Urbanet Corporation <3242>'s medium- to long-term growth strategy.

1. Future direction and progress

In addition to concerns about cyclical economic volatility, uncertainties in the external environment such as progressing inflation and the outlook for monetary easing policies are increasing, but there is no major revision to the future direction of the growth strategy. However, as stated in the disclosure document related to the subscription rights dated August 24, 2023, there has been a clear commitment to gaining momentum for growth, including the expansion of existing businesses, strengthening stock business, creating synergies through M&A, and entering new businesses. The consolidation with Gainianbankuai this time is also part of that. The aim is to achieve sustainable growth by expanding existing businesses and acquiring management resources through M&A and expanding business areas, while focusing on expanding stock businesses.

(1) Expansion of existing businesses

In terms of existing businesses, efforts are being made to acquire land selectively with a focus on profitability and timing while taking future risks into account under the soaring land prices in urban areas, and to aim for sustainable growth while responding flexibly to business environment and economic fluctuations. In particular, efforts are being made to strengthen land information capacity through collaboration with Gainianbankuai, expand development areas (Kawasaki, Yokohama, etc.), and consider further acquisitions and expansions into adjacent areas through M&A. The business headquarters has been restructured into a two-department system, with the establishment of a new Second Business Division. There seems to be an aim to respond to assets other than condominiums and foster them as new pillars of business.

(2) Strengthening of stock business

In terms of strengthening the stock business, over the past few years, efforts have been made to secure stable income sources and financing collateral by owning rental income properties. The current rental income properties have increased to 8 buildings (in addition to individually owned units), and the annual real estate income has expanded to the level of 500 million yen (estimated by the company) *. In the future, there are plans to steadily increase stable operational rental income properties. As for the “Hotel Business” that was entered using the development capability in prime locations near stations, the improvement of the occupancy rate and the proper pricing of room rates have been progressing, and it has finally gained momentum. It will be considered from a long-term perspective whether to maintain as a stock business, or to sell with the objective of expanding sales channels.

* In addition to this, rental income properties owned by Gainianbankuai have been newly added.

(3) Expansion of BtoC business

In the development and sale of urban rental apartments, which is the core business of the company, the business routine is completed by handing over the property to the condominium sales company after the property is completed. Even in the condominiums developed by the company, the management company has taken over the individual condominium management after the sale has ended. In other words, the company has not been dealing with revenue from rental management and condominium building management, giving a sense of omission. However, in the future, through Urbanet Living, the company will actively promote this field called volume business. The company will also work on utilizing and creating synergies with the BtoC sector's management resources (sales personnel, know-how, customer base, etc.) acquired through K-Nine's M&A.

(4) Expansion of business areas

Considering entering new businesses where synergy effects with real estate business can be expected through M&A, business alliances, and capital alliances.

2. Policy for Sustainable Growth

The company aims to increase sustainable corporate value through improved ROE and reduced capital costs, as well as raising PBR. Regarding the improvement of ROE, the company's policy is to focus on further growth through 1) M&A, 2) strengthening human capital investment, and 3) enhancing shareholder returns, and to implement a directional cash allocation that emphasizes more aggressive investments and capital efficiency than before. In addition, to reduce capital costs, the company aims to 1) strengthen information disclosure and 2) promote initiatives focusing on sustainability. By practicing management conscious of stock prices, the company aims to achieve an early market capitalization of 20 billion yen.

3. Key Points by Our Company

The company views urban-style rental apartments in central Tokyo as a market where sustained growth is possible, taking into account the impact of cyclical economic fluctuations and temporary market adjustments, including the ripple effects to surrounding areas. In particular, there is still great potential for the improvement and evolution of Tokyo's residential environment as it continues to develop as an international city. Additionally, amid increasing attention to real estate as an investment target (financial products) including funds, REITs, and crowdfunding, the role of the company, which is known for developing excellent properties, will become increasingly important. On the other hand, expanding the business portfolio and ensuring stable sources of income are key medium- to long-term themes for the company. Especially, the stabilization of the financial foundation is crucial not only for risk management but also as a driving force for new investments towards growth. In this regard, initiatives such as the issuance of new subscription rights and the implementation of business alliances and M&A can be highly praised as concrete steps towards sustainable growth.

From a long-term perspective, while the domestic population is declining, it is necessary to consider the challenge of entering into fields that can capture new demand in order to achieve sustainable growth. For our company, which has previously developed small yet comfortable living spaces in central and well-located areas, we believe that expanding into lodging facilities and senior-friendly apartments, where our expertise and network can be utilized, has a high chance of success. In addition, the development of next-generation apartments incorporating new technologies and concepts, which is a unique initiative for our company, will also play a key role in the future. The development of Zero Energy House (ZEH) specification apartments in particular holds the potential to indicate the direction and new growth opportunities going forward. Furthermore, in conjunction with the issuance of these new subscription rights, we are also considering entering new businesses that have synergy effects with the real estate business, and we are curious about the future developments in this regard. As our company, which has specialized in niche areas and operated with a small but highly efficient team, begins to make moves in terms of new mergers and acquisitions and business partnerships, we will be paying attention to how it strengthens and expands its business foundation.

(Written by Fisco Guest Analyst Ikuo Shibata)