Earnings Call: H2 2026

Jun 17, 2026

Summary

Period 47 EPU reached JPY 2,640 and DPU JPY 3,140, with rent growth supporting medium-term targets. DPU is forecast at JPY 3,100 for periods 48 and 49, while rate hikes and UDX renovation timing affect earnings.

Hello, everyone. Thank you very much for taking time out of your busy schedule today to watch this earnings presentation video for NTT UD REIT Investment Corporation in fiscal period 47. My name is Yasutake Horinouchi, and I am President and CEO of NTT Urban Development Asset Management Corporation, which is the asset management company for NTT UD REIT Investment Corporation. To enhance the efficiency of delivering financial results information to our unitholders, we created the audio and video components of this presentation using generative AI technologies. As an asset management company of the NTT Group, we will actively incorporate cutting-edge technologies and aim to further increase business efficiency by improving the efficiency and accuracy of our operations. Let's dive into the results for fiscal period 47, ended April 2026. Let's begin with a financial summary for this fiscal period. Please refer to page 2. For fiscal period 47, EPU was JPY 2,640, almost as expected. We will distribute JPY 3,140 to unitholders, which is the promised DPU. We also believe that progress has been made toward the medium-term targets announced in December last year, within the scope of our expectations. Accordingly, we anticipate distribution per unit of JPY 3,100 in both fiscal period 48 and fiscal period 49, as already announced. Turning to the status of asset operations, despite a gap between new acquisitions and sales, asset size remains almost unchanged, and NAV per unit has increased by almost 2% due to efforts to raise rents. Occupancy rates and the NOI yield also remain at high levels. Lastly, I would like to turn our attention to the financial situation. With regard to interest rates, the Bank of Japan raised its policy interest rate just yesterday, and we expect a certain amount of increases going forward. However, due to our efforts to fix and level interest-bearing liabilities, the increase in the interest burden will be limited for the time being, and we believe we will be able to respond satisfactorily to this situation. Firstly, I would like to explain the status of efforts to achieve our medium-term targets. Please refer to page 3. Our medium-term targets are to achieve sustained growth in EPU, mainly through internal growth, and to raise EPU to JPY 3,100 by fiscal period 52, ending October 2028. We have summarized our efforts on the left side of the slide, including external growth and our financial capital policy. On the right side, we show our progress so far. Firstly, concerning internal growth, which is the main area. In fiscal period 47, the rent increase rate upon tenant turnover was 10.7% for offices and 15.2% for residential property, which was higher than expected. In fiscal period 48 and beyond, we will strive to further increase profits alongside cost-side initiatives, such as keeping renovation costs at around JPY 600 million to JPY 700 million per fiscal period. Next, let's turn to external growth. In fiscal period 47, we acquired a relatively new residential property in Osaka, and we have continued to search for new residential properties with an eye to improving our portfolio quality. For example, by diversifying areas and improving the construction year mix. Today, we signed a contract for a new residential property in Namba area, the largest commercial district in Kansai. Lastly, with regard to our financial capital policy, we were able to hold down the average interest rate for refinancing in fiscal period 47 to 1.68%, with an average maturity of slightly less than seven years, leveraging our high credit rating. In fiscal period 48, in light of the recent stock price trend, we will continue to acquire own investment units up to a maximum of JPY 2 billion. Turning to page 4, we will now look at progress with our EPU growth target, which lies at the core of our medium-term targets. In short, as mentioned in the financial summary at the beginning of this report, we are making steady progress toward fiscal period 52, ending October 2028. We achieved a solid EPU result for fiscal period 47, and when this is added to the gain on property transfers, DPU will be JPY 3,140 as anticipated. For fiscal period 48, we are revising our EPU forecast alongside our fiscal period 49 forecast because we expect an increase of JPY 80 in dividend income per unit due to a delay until fiscal period 49 in expenditure on the commercial section renovation work at Akihabara UDX. However, we believe that the internal growth trend has been very solid up to now. From the next page, I will explain the status of our efforts in more detail. Page 5 shows the rent revision trend, which is a pillar of internal growth. In a dialogue with our unitholders conducted 6 months ago, we received a number of questions about the extent to which change in rent at the time of tenant turnover and contract renewal would increase rents across the entire portfolio. The results for fiscal period 47 are summarized in a simple formula on the left side of the slide. The overall rate of change in rent is derived by multiplying the percentage of all contracts subject to tenant turnover or contract renewal by the rate of net change in rent. There