Nomura Real Estate Holdings, Inc. (3231) Earnings Call Transcript & Summary

Hello, this is Kutsukake. Thank you for attending the Nomura Real Estate Holdings financial results presentation for the 6 months ended September 30, 2021. This time again, we decided to hold this meeting in a webinar format. We are sorry for any inconvenience and appreciate your understanding. Since time is limited, I would like to begin immediately. Please see Page #5. This summarizes the consolidated results for the first 2 quarters of the year ending March 2022. Operating revenue was JPY 257.1 billion; operating profit, JPY 40.3 billion; business profit, JPY 40.4 billion; ordinary profit, JPY 35.1 billion; and profit attributable to owners of the parent was JPY 23.5 billion. The situation concerning COVID-19 infections remain unpredictable. However, compared to the same period of the previous fiscal year, when we had no choice but restrict our business activities, we are seeing a steadfast recovery. And in fact, we have achieved a year-on-year increase of 64.1% in business profit and 95.5% in profit attributable to owners of parent. Moving on to Page 6. On the left, the revenue and profit of each business unit are presented. The graph on the right shows the key factors behind the year-on-year changes in business profit of each business unit. I will explain the performance of each business unit later, but the detailed impacts are presented here. Next, let me share the earnings forecast for the full year. Page 8, please. We partly revised the full year forecast this time around. In the revised forecast, we project operating revenue to be JPY 670 billion; operating profit, JPY 82 billion; business profit, JPY 84 billion; ordinary profit, JPY 74 billion; and profit attributable to owners of the parent, JPY 49.5 billion. Moving to Page 9. In Residential Development Business Unit, due to the steady progress of housing sales amid favorable market conditions, we revised the record -- profit recognition timing of certain projects. This resulted in a slight decrease in revenue, but profit forecast was revised upwards due to improved profit margin. In Commercial Real Estate Business Unit, we made good progress in property sales in the first quarter. Steady progress is expected to continue in the third quarter and beyond, which will likely bring about improved gross profit from property sales. The Property Brokerage & CRE Business Unit has also achieved solid performance, mainly in the retail business for individual customers. For these reasons, we made an upward revision to the earnings forecast of these business units. On the other hand, in some cities in Southeast Asia, there have been construction delays caused by COVID-19. Therefore, we changed the profit recognition timing of some projects from originally this fiscal year to the next fiscal year or beyond, except for certain projects. In Japan and overseas, the impact of COVID-19 still remains unpredictable. Accordingly, when we revised our guidance, we decided not to change the overall business profit forecast from JPY 84 billion, and the forecast for the profit attributable to the owners of the parent also remains unchanged at JPY 49.5 billion. We will continue to strive toward the achievement of our profit target of JPY 85 billion for the current fiscal year, which is the last year of our mid- to long-term business plan. Next, I will present the highlights of the performance for the first 2 quarters by business unit. Please see Page 15. First, Residential Development Business Unit. Operating revenue was JPY 99 billion and business profit was JPY 6.1 billion, recording an increase in both revenue and profit year-on-year. Housing sales progressed steadily in a solid market as we successfully captured consumers' heightened appetite to buy a home, which was stimulated by longer stay at home hours and diversification of work style, and we were able to offer a wide variety of products precisely responding to their requirements. Housing sales as of the end of the second quarter was 1,406 units, up 412 units from the same period of last fiscal year. Gross margin as of the end of the second quarter was 23.9%, and the full year gross margin is projected to be comparable to the level of last fiscal year. Please also refer to the next page for more details concerning the sales and gross margin trends. Moving on to Page 17. The cumulative number of housings contracted reached 2,046 units in the first 2 quarters. The progress of contracts against the scheduled housing sales of JPY 280 billion is presented here on the right. As you can see, the progress as of the end of the second quarter was 96.3%. As I mentioned earlier, in association with the revisions made to our full year forecast, we changed the profit recognition timing of some housing projects. The projected amount of full year housing sales was revised from previously JPY 290 billion to JPY 280 billion, and the projected number of housing sold was revised from previously 4,400 to 4,300. Page 18, please. In the first 2 quarters, we acquired housing land worth JPY 102 billion, which can accommodate 1,690 units. When converted into sales amounts, this means we secured a land bank of JPY 1.430 trillion. Alongside our initiatives for redevelopment projects, we will continue to endeavor for steady land acquisition, attaching emphasis on profit margin. Next, I will talk about the Commercial Real Estate Business Unit, page 20. In Commercial Real Estate Business Unit, operating revenue was JPY 91.7 billion as business profit was JPY 24.7 billion, recording a year-on-year increase in both revenue and profit. The property for sales business achieved a steady progress, including a strategic reshuffle of owned assets in the first quarter. In the third quarter and beyond, property for sales business is projected to maintain the steady pace of sales that exceeds our expectation, driven mainly by the strong investment demand among institutional investors. Retail facilities, fitness and hotel businesses were heavily impacted by COVID-19 in the same quarter of the last fiscal year, with business activities being suspended