Overview of LeTech Inc. <3497> Business

1. Overview of Rental Housing and Condominium Market

In the first half of 2024, the average price of newly built condominiums in the 23 wards of Tokyo has fallen from the same period last year, but it still exceeds 0.1 billion yen, maintaining a high level. Although the supply was low in the first half of 2024 with around 3,000 units, an increase in supply is expected in the second half. The rental housing market in Tokyo and Osaka is also robust. The main focus of the company's business, condominiums in urban areas, is mainly used for leasing after sale, so the rent and vacancy rate affect its value. The average rent of condominiums in Tokyo and Osaka has been increasing steadily over the past 5 years. This is believed to be due to tight supply and the impact of rising construction costs. Regarding the vacancy rate, it can be said that it remains low and stable in both areas. While the vacancy rates for office and commercial real estate increased during the COVID-19 pandemic, there was almost no impact on residential properties, and rather a decreasing trend was observed. Tokyo and Osaka can set higher rents compared to other urban areas, with a low and stable vacancy rate. The company is particularly focusing its development efforts on areas in central Tokyo where high rents can be expected, particularly in the Jonan and Josa areas.

2. Real Estate Solution Business

The Real Estate Solutions business is the company's main business. It sources real estate from various channels, implements optimal value enhancements, increases asset values, and sells properties tailored to the needs of individual affluent clients and corporate entities with asset holding purposes. The income-producing real estate sold is acquired through its own sales channels, with improvements in building management conditions, tenant turnover, large-scale renovations, effective land utilization, residential (condominium) developments, commercial developments such as office buildings, hotels, and residential rental properties, conversions (completely renovating existing buildings for a change in use), and renovations (conducting extensive renovations on existing buildings to restore them to a new state and increase their value), aiming to increase value and sell them.

The company's flagship product, "LEGALAND," is a low-rise rental condominium suitable for small households ranging from 30 to 200 tsubo in site area, with a total of 10 to 35 units. It is possible to develop even on small sites or in areas with specific restrictions. It focuses on exterior and details, incorporating proprietary planning and development expertise, such as installing underground floors, eliminating elevators, beams, and pillars. It caters to the needs of affluent individuals for inheritance tax measures, with a selling unit price of approximately 300 million to 0.8 billion yen and a selling yield of about 4 to 6%, selling single buildings. There are 112 buildings in central Tokyo, centered around the Jonan and Josa areas, 11 buildings in the Kansai area, for a total of 123 buildings (including properties under development as of the end of July 2024), with plans to acquire 18 development sites in the fiscal year ending July 2024 and expand further. Additionally, it has launched the new brand "LEGALAND+" series. In the Osaka area, there are already 2 development projects, and currently a new development is underway in the Tosima Ward of Osaka ("LEGALAND+ Takakuracho for those living with cats"), as well as unique projects such as "LEGALAND+ Egoda in Tokyo (for music and art university students)." The concept is to incorporate various unique plans, including individuality and IoT, while inheriting the strengths of "LEGALAND" and leading the next step in modern architecture.

The performance of the Real Estate Solutions business has been on an upward trend since it began disclosing segment performance in July 2017, until July 2020. Negative impacts began to appear in the July 2021 period due to the COVID-19 pandemic, and in the July 2022 period, significant losses were incurred due to the disposition of large-scale development projects for inbound purposes. It is normally a highly profitable business that maintains a segment profit margin of around 10%. The profit margin for the July 2023 period is 11.6%, and for the July 2024 period it is 15.1%, showing a recovery. Financial health, smooth sourcing, and a normalized business cycle are being achieved.

3. Real Estate Rental Business

The real estate rental business secures rental income from the company's income-generating real estate and owned real estate until it is sold. The company's strengths include efficient operation leveraging solution capabilities, high-quality assets through sourcing leveraging information capabilities, and a wide range of investments utilizing real estate development expertise. The portfolio of owned properties consists mainly of residential condominiums, as well as office buildings, hotels, and vacation rental condominiums. In recent years, the company has been actively promoting strategic sales, leading to a decrease in the number of properties owned.

They also engage in property management and facility management businesses. In the property management business, they have been expanding the same field since the fiscal year ending July 2021, launched specialized departments, and steadily increased the number of properties under management. In the facility management business, they conduct attendance at the time of vacating the property, restoration work, renovation work, repair work, etc. Through these businesses, they aim to generate continuous management income and continue to work on building a 'circular business' rather than just 'selling and ending' development properties.

The performance of the real estate rental business has been steadily improving from the fiscal year ending July 2017 when they began disclosing segment performance up to the fiscal year ending July 2019. However, since the onset of the COVID-19 pandemic, they have shifted their strategy to strengthen their financial position by selling owned real estate. As a result, both revenue and segment profits have decreased, but from the fiscal year ending July 2023 onwards, there is a recovery trend in inbound demand, with hotels and vacation rental condominiums in the Kansai region performing well and showing a tendency to stabilize.

4. Other Businesses

Other businesses include real estate brokerage services and asset management services that cater to the needs of wealthy individuals domestically and abroad. Regardless of corporate or individual clients, their main target is to facilitate real estate transactions tailored to customer needs. The company originally engaged in consulting services such as mediation and consulting for voluntary sales of civil litigation cases from lawyers and cases of loan defaults from financial institutions. Nowadays, leveraging the real estate consulting expertise and information network developed by the company, they engage in real estate brokerage beyond legal case management.

(Written by FISCO Guest Analyst, Hideo Kakuta)