Overview/Unique characteristics: Good Com Asset is an independent investment real estate company. It develops condominium buildings in Tokyo’s 23 wards to its own original specifications and then sells the units in these buildings or the buildings themselves to individual investors and companies. Two unique characteristics of Good Com Asset are the large percentage of female government employees in its customer base and the high percentage of properties it procures under a single-owner scheme (explained later in the report). The company has expanded faster than peers, with sales and operating profit in FY10/21 reaching about 6x and 10x their levels in FY10/14, respectively.
Product: The company’s investment properties are mostly studios or one- to two-bedroom condos ranging in size from 20–60sqm and priced from JPY20–50mn. The condos are in new buildings that are generally located within 10-minute walks from their nearest train stations. The target market for these units is mostly single adults. The company specializes almost exclusively in properties located within Tokyo’s 23 wards. All the properties feature similarly designed exteriors and entrances, with greenery on the ground-floor exterior wall or the rooftop. Additionally, some properties have a dog park on the rooftop.
Customers: Good Com Asset’s customers are individual investors and companies.
In FY10/21, 94.7% of individual investors among the company's customers were government employees, while 64.1% were women. A total of 71.8% of the company's customers resided in the Kanto and Chubu regions. These buyers purchase the condos to generate rental income, generally obtaining real estate investment loans from financial institutions. The loans are guaranteed by group credit life insurance policies that pay off the loan balance if the borrower dies or is severely disabled. Purchased condos generate an average of JPY104,000 in monthly rental income (after deduction of rental management fees), which covers most of the typical JPY110,000 monthly loan repayment. The vacancy compensation contract guarantees 90% of the rent when the unit is not occupied. The occupancy rate at the company’s properties was 97.9% as of end-FY10/21.
Good Com Asset's corporate clients include companies that handle real estate.
Property acquisition: Good Com Asset procures properties under single-owner or development projects. The two types have different up-front expenses, payback periods, and profit margins. About 90% of properties are acquired under the single-owner scheme.
Single-owner projects require only up-front expenses at the time of purchasing contract. After building certification has been completed, Good Com Asset makes a down payment of about 2–3% of the total construction cost to a construction company. The remainder is paid three to six months after the completion of construction. The time from payment of up-front expenses to transfer of the property to Good Com Asset is about 17 months. GPM on this type of property is about 25%.
In development projects, Good Com Asset borrows from financial institutions, purchases the land, and pays a building contractor an initial fee of about 5–10% of the total projected construction cost. The time from land acquisition to building completion is about 27 months. GPM on this type of property is about 30%.
Business model: Sales are determined by number of condominium units sold times average price per unit. The number of units sold has been increasing as the company expanded its business scale. The average price per unit is different for individual buyers and companies. In FY10/21, the company sold 1,109 units (+47.9% YoY) at an average price of JPY29.5mn (-11.9% YoY). Expenses include cost of sales, which is the cost to acquire land and construct buildings and SG&A expenses consisting primarily of sales personnel expenses and advertising expenses. The cost of sales ratio has been in the 70–85% range, depending on the composition of sales to individual buyers and companies. SG&A expenses have risen as the company’s business has expanded, but sales growth has pushed down the SG&A expense ratio.
Business segments: Good Com Asset’s business segments include the Retail Sales segment (in FY10/21, 19.1% of sales, operating loss of JPY141mn), the Wholesale Sales segment (76.5% of sales and 91.3% of operating profit in FY10/21), and the Good Com Fund segment (0% of sales in FY10/21; operating loss of JPY77mn). Through another segment, Real Estate Management (4.4% of sales and 15.1% of operating profit in FY10/21), the company earns rental income from completed condo units until handing over properties to its new owners after concluding lease contracts, and collects fees for rental management and building management. In its Real Estate Management segment, the company made Room Bank Insure Co., Ltd. a subsidiary in September 2020 and begun rent guarantee operations by acting as a guarantor for renters when signing real estate lease contracts.
In FY10/21, the company merged the “Overseas Sales” segment with the “Sales to Individuals” segment to form the “Retail Sales” segment. At the same time, it renamed the “Sales to Real Estate Companies” segment as the "Wholesale Sales” segment and the “Property Management” segment as the “Real Estate Management” segment.
The company made additional segment adjustments in Q1 FY10/22, renaming the former "Good Com Fund" segment the "Others" segment. This segment comprises the operations of consolidated subsidiary Capital Support Consulting Co., Ltd., which provides consulting services regarding the initial public offerings of newly listing companies and their post-listing investor relations and capital policies.
Market and competitors: In 2020, 6,260 new investment condos were offered for sale in the Tokyo area (+4.7% YoY). The Tokyo investment condominium market trended downward until 2010 after the global financial crisis but has been expanding since, supported by economic recovery and ultra-low interest rates, before declining temporarily in 2019. Amid a rush to build hotels in anticipation of an influx of tourists for the Tokyo Olympics, investment condo builders had trouble acquiring land. There are no more than about five investment condo sales companies with annual sales greater than JPY30.0bn, including Pressance Corporation (TSE1: 3254).
FY10/21 results: For full-year FY10/21, the company reported consolidated sales of JPY34.2bn (+30.0% YoY), operating profit of JPY3.4bn (+21.5% YoY), recurring profit of JPY3.2bn (+19.7% YoY), and net income attributable to owners of the parent of JPY2.0bn (+7.4% YoY). Factors such as declarations of states of emergency made in response to the COVID-19 pandemic affected sales activities in the Retail Sales segment, but the company continued to observe a strong volume of inquiries from companies managing real estate properties in the Wholesale Sales segment.
For FY10/22, the company forecasts sales of JPY42.2bn (+23.3% YoY), operating profit of JPY3.8bn (+10.6% YoY), recurring profit of JPY3.4bn (+8.0% YoY), and net income attributable to owners of the parent of JPY2.3bn (+19.1% YoY). The company projects an increase in total condominium units sold due to growth in building sales and improved operational efficiency within the Wholesale Sales segment, the full-scale launch of its Osaka branch in the Retail Sales segment, and expansion in the latter segment's customer base, which the company projects will be achieved primarily through the enhancement of sales activities targeting non-government clients. In the Real Estate Management segment, the company projects that its number of properties under management will also rise along with ongoing growth in property sales.
