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Raysum

Raysum 8890

レーサム
Raysum Co., Ltd.
Recent Updates
2022-05-16
Full-year FY03/22 flash update
2022-03-22
Q3 FY03/22 report update
2022-03-10
Revisions to full-year FY03/22 consolidated earnings and dividend forecasts; sale of a large property
Get in touch
Kasumigaseki 3-2-1, Chiyoda-ku Tokyo
https://www.raysum.co.jp/
03(5157)8881
Summary
Among listed companies, Raysum Co., Ltd. is classified as a medium-sized real estate company, ranking 35th (based on revenue) out of about 130 real estate companies. Since its establishment in 1992, the company has consistently provided wealth management services utilizing real estate to high-net-worth individuals. Raysum acquires properties with strong potential to fulfil client needs, and revitalizes them by conducting major renovations (to re-purpose the properties) and anti-earthquake reinforcement. The company then enhances property values further by cultivating and attracting tenants highly capable of responding to societal changes and pay the rent, and offers them as investment properties to prospective clients.
Real Estate Management & Development
Key dates
2019-04-19
Coverage initiation
Full Report
2022-05-16
Full-year FY03/22 flash update
2022-05-16
Q3 FY03/22 flash update
2022-02-14
1H FY03/22 flash update
2021-11-14
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Executive summary

Business overview

Among listed companies, Raysum is classified as a medium-sized real estate company, ranking 52nd (based on revenue) out of 135 real estate companies. Since it was founded in 1992, it has been providing wealth management services that utilize real estate to high-net-worth individuals. Its mainstay Asset Value Creation business accounted for 82.3% of total revenue and 141.6% of total operating profit in FY03/21. In this business, the company acquires properties with high potential use value and revitalizes them through a variety of means, including large-scale renovation and reconstruction to change how a property is used and improve its tenant composition and life span. While Japan’s real estate industry tends to emphasize real estate’s tangible assets (i.e., land and buildings), Raysum focuses on practical knowledge that links individuals who actually use real estate properties with its owner clients (and their purposes of owning real estate), and utilizes it. For example, the company conducts research into potential tenant groups which can adapt to social changes and increase their abilities to bear rent, sometimes even involves in promoting businesses of such tenant groups, and also develops properties to meet their needs. As a result, the company is able to continue to increase the value of assets under management over the medium to long term. What makes the company stand out is that it continues to support its clients in improving the value of their assets even after closing a sale with them.

The company’s Asset Value Improvement business (13.9% of revenue and 46.4% of operating profit) has adopted an individual customer service representative system that is better able to grasp individual client needs and provide an asset-value enhancement services that continuously realizes the potential value of the client’s assets.

The Future Value Creation business segment (3.8% of revenue and operating loss of JPY2.0bn), operates Raysum directly owned and operated properties that conduct businesses that will meet increasing social demand over the medium- and long-term, such as community hostels, advanced medical care clinics, and environment/energy-related facilities. The experience and knowhow acquired through these businesses will be used to enhance the Asset Value Creation and Asset Value Improvement businesses’ ability to generate new ideas and proposals for their clients.

The company’s Asset Value Creation business mainly targets high-net-worth individuals, but it also serves large companies. Raysum handles a range of real estate, including commercial properties, offices, and condominiums, as well as lodging, educational, medical and logistics facilities, and complexes that combine some of these functions. The company does business mainly in central Tokyo, but in the past several years it has expanded into other parts of Japan (Kyoto, Osaka, Kobe, Fukuoka, Hiroshima, and Takamatsu), as well as overseas. Real estate parcels generally range in price from JPY1.0bn to JPY10.0bn, but; the company focuses mainly on properties valued at around JPY3.0bn. The company signs around 20 contracts per year. Raysum has around 50 core clients and some 50 second-tier clients (as of June 2021). The company says repeat business (selling multiple investment properties to existing clients) is growing. Clients earn net yield of around 4% on their initial investment, but the company notes that its approach concentrates more on gradually raising the value of the properties it sells to clients rather than yields. Also, the company says that it meets the needs of clients whose major focus is not initial yields but who intend to hold properties over the medium to long term. As a result of the above-mentioned expansion of property development into regional cities, Raysum has been seeing more and more client referrals from local financial institutions that understand the nature of the wealth management products and services it offers, and has been actively entering into business alliances with dozens of regional banks to increase the flow of these referrals.

Earnings trends

In FY03/22, the company reported consolidated revenue of JPY68.4bn (+112.3% YoY), operating profit of JPY11.4bn (+591.6% YoY), recurring profit of JPY10.4bn (+673.1% YoY), and net income attributable to owners of the parent of JPY6.6bn (+900.0% YoY). 

The company forecast for FY03/23 calls for revenue of JPY80.0bn (+17.0% YoY), operating profit of JPY12.5bn (+10.0% YoY), recurring profit of JPY11.6bn (+11.1% YoY), and net income attributable to owners of the parent of JPY7.5bn (+13.1% YoY).

On May 13, 2022, the company unveiled its medium-term management plan for FY03/23 to FY03/25. The plan’s key numerical targets are shown below. The company plans for the expansion of its mainstay Asset Value Creation business to drive overall growth.

Revenue: FY03/22 results of JPY68.4bn → JPY80.0bn in FY03/23 → JPY90.0bn in FY03/24 → JPY100.0bn in FY03/25; revenue from the Asset Value Creation business: FY03/22 results of JPY61.9bn → JPY71.0bn in FY03/23 → JPY80.0bn in FY03/24 → JPY89.0bn in FY03/25

Operating profit: FY03/22 results of JPY11.4bn → JPY12.5bn in FY03/23 → JPY13.5bn in FY03/24 → JPY17.0bn in FY03/25

Net income: FY03/22 results of JPY6.6bn → JPY7.5bn in FY03/23 → JPY8.3bn in FY03/24 → JPY10.5bn in FY03/25

Strengths and weaknesses

Shared Research thinks Raysum’s strengths are: 1) ability to tailor properties to client requirements, 2) accumulated expertise (tenant management, legal/tax, construction), and 3) close relationships with ultrahigh-net-worth clients. In our view, the company’s weaknesses are: 1) earnings structure whereby stable sources of earnings do not fully compensate for fixed expenses, 2) general lack of awareness of changes in the company’s business model, and 3) personnel numbers rising more slowly than pace of business would warrant.

