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

[Interpreted] Thank you very much for attending the Nomura Real Estate Holdings Financial Results Briefing for the fiscal year ended March 31, 2023. I am Satoshi Arai. I assumed the position of group CEO this April. Since this will be the first time that I am speaking in front of investors and analysts, I would like to briefly discuss my thoughts as the CEO on management policy before I explain the financial results. I consider the management policy to be the following 2 points. The first is to steadily implement the strategies formulated in the mid- to long-term business plan announced last April, so that the group can continue to expand its business and achieve profitable growth to the satisfaction of investors. I will not go into detail here, but I recognize that our group has extremely high value creation capabilities in real estate-related businesses, so we will continue to refine these capabilities while working to expand the domestic real estate development business and grow the service and management sector, as well as grow overseas business. Second is to always stretch our antenna and be attentive to changes in the business environment so that we can flexibly revise our strategies when necessary. We want to be prepared to quickly implement measures that can trigger growth so that changes can be turned into opportunity if deemed necessary. Going forward, I would like to increase opportunities for communication, including explaining my thinking in order to deepen your understanding of our company, and I look forward to your continued support. I would now like to explain the details of our financial results for the fiscal year ended March 31, 2023. Please turn to Page 7 of the annual results presentation material. First, I will provide the summary of the consolidated financial results for the fiscal year ended March 31, 2023. Operating revenue was JPY 654.7 billion. Business profit was JPY 105.1 billion. And profit attributable to owners of parent was JPY 64.5 billion. Compared to the previous year, business profit increased by JPY 12.4 billion and profit attributable to owners of parent increased by JPY 9.2 billion. Both results exceeded the earnings results presented at the time of the announcement of the third quarter results and achieved record highs. The main factors contributing to the increase in business profit were increase in the number of housing sales in Vietnam in the overseas business and an increase in fee revenue from the Property Brokers and CRE business unit. Please continue to Page 8. As for the balance sheet, total assets were approximately JPY 2.1 trillion. On the asset side, inventories increased, and on the liability side, interest-bearing debt, including loan and short-term loans increased. Shareholders' equity ratio was at 31.0%, which shows that financial discipline was maintained while expanding the balance sheet. Next, please see Page 9 for the earnings forecast for the fiscal year ending March 31, 2024. The forecast for the current fiscal year is: Operating revenue, JPY 750 billion; business profit, JPY 109 billion; and profit attributable to the owners of parent is JPY 65 billion. We expect an increase in both revenue and profit. The main factors for the increase in business profit are increase of gain on sales from Rental Housing sales and Residential Development business unit and the increase of gain on sales from property sales in Commercial Real Estate business unit. Operating revenue, business profit, operating profit and profit attributable to owners of parent are all expected to reach record highs. Although the growth from fiscal year ended March '23 may appear to slow down somewhat, this is because the profit growth in the previous fiscal year was high. Please consider that we are on track toward the profit target for our fiscal year ending March 2025 as presented in the mid- to long-term business plan. Please see Page 10 to review the progress against this mid- to long-term business plan. In our mid- to long-term business plan announced in April last year, we plan to achieve JPY 115 billion in business profit in fiscal year ending March 2025 which is the final year of Phase 1, and we are making steady progress towards this goal. While growing profit, we are also making investments that will become the source of future profits. In fiscal year ended March 2023, we invested approximately JPY 460 billion, and at the same time, recovered JPY 317 billion. Next, I will go over the financial data. Please see Page 11. As you can see in the chart at the top left, ROA and ROE are 5.1% and 10.1%, respectively, which are above our targets. We will continue to expand our business utilizing interest-bearing debt while maintaining shareholders' equity ratio of around 30% to ensure financial soundness and promote management based on asset and capital efficiency. On the other hand, as shown in the lower left chart, our stock price as of April 26th remains undervalued at JPY 3,245 against the book value per share of JPY 3,756 and NAV per share of JPY 4,764. We will make every effort to communicate to the market our strength and the high certainty of our profit growth to receive a fair valuation. Next, please see Page 12 regarding shareholder returns. Considering the record high business profit achieved in the previous fiscal year, we decided to increase dividend per share by JPY 5 against our previous dividend forecast. This will result in an annual dividend of JPY 120 per share, dividend payout ratio of 32.9% and total return ratio of 47.6%. We will gradually raise the dividend payout ratio to 40% toward Phase 2 of the mid- to long-term business plan, which starts from fiscal year ending March 2026. We are making good progress toward this point. For fiscal year ending March 2024, dividend per share is expected to increase to JPY 130 per share with the 12th consecutive fiscal year of dividend increase. We aim to once again achieve steady profit growth while also providing satisfactory returns to our shareholders during this fiscal year. I will now explain the performance highlights by business units. First is the Residential Development BU. Please see Page 15. In the Residential Development BU, operating