FaithNetwork is an independent real estate development and sales company established in October 2001. Real Estate Investment Support is the company’s main business (96.7% of sales, 90.8% of operating profit in FY03/21). In this business, the company offers two product types: the real estate package (sale of existing building and the land they occupy) and the building construction package (upfront land sale followed by the design, construction, and handover of the building). In the Real Estate Management business (3.3% of sales, 9.2% of operating profit), the company recruits tenants for buildings it has constructed and manages properties. This segment has become a stable source of earnings.
The company’s founder and current president, Jiro Hachiya, is a former banker. Familiar with real estate financing frameworks, he anticipated and hedged against property risk during the global financial crisis. He has hence concentrated on transforming clients’ issues into business opportunities.
The company’s focus of operations is Tokyo’s Jonan area, in three wards (Setagaya, Meguro, and Shibuya). This popular residential area has verdant neighborhoods and is close to the city center, facts that contribute to stable land prices. By concentrating on these three wards, limiting its lineup to its own condominium brands, and focusing on pull-type sales channels, FaithNetwork is able to compete with major real estate developers despite being relatively small and independent.
The company’s main clients are affluent individuals looking to purchase properties in the 400mn price range. With its real estate packages, it takes 8–10 months from the purchase of land until completion of the building and handover to the real estate investor client.
FaithNetwork’s new reinforced concrete (RC) condominium buildings have higher asset values than wooden or lightweight steel frame structures because of their long useful lifespans (statutorily, 47 years for residential properties). Also, the company makes design a priority. The company additionally handles pre-owned condominium buildings, which it renovates for re-sale.
FaithNetwork’s business model focuses on providing integrated services—from buying land to designing, constructing, selling, recruiting tenants, and managing properties—functions normally outsourced to specialists. This integration enables the company to eliminate middleman margins and focus directly on client interests. Rental and property management services help the company maintain long-term relations with its clients even after they buy property. Integrated service underpins three other strengths: the ability to source properties that are not yet formally listed and make decisions quickly (as short as three days); stable, long-term yields (gross returns of 4.0–4.9%, aided by expertise in building on irregularly shaped plots); and efficient marketing (attracting potential investors with seminars and property viewings).
FaithNetwork’s employees (147 as of end-March 2021) include staff specializing in land purchasing and building sales (11%), design planning (15%), construction (25%), tenant recruitment (8%), property management (12%), and other (29%). Staff specializing in design and construction account for about 40% of the total. About half the company’s properties are designed in-house, with the remainder outsourced. The company takes pride in creating attractive properties rather than only focusing on property sales.
On May 14, 2021, the company released its medium-term business plan, titled Next Vision 2024. It targets FY03/24 sales of JPY25.0bn (CAGR of 10.0% over FY03/21–FY03/24), operating profit of JPY2.1bn (25.3%), recurring profit of JPY1.8bn (26.2%), and net income of JPY1.2bn (27.1%). In April 2021, the company launched a new business focusing on modular unit construction, and expects sales of JPY450mn in FY03/22 and JPY2.0bn in FY03/24 (included in the above sales figures).
In FY03/21, the company reported nonconsolidated sales of JPY18.8bn (+9.8% YoY), operating profit of JPY1.1bn (+3.3% YoY), recurring profit of JPY895mn (+11.3% YoY), and net income of JPY585mn (+6.7% YoY). In 1H, the COVID-19 pandemic caused a delay in the timing of property sales, and the company’s procurement did not proceed as planned, while in 2H the company put priority on monetizing its properties, selling properties in bundles of 10. Meanwhile, 2H saw rising investment demand among institutional investors and fund managers looking for high-quality properties, and FaithNetwork experienced a marked increase in transactions with such investors—a new development for the company, and a change from the pre-COVID-19 environment.
For FY03/22, the company forecasts sales of JPY20.0bn (+6.5% YoY), operating profit of JPY1.3bn (+19.7% YoY), recurring profit of JPY1.1bn (+17.3% YoY), and net income of JPY710mn (+21.4% YoY). The JPY20.0bn sales forecast includes sales from new businesses of JPY450mn. In April 2021, the company launched a new business focusing on modular unit construction, which it is rolling out.
