108,976 99,894 105,311 116,824 116,824 120,401 142,249 143,541 YoY 18.8% 5.1% -8.3% 5.4% 10.9% - 3.1% 18.1% 0.9% Membership 42,199 41,727 29,199 28,418 32,171 36,274 33,590 46,282 42,530 YoY 82.8% -1.1% -30.0% -2.7% 13.2% - -7.4% 37.8% -8.1% % of sales 40.7% 38.3% 29.2% 27.0% 27.5% 31.1% 27.9% 32.5% 29.6% Hotel and Restaurant 48,227 51,241 52,184 54,765 57,784 62,303 65,462 72,817 74,193 YoY -4.3% 6.2% 1.8% 4.9% 5.5% - 5.1% 11.2% 1.9% % of sales 46.5% 47.0% 52.2% 52.0% 49.5% 53.3% 54.4% 51.2% 51.7% Golf 7,390 7,235 7,607 8,671 8,623 - - - - YoY 11.2% -2.1% 5.1% 14.0% -0.6% - - - - % of sales 7.1% 6.6% 7.6% 8.2% 7.4% - - - - Medical 5,576 8,473 10,455 12,698 17,341 17,341 19,746 21,806 25,702 YoY -18.5% 52.0% 23.4% 21.5% 36.6% - 13.9% 10.4% 17.9% % of sales 5.4% 7.8% 10.5% 12.1% 14.8% 14.8% 16.4% 15.3% 17.9% Other 250 298 447 757 904 904 1,602 1,344 1,114 Operating profit 11,191 13,172 9,891 12,054 15,119 15,190 16,041 18,640 13,514 YoY 107.0% 17.7% -24.9% 21.9% 25.4% - 5.6% 16.2% -27.5% Membership 6,413 7,370 3,684 3,951 5,839 6,251 6,230 9,898 6,988 YoY 245.0% 14.9% -50.0% 7.2% 47.8% - -0.3% 58.9% -29.4% % of operating profit 57.3% 56.0% 37.2% 32.8% 38.6% 41.2% 38.8% 53.1% 51.7% Hotel and Restaurant 3,902 4,863 4,902 4,826 4,733 4,930 4,906 4,567 3,010 YoY 51.1% 24.6% 0.8% -1.6% -1.9% - -0.5% -6.9% -34.1% % of operating profit 34.9% 36.9% 49.6% 40.0% 31.3% 32.5% 30.6% 24.5% 22.3% Golf 253 156 249 617 549 - - - - YoY 462.2% -38.3% 59.6% 147.8% -11.0% - - - - % of operating profit 2.3% 1.2% 2.5% 5.1% 3.6% - - - - Medical 318 571 827 2,334 3,743 3,755 4,287 3,629 3,011 YoY -51.0% 79.6% 44.8% 182.2% 60.4% - 14.2% -15.3% -17.0% % of operating profit 2.8% 4.3% 8.4% 19.4% 24.8% 24.7% 26.7% 19.5% 22.3% Other 304 209 226 323 253 253 617 545 503 Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods. In FY03/15, the company changed its segmentation and accounting methods. The table above shows FY03/14 earnings prior to and following the revisions. Membership segment (29.6% of sales, 51.7% of operating profit in FY03/17) Resorttrust sells memberships of the hotels it operates. It sells the 13-night type memberships for around JPY10mn and 26-night types for around JPY20mn. It can start selling memberships when it starts construction of a facility.

Sales of hotel membership begin two years before opening, roughly half sold before hotel opens On average, sales of memberships begin two years before a hotel opens. According to the company, half of the membership capacity is generally sold before the opening. The remaining memberships typically continue to be sold for three to five years after opening.

31/68 Resorttrust / 4681

RCoverage LAST UPDATE: 2018.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Revenues from hotel memberships split into registration fee, property fee, and security deposit The payment plan for Resorttrust’s mainstay hotel membership has three components: a registration fee (approximately 40%), a property fee (approximately 50%), and a security deposit (approximately 10%). Registration and property fee sales are calculated by multiplying the number of memberships sold by the registration and property fees per membership, respectively.

Membership segment: trends in sales and earnings

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Act. Act. Act. Act. Pre-revision Post -revision Act. Act. Act. Registration (no. of memberships) 3,443 3,288 3,901 4,078 4,735 4,735 5,611 5,250 3,599 YoY 2.1% -4.5% 18.6% 4.5% 16.1% - 18.5% -6.4% -31.4% Property sales (no. of memberships) 5,069 4,258 2,840 2,895 3,071 3,071 2,192 2,987 2,287 YoY 335.5% -16.0% -33.3% 1.9% 6.1% - -28.6% 36.3% -23.4% Sales 42,199 41,727 29,199 28,418 32,171 36,274 33,590 46,282 42,530 YoY 82.8% -1.1% -30.0% -2.7% 13.2% - -7.4% 37.8% -8.1% Registration fees 10,545 11,519 11,258 11,228 13,671 13,671 17,144 22,795 18,668 YoY -17.4% 9.2% -2.3% -0.3% 21.8% - 25.4% 33.0% -18.1% Registration fee per membership 3.1 3.5 2.9 2.8 2.9 2.9 3.1 4.3 5.2 Property sales 25,528 23,695 14,052 13,150 13,879 13,879 9,624 16,289 16,271 YoY 331.1% -7.2% -40.7% -6.4% 5.5% - -30.7% 69.3% -0.1% Property sales per membership 5.0 5.6 4.9 4.5 4.5 4.5 4.4 5.5 7.1 Other 6,125 6,511 3,888 4,039 4,620 8,724 6,822 7,198 7,591 Operating profit 6,413 7,370 3,684 3,951 5,839 6,251 6,230 9,898 6,988 YoY 245.0% 14.9% -50.0% 7.2% 47.8% - -0.3% 58.9% -29.4% OPM 15.2% 17.7% 12.6% 13.9% 18.1% - 18.5% 21.4% 16.4% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods * Registration fee per membership = Registration fees / Number of registration memberships * Property sales per membership = Property sales / Number of property memberships In FY03/15, the company changed its segmentation and accounting methods. The table above shows FY03/14 earnings prior to and following the revisions. Membership registration fees booked at contract signing, property fees for unopened properties not booked until hotel opens It should be noted that registration fees are booked as sales in full at the signing of a contract, while property fee sales for unopened hotels are recorded only after the facilities open.

The property fee gives members fractional ownership of one hotel room and is thus booked to sales upon the transfer of the property rights to members. For hotels already operating at the signing of a contract, this means the property fee is immediately recognized as sales on the income statement. If the hotel has not yet opened, the amount received representing the property fee is regarded as a liability in the form of advances received and only is booked as sales once the hotel opens.

For a large hotel with around 200 rooms, it usually takes two to three years from the start of membership sales to opening. As a result, property fees are booked separately from registration fees, as shown in the table below:

Hotel Membership revenue recognition method

Signing contract Framework completion Building completion Accounting process

Total payment (100%) 60% received 80% received 100% received

Security deposits (10%) Member pays a deposit Booked as liabilities comprising 10% of total upon signing contract payment upon signing contract Registration fees (40%) Member pays 40% of Booked as sales upon total payment upon signing contract signing contract Property fees (50%) Member pays 10% of Booked as sales upon total payment upon opening signing contract Member pays 20% at framework completion Member pays 20% upon building completion

Example: Case of total membership payment of JPY10mn Signing contract Framework completion Building completion Opening

Security deposits JPY1mn Registration fees JPY4mn Property fees JPY1mn JPY2mn JPY2mn Total cash received JPY6mn JPY2mn JPY2mn Amount booked as sales JPY4mn JPY5mn JPY3.5mn Cost of sales JPY130,000 Annual membership fee Source: Shared Research based on company data *Property fees are deferred until opening.

32/68 Resorttrust / 4681

RCoverage LAST UPDATE: 2018.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

While registration fees and property fees are both counted under membership sales, trends can be quite different owing to the differences in the timing of revenue recognition. Accordingly, whenever the company sells memberships in new hotels that are still under construction, it defers the recognition of the property fee component until the hotel is opened.

The following table shows the difference between number of resort hotel membership contracts signed during a period (for all hotels, opened and unopened) and the number of memberships booked under sales during the period (for hotels already in operation). This difference represents the number of hotel memberships sold for properties that are not yet opened. The property fee component of membership sales for unopened hotels is deferred until the opening, and is then booked to sales as a single lump-sum.

Property fees: contract sales and volume

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. No. of contracts signed (a) 2,114 2,154 2,840 2,895 3,695 4,242 4,551 3,266 No. of memberships booked under sales (b) 5,069 4,258 2,840 2,895 3,071 2,192 2,987 2,287 Change in number of deferred contracts (a)-(b) -2,955 -2,104 - - 624 2,050 1,564 979 Number of deferred contracts (year end) 2,104 - - - 624 2,674 4,238 5,217 Contracts signed (JPYmn) (A) 10,989 12,928 14,052 13,150 17,540 20,608 29,374 23,690 Memberships booked under sales (JPYmn) (B) 25,528 23,695 14,052 13,150 13,879 9,624 16,289 16,271 Change in deferred contracts (JPYmn) (A)-(B) -14,539 -10,767 - - 3,661 10,984 13,085 7,419 Balance of deferred contracts (year end; JPYmn) 10,766 - - - 3,660 14,644 27,729 35,149 Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

A member’s a certain amount is deducted from the security deposit each year over 30 years after the resort hotel’s opening. Each year, the deducted portion of the security deposit is booked as sales in the Hotel and Restaurant segment.

Costs of the Membership Segment In securities reports, Resorttrust releases sales, CoS, and details of CoS of the Membership segment on a parent-only basis. Shared Research sees no major difference between the consolidated and parent-only revenue structures because the ratio of consolidated sales to parent sales in the Membership segment has been around 1.0.

CoS on a parent-only basis is mainly composed of land purchases and construction costs of hotels. The CoS ratio usually runs between 20% and 40%, varying greatly depending on the proportion of sales accounted for by registration fees and the proportion accounted for by property fees. Because construction and land are the main components of the costs of membership sales and is the CoS for property fee income, the CoS ratio tends to rise in years when property fees account for a large proportion of membership sales.

Trends in membership sales and cost of goods sold (parent company)

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 （JPYmn） Act. Act. Act. Act. Act. Act. Act. Act. Membership sales 41,311 41,305 29,328 29,560 35,197 33,623 46,059 42,051 Cost of sales 16,387 16,357 8,112 8,590 9,420 5,883 11,541 11,928 Cost ratio 39.7% 39.6% 27.7% 29.1% 26.8% 17.5% 25.1% 28.4% Construction 11,980 11,549 5,964 5,550 6,413 4,498 8,665 10,270 Land 2,259 1,806 1,046 1,947 1,824 508 1,008 796 Other costs 2,148 3,002 1,102 1,093 1,183 877 1,868 862 Fixt ures 1,420 1,549 806 785 750 538 206 648 Development 705 541 244 254 368 287 1,116 152 Other 20 124 50 51 63 50 545 59 Gross profit from membership sales 24,924 24,948 21,216 20,970 25,777 27,740 34,518 30,123 GPM 60.3% 60.4% 72.3% 70.9% 73.2% 82.5% 74.9% 71.6% Source: Shared Research, based on company data Figures may differ from company materials due to differences in rounding methods

Trends in property fees as percent of sales and CoS (parent company)

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Property sales as % of total sales (consolidated) 60.5% 56.8% 48.1% 46.3% 43.1% 28.7% 35.2% 38.3% Cost of sales (parent company) 39.7% 39.6% 27.7% 29.1% 26.8% 17.5% 25.1% 28.4% Source: Shared Research, based on company data Figures may differ from company materials due to differences in rounding.

33/68 Resorttrust / 4681

RCoverage LAST UPDATE: 2018.02.14 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Assuming that SG&A expenses on a consolidated basis in the Membership segment is the difference between parent-only gross profit and consolidated segment operating profit, the SG&A is around JPY17.0bn–25.0bn. In FY03/17, the number of employees at this segment was 796 (vs. 818 in FY03/16) and the average annual number of temporary staff was 142 (vs. 160 in FY03/16). By adding social insurance premiums, retirement benefit expenses, and sales staff allowance, the average annual salary of an employee was JPY5.3mn (vs. JPY6.2mn in FY03/16). Shared Research estimates that personnel costs were around JPY7.0bn in the segment for FY03/17 and accounted for about 30% of SG&A expenses. Other factors are costs for opening facilities (around JPY1.0bn per facility), advertising, and general management, and are mainly consist of fixed costs.

Segment profit disclosed by the company through FY03/17 reflected operating profit after allocation of corporate overhead (indirect costs) based on the pre-allocation operating profit weighting for each segment. Segment profit disclosed from F03/18 reflects operating profit before allocation of corporate overhead, which is reported separately.

