Sunnexta Group (“Sunnexta”) is a professional services contractor that handles corporate housing matters on behalf of client companies. It interfaces with the HR/general affairs divisions at companies that outsource corporate housing management, including administrative work, and earns fees in return. The company has been in business since 1999 and is a pioneer in the corporate housing management services market. It is currently the top industry player, managing a total of 227,254 housing units (for a market share of 22% by the company’s estimation). Sunnexta helps companies cut costs by providing a range of services from designing and developing corporate housing programs to handling contracts, dealing with occupant issues, and managing rent payments. It has an ample track record of conducting business with major corporations. In FY06/20, the company had revenue of JPY8.5bn (five-year CAGR of 4.0%) and operating profit of JPY836mn (OPM of 9.8%; five-year CAGR of 6.3%).
Corporate housing in Japan: A company with a corporate housing program typically provides housing at lower-than-market rates as part of its employee benefits plan. During Japan’s period of rapid economic growth, companies assumed part of the government’s responsibility for social security by providing employee welfare benefit plans. Corporate housing thus came to be provided as a private sector-led supplement to central and local government housing services. In the West, welfare is generally considered something provided by central or local governments, and non-statutory employee benefits do not include provisions for housing expenses. One of the main reasons the practice of corporate housing has been maintained in Japan is that by providing employees with leased corporate housing (an in-kind provision) in place of housing allowances (a cash provision), both companies and employees are able to reduce their social insurance premium payments. On top of that, by having their employees pay a portion of rent, companies can record rent and real estate agent fees as expenses, while benefiting from a tax break on payroll taxes.
The mainstay Corporate Housing Management segment accounted for 48.4% of revenue and 90.2% of operating profit in FY06/21. In this business, subsidiary Japan Corporate Housing Service Inc. enters into contracts with corporate clients to handle their employee housing. In 2006, Sunnexta expanded into the condominium management business (the Condominium Management segment accounted for 46.0% of revenue and 11.3% of operating profit in FY06/21). Together, these two businesses form the bedrock of the company’s operations. Corporate Housing Management and Condominium Management are both primarily recurring-revenue businesses, the former getting its revenue from service fees and the latter in the form of management fees collected from condominium owners associations. In the Incubation segment (4.7% of revenue; operating loss in FY06/21), the company mainly provides support to property managers of rental and for-sale condominiums by applying its experience and expertise accumulated in the core businesses.
In the Corporate Housing Management business, the company has over 300 clients, comprising mostly major corporations (such as megabanks, life insurers, and manufacturers) that frequently transfer employees to different posts. Japan Corporate Housing Service's sales force (a 50-person team) attracts clients by holding human resources and labor affairs seminars. The company arranges corporate housing for its clients’ employees through affiliate realtors with membership in its Japan Corporate Housing Net, Japan’s first and only network of rental property realtors dedicated to serving corporate clients. The network had a total of 330 affiliate agents nationwide as of September 1, 2021. In providing its corporate housing services, the company acts as an “agency,” representing the needs of its corporate clients, but it operates from a position of neutrality when dealing with landlords. Because the company insists on taking this neutral stance between landlords and corporations, unlike many of its competitors, it does not engage in subleasing. An operations team of 200 handles all administrative duties, including collection and payment of rent. Revenue is calculated by the formula of fees per corporate housing unit multiplied by the number of units under management. Shared Research estimates that fees average about JPY17,000 per unit per annum, with total units under management numbering 237,000 (+4.3% YoY). The company’s custom services present formidable client switching barriers, so it rarely loses contracts to its competitors (99% retention rate). Japan Corporate Housing Service had a cost ratio of 65.3% in FY06/20 (before the company transitioned to a holding company structure), with 51% of the cost of revenue comprising labor costs. According to the company, its break-even point is over 70%. The business includes revenue for systems integration services.
In the Condominium Management business, clients are condominium owners associations (COAs). Existing clients are mostly COAs of mid-sized condos with about 40 units per building. In 2007, Sunnexta acquired the former Daiward Inc. (now subsidiary Classite Inc.) with a view to boosting transaction volume by referring clients between its corporate housing and condominium management operations. The company currently manages 679 condominium buildings comprising 24,207 units (ranking around 40th in units under management). Classite provides management (cleaning, etc.) and maintenance work for for-sale condominiums and other buildings. The main source of revenue in this business is management fees collected from COAs (monthly fees average JPY8,700 per unit according to our estimate), with revenue being a function of management fees per condominium unit multiplied by the number of units under management. Classite also takes in revenue from maintenance work on the buildings it manages. Other subsidiaries in this segment are Classite Real Estate Inc. (rental management and for-sale property brokerage) and Zennisso Kanri Co., Ltd. (remodeling and renovation). Since Condominium Management is a labor-intensive business, the segment had a cost ratio of 90% (with the majority in labor costs) and OPM of 2.5% in FY06/20.
In the Incubation segment, Sunnexta develops new businesses and services that could lead to new core lines of business or add further value to existing businesses. One focus area is support service for companies that manage rental and for-sale properties. Utilizing the expertise and functions cultivated in the core businesses, the company bundles services including its 24-hour call center service, the more recently developed “watch-over” security service, and an insurance processing BPO service, positioning a central call center (Contact Center) at the core. The integrated service provides a common platform of turnkey services for property management companies. The aim is to profit from economies of scale by winning new professional services contracts from small to medium-sized rental property managers and similar clients. Packaging the services it already provides into an integrated platform entails few additional costs. By expanding in scale, the company intends to bolster its core businesses.
The company’s medium-term growth strategy, like its conventional growth strategy, is to grow the core businesses and strengthen value-added services by increasing the number of corporate housing units and condominium units under its management. Sunnexta aims to expand the target market beyond major corporations to include SMEs (with 300 to 1,000 or so employees) and cultivate its 24-hour call center business by marketing its services to industry peers.
In FY06/21, Sunnexta recorded revenue of JPY8.5bn (-1.2% YoY), operating profit of JPY836mn (-2.3% YoY), recurring profit of JPY906mn (+0.4% YoY), and net income attributable to owners of the parent of JPY535mn (-4.7% YoY). GPM came to 25.1% and OPM to 9.8%. While there was a slowdown in decision making at corporate clients, interest in outsourcing remains strong. There were delays in progress on new orders in the Condominium Management segment, and maintenance work overall was below target.
The company’s FY06/22 earnings forecast calls for revenue of JPY9.6bn (+12.7% YoY), operating profit of JPY880mn (+5.3% YoY), recurring profit of JPY910mn (+0.4% YoY), and net income attributable to owners of the parent of JPY1.8bn (+230.6% YoY) (The net income attributable to owners of the parent was revised upward on November 5, 2021, and the gain on sales of investment securities is expected to be recorded as extraordinary gains in Q2 FY06/22). This is the second year in the medium-term plan (see below). Corporate Housing Management is promoting expansion of BPO services meeting all the issues faced by HR and administrative departments. Condominium Management is both dealing with construction projects shifted from the previous term and making qualitative improvements in management services. Incubation is promoting growth in “management support” business that provides a service platform for residential management companies.
In July 2020, the company formulated and released its “NEXT STANDARD 2025” medium-term management plan, targeting FY06/25 revenue of JPY14.0bn (+JPY5.4bn vs. FY06/20, CAGR of 10.2%), operating profit of JPY2.1bn (+JPY1.2bn, CAGR of 19.7%), EPS of JPY133 (up from JPY58 in FY06/20, CAGR of 18.0%). It has also earmarked a total of JPY1.5bn for investment over that five-year period (JPY990mn for business expansion/development and productivity improvement, and JPY500mn for R&D).
Strengths: 1) Has earned the trust of major corporations thanks to its status as an independent contractor and its use of agency-method services representing the interests of its clients with a neutral stance toward landlords; 2) Has the ability to provide brokerage service with uniform nationwide coverage by attracting blue-chip realtor affiliates to its Japan Corporate Housing Net franchise; 3) Has accumulated the expertise to handle everything from business planning and design to operation, and maintains a client retention rate of approximately 99%.
Weaknesses: 1) Has limited synergistic effects with the condominium management business, since Sunnexta’s management services for leased corporate housing require no building management; 2) Classite, the condominium management services subsidiary, ranks low in the industry, leaving it vulnerable to the influence of major players and competitors in terms of pricing; 3) Growth plans are susceptible to bottlenecking due to difficulties in recruiting executive management candidates with strong business administration skills as well as recruiting IT staff.
|Gross profit margin||21.4%||20.0%||19.7%||19.5%||19.9%||21.9%||22.9%||24.2%||23.5%||25.1%|
|Operating profit margin||8.7%||7.2%||8.6%||9.2%||8.8%||11.1%||10.2%||11.3%||9.9%||9.8%||9.2%|
|Recurring profit margin||8.7%||7.6%||9.5%||9.9%||9.2%||11.5%||11.0%||11.9%||10.5%||10.6%||9.5%|
|Per-share data (split-adjusted; JPY)|
|Shares issued (year-end; '000)||5,985||6,113||6,171||6,243||12,606||10,424||10,580||10,737||10,877||11,160|
|Treasury shares ('000)||1,535||2,137||2,137||2,012||4,024||1,626||1,146||1,147||1,147||1,147|
|EPS (fully diluted; JPY)||66.5||25.4||36.1||45.1||23.9||56.1||56.5||68.8||55.2||52.1|
|Dividend per share (JPY)||8.5||9.5||10.0||12.5||17.0||15.5||18.0||22.0||28.0||32.0||34.0|
|Book value per share (JPY)||426.7||246.7||280.7||367.9||207.1||497.6||587.2||674.0||732.1||877.4|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||1,788||1,686||1,880||1,624||2,065||2,593||2,631||3,217||3,704||4,092|
|Total current assets||3,480||3,745||3,884||3,757||4,050||4,666||4,830||5,474||5,893||6,660|
|Tangible fixed assets||112||114||119||108||136||131||691||650||666||672|
|Investments and other assets||442||741||882||1,555||1,648||1,926||2,570||3,013||3,373||5,305|
|Total current liabilities||2,243||2,591||2,556||2,037||1,973||1,906||2,119||2,005||2,052||2,408|
|Total fixed liabilities||151||180||212||423||415||547||785||947||1,051||1,662|
|Total net assets||1,935||2,007||2,302||3,136||3,631||4,462||5,640||6,583||7,259||8,905|
|Total liabilities and net assets||4,328||4,778||5,070||5,596||6,019||6,915||8,544||9,535||10,361||12,975|
|Total interest-bearing debt||577||975||931||100||0||0||0||0||0||0|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||604||180||554||749||397||651||673||708||857||701|
|Cash flows from investing activities||-129||-376||-248||-200||234||-40||100||0||-197||-98|
|Cash flows from financing activities||-127||94||-112||-805||-190||-84||-806||-122||-178||-216|
|Total shareholder returns||0||0||0||0||83.0%||157.9%||165.3%||216.2%||249.7%|
|Corporate housing practices in Japan|
|Corporate housing||Homes that a company rents to its employees at lower than market rates to subsidize employee housing. A part of the benefits packages often provided by employers. Unlike paying housing allowances, this practice offers companies the benefit of being to claim corporate housing as an expense.|
|Company owned corporate housing||Corporate housing owned by the company. Mostly owned by major corporations due to the amount of capital required to purchase the land and buildings or for construction. A type of corporate asset, unlike rented corporate housing, monthly rent is not incurred, but property taxes are levied. Since the rent subsidy for employees is treated as a housing allowance, i.e. salary, the company incurs heavy social insurance premiums.|
|Rental corporate housing||Corporate housing in which a company leases general rental housing and rents it to its employees. It has the advantages of requiring no initial investment, enabling the procurement properties as needed, and presenting no burden of maintenance or management or having to deal with aging properties. Rented corporate housing is also treated as a welfare expense, meaning the company only has to pay the rent subsidy. The paperwork is complicated since contract and cancellation procedures are required for each individual home.|
|Condominium||According to the Act on Advancement of Proper Condominium Management (which went into force in 2001), a "condominium" is defined as a property with two or more unit owners and at least one exclusive residential section. Not only buildings, but also land and ancillary facilities that belong to the common area fall under the category of "condominium". If there are two or more compartmentalized owners and there is at least one private portion for residential use, the category of "condominium" still applies even if all the private portion is rented. However, if all units are stores or offices, the property does not meet the "condominium" definition.|
|Condominium owners association (COA)||An organization or corporation stipulated in the Condominium Unit Ownership Act that manages condominiums. Since "condominium" according to the Act on Advancement of Proper Condominium Management is defined as having two or more unit owners, "condominiums" as defined by the Act necessarily have a COA. The role of the COA is to maintain and manage the condominium's common areas and land|
|Condominium management agent||A person who runs a condominium management business after being registered in the condominium management company registry of the Ministry of Land, Infrastructure, Transport and Tourism. Registration is valid for five years. Commissioned by the condominium management association, the agent manages the condominium common areas as well as overall condominium operations. Since the building management company manages the management and repair costs of the condominium management association separately from the company's assets, those funds are protected even if the building management company goes bankrupt.|
|Large-scale maintenance work||Generally performed in 12-year cycles. Typically entails replacement of deteriorated waterproofing, tiling, and repainting of metal sections, etc. Crucial components include financial planning (formulation of long-term maintenance plans is the key), selection of the maintenance method (discretionary method, consisting of a contract between the maintenance company and management association; or design management method, which involves three parties: the management association, a design office (included for consulting purposes) and the maintenance company, and selection of the maintenance company (which has important implications for after-sales inspection and post-construction security).|
|Management operations officer||A person who has attained certification as a management operations officer pursuant to the provisions of the Act on Advancement of Proper Condominium Management. The condominium management agent must have at least one dedicated management operations officer. The number of officers must be equal to or greater than the number of COA customers divided by 30 (fractions less than 1 are rounded up). 25 unions have 1 or more officers in the case of 25 unions, 2 or more officers in the case of 50 unions, 3 or more officers in the case of 75 unions.|
On May 6, 2022, Sunnexta Group Inc. announced revisions to its forecasts for full-year consolidated earnings in FY06/22 and the term-end dividend.
