■Sun Frontier Real Estate ＜8934＞ Business Overview

3. Hotel and tourism business

In the hotel and tourism business, we are involved in “hotel management business,” “hotel development business,” and “regional revitalization business.”

The “hotel management business” is based on the theme of “a warm and fun hotel,” and aims to be a high-quality, comfortable, and private hotel that values local culture and history. Due to the brand development of “HIYORI HOTELS & RESORTS,” they are classified into “BUDGET,” “ECONOMY,” “UPPER MIDDLE,” “UPPER,” and “LUXURY,” and they operate 3,144 rooms (as of 2024/11).

The “hotel development business” plans and proposes the most effective use of hotels, such as hotel construction through in-house development and renewal of existing hotels under our own brand. In hotel development, there is a business system where the company group buys real estate owned by the customer and constructs and operates a hotel, and a business system where existing hotels are purchased and renewed and operated by the company group. In addition, there are building lease development systems, land lease development methods, and hotel ownership businesses operated by other companies. In addition to hotel development, regeneration is being carried out into high-profit hotels by creating added value from the customer's point of view. The reclamation work is carried out collectively by the company group, from planning and drafting, construction design, material procurement, process progress, and delivery, so they are particular about details and renovated into high-quality real estate that is easy to use and has a sense of cleanliness. In order to regenerate a hotel, not only the building but also the restoration of the operation is important. Efforts aimed at regeneration are being carried out in parallel with staff working at the hotel.

The “Regional Revitalization Project” is working on a business with the theme of appeal and features unique to that region. The background of this project is a rapid increase in foreign visitors to Japan who are fascinated by the culture, history, nature, food, hot springs, hospitality, etc. that Japan is proud of, and the business started from Sado Island in Niigata Prefecture, which is also the birthplace of the founder. Regional revitalization is being promoted on Sado Island centered on the tourism industry, and employment for over 100 people has already been created. Furthermore, it has expanded into Miyakojima in Okinawa Prefecture based on the operation of the hotel business, and is continuing to challenge regional revitalization projects that make use of the appeal unique to that region, looking at regions with “the splendor of Japan.”

4. Other businesses

Other businesses include “overseas development business” and “construction business.”

The “overseas development business” has expanded into Vietnam, where growth can be expected, and is developing a real estate development business centered on condominiums, houses, etc. using advanced Japanese construction technology. In the urban high-rise condominium business, we develop, sell, and operate high-rise condominiums in Danang City, which is located in central Vietnam. The “HIYORI Garden Tower” was completed in 2019/12, and 306 residences have been sold out. Also, as the second condominium project, construction of the “HIYORI Aqua Tower” began in 2024/8, and it is scheduled to be completed at the end of 2026/9.

The “construction business” carries out renewal planning, repair/renovation work, interior finishing work, telecommunications work, etc. of commercial buildings. By producing renewal of building spaces, exterior, and entrances, and creating spaces that are attractive and easy to use for tenants, tenant satisfaction is increased, leading to improvements in the competitiveness and asset value of buildings owned by owners. High quality and cost efficiency are achieved by providing a one-stop service from current situation analysis, consulting, and design to design and construction.

5. The Group's strengths

One of the strengths of the company group is its ability to provide in-house one-stop services in the real estate rehabilitation business. Everything from building purchases to rehabilitation/utilization planning, construction work, tenant attraction, management, sales, and post-sale building management has been consistently manufactured in-house, creating high added value. This series of one-stop services is realized by collaborating between each division of the real estate service business (leasing management, building maintenance, asset consulting, late rent guarantee, rental conference room). The reason we are able to carry out such collaboration is that while the company group practices philosophy management, the credo spirit of “altruism,” which is the highest concept, firmly connects employees with each other.

In management accounting methods, an “amoeba management” system has been introduced. This classifies the group's business into small groups (amoebae) of 5 to 10 people, and aims to maximize profitability per hour for each amoeba (profit per hour = gross profit ÷ working hours). Each amoeba has a leader, and progress management is carried out for the annual budget/monthly budget (gross profit and amoeba per hour) set at the beginning of the fiscal year. The management accounting method using amoeba management not only establishes a departmental profitability system directly connected to the market, but also has advantages that lead to raising employee profitability awareness and developing management human resources through everyone's participation. By being in a small group, decision-making can be speeded up, and since it is possible to respond flexibly to changes in market needs due to changes in the environment, we consider it an effective management method.

6. Business environment

As a business environment surrounding the company, while the effects of interest rate cuts in Europe and the United States are expected in the global economy, there are concerns about changes in the Chinese economy and the situation in the Middle East and Ukraine. The IMF has left the real growth rate of the world economy unchanged at 3.2% in 2024 and 2025, and stable growth is expected. In the United States, economic growth is expected to continue in line with interest rate cuts, and policy trends after the presidential change are attracting attention. In Japan, improvements in real wages are expected as the gradual economic recovery continues, and policy interest rate hikes have been moderate even after the Bank of Japan lifted negative interest rates, and the overall trend has been steady. As prices continue to rise, a virtuous cycle of wages and prices is being formed, and expectations for sustainable wage increases are growing.

Also, in the central city office building market, rent increases and vacancy rates continue to improve, and investment motivation is also high. The amount of new office buildings supplied is declining, and it is expected that rent increases and vacancy rate improvements will continue as the movement to return to offices progresses. Although there is a possibility that interest rates will rise in the future, high investment motivation continues from wealthy people and institutional investors, mainly in Asia. Meanwhile, with regard to the hotel and tourism markets, inbound demand has expanded against the backdrop of a weak yen trend, and domestic travel demand is also strong. Travel consumption by visitors to Japan in 2023 exceeded 5 trillion306.5 billion yen, breaking a record high. The number of foreign visitors to Japan has also increased, reaching 2.87 million in a single month of September and 26.88 million in the cumulative total from January to September, surpassing the annual cumulative total of 2023 and recording a record high.

In such a business environment, the company's business is expected to grow steadily in the central city office building market and the tourism/hotel market. In the office market, rent increases and vacancy rates continue to improve, and investment demand is also strong, which is an important factor supporting the company's profit base. Furthermore, the depreciation trend of the yen has boosted inbound demand and contributed to the expansion of profits in the hotel business. Furthermore, the domestic economy is on a gradual recovery trend, and since a virtuous cycle of wages and prices is progressing, there is an environment where it is easy to receive support from a strong real estate market. Although there are concerns about geopolitical risks and changes in the Chinese economy, since Japan's policy interest rate hikes are moderate, the funding environment is also good, and we expect opportunities for stable growth and profit expansion from a comprehensive perspective.

(Written by FISCO Guest Analyst Ryoji Mogi)