34/68 Resorttrust / 4681

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Hotel and Restaurant segment (51.7% of sales, 22.3% of operating profit in FY03/17) The company books revenues from operating hotels and hotel restaurants. Hotel and Restaurant segment: trends in sales and earnings Hotel and Restaurant Segment FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/14 FY03/15 FY03/16 FY03/17 （JPYmn) Act. Act. Act. Act. Act. Post -revision Act. Act. Act. No. of hotel members ('000) 104 107 109 112 115 115 119 122 124 YoY 1.8% 2.4% 2.6% 2.6% 2.5% - 3.4% 2.8% 1.4% No. of hotel hotel guests ('000) 2,456 2,567 2,658 2,827 2,976 2,976 3,051 3,053 3,061 YoY 3.5% 4.5% 3.5% 6.4% 5.2% - 2.5% 0.0% 0.3% Sales 48,227 51,241 52,184 54,765 57,784 62,303 65,462 72,817 74,193 YoY -4.3% 6.2% 1.8% 4.9% 5.5% - 5.1% 11.2% 1.9% Food and beverages sales 20,114 21,179 22,376 23,270 24,142 24,142 24,678 24,494 26,038 YoY -3.3% 5.3% 5.7% 4.0% 3.7% - 2.2% -0.7% 6.3% Sales per guest (JPY'000) 8.2 8.3 8.4 8.2 8.1 8.1 8.1 8.0 8.5 Lodging fee sales 12,293 12,964 13,846 14,905 15,912 15,912 17,074 17,924 18,064 YoY -2.1% 5.5% 6.8% 7.6% 6.8% - 7.3% 5.0% 0.8% Sales per guest (JPY'000) 5.0 5.0 5.2 5.3 5.3 5.3 5.6 5.9 5.9 Hotel shops and amenities sales 4,502 4,643 4,889 5,043 5,238 5,238 5,092 4,945 5,174 YoY -5.3% 3.1% 5.3% 3.1% 3.9% - -2.8% -2.9% 4.6% Sales per guest (JPY'000) 1.8 1.8 1.8 1.8 1.8 1.8 1.7 1.6 1.7 Revenue from administrative fees 5,126 5,614 6,061 6,338 6,562 6,562 6,710 6,752 6,927 YoY 1.3% 9.5% 8.0% 4.6% 3.5% - 2.3% 0.6% 2.6% Revenue per guest (JPY'000) 49.2 52.7 55.4 56.5 57.1 57.1 56.4 55.2 55.8 Revenue from security deposit deduction 1,946 2,351 2,710 2,808 2,916 2,916 2,868 2,886 2,929 Golf courses 2,827 2,937 2,930 2,951 Others 4,244 4,486 2,299 2,398 3,011 4,703 6,101 12,882 12,106 Operating profit 3,902 4,863 4,902 4,826 4,733 4,930 4,906 4,567 3,010 YoY 51.1% 24.6% 0.8% -1.6% -1.9% - -0.5% -6.9% -34.1% OPM 8.1% 9.5% 9.4% 8.8% 8.2% 7.9% 7.5% 6.3% 4.1% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods *Sales per visitor for food and beverages/night lodging/shops and facilities= food and beverages/night lodging/shops and facilities ÷ number of visitors *Sales per visitor for administrative expenses = administrative expenses ÷ total hotel memberships *From FY03/15, golf courses with hotels, as well as restaurants inside golf courses, have been reassigned to the Hotel Restaurant segment from the Golf segment. *The table above shows FY03/14 earnings prior to and following the revisions. Sales breakdown by service type Sales in the Hotel and Restaurant segment are broken down into food and beverages sales, room revenue, hotel shops and amenities sales, revenue from administrative fees, revenue from security deposit deduction, and others. Dividing food and beverages sales, room revenue, hotel shops and amenities sales by the number of hotel guests gives us the average revenue per guest. Because the average revenue per guest does not change significantly, Shared Research believes Resorttrust can see steady growth in segment revenues if it increases the number of hotel guests by growing its hotel membership base.

Food and beverages: Mainly from restaurant revenues. Sales are calculated by multiplying the number of guests by average food and beverage revenue per guest. We estimate the average amount per guest at around JPY8,000.

Room revenue: Fees for members who stay in hotel rooms. The charge is around JPY10,000 for a 50sqm room and JPY30,000 for suites. Sales are calculated by multiplying the number of guests by average charge per guest. Shared Research estimates the average room charge per guest at around JPY6,000.

Hotel shops and amenities: Sales from spas, esthetic salons, shops, and others. Sales are calculated by multiplying the number of guests by average charge per guest. We estimate that average sales per guest come to around JPY1,600-1,800.

Administrative fees: Annual fees. The company collects around JPY1.3mn a year per membership, worth JPY10mn. Shared Research estimates that expenses per guest are around JPY50,000 to JPY60,000.

Security deposit deduction: The company receives 10% of membership fees as a security deposit for long-term facility maintenance costs. A certain amount is deducted from the security deposit every year over 30 years from the resort’s opening. The deducted portion of the security deposit is booked as sales in the Hotel and Restaurant segment.

Trends in hotel restaurant sales by hotel type The following tables show sales, number of guests, and average spend per stay by hotel type.

35/68 Resorttrust / 4681

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Hotel and Restaurant sales by hotel type

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/14 FY03/15 FY03/16 FY03/17 Act. Act. Act. Act. Pre-revisions Post-revisions Act. Act. Act. Total 48,227 51,241 52,184 54,765 57,784 62,303 65,462 72,817 74,193 YoY -4.3% 6.2% 1.8% 4.9% 5.5% - 5.1% 11.2% 1.9% XIV 26,865 28,495 30,847 31,669 31,941 31,941 32,360 31,988 33,664 YoY -4.4% 6.1% 8.3% 2.7% 0.9% - 1.3% -1.1% 5.2% Sun Members 4,042 4,002 3,848 3,936 4,491 4,491 4,765 4,658 4,707 YoY -9.2% -1.0% -3.8% 2.3% 14.1% - 6.1% -2.2% 1.1% Hotel Trusty 3,094 3,178 3,134 3,884 4,764 4,764 5,331 6,162 6,460 YoY 4.2% 2.7% -1.4% 23.9% 22.7% - 11.9% 15.6% 4.8% Baycourt 2,908 3,112 3,281 3,727 4,095 4,095 4,388 4,555 4,443 YoY 12.4% 7.0% 5.4% 13.6% 9.9% - 7.2% 3.8% -2.5% Revenue from administrative fees 5,126 5,614 6,061 6,338 6,562 6,562 6,710 6,752 6,927 YoY 1.3% 9.5% 8.0% 4.6% 3.5% - 2.3% 0.6% 2.6% Revenue from security deposits deduction 1,946 2,351 2,710 2,808 2,916 2,916 2,868 2,886 2,929 YoY 0.3% 20.8% 15.3% 3.6% 3.8% - -1.6% 0.6% 1.5% The Kahala ------1,713 8,607 7,950 YoY ------402.5% -7.6% Other 4,246 4,489 2,303 2,403 3,015 7,534 7,327 7,209 7,113 YoY -19.5% 5.7% -48.7% 4.3% 25.5% - -2.7% -1.6% -1.3% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: In FY03/15, the company changed its segmentation and accounting methods. The table above shows FY03/14 earnings prior to and following the revisions.

Number of guests by hotel type (‘000)

('000) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 XIV memberships 61 62 65 67 70 75 77 77 YoY 2.0% 2.4% 4.3% 3.8% 4.8% 6.3% 2.2% 0.0% Sun Members memberships 39 38 37 37 36 36 35 34 YoY -1.7% -1.7% -2.0% -2.0% -1.5% -1.5% -1.3% -1.9% Baycourt memberships 5 6 7 8 8 8 11 13 YoY 39.9% 34.9% 12.9% 15.7% 2.6% 0.8% 25.4% 23.2% Hotel guests total 2,456 2,567 2,658 2,827 2,976 3,051 3,053 3,061 XIV 1,603 1,685 1,776 1,817 1,816 1,816 1,787 1,812 YoY -3.4% 5.1% 5.4% 2.3% 0.0% 0.0% -1.6% 1.4% Average nights stayed per member 27 27 28 28 26 25 24 24 Sun Members Resort 397 416 405 428 475 497 477 444 YoY -10.1% 4.7% -2.7% 5.7% 11.0% 4.6% -3.9% -7.0% Average nights stayed per member 10 11 11 12 13 14 14 13 Hotel Trusty 376 380 383 473 560 603 637 662 YoY 75.8% 1.1% 0.6% 23.6% 18.4% 7.8% 5.6% 3.8% Baycourt 79 86 95 110 125 135 151 143 YoY 36.4% 9.0% 10.0% 15.6% 13.7% 8.5% 11.5% -5.2% Average nights stayed per member 17 14 13 13 15 16 14 11 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding. Note: Average nights stayed per guest = (total guests for the year)/(average of number of guests at period beginning and period end)

Average revenue per guest by hotel type

(JPY) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 XIV 16,757 16,915 17,373 17,430 17,586 17,822 17,901 18,573 YoY -1.1% 0.9% 2.7% 0.3% 0.9% 1.3% 0.4% 3.8% Sun Members 10,174 9,619 9,503 9,198 9,457 9,591 9,759 10,589 Yoy 1.1% -5.5% -1.2% -3.2% 2.8% 1.4% 1.8% 8.5% Hotel Trusty 8,224 8,359 8,193 8,218 8,514 8,835 9,667 9,754 YoY -10.2% 1.6% -2.0% 0.3% 3.6% 3.8% 9.4% 0.9% Baycourt 36,759 36,096 34,611 34,014 32,854 32,458 30,206 30,898 YoY -16.6% -1.8% -4.1% -1.7% -3.4% -1.2% -6.9% 2.3% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Hotel and Restaurant segment costs In securities reports, the company releases Hotel and Restaurant sales, CoS, and details of CoS on a parent-only basis. Shared Research sees no major difference in revenue structures at the consolidated and parent levels, as the ratio of consolidated sales to parent-only sales has been around 1.0.

CoS mainly comprises raw materials for restaurants, which account for around 40% of food and beverage sales and around 16% of segment sales.

36/68 Resorttrust / 4681

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Trends in Hotel and Restaurant segment sales and CoS (parent company)

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Hotel and Restaurant sales 47,389 50,884 53,802 56,677 59,740 61,406 62,210 64,411 YoY -4.9% 7.4% 5.7% 5.3% 5.4% 2.8% 1.3% 3.5% Hotel and Restaurant cost of sales 7,774 8,238 8,861 9,278 9,783 9,961 10,037 10,730 Cost ratio 16.4% 16.2% 16.5% 16.4% 16.4% 16.2% 16.1% 16.7% Merchandise 1,721 1,848 2,090 2,230 2,493 2,301 2,274 2,590 Raw materials 6,031 6,446 6,816 7,021 7,418 7,642 7,854 8,261 YoY change in inventory (year end) 22 -56 -45 27 -128 18 -91 -121 Hotel and Restaurant gross profit 39,615 42,646 44,941 47,399 49,957 51,445 52,173 53,681 GPM 83.6% 83.8% 83.5% 83.6% 83.6% 83.8% 83.9% 83.3% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods

Consolidated SG&A expenses in the Hotel and Restaurant segment (parent-only gross profit minus consolidated segment operating profit) was around JPY40–50bn. SG&A to sales ratio was 73–78% (as of March 2015, golf courses with hotels, as well as restaurants inside golf courses, have been reassigned to the Hotel and Restaurant segment from the Golf segment).

The SG&A expenses of this segment mainly comprise fixed costs such as personnel, utilities, depreciation, maintenance, and linen expenses. With 4,374 employees (including The Kahala Hotel & Resort) in FY03/17 (vs. 3,956 employees in FY03/16), this segment has more employees than any other (roughly 70% of consolidated employees). The average annual number of temporary staff was 2,254 (vs. 2,502 in FY03/16). Shared Research concludes that personnel costs account for roughly half of the SG&A expenses of the Hotel and Restaurant segment. Further, we note that SG&A expenses have been rising with increases in the number of facilities in operation.

Segment profit disclosed by the company through FY03/17 reflected operating profit after allocation of corporate overhead (indirect costs) based on the pre-allocation operating profit weighting for each segment. Segment profit disclosed from F03/18 reflects operating profit before allocation of corporate overhead, which is reported separately.

In FY03/17, depreciation came to only JPY5.0bn, or 6.8% (vs. JPY4.9bn or 6.7% in FY03/16) of sales. As the company owns only 20% of the properties it operates (the remaining 80% owned by members), it has a lower level of deprecation than conventional hotels.

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Medical segment (17.9% of sales, 22.3% of operating profit in FY03/17) The company sells memberships to HIMEDIC medical centers, maintains the facilities, and provides nursing care services at patients’ residences. Medical segment: trends in sales and earnings

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) HIMEDIC memberships 5,964 6,328 6,983 8,235 10,523 13,070 15,132 16,473 YoY 3.1% 6.1% 10.4% 17.9% 27.8% 24.2% 15.8% 8.9% Registered members - 509 772 1,460 2,553 2,693 2,348 1,722 Net increase of registered members 182 364 655 1,252 2,288 2,547 2,062 1,341 Senior residence: number of rooms - 438 438 528 813 907 1,025 1,075 Average occupancy - 84.7% 88.6% 89.6% 76.6% 80.8% 87.6% 90.0% Average number of occupied rooms - 371 388 473 623 733 898 968 Sales 5,576 8,473 10,455 12,698 17,341 19,746 21,806 25,702 YoY -18.5% 52.0% 23.4% 21.5% 36.6% 13.9% 10.4% 17.9% Registration fees 670 1,131 1,668 3,068 5,300 5,567 4,725 3,267 YoY -57.4% 68.8% 47.5% 83.9% 72.8% 5.0% -15.1% - Sales per registration fee - 2.2 2.2 2.1 2.1 2.1 2.0 - Revenue from annual fees and deposit deduction 3,134 3,271 3,413 3,839 4,922 5,992 6,998 7,684 YoY 6.1% 4.4% 4.3% 12.5% 28.2% 21.7% 16.8% 9.8% Annual fee per member 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Revenue from annual fees 1,865 2,000 2,100 2,413 3,437 4,575 5,610 6,369 Revenue from security deposit deduction 1,269 1,271 1,313 1,426 1,485 1,417 1,388 1,315 Revenue from senior residence - 2,824 3,290 3,449 4,458 5,262 6,289 7,281 YoY - - 16.5% 4.8% 29.3% 18.0% 19.5% 15.8% Revenue per occupied senior residence room - - 8.7 8.0 8.1 7.8 7.7 7.8 Other 1,772 1,247 2,084 2,342 2,661 2,925 2,878 7,468 Operating profit 318 571 827 2,334 3,755 4,287 3,629 3,011 YoY -51.0% 79.6% 44.8% 182.2% 60.9% 14.2% -15.3% -17.0% OPM 5.7% 6.7% 7.9% 18.4% 21.7% 21.7% 16.6% 11.7% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Sales per registration = revenue from annual fees and security deposit deduction / average number of members Note: Annual fee per member = revenue from annual fees and security deposit deduction / average number of members Note: Revenue per senior residence room = revenue from senior residence/ average number of senior revenue rooms

Segment sales comprise registration fees from medical examination club (HIMEDIC) memberships, annual fees, deduction from security deposits, revenues from the senior life business, and others. Revenue from registration fees is calculated by multiplying the number of newly registered HIMEDIC members by the registration fee (JPY2.25mn per membership). Annual fees and deduction from security deposits are calculated by multiplying the number of members by a unit annual fee or a unit value for deduction (JPY500, 000 annually), respectively.

