Overview of Lear Gate <5532>'s business.

5. Business Process: Internal integration from planning and design to operation (ML, PM).

At the company, projects are formed for each property, and under the project leader, members such as planning sales (licensed real estate agents), first-class architects, first-class construction management engineers, designers, and sales administration work together. Projects integrate planning, design, construction, leasing, and operation. In particular, the company recognizes the importance of 'operation' tasks. Analyzing tenant opinions such as reasons for moving in and out, and complaint contents serves as a source for good planning, contributing to early leasing and achieving high unit prices. The employees (88 in total) are highly skilled, including five first-class architects, six first-class construction management engineers, and 47 licensed real estate agents. To secure and retain excellent talent, a base salary increase was implemented for the fiscal year ending September 2024.

6. Revenue Structure: Recovering prior investments and costs through improved leasing occupancy rates.

In the main business model, known as 'ML contracts', while rent payments to building owners start from the beginning of the contract, it takes time to identify tenant companies, leading to vacancy losses. In a typical case (an old building in Shibuya with a total floor area of 400 tsubo), the break-even sales are reached in six months and leasing is completed in eight months. After leasing up, the monthly gross profit is 2.5 million yen (25% of the end rent). The initial loss (over six months) is considered a prior investment, and after achieving monthly profitability, the investment is recovered, generating profits over a period of 10 to 15 years. Regarding 'Shareholding', the prior investment becomes even larger, and even excluding property prices, the acquisition cost of the property (taxes, brokerage fees, etc.) amounts to 30 million yen. Additionally, renovation-related construction and equipment costs are borne by the company. On the other hand, the monthly gross profit upon leasing up becomes relatively significant at 6.5 million yen (65% of the end rent). 'Shareholding' is a highly profitable business model, but prices for old buildings can range from several hundred million to several billion yen, which lowers the equity ratio, thereby limiting the number of buildings that can be undertaken at one time. To maximize funding efficiency, the company sells properties that have been held for a certain period after leasing up and connects them to ML. The 'PM contract' is characterized by not incurring prior investment or costs. Before completion, planning, design, and construction can be handled, and various supports until leasing up also generate revenue. However, after leasing up, the monthly gross profit is relatively low at 0.8 million yen (8% of the end rent).

7. Strengths: Achieving appropriate pricing through technical skills, planning capabilities, and operational abilities.

The company's strengths can be summarized as the ability to provide services at appropriate prices through technical skills, planning abilities, and operational capabilities. Regarding 'technical skills', issues unique to old buildings, such as seismic reinforcement, installation of new elevators, change of use, extension, obtaining inspection certificates, and improving durability, can be resolved, transforming them safely and securely. In terms of 'planning capabilities', varied knowledge in creating vintage properties has been accumulated through changes in appearance design, installation of rooftop sky terraces, establishment of lounges, and integration of interior art in shared spaces with sophisticated design. Regarding 'operational abilities', since its founding, PM operations and ML operations have been internalized, and direct communication with tenant companies has been a source of high customer satisfaction services. 'Ensuring correct end pricing' is also an important factor in the company's strengths. The company estimates an end price of around 0.03 million yen per tsubo, and from that amount, construction and operational costs and procurement prices are established by reverse calculation. By quickly and accurately estimating appropriate end prices, construction costs, depreciation costs, and operating expenses, purchasing decisions are also expedited. Utilizing deteriorated parts as they are in old construction, or intentionally leaving the concrete exposed, is also advantageous for reducing construction costs, helping to achieve appropriate pricing.

(Written by FISCO Guest Analyst, Hideo Kakuta)