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Star Mica Holdings

Star Mica Holdings 2975

スター・マイカ・ホールディングス
Star Mica Holdings Co., Ltd.
Recent Updates
2022-04-19
Q1 FY11/22 report update
2022-04-06
Decision regarding a share repurchase and the repurchase of own shares in after-hours trading (ToSTNeT-3)
2022-04-01
Revision of earnings and dividend forecasts
Get in touch
28F, Shiroyama Trust Tower 4-3-1 Toranomon, Minato-ku Tokyo, Japan 105-6028
https://www.starmica-holdings.co.jp/
03-5776-2701
Summary
The company’s main Pre-owned Condominium business is unique for a large listed real estate company: it buys pre-owned, tenant-occupied individual condominium units, renovates these apartments when the tenants move out, and sells them for a profit.
Real Estate Management & Development
Key dates
2014-03-11
Coverage initiation
Full Report
2022-04-19
Q1 FY11/22 flash update
2022-04-01
Full-year FY11/21 flash update
2022-01-14
Q3 FY11/21 flash update
2021-09-30
Revision of full-year earnings forecast and announcement on treasury stock acquisition
2021-08-27
1H FY11/21 flash update
2021-06-30
Download

Executive summary

Buys pre-owned condominiums, earns rental income and profits from sales

Star Mica’s mainstay, the Renovated Condominium business, generates profits by renting or selling pre-owned condominiums and accounted for 97.6% of sales and 87.5% of operating profit (before adjustments and deductions) in FY11/21. The business is unique for a large listed real estate company: it buys pre-owned, tenant-occupied individual condominium units, renovates these apartments when the tenants move out, and sells them for a profit.

In Japan, purchasers of pre-owned condominiums with tenants are limited because these properties cannot be sold immediately after purchase and because, according to local convention, the buyer cannot inspect the inside. As a result, such condominiums tend to be cheaper than vacant pre-owned properties. Star Mica acquires such individual tenant-occupied condominiums that are being rented. The company first earns rental income and then makes a profit from the fact that there are always price differences between properties that are being rented and those that are vacant.

The downside of this method is that acquiring a single condominium unit can be inefficient and cumbersome compared to buying entire buildings. However, there is little competition to acquire such properties, allowing the company to buy them cheaply. Instead of acquiring entire buildings, the company buys individual pre-owned condominiums of different age and locations. This approach allows the company to spread associated risks (accidents, natural disasters, price fluctuations, and the tenant’s length of stay).

According to the company, it quickly assesses the value of properties and makes swift purchase decisions. The company also has the ability to raise funds and enjoys a track record of successful transactions. As a result, the company is in a strong position to gather information from real estate agents on pre-owned condominiums that have been put up for sale. The company says it also has its own information network that sets it apart from competitors and gives it the ability to assess the value of a large number of properties and execute many transactions. Star Mica also has access to short-term funds that are not tied to any specific properties, allowing the company to quickly sign a purchase agreement.

The company’s growth strategy focuses on an expansion of existing operations and the development of new businesses. The company plans to expand its Renovated Condominium business and increase the number of pre-owned properties it acquires and holds, and borrow money until its equity ratio reaches 30%. The company will at the same time expand its property rental and brokerage services involving renovated condominiums.

Trends and outlook

In FY11/21, Star Mica reported sales of JPY36.9bn (-6.8% YoY), operating profit of JPY4.3bn (+30.6% YoY), recurring profit of JPY3.7bn (+47.7% YoY), and net income attributable to owners of the parent of JPY2.4bn (+38.9% YoY). Sales decreased YoY. In FY11/20, the company prioritized growing the number of units sold to secure cash reserves. In FY11/21, however, the company prioritized securing profit per unit, resulting in a drop in the number of units sold. Operating profit increased with the implementation of a profit-oriented sales strategy in the Renovated Condominium business.

In March 2022, the company announced revisions to its full-year earnings forecast. The company's revised FY11/22 forecast calls for sales of JPY47.4bn (+28.5% YoY), operating profit of 5.6bn (+31.6% YoY), recurring profit of JPY4.9bn (+33.3% YoY), and net income attributable to owners of the parent of JPY3.4bn (+40.9% YoY). Star Mica targets record numbers of both units purchased and units sold. Versus the previous forecast, the company has raised its projection for sales by JPY1.1bn, operating profit by JPY857mn, recurring profit by JPY845mn, and net income attributable to owners of the parent by JPY581mn. It also raised its sales margin projections for renovated condominiums for 1H FY11/22 (December 2021–May 2022) from previous expectations.

Strengths and weaknesses

Shared Research believes that the three main strengths of Star Mica are its experience, stable revenue, and borrowing method. Weaknesses include its difficulties to increase asset turnover ratio, limited scope to lift profitability, and limited financial leverage (see Strengths and weaknesses).

Key financial data

Income statementFY11/12FY11/13FY11/14FY11/15FY11/16FY11/17FY11/18FY11/19FY11/20FY11/21FY11/22
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Est.
Sales12,85813,54413,90119,33320,97423,07530,28232,16439,56836,89747,410
YoY1.1%5.3%2.6%39.1%8.5%10.0%31.2%6.2%23.0%-6.8%28.5%
Gross profit2,7713,2393,5314,6005,5206,1606,9246,2975,9717,451
YoY-8.5%16.9%9.0%30.3%20.0%11.6%12.4%-9.0%-5.2%24.8%
Gross profit margin21.6%23.9%25.4%23.8%26.3%26.7%22.9%19.6%15.1%20.2%
Operating profit1,5421,8041,9032,4653,2593,5753,8393,6273,2814,2875,643
YoY-17.0%17.0%5.5%29.5%32.2%9.7%7.4%-5.5%-9.5%30.6%31.6%
Operating profit margin12.0%13.3%13.7%12.8%15.5%15.5%12.7%11.3%8.3%11.6%11.9%
Recurring profit9891,2301,2861,7972,5812,9823,2452,9262,4973,6884,916
YoY-25.0%24.4%4.5%39.7%43.6%15.5%8.8%-9.8%-14.7%47.7%33.3%
Recurring profit margin7.7%9.1%9.3%9.3%12.3%12.9%10.7%9.1%6.3%10.0%10.4%
Net income5397447731,1141,6782,0692,1552,0231,7292,4023,385
YoY-27.3%38.2%3.8%44.2%50.6%23.3%4.1%-6.1%-14.5%38.9%40.9%
Net margin4.2%5.5%5.6%5.8%8.0%9.0%7.1%6.3%4.4%6.5%7.1%
Per-share data (split-adjusted; JPY)
Number of shares outstanding at year-end('000 shares) 10010,00010,00010,00010,00019,20018,22918,22918,22918,229
EPS0.341.942.961.692.7114.2118.5111.094.9130.0183.1
EPS (fully diluted)0.340.441.659.689.4109.4113.4106.691.2127.2
Dividend per share6.07.59.014.523.029.032.032.032.033.038.0
Book value per share66076396907658539381,0151,0771,147
Balance sheet (JPYmn)
Cash and cash equivalents1,8921,6752,0371,9343,2602,2664,0754,3317,4053,112
Total current assets26,16729,07033,63639,31643,09447,83461,19375,18175,34379,281
Tangible fixed assets4,7868,07210,1459,0688,0056,3661,781494439
Investments and other assets1,4033934384045424565088311,1051,388
Intangible assets1111864185260266133
Total assets32,36737,54644,22948,80351,65254,68463,53776,12376,75980,844
Accounts payable-trade140267240330196254304491347614
Short-term debt6,5075,1803,8384,1712,8723,0535,7487,7357,6137,444
Total current liabilities7,3886,5365,2136,0944,9415,1978,03210,16110,10710,591
Long-term debt13,66119,88727,21829,99432,71133,90438,30747,31446,81248,983
Total fixed liabilities13,75120,05527,39330,15432,80433,97738,34047,38846,93848,992
Total liabilities21,14026,59132,60736,24937,74539,17346,37257,54957,04559,583
Total net assets11,22810,95511,62212,55413,90615,51017,16518,57419,71321,261
Total interest-bearing debt20,16825,06731,05634,16635,58336,95744,05555,04954,42556,428
Cash flow statement(JPYmn)
Cash flows from operating activities1,186-1,433-2,649-2,191783-1,822-4,709-10,2704,766-4,915
Cash flows from investing activities-2,395-2,639-2,850-852-630-2-59-69-378-312
Cash flows from financing activities4863,8555,8612,9401,1738296,57710,542-1,313934
Financial ratios
ROA (RP-based)3.1%3.5%3.1%3.9%5.1%5.6%5.5%4.2%3.3%4.7%
ROE5.2%7.1%6.9%9.3%12.7%14.1%13.2%11.4%9.1%11.8%
Equity ratio34.7%29.2%26.3%25.7%26.9%28.4%27.0%24.4%25.7%26.3%
Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.
The company conducted a 100-for-1 stock split on December 1, 2012 and a 2-for-1 stock split on October 1, 2017.
The company transitioned to a holding company structure in June 2019. YoY comparisons in FY11/19 were made with pre-transition FY11/18 results for reference.