FaithNetwork’s strengths are:
1) Niche strategy offering integrated services that deliver uniquely designed condos in the popular Jonan area
2) Ability to make good use of irregularly shaped parcels of land thanks to in-house design, construction, and property management teams
3) Efficient method for attracting affluent clients, high client-retention rate, and referrals from existing clients
1) Limited supply of land that fits the company’s business model
2) Weak name recognition due to a lack of personnel and other resources compared with larger companies
3) The presence of large railway-affiliated real estate development and sales companies located near Tokyu train lines
Joto, Josai, Jonan, and Johoku were terms referring to the regions to the east, west, south and north of Edo Castle, now the site of the Imperial Palace in Tokyo. Based on Tokyo’s current administrative divisions, these four areas would include the 20 wards (ku) other than the three wards in the city center (Chiyoda-ku, home to the Imperial Palace, Minato-ku and Chuo-ku). The Joto area comprises the five wards of Daito-ku, Sumida-ku, Koto-ku, Katsushika-ku, and Edogawa-ku; the Josai area includes the four wards of Shinjuku-ku, Nakano-ku, Suginami-ku, and Nerima-ku; the Johoku area comprises the six wards of Bunkyo-ku, Toshima-ku, Kita-ku, Arakawa-ku, Itabashi-ku, and Adachi-ku), and the entire Jonan area includes five wards—Shibuya-ku, Meguro-ku, Setagaya-ku, Shinagawa-ku, and Ota-ku. The three Jonan wards that are FaithNetwork’s base of operations—Shibuya, Meguro, and Setagaya—occupy the top three spots in rankings of the most popular places to live in Tokyo.
|Gross profit margin||-||-||-||-||-||19.6%||18.2%||17.9%||15.5%||13.8%|
|Operating profit margin||-||-||-||-||7.9%||11.5%||8.9%||7.2%||6.1%||5.7%||6.4%|
|Recurring profit margin||4.8%||3.0%||3.6%||10.1%||6.3%||10.2%||7.5%||5.8%||4.7%||4.8%||5.3%|
|Per-share data (JPY)|
|Shares issued (year-end; '000)||1||1||1||100||100||100||4,980||4,980||4,980||4,980|
|EPS (fully diluted)||-||-||-||-||-||-||-||-||-||-||-|
|Dividend per share||-||-||-||-||-||25.0||30.0||30.0||30.0||32.0||32.0|
|Book value per share||10.8||23.4||55.4||115.7||186.8||364.8||669.7||768.4||849.2||934.0||-|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||-||-||-||-||825||1,817||3,458||2,748||2,380||3,993|
|Total current assets||-||-||-||-||4,676||7,156||9,728||11,845||11,014||9,653|
|Tangible fixed assets||-||-||-||-||1,792||2,463||2,875||1,960||2,089||2,261|
|Investments and other assets||-||-||-||-||47||43||104||121||174||696|
|Total current liabilities||-||-||-||-||3,123||4,833||6,142||5,084||4,933||3,435|
|Total fixed liabilities||-||-||-||-||2,653||3,379||3,237||5,023||4,134||4,547|
|Total liabilities and net assets||622||1,987||2,694||3,827||6,524||9,672||12,714||13,933||13,296||12,633|
|Total interest-bearing debt||-||-||-||-||4,608||6,612||7,612||8,558||7,026||5,948|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||-||-||-||-||-1,336||-186||-61||-1,406||1,398||3,476|
|Cash flows from investing activities||-||-||-||-||-1,402||-704||-457||-91||-39||-615|
|Cash flows from financing activities||-||-||-||-||2,382||2,004||2,162||786||-1,727||-1,249|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||% of Est.||FY Est.|
|Gross profit margin||15.1%||13.8%||15.2%||15.5%||13.6%||10.9%||11.5%||13.8%||14.3%||14.4%|
|Operating profit margin||-||0.9%||2.2%||6.1%||-||3.4%||1.5%||5.7%||-||-||6.4%|
|Recurring profit margin||-||-||0.1%||4.7%||-||2.6%||0.2%||4.8%||-||-||5.3%|
|Gross profit margin||15.1%||13.2%||18.1%||15.8%||13.6%||10.3%||18.4%||16.7%||14.3%||14.4%|
|Operating profit margin||-||3.5%||4.7%||10.2%||-||4.8%||-||10.9%||-||-|
|Recurring profit margin||-||1.8%||3.0%||9.5%||-||4.3%||-||10.5%||-||-|
|Real Estate Investment Support||1,570||5,585||8,356||16,525||1,785||9,368||9,984||18,153||1,245||2,917|
|% of total||91.2%||95.1%||95.1%||96.6%||93.3%||96.9%||95.6%||96.7%||88.0%||89.8%|
|Real Estate Management||152||289||432||581||128||304||456||621||169||332|
|% of total||8.8%||4.9%||4.9%||3.4%||6.7%||3.1%||4.4%||3.3%||12.0%||10.2%|
|Real Estate Investment Support||-131||-17||99||913||-56||266||82||971||-155||-317|