Key financial data

Income statementFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22FY03/23
(JPYmn) Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Est.
Revenue15,35320,02730,91927,84633,77444,27458,54754,93832,21968,40280,000
YoY85.8%30.4%54.4%-9.9%21.3%31.1%32.2%-6.2%-41.4%112.3%17.0%
Gross profit4,2345,7298,6838,59510,29415,07215,67916,7476,23916,444
YoY71.1%35.3%51.6%-1.0%19.8%46.4%4.0%6.8%-62.7%163.6%
Gross profit margin27.6%28.6%28.1%30.9%30.5%34.0%26.8%30.5%19.4%24.0%
Operating profit2,2003,4325,9645,6066,96311,30910,99012,2421,64311,36312,500
YoY86.6%56.0%73.8%-6.0%24.2%62.4%-2.8%11.4%-86.6%591.6%10.0%
Operating profit margin14.3%17.1%19.3%20.1%20.6%25.5%18.8%22.3%5.1%16.6%15.6%
Recurring profit2,1283,3826,0135,2916,71510,95310,90411,9621,35110,44511,600
YoY89.5%58.9%77.8%-12.0%26.9%63.1%-0.4%9.7%-88.7%673.1%11.1%
Recurring profit margin13.9%16.9%19.4%19.0%19.9%24.7%18.6%21.8%4.2%15.3%14.5%
Net income2,0592,4675,8994,9756,5239,2347,8947,9396636,6307,500
YoY109.7%19.8%139.1%-15.7%31.1%41.6%-14.5%0.6%-91.6%900.0%13.1%
Net margin13.4%12.3%19.1%17.9%19.3%20.9%13.5%14.5%2.1%9.7%9.4%
Per-share data
Number of shares outstanding at end of period('000 shares) 46146146,08146,08146,08146,08146,08146,08146,08137,081
EPS4,468.748.5117.0105.3135.1200.6188.1207.918.1181.0204.9
EPS (fully diluted)--116.9105.2------
Dividend per share--18.022.029.040.045.045.04.037.042.0
Book value per share49,197.7449.3566.3653.6766.71,056.51,126.71,291.21,278.51,459.6
Balance sheet (JPYmn)
Cash and cash equivalents4,2498,41811,54912,29817,22520,63422,07529,32519,92228,222
Total current assets13,24829,81146,97849,62659,27568,00966,66981,20792,14096,322
Tangible fixed assets32,1061,5031,4561,4141,9092,2423,9684,4837,3557,843
Investments and other assets6682,6231,8432,6543,7065,7005,2985,3995,0215,421
Intangible assets280280269309376516462411344259
Total assets46,30334,21950,54854,00565,26776,46976,39891,502104,861109,847
Short-term debt19,2861202,7448928141,3522,0841,0711,4931,361
Total current liabilities20,1749834,0482,2002,5273,1286,7438,3468,99710,372
Long-term debt1,7556,08013,12713,76118,69620,93721,42030,10645,43741,910
Total fixed liabilities3,4577,85815,07116,25621,83725,12926,33334,11549,00146,041
Total liabilities23,6328,84219,12018,45724,36428,25733,07642,46157,99956,413
Total liabilities and net assets46,30334,21950,54854,00565,26776,46976,39891,502104,861109,847
Total interest-bearing debt21,0416,20015,87114,65319,51022,28923,50431,17746,93043,271
Cash flow statement(JPYmn)
Cash flows from operating activities3,615-8,056-5,9763,8072,1064,3499,7103,516-19,10315,440
Cash flows from investing activities-26926,860-632-1,185-700-1,5692,977-1,575-3,164-3,243
Cash flows from financing activities-1,767-14,7417,678-2,0443,745765-11,3185,21012,857-3,946
Financial ratios
ROA (RP-based)4.6%8.4%14.2%10.1%11.3%15.5%14.3%14.2%1.4%9.7%
ROE9.6%10.3%20.8%14.9%17.1%20.7%17.2%17.2%1.4%13.2%
Equity ratio49.0%74.2%62.2%65.8%62.7%63.0%56.7%53.6%44.7%48.6%
Source: Shared Research based on company data. Per-share data is adjusted for stock splits.
Note: Fiscal year end was changed in FY03/12.
Note: Figures rounded to the nearest million yen. (The company rounds down amounts under JPY1mn.)
Earnings results by segment
Segment revenue and profitFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22
(JPYmn)Act.Act.Act.Act.Act.Act.Act.Act.Act.Act.
Revenue15,35320,02730,91927,84633,77444,27458,54754,93832,21968,402
YoY85.8%30.4%54.4%-9.9%21.3%31.1%32.2%-6.2%-41.4%112.3%
Asset Value Creation11,54416,82427,29524,19428,67037,64151,88447,62126,52061,893
YoY88.1%45.7%62.2%-11.4%18.5%31.3%37.8%-8.2%-44.3%133.4%
% of total75.1%83.9%88.2%85.9%84.7%84.8%88.6%86.7%82.3%90.5%
Asset Value Improvement1,3001,1721,2471,9052,1103,2444,5705,0414,4824,964
YoY64.3%-9.8%6.4%52.8%10.8%53.7%40.9%10.3%-11.1%10.8%
% of total8.5%5.8%4.0%6.8%6.2%7.3%7.8%9.2%13.9%7.3%
Servicing1,9261,4391,7481,3032,1762,269381---
YoY97.5%-25.3%21.5%-25.5%67.0%4.3%-83.2%---
% of total12.5%7.2%5.6%4.6%6.4%5.1%0.7%---
Future Value Creation5815916277718171,1181,7112,2751,2151,544
YoY62.7%1.7%6.1%23.0%6.0%36.8%53.0%33.0%-46.6%27.1%
% of total3.8%2.9%2.0%2.7%2.4%2.5%2.9%4.1%3.8%2.3%
Operating profit2,2003,4325,9645,6066,96311,30910,99012,2421,64311,363
YoY86.6%56.0%73.8%-6.0%24.2%62.4%-2.8%11.4%-86.6%591.6%
Operating profit margin14.3%17.1%19.3%20.1%20.6%25.5%18.8%22.3%5.1%16.6%
Asset Value Creation1,4703,1935,3724,9006,12110,51310,79112,2213,15212,955
YoY46.4%117.2%68.2%-8.8%24.9%71.8%2.6%13.3%-74.2%311.0%
Segment profit margin12.7%19.0%19.7%20.3%21.3%27.9%20.8%25.7%11.9%20.9%
% of total58.5%83.2%84.1%80.0%82.2%88.7%93.5%95.3%141.6%108.4%
Asset Value Improvement4212132177496791,1091,1441,2501,0321,104
YoY79.1%-49.4%1.9%245.2%-9.3%63.3%3.2%9.3%-17.4%7.0%
Segment profit margin32.4%18.2%17.4%39.3%32.2%34.2%25.0%24.8%23.0%22.2%
% of total16.8%5.5%3.4%12.2%9.1%9.4%9.9%9.7%46.4%9.2%
Servicing6154227743496202342---
YoY376.7%-31.4%83.4%-54.9%77.7%-62.3%-99.1%---
Segment profit margin31.9%29.3%44.3%26.8%28.5%10.3%0.5%---
% of total24.5%11.0%12.1%5.7%8.3%2.0%0.0%---
Future Value Creation492912630--336-645-1,971-2,059
YoY-66.7%125.0%222.2%334.5%-76.2%-----
Segment profit margin0.7%1.5%4.6%16.3%3.7%-----
% of total0.2%0.2%0.5%2.1%0.4%-----
Source: Shared Research based on company data
Note: Fiscal year end was changed in FY03/12.
Note: Figures rounded to the nearest million yen. (The company rounds down amounts under JPY1mn.)
Note: In FY03/19, the company withdrew from the Servicing business, and in FY03/20, it reclassified reporting segments into Wealth Management, Property Management, and Other.
Note: In FY03/21, the company renamed the Wealth Management, Property Management, and Other segments as the Asset Value Creation, Asset Value Improvement, and Future Value Creation segments respectively. The change involved the names only, and had no impact on segment data.

Recent updates

Revisions to full-year FY03/22 consolidated earnings and dividend forecasts; sale of a large property

2022-03-10

On March 9, 2022, Raysum Co., Ltd. announced revisions to its full-year consolidated earnings and dividend forecasts for FY03/22.

Revised consolidated earnings and dividend forecasts for FY03/22
  • Revenue: JPY66.0bn (previous forecast: JPY62.0bn)
  • Operating profit: JPY10.4bn (JPY8.0bn)
  • Recurring profit: JPY9.8bn (JPY7.5bn)
  • Net income*: JPY6.3bn (JPY4.8bn)
  • EPS: JPY171.95 (JPY130.95)
  • Annual dividend per share: JPY35 (JPY27)  
    *Net income attributable to owners of the parent
Reasons for the revisions

The company has raised its projections for consolidated revenue and operating profit due in part to the successful sale of large properties through its core Asset Value Creation segment and in part to property sales that generated higher profit margins than initially anticipated. As a result, the company has also increased its prior projections for consolidated recurring profit and net income.

Raysum projects that net income, which serves as the source from which dividends are paid, will rise to JPY6.3bn. Consequently, the company has raised its annual dividend forecast to JPY35 per share (versus its previous forecast of JPY27 per share) in accordance with its basic profit distribution policy, under which it targets a consolidated dividend payout ratio of at least 20%.

Successful sale of a large property

The company also announced the successful transfer of real estate for sale.

Summary of real estate sold
Location and details: Land and building in Shibuya-ku, Tokyo
Site area: approximately 320sqm
Floor area: approximately 650sqm
(The company has refrained from disclosing other specific details in accordance with confidentiality agreements formed between it and the purchaser).

The sales price of the property has not been disclosed, but it is estimated to be equivalent to at least 10% of the company's consolidated revenue (JPY32.2bn) in FY03/21. The company has no notable capital, personal, or business relationships with the purchaser.

