MK Capital Management Corporation

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2 Contents 1. Overview of Interim Financial i Results for FY2010 P Capital and Business Alliance with Unison Capital P6 P. and the Mid Term Management Plan 3. Business Environment and Our Goal P Overview of Our Business P. 15 1

3 1. Overview of Interim Financial Results for FY2010 2

4 Interim financial result FY2010 Business outline Continuing concentration on AM business and Staying on the offensive AM (Asset Management) We have started new business called DR and focused on existing business including AM Replacement. Starting DR (Debt Restructuring) (Please see 4. Overview of Our Business ; page.15-20) Succeeded in recording on DR which has been launched from this fiscal year. Developing and enhancing relationship with both domestic and international financial institutions. Adding values to existing projects under our management etc. Recorded incentive fees through disposition at higher price beyond the scope of assumption. Focusing on leasing activities. AI(Asset Incubation) (Principal Investment) Going ahead with reducing principal investment business and minimizing risk factors Extension of repayment period Succeeding in extension of loans from Bank of Tokyo Mitsubishi UFJ (related to FLEZIO LA (Nagoya City, Aichi Pref.)), we have completed extending loans from Mizuho Bank (related to FLEZIO Shimo-Kitazawa (Setagaya-ku, Tokyo)). Focusing on adding values mainly to leasing activities FLEZIO LA and FLEZIO Shimo-Kitazawa maintain full occupancy. FLEZIO Gotanda (Shinagawa-ku, Tokyo) has only one vacant floor of 7 floors (soon to be leased up in full). Preparations for latter half year of FY 2010 Entering into Capital and Business Alliance with Unison Capital (Please see 3. Capital and Business Alliance with Unison Capital and the Mid Term Management Plan ; page.6-9) Improving Real Estate Management Division Setting up Real Estate Management 3rd Division and adding staff in order to deal with increasing AUM through AM Replacement, DR, and new fund raising. Developing global investors Focusing on fund raising mainly by Strategic Investment Development Office newly set up in September

5 FY 8/10 2Q (Sep. 1, 2009 Feb. 28, 2010) Summary of Statement of Income We have succeeded in returning to be profitable for 2Q of FY 2010 covering costs within net sales. We are going to structure stable income generating system from AM fees through fast expansion of AUM and early disposition of all of real estate for sale in principal investment. Raising operation rates of real estate for sale has contributed to net sales. Write-down of real estate for sale has already dealt in FY 2009 posting 4,019 million Yen. SGA reduction by 465 million Yen (-56.2%) mainly by downsizing and head office relocation. In FY 2010, we seem to be in deficit (Net loss 152 Mn) due to finance costs concerning the third party allotment capital increase and improving platform (increase of 15 people from FY 2009) to expand AUM for profit contribution from FY In FY 2010, we are planning to dispose a real estate t for sale in principal i investment t and to post 1,500 Mn of sales (1,369 Mn of cost of sales). FY 8/09 (Consolidated) FY 8/09 2Q (Consolidated) (A) FY 8/10 2Q (B) Yr toyr (B-A) FY 8/10 (Projection) Net sales 2, ,522 Asset Incubation business (Principal Investment business) 1, ,768 Asset Management business Cost of sales 5,803 3, (3,199) 1,515 Gross profit (loss) (3,426) (2,875) ,320 1,006 Selling, general and administrative expenses 1, (465) 965 Labor cost (163) 566 Rent expense (77) 35 Allowance for doubtful accounts (155) 93 Operating income (loss) (4,990) (3,704) 81 +3, Ordinary income (loss) (5,092) (3,766) 43 +3,809 (140) Extraordinary income (47) 27 Extraordinary loss 1, (773) 38 Income before income taxes (6,223) (4,478) 56 +4,535 (150) Net income (loss) (6,351) (4,595) 55 +4,651 (152) (Note) Figures are rounded down to the nearest million Yen. 4

6 End of FY 8/10 2Q (Sep. 1, 2009 Feb. 28, 2010) Summary of Balance Sheets No significant change on Balance Sheet. We moreover focus on heightening equity capital ratio. Cash and deposit slightly decreased by repayment of loan (0.2 Bn) and cash injection for same boat in DR. Current portion of long-term loans increased as the maturity of loan for FLEZIO Gotanda is due in September This loan is now under review for extension. We will dispose all of real estate for sale as early as possible. As a result, all of loans will be repaid and equity capital ratio will become more than 80%. After all, such superior soundness in financial status and transparency that our investors for AM business require will be achieved. End of FY 8/09 (Consolidated) (A) End of 8/10 2Q (B) increase and decrease (B-A) Current Assets Total Current Assets 6,207 6,004 (202) Cash and deposits 2,296 1,960 (335) Real estate for sale 3,255 3,249 (6) Operating loans (after exemption of Allowance for doubtful accounts) (22) Non-current Assets Total Non-current Assets (19) Investments and other assets (9) Current Liabilities Total Current Liabilities 381 1,622 +1,241 Current portion of long-term loans 67 1,353 +1,286 Lease deposits received Non-current Liabilities Total Non-current Liabilities Long-term loans only 3,537 2,023 (1,514) Net Assets Total Net Assets Equity Capital Ratio 2, % 2, % % Total Assets 6,605 6,382 (222) (Note) Figures are rounded down to the nearest million Yen. 5

