Oasis Response to Fujitec’s Investigation Report
On May 29 and 30, 2022, Fujitec published a “Notice Concerning Board of Directors’ Resolution in relation to Shareholder’s Assertion”, including a report detailing the results of Fujitec’s investigation into the related-party transactions raised by Oasis (the “Investigation Report”).
Far from absolving President Uchiyama, this notice confirms the facts raised by Oasis, provides new details of governance abuses perpetrated by President Uchiyama, and demonstrates President Uchiyama’s efforts to enrich himself at the expense of Fujitec and its other shareholders.
The new details in the Investigation Report support Oasis’ assertion that shareholders should vote against President Uchiyama at the next AGM as he is unfit to be a director of Fujitec following years of corporate governance abuses. It should be obvious to anyone with even the most basic grasp of corporate governance best practices that these issues cross a line.
Based on this superficial and flawed investigation, Fujitec’s Board of Directors have concluded that there are no legal or corporate governance issues related to Fujitec’s related-party transactions. Shareholders should not be as easily fooled. As we demonstrate below, the new details fill in some gaps and paint a picture of extremely poor corporate governance at Fujitec, all stemming from President Uchiyama.
The Oasis response will address the following:
I. Substantial flaws in conduct and the process of the investigation
II. Detailed analysis of the report, which fails to address Oasis’ assertions and highlights more poor governance
I. Substantial Flaws in Conduct and Process of the Investigation
1. The Non-Independent Investigation Report
Fujitec notes that the Investigation Report was conducted by two outside directors and one lawyer:
“…[O]n April 1, 2022, the Company decided to put two outside directors, Nobuki Sugita and Shigeru Yamazoe, in charge of this investigation, and engaged Kaku Hirao, a lawyer from Nishimura & Asahi who is an expert in these types of investigations, to conduct legal analysis on the investigation of the relevant facts and the results of such investigation.
“To note, Mr. Hirao has never engaged in any legal matters of the Company, and the Company considers him as an independent expert for the purposes of this investigation. There has not been advisory relationship for years between the Company and Nishimura & Asahi, the firm that Mr. Hirao works at.”
However, Fujitec’s attorney is Yoshinobu Fujimoto of Nishimura & Asahi, whom *Oasis has met Mr. Fujimoto many times as the lawyer for Fujitec since 2020, especially after Oasis questioned President Uchiyama entity's related party transactions* and is referred to in Fujitec’s press release on May 20 and in the Investigation Report as “our attorney” and as “representative attorney”. In the extract of an email from Fujitec to Oasis below, the Company confirms the existing relationship with Nishimura & Asahi.
Email from Fujitec IR executive officer to Oasis on March 30, 2022
「関係当事者間取引に関するご質問につきましては、法的な規制との関係もあるため、弊社弁護士と御社弁護士との間でご面談をさせていただきたいと考えております。 当社の弁護士は西村あさひ法律事務所の藤本弁護士にお願いをしております。」
Translation:
“Regarding related party transactions, Fujitec wants the lawyer representing Fujitec to have a meeting with the lawyer representing Oasis in light of legal regulations.
Fujitec has already asked Fujimoto Attorney at Nishimura & Asahi.”
Fujitec clearly has a long-standing relationship with Nishimura & Asahi and, in addition to the above, we are also aware that Mr. Fujimoto also assisted Fujitec in its acquisition of Amalgamated Lifts Limited in 2020.
In light of this, we find it difficult to understand how Fujitec can say in the Investigation Report that there has not been an advisory relationship with Nishimura & Asahi.
Perhaps the report is attempting to obfuscate the issue by using the technical term “advisory relationship” in order to exclude its existing long-standing relationship with Nishimura & Asahi. While this may technically be true, it misses the broader picture. This sets the tone for the rest of the report, which attempts to whitewash clear corporate governance abuses by President Uchiyama.
