Good Com Asset 3475
グッドコムアセット
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2022-01-14
2022-01-07
2021-12-10
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Sumitomo Fudosan Nishi-Shinjuku 17F, Nishi-Shinjuku 7-20-1, Shinjuku-ku Tokyo
Summary
Good Com Asset is an independent investment condominium developer. The company develops condominium buildings in Tokyo’s 23 wards and then sells the units in these buildings to individual investors and companies.
Real Estate Management & Development
Key dates
2019-04-23
Coverage initiation
Executive summary
Business overview
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 or manage real estate funds.
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.
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).
Earnings trends
In 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). Sales activities in the Retail Sales segment are recovering due in part to the lifting of states of emergency and the progressive implementation of electronic housing loan contracts. Accordingly, the company expects an increase in units sold thanks to sales channel expansion within its Retail Sales segment (stemming primarily from the launch of full-scale operations at its Osaka branch); sales of condominium buildings as a whole (primarily targeting companies managing real estate properties) made through its Wholesale Sales segment; and improvements in operational efficiency. The company also projects strong performance in its Real Estate Management segment due to an increase in properties under management.
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.
Strengths and weaknesses
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.).
Key financial data
Note: Figures may differ from company materials due to differences in rounding methods.
The company carried out a 2-for-1 stock split in October 2020. Per share data is based on the number of shares after the stock split.
Recent updates
Sale of real estate for sale
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.
Trends and outlook
Quarterly trends and results
Note: Figures may differ from company materials due to differences in rounding methods.
Notes: Figures may differ from company materials due to differences in rounding methods.
Effective Q1 FY10/21, the company changed its reporting segments, the old “Overseas Sales” segment being merged with the “Sales to Individuals” segment to form the “retail sales” segment, the old “Sales to Real Estate Companies” segment being renamed the “wholesale” segment, and the old “Property Management” segment being renamed the “real estate management” segment. Year-ago figures have been adjusted to conform to the new segmentation scheme to facilitate YoY comparisons.
Notes: Figures may differ from company materials due to differences in rounding methods.
Effective Q1 FY10/21, the company changed its reporting segments, the old “Overseas Sales” segment being merged with the “Sales to Individuals” segment to form the “retail sales” segment, the old “Sales to Real Estate Companies” segment being renamed the “wholesale” segment, and the old “Property Management” segment being renamed the “real estate management” segment. Year-ago figures have been adjusted to conform to the new segmentation scheme to facilitate YoY comparisons.
Note: Figures may differ from company materials due to differences in rounding methods.
Full-year FY10/21 results
In FY10/21 (November 2020–October 2021), the annual contract rate for newly constructed condominiums was 68.3% (versus 65.3% in FY10/20) in the Tokyo metropolitan area, and 70.0% (62.9%) in Tokyo’s 23 wards, the company’s core business area. This was more or less in line with the 70% mark that serves as a yardstick of strong performance (according to Real Estate Economic Institute Co., Ltd.), supported by an increase in demand for residential properties amid lifestyle changes caused by the COVID-19 pandemic.
In FY10/21, the company sold a total of 1,109 condominium units (+47.9% YoY). Units sold through the Retail Sales segment declined 15.9% YoY to 185 units, while units sold through the Wholesale Sales segment increased 74.7% YoY to 924 units. The downturn in the Retail Sales segment stemmed in part from state of emergency declarations, which placed restrictions on sales activities. Meanwhile, the company observed a strong volume of inquiries in its Wholesale Sales segment from companies managing real estate properties.
Sales rose YoY thanks to an increase in the number of units sold, despite a 11.9% YoY decline in the average unit selling price to JPY29.5mn. The decrease in average sales generated per unit was mainly due to an increase in the percentage of sales generated through the Wholesale Sales segment, which is associated with lower average selling prices per unit.
Gross profit of JPY6.1bn was up 27.5% YoY, but gross profit margin fell 0.3pp YoY to 17.9% as the share of sales accounted for by the relatively high-GPM Retail Sales segment declined to 19.1% (-10.9pp YoY). SG&A expenses increased 36.3% YoY, but thanks to sales growth, all profit categories from the operating line down grew YoY.
Throughout FY10/21, the company purchased nine buildings, comprising 760 units (versus 24 buildings comprising 1,439 units in FY10/20). Regarding inventory levels, as of end-October 2021, the company had total real estate for sale of JPY8.6bn (-44.5% YoY), real estate held for sale in process of JPY1.7bn (-0.7% YoY), and advance payments received of JPY1.1bn (+33.6%), with the combined total of JPY11.4bn (-36.8% YoY).
FY10/21 results by segment were as below. The company changed its reporting segments in Q1 FY10/21. The former “Overseas Sales” segment was merged with the former “Sales to Individuals” segment to form the “retail sales” segment; the former “Sales to Real Estate Companies” segment was renamed the “wholesale” segment; and the former “Property Management” segment was renamed the “real estate management” segment. Year on year comparisons have been made by adjusting FY10/20 results to conform with the company's new segment classifications.