The company has not announced a medium-term business plan with detailed numerical projections. However, it aims to generate average annual growth of 30–40% in sales and operating profit through FY2030, when it plans to achieve sales of JPY600.0bn and operating profit of JPY60.0bn. By the time it announces its financial results for FY10/30, the company aims to be among the top-ranking listed real estate companies in terms of market capitalization. In addition to generating growth through existing businesses, the company plans to form its own REIT (thereby expanding sales channels and ensuring stable customer acquisition) and projects both expansion in its Good Com Fund and strong contribution from its venture capital business.
Shared Research holds that Good Com Asset possesses three core strengths: First, its relations with building contractors reduce the amount of funds needed to buy properties while also lowering associated risks. Second, Good Com Asset is one of only five real estate companies listed on the First Section of the Tokyo Stock Exchange that sell investment condominiums. Third, the company uses rent guarantees to curb performance fluctuations. On the other hand, Shared Research has also identified a weakness; the company’s earnings fluctuate depending on sales inventory due to its business structure (See the Strengths and weaknesses section later in this report for more in-depth analysis.).
|Gross profit margin||22.5%||28.4%||27.0%||22.4%||18.9%||14.9%||18.2%||17.9%|
|Operating profit margin||6.1%||12.1%||12.6%||9.2%||10.0%||7.5%||10.7%||10.0%||9.0%|
|Recurring profit margin||5.5%||11.7%||11.7%||8.3%||9.3%||7.1%||10.0%||9.2%||8.1%|
|Shares issued (year-end||1,048||1,048||1,048||6,071||7,285||7,345||15,198||15,229|
|EPS (fully diluted)||-||-||-||50.1||76.0||75.2||122.4||134.5||163.1|
|Dividend per share||-||10.0||10.0||10.0||17.5||23.5||34.0||43.0||53.0|
|Book value per share||85||152||216||267||436||488||569||642|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||1,160||1,611||1,443||2,539||5,834||4,980||6,598||7,974|
|Total current assets||4,349||6,102||5,735||12,539||12,339||14,900||24,937||19,653|
|Tangible fixed assets||18||14||13||9||7||43||53||81|
|Investments and other assets||118||131||113||64||87||247||346||431|
|Total current liabilities||1,555||2,753||2,564||6,905||4,827||6,183||12,926||7,236|
|Total fixed liabilities||2,218||2,220||1,484||2,467||1,251||1,991||4,592||4,001|
|Total interest-bearing debt||2,659||3,957||3,127||8,868||4,997||7,310||16,067||8,995|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||-747||-822||680||-5,502||5,166||-2,643||-6,112||9,700|
|Cash flows from investing activities||-11||-34||-16||81||-26||-57||-582||-91|
|Cash flows from financing activities||1,523||1,296||-851||6,546||-1,844||1,845||8,313||-8,235|
On January 13, 2022, Good Com Asset Co., Ltd. announced the sale of real estate held for sale.
The company decided to sell 17 condominium buildings (total of 1,001 units) as of the same day. While details of the transaction remain undisclosed, the total sales price is equivalent to about 80% of the company’s sales in FY10/21 (JPY34.2bn). It plans to book proceeds from the sale of these properties in FY10/22. If it becomes necessary to revise its earnings forecast for FY10/22, the company said it would make a timely and appropriate disclosure.
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||% of Est.||1H Est.|
|Gross profit margin||23.8%||19.2%||18.7%||18.2%||21.7%||17.5%||17.4%||17.9%||22.6%|
|Operating profit margin||6.5%||8.2%||11.9%||10.7%||6.7%||11.0%||10.0%||10.0%||-10.7%||11.2%|
|Recurring profit margin||4.6%||7.2%||11.3%||10.0%||5.0%||10.3%||9.2%||9.2%||-13.0%||10.2%|
|Gross profit margin||23.8%||17.3%||18.4%||16.1%||21.7%||16.6%||17.1%||19.5%||22.6%|
|Operating profit margin||6.5%||8.9%||14.1%||6.4%||6.7%||12.0%||7.3%||10.2%||-|
|Recurring profit margin||4.6%||8.3%||13.8%||5.3%||5.0%||11.6%||6.3%||9.4%||-|
|% of total||63.6%||45.7%||28.9%||30.0%||52.2%||15.1%||17.3%||19.1%||49.8%|
|% of total||27.1%||48.0%||67.2%||65.4%||36.2%||80.6%||78.4%||76.5%||31.5%|
|Real Estate Management||219||498||815||1,166||430||845||1,169||1,496||335|
|% of total||9.3%||6.2%||3.9%||4.4%||11.6%||4.3%||4.3%||4.4%||18.3%|
|% of total||-||-||-||0.2%||-||-||-||-||0.4%|
|Segment profit margin||1.0%||3.5%||3.4%||2.7%||1.7%||-||-||-||-|
|% of total||10.3%||19.6%||8.2%||7.5%||13.8%||-||-||-||-|
|Segment profit margin||5.8%||7.6%||13.4%||12.3%||6.6%||12.6%||11.8%||11.9%||-|
|% of total||25.2%||45.1%||76.4%||75.5%||35.8%||92.3%||92.8%||91.3%||-|
|Real Estate Management||120||283||453||552||138||333||428||517||87|
|Segment profit margin||55.0%||56.9%||55.6%||47.3%||32.1%||39.4%||36.6%||34.6%||26.0%|
|% of total||81.9%||44.0%||18.3%||19.6%||56.4%||15.4%||15.9%||15.1%||-43.0%|
|Segment profit margin||-||-||-||-||-||-||-||-||-|
|% of total||-||-||-||-||-||-||-||-||-|
|% of total||63.6%||38.3%||18.5%||34.5%||52.2%||6.5%||23.3%||25.8%||49.8%|
|% of total||27.1%||56.7%||79.1%||58.1%||36.2%||90.9%||72.3%||69.6%||31.5%|
|Real Estate Management||219||279||318||350||430||415||324||327||335|
|% of total||9.3%||4.9%||2.4%||6.5%||11.6%||2.6%||4.4%||4.6%||18.3%|
|% of total||-||-||-||0.9%||-||-||-||-||0.4%|
|Segment profit margin||1.0%||5.1%||3.2%||0.4%||1.7%||-||-||1.5%||-|
|% of total||10.3%||22.4%||4.2%||2.4%||13.8%||-||-||4.0%||-|
|Segment profit margin||5.8%||7.9%||15.6%||7.5%||6.6%||13.1%||9.5%||12.4%||-|
|% of total||25.2%||51.0%||87.5%||68.7%||35.8%||99.5%||95.0%||85.4%||-|