Revenues from the company's senior life business can be calculated by multiplying the number of occupied rooms by the average revenue per occupied room, which Shared Research estimates at roughly JPY8.0mn per annum.

Segment expenses comprise fixed costs such as personnel expenses for doctors (who conduct examinations at membership-based exam clubs) and employees (who sell HIMEDIC memberships), and deprecation of buildings and medical equipment. As of FY03/17, the company operated seven membership-based exam facilities. According to the company, the fixed costs associated with running one of its medical examination facilities run between JPY1.0bn and JPY1.2bn per annum. The standard exam center can handle about 3,500 exams a year. Having sold memberships reaching 60% of the facilities' total capacity, the company says that revenue from the JPY500,000 in annual membership dues paid by each member is enough to cover the fixed costs of running the exam centers.

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Profitability snapshot and financial ratios

Profit margins FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Gross profit 78,903 70,362 75,010 80,729 80,672 85,316 95,440 102,350 117,783 117,662 GPM 75.4% 80.6% 72.4% 74.1% 80.8% 81.0% 81.7% 85.0% 82.8% 82.0% Operating profit 14,241 5,408 11,192 13,173 9,891 12,054 15,119 16,041 18,640 13,514 OPM 13.6% 6.2% 10.8% 12.1% 9.9% 11.4% 12.9% 13.3% 13.1% 9.4% EBITDA 19,397 11,766 17,312 19,307 16,018 17,494 20,648 21,936 25,634 20,508 EBITDA margin 18.5% 13.5% 16.7% 17.7% 16.0% 16.6% 17.7% 18.2% 18.0% 14.3% Net margin 7.1% 0.6% 4.0% 3.0% 5.4% 6.8% 7.4% 9.8% 9.2% 7.7% Financial ratios ROA (RP-based) 6.2% 2.3% 4.4% 5.4% 4.0% 5.3% 6.0% 5.8% 4.9% 3.6% ROE 13.0% 0.9% 8.1% 6.1% 9.5% 11.4% 12.4% 13.6% 12.5% 9.9% Total asset turnover 0.5 0.4 0.4 0.4 0.4 0.3 0.3 0.4 0.4 0.5 Inventory turnover 0.6 0.4 0.6 0.7 0.6 0.8 1.1 0.9 0.9 0.6 Days of inventory 636 1,009 590 503 606 635 497 641 465 466 Working capital 48,871 54,395 45,940 37,802 32,620 24,482 21,405 27,033 40,873 52,833 Current ratio 186% 167% 184% 219% 255% 324% 235% 257% 180% 158% Quick ratio 111% 90% 114% 138% 170% 255% 196% 216% 125% 106% OCF / Current liabilities 0.1 0.1 0.3 0.3 0.5 0.6 0.6 0.4 0.0 0.3 Net debt / Equity 48.2% 59.0% 46.9% 25.0% 8.9% 15.1% 4.1% 28.4% 46.2% 6.8% OCF / Total liabilities 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.1 Cash cycle (days) 643 1,016 597 506 607 636 495 638 466 468 Changes in working capital -846 5,524 -8,455 -8,138 -5,182 -8,138 -3,077 5,628 13,840 11,960 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Strengths and weaknesses Strengths Strong membership base: Resorttrust had approximately 170,000 members as of March 31, 2017. We estimate that this ◤ corresponds to about 20% of the Japanese households with assets of JPY100mn 500mn. The company was an early mover, – establishing a successful business model of membership resort hotels when the industry was young. It managed to maintain high levels of customer satisfaction and solid marketing. Over 80% of new members are referred by existing members, highlighting the strength of the company’s existing customer base. In addition, although members are primarily around 60 years old, active seniors in their 70s show high occupancy rates, reducing the concern about a rise in the number of low-utilization members over the short term.

Can quickly recoup investments: The company enjoys cash flow advantages because it begins sales of hotel memberships ◤ before the hotel opens, and can quickly recover investments, giving it opportunities for further investments. As it recoups on average 2x of its initial investment, Resorttrust needs to sell only about 45% of the available hotel memberships to recover its investment. According to the company, in many cases it recovered investments before the facility opened.

Predictable customer traffic and costs: Since most of the sales at the Hotel and Restaurant segment come from hotel ◤ members who have made reservations, the number of members staying in hotels is predictable (unlike for conventional hotels, where guests often simply show up). This allows for smoother operations and makes it easier to implement cost controls, as hotel managers can plan around staffing and food procurement needs. Fixed revenues such as annual membership fees and sales related to security deposit deduction also contribute to the high transparency of operations.

Weaknesses

Aging of existing members pushing down occupancy rates: Despite memberships at a given facility being sold out, the ◤ advancing age of members can lead to them using the facility less frequently, meaning lower revenues from peripheral facility use.

Growth constrained by Japan’s declining population: Although the company may be able to maintain medium-term ◤ growth, especially in the Kanto area, in the long run Japan’s population decline will shrink the company's customer base.

Volatile reported earnings from revenue recognition method: At the Membership segment, resort hotels usually ◤ require two to three years to build, but membership sales start once construction begins. The property fee component comprising roughly 50% of the membership fee is deferred until the hotel is opened, when it is booked as sales. This means that sales and earnings in a single year can vary significantly depending on the number of hotel openings, so reported earnings are more volatile and can significantly diverge from the company’s actual revenue stream.

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Market and value chain Market overview Resort hotel business in Japan While Japan has abundant nature and spectacular scenery in all four seasons, it was commonly thought that these seasonal changes, which can destabilize resort hotel occupancy rates, would hinder the resort business. Japan offers prime locations for resorts that take advantage of a particular season, such as resorts with foliage-viewing in the fall, beach resorts in the summer, and ski resorts in the winter, but there was a fear of decreased occupancy rates during the respective off-seasons. As a result, few companies entered the resort market. Within that context, Resorttrust’s resort hotel membership system allowed it to grow both sales as earnings as it placed most of the capital investment burden on members, while providing them with a more convenient option than owning a country house.

A boom in resort hotels in the early 1980s saw new facilities being developed. After the bubble burst there was a string of hotel closures as management felt pressure from investment losses. In the late 1990s, the pace of resort hotel closures and provisional shutdowns picked up as the culling of less-attractive resort hotels continued. Over time, supply and demand reached equilibrium.

Japan’s leisure industry suffered even harsher conditions amid the 2008 global financial crisis and the 2011 Great East Japan Earthquake. However, from 2012, Shared Research understands that Japan’s leisure and resort market began a track to recovery.

Resort hotel membership market size (JPYbn)

(JPYbn) 400

350 355

300 314 286 277 250 264 271 264 271 260 255 241 246 228 220 200 212 210 215 204 200 198 200 186 178 150 153 129 100 103

50

0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Shared Research based on company data Cultural background In contrast to the US and Europe, in Japan it has not been customary to use annual paid holidays to go on vacation, and therefore most visits were limited to weekends. According to the Japan Ministry of Health, Labor and Welfare (MHLW), although the ratio of annual paid vacation taken in Japan has been slowly rising, reaching 48.7% in 2015 (47.6% in 2014), it is still under 50%—among the lowest of all developed countries. To address the problem, MHLW revised and implemented the Guidelines to Reform Working Hours in April 2010 that urges business owners to shorten employee working hours and promote the use of paid vacation. However, because the guidelines are not strictly enforced, Shared Research thinks it will take time to see any changes.

Even so, as more women and foreigners enter the workforce and increased importance is placed on family time, the Japanese labor market will slowly see trends similar to other developed countries. Additionally, compared with other leisure activities, domestic travel has stabilized and continues to increase in popularity. The company believes that both of these will have a positive impact on the Sun Members and Hotel Trusty resort hotels, which are open to non-members. In Shared Research’s view, while the economic climate will affect the membership hotel industry and the whole leisure industry, there is room for growth in the long run. As Japan’s leisure market begins to follow the pattern of other developed countries, it

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seems probable that the use of timeshare and fractional ownership schemes will reach levels similar to the US and EU. According to company materials (May 2011), the ratio of households that had timeshares was 0.6% (280,000 households) in Japan, compared with 3.8% (4.4mn households) in the US.

Potential customer base continues to increase The company’s main customers, affluent people aged 60 or older, are expected to increase.

Estimates of population aged 65 or older According to estimates by the National Institute of Population and Social Security Research (IPSS), Japan’s overall population began declining in 2011 and is expected to continue decreasing in the long term. IPSS expects that the population of people aged 65 or older will continue to increase until 2040.

Population by age and future estimated population divisions

('000) 2015 2020 2025 2030 2035 2040 2045 2050 Total population 127,095 125,325 122,544 119,125 115,216 110,919 106,421 101,923 CAGR - -0.3% -0.4% -0.6% -0.7% -0.8% -0.8% -0.9% 0～14 years old 15,945 15,075 14,073 13,212 12,457 11,936 11,384 10,767 CAGR - -1.1% -1.4% -1.3% -1.2% -0.9% -0.9% -1.1% 15～64 years old 77,282 74,058 71,701 68,754 64,942 59,777 55,845 52,750 CAGR - -0.8% -0.6% -0.8% -1.1% -1.6% -1.4% -1.1% Over 65 33,868 36,192 36,771 37,160 37,817 39,206 39,192 38,406 CAGR - 1.3% 0.3% 0.2% 0.4% 0.7% 0.0% -0.4% Source: National Institute of Population and Social Security Research, “Japan’s future population” (2017 estimates) [assuming average birth and death rate] Population of high net worth individuals in Japan According to Credit Suisse’s “Global Wealth Report 2016,” the number of high net worth individuals in Japan, with wealth of USD1.0mn or more, totaled 2.8mn in 2016 (vs. 2.1mn in 2015). In the five years to 2021, this number is expected to increase by 27% to 3.6mn.

Barriers to entry

New entrants into the membership resort club business require capital, the ability to develop properties, brand recognition, and quality customer service. A typical large-scale resort hotel (200 rooms) requires an initial investment of over JPY20bn. Only major developers such as Tokyu Land Corp. (TSE1: 8815), which manages Tokyu Harvest Club, have the financial resources to enter the membership resort club business.

Still, Resorttrust has captured over 70% of the membership resort club market, giving it a substantial network of affluent members and unrivalled brand power. Shared Research considers that there are high barriers to entry into this industry due to the necessary development, brand, and operational capabilities.

Competition

In FY2013, the company controlled a 74.7% share of the resort club market (calculated from the FY2012 sales of the top 10 companies). Major competitors include resort club operators like Tokyu Land (operating Tokyu Harvest Club and Tokyu Harvest Club VIALA facilities) and Naqua Asset Co. Ltd (operating Olivean resort hotels and Epinard hotels).

Ranking Company name Percentage share 1 Resorttrust 74.70% 2 Tokyu Land 10.20% 3 Naqua Asset Co. Ltd. 5.40% 4 Diamond Society 4.40% 5 Maholova Minds Miura 2.40% 6-10 Mikawawan Resort Linx and others 2.90% Source: Shared Research based on company data Percentage of shares was calculated by the sales of member resort dubs by department

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Market Positioning (blue indicates Resorttrust’s services)

Tokyo Baycourt Club Price Range

JPY20mn to 30mn SV

Sanctuary Villa

JPY10mn XIV

Tokyu Harvest Club VIALA Tokyu Harvest Club

JPY5mn

Version L

FLEX CLUB Diamond Society Sun Members JPY1mn

Big Week (Tokyu Corp.)

Number of Members Source: Shared Research based on company data

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Strategy

The company has three strategies: driving up unit prices by reinvigorating the member base and offerings, expanding the target customer base, and developing facilities overseas.

Reinvigorate member base Resorttrust’s business model can only be successful if members regularly use the facilities, when they pay for lodging and dining. Low-utilization members drag down profitability. The company has been approaching low utilization members and offering to buy back their rights. (While members can sell their rights in the secondary market, the company maintains that it offers better deal.) The rights are then resold as Version L or other packages. The company also offers members opportunities to upgrade facilities, for larger rooms or from XIV to Grand XIV memberships. Members have to pay only the difference in the package price.

Membership upgrades push up hotel occupancy rates, and lead to higher usage fees per guest. Each year, around 5–8% of members move to higher-grade memberships. Shared Research understands this demonstrates that customers are satisfied with the company’s services.

The Grand XIV series, scaled-up versions of traditional XIV series hotels that offer a resort hotel along with golf and salon/spa services, further diversifies the company’s income.

Expanding the range of potential customers The company has been growing the membership base by developing one or two new facilities each year. Over the long term it plans to broaden its customer base and target younger consumers through a new facility series.

Expanding membership services As part of its plan to expand the range of target customers, the company has launched sales of the XIV Version L and Sun Members FLEX CLUB products in a bid to attract a wider range of active seniors (baby boomers) as well as younger executives and business owners. These products are designed to meet the needs of more price-sensitive consumers, and the company sees them as entry-level products, creating opportunities for upselling.

Number of household by financial assets

2000 2003 2005 2007 2009 2011 2013

Number of households 66,000 56,000 52,000 61,000 50,000 50,000 54,000 JPY73tn Very Affluent Households (54,000 (Financial assets worth more households) than JPY500mn) Financial assets (JPYtn) 43 38 46 65 45 44 73

Number of households 769,000 720,000 813,000 842,000 795,000 760,000 953,000 Affluent Households (Financial assets worth JPY100mn to JPY168tn (953,000 households) 500mn) Financial assets (JPYtn) 128 125 167 189 150 144 168

Number of households 2,560,000 2,455,000 2,804,000 2,711,000 2,698,000 2,687,000 3,152,000 Moderately Affluent Households (Financial assets JPY242 tn (3,152,000 households) worth JPY50mn to 100mn) Financial assets (JPYtn) 166 160 182 195 181 196 242

Number of households 5,751,000 6,140,000 7,019,000 6,598,000 6,392,000 6,384,000 6,517,000 Upper-Mass (Financial assets JPY264tn (6,517,000 households) worth JPY30mn to 50mn) Financial assets (JPYtn) 201 215 246 254 225 254 264

Number of households 37,605,000 38,815,000 38,315,000 39,400,000 40,158,000 40,482,000 41,827,000 Mass (Financial assets worth JPY539tn (41,827,000 households) less than JPY30mn) Financial assets (JPYtn) 503 519 512 470 480 500 539

Source: Shared Research, based on data from Nomura Research Institute

Shared Research understands that as part of efforts to expand resort offerings, the company may choose to acquire existing facilities or an entire existing operator. Resorttrust is also considering expansion under a separate brand.

