Earnings Call: Q1 2026

Aug 7, 2025

Summary

Q1 net sales and profit rose YoY, with progress at 23.4% of full-year sales and 25.7% of ordinary income targets. Stock-type businesses posted record highs, while the three-year plan prioritizes office, hotel and stock-business growth.

I am Hirahara, General Manager of the Corporate Planning Department. I will now explain the performance summary up to page 13. In the first quarter, we recorded a significant year-on-year increase in both net sales and profit. However, this represents roughly one-fourth of our full-year forecast, which is in line with our initial plan. By business segment, all segments performed well, both flow-type and stock-type businesses, including property sales and acquisitions in the replanning business, as well as the real estate service business and hotel operation business. This graph shows quarterly results and progress toward the full-year forecast for ordinary profit over the past five fiscal years. Our group will continue working to minimize quarterly performance fluctuations while striving to maximize corporate value under our highly profitable business structure. Next, I would like to explain four key points regarding the consolidated income statement. First, in the real estate revitalization business, including properties under contract and scheduled for settlement as of the time of disclosure, progress has exceeded 40% toward the full-year forecast. Second, in the real estate service business, performance was driven by the rental meeting room and brokerage businesses. Meanwhile, the core property management business, the platform of this segment, continued to expand steadily, with 556 buildings under management and an occupancy rate of 95%, resulting in a record-high quarterly performance. Third, in the hotel and tourism business, we achieved a record-high quarterly performance driven by a strategy focused on delivering high added value and supported by robust inbound demand. Fourth, on the cost side, we are steadily making focused investments in human resources and systems in line with our initial plan. Next is the consolidated balance sheet. Total assets stood at JPY 217.8 billion, remaining flat compared to the end of March. Amid this, cash and deposits decreased by JPY 4.1 billion due to property acquisitions, construction costs, tax payments, and dividends. However, in the hotel business, inventories and property, plant and equipment increased by a combined total of JPY 4.3 billion. On the liabilities and net assets side, the equity ratio remained at a high level of 47.7%. Going forward, we will continue to pursue capital efficiency while maintaining business investments and ensuring a sound financial position. Next, I will explain the results by business segment. The replanning business recorded a significant year-on-year increase in both net sales and profit while maintaining profit margins. In terms of both net sales and profit, the business is progressing at a steady pace toward the full-year forecast. Going forward, we will continue to strengthen our stock-type businesses led by the rental office building business by replacing assets as needed and expanding a stable earnings base. On the acquisition side, we have made steady progress with over 60% of the full-year target already secured, including properties under contract but unsettled. We will continue to adhere strictly to our acquisition criteria while working to build a solid foundation for future corporate value. This chart illustrates our business model for increasing added value in flow-type businesses based on the relationship between sales, purchases, and inventories as recorded in the financial statements. The rightmost column represents the initial budget for the current fiscal year. At the same time, the assumed at the bottom indicates the unrealized gains on the balance sheet calculated in reverse from the profit margin. The real estate service business has a complementary relationship with the replanning business and serves as a platform that provides a one-stop value-added chain across our group. As shown in the charts, segment sales exceeded JPY 4 billion for the first time, and we maintained a profit margin of 54%. We will continue to strengthen this stock-type business, which is less susceptible to interest rate fluctuations. Next is the hotel and tourism business. In our development projects, we place importance on regional revitalization and are advancing developments not only in high-demand urban areas but also in collaboration with local residents. Against this backdrop, we plan to open a new Tabino Hotel in Kakogawa in September and Ishikari in October. In our hotel operations business, we are seeing a growing number of repeat guests who support our group's philosophy of creating heartwarming and fun hotels. Coupled with the tailwind of strong inbound tourism, the impact of our high-value-added strategy is becoming increasingly evident in both occupancy rates and average daily rates. Finally, in the construction business, despite facing challenges due to inflation and labor shortages, we achieved year-on-year increases in both net sales and profit. In the business in Vietnam, the second project of our new condominium development is entering the final stage of foundation work. Completion is scheduled for the second half of next year. I