Business
Business : 01
Real Estate Business
New built-for-sale condominium
Business Overview
The new built-for-sale condominium business is a core category that accounts for around 50% of total sales. The Group engages in the plan- ning, development, and sale of the LEBEN and THE LEBEN proprietarily branded series of condominiums and the NEBEL brand of compact urban-type condominiums throughout Japan. Based on the concept of ideal, affordable housing that anyone can buy with confidence and peace of mind, the MIRARTH HOLDINGS Group provides condominiums to a wide range of generations, focusing mainly on first-time home buyers.
Review of FY2022 and Progress of the Medium-Term Management Plan
This business is the mainstay of the real estate business, accounting for 49.6% of Group- wide net sales and 52.7% of gross profit for the fiscal year ended March 31, 2023, achieving year-on-year increases in both sales and profit.
Under our Medium-Term Management Plan, among the seven pillars that form our key strategies is the “further growth of core businesses,” in which we develop business with our sights set on the sustainable growth of the real estate business. In this business we conduct activities that are based primarily on the following three goals within the real estate business, each of which achieved a certain degree of results in fiscal 2022.
The first goal was to restructure the stable, nationwide supply system in which we aim to post sales of 2,200 units in fiscal 2024. In fiscal 2022 we achieved 1,861 units sold, surpassing the previous fiscal year by 31 units. The favorable progress made with con- tracts helped to control the amount of discounts. As a result, we achieved a high gross profit margin of 22.0%.
Our second goal was to achieve a metropolitan area ratio of 50% in fiscal 2024. Having attained a metropolitan area ratio of 48.8%, we have essentially achieved our goal of 50%.
The third goal was to promote active penetration in redevelopment projects such as the reconstruction of station-front con- dominiums or renewal of decrepit condominiums. We are working to expand urban redevelopment projects and quality build- ing maintenance projects throughout Japan, starting with the redevelopment project in Toyama City, which received the first approval of the Basic Plan for Revitalization of Central City Areas.
Future Initiatives
Performance results for fiscal 2023 are forecast to reach 2,200 delivered units, with expectations for increases to both sales and profit. Although the ideal ratio between metropolitan areas and regional cities is 50/50, the ratio of regional cities to metro- politan areas is expected to increase to approximately 65/35, in part due to the lineup.
The progress made with contracts for new built-for-sale condominiums as of the start of the fiscal year was 1,423 units, compared with plans for 2,200 delivered units, with approximately 65% of contracts already completed. Sales have been strong, with 277 units under contract as of the beginning of the fiscal year for delivery in fiscal 2024. While the impact of rising construction costs on sales prices is unavoidable, we believe that the challenge will be how to control construction costs and to balance the cost increases with sales prices.
To further expand our core business, in addition to our existing new built-for-sale condominium business, we will continue to work toward designing sustainable environments in local cities and regions, including redevelopment and rebuilding projects that revitalize local communities. This initiative is gaining traction in various quarters, and consultations with local governments are increasing. Without limiting the fields or businesses in which we can operate, we will make efforts to create new value with our customers and partners.
Liquidation
Business Overview
In its liquidation business, the MIRARTH HOLDINGS Group engages in the development of properties such as rental residences and offices as well as their sale including entire buildings to real estate funds. In real estate sales, the liquidation business follows the new built-for-sale condominium busi- ness as the second principal pillar. Roughly 70 to 80% of the properties developed in this business are sold to Takara Leben Real Estate Investment Corporation. As such, the Group plays an important role in supporting the growth of the investment corporation.
Review of FY2022
Investments amounted to 24,464 million yen, a decrease of 19.0% com- pared with the previous fiscal year and short of the 30.0 billion yen target. This is due to having carefully selected purchases, partly because of inten- sifying competition with other companies, and also because the share of new development has increased compared to existing real estate. New development projects contribute to higher profit margins relative to revenue targets as they provide more added value than sales and purchases of existing properties.
On the other hand, both net sales and gross profit increased, and the gross profit margin rose compared with the previous fiscal year as well as the performance target. In addition to the promising market maintaining its progress, new developments and other projects contributed greatly to profit margins. In terms of the breakdown of investments, residential prop- erties accounted for more than 60% of the total investments, and similarly for the breakdown of sales, residential properties accounted for more than half of the total at 67%.
Future Initiatives
As of March 31, 2023, the Company held 38,868 million yen in completed assets, and the 18,855 million yen book value of assets under development will reach 40,792 million yen upon completion in the future, which together will bring the Company’s holdings to 79,660 million yen after March 31, 2026. More than 70% of the portfolio comprises residential and office properties, which is the ideal portfolio composition.
