Earnings Call: Q1 2027

Aug 6, 2026

Summary

Q1 sales and profits rose YoY, with re-planning and hotel growth supporting results. Guidance was raised for FY March 2028, while investment and Aeras integration advance diversified growth.

I am Hirahara, General Manager of the Administration Division. I will explain the performance summary up to page 16. First, I would like to express our deepest sympathies to all those affected by the 2026 Kumamoto earthquake. We sincerely pray for the earliest possible recovery and reconstruction of the affected areas. With regard to Tabino Hotel Aso Kumamoto Airport, which our group operates in Kumamoto Prefecture, we are grateful to report that there was no significant damage, and the hotel continues to operate as usual. Going forward, through our hotel business, we will continue to work together with local communities and strive to contribute, even in a small way, to the recovery of the region. The performance highlights for the first quarter show that both net sales and profits increased year-on-year, marking a solid start toward achieving our full-year forecast. As a key topic, the Aeras Group, which operates 67 branches in the Tokyo metropolitan area and specializes in residential leasing brokerage, joined our group in July through M&A. Through collaboration with AERAS, we will accelerate business development in the residential area and further enhance synergies with our revitalization business, one of our group's core strengths. In our hotel operation business, we opened hotels in Matsuyama, Kumamoto, Takayama, and Sado, bringing the total number of guest rooms under operation to 4,227. Next, I will explain the consolidated statement of income. In the real estate revitalization business, we maintained a gross profit margin on net sales in the 30% range, as we did in the same period of the previous fiscal year. In the real estate services business, although performance grew, mainly in the rental conference room business, the segment as a whole posted a slight year-on-year decline due in part to the rebound from large brokerage transactions recorded in the same period of the previous fiscal year, but still performed solidly. In the hotel and tourism business, despite a challenging business environment, net sales and profits increased, supported by an increase in the number of hotels under operation. In the other business, net sales and profits increased due to the contribution from the Otake Kenso Group, which joined our group through M&A in October last year. This slide shows the quarterly trend in ordinary profit over the past five fiscal years, together with progress against the full-year forecast. While working to minimize quarterly fluctuations in performance, our group will continue striving to maximize corporate value under a highly profitable business structure. Next, I will explain the consolidated balance sheet. Total assets amounted to JPY 292 billion, representing an increase of JPY 27.6 billion from the end of March this year. The main components of this increase were inventories, which rose by JPY 22.6 billion, and cash and deposits, which increased by JPY 4.4 billion. On the liabilities and net assets side, the main factors were an increase of JPY 12.2 billion in borrowings and a capital increase through third-party allotment to ITOCHU Corporation of JPY 13.4 billion. As a result of our continued growth investments, inventories exceeded JPY 200 billion for the first time, while interest-bearing debt stood at the JPY 130 billion level. At the same time, our equity ratio, which is an indicator of financial soundness, remained at a high level of 46%. Going forward, while continuing to make proactive growth investments, we will remain mindful of the balance with financial soundness and work to further improve capital efficiency. Next, I will explain performance by business segment. In the re-planning business, while maintaining a high profit margin compared with the same period of the previous fiscal year, we focused on shortening project periods amid a rising interest rate environment. As a result, both net sales and profits increased. Going forward, we will continue to strengthen our stock-type businesses, including the building rental business, and expand our stable earnings base while replacing assets in our portfolio. In property acquisitions, we have made steady progress, reaching more than 50% of our full-year target of JPY 90 billion, including properties already under contract but not yet settled. Going forward, we will continue to build a foundation for future business growth without relaxing our acquisition criteria. This slide explains the mechanism for creating added value in our flow-type business based on the relationship among net sales, acquisitions, and inventories. The figures on the far right show the initial budget we are working toward for the current fiscal year. The section below illustrates an image of unrealized gains calculated backward from the expected profit margin. The real estate services business is mutually complementary to the re-planning business and serves as an important platform for providing a one-stop, high-value-added value chain within our group. Against this backdrop, the rental conference room business has been steadily expanding its customer base. Going forward, we will continue to strengthen our stock-type businesses, which are less susceptible to the impact of rising interest rates. Next, I will explain the hotel and tourism business. In our development projects, we place importance on the perspective of regional revitalization, and we are proceeding with development together with local communities, including in city center areas where demand is strong. In the current fiscal year, we plan to open hotels in Utsunomiya, Rokkasho Village, Toyokawa, Akita, and Sakata. In the hotel operation business, the number of repeat guests who support our concept of heartwarming and enjoyable hotels has been steadily increasing. As we continue to expand our hotel network, we will work to further increase the number of repeat guests who will form the core of our customer base. In the construction business, we expect the challenging business environment to continue due to factors such as the impact of issues in the Middle East and ongoing inflation. Even under these circumstances, we will continue to promote internalization within the group and strive for steady business expansion. In our Vietnam business, more than 70% of the total units in our second new condominium development project have already been contracted for sale. We are aiming for completion in the first half of the next fiscal year. Please view the following three slides together