|Real Estate Management||120||163||170||98||138||195||95||89||87|
|Segment profit margin||55.0%||58.3%||53.6%||28.1%||32.1%||46.9%||29.4%||27.3%||26.0%|
|% of total||81.9%||32.8%||9.3%||28.9%||56.4%||10.2%||17.8%||12.4%||-43.0%|
|Segment profit margin||-||-||-||0.2%||-||-||-||-||-|
|% of total||-||-||-||0.0%||-||-||-||-||-|
|Retail Sales (units)||38||100||168||220||54||87||135||185||26|
|Wholesale Sales (units)||22||144||404||529||53||557||742||924||28|
|Sales per unit (JPYmn)||35.4||30.7||35.2||33.5||30.5||29.2||29.5||29.5||27.6|
|Retail Sales (JPYmn)||39.2||36.6||36.0||35.9||35.8||34.0||34.7||35.3||35.0|
|Wholesale Sales (JPYmn)||28.9||26.7||34.9||32.5||25.2||28.5||28.6||28.3||20.6|
|Retail Sales (units)||38||62||68||52||54||33||48||50||26|
|Wholesale Sales (units)||22||122||260||125||53||504||185||182||28|
|Sales per unit (JPYmn)||35.4||29.2||38.5||27.9||30.5||29.0||30.4||29.4||27.6|
|Retail Sales (JPYmn)||39.2||34.9||35.2||35.6||35.8||31.3||36.0||36.9||35.0|
|Wholesale Sales (JPYmn)||28.9||26.3||39.4||25.0||25.2||28.8||28.9||27.3||20.6|
|Total real estate for sale||12,607||12,474||17,202||17,296||18,386||12,358||10,867||10,360||16,706|
|Real estate for sale||10,886||10,783||15,505||15,553||16,634||10,599||9,100||8,629||14,972|
|Real estate for sale in progress||1,722||1,691||1,697||1,743||1,752||1,759||1,768||1,731||1,735|
Owing to the company's switch to the Accounting Standard for Revenue Recognition at the start of the current fiscal year, the YoY changes shown below are for reference purposes only.
In Q1 FY10/22, the company focused on its Genovia series (Genovia green veil, Genovia skygarden, and Genovia skyrun) of new condominiums mainly in the 23 wards of Tokyo, stepping up related planning, development, and sales activities, reinforcing its customer support network, and taking additional steps to raise its Genovia brand profile. As a result, the company sold a total of 54 condominium units (-49.5% YoY) in nine buildings in Q1. Sales per condominium unit were JPY27.6mn (-9.8% YoY). GPM rose 0.9pp YoY to 22.6%, but its SG&A-to-sales ratio also grew 18.3pp YoY to 33.3% due in part to the airing of TV commercials. Consequently, the company reported operating, recurring, and net loss. Despite YoY declines in sales and all profit categories in Q1, the company already plans to post proceeds from the sale of 12 buildings and 720 units under the Wholesale Sales segment during Q2 FY12/22.
As of end-Q1, the company's balance sheet showed JPY15.0bn of real estate held for sale, JPY1.7bn of real estate held for sale in process, and JPY856mn in advance payments for a total of JPY17.6bn, down 9.4% YoY and down 53.5% versus end-FY10/21. In Q1 FY10/22, the company acquired one building with 151 units. The company states that it has already procured the properties it will sell in FY10/22. Recently, the company has been purchasing larger lots (properties for sale). The company thinks that, in terms of construction costs and other metrics, it can pursue economies of scale through the development of larger properties.
Results by segment are detailed below. Note, as of the beginning of FY10/22 the segment previously known as the "Good Com Fund" was moved under the "Other" segment. The Other segment also includes Capital Support Consulting Company, a consolidated subsidiary specializing in investors relations and capital policy-related consulting for companies that are considering stock exchange listings and companies that are already listed.
In Q1, the Wholesale Sales segment sold a total of 28 condominium units (-47.2% YoY). Selling these units to corporate investors at an average price of JPY20.6mn (-18.3% YoY), the segment finished the period with YoY lower sales and an operating loss. All the condominium sold during the period were from the company’s Genovia series of multi-room and one-room condos.
The YoY decline of 47.2% in units sold during Q1 was partly due to the company's focus on concluding contracts for the sale of buildings rather than the sale (handover) of properties. Based on the sales contracts concluded during Q1, the company plans to record proceeds from the sale of 12 buildings and a total of 720 units in Q2 and five buildings and 281 units in Q4. In Q1, the company focused its efforts on facilitating the conclusion of these sales contracts through the selection of properties for sale and buyers. The company posted a Q1 operating loss in the Wholesale Sales segment in part because of the decline in segment sales and in part because of fees and taxes stemming from the company's temporary holding of buildings it plans to sell in Q2.
The YoY decline of 18.3% in sales per unit is not an indication of weak demand. In fact, as mentioned above, overall GPM, which accounts for impact from the Wholesale Sales segment, rose YoY. Instead, the YoY decline in sales per unit was largely due to the characteristics of the properties sold; for example, properties sold in areas with relatively low average selling prices per unit accounted for a higher percentage of the company's overall property sales.
In Q1 FY10/22, the Retail Sales segment sold a total of 26 condominium units (-51.9% YoY). Selling these units to individual investors at an average price of JPY35.0mn (-2.0% YoY), the segment finished the period with lower sales YoY and an operating loss. All condominiums sold were included under the company’s Genovia
series of multi-room condos designed for families and one-room condos designed for singles.