Trends and outlook

Quarterly trends and results

CumulativeFY03/21FY03/22FY03/22
(JPYmn) Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.FY Est.
Revenue3,2426,88217,27732,2194,19719,93745,81168,402103.6%66,000
YoY-58.4%-61.4%-14.0%-41.4%29.5%189.7%165.2%112.3%104.8%
Gross profit5591,5054,3316,2391,1125,29512,00716,444
YoY-66.8%-66.7%-17.5%-62.7%98.9%251.8%177.2%163.6%
Gross profit margin17.2%21.9%25.1%19.4%26.5%26.6%26.2%24.0%
SG&A expenses9511,9803,2454,5951,1792,5263,7755,080
YoY-6.4%-4.4%4.5%2.0%24.0%27.6%16.3%10.6%
SG&A ratio29.3%28.8%18.8%14.3%28.1%12.7%8.2%7.4%
Operating profit-391-4741,0861,643-672,7698,23111,363109.3%10,400
YoY---49.4%-86.6%--657.9%591.6%533.0%
Operating profit margin--6.3%5.1%-13.9%18.0%16.6%
Recurring profit-456-6138041,351-1872,5427,88810,445106.6%9,800
YoY---58.9%-88.7%--881.1%673.1%625.4%
Recurring profit margin--4.7%4.2%-12.8%17.2%15.3%
Net income-336-295568663-811,5995,0336,630105.2%6,300
YoY---59.8%-91.6%--786.1%900.0%850.2%
Net margin--3.3%2.1%-8.0%11.0%9.7%
QuarterlyFY03/21FY03/22
(JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4
Revenue3,2423,64010,39514,9424,19715,74025,87422,591
YoY-58.4%-63.6%353.1%-57.1%29.5%332.4%148.9%51.2%
Gross profit5599462,8261,9081,1124,1836,7124,437
YoY-66.8%-66.6%286.6%-83.4%98.9%342.2%137.5%132.5%
Gross profit margin17.2%26.0%27.2%12.8%26.5%26.6%25.9%19.6%
SG&A expenses9511,0291,2651,3501,1791,3471,2491,305
YoY-6.4%-2.6%22.5%-3.5%24.0%30.9%-1.3%-3.3%
SG&A ratio29.3%28.3%12.2%9.0%28.1%8.6%4.8%5.8%
Operating profit-391-831,560557-672,8365,4623,132
YoY----94.5%--250.1%462.3%
Operating profit margin--15.0%3.7%-18.0%21.1%13.9%
Recurring profit-456-1571,417547-1872,7295,3462,557
YoY----94.5%--277.3%367.5%
Recurring profit margin--13.6%3.7%-17.3%20.7%11.3%
Net income-3364186395-811,6803,4341,597
YoY--96.5%--98.5%--397.9%1,581.1%
Net margin-1.1%8.3%0.6%-10.7%13.3%7.1%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures rounded to the nearest million yen. (The company rounds down amounts under JPY1mn.). Hyphens appearing in YoY change lines indicate a change of more than a 1,000% YoY.
Quarterly performance by segment
Segment revenue and profit (cumulative)FY03/21FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4
Revenue3,2426,88217,27732,2194,19719,93745,81168,402
YoY-58.4%-61.4%-14.0%-41.4%29.5%189.7%165.2%112.3%
Asset Value Creation1,9184,09513,03226,5202,60016,75240,94661,893
YoY-67.7%-70.7%-9.4%-44.3%35.6%309.1%214.2%133.4%
Asset Value Improvement1,1312,2403,3504,4821,2542,4813,6964,964
YoY-11.6%-13.3%-12.5%-11.1%10.9%10.8%10.3%10.8%
Future Value Creation1925468931,2153437031,1691,544
YoY-66.7%-55.5%-52.4%-46.6%78.6%28.8%30.9%27.1%
Operating profit-391-4741,0861,643-672,7698,23111,363
YoY---49.4%-86.6%--657.9%591.6%
Operating profit margin--6.3%5.1%-13.9%18.0%16.6%
Asset Value Creation-100681,9333,1522923,5979,31312,955
YoY--97.0%0.7%-74.2%--481.8%311.0%
Segment profit margin-1.7%14.8%11.9%11.2%21.5%22.7%20.9%
Asset Value Improvement2925417851,0323506289481,104
YoY-8.8%-20.0%-20.6%-17.4%19.9%16.1%20.8%7.0%
Segment profit margin25.8%24.2%23.4%23.0%27.9%25.3%25.6%22.2%
Future Value Creation-441-794-1,210-1,971-557-1,149-1,561-2,059
YoY--------
Segment profit margin--------
Adjustments-142-290-422-569-153-307-468-636
Segment revenue and profit (quarterly)FY03/21FY03/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
Revenue3,2423,64010,39514,9424,19715,74025,87422,591
YoY-58.4%-63.6%353.1%-57.1%29.5%332.4%148.9%51.2%
Asset Value Creation1,9182,1778,93713,4882,60014,15224,19420,947
YoY-67.7%-72.9%--59.4%35.6%550.1%170.7%55.3%
Asset Value Improvement1,1311,1091,1101,1321,2541,2271,2151,268
YoY-11.6%-15.1%-10.8%-6.6%10.9%10.6%9.5%12.0%
Future Value Creation192354347322343360466375
YoY-66.7%-45.5%-46.8%-18.9%78.6%1.7%34.3%16.5%
Operating profit-391-831,560557-672,8365,4623,132
YoY----94.5%--250.1%462.3%
Operating profit margin--15.0%3.7%-18.0%21.1%13.9%
Asset Value Creation-1001681,8651,2192923,3055,7163,642
YoY--89.9%--88.2%--306.5%198.8%
Segment profit margin-7.7%20.9%9.0%11.2%23.4%23.6%17.4%
Asset Value Improvement292249244247350278320156
YoY-8.8%-30.1%-22.0%-5.4%19.9%11.6%31.1%-36.8%
Segment profit margin25.8%22.5%22.0%21.8%27.9%22.7%26.3%12.3%
Future Value Creation-441-353-416-761-557-592-412-498
YoY--------
Segment profit margin--------
Adjustments-142-148-132-147-153-154-161-168
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Hyphens appearing in YoY change lines indicate a change of more than a 1,000% YoY.
Note: Starting in FY03/22, the company renamed the Wealth Management, Property Management, and Other segments as the Asset Value Creation, Asset Value Improvement, and Future Value Creation segments respectively. The change involved the names only, and had no impact on segment data.
Cash and deposits, inventories, and interest-bearing debt
FY03/21FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4
Cash and deposits17,20418,99520,57219,92218,81918,30919,80228,222
QoQ change-12,121-10,330-8,753-9,403-1,103-1,613-1208,300
Inventories55,72369,28970,45268,15469,21569,97361,72563,133
YoY30.7%66.3%17.2%40.8%24.2%1.0%-12.4%-7.4%
QoQ change7,33320,89922,06219,7641,0611,819-6,429-5,021
Real estate for sale32,68746,32247,48640,86245,39345,29434,11424,573
Real estate for sale in progress23,03622,96722,96627,29223,82224,67927,61138,560
Interest-bearing debt29,97448,64149,71846,93048,98549,01039,33543,271
QoQ change-1,20317,46418,54115,7532,0552,080-7,595-3,659
Short-term borrowings--------
Current portion of long-term borrowings1,0771,4911,5541,4931,6681,6571,2841,361
Long-term borrowings28,89747,15048,16445,43747,31747,35338,05141,910
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Hyphens indicate a change of more than a 1,000% YoY.

Full-year FY03/22 results

Earnings summary
  • Revenue: JPY68.4bn (+112.3% YoY)
    Operating profit: JPY11.4bn (+591.6% YoY)
    Recurring profit: JPY10.4bn (+673.1% YoY)
    Net income attributable to owners of the parent: JPY6.6bn (+900.0% YoY)

Revenue in the core Asset Value Creation segment was JPY61.9bn, and segment profit was JPY13.0bn, representing YoY increases of 133.4% and 311.0% respectively. This increase was a driver behind the YoY growth in the company’s results overall. GPM increased 4.7pp YoY to 24.0%, SG&A fell 6.8pp YoY to 7.4%, and the operating profit margin increased 11.5pp YoY to 16.6%. There were no irregular items (non-operating income/expenses or extraordinary gains/losses) that significantly impacted results.

Performance by segment
Asset Value Creation business
  • Revenue: JPY61.9bn (+133.4% YoY)
  • Segment profit: JPY13.0bn (+311.0% YoY)


In the Asset Value Creation business, the company pursues the potential value of individual real estate assets according to each client's objectives. The company itself acts as the owner of a property to change the use of the property, conduct large-scale renovations, attract new tenants, and create and provide real estate assets that are meaningful to the client. The company notes that the various restrictions COVID-19 imposed on business activities provided an opportunity to reevaluate the intrinsic value inherent in real estate. It took this opportunity, the company explains, to redefine its most important task as that of thinking through the underlying value that would lead to the coexistence and continuous development of society, the economy, and the environment, and to realize this value.

