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Arealink Co., Ltd. (JP-8914) TSE Mothers ( I )

2018-11-02  提供機構:FISCO  作者:FISCO  點閱次數:2

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◆Summary

Centered on the new type of “self-storage properties with land,” the Company is aiming for a 50% share of the Japanese self-storage market and ¥100mn in ordinary income per employee

Arealink Co., Ltd., <8914> (hereafter, also “the Company”) conducts a self-storage business based on its corporate philosophy of “provide convenience, enjoyment, Corporate and excitement to the world.” In addition to the outdoor container-type self-storage and indoor trunk-type self-storage, it is currently focusing on actively opening properties for a new type, of “self-storage properties with land” (asset indoor-type self-storage). In the medium-term, it is aiming to acquire a 50% share of the Japanese self-storage market and to achieve ¥10bn in ordinary income with a workforce of 100 employees (¥100mn in ordinary income per employee).

1. Growth from the outdoor container-type self-storage. Currently taking on the challenge of capturing growth-market share through “self-storage properties with land.”

After it was established, the Company grew with the outdoor container-type self-storage as its main business to acquire its current position of being the leading domestic company with a 15.1% market share. It is aiming to accel­erate the opening of properties in urban residential areas, which is the biggest growth market for the self-storage business, and in FY12/16 it started “self-storage properties with land” as the business model suitable for this. It established the business model up to FY12/17 and positioned self-storage properties with land as its growth engine over the next 3 to 5 years, and since FY12/18, it has been working to rapidly increase the number of openings. At FISCO we think the Company’s features and strengths lie in its ability to respond quickly to needs and rapidly create the optimal business model, and the ability of the entire Company to act instantaneously to achieve rapid growth.

2. The core of its growth strategy is organically combining the three elements of “business model,” “human resources,” and “management”

A feature of the self-storage properties with land business model is that once the Company acquires land, it sells it to investors after modifying it to be a self-storage, real-estate commodity (the subsequent tenant recruitment, operations and management are the same as for the outdoor container-type self-storage and other types). To realize revenue growth through effectively utilizing this model, two abilities are essential; financing ability for land purchases and construction, and the ability to sell real estate commodities. On this point, the Company focuses not only on acquiring and fully training human resources, but also on building the organization and framework that can fully draw out the abilities of these human resources. That is to say, it can be said that biggest point for the Company’s growth strategy is the creation of synergies through combining the three elements of business model, human resources, and management.

3. Sales and profits increased in FY12/18 1H. On a full fiscal year basis also, results may exceed the forecasts.

In FY12/18 1H, both sales and profits increased, with net sales of ¥13,943mn (up 34.2% year-on-year (YoY)) and operating income of ¥1,494mn (up 17.2%). For self-storage properties with land, in 1H the Company newly opened 15 properties (cumulative total, 37) and also made steady progress in property openings for the outdoor container-type self-storage. As a result, at the end of FY12/18 1H, the total number of self-storage units had reached 85,005. The full-year forecasts for FY12/18 are net sales of ¥30,000mn (up 39.6% YoY) and operating income of ¥3,000mn (up 26.1%). The Company has left its initial forecasts unchanged due to the uncertainties in the 2H, but the current situation is that it has already allotted land for the opening of self-storage properties with land in the 2H, while for sales also, it is making progress with the diversification of its exit strategy, such as the formation of funds. So in terms of performance results there are few concerns, and at FISCO we think that the results may exceed the forecasts.

◆Company Overview

Growth from container storage and trunk rooms in the self-storage business

1. History

The Company was established in Funabashi City, Chiba Prefecture, in 1995 as WELL’s Giken K.K., by Mr. Naomichi Hayashi, the current President and CEO, in order to launch a contracting business for the WELL’s 21 cross-industrial exchange stations.