At the same time as announcing Q3 FY06/22 results, the company revised its forecasts for full-year FY06/22. Its revised forecasts are revenue of JPY8.8bn (-JPY850mn versus its previous forecast), operating profit of JPY840mn (-JPY40mn), recurring profit of JPY870mn (-JPY40mn), and net income attributable to owners of the parent of JPY1.9bn (+JPY80mn). It downgraded its revenue forecast because the number of purchase and resale transactions in the real estate utilization service is lagging behind plan, and the company also expects the increase in inventory to be less than previously planned due to some existing customers cancelling their contracts. However, it upgraded its net income forecast due to recording gains from the sale of investment securities and gains from the sale of affiliates.
The company raised its forecast for the term-end dividend by JPY1 to JPY18 per share. This, combined with the interim dividend of JPY17 per share, would give a dividend of JPY35 per share for full-year FY06/22.
|Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||% of Est.||Rev. FY Est.|
|Gross profit margin||23.4%||23.2%||22.8%||23.5%||23.4%||25.0%||23.8%||25.1%||23.7%||25.1%|
|Operating profit margin||10.2%||9.2%||9.1%||9.9%||7.8%||9.4%||8.4%||9.8%||7.5%||8.2%||9.2%|
|Recurring profit margin||10.3%||9.4%||9.2%||10.5%||8.5%||9.9%||8.8%||10.6%||7.7%||8.5%||9.5%|
|Gross profit margin||23.4%||23.1%||22.0%||25.4%||23.4%||26.4%||21.4%||28.6%||23.7%||26.5%|
|Operating profit margin||10.2%||8.2%||8.8%||12.3%||7.8%||10.9%||6.4%||13.6%||7.5%||8.9%|
|Recurring profit margin||10.3%||8.4%||8.9%||14.0%||8.5%||11.3%||6.5%||15.6%||7.7%||9.2%|
|Business segment (cumulative)||FY06/20||FY06/21 (after service transfer)||FY06/22|
|Corporate Housing Management||961||1,962||3,050||4,147||981||2,018||3,061||4,159||1,013||2,057|
|% of total||45.7%||46.6%||47.6%||47.6%||48.6%||48.5%||48.9%||48.4%||48.1%||48.3%|
|% of total||49.6%||48.6%||47.4%||47.3%||45.9%||46.1%||45.5%||46.0%||46.5%||46.4%|
|% of total||4.8%||4.8%||4.1%||4.1%||5.5%||5.4%||4.7%||4.7%||5.4%||5.4%|
|Operating profit margin||10.2%||9.2%||9.1%||9.9%||7.8%||9.4%||8.4%||9.8%||7.5%||8.2%|
|Corporate Housing Management||190||377||572||835||323||722||1,022||1,420||355||734|
|% of total||89.4%||98.7%||99.8%||98.1%||93.5%||92.8%||94.5%||90.2%||-||94.8%|
|Operating profit margin||19.8%||19.2%||18.7%||20.1%||32.9%||35.8%||33.4%||34.1%||35.0%||35.7%|
|% of total||15.9%||7.5%||6.9%||7.5%||6.4%||8.0%||7.6%||11.3%||0.8%||5.4%|
|Operating profit margin||3.2%||1.4%||1.3%||1.5%||2.4%||3.2%||2.9%||4.5%||0.3%||2.1%|
|% of total||-||-||-||-||0.1%||-||-||-||-||-|
|Operating profit margin||-11.3%||-11.7%||-14.8%||-13.1%||0.2%||-2.6%||-7.7%||-5.8%||-4.6%||-0.7%|
|Business segments (Quarterly, After change)||FY06/20||FY06/21 (after service transfer)||FY06/22|
|Corporate Housing Management||961||1,001||1,088||1,097||981||1,037||1,043||1,098||1,013||1,044|
|% of total revenue||45.7%||47.0%||48.6%||46.6%||48.6%||48.0%||48.6%||45.9%||48.1%||48.0%|
|% of total revenue||49.6%||47.2%||44.4%||45.8%||45.9%||45.9%||43.6%||46.1%||46.5%||45.8%|
|% of total revenue||4.8%||4.9%||2.5%||4.2%||5.5%||5.2%||3.3%||4.7%||5.4%||5.3%|
|Operating profit margin||10.2%||8.2%||8.8%||12.3%||7.8%||10.9%||6.4%||13.6%||7.5%||8.9%|
|Corporate Housing Management||190||187||195||264||323||399||300||398||355||379|
|% of total OP||89.4%||-||-||94.4%||93.5%||92.2%||98.8%||80.9%||-||89.8%|
|Operating profit margin||19.8%||18.7%||17.9%||24.0%||32.9%||38.5%||28.8%||36.2%||35.0%||36.3%|
|% of total OP||15.9%||-||5.6%||8.7%||6.4%||9.2%||6.8%||19.2%||0.8%||9.3%|
|Operating profit margin||3.2%||-0.5%||1.1%||2.3%||2.4%||4.0%||2.2%||8.6%||0.3%||4.0%|
|% of total OP||-||-||-||-||0.1%||-||-||-||-||0.9%|
|Operating profit margin||-11.3%||-12.1%||-25.8%||-8.9%||0.2%||-5.4%||-24.1%||-0.7%||-4.6%||3.2%|
In 1H FY06/22, revenue increased JPY97mn or 2.4% YoY to JPY4.2bn. This was the result of a JPY39mn increase in revenue in the Corporate Housing Management segment, a JPY57mn increase in revenue in the Condominium Management segment, and a JPY4mn increase in revenue in the Incubation segment.
Operating profit was down JPY42mn or 10.9% YoY to JPY346mn. This was because, while operating profit increased JPY12mn YoY in Corporate Housing Management and JPY4mn YoY in Incubation, it was down JPY20mn YoY in Condominium Management. In addition, deductions (adjustments) consisting of company-wide expenses increased by JPY38mn YoY. The YoY decline in profit was due to an increase in corporate enterprise taxes and expansion of the sales workforce. OPM also decreased 1.2pp YoY from 9.4% to 8.2%.
Net income increased by JPY1.3bn YoY due to JPY1.8bn in gains on the sale of investment securities. The company is selling cross-shareholdings for the purpose of improving capital efficiency, but this is not a strategy the company plans to continue, so should be viewed as a spot transaction.
Revenue in the Corporate Housing Management segment increased JPY39mn or 1.9% YoY to JPY2.1bn, reaching a first half record. This comprised revenue from corporate housing management services, system integration services, and BPO services, and other revenue. Revenue in peripheral services was largely in-line with the company's forecasts. More clients requested a review of outsourcing conditions in terms of price in light of their business performance. However, amid revisions of the housing system and operations as well as an increasing need to outsource peripheral operations, client outsourcing demand remains high. Because the business has a strong recurring-revenue component with a 99% retention rate, the impact of the COVID-19 pandemic on the business was limited, but recovery in face-to-face activities to win new contracts is taking time.
Operating profit increased 1.6% YoY to JPY734mn. OPM was 35.7%, which was mostly flat with 35.8% in 1H FY06/21.
At end-June 2021, the number of corporate housing-related deals, including the number of corporate housing units under management, totaled 299,759. The number of corporate housing units under management was 237,000, a net increase of about 10,000 from 227,254 at end-June 2020. There was no change in the 99% retention rate, which means that new clients also numbered about 10,000.
The Sunnexta Group and Uluru BPO Co., Ltd. are building on Uluru BPO's "eas" to develop functionality tailored to corporate housing management companies. By promoting the digitization of real estate data, the Sunnexta aims to build a system that will help companies involved in real estate relieve their labor shortages and implement working style reforms. According to the company's medium-term management plan, it plans to invest JPY1.5bn between July 2020 and June 2025, of which JPY690mn is slated for the corporate housing management business. The tie-up with Uluru BPO is also part of the company's efforts to digitize its corporate housing management operations.
The company first envisioned digitizing its corporate housing management operations in 2019, and began developing a system toward that end in April 2021. The company expects that digitization will lead to increased productivity and play a major role in maintaining and expanding the capacity of the management department that supports the business. Once the business is fully digitized, the company's corporate customers and employees who are relocating will be able to complete procedures online, enabling them to order services easily and quickly. It will also greatly reduce the workload of real estate companies, simplifying the cumbersome procedures and paperwork associated with dealing with corporations.
In the Condominium Management
segment, competition to replace condominium management companies was fierce,
but inquiries from online advertisements increased, and the number of condominium units under management rose steadily. There were some delays in the completion of renovation work in the real estate sales business and repair projects for condominium management companies, but revenue still grew YoY. Repair work stagnated due to a decline in repair work following natural disasters, such as the typhoons that struck over FY06/21, and delays in consensus building due to the postponement of board meetings.