Recent updates

Decision regarding a share repurchase and the repurchase of own shares in after-hours trading (ToSTNeT-3)

2022-04-06

On April 4, 2022, Star Mica Holdings Co., Ltd. announced a decision regarding a share repurchase and the repurchase of its own shares in after-hours trading (ToSTNeT-3).

Overview of share repurchase
  • Type of shares to be repurchased: Common shares of the Company
  • Total number of shares that can be repurchased: Up to 1.8mn shares (9.7% of total number of shares issued [excluding treasury stock])
  • Total repurchase price: Maximum of JPY3.1bn
  • Repurchase period: April 4, 2022–March 31, 2023
  • Repurchase method: Market purchase based on a discretionary trading contract in after-hours trading (ToSTNeT-3)
Share repurchase in after-hours trading (ToSTNeT-3)

The company will consign the repurchase of its own shares at the closing price of JPY1,710 (including the last special quote price) of April 4, 2022 on the Tokyo Stock Exchange at 8:45am on April 5, 2022 via after-hours trading (ToSTNeT-3).

  • Type of shares to be repurchased: Common shares of the Company
  • Total number of shares that can be repurchased: Up to 1.8mn shares (9.7% of total number of shares issued [excluding treasury stock])
  • Total repurchase price: Maximum of JPY3.1bn

Revision of earnings and dividend forecasts

2022-04-01

On March 31, 2022, Star Mica Holdings Co., Ltd. announced revisions to its earnings and dividend forecasts.

Revised earnings forecast for 1H FY11/22

  • Sales: JPY27.4bn (previously, JPY26.4bn)
  • Operating profit: JPY3.6bn (JPY2.9bn)
  • Recurring profit: JPY3.3bn (JPY2.5bn)
  • Net income attributable to owners of the parent: JPY2.2bn (JPY1.7bn)
  • EPS: JPY121.59 (JPY93.30)
  • DPS: JPY19.0 (JPY17.0)

Revised earnings forecast for full-year FY11/22

  • Sales: JPY47.4bn (previously, JPY46.3bn)
  • Operating profit: JPY5.6bn(JPY4.8bn)
  • Recurring profit: JPY4.9bn (JPY4.1bn)
  • Net income attributable to owners of the parent: JPY3.4bn (JPY2.8bn)
  • EPS: JPY183.14 (JPY151.69)
  • DPS: JPY19.0 (JPY17.0)

Reasons for revision

Sales margins are trending above the company's initial projections as prices in the renovated condominium market continue to rise. The company believes this trend will continue through to end-Q2 (end-May 2022), and hence upgraded its earnings forecast. However, the company maintained its previous projections for sales margins for Q3 onward as it remains uncertain whether this uptrend in renovated condominium prices will continue in or after June 2022.

In light of upward revisions to the earnings forecast, the company raised its forecast for interim and year-end dividend per share by JPY2.0 each, for an annual dividend forecast of JPY38.0 per share (previous forecast: JPY34.0).

Trends and outlook

Quarterly trends and results

CumulativeFY11/21FY11/22FY11/22FY11/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.1H Est.% of Est.FY Est.
Sales9,57921,63330,08036,89712,31344.9%27,41326.0%47,410
YoY13.8%26.0%-2.7%-6.8%28.5%26.7%28.5%
Gross profit1,7733,7735,7217,4512,8479,370
YoY4.7%26.1%21.8%24.8%60.6%25.8%
Gross profit margin18.5%17.4%19.0%20.2%23.1%19.8%
SG&A expenses6591,5362,2513,1647493,730
YoY4.0%14.0%18.0%17.6%13.7%17.9%
SG&A ratio6.9%7.1%7.5%8.6%6.1%7.9%
Operating profit1,1142,2373,4704,2872,09858.5%3,58637.2%5,643
YoY5.1%36.1%24.4%30.6%88.3%60.3%31.6%
Operating profit margin11.6%10.3%11.5%11.6%17.0%13.1%11.9%
Recurring profit9661,9143,0163,6881,95860.1%3,25539.8%4,916
YoY33.5%53.3%36.6%47.7%102.6%70.1%33.3%
Recurring profit margin10.1%8.8%10.0%10.0%15.9%11.9%10.4%
Net income6771,3362,1052,4021,34660.1%2,24139.8%3,385
YoY32.6%52.4%36.1%38.9%98.7%67.7%40.9%
Net margin7.1%6.2%7.0%6.5%10.9%8.2%7.1%
QuarterlyFY11/21FY11/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
Sales9,57912,0548,4476,81712,313
YoY13.8%37.6%-38.5%-21.3%28.5%
Gross profit1,7732,0001,9481,7302,847
YoY4.7%54.1%14.1%35.9%60.6%
Gross profit margin18.5%16.6%23.1%25.4%23.1%
SG&A expenses659877715913749
YoY4.0%22.9%27.4%16.8%13.7%
SG&A ratio6.9%7.3%8.5%13.4%6.1%
Operating profit1,1141,1231,2338172,098
YoY5.1%92.2%7.6%66.2%88.3%
Operating profit margin11.6%9.3%14.6%12.0%17.0%
Recurring profit9669471,1026721,958
YoY33.5%80.6%14.9%132.1%102.6%
Recurring profit margin10.1%7.9%13.0%9.9%15.9%
Net income6776597682971,346
YoY32.6%80.1%14.7%62.6%98.7%
Net margin7.1%5.5%9.1%4.4%10.9%
Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.
The company transitioned to a holding company structure in June 2019. YoY comparisons in FY11/19 were made with pre-transition FY11/18 results for reference.
Breakdown of CoS and SG&A expenses
FY11/21FY11/22FY11/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.FY Est.
SG&A expenses6591,5362,2513,16474920.1%3,730
YoY4.0%14.0%18.0%17.6%13.7%20.9%
Directors' remunerations40618211421
Salaries and allowances2005107111,042193
Dues and taxes154359533740216
Other2656069241,267319
FY11/21FY11/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
SG&A expenses659877715913749
YoY4.0%22.9%27.4%16.8%13.7%
Directors' remunerations4021213221
Salaries and allowances200310201332193
Dues and taxes154206174207216
Other265340319343319
Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.

