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Property Data Bank (TSE: 4389), Japan’s Leading SaaS Cloud Innovator in Real Estate Management Powered by Big Data & Artificial Intelligence – H.E.R.O. Innovators Insights from CEO Toshimasa Itaya | H.E.R.O. HeartWare | 11 March

What is the value of an artificial intelligence (AI) in predicting for the REIT asset manager and commercial/retail store owner on how much sales can be made if a store is opened in this new place and in improving real estate management operating efficiency such as calculating the optimum rent and estimating the exit probability, vacancy period, renovation work investment effect?

Aeon Group’s Big A Corporation, an innovative Aldi-like deep discount retailer centered on fresh and processed food, is one of the clients deploying this AI cloud service from February 2019 in more than 200 stores in the Tokyo metropolitan area to visualize and evaluate the sales potential of the property in opening new stores and determine the “winning pattern” of existing high-performing stores with strong sales to adapt in other stores, so as to gain a competitive edge over other food grocers in terms of property acquisition and management.

This week, we highlight the under-the-radar listed Asian exponential innovator Property Data Bank Inc. (“PDB”) (TSE: 4389) who introduced in January 2019 its new Data Science Service cloud business utilizing AI to analyze the valuable data accumulated in its “@property” and external data such as real estate and geographical information to develop commercial facilities sales forecast and to improve the operational efficiency of real estate. PDB is Japan’s leading SaaS cloud innovator in integrated real estate and facilities management software “@property” which commands a dominant market leadership in J-REIT with a 56% share (33 out of 59 companies) and is adopted as the recommended system by the National Rental Property Management Association. In the larger REIT & Fund market, PDB is also the market leader with a 39% share (57 out of 147 companies). The structural force in the rise of the securitization of real estate led by J-REITs from 2000 has resulted in the demand for high disclosure frequency and precision of data required to report to investors and regulators. Conventional accounting software is inadequate in integrating accounting information and operational performance and PDB filled the gap to deliver a compelling cloud service in real estate and facilities management to serve the underserved customers.

Building upon its de facto standard leadership in the “rental real estate” market, PDB still has enormous expansion scope and a long runway for growth in the building maintenance and general CRE (corporate real estate) markets where its share is currently 3.5% (31 out of 882 companies) and 2.3% (41 out of 1,781 companies) respectively. Notable CRE clients include Nippon Life Insurance, Tokio Marine and Mitsui Fudosan who switched from their in-house systems to @property, shifting and entrusting their entire valuable property management work and data (Nippon Life has real estate nationwide valued at over 1.1 trillion yen; rental income from investment properties is becoming an important earnings and cashflow pillar for Tokio Marine) to be carried out using @property. A recent powerful structural force in the compliance and reporting requirement with IFRS for Japanese companies to adopt the new lease accounting standard IFRS 16 to list operational lease contracts as additional assets (estimated to be worth at least 17 trillion yen) on their balance sheet is another powerful long-term growth driver for @property.

With the compellingness and circumspection exponential edge in improving operational efficiency of real estate and facilities and providing powerful insights on real estate management using artificial intelligence in its new data science service business for its clients, PDB’s SaaS business model generates stable and recurring monthly subscription revenue based on the number of registered building data (260 subscribers and 45,793 buildings as at Sept 2018 vs 18,271 buildings at end March 2015 and 31,501 buildings as at end March 2016), achieving a 43% and 70% absolute increase in sales and operating profit in the recent three years and generates decent profitability with EBIT margin of 18.3%, ROE (= EBIT/ Equity) of ~17% and ROA of ~14%, propelling a 54% increase in market value since its listing on 29 Jun 2018 at the IPO price of 1,780 yen to US$48m in market cap. PDB also commands pricing power – unit price per company has increased 4% from 303,000 yen to 315,000 yen with new functions added. On 27 Feb 2019, PDB announced an upward revision in its year end March 2019 FY2019/03 results with sales being revised upwards by 6.5% to 1.614bn yen operating profit revised upwards by 20.5% to 295m yen, and an increase in proposed dividend from 20 yen to 25 yen per share. Thus, management expects FY2019/03 sales to increase 30.3% yoy and operating profit to rise 25% yoy. A 1-to-3 stock split will be implemented at end March 2019 to improve stock liquidity and expand the investor base. Balance sheet is relatively healthy with zero debt and 1.044bn yen (US$9.33m) net cash (370m yen raised from its IPO in Jun 2016) which is around 19.5% of market cap. PDB was founded in Oct 2000 as an intrapreneurship (in-house commercialization system) spinoff of Shimizu Corp (TSE: 1803) by Toshimasa Itaya and Hideki Takahashi who own a combined stake of 16.86% and Shimizu is the largest shareholder at 24.21%.

On the competitive edge of its new AI cloud service, CEO Itaya comments: “A big feature is that genuine contracts and real rental information are accumulated on @property. There are other systems that predict the rent of various real estate at a certain site, but most of them merely collect and analyze rents and search/listings information from the various websites. In the case of our company, we have genuine contract information and know the detailed situation, so it is possible to make detailed predictions. In addition, on the premise of continuous customer use, this service will secure stable earnings and the AI machine learning will strengthen the forecasting models according to usage over time, making it an innovative service that distinguishes from conventional business consulting etc. We are receiving strong inquiries from several companies developing multiple stores.”

The strength of @property’s valuable data accumulated and the quality of its customer base had also attracted a partnership since April 2017 with CAD/BIM (computer-aided design/building information modeling) software leader Autodesk (NASDAQ: ADSK) to support the improvement of building asset value through cooperation between BIM and real estate management cloud data to develop new applications and services that will support the efficiency of maintenance work, the extension of facilities’ lifetime, and the improvement of profit of investment real estate. Based on this partnership, PDB incorporates data necessary for property management and facility management from BIM data of Autodesk’s BIM software Autodesk Revit into @property.