Operating profit decreased 32.4% YoY to JPY42mn due to a rise in expenses for recruiting technicians, costs incurred for launching service brands, including osumait, and an increase in promotional expenses. The company is prioritizing investments towards building a condominium management model.
The company is currently building a management model that will digitize condominium management operations and dramatically improve productivity. The company hopes to help solve increasingly serious management issues for small and medium-sized condominium management companies that are suffering from a shortage of labor by providing them with the know-how and systems it has developed. The company's medium-term management plan calls for investing JPY1.5bn between July 2020 and June 2025, of which JPY240mn is slated for the condominium management business. The company plans to direct the funds toward building this new management model.
The company is focussing on developing several services in its Incubation segment. The segment achieved steady revenue growth in its 24-hour call center service, which is the core service of the management support business that is being newly developed. In the insurance service, new sales activities were delayed by the spread of COVID-19.
|1H Act.||2H Act.||FY Act.||1H Act.||2H Act.||FY Act.||Rev. FY Est.||FY Est.||Rev. FY Est.|
|Cost of revenue||3,203||3,397||6,601||3,093||3,290||6,383|
|Gross profit margin||23.2%||23.7%||23.5%||25.0%||25.2%||25.1%|
|Operating profit margin||9.2%||10.6%||9.9%||9.4%||10.2%||9.8%||9.2%||9.2%|
|Recurring profit margin||9.4%||11.5%||10.5%||9.9%||11.3%||10.6%||9.5%||9.5%|
The company’s targets for FY06/22, the second year of the medium-term management plan, are revenue of JPY9.6bn (+12.7% YoY), operating profit of JPY880mn (+5.3% YoY), recurring profit of JPY910mn (+0.4% YoY), and net income attributable to owners of the parent of JPY590mn (+10.2% YoY). The initial FY06/21 forecast called for revenue of JPY9.5bn, operating profit of JPY850mn, recurring profit of JPY890mn, and net income attributable to owners of the parent of JPY570mn. FY06/21 results came short of the initial forecast, and Shared Research understands that the company is committed to doing everything it can to avoid the same result in FY06/22. As for the impact of the COVID-19 pandemic, the company expects that economic and social activity in Japan will gradually recover as vaccinations show a certain level of progress.
On November 5, 2021, the company upwardly revised its net income attributable to owners of the parent. This is because the company expects to record extraordinary gains on sales of investment securities in Q2 FY06/22 due to the sale of some of its investment securities.
The company works out its projections for corporate housing management services revenue based on the number of units under management multiplied by the average monthly service fee per unit extrapolated out to 12 months. Average service fee per unit can be estimated by dividing revenue by the number of units under management. Estimated service fees per unit, however, are generally lower than the fees Sunnexta actually takes in for the management of corporate housing, as the unit count includes parking lots for which it charges relatively minor fees. For example, based on FY06/20 corporate housing management services revenue of JPY3.9bn and 227,254 units under management, the average service fee worked out to JPY17,027 per annum (or JPY1,419 per month). According to the company, the number of units under management in FY06/21 was about 237,000, a net increase of about 10,000 from FY06/20.
Sunnexta says it has been able to maintain a 99% client contract retention rate. Units under management in FY06/20 increased 6,131 YoY to 227,254. By Shared Research’s estimation, 2% (or 4,422) of the 221,123 units under management in FY06/19 were canceled, while newly obtained units under management totaled 10,553 (= 6,131 + 4,422). According to the company, while there is some year-to-year variance, newly acquired units in the 10,000 to 20,000 range is a normal pace. Due to the pandemic, the pace in FY06/20 lagged behind by 20%–30%. The company recognizes that it is difficult to forecast strong sales growth for FY06/22, given that there is a lead time of more than six months before it can recognize revenue from projects it has won.
Therefore, Shared Research understands that the company plans to secure profit levels by increasing the efficiency of its operations while assuming unit price increases in transactions with existing customers, based on a net increase of 10,000 in the corporate housing units under management. It will also be necessary for the company to keep in mind the risk of cancellations or requests for price reductions from customers in industries whose performance has deteriorated due to the COVID-19 pandemic.
The Condominium Management segment gets its revenue from condominium and other facilities management services, maintenance work, and other sources. Maintenance work revenue is linked to the number of condominium units under management. Other revenue sources consist of the real estate purchase and resale business conducted by subsidiary Classite Real Estate.
The company works out its forecasts for condominium and other facilities management revenue based on total condominium units under management multiplied by the average monthly management fee per unit extrapolated over 12 months. The average fee per unit can be estimated by dividing revenue by the number of units under management. For example, since FY06/21 revenue was JPY2.5bn and total units under management were 24,207, average management fee per unit works out to JPY104,555 per annum (or JPY8,713 per month). The company also says it currently has a 99% client retention rate. With annual cancelations of roughly 240 units, if the company aims for net annual growth of 500 units, it would need to gain approximately 740 new units under management annually.
Maintenance work revenue is linked to the number of condominium units under management. Maintenance work encompasses emergency repairs in the event of accidents or natural disasters, everyday upkeep or improvement of general common elements, and large-scale replacement or renovation work carried out at regular intervals of 10 to 15 years or so. COAs typically finance such work from their maintenance reserve fund.
According to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), the monthly per-unit contribution to COA maintenance reserve funds averages JPY12,268 per month (source: MLIT’s FY2018 Comprehensive Condominium Survey). Dividing Sunnexta’s FY06/20 maintenance work revenue (JPY1.2bn) by units under management (24,118 units) results in JPY48,647 per annum (or JPY4,054 per month). This suggests potentially copious opportunities for growth in such maintenance subcontracting, but maintenance work revenue has not lived up to anticipations due to the impact of the pandemic.
In FY06/21, the COVID-19 pandemic caused condominium owners associations (COAs) to become more circumspect about making investment decisions. However, COAs may make progress in decision-making in FY06/22. This raises the need for Sunnexta to assess what kind of effects there might be on demand for maintenance work or peripheral real estate and remodeling services. Competition to replace condominium management is becoming increasingly fierce, requiring the company to operate defensively.
In other revenue, the company anticipates growth in the real estate purchase and resale business conducted by subsidiary Classite Real Estate. It had originally planned on recording revenue in FY06/20, but the company says the COVID-19 pandemic caused sales to be postponed. We understand that management had projected JPY400mn in revenue, but that a large portion of this was pushed back to FY06/22.
Incubation was driven mainly by growth in revenue from Contact Center operations. At end-FY06/21, Contact Center users numbered 93,000. Contact Center revenue appears to be growing steadily. Meanwhile, further down the road, the company also plans on expansion in areas such as support service for condominium management companies via subsidiary Classite, building surveillance and inspection service, and coordination service for vendor contracting.
The following table compiles the company’s earnings performance relative to its initial targets for the past 10 years. While revenue has tended to fall slightly short of target, profit line items have largely outperformed initial targets. The sharp divergence in revenue from the initial target in FY06/20 is attributable to the impact of the COVID-19 pandemic.
|Results vs. Initial Est.||FY06/12||FY06/13||FY06/14||FY06/15||FY06/16||FY06/17||FY06/18||FY06/19||FY06/20||FY06/21|
|Revenue (Initial Est.)||6,264||6,061||6,471||6,926||7,247||7,655||8,544||8,891||9,480||9,500|
|Results vs. Initial Est.||-1.9%||1.4%||-1.4%||-4.3%||-3.2%||-4.0%||-7.7%||-5.1%||-9.0%||-10.3%|
|Operating profit (Initial Est.)||490||200||460||569||450||713||890||968||1,055||850|
|Operating profit (Results)||534||441||549||612||616||812||807||956||856||836|
|Results vs. Initial Est.||9.0%||120.3%||19.3%||7.6%||36.8%||13.9%||-9.3%||-1.3%||-18.9%||-1.6%|
|Recurring profit (Initial Est.)||491||221||480||608||470||734||910||1,002||1,101||890|
|Recurring profit (Results)||536||468||606||656||648||842||870||1,003||903||906|
|Results vs. Initial Est.||9.1%||111.6%||26.2%||7.9%||38.0%||14.7%||-4.4%||0.1%||-18.0%||1.8%|
|Net income (Initial Est.)||236||97||283||365||302||457||600||652||715||570|
|Net income (Results)||308||211||306||395||424||520||570||691||562||535|
|Results vs. Initial Est.||30.4%||117.7%||8.1%||8.2%||40.3%||13.8%||-5.1%||5.9%||-21.4%||-6.1%|
The company formulated and disclosed a new five-year medium-term management plan on July 21, 2020. Objectives include the following FY06/25 numerical targets.
Earnings: Consolidated revenue of JPY14.0bn (CAGR of 10.2% between FY06/20 and FY06/25) and operating profit of JPY2.1bn (CAGR of 19.7%). The company also aims to raise the OPM to 15.0% by FY06/25 (from 9.9% in FY06/20). Its EPS target implies FY06/25 net income of JPY1.3bn (assuming average number of shares outstanding remains at FY06/20 levels), for a CAGR of 18.0%.
Performance Metrics: revenue growth of 60% or more; operating profit growth of 150% or more, OPM of 15.0% or more; EPS of JPY133; ROE of 10% or more; DOE of 5.0% or more; and total shareholder return (TSR) of 200% or more.
|Act. (A)||Act.||Target||Target||Target||Target (B)||(B-A)||(A–B)|
|Operating profit margin||9.9%||9.8%||8.9%||9.2%||11.4%||15.0%|
|ROE||8.3%||6.7%||10% or higher|
|DOE||4.0%||4.0%||5% or higher|
|TSR||249.7%||200% or higher|
The plan includes a five-year budget of JPY1.5bn for investment in business expansion and development, productivity increase, and R&D. JPY990mn is earmarked for business expansion and development and productivity increase. No details were provided on the scheduling of disbursements or projected returns, but the company expects its investments to start delivering results in FY06/23 or later.
|(JPYmn)||Business expansion and development||Productivity increase||R&D||Total investments||Five-year growth|
|Corporate Housing Management||290||400||500||1,490||46%||54%|
To achieve the goals of the new medium-term plan, Sunnexta will seek steady growth in recurring-revenue businesses, by expanding existing revenue bases in Corporate Housing Management and Condominium Management. The company will expand its target market for Corporate Housing Management beyond major corporations (with 1,000 or more employees) to include mid-level corporations and SMEs (with 300 to 1,000 employees). Shared Research believes this move is intended to drive ongoing growth in the volume of corporate housing units under management.
The company also plans to leverage IT solutions to upgrade services and improve productivity. Corporate housing and condominium management are labor-intensive businesses. Since labor in fact accounts for the lion’s share of its cost of revenue, in Shared Research’s assessment, IT solutions for business process efficiency ought to be a top priority for the company.
Another initiative is the orchestration of group synergies to develop new core businesses and cultivate high added value in existing businesses and services. The company plans to package the expertise and resources of its Corporate Housing Management and Condominium Management segments, coupling it with the 24-hour call center (Contact Center), to offer an integrated common platform for small and medium-sized companies that manage rental properties and for-sale condominiums. The company aims to integrate its new businesses such as the “watch-over” security service, insurance service, and BPO services into a turnkey suite of professional services to attract new clients.