Quarterly data (for reference)

Sales and operating profit by segment
FY11/21FY11/22FY11/22
Cumulative (JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.FY Est.
Sales9,57921,63330,08036,89712,31326.0%47,410
YoY13.8%26.0%-2.7%-6.8%28.5%28.5%
Renovated Condominium9,37421,24329,53436,00612,12326.0%46,670
YoY13.8%26.3%-2.8%-7.3%29.3%29.6%
Investment20202020--
YoY------
Advisory Services18437052687118925.9%730
YoY2.1%3.2%0.3%22.7%2.8%-16.2%
Operating profit1,1142,2373,4704,2872,09837.2%5,643
YoY5.1%36.1%24.4%30.6%88.3%31.6%
Operating profit margin11.6%10.3%11.5%11.6%17.0%11.9%
Renovated Condominium1,0932,2593,5324,2512,005
YoY4.1%37.3%27.2%28.1%83.4%
Operating profit margin11.7%10.6%12.0%11.8%16.5%
Investment19171614-1
YoY-----
Operating profit margin95.3%84.5%78.8%68.4%-
Advisory Services124250338591217
YoY-5.8%-1.2%-12.9%17.5%74.1%
Operating profit margin67.6%67.8%64.2%67.9%114.5%
Adjustments-123-289-416-569-122
FY11/21FY11/22
Quarterly (JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
Sales9,57912,0548,4476,81712,313
YoY13.8%37.6%-38.5%-21.3%28.5%
Renovated Condominium9,37411,8698,2906,47212,123
YoY13.8%38.3%-38.9%-23.6%29.3%
Investment20----
YoY-----
Advisory Services184185157345189
YoY2.1%4.4%-6.0%86.2%2.8%
Operating profit1,1141,1231,2338172,098
YoY5.1%92.2%7.6%66.2%88.3%
Operating profit margin11.6%9.3%14.6%12.0%17.0%
Renovated Condominium1,0931,1651,2737192,005
YoY4.1%95.8%12.5%32.5%83.4%
Operating profit margin11.7%9.8%15.4%11.1%16.5%
Investment19-2-1-2-1
YoY-----
Operating profit margin95.3%----
Advisory Services12412688253217
YoY-5.8%3.7%-34.8%119.4%74.1%
Operating profit margin67.6%67.9%55.8%73.5%114.5%
Adjustments-123-166-127-153-122
Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.
Renovated Condominium sales, gross profit (with the company's initial forecast)
FY11/21FY11/22FY11/22
Cumulative (JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.FY Est.
Sales9,37421,24329,53436,00612,12326.0%46,670
YoY13.8%26.3%-2.8%-7.3%29.3%29.6%
Rental1,0031,9792,9243,891996
YoY1.2%-3.2%-4.4%-4.1%-0.7%
Sale8,37119,26426,61032,11511,128
YoY15.6%30.4%-2.6%-7.7%32.9%
Gross profit1,6503,5405,4006,8602,70030.5%8,850
YoY4.4%27.3%22.7%23.4%63.6%29.0%
Gross profit margin17.6%16.7%18.3%19.1%22.3%19.0%
Rental6301,2371,8162,41260923.6%2,580
YoY3.4%-3.2%-3.7%-4.1%-3.3%7.0%
Gross profit margin62.8%62.5%62.1%62.0%61.2%-
Sale1,0552,3503,6464,5282,10333.2%6,340
YoY7.1%36.0%30.8%27.6%99.4%40.0%
Gross profit margin12.6%12.2%13.7%14.1%18.9%-
Loss on valuation-29-42-43-81-4-70
SG&A expenses5571,2811,8682,609695
YoY5.1%12.9%15.1%16.5%24.8%
SG&A ratio5.9%6.0%6.3%7.2%5.7%
Operating profit1,0932,2593,5324,2512,005
YoY4.1%37.3%27.2%28.1%83.4%
Operating profit margin11.7%10.6%12.0%11.8%16.5%
FY11/21FY11/22
Quarterly (JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
Sales9,37411,8698,2906,47212,123
YoY13.8%38.3%-38.9%-23.6%29.3%
Rental1,003976945967996
YoY1.2%-7.4%-6.9%-3.2%-0.7%
Sale8,37110,8927,3465,50511,128
YoY15.6%44.7%-41.5%-26.4%32.9%
Gross profit1,6501,8901,8601,4602,700
YoY4.4%57.5%14.8%25.9%63.6%
Gross profit margin17.6%15.9%22.4%22.6%22.3%
Rental630607579597609
YoY3.4%-9.2%-4.6%-5.5%-3.3%
Gross profit margin62.8%62.2%61.3%61.7%61.2%
Sale1,0551,2951,2958832,103
YoY7.1%74.4%22.3%15.8%99.4%
Gross profit margin12.6%11.9%17.6%16.0%18.9%
Loss on valuation-29-12-1-38-4
SG&A expenses557725587741695
YoY5.1%19.8%20.2%20.0%24.8%
SG&A ratio5.9%6.1%7.1%11.4%5.7%
Operating profit1,0931,1651,2737192,005
YoY4.1%95.8%12.5%32.5%83.4%
Operating profit margin11.7%9.8%15.4%11.1%16.5%
Source: Shared Research based on company data
Figures may differ from company data due to differences in rounding methods.
Figures for gross profit are Shared Research’s calculations based on the company’s published GPM.
Number of acquired, sold, and inventory units in the Renovated Condominium business
CumulativeFY11/21FY11/22
(units)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4
Units purchased2606139411,325435
YoY-39.7%-20.6%2.8%12.3%67.3%
Price per unit (JPYmn)26.225.826.326.626.6
YoY15.2%9.4%8.5%11.0%1.4%
Units sold2766919201,100339
YoY14.5%39.3%-5.5%-11.0%22.8%
Price per unit (JPYmn)30.327.928.929.232.8
YoY0.9%-6.4%3.1%3.7%8.2%
Units in inventory3,3123,2503,3493,5533,649
YoY-7.3%-11.2%0.7%6.8%10.2%
Price per unit (JPYmn)20.020.220.420.921.1
YoY-1.7%-0.8%1.4%4.6%5.6%
QuarterlyFY11/21
(units)Q1Q2Q3Q4
Units purchased260353328384435
YoY-39.7%3.5%129.4%44.9%67.3%
Price per unit (JPYmn)26.225.527.227.426.6
YoY15.2%3.6%-2.0%18.6%1.4%
Units sold276415229180339
YoY14.5%62.7%-52.1%-31.3%22.8%
Price per unit (JPYmn)30.326.232.130.632.8
YoY0.9%-11.1%22.1%7.2%8.2%
Source: Shared Research based on company data
Real estate for sale and tangible fixed assets
FY11/21FY11/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
Real estate for sale66,07965,49868,36574,30976,866
YoY change-6,473-8,8781,4607,76710,787
YoY-8.9%-11.9%2.2%11.7%16.3%
QoQ change-463-1,0431,8247,7672,557
QoQ-0.7%-1.6%2.7%11.7%3.4%
Tangible fixed assets4240413938
YoY change-6-5-5-5-4
YoY-11.7%-11.3%-11.5%-11.4%-10.0%
Source: Shared Research based on company data
Figures may differ from company data due to differences in rounding methods.
Reference: Pre-owned condominium market trends (Greater Tokyo area)
20212022年
Jan–MarApr–JunJul–SepOct–DecJan–MarApr–JunJul–SepOct–Dec
Units11,2959,9878,7929,7379,311
YoY12.2%55.4%-7.8%-0.5%-17.6%
Average contract price (JPY10,000)3,7953,8373,8903,9664,110
YoY6.0%14.7%6.4%6.8%8.3%
Contract price per sqm (JPY10,000)58.159.060.761.964.0
YoY5.5%13.2%9.1%8.9%10.2%
Source: Shared Research based on Quarterly Market Watch Summary Report issued by the Real Estate Information Network for East Japan Figures may differ from company data due to differences in rounding methods. Includes Tokyo, Kanagawa, Chiba, and Saitama prefectures.
Reference: New condominium market trends (Greater Tokyo area)
20202021
Jan–MarApr–JunJul–SepOct–DecJan–MarApr–JunJul–SepOct–Dec
New units supplied4,8672,6226,22913,5106,6716,6066,20314,156
YoY-35.6%-55.5%1.9%15.5%37.1%151.9%-0.4%4.8%
Average contract price (JPY10,000)7,0176,3635,9825,8926,1786,6286,8456,086
YoY13.9%6.3%4.9%1.9%-12.0%4.2%14.4%3.3%
Contract price per sqm (JPY10,000)107.0102.490.889.891.8100.0105.091.1
YoY20.2%12.0%6.0%5.2%-14.2%-2.4%15.7%1.5%
Source: Shared Research based on statistics from Real Estate Economic Institute
Figures may differ from company data due to differences in rounding methods. 