In the year after its establishment (1996), it launched a property leasing business (currently Mister Kashichi) and Hello Parking, a coin-operated parking lot business, and it entered into the real estate business. Subsequently, continuing on from Hello Parking, it expanded its business area by launching a series of businesses, including the storage space businesses of Hello Container and Hello Trunk (both are also collectively known as Hello Storage); Hello Monthly, a monthly apartment rental business; and Hello Office, an office rental business.

The Company, which had been developing the wide ranging Hello Series, gradually set its core business to be the self-storage business (container storage and trunk room), which has the advantages of there being little competition as a niche market and low running costs as a non-residential type of real estate, and it has aimed to expand and strengthen its business under the slogan of being “overwhelmingly No.1 for share and quality.” As a result, it has become the leading company domestically, with 85,005 units (as of the end of June 2018) as the total for both container storage and trunk rooms, and a market share of 15.1% (FY17, based on net sales).

The Company was listed on the Tokyo Stock Exchange (TSE) Mothers market in August 2003, where it is currently listed.

Has a two-segment structure; the Property Management Service, the core of which is the self-storage business, and the Property Revitalization & Liquidation Service, which is a limited land rights business

2. Business description

(1) Business segments

The Company’s business is comprised of two business segments; 1) the Property Management Service busi­ness, and 2) the Property Revitalization & Liquidation Service business. Looking at the breakdown by segment for FY12/18 1H, the Property Management Service business provided 88.6% of net sales, and the Property Revitalization & Liquidation Service business 11.4%. On the other hand, the Property Management Service business provided 86.1% of operating income, and the Property Revitalization & Liquidation Service business 13.9%, from which we understand that the Property Revitalization & Liquidation Service business has a high profit margin.

(2) Overview of the Property Management Service business

The essence of the Property Management Service business is to generate revenue by turning real estate (such as land and buildings) that is not being utilized into real estate commodities (commoditization). From the viewpoint of commodities, as previously stated the Company is providing services under the Hello brand in various business categories, including self-storage, parking lots, and office rentals.

As mentioned above, the Company had been growing centered on its self-storage business, and in terms of reve­nue also, the contribution of the self-storage business is overwhelmingly large. The self-storage business is further divided into several types depending on the structure and the business model, and the revenue characteristics of each type are different. Reflecting the current situation, the Company discloses information on the Property Management Service business upon dividing it into three sub-segments; self-storage management, self-storage brokerage, and other property management services (the details of the business model by self-storage type, such as Hello Container and self-storage properties with land, are described below).

Both self-storage management and self-storage brokerage generate revenue for Hello Storage and are classified according to the characteristics of their revenue. Within them, self-storage management generates revenue from tenant recruitment, operations and management for Hello Storage. In other words, it generates revenue as the management company for the real-estate commodity of self-storage. Self-storage includes each of the outdoor container-type self-storage, the indoor trunk-type self-storage, and self-storage properties with land. The type of revenue can be said to be stock-type revenue.

Revenue from self-storage brokerage consists of sales revenue from self-storage properties with land and revenue relating to Hello Container orders and property openings. The type of revenue can be said to be flow-type revenue.

Revenue from other property management services is from the businesses other than the self-storage business. Specifically, it is comprised of revenue from businesses including Hello Parking, Hello Office, and asset manage­ment (tenant recruitment, operations and management of properties owned by the Company). The type of revenue can be said to be stock-type revenue.

(3) Overview of the Property Revitalization & Liquidation Service business

The Property Revitalization & Liquidation Service business initially involved purchasing used real estate from its owners and investors, adding value to it such as through renovation, improving the management efficiency, and then after that, selling it to investors and other buyers. In other words, it is a real estate trading business. However, in the context of the rapid change to the business environment triggered by the Bankruptcy of Lehman Brothers, the Company withdrew from the real estate trading business at the end of FY12/15, and since FY12/16, it has been specializing in land rights management business (within the Company, it is known as the “limited land rights business”).

The business model of the limited land rights business is as follows.

