Financial Products Group (FPG) is an independent financial services company. Its main business is Lease Arrangement Business. In this business, for each lease, the company puts together an SPC (special purpose company) that manages an operating lease business, and then places equity in the SPC’s silent partnerships with investors (primarily SMEs). The SPCs raise funds to purchase aircraft, shipping vessels, and marine shipping containers by placing stakes with investors and from bank loans. The partnerships lease the aircraft, shipping vessels, and marine shipping containers to lessees such as airlines and shipping companies. Commissions (explained in more detail below), which the company receives from SPCs, are included in the equity funding from investors.
Diversified Financial Services
Executive Summary
Overview and other information
Growth driven by Leasing Fund business: Financial Products Group (FPG) is an independent financial services company. One mainstay business is Leasing Fund (74.8% of revenues in FY09/21; includes the aircraft investment management services business). In this business, for each lease, the company puts together a special purpose company (SPC) that manages an operating lease business, and then places equity in the SPC’s silent partnerships with investors (primarily SMEs). The SPCs raise funds to purchase aircraft, shipping vessels, and marine shipping containers by placing stakes with investors and from bank loans. They lease the aircraft, shipping vessels, and marine shipping containers to lessees such as airlines and shipping companies. Commissions (explained in more detail below), which the company receives from SPCs, are included in the equity funding from investors.
Deferred tax benefits for investors and low leasing payments for lessees: By opting for the declining balance depreciation method in their income statements, the SPCs tend to have net losses in the first half of the leasing period, before becoming profitable in the second half. Investors are able to defer taxes owed, as their overall earnings are reduced when their share of losses from the silent partnership offsets profits from their main businesses. Investors can also expect to receive investment returns with a similar interest rate to that on ordinary bank deposits. FPG’s investors are primarily concerned with tax deferrals, not returns, so capping expected investment returns with a similar interest rate to that on ordinary bank deposits allows FPG to offer competitive leases to lessees. This gives it an advantage in arranging leasing deals.
Main revenue sources are arrangement fees and commissions: Arrangement fees for arranging operating lease deals, and commissions received from the SPC for placing equity in the silent partnerships with investors are the main sources of income for FPG. Arrangement fees plus commissions are around 14% (average through FY09/20; not disclosed for FY09/21) of the total amount of equity placement in operating leases.
Earnings structure features fixed costs and high margins: FPG’s cost ratio is around 17.9% (latest 10-year average), and fixed costs are the main component of SG&A expenses, so incremental profit margin is high. OPM has averaged 51.4% over the last 10 years.
The Real Estate Fund business has become established as a second earnings pillar: This business offers real estate fractional ownership investment products to investors (such as high net worth individuals). Real estate fractional ownership investment products allow investors to make small lot investments in prime urban properties (trust beneficiary rights sold from JPY10mn/unit). Other advantages include no need for time-consuming, labor-intensive property management and operation, and the ability to utilize the products as investments as well as inheritance/gift assets. Revenues of real estate fractional ownership investment products totaled JPY2.6bn, sales were JPY20.8bn, and total amount of assets arranged in real estate fractional ownership investment products was JPY34.8bn, all record highs, making the business second to the Leasing Fund business in terms of earnings.
In previous economic downturns, such as FY09/09 following the global financial crisis, revenues fell 5.1% YoY, but growth resumed in FY09/10, with revenues rising 89.3%. That being said, the arrangement of operating leases may be affected by capex trends of airlines and the marine transport industry. The total amount of assets arranged in operating leases in FY09/20 was negatively impacted by the steep global economic downturn and worsening operating environment for airlines amid the COVID-19 pandemic.
Large potential market: In FY09/21, the total amount of equity placement in operating leases at the Leasing Fund business was JPY94.5bn. Meanwhile, in fiscal 2020, there were 916,000 SMEs (companies with capital of JPY10mn to under JPY1bn) in Japan with aggregate recurring profit of JPY23.0tn (Shared Research estimates based on Ministry of Finance’s fiscal 2020 Financial Statement Statistics of Corporations). On the supply side, in FY09/21 the total amount of assets arranged by FPG in operating leases was JPY158.7bn, whereas the market for aircraft (a major lease asset for FPG) is massive with over 40,000 new aircraft expected to be manufactured over the next 20 years (source: Boeing’s Commercial Market Outlook 2020-2040, etc.) for a total value of USD7.2tn.
Few competitors: There are only around 10 companies involved in the Japanese Operating Lease market. Many are reluctant to expand in this area, so there are only three specialists, including FPG. In the Real Estate Fund business, the company distinguishes itself from the competition with real estate fractional ownership investment products that use trust beneficiary rights.
From 2016, FPG has been selected as a constituent stock for the JPX-Nikkei Index 400, stock index composed of companies that meet the requirements of global investment standards, such as the efficient use of capital and investor-focused management.
Trends and outlook
In FY09/21, revenues were JPY14.9bn (+17.4% YoY), operating profit was JPY5.2bn (+178.5%), recurring profit was JPY5.1bn (+199.4%), and net income attributable to owners of parent was JPY2.9bn (+159.4%). Growth in revenues and profits was driven by the mainstay Leasing Fund business and the Real Estate Fund business. In the Leasing Fund business, revenues were JPY11.1bn (+0.5% YoY) while operating profit grew sharply as the losses associated with the operating lease deal for Air Mauritius, which went bankrupt, were fully accounted for in Q1. In the Real Estate Fund business, revenues and profit grew substantially as the company maintained a virtuous cycle of deal origination and sales.
Effective from the start of FY09/22, FPG has adopted the revised Accounting Standard for Revenue Recognition. The company's full-year forecast for FY09/22 (revised April 26, 2022) calls for revenues of JPY49.0bn (+45.9% YoY based on retroactively adjusted FY09/21 result), operating profit of JPY9.7bn (+85.3% YoY), recurring profit of JPY10.0bn (+94.2% YoY), and net income attributable to owners of parent of JPY6.7bn (+127.4% YoY). The company aims for higher revenues and profits driven by expanded revenues in the Real Estate Fund business and improved profitability in the Leasing Fund business.