was relatively low tenant turnover in office properties, and for this reason, rent increases at the time of contract renewal helped to raise the overall level. In the case of residential property, increase in rent at the time of tenant turnover, achieved through value enhancement measures, was the main reason for the increase. As a result of rent revisions in fiscal period 47, office rent increased by 0.8% and residential property rent by 1.5%. However, due to the greater weight of office properties, rent in the overall portfolio increased by 1.0%. Monthly rent is up JPY 16 million, or 2.0% per year. The graph on the right shows rental revenue from existing properties. Rental revenue is expected to increase by more than 1% in fiscal period 48, affected by rent revisions in fiscal period 47. On pages 6 and 7, we introduce specific measures to increase rents. The graph on the left of page 6 shows changes in the office rent gap over the past 10 fiscal periods. Rents were adjusted as the vacancy rate rose due to the COVID-19 pandemic, mainly in Class A buildings, and NTT UD REIT succeeded in maintaining rent levels to some extent, thereby retaining over-market rents. However, market rents have risen significantly over the past 6 months, and three-quarters of our total rents are now under-market. Looking ahead, we will negotiate increases for tenants who are about to renew their contract in anticipation of a further increase in market rents. In the event that tenants leave, we will aim to conclude new contracts at or above the market level. The right side of the slide shows examples of increases in office rent. Tokyo Opera City shows an example of office space tenant turnover that was introduced in the previous earnings presentation. The rent increase for the office section overall was expected to be 2.8%, but as a result of leasing efforts, a rent increase of 3.2% was achieved. At the Ueno TH Building, tenant turnover or contract renewals were conducted on 5 of the 8 floors during fiscal period 47, and rent was successfully increased for all sections. Furthermore, the lower-right corner of the slide shows the increase in rents for parking lots. These figures include residential properties. Due to reviews of subleasing agreements and new leasing agreements, the monthly rent increased by JPY 3.5 million, and the rent across all parking lots increased by 9.4%. On page 7, I will explain our initiatives to enhance the value of our residential properties. As for the implementation policy, the target area was 60 sq m or more in the previous fiscal period, but we decided to expand the target area to 40 sq m or more because demand is expected for DINKS as well, and to implement 15 to 20 units per fiscal period. In fiscal period 47, we implemented value-up construction for 19 units in 13 properties, and we concluded contracts for 13 units, including those for fiscal period 46. The monthly rent fluctuation rate was +45.5%, and the ROI was 17.9%, far exceeding the target of 10%. The cumulative results from fiscal period 44 to fiscal period 47 were also very good. The right side of the slide shows examples of 2 properties. In particular, Storia Akasaka, shown in the upper part of the slide, succeeded in significantly increasing rent by changing the floor plan from a spacious studio to a 1SLDK. We will continue to implement measures to enhance the value of our residential properties. Next, on page 8, I will explain how to control repair costs. I have previously explained that we are intensively carrying out large-scale repair work from fiscal period 45 to fiscal period 47. We have now compiled figures on the front-loading effect of the work. This REIT has several residential properties that are 20 years old, and exterior wall repairs were scheduled for fiscal period 45 onward. It was also necessary to accelerate the installation of LED lights in response to the discontinuation of fluorescent lamp production in 2027. In light of this situation, we have decided to sell the Landic Shimbashi II Building, whose occupancy rate has declined, and use the proceeds from the sale to intensively carry out exterior wall repair work and LED installation work. Specifically, among planned construction works from fiscal period 48 to fiscal period 51, approximately JPY 700 million of the construction works are carried out in fiscal period 45 to fiscal period 47 ahead of schedule. Combined with the effect of the sale of the NTT CRED Okayama Building and Kanagawa Science Park, which were expected to incur significant repair costs, repair costs for fiscal period 48 and beyond are expected to be between JPY 600 million and JPY 700 million per fiscal period. As shown in the graph on the right, construction costs have been on an upward trend, and we believe that we were able to reduce total costs by carrying out construction work ahead of schedule. Next, on page 9, I will explain about external growth. in fiscal period 47, we plan to complete the sale of the Landic Shimbashi II Building and acquired a relatively new residential property in Osaka City using the funds from transfers of properties with issues to date. In fiscal period 48, we plan to acquire a relatively new residential property in the Osaka Namba area, where growth is expected through redevelopment. Although we were able to obtain a residential property in the Osaka area, where rents have been rising significantly, we will continue