We further note that Kaku Hirao belongs to Corporate Crisis Management group at Nishimura Asahi. It was this team that, in the case of Toshiba Corporation, submitted a report to Toshiba’s Audit Committee clearing Toshiba of wrongdoing regarding its July 2020 shareholder meeting. Their findings were, however, overturned subsequently by a truly independent investigation conducted by three lawyers who were appointed by shareholders. In light of the Toshiba incident and the long-standing relationship, on April 28, Oasis asked Fujitec’s outside director to ensure that Fujitec does not hire Nishimura Asahi for this investigation.
It is clear that Kaku Hirao and Nishimura & Asahi are not the right people to be investigating the related-party transactions at Fujitec, and that shareholders should not blindly rely upon their Investigation Report. At the very least, we know that Nishimura Asahi is not an independent party and has hidden its ties to Fujitec.
Shareholders should ask Fujitec:
1) How much did Fujitec pay Nishimura Asahi in FY2020, FY2021 and FY2022?
2) If Fujitec’s relationship with Mr. Fujimoto is not considered an advisory relationship, how would Fujitec describe the relationship?
3) Why did Fujitec ignore Oasis’s concerns that Nishimura & Asahi is conflicted in this case?
4) Why did Fujitec hire this team from Nishimura & Asahi to conduct the investigation?
5) How does Fujitec believe this team from Nishimura & Asahi has improved since its materially flawed investigation of Toshiba?
For further information, please see our due diligence package:
· See the members of the corporate crisis team at Nishimura Asahi: in Japanese and in English
· See the individual lawyers’ pages: Yoshinobu Fujimoto in Japanese and in English, Kaku Hirao in Japanese and English
· See the Toshiba Investigation Report from Nishimura Asahi in Japanese and in English
***
2. The May 20 Announcement
The Investigation Report fails to address Fujitec’s statement on May 20 (the “May 20 Announcement”) in which the company said that it had “conducted an urgent investigation and confirmed that no such facts exist” with respect to Oasis’s assertions about the related-party transactions. However, the Investigation Report seems to demonstrate that the May 20 Announcement was not sanctioned by the board of directors, that the investigations were ongoing, and that there were still outstanding issues at the time of the May 20 Announcement. Additionally, we note that Oasis initially released its comprehensive analysis of the related-party transactions on May 19 and we believe that this would have taken more than one day to sufficiently investigate.
The Investigation Report fails to address:
1. That the investigations were ongoing contrary to the May 20 Announcement which indicated that they were completed.
2. The fact that President Uchiyama failed to obtain board approval for the May 20 Announcement.
Both of these issues reflect significant governance breaches and show that President Uchiyama can apparently act unilaterally without recourse to the board of directors. Such an abuse of power must be stopped.
It is also worth noting that by announcing on May 20, even before the investigations had been completed, that “all of the Transactions are lawful and appropriate, were taken in accordance with applicable laws and procedures, and are not problematic in terms of corporate governance,” the Company had clearly decided the result in advance with the result of investigation being a foregone conclusion and never intended to undertake a truly independent or faithful investigation.
Shareholders should ask Fujitec:
1. Did any board members reprimand President Uchiyama for issuing the May 20 Announcement before the investigation had been completed?
2. Does President Uchiyama admit to any wrongdoing in terms of not receiving board approval for the May 20 Announcement?
3. President Uchiyama clearly has the power to unilaterally make public announcements on behalf of Fujitec. Do the directors believe that this is good corporate governance?
4. Why does the board not have the power to stop President Uchiyama from making unilateral decisions regarding issues of his own conduct?
5. If the board was unable to stop President Uchiyama in this circumstance, why should shareholders believe that the directors can stop President Uchiyama making unilateral decisions in the future?
3. A Superficial Investigation
The Investigation Report concludes that everything is fine by focusing on the formalities of board approval, the Uchiyama family’s recusals from voting in certain cases of conflict, and the absence of objections from the Company’s auditors.
This, however, is not enough. This has been an extremely superficial investigation which has parroted statements by management without investigating or assessing whether the statements were valid or even true. The Investigation Report reads as a series of excuses for poor governance and lets President Uchiyama off on technicalities.