CEO Itaya comments: “We will provide Japan’s first new asset management and facility management service utilizing BIM data. In many of the current buildings, owners and management companies independently own and use drawings and documents necessary for real estate management and maintenance, but the update status is different. Also, contract information on tenants, usage information on spaces, asset information on revenue and cost are often dissipated by documents, and they are not used because they do not link with the drawings either. Under such conditions, it is difficult for effective facility investment to be carried out taking into consideration the long-term cost of the building’s life cycle and future profitability. Furthermore, even in the evaluation of the real estate investment market, since the area calculation based on domestic regulations is different from the international calculation method, Japanese buildings will receive unfavorable evaluation. On the other hand, the new asset management service PDB will provide is based on the concept of ‘Property Information Modeling (PIM/ asset information management)’, a method and process that utilizes design information throughout the life cycle from building planning, design, construction and maintenance. It makes it possible to ‘visualize’, understand and share a wide range of data on asset management, such as information on structure and facilities, area and position of the space, implementation status of repair work. It becomes a comprehensive asset management database linked with inspection data such as tenant contract, revenue, cost, investment plan etc and inspection data such as equipment malfunction etc. By realizing PIM, the real estate owner can improve asset value of real estate and reduce management cost.”

Thus far, of the 64 entrepreneurs and CEOs whom we had highlighted in our weekly research brief HeartWare, around one-third are in our focused portfolio of 40 HERO Innovators, while the rest are in our broader watchlist of 200+ stocks.

We are thankful as always to be invited by John Mihaljevic, Chairman of MOI Manual of Ideas Global, to speak at the upcoming Asian Investing Summit 2019 to take place live online on April 10-11. We look forward to sharing with the MOI community of investors about the distinctive value opportunity in a selected group of under-the-radar Asian SMID-cap exponential innovators who generate high profitability and positive free cashflow in solving high-value problems for their customers and society with a higher sense of purpose, as well as the learning insights from our investment mistakes as the world shifts structurally from Value 2.0 (the world where Charlie Munger nudged Warren Buffett from the Ben Graham-style of statistically cheap net-net asset plays in Value 1.0 towards Value 2.0 in qualitative investing in outstanding companies at reasonable prices) to Value 3.0 where disruptive innovation forces sweeping across industries create ever more “value trap” losers and a selected under-the-radar group of winners with exponential edge.

Our emotional labor of love over the past months in sharing openly our research ideas (to battle-test our ideas by critiques and avoid blindspots in investing) and setting up the proper regulated and transparent UCITS fund structure to protect investors’ interests has deepened our conviction for the positive change that we will make together with H.E.R.O. – and we are now in the final stage of giving birth at end March 2019 to H.E.R.O., the only Asia SMID-cap tech-focused fund in the industry and guarding investors’ interests in the regulated UCITS fund structure with daily NAV & daily liquidity and no exit fees.

To our interested clients who have been asking, we sincerely apologize for the prolonged labor in the birth of HERO over the past months as we have been preparing for a coordinated delivery of our whole family of Swiss fund series at end March and HERO will also be invigorated with the healthy seed from farsighted committed long-term institutional clients to journey far to compound value for investors. Do watch out in the coming weeks for our press release on the birth and launch of H.E.R.O.

If you are not moving forward in this exponential world, you are going backwards. If you want to join us at the leading edge of opportunity, if you identify yourself in the values and bigger sense of purpose in H.E.R.O., or you wish to tell from your heart to your most important person, son, daughter, wife, husband, or best friend that you are a farsighted and thoughtful explorer in the H.E.R.O.’s Journey participating in the long-term exponential growth of a selected group of outstanding entrepreneurs, standing up for the embracement of the human spirit, please contact us via email or WhatsApp at +65 9695 1860. Thank you very much for your patience and support and we look forward to growing exponentially with you as we explore the H.E.R.O.’s Journey together.


“The timely consolidation of business information and collaborative information sharing is indispensable for the management of modern real estate and facilities. Our vision is to revolutionize our customer’s operations through aggregation of knowledge and value improvement to our customer assets. Real estate and facilities targeted by our customers are distributed all over the country. The skills of these administrative controls for close business collaboration among local management entrustees, branch offices, and the headquarter that controls them are not common. It is possible to dramatically improve business efficiency by linking real estate owners and management consignment companies in real time. We provide the integrated property management cloud service ‘@property’ with the aim to improving operational efficiency supporting the operation management of real estate and facilities owned by customers,” comments Toshimasa Itaya, founder and CEO of Property Data Bank Inc. (“PDB”) (TSE: 4839).

PDB is Japan’s leading SaaS cloud innovator in integrated real estate and facilities management software “@property” powered by big data analytics and artificial intelligence, commanding a dominant market leadership in J-REIT with a 56% share (33 out of 59 companies) and is adopted as the recommended system by the National Rental Property Management Association. In the larger REIT & Fund market, PDB is also the market leader with a 39% share (57 out of 147 companies). Building upon its de facto standard leadership in the “rental real estate” market, PDB still has enormous expansion scope and a long runway for growth in the building maintenance and general CRE (corporate real estate) markets where its share is currently 3.5% (31 out of 882 companies) and 2.3% (41 out of 1,781 companies) respectively. Notable CRE clients include Nippon Life Insurance, Tokio Marine and Mitsui Fudosan who switched from their in-house systems to @property, shifting and entrusting their entire valuable property management work and data (Nippon Life has real estate nationwide valued at over 1.1 trillion yen; rental income from investment properties is becoming an important earnings and cashflow pillar for Tokio Marine) to be carried out using @property.

Starting from Jan 2019, PDB introduced its new Data Science Service business utilizing AI to analyze the valuable data accumulated in @property and external data such as real estate and geographical information to develop commercial facilities sales forecast (predict how much sales per store if you open in this place), improve operational efficiency (e.g. calculate the optimum rent, estimate the exit probability, vacancy period, renovation work investment effect, determine ‘winning pattern’ of existing stores to adapt in others, etc). Clients adopting the new AI cloud service include Aeon Group’s Big A Corp, an innovative Aldi-like deep discount retailer centered on fresh and processed food who is deploying the service in more than 200 stores in the Tokyo metropolitan area. PDB also included all functions for its new Building Maintenance Edition in Jan 2019.

The structural force in the rise of the securitization of real estate led by J-REITs from 2000 has resulted in the demand for high disclosure frequency and precision of data required to report to investors and regulators. Conventional accounting software is inadequate in integrating accounting information and operational performance and PDB filled the gap to deliver a compelling cloud service in real estate and facilities management to serve the underserved customers. A recent powerful structural force in the compliance and reporting requirement with IFRS for Japanese companies to adopt the new lease accounting standard IFRS 16 to list operational lease contracts as additional assets (estimated to be worth at least 17 trillion yen) on their balance sheet is another powerful long-term growth driver for @property.