It is the general practice to rent land and then construct buildings on it. In this case, the owner of the building (called A) has the right to use the land (the leasehold right, while it goes without saying that there is the obligation to pay for the use of the land, in other words, to pay rent). On the other hand, the owner of the land (the landowner, called B) cannot freely use the land due to the restrictions on the leasehold rights. In this way, land with leasehold rights attached is called limited land rights. Although B’s use of the land is restricted, it has the right to receive rental income from A. The right to lease this land is called “limited land rights” and is generally carried out in the housing and real estate industry.

The situation in which there are owners of both land and buildings not only makes things more complicated by distorting the rights relationship, it also affects the price of land (land lease rights + limited land rights can be schematized with ownership rights, with only the land lease rights portion discounted). Therefore, the Company acquires the limited land rights from B, the landowner, and generates revenue by selling it to A, and in addition, it conducts a business of establishing and maintaining rights relations between A and B. This is the basic model for its limited land rights business.

The Company may acquire buildings from A and limited land rights from B, and sell them to a third party as a vacant lot. But it does this when an opportunity to do so arises, and it does not actively pursue such sales in its limited land rights business.

Fundamentally, it leases self-storage with a rental guarantee and collects income from tenant recruitment, operations and management. Developing self-storage properties with land to strengthen property openings in urban residential areas

3. Description of the self-storage business

The Company’s self-storage business, which it is developing under the Hello Storage brand, has a lineup of three types; the outdoor container-type self-storage, the indoor trunk-type self-storage, and the self-storage properties with land type. The outdoor container-type self-storage and indoor trunk-type self-storage are categorized and named with the focus on the structure of the properties. Conversely, self-storage properties with land is named based on its features as a real estate commodity, although structurally it is an indoor type. In terms of the history of the types, the sequence was that in 1999 the Company started a self-storage business for the outdoor container-type self-storage, and then in 2001, it began the indoor trunk-type self-storage that utilizes empty buildings and other such spaces, and in 2016, it launched self-storage properties with land, which brings us up to the present day.

(1) Business model for the outdoor container-type self-storage and indoor trunk-type self-storage

The basic business model for the self-storage business is the outdoor container-type self-storage. In terms of its specific form, the basic business model is that first, the Company searches for and matches partners to conclude a land use contract between the land owner (A) and the investor (the container owner (B)). After this, the Company rents the container from B and in turn leases it to the end user as self-storage. In terms of the flow of money, on the one hand the Company receives a monthly fee (rent) from the end user, while on the other hand it pays rent to B. The biggest point here is that the contract between the Company and B is a 10 year, rent-guarantee contract. As B is guaranteed a fixed amount of rent for 10 years, it does not have to bear the risk of having a vacant unit, so it can be said to have the advantage of being able to calculate the return on the container investment (the relation between B and A is also kept consistent at 10 years, so the same is true for A, that the return is predictable).

As for the Company’s revenue, gross profit is the difference between the rent it receives from the end user (net sales) and the rent it pays to B (cost of sales). It seems that the gross profit margin is around 20%. In addition to this, its nets sales consists of other incidental income, including administration costs (¥2,000/month) and security guarantee packs (option to prepare for a loss of keys and other such issues, at ¥500/month). The revenue from self-storage tenant recruitment, operations and management is recorded in the previously described self-storage management sub-segment.

The major features of this business model is that the Company does not incur any costs for capital investment and that its balance sheet does not become heavy because it rents its business assets (containers and land), both of which are major advantages for its cash flow. There was previously a period in which the Company purchased land and conducted the Hello Container business, but currently it has shifted entirely to this leasing approach. On the other hand, since it pays rent to B irrespective of the occupancy rate of the containers, initially it will make a loss. Therefore, the key is raising the occupancy rates at an early stage.

For the indoor trunk-type self-storage, instead of containers, the Company renovates existing buildings (the entire building or part of a floor), warehouses, and other properties into trunk rooms and conducts the self-storage business. So in this case, the basic framework is the same as the outdoor container-type self-storage.

The Company contracts the remodeling and renovation of containers and existing buildings into use for its self-storage business. The revenue item relating to this is “Orders,” which is included in the self-storage brokerage sub-segment.