Q1 FY11/22 results 

  • Sales: JPY12.3bn (+28.5% YoY)
  • Operating profit: JPY2.1bn (+88.3% YoY)
  • Recurring profit: JPY2.0bn (+102.6% YoY)
  • Net income attributable to owners of the parent: JPY1.3bn (+98.7% YoY) 

According to the Real Estate Information Network for East Japan, the number of pre-owned condominiums sold in the Tokyo metropolitan area declined by 12.3% YoY to 3,146 in February 2022. The average price per square meter for a pre-owned condominium sold in the Tokyo metropolitan area was JPY625,100 (+8.4% YoY) and the average purchase price was JPY40.2mn (+6.6% YoY), increasing for the 22nd and 21st consecutive months, respectively. The inventory of pre-owned condominiums in February 2022 was 37,259, and has been recovering since June 2021 (33,641). However, this remains below pre-COVID-19 levels, and the market continued to feel a shortage of supply.  

The company intends to focus on the Renovated Condominium business, working to increase real estate units purchased and supplied through expanding sales areas and enhancing the brokerage function of its subsidiaries. It also intends to maintain and increase its equity ratio in efforts to fortify its financial base. In Q1, real estate units supplied increased owing to successful real estate purchases, and the company worked to strengthen the marketability of its products. As a result, all profit categories from the operating line down increased YoY.

Progress versus the company forecast

In March 2022, the company announced revisions to its 1H and full-year earnings forecasts for FY11/22. The revised 1H FY11/22 forecast calls for sales, operating profit, recurring profit, and net income attributable to owners of the parent that exceed those of the previous forecast by JPY1.0bn, JPY732mn, JPY753mn, and JPY517mn, respectively. The revision reflects greater-than-expected sales per unit as demand for pre-owned condominiums remained strong in Q1 FY11/22 as was the case in FY11/21. The company raised its forecast for sales and profits because demand is expected to remain strong in Q2 FY11/22.

The revised full-year FY11/22 forecast calls for sales, operating profit, recurring profit, and net income attributable to owners of the parent that exceed those of the previous forecast by JPY1.1bn, JPY857mn, JPY845mn, and JPY581mn, respectively. The revision reflects an expected increase in sales and profits for 1H FY11/22. Still, the company maintained its previous assumption regarding sales per unit because the market outlook for pre-owned condominiums is unclear for 2H FY11/22.

For Q1 FY11/22, sales, operating profit, recurring profit, and net income attributable to owners of the parent were 44.9%, 58.5%, 60.1%, and 60.1% of the revised 1H FY11/22 forecast. (In Q1 FY11/21, the figures were 44.3%, 49.8%, 50.5%, and 50.7% of the 1H FY/21 results.) Sales were less than 50% of the 1H FY11/22 projection, but operating profit exceeded that level. In Q2 FY11/22, the company expects to record the sale of properties with a relatively low profit margin intended for corporate buyers and see its OPM decline as a result.

Renovated Condominium business 
  • Sales: JPY12.1bn (+29.3% YoY)
  • Operating profit: JPY2.0bn (+83.4% YoY) 

The Renovated Condominium business posted a YoY sales increase because it sold more units even as rental sales declined. Operating profit rose owing to an increase in gross profit to JPY2.7bn (+63.6% YoY). SG&A expenses reached JPY695mn (+24.8% YoY) mainly because of higher taxes and dues accompanying an increase in the number of units purchased.

Through the end of FY11/17, the company generally purchased condominiums that were currently being rented, collected rent from the existing tenants, and renovated and sold them after these tenants departed. Starting in FY11/18, the company has also been concentrating on buying and selling vacant condominiums to expand its earnings opportunities. In Q1 FY11/22, vacant condominiums accounted for about 45% of purchased properties and about 60% of properties sold.

Star Mica performs renovations on vacant condominiums three to four months following their purchase and sells these properties about nine months after they are acquired, while condominiums acquired under rent are not sold until about two and a half years after they are purchased. The company’s intensified buying and selling of vacant condominiums will have an impact on earnings of both the rental and sale businesses. Rental earnings will be affected by the lack of rent revenue generated through these properties while associated maintenance fees are incurred. In Renovated Condominium (sale), vacant condominiums are subject to more intense competition at the time of purchase than units that are being leased at the time of purchase (owner-change properties) are. The company's GPM projection at the time of purchase for owner-change properties is 14–16%, versus 8–10% for vacant condominiums.

Renovated Condominium (rental) business
  • Sales: JPY996mn (-0.7% YoY)
  • Gross profit: JPY609mn (-3.3% YoY) 

Star Mica focused on purchasing properties in the Tokyo metropolitan area and in major regional cities, leading to a YoY increase in the inventory of real estate for sale and the number of units in inventory. However, the company had an increase in the ratio of vacant condominiums among its real estate for sale, causing a YoY decline in the rental business sales.

Gross profit fell along with the sales decline. GPM fell 1.6pp YoY to 61.2% because of a cost increase associated with an increase in the number of units purchased.

Renovated Condominium (sale) business
  • Sales: JPY11.1bn (-32.9% YoY)
  • Gross profit: JPY2.1bn (+99.4% YoY) 

Sales increased because the company sold more units while sales per unit rose. The company adopted a sales strategy that prioritized profit per unit as demand for pre-owned condominiums remained strong. The company sold 339 units (+22.8% YoY) in Q1 FY11/22 and posted sales per unit of JPY32.8mn (+8.2% YoY).

On the profit front, gross profit rose thanks to growth in GPM to 18.9% (+6.3pp YoY). Sales per unit rose, as did GPM for units that were being leased at the time of purchase (“owner-change” properties). It takes an average of about two years and six months for owner-change properties to be sold after they are purchased. As discussed earlier, the average price per square meter for a pre-owned condominium sold in the Tokyo metropolitan area has been rising for 22 months in a row. In Q1 FY11/22, the company sold properties that it acquired before the price began to rise, and GPM rose for owner-change properties as a result.

In Q1, the company booked a JPY4mn valuation loss on real estate for sale under cost of sales (JPY29mn in Q1 FY11/21).

Real estate for sale

The monetary value of Star Mica’s real estate for sale amounted to JPY76.9bn (+2.6bn, or +3.4%, from end-FY11/21). At end-Q1 FY11/22, the company had 3,649 units in inventory (+96 units, or +2.7%, from end-FY11/21). Star Mica purchased 435 units (+67.3% YoY) and sold 339 (+22.8% YoY).


Investment business
  • Sales: None recorded (JPY20mn in Q1 FY11/21)
  • Operating loss: JPY1mn (operating profit of JPY19mn in Q1 FY11/21) 

In Q1, the company moved ahead with the review of new projects. It posted an operating loss due to the booking of personnel expenses associated with the review of resumption of investments into income-generating real estate. 

Advisory Services business 
  • Sales (outside the group): JPY189mn (+2.8% YoY)
  • Operating profit: JPY217mn (+74.1% YoY)

In Q1, brokerage operations for renovated condominiums sold by the company held steady, and brokerage commissions from the sale of properties held by outside companies also increased. As a result, both sales and profit grew YoY. 