Retail Sales
In FY10/21, the company sold of a total of 185 units (-15.9% YoY) to individual investors for an average unit sales price of JPY35.3mn (-1.6% YoY). Sales came from the sale of the company’s Genovia series of condominiums designed for singles (one-room condos) and families. Sales activities were constrained throughout the fiscal year due in part to state of emergency declarations, resulting in a YoY decline in segment sales and an operating loss. However, sales activities began recovering at the end of FY10/21 due to the lifting of these states of emergency and the progressive implementation of electronic housing loan contracts.
Wholesale Sales
In FY10/21, the company sold of a total of 924 units (+74.7% YoY) mainly to real estate asset management companies with an average unit sales price of JPY28.3mn (-12.9% YoY). The company observed a strong volume of inquiries stemming primarily from companies managing real estate properties, and sales of condominium buildings (rather than sales of individual residences) accounted for about 80% of units sold. Average sales generated per unit declined, but this downturn was the result of an increase in sales of relatively small properties and properties in areas with comparatively low selling prices per unit.
Real Estate Management
The number of units under management and units under rental management grew steadily, with the month-end occupancy rates for all months in FY10/21 exceeding 90%. Growth in sales was driven in part by contributions from Room Bank Insure Co., Ltd., which became a subsidiary in September 2020. At the same time, amortization of goodwill associated with Room Bank Insure also had an impact on performance.
Good Com Fund
In FY10/21, the company booked no sales of small-lot real estate products.
Full-year company forecast
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
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, due to the state of emergency declarations over the pandemic, the company had fewer chances to talk with individual investors, its key customers in the Retail Sales business, and as a result, struggled with making sales. However, sales activities have been recovering thanks to the lifting of the state of emergency declarations and digitalization initiatives including the shift to electronic loan contracts. The company expects to continue observing a strong volume of inquiries associated with investment products it views as sources of stability amid the COVID-19 pandemic. In the Wholesale Sales segment, Good Com Asset continued to report a strong volume of inquiries stemming from companies that manage real estate properties.
Under such circumstances, in FY10/22 the company anticipates sales of entire condominium buildings in the Wholesale Sales business, as well as an increase in the number of condo units sold in the Retail Sales business, driven by operational streamlining and sales channel expansion achieved through the launch of full-scale operations at its Osaka branch. The company projects that it will generate about 75% of its condo sales in FY10/22 through its Wholesale Sales segment and about 25% through its Retail Sales segment.
When formulating its performance projections, Good Com Asset apparently made conservative assumptions regarding sales in its Wholesale Sales segment. At the time it established these projections, the company had not yet reached agreements with buyers regarding selling prices for some properties and assumed that these properties would be sold on a unit basis. In reality, these properties could potentially be sold by the entire building (rather than on a unit basis) to companies managing real estate properties, which have been a strong source of inquiries. If they are sold by the building, the company will probably have a higher chance of achieving more favorable terms of sale.
The company projects ongoing strong performance in the Real Estate Management segment thanks to an increase in properties under management.
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.
Medium-term outlook
Historical earnings results and growth drivers
No medium-term plan disclosed, but the company aims to achieve annual growth of 30–40%
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.
Medium-term growth drivers
Minimum equity ratio target lowered to 30%; stepping up procurement
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%.
Scope to purchase properties
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).
Sales capability
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.
Strengthening sales capability of the retail sales segment
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.
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.
Growth potential of the wholesale segment
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.
Profit growth outlook
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
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
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.
OPM trend
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.
Forward-looking initiatives
New business: Good Com Fund
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).
New business: corporate venture capital (CVC) and stock market listing consulting
The company established Capital Support Consulting Co., Ltd. (a non-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.
Business
Business description
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.
Product (investment condos) characteristics
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.
Merits of investment condos
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.
Special features of the company’s investment condos
Rental condos in new buildings located in Tokyo’s 23 wards and within 10-minute walks from their nearest train stations; mostly studios with floor area of 20–60sqm; targeted at single adults; JPY20–50mn price range
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.
Buildings distinguished by uniform designs, greenery
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.
Customers
From its establishment, the company has targeted individual investors as a core customers but also sells to companies
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.
Individual investors: mostly female public employees in 30s and 40s; about 30% are repeat customers
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.
Individual investors’ cash flows and condo building maintenance
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.
Sales structure
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.
Retail Sales segment responsible for sales to individual investors
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.
Wholesale Sales segment responsible for sales to companies
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.
Unit sales price and profit margins by customer (segment)
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. This difference is mainly due to two reasons: First, sales made through the Retail Sales segment are made at retail prices, while sales made through the Wholesale Sales segment are made at wholesale prices. Second, sales to companies are nearly all small studio units while sales to individual investors are mainly larger, higher priced 1LDK and 2LDK units.
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).
Property procurement schemes
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.
Two procurement schemes: development projects and single-owner projects—latter is the main scheme
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: Good Com Asset buys land, commissions condo construction to a builder
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%.
Single-owner project: Building contractor purchases land selected by Good Com Asset, builds condominium and sells to Good Com Asset
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 5% 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%.
Segments
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.