As a result, in FY03/22, the company sold large properties with prices of JPY2.0bn or greater, such as a large commercial building in Ginza, Residence Shirokane Chojamaru, the Ikejiri Ohashi office building, the Medock Comprehensive Medical Clinic building near Meguro Station, a logistics warehouse in Kawagoe, a commercial building in Omotesando, and a block of residences in Kawasaki. The company also sold a total of unique 29 properties in outlying urban areas, including the Kyoto Sanjo complex building, a historical 110-year-old building in Kobe, and a lodging facility in the city of Hino. 

The company also put together its first set of new real estate investment products by combining multiple large-scale properties on which it was improving asset values, enabling customers to invest as little as tens of millions of JPY. It began selling these products in December 2021, and had sold them all by end-FY03/22.

Asset Value Improvement business
  • Revenue: JPY5.0bn (+10.8 YoY)
  • Segment profit: JPY1.1bn (+7.0% YoY)

In this business, the company provides rental management and building management services on properties it has provided to customers to maintain or increase their value. When tenants change, the company proposes measures to improve the property's value with a view to the future, taking into account customers’ detailed requests, with the aim of long-term improvements in asset value. Both revenue and profit increased YoY.

Future Value Creation business
  • Revenue: JPY1.5bn (+27.1% YoY)
  • Segment loss: JPY2.1bn (versus segment loss of JPY2.0bn in FY03/21)

In this segment, the company mainly operates in-house businesses designed to cope with future societal issues. These businesses include community hostels, advanced medical facilities essential to a super-aging society, and the development of emergency power sources to cope with frequent natural disasters. The experience and expertise gained through these business operations are used to generate new ideas and proposals in the Asset Value Creation and Asset Value Improvement businesses. The company has begun collaborations with diverse business companies; for example, as part of business that supports advanced and specialized medicine, the medock Comprehensive Medical Clinic opened in Meguro, and is currently used by many patients receiving medical exams.

Meanwhile, Asset Holdings, Ltd. and WeBase Co., Ltd. continue to be seriously impacted by restricted movement and refraining from leaving house due to re declaration of a state of emergency and pandemic prevention measures. Even so, the company continues its efforts to improve results by making fundamental modifications to facilities, conducting accident free business activities while taking measures to prevent the spread of the infection. Segment losses widened YoY, partly due to initial investments accompanying the startup of the new Etajima-sou hot spring inn. 

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

Company forecast for FY03/23

Company forecast
FY03/22FY03/23
(JPYmn) 1H Act.2H Act.FY Act.FY Est.
Revenue19,93748,46568,40280,000
YoY189.7%91.3%112.3%17.0%
Cost of revenue14,64137,31751,958
Gross profit5,29511,14916,444
Gross profit margin26.6%23.0%24.0%
SG&A expenses2,5262,5545,080
SG&A ratio12.7%5.3%7.4%
Operating profit2,7698,59411,36312,500
YoY-684.2%306.0%591.6%10.0%
Operating profit margin13.9%17.7%16.6%15.6%
Recurring profit2,5427,90310,44511,600
YoY-514.7%302.4%673.1%11.1%
Recurring profit margin12.8%16.3%15.3%14.5%
Net income1,5995,0316,6307,500
YoY-642.0%425.2%900.0%13.1%
Net margin8.0%10.4%9.7%9.4%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Segment forecasts
Segment revenue and profitFY03/22FY03/23
(JPYmn)1H Act.2H Act.FY Act.FY Est.
Revenue19,93748,46568,40280,000
YoY189.7%91.3%112.3%17.0%
Asset Value Creation16,75245,14161,89371,000
YoY309.1%101.3%133.4%14.7%
Asset Value Improvement2,4812,4834,9644,800
YoY10.8%10.7%10.8%-3.3%
Future Value Creation7038411,5444,200
YoY28.8%25.7%27.1%172.0%
Operating profit2,7698,59411,36312,500
YoY-684.2%306.0%591.6%10.0%
Operating profit margin13.9%17.7%16.6%15.6%
Asset Value Creation3,5979,35812,95513,500
YoY5,189.7%203.4%311.0%4.2%
Segment profit margin21.5%20.7%20.9%19.0%
Asset Value Improvement6284761,104800
YoY16.1%-3.1%7.0%-27.5%
Segment profit margin25.3%19.2%22.2%16.7%
Future Value Creation-1,149-910-2,059-1,100
YoY----
Segment profit margin----
Adjustments-307-329-636-700
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Company forecast

Raysum forecasts FY03/23 consolidated revenue of JPY80.0bn (+17.0% YoY), operating profit of JPY12.5bn (+10.0% YoY), recurring profit of JPY11.6bn (+11.1% YoY), and net income attributable to owners of the parent of JPY7.5bn (+13.1% YoY).

The company decides on dividends based on a consolidated dividend payout ratio of at least 20%, while considering future business development. For FY03/23, it forecasts a year-end dividend per share of JPY42 (JPY37 in FY03/22).

Forecast by segment

Shared Research will update the FY03/23 forecast by segment following their disclosure and interviews with the company.

Note that the segment forecasts below are for FY03/22.

Asset Value Creation

The company is planning for revenue of JPY55.0bn (+107.4% YoY) and operating profit of JPY9.4bn (+196.6% YoY).

In FY03/22, the company plans to sell 25 properties, ten of which are expected to the large properties with selling prices of JPY 2.0bn or more. This represents YoY increases of 21 properties and four properties, respectively.

Inventory at end-FY03/21 (the total of real estate for sale and real estate for sale in process) was JPY68.2bn (+JPY19.8bn versus end-FY03/20).

Following are some representative examples of the property sales plan for FY03/22.

Premium Residence Shirokane Chojamaru (Shinagawa Ward, Tokyo): The company remodeled all 17 newly constructed units with an average private floor space of 100sqm into seven luxury rental units averaging 300sqm each.

Kaigan Building (Kobe, Hyogo Prefecture): Completed in 1911, this building (three stories, floor area of 1,185sqm at time of construction) is a registered tangible cultural property. The company conducted a major renovation on it from end-2020 through February 2021 and simultaneously attracted tenants to fill the vacancy rate.

Shijo Karasuma Office Building (Kyoto, Kyoto Prefecture): The company renovated a 30-year-old building (floor area of roughly 6,000sqm) from July to October 2020. The company improved the environment for existing tenants and attracted vibrant new tenants in order to increase the level of rent.

medock Comprehensive Medical Clinic (Shinagawa Ward, Tokyo): This clinic specializes in circulatory system and cardiac examinations. The company used the frame of a 50-year-old building, but made it seem as if it were newly built by using the “refining” renovation method established by architect Shigeru Aoki.

In FY03/22, the company expects to see a YoY increase in the number of properties sold, in the backdrop of factors such as reduced impact from the COVID-19 pandemic. In addition, sales of the first set of new real estate investment products formed by combining large-scale properties (which enable customers to invest from JPY100–200mn), which began at the end of 2021 (completion expected by the end of FY03/22), were also factored into the performance plan .

The OPM in this business for FY03/22 is expected to increase to 17.0% (11.9% in FY03/21). The company expects to see strong demand for the properties it handles, targeting both individual and corporate sales, in part due to the extended low-interest environment, and conditions such as property selling prices and sales costs are expected to improve over FY03/21 amid declining impact from the COVID-19 pandemic. Further, an increase in sales of large properties, which tend to demonstrate comparatively greater sales efficiency, is also expected to contribute to an increased profit margin.

Asset Value Improvement

Raysum is planning revenue of JPY4.0bn (-10.8% YoY) and operating profit of JPY540mn (-47.7% YoY).

Revenues in this business include revenue from management services of real estate sold to clients and rental revenue from real estate for sale held by the company itself. In FY03/22, the company expects that rental revenue will fall as the company makes progress in the sale of real estate for sale, leading to a decline in both revenue and profit. The plan, however, does not factor in rental revenue from properties newly purchased by Raysum.

Future Value Creation business

The company is planning revenue of JPY3.0bn (+146.9% YoY) and operating loss of JPY1.3bn (operating loss of JPY2.0bn in FY03/21).

In this business, consolidated subsidiary Asset Holdings, Ltd., runs Raysum Golf & Spa, WeBase Co., Ltd., runs community hostels, and LIBERTÉ JAPON operates the Japanese shops of LIBERTÉ PÂTISSERIE BOULANGERIE (Paris, France).

In FY03/21, the pandemic resulted in travel restrictions and kept more people at home, hurting performance at Asset Holdings, WeBase, and LIBERTÉ JAPON. The company expects to see a recovery in performance at Asset Holdings and LIBERTÉ JAPON during FY03/22, however, due in part to reduced impact from the pandemic. WeBase, which operates community hostels typically used by incoming tourists, is remodeling some of its dormitory-type rooms into private single room specifications to attract Japanese tourists.