For details on previous quarterly and annual results, please refer to the Historical performance section.

Full-year company forecast

Company forecast
FY11/21FY11/22YoY
(JPYmn)1H Act.2H Act.FY Act.1H Est.2H Est.FY Est.1H2HFY
Sales21,63315,26436,89727,41319,99747,41026.7%31.0%28.5%
Cost of sales17,86011,58729,44638,040
Gross profit3,7733,6787,4519,37025.8%
Gross profit margin17.4%24.1%20.2%19.8%
SG&A expenses1,5361,6283,1643,73017.9%
SG&A ratio7.1%10.7%8.6%7.9%
Operating profit2,2372,0504,2873,5862,0575,64360.3%0.4%31.6%
Operating profit margin10.3%13.4%11.6%13.1%10.3%11.9%
Recurring profit1,9141,7743,6883,2551,6614,91670.1%-6.4%33.3%
Recurring profit margin8.8%11.6%10.0%11.9%8.3%10.4%
Net income1,3361,0662,4022,2411,1443,38567.7%7.4%40.9%
Net margin6.2%7.0%6.5%8.2%5.7%7.1%
Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods
Forecast by segment
FY11/20FY11/21FY11/22
(JPYmn)FY Act.FY Act.FY Est.YoY
Sales39,56836,89747,41028.5%
Renovated Condominium38,85836,00646,67029.6%
Investment-20--
Advisory Services710871730-16.2%
Gross profit5,9717,4519,37025.8%
Gross profit margin15.1%20.2%19.8%
Renovated Condominium5,5606,8608,85029.0%
Gross profit margin14.3%19.1%19.0%97.9%
Rental2,5162,4122,5807.0%
Sale3,5504,5286,34040.0%
Valuation losses on real estate for sale-504-81-70-13.0%
Investment-14--
Gross profit margin-68.4%--
Advisory Services400560520-7.1%
Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.

For FY11/22, the company forecasts sales of JPY47.4bn (+28.5% YoY), operating profit of JPY5.6bn (+31.6% YoY), recurring profit of JPY4.9bn (+33.3% YoY), and net income attributable to owners of the parent of JPY3.4bn (+40.9% YoY).

The company expects to purchase about 1,600 units (+21% YoY) and sell about 1,400 units (+27% YoY) in FY11/22.

In March 2022, the company announced revisions to its 1H and full-year earnings forecasts for FY11/22, as well as to its dividend projections.

The revised 1H forecast calls for sales of JPY27.4bn (+26.7% YoY), operating profit of JPY3.6bn (+60.3% YoY), recurring profit of JPY3.3bn (+70.1% YoY), and net income attributable to owners of the parent of JPY2.2bn (+67.7% YoY). Compared with the previous forecast, the revised forecast reflects increases of JPY1.0bn for sales, JPY732mn for operating profit, JPY753mn for recurring profit, and JPY517mn for net income attributable to owners of the parent. 

The revised full-year forecast calls for sales of JPY47.4bn (+28.5% YoY), operating profit of JPY5.6bn (+31.6% YoY), recurring profit of JPY4.9bn (+33.3% YoY), and net income attributable to owners of the parent of JPY3.4bn (+40.9% YoY). Compared with the previous forecast, the revised forecast reflects increases of JPY1.1bn for sales, JPY857mn for operating profit, JPY845mn for recurring profit, and JPY581mn for net income attributable to owners of the parent.

The revised dividend forecast calls for an interim dividend of JPY19.0 per share (previously, JPY17.0) and a year-end dividend of JPY19.0 per share (JPY17.0), for an annual dividend of JPY38.0 per share (JPY34.0).

Sales margins are trending above the company's initial projections as prices in the renovated condominium market continue to rise. The company believes this trend will continue through to end-Q2 (end-May 2022), and hence upgraded its earnings forecast. However, the company maintained its previous projections for sales margins for Q3 onward as it remains uncertain whether this uptrend in renovated condominium prices will continue in or after June 2022.

Renovated Condominium business

The company forecasts sales of JPY46.7bn (+29.6% YoY) and gross profit of JPY8.9bn (+29.0% YoY).

GPM is seen declining by 0.1pp YoY to 19.0%. GPM for the Renovated Condominium business (sale) is expected to rise, but that for the Renovated Condominium business (rental) is forecast to fall.

Sales in the Renovated Condominium business (rental) are expected to rise YoY. Real estate for sale at the beginning of FY11/22 was JPY74.3bn (+11.7% YoY), and the increase in the company's inventory of properties during the period will result in higher sales. Gross profit is forecast to reach JPY2.6bn (+7.0% YoY) due to increased sales. GPM, however, is seen declining YoY, resulting from the company's intent to diversify its portfolio by acquiring properties in regional cities wherein GPM is relatively low. While rents in regional areas are lower than in Tokyo, fixed costs (such as management fees and maintenance reserves) are about the same and this tends to push down GPM. 

The Renovated Condominium business (sales) is expected to see higher sales as the number of units sold will be approximately 1,400 (+27% YoY). Sales per unit are expected to remain largely unchanged from FY11/21, although the company intends to continue its sales strategy of focusing on profit per unit. Higher sales are seen leading to gross profit of JPY6.3bn (+40.0% YoY).

Investment business

The company expects sales of JPY0mn (JPY20mn sales booked in FY11/21) and gross profit of JPY0mn (JPY14mn booked in FY11/21).

From FY11/15, the company saw rising prices in the real estate market as an opportunity to sell tangible fixed assets, and completed selling the assets in FY11/19. As of January 2022, the company had no plans to invest in income-generating real estate during FY11/22, but noted that it would consider resuming investments in the medium-to-long term.

Advisory Services business 

The company expects sales of JPY730mn (-16.2% YoY) and gross profit of JPY520mn (-7.1% YoY).

Outlook

In January 2021, the company announced the withdrawal of targets in its five-year management plan (FY11/18–FY11/22).

As a leading company in the renovated condominium industry, Star Mica formulated a five-year management plan starting in January 2018 with the aim of maintaining its position as an industry leader and continuing to create value for customers. Under the plan, the company aimed to reach JPY50.0bn in sales and JPY8.5bn in operating profit in the final year of the plan (FY11/22) by expanding its Renovated Condominium, Investment, and Advisory Services businesses. From FY11/18 to 1H FY11/20, the company saw success in aggressive property acquisition and sales, such that sales, profits, and the inventory of real estate for sale generally trended according to plan.

From March 2020 onward, in response to the COVID-19 pandemic, Star Mica set preparing for possible changes in the business environment as its highest priority. It accordingly shifted its policy in FY11/20 and FY11/21 to emphasize the balance in the number of properties acquired and sold rather than growth in the inventory of real estate for sale in an attempt to maintain and increase the equity ratio and cash on hand. In addition, the company reviewed a part of the Investment business’s investment plan and decided against including the sale of income-generating real estate into the plan for FY11/22. As a result, it expects to achieve the management plan targets in or after FY11/22.

Uncertainty persisted in the business environment in January 2021 as the state of emergency declarations have been reissued in various areas. The company has thus decided that it was difficult to predict when it could achieve the targets set forth in the medium-term management plan and to reasonably estimate targets for FY11/22. In consideration of these factors, the company has decided to withdraw the FY11/22 targets. However, the company noted that there is no change in its basic policy.

From FY11/22 onward, the company plans to bolster its equity ratio (26.2% in FY11/21) from end-FY11/21 to maintain and strengthen its financial base, while at the same time reinforcing its property purchasing and sales activities.