There are numerous examples which are elaborated upon later in this response. Below are just a few:
a. The Investigation Report brushes over the sale of the Domus Moto Azabu apartment to President Uchiyama’s son by claiming that a resolution was passed and the sale price charged was based on the average of quotes from two real estate agents. The Investigation Report shockingly did not raise any questions over this:
Oasis received information from an ex-employee that Domus was sold by Fujitec at the instruction of President Uchiyama because he started to worry about Oasis’s probe into his transactions with Fujitec and wanted to eliminate any concerns about the low rent being charged to the Uchiyama family for Domus Moto Azabu – a real investigation would have identified this.
Why did Fujitec favour Yusuke Uchiyama by selling to him directly instead of offering the apartment on the open market?
If Fujitec wished to sell the property, why did it not sell in the open market to receive the highest price instead of settling for a price from Yusuke Uchiyama that was below one of the quotes received?
b. The Investigation Report accepts Fujitec’s explanation that the Company bought an ultra-luxury apartment and then requested that President Uchiyama live in it because it is necessary for the host of the parties to live next to the reception area.
Somehow the Investigation Report did not even question this. There is most definitely no necessity for a company President to live near a place where the company hosts customers and this is not standard practice.
The Report does not verify or assess whether or not President Uchiyama family’s living in the apartment was objectively necessary.
The Report does not assess the validity of the claimed separation between the residential and reception zones.
The Investigation Report does not assess whether the reasons for buying the ultra-luxury apartment, which is extremely unusual and not done by other companies in Japan, were rational to begin with.
c. The Report claims that there is evidence the apartment was constantly used as a reception area, but does not provide any details whatsoever about what evidence was gathered, or how many times the reception area was used.
d. In Fujitec’s sale of its portion of the Takanawa SPC to the Uchiyama Family, the Investigation Report states that the reason for the sale was due to the conditions of real estate development in Tokyo and the company’s financial condition.
Neither of these reasons were assessed, but both were accepted as true.
A truly independent investigation would have found that the government was planning on redeveloping the area around the Takanawa building which would have led to an increase in land value. This raises the question, why did Fujitec sell its stake to Uchiyama so only he would receive the benefit?
e. The Investigation Report accepts President Uchiyama’s excuse that Fujitec acquired Fit Will Hikone for the welfare of its employees, but the Report failed to assess the rationale, which is clearly flawed:
Many companies provide welfare benefits to employees without having to buy a public recreational facility.
There is no reason to buy a public recreational facility that is a 20-minute drive from Fujitec’s nearest office. Instead, the Company could have provided subsidies.
The Report fails to assess the Company’s actions compared to standard market practices.
4. The Method of Investigation was Limited
The Investigation Report states that its method of investigation only reviewed materials such as board minutes and interviews with related parties, including President Uchiyama. It does not appear that e-mails were analysed, or that third parties were hired to assess the validity of the transactions and relevant valuations. There is also no mention of who else was interviewed or how many people were interviewed.
The lack of detailed analysis demonstrates that the investigation was a foregone conclusion, and that the investigation is unreliable.
5. Fujitec has been reluctant to engage with Oasis
Oasis has sent letters to Fujitec for years seeking meetings with President Uchiyama in an effort to engage as a shareholder to improve Fujitec’s governance and management. However, it was only after Oasis sent a detailed list of questions about the related-party transactions in March 2022 that Fujitec finally arranged for Oasis to meet President Uchiyama. Then, while President Uchiyama did meet with Oasis twice, it was under the strict condition that the related-party transactions not be discussed and that Mr. Fujimoto, the lawyer from Nishimura & Asahi, was in attendance. More often than not, it was Mr. Fujimoto or other executives that answered Oasis’ questions with little input from President Uchiyama. We note that in other meetings Oasis attended with Fujitec outside directors, Mr. Fujimoto was present again and frequently intervened.