With the compellingness and circumspection exponential edge in improving operational efficiency of real estate and facilities and providing powerful insights on real estate management using artificial intelligence in its new data science service business for its clients, PDB’s SaaS business model generates stable and recurring monthly subscription revenue based on the number of registered building data (260 subscribers and 45,793 buildings as at Sept 2018 vs 18,271 buildings at end March 2015 and 31,501 buildings as at end March 2016), achieving a 43% and 70% absolute increase in sales and operating profit in the recent three years and generates decent profitability with EBIT margin of 18.3%, ROE (= EBIT/ Equity) of ~17% and ROA of ~14%, propelling a 54% increase in market value since its listing on 29 Jun 2018 at the IPO price of 1,780 yen to US$48m in market cap. PDB also commands pricing power – unit price per company has increased 4% from 303,000 yen to 315,000 yen with new functions added.

On 27 Feb 2019, PDB announced an upward revision in its year end March 2019 FY2019/03 results with sales being revised upwards by 6.5% to 1.614bn yen operating profit revised upwards by 20.5% to 295m yen, and an increase in proposed dividend from 20 yen to 25 yen per share. Thus, management expects FY2019/03 sales to increase 30.3% yoy and operating profit to rise 25% yoy. A 1-to-3 stock split will be implemented at end March 2019 to improve stock liquidity and expand the investor base. Balance sheet is relatively healthy with zero debt and 1.044bn yen (US$9.33m) net cash (370m yen raised from its IPO in Jun 2016) which is around 19.5% of market cap. PDB was founded in Oct 2000 as an intrapreneurship (in-house commercialization system) spinoff of Shimizu Corp (TSE: 1803) by Toshimasa Itaya and Hideki Takahashi who own a combined stake of 16.86% and Shimizu is the largest shareholder at 24.21%. Related-party sales contribution from Shimizu is small at around 1.7% as part of the condition for the Shimizu intrapreneurship scheme was not to collaborate with Shimizu and the entrepreneurship should contribute half of the investment amount.

On the real estate industry dynamics and PDB’s business model, CEO Itaya comments: “Individual, corporate, and public real estate holdings in Japan are said to be worth 2,300 trillion yen. The Japanese real estate investment market is the second largest in the world (the largest in Asia) and approximately 10% of the world’s real estate investment market is concentrated on this small nation. A seismic revolution is occurring at the moment in Japanese real estate in demanding more effective utilization of real estate, further streamlining of management, and greater investment stability. This includes the rise of real estate securitization since the year 2000, the evolution of the corporate real estate (CRE) strategy that is reviewed as the source of corporate competitiveness, and the venturing into the public real estate (PRE) strategy.”

“Since 2000, we have been providing management and operation support tools as cloud services based on industry needs and changes in ICT technologies to the real estate industry, as well as corporations and public institutions that use real estate. Our cloud service does not focus on one company but rather links affiliated companies and we believe that we are helping to streamline the entire industry. We target various fields including building maintenance, property and asset management, and CRE and PRE strategies. Moreover, we will also focus on the evolution of services like big data analysis and provision of support for IoT. We will continue to strive to continually improve our corporate value as a platform for real estate management operations in Japan and as a top runner in cloud services in the real estate industry.”

“We received monthly usage fee and maintenance service fee by customer-based billing according to the number of registered building data on a monthly basis from customers, which is a business model of stock sales or recurring revenue software-as-a-service (SaaS). We have 260 subscribers and 45,793 administrative buildings. The fee is around 10,000 yen per month per building. Therefore we can keep stable sales every month and we have established a solid foundation of earnings.”

“The center of our customer base is J-REIT, and our @property commands around 60% share for J-REIT as a real estate and facility operation management tool. We are proud that @property is the de facto standard for J-REIT. The strength of the business is the height of entry barriers. In the case of REIT, we studied the characteristics, such as high disclosure frequency and precision of data required to report to investors and regulators. The corporate accounting processing is very complicated and strict. We noticed these needs and addressed it from the very beginning of the cloud service. In ordinary accounting software, data cannot be carried over when closing the previous year and information on operational performance is not included in the accounting software. For example, no vacant room rate data will come out. However, if you work closely with the performance of real estate and accounting, smooth correspondence is possible such that you can respond immediately when a vacant room comes out or if a cancellation notice is made and red flags get up. What is important is that you can always see it as a stream without closing the data every year. This is the point of the cloud services.”

When asked about how he came about to start PDB, the challenges he faced and overcame and the breakthroughs during his early entrepreneurial period, CEO Itaya shared briefly and reflectively the story of his early entrepreneurship period: “I was born in the Aichi prefecture and I am 55 years old. After graduating from Waseda University science and engineering graduate school, I joined Shimizu Corporation (TSE: 1803) in 1989. In 2000, together with my co-founder Hideki Takahashi who was an engineer in the information field of the engineering business headquarters, we established Property Data Bank as an internal venture and in-house commercialization system of Shimizu Corporation. There was a principle that the champion who planned a new project became the entrepreneur who contribute half of the investment amount. Shimizu Corporation remains our largest shareholder who owns a 24.21% stake, and our company will be subject to Shimizu’s equity method of ownership.”

“Since our service started in 2000, it is the era when the word ‘cloud’ has not been attained yet. Shimizu Corporation had a building management support system called ‘Irix’ which Mr. Takahashi was in charge of, and it has grown into a system that is well-established in the industry. It is this time that the sprouting of a new asset management support system utilizing the Web inside and outside the company was felt at this time. Also, the needs of real estate management software are very high, and it is said that many customers are searching. Our customers own multiple properties. The property is distributed throughout Japan, as well as overseas. In order to manage and operate the property, not only the owner but also a lot of people such as intermediary companies and management companies are involved. There would be no options other than the cloud and @property was born and is being introduced in major companies such as fund companies including J-REITs, major real estate company or real estate department of insurance company and electric power company.”

