medium-term management plan · medium-term management plan ©2016 daikyo incorporated, all rights...

Medium-term Management Plan

©2016 DAIKYO INCORPORATED, All rights reserved.

November 2, 2016

Create NEW VALUE 2021 -New Value Creation through Real Estate Solutions-

JAPANESE PARA-SPORTS

ASSOCIATION

Official Partner


Medium-term Management Plan (From the fiscal year ending March 2017 through fiscal year ending March 2021)

2

1. Initiatives for Responding to Business Challenges

2. The Daikyo Group’s Medium-term Management Plan

3. Business Strategy

4. Management Goals

5. Shareholder Return Policy

6. ESG Initiatives


Initiatives for Responding to Business Challenges

Promoting a radical review to move away from an earnings structure focused on condominium

development, which is easily influenced by economic fluctuations

Operating Income Since 2000 (100 million yen)

• Real estate management business

• Real estate brokerage business

• Real estate development and sales

business

Strengthening Financial Base • Increasing shareholders’ equity ratio

• Reducing Interest-bearing debt

• Improving D/E Ratio

3

Constructing a Business Base • Expanding our Customer Base

• Enhancing our Business Systems

Year ended March 31, 2005

Second bailout

Year ended March 31, 2009

Collapse of Lehman Brothers

(440)

(204)

200

Plan for year

ending March 31,

2017

Expansion of Business

Enhancement of Profitability

Valuing Turnover/Profitability

Change of Earnings Structure


Change of Earnings Structure

4

Establishing double-pillar stock and flow businesses style of management, based on a

management policy that values consistency and continuity

Approx. 330 thousand units

Approx. 90 projects

Approx. 530 thousand units

Approx. 6,000 projects

Inventory Turnover *1

Condominium Gross Profit

Margin

Number of condominium units

managed

Number of facilities managed

0.73

18.5%

1.09

22.9%

*1 Inventory Turnover = Real Estate Marketing Cost ÷ Real Estate Inventory

Renovated Condominium

Units delivered 0 units

Year Ended March 31, 2008 Year Ended March 31, 2016

123 locations 435 locations Business Locations

Net Sales Ratio

1,236 units

Management

Development

and sales

Brokerage

Group

Stock

business

22% Flow

business

78%

Stock

business

64%

Flow

business

36%

- Stock business -

- Flow business -


Strengthening Financial Base

5

¥228.6 billion ¥38.4 billion

Shareholders’ Equity Ratio

(Target : 30% or over) 24.2% 60.5%

BBB+ (Positive) *2

A (Stable) *2

Year Ended March 31, 2008 Year Ended March 31, 2016

Reconstructing our balance sheet achieves our goals.

Enabling flexible investment in growth, while maintaining financial soundness

D/E Ratio

(Target : Under 1.2)

Interest-bearing Debt

2.03 0.23

Ratings

Rating and Investment Information, Inc.

(R&I)

Japan Credit Rating Agency (JCR)

BBB (Stable)

BBB (Positive)

*1

*1 Target set in year ended March 31, 2011

*2 As of October 31, 2016 and March 31, 2016, ratings were BBB+ (Stable) from R&I, and A- (Positive) from JCR.

*1


Constructing a Business Base

Business

Expansion

47 Prefectures

Business

Locations

435 Locations

Number of

Condominium

Buildings

Managed

9,900+

Number of

Condominiums

Managed

530,000

Facilities

Managed

6,000+

Ample Customer Base

Suppliers

12,000+ Companies

6

Business Base for a Nationwide Network

We are the only* company that conducts development and sales as

well as management in all 47 prefectures of Japan.

Japan’s highest total number of

condominiums sold and managed

Group wide business system that

“supports the customer’s lifecycle”

*Includes 3 overseas countries

Lifetime Relation System

Repair and

maintenance

Remodelling

Development

Redevelopment

Construction

Sales

Management

Brokerage

Leasing

*Based on internal research


Formulation of a Medium-term Management Plan

7

Business Base

• Change of Earnings Structure

• Strengthening Financial Base

• Constructing a Business Base

External Environment

• Changes to the Social Environment

• Outlook for the Business Environment

Management Strategy

• Growth Strategy

• Shareholder Return Policy

To the Next Stage

Formulation of a Medium-term

Management Plan

Ensuring double-pillar stock

and flow businesses style of

management

Year Ended March 31, 2016

Formulating a medium-term management plan to ensure double-pillar stock and flow businesses

style of management, and to progress to the next stage

©2016 DAIKYO INCORPORATED, All rights reserved. 8




4. Management Goals


6. ESG Initiatives


Aging Infrastructure

External Environment

9

Population

Regional Transportation Infrastructure

New Houses

Foreign Labor

Redevelopment

PPP/PFI

Share XX

Elderly AI/IoT

Residential Property Stock

Labor

Homemakers

Decreasing Increasing

Insufficiencies and surpluses will change greatly due to shifts in demographics, diversification of

values, and technological progress.

