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

2019-03-08  提供機構:FISCO  作者:FISCO  點閱次數:1

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◆Summary

Both net sales and profit increased significantly in FY11/18, exceeding the initial forecasts. The Company launched the newly formulated “Samty Toughening Plan.” under a new management regime led by a new president

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.

* Samty Residential Investment Corporation <3459> (hereafter, “SRR”), which was established in March 2015, is listed on the TSE J-REIT market.

In FY11/18, the Company achieved its target profit under the “Challenge 40” medium-term management plan two years ahead of schedule. From FY11/19, under a new management regime led by a new president, the Company will implement a new three-year medium-term management plan, the “Samty Toughening Plan.”

* New president Yasuhiro Ogawa is scheduled to take office on February 27, 2019.

2. Business result for FY11/18

In FY11/18, the Company realized major increases in both sales and profits, with net sales rising 39.3% year-on-year (YoY) to ¥84,274mn and operating income growing 38.5% to ¥14,033mn. These results even exceeded the upwardly revised forecasts announced on August 29, 2018, and the Company set new record highs for both net sales and all profit lines. Aided by the favorable conditions in the real estate market, results grew significantly in the Real Estate Business. In particular, centered on properties in the metropolitan Tokyo region, development mobilization (sales of S-RESIDENCE developments under the Company’s own brand), for which investment demand, including from overseas funds, continues to be strong, contributed to the increase in net sales due to the increase in the number of sales as well as the upswing in sales prices. In revitalization real estate (revitalization and sales, including of existing income properties), results were strong due to the supply of properties to SRR and other factors. The hotel business also grew steadily, including development projects. In terms of profits, the increase in sales led to higher operating income, despite one-time costs, costs associated with the hotel business (costs related to hotel openings, renovations, and development, etc.), as well as an increase in SG&A expenses in conjunction with the increases in various expenses, such as advertising expenses and personnel expenses. The operating income margin remained at a high level of 16.7%. In addition, the status of purchases (and the development pipeline), which will lead to future growth, are generally progressing according to plan.

3. FY11/19 forecast

For FY11/19, the Company expects the increases in both net sales and profit to continue, and is forecasting net sales of ¥86,000mn (+2.0% YoY), operating income of ¥15,000mn (+6.9%). The revenue growth rate will be more modest than in FY11/18, when the Company recorded large increases in earnings, due to the recoil decline in the number of properties sold and other factors, but the outlook for a continued high level of earnings is reasonable. Net sales in both the Real Estate Business and the Property Leasing Business will be roughly flat YoY, while growth in the hotel business is expected to contribute to the increase in net sales. As occupancy rates remain high, the hotels that opened in FY11/18 will contribute to net sales from the start of FY11/19, while hotels scheduled to open during FY11/19 are expected to further boost earnings. In terms of profits, the Company expects to see an increase in profit due to an overall increase in the profitability of transactions, along with the dissolution of factors responsible for the temporary costs in FY11/18. The Company is also aiming to further improve operating profit margin. Considering the favorable external environment (real estate market conditions) and internal factors (status of the development pipeline and solid launch of the hotel business, etc.), we feel that there is a strong likelihood that the Company will achieve its earnings forecasts. In addition, as in FY11/18, it will be necessary to keep an eye on effects caused by higher sales prices.

4. Growth strategy

The Company had been advancing its medium-term management plan covering the five-year period from FY11/16 through FY11/20. However, due to the fact that the Company achieved the profit target in FY11/18 two years ahead of schedule, it announced a new medium-term management plan, the “Samty Toughening Plan,” which will run through FY11/21. There have been no major changes to the overall direction of the plan, as the key priority measures include: 1) Developing a business model centered on SRR; 2) Strategically investing in regional metropolitan areas; and 3) Expanding the hotel development and office building development businesses. One key aspect of the new medium-term management plan is to place more of a focus on managing the balance sheet in order to prepare for a future correction phase. As a part of this, the Company is putting maximum emphasis on strengthening its financial base, centered on rental cash flow. The Company will aim for operating income around the ¥20.0bn level, ROE around the 15.0% level, and ROA around the 7.0% level, while maintaining an equity ratio of at least 30%.

◆Company profile

Balanced business portfolio based on Real Estate Business and Property Leasing Business Entered J-REIT market in 2015 Focusing on hotel business

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 89.2% of net sales (before adjustment) in FY11/18. 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. Recently, the Company has been focusing its efforts on the hotel business, which is expected to have a high occupancy rate.

