LANDNET Inc. Q3 FY2025 earnings call

• Core Business Model: Direct Real Estate

  • 73% of purchased properties are sourced directly from owners (industry-leading ratio, 4 consecutive years ranked No.1 for direct condominium purchase volume by Tokyo Shoko Research). 60% of sales are direct to end consumers, with a target to grow this share further. Direct transactions cut intermediate distribution costs, allowing lower purchase prices for buyers and higher selling prices for the company, while avoiding overpaying for properties in the rising market.
  • Offers the "Anshin Hosho (Safety Guarantee)" program to boost customer satisfaction: 3-year liability for non-conformity (vs standard 2-year), half-cost coverage for equipment failures up to the price of a new replacement, and up to 6 months of rent default coverage for 3 years after closing.

• Technology and Operations:

  • Full in-house development of core systems led by an 80-person team, split between development and security/infrastructure. Core system RCP integrates property data, transaction history, CRM, contract, inventory, and rental management, enabling fast information sharing and early onboarding of new sales staff.
  • 60+ new graduate sales hires joined in April, are already active, and are expected to exceed break-even within 6 months. Average annual sales per sales employee stays at ~200 million yen.
  • The proprietary national property database accumulates transaction, listing, rental, and negotiation data, enabling fast accurate property appraisals. Street View integration allows handling properties outside Tokyo from headquarters.

• Growth Initiatives:

  • Expanded product offering beyond 1R studios to Family-type condominiums, and now to single-family homes and apartments, with a long-term goal of adding entire buildings. New Shibuya branch opened, and all existing branches have expanded floor space. 58.6% of transactions are in the Tokyo metropolitan area, with growing volume in Kinki and Fukuoka regions.
  • Launched direct-to-consumer investment property portal LSEED Fudosan Toshi, and runs monthly real estate crowdfunding offerings (currently at offering #14) as an alternative funding channel. Long-term goal to build out the LSEED brand series, including future offerings for end-user homes, and full real estate consulting services.

For the 2025 July fiscal year third quarter cumulative period:

1. Overall consolidated: Net sales reached 69.1 billion yen, gross profit of 10.7 billion yen, operating profit of 2.1 billion yen. Total transaction volume reached 1,836 properties. Inventory for sale stands at 22.1 billion yen, with inventory turnover of 91.12 days.
2. Condominium segment: 1R (studio) and Family-type condominiums each account for 50% of total transaction volume. Family-type condominiums contribute 70% of total gross profit. The share of Family-type condominiums, particularly newer large high-unit-price properties in central Tokyo, is growing steadily.
3. Expansion segments: Single-family homes and apartments are growing categories, with future plans to add entire buildings and entire condominium complexes. Rental managed units reached 9,193 units, continuing a steady growth trend.

• Management upward revised the full-year 2025 July fiscal year guidance in March 2025, and reaffirms that the revised target remains achievable, with full-year guidance of 98.2 billion yen in net sales, 3.4 billion yen in ordinary profit, and 2.3 billion yen in net income.
• Third quarter cumulative progress is 70.4% for net sales and 62.5% for ordinary profit, management expects to make up progress in the fourth quarter and hit full-year targets.
• The dividend per share target for the full year is 19.55 yen, which management expects to achieve.
• Management expects the Japanese used real estate market to continue growing over the next 5-10 years, and sees room for major expansion of used residential transaction share (currently 42.3% in Japan vs 69.8%+ in Western countries).
• The LSEED direct-to-consumer platform already closed its first ~100 million yen transaction 1.5 months after launch, and management expects it to contribute to earnings quickly as it scales.

• Tokyo metropolitan area condominium prices have risen continuously for 60 months, with central Tokyo prices rising particularly sharply, and management notes it will monitor for bubble risk while continuing growth. While most properties purchased meet the new 1981 earthquake resistance standard, older pre-1981 properties require more careful handling.

• Rising overall property prices increase funding pressure, and rising renovation costs for buy-renovate-sell models lengthen inventory turnover slightly.
• Insufficient purchasing capital is a constraint on expanding to nationwide operations, so the company needs to time equity financing carefully to support growth.
• Concentrated shareholding (majority held by the CEO and top shareholder) creates liquidity concerns for publicly traded stock, and future equity offerings or secondary share sales may impact supply-demand balance.

Q: Why is Landnet able to execute the Direct Real Estate model when other firms rely on intermediaries, and how did this model develop? / A: The CEO built the company out of his own experience as a top property sourcing agent at a large brokerage, building out direct marketing channels like direct mail and cold calling to reach owners directly. The company started with 1R studios, which large players avoided, and discovered direct buy-sell worked better for this segment, before gradually expanding to other property types over time as the company grew. Today 73% of purchases are direct, cutting intermediary costs.

Q: Why has the share of Family-type condominiums been growing, and why does this increase gross profit? Will this growth continue? / A: The market has more Family-type properties than 1R studios, and Family-type has a much higher average unit price, with many properties over 100 million yen in central Tokyo. Even with equal transaction volume to 1R, Family-type generates far more gross profit. As the company expands buy-renovate-sell for Family-type, gross profit will grow further. Long-term, the product mix will continue expanding to single-family homes, apartments and entire buildings, so the overall product portfolio will diversify beyond condominiums.

Q: Why has inventory turnover increased slightly from earlier levels, and is this driven by market factors or internal changes? / A: The moderate increase in turnover days is entirely due to the growing share of buy-renovate-sell Family-type and single-family projects, which require more processing time than simple flip of 1R studios. The company enforces strict rules to quickly sell slow-moving inventory, even at a loss, to maintain overall turnover and team accountability, which keeps overall turnover at a strong 91 days industry-wide.

Q: There are concerns about limited public float due to majority insider ownership, what are your plans for share liquidity and future financing? / A: Management plans to conduct equity financing once market cap reaches 40-50 billion yen, which requires growing net profit to support a PER of 7-8x. More purchasing capital is needed to achieve the goal of operating nationwide, so equity financing will be done at the right time to support growth, which will reduce the CEO's ownership share over time. Management recognizes the need to fully explain any future financing to investors.