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Samty Co., Ltd. (JP-3244) Tokyo Stock Exchange First Section ( I )

2018-03-13  提供機構:FISCO  作者:FISCO  點閱次數:2

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◆Summary

Results are currently steadily expanding, supported by the favorable business environment, while major progress is also being made in the growth strategy, centered on the J-REIT business

1. Company profile

Samty Co., Ltd. <3244> (hereafter, also “the Company”) is a comprehensive real estate company that operates a nationwide business, centered on the Kansai and metropolitan Tokyo regions. Its business is based on the twin axes of its Real Estate Business (development and sales of large-scale leasing condominiums for real estate funds and income condominiums for investors) and Property Leasing Business (including leasing condominiums and commercial facilities), while it also manages business hotels and other related operations. A feature of the Company is that it is able to respond flexibly to changes to its business environment from its balance of realizing stable income from its Property Leasing Business and accelerating growth from its Real Estate Business, and it achieved sustainable growth even while overcoming major financial crises. It also has a superior business model in which it combines both businesses to handle every aspect of the property business, and presently it is continuing to achieve high growth. In June 2015, it entered into the J-REIT business*. So the Company has solidified the foundations of its business model for further business expansion. It is entering a new growth phase supported by a favorable business environment.

2. Medium-term management plan

The Company’s current medium-term management plan covers the five-year period from FY11/16 to FY11/20. The plan targets net sales at the ¥100bn level and ordinary income at the ¥10bn level for FY11/20, based on three key strategies: (1) Development of a business model centered on SRR; (2) Strategic investment in regional metropolitan areas; and (3) Expansion of the hotel development business. In addition, investment of about ¥300bn is planned over the five years from FY11/16 to FY11/20.

3. The Daiwa Securities Group entered into a sponsor support agreement with SRR

In January 2018, the Daiwa Securities Group Inc. <8601> and the Company subscribed for the third party allotment investment units issued by SRR, and alongside this, the Daiwa Securities Group entered into a sponsor support agreement with SRR. Through this, SRR acquired 33 properties, and while aiming to expand its asset scale, it can also be said to have obtained some major advantages looking toward the future (support, including for acquiring properties and creditworthiness). At the same time, the Company can be positively evaluated for its major progress towards the growth strategy created centered on SRR.

4. Business result for FY11/17

The FY11/17 results steadily expanded, with net sales increasing 15.4% year-on-year (YoY) to ¥60,479mn and operating income growing 18.0% to ¥10,131mn, meaning the Company basically achieved its upwardly-revised forecasts. Results particularly expanded in the Real Estate Business. Investment demand in the brands developed by the Company, including S-RESIDENCE, continues to be strong among overseas funds and wealthy investors, and the favorable sales environment is supporting the growth in results. In profits also, the cost ratio greatly improved due to the upward trend in sales prices and the stable construction costs, and the operating income margin rose to 16.8% from 16.4% in the previous fiscal year. As for purchases, which will lead to growth in the future, acquisitions of development sites and income properties are also progressing as planned.

5. FY11/18 forecast

For the FY11/18 results, the Company is forecasting higher sales and profits, with net sales to increase 5.8% YoY to ¥64,000mn and operating income to rise 8.6% to ¥11,000mn. While the sales-increase rate will remain at a somewhat moderate level, the forecasts can be evaluated as prioritizing profit growth. Within the ongoing favorable sales environment, net sales are expected to grow significantly, as the growth in the Real Estate Business continue from the previous fiscal year, sales in the Other Business are also forecast to increase greatly, including from the expansion in the hotel business. The forecast is also for the increase in profits to be maintained from the improvement in the profit margin against the backdrop of the favorable conditions in the real estate market, in addition to the effects of the higher sales.

6. Medium-term outlook

At FISCO, we think that the Company can maintain its high growth over the medium to long term as the conditions in both its external and internal environments are supporting its growth. However, there are questions that should be paid attention to. Firstly, in the context of the difficulty in purchasing land, particularly in metropolitan areas, how will it accumulate development sites (pipeline)? Second, how will it discover and increase the value of income real estate with high yields, especially in major regional cities? Finally, in what ways will a business model centered on SRR contribute to the Company’s profitability and growth potential?

◆Company profile

Balanced business portfolio based on Real Estate Business and Property Leasing Business; entered J-REIT market in 2015

1. Business overview

The Company has three business segments; the Real Estate Business, the Property Leasing Business, and the Other Business. The Real Estate Business trended favorably contributing 84.7% of net sales (before adjustment) and 81.9% of operating income (before adjustment) in FY11/17. However, it is necessary to be aware that in contrast to the steady growth of the Property Leasing Business, results in the Real Estate Business tend to increase and decrease greatly due to various factors, including the business environment. Since its foundation, the Company’s strength has been its leasing capabilities in its area of expertise of residential properties (condominiums, etc.), that can be expected to stably maintain high occupancy rates.