revenue was nearly flat year-on-year, but business profit increased by JPY 700 million to JPY 33.3 billion. Although the number of housing units sold was down from the previous year at 4,142, gross profit ratio increased significantly. Please see Page 16. As shown in the line graph, gross profit ratio of housing sales for fiscal year ended March 2023 was very high at 25.6%. Please note that such level was achieved because there were large projects with high gross profit ratio in the previous fiscal year. For fiscal year ending March 2024, although the ratio is expected to be somewhat lower, we anticipate figures in the 23% range and continue to expect to maintain the high level. Next, please see Page 17. As indicated in the graph on the left, 4,413 units of housing were contracted in fiscal year March 2023. Sales have been trending strong overall, and as shown in the graph on the right, as of the beginning of the current fiscal year ending March 2024, 74.8% of contracts against the scheduled full year housing sales have already been contracted. This shows a very high progress rate following the same trend as at the beginning of the previous fiscal year. Next is about the status of land acquisition. Please see Page 18. In the fiscal year ended March 2023, we faced a severe land acquisition environment but we were able to acquire land was JPY 527 billion in terms of sales through a combination of general individual land acquisitions and mid- to long-term urban redevelopment projects. We have almost completed the acquisition of land that we plan to book by the fiscal year ending March 2026, and have secured JPY 1,770 billion worth of land for mid- to long-term as a whole. Please look at Page 19. In the fiscal year ended March 2023, sales of rental housing, which is being developed as PROUD Flat amounted to JPY 6.3 billion, and gross profit totaled JPY 1.1 billion. We also made progress in acquiring land for 6 buildings with a total investment of JPY 13.7 billion. Please move on to Page 20 to discuss Commercial Real Estate Business Unit. In the Commercial Real Estate business unit, business profit increased to JPY 39.5 billion due to progress in property for sales and an increase in revenues from retail facilities and hotels. The launch of a new retail facility, KAMEIDO CLOCK, among others, contributed to this increase. Please look at Page 21. As for the vacancy rate, the average for all areas was 4.8%, a 60 basis points improvement from 5.4% in the third quarter. This was due to the progress made in resubscribing vacancies in various office buildings. Please look at Page 22 for property for sales. In the fiscal year ended March 2023, property for sales totaled JPY 97.4 billion and gross profit was JPY 29.3 billion in line with our expectations. In terms of land acquisition, JPY 133 billion worth of land was acquired for offices and logistics facilities. As shown in the bottom right table, the stock of property for sales, including those under construction, totaled JPY 823 billion. We are aiming to achieve a stable gross profit of JPY 40 billion per fiscal year from the property for sales from Phase 2 of the mid- to long-term management plan. Now let's move on to the Overseas business unit on Page 23. Overseas business, which is positioned as one of the growth drivers, posted a significant increase in business profit of JPY 7.2 billion for the fiscal year ended March 2023, an increase of JPY 6.9 billion from the previous fiscal year. For accounting reasons, overseas profits are divided into 2 categories: those included in operating profit and those included in business profit as earnings share in equity method companies. Increase in business profit was mainly driven by large housing sales business booked in China and Vietnam. Since our overseas business is in the phase of expansion, a single year profit is still volatile. Although we expect a decrease in operating profit for the fiscal year ending March 2024 due to the timing of property sales, we are determined to record operating profit this fiscal year as well, especially for large-scale projects in Vietnam. Please look at Page 24. In the overseas business, we have secured investments worth approximately JPY 630 billion in total project costs for our equity. Of this amount, approximately JPY 560 billion will be in the housing sales business and approximately JPY 70 billion in the leasing business. We are making good progress with our investments toward growth, and we will continue to aim for expansion in the future. Next, let me turn to the Investment Management business on Page 26. In this business unit, the balance of assets under management has steadily increased, centering on private REIT and privately placed funds. As a result, both revenue and profit increased. As already announced, in August last year, we established a joint venture company, Nomura Real Asset Investment, which operates real estate fund business and started its operation in April this year. In addition to existing funds, we will aim to grow our business in new investment areas. Next is the Property Brokerage and CRE Business unit on Page 28. In this business unit, the retail, middle and wholesale businesses all performed well with business profit rising JPY 2.1 billion year-on-year to JPY 13.8 billion. In all 3 businesses, increase in profit was due to a rise in the unit price per transaction. On the other hand, given the impact of the transfer of the consigned sales of new housing which was part of this business unit to the Housing business unit and the higher-than-expected performance of the previous fiscal year, we are forecasting return to cruising speed in the fiscal year ending March 2024. We will continue to work to achieve the figures in that mid- to long-term business plan. Next, let me turn to the Property and Facility Management business unit on Page 29. In this business unit, the number of buildings and residential units managed grew steadily. In addition, orders received for construction work also remained steady, resulting in an increase in both sales and profit. We intend to steadily grow this [indiscernible] every year. This is the end of the summary of our financial results for the fiscal year ending March 2023. Thank you for listening.