For fiscal 2023, we anticipate net sales to remain essentially unchanged from the previous fiscal year, with a gross profit margin of 18.0%. We will continue to accelerate the development of new residential properties, which is one of our strengths, while carefully selecting investments and continuing our policy of selling them to Takara Leben Real Estate Investment Corporation and other inves- tors. By promoting development and disposition schemes that take advantage of Group synergies in this way, we will seek mutual growth with the asset management business.
New detached house
Business Overview
The MIRARTH HOLDINGS Group engages in the development, planning, and sale of detached houses under the LEBEN PLATZ brand name. Leveraging the condominium planning and development capabilities that it has cultivated over many years, the Group will continue to generate business synergies by engaging in business activities involving ready-built houses in the same residential real estate field. The new detached house business is spearheaded by the subsidiary Leben Home Build Co., Ltd., which focuses on constructing high-quality, comfortable spaces with an emphasis on light, water, and air, a unique feature of the houses built by the Company.
Review of FY2022
Due to strong demand for detached houses, sales progressed steadily, resulting in 189 units sold in fiscal 2022, an increase of nine units compared with the previous fiscal year, and both net sales and gross profit increased year on year. However, the gross profit margin declined to 13.2%, down 1.5 percentage points compared with the previous fiscal year, in which we conducted highly profitable large-scale projects. The number of units sold has also fallen short of the original plan by about 30 units compared with the plan for 220 units sold. With this in mind, an issue for the Company going forward will be to make efforts to strengthen its sales force.
Future Initiatives
The sales target is 240 units, a planned increase of 51 units compared with fiscal 2022. Both net sales and gross profit are expected to increase, however, the gross profit margin for the fiscal year ending March 31, 2024 is anticipated to come in at 10.3%, down 2.9 percentage points from fiscal 2022 due to the impact of increased costs associated with procurement and other factors. Since the profit margin tends to be structurally low, we aim to improve the profit margin by reducing costs, including SG&A expenses. Going forward, our basic policy is to play a complementary role to the new built-for-sale condominium business as a short-term return busi- ness, and we will rebuild our procurement and supply system by strengthening area marketing, while ensuring the establishment of a short-term return cycle.
Renewal resale
Business Overview
Led by Group company Leben Zestock Co., Ltd., the MIRARTH HOLDINGS Group primarily engages in the purchase and resale of pre- owned condominiums under lease. In order to capitalize on the demand for pre-owned condominiums in areas with high land value, which have been rapidly increasing in recent years, we are aggressively purchasing pre-owned condominiums under lease, undertaking renovations after ten- ants vacate, and actively promoting resale, maximizing use of the real estate network within the MIRARTH HOLDINGS Group.
Review of FY2022
In the fiscal year ended March 31, 2023, both sales and purchases of units progressed steadily, with 179 units sold, up eight units compared with the previous fiscal year, and 274 units purchased, up 25 units year on year. As far as new built-for-sale condominiums are concerned, the used market is trending toward vitalization, and accordingly, profit margins have exceeded projections.
Future Initiatives
The number of units held in stock is steadily increasing, and the number of units sold is also trending upward. Aiming to establish a stable renewal business cycle, the Group will continue to secure appropriate inventories while leveraging the Group network.
Business : 02
Energy Business
Business Overview
The new built-for-sale condominium business is a core category that accounts for around 50% of total sales. The Group engages in the plan- ning, development, and sale of the LEBEN and THE LEBEN proprietarily branded series of condominiums and the NEBEL brand of compact urban-type condominiums throughout Japan. Based on the concept of ideal, affordable housing that anyone can buy with confidence and peace of mind, the MIRARTH HOLDINGS Group provides condominiums to a wide range of generations, focusing mainly on first-time home buyers.
The Group’s Strengths and Business Model Strategy for the Energy Business
To date, the business model in the energy business has been mainly based on flow revenues from the sale of power generation facilities to TIF. On the other hand, since the inclusion of this investment fund in the Company’s scope of consolidation as a subsidiary through a TOB in November 2022, the Company has basically shifted its revenue structure from a flow revenue to a stock revenue-generating entity by focusing on revenue gained from the sale of electric power and the operation of the facilities, rather than selling the power generation facilities themselves.
One of the strengths of our business lies in its power generation capacity. The scale of solar power generation facilities is divided into three categories according to system capacity: low voltage, high voltage, and special high voltage. Low voltage is for small- scale power generation such as residential solar panels, special high voltage is for so-called mega-solar projects of 2,000 kW or more, and high voltage is somewhere in between. Low voltage and special high voltage are often fields that compete with one another, given the low capital investment hurdles of the former, and economies of scale with the latter. The high-voltage field, however, has steep barriers to entry and a limited number of players due to the difficulties in obtaining economies of scale and burdensome issues of land acquisition and capital investment. The Group’s 2021 acquisition of LCE, which boasts capabilities in small- and medium-scale solar power plants, has empowered the Group in the high-voltage area, which is the scale of power generation capacity suitable for the PPAs that will be a focus in the future. In terms of costs, the Group will be able to swiftly realize development by leveraging its network and expertise in acquiring and purchasing land cultivated in its real estate business, and will be able to significantly lower procurement costs by undertaking multiple projects simultaneously. In addition, in the electricity sales business, we secure revenue through alliances with partner companies that are power consumers and off-takers.