will now explain our business progress and growth strategies. First, we are embarking on a new mid-term management plan starting this fiscal year. This is the first 3 years towards achieving our 10-year long-term vision. It is a plan that outlines how we will grow our business. Our goals for the first year of this mid-term plan are JPY 117 billion in net sales and JPY 22.5 billion in ordinary profit. For the final fiscal year ending March 2028, we aim for JPY 135 billion in net sales, JPY 27 billion in ordinary income, and an ROE of 14% or more. We will achieve these goals. Next, regarding our understanding of the business environment, it is as follows. The economic outlook remains uncertain due to factors such as the impact of U.S. tariff policies, a sluggish Chinese economy, and geopolitical risks. Despite this, the office and hotel markets are both currently performing well. We expect the upward trend in office rents and hotel room rates to continue for some time. While keeping an eye on the volatile global economy and rapid changes in the financial environment, we will steadily advance our business according to the plan. Next is our current performance. As explained earlier, the results for the first quarter show a progress rate of 23.4% for net sales and 25.7% for ordinary income against the full-year forecast. Overall, each business is progressing largely as planned. This slide shows the performance trend of our flow-type of business. This is a graph of net sales and gross profit, aggregating only the net sales of real estate properties such as replanning properties and hotels. Regarding this fiscal year's performance, we have highlighted the amount of net sales and profit for which properties have been settled or are scheduled to be settled since the beginning of the second quarter up to yesterday's earnings announcement. In terms of value, this amounts to approximately JPY 13 billion in net sales and JPY 6 billion in gross profit. When we add this to the first quarter results, the gross profit has progressed to 43% of the full-year forecast over the first four months of the current fiscal year. Our stock-type business is also growing steadily. In the first quarter, we saw an increase in both net sales and profit compared to the same period last year, reaching a new record high. This graph shows the trends in net sales and gross profit for businesses other than the sale of real estate properties mentioned earlier, such as real estate services and hotel operations. In the first quarter, net sales in this segment were JPY 10.2 billion, a 28% increase from the same period last year, and gross profit was JPY 3.9 billion, a significant 36% increase. By further accelerating the growth of this segment, we will create a more stable and robust profit structure. Next, I will explain our growth strategies and business initiatives. This is an overview of the growth strategies for our current mid-term plan. Our basic policy is to pursue a business model that combines manufacturing and service capabilities. We will also promote diversification by leveraging our core business, expand our business domains, and accelerate growth by effectively utilizing our funds. In the office sector, we will focus on new construction projects in addition to our existing regeneration business. We will also take on projects in Osaka for replanning and small-lot real estate investment products. In the hotel sector, we will increase the number of hotels we operate by actively utilizing new construction, regeneration projects, and M&A. In the residential sector, in addition to our previous condominium projects in Vietnam and apartment replanning in New York, we will also engage in new construction of rental apartments in Tokyo. Below, I will provide a more detailed explanation of our initiatives in each business. First is our replanning business. This is our core business, and we have accumulated a cumulative track record of 516 buildings since the company's establishment. On the right side of the slide, we have included a photo of a recent case. This case involves a six-story rental building in Chuo Ward, where the top floor was the seller's residence. We converted it into office space after our purchase. We also carried out a full building renovation and installed set-up offices on each floor. As a result, we were able to significantly improve the rent levels and sell it as a highly profitable building. Next is our new construction business. We will leverage the high-occupancy, high-value-added regeneration techniques we have cultivated in our replanning business to focus on the development of new buildings. The photo on the right side of the slide is a recent example of a low-rise commercial building, a new construction project in Minamiaoyama. It is a small two-story building with a floor area of about 90 tsubo, but it has created unique value based on the theme of integrating art and real estate, such as featuring a work by the French artist Hom Nguyen on its facade. Next is about our specified joint real estate ventures and small-lot real estate business. We primarily sell buildings that are operated on long-term leases with tenants such as daycare centers and clinics, which are closely related to daily life and education or medical services as small-lot real estate investment products. While we primarily focus on