II. Analysis of the Investigation Report
Part 1: Transactions related to Domus Moto Azabu 104
1. Acquisition and Lease of Domus Moto Azabu
The Company’s statements about the apartment in the Investigation Report make it seem as though the Uchiyama family only moved into Domus Moto Azabu at the request of Fujitec, because the Company believed it was necessary to have a residence for the president to host receptions. This is entirely misleading, as the Company states later in the release in English version that, unsurprisingly, the idea to buy this apartment to strengthen sales in Tokyo came from President Uchiyama himself:
“The reasons for the sale of Domus Moto Azabu No.104 were one, that eight years had passed since its acquisition, and the initial objective of strengthening sales made by the president himself in order to improve the company’s presence in the Tokyo Metropolitan area had been attained…”
We have met hundreds of companies in Japan. None have needed a large, ultra-luxury apartment in a prestigious neighbourhood for their president to live in so that they can strengthen sales. President Uchiyama abused his position to get Fujitec to buy an apartment he had wanted to live in under the pretence that it would be to strengthen sales.
We believe this is a potential breach of Companies Act Article 361, paragrah1, item 6, in which listed companies require shareholder approval for non-monetary compensation, including housing benefits to directors, discounted rent on housing, or free housing. Based on comparable transactions and discussions with agents, Oasis estimates that the yearly rent for the apartment in Domus Moto Azabu would exceed JPY30 million. Oasis believes that Fujitec claimed it divided the apartment into separate reception and residential areas in order to reduce the rent to lower than JPY10 million, which is the threshold for disclosure in the Company’s Yuho. Reducing the footprint of the apartment to less than 240sqm also allows Fujitec to offer a discount on the rent to the Uchiyama family under the income tax regulations.
This appears to us to just be a game to allow the Uchiyama family to live in an ultra-luxury apartment with Fujitec bearing the majority of the expense. We believe this is an intentional evasion of concept of Companies Act and the bypassing shareholder rights.
Shareholders should not be fooled by the Company’s statement. Every shareholder should realize that this is extremely poor governance and designed to benefit the Uchiyama family alone, even if the Company has been able to technically evade breaking the law. Fujitec stakeholders deserve a higher governance standard than just technically not breaking the law.
Shareholders should ask Fujitec:
1) Why didn’t Fujitec buy a smaller apartment for reception events, or invest in a luxury office to use for event space or simply entertain in a restaurant as most other companies do?
2) Why did Takakazu Uchiyama and his family need to live in the apartment for reception events?
3) Why did Fujitec need an ultra-luxury apartment in a prestigious area to achieve this when all other companies do not need this?
4) Can the Company provide more data on the so called “reception zone” at the apartment, including:
a. The area, in sqm, used for the reception zone?
b. The area, in sqm, used for the residential zone?
c. Can the Company provide pictures and a floor map to demonstrate the separation between the residential area and the reception zone?
d. What “objective materials” proved that the reception zone was used continuously for business purposes from 2013?
e. How often was the reception area used for customers?
f. Did the Uchiyama family use the reception zone for personal purposes when it was not being used for business purposes?
g. Is there a log for how many unique customers were entertained in the reception zone?
h. How were utility bills separated between the Uchiyama family and Fujitec?
5) How much did the Uchiyama Family pay for the residential area of the apartment?
6) What does Fujitec believe the market value of rent for the area is?
7) Why does Fujitec believe that the rent paid by the Uchiyama family fell within the Income Tax Law Basic Circulars?
8) Why is this transaction not problematic in terms of corporate governance?
2. The Deeply Discounted Sale of Domus Moto Azabu to an Uchiyama Family entity
Oasis is shocked that Fujitec sold the 426.44 sqm apartment at Domus Moto Azabu 104 for just JPY369 million to the Uchiyama family’s company. In February 2022, a 124 sqm apartment in Domus Moto Azabu Nishi was sold for JPY213 million. It is obvious that the sale of the apartment at this low price is damaging to Fujitec.
For whatever reason Fujitec decided to sell the apartment, the Company should have sought to achieve the best price possible for all shareholders and not give an advantageous position to Yusuke Uchiyama, just because his father is the president of Fujitec.
The fact that, according to the Investigation Report, the Company only charged Yusuke Uchiyama the average price provided by two “well-established” real estate agencies demonstrates extremely poor governance.