|% of total||-||-||52.2%||88.2%||-||80.5%||52.6%||90.8%||-||-|
|Real Estate Management||38||68||91||122||16||64||74||98||22||48|
|% of total||-||132.1%||47.8%||11.8%||-||19.5%||47.4%||9.2%||-||-|
|Operating profit margin||-5.4%||0.9%||2.2%||6.1%||-2.1%||3.4%||1.5%||5.7%||-9.4%||-8.3%|
|Real Estate Investment Support||-8.3%||-0.3%||1.2%||5.5%||-3.2%||2.8%||0.8%||5.3%||-12.4%||-10.9%|
|Real Estate Management||24.9%||23.7%||21.0%||21.0%||12.6%||21.2%||16.3%||15.8%||12.8%||14.4%|
|Real Estate Investment Support||1,570||4,015||2,771||8,169||1,785||7,583||616||8,170||1,245||1,672|
|% of total||91.2%||96.7%||95.1%||98.2%||93.3%||97.7%||80.2%||98.0%||88.0%||91.1%|
|Real Estate Management||152||137||143||149||128||176||152||165||169||163|
|% of total||8.8%||3.3%||4.9%||1.8%||6.7%||2.3%||19.8%||2.0%||12.0%||8.9%|
|Real Estate Investment Support||-131||114||116||814||-56||323||-184||888||-155||-162|
|% of total||-||78.8%||84.0%||96.3%||-||87.0%||-||97.3%||-||-|
|Real Estate Management||38||31||22||31||16||48||10||24||22||26|
|% of total||-||21.2%||16.0%||3.7%||-||13.0%||-||2.7%||-||-|
|Operating profit margin||-5.4%||3.5%||4.7%||10.2%||-2.1%||4.8%||-22.7%||10.9%||-9.4%||-7.4%|
|Real Estate Investment Support||-8.3%||2.8%||4.2%||10.0%||-3.2%||4.3%||-29.9%||10.9%||-12.4%||-9.7%|
|Real Estate Management||24.9%||22.3%||15.5%||21.0%||12.6%||27.4%||6.4%||14.7%||12.8%||16.0%|
Sales decreased by JPY6.4bn YoY, with sales at Real Estate Investment Support down JPY6.5bn, and sales at Real Estate Management up JPY28mn.
Operating profit fell by JPY600mn YoY to an operating loss, down JPY583mn at Real Estate Investment Support, and down JPY17mn at Real Estate Management.
In FY03/21, the company sold some of its inventories in bulk at once to increase liquidity in the wake of the COVID-19 pandemic, which resulted in substantially higher sales and profits than usual. The drop in sales and profits in 1H FY03/22 was attributed to the absence of such bulk sales. The company said that 1H results were in line with plan.
The company sold five real estate packages and four construction packages.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Act.||FY Act.||FY Est.||FY Est.|
|Gross profit margin||13.8%||16.4%||15.5%||10.9%||16.8%||13.8%|
|Operating profit margin||0.9%||8.8%||6.1%||3.4%||8.1%||5.7%||6.4%|
|Recurring profit margin||-1.3%||7.8%||4.7%||2.6%||7.1%||4.8%||5.3%|
For FY03/22, the company forecasts sales of JPY20.0bn (+6.5% YoY), operating profit of JPY1.3bn (+19.7% YoY), recurring profit of JPY1.1bn (+17.3% YoY), and net income of JPY710mn (+21.4% YoY). The JPY20.0bn sales forecast includes sales from new businesses of JPY450mn. In April 2021, the company launched a new business focusing on modular unit construction, which it is rolling out.
For FY03/22, the company projects sales of 16 real estate packages (27 in FY03/21) and 22 building construction packages (16 in FY03/21), a total of 38 packages (five less than the 43 in FY03/21). FaithNetwork lowered its sales target in part because it has fewer properties for sale on hand, due to the slow purchasing activity in FY03/21. The company said it will focus more on profitability than top-line growth in FY03/22. Despite the YoY decline in sales volume, the forecast calls for higher sales and operating profit, partly because it has its sights on developing large buildings. The company expects OPM to be 6.4%, up 0.7pp from 5.7% in FY03/21. Sales from new businesses are not included in the above forecast.
The company will continue to invest in new systems. In FY03/21, the company focused on developing Shisanmamoru-kun (a professional AI-powered inheritance and gift tax simulator), LIB (a land information management system), MA (a marketing automation tool), and ProPartner (a property sales support website). Development of these systems is now complete, but running costs are high. The company will continue to focus on investment in Digital transformation.
The company anticipates a further increase in headcount, from 147 at end-FY03/21 to around 160. The building design and construction departments are enjoying a strong influx of inquiries, and construction projects are on the rise. Increased staffing will focus on these departments.