On November 2, 2020, the company unveiled a new medium-term management plan spanning from FY09/21 to FY09/23. It positions these years as a period to implement structural changes in its businesses in order to strengthen the company’s sustainability. FPG intends to create new business value by leveraging the various business licenses held by the FPG group (e.g., Type I and Type II financial instruments business operator licenses), and fusing them with digital technologies. As focus areas, the company plans to (1) grow the Real Estate Fund business, (2) launch a FinTech business, and (3) undertake initiatives in connection with sustainable development goals (SDGs) to enhance its enterprise value. In the updated rolling medium-term plan (FY09/22–FY09/24), the company laid out plans to reform its businesses and tackle challenges for continued sustainable growth and set a goal of steadily maintaining recurring profit of above JPY10bn from FY09/23 onward. Further, as a key initiative, the company stated it would aggressively seek out and review M&A deals to build a new business that would serve as its third pillar of earnings next to the Leasing Fund and Real Estate Fund businesses.
Strengths and weaknesses
Shared Research believes the company’s strengths are its leading market share from a track record in Japanese Operating Lease, being in a promising market with few competitors, and an efficient, high-margin earnings structure. Weaknesses: product structures may have to be reviewed due to tax system reform, and origination amount is affected by capital investment trends in specific industries (For details see Strengths and weaknesses section).
Key financial data
Note: Results consolidated from Q2 FY09/13, and values for prior periods are for the parent.
Note: Effective FY09/22, the company has adopted the revised Accounting Standard for Revenue Recognition. The adoption of the revised standard has resulted in changes in accounting methods for sales of real estate fractional ownership investment products (in the Real Estate Fund business). Under the previous standard, only commissions paid to the company from the sale of these products were booked as revenues; under the revised standard, however, the entire sales amounts are booked as revenues.
Recent updates
Company announces upward revision to earnings and dividend forecasts for FY09/22
On April 26, 2022, Financial Products Group Co., Ltd. (FPG) revised up its 1H and full-year FY09/22 earnings forecasts, based on the latest business performance trends. The company also announced an upward revision to its FY09/22 dividend forecast.
As reasons for the upward revision, FPG cited brisk equity placement sales of funds with relatively high returns in the Leasing Fund Business, as well as increased deal arrangement and sales in the Real Estate Fund business amid brisk investor inquiries. The company also revised its annual DPS forecast to JPY40.0, from JPY32.0 previously.
Note: Net income is net income attributable to owners of parent.
Note: 2H estimates are calculated by subtracting 1H estimates from full-year estimates.
Note: Effective FY09/22, the company has adopted the revised Accounting Standard for Revenue Recognition. The adoption of the revised standard has resulted in changes in accounting methods for sales of real estate fractional ownership investment products (in the Real Estate Fund business). Under the previous standard, only commissions paid to the company from the sale of these products were booked as revenues; under the revised standard, however, the entire sales amounts are booked as revenues.
Note: YoY changes were calculated after retroactively applying the Accounting Standard for Revenue Recognition to FY09/21 results.
Trends and outlook
Quarterly trends and results
Note: YoY changes of over 1,000% are shown by “-“
Note: Revised full-year earnings estimates are based on those announced on January 31, 2022.
Note: Effective FY09/22, the company has adopted the revised Accounting Standard for Revenue Recognition. The adoption of the revised standard has resulted in changes in accounting methods for sales of real estate fractional ownership investment products (in the Real Estate Fund business). Under the previous standard, only commissions paid to the company from the sale of these products were booked as revenues; under the revised standard, however, the entire sales amounts are booked as revenues.
Note: YoY changes of over 1,000% are shown by “-“
Note: Total amount of inventory reflects combination of equity underwritten and money in trust (aircraft for arrangement).
Note: The Accounting Standard for Revenue Recognition was retroactively applied to revenues, with revenues recalculated using the gross amount method.
1H FY09/22 results
Key points
Operating profit was up sharply by JPY2.5bn (+70.8% YoY). In addition to an increase in reaction to the JPY490mn valuation loss on aircraft for sale booked a year ago for an operating lease where Air Mauritius Limited ("AML") was the lessee, profit growth was attributed to improved profitability in the Leasing Fund business and the ongoing favorable sales environment in the Real Estate Fund business. Operating profit margin was 19.8%.
Upward revisions to the earnings forecast on April 26, 2022: The company raised its full-year earnings forecast in light of pronounced recovery from the impact of the COVID-19 pandemic in the Leasing Fund business and growth in the Real Estate Fund business. The company also lifted its annual dividend forecast for FY09/22 from JPY32.0 per share to JPY40.0 per share.
Leasing Fund business
The Leasing Fund business posted revenues of JPY7.6bn (+12.9% YoY). The total amount of equity placement in operating leases was in line with the company plan at JPY34.7bn (-36.7% YoY), but equity placement sales of funds with relatively high returns were brisk.
The total amount of assets arranged in operating leases increased 24.3% YoY to JPY106.9bn, as the company originated its largest ever deal for shipping containers in 1H. This marked a strong start toward the annual target of JPY200bn. The total amount of inventory at JPY55.3bn was up versus end-FY09/21.
Real Estate Fund business
Sales of real estate fractional ownership investment products amounted to JPY22.7bn (+109.0% YoY) on the back of ongoing favorable sales conditions. Revenues reached JPY22.8bn, a record high.
The company arranged deals totaling JPY34.7bn by acquiring four properties in 1H, including FPG Minamiaoyama Bleu Cinq Point, its largest ever property acquisition. This total is close to the total of deals arranged in FY09/21 (JPY34.8bn). The total amount of inventory at end-1H was a record high at JPY28.8bn.
Full-year company forecast
Note: Net income is net income attributable to owners of parent.
Note: 2H estimates are calculated by subtracting 1H estimates from full-year estimates.
Note: Effective FY09/22, the company has adopted the revised Accounting Standard for Revenue Recognition. The adoption of the revised standard has resulted in changes in accounting methods for sales of real estate fractional ownership investment products (in the Real Estate Fund business). Under the previous standard, only commissions paid to the company from the sale of these products were booked as revenues; under the revised standard, however, the entire sales amounts are booked as revenues.
Note: YoY changes were calculated after retroactively applying the Accounting Standard for Revenue Recognition to FY09/21 results.
Effective from the start of FY09/22, the company has adopted the revised Accounting Standard for Revenue Recognition. For FY09/22, the company initially forecast revenues of JPY41.0bn, operating profit of JPY5.4bn, recurring profit of JPY5.6bn, and net income attributable to owners of parent of JPY3.7bn (no YoY change has been provided). The company said it would aim for higher revenues and profits driven by expanded revenues in the Real Estate Fund business and improved profitability in the Leasing Fund business.