In any arms-length transaction, Fujitec would have demanded the highest price and not the average of two prices. Oasis values Domus Moto Azabu 104 at over JPY730m, based on other transactions in Domus Moto Azabu West in February 2022. This is 97% more than the JPY371m paid for the apartment by President Uchiyama’s son, Yusuke Uchiyama. This clearly demonstrates the control that Uchiyama has over Fujitec and the results of his abuse of power to benefit himself and his family over other shareholders.
Shareholders should not be deceived by the Company’s obfuscation. This transaction was a clear breach of governance which only benefited the Uchiyama family to the detriment of other shareholders.
Shareholders should ask Fujitec:
1) Why didn’t Fujitec seek the highest price from Yusuke Uchiyama?
2) Why didn’t Fujitec put the apartment up for a public sale to achieve the highest price?
3) Which real estate agents did the appraisal?
4) Who appointed the real estate agents?
5) Please provide the appraisal reports provided by the real estate agents.
6) Other transactions in the area were undertaken at JPY1.7m per sqm, which is 97% more that the JPY0.88m per sqm that Yusuke Uchiyama paid to Fujitec. Please explain why Fujitec believed that Domus Moto Azabu 104 was worth 50% less than other buildings nearby?
7) How does the well-established real estate agency show the meaningful market price when Fujitec wanted to sell to its President son’s company?
For more information, please see our due diligence package:
Related asset: Domus Moto Azabu 104
See the page in our deck: in Japanese and in English
See evidence for your DD in Japanese: Domus Moto Azabu 104, Santo KK Registry, Proof of change of Address by President Uchiyama’s Wife and Sales record of Domus Moto Azabu Nishi (traded at 213MM for 124m2 on Feb 2022)
Income Tax Rule on luxury apartment exceeding 240m2: Page on National Tax Agency
See relevant Yuho: in Japanese and in English
Part 2: Loans to President Uchiyama's Entity
The Investigation Report appears to attempt to justify that guarantees and loans to President Uchiyama’s entity were finally paid in 2014 on a situation that occurred in 1989, 25 years earlier. An incident which, based on the Company’s statement, appears to be a sale and leaseback performed for the purpose of “creating” earnings to avoid posting a loss – in and of itself extremely poor governance. Nevertheless, there is no justification for Fujitec to continue loaning money to President Uchiyama’s entity 25 years later. Oasis suspects that the true goal of the lending, which started on September 30, 2003, and the purchase of Osaka Fit from President Uchiyama’s entity to Fujitec on the same day, September 30, 2003, were to help the Uchiyama family pay inheritance tax after the passing of Shotaro Uchiyama on July 23, 2003. The Company claims that the related-party transaction was fine because the conflicted parties did not vote. However, any shareholder familiar with the Company knows that the board had little independence during those years, and even today, the control of the Uchiyama family is clearly discernible and excessive, despite more independent directors.
Again, the Company’s response contains inconsistencies and raises far more questions than it answers.
The response in the Investigation Report claims that the loan to the Uchiyama family was collateralized by Seiwa Kaihatsu Kosan’s real property and negotiable securities. Contrary to the Investigation Report, Oasis has been unable to confirm that either Seiwa Kaihatsu Kosan or Y.K. Uchiyama International offered their Fujitec equity as collateral for their lending from Fujitec, as none of the change reports, after September 30, 2003, mention any offer of collateral to Fujitec. Oasis has identified most of the real estate owned by President Uchiyama’s entities, but none of them have been collateralized by Fujitec, according to the property registry. For investors’ convenience, Oasis has uploaded change reports and property registries. Please see diligence package below.
The Investigation Report also claims that with each extension of the repayment deadline, the board of directors examined the financial condition and cashflow of Uchiyama International; however, we again believe this is misleading. Uchiyama International had mortgaged its properties. Additionally, the response still does not justify the fact that Fujitec did not take any collateral for the loan and provided an extremely low interest rate, especially as Uchiyama International repeatedly asked for loan extensions. (Despite the fact that we believe these loans are inappropriate and a poor use of company capital, if unsecured loans at 0.1% are available, I’m sure all employees and shareholders would be interested in one.) The Investigation Report says only that the board examined the financial condition and cashflow of Uchiyama International, but the Report should uncover what the results of the examinations were.