as one set. First, this page shows the high profitability and stability of our flow-type business. In addition, gross profit, including projects already under contract, has effectively reached approximately 60% progress against the full-year forecast for the current fiscal year. Next, this page shows the steady growth and stable profitability of our stock-type businesses, which have resilience against inflation. Finally, as demonstrated in the previous two slides, this slide shows how our business portfolio has evolved, with gross profit from stock-type businesses now exceeding fixed costs, including selling general and administrative expenses. Going forward, we will continue to build an earnings structure that drives growth through the combination of highly profitable flow-type businesses and stock-type businesses that generate stable earnings. We will also continue to focus on developing the talent needed to support the stability and growth of our businesses. I am Saito, President and CEO. I will now explain our growth strategy and the recent progress of our businesses. First, I would like to share with you our current view of the business environment. The global economy continues to face uncertainty, including the impact on energy prices and supply chains due to heightened tensions in the Middle East. In Japan, amid continued inflation, long-term interest rates have remained on an upward trend, partly reflecting the government's active fiscal policy and tax reduction measures. Against this backdrop, the office and residential markets in central Tokyo continue to see declining vacancy rates and rising rents, maintaining a solid supply-demand environment. The real estate investment market also remains firm. The hotel and tourism market also continues to perform strongly, supported by robust inbound demand. Going forward, we will continue to steadily develop our businesses in line with our plan, while remaining fully prepared for uncertainty in the global economy and sudden changes in the financial environment. Next, I will outline our long-term vision and the medium-term management plan we are currently implementing. Under the medium-term plan, we are executing a range of strategies and initiatives based on our basic policy of promoting diversification through collaboration among our core businesses, while addressing social issues through client-oriented value creation and heartwarming services. Regarding our performance targets, following the start of our capital and business alliance with ITOCHU Corporation this April, we revised upward our targets for the final year, the fiscal year ending March 2028, to net sales of JPY 150 billion and ordinary profit of JPY 30 billion. Similarly, with respect to our long-term vision, we intend to leverage the synergies from this alliance to accelerate growth and aim to achieve our targets earlier than originally planned. This slide outlines our growth strategy under the current medium-term management plan. We will continue to focus on three priority markets, namely offices, hotels, and residential properties, while pursuing a business model that combines strong value creation capabilities with high-quality services. Furthermore, by fully leveraging the benefits of our alliance with ITOCHU Corporation, we aim to expand the number and scale of projects, as well as our geographic footprint. This slide summarizes the distinctive strengths of both companies and the business synergies we expect to create. By bringing together our respective strengths and working closely together, we will steadily realize these synergies. As a specific example of the progress made to date, four joint investment projects are already underway in the office building re-planning business. Next, I will explain how we are strengthening the earnings structure under the medium-term plan. First, in our flow-type businesses, which generate revenue through property sales, we are diversifying asset types. Meanwhile, in our stock-type businesses, such as real estate services and hotel operations, we are promoting diversification in related fields. While steadily increasing overall net sales, we will raise the proportion of net sales accounted for by stock-type businesses, which are resilient to market fluctuations. In our flow-type businesses, we plan to increase net sales by 25% over the three years of the current medium-term plan, while net sales from our stock-type businesses are expected to grow by more than 90%. As a result, we will raise the proportion of net sales accounted for by stock-type businesses from 37% in the previous fiscal year to 40% in the final year of the medium-term plan. Next is our business investment plan. We recently revised upward the total amount of business investment planned for the three years of the current medium-term plan, raising it to JPY 350 billion. Actual investments through the previous fiscal year totaled JPY 107.4 billion. Including investments made during the first four months of the current fiscal year, cumulative investments have reached approximately JPY 160 billion. In executing these investments, we will continue to actively make growth investments for the future, while carefully considering the cost of capital, including the profitability of each business and investment payback periods. From here, I will explain specific initiatives in each business. To begin, as an update on our flow-type businesses, I would like to introduce one re-planning project and one newly built project among the properties sold in the first quarter. The left-hand side shows a building revitalization project, and the right-hand side shows a newly built office building. The property on the left was a building more than 30 years old. We carried out a full renovation, including upgrades to building equipment and refurbishment of the interior and exterior. In addition, we dismantled the mechanical parking area and converted that space into offices. Through these initiatives, we created rental upside and enhanced the profitability of the building. At the same time, we also improved energy efficiency and other aspects of its environmental performance. Thanks to these efforts, we were able to sell the property as a highly profitable building with high environmental performance and full occupancy. The property on the right is a case in which we newly constructed an office building in Nihonbashi. Initially, we purchased a building built under the old seismic standards and were proceeding with plans to redevelop the site with a new building. In the course of that process, we were also able to acquire an adjacent aging building. This expanded the site area and enabled us to construct a building with even