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

Here is Arai speaking. Thank you very much for attending the Nomura Real Estate Holdings FY 2024 Financial Results and New business plan briefing. Today, I will first explain the FY 2024 financial results and then explain the new business plan we have disclosed today. Without further ado, let me begin my presentation. Please turn to Page 4 of the financial results presentation materials for the fiscal year ended March 31, 2025. I will start with the overview of the financial results. For the FY '24 consolidated results, we achieved JPY 757.6 billion in operating revenue, JPY 125.1 billion in business profit and JPY 74.8 billion in profit attributable to owners of parent, all of which hit record highs. Compared to the previous fiscal year, business profit increased by JPY 11.4 billion or up 10.1% and profit attributable to owners of parent increased by JPY 6.6 billion or 9.8% increase. Next, please turn to Page 5. By business unit, the increase in business profit was driven by the contribution of UDS, which joined the group in FY '24 and an increase in gross profit from housing sales and Residential Development business unit, an increase in the number of housing units sold in Vietnam in the Overseas BU and an increase in brokerage transaction value in property brokerage and CRE business unit. Given the strong performance across the group as a whole, operating revenue and profit in Commercial Real Estate BU decreased compared to the previous fiscal year because gross profit of property sales was decreased from the original plan given the strong performance across the group. Page 6. The forecast of the current fiscal year is operating revenue of JPY 940 billion, business profit of JPY 135 billion and net income attributable to owners of the parent of JPY 75 billion, all of which are record highs. The main factor for the increase in business profit is robust housing sales and expected increase in property sales in Residential Development BU and Commercial Real Estate BU. In FY 2025, one-off cost or loss might incur as we will start the demolition of the existing building to begin the construction of Blue Front Shibaura Tower N. Next, please turn to Page 3 for explanation by business unit. First, Residential Development business unit. In Residential Development business unit, operating revenue increased due to the rise in the average house price and the contribution of the hotel business, which has added UDS in FY 2024. Given the strong performance of the housing sales and hotel businesses, we revised our property sales plan, resulting in declined sales amount compared to the previous fiscal year. For FY 2025, both operating revenue and profit are expected to increase as property sales increases. Next, please turn to Page 14. As I mentioned earlier, with rising average prices, the gross profit ratio was at a high level of 26.9%. Gross profit ratio for FY 2025 is expected to be around 24%. Please turn to Page 16. Regarding land acquisition, we have made steady progress despite the difficult environment. We have secured land for about 2,000 units or equivalent to about JPY 450 billion of sales amount mainly for high-end housing property, which is our focused area. We have more or less completed the acquisition of land for housing sales to be booked by the fiscal year ending March 2028. This is Page 17. As for the development of rental housing, as shown on the middle of the right-hand side, we have acquired 7 properties at a total investment of JPY 18.8 billion. As a result, the land bank is 36 projects, JPY 115.8 billion. Next is the Commercial Real Estate BU. Please go to Page 20. For Commercial Real Estate BU, property sales has declined compared to the previous year, leading to a decrease both in operating revenue and profit. This is due to the fact that we have reduced the property sales as the group overall performance was strong. For fiscal year 2025, we expect an increase in both operating revenue and profit by increasing the property sales. Please go to Page 21. In the Commercial Real Estate business unit, land acquisition for property sales is progressing smoothly. In fiscal 2024, we have been able to acquire 12 properties worth JPY 264 billion, mainly for logistics facilities. As a result, land bank has exceeded JPY 1 trillion for these properties. In the most recent 3 years, we have been selling JPY 30 billion to JPY 35 billion equivalent to gross profit. In the following 3 years, we expect to accelerate sales. Please go to Page 22. As for the vacancy rate shown on the left-hand side, we have changed the calculation method. For properties such as Blue Front Shibaura S Front Tower, which has been completed less than a year ago and has not started operating stably, we have not included in the calculation of the vacancy rate. The ratio shown here only includes properties that has been completed more than a year ago. Using this criteria, the vacancy rate of leasing assets of all categories held as noncurrent assets is 3.9% in all areas and has gone down by 0.7 points compared to 3 months ago. Net lettable area has increased substantially, thanks to Shibaura S Tower, which was completed in March. Our leasing asset portfolio has been strengthened considerably. Next is the overseas business. Please go to Page 27. In the Overseas Business BU, delivery of housing projects in Vietnam has progressed smoothly, leading to an increase both in operating revenue and business profit. Please turn to Page 28. On the left, these are the projects that will be recorded for this year. On the right is the total project cost. For fiscal 2025, Vietnam is again expected to contribute to earnings. For