Even the investigation’s claim regarding Fujitec buying back the land in order to utilize it more effectively does not hold water, as there has been no change in usage of the land since they bought it back.
Shareholders should not be fooled by President Uchiyama. Fujitec could have invested for its future, but instead it loaned cash amounting to over 20% of its cash-on-hand at a very low interest rate to the Uchiyama family without collateral only to use the land Uchiyama bought and then subsequently buy it back. The pattern of poor governance to the benefit the Uchiyama family over other shareholders is clear.
Shareholders should ask Fujitec:
1) If Seiwa Kaihatsu Kosan or Uchiyama International did indeed provide collateral, please disclose the details of the collateral contract.
2) If Uchiyama International did indeed provide collateral, which real estate did they offer as collateral for Fujitec?
3) Please explain the rationale behind the extremely low interest rate of just 0.1%.
4) Why does Fujitec consider these loans to be unproblematic in terms of corporate governance and not favorable treatment of the Uchiyama family above other shareholders?
For more information, please see our due diligence package:
See the page in our deck: in Japanese and in English
Stakeholders can confirm the loans were not collateralized or not sufficiently collateralized by reviewing the property registries and change reports below:
Change report from Uchiyama family’s entities: 2003, 2003 ver2, 2005, and 2013
Property Registry in Japanese: Former Fujitec Takanawa Building Registry, Former Fujitec Takanawa Land Registry, No1 Hisho Ryo Land Registry, Urban Well Ibaraki Land Registry, Urban Well Ibaraki Building Registry, Fit Will Hikone Building Registry and Fit Will Hikone Land registry
See relevant Yuho: in Japanese and in English
Part 3: Takanawa Building
Whether in English or Japanese, this section of the Investigation Report seems intentionally complicated, and despite its length, offers few details. We question how the Investigation Report could have signed off on this transaction with so many of the important details missing. Nevertheless, while the lack of detailed analysis makes this transaction extremely difficult to analyze, there a number of points that demonstrate that President Uchiyama took advantage of Fujitec once again, including:
1. The board passed a resolution to invest in the SPC scheme after assessing “merits and demerits” but no explanation is provided about what the merits and demerits were. The fact that demerits were even highlighted here raises questions over the rationale of entering this transaction, especially as there appeared to be no subsequent benefits to Fujitec.
2. In 2011, the SPC scheme needed to be refinanced, which somehow led to a rent increase of 43% (for no discernible reason).
3. Although Fujitec was paying rent to the SPC, we have seen no financial data detailing any returns that Fujitec should have received.
4. The SPC also allowed for the hiding of related-party transactions. Following Fujitec’s participation in the SPC, President Uchiyama’s ownership ratio fell below 50%, which is the threshold for the classification as a related-party transaction. As such, the rent paid on the Takanawa building no longer needed to be disclosed.
5. In 2014, (for no discernible reason) Fujitec sold its interest in the SPC for JPY179 million to Uchiyama International, despite news of planned government redevelopment of the area, which would have increased the value of the SPC. This allowed President Uchiyama to reap all the benefits instead of Fujitec.
6. We are concerned that the sale of the stake was deeply discounted; however, without further information it is impossible to assess this.
Regardless of Fujitec’s attempt to confuse shareholders, it is clear that this transaction is another corporate governance failing and a transfer of wealth to President Uchiyama at the expense of Fujitec and its other shareholders.
In particular, the reasons provided for the stake sale do not stand up to scrutiny. The Investigation Report claims that the sale was made due to “the redevelopment conditions in the Tokyo area and Fujitec’s resulting business conditions in conjunction therewith”. The government focus on redeveloping the area would have been a boost to the land values, so it is peculiar that Fujitec thought they should sell the stake and only allow the Uchiyama family to reap the benefits.
