■ Business Overview and Others

1. Business Development Focused on Market Creation through Space Sharing

The "Meeting Room Business" that Tee K.P. <3479> has focused on as its main business involves renting underutilized assets, low-yield properties, and unprofitable assets at a low cost from property owners, 'rebuilding' the 'space' into meeting rooms and banquet halls, and providing added value as a sharing economy. By acquiring real estate through Unusual Options Activity (discounts) via leases from property owners, renovations such as lighting, carpet, and wallpaper are carried out to make it usable for meeting rooms, along with adding surrounding services such as catering, Lodging, and various options. Customers are primarily corporations seeking meeting room usage, which offers numerous benefits such as cost reduction, business consolidation, and multi-purpose utilization compared to owning their own meeting rooms. Therefore, the company's business can be said to effectively connect the supply side wishing for Unusual Options Activity and the demand side seeking small sales and sharing. Furthermore, by providing solutions that add content services (operational management, systems, training packages, etc.) to the space, the company aims to improve profitability per space by flexibly responding to demand at any given time.

Additionally, it features a 'non-ownership management' approach. As procurement is primarily based on lease agreements, 52.8% of the variable rent (linked to revenue and profit ratios, etc.) minimizes the impact of real estate prices and economic fluctuations on performance (as of the end of August 2024), which is a critical difference from the risks that conventional real estate companies possess. However, for the hotel business, where high occupancy rates can be consistently expected, a portion is intentionally owned to ensure high profitability while also preparing for liquidity whenever needed.

2. Characteristics of the Revenue Model

The 'Meeting Room Business' features a flow-type revenue model based on hourly rentals. The use cases of TKP Meeting Rooms are diverse, and in addition to the basic operation of meeting rooms, the ability to add surrounding services such as food and beverage, planning, and equipment rental becomes a growth point; therefore, this business uses 'revenue per tsubo' as its KPI (Key Performance Indicators) instead of the occupancy rate. With the recovery in demand for food and beverages and the expansion of the soft sector (event production, etc.), the aim is to increase 'revenue per tsubo'. The average time to reach the breakeven point is three months from opening, and achieving cruising speed within twelve months indicates that this revenue model enables relatively early monetization.

3. Network of Locations

TKP operates 267 locations and 2,103 rooms (0.16 million tsubo) of corporate meeting rooms concentrated in major cities within Japan (as of the end of August 2024). They are divided into six grades according to usage purpose, scale, and budget, ranging from high-priced facilities, including 'CIRQ (Silk)', a co-brand with Escreed <2196>, which has 59 facilities and 216 rooms*, Garden City PREMIUM (GCP) with 31 facilities and 342 rooms, Garden City (GC) with 43 facilities and 496 rooms, Conference Center (CC) with 52 facilities and 658 rooms, Business Center (BC) with 23 facilities and 181 rooms, and Star Meeting Rooms with 27 facilities and 54 rooms. Additionally, within lodging facilities such as 'Rektore', 'Ishino-ya', and those operated under franchise by 'APA Hotel', there are 32 facilities and 156 rooms**.

This began with a capital business partnership with Esclir, which operates wedding facilities nationwide, started in July 2020. The plan is to transform Esclir's idle facilities into the co-branded "CIRQ" mainly on weekdays, utilizing them as venues for parties and gatherings of client companies. It should be noted that the number of facilities under "CIRQ" also includes the bridal facilities of Nova Ltd, with which a business partnership was established in June 2024 (35 facilities).

Among these, there are 28 directly operated facilities (including those before opening).

4. Surrounding Business

One of the differentiation factors from other companies engaged in the rental conference room business is the development of surrounding services. The company responds to a wide range of customer needs through the provision of food and beverages, Single Options, Lodging, etc. The food and beverage offerings consist of catering, bento, cafes, and Restaurants, particularly catering and bento have become indispensable surrounding services for applications involving meals at social gatherings in rental conference rooms. Due to the impact of the COVID-19 pandemic, the struggling food and beverage department (catering) was temporarily downsized (outsourced), but with the recovery of demand, in-house production is being advanced again, contributing to the improvement of recent performance.

In addition, the company also provides a wide range of Single Options. One example includes the provision of simultaneous interpretation systems, video conferencing systems, training coordination, installation and operation of audiovisual equipment, office Furniture, and equipment rentals, as well as COVID-19 countermeasure supplies, enhancing customer convenience. In recent years, due to the surge in online event demand triggered by the pandemic, webinar projects seem to have increased. Furthermore, with the resumption of real events, there are also more opportunities to produce events with high entertainment value, making the provision of added value through surrounding services increasingly important as the company evolves from selling space to providing content within the space.

Moreover, based on customer requests, Lodging training facilities (28 directly operated facilities, including those before opening) are also offered, which are used during training trips and company trips. As directly operated facilities, the company runs resort-style seminar hotels such as "Rectore" (7 facilities), high-class resort-style seminar inns like "Ishinoya" (two facilities in Izu Nagaoka and Atami), and urban resort lodging facilities like "Bayside Hotel Azure Takeshiba," in addition to a newly launched in-house brand "TKP Sunlife Hotel." As for franchise-operated facilities, the company develops "APA Hotel" (15 facilities) as a hybrid hotel with conference rooms (as of the end of August 2024).

Recently, even large corporations seldom own their own Lodging facilities, and even if they do, it is often challenging to operate them due to costs. The company aims to capture such corporate needs to increase the repeat rate. Moreover, the famous high-end inn "Ishitei" was struggling with low occupancy but has improved its management by rebranding as "Ishinoya" and capturing corporate demand on weekdays, offering many advantages from the viewpoint of effective asset utilization. Furthermore, the company offers a one-stop series of services not only for rental conference rooms but also for meals, equipment, lodging, and transportation arrangements, which is highly convenient for customers and is why the company enjoys broad support. Currently, as moving towards the post-COVID period, companies are emerging that advance communication activation through Lodging training and promote work style reform through workation, indicating an expanding trend in demand. Looking ahead, the company is also eyeing the influx of inbound MICE demand from various countries in Asia.

※ The acronym for Meetings (conferences held by corporations), Incentive Travel (reward and training trips organized by corporations), Conventions (international conferences held by organizations and academic societies), and Exhibitions/Events (trade fairs, exhibitions), which collectively refers to business events expected to attract significant attendance and interaction. (Quoted from the website of the Japan Tourism Agency, Ministry of Land, Infrastructure, Transport and Tourism)

(Written by Fisco Guest Analyst Ikuo Shibata)