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

[Interpreted] My name is Kutsukake. Thank you very much for attending the financial results briefing for the 6 months from April 1 to September 30, 2022. Since time is limited, let us begin without further ado. Please turn over to Page 4 of the material on second quarter results for the period ending in March 2023. The consolidated financial results of the 6 months was JPY 314.7 billion in operating revenue, JPY 52.4 billion in business profit, JPY 48.8 billion in operating profit, JPY 47 billion in ordinary profit and JPY 33.8 billion attributable to owners of parent. Compared to Q1, business profit increased by 29.6% and net income by 44.1%. In Residential Development Business Unit, number of housing units sold increased, leading to higher operating revenue and business profit. The contract progress rate against projected housing sales is tracking favorably at 93.8%. Commercial Real Estate business unit also increased, mainly due to increase in revenue from the property for sales business. In Overseas Business unit, the completion and handover of housing sales projects in mainly Vietnam contributed to profit. Service & Management Sector performed solidly. Our full year guidance for earnings results and dividends remains unchanged from the beginning of the fiscal year in April. We also announced the buyback of shares up to JPY 6.5 billion today to April 14, 2023. Please turn to Page 5 next. This is our Q2 year-to-date income statement. In Q2, we took extraordinary profit and losses as we drove our leasing asset portfolio strategy. JPY 6.7 billion in extraordinary income or profit is due to the gains in sales of noncurrent assets. JPY 8.2 billion in extraordinary losses is the result of impairment losses and losses related to reconstruction on the decision to rebuild the training facility in Yokohama, which have been vacant from before. Furthermore, in order to be agile in our decision-makings, we have transferred fixed assets to inventories. So noncurrent assets to inventories, which incurred impairment losses in this fiscal year at the end of second quarter. Please turn to Page 6. The detailed numbers for each business unit can be confirmed in the materials, but we have recorded higher operating revenue and business profit year-on-year at all business units. Let us now turn to the performance of each business unit. Please turn to Page 11. First is the Residential Development. Operating revenue was JPY 141.1 billion, business profit JPY 4.7 billion, marking higher revenue and profit year-on-year. In the housing sales business, the number of housing sold in Q2 was 2,058 units, up 652 units year-on-year. Second quarter gross profit ratio was 22.9%. On the back of robust market, the housing sales business is making a good progress. On a full year basis, we expect to achieve the same level of gross profit ratio as the previous year. Please refer to the next page on the trend in operating revenue and gross profit margin. Please skip to Page 13. As you can see on the left graph, Q2 year-to-date number of housing contracted was 2,446 units. The graph on the right shows the contract progress rate against the scheduled housing sales this year. In the second quarter, the progress rate has reached 93.8%. The progress of contracts are tracking steadily, and we are promoting sales of scheduled housing sales for the next fiscal year onward. Please turn to Page 14. In Q1 and Q2, the company acquired land for residential development worth 2,740 units at JPY 290 billion. With this, the company has secured a land bank equivalent to JPY 1.62 trillion in sales. The environment for land acquisition is not easy, but we will continue to selectively acquire land through a combination of wide range of areas, product types as well as redevelopments. I will now turn to Commercial Real Estate business unit. Please turn to Page 16. In commercial real estate, operating revenue was JPY 102.6 billion and business profit was JPY 25.9 billion, marking higher revenue and profit -- business profit year-on-year. We made progress in property sales, including strategic replacement of assets even after the third quarter on the back of strong appetite by institutional investors for property for sale. We expect to make steady progress towards achieving a gross profit of JPY 30 billion range as announced at the beginning of the year. As for leasing business, while leasing revenues from the offices declined due to the eviction from some of the properties undergoing reconstruction, the opening of KAMEIDO CLOCK in April contributed to the increase in leasing revenue of retail facilities. As for other businesses, such as fitness and hotel. While the environment continues to be challenging, it is gradually recovering with increasing number of memberships and occupancy rate. Please turn to Page 17. The vacancy rate of the leasing assets we own was 5.3% at the end of second quarter. Training facility in Yokohama has been excluded from the net lettable area from the end of the second quarter since the decision to rebuild that has been finalized. Compared to 3 months ago, the end of the first quarter, the vacancy rate, excluding the Yokohama training facility has improved by 1% or 1 percentage point. This is primarily due to the eviction of tenants from properties to be rebuilt or redeveloped and increase in net lettable area with the completion of renewal works. We will continue to closely monitor the market rent and vacancy rate. Please turn to Page 18 on property for sale. In Q1 and Q2, we have been able to realize property sales of JPY 52.6 billion and gross profit of JPY 19.9 billion. Land purchase for future profit growth is tracking favorably. And in Q2 year-to-date, we have acquired 5 properties, which are office and logistics facilities equivalent to JPY 86 billion. As a result, the land bank for property for sales will JPY 801 billion, primarily with office and logistics properties. Let's move on to the Overseas Business on Page 19. The Overseas Business Unit newly established this fiscal year, recorded JPY 2.8 billion in business profit, making progress towards achieving our full year guidance of JPY 5.5 billion. This was driven primarily by the progress in completion and deliveries of housing sales projects in Vietnam. Please turn to Page 20. They have steadily secured business opportunities for mid- to long-term profitable growth. In this second quarter, in addition to the decision to participate in 3 new housing sales projects in Thailand where we have made inroads earlier, we made a decision to newly participate in the leasing housing projects in the United States as a part of our endeavor to increase the business volume of commercial property for sales business set out in the midterm target. Please turn to Page 21. We have decided to participate in the rental housing development business in Portland, Oregon, called Press Block project. Leveraging the know-how and strength we have fostered in Japan, we will develop our overseas business with 2 pillars: one being the housing sales business and commercial property for sales business in Asia and developed nations. And by the year ending in March 2023 -- excuse me, 2031, we will increase the percentage of our overseas business in the profit to more than 15%. In the United States, we will, first of all, collaborate with the Japanese partner and gain local know-how. And eventually, we will be involved in the more upstream of real estate development as we have done so in Asia. This will be our first step to show our strengths. So please turn to Page 30. As our most recent representative efforts to sustainability, we would like to introduce the diversity and inclusion policy, which was formulated in September of this year. In this policy, we not only clarify our approach but have also established a road map divided into 3 steps. In step 1, by the fiscal year ending March 31, 2024, we would achieve the goal of taking the annual pay leave or 100% of male-female taking the childcare leave. Specific goals have been set. Through these efforts, the entire group will work together to foster awareness of D&I and realize our sustainability policy earth pride. Finally, please go back to Page 9. This is on our shareholder return. As we communicated in April this year, we plan on paying JPY 110 per share for the full year. In addition to this, we have decided to do a buyback of our shares up to JPY 6.5 billion until April 14, 2023. With this, the total return ratio for the year ending in March 2023 will be 45.6% and the payout ratio is 34.1%. That is all from me. Thank you very much for your kind attention. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]