The plan targets FY06/25 revenue of JPY14.0bn (which implies a CAGR of 10.2%). Individual revenue targets for the various business segments have not been specified, but estimating from the five-year growth listed in the investment strategy table (see preceding table), consolidated revenue works out to JPY14.1bn (the FY06/20 result of JPY8.6bn x 163%), the Corporate Housing Management segment to JPY5.7bn (JPY3.9bn for FY06/20 x 146%), the Condominium Management segment to JPY5.8bn (JPY4.1bn for FY06/20 x 140%), and the Incubation segment to JPY2.6bn (JPY14.1bn minus JPY5.7bn minus JPY5.8bn). The 10.2% CAGR implied by the revenue target exceeds the historical five-year CAGR of 5.4%.
The FY06/25 revenue target of JPY5.7bn consists of revenue from the corporate housing management services, cost reduction service, BPO services, and system integration. Revenue from corporate housing management services makes up the lion’s share, and can be estimated by the number of units under management per year multiplied by the average monthly service fee per unit extrapolated out to 12 months. Units under management per year can be estimated as number of units under management at current fiscal year-end, which equals the number of units under management at the preceding fiscal year-end, plus the number of newly obtained units under management, minus the number of cancelations.
For example, the number of units under management totaled 221,123 at FY06/19 year-end and 227,254 at FY06/20 year-end, for a net increase of 6,131. Since the company says it has a 99% client retention rate, the number of cancelations works out to 2,211 (221,123 x (100% - 99%)). Hence, we can estimate the volume of newly obtained units under management at 8,342 (= 6,131 + 2,211). The company indicates that, based on the historical record, it estimates 10,000 to 20,000 newly obtained units annually. We could also estimate the volume of parking spaces under management using the same sort of logic, but the company has not disclosed the number of parking spaces under management.
Annual service fee per unit averaged JPY17,027 in FY06/20 (JPY1,419 per month, derived by segment revenue of JPY3.9bn ÷ 227,254 units under management ÷ 12 months). That figure includes fees for parking space management as well, and the company says that annual fees for corporate housing alone average approximately JPY20,000 (JPY1,667 per month).
For revenue in the Corporate Housing Management segment to grow from JPY3.9bn in FY06/20 to JPY5.7bn in FY06/25 would mean CAGR of 7.2%, which is more than double the five-year historical average of 3.4%. Shared Research estimates that this would require the segment to raise newly obtained units to the 20,000 level (for example from new clients among mid-level corporations and SMEs).
The company also aims to reach total deal counts of 500,000 by FY06/25 combining corporate housing units under management with BPO services, etc. (according to the company’s medium-term plan presentation). Assuming it obtains 280,000 to 300,000 units in corporate housing management services (units under management refers to both the number of housing units and the number of transferred employees), it would need to win 200,000 to 220,000 BPO service deals. This works out to obtaining 200 new clients among major corporations (those with around 1,000 employees) and 400 new clients among mid-level companies (with around 500 employees).
Revenue in the Condominium Management segment comprises revenue from condominium and other facilities management, maintenance work, and other sources. To raise segment revenue to JPY5.8bn by FY06/25, Shared Research estimates that Sunnexta would require annual net growth in units under management to accelerate from 294 in FY06/20 (units under management grew from 23,824 in FY06/19 to 24,118 in FY06/20) to more than 500.
Assuming a constant 99% client retention rate, this would mean raising annual newly contracted units from 532 (by Shared Research’s estimation) in FY06/20 to approximately 750 units. Our calculations also suggest the need to raise the average monthly management fee per unit. In FY06/20, we estimate that monthly fees averaged JPY8,631 per unit (condominium and other facilities management revenue of JPY2.5bn ÷ 24,118 units under management ÷ 12 months). The management fees the company charges are generally considered to be on the low side, and considering that the going rate in the industry averages JPY9,847 (for total managed units in the 31 to 50 range (source: MLIT “FY2018 Comprehensive Condominium Survey”), there would seem to be room for the company to raise its rates.
Growth in the number of units under management also means good prospects for growth in accompanying maintenance work. Maintenance work comprises daily maintenance and repairs, along with large-scale replacement or renovation work done every 10 to 15 years or so. Since such business is typically a function of the volume of units under management, Shared Research estimates that maintenance business will increase in conjunction with accumulation of contracted units. Shared Research also infers that opportunities for such business should increase as well, in so much as maintenance and repair demand rises as condominiums age and deteriorate.
Growth in other revenue sources hinges on growth in real estate purchase and resale business at subsidiary Classite Real Estate. As mentioned, there is JPY400mn in business held over from FY06/20 (see the “FY06/21 full-year company forecast” section). However, since the company’s purchase and resale efforts are primarily aimed at preventing the loss of revenue opportunities that may arise from the existing business base, in Shared Research’s assessment, active pursuit of revenue growth in this area over the longer term does not appear to be on the company’s radar.
In the Incubation segment, Sunnexta aims to expand the 24-hour call center (Contact Center) operation and other services for corporate clients by marketing its professional services to small and medium-sized property management firms. According to the company, the Contact Center operation generated JPY150mn in revenue in FY06/20. The company also aims to expand services provided through subsidiary Classite, such as support for condominium management companies, building surveillance and inspection service, and coordination service for vendor contracting.
The company is aiming for FY06/25 operating profit of JPY2.1bn and OPM of 15.0%. This works out to a CAGR of 19.7% from FY06/20. Operating profit growth will require simultaneously lowering both the cost-to-revenue ratio and the SG&A-to-revenue ratio.
The SG&A-to-revenue ratio in FY06/20 was 13.6%. Since the ratio has been 10.3% in the past, we infer that if the company manages to expand the scale of its revenue, its target should be achievable. The challenge is reducing its cost-to-revenue ratio, and in particular controlling the rise in labor costs. Shared Research estimates that, if the company can bring the non-consolidated cost-to-revenue ratio of around 65% in FY06/20 down to around 60%, it should be able to lower its consolidated cost-to-revenue ratio by about 2%.
The vast majority of the company’s labor costs come from its team of 200 head office staff handling administrative operations for corporate housing management. It is crucial for the company to apply IT solutions for streamlining its business processes.
Sunnexta provides corporate housing management services to companies with employee housing programs. It enters into outsourcing contracts with the client companies (mainly interfacing with their HR and general affairs divisions) to take care of administrative matters concerning corporate housing (leased and company-owned units) on their behalf. Sunnexta was established in 1998 and is currently the top player in the industry, with a market share of 22% (by the company’s estimation; FY06/20). In 2007, it began providing other business process outsourcing (BPO) services in the HR and general affairs domains, and also expanded into condominium management with the acquisition of Classite Inc. (formerly Daiward Inc.) as a subsidiary. It thus assembled a business portfolio consisting of building management services in addition to outsourced administrative services. The company has also been expanding its lineup of value-added services as a means of growing its volume of BPO and building management contracts. In 2017, it launched property restoration, remodeling, and renovation services, and in 2019, it commenced life and non-life insurance agency operations.
Japan’s unique corporate housing schemes (non-statutory welfare benefits): Employee welfare benefits paid for by Japanese companies are split into two categories: statutory welfare benefits, and non-statutory welfare benefits. Approximately half of the non-statutory welfare benefits consist of housing benefits (corporate housing, dormitories for single employees, and home owner subsidies). In contrast, surveys of non-statutory welfare benefits in other countries reveal no results for housing benefits. The OECD “Social Expenditure Database” does include a “housing” category as defined by the OECD, but no corresponding surveys have ever been conducted (Source: The Japan Institute for Labour Policy and Training’s “Observation: Corporations’ Share of Social Security Costs–International Comparison of Roles Played in the Era of Declining Birth Rates and Aging Population”). In Japan, corporate employee benefit plans have been expected to fill the gaps in public social security regime. Corporate housing therefore came to be provided as a private sector-led supplement to the central and local governments’ meager housing programs. One effect of corporate involvement in welfare is that it helped maintain the system of lifetime employment. In the West, welfare is generally considered something provided by central or local governments, and housing expenses are not included in non-statutory employee benefits.
Benefit to companies: If companies provide employee housing expense benefits in the form of housing allowances, it gets added to salary payments, and the resulting increase in employee incomes drives up the cost of social insurance premiums. However, there is no such increase in employee income if companies provide such benefits in the form of corporate housing, since the employers pay the rent, which they can in turn charge as an expense. Either way, the employee benefits from reduced housing expenses, but for the company, the corporate housing option allows them to provide better welfare benefits without incurring additional costs.
Benefit to employees: For employees, housing allowances and corporate housing are the same in that they both reduce the burden of housing expenses. However, since housing allowances are added onto salary, driving up income, the employees become subject to higher income taxes and residence taxes. Corporate housing often acts as a tax break on income and residence taxes since a portion of the rent on corporate housing is deducted from the employee’s salary. Thus, it essentially has the same effect as a salary raise.
The company’s core business segments are Corporate Housing Management (48.4% of consolidated revenue, 90.2% of operating profit in FY06/21) and Condominium Management (46.0% and 11.3%, respectively). The former segment, run by subsidiary Japan Corporate Housing Service Inc., and the latter, primarily run by subsidiary Classite Inc., generate recurring monthly fees collected from corporate clients and condominium owners associations (COAs), respectively. Both businesses have high client retention with 99% of the corporate clients and more than 99% of the COAs renewing their contracts each year.
New lines of business classified as “Others” under the former segmentation were reconfigured as the Incubation segment in FY06/21. The segment accounted for 4.7% of consolidated revenue and posted operating loss of JPY23mn in FY06/21. The company is currently working to cultivate the segment into a third business pillar.
Japan Corporate Housing Service Inc.: Sunnexta Group was originally founded as Japan Corporate Housing Service Inc. in 1998. Effective July 1, 2020, the company transitioned to a holding company structure through an incorporation-type company split with a newly established “Japan Corporate Housing Service Inc.” as the succeeding entity. Concurrently the former Japan Corporate Housing Service changed its name to “Sunnexta Group Inc.”
In the Corporate Housing Management segment, subsidiary Japan Corporate Housing Service contracts with corporate clients to handle administration of their corporate housing on their behalf and collects service fees accordingly. In this business, the company specializes purely in corporate housing management services, and does not conduct real estate brokerage or property management operations. Specific services it performs for its clients include presenting corporate housing properties available for lease and handling the contract and move-in process, rent payments, and confirmation of restoration costs when the occupant moves out. It provides support for employee transfers and relocations by using its very own franchise network, Japan Corporate Housing Net, to coordinate with 330 affiliate real estate agents throughout Japan. As of June 30, 2021, the company had 237,000 corporate housing units under management.
In the Condominium Management segment, the company conducts administrative duties, maintenance work, and other management services for for-sale condominiums and other buildings. Business is conducted primarily by subsidiary Classite. The company contracts with COAs to manage their condominium buildings and units for a fee; it also handles maintenance work and other services arising from these properties. Sunnexta is also working to build up business in real estate purchase and resale through subsidiaries Classite Real Estate Inc. (brokerage and rental property management) and Zennisso Kanri Co., Ltd. (remodeling and renovation). Classite (formerly Daiward), which became a wholly owned subsidiary in 2007, currently has 24,207 condominium units under management, ranking it around 40th in the industry overall (8th among independent contractors).
In the Incubation segment, the company takes the expertise and functions accumulated in Corporate Housing Management and Condominium Management and sells them as a service. For example, for a small or medium-sized property management company, setting up a call center is too expensive to be cost effective, but by using Sunnexta’s 24-hour call center service, it can provide added value to its clients at relatively little cost. By supplying such in-house resources as a management support service for its industry peers, the company aims to gain access to further opportunities for such as-a-service business. In other subsidiaries, Three S Co., Ltd., provides the company’s “watch-over” security service (secure support for crime-prevention, disaster management, security, and safety-related systems). Sunnexta Leasing Inc. handles insurance processing BPO services and insurance agency operations. Furthermore, Classite offers a call center service named “property manager support services” using Japan Corporate Housing Service’s call center platform.