”@property connects all the regions on the Internet and the head office department analyzes the information. There are many other benefits to be offered in the cloud. While package software is the latest version at the time of purchase, it gets old over time, but the more you use the cloud, the more upgraded version will be used. Maintenance and support can also be managed in batches. Furthermore we can confirm which function is most used, which part is difficult to use, and keep improving. However, because it was a cloud service based on low usage fee, management at the time of establishment was painful (laugh). We managed to exceed the breakeven point early and achieved profitability in the second year of establishment. From the flow of real estate tech, we have thought to become the ‘SAP in the real estate industry’, but rather than having just technology, we have evolved software from the conventional package software type to meet the needs of the real estate industry by adopting the cloud services model right from the start.”

When asked to elaborate further on PDB’s competitive edge and the quality of its customer base, CEO Itaya shared: “Our company’s source of competitiveness is our knowledge of technology, service and customer service cultivated through continuing to provide innovative cloud services having pioneered and expanded the market. We understood the problems of customers requiring complicated and time-consuming tasks such as contract management and rent billing in rental operations, and promoted proposal-type sales. Due to deep understanding of customer operations, we have accumulated various ideas to dramatically improve this efficiency. Our competitors are OBIC (TSE: 4684) and Toshiba Electronic’s Toukei Computer (TSE: 4746 TSE part) who are providing system services for real estate and facility operation management mainly based on package software instead of cloud services.”

“Our main customers are asset management companies such as real estate investment funds (J-REITs); real estate management companies that manage assets; facility management companies such as building maintenance companies; businesses owning real estate such as automobile manufacturers and others using real estate; general operating companies such as infrastructure companies, and public enterprises such as national and local governments. By combining the function of @property according to the purpose of use of the customer and the scope of business etc., we respond to the needs of various fields related to the management of real estate and facilities of enterprises.”

“Other customers include building maintenance companies, life and non-life insurers (e.g. Tokio Marine & Nichido Fire Insurance), real estate companies (e.g. Kenedix Inc. (TSE: 4321)), general corporations owning real estate (e.g. Panasonic), local government (Tokyo Metropolitan Government, Shiga prefecture government), etc. While we already account for around 60% of the J-REIT market, the remaining 40% of J-REITs are not likely to use our services from their own capital ties, and it is difficult to raise the market share for J-REITs.”

“However, we still have enormous expansion scope and a long runway for growth in the building maintenance and generate CRE field. There are 882 building maintenance companies with a capital of 50 million yen or more nationwide, but our building maintenance customers are still only 31 companies, or 3.5% share. We have introduced ‘Building Maintenance Edition’ aiming at a standard core system of cloud type building maintenance work from Nov 2018 and released all functions in Jan 2019. In addition, there are 1,781 general CRE companies nationwide with capital of 1 billion yen or more, excluding finance, of which only 41 of them are our customers, or around 2.3%.”

“As an example of introducing @property to reduce the cost of managing real estate and facilities, cases of Nippon Life Insurance and Mitsui Fudosan (TSE: 8801) can be cited. Although both companies had systems built in-house, they introduced @property after comprehensively judging system maintenance expenses such as maintenance and monitoring of system operation and cost of version upgrade. Many companies judge that introducing @property can reduce management costs, including system construction, rather than constructing a real estate and facility management system on their own.”

“On 7 Nov 2018, we announced that Electric Building Co. (http://www.denki-b.co.jp), an affiliated company of Kyushu Electric Power Co., adopts our integrated property management cloud service @property and full-scale operation of the business using @property is scheduled for April 2019.”

“On 25 Dec 2018, we announced that Village House Management Co. (https://www.villagehouse.jp), a member of the SOFTBANK Group, adopts our integrated property management cloud service @property. Village House manages and operates the low rent condominium series ‘Village House’, and has more than 1,000 properties and more than 100,000 rooms in 46 prefectures nationwide. @property is used in all these property management to improve efficiency of business, lease contracts, or the accounting processing accompanying these work. As SOFTBANK Group is a global company representing Japan, we want to use @property for the property management of bases nationwide in Japan or for asset management including the worldwide and overseas bases. Since our cloud has both English and Chinese versions, we can use it at overseas bases. There are many group companies of financial institutions including life insurance and property insurance who have many real estate to be managed. One such company is proceeding with large-scale introduction of @property.”

On PDB’s new Data Science Service/AI business, CEO Itaya comments: “On 28 Nov 2018, we announced that we decided to start offering ‘Data Science Service’ as a new business starting from Jan 2019. The service calculates the optimum rent, estimates the exit probability, vacancy period, renovation work investment effect etc. obtained by analyzing the valuable big data accumulated in @property by the latest AI technology. A big feature is that genuine contracts and real rental information are accumulated on @property. There are other systems that predicts the rent of various real estate at a certain site, but most of them merely collect and analyze rents and search/listings information from the various websites. In the case of our company, we have genuine contract information and know the detailed situation, so it is possible to make detailed predictions.”

“By using this service, we can expect to contribute to efficient management and operation of real estate. Furthermore, by applying the above-mentioned technology, we will develop Commercial Facilities Sales Forecast utilizing external information such as real estate and geographical information of that area together with POS checkout data etc. using AI as new service. By using this service, it is possible to predict how much sales will be made if you open in this new place; improve the efficiency of consideration of newly opened stores of multiple stores such as restaurants, retailers, etc.; determine existing stores ‘winning pattern’ by analyzing trends of stores with strong sales using existing store information and surrounding geographic information; and to power up and improve sales by improving the operation of existing stores and changing business styles.”

“In addition, on the premise of continuous customer use, this service will secure stable earnings and the AI machine learning will strengthen the forecasting models according to usage over time, making it an innovative service that distinguishes from conventional business consulting etc. We are receiving strong inquiries from several companies developing multiple stores. These ‘Data Science Services’ are available from January 2019.”

“On 18 Feb 2019, Aeon Group’s Daiei’s Big A Corporation (http://www.biga.co.jp), a discount retailer centered on fresh and processed food, began full-scale use of our Data Science Service’s Commercial Store Sales Prediction Service in Feb 2019 after being used for test promotion from May 2018. Big A deployed it in more than 200 stores in the Tokyo metropolitan area. The opening competition in the food supermarket market is getting stricter year by year, and the efficiency of considering the opening of stores is a challenge and a competitive advantage in terms of property acquisition competition with other companies. Our Commercial Store Sales Forecasting Service can shorten the opening period by visualizing the potential of the property based on the sales forecast report (objective evaluation), making it possible to improve the efficiency of opening reviews. This service is of a SaaS monthly usage fee type, making it possible to drastically reduce costs as compared with individual surveys by general consulting firms, and by continuing the use, improvement of prediction accuracy can be attempted.”