Rising demand from moderately affluent and mass-affluent customers To meet increased demand from the moderately affluent and mass-affluent market, the company has developed a line of top-end luxury resorts (Sanctuary Villa) that targets older consumers looking for tranquil luxury accommodations. The company opened its first Sanctuary Villa (XIV Naruto Sanctuary Villa) in March 2003, and as of May 2017 operated five Sanctuary Villa facilities.

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It also opened Tokyo Baycourt Club, Japan’s first urban membership resort hotel, in March 2008. It planned to open Ashiya Baycourt Club (Hyogo Prefecture) in the Kansai area in February 2018 and Laguna Baycourt Club (Aichi Prefecture) in the Chubu area in January 2019.

The company also acquired the Kahala Hotel & Resort in Honolulu, Hawaii, in October 2014.

Source: Company data, SR Inc. research data Medical segment In the Medical segment, the company is working to diversify earnings sources and acquire new customers by offering high-precision testing. It plans to provide comprehensive medical checkups, advanced imaging diagnostics, genetic screening, Alzheimer’s disease diagnosis, health risks diagnosis, blood testing, and metabolic syndrome diagnosis services. The company aims to enhance its lineup of preventive medicine and anti-aging services (brain function improvement, blood cleansing therapy, etc.

Overseas expansion Resorttrust expects growth opportunities related to serving overseas clients. It has a three step overseas expansion strategy to attract inbound tourists to domestic resort facilities and expand its business model outside of Japan.

Attract overseas customers The first phase of the strategy includes targeting foreign tourists to Japan, particularly for medical services. The company particularly targets tourists from China, where medical technology lags behind Japan, and demand is high for diagnostic testing, cancer treatments, cosmetic medicine and anti-aging services. In the hotel business, the company intends to bolster its brand recognition through service quality.

Consulting business in China In the second phase, Resorttrust aims to establish consulting services in mainland China, focusing on medical services and hotel industries. In April 2011, the company formed a joint venture with Hong Kong-based Chambow Investment Limited. The new establishment, “United Ocean Medical Management Limited,” is working on a Le Cheng Island Smart Island Project (a medical resort) in the town of Bo’ao on Hainan Island, China. The company is offering medical and hotel business consulting. Resorttrust does not inject capital but instead provides expertise gained from domestic operations, and aims for revenue from commissions linked to sales from hotels and other operations.

Expand operations in China In the third phase, the company plans to develop several locations in China, where it will expand its Medical, Hotel and Restaurant, and Membership operations. It envisions creating a new culture of hospitality in East Asia.

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Japan-China comparison (medical conditions) China Japan Gap (Times) Population (1,000 people) 1,345,750 127,156 10.58 Hospitals 19,712 8,739 2.26 per 100,000 people 0.21 Clinics 205,012 99,635 2.06 per 100,000 people 0.19 Registered Beds 4,036,483 1,743,415 2.32 per 100,000 people 0.22 Medical Equipment (PET-CT) 89 149 0.6 per 100,000 people 0.007 0.117 0.06 1,000 people per equipment 15,121 853

Source: Shared Research based on company data Increased tourism to Japan According to the Japan National Tourism Organization (JNTO), the number of overseas visitors to Japan totaled 19.7mn in 2015. In March 2016, the Ministry of Land, Infrastructure, Transport and Tourism announced "Tourism Vision to Support the Japan of Tomorrow" where it set a goal of increasing the number of foreign visitors to 40mn by the 2020 Tokyo Olympics and Paralympics.

The number of Chinese visitors to Japan increased by an annual average of 22.9% from 2006 to 2016, totaling 6.4mn in 2016.

Visitors to Japan by country

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CA GR ('000) Total 8,347 8,351 6,790 8,612 6,219 8,368 10,364 13,414 19,737 24,039 12.6% YoY 13.8% 0.0% -18.7% 26.8% -27.8% 34.6% 23.9% 29.4% 47.1% 21.8% - South Korea 2,601 2,382 1,587 2,440 1,658 2,044 2,456 2,755 4,002 5,090 9.2% YoY 22.8% -8.4% -33.4% 53.8% -32.0% 23.3% 20.1% 12.2% 45.3% 27.2% - Taiwan 1,385 1,390 1,024 1,268 994 1,467 2,211 2,830 3,677 4,168 12.3% YoY 5.8% 0.4% -26.3% 23.8% -21.6% 47.6% 50.7% 28.0% 29.9% 13.3% - China 942 1,000 1,006 1,413 1,043 1,430 1,314 2,409 4,994 6,373 22.9% YoY 16.1% 6.2% 0.6% 40.4% -26.2% 37.1% -8.1% 83.3% 107.3% 27.6% - Hong Kong 432 550 450 509 365 482 746 926 1,524 1,839 18.0% YoY 22.6% 27.3% -18.3% 13.2% -28.3% 32.0% 54.8% 24.1% 64.6% 20.7% - Thailand 90 82 178 215 145 261 454 658 797 901 21.8% YoY -28.8% -8.2% 116.0% 21.0% -32.5% 79.9% 73.9% 45.0% 21.2% 13.1% - Singapore 167 192 145 181 111 142 189 228 309 362 12.1% YoY 44.5% 14.6% -24.3% 24.6% -38.5% 27.8% 33.1% 20.4% 35.5% 17.2% - Malaysia 152 168 90 115 82 130 177 250 306 394 16.5% YoY 77.4% 10.6% -46.7% 27.9% -28.8% 59.8% 35.5% 41.3% 22.4% 29.1% - Indonesia 64 67 64 81 62 101 137 159 205 271 16.3% YoY 7.1% 3.8% -4.5% 26.7% -23.2% 63.9% 34.8% 16.0% 29.2% 32.1% - India 68 67 59 67 59 69 75 88 103 123 7.0% YoY 8.1% -0.4% -12.5% 13.4% -11.2% 16.4% 8.7% 17.1% 17.4% 19.2% - Source: Japan National Tourist Organization (JNTO)

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Historical earnings results 1H FY03/18 results

Sales: JPY70.1bn (+7.5% YoY) ▷ Operating profit: JPY5.5bn (+15.3%) ▷ Recurring profit: JPY6.4bn (+34.4%) ▷ Net income*: JPY3.8bn (+4.8%) ▷ * Net income attributable to the parent company’s shareholders

The XIV Yugawara Rikyu resort, opened in March 2017, added to sales and earnings at both the Hotel and Restaurant segment and the Membership segment. The company also saw continued strong sales of memberships in the Laguna Baycourt Club, a members-only resort hotel (located in Gamagori City, Aichi Prefecture) that began selling memberships in August 2016.

Sales finished 4.5% below plan, but operating profit, recurring profit, and net income exceeded targets by 21.2%, 23.1%, and 14.8%, respectively. The sales shortfall was attributable to a decline in the hotel occupancy rate owing to weather factors. Profits exceeded targets in all categories mainly because the company managed to hold down personnel costs for membership sales.

Major initiatives in 1H FY03/18

Date Initiative

April 2017 Began operation of private nursing home for seniors Activa Biwa (Otsu City, Shiga Prefecture)

July 2017 Secured land for hotel facility development associated with the MICE facility development project at Yokohama’s Minato Mirai

area (Central District 21, block 20)

October 2017 Started construction of the members-only resort hotel Yokohama Baycourt Club Hotel & Spa Resort and The Kahala Hotel &

Resort Yokohama

October 2017 Opened Midtown Clinic Meieki (Nagoya City, Aichi Prefecture), a facility for which Advanced Medical Care Inc. provides

operational support

With regard to the results reported for individual segments (discussed below), note that the company has changed the way it reports allocated corporate overhead expense starting from Q1 FY03/18, and for purposes of comparison has also calculated figures for 1H FY03/17 using this same accounting method.

Segment profit disclosed by the company through FY03/17 reflected operating profit after allocation of corporate overhead (indirect costs) based on the pre-allocation operating profit weighting for each segment. Segment profit disclosed from FY03/18 reflects operating profit before allocation of corporate overhead, which is reported separately.

Membership

Sales: JPY15.0bn (+8.5% YoY) ▷ Segment operating profit: JPY3.5bn (+61.8%) ▷

The gains at the Membership segment are attributable in large part to the strong sales of memberships in the Laguna Baycourt Club, a members-only resort hotel (located in Gamagori City, Aichi Prefecture) that began selling memberships in August 2016.

Contract value in the Membership segment was JPY25.6bn (+2.8% YoY), broken down to JPY25.5bn in hotel memberships (+3.2%) and JPY100mn in golf memberships (JPY200mn in 1H FY03/17). The contract value was JPY17.9bn (-3.2%) for unopened hotels (Laguna Baycourt Club, XIV Rokko, and Ashiya Baycourt Club), and JPY7.7bn (+22.2%) for XIV Yugawara Rikyu and opened hotels.

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According to the company, a reasonable growth rate for contract value of hotel memberships is around 5% per annum. When comparing figures for 1H FY03/15 (contract value: JPY20.6bn) and 1H FY03/18 (contract value: JPY25.5bn) excluding the impact of Ashiya Baycourt Club’s membership sales in FY03/16, the average yearly growth rate comes out to 7.4%, which far exceeds the reasonable growth rate cited by the company.

Thanks to higher contract value, segment sales for the Membership business finished at JPY15.0bn (+8.7% YoY), broken down to JPY13.8bn (+8.7%) in hotel memberships and JPY1.1bn in others (JPY1.0bn in 1H FY03/17). Total sales of memberships in unopened hotels (before deducting the portion deferred until opening) was JPY16.2bn (+0.6% YoY). The negative impact of deferred property fees at unopened hotels was JPY8.9bn (JPY8.7bn negative impact in 1H FY03/17); thus net sales after deducting the deferred portion came to JPY7.3bn (-1.4% YoY). Membership sales from opened hotels were JPY6.6bn (+24.5%).

Profit growth was mainly driven by higher hotel membership sales, while an improved sales mix and cost reduction effects also contributed. The sales mix improved thanks to an increase in existing membership trade-in sales, which carry comparatively high gross profit margins, and this lifted the overall gross profit margin. Expenses declined due to a review of personnel costs and incentives.

Segment sales came in 5.7% below plan and operating profit 52.6% above plan. The difference with the segment profit target was mainly attributable to effects from cost reductions.

Hotel and Restaurant

Sales: JPY39.6bn (+4.6% YoY) ▷ Segment operating profit: JPY2.7bn (-1.9%) ▷

Contributions from the XIV Yugawara Rikyu resort, opened in March 2017, underpinned the YoY gains. Meanwhile overseas renovations on hotel restaurants and the like led to increased sales and decreased profits.

XIV hotels posted sales of JPY19.0bn (+7.7% YoY) and contributed to the rise in segment sales. The number of guests reached 1.0mn (+2.7%) and revising the room charges resulted in a 4.8% increase in average spend per guest at JPY18,674. However, occupancy rate dropped 1.8pp YoY to 54.6% since the number of rooms increased with the opening of the XIV Yugawara Rikyu resort (187 rooms). In 1H FY03/18, occupancy rate at the XIV hotels undershot forecast by 2.7pp.

The company posted an increase in YoY operating profit on higher sales and lower maintenance and repair costs, but a rise in personnel costs pushed profit down.

Versus forecasts, segment sales finished 1H 2.2% below plan and operating profit 9.9% below plan. This reflected unanticipated increases in personnel costs and property taxes at the Kahala Hotel & Resort.

Medical

Sales: JPY15.2bn (+17.4% YoY) ▷ Segment operating profit: JPY2.6bn (-5.1%) ▷

Sales by segment are outlined below.

Sales in the HIMEDIC business were JPY6.9bn (+3.1% YoY). Annual membership revenue expanded in tandem with an increase in ▷ the number of members at the company’s comprehensive medical support club Grand HIMEDIC Club. Sales of memberships

finished at JPY2.5bn, on par with the year-earlier level.

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Sales in the medical services business were JPY2.5bn (+40.8% YoY). In 1H FY03/17, Kosei became a consolidated subsidiary in ▷ May 2016, and therefore contributed four and half months of earnings. In 1H FY03/18, Kosei contributed for six months. Sales in the aging care business were JPY1.2bn (+38.0 YoY). Sales of menopause supplements were strong. ▷ ％ Sales for the senior life business were JPY4.6bn (+27.9 YoY). In April 2017, the company included Activa Co., Ltd. (which ▷ ％ operates the Activa Biwa private nursing home for seniors) in consolidated results.

Profit fell due to commissioned examination fees associated with HIMEDIC Nagoya (opened in July 2016) and HIMEDIC Kyoto University Hospital (opened in June 2016), expenses at consolidated subsidiary CICS, which conducts R&D for BNCT (Boron Neutron Capture Therapy) systems, and amortization of goodwill for the private nursing home Activa Biwa.

Segment sales finished 8.9% below plan and operating profit 4.0% below plan. At consolidated subsidiary CICS, which conducts R&D for BNCT (Boron Neutron Capture Therapy) systems, the BNCT sale originally scheduled for Q2 was pushed back to Q4, and this was the main factor behind the difference of roughly JPY1.4bn in sales and JPY200mn in gross profit against forecasts.

Others

Sales: JPY367mn (-42.3% YoY) ▷ Segment operating profit: JPY216mn (-42.3%) ▷

The drop in segment sales and earnings reflects the decline in office building rental income at consolidated subsidiary R.T. Development Co., Limited. Segment sales finished 0.6% below plan and operating profit 3.2% above plan.

Q1 FY03/18 results

Sales: JPY33.8bn (+8.2% YoY) ▷ Operating profit: JPY1.6bn (+116.0%) ▷ Recurring profit: JPY2.1bn (+374.4%) ▷ Net income*: JPY1.1bn (+426.6%) ▷ * Net income attributable to the parent company’s shareholders

The XIV Yugawara Rikyu resort, opened in March 2017, added to sales and earnings at both the Hotel and Restaurant segment and the Membership segment. The company also saw continued strong sales of memberships in the Laguna Baycourt Club, a members-only resort hotel (located in Gamagori City, Aichi Prefecture) that began selling memberships in August 2016.