In Q1, units sold declined YoY as the COVID-19 pandemic continued to limit opportunities for face-to-face business meetings with government employees and other individual customers. However, Good Com Asset does not think that any structural decline in purchase demand has necessarily occurred, and sales conditions have been recovering since the end of Q1. For example, the COVID-19 pandemic has led to an increase in buyers who are cautious about their futures, and an increasing number of people are considering the option of purchasing properties and utilizing group credit life insurance in lieu of regular life insurance.
Government employees are the primary customers targeted through the company's Retail Sales segment, but the company has also been stepping up sales activities targeting other segments of the population. As a result of these efforts, non-government employees accounted for 11.8% of the company's customers in Q1, up from 5.3% in FY10/21.
Despite month-end occupancy rates consistently above 90% and steady growth in the number of properties and rental units under management, both segment sales and segment operating profit declined YoY due primarily to lower rental income generated during the temporary pre-sale holding periods for properties developed through the Wholesale Sales and Retail Sales segments.
The newly constituted "Other" segment includes two of the company's new growth business: (1) a consulting business specializing in investors relations and capital policy-related consulting for companies that are considering stock exchange listings or are already listed; and (2) Good Com Fund business, which specializes in sales of small-lot real estate investment products.
Although the company did not originate any small-lot real estate investment products during Q1, it is presenting such product designs to financial institutions and other organizations. Through its consulting business for listing companies, the company anticipates that it will lead to its first new listing project in the near future.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Est.||2H Est.||FY Est.||1H||2H||FY|
|Cost of sales||16,219||11,888||28,107|
|Gross profit margin||17.5%||18.3%||17.9%|
|Operating profit margin||11.0%||8.7%||10.0%||11.2%||4.5%||9.0%|
|Recurring profit margin||10.3%||7.8%||9.2%||10.2%||3.6%||8.1%|
|(JPYmn)||FY Act.||FY Act.||FY Act.||YoY|
|Real estate for sale||8,528||15,553||8,629||-44.5%|
|Real estate for sale in progress||49||1,743||1,731||-|
For FY10/22, the company forecasts sales of JPY42.2bn (+23.3% YoY), operating profit of JPY3.8bn(+10.6% YoY), recurring profit of JPY3.4bn (+8.0% YoY), and net income attributable to owners of the parent of JPY2.3bn (+19.1% YoY).
In FY10/21, the company continued to receive through its Wholesale Sales segment a strong volume of inquiries from companies and other organizations managing real estate. Meanwhile, in the Retail Sales segment, the company encountered difficulty generating sales as the COVID-19 pandemic limited opportunities for business negotiations with individual customers centering on government employees. However, the disorder caused by the pandemic has gradually subsided, and sales activities appear to be gradually recovering due in part to the company's promotion of digital transformation efforts, which include the digitalization of loan contracts.
Based on these circumstances, the company projects an increase in total units sold in FY10/22 and expects that it will achieve this increase in part through growth in building sales generated through the Wholesale Sales segment and improved operational efficiency within the same segment. Additionally, the company anticipates upward impact from an expanded customer base within the Retail Sales segment achieved through the full-scale launch of its Osaka branch and intensified sales activities targeting non-government clientele. The company projects that it will generate 80% of its full-year condominium unit sales through the Wholesale Sales segment and 20% through the Retail Sales segment.
Good Com Asset's earnings forecast appears to be predicated on conservative sales projections for the Wholesale Sales segment. The company assumed that properties for which sales destinations and prices had not been determined when its forecast was being formulated would be sold via wholesale to other companies in the industry through the Wholesale Sales segment. In some of these cases, the company ended up selling entire buildings through the Wholesale Sales segment to organizations such as companies managing real estate properties. The company maintains that the sale of entire buildings tends to be more efficient in terms of labor and other expenses, and thus more profitable. To the extent by which sales of entire buildings completed through the Wholesale Sales segment exceed projections, the company will benefit from a greater volume of opportunities to sell at more favorable terms, which will likely have a positive impact on the company's performance.
In the Real Estate Management segment, the company projects that properties under management will continue to increase as properties for sale accumulate. Leaving aside structural impact on changes in performance, results in the Real Estate Management segment also depend on the extent to which the company temporarily holds pre-sale development properties and the extent to which it receives rental income from these properties.
In the Others segment, the most noteworthy developments were the successful origination of a small-lot real estate product (Good Com Fund) and the expansion of investees in the consulting business for initial public offerings.
In FY10/22, the company plans to pay a year-end dividend per share of JPY53 (ordinary dividend of JPY50 and commemorate dividend of JPY3 [to mark the fifth anniversary of its stock market listing]), up from JPY43 in FY10/21. If the company does pay this amount, it will have achieved dividend increases in five consecutive fiscal years.
As of December 2021, the company had not announced a medium-term business plan with detailed numerical projections. However, the company is striving to generate annual growth of 30–40% in sales and operating profit through FY2030, when it aims to achieve sales of JPY600.0bn and operating profit of JPY60.0bn. The company aspires to be among the top-ranked listed real estate companies (in terms of market capitalization) by the time it announces its financial results for FY10/30.
Good Com Asset anticipates that its core condominium sales (made through its Retail Sales and Wholesale Sales segments) and performance in its Real Estate Management segment will continue to drive sales growth. With regard to condominium sales, the company plans to establish its own REIT, and within the Real Estate Management segment, it aims to expand the area covered by its rent guarantee business. Moving forward, the company also expects performance contributions from both the Good Com Fund and its venture capital business.
The company's GPM may rise if it is able to generate an increase in sales of condominium buildings to companies that manage real estate properties (which have been trending upward recently), or if circumstances allow it to continuously sell whole condominium buildings to its own REIT. In addition, the company projects that personnel expenses, the most prominent component of SG&A expenses, will rise, particularly in the Retail Sales segment, but it also expects that its SG&A expense ratio will decline as employee productivity improves (units sold per employee). Thanks to rising GPM and a shrinking SG&A expense ratio, the company anticipates a gradual rise in its OPM.
Good Com Asset views FY10/22 as a period during which it will prepare to establish its own REIT. It expects this REIT to be a driver of future earnings growth.