CEO Itaya went on to elaborate about the inner workings of @property cloud service: how it is targeted to support the asset managers/REIT managers, corporate real estate owners and building maintenance firms; the benefits of its cloud service  to its customers, and the key functions: “Traditionally, IT development in the field of real estate management aimed at realizing business improvement by customers themselves developing and purchasing software systems. Conventional IT tools are provided in a form called packaged software, and users had to buy hardware to use the service and install software. Our cloud service is to develop and own the system infrastructure (software and hardware) by our company and use it through the Internet where you can use the service from anywhere, within and outside the company, domestic and overseas to realize improvement of customer’s business. As a result, customers can implement IT without incurring significant system investment and development risk.”

“In addition, @property is a multi-users cloud service, and all the functions of @property” are installed on the same platform. As a result, we will carry out maintenance and function improvement etc. at our company, so customers can reduce the burden of maintenance work after starting service usage. We can invest capital investment with the aim of improving services while grasping customer’s requests, so we have a spiral-up business structure that synergistically improves the number of users, improving services and satisfying customers.” management work, including monthly report and portfolio comprehensive analysis.”

“Asset management means managing assets on behalf of investors and improving asset value. An asset management business operator use the information accumulated in @property to confirm and analyze information, to prepare disclosure materials to investors, and to improve the value of real estate. In general, the property management business creates information on real estate, but due to differences in vendors for each property, there are many cases where the items of information to be collected and the granularity are different. Using @property solves those problems, and it is possible to provide investors with more accurate information and analysis results. Our AM Edition supports asset management business from real estate fund (SPC) composition, acquisition/ sale of property, investment performance · balance · investment · fund management such as distribution management, portfolio comprehensive analysis.”

“Property management means the task of acting on behalf of real estate management, and the main tasks are leasing operations, contract management work, rent request and collection work of tenant tenants, complaints handling by tenants and maintenance work. PMs use it to output reports for reporting income and expenditure information etc. of the property to the asset management company. Based on the information entered, daily work such as lease contract, bill payment, budget/ actual result management, etc. are created automatically, so the work becomes efficient. Our PM edition provides functions that correspond to properties such as office/ housing, own ownership/ management consignment, etc., and support property management work, including monthly report and portfolio comprehensive analysis.”

“Regarding REIT · Fund  market, we have secured a certain share, and we will follow up with existing customers and will also support the management strategies of investment advisory companies and asset management companies. We would like to add advanced features as well.”

“Facility management business operator use it for unified management of facility information and cost optimization. By registering statutory inspection/ daily inspection information of management facility, request from tenant etc · complaint information and facility equipment information in @property, you can browse past similar information or browse similar information of other facilities can. By doing so, you can check the omission of work and the validity of the cost. If you look at real estate data, I think that the way of thinking about building’s useful life will also change. Currently the average life expectancy of the building is considered to be about 40 years, but in practice it is known to have about 65 years. It is a waste to demolish the building that is still usable, and it costs extra money in rebuilding. We would like to eliminate such waste by analyzing real estate data. Also, the modern building maintenance company is not simply cleaning or inspecting the building and equipment, but now it does leasing business, and in some cases, supports investment in real estate, or cooperates with the owner. That is why it has become an advanced business. We would like to support them.”

“In January 2019, all functions of our Building Maintenance Edition are complete. This service is based on the functions of consigned and outsourced contract management (including compensation calculation), quotation management, renovation & construction management, spot work, billing/ payment batch processing, owner adjustment, performance management (by whole, by segment, by income and expenditure department). We can select system application such as general owner substitution for each building, property management using trust account, management company’s own real estate investment business, etc. and flexibly deal with complicated business forms without customization even though it is a cloud service. In addition, at the work site, it is possible to share @property information using a mobile terminal, and it is possible to improve the efficiency of day-to-day operations such as maintenance, inspection, request & complaint management, and so on. This service is a powerful core IT system of a building maintenance company aiming to improve efficiency of business by using IT.”

“General CRE company are required to comply with IFRS in recent years in adopting the new lease accounting standard IFRS 16 Lease Transactions to account for leased real estate on the balance sheet that are not accounted for on the balance sheet under the former lease accounting standard. The accounting work related to assets is greatly affected by changes in accounting standards such as impairment, fair value evaluation, and asset retirement obligation, and further IT control, early settlement of accounts, etc. are required. Besides improving the efficiency in compliance with IFRS, they can use @property for visualizing realities such as summary information, value, risk, income and utilization status of real estate and assets scattered in and outside of the country, which makes it possible to share asset information and optimize asset management. From the viewpoint of enhancing corporate value, we will support the effective utilization of facilities such as real estate for business such as office, factory, shop, investment real estate such as tenant building, welfare facilities.”

“For public service provider, the purpose and effect of use are the same as for facility management, but in the case of public facilities, we will use it for maintaining and preserving facilities from a medium to long term perspective. Our PRE Edition supports long-term management and management of public assets such as national and local governments and PFI/ PPP projects. PFI/ PPP (private finance initiative/ public private partnership) is a method of public works that maintains and manages public facilities, etc. by utilizing the management skills and technical capabilities of the private sector.”

“The introduction effect and merit that the customer can obtain by introducing @property are as follows:
(1) Labor-saving work related to real estate management. Common challenges in real estate operations are duplication of input tasks etc. When you introduce properties that cover real estate management tasks, the information you enter is linked to the functions related to the subsequent operations. For example, data entry work in lease management tasks reduces the task of entering related data in invoice issuance tasks, and likewise leads to a reduction in payment management task work even in billing work.
(2) Centralize real estate information. In the case of a large company leasing a large number of real estate and facilities, it is possible to collect multiple real estate and facility information collectively by introducing @property. In addition, by using the portfolio comprehensive analysis function, it is possible to check, compare and analyze multiple real estate information collectively, not limited to a single real estate information.
(3) Sharing information on stakeholders. If the owner and the management company are separate in real estate and facilities, the owner can grasp real estate and facility management information in real time by introducing @property.
(4) Support for internal control. @property can strengthen the internal control function because it is possible to set the authority of reference, registration, approval for each real estate and facility management work for each business, as well as who can register and approve it.
(5) Cost reduction. As a feature of the cloud, the development and infrastructure cost corresponding to own system development and package software can be reduced by introducing the @property, and to reduce the system maintenance costs after the start of operation.
(6) Immediateness of version upgrading. @property has been upgraded due to amendments to the law, reform of the tax system, etc. When introducing the system on its own, customers are forced to revise the system each time, but customers with @property can always manage and operate real estate and facilities in the latest state.”