As many companies and municipalities are stepping up their efforts to decarbonize and shift to a low-carbon society, we believe that this business can be a powerful pillar to support our mainstay real estate business. We aim to achieve sustainable growth through stable earnings by building a business model that does not depend on the FIT scheme, and to grow to a level where the real estate business and energy business account for 1:1 of EBITDA by fiscal 2029.
Review of FY2022 and Progress of the Medium-Term Management Plan
In fiscal 2022, sales from facilities sales operations were zero due to the decision to forego the initially planned sale of power generation facilities as a result of the TOB for TIF, and its inclusion in the Company’s scope of consolidation as a subsidiary. The Company also posted an operating loss of 956 million yen due to initial costs incurred in connection with the TOB. On the other hand, regarding revenue gained from the sale of electric power, net sales reached a record high of 9.0 billion yen, and gross profit increased 37.7% from the previous fiscal year. In addition, the Fujisan Asagiri Biomass Power Plant has com- menced generating electricity, and we are also starting to produce results from renewable energy projects other than from solar power generation.
The Company has already achieved its goal for cumulative power generation capacity of 360 MW set under its Medium- Term Management Plan, and has established a target of expanding the operating income composition ratio of the energy busi- ness to 25% in fiscal 2026, and to 30% in fiscal 2029. This fiscal year is a major turning point for achieving that goal. Going forward, in addition to building out businesses that do not rely on the FIT scheme, we intend to broadly realize regional revital- ization and contribute to society through the stable supply of energy, and we will make further efforts to develop renewable energy facilities beyond solar power and to expand the PPA model.
Business : 03
Asset Management Business
Business Overview
Due to the change in business segments which took place in fiscal 2022, the management compensation portion of the other busi- ness segment was separated as a stand-alone business and renamed the asset management business. Utilizing the Group’s wealth of expertise, knowledge, and networks in real estate and renewable energy, the MIRARTH HOLDINGS Group works through its asset management company to manage J-REITs, private placement, and other funds.
Review of FY2022 and Progress of the Medium-Term Management Plan
Net sales in the asset management business declined 16.6% compared to the previous fiscal year, to 1,096 million yen, while operating income fell 45.7% year on year, to 322 million yen. These declines were attributable to the loss of planned acquisition fees due to the TOB for TIF. The operating income composition ratio for this business in fiscal 2022 was 4.6%.
In its Medium-Term Management Plan, the Company has set the target of expanding the operating income composition ratio of the asset management business to 9% in fiscal 2026, and to 15% in fiscal 2029. The earnings structure of this business will grow in line with increases in assets under management of the various funds managed by the MIRARTH HOLDINGS Group. Our goal is to achieve an asset scale of 300 billion yen from each of our various funds by March 31, 2025. As a result of steady accumulation, the asset scale was approximately 250 billion yen on an acquisition price basis as of the end of March 31, 2023.
Future Strategy
For fiscal 2023, we project net sales to decrease by 25.2%, to 820 million yen, and operating income to decline 96.9%, to 10 million yen. We plan to offset management fees on a consolidated basis by making Green Energy LLC a consolidated subsidiary.
Since the type of expertise required in the asset management business differs from that of the Group companies, we will develop and strengthen human resources capable of providing services that satisfy investors, while also utilizing outside personnel.
Business : 04
Other Businesses
Business Overview
The MIRARTH HOLDINGS Group is actively engaged in a wide range of business activities related to people’s housing needs, which continue to evolve in a myriad of ways. The other busi- nesses segment includes the construction subcontracting busi- ness carried out by Leben Home Build Co., Ltd., the rehabilitation services business handled by Leben Community Co., Ltd., and the direct management of hotels by Leben Hotels Co., Ltd.
Review of FY2022 and Future Strategy
In fiscal 2022, net sales from the other businesses segment were up 45.7% from the previous fiscal year, amounting to 4,219 million yen, mainly owing to contracts for construction work and hotel management. Net sales for fiscal 2023 are projected to increase due to a steady accumulation of construction orders in the construction business. In addition, the Company plans for hotel management to pivot to profitability from fiscal 2023, and projects operating income to turn positive. In the future, the MIRARTH HOLDINGS Group will work to definitively capture earnings opportunities derived from other segments and expand peripheral businesses while strengthening synergies across the Group.