On January 31, 2022, the company announced upward revisions to its 1H and full-year earnings forecasts along with Q1 results. The revised full-year forecast calls for revenues of JPY44.0bn (+JPY3.0bn versus the initial forecast), operating profit of JPY7.8bn (+JPY2.4bn), recurring profit of JPY8.0bn (+JPY2.4bn), and net income attributable to owners of parent of JPY5.4bn (+JPY1.7bn). The company lifted its initial targets in light of pronounced recovery from the impact of the COVID-19 pandemic in the Leasing Fund business and growth in the Real Estate Fund business.
For 1H, the company forecasts revenues of JPY27.0bn (+JPY2.7bn versus the initial forecast), operating profit of JPY4.4bn (+JPY2.3bn), recurring profit of JPY4.5bn (+JPY2.3bn), and net income attributable to owners of parent of JPY3.1bn (+JPY1.7bn).
On February 24, 2022, Russia launched a military invasion of Ukraine. As part of sanctions it imposed on Russia, EU ordered all European leasing companies to terminate lease contracts with Russian airlines by March 28, 2022. Further, EU banned all sales of aircraft or aircraft parts to Russia, as well as provision of services including aircraft leasing to the country. Soon after these sanctions were imposed, leasing companies in Europe rushed to recall aircraft they had leased to Russian airlines, even seizing them at airports outside Russia where they had landed. The estimated market value of aircraft that have not yet been recalled amount to USD10.3bn (approximately JPY1.2tn), according to Ishka, a company specializing in the aviation industry analysis. If these sanctions continue, the aviation industry in Russia would deteriorate. Of the aircraft operating lease deals the company has arranged, none has a Russian or Ukrainian airline company as the lessee, and hence Shared Research understands these sanctions will have no direct impact on the company's earnings.
On April 26, 2022, the company revised up its 1H and full-year earnings forecasts to reflect its recent performance trends and also raised its dividend forecast. Reasons for the upward revision are brisk equity placement sales of funds with relatively high returns in the Leasing Fund business and increased deal arrangement and sales in the Real Estate Fund business amid brisk investor inquiries. The revised full-year forecast calls for revenues of JPY49.0bn (+45.9% YoY based on retroactively adjusted FY09/21 result), operating profit of JPY9.7bn (+85.3% YoY), recurring profit of JPY10.0bn (+94.2% YoY), and net income attributable to owners of parent of JPY6.7bn (+127.4% YoY).
Medium-term management plan (FY09/22 to FY09/24)
At the same time as announcing FY09/21 results, the company updated its rolling medium-term management plan following disclosure of the FY09/21 to FY09/23 plan on November 2, 2021. The new plan runs for three years from FY09/22 to FY09/24.
Basic policy
In the previous medium-term plan, due to the COVID-19 outbreak in 2020, FPG has positioned the three years covered by the plan as a period to implement structural changes in its businesses in order to strengthen the company’s sustainability. The company aimed to develop its diversified businesses to their full potential over three years covered by the plan.
In the new rolling plan, FPG said that it will work on changes and challenges to continue sustainable growth and target stable recurring profit of over JPY10bn from FY09/23 onward, setting a specific recurring profit target for the first time.
Strategy
Under the previous medium-term plan, the company’s core strategy entailed the creation of new values through integrated use of the various licenses held by the group and the promotion of digital solutions. It aimed to create new businesses by combining its existing business licenses (Type I/Type II financial instruments business, investment management business, investment-based trust company, specified joint real estate ventures, and real estate brokerage) and new business licenses, with digital technologies such as blockchain, AI, cloud, and big data. FPG looked to develop a FinTech business that takes advantage of its distribution network.
Under the new plan, the company will create new products and services that leverage its licenses in financial instruments, real estate, etc., as well as harness digital technologies to progress digital transformation of the FinTech business and in-house operations.
Envisioned business model
Under the previous plan, FPG aimed to leverage its strengths—expert staff, diverse business licenses and the specialized companies that hold such licenses, broad domestic network, and favorable relationships with overseas lessees—to effectively and efficiently deliver financial products and services demanded by SMEs and individuals (potential customers). There are no changes to the envisioned business model under the new plan.
Strategic areas and measures
The company had set the following strategic areas in the previous medium-term plan.
The new plan lays an emphasis on developing a third earnings pillar after the Leasing Fund and Real Estate Fund businesses.
Earnings outlook
In the rolled over medium-term management plan (FY09/22–FY09/24), the company commented that it will work on changes and challenges to continue sustainable growth and target stable recurring profit of over JPY10bn from FY09/23 onward.
Shareholder returns
The company targets a payout ratio (consolidated) of 50%. Shared Research thinks profit distribution to investors will also gradually revert to normal levels in tandem with the recovery in earnings power.
Business
Business
Independent financial services company: Two core businesses are Leasing Fund and Real Estate Fund
FPG is an independent financial services company, engaged in the Leasing Fund, Real Estate Fund, Insurance, M&A, Securities, Trust, and Aviation businesses. In the mainstay Leasing Fund business, the company arranges, sells, and manages Japanese Operating Leases (JOL) covering large transport vehicles and equipment such as aircraft, shipping vessels, and marine shipping containers. In the Real Estate Fund business, the company arranges and sells funds investing in real estate such as real estate fractional ownership products.
Operating lease business drives growth
The company has grown earnings primarily through the operating lease business. CAGR from FY09/11 to FY09/21 was 22.3% for revenues and 17.6% for operating profit. In simple terms, revenues in the operating lease business are total amount of equity placement in operating leases x commission rates (revenues/total amount of equity placement). The company’s revenue growth has been driven by expanding the amount of equity placement in operating leases rather than raising commission rates. Since listing on JASDAQ in September 2010, the company has been able to strengthen its fundraising capacity and increase the amount of equity underwritten (inventory) held on its balance sheet. It is thus able to respond quickly to investor demand, resolving the issue of missed sales opportunities due to insufficient inventory.
How the operating lease business works
In its Leasing Fund business, for each deal, FPG forms a special purpose company (SPC) to run an operating lease business, and places stakes in the silent partnerships of the SPC with investors (mainly SMEs). The SPCs use funds from investors and bank loans to buy aircraft, shipping vessels, and marine shipping containers. Through an operating lease business, these assets are leased to lessees such as airlines and shipping companies. Commissions, which the company receives from the SPCs, are included in the equity funding from investors. In principle, the company does not own assets leased, unlike most leasing companies.