(Reference) Five-year plan targets
Five-year management plan (consolidated)FY11/22FY11/21FY11/22
(JPYmn)TargetsAct.Est.
Sales50,00036,89746,274
Operating profit8,5004,2874,786
Recurring profit7,5003,6884,071
Real estate for sale (Renovated Condominium business)100,00074,309
Source: Shared Research based on company data

Basic plan

  • Renovation: Exert a commanding presence in the industry both in terms of properties held and supplied, and develop into a comprehensive renovation company
  • Innovation: Create new revenue opportunities and social value by taking on the challenge of combining real estate and IT as well as aggressive investment 

Initiatives by segment

Renovated Condominium business

Star Mica looks to expand the portfolio of properties for sale by boosting personnel and improving efficiency through its geographic strategy and utilization of IT to ramp up property acquisitions. As of end-FY11/21, 62.9% of all properties were in metropolitan areas (versus 60.5% at end-FY11/20), so in addition to increasing sales staff, management looks to expand properties in regional cities as a means of increasing supply and diversifying the portfolio. The company also plans to revamp the core system to raise operational efficiency. 

Initiatives in the Renovated Condominium business

One measure aimed at increasing its inventory of properties held for sale was the startup of a “no-worries” leaseback service in December 2017. As a rule, the company buys condominium units that are occupied at the time of the purchase. The new leaseback service buys condominiums from owners who are living in the unit they want to sell. Following the sale, the former owner can remain in the unit as a tenant and pay rent to Star Mica. The new leaseback service is designed to help people cash out the value of their property for whatever reason. The reasons vary; for some it is inheritance-related issues, others might want to liquidate assets to cash for financing business interests or other purposes.

To help increase property sales, in January 2018 the company launched its new “Rent Clip” service. Rent Clip offers pre-owned condominium buyers the option of renting out their property to Star Mica in the future. By applying for Rent Clip and paying a fee, pre-owned condominium buyers can at any point during the specified period exercise their option to rent out their unit to Star Mica at the rate specified when the contract was signed. This arrangement allows potential condominium buyers to make a purchase even if there is a chance they may have to move due to changes in family situation, their work, or other circumstances.

In December 2019, the company’s subsidiaries Star Mica Co., Ltd. and Star Mica Residence Co., Ltd. entered into a business alliance agreement with Tsukuruba Inc. (TSE Growth: 2978) in relation to the business of selling renovated condominiums. Through this alliance, Star Mica and Tsukuruba will jointly create a new sales system that allows buyers to select renovation design patterns from “cowcamo,” one of Japan’s largest renovation property media. Tsukuruba will utilize the market data of cowcamo’s 120,000 registered users to develop design patterns based on consumer preferences. This will enable purchasers of (pre-renovated) Star Mica properties to select their favorite renovation designs from multiple patterns. In the medium to long term, the company will consider making this sales scheme available to outside contractors and promoting the spread of renovated condominiums in the real estate industry. In FY11/22, the company aims to sell 50 units for the year.

In January 2019, the company reached a basic agreement with Connehito Inc., which operates an information app for women, “Mamari,” regarding joint development and provision of an online community dedicated to providing housing-related information. Mamari is an information app for pregnant women and women with children two years of age or younger. As of January 2020, one out of three women who gave birth in 2018 was reported to be using it. The user base, composed overwhelmingly of pregnant women, those who have recently given birth, or those who are raising young children, happens to overlap with the demographic of people who are purchasing a home for the first time. By collaborating with Connehito, the company aims to target this user base and allay their concerns about purchasing a home to promote the option of purchasing a renovated condominium. The collaboration will consist of Connehito adding a “Residence” category to the Mamari app and Star Mica responding to questions and concerns from users over housing and renovations from a specialist perspective.

Investment business
  • Execute investment strategies that flexibly adapt to changing market trends
  • Expand investment targets and diversify investment methods 

The company completed selling off tangible fixed assets in the Investment business in FY11/19. As of January 2022, the company had no plans to invest in income-generating properties, but will watch market trends and consider when to resume investment.

Advisory Services business
  • Increase the scale of brokerage and management operations to improve profitability
  • Aggressively invest in combining real estate and IT, and break into new business fields, including housing for temporary lodgers 

Star Mica targets new businesses by combining real estate and IT, including the application of VR technology in property viewing, using smartphones for entrance access, matching needs through utilization of the cloud (real estate and remodeling-related needs), and use of tablets for (paperless) contracts.

Return to shareholders

  • Continue to distribute dividends, targeting a dividend payout ratio of 30%
  • Aim to increase market capitalization following business growth 

Organizational structure

  • Actively hire new employees from different industries and professional backgrounds
  • Improve labor productivity through the use of advanced IT 

Business

Description

Star Mica’s mainstay, the Renovated Condominium business, generates profits by renting or selling pre-owned condominiums. This business comprised 97.6% of the company’s overall sales and 87.5% of operating profit in FY11/21 (before adjustments and deductions, calculated as percent of total operating profit generated by all segments).

The company’s growth strategy focuses on an expansion of its existing operations and the development of new businesses. The company plans to expand its Renovated Condominium business and increase the number of such properties by borrowing money until its equity ratio reaches around 30%. The company will at the same time expand its property rental, brokerage, and renovation businesses involving pre-owned condominiums, and will also move into Real Estate Tech, developing businesses that combine real estate with modern information technology.

Operations

The company’s main Renovated Condominium business is fairly unique for a large listed real estate company: it buys pre-owned individual condominium units that are being rented, renovates these apartments when the tenants move out, and sells them for a profit.

In Japan, purchasers of pre-owned condominiums with tenants are limited because these properties cannot be sold immediately after purchase and, according to local convention, the buyer cannot inspect the inside. As a result, such condominiums tend to be cheaper than vacant pre-owned properties. Star Mica acquires these individual tenant-occupied condominiums and initially earns rental income from the existing tenant; then when the tenant leaves, it refurbishes the unit before putting it on the market as a vacant unit.

The downside of this method is that acquiring a single condominium unit can be inefficient and cumbersome compared to buying the entire condominium. However, there is little competition to acquire such properties, allowing the company to buy them cheaply. By focusing on individual pre-owned condominiums, it is able to acquire units of differing ages and locations. This approach allows the company to spread associated risks (accidents, natural disasters, price fluctuations, and the tenant’s length of stay).

According to the company, when it is acquiring pre-owned condos, it quickly assesses the value of properties and makes swift purchase decisions. The company also has the ability to raise funds and enjoys a track record of successful transactions. As a result, the company is in a strong position to gather information from real estate agents on pre-owned condominiums that have been put up for sale. The company says it also has its own information network that sets it apart from competitors and gives it the ability to assess the value of a large number of properties and execute many transactions. Star Mica also has access to short-term funds that are not tied to any specific properties, allowing the company to quickly sign a purchase agreement.

Main business segments

The company’s business segments comprise Renovated Condominium, Investment, and Advisory services.

SegmentBusiness
Renovated CondominiumSale and rental of pre-owned condominiums
InvestmentSale and rental of properties, excluding those handled in the Renovated Condominium business
AdvisoryBrokerage, rent management, and investment advisory

The Renovated Condominium business is the company’s main business. In FY11/21, the sales of this business accounted for 97.6% of total sales and its operating profit accounted for 87.5% of total operating profit (calculated as percent of total operating profit before adjustments generated by all segments).

