Mitsui Fudosan Co., Ltd. (TYO:8801)
Japan · Delayed Price · Currency is JPY 1,693.00
-11.50 (-0.67%)
May 1, 2026, 3:30 PM JST
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Earnings Call: Q1 2022
Aug 6, 2021
Good afternoon, everyone. I am Uchida, Executive Manager of Investor Relations at Mitsui Fudosan. I will explain the results for the Q1 of the fiscal year ending March 2022. I will go into more detail later, but at a high level despite the impact of the ongoing pandemic, we saw year on year recoveries at the retail facilities business within the leasing segment and the car park leasing business, repark, and retail brokerage business within the management segment. Higher year on year operating revenues as well as extraordinary gains generated by continued sales of strategic equity holdings allowed us to report year on year improvements to ordinary income and profit attributable to owners of the parent.
Although the impact of the pandemic varied by segment, overall progress relative to the full year forecast announced at the beginning of the fiscal year is tracking in line with our expectations. I will now explain the results in more detail using the fact book. Please turn to the next page. I will start with the consolidated profit and loss statement. Operating revenues for Q1 fiscal 2021 were 448,700,000,000 yen up 41,600,000,000 yen or 10.2 percent year on year.
Operating income was 35,100,000,000 yen down 1,700,000,000 yen or 4.7 percent year on year. Ordinary income was 31,100,000,000 yen up 1,400,000,000 yen or 4.8 percent year on year. Profit attributable to the owners of the parent was 34,300,000,000 yen up 20,600,000,000 yen or 149.8 percent year on year. Optically, operating income was down slightly year on year, but this reflects the lower number of handovers year on year in Q1 fiscal 2021 in the domestic residential business. In addition, there was also a high base for comparison given that we reported a very high level of sales of central urban, high margin, large scale redevelopment condominium projects in the previous Q1.
The year on year drop in overall operating income is primarily the result of the large profit decline in the domestic residential sub segment of the property sales segment. If we exclude the property sales segment, overall operating income was solidly higher on a year on year basis. Please see the table on the upper right for the progress rate versus our full year forecast. We made solid progress with operating revenue at 20.9%, operating income at 15.3%, and net profit attributable to owners of the parent at 21.5%. Next, we return to the table on the left hand side of the page.
I will touch upon the key items below the line before commenting on individual segment results. Non operating gains and losses increased 3,100,000,000 yen year on year with improvements in equity and net income or loss of affiliated companies reflecting the year on year recovery in occupancy rates at hotels operated by affiliates and in other non operating gains and losses. Next, extraordinary gains and losses. Please see the table on the right. Starting with extraordinary gains, we reported 23 point 5,000,000,000 yen in gains on sales of investment securities.
This is part of our ongoing policy to promote balance sheet control and to reduce our strategic equity holdings. In extraordinary losses, we posted 2.6 1,000,000,000 yen in losses related to the COVID-nineteen outbreak. This is the aggregation of rents and other fixed costs related to retail facilities and hotels that were temporarily closed during the state of emergency related to the pandemic taken as an extraordinary loss. We note that versus the extraordinary COVID-nineteen losses of $2,600,000,000 for Q1 this fiscal year the equivalent extraordinary losses in Q1 fiscal 2020 were 11,800,000,000 yen If we compare 1st quarter operating income after reversing the COVID-nineteen extraordinary losses, operating income for this Q1 would fall from 35,100,000,000 yen to 32,400,000,000 yen while Q1 fiscal 2020 operating income would fall from 36,800,000,000 yen to 25,000,000,000 yen After adjusting for the COVID-nineteen extraordinary losses, Q1 fiscal 2021 operating profit would have risen 7,400,000,000 yen year on year. We provide further explanation of these figures in the financial highlights section at the beginning of the investor presentation materials.
Please review at your leisure. Please turn to the next page. I will discuss the segment results in more detail. Please refer to Page 3. I will start with the leasing segment.
On a year on year basis, Q1 operating revenues increased 22,000,000,000 yen and operating income rose 2,400,000,000 yen Please see the comments section for a description of the current conditions in the leasing segment. In Q1, similar to the previous fiscal year, the segment was affected by a state of emergency declared in response to the pandemic, which primarily impacted our retail facilities business. However, as the number of retail facilities that were temporarily closed was lower on a year on year basis, DMV for the retail facilities recovered on a year on year basis. In the office business, we benefited from a full year contribution from bunkio garden gate tower and other projects which were completed in the previous fiscal year, as well as higher revenues and profits from existing domestic office properties. As a result, the overall segment reported higher operating revenues and profits on a year on year basis.