7 2. Capital and Business Alliance with Unison Capital and the Mid Term Management Plan 6

8 Outline of Capital and Business Alliance with Unison Capital Goal To heighten our corporate value and shareholders value through expanding AUM and ordinary income etc. Capital Alliance To secure same boat money About 2.4 billion Yen of finance Financed money is used only for same boat money to expand AUM, not for repayment of our existing corporate loans. The same boat money will be utilized for DR and new fund raising. Business Alliance 1 Execution support for growth strategy To supply AM companies facilities which are necessary to be trusted by various investors. Execution support for expanding investors network and product composing etc. Launching new business (Core Fund, Mezzanine Loan Fund, and Fund Management etc.) Expanding deal sourcing network Enhancing readiness for financial institutions and our investors. Business Alliance 2 Enhancement of treasury strategy, business administration and corporate governance Specializing in fee business to form an AM company with high trust and transparency. Enhancing risk management system and compliance system much stronger. Business Alliance 3 Supplement of human resources To secure necessary human resources for our growth utilizing Unison Capital s human network. (Planning and executing our growth strategy, expanding risk management system) (especially financial oriented human resources) Business Alliance 4 Entry of board members etc. 3 outside board members will join in order to enhance business administration and corporate governance. (will be submitted to the extraordinary shareholders meeting in May, 2010) To drive material business strategies which will influence The Mid Term Management Plan in accordance with Unison Capital. 7

9 The Mid Term Management Plan 5-year Mid Term Management Plan starting from FY 8/11 Aim for 4 Bn of ordinary income and 600 Bn of AUM at the end of FY 8/15 14,000 12,000 Changing in AUM and Ordinary Income (Projection) 690 Bn 10, Bn 560 Bn 8, Bn 6,000 4,000 2, Bn 76.6 Bn 190 Bn 2.5 Bn 320 Bn 4.3 Bn 2.8 Bn 0.7 Bn 0.9 Bn 4.6 Bn 2.4 Bn 6.4 Bn 6.6 Bn 4.2 Bn 4.3 Bn AUM (final balance) Net Sales Ordinary Income 0-2,000-5 Bn -0.1 Bn FY 8/09 FY 8/10 FY 8/11 FY 8/12 FY 8/13 FY 8/14 FY 8/15 (Result) (Note) This Projection is subject to capital increase in the future (after FY 8/11). Figures in FY 8/09 are consolidated basis. 8

10 The Mid Term Management Plan - Breakdown of AUM (Basic Concept) 1 st To Expand Our Scale through AR and DR. 2 nd To Launch Mezzanine Loan Fund by FY 8/12. 3 rd To Launch Core Fund by FY 8/13. 8,000 Breakdown of AUM (Projection) 7, Bn , Bn 560 Bn 5,000 4,000 3, Bn 420 Bn Value Added Mez Loan Fund Core Fund DR (Debt Restructuring) AR (AM Replacement) 2, Bn Existing AM 1, Bn 0 FY8/09 FY8/10 FY8/11 FY8/12 FY8/13 FY8/14 FY8/15 (Result) (Note) This Projection is subject to capital increase in the future ( after FY 8/11). Figures in FY 8/09 are consolidated basis. 9

11 3. Business Environment and Our Goal 10

12 Our Goal Evolution to become most trustful and transparent AM in Japan which can manage global money -To be the Financial / Realty Capital Management Company - Hereafter Financial Soundness Risk Management System Transparency Product Composing Skills Global readiness Readiness for Financial Institutions Rejection of Conflict Ex xpansion n of facil lities req quired fo or AM Upcoming 5 years Realty Management Market More than 35 trillion Yen Global Investment Money Inflow MK s Action Plans Building Massive Financial Soundness No interest generating loans More than 80% of Equity Capital Ratio Strict Risk management System Building High Transparency Rejection of Conflict Various Product Planning Past Deal Sourcing Skills Management Skills Realty Traders Network Present Realty Management Market 13 trillion Yen Readiness for Global Investors Enhancing Relationship with Various Financial Institutions Expansion of the market Past Realty Products Hereafter Financial Products 11