Instead of addressing Oasis’ concerns, the Company’s response supported that President Uchiyama has taken advantage of Fujitec and its other shareholders to enrich himself and his family at our expense. He should not be reappointed at the next AGM.
Shareholders should ask Fujitec:
1) Can you provide an overview of the securitization transaction?
2) If the directors fully understand this transaction, how do they believe that this is good governance?
3) What is the business rationale for this transaction that you do not consider problematic?
4) How much did Fujitec originally invest in the SPC?
5) What percentage of the SPC did Fujitec own?
6) What percentage of the SPC was owned by the Uchiyama Family?
7) How much did Uchiyama International invest in the SPC?
8) What was the shareholder breakdown of the SPC?
9) What were merits and demerits the board discussed twice on August 10, 2006 and July 14, 2011?
10) What assets and liabilities were included in the SPC?
11) Why did the rent increase so substantially in 2011?
12) Can you explain the rationale for Fujitec to invest in the SPC and then to sell?
13) The redevelopment of the area would have been extremely positive for land values. Why did Fujitec see this as a reason to sell so soon?
14) What were the assets and liabilities of the SPC at the time of the sale of the equity stake?
15) Was there an independent valuation provided for the equity stake sale? If yes, please provide details. If not, why not?
16) How much profit did Uchiyama International make from the sale of the benefits to a third-party?
For more information, please see our due diligence package:
See the page in our deck: in Japanese and in English
See Property Registry: Former Fujitec Takanawa Building Registry, Former Fujitec Takanawa Land Registry
See relevant Yuho: in Japanese and in English
Part 4: Urban Well Ibaraki
The Investigation Report’s response on Urban Well Ibaraki also raised more questions but provided few answers.
For many years, Fujitec rented 50 dormitory rooms in the building from Uchiyama International. in 2021, once Oasis began engaging with Fujitec, this was suddenly reduced to five rooms. This suggests that the rooms had been drastically underutilized, and that Fujitec did not need 50 rooms, but instead was needed to support the Uchiyama family, in another transfer of wealth to President Uchiyama at the cost of Fujitec and its other shareholders.
The Investigation Report says that Fujitec was paying a premium (JPY73,120 a month) compared to other tenants, who paid between JPY67,000 and JPY73,000 a month, despite Fujitec renting so many rooms including empty ones. Historically, in addition to the 50 dorm rooms, Fujitec also rented a consultation room. Now that the Company is only renting five rooms it is still renting one consultation room, which amounts to approximately half of the rent paid by Fujitec. We suspect that no one else would rent the consultation room (annual rent: 4.4million just for this consultation room), so Fujitec is being forced to keep renting it just for five rooms. In addition to all the above, Uchiyama related entities charged Fujitec 11-month deposits for these rooms, which also different from normal market conditions.
Shareholders should ask Fujitec:
1) What was the utilization rate of the 50 rented rooms monthly each year from 2008 to 2021?
2) What is the utilization rate of the 5 rented rooms monthly from 2021 to date?
3) What is the use of the consultation room? Why does Fujitec still need to rent this if it is only renting 5 rooms?
4) Employees were allowed to live wherever they like, so why did Fujitec need to rent these rooms from Uchiyama related entities in the first place?
For more information, please see our due diligence package
See the page in our deck: in Japanese and in English
See : Urban Well Ibaraki Land Registry, Urban Well Ibaraki Building Registry, and conditions for other ordinary tenants LIFULL Home’s
See relevant Yuho: in Japanese and in English
Part 5: Fit Will Hikone
The investigation report claims that Fujitec paid usage fees and eventually bought this facility in order to provide for the welfare of its employees. This extreme and unusual step of acquiring a public recreational facility for these purposes is something we have not seen done by any other company we know of in Japan. Most companies that care for the welfare of their employees will provide subsidies for gym membership or wellness benefits so that employees can exercise near their homes or the office, where it is convenient. Fujitec instead bought a public recreational facility which is more than a 20-minute drive from the office.