Our non consolidated Tokyo Metropolitan Area office building vacancy rate was 4.7% as of the end of June, up 1.6 percentage points from 3.1 percent as of the end of March. However, this increase is temporary reflecting the impact of the completion of refurbishment work at an existing property in the Ginza area and tenant replacement activity. As new tenants move in from Q2, the vacancy rate will decline. We expect the vacancy rate to settle at around the low end of the 3% level at the end of the current fiscal year. Next, the property sales segment, please refer to Page 4.
Overall segment operating revenues declined 17,700,000,000 yen year on year, while operating income fell 8,500,000,000 yen Please see the comments section for a discussion of the breakdown of the results. In the domestic residential business, operating revenues fell €68,800,000,000 and operating income dropped €17,000,000,000 year on year. I have already touched upon the major factors behind the declines, but as noted in the comments section, this is the result of a high base for comparison. In Q1 fiscal 2021, the number of units sold fell year on year. In addition, many of the units handed over in Q1 fiscal 2020 were in central urban high margin large scale redevelopments such as the tower Yokohama Kitanaka and the court Jingu Gyan.
The total number of units sold, a combination of condominiums and detached homes was 734, down 715 units year on year. The blended average unit price for condominiums and detached homes was over €80,000,000 Our sales continue to be concentrated in a price range higher than the market average. Near term sales remain strong. Completed inventory of condominiums and detached homes in Q1 was only 127 units. Trends in completed inventory remained stable at low levels.
Although not indicated in the materials, the operating profit margin as of Q1 was 13.4%. The contract rate for condominiums versus the full year unit target of 3,100 has risen to 86% as of the end of June. This compares to 65% 3 months ago at the beginning of the fiscal year. Last fiscal year at this time, the contract rate was 83%. 2 years ago, it was 86%.
As you can see we have been able to consistently maintain a high contract rate of more than 80% over the last few years. Next is the property sales to investors and individuals overseas sub segment. Q1 fiscal 2021 operating revenues increased 51,000,000,000 yen and operating income grew 8,400,000,000 yen year on year. Investor appetite in the real estate transaction market remains firm for asset classes which generate stable cash flows such as offices, logistics facilities and rental residential properties. We have seen no changes in cap rates relative to pre COVID-nineteen levels.
In Q1 fiscal 2021, we sold a number of properties primarily rental residential properties to REITs. We are confident that we will be able to continue to transact and hand over properties going forward to achieve our full year operating income target of $111,000,000,000 Next, the management segment. Please refer to Page 5. This segment consists of the property management business, which focuses on managing properties under contract, Mitsui Fudosan Realty's car park leasing business, RePark, the corporate and retail brokerage businesses, the asset management business for our sponsored REITs and others, and the consignment sales business which concentrates on selling condominiums developed by other developers. Operating revenue increased 13,400,000,000 yen and operating income rose 6,900,000,000 yen year on year.
Please see the comments section for further details. In the property management business operating revenues rose 8,200,000,000 yen and operating income grew 5,100,000,000 yen year on year. The main driver was the improvement at the repark business. In addition to a recovery of occupancy rates to around 90% of the pre COVID-nineteen fiscal 2019 levels, we also benefited from continued efforts to reduce costs designed to enhance business efficiency. Next, in the Brokerage and Asset Management business, operating revenues rose 5,200,000,000 yen and operating income improved 1,800,000,000 yen year on year.
The major driver was the recovery in the brokerage business led by ReHouse. The year on year recovery reflects not only a rebound from the impact of the ReHouse closures during the first state of emergency last fiscal year, but the recovery in the number of rehouse brokerage transactions to very close to pre COVID-nineteen fiscal 2019 levels and a rising level of corporate brokerage transactions. Finally, the other segment. Please turn to Page 6. The mainstay businesses of this segment had been the Facilities Operation business, which focuses on hotels and resorts the new construction under consignment business, which includes the Mitsui home build to order detached home business and the reform and renewal business for offices, retail facilities and residential properties.