Real estate companies like Good Com Asset that are engaged in the development, procurement, and sale of properties need to hold inventories of properties for sale. The larger their inventory of properties for sale, the more products they have to sell, which makes it easier for them to generate higher sales in the future. However, holdings of properties for sale are exposed to price fluctuation risks that could cause losses when the real estate market declines. Additionally, if a company finances its increase in properties for sale using interest-bearing debt, the company eventually will need to sell those assets to generate the cash needed to repay its debts. Companies that develop, procure, and sell properties must therefore carefully manage their financial leverage by keeping an eye on shareholders’ equity and debt-equity ratios to control risk.
In light of the COVID-19 pandemic that took hold in 2020, Good Com Asset thinks that demand to invest in hotels, offices, and commercial facilities will be downbeat but also projects that investors will favor investment in logistics facilities and condominiums that generate stable rental income. The company said that inquiries regarding its properties for sale remain strong. Given these circumstances, Good Com Asset has moved away from its previous policy to keep its shareholders’ equity ratio at around 40%. From FY10/20, it has targeted a minimum shareholders’ equity ratio of 30%.
In April and May 2018, the company procured approximately JPY2.1bn in proceeds via a new stock issuance and a third-party allotment. Together with internal reserves from profits, its equity capital increased to JPY9.2bn as of end-FY10/21 (+9.7% YoY), while its equity ratio amounted to 45.0%.
The company’s policy is to keep the equity ratio at 30% or above. Therefore, total assets have a room to expand to around JPY30.7bn, given its equity capital as of end-FY10/21 (total assets came to JPY20.4bn). Cash and deposits, properties for sale, and advance payments account for the bulk of its assets. Given that real estate for sale has accounted for 50–60% of the company's total assets in recent years, the company appears capable of raising its real estate for sale to around JPY15.0–18.0bn (versus JPY10.4bn in FY10/21).
As noted earlier, to increase its condo unit sales, Good Com Asset not only needs to have the financial strength to expand its holdings of properties for sale but must also enhance its ability to sell those properties. Shared Research believes that Good Com Asset aims to increase sales of condo units in both Retail Sales and Wholesale Sales segments.
To realize sales expansion through an increase in properties available for sale, Good Com Asset must increase the size of the sales force of the segment while also improving productivity (units sold per employee).
During FY10/16–FY10/21, sales in the retail sales segment grew at a CAGR of 12.4%. Shared Research attributes the earnings growth in this segment to increases in properties for sale and the sales staff, as well as to an increase in sales per employee as the sales staff became more experienced. Since FY10/19, the company has been pursuing sales of family condos, which have higher per-unit selling prices than condos for individual occupants but are also more difficult to sell and generate lower GPM per unit. Accordingly, the company has observed a decline in operating profit despite sales growth. In FY10/21, the company posted an operating loss, partly due to state of emergency declarations issued in response to the COVID-19 pandemic.
Virtually all of the 23 Tokyo wards where the company operates have regulations and restrictions on building condos for single occupancy. For example, in Chuo, in residential buildings with 10 or more units in the regional planning area, dwellings with floor space of 40sqm or more must comprise at least one third of the total dwelling floor space.
However, with the company aiming to increase employee numbers in the retail sales segment, Shared Research expects that its number of units sold per employee is likely to increase along with years of employee experience over the medium term.
During FY10/16–FY10/21, sales in the Wholesale Sales segment grew at CAGR of 49.4%, surpassing the pace of growth in the Retail Sales segment. The Wholesale Sales segment’s share of total condo units sold has also increased, from 53.0% in FY10/16 to 83.3% in FY10/21.
In the past, the company sold properties to real estate sales companies when its inventory of condo units for sale exceeds the sales capacity in the Retail Sales segment. The effective use of this alternate sales channel has contributed to Good Com Asset’s earnings growth. In FY10/21, sales of entire condominium buildings to companies managing real estate properties accounted for about 80% of units sold in the Wholesale Sales segment. The company said that the spread of COVID-19 contributed to a decline in investment in hotels, offices, and commercial facilities, while reporting that demand for condominiums in desirable Tokyo locations grew as investors demonstrated a preference for logistics facilities and condominiums that generate stable rental income. Within such an environment, the company will expand its focus to include sales of entire condominium buildings to companies managing real estate properties. Good Com Asset explains that such companies purchase properties to own and manage themselves. The company sells to them at retail rather than wholesale prices, so sales per unit are comparatively high, as is the profit margin.
Going forward, Good Com Asset’s GPM could fall due to its sales mix. On the other hand, we expect a fall in the SG&A expense ratio will support a gradual increase in OPM. Accordingly, we think sales growth combined with improving profit margins could lead to operating profit expanding at a faster pace than sales.
GPM is different in each business segment, with the retail sales segment generating a higher GPM than the wholesale segment. Shared Research estimates GPMs of about 25–35% in the Retail Sales segment and about 20–25% in the Wholesale Sales segment. Based on those estimates, Good Com Asset’s overall GPM could decline owing to its sales mix if growth in the Wholesale Sales segment exceeds that of the Retail Sales segment.
The wholesale segment’s share of the company’s total condo unit sales increased from 53.0% in FY10/16 to 83.3% in FY10/21. Based on recent sales performance, Shared Research believes that sales growth in the wholesale segment is likely to maintain a faster pace than the retail sales segment over the medium term, resulting in a gradual increase in the wholesale segment’s share of totals sales. As a result, Shared Research projects that Good Com Asset’s GPM could potentially decline gradually.
In FY10/21, sales of entire buildings to companies managing real estate properties accounted for about 80% of units sold in the Wholesale Sales segment. As a result, the company's overall GPM declined only slightly, even as performance in the Retail Sales segment struggled due to state of emergency declarations issued in response to the COVID-19 pandemic (In FY10/21, GPM declined 0.3pp YoY to 17.9%.). The company explains that sales per unit and profit margins are relatively high for sales to companies managing real estate properties. Shared Research understands that increases in sales generated through companies managing real estate properties in FY10/22 and subsequent years would help push up GPM in the Wholesale Sales segment. The company continued to report a strong volume of inquiries.