Roadside Stores

Surplus Insufficiency

Schools

Old Earthquake-resistant

Buildings

Parking Lots

Mountains and Forests

Nursery and Childcare Facilities

Crematoriums

Nursing Facilities

and Services

Housework and Childcare Time

Community

Local Tax

Working from Home

Public/Private and

Industry/University Cooperation

Children

Vacant Rooms and Vacant

Buildings

Farmland

Detached Houses

Time spent by the Elderly

Waste

On-site Work

Traffic Accidents

Fiscal Policies

Natural Energy

Wireless Communication Moving toward an

age of utilizing

social assets

effectively

Furniture and Appliances


External Environment – Condominium Management

10

The market for condominium management is expected to steadily expand, as the number of stock condominiums increases.

'15 '20 '25 '30

Large-scale Condominium Repair and Maintenance

Market (billions of yen)

422.0

494.0 472.8

549.3

Based on internal estimates *1 From the Ministry of Land, Infrastructure, Transport and Tourism’s national condominium stock

figures. Figures from 2016 onwards rely on internal estimates.

*2 Based on internal estimates

Business Trends Rising demand to stay permanently in the same residence, aging of buildings,

increase in condominiums in need of large-scale repair and maintenance work

'15 '20 '25 '30

Number of condominium units managed (thousand units)

Ratio of Condominium Stock more than 30 Years Old

6,230 6,770

7,260 7,670

24%

32%

40%

50%

Estimated are based on the Company’s estimates of new construction, etc.,

which are based on a survey of outsourcing trends (JPMA).

(Composition of stock for the year in question with total stock given a value of

100)

＊1

＊2


Japan U.S. U.K.

220 250 260

'13 '14 '15 '20

External Environment – Real Estate Brokerage

11

340

Pre-owned home sales (thousand units)

*1 “The 2030 Housing Market,” Nomura Research Institute (June 7, 2016)

*2 Daikyo estimates based on data from the “Basic Plan on Housing” (Cabinet

approval on March 18, 2016)

Pre-owned home sales are expected to keep increasing due to policies of the Japanese government to

“promote existing home sales and use of vacant homes.”

International comparison of the

average lifespan of houses (years)

‘25

*1

*2

Basic Plan on Housing (excerpts)

Data related to housing and the economy for fiscal 2015, Ministry of Land,

Infrastructure, Transport and Tourism (MLIT)

Development of a new means of

recurrent home use that goes

beyond the notion of individuals

climbing Japan’s “residence

sugoroku” ladder of house options

Inspections

Appraisal methods

Promoting use and demolition of

rapidly increasing number of vacant

homes

Relocating to rural areas and

alternately living in dual

residences

Conversion of housing to other

uses

32.1

66.6

80.6


107

120

115

122

'11年度 '12年度 '13年度 '14年度 Fiscal 2011

Fiscal 2012

Fiscal 2013

Fiscal 2014

External Environment – Real Estate Development and Sales

12

In major urban areas, the issue of densely populated residential districts is expected to be resolved, while compact

city designs become more prevalent in Japan’s regional cities against a backdrop of regional revitalization and

building of national resilience. Because of these factors, the redevelopment business is expected to grow.

Urban Renewal Association of Japan 2016 Basic Plan on Housing (Cabinet approval on March 18, 2016)

'08 '12 '15 '20

Mostly resolved

(objective)

0

6,000

4,450

(Preliminary reports)

Objectives approved by the Cabinet in

September 2006

<Mostly eliminated by 2020>

Progress behind

schedule (currently)

Redevelopment projects (Number of districts with projects underway)

Land area of densely populated residential districts

that pose extreme danger in the event of an

earthquake (ha)


Vision

Aims of Medium-term Management Plan

13

1. Business domain expansion

Products, services, target customers

2. Utilization of assets

Redevelopment business, ownership of rental

properties

3. Promoting research and development

Unmanned operations, mechanization, longer-

lasting buildings and equipment

Combining “consistency” with “sustainable growth” while

maintaining a profit balance between real estate management,

brokerage, and development & sales

Profit breakdown

Operating income ratio

Real estate

development

& sales

Fiscal 2015 Fiscal 2020

Growth strategy

50%

50%

* Stock-oriented society: A society designed to bring about economic comfort and while minimizing environmental impact through development of longer-lasting housing and other forms of

social infrastructure.