From Q1 fiscal 2021, this segment includes the Tokyo Dome business as well. Overall, operating revenues increased 23,900,000,000 yen while operating income fell 3,100,000,000 yen for an operating loss of 13,200,000,000 yen The increase in operating revenues and the decline in operating income mainly reflects the impact of Tokyo Dome, which pushed up operating revenues, but depressed profits. Tokyo Dome ends its fiscal year in January. The Tokyo Dome figures reflected in our Q1 results are its results for the period of February to April 2021. In the facilities operation business, occupancy rates at our hotels and resorts have been improving on a year on year basis, but with the extension of the 3rd state of emergency, the expansion of the prefectures subject to a state of emergency and continued guidance to stay at home, overall operating conditions remain challenging.
The recovery remains a work in progress. Next, please look at the right hand side of Page 6. For reference purposes, we show here figures for the overseas business. Total overseas profits in Q1 fiscal 2021 were 3,700,000,000 yen down 2,700,000,000 yen year on year. Please note there is a 3 month lag in reflecting overseas profits.
The figures included in our Q1 earnings reflect the results for the overseas businesses for the period of January to March 2021. Within the overseas business, profits from the leasing business fell 1,300,000,000 yen year on year as a result of increased expenses related to the completion of properties under development and the impact of asset taxes and foreign exchange. For management and other, operating income fell 1,100,000,000 yen reflecting the impact of the temporary COVID-nineteen related closure of the Hale Koolani Hotel in Hawaii. Please note that the Hale Puna Hotel is slated to restart operations in July 2021. We plan to reopen the Halekulani Hotel in October 2021.
Turning to the next page, I will now comment on the balance sheet. Total assets in Q1 fiscal 2021 stood at 7,823,900,000,000 yen up 81,900,000,000 yen from the end of the previous fiscal year. On the main drivers of the increase, first, please look at the table on the upper right hand. This shows the outstanding balance of real property for sale which rose 49,800,000,000 yen from the end of the previous fiscal year to 1,980,300,000,000 yen New investments were 103,600,000,000 yen cost recovery was 92,800,000,000 yen while others including ForEx impact were 39,000,000,000 yen In terms of the breakout by corporate entity, while we made progress on cost recovery at Mitsui Fudosan Residential and Others, taking into account the development investments at Mitsui Fudosan and Mitsui Fudosan America, the balance increased by 49,800,000,000 yen Next, the outstanding balance of tangible and intangible assets was 3,865,800,000,000 yen up 69,000,000,000 yen from the end of the previous fiscal year. We touch upon the key investment and cost recovery items in the comments section.
While we incurred further investments as a result of construction progress at 50 Hudson Yards in New York and Lalaport Shanghai Jingchao in China, factoring in depreciation and ForEx impact resulted in a net increase of 69,000,000,000 yen versus the end of the previous fiscal year. On the next page, we show the liability side of the balance sheet. Outstanding interest bearing debt as of the end of Q1 fiscal 2021 was 3,718,200,000,000 yen up 94,800,000,000 yen from the end of March 2021. As a result of the above, the DE ratio as of the end of Q1 was 1.45 times and the equity ratio was 32.8%. Finally, although not included in the materials, I will comment on the Q1 fiscal 2021 COVID-nineteen impact and the outlook for the full year forecast, which we announced at the beginning of the fiscal year.
Briefly, to recap the assumption underpinning the full year forecast we announced at the beginning of the fiscal year, our expectation had been that although the economic situation was likely to start to recover on the back of progress in vaccinations, the pace of recovery was still unclear. As such, we assumed that there would be lingering effects from COVID-nineteen over the course of the fiscal year. Based on this, we assumed the full year profit impact of COVID-nineteen would be JPY 60,000,000,000 above the line and JPY 5,000,000,000 below the line for a total of €65,000,000,000 Relative to this, the Q1 COVID-nineteen impact was approximately €20,000,000,000 above the line and roughly €4,000,000,000 below the line for a combined total of €24,000,000,000 By segment, we expect COVID-nineteen to mainly affect our retail facilities, re park and re house, facilities operations and Tokyo Dome businesses. When we look at our expectations for the COVID-nineteen impact by segment compared to near term conditions, although there is some variance in individual businesses, the overall impact is largely in line with our initial expectations. As such, we believe we are making solid progress toward achieving our full year forecast as initially disclosed.
It continues to be very challenging to predict when the pandemic will come under control. However, in the event that we feel we need to revise our forecast based on the outlook for bringing COVID-nineteen under control and the impact of the pandemic on our group businesses, we will do so in a timely manner. This completes my remarks.