this quarter, we have decided to participate in new projects such as in rental housing projects in Seattle, the United States and in London, the U.K. Due to this factor, the stock of total project cost has increased by JPY 50 billion. As a result, we have been able to secure JPY 760 billion worth of projects. Next, I would like to talk about shareholder return. Please go back to Page 10. As we have conducted a stock split on April 1, the figures on the graph on the left-hand side, indicating the years before fiscal year 2023 reflects the stock split. Dividends for fiscal year 2024 will be JPY 34. The payout ratio, 39.2% and total return ratio will be 45.9%. For fiscal year 2025, we are forecasting the annual dividend to be JPY 36, payout ratio to be 41.2%. This means that we will be increasing our dividends for 14 years in a row. That is all about our results. Next, I would like to turn to the explanation about the management plan. Question and answers will be conducted after the explanation of the management plan. Please turn to Page 1 of the business plan materials. Let me present our new business plan. First, let me walk you through our historical aspect, current environment and uniqueness of our group on which this new plan is premised. Please turn to Page 4. The group has grown through several stages since its foundation in 1957. Let us recap here on our path since 2000. From 2000 to around 2010, we built a business foundation that continues to stay launching our brands, crowd for business, housing business, PMO for office and Land Port for logistics facility. From around 2010 to 2020, we extended our business bases further expanding into overseas hotel and senior housing businesses and establishing Nomura Real Estate Master Fund, a diversified type J-REIT. And now we believe that we are at a turning point in value creation. In 2022, we set Nomura Real Estate 2030 vision, be a life and time developer as never seen before. And during 3 years since then, we have been working to transform ourselves from a conventional real estate developer. Please turn to Page 5. The expansion of business basis has resulted in current good performance, achieving all of the financial targets we set 3 years ago. We believe that we have been able to continue growing by providing products and services that meet the needs of our customers in the domestic and overseas business. Please turn to Page 6. While we have continued to grow steadily, the needs and values of our customers and society as well as macro environment have changed significantly. As this page shows, our business environment is becoming more uncertain and more opaque, and we need to deal with it with strong resolve. Please turn to Page 7. In developing the new business plan in an uncertain and opaque business environment, we revisited the uniqueness and strengths of our group. Leveraging our strengths shown on the left-hand side of the slide and focusing on customer value, we have been working to make our customers happier and make communities and society a plenty. This plan has been developed to reinforce such activities. Please turn to Page 8. To reinforce the way to address various issues, we have applied a different time horizon for this new plan to build strategies suitable for quickly changing business environment while maintaining a long-term consistent policy. Instead of applying a conventional method of reviewing a 9-year mid- to long-term business plan every 3 years, we have developed a long-term management policy and a 3-year plan. Please turn to Page 11 for the long-term management policy. As I mentioned earlier, we have reconfirmed that we are a group aiming at improving the city and society as a whole by taking the approach of delivering happiness and prosperity to our customers in front of us, individuals and corporations alike. Based on that idea and under the banner of becoming a group that aims to maximize happiness and abundance to achieve our 2030 vision, be a life and time developer as never seen before, we will strengthen our initiatives where all the members of the group work together to deliver happiness and prosperity to our customers. We have set it as our long-term management policy to engage in such initiatives. Please look at Page 12. To promote our long-term management policy, we will transform our existing value creation methods as shown on this page. We have been already working on these various approaches, which will be further advanced to deliver value to individual customers. Please turn to Page 13. Based on the long-term management policy, each business unit will promote its business with its own policy as shown here. I will explain about specifics of each business unit as I touch upon the 3-year plan later. Please look at Page 14. The financial guidelines by around 2030 are -- for asset and capital efficiency, ROA 5% or more and ROE 10% or more. For profit growth, average annual growth rate of business profit at 8% level and healthy financial standing, shareholders' equity ratio at 30% level. For shareholder return, total return ratio of 40% to 50% and annual dividend, DOE 4% as minimum. Since future prospect is uncertain, we will control balance sheet and aim at high profit growth. Please turn to Page 15. This slide shows materiality of our group. We will continue to promote each item as we have so far. Please take a look at your convenience at the next page as well, which illustrates one of our representative projects, Mori wo Tsunagu Tokyo Project. From here, on Page 18, I'd like to explain our 3-year plan. The basic policy for the 3-year plan is to expand our group level business volume and continue to grow while managing our balance