Sunnexta posted FY06/21 revenue of JPY8.5bn (10-year CAGR of 3.7%), and operating profit of JPY836mn (3.8%). Revenue was up for the ninth year running (FY06/11–FY06/20). OPM came to 9.8% (10-year average: 9.5%). The company’s business structure is built upon a recurring-revenue model and is conducive to continual, steady growth.
When the company transitioned to a holding company structure in FY06/21, it also changed its name to Sunnexta Group Inc. It aims to gain further opportunities for corporate housing management services by expanding its target market beyond major corporations to include mid-level companies and SMEs. It has also been gaining a growing volume of contracts for BPO services in the HR and general affairs domains and has begun providing in-house functions such as 24-hour call center operation as a service to other smaller property management companies. Thus, Sunnexta is working to break away from its traditional image as merely an administrative services contractor.
|Corporate Housing Management||2,812||2,922||2,987||3,161||3,314||3,656||3,548||3,564||3,788||4,147||4,159|
|% of total||47.4%||47.5%||48.6%||49.5%||49.5%||51.5%||47.8%||44.7%||44.4%||47.6%||48.4%|
|% of total||52.4%||52.4%||51.4%||50.4%||49.5%||47.3%||45.8%||47.4%||48.1%||47.3%||46.0%|
|% of total||-||-||-||-||-||-||5.5%||6.7%||6.4%||4.1%||4.7%|
|Operating profit margin||9.7%||8.7%||7.1%||8.6%||9.1%||8.6%||10.9%||10.1%||11.2%||9.8%||18.3%|
|Corporate Housing Management||505||457||337||381||531||528||649||636||695||676||1,420|
|Operating profit margin||18.0%||15.6%||11.3%||12.1%||16.0%||14.4%||18.3%||17.8%||18.3%||16.3%||34.1%|
|% of total||87.9%||85.7%||76.6%||69.7%||87.1%||86.2%||80.4%||79.0%||72.9%||79.3%||90.2%|
|Operating profit margin||2.2%||2.4%||3.3%||5.1%||2.4%||2.5%||2.2%||1.9%||3.0%||1.5%||4.5%|
|% of total||12.1%||14.3%||23.4%||30.3%||12.9%||13.8%||9.3%||8.8%||12.8%||7.5%||11.3%|
|Operating profit margin||-||-||-||-||-||-||20.5%||18.4%||24.7%||31.2%||-|
|% of total||-||-||-||-||-||-||10.3%||12.2%||14.2%||13.2%||-|
The bulk of the segment’s services are handled by subsidiary Japan Corporate Housing Service. Its clients are companies that have corporate housing programs in place to support employee transfers and relocation. The segment has over 300 clients, most of which are major corporations with more than 1,000 employees. They cover a wide range of industries, including megabanks, major life insurers, pharma, and manufacturing. The client contact point is usually the client’s human resources or general affairs division. Under the company’s medium-term management plan, the segment strategy is to keep its client base centered on major corporations, while also expanding it to include more mid-level companies and SMEs (with 300 to 1,000 employees).
The reason companies outsources their corporate housing management operations is that when the duty is collectively entrusted to a single specialist employee, operations cease to function when that employee departs. To mitigate that risk, the company would ideally spread responsibilities over multiple employees, but allocating resources in that way presents difficulties. Outsourcing corporate housing management processes allows the companies’ employees to concentrate on their primary duties, and shifting the burden of corporate housing management operations outside the company can boost business process efficiency and potentially help improve the company’s earnings performance.
The segment’s main service offerings are concentrated in the “Shataku-san” service (see table) through which the company is entrusted with various management operations for clients’ corporate housing, dormitories, and parking spaces. Specific administrative services include presenting properties available for lease and handling the contract and move-in process, rent payments, and confirmation of restoration costs when the occupant moves out.
Corporate housing management services in Japan are provided in one of two ways, the “agency” method or the “subleasing” method. Sunnexta’s services use the agency method where the lease for the corporate housing property is concluded directly between the corporate client (the “lessee”) and the landlord (the “lessor”). Sunnexta and its client meanwhile sign a corporate housing management services agreement, enabling Sunnexta to act as the client’s representative and the leasing contract liaison. In contrast, under the subleasing method, the corporate housing service provider is the one who signs the lease with the landlord, and then sublets the property to the corporate client. The service provider thus becomes both a lessee under the contract with the property owner and the lessor under the subleasing agreement it signs with the corporate client (the sublet lessee).
Advantages of the subleasing method: The corporate housing service provider usually handles security deposits, meaning the client company normally does not need to put up the security deposit or manage the balance. In addition, since the corporate housing service provider is the one who signs the lease with the landlord, the client company generally avoids the risk of losing the security deposit or getting caught up in disagreements.
Security deposit: Cash paid from the lessee to the lessor via the real estate agent when initiating a property lease. The deposit is used to cover unpaid or delinquent rent or liability for restoration work when vacating the property. As long as there is no intentional or negligent damage upon moving out, the deposit is returned.
In its corporate housing consulting services, Sunnexta conducts objective analysis of individual companies’ welfare benefits programs and the state of their asset utilization, which are points that vary from company to company. It takes various perspectives into consideration, such as compliance, investment effects, effectiveness, and efficiency, and then presents a proposal tailored to the client’s needs. Rather than merely finding and managing corporate housing, Sunnexta aims to help provide better welfare benefits through the use of corporate housing. It designs customized plans according to the level of welfare benefits, property conditions sought, required budget, and the scale of the corporate housing program.
The cost reduction service entails consulting on moving-related processes that come into play when an employee moves into new corporate housing or is assigned a job transfer. It uses a bidding process to select the mover and ensures smooth operations by committing to giving the mover a year’s worth of moving work. It also constantly looks for areas to improve quality, and upon completion of a moving assignment, it asks relocated employees to fill out a questionnaire regarding the service received.
The “watch-over” security service installs a home security terminal with a built-in motion sensor in the client’s home, and provides swift notification of safety status information. The terminal immediately sends a notification email to surveillance personnel when the client has been inactive for a given period of time or when the system detects a break in. When an intruder is detected, a high-decibel alarm is activated. The call center in charge of the security support provides 24-hour service, and security staff are standing by for immediate dispatch.
The company also offers an emergency safety confirmation system. In the event of a disaster, blanket safety confirmation emails are sent to all registered employees, and the results are forwarded to the company and family members. The system has proven to be highly reliable. It continued to function with zero down time during the Great Eastern Japan earthquake and tsunami disaster and the Kumamoto earthquake.
The 24-hour call center handles equipment trouble and claims from tenants. It responds around the clock to day-to-day problems such as lost keys, clogged toilets, noise issues, or parking violations. It provides a contact point for tenants to discuss any problems they may have.
|Business segment||Service||Year of launch||BPO for administrative departments||Service for administrative departments||BPO for management companies||Service for companies||Main service provider|
|Corporate Housing Management||Corporate Housing Management Agency|
|Corporate housing outsourcing service ("Shataku-san")||1999||✔||Japan Corporate Housing Service|
|Corporate housing systems development and maintenance|
|Japan Corporate Housing Net franchise operation|
|Corporate housing program consulting service||2002||✔|
|Company-owned corporate housing management service||2006||✔|
|Confidential information management service||2016||✔|
|Cost reduction agency service ("Marcus-san")||2007||✔|
|Toku Toku Service||2007|
|Travel expenses settlement service||2017||✔|
|Year-end income tax adjustment service||2018||✔|
|Condominium Management||General Facilities Management|
|Condominium management service||2007||Classite|
|Repair work service|
|Real estate utilization service||2017||Classite Real Estate|
|Remodeling and renovation service||2017||Zennisso Kanri|
|Watch-over security service||2012||✔||Three S|
|Safety confirmation service||2013||✔||Japan Corporate Housing Service|
|24-hour call center (contact center)||2014||✔||Japan Corporate Housing Service|
|Insurance processing BPO service||2019||✔||Sunnexta Leasing|
|Condominium management company support service||To be expanded||✔||Classite|
|Building surveillance and inspection service||To be expanded||✔|
|Vendor contracting coordination service||To be expanded||✔|
When there is only one HR/general affairs staff in charge of managing corporate housing, 100 units are the most a company can handle. This is because each corporate housing unit requires complicated paperwork including administrative matters pertaining to contracts with landlords, rent payment, and contract termination, and complaints must be handled as well. Outsourcing these complicated administrative duties enables the staff in charge to concentrate on their main duties. This gives rise to demand for corporate housing management services.
Hence, the segment’s value chain is associated with the daily corporate housing-related administrative tasks of its clients’ HR/general affairs divisions. Specifically, it provides 1) assistance in adopting a company housing program, 2) referral of company housing properties, 3) contract / move-in procedures, 4) safekeeping of contract documents, 5) complaint handling, 6) rent billing, and 7) confirmation of repair costs. Since building management of leased corporate housing is conducted by the landlord, Sunnexta basically does not conduct property management. Such costs are typically included in rent.
The company’s corporate housing management services have a lengthy lead time from introduction to operation. From the time Sunnexta concludes a service contract with a client company, it takes anywhere from 6 to 12 months on average for the operation to get up and running. The reason for this is that during that time Sunnexta needs to assess the client’s corporate housing program and administrative processes, and develop and assemble the corporate housing program. And when it comes to major corporations, there are rigorous systems in place to manage vital human resources data. Companies have their own unique specifications, and it is Sunnexta’s job to assemble a system capable of smoothly synching up with clients’ systems. By meeting the exacting demands of major corporations, Sunnexta has accumulated copious experience and expertise.
Assistance in adopting a company housing program: Support for overall corporate housing program assessment, drafting of program overhaul proposals, consideration of transition measures, and formulation of corporate housing program reform implementation schemes
Referral of company housing properties: Provision of property information through Japan Corporate Housing Net franchise affiliates
Contract / move-in procedures: Overall contract processing services, covering preparation of documents required when moving in, reviewing the details of the contract, making adjustments, and coordinating with the landlord upon contract renewal
Safekeeping of contract documents: Data conversion of contract and renewal contract documents, computer storage, and assembly and provision of a legal affairs management system with efficient searchability
Complaint handling: Response to inquiries or complaints from occupants, owners, and neighbors
Rent billing: Rent payments to multiple landlords, invoicing to corporate clients, and preparation of payment record documents
Confirmation of repair costs: Confirmation of any work needed for restoration when vacating a property
The value provided lies in support for cost reduction at companies’ HR/general affairs divisions. Typically, when companies handle corporate housing management on their own, they need specific skills in areas such as contracts with individual landlords, dealing with trouble, and property restoration; differences in regional business practice could also make one-stop management of corporate housing properties difficult. If there are various different payment days for deposits or rent, it will make managing accounts complicated. In addition, depending on when divisions within the company conduct staff transfers and relocations, there could be a crunch in corporate housing admin duties during a limited timeframe. Outsourcing frees companies from such convoluted administrative duties.
For employees being transferred, the advantages are that it makes finding an apartment easier, and it saves time since they are able to obtain information before actually viewing a property. Staff handling corporate housing gain access to centralized data and information, are freed from onerous complaints, and can concentrate on their main duties separate from corporate housing matters. For accounting staff, taking advantage of Sunnexta’s skills allows them to minimize property restoration charges, and makes the process of settling security deposits easier. It also means eliminating the trouble of remitting rent every month and removing the need to prepare year-end payment records from scratch.