“While implementing business efficiency improvement based on cloud services for customers already introducing @property or planning to introduce it, depending on individual customer’s specific needs, in order to solve customers’ business problems, we offer solution service concerning @property. These include:
(1) Initial Consulting Service, Data Registration Agency, Education/Workshop at our company, in order to grasp the work of customers and use them more smoothly before service introduction. Also, when using the cloud service, since it is necessary to register various data such as building information and lease contract information held by the customer in @property, the initial data registration work is performed on behalf for our customers so that we can transfer operations smoothly;
(2) Option Sales in order to increase the efficiency and accuracy of business. For example, the function of importing the deposit data file acquired from the bank into @property and the function of outputting data for linking to the customer’s accounting system, is a service that adds functions not included in the standard function;
(3) Customization service that responds to the customer’s specific needs to add new functions provided by system development consignment and to link data with existing in-house systems.”
“In the solution service business, there is a tendency for sales to be concentrated in the fourth quarter accounting period compared with other quarters due to the trend of system operation starting from the customer’s new fiscal year from April. We are deploying the solution service as a fee-based consulting business, and this solution and the cloud work together to serve as our earnings base. It’s like an engine and a turbo in the car. Once the solution gets a lot of traction and gets new customers, it will shift to the cloud and customers use it for a long time. The cloud sales will become recurring stock type, so it will stabilize with a high profit margin. Sales will not decrease either.”

“@Property main functions are leasing operations, contract management work, rent request collection work of tenant, complaints handling by tenants and maintenance work. These include:
• Manage basic information such as asset name, location, owner, etc.
• Accumulating data such as property acquisition price, evaluation value, repair work history
• Keep important documents such as contracts, completed drawings, construction estimates and other technical information as electronic archives
• Management of budget, actual results, and outlook of property balance
• Request tenants and manage deposit information
• Management of entrusted · outsourced contracts
• Output a report consisting of property summary, lease contract list, deposit list, withdrawal list, construction list
• Management of revenue budget and results on building management work
• Create a schedule yearly, monthly, daily, manage the implementation status
• Requests from tenants · Arrangements such as complaints and equipment repairing and management of the situation
• Repair history management (management of equipment ledger such as air conditioner and elevator)
• Energy management (management of energy information)
• Output a report composed of schedule, repair history list, complaint list, etc.
• Management of implementation status of construction, timing of mid- to long-term construction
• Management of outsourced contracts
• Aggregate information registered in @property as a portfolio. Provide accurate information using various aggregation methods such as list aggregation, ranking, graphing, cross tabulation, and history
• Management of fund name, investment style, incorporation property information, etc.
• Management of fund revenue budget, results, forecasts
• Create scenarios including events such as property acquisition and sale, and carry out simulation
• Main report complying with private placement fund guidelines of Real Estate Securitization Association
• Output balance sheet, income statement, cash flow statement, XBRL file etc. on fund accounting”

On PDB’s partnership with Autodesk, CEO Itaya said: “On 18 April 2017, we signed a partnership with Autodesk (NASDAQ: ADSK) to support the improvement of building asset value through cooperation between BIM and real estate management cloud data to develop new applications and services that will support the efficiency of maintenance work, the extension of facilities’ lifetime, and the improvement of profit of investment real estate. Based on this partnership, PDB incorporates data necessary for property management and facility management from BIM data of Autodesk’s BIM software Autodesk Revit into PDB’s real estate management cloud service @property.”

“We will provide Japan’s first new asset management and facility management service utilizing BIM data. In many of the current buildings, owners and management companies independently own and use drawings and documents necessary for real estate management and maintenance, but the update status is different. Also, contract information on tenants, usage information on spaces, asset information on revenue and cost are often dissipated by documents, and they are not used because they do not link with the drawings either. Under such conditions, it is difficult for effective facility investment to be carried out taking into consideration the long-term cost of the building’s life cycle and future profitability. Furthermore, even in the evaluation of the real estate investment market, since the area calculation based on domestic regulations is different from the international calculation method, Japanese buildings will receive unfavorable evaluation.”

“On the other hand, the new asset management service PDB will provide is based on the concept of ‘Property Information Modeling (PIM/ asset information management)’, a method and process that utilizes design information throughout the life cycle from building planning, design, construction and maintenance. It makes it possible to ‘visualize’, understand and share a wide range of data on asset management, such as information on structure and facilities, area and position of the space, implementation status of repair work. It becomes a comprehensive asset management database linked with inspection data such as tenant contract, revenue, cost, investment plan etc and inspection data such as equipment malfunction etc. By realizing PIM, the real estate owner can improve asset value of real estate and reduce management cost. Autodesk will also support the realization of PIM aimed at PDB and will promote the use of BIM in the field of asset management and facility management by providing BIM software and cloud service technology.”

We asked what are some of the successful customer cases studies and CEO Itaya shared the cases of Nippon Life, Tokio Marine, Kenedix, Fukuoka REIT and Hankyu Hanshin Building Maintenance: “Nippon Life Insurance has real estate nationwide, such as rental building, valued at approximately 1.1 trillion yen (US$9.85bn) and they replaced their internally developed real estate management system, which is the core of its operation, with our @property. Their target systems were linked to core systems, such as financial accounting and external systems, and about 700 people, including head office branches and users of related companies, were using it. Stop and delay are not permitted for critical operations such as accounting processing and fund transfer. For these important tasks and functions requiring a large amount of calculation processing, we made high reliability and performance in specifications at the design stage and Nippon Life made repeated elaborate tests to make the system stable operation possible. With the introduction of @property, Nippon Life realized reduction of about two-thirds of the cost compared with conventional system construction costs. Test preparation and introduction period was greatly shortened. By outsourcing not only system operation and maintenance but also user support functions, the IT operation load has also been reduced.”