Deferred tax benefits for investors and low leasing payments for lessees
By opting for the declining balance depreciation method in their P&Ls, operating lease SPCs tend to have net losses in the first half of the leasing period before having profits in the second half. Investors are able to defer taxes as their overall earnings are reduced because their share of losses from the SPC offsets profits in their main businesses. They can also expect to receive investment returns with a similar interest rate to that on ordinary bank deposits. FPG’s investors are primarily concerned with tax deferral, so by capping expected investment returns at a low level similar to the interest rate on ordinary bank deposits, the company is able to offer competitive leases to lessees, giving it an advantage in arranging leasing deals.
Main sources of earnings are arrangement fees and placement commissions
FPG’s main sources of earnings are arrangement fees for setting up operating lease deals, and placement commissions received for placing equity in the SPCs’ silent partnerships to investors. The company also receives management fees for operating the SPCs. The commission and management fees are paid by the SPCs to the company. The sum of arrangement fees and placement commissions is around 15% (average over the recent five years) of the total amount of equity placement in operating leases.
Expansion of fundraising capacity
In the operating lease business, the company needs to raise funds via loans from financial institutions or equity investments from customers to buy assets before the leasing period begins. The company sometimes makes a temporary acquisition of equity in operating leases on the assumption that it will eventually be sold to investors. Funds for these temporary advances are either internal or come from financial institutions. If the company expands its fundraising capacity, it is able to put together several deals simultaneously or arrange larger deals, contributing to earnings growth. Growth in the total amount of equity placement in operating leases comes from inventory build-up, with a significant contribution from expanded fundraising capacity.
The aggregate value of committed credit line contracts and overdraft facilities was around JPY1.5bn before FPG listed, but following its listing on the JASDAQ in 2010, TSE Second Section in 2011, and TSE First Section in 2012, its credit standing with financial institutions improved. At end-FY09/21, the aggregate value of FPG’s committed credit line contracts and overdraft facilities stood at JPY102.8bn.
Real Estate Fund business grows into second earnings pillar
The Real Estate Fund business, launched in FY09/13, has grown to become the company’s second earnings pillar. In this business, the company receives commissions for providing real estate fractional ownership investment products to investors (mainly high net worth individuals). Prior to April 2016, FPG offered real estate fractional ownership investment products under the Real Estate Specified Joint Enterprise Act. Since then, it has been offering the products by utilizing the trust services of FPG Trust. Revenues, equivalent to sales of real estate fractional ownership products, were JPY3.2bn in FY09/16 and JPY21.2bn in FY09/21 (CAGR of 46%). Over the same period, the total amount of assets arranged grew from JPY4.1bn to JPY34.8bn, and sales of real estate fractional ownership investment products grew from JPY3.2bn to JPY20.8bn.
Note: Sales of real estate fractional ownership investment products are the total of real estate fractional ownership investment products and in-house developed projects. Sales of real estate fractional ownership investment products are calculated by multiplying the number of trust beneficiary rights sold by JPY10mn.
Earnings structure featuring high fixed cost ratio and high margins
The company’s cost ratio is around 18%, and fixed costs such as personnel expenses are the main component of SG&A expenses, so incremental profit margin is high. The OPM averaged 51.4% over the last 10 years.
Wide customer referral network
FPG receives referrals to investors from accounting firms and financial institutions. Development and expansion of its distribution network among such companies contributes to revenues in both operating lease and real estate fund businesses.
At end-FY09/21, the company had over 5,600 partner accounting firms and more than 140 partner financial institutions in its referral network, including nearly all regional banks and leading securities firms. Revenues increased in the operating lease and diversified businesses in line with expansion of the company’s distribution network.
Leasing Fund business (74.8% of FY09/21 revenues)
Overview of Leasing Fund business
Main players in the Leasing Fund business are FPG, SPCs, investors, and lessees. Each role is outlined below. (For details on operating leases refer to Other information page.)
FPG creates a special purpose company (SPC) to operate an operating lease business and places equity in the SPC’s silent partnership with investors (primarily SMEs).
The SPC raises equity funds from investors or through bank loans and buys aircraft, shipping vessels, and marine shipping containers, which it leases to lessees such as airlines and shipping companies. SPCs tend to have net losses in the first half of the lease period. Since they employ the declining balance depreciation method, depreciation expenses are greater than revenue early in the lease period. Later in the lease, depreciation declines, and the SPCs tend to move into profit.
Investors have a share in the profits and losses of the SPC. Through the earnings from the operating lease business, they can enjoy deferred tax benefits.
The lessees conduct business using assets (aircraft, shipping vessels, and marine shipping containers) obtained under operating leases from the SPC.
FPG’s role in Leasing Fund
In the Leasing Fund business, FPG establishes an SPC, which manages an operating lease business, and places equity in the SPC’s silent partnership with investors (primarily SMEs).
FPG and SPCs
FPG performs all the operations necessary to carry out the leasing business (it arranges operating lease deals, places partnership equity, and manages the business) under contract from the SPC. For each business activity, classified as origination, placement, or management, FPG receives commissions from the SPC. It also receives arrangement fees for origination, placement commissions for placing equity stakes, and management fees, which it books as revenues.
Arrangement fees and commissions are the main source of FPG’s revenues, amounting to about 15% of the total amount of equity placement in operating leases. Management fees comprise only a small percentage of revenues.
FPG and investors
Accounting firms and financial institutions refer investors to FPG, which directly provides investors with explanations on leasing projects in the operating lease business. Before the leasing period under the SPC begins, the company markets equity in the SPC to investors. Once the lease begins, if all the equity in the SPC has not already been placed, the company places the portion it has purchased with investors and executes a transfer in the silent partnership contract.
FPG and referring parties (accounting firms and financial institutions)
FPG has customer referral agreements with accounting firms, tax accountancies, regional banks, and securities firms nationwide. FPG provides product explanations directly to referred investors. If a contract is signed, FPG pays commissions to the referring party. Referral fees are 1–2% of the total amount of equity placement in operating leases. As of end-August 2021, the company had alliances with over 5,600 accounting firms and tax accountancies and 140 financial institutions (regional banks and securities firms).
Business flows in Leasing Fund business
Business flows and revenue classification in the Leasing Fund business, from receiving the mandate through the end of the lease, are as follows.
1. Order receipt (for origination)
The company receives a leasing mandate from a lessee such as an airline, an aircraft leasing company, or a shipping company via a tender or individual negotiation.
Based on a Japanese Operating Lease scheme, the company raises about 30% of funding for the project from investors who accept low expected return. As a result, compared with operating leases from a conventional leasing company, this system allows the company to offer lower-priced leasing rates for the lessee. (See Other information for explanation of Japanese Operating Leases.)