Medium-term management plan

On May 13, 2022, the company unveiled its medium-term management plan for FY03/23 to FY03/25. The text below provides an outline of the plan and describes the background for its formulation. .

Background to formulating the medium-term management plan

In FY03/22, the company produced favorable results, marking a significant turnaround from performance during pandemic-stricken FY03/21. Employees gained expertise in transactions with high-net-worth individuals that they were able to parlay into success in increasing real estate values. As a result, the company has increased transactions with both individuals and corporate clients in Japan and overseas. It has also been steadily purchasing properties, building up a plentiful inventory of products for future sales. Raysum has also launched a new real estate investment product that allows customers to invest as little as tens of millions of JPY into a product of around JPY10.0bn that combines multiple properties. The company has begun offering this product to numerous customers. Against this backdrop, the company decided to formulate a medium-term management plan to promote further growth over the next three years.

Numerical targets of the medium-term management plan

Revenue: FY03/22 results of JPY68.4bn → JPY80.0bn in FY03/23 → JPY90.0bn in FY03/24 → JPY100.0bn in FY03/25

Revenue from the Asset Value Creation business: FY03/22 results of JPY61.9bn → JPY71.0bn in FY03/23 → JPY80.0bn in FY03/24 → JPY89.0bn in FY03/25

Operating profit: FY03/22 results of JPY11.4bn → JPY12.5bn in FY03/23 → JPY13.5bn in FY03/24 → JPY17.0bn in FY03/25

Net income: FY03/22 results of JPY6.6bn → JPY7.5bn in FY03/23 → JPY8.3bn in FY03/24 → JPY10.5bn in FY03/25

Annual dividend per share: JPY37 in FY03/22 → JPY42 in FY03/23 → JPY46 in FY03/24 → JPY58 in FY03/25 (all in line with the company policy of maintaining a consolidated payout ratio of 20% or more)

Equity ratio: 48.6% in FY03/22 → in general, 50% or more, but with flexibility to target 40% or more during times of business expansion

ROE: 13.2% in FY03/22 → 10% to 20%

Payout ratio: 20.5% in FY03/22 → in general, 20% or more, but decided in the context of overall business development

Key business strategies in the mainstay Asset Value Creation business

Sales

(1) Cultivate high-net-worth customers in Japan

・ Retain high-net-worth individuals in Japan as a company strength and mainstay customer base

・ Expand the customer base from high-net-worth to ultrahigh-net-worth individuals (total assets in the tens of JPYbn), continue to expand and cultivate business opportunities

(2) Increase number of corporate clients in Japan, overseas customers

・ As the company builds its track record in increasing real estate values, expand inquiries from Japanese companies and institutional investors 

・ As business with overseas customers is also increasing, increase the number of transactions with Japanese companies and overseas customers involving large products (several JPYbn to more than JPY10bn)

(3) Expand strategic products

・ Structure real estate investment products worth around JPY10bn that contain multiple properties and have unit investment amounts from around JPY50mn

・ Completed sale of first set of products (around JPY6.0bn) in FY03/22; currently preparing second and third sets (around JPY10.0bn each)

・ Provide new real estate investment opportunities to large number of clients in Japan, expand the client base

Sourcing

・ Have a plentiful inventory, owing to aggressive purchasing of real estate with potential value during COVID-19

・ Have sufficient properties to generate JPY150.0bn of the targeted JPY240.0bn in revenue during the three years of the medium-term management plan

・Based on current purchasing results, have ample room to source the remaining JPY90.0bn

Fundamental strategies

The company’s two growth strategies are to create value at individual properties and accelerate expansion of the client base.

Creating value at individual properties

The company’s concept of creating value at individual properties considers the total worth of individual properties to be the sum of the thinking provided by the people involved. To accelerate this value creation, the company aims to eliminate mismatches between property locations and tenants that have increased with changing times, attract tenants with unique businesses that are a good fit for property locations and/or redeveloped properties, and undertake business development on behalf of tenants.

Raysum says conventional real estate has been assigned present and future values based on its past performance. However, Raysum believes that recognizing the changes are the key to creating value—major changes in demographics, people’s behavior, their use of money, and their values, regarding people as the key determinant of real estate value. The company employs the information it gathers to generate assumptions about the future of real estate. Specifically, the company is working to develop higher rent-bearing businesses. To this end, Raysum has begun operating a high-end medical clinic and community hostels.

Raysum creates value in three ways: renovation, conversion, and tenant cultivation. Its approach depends on the complexity of the project.

Renovation, the simplest approach, involves repairing and modernizing real estate while leaving its usage (such as offices or homes) unchanged. The goal is to restore rent levels that have fallen over time. Raysum says numerous specialized companies offer similar services, and its own offerings are relatively undistinguishable.

Conversion refers to changing the way property is used, such as turning an office building into an urban daycare center or a care center for seniors into a hotel for inbound tourists. The company explains that this approach presents higher barriers to entry, due to technical difficulty and the scale of investment. Raysum intends to accelerate its involvement in conversion by enhancing its engineering and leasing capabilities.

Raysum cultivates tenants by projecting the future shape of society and developing the required tenants as a product. Examples to date include a high-end specialty clinic and community hostels.

Accelerating expansion of the client base

High-net-worth clients have been Raysum’s main target since founding. The company explains that building relationships with these clients is difficult and time-consuming. Since the global financial crisis of 2008, the company has focused on offering unique real estate parcels. As a result, its properties range from JPY500mn to over JPY1.0bn. Accordingly, the company has accumulated experience in working with high-net-worth individuals with assets worth tens of billions of yen, the owners of public companies, major landowners, and families affiliated with long-established companies.

Raysum has also built a track record on projects that target high-net-worth clients, meet emerging needs, and are priced at JPY3.0bn or more. The company says it is seeing an increase in business from large companies interested in projects having these characteristics.

In addition, as a result of expanding property development into regional cities, including Kyoto, Osaka, Kobe, Fukuoka, Hiroshima, and Takamatsu, Raysum has been seeing more and more client referrals from local financial institutions that understand the nature of the wealth management products and services it offers. To increase its opportunities to conduct business with wealthy households living in rural areas, the company is forming business alliances with dozens of regional banks. Shared Research recognizes that many regional banks are experiencing declines in borrowers as rural populations age, deposits accumulate, and populations and company numbers decrease. Exacerbating this problem are declining lending rates caused by monetary easing policies implemented by the Abe administration, which are connected to falling profitability in the business of providing loans to SMEs, which was once a core business for regional banks. In response to these issues, regional banks are diversifying their sources of earnings to include the referral of companies as targets for M&A and of wealthy clients as potential investors. The business alliances the company has formed with regional banks are mutually beneficial; they enable the company to sell investment real estate to affluent individuals or households in rural areas and raise the capacities of regional banks to provide services to prominent clients and make it possible for them to increase lending opportunities.

Over the medium to long term, Raysum plans to continue working with high-net-worth individuals (the source of its business) while accelerating expansion of its client base with trust beneficiary rights (small-lot investment products) business launched at the end of 2021 as well as stepping up sales efforts targeting extremely wealthy overseas individuals, institutional investors, and large companies.

Business

Business description

Company overview

Raysum is classified as a medium-sized real estate company, ranking 52nd based on revenue out of 135 listed real estate companies. Since it was established in 1992, the company has consistently provided wealth management services that utilize real estate to high-net-worth individuals. In FY03/21, revenue amounted to JPY32.2bn (-41.4% YoY), and operating profit was JPY1.6bn (-86.6% YoY).

Revenue, operating profit, and OPM
(JPYmn)FY08/07FY08/08FY08/09FY08/10FY08/11FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
Revenue40,25158,21617,13816,0719,0758,26115,35320,02730,91927,84633,77444,27458,54754,93832,219
Operating profit10,41918,319-13,9551,4342981,1792,2003,4325,9645,6066,96311,30910,99012,2421,643
Operating profit margin25.9%31.5%-81.4%8.9%3.3%14.3%14.3%17.1%19.3%20.1%20.6%25.5%18.8%22.3%5.1%
Source: Shared Research based on company data

The company business comprises the Asset Value Creation segment (82.3% of revenue and 141.6% of operating profit in FY03/21), the Asset Value Improvement segment (13.9% and 46.4%), and the Future Value Creation segment (3.8%, operating loss of JPY2.0bn).