to monitor market trends in major regional cities, mainly in the Tokyo area. Since fiscal period 45, we have been continuously replacing properties, which has resulted in the rejuvenation of building age and the reduction of repair costs. However, we will further strengthen our efforts to improve the quality of our portfolio from various perspectives. In addition, in close cooperation with our sponsors, we will explore a wide range of acquisition opportunities. We will also work to strengthen our ability to gather information and discern outside acquisitions. By evaluating the asset value of properties from a variety of perspectives, including location, growth potential, and competitiveness, we will lead to the selective acquisition of high-quality assets. This is the report on our efforts to achieve our medium-term targets. On the next 2 pages, I will explain the details of our financial results and earnings forecasts. Page 10 shows the results for fiscal period 47. Let me explain from the comparison with the previous fiscal period on the left side of the slide. Despite the loss of earnings from the sale of properties to date, an increase in rental revenues from existing properties and a decrease in repair costs resulted in an increase in real estate rental income of JPY 5,320 million period-on-period. Operating income increased significantly from the previous fiscal period to JPY 5,762 million due to the elimination of losses on sales recorded in fiscal period 46. Non-operating income improved slightly to a loss of JPY 645 million due to an increase in interest income from the investment of funds from transfers, despite the impact of higher interest rates. As a result, net income was JPY 5,115 million, and EPU was JPY 2,640, an increase of JPY 54 period-on-period. However, part of the gain on sale was retained internally, and DPU was JPY 3,140, the same amount as in fiscal period 46. In contrast to the forecast, other income and expenses for existing properties were significantly positive, but this was due to water leakage at the first floor of the residential property, which included compensation payments to tenants and insurance income and had little impact on earnings. As for repair costs, additional renovation work, including maintenance of the value of common areas of residential properties, was required to achieve the medium-term target. As a whole, we were almost in line with our plan. EPU increased by JPY 10 compared to the plan, and DPU remained in line with the plan. Page 11 is the forecast for fiscal period 48 and fiscal period 49. First, the left side of the slide shows fiscal period 48 forecast compared to fiscal period 47 result. In addition to the improvement in income from property replacement, rental revenues from existing properties increased by JPY 99 million, and repair expenses decreased by JPY 449 million due to the effect of the acceleration of large-scale construction, resulting in an increase of JPY 616 million in real estate rental income to JPY 5,936 million. We expect net income to decline JPY 667 million to JPY 4,448 million due to the impact of the elimination of gains on sales and higher interest rates. As a result, we forecast EPU for fiscal period 47 to increase by JPY 390 to JPY 3,030. In line with our medium-term policy, we plan to utilize a partial reversal of reserve for reduction entry accumulated to date in order to set DPU at JPY 3,100. Excluding the impact of delayed expenditure on construction costs at Akihabara UDX, which I mentioned in my explanation of medium-term EPU growth, EPU was JPY 2,950, a slight increase from the previous forecast of JPY 2,940. The right side of the slide shows fiscal period 49 forecast compared to fiscal period 48 forecast. Despite the full-year contribution of properties scheduled to be acquired in fiscal period 48 and an increase in rental revenues from existing properties, we forecast real estate rental income to be JPY 5,886 million, the same level as in fiscal period 48, due to the impact of a JPY 170 million decrease in dividend income resulting from the commercial section renovation work at Akihabara UDX. We expect net income to decline by JPY 161 million to JPY 4,286 million after factoring in non-operating income of JPY 147 million, including interest rate increases due to the Bank of Japan's additional rate hike. As a result, EPU is expected to decrease by JPY 110 from fiscal period 48 to JPY 2,920. DPU will be maintained at JPY 3,100, which is the medium-term target by utilizing a partial reversal of reserve for reduction entry, as in fiscal period 48. The impact of the acquisition of own investment units announced today is not reflected in the forecasts for fiscal period 48 and fiscal period 49. The following page 12 shows the factors for changes in distribution per unit. From fiscal period 46 results to fiscal period 49 forecasts, we believe that EPU is on a growth path as expected. Excluding the temporary timing effects of expenses related to the previously mentioned commercial section renovation work at Akihabara UDX, EPU will continue to grow steadily towards our medium-term target of JPY 3,100 in fiscal period 52. I would appreciate it if you could review the following pages later, so I will skip my explanation at this point. If you have any questions, comments, or feedback, please feel free to contact our investor relations team. Thank you very much for your time today.