(2) The self-storage properties with land business model

On the other hand, the self-storage properties with land business model is slightly different. From the viewpoints of capital efficiency and keeping down capital investment, the Company’s basic policy is not to own land and properties (containers). However, in residential districts in urban areas, which are where demand for self-storage is strongest, it faces the barrier that it is difficult to find land owners. Therefore, the Company has developed a model in which it temporarily purchases the land for itself, constructs a self-storage property on it and creates a commodity, and then sells the land and property as a package to investors, such as the wealthy. As a result, it has named this type “with land.”

At the same time as carrying out sales, the Company leases properties and conducts tenant recruitment, opera­tions and management, which is the same as for the other types, such as the outdoor container-type self-storage. It is also the same on the point of providing a rent guarantee. However, for the recording of revenue, due to the addition of the process of selling to investors, the Company records revenue from sales in the self-storage brokerage sub-segment, while it records the revenue from tenant recruitment, operations and management in the self-storage management sub-segment.

When selling self-storage properties with land, the sales price is determined by the income approach. Therefore, the Company has the opportunity to increase the profit margin by keeping down land purchase prices and building construction costs. It would seem difficult to generate a large profit margin because the land price is also the market price, but there is room to improve it by pursuing cost reductions for the properties through various techniques, such as the design, structure, and construction method. The Company receives all of the benefits from realizing lower costs, so it its progressing research and development for this point also.

In terms of securing buyers for the self-storage properties with land (which it sometimes calls the “exit strategy,”) the Company is actively working to diversify its exit strategy, including by setting the yield at a level that the buyers (such as investors) will find appealing, and also by forming private-placement funds (the details are provided below).

◆Medium- to long-term growth strategy

With accelerating openings of self-storage properties with land as the growth engine, the Company is aiming for a 50% share of the Japanese self-storage market and ordinary income of ¥10bn in 2025

1. Summary of the long-term vision and the medium-term management plan

Toward realizing growth in the medium- to long-term, the Company has formulated a medium-term management plan and a long-term vision, and it is aiming to achieve sustainable growth over the medium- to long-term through steadily realizing both.

(1) Medium-term management plan

The Company is currently working on its 3-year medium-term management plan, which runs from FY12/18 to FY12/20. The basic policy in the medium-term management plan is to “concentrate on the self-storage busi­ness.” This was from the judgement that within the numerous real estate investment businesses, the self-storage business has the greatest growth potential (the details are given below). As previously explained, the Company is broadly developing three types in its self-storage business (outdoor container-type self-storage, indoor trunk-type self-storage, and self-storage properties with land). But the policy in the current medium-term management plan is to grow revenue through accelerating openings of self-storage properties with land.

In the background to this decision was the fact that opening properties in areas where end-user needs are high is essential to realize growth. That is to say, these are residential districts in urban areas, and the Company is creating the commodity of self-storage properties with land in order to smoothly open properties in these areas (self-storage properties with land is also sometimes called “asset indoor-type self-storage”).

While focusing on self-storage properties with land, the Company will also continue to open properties for the outdoor container-type self-storage. The target areas for this type are the suburbs of urban areas, and the image is of realizing growth while solidifying the outer circumference of the self-storage properties with land areas.

The Company’s policy is to focus on the self-storage business and based on this, the results targets that it is aiming for in the current medium-term management plan through accelerating openings of self-storage prop­erties with land are net sales of ¥43,414mn and operating income of ¥5,000mn in the plan’s final fiscal year of FY12/20. The self-storage business, which has been positioned as the growth engine, is included in the Property Management Service segment, and the forecasts for this segment’s results in the plan’s final fiscal year are net sales of ¥40,412mn and operating income of ¥5,882mn. With the FY12/17 results as the starting point, the 3-year average annual growth rates up to FY12/20 are 27.2% for net sales and 23.4% for operating income.