13 Our Environment - Golden Chance for our Growth has come Future One & Only AM Company: To be the Financial / Realty Capital Management Company Going ahead with new business plans to manage various types of global investors money DR, Value Added Fund, Mezzanine Loan Fund etc. Specializing in fee business model and building high trust and transparency to investors Seeking for more sound financial status Financing 2.5 Bn through Capital Business Alliance with Unison Capital Seeking to more than 80% of capital equity ratio through disposing all of our principal investment real estate Present Concentration on AM business Restructuring has completed in FY 8/09 Sound Financial Status 42.3% of Equity Capital Ratio (as of end FY 8/10 2Q) Slugging of Japanese real estate trade market Outside Environment Huge Investment money in the world Financial Crisis Great decrease of competitors 12

14 Japanese Real Estate Investment Market will grow stably Market s Trend Japan World-wide 2000~ 2004~ In response to dealing with NPL through bubble economy s collapse, advanced financial technologies in Europe and America started to be introduced in Japan. Fund Bubble s appearance Capital Markets started to become greater and globalized ~Present World Financial Crisis Breakdown of financial market Seeking for soft landing A few years Japanese Real Estate Investment Market needs to be Alignment of over leverage from 2010 restructured in debt side. Many investors seek for new investment opportunities. Market Opportunities Financial institutions require restructuring of their loan credits (from SPCs point of view, restructuring of their debt) Key success factor is relationship management with financial institutions. 1. Financial Institutions seek for soft landing of NPL s deals. 2. As Japanese real estate investment market has grown up so rapidly within 4 or 5 years, a lot of quantity of loans are going to reach their maturity in a few years. 3. Many AM companies have disappeared or lost their credibility. As a result, survivors with enough track records and credibility enjoy profits. Coming Decade Aging of society Expansion of Investment money s quantity and valuation Financial Real Estate Market s Upgrading and Development Aging of advanced countries / Economic Growth and Advance of Developing countries Expansion of Investment money s quantity and valuation Market Opportunities Japanese Real Estate Investment Market will grow up stably in global investment market. Key Success Factors are building high credibility and transparency for various global investors. (Global service, Credibility, Track records etc.) 1. Huge and Global Investment money (especially pension funds) seek for good investment opportunities. 2. Only few portion of investment money flows into real estate investment market compared to stock market. J-REITs market cap (2.8 trillion Yen) is 0.64% to GDP. The portion is one third to U.S. US-REITs market cap (23.4 trillion Yen) is 1.82% to GDP. (A/T ARES as of end of February, 2010) 3. Japanese Real Estate have high potentiality as investment target. Real estate generate stable and enough income cash flow. (Real estate s cap rate is higher than stocks dividend) Japanese economy fulfill such conditions as enough scale, maturity, legal system, security, technology, environment etc. which are necessary for stable investment. 13

15 Statistics indicate probable expansion of Japanese real estate investment market 20 Tn Yen 2.5 Tn Yen In coming 3 year 110 Tn $ Globally High Growth rate Sources:MK Capital s analysis by METI s White Paper in 2009 and research institutions materials OECD Overseas Economic Council for Development (30 advanced countries) BRICs Brazil, Russia, India and China 14

16 4. Overview of Our Business 15

17 AR (AM Replacement) business ( 1) ( 1) AM Replacement Replacement of AM companies <Outline> A scheme to be trusted as AM without cash injection. As many AM companies disappeared or hurt their business quality etc., many SPCs which are under control of investors or lenders need to replace AM companies. Deal sources are financial institutions and investors. As a result, AR is necessary to financial soundness and transparency for financial institutions credit. Existing real estate investment SPC Loan Equity Financial Institution Client Investors Request for AM replacement Needs of Financial institutions and Investors Increase and stabilization of income cash flow Improvement of credit status Improvement of AM business Changeover of party concerned Concentration of AM companies etc. Existing i AM company AM business service succession Why MK is trusted as new AM? Financial soundness Fulfilled platform as real estate AM company Trust for high quality AM business 16

18 DR1 (Debt Restructuring1) business ( 1) ( 1) Debt Restructuring A scheme supports SPC s debt restructuring. <Outline> DR for SPCs which are financed through non-recourse loan except CMBS. MK Capital arranges new equity money for such SPCs whose real estate are default (including concerned) but probable to recover their future market value in order to extend or rearrange their loan. As a result, MK becomes AM trustee. Only few AM companies can inject additional equity. Moreover, this scheme needs enough financial soundness and transparency to be trusted from financial institutions. Past Market Value Present Market Value Essential Economic Value Future Market Value Before Financial crisis Present Merits of Financial Institutions Loan A C Equity Senior Loan LTV improvement (repayment of B part) Improvement of Credit classifications Maximizing credit recovery in a long term etc. Financial A Institution B C Mezzanine Loan Client Investors Merits of Investors Investors can acquire investment Equity opportunities which are not open in regular realty trade market. Reque est for AM repla acement Existing AM company AM business service succession Same boat money injection 17