in some cases. Fitness and hotel business are still in a difficult environment, but retail facilities, especially shopping centers are beginning to recover. In view of these factors, we made an upward revision to our full year business profit for forecast for Commercial Real Estate Business Unit. Moving on to Page 21. In the leasing assets that we own, the actual vacancy rate excluding the training facility in Yokohama was 1.9% as of the end of the second quarter. This marks an increase of approximately 0.5% compared to 1.4% 3 months ago at the end of the first quarter, but approximately half of this increase was due to tenants moving out from properties that are planned to be rebuilt or redeveloped. While we need to keep a close eye on the rent levels and the vacancy trends in the market, we have not seen any major changes in the properties that we own. Next, I will talk about our property for sale business on Page 22. During the 3 months of the second quarter, no new sales was recorded. However, for the first 2 quarters combined, we realized gross profit of JPY 21.1 billion, which is comparable to the full year gross profit of last year. In the second half, we will continue steady execution, including the sale of our logistics facility, Landport Ome III, to Nomura Real Estate Master Fund as we announced earlier. For new developments, we acquired land worth JPY 45 billion for a total of 5 projects, including offices and logistics. As a result, the stock for property for sale grew to JPY 691 billion, mainly comprising offices and logistic facilities. Next, I'll touch upon our overseas business. Page 27, please. In Southeast Asian cities, lockdowns were imposed as a result of an increase in COVID-19 infections, which caused a delay in construction. Consequently, the timing of recording sales of some projects were postponed. We therefore made revisions to our full year forecast for overseas business. One of the large-scale projects that we plan to record sales this year, the Grand Park second project in Ho Chi Minh City, Vietnam, was mostly postponed to next year or beyond, with some exceptions because the construction was suspended for approximately 2.5 months. We also see some delays in construction and sales in Bangkok and Manila, but we are making progress almost in line with our plan. In Bangkok, the housing demand is very robust, backed by real demand, so we have decided to participate in two new projects. As for China, we hear media reports every day that cover government's tighter policy imposed on real estate business, the stringent action against real estate developers including the three red lines and credit uncertainties over developers as a result of these measures. This is not likely to cause any direct impact or concerns on our business or our partners' business. We will operate our business while carefully tracking the government's policies and the demand trends in the overall market. From here, I will briefly introduce the key initiatives implemented in the second quarter. Page 11, please. PROUD Takadanobaba, completed in May, is an environment-conscious project that employs many of our unique offerings, such as a whole-house air conditioning system for condominiums called Yukai-full, and Attractive 30, which reduces the cost of large-scale repair work. This project was selected as a high-rise ZEH-M support project. In order to realize our goal to reduce CO2 emissions, including scope 3, it is indispensable to address the ZEH initiatives, which realize net zero emissions for primary energy consumption in condominiums. We plan to promote this initiative in many projects, including PROUD TOWER Kameido Cross. The Takadanobaba project is also distinctive in that it offers various housing types, blending compact-type housing with 2-bedroom type housings to cater to the diverse needs from different family compositions and age groups. As people's lifestyle diversifies at an accelerated pace going forward, we will continue to undertake these initiatives to respond to the changes in housing demands. Moving on to Page 12. The first PMO series in Kansai area, PMO EX Shin Osaka, was completed in May. We also built the first H1O human-first office, the H1O Shin Osaka, in the same premise. A number of other PMO and H1O projects are planned to be developed in the future. And we have already opened our timeshare office, H1T human-first time, in the Kansai area. We will continue to propose to corporate customers new portfolio of offices to respond to diversified work styles, not only in the metropolitan Tokyo area but also in the Kansai area. Page 13, please. In addition to the sustainability bond issued in February this year, in July, for the first time in Japan, we adopted what is called the sustainability-linked loan, which offers preferential interest rates based on the achievement of greenhouse gas emission targets that we have been -- we have set. For the first time in Japan, we utilized the comprehensive sustainability-linked loan framework, which is a mechanism that allows us, the borrower, to take the lead in promoting similar initiatives with multiple financial institutions to show that this leads to diversification of financing methods and that our business is directly linked to sustainability and solution of social issues. We plan to actively incorporate sustainability finance, setting a target of procuring JPY 200 billion over the next 5 years through new loans and refinancing. Next, I will comment on our plans for dividend and shareholder returns. Page 10, please. As we announced in April, we plan to pay an annual dividend of JPY 85 per share. In addition, in the period through April 25, 2022, we will conduct share repurchases for up to JPY 5 billion. As a result, our total return ratio for the year ending March 2022 is estimated to be 41.3%. Going forward, we will continue our endeavors to realize growth through efficient business management and provide return to shareholders through our unique approach of engaging in both real estate development and providing real estate-related services. That's all for myself. And thank you very much for your attention.