Payment records: One of the “statutory records” submitted to the tax office. Submission is a requirement for payers of salaries and other payments constituting income. For example, persons required to submit payment records for real estate usage fees are real estate agents and companies that pay rent on property (such as condominiums or parking spaces).
Fees Sunnexta charges for its corporate housing management services are comparable to competitors’ fees. For the industry, estimated per-unit service fees on corporate housing (without fire insurance) are JPY800 to JPY2,000 per month (no disclosures available). Shared Research estimates Sunnexta’s per-unit fees at JPY1,453 per month (FY06/21). However, companies do not necessarily choose service vendors based on price alone. HR and general affairs at larger companies operate on a systems platform and require greater management precision. These companies also have wider ranging welfare benefit plans. Major corporations tend to look for vendors with a proper understanding of their corporate housing programs and welfare benefit plans, who are best suited to act as their agent and provide high-quality service.
Acquiring new clients in corporate housing management services is primarily the duty of the company’s head office sales force (a team of 40 to 50 staff). The company conducts sales and marketing activities by holding periodic seminars on human resources and labor affairs, which attract 100 companies at a time. It also wins contracts through standard competitive bidding. In those cases, though, rather than seeking to improve its corporate housing program, the client generally expects the vendor simply to follow instructions and provide administrative services accordingly. Margins are therefore rather thin, which makes these types of contracts a low priority for Sunnexta.
When the company wins a corporate housing management services contract, it must find properties for the employees the client plans to transfer. However, Sunnexta does not conduct realty or leasing operations, and it has no directly managed agents. Instead, it signs franchise contracts with realtors all over Japan, and finds properties for its clients through its Japan Corporate Housing Net franchise.
Working through Japan Corporate Housing Net, the company supports more than 20,000 employee transfers annually and offers the same services nationwide. Its active area covers all 47 prefectures and the majority of its affiliated and authorized agents are leading local realtors. As of September 1, 2021, there were 330 member agents nationwide (255 affiliated agents and 75 authorized agents), and over 2,000 registered agents.
The following table compares various real estate agency franchises, mostly engaging in rental property brokerage. The largest is APAMAN Co., Ltd. (TSE JQS: 8889), with over 1,000 affiliated agents. Sunnexta’s 330-member network ranks in the top 10 in terms of the number of affiliated agents.
|8945||Sunnexta||330||330||225 affiliated agents, 75 authorized agents, and over 2,000 registered agents|
|8889||APAMAN||89||993||11||1,093||Combined total of directly managed agents and overseas agents run by APAMAN's subsidiaries and member agents of the Apaman Network franchise (as of October 1, 2019)|
|8898||Century21 Japan||965||965||Aggregate number of member agents of the Century 21 franchise operating in Japan (as of September 30, 2019)|
|Unlisted||Able||430||375||13||818||Combined total of directly managed agents, overseas agents, and network member agents (as of February 2019)|
|Unlisted||Starts Group||121||561||35||717||Combined total of directly managed agents run by Starts Pitat House, member agents of the Pitat House Network franchise, and overseas offices run by overseas networks (as of October 1, 2019)|
|1766||Token Corporation||227||377||604||Combined total of Token Corporation branches, Home Mate outlets, and franchise member agents (excluding Home Mate tie-up agents and Leasel members) (as of October 1, 2019)|
|Unlisted||LIXIL ERA Japan||505||505||Aggregate number of member agents of the franchise operating in Japan (as of October 1, 2019)|
|Unlisted||minimini group||231||235||466||Combined total group directly managed agents and franchise member agents (as of October 1, 2019)|
|8848||Leopalace 21||189||106||15||310||Combined total of Leo Palace Center and Leo Palace Partners agents and overseas offices (as of October 1, 2019)|
|Unlisted||Daitokentaku Leasing||239||239||Combined total of head office and sales branches (as of October 1, 2019). Daitokentaku Leasing was created in May 2017 when Daito Trust Construction spun off its real estate brokerage unit.|
When a corporate client decides to transfer employees, those employees will be presented with potential properties either from nationwide affiliated and authorized real estate agents, from Sunnexta itself, or from registered agents who are available to handle requests.
The main business of affiliated and authorized agents is to refer and broker rental corporate housing properties to corporate clients’ transferring employees. Affiliated agents pay membership fees to Sunnexta and sign an affiliated agent contract, which allows them to use the Japan Corporate Housing Net trademark. Affiliates undergo training courses run by Sunnexta, gain expertise on rules and manners for dealing with corporations and how to facilitate smooth employee transfers, and study the kind of compliance required by corporations. Through ongoing participation in Sunnexta training sessions, affiliates eventually act as representatives of Japan Corporate Housing Net in their local communities. Authorized agents are required to renew their authorization once a year. These agents are kept up to date since authorization renewal requires participation in mandatory training courses.
Registered agents are alternate candidates that enable the replacement of agents through the evaluation system adopted by affiliated and authorized agents. Registrants are found either by the agent directly requesting registration, or by endorsement from a corporate client or discovery as a result of proactive head office marketing efforts. Registered agents are given trial opportunities as well as limited permission to handle profitable supplementary services procured by Japan Corporate Housing Net through single-source purchasing.
In a niche market like corporate housing management services, it may seem curious how Sunnexta, an independent contractor with hardly any brand power to speak of, was able to rapidly expand its market share. The explanation is its formation of the Japan Corporate Housing Net franchise. The reason leading local realtors became affiliates is that doing so offers significant advantages.
Real estate agents who join the Japan Corporate Housing Net franchise pay the stipulated affiliate dues and license fees, and are afforded opportunities to refer corporate housing to transferring employees. In addition, because there is no obligation to pay success fees upon contract signing, there are no restrictions on brokerage fees that vary by property, enabling the realtors to respond flexibly to the client’s requests. Furthermore, in areas where affiliates have offices, to the extent permitted by headquarters, affiliates may use the “Japan Corporate Housing Net” trademark to conduct sales activities for new business development related to the referral of corporate housing to local companies. With other franchises, there tend to be restrictions on referable properties since a certain percentage of brokerage fees is demanded for what are considered jointly brokered contracts.
Additionally, the individuals Sunnexta refers to real estate agents are employees of major corporations, meaning they are highly reliable clients with minimal risk of delinquency. This is significant because it makes it easier to obtain landlord approval. Thus, even with no directly managed agents of its own, by employing this scheme, the company has obtained a wide-ranging referral network consisting of leading realtors even down to the local level.
The company’s revenue sources in the segment include mainline corporate housing management services, plus Japan Corporate Housing Net franchise operations, corporate housing systems development and maintenance, ancillary BPO services, and the cost reduction service. Corporate housing management services and the operation of Japan Corporate Housing Net are recurring-revenue businesses, while corporate housing systems maintenance and ancillary BPO services generate one-off revenue.
Revenue from corporate housing management services (Japan Corporate Housing Service) is a function of annual service fees (separately determined for each individual client) multiplied by the number of corporate housing units under management. According to the company, service fees, set separately for each client, range from JPY10,000 to JPY20,000 per unit per annum (some JPY833 to JPY1,667 per month), and corporate housing units under management totaled 237,000 as of June 30, 2021. The number of units under management in the Corporate Housing Management segment and the number of households making up condominium owners associations (COAs) in the Condominium Management segment represent the recurring-revenue metrics of those businesses.
Service fees averaged JPY17,440 per unit in FY06/21 (management services revenue of JPY4.1bn ÷ 237,000 housing units under management; Shared Research estimate). This figure also included fees from managing company-owned corporate housing and parking spaces (which are lower than the fees for managing leased corporate housing). Shared Research therefore infers that the average per-unit fee charged on management services for leased corporate housing was higher than the JPY17,440 figure.
Franchise contracts are signed between Sunnexta and affiliated agents (realtors) in the Japan Corporate Housing Net. The company collects member fees from affiliated agents for access to expertise regarding corporate housing referrals and other business processes, sales techniques for corporate housing services vendors, and for ongoing trademark and service market usage.
The cost reduction service is a relocation consulting service. There is some degree of variance in revenue values due to the seasonal nature of employee relocations.
The stand-alone cost-to-revenue ratio of Japan Corporate Housing Service, the driver of the Corporate Housing Management segment, averaged 67.6% over the past 10 years. Roughly half of the cost of revenue is labor costs (10-year average of 51.1% of the cost of revenue). The vast majority of labor costs is personnel costs pertaining to service operations on corporate housing management contracts (the above is based on Japan Corporate Housing Service non-consolidated data from FY06/20). Outsourcing costs consist of payments to third-party IT specialists for maintenance and repair of systems developed for clients. Bank transfer handling fees included in expenses consist of bank transfer remittance charges on rent payments.
|Parent: Cost of sales breakdown||FY06/11||FY06/12||FY06/13||FY06/14||FY06/15||FY06/16||FY06/17||FY06/18||FY06/19||FY06/20|
|Cost of revenue||1,831||1,945||2,127||2,259||2,346||2,599||2,682||2,675||2,771||2,927|
|% of cost of revenue||50.0%||48.5%||50.5%||51.1%||53.0%||52.8%||51.5%||51.2%||51.4%||51.1%|
|Salaries and allowances||509||535||603||660||691||770||810||819||862||890|
|Provision for bonuses||11||14||13||16||16||23||16||16||16||17|
|% of cost of revenue||21.8%||23.3%||18.9%||15.4%||14.1%||13.7%||15.4%||17.1%||18.1%||18.4%|
|% of cost of revenue||32.0%||29.5%||31.0%||33.5%||32.4%||32.9%||32.5%||31.3%||30.6%||30.1%|
|Bank transfer fees||174||175||173||175||184||196||206||211||219||222|
The SG&A-to-revenue ratio has a 10-year average of 16.3%. Running a simplified break-even point analysis suggests that the break-even point has been declining since peaking at 93.8% in FY06/13, and came to 86.4% in FY06/21 (Shared Research estimate). In fact, according to the company, the segment’s break-even point is above 70%. It is a labor-intensive business with a high ratio of personnel costs.
|Cost breakdown for Japan Corporate Housing Service using least square method||FY06/12||FY06/13||FY06/14||FY06/15||FY06/16||FY06/17||FY06/18||FY06/19||FY06/20||FY06/21|
|(JPYmn)||Former parent||Former parent||Former parent||Former parent||Former parent||Former parent||Former parent||Former parent||Former parent||Japan Corporate Housing Service|
|Total costs (revenue minus net income)||2,665||2,803||2,910||3,026||3,373||3,526||3,546||3,713||3,890||3,925|
|Variable cost ratio||75.5%||78.5%||77.6%||76.1%||78.1%||76.5%||75.9%||75.4%||76.6%||76.3%|
|Break-even point ratio||91.2%||93.8%||92.0%||89.7%||90.4%||87.9%||87.2%||86.0%||86.8%||86.4%|
The segment’s main KPI is the number of corporate housing units under management. Figures put out by the company for the number of corporate housing units it manages include both company-owned corporate housing units and parking spaces, but no information is provided on numerical figures for parking space management. Hence, using the data from the company’s official disclosures, the average per-unit annual fee for corporate housing management (including parking space management) works out to approximately JPY17,000, but Shared Research estimates that the actual fee for corporate housing management is about JPY20,000 per unit.