2. Deal origination
An operating lease run by an SPC is arranged based on the type of lease required by the lessee, the financial institutions’ loan terms and conditions, and the projected amount of placement with investors.
Decisions are made on the leasing period, residual value of the asset, lease rates, borrowing interest rates, followed by investors’ expected return, and arrangement fees and placement commission paid by the SPC to the company. Borrowing interest rates depend on the lessee’s credit rating and market interest rates, and expected returns are set at a similar interest rate to that on ordinary bank deposits; these conditions vary little among different products. Yet commissions from equity placement that FPG receives move with lease rates. Lease rates vary by asset and product. If there are numerous competing companies trying to originate a certain leasing deal, rates tend to be lower, while if there are fewer competing companies, they tend to be higher. Aircraft leasing rates are low because there are many companies competing for individual assets. Rates for shipping vessels and marine shipping containers are higher due to fewer competitors (see Operating lease assets section for details).
3. Private offering (placement)
Before the lease term begins, placements to potential investors of equity in the SPC’s silent partnership occur. These are treated as private offerings of securities under the Financial Instruments and Exchange Act.
When the leasing term begins, if some of the equity in the partnership has not yet been placed, FPG temporarily buys the stake on the assumption it will eventually place the stake with investors. The value of these temporary advances paid is booked on the balance sheet as equity underwritten or money in trust (aircraft for arrangement).
4. Lease start (origination)
Based on the lease contract, the SPC starts managing the operating lease business.
5. Transfer (placement)
After the day that the lease term begins, if all of the equity in the SPC has not previously been placed with investors, the company places with investors the portion it has bought, and executes a transfer under the silent partnership contract. This transfer is treated as a securities transaction under the Financial Instruments and Exchange Act.
6. Business management
Under the silent partnership contract, the company manages the operating lease business, including accounting and tax reporting.
7. Lease expiry (origination)
Once the lease has expired, the leased asset is sold, borrowings are repaid and residual assets are distributed to investors.
Role of SPCs in Leasing Fund business
SPCs raise funds by placing equity with investors and through bank loans, which they use to buy aircraft, shipping vessels, and marine shipping containers. The partnerships provide operating leases of the aircraft, shipping vessels, and marine shipping containers to lessees such as airlines and shipping companies.
SPCs and FPG
FPG performs all operations necessary for a leasing business under a contract with the SPC. It arranges operating lease deals, places partnership equity, and manages the business. For each business activity, classified as origination, placement, or management, FPG receives commissions from the SPC. It also receives arrangement fees for origination, placement commissions for placing equity, and management fees, each of which it books under revenues.
SPCs and lessees
SPCs use funds raised by placing equity with investors and taking bank loans to buy aircraft, shipping vessels, and marine shipping containers from manufacturers and other companies. They lease these assets to lessees such as airlines and shipping companies under operating leases.
Lessees use operating leases for a variety of reasons: to lower procurement costs, smooth out expenses, improve fundraising capacity, and for off-balance-sheet financing. For operating leases, around 30% of the price of the leased asset (funds raised by SPC) is equity from investors, and the funds do not incur heavy interest costs. Therefore, compared with purchasing the asset themselves, the lessees are able to reduce funds raised from financial institutions, and as such can further save on interest payments and reduce the use of credit lines with the financial institutions.
The lessees make regular payments to the SPC based on the leasing contract. If lease payments cease, (e.g., the lessee goes bankrupt), the revenues at the Operating Lease Business may worsen and investors may incur losses. As profits or losses in the Operating Lease Business belong to members of silent partnerships, they do not impact FPG’s performance directly. Still, the lessees’ failure to pay leases could hurt FPG’s reputation and is highly likely to affect FPG’s business results. Therefore, FPG restricts operating lease activities to companies with a strong capacity to meet payments. The company prioritizes flag carriers, along with major aircraft leasing companies. According to the company, it generally does not deal with airlines that have a high risk of going bankrupt. FPG chooses marine shipping container lessees from among the top 20 container shipping companies globally. FPG also says its vessels are leased to the world’s leading shipping companies.
Following the leasing term, the SPC sells the leased asset and receives and distributes the sales proceeds.
SPCs and investors, financial institutions
The SPC executes a silent partnership agreement with investors. The partnership receives roughly 30% of the purchase price of lease assets (such as shipping vessels) and commissions by way of equity investments. It borrows roughly 70% of the lease asset cost from financial institutions under non-recourse loan contracts.
Investors enter into a silent partnership agreement, and buy a stake in the SPC. These stakes (rights) are classified as securities under the Financial Instruments and Exchange Act.
The SPC settles its accounts each accounting period and distributes earnings to investors in accordance with their share of equity. SPC revenues consist of lease payments from the lessee and income from leased asset sales. Costs are depreciation on the leased assets, the book value of the asset when sold, interest payments on loans from financial institutions, and management fees paid to FPG (arrangement fees, placement commissions, and management fees).
In the operating lease business, SPCs use the declining balance method to account for depreciation. This means that in the early part of the lease term depreciation and other expenses are higher than revenues, and the SPC tends to post a loss. In the latter part of the lease term, depreciation expenses decline, and the SPCs become profitable. Investors are allocated profits and losses in line with their share of equity, so they book losses to the extent of their investment. They can use these losses from their portion of SPC losses in the early part of the lease term to offset profits in their main businesses and thus defer taxes.
Investors’ expected returns in the operating lease business are set at a similar interest rate to that on ordinary bank deposits.
Per the company, when investors provide equity, they tend to be more concerned about deferred tax effects than about direct yields. Further, investors bear forex risk, as at the end of the lease period they often receive returns in dollars.
Investors can use the deferred taxes to smooth profits, make capital investment plans that coincide with the end of the lease term, plan for costs, and prepare for payments of retirement benefits for directors. They can also be used when an unlisted company transfers a business. They cut earnings per share, reducing the appraised value of shares. The company said that when shares are transferred to a business owner’s heir, the inheritance tax burden may be reduced.