Also, in March 2015 it established SRR, which was listed on the TSE J-REIT market in June of the same year. The Samty Group plays the role of sponsor of SRR (supplying it with properties) and is responsible for the subsequent asset management and other operations. SRR’s current asset scale is approximately ¥81.5bn* (as of the end of January 2018).

For its sales bases, in addition to its Osaka head office (Yodogawa-ku), it has branch offices in Tokyo (Chiyoda-ku), Fukuoka (Hakata-ku), Sapporo (Chuo-ku) and Nagoya (Nakamura-ku), and it is establishing a nationwide system centered on the major regional cities.

The Samty Group is comprised of the Company and 13 consolidated subsidiaries, including 8 special purpose companies (SPC) and general incorporated associations established and receiving investment in the processes of carrying out for the Real Estate Business and Property Leasing Business in relation to schemes to acquire, own, and develop land, properties, and trust beneficiary rights. The main consolidated subsidiaries include Samty Asset Management Co., Ltd. (asset management, etc.), Suntoa Co., Ltd. (hotel management, etc.), and Samty Property Management Co., Ltd. (property management, maintenance, etc.) (as of the end of November 2017).

Overviews of each business are as follows.

(1) The Real Estate Business

This business supports the Company’s growth and is divided into four sub-segments; “development mobilization,” “regeneration mobilization,” “condominiums for investment,” and “asset management.”

“Development mobilization” refers to the planning, development, and sales of leasing condominiums for real estate funds (including of the S-RESIDENCE series, which is the brand developed by the Company). Basically, the properties are large-scale, one-room condominiums with a total number of around 200 units, and include features such as stairwell entrances and sophisticated designs. Recently, demand has been considerable from real estate funds and other clients regardless of building size, so sales of medium-sized properties have also increased. The Company has granted SRR preferential transaction negotiating rights (first refusal rights) for the S-RESIDENCE series and mainly supplies properties to SRR.

“Regeneration mobilization” refers to the regeneration and sales of existing income properties. The Company aims to improve occupancy rates by utilizing its leasing capabilities and expertise for the income properties and upgrading properties through renovating facilities, which generates earnings over the period of ownership. In addition, its final objective is to record gains on sales through selling its holdings and investment properties to real estate funds, business companies, and wealthy individuals. It also carries out warehousing* for SRR. During the ownership period, leasing income is recorded in the Property Leasing Business.

* Properties acquired to incorporate into REIT

“Condominiums for investment” involves the planning, development, and sales of one-room condominiums for investment, mainly to individual investors. A feature of the Company is that it does not have an in-house sales team, and it conducts wholesales (selling units and entire buildings) to sales companies. Through building a network with sales companies that have a sales track record in the business area and consulting with sales companies at the planning and development stages, it is able to supply properties that meet client (user) needs. Also, excluding the metropolitan Tokyo region, which has an active trend of purchasing before the condominium is ready by sales companies due to their sense of the scarcity of properties, the Company’s excellent leasing expertise (wholesale sales after leasing a property) differentiate it from its competitors and results in it being trusted by and having negotiating power with the sales companies.

The objectives of “asset management” are obtaining commission income, from the Company being commissioned (outsourced) to operate and manage real estate as the asset manager by real estate funds, and also dividend income from the Company’s own investments in real estate funds. Through the smooth launch of SRR, it would seem that the asset management business will also expand in the future, alongside the expansion in the asset scale of SRR. The revenue structure in this business comprises management commissions (0.45% of the balance of assets under management), acquisition commissions (1.0% of the property acquisition value), sales commissions (0.5% of the property sales value) and other components. Notably, management commissions can be expected to provide a source of steady revenue every fiscal year based on the balance of assets under management.

(2) Property Leasing Business

This business is the foundation that ensures stability, and the segment profit margins are also maintaining high levels. It owns around 88 properties nationwide, centered on the Kansai and metropolitan Tokyo region and gov­ernment ordinance designated cities such as Fukuoka, Sapporo, and Nagoya. In addition, it conducts diversified investment in a variety of assets, including condominiums, office buildings, and commercial facilities. Breaking down its properties according to type of facility, condominiums constitute 74.8% of the total floor space, offices 3.6%, and commercial, logistics and related facilities 21.7%, so the weights are high for condominiums which high occupancy rates can be expected. The Company utilizes its leasing expertise to realize high occupancy rates above 90% when averaged over the year. The occupancy rates according to facility are 92.9% for condominiums, 94.6% for offices, and 99.8% for commercial, logistics and related facilities. While the scale of the real estate it owns amounts to around ¥98.9bn (book value), this is divided into ¥37.0bn of inventory assets that it intends to eventually sell (real estate for sale), and ¥61.8bn of property equipment that it intends to continue to own (all results are from the end of November 2017). In addition to its main commercial facilities, such as the historic Amanohashidate Hotel, these assets include properties such as Pieri Moriyama, a large scale commercial facility on Lake Biwa that was reopened in December 2014.