It should be noted that the figure for the number of corporate housing units under management is actually a valuable KPI in terms of revenue forecasts. However, starting in FY06/21, the company says it will switch to a KPI consisting of total corporate housing-related deal counts, combining units under management with ancillary BPO service and cost reduction service quantities as well. Since overall “corporate housing-related deals” in FY06/21 numbered approximately 299,759, of which 237,000 were actual corporate housing units under management, the logical conclusion is that there were approximately 63,000 deals for the cost reduction service and ancillary BPO services combined.
The services that condominium management contractors provide to condominium owners associations (COAs) are listed in MLIT’s “Standard Management Bylaws Agreement for Single Building Residential Condominiums” (template), and can be revised according to circumstances or needs. It should be noted that neither the security operations stipulated by the Security Services Act nor the duties performed by the fire prevention manager stipulated by the Fire Service Act are included in condominium management services.
In addition to the aforementioned services, subsidiary Classite has its own 24-hour call center. Staff will be deployed to a site immediately in response to either automated alert or telephone report, and are ready to work swiftly to resolve sudden contingencies such as gas or water leaks.
|1. Management functions||Core administration||- Settlement of income and expense accounts for the condominium owners association (COA)||Preparation of income and expenditure budget and accounts settlement drafts; reporting of income and expenditure status|
|- COA treasury duties||Collection of association fees, repair reserve contributions, and fees and other charges (maintenance, etc.) for use of limited common elements (LCEs) paid by association members, managing bankbooks, etc., payment of COA expenses, handling delinquencies and collections, safekeeping of COA account ledger|
|- Facilitating the planning and implementation of common area maintenance and repair||1) Advice: The management company advises the COA to revise its long-term repair plan when, upon assessing the condominium's deterioration status, it determines that the plan needs to be revised to reflect the type, scheduling, and budget of the necessary repair work; 2) Inspection & assessment: Conducts inspection and assessments of the deterioration status of the buildings and equipment; 3) Receives vendor estimates.|
|Other administrative functions||- Association board of directors support||1) Maintaining the COA membership register; 2) Support for planning and conducting board member meetings; 3) Vendor contract management and administration for the COA|
|- General meeting support||Scheduling of general COA meetings, drafting project plans, recording member attendance, and compiling general meeting minutes|
|- Other||Custody of the COA's governing documents, storage of general meeting proposal documents, etc.|
|2. Management staff functions||1) Reception; 2) Inspection; 3) Monitoring and observation; 4) Communication of reports|
|3. Cleaning operations||1) Daily cleaning; 2) Special cleaning|
|4. Building & equipment maintenance||Building inspection & testing, elevator systems, water supply units, septic tank equipment, electrical systems, fire protection systems, mechanical parking systems|
Subsidiary Classite Real Estate handles brokerage and purchasing services for property including condominiums, detached houses, and land. The brokerage service first consults with clients seeking to sell real estate property. Then, after conducting price assessment on the property for sale, it conducts sales activities via leaflets and online promotion. The way the segment’s purchase services work, Classite Real Estate purchases real estate properties in cash, which affords clients the benefits of swift encashment, plus no brokerage fee charges since the company is the buyer.
Subsidiary Zennisso Kanri provides renovation services for rental properties when the tenant moves out. Zennisso Kanri does work on entrance halls, kitchens, baths, bathroom sinks, toilets, and traditional Japanese-style rooms. Sunnexta made Zennisso Kanri a consolidated subsidiary in August 2017.
Clients the company serves in its Condominium Management segment comprise COAs and landlords (both individuals and businesses). The segment’s primary driver is subsidiary Classite, whose clients are mainly in the Kanto area (with offices in Shinjuku Ward, Tokyo; Yokohama, Kanagawa; Funabashi, Chiba; Utsunomiya, Tochigi; and Tsuchiura, Ibaraki). The company also has an office in Naha, Okinawa. The segment provides full-package management for 673 condominium buildings, and 24,207 units (according to data as of June 2021). Most of its clients are COAs of medium-sized condos with 30 to 50 units.
The company is contracted by building and condominium owners (including owners associations) to provide overall duties such as bookkeeping and facilities and equipment maintenance and cleaning, for which it collects management fees. Growth in the number of properties under management leads to growth in revenue, meaning earnings are closely linked to new building and residential construction starts. The Condominium Management segment’s revenue sources include condominium and facilities management and maintenance work, which represent recurring-revenue businesses, and are handled by subsidiary Classite and Zennisso Kanri. Other sources of revenue are primarily handled by Classite Real Estate.
In this segment, revenue is a function of fees paid by COAs and other clients multiplied by the number of units under management. Fees average approximately JPY90,000 to JPY110,000 annually (which works out to JPY7,500 to JPY9,167 monthly). The company had a total of 24,207 units under management as of June 30, 2021.
According to MLIT’s “FY2018 Comprehensive Condominium Survey,” the market average for monthly condominium management fee revenue (excluding the portion appropriated from fees for general common elements and limited common elements) was JPY10,826 per unit. The figure was JPY10,970 for single-building condominiums and JPY10,419 for condominium complexes. It rose to JPY12,149 for condominiums in the Kanto region (Tokyo and surrounding areas). The figure was JPY9,847 for condominiums consisting of 31 to 50 units (which applies to Sunnexta, as the condominiums it manages average 35.5 units). In terms of surface area, the overall average monthly management fee was JPY153/sqm, and in the 31 to 50-unit range it was JPY143/sqm.
The company posted FY06/21 condominium and facilities management revenue of JPY2.5bn, on 24,207 total units under management (including parking spaces), which works out to annual revenue of JPY104,555 per unit (or JPY8,713 per month). This is JPY1,134 lower than the 31 to 50-unit range average of JPY9,847 a month per unit. The company attributes its lower-than-average management fees to its status as an independent vendor in a fiercely competitive market in which management service providers can be replaced as a means of reducing the cost of condominium management.
|By completion year||Average (JPY/mo)||By size (total units)||Average (JPY/mo)||By type||Average (JPY/mo)||By region||Average (JPY/mo)|
|1985–1989||10,836||20 or less||13,260||Single building||10,970||Hokkaido||9,287|
|1990–1994||10,169||21–30||12,106||3 floors or less||10,895||Tohoku||10,576|
|2000–2004||11,060||51–75||10,386||20 floors or more||15,726||Hokuriku, Chubu||11,010|
|2010–2014||10,940||101–150||9,451||2–3 buildings||10,678||Chugoku, Shikoku||9,120|
|2015 or later||13,547||151–200||10,989||4–5 buildings||10,854||Kyushu, Okinawa||10,369|
Maintenance work represents a source of revenue gained as a byproduct of the company’s condominium management operations. Such work encompasses emergency repairs in the event of accidents or natural disasters, everyday maintenance such as upkeep or improvement of general common elements, and large-scale replacement or renovation work carried out at regular intervals of 10 to 15 years or so. The company appears to have little success winning large-scale replacement or renovation contracts, but by focusing on orders for day-to-day maintenance work, it has seen related monthly revenue grow from JPY1,721 per unit in FY06/11 (JPY473mn ÷ 22,885 units ÷ 12 months) to JPY4,054 in FY06/20. This fell to JPY3,536 in FY06/21 (JPY1.0bn ÷ 24,207 units ÷ 12 months).
Condominium owners’ contributions to the maintenance reserve fund (excluding amounts appropriated from common element fees) average JPY12,028 per month per unit for a 31 to 50-unit condominium. The figures are JPY11,060 in the case of single building condos, and JPY12,152 for condominium complexes. Kanto area condos average JPY12,973. Given the gap that remains between the amount of revenue the company takes in on maintenance work and the level of COA reserve funds, the company considers this business to be an area worth cultivating.
Other sources of revenue include subsidy Classite Real Estate’s real estate utilization services (purchase and resale business).
Classite’s cost-to-revenue ratio (on a stand-alone basis) was 90.9% in FY06/20, with an SG&A-to-revenue ratio of 5.0%. The company did not disclose cost of revenue in FY06/21. Its simplified break-even point was 101.6% (Shared Research estimate). Real estate management is an extremely labor-intensive business.
|Classite (non-cons.): Cost breakdown using least square method (JPYmn)||FY06/12||FY06/13||FY06/14||FY06/15||FY06/16||FY06/17||FY06/18||FY06/19||FY06/20||FY06/21|
|Total costs (revenue minus net income)||3,068||3,048||3,171||3,273||3,307||3,236||3,125||3,155||3,233||3,297|
|Variable cost ratio||92.4%||93.7%||95.7%||96.0%||95.6%||95.3%||95.8%||94.8%||95.7%||99.0%|
|Break-even point ratio||95.0%||96.4%||98.3%||98.5%||98.1%||97.8%||98.4%||97.3%||98.2%||101.6%|
“Others” segment revenue in FY06/20 was JPY588mn. According to the company, JPY220mn of that was from the cost reduction service (relocation consulting), which is included in Corporate Housing Management segment revenue from FY06/21. The remaining roughly JPY370mn consisted largely of proceeds from 24-hour call center service (JPY150mn), “watch-over” security service, emergency safety confirmation service, and insurance processing BPO service. In FY06/21, Incubation segment revenue was JPY405mn.
Japan Corporate Housing Service’s 24-hour call center service provides call center functions (standing by 24-7-365, ready to assist tenants with troubleshooting or handle complaints) not only to the company’s own Corporate Housing Management and Condominium Management businesses, but to industry peers in the rental or for-sale property management business.
Sunnexta Group provides a “watch-over” security service using a security terminal developed by subsidiary Three S Co., Ltd., which it markets to rental and for-sale property management companies. Equipped with a built-in motion sensor, the “Type-S” home security terminal sends wellness check information to surveillance personnel when the occupant being looked after falls ill, or when the system detects a lack of activity for a given period of time.
The service features 1) a professional vendor-grade package offering competitive cost-performance and versatility; 2) turnkey service with no installation required; and 3) 24-hour dispatch service offering on-site assistance upon request.
The company’s safety confirmation system is a mechanism for confirming the safety of designated persons in the event of an earthquake or tsunami. Anpi LifeMail is a mobile phone email-based emergency safety confirmation system that relays disaster information from the Meteorological Agency to local governments and clients. In the event of a disaster, it automatically distributes safety confirmation emails and communicates the results to employers and family members. This system provided complete safety confirmation during the Niigata-Chuetsu earthquake, the Great Eastern Japan earthquake and tsunami disaster, and the Kumamoto earthquake with zero systems failure.
Subsidiary Sunnexta Leasing helps building management companies alleviate one of their most burdensome processes by subcontracting insurance service (feasibility assessment and the application process) related to surveillance inspection and maintenance work.
Plans for expansion are in the works.
The Incubation segment’s target market consists of industry peers in the rental property management and for-sale condominium management business. For example, for a management company with about 1,000 units under management, having its own call center operation does not make a cost-effective investment. Sunnexta has responded by packaging the functions and expertise the group has accumulated and providing them as a service to companies in the rental property management and for-sale condominium management business.
Sunnexta’s decision to make its functions and expertise available to its industry peers gives rental and for-sale property management companies the ability to provide value-added services to their own clients at minimal additional cost. For property management companies, introducing those functions poses little risk since they consist of processes already in operation at Sunnexta. Meanwhile, companies who chose to use services provided by Sunnexta will find less incentive to switch vendors (unless some new top-quality, low-price service comes along), meaning they will face more formidable switching barriers. If Sunnexta can expand this kind of contracting business enough to achieve economies of scale, the gains in experience points and asset efficiency should be reflected in prices in the longer term.