SG&A expenses mainly include personnel expenses, directors’ compensation, and other expenses. Shared Research expects personnel expenses to rise in line with staffing increases mostly in the Retail Sales and Wholesale Sales segments. However, staff productivity or condo unit sales per employee in both segments should rise as employees gain experience. We therefore think sales growth will exceed growth in staff size. Other SG&A expenses include some costs that do not rise as sales increase. Accordingly, we believe that Good Com Asset’s SG&A expense ratio will decline over the medium term.
As noted above, we expect both the GPM and SG&A expense ratio to decline over the medium term. However, we think the SG&A ratio will fall faster than the GPM, which should support a gradual increase in OPM. Based on this projection, we believe that sales growth combined with improving profit margins could lead to an increase in operating profit that outpaces sales.
In July 2020, the company launched sales of Good Com Fund, a product that combines small-lot real estate products with crowdfunding. The fund divides the rights covering one investment condo unit into small lots and looks for investments of JPY100,000 per unit. With a gross yield of about 4% (4.32% for Fund No. 1), investors receive rental yields after costs are deducted (forecast distribution rate of about 3% [3.08% for Fund No. 1]) and also have access to tax advantages, including lowering the assessed value of assets for inheritance tax purposes. Key characteristics of the fund are that it is limited to the Genovia condo series, it is a voluntary association, and it will look for investors and complete contracts online.
Limited to Genovia series: The voluntary association will acquire the same sort of properties that the company’s Retail Sales and Wholesale Sales segments currently sell and will not handle properties from other companies.
Voluntary association: According to the company, most of the real estate crowdfunding from other companies is under silent partner-type arrangements and the investors do not own land or buildings, so earnings are miscellaneous income for tax purposes. However, the Good Com Fund will use voluntary associations, and individual investors will be owners in line with their unit holdings and distributions will be treated as real estate income for tax purposes. Also, they can expect a 70–80% lower asset assessment for inheritance tax compared with cash because the Good Com Fund investors will have ownership rights over the properties.
Will look for investors, conclude contracts online: The Good Com Fund will look for investors and conclude investment contracts online.
Good Com Asset runs online seminars and airs TV commercials to boost the profile of the Good Com Fund. Most of the contributions to company earnings will be by property sales, but it said it would also receive some compensation for its role as a managing partner and fees for property management (such as collecting monies).
The company established Capital Support Consulting Co., Ltd. (a consolidated subsidiary) in February 2020 as a subsidiary engaged in corporate venture capital (CVC) and a share market listing consulting business. Capital Support Consulting charges monthly fees for providing consulting concerning the establishment of internal management systems for companies considering public listing. The subsidiary also provides consulting services related to various topics for listed companies, including the production of IR materials. In addition, Capital Support Consulting will consider investing in client companies through third-party allotment according to the capital policy of the client company. It will also consider M&A in cases through which synergies can be created with the client company’s business.
Good Com Asset is an independent investment real estate company. The company develops condominium buildings in Tokyo’s 23 wards to its own original specifications and then sells the units in these buildings or the buildings themselves to individual investors and companies. The company was established with a few employees in 2005 by current President Yoshikazu Nagashima, an entrepreneur with previous experience in condominium sales. Two unique characteristics of Good Com Asset are the large percentage of female government employees in its customer base and the high percentage of properties it procures under a single-owner project.
While many peers in the industry engage in the same business, most are non-listed companies. The condos the company sells are characterized by their consistent designs and use of greenery. Its investor customers are primarily female government employees, and the company’s main procurement method is the single-owner scheme.
Investment condominiums are single units purchased primarily by individuals for the purpose of generating rental income. The condos are generally acquired using real estate investment loans and usually are rented to single adults. The investor can use the rental income from an investment condominium to supplement private pension plans, as a substitute for life insurance policies, and to reduce future inheritance taxes that might be imposed on his or her surviving family members. Rental income is often used to pay off most of the loan borrowed to buy the property.
The company’s investment properties are mostly studio-type condos (one bedroom and kitchen) or one- to two-bedroom condos ranging in size from 20–60sqm and priced from JPY20–50mn. The condos are in new buildings generally located within 10-minute walks from their nearest train stations. The company almost exclusively specializes in properties located within Tokyo’s 23 wards. All the properties feature similarly designed exteriors and entrances, with greenery on the ground-floor exterior wall or the rooftop. Some have a rooftop dog park.
Acquiring an investment condo has many merits for the individual investor. If acquired using a real estate investment loan guaranteed by a group credit life insurance policy, the investment can essentially play roles similar to those of life insurance policies and private pension plans. In addition, outstanding loans can reduce the inheritance tax and the condominium also can be used for purposes other than investment (see Investment condos section). The investment can be considered a substitute for life insurance because the attached group credit life insurance will pay off the loan’s remaining value if the borrower dies or becomes severely disabled. Even if the borrower passes away before loan is paid off, the surviving family member will not be burdened with loan payments and instead will be able to receive the rental income or chance sell the property. The investment condo can serve as a private pension plan because, after the loan is fully paid, the rental income will be a source of regular income during the owner’s elderly years. The investment condo can be used as an inheritance tax strategy because the portion of a fixed asset’s value subject to inheritance tax is less than that for cash inheritance.
Group credit life insurance is a life insurance exclusively for mortgage loan borrowers. In the event of the death or serious disability of the borrower, the insurer pays the loan’s remaining balance to the lending financial institution, liquidating the loan. Participation in the group credit insurance policy is a condition for receiving the loan.
Investment condominiums sold by Good Com Asset are all in newly constructed buildings. Unit floor plans are mostly studio targeted at single adults, but the company also develops and sells some 1LDK (one-bedroom with living room, dining room, and kitchen) and 2LDK (two-bedrooms with living room, dining room, and kitchen) units depending on the site location and development conditions. Unit floor area is in the 20–60sqm range and prices are in the JPY20–50mn range. In FY10/21, the company sold 1,109 condo units (+47.9% YoY) at an average price per unit of JPY29.5mn (-11.9% YoY).
Most of the condominiums Good Com Asset sells are located within Tokyo’s 23 wards and situated within 10-minute walks from their nearest train stations. At end-FY12/21, the company had supplied a cumulative total of 122 condominium buildings, 115 of which were in Tokyo’s 23 wards, six were in Kanagawa Prefecture, and one was in Chiba Prefecture.