19 DR2 (Debt Restructuring 2) business ( 1) ( 1) Debt Restructuring A scheme supports SPC s debt restructuring. <Outline> DR for SPCs which are financed through CMBS loan. New SPC setup by client investors money arrangement simply acquires from SPC which is default in CMBS. As a result, MK becomes AM trustee. Past Market Value Pre esent Market Valu ue Es ssential Economic Value Fu uture Market Valu ue SPCs financed through CMBS loan AAA AA A BBB SPC we propose investment Loan Equity Merits of Financial Institutions Acquisitions of new good loan projects Financial Institution Client Investors BB Merits of Investors Investment in good assets which are AM Trustee probable to be managed under core fund Same boat money injection 18

20 VA (Value Added) business ( 1) ( 1)Value Added Real estate investments which improve asset price through adding some values. For example, occupancy improvement through leasing after acquired properties with low occupancy. <Outline> Real estate investment through value adding which MK Capital has tackled. MK Capital acquires such deals and makes proposal to investors and to be trusted for AM as follows: 1. Less valued assets because of market s strain 2. Assets which lost value by some reasons 3. Assets which are possible to increase value through value adding No matter how the market s conditions are, there are some investment opportunities of value adding. MK Capital tackles for adequate project eagerly. 19

21 Mezzanine Loan Fund business <Outline> Mezzanine Loan Fund for real estate investment SPCs which want to improve leverage. Through twice experience of bubble collapse, financial institutions seem to keep their LTV from 50 through 55%. Therefore, needs for mezzanine loan will be likely to increase because many equity investors want to improve their investment efficiency. However, mezzanine lenders failed in twice bubble collapse as they could not exercise adequate valuation and interim management. This is why MK Capital aims its business opportunity. Not only supplying mezzanine loan, but also MK Capital will supply adequate valuation, interim monitoring, execution support of adding value and exit strategy backed our rich experience as real estate AM company. Present Market Value Essential Eco nomic Value Future Market Value Senior Loan Equity Mezzanine Loan Financial Institution Mezzanine Loan Fund Client Investors Needs of Equity Investors Improvement of Investment efficiency Other AM company Merits of Client Investors Investment in middle return investment product by minimizing real estate market risk 20

22 Corporate profile (as of February 28, 2010) Representative Ichirota Kato, President and Representative Director Headquarter Minami-Aoyama, Minato-ku, Tokyo, Japan Incorporated September 10, 2001 Listed March 23, 2006 (TSE Mothers : Security Code 2478) Employees 35 Capital 2,143 million Yen (3,393 million Yen : as of April 5, 2010) Qualifications acquired by officers and employees Real estate related qualifications Real Estate Transaction Specialist 18 1 st class Architect 3 Real Estate Appraiser 1 ARES Certified Master 9 Registered Real Estate Consultant 3 Building Management Business Consultant 2 Licenses Affiliate associations A registered Money Lender Office Tokyo Metropolitan Governor (2) No A registered Realty Business Office Tokyo Metropolitan Governor (2) No A registered Financial Instruments Office Kanto Local Financial Bureau (FI) No.1235 The Second Financial Instrument Business Investment Management Business Investment Advisory and Agency Business A registered Realty Appraisal Office Tokyo Metropolitan Governor (1) No.2154 A registered General Realty Investment Advisory Office General No.115 A registered 1 st class Architect Office Tokyo Metropolitan Governor No The Association for Real Estate Securitization (ARES) All Japan Real Estate Federation Japanese Association of Real Estate Appraisal Tokyo Association of Real Estate Appraisers etc. Special Industrial Waste Manager 3 Fire Prevention Manager 4 Finance related qualifications Certified Public Accountant 3 Certified Public Tax Accountant 3 Certified Public Accountant in U.S. (U.S.CPA) 2 Money Lending Business Specialist 3 Affiliated Financial Planner 4 21

23 Disclaimer This document includes the forecast, future plans, managerial goal and so forth of MK Capital Management Corporation. Future plans reflect projections made by the Company based on information available as of April 13, 2010, and may differ materially from actual results depending on future conditions. MK Capital Management does not promise or guarantee that the plans mentioned in the document will be realized. This document does not constitute an invitation or solicitation of an offer to subscribe for or purchase any securities and neither this document nor anything contained herein shall form the basis for any contract t or commitment t whatsoever. ~ Inquiries ~ Management Planning Office TEL: / FAX: