Earnings Call: Q4 2026

May 11, 2026

Summary

FY Mar 2026 ordinary profit reached ¥23.2B, above plan, and stock-type business gross profit exceeded fixed costs for the first time. FY Mar 2027 ordinary profit is forecast at ¥26.0B, up 11.6%, while FY Mar 2028 targets rose to ¥150B sales and ¥30B ordinary profit.

My name is Hirahara, General Manager of the Corporate Planning Department. I will walk you through our full-year financial results, covering up to Slide 21. The fiscal year ended March 2026 was the first year of our three-year medium-term management plan. By putting our management philosophy into practice, we successfully addressed social challenges while sustaining solid performance. We would like to extend our sincere gratitude to all stakeholders, including our employees and shareholders. As shown in the executive summary, our real estate service business, which is a stock-type business, achieved a significant increase in both net sales and profit. As a key topic, we would like to highlight the capital and business alliance agreement with ITOCHU Corporation. Our President and CEO, Seiichi Saito, will provide further details on this later. For the fiscal year ending March 2027, we expect both net sales and ordinary profit to reach record highs. In addition, we have revised upward our targets for the fiscal year ending March 2028, which is the final year of our current medium-term management plan, to net sales of JPY 150 billion and ordinary profit of JPY 30 billion. The performance summary was largely in line with our initial assumptions. The table at the top compares our results with those of the previous fiscal year and shows our performance, as well as the level of achievement against the forecast. The table at the bottom presents key indicators related to the balance sheet and dividends. This slide shows the income statement. Both the office segment and the hotel operations segment recorded an increase in net sales and profit. In addition, the other segment includes the second half results of the Otake Kenso Group, which were acquired through a mergers and acquisitions transaction. This slide compares our initial earnings forecast at the beginning of the fiscal year with actual results, focusing on ordinary profit, one of our key management indicators. As you can see, we have consistently exceeded our initial forecasts each year while sustaining year-on-year growth of more than 10%. Next, I will explain the consolidated balance sheet. Total assets amounted to JPY 264.4 billion, representing an increase of JPY 46.2 billion year-on-year. This increase was mainly attributable to active property acquisition, progress in construction projects, and mergers and acquisitions activities. Looking ahead, we will continue to identify and carefully select high-quality assets and pursue proactive investments to achieve sustainable growth. With respect to liabilities, the balance of convertible bonds decreased as Advantage Partners converted nearly JPY 5 billion into shares and tendered them in response to the tender offer launched by ITOCHU Corporation from the end of February. Backed by enhanced creditworthiness through our capital and business alliance with ITOCHU Corporation, we will continue to appropriately control interest-bearing debt and funding costs while improving capital efficiency in close coordination with our financial institutions. Our view on the business environment is as described here. Overall, the global political and macroeconomic environment, as well as the Japanese economy and capital and financial markets, present a mix of positive and negative factors. Based on this understanding, our group will continue to strengthen risk management while steadily working to expand our business operations. This is a summary of our forecast for the fiscal year ending March 2027. Ordinary profit, which is one of our key management indicators, is projected to increase by 11.6% year-on-year to JPY 26.0 billion. In addition, the dividend forecast is JPY 80 per share, representing an increase of JPY 4. This slide summarizes our full-year earnings forecast. Under the business environment discussed on Slide 9, based on the assumption of steady growth across each business segment, we forecast ordinary profit of JPY 26.0 billion. Our dividend forecast represents the 14th consecutive year of dividend increases, with the exception of the fiscal year ended March 2021, when dividends were maintained at the same level during the COVID-19 pandemic. For the fiscal year ending March 2027, we expect to increase the annual dividend by JPY 4 from the previous year to JPY 80 per share. Going forward, in line with our basic policy on shareholder returns, we will continue to enhance shareholder returns with the aim of earning the support of an even broader base of shareholders. Our acquisition target for the office and residential business is set at JPY 90 billion, taking into account joint investments with ITOCHU Corporation. Next, I will explain the performance by business segment. In the replanning business, we maintained a high profit margin of 29.2%, consistent with previous years, while achieving a year-over-year increase of 5.5% in net sales, 7.4% in gross profit, and 6.5% in segment profit. Going forward, we will further strengthen our acquisition capabilities, accelerate the pace of property commercialization, and enhance asset turnover. The real estate service business functions in a mutually complementary relationship with the replanning business and serves as a platform through which our group provides a one-stop value chain with high added value. As such, this business can also be regarded as an indication of the trust placed in our group by building owners. As a result, we achieved year-over-year