Condominium units are generally sold before building construction has been completed. Sales activities before the building’s completion use model rooms and pamphlets. In case of Good Com Asset, after the building is completed, the company leases the entire building to companies as company housing, and sells units after renters leave. Since Good Com Asset can earn rental income before a property is sold, it does not have to focus on selling within a certain period of time following property procurement and is able to expand the lineup of properties it can offer to prospective investors.
Good Com Asset’s Genovia brand condominium buildings feature uniform exterior and entrance designs, with design supervised by Hitoshi Ueda, an architect who studied under the well-known Japanese architect Kisho Kurokawa. Genovia brand buildings are further distinguished by two exterior design concepts. Genovia green veil buildings have green exterior walls near the entranceway or on the roadside covered with plant vegetation. When conditions are not suitable to exterior wall vegetation, rooftop greenery is used; such buildings are referred to as the Genovia skygarden brand.
Genovia series exterior (Genovia Nerima-Takanodai skyrun)
Source: Company data
Genovia Azabu Juban green veil (wall vegetation)
Source: Company data
Since its establishment, Good Com Asset has targeted individual investors as its core base of customers, while also selling condo units to companies. Female public employees are the core of the company’s individual investor clientele, while its base of corporate clients consists primarily of companies that manage real estate properties. Good Com Asset sells different types of condo units to its two customer bases. Sales to individual investors are focused on 1LDK and 2LDK condos, while 1K units are only sold to companies that sell single units.
The main targets of the company’s sales efforts within the Retail Sales segment are female public employees. Public employees have relatively stable jobs and salaries, and are therefore viewed as more likely to pass credit inspections conducted by financial institutions. Men generally already have home loans that limit the amount of additional lending available to them. Many women, however, still have rather large untapped credit available. In FY10/21, public employees accounted for 94.7% of individual investors who purchased condo units from Good Com Asset and women accounted for 64.1%. Teachers account for a large share of these public employees.
The company’s sales efforts are focused on the Kanto and Chubu regions. In FY10/21, residents from Kanto accounted for 40.5% of its customers, Chubu 31.3%, Kinki 16.0%, Chugoku or Shikoku 6.9%, Hokkaido or Tohoku 3.8%, and Kyushu or Okinawa 1.5%.
By age group, 13.7% of the company's sales were generated through people under 30 in FY10/21, while 48.9% were generated through people in their 30s, 25.2% through people in their 40s, and 12.2% through buyers over 50 years old. Customer composition by annual income was as follows: up to JPY5mn, 6.1%; JPY5–7mn, 66.4%; JPY7–9mn, 25.2%; and JPY9–10mn, 2.3%.
Repeat buyers from the company accounted for 29.2% of its customers in FY10/21.
A typical post-acquisition cash flow model for condo buyers is as follows; assuming a purchase cost of JPY33mn with the entire amount financed by a 35-year 2.0% fixed interest loan, a gross yield of 4.2%, monthly rental management fees and contributions equivalent to 5% of rent to condo reserve funds, monthly rental income minus these fees and contributions would be JPY104,000, and monthly loan repayment would be JPY110,000.
Risks to the owner’s cash flow include vacancies, rent fluctuation, and interest-rate fluctuations.
Vacancy risk is the risk that rental income will not be received when the purchased unit has no tenant. However, the investment condo buyer concludes a vacancy compensation contract with Good Com Asset and the company will pay the owner 90% of the asking rent when the unit is unoccupied. Occupancy rates at the company’s investment condos (including condos that the company is handling for other companies) at end-FY10/21 were high at 97.9% (versus 99.0% at end-FY10/20). The company has been leasing entire buildings for use as company housing. The occupancy rate was 89.1% in FY10/14, but it has been above 90% since FY10/15, when the company started leasing to rental real estate brokers and others.
Rent fluctuation risk refers to the risk that rent may have to be lowered when tenants change, especially as the building ages or the supply of newer building in the neighborhood increases. According to calculations by Sumitomo Mitsui Trust Research Institute using data from At Home, a real estate information services company, the impact on rent from a building’s age works out to about a 1% reduction per year.
Interest-rate risk is the risk of a change in monthly repayments on variable interest rate loans. In the case of a JPY33mn loan borrowed at a 2% variable interest rate, the monthly repayment of JPY110,000 would rise to JPY118,000 if the loan’s interest rate rises to 2.5%, causing deterioration in the owner’s cash flow.
The company’s subsidiary, Good Com Co., Ltd., provides maintenance and repair work, including external wall repair and resurfacing (once every 12 years), water pipe repair/replacements (once every 25 years or once every 50 years if polybutene pipes are used), and rooftop waterproofing repairs (once every 12 years). Maintenance and repair work are performed by Good Com and covered by condo reserve funds raised from the monthly contributions of all unit owners in the building.
In FY10/21, the company merged its Sales to Individuals and Overseas Sales segments into a new Retail Sales segment. At the same time, the company began referring to its former Sales to Real Estate Companies segment as the Wholesale Sales segment and its former Property Management segment as the Real Estate Management segment. The following information includes explanations based on the company's previous segment classifications.
The company performs sales targeting individual investors through its Retail Sales segment. Personnel in charge of associated sales activities obtain appointments using sources such as publicly available lists of government employees, and also provide mediation services for housing loans provided by partner financial institutions. Meanwhile, the company's Housing Loan and Sales Promotion Department (rather than its sales personnel) is responsible for checking required documents associated with these loans and for approaching financial institutions with related inquiries. This system prevents sales staff from having direct contact with partner financial institutions, thereby preventing the falsification of pay statements during the loan process.
Affiliated housing loan financial institutions: Aeon Housing Loan Service, Orix Bank, Kansai Mirai Bank, Credit Saison, Jaccs, Saison Fundex, Diamond Asset Finance Corporation, Ricoh Leasing, Tokyo Star Bank, Higashi-Nippon Bank, Mizuho Bank, Rakuten Bank, Resona Bank
The company handles sales targeting companies through its Wholesale Sales segment. In FY10/21, sales of entire condominium buildings made to companies managing real estate properties accounted for about 80% of units sold through the Wholesale Sales segment. According to the Good Com Asset, these real estate management companies purchase condominiums with the intention of owning and managing them independently. The company's sales prices are retail prices, rather than wholesale prices. Therefore, the company generates higher sales per unit and higher rates of profitability than would normally be generated by typical sales to real estate companies.