On extracting only the self-storage business from within the Property Management Service business, and then further dividing it into self-storage management and self-storage brokerage, we see that self-storage brokerage is the growth driver with net sales and operating income average annual growth rates in the self-storage brokerage business greatly exceeding the rates in the self-storage management business. It goes without saying that nearly all of the revenue from self-storage brokerage is from sales of self-storage properties with land.

Looking at the trend in the number of units, the outlook is for openings of self-storage properties with land to rise rapidly from FY12/18. At the end of FY12/18, the number of units is expected to increase greatly from the 1,319 units at the end of FY12/17 to 5,000 units. Subsequently also, this doubling pace of increase will continue, and by the end of FY12/20, the Company plans to have 20,000 units. However, in terms of the number of units, as it will change the method of partitioning units while observing customer needs, at FISCO we think it is possible that the number will fluctuate above the property-opening plan. If the number of units increases as planned, the average annual growth rate for the total number of units will be 14.4%, so it is considered possible that the self-storage management net sales growth rate will exceed the currently forecast rate of 10.6%.

(2) The long-term vision

The Company has set becoming a “future oriented, ideal company” as the vision of the enterprise it is aiming to be in the long term. In terms of the specific content of a future oriented, ideal company, it cites “steady progress toward the target of ¥100 million in ordinary income per employee” and “Global business development with management that combines the rational approach of Europe and the U.S. with the attention to detail of Japan.” The Company’s current numerical targets are “50% share of the Japanese self-storage market” and “¥10bn in ordinary income with a workforce of 100 employees in 2025.”

In order to realize this long-term vision, the Company has picked-up the following three points as its priority action items; 1) business model, 2) human resources, and 3) management. It is aiming not only to refine each of these items, but also to maximize the effects through the interactions (combinations) between them. It can be said that this constitutes the foundation of the Company’s growth strategy.

For 1) business model, the Company has set the theme of acquiring the No.1 share of the domestic market for its self-storage business. The specific growth engine for this, as previously described in the medium-term manage­ment plan section, is accelerating openings of self-storage properties with land and continuing to open properties for the outdoor container-type self-storage. In addition to this, it has set the theme of business expansion through global business development (opening properties in Asia) and collaborations with companies in different industries, such as logistics companies and retail companies, in Japan. In the self-storage properties with land business model, there is the explosive power of the dramatic growth in revenue from the addition of the process of sales, while at the same time, it will require skills for the aspects of land purchases and sales.

The Company’s basic policy for 2) human resources, is a doctrine of a small but highly capable workforce. This is based on the idea that it is possible to grow the revenue scale even with a small number of employees by increasing productivity and profitability per employee. Therefore, the Company is focusing on enhancing and implementing various training programs in order to develop its human resources, but what is important is the idea of education. Company President Hayashi has set an employee image of a person who always thinks for themselves and who works positively while enjoying life, as the basis of human resource education. In addition to this, the Company is actively working on various other measures, such as introducing RPA (robotic process automation, the automation of work through utilizing AI and machine-learning technologies) and also making use of home workers and part-time employees.

For the 3) management, the Company is aiming to become “a company with little overtime, many holidays, and high salaries.” In order to realize this, it is essential to improve the skills of each and every employee. In advance of this, having the ideal workplace environment is needed, and it can be said that for this, 2) and 3) form a positive spiral. In addition to creating such framework to improve motivation, the Company is also strengthening measures for ESG. To give a specific example, to contribute to local communities through trunk rooms, it concluded a disaster mitigation agreement with Ota Ward and is providing trunk rooms free of charge. These are being utilized as storerooms to stockpiles goods for people who are unable to return to their homes following a disaster. Also, from the viewpoint of progressing work-style reform, it used the opportunity of the relocation of the head office to update the design and layout of its offices, to change to offices that promote reforms toward a “brain worker” working style.

These measures are steadily producing results, and the Company has pushed forward from 2025 to 2023 the year to realize the target of “¥10bn in ordinary income with a workforce of 100 employees.”

 

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