In FY03/21, the COVID-19 crisis prompted the company to take its seminars online, which led to lower costs. Basically, the company is not planning a significant increase in expenses for FY03/22, but it says it wants to consider the best ways of boosting its market presence, given that it marks its 20th anniversary in FY03/22, has recently had its listing changed to the First Section of the Tokyo Stock Exchange, and is actively developing a new business line.
FaithNetwork does not expect a significant YoY increase in commissions paid to intermediaries, but it appears that the company has budgeted a certain allowance for commissions in consideration of its relationships with the trust banks and real estate companies that introduce wealthy customers.
The company launched a new business line, Diorama, focusing on modular house construction. As lifestyles and values grow more diverse in Japan, the company says the new business will fundamentally change the concept of housing, enabling highly designed housing that can be reused and recycled and flexibly relocated and expanded.
The guiding concept for Diorama is living with the “new normal.” The core components making up the structure of a house—shipping containers—can be reused or recycled, relocated, expanded, and built in as few as three days. The company is marketing Diorama as a whole new approach to housing, which offers balanced, open-ended possibilities for everything from location and use to design and living style.
Based on standard shipping containers, the housing modules can be arranged to fit in narrow urban plots of land with tight design and construction constraints. By combining modules, is also possible to build and sell structures that combine housing and rental units. Other applications include add-on retail or office space or, by stacking multiple modules, building garage house-type rental units that can support customers’ real estate investment and asset management needs. The modules can also be used for emergency evacuation housing in the event of disasters.
The company is setting the Diorama brand apart from other traditional shipping container houses by ensuring superior design and durability. Pricing varies depending on the number of modules and land prices, but the Diorama business does not yield notably higher margins than the company’s conventional businesses. The company is not limiting its marketing to Tokyo’s three Jonan wards, which are the base of its other operations, but it expects to build and sell Diorama houses in areas in and around Tokyo. It projects that Diorama sales will reach JPY450mn in FY03/22.
To reinforce its existing capabilities as an integrated service provider, the company is working to strengthen its property purchasing functions and business management system, boost property values, and expand product development. It will incorporate digital transformation across all processes aimed at strengthening its development capabilities for large projects. FaithNetwork will revise the work flows of its design and construction departments and completely overhaul the business management system of the Real Estate Management business. To boost property values, the company will make use of third-party assessment to heighten the competitive value of its properties.
The average price of a FaithNetwork package is about JPY400mn, but in FY03/20 the company also had a large project worth around JPY2.0bn. With real estate investment trusts (REITs) now broadening their horizons to include not just hotels and commercial properties but also residential properties, the company intends to develop more large, good quality buildings in the JPY1bn ballpark and it has plans to develop several such buildings in FY03/22.
In its existing businesses, the company plans to push ahead with development of wall-type frame design structures for buildings with six or more floors in its in-house developed GranDuo series of condominium buildings. Residential zones in Japan often have tight restrictions on the height of buildings. Adopting a wall-type structure allows for lower floor heights, so even on the same site a wall-supported building can have more floors than a Rahmen structure, which supports the building using columns and beams. For example, on a site where restrictions would limit a Rahmen structure to seven stories, a wall-supported building might be able to have eight stories. The building can have more units as a result, which offers the promise of higher rental income. FaithNetwork currently has plans to develop two wall-supported buildings with six or more above-ground floors.
Previously, the company sought to improve the quality and functionality of properties developed in-house through an internal quality control department, but it recently partnered with an outside agency that has a proven track record in construction and real estate quality assessment. The company will make use of the partnership to audit building quality, and says every process in its property development will undergo even more rigorous inspections and audits. By striving in this way to ensure higher quality standards, the company aims to gain greater trust in the properties it develops.
FaithNetwork is entering a new phase of growth. Its listing changed from the Tokyo Stock Exchange Mothers market to the First Section of the same exchange on February 12, 2021. The company will also celebrate its 20th anniversary on October 2, 2021. As it enters this new phase, the company recognized that drawing up a roadmap for solid growth and spelling out measures to put the plan into action would lead to further enhancement of its corporate value.
The company crafted a new vision statement: “We will create a bright future and contribute to a flourishing society by proposing new living styles.”
The company adopted the following four policies.
