Our stock is down 90% since the all-time high and 85% since the Subprime Shock in the summer of 2007. The CEO and the Founder Yasuhiro Koide and his most entrusted deputy Taiji Hoshiyama feel very strongly that they have to do something about the stock price or the whole point of the stock market floatation is lost. Nearly ten thousand shareholders are suffering from unrealized losses.

Yasuhiro Koide (Yasu) and Taiji Hoshiyama (Hoshi), determined to do anything and everything to get the stock price up, first realised that conventional approaches would not result the desired effect and unprecedented measures were called for. The first action they took was to invite Tadao Nakai (Taddy) to join Sun City. Taddy is the first English speaking member of the Board in the history of Sun City and he has seen the rise and fall of many small listed companies. Yasu and Hoshi felt that totally new strands of DNA had to be injected into Sun City, hence his appointment, the like of which is virtually unseen in Japanese small cap universe.

（Please note that Yasuhiro Koide will be leaving the Board and Sun City altogether in Feb 2010 and Taiji Hoshiyama will be assuming the Chairmanship. Taddy Nakai will be leaving the Board but will remain in Sun City to serve the shareholders as an executive officer for management strategy, chiefly responsible for raising capital from and taking care of overseas and domestic institutional shareholders, from Mar 2010.）

Soon after joining Sun City, his prime mission became finding domestic and offshore financing sources. It has been a very tough struggle indeed. Naturally, most investors won’t be convinced of the investment-worthiness of Sun City at this stage. The level of debt is alarmingly high which masks all the good qualities of Sun City. His experience with holding dialogues with investors is truly being challenged.

The following principles will characterise Sun City going forward.

There are many things the management has to address and work on. Let us introduce the areas we have started working on and clarify our policies regarding shareholder democracy and corporate governance.

These topics are currently being pursued at management level within Sun City and briefly introduced here for information only. Our intentions and effort to transform Sun City may not all materialize and the “Grand Vision” may indeed prove to be too grand. Investors should be aware of the risk involved with buying or selling short of Sun City shares.

Direct Contact with Non-Japanese Buyers in Property Transactions

Literally all the property developers and real estate agents in Japan of our size take their offers to non-Japanese investment banks or funds and management companies with size and business sophistication. The buyers for such investment banks, funds and management companies are usually institutions outside Japan. If so, we should approach such end buyers directly, by-passing those investment banks and real estate management companies, and to do so, we have to have a team familiar with non-Japanese buyers and investors.

We are, to our knowledge, the first company amongst those of our size to offer information directly to offshore investors in English. If we desire to have our image renewed, we cannot stay the same as everyone else and try to grow out of our old style.

We are currently not hiring any more English speaking persons at present. Once our revenue/cost balance improves, we will resume the hiring process.

Back to Menu

Survive and Squeeze Out Competitors

We are the biggest household name for residential properties in eastern Japan and we have the potential of strengthening our dominance further. Even in the current bear market, we are still selling more than other developers in the region. In 2007, we sold more than 1,000 apartments and in 2008 we sold over 900 on consolidated basis. This level of tenacity is largely attributable to our solid expertise in residential business. Even if the demand for houses and apartments weakens with decreasing population and stagnant household income, there will always be a sizeable demand. We are expecting other developers to either file bankruptcy petitions or pull out of the region in coming years. Our market share thereafter is expected to increase, if we survive.

In 2007, in eastern Japan, 4,509 apartments were sold of which over 900 were ours, taking down 20% of the market, and we have been able to maintain approximately 20% market shares for the last five years. This shows how strong our sales departments are.

The key to our survival is to ensure an adequate level of cash balance and avoid going into negative equity.

Back to Menu

Improve Operating Cash Flow and Reduce Debt

Property development business is a very capital-intensive operation carrying very high risk. It is made even riskier if the time lag between the payable and receivable is extended by lack of buyer interest. During the real estate boom, the stocks in the sector were bought as a sector play and the cash flow problem was largely forgiven. But, not any more. Investors’ tolerance and views on negative operating cash flow changed. Generally speaking, negative operating cash flow should never be allowed as a habit and we must return to the basics. It makes no difference whether we are in a bull or bear market. We are determined to reverse it however long the process takes.

To reverse it, we need to improve our profit margin and to do so, we need some capital, and to get some capital, we need to talk to investors. It is close to impossible to find an investor who will be willing to take and hold a large private placement in the current climate. Whilst we continue to approach potential investors, we need to maintain good relationship with our lenders. We are very fortunate to be given suspensions on certain covenants and this is largely due to the fact that we are a dominant provider of homes in eastern Japan.

With new capital, we can pay back the interest bearing debts and pay our engineering and construction companies cash in advance. Paying them cash in advance will result substantial savings on our part hence improve our profit margin. Debt-buy-back will result extraordinary profit and adds to our eroded equity which too is good news for the shareholders.

Bear market is depressing but it also creates a wealth of opportunities. There are many properties being sold at large discounts in fire sales as many holders are “puking” at the moment, ourselves included. If we had some cash, we would have been able to profit from them using our channel for highly distressed properties which are often not visible to investment banks or larger asset management companies.

In our view, the current bear market will continue for another year or two at least. We will, alongside with our existing residential operation, aim to raise some money to set up a simple “Tokyo Distressed Property Fund.

Securitization on real estate may deter some investors but we believe that a simple, straightforward securitization on a simple fund set up during the bottom of the current bear market does offer a prospect of attractive returns and we are confident that we will find investors if we continue to engage ourselves in capital introduction, approaching investors with different strategies not offered by others. We do believe that we are able to reward investors with ideas not commonly practiced by well-established players. We welcome all inquiries.