Assume that the owner of an SME decides to retire in seven years, has decided to discontinue the business, and seeks to defer taxes by investing in an operating lease for seven years corresponding to the retirement payment (for simplification, assume losses incurred by the SPC during the fiscal period in which funds are invested can be used to dispose of the entire amount of losses equivalent to the invested funds). During the fiscal period in which the funds are invested, the SME can reduce profits by offsetting its main business’ profits with the portion of losses from the SPC and thereby defer taxes. After seven years, the SME can allocate the invested funds that are returned when the SPC’s period expires to pay for expenses incurred for the owner’s retirement payment. As a result, the SME is not required to pay taxes on profits from its main business that it would otherwise have had to pay during the fiscal period when the funds were invested. Instead, since the owner’s retirement payment is taxed, while the effective corporate tax rate is roughly 30%, retirement benefit payments are taxed at a maximum of 22.5% (1/2 of income after deductibles times the tax rate [maximum: 45%]). Investing in the operating lease business allows the retiring business owner to reduce the tax burden by the difference between the amount of taxes paid for the retirement payment and the amount that would be paid as a company.
FPG’s customers (investors) are highly profitable SMEs. Note: 50% are new customers and 50% repeat customers. They come from different industries without any concentration in specific sectors. The value of customer investments averages JPY50mn.
Case study: profits in operating lease business
For reference, profits for a SPC are shown below based on the following assumptions: investment, JPY10bn; non-recourse loan, JPY21.5bn; leasing term, eight years; lease fees, 9.0%; sale price as share of purchase price for the leased assets, 44.0%; interest rate on non-recourse loan, 2.5%; commissions (placement commissions and arrangement fees), 15.4% (versus equity investment amount). There is a limited impact from management fees, so they are not included in these calculations.
Under declining-balance method and useful life of eight years, depreciation rate is 25.0%, revised depreciation rate is 33.4%, and guarantee rate is 7.909. From year six, when the unadjusted depreciation amount is lower than the guaranteed depreciation amount (purchase price times guarantee rate), the depreciation limit is calculated by multiplying the revised depreciation rate by the revised purchase price.
Note: When transactions occur in foreign currencies, there may be an impact from currency fluctuations.
During the lease term, the SPC receives lease payments from the lessee. Lease payments are determined based on lease term, non-recourse loan interest rates, and other factors.
Loan repayments are via the principal and interest method, so early during the lease term there is a larger share of interest payments. As the loan matures the interest payment portion tapers off. The non-recourse loan interest rates reflect the credit rating of the lessee.
The declining balance method is used for depreciating the lease assets, so depreciation expenses are large during the first half of the term of the lease, and decline during the second half of the term.
The SPC incurs startup costs including arrangement fees and placement commissions in its first fiscal year. The sum of arrangement fees and placement commissions is around 15% of the total amount of equity placement in operating leases.
Following lease expiry, the leased asset is sold and revenue received. The asset sales price is generally decided based on the book value after deducting expenses.
Profits from operating leases are distributed to investors after the various components are accounted for as shown below.
As shown in the previous table, profits for the SPC are leasing fees plus asset sale receipts minus interest expenses, depreciation, placement commissions, arrangement fees, etc. The SPC tends to generate losses in the first half of the lease term and profits in the second half. Investors can use deferred tax benefits as their share of losses given their share of equity.
Aircraft investment management services business operated by FPG Amentum
In FY09/21, the company consolidated the aircraft investment management services business operated by FPG Amentum into the Lease Arrangement business, creating the Leasing Fund business.
FPG Amentum handles aircraft lease arrangement, lease management, remarketing, and the arrangement of finance, and receives commissions and compensation in exchange. FPG Amentum has two mainstay businesses, one of which is JOL origination and remarketing where it collaborates with FPG’s operating lease business. It also manages aircraft for third parties independent of FPG.
Real Estate Fund business (17.6% of FY09/21 revenues)
Overview of Real Estate Fund business
Real estate fractional ownership investment products (trust beneficiary rights)
FPG’s real estate fractional ownership investment products entail the company establishing a trust in prime real estate it carefully selects in central Tokyo and other major Japanese cities. It packages the trust into trust beneficiary rights for JPY10mn/unit, which it sells to investors (mainly high net worth individuals). It is difficult for one person to purchase a JPY5.0bn property, for example, but by subdividing the asset into 500 units (trust beneficiary rights), the company allows the investor purchase one unit or more. After purchasing the real estate fractional ownership investment products, the investor receives revenues generated by the real estate in line with their holding. Since April 2016, FPG has been offering real estate fractional ownership investment products, leveraging the trust services of FPG Trust.
A trust beneficiary right involves the trustor (the company) entrusting real estate to a trustee (FPG Trust), who has a right to receive dividends from the economic benefits generated by the assets. Real estate trust beneficiary rights are one kind of security defined under the Financial Instruments and Exchange Law, and are also known as “deemed securities,” distinguished from highly liquid securities such as stocks. Transactions in real estate trust beneficiary rights are also subject to regulations of the Building Lots and Buildings Transaction Business Act.
Comparison with the Real Estate Specified Joint Enterprise Act
Real estate in the form of trust beneficiary rights falls outside the scope of the Real Estate Specified Joint Enterprise Act. The Act is intended to foster healthy development of "real estate specified joint enterprises" and protect investors. However, if real estate is securitized, and ownership rights to the physical property transferred as is, the Real Estate Specified Joint Enterprise Act applies. Only approved real estate specified joint enterprise operators are allowed to conduct the business, and approvals under the Act are needed to operate enterprises. In contrast, transfers of real estate turned into trust beneficiary rights fall outside the scope of the Act, making the business freer to operate. From a tax perspective as well, trust beneficiary rights are not subject to real estate acquisition tax, and registration and license tax and stamp duty are lower. Such benefits lighten the burden on investors.
Since real estate fractional ownership investments complying with the Real Estate Specified Joint Enterprise Act are treated as physical real estate, customer referrals from financial institutions were sluggish, as many financial institutions were concerned about regulations regarding dual businesses. In contrast, the new small-lot real estate product that sells trust beneficiary interests to investors is regarded as an investment security, and therefore should see increased referrals from financial institutions.
Target real estate
Investment targets are prime real estate in central Tokyo (including Chiyoda, Minato, Chuo, Shinjuku, Shibuya, and Shinagawa wards) and other major cities in Japan (such as Osaka, Fukuoka, and Nagoya). Shared Research understands that the company is mainly targeting properties valued from JPY1.0bn to JPY10.0bn.
Real estate fractional ownership investment product scheme
In the real estate fractional ownership investment product scheme that make use of trust services, real estate in prime locations in city centers is entrusted to subsidiary FPG Trust Co., Ltd. (FPG Trust; ownership rights are also transferred), and trust beneficiary rights from the assets are sold to investors (from JPY10mn/unit).
After units are sold, FPG Trust manages the properties as a single trust asset and distributes rental revenues generated from the buildings to investors. FPG Trust receives trust fees from the company.