Pursue timely property development to meet diversifying customer needs
Launch a new business utilizing modular house construction and propose a range of lifestyle options
Allocate dedicated IT strategy staff, strengthen planning and oversight of company-wide IT strategy, implement change in stages
|Operating profit margin||5.7%||6.4%||7.3%||8.4%|
For FY03/22, the company projects sales of JPY20.0bn, operating profit of JPY1.3bn, recurring profit of JPY1.1bn, net income of JPY710mn, and OPM of 6.4% (+0.7pp YoY). It expects sales to grow 10.0% annually, reaching JPY25bn in FY03/24, and expects operating profit to grow 25.3% over the same period. The company is building a foundation targeting future sales of JPY50.0bn, and is aiming for listing on the TSE Prime Market. Although it has not disclosed any ROE or ROA targets, the company says it wants to elevate both indicators into the 17–19% range. ROE in FY03/21 was 13.2%.
FaithNetwork aims to achieve high profitability through efficient management of a small team of skilled employees, focusing on its two core products—GranDuo (newly constructed RC condominium buildings) and GrandStory (renovated condominium buildings). More concretely, the company plans to create a structure to provide a stable supply of GranDuo properties, starting by strengthening of its purchasing capability. The company also plans to supply renovated GrandStory condos through a “creativity-support sharing business,” combining renovation and social contribution.
Over the seven years through FY03/20, FaithNetwork achieved a near eight-fold increase in sales while expanding recurring profit by 12x. Going forward, the company expects stronger challenges from macro environment, including rising variable costs and interest rates. That being said, the company weathered the 2008 global financial crisis. The company now aims to achieve stable growth despite these challenges by creating a more profitable business model that emphasizes efficiency leveraging a small team of skilled workers.
FaithNetwork gathers information from a broad network of sources, enabling it to acquire land to develop properties it can sell on to investors. However, most of its condominium buildings now sell for more than JPY400mn, which is beyond the reach of many would-be investors.
To meet the needs of smaller investors with an interest in real estate, including customers wanting to use real estate investment to reduce inheritance tax, FaithNetwork has expanded its product lineup to include small-lot investments in jointly owned properties, which it calls “Grand Funding.” The company obtained the necessary license under the Real Estate Specified Joint Enterprise Act of Japan (September 2018). To boost investor convenience, FaithNetwork will serve as property manager for these jointly owned properties.
Through such small-lot real estate investments in jointly owned properties, smaller investors are able to invest in prime properties above a certain price range. The company plans to extensively recruit small investors, including those looking to use investment to reduce inheritance taxes with budgets as low as JPY5mn, to invest in its small-lot real estate products in a voluntary partnership form. Going forward, it looks to have the small investors consider investing in GranDuo and GrandStory as well.
On October 2, 2018, FaithNetwork established Grand Funding Co., Ltd. (renamed Faith Asset Management Co., Ltd. on November 1, 2019), as a wholly owned subsidiary. The purpose of this company is to manage assets, particularly real estate funds, and expand the group’s sales channels by broadening the range of real estate products available for investors. FaithNetwork intends for Grand Funding to conduct a highly specialized operation that would secure stable earnings.
In April 2020, FaithNetwork entered into a business alliance via a subsidiary with Funds, Inc., a company providing the opportunity to invest as little as JPY1 in funds that lend money to corporate clients. FaithNetwork already offers a service whereby customers with budgets as low as JPY5mn can invest in real estate, but through this alliance with Funds it seeks to offer customers a starting point as low as JPY1 for their venture into real estate investment, at the same time garnering increased recognition for its GranDuo brand.
FaithNetwork is an independent real estate development and sales company established in October 2001. FaithNetwork’s founder and current president, Jiro Hachiya, hails from a financial background. In this work, he became well-versed in real estate financing methods and established strong relations with other financial institutions. According to management, since founding the company Mr. Hachiya has consistently stressed the importance of creating valuable assets for clients. The company explains that FaithNetwork has one guiding principle: the customer who submits the first application to buy a particular property has first priority. While stressing fair treatment of all customers without regard for individual attributes, the company also seeks to determine customers’ resolve and readiness to assume responsibility.
Real Estate Investment Support is the company’s main business (96.7% of sales, 90.8% of operating profit in FY03/21). In this business, the company offers two product types: the real estate package (sale of existing building and the land they occupy) and the building construction package (upfront land sale followed by the design, construction, and handover of the building). In the Real Estate Management business (3.3% of sales, 9.2% of operating profit), the company recruits tenants for buildings it has constructed and manages properties. This segment has become a stable source of earnings. has also become a stable source of earnings.
FaithNetwork has two business segments: Real Estate Investment Support and Real Estate Management. Through these two, it aims to help clients create and continue to hold valuable assets. FaithNetwork’s business model is to provide integrated services centered on new and renovated reinforced concrete (RC) condominium buildings in three Tokyo wards (Setagaya, Meguro, and Shibuya). These services include planning, development, contracting of construction, sale, and management of the condominium buildings. To date, this model has succeeded in keeping vacancies low and stabilizing and maximizing returns.
