FAQ - IR FAQ
Frequently asked questions about Leopalace21's business.
- What is the target figure for occupancy rates and the thoughts behind it?
- What is the reserve for apartment vacancy loss?
- What is the plan for acquiring corporate tenants for the Leasing business and what have the results been so far?
- Why are you promoting Leopalace Partners? How many are opening right now?
What is the target figure for occupancy rates and the thoughts behind it?
The maximum number of units under management during the Medium-term Management Plan will be 570,000 units. As for the average occupancy rate, we will aim for 89.0%, an improvement of 1.05p year-on-year.
To achieve this goal, we will focus on expanding the number of offices and strengthening corporate sales. In terms of products, we will encourage long-term tenancies through "my DIY" and increase female tenants by promoting security system installments, along with other property value enhancing measures.
- *"Room-Customize" has been changed to "my DIY" as of October 2016.
What is the reserve for apartment vacancy loss?
The reserve for apartment vacancy loss is set according to the projected loss that could occur during a logical predictable period to prepare for the risk of increased vacancies.
The reserve for apartment vacancy loss is calculated based on the profitability of individual buildings, and is marked to market quarterly. Therefore, when profit improves due to various reasons such as (1) recovery of occupancy rate, (2) earning additional revenue and (3) reduction of cost, reversal of the reserve account will push profits up in the Leasing business.
What is the plan for acquiring corporate tenants for the Leasing business and what have the results been so far?
In Japan, most company housing and dormitories, primarily owned by large blue-chip companies, are aging. However, in recent years, instead of rebuilding run-down company housing or making new acquisitions, companies have included cost-reduction as a factor in their management strategy and have thus been turning to outsourcing.
Traditionally, we would begin sales activities in response to inquiries from corporate clients. But from the fiscal year ended March 2011, we are intensifying "top sales" business styles, through corporate visits by executives, including the company president, in order to combine such needs with orders in the early stages. Also, we have increased the variety of industry types in order to diversify risk.
No. of Units Used by Industry Type
Why are you promoting Leopalace Partners? How many are opening right now?
Currently, in the Leasing business, we are implementing a "new-channel strategy" which reduces fixed costs and secures tenants through various channels. Leopalace Partners, which are the core of this strategy, will contribute to increase and stabilize occupancy rates by increasing avenues for tenant recruitment. Setting up franchise branches, which includes switching from a fixed to a variable cost structure, has also helped reduce SG&A expenses.
Upon strengthening Leopalace Partners, it is necessary to deepen the understanding towards our unique contract system and products. Concerning Leopalace Partners, we will aim for “quality over quantity”, and enhance education and training so that they can proceed with their sales activities.
Leasing Offices (Direct and Leopalace Partners)
How many apartment rooms are managed domestically?
567,008 rooms as of December 31, 2016.
- What are the measures to secure profits for the Construction business?
- What is the master leasing system?
- What is the risk of the master leasing system?
- What kind of sales activities are performed towards the property owners?
What are the measures to secure profits for the Construction business?
Based on the fundamental principle of the Construction business that "apartment management exists only with the Leasing business," the Company has constructed apartments only in areas with high demand for the past several years. The average occupancy rate of apartments under five years of age is around 90%. In the future, we will accelerate new supply of apartments based on this area strategy.
Simultaneously, for the duration of the current Medium-term Management Plan, subcontracting orders for non-residential buildings (elderly care facilities and stores), build-to-order houses, and high and medium-height apartments are planned to increase. By matching landowners' diverse land usage needs to the needs of business operators requiring land sites for business needs such as store expansion, we aim to expand profits.
What is the master leasing system?
The master leasing system is a system to support the apartment management of owners, from construction to management and operations, for a maximum of 30 years. The system involves rent payment to the owner, as well as management and repair to take the burden off the owner, contributing to a flow of steady income.
What is the risk of the master leasing system?
The biggest risk in lease housing management is vacancies. In our case, with the 30 year master leasing contract, a fixed rent is paid to the owners for a certain period regardless of the existence of vacancies. Therefore, our biggest possible risk is having more vacancies than expected during this period.
Providing apartment properties best suited to the area will be indispensable to minimizing such risk. In addition, we will keep implementing various measures such as the diversification of contract structures and enhancement of interior and exterior equipment.
In the Leasing business, as well as to raise occupancy rate, the appropriate adjustment of rental fees will also become an important matter to increase profitability.
What kind of sales activities are performed towards the property owners?
Our approach to new owners starts by identifying current land owners through viewing of registry documents and cadastral maps in the legal affairs bureau. This is of course a legitimate method for obtaining personal information.
Then we perform sales activities in steps starting by building connections through questionnaires using sales promotion tools and through invitation to various events held in different areas, and contacting potential customers who show interest.