After a certain period (about five years), the company sells the property, distributes the proceeds to investors, and terminates the trust. If the selling price increases, investors may receive capital gains.
For tax purposes the trust beneficiary interests are valued as a real estate asset, so it is valued at 20–30% of the invested amount. As such, it offers investors greater inheritance or gift tax benefits compared to cash.
Trust beneficiary rights may be sold to third parties during the trust period. The company may look for a buyer (assignee). However, FPG itself does not purchase trust beneficiary rights. It receives separate brokerage commissions amounting to 3% of the selling price (not including consumption tax).
Benefits for investors
Estate planning: Reduces inheritance tax assessment
If assets are held in cash, inheritance tax applies to the entire amount. However, when held as real estate, the assessed land value is less than the purchase price (“roadside land price”) and buildings are assessed based on property tax values, reducing the assessed value for inheritance tax. Special exemptions of up to 80% for small residential lots may apply to the land, if the deceased (decedent) used it as their residence or place of business, reducing assessed land value by 50–80%, and consequently the inheritance tax. The same applies for trust beneficiary rights because they effectively are owned real estate, so are assessed in the same way.
Stable revenues
Over the period the company entrusts its property to FPG Trust, the rental revenues the investment property generates is distributed to investors twice yearly (February and July) as dividends. According to the company, the dividend yield is in the 3% range. Generally, real estate investment entails price fluctuation and vacancy risk. However because FPG's trust beneficiary rights relate to prime properties in central urban areas, Shared Research understands that prices are relatively stable. Further, under the company’s trust beneficiary rights scheme, because the investment covers entire buildings, if one or more floors become vacant, it still receives rent from the other floors. A direct investment in a single floor in a commercial building carries the risk of missing revenue should that floor become vacant. The trust beneficiary rights FPG sells eliminate such risk.
Possible to divide equally among family members through purchase of multiple units
Holding assets as real estate facilitates a reduction in inheritance taxes by reducing the inheritance tax assessment. However, it is difficult to divide up a physical property. Because trust beneficiary rights are divided into small lots, they are easy to allocate in an inheritance. Furthermore, because beneficiary rights relate to equal portions of an entire property, they have the same value. When there are several heirs, it is possible to distribute the value of the property evenly.
Eliminates hassle of management
Building management and maintenance is unavoidable for real property investments. They require numerous tasks on behalf of the owner, including tenant recruitment and vacancy management, and managing and collecting rent payments. For the company’s real estate fractional ownership investment products, FPG Trust undertakes building management and other tasks, reducing the burden on investors.
Possible to sell before trust expires
The company facilitates a secondary market in its investments, enabling its real estate fractional ownership investment products to be sold before the relevant trust expires. Some customers who have completed their inheritance wish to sell the trust beneficiary rights and convert them into cash. In response, the company acts as a sales broker and receives brokerage fees. This improved liquidity enhances the appeal of real estate fractional ownership investment products and meets customer needs.
Sales track record
In FY09/21, the total amount of assets arranged in real estate fractional ownership investment products was JPY34.8bn and sales were JPY20.8bn. As of September 2021, the company has a track record of selling off three properties in bulk: Shibuya INCS, Platinum Court Hiroo, and Qiz Aoyama (all three were Real Estate Specified Joint Enterprise products). In each case, the property was disposed of six years after sales of fractional ownership, and returns to investors (return on capital, after fees, including dividends) were over 130%.
FPG is actively developing its own properties so that it can offer many property investment opportunities to investors and further grow its Real Estate Fund business. Properties developed by the company are properties no. 1 in Omotesando, Tokyo (completed in 2019) and no. 2 in Jiyugaoka, Meguro-ku, Tokyo (scheduled for completion in 2022).
Properties newly under management in FY09/22 include FPG links MIDOSUJI, Premium Residence Shirokane Chojamaru, FPG links OMOTESANDO Ⅲ, and FPG links GINZA Corridor. According to the company, it has put together 28 deals, including three Real Estate Specified Joint Enterprise products and 25 using the trust beneficiary method.
No 2, 3: 4 above ground (1 below)
Note: Excludes properties sold off in bulk (Shibuya INCS, Platinum Court Hiroo, and Qiz Aoyama). As of end-March 2022.
FinTech business (2.9% of FY09/21 revenues)
In the FinTech business, the company aims to provide new financial products and services derived from a combination of the various financial business licenses held by the group and the technologies of its IT business. The newly established fintech promotion division at FPG and subsidiary FPG Technology jointly drive the FinTech business, which began operation in April 2021.
The first service launched in April 2021 was the salary prepayment service Q-kyu. It helps companies that use the service expand their employee welfare and benefits services and improve retention rates, as well as diversify the lifestyles of their employees. The company strengthened features such as providing multilingual support in seven languages so that user companies' foreign employees can use Q-kyu.
FPG Technology generates revenue mainly through its SI business (system development on contract, and development of in-house products, which it sells to own customers) and the network infrastructure development business. In FY09/21, the FinTech business reported revenues of JPY429mn.
Other businesses (4.8% of FY09/21 revenues)
Insurance Sales, M&A, and Private Equity are classified as Other Financial Services businesses and are disclosed under Other businesses, along with the Aviation business.
Other Financial Services businesses
Insurance Sales business
In this business, FPG acts an insurance agent, offering the most suitable insurance for dealing with account settlements and employee welfare to corporate clients.
M&A business
This business is mainly concerned with selling customers’ businesses and brokering M&A deals under advisory contracts. This generates commissions and predetermined success fees upon the successful sale of a business.
Securities business (FPG Securities)
FPG Securities offers investment management and securities underwriting services in the Leasing Fund business, so the group can provide unique products.
Trust business (FPG Trust)
This business earns revenues by operating and managing trust assets based on trust contracts between FPG and customers in the Leasing Fund and Real Estate Fund businesses.
Aviation business
This business uses its aviation business license to transport medical practitioners (primarily doctors) to remote islands in Kagoshima and Okinawa.
Revenue structure
Leasing Fund business
In the Leasing Fund business, FPG arranges and manages operating leases for aircraft, shipping vessels, and marine shipping containers and sells equity in silent partnerships and general partnerships as well as trust beneficiary interests to investors.
Key revenue source: placement commissions
Main sources of revenues in the Leasing Fund business: arrangement fees for arranging operating lease deals and placement commissions received from the SPC (for placing equity in the SPC’s silent partnerships with investors). The company also receives arrangement fees for originating operating lease deals and management fees for operating the SPC, but this is a negligible share of revenues. The company does not book the amount of equity placement in partnership investments and sales of trust beneficiary interests under revenues.