We aim to create new value through real estate solutions, and accumulate social assets that will be

passed down to the next generation in order to help make the vision of a stock-oriented society(*) a reality.

Real estate

brokerage

Real estate

development

& sales

Real estate

management

Real estate

brokerage

Real estate

management


(*1 Resolutions) Solutions that repurpose surpluses to cover insufficiencies in order to help make the vision of a stock-oriented society a reality

(*2 Stock-oriented society) A society designed to bring about economic comfort and while minimizing environmental impact through

development of longer-lasting housing and other forms of social infrastructure.

pair Re

novation Re

nt Re

search & Development Re

development Re

modeling Re

Re al Estate Re

solution Re

+

Making Japanese communities more vibrant

<Vision>

「ストック型社会（*2）の実現に向け、不動産ソリューションで新たな価値を創造し、次世代に継承される社会の資産を蓄積する」ことを目指します。

Key message

Medium-term Management Plan – Key Message

14

al Estate Re Re

solution Re

<Re-Plus>

（*1）

We aim to create new value through real estate solutions, and accumulate social assets that will be passed

down to the next generation in order to help make the vision of a stock-oriented society(*2) a reality.


search

& Development

Re

Promotion of property management

mechanization and labor-saving solutions

using cutting-edge technologies

development Re

Enhancement of building renewal projects,

urban development projects, and

redevelopment projects

nt Re

Ownership and management of rental real

estate properties that contributes to long-term

profitability

modeling Re Capturing greater market share in the

remodeling business and expanding into

external markets

novation Re Entering the business of detached house

renovations drawing on our expertise in the

realm of renovated condominiums

Priority Themes of the Growth Strategy

15

Re

Re pair

Capturing greater market share in the

repair and maintenance business and

expanding into external markets

<Re-Plus>


modeling





4. Management Goals


6. ESG Initiatives


Business Domain Expansion – Re-Plus (1): Condominium Repair and Maintenance Business

17

We will make full-scale entry into external markets beginning in fiscal 2016.

We aim to achieve repair and maintenance sales of ¥50 billion and 10% market share by fiscal

2020.

pair

16/3期 21/3期

Size of market for large-scale condominium repairs and maintenance

(billions of yen)* /Daikyo’s share of the market

422

494

7.5%

Target

Operational

framework

Re

Daikyo’s sales: ¥31.7

Non-Daikyo

sales

* Based on internal estimates

Daikyo’s share

of the market

10% Cost

competitiveness Sales capabilities

50

Challenges and plan of action toward achieving goals



2,120 2,500

3,000

4,500

'03 '08 '13 '21 13/3期 16/3期 21/3期 Fiscal 2012 Fiscal 2015

Fiscal 2012

Enter the renovated detached house business.

Increase sales of renovated dwellings to 2,500 units by Fiscal 2020.

novation Re

Sales of renovated dwellings (units)

2,500

1,236

Moving ahead in the detached

housing renovations business Detached house

Condominiums 595

Fiscal 2020

target

Detached house vacancies

(thousand units)

• Detached house vacancies increasing

• Reduction in home vacancies due to national policies

• Growing demand for home renovation

Business

environment

*1 Basic Plan on Housing (Cabinet approval on March 18, 2016)

*2 Based on internal research

18

＊2

＊1

Business Domain Expansion – Re-Plus (2): Renovations Business


Business Domain Expansion – Re-Plus (3): Remodeling Business I

19

modeling

Cost of construction work performed on

residences ordered by private companies and

other entities (billions of yen)

Re

“Building Extension and Renovation Survey,” Ministry of Land, Infrastructure, Transport and Tourism (MLIT)

213.8

453.4


In addition to remodeled residences for individual owners, we will enter the remodeling business for

residences, rental condominiums, and single buildings owned by corporations and other entities.

B-to-C

remodeled

residences

Large-scale

repairs and

maintenance

New

construction

Whole-building

remodeling of

company housing

Amount of sales, period of construction smaller/

shorter larger/

longer

General

contractors Local builders

Remodeling work on single residential buildings entails little

involvement of general contractors, but significant involvement of

local builders


Business Domain Expansion – Re-Plus (3): Remodeling Business II

modeling Re

Example of remodeling work for single residential buildings

One building with 36 units and built 37 years ago; Remodeling work schedule: March

2016 to July 2016

Before remodeling After remodeling

20


Utilization of Assets – Re-Plus (4): Rental Property Business

21

We are developing our Rental Property Business, which leverages Daikyo Group resources in areas such as

property acquisition and rental management. We are also building a platform for consistent revenue generation by

maintaining long-term ownership of holdings in our stock businesses.

nt Re

Rental properties

Brokerage Lease

management Remodeling

Performing operations

within the DAIKYO

Group Up to now Going forward

Main source of earnings

Gains on sales Income from leases

Duration of ownership

Short-term Long-term

Means of utilization

Sold after remodeling

Subleasing Shared residences

Remodeling showrooms

etc.


