Nomura Real Estate Holdings, Inc. ($3231)

This is Arai, I thank you very much for joining our financial results briefing for the fiscal year ended in March 31, 2026. Given the interest of time, I will go straight into my presentation. Please proceed to Page 4 of the results presentation material. For FY March '26, operating revenue was JPY 942.5 billion with JPY 147.3 billion of business profit and JPY 82.8 billion of profit attributable to owners of parent. We were able to achieve record highs for growth operating revenue in each profit items. Business profit was well above the 8% growth target set forth in the management plan announced last year. Net profit also achieved a significant increase despite the extraordinary loss related to the demolition of Hamamatsucho building during FY March 2026. ROA and ROE was 5.4% and 10.7%, respectively, as shown on a different page, achieving high asset and capital efficiency. In sum, we evaluate that we have made good progress in the first year of the 3-year business plan. Next, performance by segment. Please proceed to Page 5. By segment, the domestic business performed well. The top line and profit growth was driven primarily by the Housing Sales Business under Residential Development segment and Property Sales Business under the Commercial Real Estate segment. The Investment Management business, a property brokerage and CRE business as well as property and facility management achieved operating revenue and business profit growth. On the other hand, the Overseas segment posted declines in both operating revenue and business profit due to a lower housing units sold in Vietnam. Next, the earnings forecast for FY March '27 on Page 6, please. Before going into the numbers, let me first explain about the overall business environment. First, we expect the housing market to remain strong for both new and existing homes. We expect investment demand to remain strong in the property for sale market. Rents continue to rise for all asset types, including office buildings, and we expect the overall business environment in Japan to remain positive. On the other hand, we expect lingering uncertainty over the Overseas business as the conflict in the Middle East creates instability in the economic and financial environment. Against such backdrop, we are guiding for JPY 1 trillion and JPY 80 billion for operating revenue, with business profit of JPY 150 billion and net profit of JPY 86 billion for the current fiscal year, all of which will be a record high. The main drivers for growth in business profit were strong performance in Housing Sales business and higher management fees and Investment Management. On the other hand, we project the business profit for the Overseas segment to decline due to revision of the property supply plan in light of heightened geopolitical risks. In addition, the business profit for the property and facility management is expected to drop due to an increase in DX and other spending for future growth. Although the profit growth is not expected to be high compared to FY March '26, as the first two years of the 3-year business plan, the average annual growth rate is expected to be 9.5%, exceeding the 8.5% target. We are on track to achieve the business profit target of JPY 160 billion under the 3-year business plan. Next, the business performance of each segment on Page 12. The Residential Development segment achieved growth both in operating revenue and profit, owing to higher average housing prices and an increase in property sale. For FY March '27, we expect revenue and profit growth driven by increase in the number of housing sales units. Please move to Page 13. Housing sales for FY March '26 totaled JPY 311.1 billion, with gross profit ratio of 26.6%. For FY March '27, we project the housing sales to grow by JPY 40 billion year-on-year to JPY 350 billion, with number of units sold going up by roughly 300 units to 3,800 units. Now please proceed to Page 14. Contract progress rate is approximately 60% against the housing sales target of JPY 350 billion for FY March '27. Although this level appears low compared to the past few years, the market environment is favorable. And we believe that we will be able to enjoy steady progress in this ratio to achieve the plan for this fiscal year. Next, Page 15. As shown on the right, we have a medium- to long-term land bank of approximately JPY 2.5 trillion for houses for sale, which is roughly equivalent to 7 years of business. The 23 wards of Tokyo accounts for approximately 60% of this total or JPY 1.6 trillion in terms of operating revenue. Next, Page 18. In the Property Sales business, the growth strategy set forth in the 3-year midterm business plan and to expand the rental housing for seniors and how hotel assets is making progress. In FY March '26, thanks partially to the sales of senior housing and hotel assets, gross profit marked JPY 13.4 billion, a level higher than the previous track record. Page 19, please. In terms of the land bank, as investment towards senior housing and hotels have progressed, we have been able to acquire on a total of 19 projects or equivalent of around JPY 140 billion of investment for land for development. In addition to new acquisitions, including projects that have been recategorized from noncurrent assets to current assets, the total land bank is about JPY 370 billion. Next is the Commercial Real Estate segment. Please turn to Page 21. In the Commercial Real Estate segment, both operating revenue and business profit increased due to increased property sale. For the year ending in March 2027, we anticipate property sale to be equivalent to that of last year. On the other hand, due to the decline in leasing revenue from individual projects overall, while operating revenue will grow, business profit is expected to decrease. Please turn to Page 22. In the property sales business, as we saw properties mainly in office assets and logistics facilities, operating revenue was JPY 218.3 billion, and gross profit was JPY 60 billion. Please go to Page 23. Land acquisition for property sale was JPY 73 billion. Due to the progress of land bank acquisition in the past few years, we have secured a total investment amount of about JPY 1.1 trillion, including projects under development which is equivalent to 5 to 6 years' worth of land bank. Please turn to Page 24. The vacancy rate of leasing assets held as noncurrent assets was on average 6.4% excluding BLUE FRONT SHIBAURA. BLUE FRONT SHIBAURA is fully leased up and is planned to start operation with 100% occupancy in 2026, second half of 2026. Next is Overseas segment. Please turn to Page 29. In the overseas segment, as we review the timing of the property sale, both operating revenue and business profit declined. In the year ending March 2027, as we are going to adjust property supply, taking into consideration the recent economic and financial environment amid geopolitical risks. And as we are going to book upfront expense, operating revenue will increase while business profit is expected to decline. Next is the Investment Management segment. Please turn to Page 32. In the Investment Management segment, assets under management in the private REITs and private funds have steadily increased, leading to an increase in both operating revenue and business profit. In the year ending March 2027, we anticipate both operating revenue and business profit to grow through the increase in the funds property sales and AUM. Next is the Property Brokerage and CRE segment. Please turn to Page 33. In the Property Brokerage and CRE segment, transaction value in retail, middle and wholesale businesses grew, leading to an increase for both operating revenue and business profit. For the year ending March 2027, as we are going to record advertisement promotional expenses as well as DX-related expenses for future growth, we anticipate operating revenue will go up, but business profit to stay flat. Next is the Property and Facility Management segment. Please turn to Page 35. For the Property and Facility Management segment, as both Construction Ordered and Property and Facility Management saw an increase in revenue, operating revenue and business profit increased. This specifically is due to the situation in BLUE FRONT SHIBAURA as construction work for incoming tenants led to an increased revenue for construction ordered. In the year ending March 2027, due to the increased DX-related cost and labor costs, operating revenue is expected to go up while business profit will go down. This is my explanation of each segment. Lastly, I would like to explain about shareholder return. Please turn to Page 10. Our shareholder return policy is a total shareholder return ratio of 40% to 50%, but the minimum level for dividends is DOE 4%. Dividend from March 2026 is as already announced JPY 40, JPY 6 higher year-over-year. We are planning to pay JPY 44 per dividend from March 2027, which will be JPY 4 higher than the previous year. This means that dividends are going to increase for 15 years in a row. We consider that from the viewpoint of enhancing corporate value and increasing our share price, our basic policy superbly realized profit growth and pay out dividends in line with the profit growth. This is all from me. We'll continue to strive for the growth of the overall group to be able to satisfy our shareholders. [Statements in English on this transcript were spoken by an interpreter present on the live call.]