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

Thank you very much for attending Nomura Real Estate Holdings Second Quarter Financial Results Briefing for the fiscal year ending March 2026. Without further ado, let me start my presentation. Please turn to Page 4. Operating revenue for the first 6 months was JPY 397.7 billion, business profit JPY 60.7 billion, profit attributable to owners of parent, JPY 31.3 billion. Operating revenue increased, but profits decreased year-on-year. In preparation for the start of construction of Blue Front Shibaura Tower and we decided in the second quarter to demolish the Hamamatsucho building, resulting in an extraordinary loss. Demolition began in October. We plan to record an extraordinary loss of JPY 13.9 billion in the third quarter of demolition costs and so on. Those extraordinary losses were already factored in the plans announced at the beginning of the fiscal year. Page 5, second quarter results per business unit. In Residential Development business unit, operating revenue and business profit decreased due to the number of housing sales units being mainly booked in the first and fourth quarters this fiscal year. In Commercial Real Estate business unit, operating revenue increased due to an increase in property sales, but business profit decreased due to opening expenses for Blue Front Shibaura, among others. In the overseas business unit, operating revenue and profit booked reactionally decreased after the booking of a large property in Vietnam in the first quarter of the previous fiscal year, Page 6. The earnings forecast for this fiscal year remains unchanged from the initial forecast. Steady progress is being made toward achieving the forecast. Next, we will move on to an explanation for each business unit on Page 12. In Residential Development business unit, operating revenue and business profit decreased due to a decrease in the number of housing sales units year-on-year. But as I mentioned earlier, for the full year basis, both revenue and profit are expected to increase due to an increase in housing sales and property sales. Next, Page 13. Cumulative gross profit ratio as of the second quarter was 25.8%. Full year gross profit ratio is expected to be in the high 24% range. Page 14. This is the contract progress rate. As of the end of the second quarter, the contract progress rate for the planned full year sales was 86.5%. Sales activities, particularly in the 23 wards have been strong and progressed in line with the initial plan, including completed properties. Please turn to Page 15. On a cumulative basis, as of the second quarter, we acquired land was JPY 96 billion, equivalent to 780 units. Our land bank is equivalent to about JPY 2.5 trillion in sales. And there will be other description after this, but we have secured highly competitive properties in Central Tokyo for the period beyond March '28 as well, as you can see on the right-hand side, of about JPY 1 trillion in redevelopment and reconstruction projects, the portion corresponding to about JPY 70 million has either been completed or under construction. Page 19. Gross sales profit of rental housing, senior housing, hotels in the first and the second quarters was JPY 3.5 billion. We have been selling properties to achieve the full year gross profit target of at least JPY 10 billion. Please turn to Page 20. With respect to land acquisitions for property sales in the second quarter, there were 6 deals worth JPY 35.6 billion. In addition to rental housing, we have acquired assets that were designated as priority investment targets in our management plan such as senior housing and hotels. Now I'll move on to Commercial Real Estate business unit, Page 22. In the Commercial Real Estate business unit, we have been able to conduct property sales in line with the plan. As I said previously, Blue Front Shibaura started operation. Up to now, as there has been upfront costs such as depreciation, business profit declined for the Blue Front Shibaura properties. Although there are costs related to Blue Front Shibaura as a business unit, we forecast an increase for both operating revenue and profit. Please turn to Page 23. So this is property sales in the commercial real estate business unit. In the first 6 months of this fiscal year, we booked sales of JPY 79 billion with a gross profit of JPY 25.9 billion. Furthermore, on a gross profit basis, approximately JPY 15 billion is confirmed, making steady progress towards our target. Please turn to Page 24. So this is about the stock of property sales. JPY 22 billion worth of land acquisitions was made in the first quarter and the second quarter. Although it is at a low level, we have been able to secure approximately JPY 1 trillion for land bank. Going forward, we will proceed in investing in logistics facilities and offices, which are our key investment targets that we have been focusing on. Please turn to Page 25. The vacancy rate of rental assets held as current assets has risen by 0.9 points in all areas. Please confirm that on the graph on the left-hand side. So this is because we acquired a building from Nomura Real Estate Master Fund, which we are considering adding value through renovation, et cetera. But leasing activities and rent renewal is going smoothly. We were able to raise rents in 70% of the tenants that renewed their contract. The rent renewal rate is about 5% to 10% increase. So the lettable area has declined. This is due to the fact that we started demolition of Hamamatsucho Building. Please go to Page 27. Blue Front Shibaura Tower S opened in September. Leasing activity has been going very well with floors already fully leased of those contracted and fully contracted. Tenants are moving in by phases. We have started demolition towards starting construction of Tower N. Please go to Page 31. I would like to talk about overseas business unit. For the overseas business unit, due to the reaction of large housing sales project in Vietnam in the same quarter of the previous year, both operating revenue and business profit declined. Please go to Page 33. So we have participated in 2 new housing projects in Asia in the first 2 quarters of this fiscal year. As a result, we have been able to secure approximately JPY 820 billion in total project cost. Next is the Investment Management business unit. Please turn to Page 34. The purple portion in the graph, so the AUM of our private REIT has increased. In September, we raised about JPY 20 billion to conduct a capital increase. Needs from corporate pension funds, public pension funds and educational institutions has increased. In the private REIT market, there is a difference between funds. That is what I hear. But for our fund, we have been able to show competitiveness in property quality and yield. Next is the Property Brokerage and CRE business unit. Please go to Page 35. So both operating revenue and business profit increased for the property brokerage and CRE business unit. Due to the favorable market condition, operating revenue increased in the retail business targeting individuals and the middle business targeting business owners and high net worth individuals. In the retail business, needs for condominiums in the Tokyo metropolitan area for actual demand was robust. In the middle business, investment needs for properties for sales from domestic high net worth individuals expanded. Next is the Property and Facility Management business unit. Please turn to Page 37. In the Property and Facility Management business unit, operating revenue from Property and Facility Management and Construction ordered increased. This led to an overall increase of both operating revenue and business profit. An increase in construction orders led to an increase in operating revenue as constructions took place for the tenants moving into Blue Front Shibaura. This ends my explanation about the financial results. Lastly, I would once again like to explain that the major reason why operating revenue and profit declined year-over-year is that the timing of booking revenue for the housing sales and property sales business is unevenly distributed through the fiscal year. The actual sales activity for housing sales and property sales is proceeding steadily. The group as a whole will be committed to achieving the target of 8% level of growth of business profit that we have announced at the beginning of the fiscal year. Thank you for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]