While sales were 1.4% lower than forecast, operating profit, recurring profit, and net income exceeded forecasts by 102.1%, 90.7%, and 91.4%, respectively. Sales remained generally in line with forecast despite lower than expected hotel occupancy and an increase in the deferred portion of property fees. Operating profit, recurring profit, and net income all exceeded forecasts because membership sales finished above plan and the company managed to limit costs related to membership sales and hotel operations.

Major initiatives in FY03/18

Date Initiative

April 2017 Began operation of private nursing home for seniors Activa Biwa (Otsu City, Shiga Prefecture)

July 2017 Secured land for hotel facility development associated with the MICE facility development project at Yokohama’s Minato Mirai

area (Central District 21, block 20)

Results by segment are discussed below. Starting Q1 FY03/18, the company changed the method of booking corporate overhead expenses. Q1 FY03/17 segment figures have been adjusted applying the current calculation method.

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Membership

Sales: JPY7.8bn (+14.4% YoY) ▷ Segment operating profit: JPY1.9bn (+217.2%) ▷

Results at the Membership segment are attributable in large part to the strong sales of memberships in Laguna Baycourt Club, a members-only resort hotel (located in Gamagori City, Aichi Prefecture) that began selling memberships in August 2016.

Contract value in the Membership segment was JPY13.2bn (+24.5% YoY), broken down to JPY13.1bn in hotel memberships (+24.8%) and JPY100mn in golf memberships (JPY100 in Q1 FY03/17). The contract value for unopened hotels (Laguna Baycourt Club, XIV Rokko, and Ashiya Baycourt Club) was JPY9.1bn (+35.8%) whereas for opened hotels, it was JPY4.1bn (+7.9%).

Looking at the historical trend, in Q1 FY03/16 contract value reached JPY15.7bn (up 65.3% from Q1 FY03/15) on membership sales for Ashiya Baycourt Club, the first Baycourt club of the series in eight years. In Q1 FY03/17, the diminishing impact on sales of Ashiya Baycourt Club and operational confusion surrounding reservations dragged down membership sales to a contract value of JPY10.6bn (down 32.5% compared to Q1 FY03/16). In Q1 FY03/18, contract value finished at JPY13.2bn (+24.5% YoY) as sales was robust for Laguna Baycourt Club.

According to the company, a reasonable growth rate for contract value of hotel memberships is around 5% per annum. When comparing figures for Q1 FY03/13 (contract value: JPY8.1bn) and Q1 FY03/18 (contract value: JPY13.1bn) excluding the impact of Ashiya Baycourt Club’s membership sales in FY03/16, the average yearly growth rate comes out to 12.8%, which far exceeds the reasonable growth rate cited by the company.

Thanks to higher contract value, segment sales for the Membership business finished at JPY7.8bn (+14.7% YoY), broken down to JPY7.1bn (+20.3%) in hotel memberships and JPY600mn in others (JPY800mn in Q1 FY03/17). Total sales of memberships in unopened hotels (before deducting the portion deferred until opening) was JPY8.1bn (+37.9% YoY). The impact of deferred property fees at unopened hotels was JPY4.5bn (JPY3.1bn negative impact in FY03/17); thus net sales after deducting the deferred portion came to JPY3.6bn (+33.3% YoY). Membership sales from opened hotels were JPY3.4bn (+3.0%).

The increase in hotel membership sales was the main cause of higher profits. Sales mix improvement and expense cuts also contributed.

Versus forecasts, segment sales fell short by 0.3% in Q1 FY03/18. Meanwhile, operating profit exceeded forecast by 66.7% due largely to lower than expected expenses as the company reviewed its incentives system accompanying membership sales.

Hotel and Restaurant

Sales: JPY18.6bn (+4.0% YoY) ▷ Segment operating profit: JPY481mn (+11.9%) ▷

Operation of XIV Yugawara Rikyu resort that opened in March 2017 contributed to sales and profit growth.

XIV hotels posted sales of JPY8.4bn (+7.5% YoY) and contributed to the rise in segment sales. The number of guests reached 406,000 (+2.8%) and revising the room charges resulted in a 4.8% increase in average spend per guest at JPY20,673. However, occupancy rate dropped 1.8pp YoY to 45.7% since the number of rooms increased with the opening of the XIV Yugawara Rikyu resort. In Q1 FY03/18, occupancy rate at the XIV hotels undershot forecast by 2.3pp. The company said it adopted a sales strategy in Q1 of designing lodging proposals not on a property by property basis but to cover all XIV hotels in the same area. It expects this initiative to contribute to higher occupancy rates in 2H.

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The company posted an increase in YoY operating profit on higher sales and lower maintenance and repair costs, but a rise in personnel costs weighed down the increase to a slight JPY51mn.

Versus forecasts, segment sales finished the quarter 1.6% below plan and operating profit 5.6% below plan.

Medical

Sales: JPY7.3bn (+15.8% YoY) ▷ Segment operating profit: JPY1.1bn (-25.4%) ▷

Sales for each department were as follows: Sales from HIMEDIC were JPY3.2bn (-4.9% YoY). Annual fee revenue rose due to an increase in the number of members ▶ at the Grand HIMEDIC Club, but membership sales went down from JPY1.3bn posted in Q1 FY03/17 to JPY1.1bn. Sales from the medical services business were JPY1.2bn (+69.8%). The full three months contribution from subsidiary ▶ Kosei (consolidated in May 2016) was reflected in Q1 FY03/18, whereas the contribution was limited to one month in the same period the previous year. Sales for the aging care business were JPY579mn (+40.9%). Sales of supplements for menopausal disorders were robust. ▶ Sales for the senior life business were JPY2.2bn (+27.5%). In April 2017, the company included Activa Co., Ltd. (which ▶ owns and operates Activa Biwa private nursing home for seniors) in consolidated results. Sales also rose due to higher occupancy rate in Trust Garden Tokiwamatsu, which opened in April 2016.

Profits fell due to commissioned examination fees associated with HIMEDIC Kyoto University Hospital (opened in June 2016) and HIMEDIC Nagoya (opened in July 2016), expenses from subsidiary CICS, which conducts R&D for BNCT (Boron Neutron Capture Therapy) systems, and amortization of goodwill for the private nursing home Activa Biwa.

Segment sales finished the quarter 2.2% below plan and operating profit 1.2% below plan.

Others

Sales: JPY183mn (-42.6% YoY) ▷ Segment operating profit: JPY49mn (-63.7%) ▷

The drop in segment sales and earnings reflects the decline in office building rental income at consolidated subsidiary R.T. Development Co., Limited.

Segment sales finished the quarter 2.1% above plan and operating profit 65.8% above plan.

FY03/17 results

Sales: JPY143.5bn (+0.9% YoY) ▷ Operating profit: JPY13.5bn (-27.5% YoY) ▷ Recurring profit: JPY14.8bn (-23.8% YoY) ▷ Net income*: JPY11.0bn (-15.6% YoY) ▷ * Net income attributable to the parent company’s shareholders

In March 2017, the company opened the XIV Yugawara Rikyu and booked in full the property fees that had been deferred to this point. In August 2016 the company began sales of memberships to Laguna Baycourt Club (Gamagori City, Aichi Prefecture), a members-only resort hotel. Still, profits were down due to a fall in the number of memberships sold compared to FY03/16, when contract volume temporarily increased on the back of new sales of Ashiya Baycourt Club, the second project of the Baycourt Club series (sales started in June 2015). Profits also fell due to higher expenses related to opening new properties.

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Main initiatives in FY03/17

Date Overview April 2016 Opened Trust Garden Tokiwamatsu, a senior residence with serviced nursing care (Shibuya, Tokyo) May 2016 Started healthcare business in a joint venture with Orix Corporation via consolidated subsidiary Kosei

June 2016 Rebranded and opened Hotel Trusty Nagoya Shirakawa

June 2016 Started members-only medical examination club HIMEDIC Kyoto University Hospital

July 2016 Started members-only medical examination club HIMEDIC Nagoya

August 2016 Began sales of memberships to members-based Laguna Baycourt Club (Gamagori City, Aichi Prefecture)

October 2016 Acquired 181,000sqm of land for a new hotel in Atami City, Shizuoka Prefecture

February 2017 Decided to open Trust Garden Kyoto Shijo (tentative), a serviced senior residence with 54 rooms, in March 2018

February 2017 Decided to acquire shares of Activa Biwa, a company operating a senior residence with serviced nursing care (384 rooms) in Otsu City, Shiga Prefecture

March 2017 Opened XIV Yugawara Rikyu

Membership

Sales: JPY42.5bn (-8.1% YoY) ▷ Segment operating profit: JPY7.0bn (-29.4% YoY) ▷

In March 2017, the company opened the XIV Yugawara Rikyu and booked in full the property fees that had been deferred to this point. The company started selling memberships to Laguna Baycourt Club (a members-only resort hotel in Gamagori City, Aichi Prefecture) in August 2016. In Q3 FY03/16, the launch of Ashiya Baycourt Club temporarily boosted contract volume, but the effects wore off in FY03/17, and in comparison FY03/17 sales were down due to a fall in the number of memberships sold.

The Membership segment’s contract value was JPY55.2bn (-17.0% YoY), with hotel memberships generating JPY54.9bn (-15.3%) and golf memberships generating the remaining JPY300mn (down from JPY1.7bn in FY03/16). Contract value for opened hotels was up 6.7% YoY to JPY19.2bn and down 23.9% to JPY35.7bn for unopened hotels (the Laguna Baycourt Club, XIV Rokko, and Ashiya Baycourt Club). In FY03/16, membership sales for Ashiya Baycourt Club (Baycourt series) was JPY30.1bn, making up half of the segment’s total contract value, but the figure dropped to JPY12.5bn in FY03/17 significantly pushing down the contract value year on year. The company had estimated that hotel membership contract value would grow at an average of around 5% per year. Yet the growth rate exceeded the company’s target (excluding the impact from the start of selling Ashiya Baycourt Club memberships in FY03/16): in FY03/17, the contract value of hotel memberships was JPY54.9bn versus JPY39.9bn in FY03/14, meaning an average growth rate of 11.2%.

As a result of lower membership contract value, Membership segment revenue was JPY42.5bn (-8.2% YoY). Of this, revenue from hotel membership sales was JPY40.6bn (-6.7%) and revenue from golf membership sales was JPY100mn (down from JPY1.1bn in FY03/16). Total revenue from memberships in unopened hotels (before deducting the revenue deferred until opening) came to JPY32.4bn (-22.7% YoY). The negative impact of deferred portion of property fees in unopened hotels was JPY18.1bn (JPY23.3bn negative impact in FY03/16), so total revenue (after deducting deferred revenue) came to JPY24.5bn (-13.7% YoY). Revenue from opened hotels was JPY16.1bn (+7.3%).

Even with the one-time profits following revenue from golf memberships in FY03/16, segment operating profit dropped due to lower revenue from hotel membership sales and higher costs related to opening new properties, creating a tough YoY comparison.

Sales were 10.6% lower than forecasts, but segment profit was 3.1% higher than forecasts. Revenue missed the forecast because the membership contract value fell under targets and unopened hotel memberships outperformed while opened hotel memberships fell short. The target membership contract value for FY03/17 was JPY56.3bn, while the actual contract value was JPY55.2bn. The contract value of unopened hotels amounted to JPY35.7bn, exceeding the target by JPY4.9bn––particularly

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because the contract value from Laguna Baycourt Club was JPY20.0bn, surpassing the target by JPY7.6bn––while for opened hotel memberships the contract value was JPY5.8bn short of targets, at JPY19.2bn. Due to switching from XIV (i.e., up-selling), the contract value of existing hotels was JPY1.3bn, falling below the target by JPY6.2bn. As a result, segment revenue came to JPY42.5bn, undershooting the JPY47.6bn target by JPY5.0bn. Revenue missed the target, but segment profit surpassed it since incentives decreased owing to the membership contract value missing the target.

Hotel and Restaurant

Sales: JPY74.2bn (+1.9% YoY) ▷ Segment operating profit: JPY3.0bn (-34.1% YoY) ▷

While the full-year operation of XIV Toba Bettei (opened in March 2016) contributed to sales growth, the rate of growth was just 1.9% due to inclement weather such as a series of typhoons. Profits declined on higher personnel costs (approx. JPY1.9bn), as the company hired about 500 new employees in April 2016, in line with opening XIV Yugawara Rikyu and Ashiya Baycourt Club. The repair costs of JPY350mn for Hotel Trusty Nagoya Shirakawa further pushed down profits.

Sales were 1.4% lower and segment operating profit was 3.5% lower than forecasts.

Medical

Sales: JPY25.7bn (+17.9% YoY) ▷ Segment operating profit: JPY3.0bn (-17.0% YoY) ▷

Sales rose as Kosei, which provides consulting services regarding management of medical facilities, became consolidated, and as the senior residence business grew. Annual membership revenue also grew on increased membership numbers.

At the medical examination club business, membership contract value fell JPY800mn YoY to JPY4.2bn. However, annual membership revenue increased as membership increased to 16,473 (+8.9% YoY).

At the senior life business, sales rose owing to higher sales at Trust Garden Tokiwamatsu opened in April 2016. The number of rooms was 1,075 (+4.9% YoY) and overall occupancy rate was 90.0% (vs. 87.6% in FY03/16).

Operating profit fell due to an increase in commissioned examination fees associated with the opening of HIMEDIC Kyoto University Hospital (opened in June 2016) and HIMEDIC Nagoya (opened in July 2016). Kosei, which became a consolidated subsidiary in Q1, contributed to operating profit after amortization of goodwill.

Sales were 8.2% lower and segment operating profit was 20.1% lower than forecasts. At the medical examination club business, membership contract value was JPY4.2bn, undershooting the target by JPY800mn. CICS, which became a consolidated subsidiary in Q2, was expected to have sales of JPY1.4bn for BNCT (Boron Neutron Capture Therapy) accelerators, but booking of sales was delayed to FY03/18.