Commission rate varies depending on the lease asset. Due to competition among companies offering leases, leasing rates tend to be lowest for aircraft, followed by shipping vessels, and then marine shipping containers.
From FY09/11 through FY09/19, the commission rate has been around 14–17%. In FY09/20, it was only 12.5% due in part to the impact from the COVID-19 pandemic and a drop in margins for aircraft deals. No results have been disclosed for FY09/21.
Key variables: equity placement, commission rate from equity placement, and number of partner accounting firms and financial institutions
Revenues in the Leasing Fund business are calculated by equity placement (value of equity in SPC placed with investors in FY09/21: JPY94.5bn) multiplied by the commission rate (revenues divided by total amount of equity placement in operating leases in FY09/20: 12.5%; assuming that the total amount of equity placement in operating leases for full-equity deals amounts to 34% of the total funding for the deal; under full equity deals, funds are exclusively raised from investor equity without any bank loans; no results were disclosed for FY09/21).
Equity placement
The total amount of equity placement in operating leases reflects the total amount (including value of beneficiary interests in aircraft leasing) of equity FPG sells to investors (equity placed in silent partnerships or in general partnerships under the Japanese Civil Code in the operating lease business).
Per the company, economic fluctuations have a limited impact on the total amount of equity placement in operating leases. It cites that many SMEs are profitable even during economic slumps, and the leased asset market is large. In past downturns, such as in FY09/09, equity placement fell 5.1% YoY but in FY09/10 equity placement grew 89.3% YoY.
In FY09/20, however, the economic conditions worldwide worsened at an accelerated pace due to the effects of the COVID-19 pandemic, and the operating environment in the aviation industry was hit particularly hard by restrictions on immigration and movement. Investors became more cautious with their investment decisions and marketing activities were greatly restricted in the months of April and May 2020 following the Japanese government’s declaration of a state of emergency. As a result, the total amount of equity placement in operating leases fell sharply YoY. Although demand remains robust, the operating environment for the aviation industry is expected to recover only gradually, and the total amount of equity placement is therefore likely to expand at a moderate pace.
Note: From FY09/11 to FY09/16, the commission rate excludes full equity deals, whereby funds are exclusively raised from investor equity without any bank loans.
Note: The commission rates from FY09/17 assumes that the total amount of equity placement in operating leases for full equity deals under silent partnerships and trust beneficiary interests deals amounts to 34% of the total funding.
Real Estate Fund business
Revenues: Trust beneficiary rights (JPY10mn/unit) x number of units sold
The company adopted the revised Accounting Standard for Revenue Recognition in FY09/22. That means Real Estate Fund business revenues are reported on a gross basis, and cost of revenues in the Real Estate Fund business will be added to total cost of revenues (discussed below). Real Estate Fund business revenues break down to trust beneficiary rights (JPY10mn/unit) x number of units sold.
The main sources of earnings in the Real Estate Fund business are commissions received when trust beneficiary units are sold, administration fees during the trust period, and when an exit occurs with an entire property sold off in bulk, the company receives associated success and administration fees. If an investor wishes to exit before a trust is wound up, the company may find a buyer (assignee), for which it receives a commission of 3% (not including consumption tax).
The company does not disclose returns, but Shared Research understands that they are equivalent to commission rates in the Leasing Fund business.
Cost structure
Cost of revenues
Key components of cost of revenues are customer referral fees and deal arranging expenses in the Leasing Fund business. Cost of revenues in the Real Estate Fund business are real estate acquisition costs and referral fees. Accounting firms and financial institutions refer the company to investors, and FPG pays referral commissions to the referring party when it signs a contract. Referral fees are about 1–2% of equity placement based on referrals. Arranging expenses include legal fees paid to lawyers who prepare legal agreements, tax advice fees, and costs relating to appraisal reports (calculating the lease cost upon the completion of the lease period). The company adopted the revised Accounting Standard for Revenue Recognition in FY09/22. Shared Research understands that revenues are reported on a gross basis, and cost of revenues in the Real Estate Fund business will be added to cost of revenues.
SG&A expenses
SG&A expenses, such as personnel and rent, are mostly fixed. Personnel expenses are increasing, due to the expansion of operations and more consolidated subsidiaries.
Note: Personnel expenses include salaries and allowances, bonuses (including provision of allowances), legal and other welfare expenses, and recruitment costs. The figures have been disclosed since FY09/12. Amounts below JPY1mn were rounded.
Fundraising capacity
When the company arranges an operating lease in the Leasing Fund business, it needs to raise funds via bank loans or investments from customers to buy assets until the lease begins. The company sometimes makes a temporary investment in the equity, assuming that it will eventually be transferred to investors. Funds for these temporary advances are covered either by the company’s own funds or from financial institutions.
If the company expands its fundraising capacity, it is easier to put together several deals at the same time and it also facilitates the arranging of larger deals and enables the company to conduct transactions with lessees based on favorable terms. The end result is that it should contribute to the company’s profit growth.
The aggregate value of committed credit line agreements and overdraft facilities was around JPY1.5bn before the company was listed. Following FPG’s listing on the JASDAQ in 2010, TSE Second Section in 2011 and TSE First Section in 2012, its credit standing with financial institutions improved. The value of such agreements has exceeded JPY100bn since FY09/17.
The company also uses fundraising capacity in the Real Estate Fund business. In light of a robust sales environment, Shared Research understands that the company is likely to expand its fundraising capacity in the near term to expand product arrangement volume.
Note: Total amount of assets arranged reflects total for equity underwritten and money in trust (aircraft for arrangement).
Number of partner accounting firms and financial institutions
The company has developed and expanded its distribution network of accounting firms and financial institutions (regional banks and securities companies), and this has contributed to growth in revenues in the Leasing Fund business. As of end-September 2021, FPG had over 5,600 partner accounting firms and 140 partner financial institutions. Relationships with accounting firms and financial institutions are important as a sales channel for trust beneficiary rights in the Real Estate Fund business. Because trust beneficiary rights sold to investors under the real estate fractional ownership investment product scheme are considered investment securities (“deemed securities”), the number of customer referrals from financial institutions should increase.
Reportable segments and operating segments
FPG’s reportable segments, operating segments, subsidiaries and affiliates, as well as their relationships as of FY09/21 are shown below. The company changed reporting segments from the start of FY09/22, to Fund and Financial Services and Aviation Services. Note that the table below and earnings figures apply through end-FY09/21 only.