The 24-hour call center service generates revenue in the form of monthly service fees consisting of a service charge of typically a few hundred yen per property multiplied by the number of properties managed each month. The “watch-over” security service generates revenue by charging a service fee for each Type-S terminal. The company also serves as a distributor for rapid response dispatch service and earns commission on sales to rental and for-sale property management companies. There are no disclosures available regarding cost structure, but the company had already covered the fixed costs, leaving only variable costs. If Sunnexta can attract enough clients to benefit from economies of scale, it should be able to reduce costs and generate a virtuous cycle.
According to Yano Research Institute, the market for business process outsourcing (BPO) services (IT BPO + non-IT BPO), in terms of revenue, totaled JPY4.3tn in FY2019, up 3.3% YoY. The IT BPO market expanded 4.0% to JPY2.6tn, and the non-IT BPO grew 2.2% to JPY1.8tn.
The economic stagnation caused by COVID-19 in 2020 has affected the BPO market as well. Any damage from COVID, though, has been outweighed by the momentum generated by a growing number of companies seeking to leverage work style innovation and digital transformation (DX) to streamline or reengineer business processes. Yano Research Institute believes the thrust toward outsourcing is gathering steam as companies capitalize on the growing use of remote working in response to stay-at-home policies to accelerate business process optimization.
|Domestic BPO market||4,086,559||4,211,370||4,349,150||4,439,060||4,486,940||4,579,420||4,665,590||4,749,730||1.8%|
|IT BPO market||2,383,779||2,476,200||2,575,830||2,613,590||2,666,900||2,727,000||2,781,760||2,834,530||1.9%|
|Non-IT BPO market||1,702,780||1,735,170||1,773,320||1,825,470||1,820,040||1,852,420||1,883,830||1,915,200||1.6%|
|Indirect operations BPO market||938,300||1,033,300||1,086,300||1,148,700||1,190,200||1,259,000||1,323,000||1,382,000||4.7%|
|a) Corporate housing management services||-||-||691,900||752,200||-||-||-||-||-|
|b) General affairs functions||-||-||69,800||71,200||-||-||-||-||-|
|c) HR & payroll functions||-||-||71,700||76,600||-||-||-||-||-|
|d) Employee benefits functions||-||-||82,000||81,900||-||-||-||-||-|
|e) Hiring/training functions||-||-||38,000||35,000||-||-||-||-||-|
|f) Accounting/financial affairs functions||-||-||52,900||51,900||-||-||-||-||-|
|g) Purchasing & supply chain||-||-||24,000||24,900||-||-||-||-||-|
|h) Other clerical functions||-||-||56,000||55,000||-||-||-||-||-|
According to MIC Research Institute, in FY2020 the indirect operations BPO market grew 5.7% YoY to JPY1.15tn. In contrast, the institute estimates a modest 3.6% YoY market growth in FY2021 to JPY1.19tn due to the impact of COVID-19 on some BPO services in the indirect operations category. From FY2021 onward, it expects the market to get on a recovery track, expanding to JPY1.38tn in FY2024 (CAGR of 4.7%). The market for corporate housing management services was valued at JPY752.2bn in FY2020.
The company has traditionally focused on large enterprises with 1,000 employees or more, but under its latest medium-term management plan it intends to expand its client base to SMEs with between 300 and 1,000 employees.
According to the Ministry of Internal Affairs and Communications and Ministry of Economy, Trade and Industry’s “2016 Economic Census for Business Activity: Tabulations across Industries,” there were 4,382 companies nationwide with 1,000 employees or more (15,418,836 employees, including overseas), whereas there were 13,669 companies with 300 to 999 employees (6,986,376 employees). The combined total was 18,051 companies (22,405,212 employees). Assuming that 80% of these companies have employee transfer programs, there would be 14,440 companies (17,924,170 employees) as potential clients.
However, people’s lifestyles are undergoing major changes, such as the promotion of work style reform and the increase in teleworking because of the pandemic. In Shared Research’s assessment, corporate housing is unlikely to fade away anytime soon, given the benefits it offers for companies (such as tax breaks and advantages when attracting human resources), but neither is it a major growth potential market.
According to the Ministry of Internal Affairs and Communications’ “Housing and Land Survey 2018,” the stock of employer-issued “corporate housing” (including those built by companies, public offices, schools, etc., for use by their employees, staff, teachers, and others) totaled 1,100,000 units in FY2018. The stock is gradually decreasing as companies switch from owned properties to leased housing for their corporate housing programs. Meanwhile, “private rented housing” numbered 15,295,000 in FY2018, up 42% vs. FY1994. In addition, condominium inventories in FY2019 stood at 6,655,000 units, an increase of 107,000 units YoY (10-year CAGR of 1.7%).
The corporate housing management services industry is already estimated to consist of approximately 1 million homes under management. In fact, more than 750,000 units have been confirmed among the top 10 companies for which the number of contracted units is disclosed. A web search turns up more than 80 different corporate housing management companies. Assuming the market total has now reached 1 million units, Sunnexta says that the 227,254 units it manages puts its market share at over 22% (FY06/20).
The market’s growth potential depends on the extent to which companies keep employee transfer and corporate housing programs alive. That said, considering that providing employee homes under a corporate housing scheme offers bigger tax advantages than paying housing allowances, and that offering attractive employee living arrangements is crucial when it comes to hiring new graduates, corporate housing programs will likely remain in place, using rented properties. In that respect, considering the rise in condominium inventories and the number of rented dwellings, Shared Research expects the corporate housing management market to expand for the foreseeable future.
|Owned housing||Rented housing|
|Public rented housing||Rented (UR, Public Housing Corp.)||Private rented housing||Corporate housing|
|YoY||YoY||YoY||YoY||YoY||% of total||YoY||% of total||YoY|
|Condominium for sale||165||67||98||120||124||124||110||118||112||108||120||112||108|
According to the Ministry of Internal Affairs and Communications’ “2016 Economic Census for Business Activity,” real estate industry revenue totaled JPY31.5tn, of which real estate management revenue accounted for JPY5.0tn, or 16.0%.
|Real estate industry||Revenue (JPYmn)||No. of employees||No. of offices|
|Development: Building buy-and-sell, land buy-and-sell||9,062,680||28.8%||101,179||9.4%||14,649||4.9%|
|Brokerage: Real estate agency and brokerage||3,582,011||11.4%||186,747||17.3%||40,729||13.7%|
|Leasing: Real estate leasing, house and room renting, parking lot||13,801,074||43.8%||554,694||51.4%||205,355||69.2%|
|Management: Real estate management (ex. goods rental)||5,035,425||16.0%||223,565||20.7%||35,241||11.9%|
When measured by annual for-sale condominium management fees (condominium inventories x percentage of outsourced management x monthly average management fees x 12 months), the condominium management market is expected to be worth JPY886.6bn in 2025 (Source: Yano Research Institute). New construction starts on for-sale condominiums are on the decline (source: MLIT statistics), but management fees are on the rise as they track the increase in new for-sale condominium prices.
The Yano Research Institute also estimates that labor costs for condominium management and cleaning staff are trending upward due to labor shortages, and it predicts that labor costs will continue to rise and remain at elevated levels. It also expects management companies to negotiate for higher management fees, and therefore anticipates a gradual rise in those fees. Yano Research also anticipates growth in the market for common element maintenance work, driven by an increase in minor maintenance work due to aging and deterioration, and a rising number of condominiums coming due for large-scale replacement and renovation work.
|Management fees at condos sold||573,500||589,900||604,200||621,800||642,200||664,700||684,200||704,200||725,000||745,900||886,600|
|Maintenance cost for common areas||574,600||509,500||495,600||537,900||606,000||587,800||600,600||648,500||620,700||669,300||705,800|
According to the Condominium Management Companies Association, as of April 1, 2020, there were 358 official members (vs. 357 at December 31, 2020) contracted by 99,588 COAs to manage 118,386 buildings, and 6,176,000 units. This means that approximately 93% of the overall condominium inventories (6,655,000 units in FY2019) were managed by these 358 companies. There were also 2,185 condominium management companies registered with MLIT (as of end-2015). Sunnexta’s market share based on the number of condominium units under management came to 0.39%.
|Company||Ranking||Number of units under management||Share||No. of management associations||Average number of units||Operating profit per unit (JPY)|
|Nihon Housing||TSE2: 4781||1||459,551||7.52%||8,466||52||9,087|
|Tokyu Community||TSE1: 4711||4||341,041||5.58%||5,198||64||13,094|
|Mitsubishi Jisho Community||Unlisted||5||335,980||5.50%||4,350||69||9,705|
|Gojinsha Keikaku Kenkyujo||Unlisted||7||217,075||3.55%||4,164||48||16,854|
|Mitsui Fudosan Residential Service||Unlisted||8||209,421||3.43%||2,391||85||15,305|
|Sumitomo Fudosan Tatemono Service||Unlisted||9||173,147||2.83%||1,879||100||14,022|
|Nomura Real Estate Partners Co.,||Unlisted||10||164,126||2.69%||2,223||70||37,914|
According to the Ministry of Finance’s “Survey of Corporate Statistics,” Japan’s 2,834,376 companies (excluding the financial services and insurance sectors) had combined employee benefits spending in FY2019 of JPY23.7tn (1.6% the size of combined total revenue; 7.5% of SG&A expenses). The figure has been trending downward since the FY1998 peak of JPY26.2tn (1.9% the size of combined total revenue; 9.4% of SG&A expenses).
Employee benefits spending consists of expenses on statutory benefits (company’s portion of social insurance premiums, and not the employee’s) and those on non-statutory benefits voluntarily provided by the company. According to the Japan Business Federation’s “2019 Welfare Survey,” benefits spending in FY2019 averaged JPY108,517 a month per employee, of which statutory benefits accounted for JPY84,392 (77.8% of total). Expenses on statutory benefits continue to increase, with 10-year CAGR at 1.7%. Over 90% of these expenses are social insurance premiums (health, long-term care, and pension insurance). Raising social insurance premiums is imperative for Japan with its aging society.
Conversely, spending on non-statutory benefits is shrinking. Approximately half of the spending is for housing-related benefits, which have shrunk at a 10-year CAGR of -0.8%, falling from an average of JPY12,654 a month per employee in FY2009 to JPY11,639 in FY2019, a decline of JPY1,015 over that 10-year period. Housing-related benefits consist of housing and home ownership subsidy. Housing consists of company-owned corporate housing, leased corporate housing, and employee dormitories for singles, while home ownership subsidy includes interest subsidies and owned-home maintenance subsidies for transferred employees. Both of these benefits are shrinking.
|(Monthly spending per employee; all industries; JPY)||2009||2010||2011||2012||2013||2014||2015||2016||2017||2018||2019||% of total: 2010||% of total: 2019||CAGR|
|Total cash wages||533,379||541,866||546,246||549,308||551,441||563,942||570,739||565,932||558,532||573,765||547,336||0.3%|
|Healthcare insurance and long-term care insurance||24,711||25,611||27,040||28,154||29,708||30,710||31,177||31,646||31,119||32,429||31,041||25.4%||28.6%||2.3%|
|Employees' pension insurance||40,194||41,073||42,717||43,382||44,213||45,381||46,441||48,029||47,375||48,989||46,832||41.3%||43.2%||1.5%|
|Unemployment insurance and workers' compensation insurance||5,896||7,091||7,270||6,603||6,535||6,596||6,728||5,869||5,123||5,184||4,810||6.1%||4.4%||-2.0%|
|Child and childcare contribution||657||665||677||771|