Sales and operating profit by segment
FY11/12FY11/13FY11/14FY11/15FY11/16FY11/17FY11/18FY11/19FY11/20FY11/21
(JPYmn)Act.Act.Act.Act.Act.Act.Act.Act.Act.Act.
Sales12,85813,54413,90119,33320,97423,07530,28232,16439,56836,897
YoY1.1%5.3%2.6%39.1%8.5%10.0%31.2%6.2%23.0%-6.8%
Renovated Condominium11,77512,41112,25315,49716,98317,86922,14328,86138,85836,006
YoY-0.5%5.4%-1.3%26.5%9.6%5.2%23.9%30.3%34.6%-7.3%
% of sales91.6%91.6%88.1%80.2%81.0%77.4%73.1%89.7%98.2%97.6%
Investment7747631,2003,4203,5474,7677,4352,412-20
YoY32.4%-1.5%57.3%185.0%3.7%34.4%56.0%-67.6%--
% of sales6.0%5.6%8.6%17.7%16.9%20.7%24.6%7.5%-0.1%
Advisory Services308370448416444440704891710871
YoY2.6%19.9%21.2%-7.2%6.7%-1.0%60.0%26.6%-20.3%22.7%
% of sales2.4%2.7%3.2%2.2%2.1%1.9%2.3%2.8%1.8%2.4%
Operating profit1,5421,8041,9032,4653,2593,5753,8393,6273,2814,287
YoY-17.0%17.0%5.5%29.5%32.2%9.7%7.4%-5.5%-9.5%30.6%
Operating profit margin12.0%13.3%13.7%12.8%15.5%15.5%12.7%11.3%8.3%11.6%
Renovated Condominium1,5851,8461,7832,1902,2412,2302,2793,2403,3204,251
YoY-12.3%16.4%-3.4%22.8%2.4%-0.5%2.2%42.2%2.5%28.1%
Operating profit margin13.5%14.9%14.5%14.1%13.2%12.5%10.3%11.2%8.5%11.8%
% of sales85.8%84.3%77.6%76.2%59.9%54.8%51.4%76.6%87.0%87.5%
Investment3148792981,0561,4671,782496-714
YoY-60.5%55.8%65.1%275.7%255.1%38.9%21.5%-72.2%--
Operating profit margin4.0%6.3%6.6%8.7%29.8%30.8%24.0%20.6%-68.4%
% of sales1.7%2.2%3.4%10.4%28.3%36.1%40.2%11.7%-0.2%0.3%
Advisory Services231295435385442372370496503591
YoY0.7%27.5%47.5%-11.5%14.8%-15.8%-0.5%33.9%1.5%17.5%
Operating profit margin75.0%79.8%97.1%92.6%99.5%84.7%52.6%55.7%70.9%67.9%
% of sales12.5%13.5%18.9%13.4%11.8%9.1%8.4%11.7%13.2%12.2%
Other-306-385-394-407-481-494-593-605-534-569
Source: Shared Research based on company data
Figures may differ from company data due to differences in rounding methods.
Operating profit composition percentages are calculated using the sum of segment operating profit before eliminations. 

Renovated Condominium (percentage of sales for FY11/21: 97.6%, percentage of operating profit: 87.5%)

Business model

The company makes profits from price differences between pre-owned occupied condominiums and vacant ones. The company purchases pre-owned family-size apartments with tenants and earns rental income until the tenant leaves. Then, it renovates the apartments and sells the vacant pre-owned units for a profit.

Process:
  • The company mainly buys pre-owned condominiums with existing tenants through real estate brokers;
  • The company takes over the leasing agreement and earns rental income from the tenant until the tenant moves out;
  • After the tenant leaves, the company renovates the apartment. Renovation work is carried out by affiliated contractors in major cities across the country. According to the company, it performs the largest number of renovation projects in Japan, and this has enabled it to build strong relationships with contractors. As a result, the company is able to complete high quality renovations at a relatively low cost compared to its competitors.
  • After the renovation is completed, the company sells the unit, usually to individual buyers, using a broker. 

The exact cost varies according to the property in question, but in a typical case a pre-owned, family-size condominium located in or around Tokyo costs Star Mica about JPY20.0mn (the average purchase price for the company’s properties in FY11/21 was JPY20.2mn). The company earns about JPY120,000 per month in rent until the tenant leaves (the average rent in FY11/21 was JPY125,000). Then, the company spends about JPY3.5mn to renovate the units and sells them for about JPY30.0mn (the average sales price in FY11/21 was about JPY30.0mn).

The company’s renovation of pre-owned condominiums includes new wallpaper, wooden flooring, doors, bath units, sinks, and restrooms. The company pursues comfort and seeks to offer environments that make childrearing easier.

Renovation example
Source: Shared Research based on company data 
Investment targets

The company buys single condominium units with the following features:

  • In the Tokyo and surrounding area (Kanagawa Prefecture, Saitama Prefecture, Chiba Prefecture), Osaka and surrounding areas (Hyogo Prefecture, Kyoto), Aichi Prefecture, Fukuoka Prefecture, Miyagi Prefecture, and Hokkaido)
  • Pre-owned, about 65sqm family-size apartments currently being rented (average floor space was 68.47sqm in FY11/21)
  • Between 20 and 40 years old (average age in FY11/21 was 30.3 years)
  • Acquisition price around JPY20.0mn (average acquisition price in FY11/21 was JPY20.2mn) 
Average property data
Average property dataFY11/12FY11/13FY11/14FY11/15FY11/16FY11/17FY11/18FY11/19FY11/20FY11/21
Number of properties held (units)2,7193,3843,3283,553
YoY-24.5%-1.7%6.8%
Properties purchased1,5511,1801,325
Properties sold8861,2361,100
Average space (sqm)64.8862.0362.0062.8464.0265.0665.8466.7666.7066.69
Average age (years)19.921.823.223.525.026.227.928.929.830.3
Average acquisition price (JPY'000)20,12718,82618,96919,37820,04920,31319,90219,54419,40120,168
YoY-3.5%-6.5%0.8%2.2%3.5%1.3%-2.0%-1.8%-0.7%4.0%
Source: Shared Research based on company data

In November 2021, the company held about 3,553 pre-owned condominiums for families (versus 3,328 units at end-FY11/20). According to the company, at end-FY11/21, the average size of these family apartments was 66.69sqm, the average age was 30.3 years, and the average acquisition price was JPY20.2mn.

When purchasing an apartment, the company considers how easy it will be to sell, and is particularly conscious of liquidity and convenience. The company receives property information on about 4,000 units each month from real estate brokers, but purchases only about 120 units after careful inspection of the properties.

Inventory of pre-owned condominiums by region and age

As of November 2018, about 40% of the company’s properties are in Tokyo Metropolis, but only 7.5% were located in Tokyo’s five major wards (Shibuya, Shinjuku, Chuo, Chiyoda, and Minato). Those located in other wards of Tokyo comprise 27.3% of the total. Those located in Kanagawa Prefecture comprise 14.1%, followed by Saitama Prefecture at 6.6%, Chiba Prefecture at 2.6%, and the Kansai area (the prefectures of Osaka, Hyogo, Kyoto, and Hiroshima) at 20.4%. About 60% of the properties were built in 1989 or later; about 20% were built between 1980 and 1988.

The proportion of the company’s condominium property holdings located in the Tokyo metropolitan area is on the decline, especially the proportion of condominiums located in the main five wards of Tokyo and other areas of Tokyo. That may be because the company selects its properties based on liquidity and convenience, and focuses on family-type condominiums that are in high demand (i.e., units that people want to buy and live in themselves). Of all of the company’s properties, the proportion of units located in the Osaka area, which had declined until FY11/13, has been rising since FY11/14 following the opening of its Osaka branch in January 2014. A similar pattern emerged in FY11/17 as the weighting of Saitama Prefecture properties increased following establishment of a branch office in Saitama from June 2016.

Shared Research believes that the company’s portfolio has been improved both in terms of liquidity and profitability.