RC condominium buildings typically have higher asset values than wooden or lightweight steel frame structures because they usually have a longer useful life and superior designs. Also, land prices tend to be stable in the company’s main area of operations (three wards in Tokyo’s Jonan area that are popular as residential areas because of their many green neighborhoods and proximity to the city center). FaithNetwork’s business model focuses on providing integrated services—from buying land to designing, constructing, selling, renting, and managing properties. This integration enables the company to eliminate middleman margins and focus directly on client interests. Rental and property management services help the company maintain long-term relations with its clients even after they buy property. By concentrating on highly popular residential areas, FaithNetwork has maintained high occupancy rates at its properties (as of end-March 2021, 97.5% on average for the 157 properties it manages) as well as stable and high profitability, with average rent having declined less than 1% over the years. An emphasis on generating profits for owners has also led to high rates of new client introduction and repeat purchases from its clients.
Real Estate Investment Support is FaithNetwork’s main business, accounting for around 97% of sales. The segment’s sales expanded rapidly, nearly doubling over the three financial years to FY03/18, but growth stagnated in FY03/19 due to changes in financial conditions. In FY03/20, there were several instances in which sales contracts signed during the term became void because financial institutions cancelled their loans to the purchasers. In addition, with the outbreak of COVID-19 in FY03/21 and the subsequent suspension of business activities under the state of emergency declared by the government, the company was under pressure to obtain funds quickly. It turned to selling properties for sale in bundles. This bulk selling led to a lower profit margin. Segment OPM averaged just under 10% in recent years, before declining to 6.5% in FY03/19, 5.5% in FY03/20, and 5.3% in FY03/21 as margins on building construction packages declined due to higher building costs.
|Real Estate Investment Support||6,878||9,813||13,501||13,623||16,525||18,153|
|% of total||96.8%||96.7%||96.8%||96.2%||96.6%||96.7%|
|Real Estate Management||230||332||445||542||581||621|
|% of total||3.2%||3.3%||3.2%||3.8%||3.4%||3.3%|
|Real Estate Investment Support||560||1,132||1,164||885||913||971|
|% of total||99.1%||96.6%||94.1%||87.4%||88.2%||90.8%|
|Real Estate Management||5||40||73||128||122||98|
|% of total||0.9%||3.4%||5.9%||12.6%||11.8%||9.2%|
|Operating profit margin||7.9%||11.5%||8.9%||7.2%||6.1%||5.7%|
|Real Estate Investment Support||8.1%||11.5%||8.6%||6.5%||5.5%||5.3%|
|Real Estate Management||2.3%||11.9%||16.5%||23.6%||21.0%||15.8%|
In this business, the company manages properties owned by individuals as well as properties FaithNetwork owns itself. In the first category, the company manages about 90% of the properties it sells to investors. By dealing exclusively in properties it either manages or owns, the company is working to further enhance the profitability of properties for real estate owners.
The Real Estate Investment Support business offers two product types: the real estate package and the building construction package. Real estate packages comprise existing buildings and the land they occupy. Building construction packages consist of an upfront land sale followed by the design, construction, and handover of the building. The product mix is generally stable, with the ratio fluctuating between 6:4 and 7:3 in favor of real estate packages. Revenues and expenses related to real estate packages are recognized after the completion and handover of the building. Costs and revenues related to land purchased for a building construction package are recognized after transfer of the land to the buyer; expenses and revenues related to contracted construction work are recognized in stages as the construction progresses. FaithNetwork hopes to increase the ratio of building construction packages in its product mix as these packages boost asset turnover. The company says building construction packages also generate greater client satisfaction because they help create the asset from the ground up.
About 40% of the company's employees (147 in FY03/21) are design and construction professionals. About half the company’s properties are designed in-house, with the remainder outsourced. To increase the number of building construction packages, the company will require more on-site supervisors and in-house personnel in charge of construction. The company takes pride in creating attractive properties rather than only focusing on property sales. To build properties, FaithNetwork’s construction department cooperates closely with a network of 250 subcontractors. Despite recent labor shortages in Japan, the company has maintained schedules, with real estate packages delivered to clients in 8–10 months.
FaithNetwork has established an information channel that provides timely access to unlisted properties (rough average 400/month). About 30 of these actually meet the company’s strict product standards. In-house design, construction, and management staff enable the company to reach a quick decision on which of these 30 properties are best suited for development and put together a project proposal in as little as three days. The company says estate agents and financial institutions appreciate this unusually quick indication of interest, giving rise to a virtuous circle in which FaithNetwork receives first option on newly available premium properties.