(3) Other Business

This business mainly involves hotel management, a condominium management business, and a construction and renovation business. In the hotel business, it owns the S-PERIA Hotel Nagasaki (Nagasaki, 153 rooms) and GOZAN HOTEL (Higashiyama-ku, Kyoto, 21 rooms)*. In addition, it sold and leased back Center Hotel Tokyo (Chuo-ku, Tokyo, 107 rooms) in FY11/16 and Center Hotel Osaka (Chuo-ku, Osaka, 84 rooms) in FY11/17. Center Hotel Tokyo and Center Hotel Osaka are managed by its subsidiary, Suntoa. Also its subsidiary Samty Property Management conducts operations including condominium management (mainly the Company’s condominium properties but also including external properties), and a construction and renovation business.

* Properties newly acquired in June 2017.

2. Features

A feature of the Company is that it handles all aspect of the property business with its business model combining two businesses, the Real Estate Business and the Property Leasing Business. This forms its strength in terms of the superiority of its business and revenue structure.

(1) A superior business model

A feature of the Company’s business model is that every phase of the property business, of land purchases, development, leasing, sales, and after-sales, are conducted within the Group, and by connecting these respective functions, it creates value (a value chain) that is unique to the Company. In particular, it utilizes its sophisticated leasing expertise, which it has cultivated in the Property Leasing Business, in the Real Estate Business also. In addition to improving the value of income properties, this has positive effects for the superiority of its bargaining power when purchasing land, as well as for establishing relationships based on trust and negotiating with buyers.

The Company also has a competitive advantage for its business model, centered on SRR. SRR will become a stable supply destination, and in addition, the expansion of the after-sales fee business (commissioned asset management operations and contract management operations) can be expected to become a stable source of revenue in the future.

(2) The profit structure as a strength

One of the Company’s strengths is that it can respond flexibly to changes to its business environment while maintaining a balance between stable income from its Property Leasing Business (a stock-type business) and growth acceleration from its Real Estate Business (a flow-type business). In other words, during a period of economic recession, its results can be supported by its Property Leasing Business, and then during a period of economic expansion (recovery), it can accelerate its growth through its Real Estate Business. In addition, its ability to withstand periods of recession is strengthened by the fact that it keeps down fixed costs by not having an in-house sales team and instead utilizing external resources (it has networks and expertise to do so). The reasons why in the financial crises up to the present time (such as following the collapse of the bubble economy and from the impact of the 2008 financial crisis), its results deteriorated comparatively little, is due to the fact that they were supported by its Property Leasing Business and the fact that it kept its fixed costs down. On the other hand, in the current situation of a continuingly favorable business environment, the Real Estate Business is the main driving force behind the growth in the Company’s results.

3. History

The Company was established in December 1982 in Higashiyodogawa-ku, Osaka, as Samty Development Co., Ltd. (it changed to its current company name in June 2005). Centered on three people, Mr. Shigeru Moriyama (current chairman), Mr. Ichiro Matsushita (current vice chairman), and Mr. Kiyoharu Taniguchi, it launched a real estate sales, leasing, and management business. It initially started from consignment sales of condominiums, but subsequently it steadily accumulated results in areas such as sales of entire condominium buildings for investment and sales of units in condominium buildings for families.

After launching sales in May 2001 of its Samty series of one-room condominiums for investment, in March 2005 it launched sales of its S-RESIDENCE series of leasing properties for real estate funds, which spurred on its business expansion. In August 2006, it entered into the hotels business by acquiring the shares of Suntoa, which owns and manages business hotels. In July 2007, it was listed on the Osaka Hercules market (now the TSE JASDAQ market).

Next, in order to further expand its business and disperse it over different regions, it opened branch offices in Tokyo in February 2011, in Fukuoka in June 2012, in Sapporo in May 2015, and in Nagoya in March 2016, and over this 5-year period it steadily expanded the regions in which it does business.