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 ¥89.6bn.

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 7 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, etc.).

Overviews of each business are as follows.

(1) Real Estate Business

This business supports the Company’s growth and is divided into four sub-segments; “development mobilization,” “revitalization 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.

“Revitalization mobilization” refers to the revitalization 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 84 properties (property and equipment) 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 76.5% of the total floor space, offices 1.6%, and commercial, logistics and related facilities 21.9%, 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. While the scale of the real estate it owns amounts to around ¥72.7bn (book value), this is divided into ¥26.1bn of inventory assets that it intends to eventually sell (real estate for sale), and ¥46.5bn of property equipment that it intends to continue to own (all results are from the end of November 2018). Furthermore, under the management decision to prioritize investment into the hotel business as a focus field going forward, the Company has decided to sell off (for capital recovery) PIERI Moriyama, a large-scale commercial facility on Lake Biwa that underwent a renovation and reopening in December 2014.

(3) Other Business

This business mainly involves the ownership and management of hotels, the condominium management business, and the construction and renovation business. In the hotel business, in addition to Center Hotel Tokyo (Chuo-ku, Tokyo, 108 rooms), Center Hotel Osaka (Chuo-ku, Osaka, 84 rooms)*1, S-PERIA Hotel Nagasaki (Nagasaki, 153 rooms), and GOZAN HOTEL (Higashiyama-ku, Kyoto, 21 rooms), the Company also owns SMART HOTEL kutchan (Kutchan, Hokkaido, 67 rooms), a business hotel acquired in May 2018, and S-PERIA INN Nihombashihakozaki, its second hotel development project which opened in November 2018*2. Other than conducting the hotel busi­ness, the subsidiary Samty Property Management also conducts condominium management (including external properties, but mainly the Company’s condominiums), construction and renovation, and other work. Important strategies going forward will be to grow the hotel development business (secure rental income) and handle hotel management operations in-house (bolster the fee income business).

*1 Subsidiary Suntoa manages Center Hotel Tokyo, Center Hotel Osaka, and S-PERIA INN Nihombashihakozaki.

*2 S-PERIA Hotel Hakata (Fukuoka, 287 rooms), which opened on March 28, 2018 as the Company’s first hotel development project, has been sold (management operations have also been transferred to another company).

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 business. 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 December 2018, its market capitalization stood at around ¥12,970.2bn, and there were 61 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 is trending firmly due to a robust domestic real estate market (rising rents, etc.) More specifically, 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 the expectation that office demand will rise going forward. 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.

Meanwhile, looking at the hotel development and office building development businesses, which are expected to be new growth engines going forward, hotel occupancy rates remain high with the backdrop of increased inbound demand. Some in the market are concerned about a deterioration in the supply-demand situation after the Tokyo Olympic and Paralympic Games, but we basically think that hotel management can remain stable, as the Japanese government will continue with its policy of making Japan a major destination for tourism. With respect to office buildings, the decline in vacancy rates in central urban areas (an increase in the sense of a shortage of office space) is currently receiving a lot of attention, but the shortage of office space regional metropolitan areas (where the Company is also active) is also a serious situation, so we believe that there are sufficient business opportunities when it comes to office building development.

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, soaring construction costs and insufficient personnel numbers.

◆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 FY11/18 it has maintained a high ordinary income margin of over 13.0% for three consecutive years.

Although the equity ratio increased to 27.9% in FY11/13 following the implementation of a capital increase through a public offering (approximately ¥2bn), but since FY11/14, it has been at a level of around 23% due to the Company’s active accumulation of assets and other factors. However, the Company bolstered its financial base in October 2018 by issuing stock acquisition rights* (approximately ¥15.0bn), and this boosted the equity ratio to 37.9% as of November 30, 2018.

* The Company issued new shares by allotting listed-type stock acquisition rights without contribution to existing share­holders. The stock acquisition rights themselves are listed on the Tokyo Stock Exchange, so even if shareholders do not exercise the rights (purchase the shares), they can sell the stock acquisition rights through market transactions, etc. This method therefore took the interests of existing shareholders into consideration.

On the other hand, ROE, which indicates capital efficiency, has trended upward alongside the improvement in the profit margin. In FY11/18, it had reached the high level of 16.9%.

 

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