Revenue by segment
Operating profit by segment (unadjusted)
Source: Shared Research based on company data

Business model

In the Asset Value Creation business, the company’s mainstay, Raysum mainly buys preowned properties (land and buildings), adjusts relationships between property rights, and renovates (refurbishment that does not change their original purpose of use) and converts them (large-scale refurbishment that changes their use) to upgrade them into income properties (those that can generate rental income) that contribute to long-term asset management. The company earns revenue by providing an integrated asset management and property management service. The company handles a wide variety of real estate, including commercial facilities, offices, condominiums, lodging facilities, educational facilities, and healthcare facilities, and complexes that combine some of these functions. The price range of properties is also broad, extending from hundreds of millions of yen to tens of billions of yen. The company’s current target is properties priced at JPY3–5bn. In recent years, the company has signed around 20 contracts per year. Business is concentrated on the Tokyo metro area, but Raysum also operates in outlying areas of Japan and overseas.

High-net-worth households are the company’s principal client target in the Asset Value Creation business. Although Raysum handles many different types of property, a common theme is to make direct investments in properties and revitalize them by raising their asset value. The company puts together products (parcels of income property) after determining their long-term profitability, and then sells these products on to clients (investors). Raysum differs from typical real estate companies in that it first builds relationships with clients and ascertains their needs, then purchases property with the potential to generate earnings in the medium to long term, from which point it delivers long-term asset management value by improving tenant composition and conducting major renovations. While continuing to work with customers after concluding a sale with them, the company continuously enhances the asset value of properties to realize their greatest potential value.

Raysum maintains relationships with clients over the long term, from marketing stage to sales contracts and to property management after closing sales. In some cases, the company even takes on the responsibility of handling tenants of client assets sold by other companies. Building relationships with clients by serving them in real ways over such a long period of time enables the company to cultivate trust with them, which contributes to repeat business.

Renovation: Also referred to in Japanese as “renewal” and “reform,” this approach involves repairing and modernizing deteriorating buildings while leaving its usage unchanged. Renovation is also conducted to update properties to align with current-day social uses and values. In Japan, “renewal” is used when referring to stores, while “reform” generally applies to homes. Restoration is conducted when tenants vacate rental dwellings.

Conversion: This refers to changing the way a property is used, such as turning an office building into restaurants, wedding halls, or medical facilities, or converting a former medical facility to a hotel.

Business flow

The company aims to offer one-stop services enabled by the following business flow:

Acquire information on real estate for sale: Raysum’s purchasing department obtains information about real estate for sale from a trust bank or real estate broker.

Evaluate potential purchase: The purchasing department reviews real estate for sale upon receiving reports from the sales department on whether demand exists among existing clients or potential clients. Members of various functional divisions (such as sales, leasing, tenant management, and construction engineering) attend purchasing meetings for detailed discussions about how the company might increase value of the property in discussion.

Price negotiations, sales contract: If a project is given the go-ahead at the purchasing meeting, meaning the company thinks it may have added value potential, it moves forward with negotiating a price. It then back-calculates appropriate purchasing price from the potential selling price, and purchases the property if the figures are reasonable. The company usually finances property purchases without relying excessively on borrowing.

Boost value: The leasing, tenant management, and construction engineering departments coordinate to raise the value of purchased properties through renovation and conversion. If complicated rights issues exist, the legal team works to resolve them. The company handles rights-related adjustments, increasing a property’s rent-generating potential and introducing other measures to boost asset value, and then sells the property on to a client

Time frame from purchase to sale: In FY03/20, the inventory turnover ratio in the mainstay Asset Value Creation business was 0.7x (down from 0.9x* in FY03/19) while the inventory turnover period was 1.4 years (1.1 years in FY03/19). In FY03/21, the inventory turnover ratio temporarily fell to 0.3x, and the inventory turnover period grew to 3.1 years. The time spent in inventory varies widely by property. Tenant-creation projects in particular require time to build the business initially, and so properties in this category typically take more than one year in inventory.

Post-sale client support: Once property rights are transferred, the company’s property management department continues to support clients by taking steps to improve the property or as a rental property manager. Alternatively, the company may manage tenants at client properties as a new business (in the Future Value Creation business category)

Feedback on clients’ needs: In many cases, clients who are building assets steadily may make additional investments or replace assets they currently hold. The property management department feeds such information back to the sales and purchasing departments

*Inventory turnover ratio was calculated by dividing projected CoGS (70% of revenue) in the Asset Value Creation business by the average of real estate for sale and real estate for sale in progress at the beginning and end of the fiscal year.

Unique features

Most traditional real estate companies specialize in properties that perform a specific function, such as offices, commercial properties, or housing, so that they can sell properties efficiently. In contrast, Raysum handles a diverse range of properties, offering a customized real estate product development service whose main purpose is to produce good asset management results for clients who are mostly high-net-worth individuals. It does so by continuing to bring out the potential value of client properties in the medium to long term, even after closing sales on these properties.

Another conventional way to segment the real estate industry is by business attribute: developer, owner (landlord), salesperson, manager, and broker. Raysum’s integrated organizational format, which is not split into specialized sections, enables the company to develop customized products that fulfill a client’s aims and increase the asset value of a property even after selling it. The photo below illustrates all the people who might be involved in creating a business model. The office layout (the management team at the center with individual teams radiating outward) fosters open and swift decision-making.

Raysum’s headquarters
Source: Company data

Raysum takes a one-stop approach to customer service. Meanwhile, in many cases high-net-worth individuals that who are steadily building up assets will make additional investments or replace existing assets after a certain period of time. For this reason, the company works to maintain an ongoing relationship with clients, keeping high-net-worth individuals within its sphere of activity and encouraging repeat business. The company says it has around 50 core clients and some 50 second-tier clients and the number of clients that hold multiple properties is growing.

Earnings structure

The Asset Value Creation business accounts for around 90% of the company’s revenue (although this temporarily dropped to 82.3% in FY03/21). In this business, the company concludes contracts on around 20 properties each year in its target price range of JPY3–5bn. Raysum generates revenue in the Asset Value Improvement business by managing client properties and through rent income on property the company holds for sale.

Raysum’s high OPM (about 20%; temporarily fell to 5.1% in FY03/21) is due to the purchasing department’s stringent selection standards (holding down cost of sales) and the amount of value increased following purchase (high sale price).

On the other hand, rising personnel expenses are crimping profits for the company. As Raysum is often involved in all processes up to and including the operation of the buildings it sells, it requires employee involvement from tenant leasing through to operation. The company is recruiting mid-career personnel and has begun recruiting new graduates, looking toward the future. SG&A expenses (personnel expenses in particular) are rising accordingly. That being said, the company generally intends to operate business with a few talented personnel, and the large number of higher-priced properties in line with client needs means that revenue per employee is rising (per-employee revenue for the Asset Value Creation business: bottomed out in FY08/11 at JPY85mn/person, increasing in FY03/20 to JPY705mn/person, but temporarily falling to JPY382mn/person in FY03/21). For these reasons, the SG&A ratio declined from 26.3% in FY08/11 to 8.2% in FY03/20 (but temporarily rose to 14.3% in FY03/21) and currently has relatively little impact on earnings.

In financing property purchases, Raysum has lower interest expenses than competitors that are more highly leveraged. (In FY03/21, interest expense was JPY399mn (JPY285mn in FY03/20), compared with operating profit of JPY1.6bn (JPY12.2bn in FY03/20).