growth of 30.6% in net sales, 42.4% in gross profit, and 42.4% in segment profit. In the hotel and tourism business, we aim to provide happiness to our guests through what we call heartwarming and enjoyable hotel, and to create hotels that are truly one of a kind in the world for each customer. In the operation business, supported by strong inbound demand and enhanced operational capabilities, we achieved year-over-year growth of 20.2% in net sales, 27.6% in gross profit, and 25.1% in segment profit. Going forward, we will continue to focus on new developments and openings that contribute to regional revitalization in close collaboration with local communities. In the construction business, while we face both domestic and overseas challenges, such as geopolitical issues in the Middle East and inflationary pressures, we are steadily promoting post-merger integration for the Otake Kenso Group. In addition, in our overseas development business in Vietnam, sales of our second condominium project began in February. We are pleased to report that pre-sales have been progressing smoothly with a total of 160 units sold across the first and second phases, and construction is proceeding toward completion in the first half of the next fiscal year. This slide shows the actual and forecasted gross profit related to inventories and property sales. As you can see, based on our historical performance, we forecast a business profit margin of 32.4% for the current fiscal year. In addition, as illustrated by the arrow at the bottom, please also note the projected future earnings potential supported by our balance sheet. Please view the following three slides as an integrated set. First, this slide highlights the high profitability and stability of our flow-type business. Next, this slide illustrates that our stock-type business not only maintains a high level of profitability but also achieves a high pace of growth. Finally, as a result of the two previous slides, gross profit from our stock-type business exceeded fixed costs such as selling, general and administrative expenses for the first time in the fiscal year ended March 2026. In this way, by promoting diversification of our adjacent business and leveraging a more diverse range of human resources that support those businesses, the stability of our business portfolio has continued to strengthen. Going forward, we will further enhance our growth potential through the continued synergy between our business and our people. My name is Saito, President and CEO of Sun Frontier Fudousan. With that, I would now like to explain our growth strategy. First, let me outline our long-term vision and current medium-term management plan as shown here. Under the medium-term plan, we are implementing a range of strategies and initiatives based on our basic policy of promoting diversified growth through collaboration among our core business, while addressing social issues through client-oriented value creation and warm, heartfelt services. We are pleased to report that in the first year of this medium-term plan, ordinary profit reached JPY 23.2 billion, exceeding our initial plan and demonstrating steady earnings growth. In light of the expected business synergies arising from our capital and business alliance with ITOCHU Corporation, we have revised upward our performance targets under the medium-term plan. For the final year, the fiscal year ending March 2028, we have set targets of net sales of JPY 150 billion in ordinary profit of JPY 30 billion. Similarly, with respect to our long-term vision, we intend to leverage these synergies to accelerate growth and aim to achieve our targets earlier than originally planned. Next, I would now like to briefly revisit the purpose and background of this capital and business alliance. First, the objective of this alliance is to further accelerate business growth toward the realization of our management philosophy through a strategic capital and business partnership, and to achieve a significant enhancement of corporate value. There are two primary reasons why we determined that ITOCHU Corporation is the best strategic partner for our company. The first is the compatibility of our corporate cultures. We believe that the spirit of compassion, which underpins our management philosophy, shares deep common ground with ITOCHU Corporation's philosophy of Sampo-yoshi, or mutual benefit for all parties, reflecting a strong alignment in core values. The second reason is strategic complementarity. By combining our strengths, including high value-added real estate services, hotel and rental conference room operations driven by strong on-site execution capabilities with ITOCHU Corporation's extensive business network, financial strength, and expertise in development and asset management, we believe that substantial business synergies can be created. Based on our shared philosophy, we will seek to deepen existing businesses while expanding into new domains by leveraging the respective strengths of both companies. Through a long-term relationship built on mutual trust, we aim to achieve sustainable growth and further enhance our corporate value. This slide summarizes the distinctive strengths of both companies and business synergies in this alliance. By bringing together and leveraging these respective strengths through close collaboration, we aim to realize substantial synergies. This slide outlines our growth strategy under the current medium-term management plan. We will continue to focus on three priority markets: office, hotel, and residential, while pursuing a business model that combines strong value creation capabilities with high-quality services. Furthermore, by fully leveraging the effects of our recent alliance, we aim to expand both the