Inventory composition by region and year constructed
Properties held by regionFY11/12FY11/13FY11/14FY11/15FY11/16FY11/17FY11/18FY11/19FY11/20FY11/21
Tokyo metropolitan96.6%97.3%93.8%89.4%87.4%85.3%77.8%70.2%65.0%62.4%
Tokyo72.7%67.0%67.9%64.4%62.0%58.6%51.4%44.2%41.2%39.1%
Tokyo (5 central wards)13.4%14.9%13.7%12.8%12.6%10.3%8.5%6.8%6.7%7.5%
Tokyo (wards excluding the 5 central wards)38.3%36.9%40.1%38.7%39.7%38.8%35.9%31.7%29.7%27.3%
Tokyo (excluding the 23 wards)21.0%15.2%14.1%12.9%9.7%9.5%7.0%5.7%4.8%4.3%
Kanagawa18.9%19.9%17.5%18.5%17.6%17.0%17.2%16.9%14.7%14.1%
Saitama2.8%2.8%2.5%2.6%4.3%6.1%6.1%6.2%6.2%6.6%
Chiba2.2%7.6%5.9%3.9%3.5%3.6%3.1%2.9%2.9%2.6%
Areas under Osaka branch1.4%0.9%3.1%7.3%9.2%10.6%14.7%18.2%21.1%20.4%
Other2.0%1.8%3.1%3.3%3.4%4.1%7.6%11.7%13.9%17.2%
By year constructedFY11/12FY11/13FY11/14FY11/15FY11/16FY11/17FY11/18FY11/19FY11/20FY11/21
1998 and later45.6%34.6%30.7%34.3%33.2%34.2%31.6%31.7%31.6%35.1%
1989–199727.0%35.6%38.8%35.7%34.1%30.5%29.9%30.2%30.4%29.1%
1981–198820.3%22.2%21.8%21.2%22.0%22.8%24.0%23.6%22.8%21.6%
1980 and earlier7.1%7.6%8.7%8.7%10.8%12.6%14.4%14.5%15.2%14.2%
Source: Shared Research based on company data
Price differences in rented pre-owned condominium and vacant ones

A major source of profit after selling pre-owned condominiums is that pre-owned condominiums that are being rented are cheaper to buy than those that are vacant. According to the company, this is due to the following reasons:

  • Limited liquidity: Such apartments are purchased for investment purposes and not for residential purposes. Thus, the pool of buyers is limited.
  • Uncertain timeframe for recouping investment: These apartments, once purchased, cannot be sold until the tenant moves out. There is also a possibility that the tenant will stay.
  • Uncertain cost: The inside of the apartments cannot be seen before the sale since there is a sitting tenant. Thus, it is difficult to estimate the amount of renovation expenses that may be incurred after the tenant leaves. 

As a result, apartments that are being rented are usually sold about 30% cheaper than vacant properties.

Liquidity and uncertainty vary widely between properties when purchasing pre-owned condominiums with tenants. Thus, the value and profitability of small property portfolios are heavily affected by the characteristics of each property. However, the company owned 3,553 properties at end-FY11/21 (3,328 at end-FY11/20), and is therefore able to reduce investment risk through diversification.

The prices of some properties—such as studio apartments for investors, new family condominiums, and expensive units in desirable urban locations—fluctuate depending on conditions in the real estate market. However, price fluctuations are small for the pre-owned, family-oriented condominiums that Star Mica specializes in. 

The reason, according to the company, is that demand for apartments catering to families (i.e., units which people would like to buy to live in themselves) provides downside price support. If property prices were to fall, demand for properties would rise among those who live in rental houses—since the difference between what they currently pay in rent and potential loan payments would become smaller. Therefore, pre-owned condominium prices should not fall below the level where monthly loan payments would undercut condo rent costs.

During FY11/21, the company’s average pre-owned condominium was 68.47sqm, and sold for JPY30.0mn. The monthly rent for a similar condominium would be JPY125,000. Since the monthly housing loan payment (total loan of JPY30mn, 35-year amortizing mortgage with an interest rate of 1.0%) for this condominium would be JPY84,000 as of November 2021, the buyer would spend less money on monthly mortgage repayments.

Average sales price of pre-owned condominium; monthly loan payments vs. standard rent
FY11/12FY11/13FY11/14FY11/15FY11/16FY11/17FY11/18FY11/19FY11/20FY11/21
Average sales price (JPY'000)27,30230,77030,40029,98031,83030,77030,71029,47030,00030,000
YoY4.6%12.7%-1.2%-1.4%6.2%-3.3%-0.2%-4.0%1.8%0.0%
Average space (sqm)63.970.867.367.767.566.167.568.371.568.5
Standard rent (JPY'000)152152148145143137133123121125
YoY3.4%0.0%-2.6%-2.0%-1.4%-4.2%-2.9%-7.5%-1.6%3.3%
Monthly loan repayments (JPY'000)90858585858484818484
YoY0.0%-5.6%0.0%0.0%0.0%-1.2%0.0%-3.6%3.7%0.0%
Source: Shared Research based on company data
Differentiating factors

According to the company, it quickly assesses the value of properties and makes swift purchase decisions. It also has the ability to raise funds and a track record of successful transactions, so it is in a strong position to gather information from real estate brokers on pre-owned condominiums for sale.

When assessing the value of properties, the company uses its own database with detailed information on the apartments that it acquired or considered acquiring in the past. According to the company, it uses a sales comparison approach (a method to determine the value of a property based on the transaction prices and list prices of neighboring properties) to provide appropriate and swift price assessments.

It is important to make swift purchase decisions. Real estate brokers are reluctant to disclose property information to other brokers because they want to maximize their earnings by representing both the seller and the buyer and receiving commissions from both sides. However, when a broker signs a contract with a property owner and agrees to find a buyer for the property, the broker is required by the Building Lots and Buildings Transactions Business Act to disclose information on the property. This information is disclosed through the Real Estate Information Network System, which is accessible to other brokers. These brokers then may come forward with their own buy offers, depriving the first broker of a chance to earn commissions from the buyer of its own. Shared Research understands that the broker would be able to avoid sharing the information if a buyer is found before the five-day period ends. Then, the broker would be able to earn commissions from both the seller and the buyer. That means a buyer who can make a quick purchase decision is an important customer for brokers. Such a buyer would receive property information before anyone else does.

Brokers are also eager to introduce properties to Star Mica because of its ability to raise funds. That is why the company receives property information more quickly than other potential buyers.

Barriers to entry

When it comes to acquiring single units and renovating pre-owned condominiums, Shared Research believes that new market entrants will face difficulty competing with Star Mica, which makes diversified investments based on statistical analysis and its own history of transactions. The company has the financial resources to acquire a large number of pre-owned condominiums. It also has knowledge on apartment renovation and expertise in handling a variety of tasks associated with this business.

As it is unknown when tenants will leave, it is impossible to tell when revenue from the sale of an individual pre-owned condominium that is being rented will come in. Further, there is no way to tell whether or not there are flaws with the property before purchase, because purchasers cannot see inside the property (given that someone lives there). Thus, new market entrants with no track record of purchasing pre-owned condominiums that are being rented are unlikely to purchase these types of properties thanks to uncertainty over their liquidity and the condition of the interior. Also, buyers with small portfolios are exposed to the pros and cons of individual properties. Star Mica purchases a large number of pre-owned condominiums to spread this risk. Some individual properties could be problematic. However, profits from these properties tend to converge at a statistical mean. When taken as a whole, these apartments generate a certain level of income for the company. As a result, the buying and selling of pre-owned condominiums that are being rented can be a viable business.

Product, service lineup

The company is seeking to improve the value of its pre-owned condominiums through renovation. The company, for example, offers condominiums that have been renovated from the standpoint of women and condominiums that come with recycled furniture to respond to the diverse needs of consumers. In June 2017, the company began to offer Jibun Reno, a renovation service that lets customers select a renovation plan of their choice.

Condominiums renovated from women’s perspective, with recycled furniture

The company created Shiawase Renove Kenkyujo, a product planning organization made up mostly of female employees, to renovate condominiums from women’s perspective. The goal is to create condominiums with plenty of space to provide comfort and ease of living for women.

Example of renovation by Shiawase Renove Kenkyujo