There are currently 16 redevelopment projects underway mainly for properties in core regional

cities of Japan.

From fiscal 2020 onward, our plans anticipate ongoing sales on the scale of ¥10.0 billion each

fiscal year.

development

22

Re

Utilization of Assets – Re-Plus (5): Redevelopment Business I

Redevelopment projects by

geographic area

• Project listings

• Projects underway

Lions Ogaki-ekimae Laurel Tower

Ogaki, Gifu

(Slated completion September

2016, sold out)

Lions Tower Kashiwa

Kashiwa, Chiba

(Slated completion May 2016,

sold out)

Completion in fiscal 2016

Completion in fiscal 2016


We help deliver solutions to challenges faced in local areas as we bring landowners and

government officials together, and accordingly provide support for heightening community-wide

asset values and achieving sustainable revitalization.

development

• Office network extending to regional cities across Japan

• Strong brand recognition and a robust financial base

• Group-wide business system that lends support to customer lifestyles in

areas encompassing real estate development, construction, sales and

management

Strengths of the Daikyo Group

Re

Government

Members of local

communities

Daikyo Group

Landowners

Community associations

and shopping districts

Urban planning decisions

Subsidies

Tax incentives

• Addressing needs for disaster preparedness and mitigation (upgrading

and fireproofing buildings, widening roads)

• Generating liveliness and activity (establishing facilities that offer

lifestyle conveniences)

• Providing a high level of social welfare and well-being (bringing together

public facilities and urban functions)

Challenges facing local communities and governments

23

Development & construction

Sales & management

Re

Utilization of Assets – Re-Plus (5): Redevelopment Business II

©2016 DAIKYO INCORPORATED, All rights reserved. ©2016 DAIKYO INCORPORATED, All rights reserved.

development Re

24

Takashimaya Minami Urban

Redevelopment

Gifu City, Gifu Prefecture

35 above-ground floors and

1 basement floor

Height: Approx. 130 m

Site area: 6,500 m2

High-rise tower, with retail

facilities, public facilities,

and residences

Utilization of Assets – Re-Plus (5) Redevelopment III (Case 1)

Conceptual Drawing


Conceptual Drawing

Conceptual Drawing


development Re

25

South 2 West 3 South-west District, Chuo-ku Sapporo, Hokkaido

28 above-ground floors and 2 basement floors

Height: Approx. 122 m

Site area: Approx. 3,700 m2

High-rise tower, with retail facilities

and residences

Utilization of Assets – Re-Plus (5) Redevelopment IV (Case 2)


Conceptual Drawing

Conceptual Drawing


Research and Development – Re-Plus (6) Utilization of ICT

26

Research themes are automation, mechanization, and longer lasting buildings and equipment.

With overseas expansion on the horizon, we are also pursuing R&D through corporate alliances and

collaboration with universities.


AI

IoT Robots

Collaboration with

Universities Corporate

Alliances

In-house Research

Real Estate Tech

Innovation

Global

*1 Image provided by OPTiM Corp.

*2 Image provided by Kagawa University

Automation

Long Life

Mechanization


Research and Development – Re-Plus (6) Overseas Expansion

27

At present, we have expanded into 3 overseas countries. We will promote research and investment during the

period of this plan, with the aim of expanding our business and contributing to profitability in the next 5 years.


Market Analysis and Research Identifying businesses that are capable of overseas

expansion

Selecting countries, investment targets, and partners

Year Ended March

31, 2016

Year Ending

March 31, 2021

Investment in and Development of Personnel Securing foreign personnel from other sectors

Selecting global personnel who will accrue local experience

Business Expansion and

Contribution to Profitability

Building a

Foundation

Taiwan

Hong Kong

Australia





4. Management Goals


6. ESG Initiatives


Management Goals

29

60.5％ 50％ or more

Operating

Income ¥28.0

billion or more

Year Ending March

31, 2021 Year Ended March

31, 2016

Shareholders' Equity Ratio

ROE = Current Profit ÷ Shareholders'

Equity Ratio (average of beginning

and end of period)

¥18.3 billion

7.8％ 9% or more ROE

* Based on the assumption that loss carried forward

will have no impact

(ROE for the year ended March 31, 2016, taking into

account loss carried forward: 7.1%)

Reference

Growth Potential

Capital Efficiency

Financial

Soundness

：

：

：


Investment Plan

30

We will be conducting new investments aimed at making progress during the operation of the plan and

thereafter.