number and scale of projects, as well as our geographic footprint. While expanding and growing these businesses, we will also continue to further transform and stabilize our earnings structure. In our flow-type business driven by property sales, we will promote greater diversification of asset types. At the same time, in our stock-type business, we will pursue diversification into related fields. Through these initiatives, we aim to steadily increase overall sales while raising the proportion of stock-type business, which is more resilient to market fluctuations. Under the revised medium-term management plan, sales of flow-type business are expected to grow by 25% compared with the fiscal year ended March 2025. In contrast, stock-type business is projected to achieve strong growth of over 90%. As a result, we plan to increase the share of stock-type business in total sales from the current 37% to 40%. Next, I would like to explain our capital investment plan. Under the current three-year medium-term management plan, total business investment was initially planned at JPY 310 billion. However, following a recent review, this amount has been revised upward to JPY 350 billion. As actual investment in the previous fiscal year amounted to JPY 107.4 billion, we plan to carry out investments totaling slightly over JPY 240 billion over the remaining two years, namely the current fiscal year and the next. In executing these investments, we will continue to remain mindful of capital costs and place emphasis on profitability and asset turnover in each business while proactively pursuing growth investments aimed at future expansion. From here, I would like to explain the specific initiatives we are undertaking in each business. First, as examples of our flow-type business in the office segment, this slide summarizes one replanning project and one newly built project whose sales were completed in the previous fiscal year. Both properties are located in Shibuya Ward. The left-hand side shows a building replanning project under our replanning business, and the right-hand side shows an example of a newly built project. On the left, the replanning project involved a building that was more than 30 years old. We carried out a full renovation, including upgrades to building equipment as well as refurbishment of the interior and exterior. In doing so, we utilized a unused floor area ratio and changed the use of certain areas, such as the parking space, into office space, creating a rental gap and enhancing the property's profitability. We also obtained a CASBEE S rank certification, successfully transforming the building into one with high environmental performance. On the right is a newly built example near Harajuku Station and Takeshita Street. We redeveloped a condominium built under the old seismic standards and replaced it with a four-story low-rise retail building. By rebuilding to meet the current seismic standards, we enhanced safety. In addition, we incorporated various measures to create vibrancy in the area, such as improving pedestrian circulation and installing artwork by Kevin Lyons on the facade. As a result, we were able to sell both properties as highly occupied, highly profitable buildings. Next, I would like to introduce examples of the development and sale of our small-lot real estate products. in response to investors' needs for geographic diversification, we began offering fractional ownership products in the Greater Osaka area from the previous fiscal year. Specifically, we are selling newly built medical malls in Nishinomiya in Hyogo and in Minoh City in Osaka. These properties, which are expected to generate stable income through long-term leases, have been very well received by investors as a means of diversified real estate investment, and sales have been progressing steadily. Real estate revitalization is our core business, and since our establishment, we have accumulated a total track record of 543 projects to date. This figure includes a limited number of properties involving redevelopment into newly built buildings and the renovation of rental apartments. However, approximately 80% of these projects are office buildings. In terms of geographic composition, more than 90% of our projects to date have been located in Tokyo. As mentioned earlier, from the previous fiscal year, we have also begun expanding into the Greater Osaka area, including office building revitalization projects and our fractional real estate ownership business. This graph shows the trends in the amount of property acquisition and net sales in our office building business. For each fiscal year, the breakdown is presented by color, distinguishing between revitalization projects, newly built projects, and small-lot real estate products. Going forward, we will continue to diversify our asset types while further expanding the scale of our business. Next, I will explain our stock-type business within the office segment. In our leasing operation, we have developed a community-based branch network with a strong focus on prime central Tokyo areas. In our property management, we have effectively leveraged these leasing capabilities while combining a variety of services, steadily expanding the number of properties under management. Under our current medium-term management plan, we aim to increase the number of properties under management to 700, and under our long-term vision, to 1,000 properties. Next, I would like to introduce our rental conference room business of stock-type business within the office segment. This business has also been expanding steadily, with continued growth through the expansion of our locations. We currently operate 19 locations with a total operating floor area of 10,803 tsubo. Under our medium-term management