Back to Menu

Profit from Fast Growing Areas Around the World

Please note that the outline below was first put out in 2008 before the problems with our core business exacerbated. We are currently focusing on repairing our core business and it should be regarded only as our future aim and aspirations. We do think that our shareholders wish to have the PE ratio higher, and we remain open to discussions regarding the low PE ratios common to our sector.

Property development alone is extremely unlikely to result PE ratios higher than the overage of the real estate sector. We need to improve the “quality” of our earnings by introducing drastic transformations to our revenue segmentation.

The property sector in Japanese stock market always suffered from low PE ratios. Yasu, the CEO and the Chairman, was always frustrated with the low PE ratios of Sun City not reflecting the pace of growth he had previously achieved.

 

Whenever there was a boom in property market, investors took speculative positions and the stock prices went up temporarily. They got totally crushed when the boom came to an end.

Yasu, feeling very unhappy about the situation, had a long discussion with Taddy on what he could do as the CEO and the Founder. The advice was that Sun City should consider very seriously getting into the following areas. Research and preparations are made, including possibilities of acquisitions, but they have all been put on hold.

1. Making and selling high quality interior items and furniture from Japan and Europe in China where customers will pay by credit card or debit card.
   An increasing number of Chinese tourists coming to Japan are buying and shipping back interior items and furniture sets. Such tourists buy many items in the top-end of the spectrum spending exorbitant amounts of money using their credit cards and debit cards. We have considerable experience in building and selling residential apartments therefore we are familiar with furniture industry in and outside Japan. We are approaching manufacturers and suppliers we have relationships with for possible tie-ups and private placements.
   
   
2. Making and selling home and office furniture which are 100% bio-degradable.
   Potential buyers are companies, government offices and individuals in high-income band. We believe that there are growing numbers of environmentally friendly institutions and individuals, not just in developed nations but also in developing nations. Almost every country has some problem with securing enough disposal sites for wastes and the whole world needs to focus on carbon recycling. Biodegradable materials are derived from carbon in the atmosphere therefore they do not add to the global amount of carbon dioxide upon disposal. As well as using the latest biodegradable plastics by Japanese chemical companies, we will use materials from the developing countries to help them with their export. This attempt is not only for improving the quality of our earnings but also a part of our commitment to CSR.
   
   
3. Selling high quality food and beverages in China.
   There are now a very large number of shoppers who spend thousands of dollars on luxury food items in China. We see Chinese tourists in department stores in Tokyo literally taking down the entire shelf of melons and mangos costing more than 30,000 Yen or 300 dollars each. They buy expensive fruits to take back to their hotel rooms. Another example showing their high spending appetite can be found in their hand baggage on their way home. They buy vacuum packed Japanese beef as much as they can and stuff their bags and even suit cases, again spending thousands of dollars on them. We believe that Chinese consumers in upper-middle class and above will continue to show interest for quality, safety and good taste.

 

It will take a good few years to start generating sizeable profit in these new operations. Companies try and often fail with their attempts to profit from new business and we are risking shareholders’ money therefore we are easily discouraged to get into any new areas. There is, however, one thing that is clear. However well we recover as a property developer, we won’t be a high PE stock without some new growth drivers. Our shareholders all want to make money and it is our duty to meet their expectation.

We welcome inquires regarding our new business initiatives. Please contact Taddy Nakai at +81-3-6386-3412.

Back to Menu

Allocation of Pre-IPO Shares to Our Shareholders

It is the management responsibility to create a strong economic reason based on investment logic to own Sun City shares. Without it, what is the point of buying our shares? We believe that the most effective economically justifiable incentive to buy and own our shares is the distribution of cash equivalent assets to our shareholders. We plan to distribute our holdings in our pre-IPO subsidiaries to our shareholders prior to its listing.

In Japan, even in a bear market, when a small company first trades, its valuations tend to be very high. It is not uncommon that investors who owned the shares prior to listing make high-multiple returns.

In addition to our aspirations to benefit from the growing parts of the world as mentioned above, we maintain an open-mindedness for other areas which are related to our existing business. One investor suggested that we should set up an operation taking care of the apartments which we sell to earn some steady stream of recurring income. Another investor suggested that we should set up an operation to install solar panels onto the rooftops. They both hinted that we should try to extract recurring income from our existing customers.

When this pre-IPO company's annual sales hits $20 million, we will give up our holdings of this company to our shareholders holding above a certain number of our shares as a special distribution of our asset and apply Tokyo Stock Exchange for initial offering. The recipients can sell their shares anytime they want and cash in the gain. It is expected that most recipients will hit the bid within the first few days after the first trade date for optimal returns.

We believe that this special distribution is the most optimal way to monetize our business effort for our shareholders. Our shareholders are on zero-cost basis so there is no downside and can enjoy the full optionality on the put side.

Please note that the investment returns discussed here are based on observations on the IPO markets in Japan and by no means guaranteed in any manner whatsoever. We draw your attention to the fact that some IPO's totally failed upon listing or did not even trade on the respective exchange. Investora should make careful considerations before investing into Sun City.

Back to Menu

No Poison Pills

We are a publically traded company afloat on Tokyo Stock Exchange. This means that shareholders own us and can determine our fate. If anyone wishes to take a large stake to exercise his power, he should be allowed to do so and the Board should not invoke any measures to cause dilution. We are planning to present a motion in the next AGM to add paragraphs in the Memorandum of Association to ban the Board from invoking any anti-TOB measures.

Back to Menu

No Cross Holdings

Cross holdings is just as unsuitable to a listed company as poison pills. Some companies try to justify cross holdings by vaguely stating “business synergy ” but it hardly manifests in sales and profit. We don’t have any “friendly shareholders” at present and have no intention of having any in future.

Back to Menu