Direct ¥150 billion to growth investment by the year ending March 31, 2021.

Investment Field Invested Sum (Total) Relevant Areas

Real Estate

Investment ¥100 billion

• Inventory real estate owned by our Group’s

development and sales, and brokerage businesses

• Securing rental assets

Strategic Investment

¥50 billion

• M&A, etc., related to condominium management,

building and facility management, detached house

brokerage, and repair and maintenance work

Research and

Development

Investment

• Research and development related to automation,

mechanization, remote work, and longer-lasting

buildings and equipment, etc., using AI, and the IoT, etc.

Total About ¥150 billion*

*Invested sum (total) is net investment


Risk Management Policy

31

Monitoring risk from the real estate, business, and finance perspectives.

Real Estate

• Balancing non-assets and assets:

Operating income from the real estate management segment is 50% or more

of total

Business

Finance

• Equity ratio of 50% or higher

Risk Monitoring System

• Risks are weighted according to the attributes of each piece of real estate and the

period of the project.

The maximum potential damage to capital is calculated, and this amount is

earmarked as the allowance for risk (refer to diagram on the right).

• The following businesses limit risk to within the scope of surplus capital.

Eq

uity

Core

Capital

Allowance

for Risk

Surplus

Capital

<Diagram>





4. Management Goals


6. ESG Initiatives


Shareholder Return Policy (1)

33

Our basic shareholder return policies are stability, continuity, and enhancing sustainable returns.

20.1%

36.2%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0

20

40

60

80

100

120

140

Fiscal 2015 Fiscal 2016 Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020

Dividend Payout ratio

*1

*1 Refer to the next page for details

Dividend and Pay-out Ratio


Shareholder Return Policy (2)

34

The dividend for common stock for the year ending March 31, 2017 will rise to ¥6 from the previous forecast

of ¥4. In addition, a total treasury stock acquisition limit of ¥10 billion has been set.

Dividend per

Share of

Common Stock

Pay-out Ratio

Acquisition of

Treasury Stock

Results for year

ended March 31,

2016

Forecast for year

ending March 31,

2017

Revised forecast for

year ending March 31,

2017

3 yen 4 yen 6 yen

20.1% 24.1% 36.2%

10 billion

*2 No regard given to reduction in common stock due to acquisition of treasury stock on or after October 1, 2016

*2

*3 Total purchase price limit

*3

*1

*1 Announced on May 10, 2016





4. Management Goals


6. ESG Initiatives


Leveraging the collective strengths of the

Group, Daikyo strives to create a harmonious

living environment through housing products

and services that satisfy the needs of all age

groups and lifestyles.

The Daikyo Group’s Management

Philosophy

* Stock-oriented society: A society designed to bring about economic comfort and while

minimizing environmental impact through development of longer-lasting housing and other forms

of social infrastructure.

The Group aim to create new value

through real estate solutions, and

accumulate social assets that will be

passed down to the next generation in

order to help make the vision of a

stock-oriented society(*) a reality.

Aim

ESG Diagram

Bu

sin

es

s

Activ

ities

Brokerage

Leasing

Construction

Sales

Management

Repair and

maintenance

Remodeling Development

Redevelopment

ESG Initiatives

36


This document was prepared in English for convenience purposes only. The original

Japanese document shall take precedence in the event of any discrepancies arising from the

translations or interpretations contained in this document.

The current plans, outlook, strategies, etc., of the Company contained in this document that

are not historical facts are forward-looking statements regarding future performance, and are

based on the judgment of the Company derived from the information currently available to the

Company.

Accordingly, we ask that readers do not place undue reliance on these forward-looking

statements only. Please be aware that actual performance may differ materially from these

forward-looking statements due to various important factors arising from changes in the

external environment and internal environment.

Factors that could cause results which differ from these forward-looking statements are

contained in the “Risk Factors” section of the Annual Securities Report the Company submits

to the Director of the Kanto Local Finance Bureau, but they are not limited to only these

factors.

Furthermore, the only purpose of this document is to provide information; it does not have

the purpose of soliciting or recruiting investment in the securities issued by the Company.

Disclaimer regarding this Document

medium-term management plan · medium-term management plan ©2016 daikyo incorporated, all rights...

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