The company’s team of designers typically drafts a project plan and rough construction budget in one day. FaithNetwork’s product is standardized, usually a four–five-story RC building (constructed on 100–200sqm plots of land) comprising one-room studio units. In addition, the company’s focus on the three Jonan wards has helped it accumulate thorough knowledge of the area, local environments, and related regulations. These two factors make quick decisions and project planning possible.
Recent rises in prices for land and building materials have pushed up the average price of a FaithNetwork package to about JPY400mn, from JPY200–300mn in the past. The gross yield has also decreased from 5.0–6.9% to about 4.5%. To secure stronger returns on investment, FaithNetwork has been purchasing irregularly shaped plots and narrow strips of land. (Note: the APA Hotel chain also has been actively purchasing irregularly shaped plots). These plots can be acquired for relatively low prices because they are not suitable for large condominium complexes built by major real estate developers that sell each individual unit in the building to homebuyers. FaithNetwork, however, is able to develop condos with unique design concepts that fit the special shape of the land. As a result, it has been able to realize stable returns not easily affected by market conditions.
Condominium buildings built by FaithNetwork are branded as GranDuo condos. These condos’ target resident group is women in the 20–49 age group. In May 2017, FaithNetwork began selling renovated condo buildings under the GrandStory brand. The target residents for these condos are young professionals in creative fields.
On September 27, 2018, the company obtained a real estate specified joint enterprise license and launched its Grand Funding business, which offers investors the opportunity to purchase small-lot real estate investments. (On November 1, 2019, Grand Funding, the wholly owned subsidiary that operates this business, changed its name to Faith Asset Management Co., Ltd.)
FaithNetwork’s marketing activities do not include push-sales methods such as cold-calling on the phone or visiting prospective clients at home. Rather, it relies on pull methods, such as referrals and introductions from large brokers, trust banks and other financial institutions, tax accounting firms, and existing clients, as well as regular seminars for investors interested in purchasing land and developing a condo building from scratch and bus tours of existing properties. Nearly 60% of property sales are to new clients, with the remaining 40% accounted for by repeat purchases from existing clients or purchases by investors introduced by an existing client. It is important to further grow its ultrahigh net worth customers who have large financial asset holdings (at least JPY1.0bn) and are not affected by tightening lending standards by banks. The company hopes to develop new customers through collaborations with tax accountants and financial institutions.
FaithNetwork said that tax assessment of its Grand Funding small lot real estate product (JPY1mn per lot; from a minimum of five lots) in inheritance enables an asset reduction effect of 70–80%. The company aims to propose real estate investment properties and small lot real estate investments for wealthy customers using inheritance tax specialists. For tax accountants and other related professionals, the company in July 2019 launched Shisanmamoru-kun (roughly “Mr. Asset Protector”), an AI-powered inheritance and gift tax simulator. The company is building up networks and business alliances with tax accountants and other professionals to sell small lot real estate investments for the purposes of inheritance. It has tied up with an inheritance management system called 2inWin operated by BBC Co., Ltd. (short for Best Build Constructor), which is used by 2,000 tax accounting firms. The financial service providers, such as tax accountants and trust banks, that serve as contact points for the Real Estate Investment Support business are bringing in new customers for the company, particularly among wealthy customers.
Real estate business is often compartmentalized, with different companies providing the different services that make up the full service chain. A real estate company purchases the land, a design office designs the building, which is then built by a construction company. A real estate agent broker recruits tenants, and a property management company manages the building and tenants for the owner. Each player is focused solely on its own business, and the lack of cooperation among the parties can result in problems for which responsibility is unclear. In addition, each player seeks to profit from its role, which drives up the cost of the overall project.
FaithNetwork, however, provides all services from land purchase to building design, construction, tenant recruitment, property management and potential sale to a new owner. The company handles all stages for both newly and renovated condominium buildings, ensuring communication and cooperation between the various functions, and eliminating middleman margins. The result is an emphasis on the interests of the owner.
FaithNetwork’s land procurement team has extensive experience in real estate development, which enables them to quickly evaluate the large volume of information on properties for sale in the three Jonan wards and select those that will yield stable returns. As soon as a target for purchase is selected, FaithNetwork’s in-house design team puts together a rough plan for the building size based on the floor-area ratio and building coverage ratio permissible for the size of the plot to be purchased. The ability to quickly gauge the profitability of land and then make a swift decision about the purchase is a major reason for its strong land procurement capability.
FaithNetwork’s building designers aim to create buildings with visually appealing interiors and exteriors that enhance the building’s comfort, livability, and appeal to women in the 20–49 age bracket that are the target tenants for many of its buildings. The company’s design staff also are able to communicate with its tenant recruiters to learn about current tenant recruiting conditions and get feedback from tenants on their past designs. As a result, they are able to propose designs with floor plans, total space, and rent levels in line with tenant needs. Also, the design task is outsourced in some cases.