Revenue per employee

Revenue per employeeFY08/11FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.
Company-wide6763120148213181200240296267151
Asset Value Creation85129238330479364416538731705382
Asset Value Improvement116579671598992127203246208
Future Value Creation148141415181821222312
Source: Shared Research based on company data
Note: Fiscal year end was changed in FY03/12.
SG&A expenses
SG&A expensesFY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Act.Act.Act.Act.Act.Act.Act.Act.
Revenue20,02730,91927,84633,77444,27458,54754,93832,219
YoY30.4%54.4%-9.9%21.3%31.1%32.2%-6.2%-41.4%
Gross profit5,7298,6838,59510,29415,07215,67916,7476,239
YoY35.3%51.6%-1.0%19.8%46.4%4.0%6.8%-62.7%
Gross profit margin28.6%28.1%30.9%30.5%34.0%26.8%30.5%19.4%
SG&A expenses2,2972,7192,9883,3303,7634,6884,5044,595
YoY13.0%18.4%9.9%11.4%13.0%24.6%-3.9%2.0%
SG&A ratio11.5%8.8%10.7%9.9%8.5%8.0%8.2%14.3%
Sales promotion81178267192168482280281
YoY113.2%119.8%50.0%-28.1%-12.5%186.9%-41.9%0.4%
% of revenue0.4%0.6%1.0%0.6%0.4%0.8%0.5%0.9%
Directors' compensations259293300287313302345412
YoY9.7%13.1%2.4%-4.3%9.1%-3.5%14.2%19.4%
% of revenue1.3%0.9%1.1%0.8%0.7%0.5%0.6%1.3%
Personnel expenses9411,1041,2411,3381,5501,6571,6711,650
YoY7.1%17.3%12.4%7.8%15.8%6.9%0.8%-1.3%
% of revenue4.7%3.6%4.5%4.0%3.5%2.8%3.0%5.1%
Salaries and allowances6928109169871,1811,2591,2591,308
Employee bonuses114141155169163183182128
Provision for bonuses12111112159106
Statutory welfare expenses123142159170191206220208
Rents161172188179177307300265
YoY4.5%6.8%9.3%-4.8%-1.1%73.4%-2.3%-11.7%
% of revenue0.8%0.6%0.7%0.5%0.4%0.5%0.5%0.8%
Commission fees402425428453640689577548
YoY40.6%5.7%0.7%5.8%41.3%7.7%-16.3%-5.0%
% of revenue2.0%1.4%1.5%1.3%1.4%1.2%1.1%1.7%
Other4525465638819151,2481,3311,439
YoY2.7%20.8%3.3%56.4%3.8%36.4%6.6%8.1%
% of revenue2.3%1.8%2.0%2.6%2.1%2.1%2.4%4.5%
Operating profit3,4325,9645,6066,96311,30910,99012,2421,643
YoY56.0%73.8%-6.0%24.2%62.4%-2.8%11.4%-86.6%
Operating profit margin17.1%19.3%20.1%20.6%25.5%18.8%22.3%5.1%
Source: Shared Research based on company data

Overview by segment

Earnings by segment (repost)
Segment revenue and profitFY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Act.Act.Act.Act.Act.Act.Act.Act.Act.Act.
Revenue8,26115,35320,02730,91927,84633,77444,27458,54754,93832,219
YoY-9.0%85.8%30.4%54.4%-9.9%21.3%31.1%32.2%-6.2%-41.4%
Asset Value Creation6,13711,54416,82427,29524,19428,67037,64151,88447,62126,520
YoY59.3%88.1%45.7%62.2%-11.4%18.5%31.3%37.8%-8.2%-44.3%
% of total74.2%75.1%83.9%88.2%85.9%84.7%84.8%88.6%86.7%82.3%
Asset Value Improvement7911,3001,1721,2471,9052,1103,2444,5705,0414,482
YoY-49.3%64.3%-9.8%6.4%52.8%10.8%53.7%40.9%10.3%-11.1%
% of total9.6%8.5%5.8%4.0%6.8%6.2%7.3%7.8%9.2%13.9%
Servicing9751,9261,4391,7481,3032,1762,269381--
YoY-67.4%97.5%-25.3%21.5%-25.5%67.0%4.3%-83.2%--
% of total11.8%12.5%7.2%5.6%4.6%6.4%5.1%0.7%--
Future Value Creation3575815916277718171,1181,7112,2751,215
YoY-45.7%62.7%1.7%6.1%23.0%6.0%36.8%53.0%33.0%-46.6%
% of total4.3%3.8%2.9%2.0%2.7%2.4%2.5%2.9%4.1%3.8%
Operating profit1,1792,2003,4325,9645,6066,96311,30910,99012,2421,643
YoY295.6%86.6%56.0%73.8%-6.0%24.2%62.4%-2.8%11.4%-86.6%
Operating profit margin14.3%14.3%17.1%19.3%20.1%20.6%25.5%18.8%22.3%5.1%
Asset Value Creation1,0041,4703,1935,3724,9006,12110,51310,79112,2213,152
YoY-46.4%117.2%68.2%-8.8%24.9%71.8%2.6%13.3%-74.2%
Segment profit margin16.4%12.7%19.0%19.7%20.3%21.3%27.9%20.8%25.7%11.9%
% of total72.7%58.5%83.2%84.1%80.0%82.2%88.7%93.5%95.3%141.6%
Asset Value Improvement2354212132177496791,1091,1441,2501,032
YoY-39.4%79.1%-49.4%1.9%245.2%-9.3%63.3%3.2%9.3%-17.4%
Segment profit margin29.7%32.4%18.2%17.4%39.3%32.2%34.2%25.0%24.8%23.0%
% of total17.0%16.8%5.5%3.4%12.2%9.1%9.4%9.9%9.7%46.4%
Servicing1296154227743496202342--
YoY-78.6%376.7%-31.4%83.4%-54.9%77.7%-62.3%-99.1%--
Segment profit margin13.2%31.9%29.3%44.3%26.8%28.5%10.3%0.5%--
% of total9.3%24.5%11.0%12.1%5.7%8.3%2.0%0.0%--
Future Value Creation12492912630--336-645-1,971
YoY--66.7%125.0%222.2%334.5%-76.2%----
Segment profit margin3.4%0.7%1.5%4.6%16.3%3.7%----
% of total0.9%0.2%0.2%0.5%2.1%0.4%----
Source: Shared Research based on company data
Note: Fiscal year end was changed in FY03/12.
Note: Figures rounded to the nearest million yen. (The company rounds down amounts under JPY1mn.)

Asset Value Creation business (82.3% of revenue, 141.6% of operating profit in FY03/21)

Performance
FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
Revenue (JPYmn)6,13711,54416,82427,29524,19428,67037,64151,88447,62126,520
YoY59.3%88.1%45.7%62.2%-11.4%18.5%31.3%37.8%-8.2%-44.3%
Operating profit (JPYmn)1,0041,4703,1935,3724,9006,12110,51310,79112,2213,152
YoY-46.4%117.2%68.2%-8.8%24.9%71.8%2.6%13.3%-74.2%
Operating profit margin16.4%12.7%19.0%19.7%20.3%21.3%27.9%20.8%25.7%11.9%
Number of employees48495361726674686772
YoY2.1%2.1%8.2%15.1%18.0%-8.3%12.1%-8.1%-1.5%7.5%
Source: Shared Research based on company data

In the Asset Value Creation business, the company acquires investment properties for clients, and then renovates, develops, and sells these properties. The company tailors schemes for each client including the utilization of special-purpose companies (SPCs) and trust beneficiary interests in accordance with such objectives as business succession. The company thus aims to create value over the medium to long term that maximizes the future potential of properties. Through large-scale refurbishment and the changing of property use, the company works to create value that surpasses typical norms.

Clients

Clients in this business tend to be high-net-worth individuals, but Raysum is also seeing an increase in corporate clients that are interested in the company’s products to improve net operating income over the medium to long term. Raysum has around 100 key clients, half of which are core and half second-tier. The number of clients that hold multiple properties is growing. New clients are typically introduced by trust banks and tax accountants or by other clients.

Products (properties)

Property types vary to match clients’ investment needs and include residential and office properties, as well as commercial and multiuse buildings and development projects.

Properties range in price from billions to over ten billions of yen, but most are in the neighborhood of JPY3–5bn. Property types and prices vary broadly.

The company’s purchasing department carefully vets properties for purchase. As its policy is to purchase properties suited to client needs, the company requires the people it puts in charge of purchasing to have a discerning eye, be adept negotiators, and demonstrate imagination and leadership throughout the process from purchasing to product conversion and post-sale management.

The purchasing department obtains information about properties to be purchased mainly from real estate brokers, trust banks, and financial institutions, as well as from funds.

All directors participate in a weekly purchasing meeting. On average, the company is considering 20–30 projects at any one time, and around five new projects arrive each week. Of this total, five or six of the best opportunities are considered at weekly purchasing meetings, with properties being considered from the perspectives of buyer, seller, local residents, and the local government. The company also takes a close look at the social aspect of projects and the value of assets to the clients who purchase properties. Even projects that are given the go-ahead for further consideration at purchasing meetings, the company back-calculates selling prices that clients would find meaningful and then negotiates closely with sellers on that basis. This lengthy process means that the percentage of purchases concluded is low, but the ones that are concluded generate high margins for the company.

