Lead Real Estate Proposes $27 Million U.S. IPO Terms (Pending:LRE)

A Quick Take On Lead Real Estate Co.

Lead Real Estate Co., Ltd. (LRE) has filed to lift $27 million in an IPO of its American Depositary Shares representing underlying odd shares, in accordance with an F-1 registration assertion.

The agency develops and sells luxurious residential properties and different property actions in Japan and Dallas, Texas.

For risk-on traders, the LRE IPO could also be an attention-grabbing alternative to play Japanese excessive rise actual property in a time period the place it has develop into a well-liked wealth switch asset.

I’m extra cautious, so my outlook on the IPO is on Hold for the close to time period.

Lead Real Estate Overview

Tokyo, Japan-based Lead Real Estate was based to develop single-family houses and condominiums on the market in Tokyo and Kanagawa prefecture in Japan.

Management is headed by founder, president, and CEO Mr. Eiji Nagahara, who has been with the agency since inception in 2001 and beforehand labored at a wide range of actual property corporations resembling FEC Co., Mibu Co., and Uptown Co.

The firm additionally operates lodges in Tokyo and leases residence constructing items to renters in Japan and Dallas, Texas.

Lead Real Estate has booked honest market worth funding of $2.6 million as of December 31, 2021, from traders together with the founder Eiji Nagahara.

Lead Real Estate – Customer Acquisition

The agency operates by means of actual property brokers and targets rich household consumers who’re shopping for for his or her private use as effectively institutional clients who’re shopping for for funding functions.

The firm lately launched an inventory and advertising and marketing platform it calls Glocaly to match sellers and consumers of condominiums.

Selling, G&A bills as a share of whole income have risen as revenues have elevated, because the figures beneath point out:

Click to enlarge

(Source – SEC)

The Selling, G&A effectivity a number of, outlined as what number of {dollars} of further new income are generated by every greenback of Selling, G&A spend, rose barely to 2.9x in the newest reporting interval, as proven within the desk beneath:

Click to enlarge

(Source – SEC)

Lead Real Estate’s Market & Competition

According to a 2021 market research report by Japan Property Central citing the Real Estate Economic Institute, the newest report exhibits 280 high-rise residence buildings deliberate or underneath building all through Japan from 2021 ahead.

The 280 buildings are deliberate to offer over 109,000 flats, of which practically 75% will probably be throughout the better Tokyo space.

The essential drivers for this anticipated progress are a change in inheritance tax deductions in 2015 in addition to elevated building close to public transportation stations.

Also, the chart beneath exhibits the historic and projected future annual provide of latest flats in high-rise buildings within the better Tokyo area:

Major aggressive or different business members embody:

• Mitsubishi Estate (OTCPK:MITEY)

• Sumitomo Realty & Development (OTCPK:SURDF)

• Mori Trust (OTCPK:MRGIF)

• Tokyo Land Corporation

• Mitsui Fudosan (OTCPK:MTSFF)

• Nomura Real Estate (OTCPK:NMEHF)

• Daiwa House Group (OTCPK:DWAHY)

• Tokyo Tatemono (OTCPK:TYTMF)

• Nakano Corporation

• Daikyo

Lead Real Estate Financial Performance

The firm’s current monetary outcomes may be summarized as follows:

• Growing topline income

• Increasing gross revenue and gross margin

• Higher working revenue and working margin

• Increasing money utilized in operations

Below are related monetary outcomes derived from the agency’s registration assertion:

Click to enlarge

As of December 31, 2021, Lead Real Estate had $2 million in money and $63.8 million in whole liabilities.

Free money circulation throughout the twelve months ended December 31, 2021, was unfavourable ($7.2 million).

Lead Real Estate IPO Details

Lead Real Estate intends to lift $27 million in gross proceeds from an IPO of its American Depositary Shares representing underlying odd shares.

No present shareholders have indicated an curiosity to buy shares on the IPO worth.

Post-IPO, the agency’s founder will management roughly 84.4% of the voting stock of the general public firm.

Assuming a profitable IPO, the corporate’s enterprise worth at IPO would approximate $227.4 million, excluding the consequences of underwriter over-allotment choices.

The float to excellent shares ratio (excluding underwriter over-allotments) will probably be roughly 13.8%. A determine underneath 10% is usually thought of a ‘low float’ stock which may be topic to important worth volatility.

Management says it can use the web proceeds from the IPO as follows:

roughly 50% for home enterprise enlargement, together with increasing our condominium improvement and gross sales in Japan;

roughly 30% for the event of our Glocaly platform, together with gross sales and advertising and marketing, function improvement, and server upkeep prices; and

roughly 20% for common company functions

(Source – SEC)

Management’s presentation of the corporate roadshow is just not obtainable.

Regarding excellent authorized proceedings, administration mentioned the agency is just not presently a celebration to any authorized or administrative proceedings that might have a cloth hostile impact on its monetary situation or operations.

The sole listed bookrunner of the IPO is Network 1 Financial Securities.

Valuation Metrics For LRE

Below is a desk of the agency’s related capitalization and valuation metrics at IPO, excluding the consequences of underwriter choices:

Click to enlarge

(Source – SEC)

Commentary About Lead Real Estate’s IPO

LRE is searching for U.S. capital market funding for its enlargement plans in Japan.

The firm’s financials have produced growing topline income, rising gross revenue and gross margin, elevated working revenue and working margin and better money utilized in operations.

Free money circulation for the twelve months ended December 31, 2021, was unfavourable ($7.2 million).

Selling, G&A bills as a share of whole income has risen as income has elevated; its Selling, G&A effectivity a number of rose to 2.9x in the newest reporting interval.

The agency didn’t characterize any plans to pay dividends, nonetheless, administration mentioned that any money dividends paid could be paid in Japanese yen.

The firm’s trailing twelve-month CapEx Ratio is unfavourable (5.75), which signifies it’s spending closely on capital expenditures as a share of its working money circulation.

The market alternative for constructing residential towers in Japan is massive and anticipated to develop sturdy, so the agency enjoys sturdy business progress dynamics in its favor.

Network 1 Financial Securities is the only underwriter and the 4 IPOs led by the agency during the last 12-month interval have generated a median return of 498.2% since their IPO. This is a top-tier efficiency for all main underwriters throughout the interval.

The main threat to the corporate’s outlook is a rising rate of interest setting, though to date, the Japanese monetary authorities have intervened to maintain rates of interest low throughout a interval of inflation.

As for valuation, administration is asking traders to pay an EV/Revenue a number of of roughly 2.2x.

Although the agency seems effectively positioned in a progress market, its publicity to currency threat is important because the Japanese Yen has fallen in opposition to the US Dollar over the previous yr because the chart exhibits right here:

So, whereas the corporate might carry out effectively in its improvement actions, that efficiency is vulnerable to being partially negated by a falling yen in opposition to the greenback.

For risk-on traders, the LRE IPO could also be an attention-grabbing alternative to play Japanese excessive rise actual property in a time period the place it has develop into a well-liked wealth switch asset.

I’m extra cautious, so my outlook on the IPO is on Hold for the close to time period.

Expected IPO Pricing Date: To be introduced.