Others

Sales: JPY1.1bn (-17.1% YoY) ▷ Segment operating profit: JPY503mn (-7.7% YoY) ▷

Sales and profits were down owing to lower office rental income, as the ratio of tenants that were group companies rose at consolidated subsidiary R.T. Development Co., Ltd.

Sales were 4.7% lower and segment operating profit was 5.1% lower than forecasts.

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FY03/16 results

Sales: JPY142.2bn (+18.1% YoY) ▷ Operating profit: JPY18.6bn (+16.2% YoY) ▷ Recurring profit: JPY19.4bn (-3.8% YoY) ▷ Net income*: JPY13.0bn (+10.1% YoY) ▷ * Net income attributable to the parent company’s shareholders

In FY03/16, sales of hotel memberships were robust, such as for Ashiya Baycourt Club, the second project of the Baycourt Club series (sales started in June 2015). In November 2015, Resorttrust began selling memberships for XIV Rokko Sanctuary Villa. At the Medical segment, in December 2015 the company began providing check-ups at a new base (HIMEDIC Tokyo Bay) of Grand HIMEDIC Club, which offers comprehensive medical support. As XIV Toba Bettei opened in March 2016, the company booked revenue for the property portion of new membership fees, which had been delayed until the hotel opened. Recurring profit was down due to the lack of non-operating income from a forex gain that was booked the previous year. Net income increased due to a gain on securities sales and the absence of impairment losses (JPY2.7bn in impairment losses booked in the previous year).

While membership sales rose due to new contracts for resort hotels that have yet to be opened, the deferral of revenue from property fees (booked only after the hotel is opened) weighed on both sales and earnings, leaving sales 1.8% below plan, operating profit 4.4% below plan, recurring profit 5.6% below plan, and net income 1.9% below plan.

Membership

Segment sales: JPY46.3bn (+37.8% YoY) ▷ Segment operating profit: JPY9.9bn (+58.9% YoY) ▷

Sales of hotel memberships were robust, such as for Ashiya Baycourt Club, the second project of the Baycourt Club series. In addition, XIV Toba Bettei opened in March 2016, so the company booked sales of JPY10.3bn and profits of JPY3.0bn from the property portion of membership fees that had been deferred until opening. This offset the JPY600bn in expenses to open the XIV Toba Bettei, so operating profit grew faster than sales.

With more hotel memberships sold, membership contract value for the year rose 36.2% to JPY60.8bn. The company saw increasing sales of memberships for resort hotels that have yet to be opened. Sales rose more than expected, particularly for Ashiya Baycourt Club. With the opening of the XIV Toba Bettei in March 2016, the company booked one-time sales of JPY9.8bn from previously deferred property fee revenues, which contributed JPY3.0bn to segment profits. Property fee revenue from memberships for unopened hotels (Ashiya Baycourt Club, XIV Yugawara Rikyu, and XIV Rokko Sanctuary Villa) is not recognized until hotel openings; the amount deferred came to JPY13.1bn in FY03/16 versus JPY11.0bn the previous year.

In line with rising sales of hotel memberships, the company saw revenue from membership registration fees rise 33.0% YoY to JPY22.8bn. Deferred property fees slightly affected results, but the company booked revenue from property fees for XIV Toba Bettei, opened in March, which boosted property fee revenues by 57.1% YoY to JPY29.4bn.

Membership segment sales finished the year 5.7% below plan and operating profit 12.5% below plan. Although the value of memberships sold exceeded the company's forecast by JPY3.4bn, this was due to sales of memberships in hotels that had yet to be opened, which came in JPY8.2bn above plan. Sales of memberships in operating hotels came in JPY4.7bn below plan. As a result, membership sales (before deferral of property fee revenue for unopened hotels) came in JPY2.2bn above plan, but deferred property fee revenue was JPY3.9bn more than the company had expected.

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Hotel and Restaurant

Segment sales: JPY72.8bn (+11.2% YoY) ▷ Segment operating profit: JPY4.6bn (-6.9% YoY) ▷

Sales at the Hotel Trusty series for general customers remained firm, and The Kahala Hotel & Resort, a property in Hawaii acquired in October 2014, contributed to higher segment sales. However, personnel costs rose roughly JPY2.0bn due partly to increased staff for new hotel openings, leading to a rise in sales and fall in profits.

Segment sales finished the year 1.2% below plan and operating profit 17.1% above plan. Sales missed forecasts because the occupancy rate for XIV Hakone Rikyu fell to 79.0% from 89.3% in FY03/15. This was from the Meteorological Agency raising its volcanic warning level for Hakoneyama, Kanagawa Prefecture in June 2015 from Level 2 (“Do not approach the crater”) to Level 3 (“Stay off the mountain”). Segment profit exceeded forecasts because the company shifted personnel away from hotels with lower occupancy rates, reducing costs, and increased prices of the Hotel Trusty series. In November 2015, the Meteorological Agency lowered the volcanic warning level for Hakoneyama to Level 1 (“Volcano is potentially active”).

Medical

Segment sales: JPY21.8bn (+10.4% YoY) ▷ Segment operating profit: JPY3.6bn (-15.3% YoY). ▷

Growth in the senior life business helped propel sales, while more memberships meant revenue from annual membership fees increased.

The company sold 2,328 HIMEDIC memberships, down 12.8% versus last year, leaving registration fee revenue down 15.1% YoY at JPY4.7bn. The decline in HIMEDIC membership sales reflected restricted sales stemming from the limited capacity of HIMEDIC centers during 1H, but capacity increased in 2H with the start of examination services at HIMEDIC Tokyo Bay club (membership capacity of 3,100) in December 2015 and at HIMEDIC Kyoto University Hospital club (capacity: 4,200) in January 2016.

With HIMEDIC club membership rising 15.8% YoY to 15,132 members, revenues from annual member dues rose 22.6% to JPY5.6bn.

Revenues from the company's senior life business rose 19.5% YoY to JPY6.3bn, with growth underpinned by the opening of the new premium nursing home Suncrea Hongo in August 2015. This brought the total number of rooms under management at end FY03/16 to 1,025 (up from 907 one year earlier) and the occupancy rate up to 87.6% (versus 80.8%).

The decline in earnings was due to expansion of the medical club's diagnostic capabilities. According to management, the costs of equipping a single diagnostic facility typically run between JPY10mn and JPY20mn.

Segment sales finished 5.1% above plan and operating profit 5.7% below plan.

Others

Segment sales: JPY1.3bn (-16.1% YoY) ▷ Segment operating profit: JPY545mn (-11.6% YoY) ▷

Sales and profits were down owing to lower office leasing revenue at consolidated subsidiary R.T. Development Co., Ltd. and a rise in expenses such as property tax.

Segment sales finished 5.3% below plan and operating profit 24.0% above plan.

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FY03/15 results

Sales: JPY120.4bn (+3.1% YoY) ▷ Operating profit: JPY16.0bn (+5.6% YoY) ▷ Recurring profit: JPY20.2bn (+20.1% YoY) ▷ Net income: JPY11.9bn (+35.7% YoY). ▷

The company changed its accounting methods in Q1 FY03/15. To ensure like-for-like comparisons, figures have been retroactively restated for year-on-year comparisons (note, figures in the table above have not been retroactively restated).

Recurring profit was higher than operating profit mainly due to a forex gain of JPY3.5bn booked as non-operating income. When the company acquired The Kahala Hotel & Resort, it entered into a forward exchange contract in July 2014 at the exchange rate of USD/JPY102. In March 2015, since the exchange rate was USD/JPY120, the company booked a valuation gain through a forex gain.

In October 2014, the company acquired The Kahala Hotel & Resort, a high-end resort in Hawaii, marking its first expansion overseas in the hotel business. In addition to expenses related to this acquisition, results were also negatively impacted by the rollover of some revenues from memberships in unopened hotels until opening, namely XIV Toba Bettei and XIV Yugawara Rikyu. Still, growth in sales and profits outperformed targets as the impact of the pullback after the consumption tax hike was more moderate than expected, while in the Medical segment, HIMEDIC memberships and residents in the senior life business increased.

Membership growth FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 Tokyo Baycourt Club 2,839 3,331 4,659 6,286 7,095 8,209 8,424 8,493 XIV 57,145 59,443 60,659 62,127 64,800 67,232 70,431 74,870 Sun Members 40,306 39,522 38,839 38,192 37,429 36,688 36,124 35,572 Golf 23,674 25,114 25,585 25,798 27,428 28,574 29,712 30,635 HIMEDIC 5,136 5,782 5,964 6,328 6,983 8,235 10,523 13,070 Cruiser 489 494 496 472 490 488 465 428 Total 129,589 133,686 136,202 139,203 144,225 149,426 155,679 163,068 Source: Shared Research based on company data Membership

Sales: JPY33.6bn (-7.4% YoY) ▷ Segment operating profit: JPY6.2bn (-0.3% YoY). ▷

Hotel club membership sales increased year-on-year, and contract value for the full year was JPY46.6bn (+17.1% YoY). Notable contributions to this result included contracts totaling JPY11.8bn at XIV Toba Bettei (JPY6.6bn in FY03/14) and JPY9.2bn at XIV Yugawara Rikyu (no contracts booked in FY03/14).

Meanwhile, a portion of revenue (property portion of JPY11.0bn) for unopened hotels will not be recognized until hotel openings, namely XIV Toba Bettei (scheduled to open in March 2016) and XIV Yugawara Rikyu (scheduled to open in March 2017). As a result, sales decreased.

Segment operating profit margin rose 1.3pp year-on-year driven by an increase in relatively high-margin registration fees within the sales mix. However, due to a year-on-year fall in sales, segment operating profit decreased year-on-year. According to the company, the impact of membership revenues related to unopened hotels (XIV Toba Bettei and XIV Yugawara Rikyu) on segment operating profit was approximately JPY3.0bn.

Versus forecasts, sales were 6.1% higher, and segment operating profit was 7.8% higher.

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Hotel and Restaurant

Sales: JPY65.5bn (+5.1% YoY) ▷ Segment operating profit: JPY4.9bn (-0.5% YoY). ▷

In FY03/14 the company booked costs of approximately JPY600mn associated with reopening the Sun Members resort Resorpia Hakone (after renovations in April 2013), and the grand opening of Hotel Trusty Kanazawa Korinbo (in June 2013), the seventh Hotel Trusty property. This year, however, these new facilities started contributing to revenues. Still, the company booked expenses associated with the acquisition of The Kahala Hotel & Resort, a high-end property in Hawaii, in October 2014. As a result, sales increased by profits were up.

The Kahala Hotel & Resort was included in the consolidated income statement during Q4 alone, booking sales of approximately JPY1.7bn and operating profit before depreciation of around JPY260mn. However, due to the booking of acquisition-related expenses of approximately JPY850mn and depreciation expense of around JPY340mn, The Kahala Hotel & Resort had an overall negative impact on profit of around JPY930mn.

Versus FY03/15 forecasts, sales were 1.0% higher, and segment operating profit was 4.2% lower.

Medical

Sales: JPY19.7bn (+13.9% YoY) ▷ Segment operating profit: JPY4.3bn (+14.2% YoY). ▷

Growth in the senior life business helped propel sales, while growth in memberships meant revenue from annual membership fees increased. Versus FY03/15 forecasts, sales were 5.2% higher, and segment operating profit was 4.8% higher.

Contract volume for medical memberships in FY03/15 was 2,693 memberships (+5.5% YoY), and revenue from registration fees was JPY5.6bn (+5.0% YoY). In Q1 (April–June), there were limitations on capacity for sales of medical memberships caused by the limited capacity of HIMEDIC centers. Consequently, the contract volume for medical memberships was 526 memberships (-17.2% YoY), and revenue from registration fees was JPY1.1bn (-17.8% YoY). From Q2 (July–September) onward, capacity for sales of HIMEDIC medical memberships increased due to such factors as an increase in capacity at existing facilities, the launch of sales for Tokyo Bayside PET Center (opened in May 2015), and advance sales for HIMEDIC Nagoya (scheduled to open in July 2016). As a result, contract volume during Q2 was 769 memberships (+5.8% YoY) and revenue from registration fees was JPY1.1bn (+5.3% YoY). In Q3 (October–December), contract volume was 674 memberships (+11.2% YoY), and revenue from registration fees was JPY1.4bn (+11.4% YoY). In Q4 (January–March 2015), contract volume was 724 memberships (+23.8% YoY), and revenue from registration fees was JPY1.5bn (+23.3% YoY).

Revenue from annual fees was JPY4.6bn (+33.1% YoY), driven by an increase in members to 13,070 (+24.2% compared with end-03/14).

Revenues at the senior life business increased to JPY5.3bn (+18.0% YoY). The occupancy rate increased to 80.8% at end-FY03/15 (76.6% at end-FY03/14), and the number of rooms increased to 907 (813 in FY03/14). The growth in rooms was attributable to the opening of Trust Garden Todoroki in April 2014 and the acquisition of Yuga Higashi Minemachi in May 2014.

Segment operating profit was higher, driven by the growth in sales.

Others

Sales: JPY1.6bn (+77.2% YoY) ▷ Segment operating profit: JPY617mn (+143.8% YoY). ▷

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Sales and profits were up owing to higher office rental income at consolidated subsidiary R.T. Development Co., Ltd. Versus FY03/15 forecasts, sales were 4.0% lower, and segment operating profit was 21.1% higher.