“Tokio Marine & Nichido Fire Insurance Co owns buildings throughout the country as a sales base for the insurance business and lease them to tenants in order to make effective use of surplus space. Real estate investment has steadily raised their rental income exceeding 10 billion yen (US$90m) annually and is developing and expanding as a pillar of business other than insurance underwriting earnings. Cashflow management (plan management) by property is essential to improve the value of rental real estate, or to make the cost of real estate used by itself even more efficient. In the past, because the internal and external systems were not integrated, it took a huge load to consolidate scattered data and generate cashflow data by property.”

“The tenant management system developed in-house in the past is an offline system that has been used for more than 10 years, and there are constraints on functions that the internal information cannot be utilized, such as rental situation by tenant by property. In October 2002, Tokio Marine changed the old tenant management system to @property and the new decision support system necessary for real estate cash flow management has been in full swing since April 2003. Regarding the input of initial data of more than 200 properties, Tokio Marine took advantage of our solution service, greatly reducing labor and cost. At Tokio Marine, since the mid-1990s, real estate drawing management has been converted to CAD, but these data can also be accessed via @property and attribute information updates such as property change of the property can be shared in real time. In addition to the accounting system that handles all of these accounting tasks, @property has a number of information analysis system such as building-specific business management system that performs revenue projection, long-term repair plan, expenditure forecast etc. integrated with accounting data.”

“Currently, procedures related to lease contracts are digitized and workflowed on @property. A series of conventional paper-based tasks such as internal inquiries, approval, decision, contract creation can be completed via @property. Information of each process is also accumulated and it becomes easier to develop asset management work such as planning management based on the expected cashflow by property. In the risk management handling of back office work such as contract review, there are about 10,000 checks per year that will lead to the creation of contracts, but by using @property, the contract information entered at the front is imported as it is, and verification with incoming data from tenants and creation of slips is automated as billing data.”

“At Kenedix, adopting @property helps them to understand the status of investment properties in real time, contribute to improving trust with speedy information disclosure and sharing with affiliates such as the portfolio managers and investors, and accelerate business related to funds, such as tenant payment. One of the reasons why real estate became easier to be utilized as a liquidity asset is due to the progress of securitization technology. In 2000, J-REIT was born. As various investors join the real estate investment market, more efficient real estate management and added value improvement of the property are required. Kenedix was listed on the Tokyo Stock Exchange in July 2005 as the 21st REIT in Japan with a strategy that focuses on medium-sized office buildings in the Tokyo economic area. More than 90% of the business companies in Tokyo are small and medium-sized enterprises. The middle-class buildings where these companies enter as tenants have been owned by individuals, small businesses, and medium-sized real estate companies. In many cases, in terms of maintenance and capital expenditure, there are inefficient operation. By repairing and managing a large number of properties collectively, Kenedix provides high-quality offices while keeping costs down.”

“Since Kenedix can always grasp the occupancy rate of each property and the status of entry and exit in real time, they can aim for more efficient and strategic real estate management. By introducing @property, it has become possible to concentrate resources on fundamental operations of asset management companies such as tenant support, property value increase, investment property acquisition. Before introducing @property, when there is a delay in payment of rent from a tenant, there are reports of each company from the property management company, and until it is reported to the trustee bank of the administrative agency, it is three to four days. In the case of @property, you can recognize the delay information in real time and Kenedix has established a system to standardize the work and transfer it to the automatic action plan. The demand for information disclosure from investors has dramatically increased. REITs must disclose the occupancy rates of all properties at the end of the fiscal year and on a semi-annual basis. If the report goes late, the value will diminish for investors. @property helps Kenedix to disclose on a timely basis.”

“Fukuoka REIT (TSE: 8968) is Japan’s first ‘community-based’ REIT with total assets of over 100 billion yen, supported by Kyushu’s largest developer Fukuoka Land to invest in properties in the Kyushu economic zone, centered in Fukuoka. REIT companies are also focusing on more attractive property management and information dissemination. Management according to the characteristics of properties held by commercial facilities and offices is required, and the importance of a system that can efficiently analyze portfolios is increasing. Through managing large-scale commercial facilities in the Fukuoka and Kyushu Economic Area, Fukuoka REIT aims for the revitalization of the region and improvement of profit. Commercial facilities and offices account for about 63% of the portfolio and the rest is residence.”

“However, the operation of these commercial facilities is very labor intensive. Even in the same property management (PM) company, different operation and management systems were used, depending on the characteristics of the facility and tenant which are also different. In contrast to offices and houses, rents vary depending on sales. Conventionally, a huge amount of operational data has been managed by each person in charge, and much labor is required for counting and analyzing. In order to solve these problems, Fukuoka REIT utilized @property. By using the commercial facility option, monthly sales proceeds and assumed rents can be calculated, and highly accurate revenue forecasting becomes possible. Flexible management of budget and achievement has been realized with flexible rent setting considering tenant sales and seasonal fluctuation of cash register. The unified format makes it easy to compare and analyze data which is swiftly exchange which makes it very effective in the operation of commercial facilities. Operating attractive facilities in anticipation of the trend of the times leads to improved profitability.”

“Hankyu Hanshin Building Management was born by the merger of Hankyu Facilities and Hanshin Engineering in October 2007, and business integration of Hanshin Electric Railway Real Estate Business Division Leasing Management Project. The company has about 1,000 buildings and has management contracts of about 7.8 million square meters. Prior to adopting @property, their IT systems were premised on the installation of their own servers, so a large amount of expenses are expected to be continually increased due to an increase in hardware due to an increase in data volume, system updates etc. The operation of @property began in 2013 which is an indispensable system to provide high quality administrative work to the building owner / tenant and build a common infrastructure and promote information sharing, leading to an improvement of quality of service and satisfaction to Hankyu Hanshin Building Management’s customers and strengthen its competitiveness.”

CEO Itaya summed up by emphasizing his vision to evolve PDB from a database company helping to streamline the entire real estate industry into a big data analytics-powered innovator to deliver “the most sought-after knowledge services” to its customers: “We would like to support our customers’ asset value improvement. Our service has grown as a cloud service that does not focus on one company but rather links affiliated companies and we believe that we are helping to streamline the entire industry. We will continue to move forward as a pioneer of Real Estate Tech. We will also focus on the evolution of services like big data analysis and provision of support for IoT. We will broaden our sphere of operations to include all sorts of assets. We will evolve our services beyond simple business areas such as data processing and management into the most sought-after service available in a knowledge society.”