higher profitability. The resulting property is a high value-added building featuring an iconic exterior, design quality, and functionality unique to a newly built property, as well as high environmental performance. Next is an example of the development and sale of fractional real estate ownership products. In this business, we mainly develop buildings for community-oriented tenants, such as nursery schools and clinics, and sell them as fractional real estate ownership products. The photos shown here are some of the fractional real estate ownership products currently on sale. They are commercial buildings with clinics as tenants, located in Ota Ward, Tokyo, Minoh City, Osaka, and Nishinomiya City, Hyogo. They have been very well received as diversified investments in real estate that is expected to generate stable income through long-term leases, and sales have been progressing smoothly. Through these office building revitalization projects, fractional real estate ownership products, and other initiatives, we have built up a cumulative track record of 548 buildings. This total includes some residential apartment revitalization projects and other properties, but approximately 80% are office buildings. By region, Tokyo has accounted for approximately 90% to date. However, over the past 2 years or so, we have been expanding our target areas and working to commercialize projects in the greater Osaka area. Next, this graph shows trends in acquisition amounts and net sales in the office building business. For each fiscal year, different shades are used to distinguish among RP projects, newly built projects, and fractional ownership projects. Going forward, we will continue to diversify asset types while expanding the overall scale of the business. Next is the residential business. We are developing residential businesses tailored to the characteristics of countries and regions where populations continue to grow, including Tokyo, New York, and Vietnam. In terms of our recent progress: in Tokyo, we are working on 12 rental apartment buildings through new construction and revitalization; in New York, we are working on 14 apartment building revitalization projects; and in Vietnam, we are undertaking our second condominium development project. From here, I will discuss the progress of our stock-type businesses. First, I will discuss our leasing and property management operations. In our leasing operation, we have developed a locally focused branch network centered on central Tokyo. We currently operate 13 branches, mainly in the 5 central wards of Tokyo. In our property management operation, we are effectively leveraging these leasing capabilities while combining a variety of services and are working to expand the number of buildings under management. We currently have 563 buildings under management. Under the current medium-term management plan, we aim to increase this to 700 buildings, and under our long-term vision, to 1,000 buildings. Next is the rental conference room business. We have continued to expand our network of locations each year, and the business has continued to grow. We currently operate 19 locations with a total floor area under operation of 10,803 tsubo. Under the medium-term management plan, we plan to expand this to 16,000 tsubo and increase net sales to JPY 6.6 billion. Next is the hotel and tourism business. We have been increasing the number of hotels under operation by actively leveraging new development, renovation, and revitalization projects, as well as M&A. At present, we operate 39 hotels with 4,227 rooms. In fact, one hotel, Tabino Hotel Utsunomiya Yuinomori, opened today. It has 201 rooms. Including this hotel, as of today, the total number of hotels under operation is 40, with 4,428 rooms. In addition, we plan to open 4 more hotels, with 723 rooms, during the current fiscal year. By next March, we expect to operate a total of 44 hotels with 5,161 rooms. Furthermore, including projects currently in the architectural planning stage, we expect to expand to a total of 54 hotels and 6,368 guest rooms over the next 3 years or so. This slide shows two graphs: occupancy rate and average daily rate on the left, and gross profit and total number of rooms on the right. Occupancy rate and average daily rate reached record highs in the previous fiscal year. In our forecast for the current fiscal year, however, we assume that both the overall occupancy rate and average daily rate will decline slightly due to a pullback following the positive impact of last year's Osaka Expo and a succession of new hotel openings. Meanwhile, gross profit is expected to grow steadily as the number of hotels under operation increases. Next is M&A. As a recent transaction, last month we acquired 100% of the shares of Aeras Company, Limited, a company specializing in residential rental brokerage. The company operates 67 stores across the Tokyo metropolitan area, covering Tokyo and three surrounding prefectures, and is one of the leading companies in the region, handling 45,000 rental brokerage transactions annually. By combining Aeras' strengths with our own strengths, we will seek to grow and expand our business in the residential field. We expect three major synergies. First, by utilizing Aeras' extensive rental housing transaction data and other resources, we will expand our development and revitalization business for income-producing apartment buildings. Second, through the sale of these apartment buildings, we will broaden our customer base and expand transaction opportunities with building owners in the residential asset sector. Third, by effectively utilizing our management resources, we will strengthen Aeras' residential leasing capabilities and increase the number of residential buildings under management. Through these initiatives, we will expand earnings from stock-type businesses across the group. This slide provides an overview of the Aeras Group. The company was founded in 1984, and its most recent net sales were approximately JPY 6.5 billion. It has 700 employees. It operates stores under three brands: AERAS, Soleil, and Grande, covering a wide range of property types to meet the needs of different customer segments. This brings us to the final slide. Here, we have summarized, in chronological order, the major M&A transactions we have conducted to date. To date, we have pursued M&A in the office, construction, and hotel businesses, and most recently, we completed our first M&A transaction in the residential business field. Going forward, we will continue to actively leverage M&A to strengthen our existing businesses and expand related business domains, aiming for further business growth. That concludes my presentation.