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Other information

Income statement

Income statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Total sales 104,708 87,254 103,645 108,976 99,894 105,311 116,824 120,401 142,249 143,541 YoY 7.9% -16.7% 18.8% 5.1% -8.3% 5.4% 10.9% 3.1% 18.1% 0.9% Cost of sales 25,805 16,892 28,635 28,247 19,221 19,994 21,383 18,051 24,466 25,878 Gross profit 78,903 70,362 75,010 80,729 80,672 85,316 95,440 102,350 117,783 117,662 YoY 6.8% -10.8% 6.6% 7.6% -0.1% 5.8% 11.9% 7.2% 15.1% -0.1% GPM 75.4% 80.6% 72.4% 74.1% 80.8% 81.0% 81.7% 85.0% 82.8% 82.0% SG&A expenses 64,662 64,954 63,818 67,556 70,780 73,261 80,321 86,308 99,142 104,148 SG&A-to-sales ratio 61.8% 74.4% 61.6% 62.0% 70.9% 69.6% 68.8% 71.7% 69.7% 72.6% Operating profit 14,241 5,408 11,192 13,173 9,891 12,054 15,119 16,041 18,640 13,514 YoY 3.2% -62.0% 107.0% 17.7% -24.9% 21.9% 25.4% 6.1% 16.2% -27.5% OPM 13.6% 6.2% 10.8% 12.1% 9.9% 11.4% 12.9% 13.3% 13.1% 9.4% Non-operating income 674 703 708 808 1,999 1,700 2,381 5,752 2,664 3,176 Non-operating expenses 561 667 983 639 2,447 778 768 1,588 1,865 1,884 Recurring profit 14,354 5,444 10,917 13,342 9,443 12,976 16,731 20,206 19,439 14,806 YoY 4.3% -62.1% 100.5% 22.2% -29.2% 37.4% 28.9% 20.8% -3.8% -23.8% RPM 13.7% 6.2% 10.5% 12.2% 9.5% 12.3% 14.3% 16.8% 13.7% 10.3% Extraordinary gains 720 260 21 668 892 243 123 632 1,355 3,477 Extraordinary losses 2,555 2,007 4,026 6,142 1,366 1,710 1,544 3,129 3,263 1,993 Tax charges 5,007 3,367 3,917 4,749 4,958 4,173 6,775 7,943 4,441 5,244 Implied t ax rat e 40.0% 91.1% 56.7% 60.4% 55.3% 36.3% 44.3% 44.9% 25.3% 32.2% Non-controlling interests 77 -177 -1,190 -183 -1,403 208 -70 -2,084 45 35 Ne t in c o me 7,435 507 4,185 3,302 5,415 7,127 8,605 11,851 13,044 11,010 YoY 10.9% -93.2% 725.4% -21.1% 64.0% 31.6% 20.7% 37.7% 10.1% -15.6% Net margin 7.1% 0.6% 4.0% 3.0% 5.4% 6.8% 7.4% 9.8% 9.2% 7.7% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

Historical performance vs. estimates

Results vs. Initial Est. FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYｍn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales (Init ial Est .) 108,300 108,500 105,800 112,400 92,600 106,200 108,500 114,600 144,600 160,400 Sales (Results) 104,708 87,254 103,645 108,976 99,894 105,311 116,824 120,401 142,249 143,541 Results vs. Initial Est. -3.3% -19.6% -2.0% -3.0% 7.9% -0.8% 7.7% 5.1% -1.6% -10.5% Operat ing profit (Init ial Est .) 14,900 12,400 6,500 11,800 5,500 10,700 13,000 15,200 17,500 17,700 Operat ing profit (Result s) 14,241 5,408 11,192 13,173 9,891 12,054 15,119 16,041 18,640 13,514 Results vs. Initial Est. -4.4% -56.4% 72.2% 11.6% 79.8% 12.7% 16.3% 5.5% 6.5% -23.6% Recurring profit (Init ial Est .) 15,000 12,300 6,200 11,800 6,800 10,800 14,100 15,900 18,300 19,500 Recurring profit (Result s) 14,354 5,444 10,917 13,342 9,443 12,976 16,731 20,206 19,439 14,806 Results vs. Initial Est. -4.3% -55.7% 76.1% 13.1% 38.9% 20.1% 18.7% 27.1% 6.2% -24.1% Net income (Init ial Est .) 8,500 6,700 3,400 5,000 4,200 6,400 7,600 9,800 12,800 13,200 Net income (Results) 7,435 507 4,185 3,302 5,415 7,127 8,605 11,851 13,044 11,010 Results vs. Initial Est. -12.5% -92.4% 23.1% -34.0% 28.9% 11.4% 13.2% 20.9% 1.9% -16.6% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.

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Balance sheet

Balance sheet FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ASSETS Cash and deposits 19,281 18,267 20,352 14,514 22,950 29,443 46,151 53,687 24,742 39,063 Marketable securities 16,995 10,001 17,899 13,999 7,999 28,399 15,698 42,193 28,466 6,215 Notes and accounts receivable 5,724 5,668 3,604 3,676 4,401 4,247 5,979 5,994 6,738 9,437 Operating loans receivable 25,088 27,136 28,350 26,313 24,296 23,423 23,305 27,448 38,050 41,553 Inventories 43,949 49,441 43,071 34,768 29,100 21,128 16,339 22,135 35,258 44,797 Deferred tax assets 3,110 2,707 4,722 4,640 4,359 4,283 4,036 3,714 3,985 4,810 Others 3,285 5,488 2,548 2,137 2,809 3,089 2,399 3,152 10,011 5,555 Total current assets 117,432 118,708 120,546 100,047 95,914 114,012 113,907 158,323 147,250 151,430 Buildings and structures 48,989 49,969 52,732 54,359 53,909 52,949 61,355 90,369 93,458 93,810 Machinery, equipment and vehicles 4,857 4,167 2,914 2,338 2,009 1,739 2,146 1,769 2,059 2,258 Golf courses 8,479 8,555 12,338 12,337 12,245 11,036 11,036 9,563 7,568 7,585 Land 22,123 24,105 25,582 26,515 27,503 27,691 39,176 40,417 40,561 37,946 Lease asset - 3,148 3,124 2,933 2,817 2,665 2,538 2,506 2,835 4,715 Construction in progress 6,535 4,572 3,311 1,287 1,788 2,144 2,303 4,007 5,588 4,842 Other fixed assets 3,169 2,694 2,416 2,454 1,758 1,374 1,409 5,150 4,812 4,663 Total tangible fixed assets 94,152 97,210 102,417 102,223 102,032 99,601 119,967 153,784 156,884 155,824 Goodwill - 407 - 292 237 268 359 231 146 4,526 Others 2,989 3,136 3,723 3,541 3,205 2,874 2,745 3,120 4,195 5,865 Total intangible fixed assets 2,989 3,543 3,723 3,833 3,442 3,142 3,104 3,351 4,341 10,391 Investment securities 15,430 13,269 12,569 12,635 16,395 21,954 49,889 60,805 82,506 85,687 Others 9,978 10,350 17,317 18,619 17,368 15,150 13,892 14,567 16,448 18,272 Total investments and other assets 25,408 23,619 29,886 31,254 33,763 37,104 63,781 75,372 98,954 103,959 Total fixed assets 122,549 124,372 136,026 137,310 139,237 139,849 186,853 232,508 260,179 270,175 Total assets 239,981 243,080 256,572 237,359 235,151 253,861 300,761 390,832 407,430 421,606

LIA BILITIES Notes and accounts payable 802 714 735 642 881 893 913 1,096 1,123 1,401 Short-term debt 33,933 35,989 28,056 13,903 11,776 9,377 9,514 12,113 13,292 14,066 Accounts payable-other - - - 13,109 8,200 6,558 12,761 9,301 20,755 22,786 Income taxes payable 3,010 857 5,685 2,398 2,289 2,483 4,594 4,482 1,426 3,800 Advances received 7,529 18,076 9,504 810 807 744 3,354 13,304 25,227 33,532 Other current liabilities 17,793 15,266 21,496 14,786 13,657 15,131 17,396 21,299 19,971 20,193 Total current liabilities 63,067 70,902 65,476 45,648 37,610 35,186 48,532 61,595 81,794 95,778 Long-term debt 13,264 12,270 20,582 15,961 16,959 31,085 39,993 71,361 63,423 53,708 Convertible bonds ------15,064 35,558 30,242 30,200 Long-term security deposits received 102,452 102,533 102,765 103,772 104,762 105,161 103,924 103,154 103,098 102,492 Other fixed liabilities 3,259 6,579 7,473 10,593 10,936 9,283 11,829 14,393 16,356 21,047 Total long-term liabilities 118,975 121,382 130,820 130,326 132,657 145,529 170,810 224,466 213,119 207,447 Total liabilities 182,042 192,284 196,296 175,979 170,268 180,716 219,343 286,062 294,914 303,226 Net assets Capital stock 14,216 14,258 14,258 14,258 14,258 14,258 14,258 16,977 19,588 19,588 Capital surplus 13,948 13,906 13,906 13,906 13,906 13,906 13,969 19,984 22,583 22,171 Retained earnings 34,252 31,038 33,877 35,016 38,772 43,391 49,085 57,807 65,938 71,837 Treasury stock -5,206 -9,082 -9,066 -8,369 -8,035 -5,679 -4,366 -2,705 -3,451 -2,788 Accumulated other comprehensive income 192 -97 257 -198 -92 395 1,465 7,670 3,694 3,089 Share subscription rights - - 189 366 544 287 133 57 16 - Non-controlling interests 538 775 6,849 6,400 5,529 6,585 6,872 4,978 4,146 4,480 Total net assets 57,940 50,798 60,270 61,379 64,883 73,145 81,418 104,769 112,515 421,606 Working capital 48,871 54,395 45,940 37,802 32,620 24,482 21,405 27,033 40,873 52,833 Total interest-bearing debt 47,197 48,259 48,638 29,864 28,735 40,462 49,507 83,474 76,715 67,774 Net debt 27,916 29,992 28,286 15,350 5,785 11,019 3,356 29,787 51,973 28,711 Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods. Assets Current assets Other than cash and equivalents and marketable securities, current assets are mostly made up of inventories and prepaid expenses (loans to members).

Inventories The majority of the company's inventories are accounted by "property for sale" and "property for sale in process." In FY03/17, property for sale was worth JPY15.6bn and property for sale in process was worth JPY26.9bn. Property for sale in process tends to increase when the number of hotel development projects increases, as this increases the number of memberships sold in hotels

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that have not yet opened. Looking back over the last ten years, we find inventories peaking in FY03/09 and declining steadily through FY03/14, then turning higher from FY03/15.

Prepaid expenses Prepaid expenses refer to the loans (managed by subsidiaries Justfinance and Best Credit) made to members for purchasing memberships rights.

Fixed assets The largest fixed asset categories are buildings, land, and investment securities.

Buildings and land Buildings and land include the company's hotels, senior residences, employee dormitories, leased buildings, and The Kahala Hotel and Resort (book value of JPY33.1bn as of FY03/16).

The company owns only about 20% of members-only resort hotels, and the remaining 80% of property rights are transferred to members. As such, the value of the members-only resort hotels carried on the balance sheet is much smaller than the company's initial investment.

Investment securities Investment securities include stock, corporate bonds, and other bonds held for the purpose of strengthening the relationship between Resorttrust and the companies with which it does business.

Liabilities Liabilities are mostly interest-bearing debt and long-term security deposits received.

Long-term security deposits received Long-term security deposits received, booked as a liability, refers to the security deposit customers pay when purchasing memberships. Equal to 10% of the cost of the membership, the security deposit goes toward the cost of repair and maintenance, and a portion is deducted every year over 30 years, with the deducted portion booked as sales each year.

Shareholder equity The largest component of shareholder equity is retained earnings, which has increased steadily over the years in conjunction with net earnings. Except for the retained earnings, shareholder equity increased JPY5.4bn in FY03/15 and JPY5.2bn in FY03/16 due to the exercise of convertible bonds with warrants that has been previously issued by the company.

Funding In July 2013, the company issued a yen-denominated convertible bond with warrants maturing in 2018 (total of 3,000 warrants, face value JPY5.0mn, conversion price of JPY4,306 per share). After expenses, the issue netted the company about JPY15.0bn. Of this amount, the company allotted JPY7.7bn to build its new members-only resort, XIV Toba Bettei, completed in January 2015. JPY825mn went to toward building the Hotel Trusty Kanazawa Korinbo, a general hotel completed in October 2013. JPY2.6bn went to finance the acquisition of Encourage, Inc., the owner of Trust Grace Mikage. The company allocated the remainder of the funds to repay outstanding debt.

In November 2014, the company announced the issuance of a euro yen-denominated convertible bond with warrants maturing in 2021 (total 3,000 warrants, face value JPY10mn, conversion price JPY3,343 per share). The company used all proceeds from the issue of these bonds to acquire The Kahala Hotel & Resort by the end of December 2014. Of the funds for this acquisition, the company used JPY30.0bn to repay a short-term loan and the remainder to pay related administrative fees.

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Statement of cash flows

Cash flow statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from operating activities (1) 7,416 6,114 21,270 14,126 19,657 21,338 24,773 22,057 2,616 26,249 Pre-tax profit 12,518 3,697 6,911 7,866 8,969 11,508 15,408 17,709 17,531 16,290 Depreciat ion 5,169 6,321 6,083 6,185 6,166 5,482 5,523 5,876 7,030 7,746 Change in accounts receivable -1,642 -2,882 888 1,718 1,328 1,046 -1,596 -4,140 -11,439 -6,160 Change in inventories -3,005 -5,827 6,388 7,081 5,442 7,490 4,481 -6,021 -13,379 -9,443 Income taxes paid -6,976 -5,963 79 -8,780 -4,866 -4,754 -4,777 -7,878 -8,460 -3,758 Cash flows from investing activities (2) -22,687 -4,776 -5,341 -5,962 -15,546 -15,958 -33,747 -71,837 -33,824 3,881 Purchase of marketable securities -13,980 -37,945 -14,495 -34,097 -66,281 -51,201 -40,491 -69,497 -68,719 -9,768 Sale and redemption of marketable securities 7,400 40,000 18,502 29,600 65,800 41,000 53,900 56,748 81,251 32,740 Purchase of investment securities -2,001 -3,859 -2,917 -2,898 -7,170 -7,274 -28,086 -30,560 -48,826 -12,560 Sale and redemption of investment securities 1,131 4,520 - 1,000 700 1,300 1,800 14,136 13,385 9,582 Purchase of tangible fixed assets -10,852 -6,104 -5,272 -4,849 -6,373 -3,005 -18,439 -39,516 -4,940 -13,964 Purchase of int angible fixed asset s - -1,158 -960 -352 -543 -336 -264 -756 -1,236 -2,041 Free cash flow (1+2) -15,271 1,338 15,929 8,164 4,111 5,380 -8,974 -49,780 -31,208 30,130 Cash flows from financing activities 7,205 -6,506 -1,457 -19,131 -3,351 11,447 22,221 60,359 -8,624 -15,593 Net change in short-term debt 18,768 668 -12,996 -12,890 -2,110 - 600 4,250 -2,500 5,990 Proceeds from long-term debt - 7,000 18,239 9,530 13,393 22,704 17,828 36,270 4,577 300 Repayments of long-term debt -6,826 -4,555 -11,081 -13,421 -11,463 -9,954 -8,282 -7,377 -6,725 -15,941 Proceeds from issuance of bonds 1,479 - 5,901 - 1,075 1,467 15,047 32,691 - - Dividends paid -2,322 -1,897 -1,385 -1,847 1,400 -2,120 -2,953 -3,613 -4,914 -4,982 Depreciation and amortization (A) 5,156 6,358 6,120 6,134 6,127 5,440 5,529 5,895 6,994 6,994 Capital expenditures (B) -10,852 -7,262 -6,232 -5,201 -6,916 -3,341 -18,703 -40,272 -6,176 -16,005 Working capital change (C) -846 5,524 -8,455 -8,138 -5,182 -8,138 -3,077 5,628 13,840 11,960 Simple FCF (NI + A + B - C) 2,585 -5,921 12,528 12,373 9,808 17,364 -1,492 -28,154 22 -9,961 Source: Share Research, based on company data Note: Figures may differ from company figures owing to differences in rounding. Cash flows from operating activities The company's cash flow from operating activities is affected by net income, depreciation, and changes in working capital.