There are many cases where we receive repeat orders from existing owners and where existing owners introduce us to different owners. Therefore we have implemented a customer inquiry center in branches nationwide to develop a close relationship with our owners, and owner gatherings are held every 6 months to exchange information.
Furthermore, we pay our most careful attention to the management of our customers' personal information. Promotional posters are posted in all our sales branches to enhance employee awareness, and an agreement for treatment of personal information is signed apart from the contract and a copy is stored by both the land owner and Leopalace21.
Business as a whole
- Why put so much effort into the strategies to enhance property values?
- Please explain your "strategies to enhance property values" in more detail.
- Please tell me about the resort facility in Guam.
- How does the declining birth rate and aging society affect company performance?
Why put so much effort into the strategies to enhance property values?
It can be boiled down to two reasons.
The first reason is the intensification of competition in the leasing market. According to the data from Housing and Land Survey in 2013 (Statistics Bureau of Ministry of Internal Affairs and Communications), the ratio of vacant homes in the total number of leasing households in Japan (vacancy rates) rose from 18.8% in 2003 to 20.0% in 2013, and the vacancy rates are continually rising. In this environment, where choices abound for customers looking for a unit to rent, it is extremely important to raise the value and competiveness of properties so as to be selected by tenants, thus making it possible to increase revenues in the Leasing business.
The second reason is to move forward with improvements in the earnings structure of the Leasing business, despite the tough business environment. The many services related to the broad-based Leasing business are undeveloped territory that is full of great potential. We believe that developing rent policies in accordance with rising rent prices and property values will lead to a realistic and attainable rise in revenues.
Please explain your "strategies to enhance property values" in more detail.
In order to get a head start in offering equipment that should be included in apartments of the future, we are currently moving forward with the installment of solar power systems and apartment security systems.
Solar power systems can reduce both power consumption by the housing unit and the burden on the environment. In addition, any surplus electricity can be sold, and many landowners are proactive in their installment. Starting February 2013, we have begun the "Roof Mega-solar Project" (a special purpose company rents rooftops from apartment owners and installs solar power system), and already achieved the plan to install solar power systems on 7,000 buildings (100 MW).
The inclusion of apartment security systems is expected to cover the needs of corporate housing and dorms, as well as increase the occupancy rate of women. It has already been installed in 273,620 units as of the end of December 2016, an installment rate of 48.3%.
Please tell me about the resort facility in Guam.
Leopalace Resort Manenggon Hills Guam is a composite sports resort facility located in the Yona hills area near the center of the island. The resort area covers almost 1% of the entire island of Guam with 5.2 million square meters.On-site facilities include a hotel, condominiums, a spa, not to mention the Pan-Pacific Sports Center. This center is a world class sporting complex that draws not just tourists, our apartment owners, and corporate clients but also professional athletes who come here either as part of a team camp or just for their own personal training.
Moreover, resort facilities and hotels are used on trips by shareholders, tenants, and owners, as well as welfare facilities by corporate clients, and will promote sales against clients in the core businesses (leasing and construction).
How does the declining birth rate and aging society affect company performance?
With declining birth rates and an aging society, the population of our main customers, the young generation, will decrease. However, according to the Population Census (Ministry of Internal Affairs and Communications) and Population Statistics (National Institute of Population and Social Security Research), percentage of one-person households, our main target, are predicted to continually increase, and we expect demand for our leasing units to remain strong.
Specifically, one-person households in the "35 to 64 age group" and "above 65 age group" are expected to increase. Therefore we believe it is important to cultivate corporate demand and develop the elderly care business to answer to new customer needs.
Please tell me about the International Business.
In addition to introducing apartments to foreign students and workers coming to Japan, we support Japanese companies who are looking to expand overseas through our World Business Support services, provide brokerage and introduction services for overseas properties, operate serviced apartments and offices, as well as utilize international personnel.
As of October 1, 2016, we operate in 16 locations in the ASEAN region, and will expand to 20 locations by the fiscal year ending March 2017
What is your policy on dividends?
The Leopalace21 Group acknowledges that the distribution of profit to shareholders is an important management issue. In consideration of recent performance and its earnings forecasts for the fiscal year, we have paid a year-end dividend of 10.00 yen in FY16/3, the first dividend in seven years. Also, we have paid an interim dividend of 10.00 yen from surplus with a record date of September 30 in this fiscal year. Furthermore, we are planning a year-end dividend of 12.00 yen for this fiscal year. Together with the interim dividend of 10.00 yen, the annual dividend is 22.00 yen with a dividend payout ratio of 31.3% for this fiscal year. Concerning the dividend payout ratio, we will set a medium-term goal of 30% (in respect to consolidated net income), in addition to maintaining a stable dividend.