Intrigued and want to read more? Download this week’s H.E.R.O. HeartWare: Weekly Asia Tech News with brief highlights of the inspiring entrepreneurial stories of tech leaders in Asia whom we have been monitoring over the past decade in our broader watchlist of over 200 listed Asian tech companies and our focused portfolio of 40 HERO Innovators who reveal their problems and successes behind building the company. Inspired by Brandon Stanton’s photo-journalistic project Humans of New York which collects and highlights the street portraits and moving stories of people on the streets around us who were doing things that changed lives and made a difference in the city but often went unnoticed, we have curated a collection of Hear the Heart of the H.E.R.O. stories on our website which we aim to update with refreshing and uplifting new stories weekly. Please check them out and give us your valuable feedback so that we can improve to make them better for you.


It started with rethinking a few questions. Question No. 1: Can the megacap tech elephants still dance? Or is this the better question: Is there an alternative and better way to capture long-term investment returns created by disruptive forces and innovation without chasing the highly popular megacap tech stocks, or falling for the “Next-Big-Thing” trap in overpaying for “growth”, or investing in the fads, me-too imitators, or even in seemingly cutting-edge technologies without the ability to monetize and generate recurring revenue with a sustainable and scalable business model? How can we distinguish between the true innovators and the swarming imitators?

Question No. 2: What if the “non-disruptive” group of reasonably decent quality companies with seemingly “cheap” valuations, a fertile hunting ground of value investors, all need to have their longer-term profitability and balance sheet asset value to be “reset” by deducting a substantial amount of deferred innovation-related expenses and investments every year, given that they are persistently behind the innovation cycle against the disruptors, just to stay “relevant” to survive and compete? Let’s say this invisible expense and deferred liability in the balance sheet that need to be charged amount to 20 to 30% of the revenue (or likely more), its inexactitude is hidden; its wildness lurks and lies in wait. Would you still think that they are still “cheap” in valuation?

Consider the déjà vu case of Kmart vs Walmart in 2000s and now Walmart vs Amazon. It is easy to forget that Kmart spent US$2 billion in 2000/01 in IT and uses the same supplier as Walmart – IBM. The tangible assets and investments are there in the balance sheet and valuations are “cheap”. Yet Kmart failed to replicate to compound value the way it did for Walmart. Now Walmart is investing billions to “catch up” and stay relevant. Key word is “relevancy” to garner valuation.

We now live in an exponential world, and as the Baupost chief and super value investor Seth Klarman warns, disruption is accelerating “exponentially” and value investing has evolved. The paradigm shift to avoid the cheap-gets-cheaper “value traps”, to keep staying curious & humble, and to keep learning & adapting, has never been more critical for value investors. We believe there is a structural break in data in the market’s multi-year appraisal (as opposed to “mean reversion” in valuation over a time period of 2-5 years) on the type of business models, the “exponential innovators”, that can survive, compete and thrive in this challenging exponential world we now live in. Tech-focused innovators with non-linear exponential growth potential are the most relevant multi-year investment trend and opportunity.  

During our value investing journey in the Asian capital jungles over the decade plus, we have observed that many entrepreneurs were successful at the beginning in growing their companies to a certain size, then growth seems to suddenly stall or even reverse, and they become misguided or even corrupted along the way in what they want out of their business and life, which led to a deteriorating tailspin, defeating the buy-and-hold strategy and giving currency to the practice of trading-in-and-out of stocks. On the other hand, there exists an exclusive, under-the-radar, group of innovators who are exceptional market leaders in their respective fields with unique scalable business models run by high-integrity, honorable and far-sighted entrepreneurs with a higher purpose in solving high-value problems for their customers and society whom we call H.E.R.O. – “Honorable. Exponential. Resilient. Organization.”, the inspiration behind the H.E.R.O Innovators Fund, (surprisingly) the only Asian SMID-cap tech-focused fund in the industry.

The H.E.R.O. are governed by a greater purpose in their pursuit to contribute to the welfare of people and guided by an inner compass in choosing and focusing on what they are willing to struggle for and what pains they are willing to endure, in continuing to do their quiet inner innovation work, persevering day in and day out. There’s a tendency for us to think that to be a disruptive innovator or to do anything grand, you have to have a special gift, be someone called for. We think ultimately what really matters is the resolve — to want to do it, bring the future forward by throwing yourself into it, to give your life to that which you consider important. We aim to penetrate into the deeper order that whispers beneath the surface of tech innovations and to stand on the firmer ground of experience hard won through hearing and distilling the essence of the stories of our H.E.R.O. in overcoming their struggles and in understanding the origin of their quiet life of purpose, who opened their hearts to us that resilience and innovation is an art that can be learned, which can embolden all of us with more emotional courage and wisdom to go about our own value investing journey and daily life.

As the only Asian SMID-cap tech-focused listed equities fund in the industry, we believe we are uniquely positioned as a distinctive and alternative investment strategy for both institutional and individual investors who seek to capture long-term investment returns created by disruptive forces and innovation without herding or crowding to invest in the highly popular megacap tech stocks, and also provide capital allocation benefit to investors in building optionality in their overall investment portfolio.

The H.E.R.O. HeartWare Weekly highlights interesting tech news and listed Asian emerging tech innovators with unique and scalable wide-moat business models to keep yourself well-informed about disruptive forces and innovation, new technologies and new business models coming up, and the companies that ride on and benefit from them in some of the most promising areas of the economy in Asia as part of our thought leadership for our ARCHEA Asia HERO Innovators Fund to add value to our clients and the community. Hope you find the weekly report to be useful and insightful. Please give us your candid feedback and harshest criticisms so that we can improve further to serve you better. Besides the BATTSS (Baidu, Alibaba, Tencent, TSMC, Softbank, Samsung), do also tell us which Asian tech entrepreneurs & CEOs whom you admire and respect and why – we will endeavor to do up profiles of them for sharing with the community. Thank you very much and have a beautiful week ahead.

Warm regards,
KB | kb@heroinnovator.com | WhatsApp +65 9695 1860
www.heroinnovator.com

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