FaithNetwork’s in-house team’s ability to handle both the construction of new buildings and the renovation of pre-owned buildings enables it to control construction costs and processes. Once again, outsourcing is used in some cases.
Tenant recruiting is performed at the company’s 3-ku miraie rental agency, which recruit tenants for new and renovated condos for rent. FaithNetwork’s tenant recruitment operation specializes in placing tenants in the company’s properties, highlighting the attraction of the properties and the three Jonan wards. This helps raise the real estate owner’s return on the property.
FaithNetwork’s property management service is responsible for all procedures related to tenant entry, exit, and lease renewal. It also responds to tenant complaints, collects rent, plans and implements measures to improve asset value, arranges for maintenance, remits funds to the property owner, and prepares reports for the owner. In addition, it communicates tenants’ views to the design team when new properties are being planned.
FaithNetwork’s sales team conducts pull-style sales activities, including regular seminars about investing in newly built condominium buildings. The team also introduces financial institutions to prospective buyers, taking into consideration the location of the property to be bought, financial institutions’ lending systems, and the prospective buyer’s place of residence, financial wherewithal, and other attributes.
The main features and strengths of FaithNetwork’s integrated services are property-buying capabilities, long-term stable yields, and efficient marketing. These features are rooted in the company’s unique strategy and constitute a barrier to entry from other companies. By confining its operations to the three wards in the Jonan area, concentrating its product lineup on its own condominium brand of new condominium buildings, and focusing on the pull-type sales channels, FaithNetwork can compete with major real estate development companies despite being relatively small and independent.
Tokyu Corporation subsidiary Tokyu Livable is a major real estate company with operations in the three Jonan wards where FaithNetwork operates. More than 10 years ago, Tokyu Livable began developing and selling new designer condominiums that it called its T-Style Series, targeted at affluent individual investors. Each property was designed and constructed by Tokyo Gumi, with Tokyu Livable responsible for recruiting tenants and managing the property. However, Tokyu Livable has not expanded into the full-scale services offered by FaithNetwork and therefore is not a threat, the company believes.
FaithNetwork’s property purchasing capability is based on its strengths in planning and conceptualizing and on its speedy and accurate decisions. The company’s ability to come up with unique concepts and designs and implement construction on its own has enabled it to put its ideas in motion and develop one-of-a-kind condominiums on irregularly shaped plots that sell at a discount to neighborhood property prices and are deemed too small to bother with by the major real estate developers. In addition, the company can create highly detailed initial plans, including estimated rent levels, in as little as three days after it begins to consider a prospective site. This ability to quickly put together a rather detailed plan shortens the time between the decision to buy the land and its monetization. As a result, FaithNetwork’s properties quickly begin generating cash, helping the company reduce inventory risk.
These two differentiation strategies have enabled the company to build a strong track record and network that has contributed to a virtuous circle in which it receives information about properties for sale before other parties.
By concentrating its properties in highly popular areas and offering tenants attractive units with rents in line with local market prices, FaithNetwork has been able to maintain high occupancy rates at its properties (as of March 31, 2021, 97.5% on average for the 157 properties with 1,803 units managed by the company) and an average rent decline of less than 1%. Recent rises in the prices of land and building materials have pushed up the average price of the company’s newly constructed RC condo buildings to about JPY400mn from JPY200–300mn in the past. The gross yield has decreased, from 5.0–6.9% and appears to be trending at around 4.5%. To secure yields, the company is buying relatively low-priced irregularly shaped plots and narrow strips of land deemed unsuitable for the large condominium complexes built by major real estate developers that sell each individual unit in the building. FaithNetwork, however, is able to develop condos with unique design concepts that fit the special shape of the land. As a result, it has been able to realize stable returns not easily affected by market conditions. FaithNetwork says that these results earn the company the trust and support of its clients. An emphasis on generating profits for owners has also led to high rates of new client introduction and repeat purchases from its clients.
FaithNetwork does not use cold-calling or unscheduled direct home visits to find potential new clients. Rather, it relies on pull-type marketing methods, such as referrals and introductions from large brokers, trust banks and other financial institutions, tax accounting firms, and existing clients, as well as seminars for investors interested in purchasing a newly constructed condo building. At these seminars, the company explains the attraction of owning an entire building within the three Jonan wards. It also conducts tours of completed buildings. Many of the company’s current real estate owner clients have attended these seminars. In FY03/21, the company took its seminars online in response to the COVID-19 pandemic.