Cash flows from investing activities The company's cash flow from investing activities varies depending on capital expenditures (acquisition of tangible and intangible fixed assets), purchases/sales/redemptions of marketable securities, and purchases/sales/redemptions of investment securities.

Cash flows from financing activities The company's cash flow from financing activities is affected by new loans and repayment of interest-bearing debt and dividend payments. When Resorttrust is actively opening new resort hotels, cash flow from financing activities tends to increase.

During the past ten years, cash flow from financing activities turned positive due to increased interest-bearing debt between FY03/13 and FY03/15.

History

The company’s founding dates back 40 years to a period when Japanese views on leisure activities were undergoing significant changes. Japan’s period of rapid postwar growth gave rise to more individuals, (particularly baby boomers), who decided to use their free time to enjoy leisure activities instead of work. During that period, resorts in Japan were typically limited to a few districts, such as the popular hot springs of Hakone (west of Tokyo), and group trip destinations. The country did not have many leisure facilities that provided a high degree of comfort. Within this context, the company’s founders, Yoshiro Ito (the current chairman) and Katsuyasu Ito (the current president), felt there was much potential growth in the resort business, despite the prevailing view that the industry was unlikely to succeed in Japan. The two took note of US timeshare businesses that allowed quick recovery of initial investment and provided annual fees for stable revenue, and using it as a general model, they launched the company.

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The company’s first facility was the (currently named) Sun Members Nagoya Shirakawa (opened in 1974). Trading and construction companies cooperated in developing the resort on a lot that was previously a golf driving range. The development was a success. In the same year, the company opened Japan’s first membership resort hotel, Sun Members Hirugano.

Resorttrust overcame difficult periods during the oil crisis and the 1985 Toyota Shoji scandal. It was around this time that creditworthiness and brand image became important within the membership business. In the first half of the 1980s, Resorttrust had a 15% share in the membership-hotel market but continued to improve its creditworthiness through increased transparency of member rights. Consequently, Resorttrust was able to create a successful business model ahead of its competition, and by leveraging its high rates of customer satisfaction and brand recognition, the company proceeded to secure its current 75% share of the domestic membership-hotel market.

The 1985 Toyota Shoji scandal is perhaps one of the largest swindling operations in history. A fraudulent investment company convinced thousands of people (mostly elderly) to invest in paper ownership of gold bars.

Timeline Apr. 1973 Takarazuka Enterprises Co. Ltd., Resorttrust’s predecessor, established in Nagoya’s Naka Ward.

Dec. 1974 The company’s first membership resort hotel, Sun Members Hirugano, opened in Gujo, Gifu.

Apr. 1986 The company changed its name to Resorttrust, Inc.

Jan. 1989 Established Resorttrust Okinawa, Inc. for the purpose of constructing and operating hotels. The company also moved into property leasing and in March 1996 changed its name to Resorttrust Development, Co., Ltd. (now R.T. DEVELOPMENT CO., LTD., a consolidated subsidiary).

Sep. 1992 Established High Technology Medical Complex Co., Ltd. (now a consolidated subsidiary) for the purposing of selling and managing medical club memberships.

Sep. 1997 Listed on the Japan Securities Dealers Association’s OTC market.

Nov. 2000 Listed on the First Section of the Tokyo Stock Exchange (TSE) and the Nagoya Stock Exchange (NSE).

Sep. 2005 Along with Mitsui Fudosan Co., Ltd., jointly established Tokyo Midtown Medicine Co., Ltd. (now a consolidated subsidiary) to offer consulting services for the management of medical facilities.

Sep. 2006 Made Kokokara Co. (now consolidated subsidiary Well Trust Co., Ltd.), which manages fee-paying senior residences in Tokyo’s Bunkyo Ward, into a subsidiary.

Nov. 2006 Began providing medical examinations at HIMEDIC The University of Tokyo Hospital located in Tokyo’s Bunkyo Ward.

Mar. 2007 Established the Tokyo Midtown Medical Center in Tokyo’s Minato Ward in an alliance with Johns Hopkins Medicine International.

Apr. 2011 Established joint venture United Ocean Medical Management Limited with Chambow Investment Limited in Hong Kong to enter the Chinese market.

Nov. 2012 Gained control of Sunvenus Takarazuka Co., Ltd., which operates the private nursing home Sunvenus Takarazuka (Hyogo Prefecture).

May 2013 Gained control of Trust Grace Mikage (formerly Encourage Inc.), which operates a senior residence with medical and nursing care, and a serviced senior housing complex.

Oct. 2013 Opened Grand HIMEDIC Club HIMEDIC Midtown center.

Jul. 2014 Opened RESORTTRUST HAWAII, LLC in Hawaii. Acquired The Kahala Hotel & Resort in October of the same year (Honolulu, Hawaii).

Apr. 2015 Opened HIMEDIC Tokyo Bay Imaging Center as a PET scanning center for GRAND HIMEDIC CLUB.

Dec. 2015 Opened HIMEDIC Tokyo Bay center for the GRAND HIMEDIC CLUB.

(For information on resort openings, please see the Principal Operations and Core Products and Services section.)

News and topics October 2017 On October 16, 2017, the company announced it has started construction of the members-only resort hotel Yokohama Baycourt Club Hotel & Spa Resort and The Kahala Hotel & Resort Yokohama.

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The Yokohama Baycourt Club Hotel & Spa Resort (members-only resort hotel operated under the company’s high-end brand Baycourt Club) and The Kahala Hotel & Resort Yokohama (non-membership luxury hotel operated under the brand of the famous The Kahala Hotel & Resort in Oahu, Hawaii) will be constructed alongside each other. Both hotels are scheduled to open around the summer of 2020, and the start of membership sales for Yokohama Baycourt Club Hotel & Spa Resort and other details will be decided at a later date.

Overview of hotels under construction

Name Yokohama Baycourt Club Hotel & Spa Resort The Kahala Hotel & Resort Yokohama Location 1 Chome Minatomirai, Nishi-ku, Yokohama-shi, Kanagawa Prefecture Rooms 138 (room area: roughly 50–135sqm) 146 (room area: roughly 50–120sqm)

Total project cost JPY45.8bn

February 2017 On February 14, 2017, the company announced it acquired the shares of the operator of the Activa Biwa private nursing home for seniors (Otsu City, Shiga Prefecture).

Resorttrust acquired all shares in Activa Co., Ltd., which operates the Activa Biwa private nursing home for seniors, and the business was transferred accordingly.

Overview of acquired subsidiary

Name Activa Co., Ltd.

Location Otsu City, Shiga Prefecture

Business Operation of Activa Biwa private nursing home for seniors

Capital JPY1mn

Overview of operated facility

Name Activa Biwa

Location Otsu City, Shiga Prefecture

Capacity/Rooms Independent living: 525 people, 300 rooms

Medical or nursing care: 84 people, 84 rooms

Lump-sum move-in fee Independent living: JPY15.5mn–JPY81.5mn

Medical or nursing care: JPY20mn

October 2016 On October 28, 2016, the company announced revisions to its 1H and full-year earnings forecasts for FY03/17.

1H FY03/17 earnings forecast revision

Sales JPY65.2bn (previous forecast of JPY71.7bn) ▷ Operating profit JPY4.7bn (JPY6.8bn) ▷ Recurring profit JPY4.7bn (JPY7.7bn) ▷ Net income JPY3.6bn (JPY5.0bn) ▷

Full-year FY03/17 earnings forecast revision

Sales JPY152.0bn (previous forecast of JPY160.4bn) ▷ Operating profit JPY14.2bn (JPY17.7bn) ▷ Recurring profit JPY15.1bn (JPY19.5bn) ▷ Net income JPY10.2bn (JPY13.2bn) ▷

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Reasons for revisions The company expects consolidated and individual sales and profits to miss initial company forecasts. This is because hotel memberships were selling more slowly than initially expected, property fees to be booked in full as sales in March 2017 (when XIV Yugawara Rikyu is slated to open) are projected to be lower than expected given that membership sales underperformed initial projections, and the company booked forex losses (a non-operating expense).

Initially, the company was expecting robust membership sales similar to in FY03/16 for Ashiya Baycourt Club. But now it expects overall membership sales to miss initial forecasts due to a drop off of Ashiya Baycourt Club membership sales and the macro environment. For Ashiya Baycourt Club and Laguna Baycourt Club, both of which had sales exceeded initial forecasts, the company plans to book property fees in full when the hotels open, including property fees going forward, in FY03/18 and FY03/19, respectively.

It kept its dividend forecast unchanged (annual dividend: JPY46).

May 2016 On May 13, 2016, the company announced that it will start healthcare business in a joint venture with Orix Corporation.

HIMEDIC, Resorttrust’s wholly owned subsidiary, and Orix (TSE1: 8591) have agreed to launch joint healthcare business. On May 13, 2016, Kosei (Resorttrust’s consolidated subsidiary), a joint venture between the two companies, entered a business outsourcing agreement with Shinkokai Iryouhoujinshadan to provide healthcare services. Shinkokai is an incorporated association specializing in medical examination, with eight facilities in Tokyo and one in Sendai. From May 16, 2016, Kosei will provide support for medical office work and other services at Shinkokai’s nine medical clinics. Resorttrust and Orix also aim to expand their business support activities to other medical institutions through Kosei.

Outline of joint venture

Company name: Kosei ▷ Capital: JPY50mn ▷ Shares held: 50% by Resorttrust Group, 50% by Orix Group (investment on March 31, 2016) ▷ Date of establishment: August 22, 2000 ▷ Business: Accounting/financial services, and general affairs operations for medical institutions, etc. ▷

Major shareholders

Top 10 shareholders Shareholding ratio Takarazuka Corporation, Inc. 12.37% Japan Trustee Services Bank, Ltd. (Trust account) 9.71% The Master Trust bank of Japan, Ltd. 4.25% Sapporo Breweries Limited 3.09% Yoshiro Ito 2.69% GI Co., Ltd. 1.77% Sumitomo Life Insurance Company 1.43% (Standing proxy: Japan Trustee Services Bank, Ltd.) Northern Trust Co. (AVFC) Re Mondrian International Small 1.43% Cap Equity Fund, L.P.

KINDEN CORP 1.33% SMBC Trust Bank Ltd. 1.29% Source: Shared Research based on company data Excluding treasury stock As of March 31, 2017

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Shareholder returns

The company's dividend policy calls for payout ratio of at least 30% on a consolidated basis, though since FY03/14 Resorttrust has been working to get the payout ratio up to 40%. The annual dividend payment of JPY46.0 per share in FY03/18 represents a dividend payout ratio of 41.5%.

Other shareholder benefits include a 30% discount certificate at its restaurants and general hotels for those owning at least 100 shares and a 50% discount certificate for those owning at least 1,000 shares (number of discount certificates received increases in proportion to the number of shares held). The discounts can be used on food and drinks for up to five people at specified restaurants and rooms charges for one night for up to five rooms at Hotel Trusty hotels.

The company also occasionally buys back shares, as conditions warrant.

Top management

The CEO and chairman of Resorttrust is Yoshiro Ito (born in 1940). In 1959, he began working at Takarazuka Property Co. (now Takarazuka Corporation, Inc.). He became a director in 1961 and CEO of Takarazuka Property in 1962 (a position he still holds). In 1973, he cofounded Takarazuka Enterprise (renamed Resorttrust in 1986).

The company’s president and COO, Katsuyasu Ito (born in 1943), became a certified public accountant in 1972. In 1973, he cofounded Resorttrust and joined the company as a managing director. In 1980, he became senior managing director, and in 1999 took on his current position of COO and president. Despite sharing the same last name, he is not related to the company’s chairman.

Employees

As of the end of FY03/17, the company had 6,698 employees on a consolidated basis and 2,856 average annual temporary staff. On a parent basis, the numbers are 4,839 and 1,892 respectively.

FY03/17 the company’s parent-level employees had the following averages:

Average age: 34.3 years old ▷ Average time at the company: 7.7 years ▷ Average salary: JPY5.3mn (FY03/17) ▷

By the way

“XIV,” used in the name of the company’s mainstay hotel series, is pronounced “eksiv.” This name came from the fact that a hotel room of the company is typically shared by 14 people, and 14 is XIV in Roman numerals.

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Company profile Company Name Head Office 2-18-31 Higashisakura Resorttrust, Inc. Naka-ku Nagoya-shi Aichi, Japan 460-8490 Phone Listed On Tokyo Stock Exchange 1st Section, +81-52-933-6000 Nagoya Stock Exchange 1st Section Established Exchange Listing April 2, 1973 November 27, 2000 Website Fiscal Year-End http://www.resorttrust.co.jp/e_index.html March IR Contact IR Web - http://www.resorttrust.co.jp/english/ IR Mail IR Phone [email protected] +81-52-933-6519

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