The company transfers purchased properties to the tenant marketing department to find new tenants able to pay higher rents. In the process, the company handles renovation, conversion, and changes of property use, which can be complicated. (See “The difficulties of changing property use.”) The legal and engineering teams supports efforts to increase value via rights, as well as ensuring compliance. Expertise in these areas allows the company to shorten the lead time between purchase and selling contract and increases the inventory turnover ratio. In FY03/21, the inventory turnover ratio in the mainstay Asset Value Creation business was 0.3x (down from 0.7x in FY03/20 and 0.9x* in FY03/19), but the time spent in inventory varies widely by property.

*Calculated by dividing projected CoGS (70% of sales) in the Asset Value Creation business by the average of real estate for sale and real estate for sale in process at the beginning and end of the fiscal year.

Sales

The company’s salespeople must be able to understand the objectives of affluent individuals who wish to acquire properties worth billions of yen and be able to imagine products suited to those objectives. They must have the leadership and production skills to suitably mobilize internal management resources in line with the meaning and purpose of a client’s holdings, based on a wide range of knowledge and experience in real estate, finance, taxation, financial conditions, and history. They also need to be able to persistently build a wide range of trusting relationships with clients and their families, tax accountants, financial institutions, and other parties involved with the client, in order to make transactions with the client a reality. As a result, the company’s earnings growth has been driven by a small number of experienced and elite personnel, followed by the next generation of mid-career professionals. At the same time, the recent increase in the company’s workforce has been in the area of improving the quality and value of products purchased by those affluent individuals who wished to acquire properties worth billions of yen, and in the Future Value Creation business, which seeks to create in-house mechanisms to address future social issues.

Raising value in three stages

The company raises value by differentiating itself at three stages. The first stage is renovation, in which a building’s use remains unchanged. The second stage, conversion, involves changing the use of building. At the third stage, the company develops real estate according to its own vision for the property (including what tenants to place). Specific examples to date include community hostels and an advanced, specialized medical clinic. Some examples are outlined below.

Commercialization of rich vein of residences in highly central, rare locations

Raysum believes that the source of long-term asset value improvement for its clients is the realization that value goes beyond preconceived notions and the incorporation into its products of the virtuous cycle this new appreciation can create in the future. For example, although growth potential is not as strong as in emerging Asian economies, the company continues to discover new demand for rental residences with a certain level of security and economic scale in prime locations in central Tokyo (including in Shirokane, Nishiazabu, Hiroo, and Omotesando), where the standards of living and culture are high.

Complete renovation of new condo building in Shirokane Chojamaru in central Tokyo, focusing on location and potential demand
Premium Residence Shirokane Chojamaru

Structure: Reinforced concrete, three floors above ground, total of seven luxury rental units averaging 300sqm each

Site area: Roughly 1,277sqm

Floor area: Roughly 2,135sqm

Source: Company photos

Premium Residence Shirokane Chojamaru is a luxury residential building situated at the top of Shirokane Chojamaru, a low hill between Meguro and Hiroo. The hill in central Tokyo was formerly dotted with the residences of feudal lords surrounded by extensive gardens and even now is rich in greenery. The building itself looks out on the Institute for Nature Study. To best draw out the potential of this location, the company in 2020 acquired a total of 17 new condominiums averaging some 100sqm each and carried out large-scale remodeling from autumn 2020 to early 2021.

Some walls were removed between the 17 units, and the interiors were completely redone using natural wood and stone. Upon completion, the 17 units had become seven, each averaging 300sqm, creating a rare rental residential building in the heart of Tokyo. Many people came to see the units in February and March, and the company completed contracts (with monthly rents of several million yen) mainly with affluent individuals in their 20s and 30s. All units were occupied as of May 2021, and the company says it improved the value of the property significantly.

Complete renovation of office and exhibition space in Nishiazabu (Tokyo)
TOKI-ON Nishiazabu

Structure: Reinforced concrete, four floors above ground, one floor below ground

Site area: 863sqm

Gross floor area: 3,220sqm

Source: Company photos

TOKI-ON Nishiazabu is located in Tokyo’s Minato Ward near the Roppongi Hills commercial complex in the peaceful, upscale neighborhood of Nishiazabu, which is home to many of the foreign embassies in Tokyo. Raysum took the 10-year-old office and exhibition space built by the previous owner on the 863sqm site and did a full renovation in 2017 in order to re-purpose the property.

The total makeover of the building carefully considered the desires of the tenant/owner in every respect and, as a result, Raysum was able fill its lower-level floors (basement and the first two above-ground floors) with ENEKO Tokyo, a wedding-restaurant facility featuring Japan’s first Basque restaurant under Chef Mitsuboshi. The previous owner had been using the two upper floors (the third and fourth floors) as his own personal living space, but the renovation converted these two upper floors into high-end residential rental units that were quickly able to command rents higher than properties in the surrounding area and have remained fully occupied since completion.

Remodeled to create high-end serviced office space
The Scape

Structure: Reinforced concrete, five floors above ground

Site area: 571sqm

Floor area: 1,075sqm

Source: Company photos

Located in the Hiroo district of Tokyo’s Shibuya Ward, this building is on a site of 571sqm that was formerly used as serviced office space for the architectural firm Kengo Kuma and Associates. The renovation by Raysum converted the property into a high-end residential rental property. The attraction of the property is further enhanced by its location directly across from a lush green park situated on the site of a former residence of the powerful Satsuma clan (related to the current Imperial family).

After acquiring the property, Raysum undertook a full renovation in order to give all apartment units within the building a grand view of the park, making good use of large glass sliding doors in the living space so that residents would be afforded an enticing view of the park across the road, so as to give the impression that this high-end apartment building is located in the middle of a forest. Since its delivery to the buyer, the renovated property has maintained a consistently high occupancy rate and, as the property manager, Raysum has been working to enhance its value by making upgrades to individual rooms whenever tenants change.

Bringing out the unique and rare value and underlying strength of historical buildings

The simple scrap-and-build approach, purely for reasons of economic efficiency, ultimately negates the lifestyles, cultures, and thoughts that people have so carefully nurtured over decades and even, in some cases, for more than a century. Raysum continues working to stop such loss and bring out the true potential of historic buildings loved by the local residents in a manner suited to a new era.

Commercialization of 110-year-old nationally registered tangible cultural property
Kobe Kaigan Building, completed in 1911

Structure: Reinforced concrete, three floors

Site area: Roughly 842sqm

Floor area: Roughly 2,047sqm

Operated by: Raysum

Source: Company photos

This particular property is located in central Kobe, in an area that retains traces of the city’s old shipping prosperity. Built during the heyday of wool trading during the Meiji era and formerly the headquarters of a general trading company, this building survived both the World War II bombing of Kobe and the Great Hanshin Earthquake and is now a nationally registered tangible cultural property with a 110-year history. The company meticulously repaired and waterproofed the roof, exterior walls, and window frames to ensure that the building can extend its history for decades to come. It also replaced the electrical system and drainpipes, switched to LED lighting for the stained-glass windows in common areas to promote energy efficiency, and updated the illumination of the façade in coordination with Kobe City.

In addition, given that more than half of the building was vacant when Raysum acquired it in autumn 2020, the company’s marketing team worked to attract tenants from all over Japan and overseas, even as the aforementioned large-scale renovation was underway, along with work on room interiors and air conditioning systems. As a result, the building was almost fully occupied by June 2021, and there is even a waiting list for potential tenants.

Preparing a 90-year-old registered cultural property in Kyoto for sale
Kyoto Sanjo Project (building built in 1929)

Structure: Reinforced concrete, one floor below ground, five floors above ground

Site area: roughly 330sqm

Floor area: roughly 1,000sqm

Operator: Raysum

Source: Company photo

Kyoto’s Sanjo Avenue is home to many old but modern buildings that managed to escape destruction during the war. Located in the Tanoji district of central Kyoto, the roughly 90-year-old building is located on the corner of a street that is popular with domestic and foreign tourists alike, and once served as the office of a newspaper company. The renovation work by Raysum will allow the old building to remain in active use with the help of retrofitting to bring its earthquake resistance up to code; the renovation also addressed the many fine structural details that will allow the building to remain in keeping with its historic nature as a designated cultural property. The client is planning to further enhance the value of the property over time by changing the kinds of tenants occupying each floor with the aim of increasing the attraction of the building as a global cultural information center. Even after handing over the property to the client, the company has continued to conduct initiatives aimed at raising its asset value, such as ensuring that it is certified compliant with the latest earthquake resistance standards.

Conversion of a 44-year-old dormitory in the residential are of Kichijoji, Mitaka, into a rental condo with about 90 units, using a refining approach
Respire Mitaka, completed March 2017