More to the point, if Fujitec was paying usage fees for employees to use Fit Will Hikone, then it was not necessary to buy the building and operate it. Fujitec could merely have continued to pay usage fees.
We believe Fujitec bought the facility because President Uchiyama’s entity wanted to offload it and not because of employee welfare, for which there are better ways to provide. Providing President Uchiyama’s entity an escape route from an investment they regretted making and giving them a profit at the same time is not good corporate governance.
Shareholders should ask Fujitec:
1) Why did Fujitec decide to buy the building when it could have just continued to pay usage fees?
2) Why do you think buying the Fit Will Hikone is a better way to serve employees’ welfare than offering gym memberships or wellness benefits?
3) What was the utilization rate of Fit Will Hikone by Fujitec employees in Fiscal Years 2009 and FY 2010?
4) How many employees used the facility since it was acquired?
5) If this is the best way to serve employee welfare, why did Fujitec not buy it originally before President Uchiyama’s entity acquired it?
For more information, please see our due diligence package:
See the page in our deck: in Japanese and in English
See evidence for your DD in Japanese: KK Uchiyama International, Fit Will Hikone Building Registry, Fit Will Hikone Land regisrty, Record of Diet, Record of asset sale from Govt to Uchiyama’s entity
See relevant Yuho: in Japanese and in English
Part 6: Mr. Shinohara
Fujitec has partially answered the issues raised by Oasis but there are still some outstanding issues. For example, the Investigation Report states that under the previous agreement Mr. Shinohara was paid JPY120,000 per month. However, the report does not address how much is paid under the new advisory agreement with the Osaka Ekimae Tax Accountant Firm, of which Mr. Shinohara is a representative partner. Additionally, the Investigation Report stated that there is no confirmation of fact indicating anything untoward, but provided no mention of what investigation or materials have been reviewed to assess the situation.
Shareholders should ask Fujitec:
1) How much is the Osaka Ekimae Tax Accountant Firm being paid by Fujitec?
2) What kind of advice did Mr. Shinohara provide to Fujitec?
3) What kind of advice does the Osaka Ekimae Tax Accountant Firm provide to Fujitec?
4) Was Mr. Shinohara involved in advising Fujitec on the separation of Domus Moto Azabu 104 into a residential area and reception area?
Part 7: Gardener
The Investigation Report states that the individual did yard work outside of his work hours but has not provided any details of what his work hours were.
Shareholders should ask Fujitec:
1) As the individual was wearing his Fujitec uniform while he worked at President Uchiyama’s private house and then drove back to Fujitec offices, what are his working hours at Fujitec?
2) What hours and what days was the individual working at Fujitec from April 2018 to June 2021?
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In Conclusion
The existence of these many related-party transactions, the rushed “investigation”, and the Investigation Report’s obfuscation of the transactions all demonstrate the governance failings at Fujitec.
Uchiyama has been President since 2002. Since Oasis released its research publicly on May 19, more Fujitec stakeholders have come forward as whistle blowers. These stakeholders have mentioned their frustration with Uchiyama’s actions and his lack of focus and responsibility for the business. These stakeholders say they assumed his actions were ultimately permissible because Fujitec was Uchiyama’s company. But Fujitec doesn’t only belong to the Uchiyama family. There are many other stakeholders, including the employees, the customers, the suppliers, the local municipalities, the central government, and the shareholders. Yet these related-party transactions benefit no one except for the Uchiyama family.
Based on all of our interactions with the company, we believe the daily business operations are run by the Executive Vice President Mr. Okada and the rest of the executive team, and would continue to operate in the event President Uchiyama is dismissed. We believe all shareholders should hold President Uchiyama responsible for the lack of governance. Unlike President Uchiyama we believe the buck stops here with regard to a President’s responsibility. The time has come to remove President Uchiyama, end the era of poor governance, and let the company thrive. We have many ideas about how to help Fujitec have the brightest of futures; however, we think that is only achievable with new leadership. We think all shareholders who care about governance and growth should vote against President Uchiyama at the upcoming AGM.