Tokutei mokuteki kaisha (TMK): A specified purpose company established to issue securities and securitize assets under the Act on Securitization of Assets.
Condo units that Good Com Asset sells to individual investors and companies are priced differently, with individual investors generally paying a higher price. In FY10/21, the average unit price of condos sold to individual investors (Retail Sales segment) was JPY35.3mn. The average unit price of condos sold to companies (Wholesale Sales segment) was JPY28.3mn. The difference in these average prices occurs because the company mainly sells 1K units (one bedroom with a kitchen space) to corporate clients, while it primarily sells 1LDK and 2LDK units (one or two bedrooms plus a common living room, dining room, and kitchen area), which are relatively high-priced, to individual investors.
Factoring out the difference caused by floor plans (unit size), costs of sales differ little between these two segments, and sales to individual investors generate higher GPM than do sales to companies.
At the same time, sales targeting individual investors require the use of the company's own sales force and necessitate advertising expenses, while in the case of sales targeting companies, a limited number of personnel can sell a large number of units. As a result, the SG&A ratio associated with sales generated through individual investors is high, while the SG&A ratio associated with sales generated through corporate clients is low. As a result, in FY10/21, the company posted an operating loss of JPY141mn in the category of individual investors (Retail Sales segment; OPM of 2.7% in FY10/20) and reported an OPM of 11.9% in the category of corporate clients (Wholesale Sales segment; 12.3% in FY10/20).
The Overseas Sales segment described below has ceased to exist due to a change in the company's segment classification implemented in FY10/21.
In the yen depreciation phase, Good Com Asset seeks to sell its investment condos to overseas individual investors in Taiwan and Shanghai (Overseas Sales segment). In FY10/15, the last time the company made sales to overseas investors, the average unit price of condos sold by the Overseas Sales segment was JPY42.6mn and its OPM was 25.8%. Both of these figures were much higher than the JPY25.0mn and 6.7% recorded by the retail sales segment. When foreign currencies are strong against the yen, the company can price its condos for sale to overseas investors rather aggressively, with no need to offer discounts. Under such conditions, it tends to sell highly priced 1LDK and 2LDK units that generate relatively high OPM. Foreign exchange rates from FY10/17 to FY10/19 were not beneficial and, in response, the company temporarily halted its overseas sales activities. In FY10/20, it sold one unit to an overseas customer (none in FY10/19).
Good Com Asset’s fundamental policy regarding property procurement is to avoid bidding contests and purchase property for development directly from owners, brokers, construction companies, and other entities. In addition, the company’s strong property development track record is leading parties with whom it has done business in the past to introduce it to new land and properties available for development. In FY10/21, 77.8% of new procurement was from parties with whom it has dealt in the past. According to the company, its ability to generate repeat business is due to its policy of maintaining good relations with its business partners, including paying fees according to the agreed schedule. These business partners include about 20 builders.
Good Com Asset procures properties using one of two schemes, development projects and single-owner projects. The single-owner projects are the main method used to develop new condominium buildings. The two schemes have different startup costs, payback periods, and profit margins.
Development projects begin with Good Com Asset purchasing the land. After completing the basic design and geological survey and obtaining building certification, it entrusts construction to a building contractor. Development projects usually span 27 months from land purchase to completion of the building. Basic design and geological surveys take about two months, followed by about six months to obtain building certification, three months to select a building contractor, and then about 16 months from the start of construction to the building’s completion. At the beginning of development, Good Com Asset is required to pay the full amount to purchase land, which accounts for about 40% of the total cost of a development project. Building construction costs account for the remaining 60%, and Good Com Asset makes a 10% down payment when construction starts and pays the balance when construction is completed. According to the company, the GPM on development project units sold by the retail sales segment is about 30%.
The building certification process entails the inspection and examination of the building construction plans in accordance with the Building Standards Act to ensure that the plans conform to the Act’s statutes and all related regulations prior to the start of construction.
|Land purchase||Basic design / Geological survey||Building certification||Selection of building contractor||Construction start||Completion and handover|
|Funds||Land purchase price||up-front expenses (10% of construction cost)||Construction cost (remaining 90%)|
|Term||0 months||2 months||6 months||3 months||16 months|
In a single-owner project, Good Com Asset first obtains building certification for land on which it plans to develop and then a building contractor purchases it. At that point, Good Com Asset signs a contract to purchase the condominium building from the contractor. The time from the conclusion of the procurement contract to handover of the property to Good Com Asset is about 17 months. Good Com Asset pays a deposit when the contract is signed amounting to about 2–3% of the total cost of the land and building. In some cases, another payment is made during the construction period. Good Com Asset then pays the remaining balance to the building contractor when construction is completed and takes control of the condominium building. According to the company, the GPM on single-owner project units sold in the retail sales segment is about 25%.
|Land purchase||Basic design / Geological survey||Building certification||-||Construction start||Completion and handover|
|Funds||up-front expenses (about 5% of cost of land and building)||Payment of remaining 95% of the cost of the land and building|
|Term||One month||16 months|
Good Com Asset’s business segments are classified based on the operations conducted through them and the customer bases to which their respective investment condominiums are sold. Its segments include the Retail Sales, Wholesale Sales, Real Estate Management, and Good Com Fund segments.
The company in FY10/21 merged the Overseas Sales segment with the Sales to Individuals segment to form the Retail Sales segment. At the same time, it renamed the Sales to Real Estate Companies segment as the Wholesale Sales segment and the Property Management segment as the Real Estate Management segment.
|% of total||49.2%||72.5%||49.3%||54.1%||38.2%||29.7%||30.0%||19.1%|
|Sales to Individuals||2,642||3,075||3,205||5,316||6,432||6,952||7,870||-|
|% of total||47.1%||39.3%||43.3%||54.1%||38.2%||29.7%||29.9%|