central Tokyo and its suburbs, we are also undertaking some projects in the Kansai area in response to customer demand for regional portfolio diversification. Recently, sales of a new medical mall in Nishinomiya City, our first project in the Kansai area, has begun. Fortunately, net sales are progressing well. Next is our real estate services business. We will continue to focus on the central Tokyo area, enhance our expertise, and work to strengthen our customer base. The number of properties under our management has increased by 14 from the end of the last fiscal year, now standing at 556 buildings. The goal for this fiscal year is 600 buildings, with a plan to expand to 700 buildings in 3 years. Next is our rental conference room business. Backed by strong performance, we are actively opening new sites and expanding our operational area. The relatively large facilities that have opened since last year are also on track, and performance is progressing smoothly. Next is our hotel and tourism business. The development and opening of new hotels are continuing, and this business is also expanding smoothly. We currently operate 29 hotels with a total of 3,166 rooms. A recent topic is the opening of STITCH HOTEL Kyoto in June, which was a renovation and regeneration of an existing hotel. Next, here is a list of hotels scheduled to open in the future. We have 3 more openings planned for this fiscal year. This month, Nagano Linden Plaza Hotel will join our group through M&A, followed by the opening of Tabino Hotel Kakogawa in September and Tabino Hotel Ishikari in October. Including those currently under construction and those for which land has been acquired and plans are being formulated, the total is expected to grow to 46 hotels and over 5,800 rooms over the next 4 years. Furthermore, we aim to expand to 10,000 rooms by 2033. On the other hand, the performance of our hotel operations is also very strong. We are supported by a strong inbound demand and a recovery in domestic travel, and we have received high praise from customers even as we actively increase the number of rooms. This has created a virtuous cycle, and the business is growing significantly. Going forward, under our hotel management policy of heartwarming and fun hotels, we will continue to enhance our service to a level that not only exceeds customer satisfaction but also moves them emotionally, thereby driving further business growth. Next is regarding the M&A. As I mentioned earlier, one hotel in Nagano will join our group this month through an M&A. It is a hotel with a total of 136 rooms located on a 6-minute walk from the Zenkoji exit of JR Nagano Station. The settlement is scheduled for August 26th, and for the time being, we plan to continue operations as they are. Next is about our residential development business. Our initiatives in the residential development business have included condominium development in Vietnam and apartment regeneration in New York. From the previous fiscal year, we have also started working on new construction of whole building rental apartments in Tokyo. Our policy is to primarily develop in the central 5 wards and the adjacent 7 wards of Tokyo. We are currently advancing projects in the 3 locations listed here. The apartment replanning business in New York is progressing steadily. We started the business in 2019. Although we slowed down a bit during the pandemic, we have since acquired 11 buildings, regenerated them through renovation, and sold 7. We plan to sell three buildings this fiscal year, with one already sold in July and the remaining two scheduled for sale by the end of the year. In Vietnam, the construction of our condominium is progressing. This photo shows our second project, the HIYORI Aqua Tower, a condominium with 202 residential units. Completion is scheduled for in the second half of the next fiscal year. These are our specific initiatives in each business. While expanding and growing these businesses, we will also work on transforming our profit structure. In our flow-type of business of property sales, we will diversify our asset types, and in our stock-type of business, we will promote diversification in related fields. While steadily increasing overall net sales, we will raise the proportion of our stock-type of business, which is more resilient to market fluctuations. In this midterm plan, we forecast a net sales growth rate of 21% for the flow-type of business over three years. The stock-type of business is expected to have a high growth rate of 53%. As a result, we will increase the proportion of the stock-type business in our total net sales from the current 30% to 35%. Finally, regarding our funding plan, we plan to invest a total of JPY 310 billion over the three years of the midterm management plan. Approximately JPY 200 billion will be allocated to office-related businesses and around JPY 70 billion to hotel development. In addition, we plan to invest roughly JPY 29 billion in overseas operations and about JPY 10 billion in M&A and other areas. Although we are still at the early stages, investments are already progressing smoothly, including acquisitions for the replanning business and M&A-related projects. For all these investments, we will consistently conduct thorough examinations from a capital cost perspective while actively pursuing investments aimed at future growth.