sheet properly. In other words, it is about achieving both high profit growth and high capital efficiency. For that purpose, we will establish a strong position in housing sales and office, our mainstay businesses, by improving product planning capability and services. And for sustainable growth, we will focus on 5 areas. Please go to Page 19. For the business profit, we will target average annual growth rate of 8% level for the following 3 years. In the previous midterm plan for the year ending in March 2028, our target for business profit was JPY 140 billion or more. We will strive to realize JPY 160 billion higher than the previous target. Targets by each of the BU are shown on the slide. Please go to Page 20. This is the explanation of the investment recovery for the 3-year plan. During this period, we are planning to invest JPY 2.052 trillion. The breakdown of this is as follows: On top of continuously investing into our basic businesses, we are planning to expand the investment in the growth businesses such as rental housing, hotels, senior housing and logistics facilities. On the other hand, by reviewing our rental asset portfolio, we will increase property sales and plan to recover JPY 1.7 trillion. By investing in line with the management policy and conducting sales taking into account asset efficiency, we will secure business opportunities for the mid- to long-term growth and at the same time, steadily grow profit in this 3-year period. Next, I would like to give you some specific examples. Please go to Page 24. In the housing sales business, based on the favorable market condition, we will continue to record 3,500 to 4,000 units, which is one of the top numbers among Japanese companies and achieve the same level of gross margin equivalent to the recent 3 years. For future growth, we will expand our product lineup through highest level product planning. This will be included high-end condominiums and detached housing in city centers. Please go to Page 25. In the office business, we have a broad range of assets such as the H1T shared office formats and H1O service small offices. Through these assets, we will offer services such as Nomura Work Life Plus, which is a service that supports people working at our tenant offices and strive to improve customer satisfaction. As a new business, we will expand the development of high-function lab office, which can respond to the R&D needs of customers in various fields. Please turn to Page 26. In rental housing and senior housing, which are both growth areas, we will expand our investment and invest around JPY 100 billion in the following 3 years. In addition to conventional products, we will expand our lineup to co-living type rental residents such as [indiscernible]. This goes the same with senior housing. We will expand the product lineup to include compact type and high-end types. Please go to Page 27. Hotels where we can expect increased needs coming from inbound travelers, we are planning to invest around JPY 100 billion. We are planning to invest in new types of hotels in addition to our own directly operated brand and UDS management brands. For logistics facilities, we will continue to invest in large scale of around JPY 300 billion. Investment will be conducted in a wide range of areas. At the same time, we'll create value by providing services such as developing 3-dimensional automated warehouses that will support operation within the warehouse. Please go to Page 28. In the development business, we are planning to introduce funds from investors. By co-investing with investors who want to invest in development projects, we will increase business opportunities and improve asset efficiency. Our group has a uniqueness of leasing value chain. In this, on top of developing and selling properties to existing investor groups, we will consider enhancing development of properties that meets the needs of new groups of investors, such as overseas investors and high net worth individuals. Please go to Page 29. Our group's strength is that we have a value chain within our group that is built around our customer needs. We will further enhance this. In August 2025, we will relocate our headquarter function to Blue Front Shibaura and by maximizing the performance of the individuals and teams, we will further strengthen collaboration within our group. In terms of our uniqueness, which is collaboration with the Nomura Group, we are collaborating mainly in housing sales, real estate brokerage and private funds. Going forward, we will further strengthen this collaboration. Please turn to Page 30. In our overseas business, we will leverage product planning capabilities and improvement capabilities that we have nurtured in Japan and conduct high value-added businesses in each market. We will enhance customer satisfaction at the same time, contribute to solving social issues. By conducting business in growing countries in Asia, such as Vietnam and the Philippines and in developed countries such as the U.K. and the United States, we aim to stably grow our profit. Please turn to Page 31. To maximize happiness and abundance, it is indispensable to accelerate growth through strategic investments. We will conduct approximately JPY 100 billion of strategic investments in the 3 years and aim for growth that goes beyond the existing business framework. So this is a new business plan. Under our plan, we want to focus on a strength that is -- or approach that is oriented in customer value sense, which is a strength to realize sustainable growth by maximizing people's happiness and the abundance of society. With this, I would like to end my explanation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]