The Company has also actively taken steps to expand its business area. In August 2006, it acquired the shares of Suntoa, which owns and manages business hotels to enter into the hotels busines. In December 2011, it established Samty Kanri (now Samty Property Management) to enter into the property management business; in November 2012, it made Samty Asset Management a wholly owned subsidiary to enter into the asset management business; and in June 2015, Samty Residential Investment Corporation was listed on the TSE J-REIT market. In such ways, it has established a system for growth to accelerate in the future. Its listing was changed to the TSE First Section in October 2015.

◆Industry environment

Conditions continue to be favorable in the real estate market

The J-REIT market will have an important influence on the Company’s growth strategy in the future. As of the end of November 2017, its market capitalization stood at around ¥11,507.0bn, and there were 59 J-REITs listed. Although there was a phase in which the market was temporarily sluggish due to the impact of the credit tightening and related factors following the 2008 financial crisis, since 2012 it has steadily trended upward thanks to the recovery of the domestic economy and the effects of long-term monetary easing. Although we currently see sluggish growth in property acquisition due to the rise in real estate prices, there has been a diversification of investment targets, such as hotels and commercial facilities with an eye to the increase in inbound demand, long-term care facilities that are being built in response to the aging of society, and logistics facilities and infrastructure (solar power plants, etc.) So a variety of investment opportunities are being created, yet at the same time there remains considerable room for the market to grow.

The TSE REIT index has shown moderately weak performance amid rising global interest rates and concerns regarding deterioration of the supply-demand balance owing to a large supply of office space expected to go on the market in 2018. However, demand for J-REITs remains strong from domestic and overseas institutional investors seeking strong yields and relatively stable cash flow based on the view that the Bank of Japan will maintain its policy of monetary easing and office demand will rise. In addition, the medium-term outlook for J-REITs looks strong amid continued monetary easing and a strong real estate market (improving vacancy rates and rising rents).

The market for condominiums for investment is also trending favorably, supported by the strong demand from both tenants (users) and investors. According to data published by the Tokyo Metropolitan Government Bureau of General Affairs, the population of Tokyo’s 23 wards, which constitutes most of the region to which the Company supplies properties, is continuing to increase against the backdrop of the large number of people moving to metropolitan Tokyo. In particular, there has been an noticeable increase in the number of single-person households, including among the young, which is occurring in the context of later marriages and the increase in the divorce rate, and it is thought that this will also support lease demand for one-room condominiums in the future. This trend can also be seen not only in Osaka and Nagoya, but also in regional metropolitan areas such as Fukuoka and Sapporo, and while on one hand the population of Japan is declining, on the other hand it continues to be concentrated into cities. On the investor side also, demand is increasing from individual investors in their twenties and thirties who are anxious about their futures in terms of their pensions and lives in their old age, and also from the elderly as an inheritance-tax measure following the reduction in the basic exemption amount. In addition, we also see intensified demand from overseas funds and other investors for properties in Tokyo’s prime locations with many inquiries about entire buildings rather than individual unit purchases.

The problems that the industry is facing include that it has become more difficult to purchase land in city centers, the rise in land prices and soaring construction costs.

◆Results trends

Substantial growth in Real Estate Business amid strong real estate market

1. Past results trends

Looking back on the Company’s results since FY11/07, which was the year it listed on the Osaka Stock Exchange Hercules market (currently, the TSE JASDAQ market), immediately after it listed it was impacted by the 2008 financial crisis, and there was a period in which its results trended at a low level. The major contraction of its Real Estate Business due to the credit tightening by financial institutions had a particularly adverse impact on its results. However, the points we should focus on are that results in the Property Leasing Business have trended stably even when within a severe industry environment, which has supported the results of the Company as a whole. The fact that it does not have its own in-house sales team and has kept down fixed costs has also had a positive effect, and it can be highly evaluated on the point that it has secured profits in every fiscal year expect FY11/08, when it recorded a net loss due to declaring impairment.

Since FY11/13, the Real Estate Business has greatly recovered due to the change in financial institutions’ attitude toward financing, which has occurred against the backdrop of the recovery of the domestic economy and monetary easing, and the Company’s results have entered an expansion phase. In terms of profit and loss also, the ordinary income margin has been improving year by year thanks to the progress in the highly profitable development mobilization, and in FY11/17 it reached the high level of 14.0%.

The equity ratio has trended at a level of around 25%. In FY11/13, it rose to 27.9% following the implementation of a capital increase through a public offering (approximately ¥2bn), but since FY11/15, it has fallen to a level of around 23% due to the Company’s active accumulation of assets and other factors. One issue it will need to address in the future would seem to be strengthening its financial base toward growth.

On the other hand, ROE, which indicates capital efficiency, has trended upward alongside the improvement in the profit margin. In FY11/17, it had reached the high level of 15.8%.

 

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