plan, we aim to expand this to 16,000 tsubo. Next, I will move on to the hotel business. We have been expanding the number of hotels under operation by actively utilizing new development, renovation, and revitalization projects, as well as mergers and acquisitions. In the previous fiscal year, we increased our portfolio by five hotels, adding 540 rooms. In the current fiscal year, we plan to accelerate this expansion further, with an increase of 10 hotels and a total of 1,461 additional rooms. At present, we operate 38 hotels. Looking ahead, including projects for which land has already been acquired and architectural planning is currently underway, we expect to expand our portfolio over the next approximately three years to a total of 54 hotels with 6,375 guest rooms. Beyond that, we are working toward a long-term goal of reaching 10,000 rooms by 2033. This slide shows the status of occupancy rates and other key indicators, as well as performance trends over the past five years, including our forecast for the current fiscal year. In the previous fiscal year, both occupancy rates and average daily rates reached record highs. However, for the current fiscal year, we expect both metrics to decline slightly. This outlook reflects factors such as a reactionary decline following the boost from last year's Osaka Expo, as well as a modest decrease in overall occupancy amid a series of new hotel openings. On the other hand, driven by the increase in the number of hotels under operation, we expect gross profit to continue to grow steadily. Next, I will move on to the residential business. We are developing our residential business tailored to the characteristics of each market in countries and regions where population growth continues, including Vietnam, New York, and Tokyo. Next, I would like to discuss our approach to mergers and acquisitions. This slide summarizes the major mergers and acquisitions transactions we have undertaken to date, presented in chronological order. Going forward, we will continue to actively leverage mergers and acquisitions to strengthen our existing businesses and expand our presence in related business domains. Finally, I would like to briefly explain our approach to management with a focus on capital costs and share price. This slide provides an overview of the key initiatives we are undertaking to improve ROE. Among these initiatives, the most important is shown on the far right: our philosophy and amoeba management. Our philosophy fosters a strong, unified organizational culture by aligning employees who share the value of compassion, creating a powerful sense of solidarity and a common direction. At the same time, amoeba management achieves high productivity through all-employee participation under a market-linked profit accountability system at the departmental level. These two elements, our unique corporate culture and management system, work together as dual driving forces and represent a crucial foundation for enhancing the effectiveness of our initiatives. Under this dual framework, all business divisions will operate in a unified manner, placing emphasis on profitability and capital efficiency. By doing so, we aim to improve ROIC and ultimately enhance ROE. With regard to our approach to ROE, we focus on three perspectives: profitability, turnover, and financial leverage. Specifically, we place emphasis on three key indicators: ordinary profit margin, total asset turnover, and equity ratio. We aim to maintain a highly profitable business structure, work to shorten project cycles in our flow-type business, expand stock-type business such as service operations, and at the same time maintain an appropriate level of financial stability. By combining these three elements, we seek to achieve highly capital-efficient management. Our ROE for the previous fiscal year was 14.4%, exceeding our target of 14%. However, for the current fiscal year, ROE is expected to decline into the 13% range, mainly due to an increase in equity associated with our alliance with ITOCHU Corporation. We are committed to realizing the benefits of this alliance at an early stage, expanding business profits, and restoring ROE to the 14% level as soon as possible. This slide presents a graph showing the results for ROIC, ROE, and PBR over the past four fiscal years, along with our outlook for the current fiscal year. By consistently maintaining profitability levels that exceed both our weighted average cost of capital, or WACC, and the cost of equity, we aim to translate this performance into medium- to long-term enhancement of corporate value. Next, I would like to discuss our approach to investor relations activities. We are committed to engaging in proactive and constructive dialogue with all stakeholders, including clearly communicating our management policies, the progress of our business plans, and our growth strategies looking ahead. In addition, we will continue to enhance our IR disclosure materials, including expanding foreign language support such as English and Chinese, to further improve accessibility and transparency for global investors. This is the final slide. In September last year, we published our first integrated report. The report outlines our management philosophy, growth strategy, and approach to sustainability management and presents our roadmap toward long-term enhancement of corporate value. We would be grateful if you could take the opportunity to review it. We are also planning to publish the latest edition this coming September. By making effective use of these initiatives, we will further deepen communication with our stakeholders, and we sincerely appreciate your continued support going forward. This concludes my presentation. Thank you very much for your attention.