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Edited Transcript of 3231.T earnings conference call or presentation 30-Oct-19 12:30am GMT

Q2 2020 Nomura Real Estate Holdings Inc Earnings Presentation

Tokyo Nov 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Nomura Real Estate Holdings Inc earnings conference call or presentation Wednesday, October 30, 2019 at 12:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Eiji Kutsukake

Nomura Real Estate Holdings, Inc. - President, CEO & Representative Director

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Presentation

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Eiji Kutsukake, Nomura Real Estate Holdings, Inc. - President, CEO & Representative Director [1]

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Good morning. I'm Kutsukake. Today, thank you very much for joining us. The announcements of the consolidated financial results for -- that's the second quarter of the fiscal year, March 2020 for the Nomura Real Estate Holdings.

Before the announcements, first, I'd like to express that our thoughts were with -- everyone who has been affected by the disasters caused by the recent heavy rains and typhoon, including the Typhoon Hagibis, and sincerely hope for the recovery and restorations of the damage of the community as quickly as possible. We are determined to learn from these experiences as a real estate developer that we have to do our utmost, taking all these are experiences and the lessons to build and develop towns and cities and the communities being resistant to [this type of] disasters, with also the operations and the administration for preventing damages as much as possible.

Okay. Now the time is limited, so I'll like to get down to my presentation. First, I'd like to start with about the overview of the financial results of the Q2 of the fiscal year March 2020. Would you please look at the Page 4.

As for the consolidated financial results for the second quarter of the fiscal year March 2020, operating revenue was JPY 247 billion; operating profit, JPY 21.6 billion; business profit was JPY 22.1 billion; ordinary profit, JPY 17.8 billion; and profit attributable to owners of the parents was JPY 12.4 billion. So then we have the growth in the year operating revenues by 7%, [perhaps,] and we have the negative growth, that's a decline of the profits.

When it comes to the Residential Development Business units, the total number of housing units sold, including the condominiums and the detached house was 997. It had the minus 396 units year-on-year, but this is due to that and many of, the planned recognition of the units would be and recorded end of Q4. When it comes to that -- the contract progress rates on a value basis to the planned revenue is 81.8%. This is to the 5,100 units.

Next, Commercial Real Estate and Business units. Operating revenue was JPY 121 billion, business profit was JPY 18.8 billion. So that -- and we have the growth in both the revenue and profits, year-on-year. This is mainly due to the increase of the revenues of the property sales. I'm going to explain in the details later.

When it comes to Service Management sector, now we have been favorable in the business and investment management, in property brokerage and the CRE and property and the facility management. And now we have the growth in both the revenue and profits, year-on-year. And now when it comes to that and the forecast, no change in the consolidated operating results forecast and the dividend forecast as announced in April this year.

The annual dividend will be JPY 80 per share. And when it comes to acquisition of treasury shares. Now we already have acquired JPY 4 billion of the treasury shares we have announced in April. And additionally, now we have announced to have up to JPY 4 billion of additional treasury shares by March 31, 2020.

When it comes to that, the key factors of changes in the business profits from March 2019 to March 2020, would you please make reference to the Page 6. For each of these specific numbers, the figures, would you please check out your -- the information package that just like the full year focus of the company as a whole for all these in the 5 different business units, now there was no any change in the forecast for both the revenue and profits.

So let me explain about Residential Development Business Unit. Please look at Page 14. This page explains the main numbers and the figures for the housing sales, which is the main business of our Residential Development Business Unit. First, the graphics on the upper left. That indicates the number of the units contracted in this current fiscal year, a total of 2,275 units were contracted by the second quarter. Compared to the fiscal year ending March 2019 and 2018, the number seems to be less, but actually, the number of units scheduled to be contracted per year has been changing in values. The number of units planned to be recorded this year will be 5,100. So the pace of contract is as expected.

In particular as shown in the graphics on the upper right, now you can see the contract progress rates of 81.8% to the revenue basis within housing of the 5,100 units planned to be sold this year, which is worth JPY 320 billion. The lower left graphic shows the gross profit margin. The gross profit margin for the properties recorded up to the second quarter was 17.1%, but this is due to the fact that the properties with relatively low gross profit margin were first recorded.

Then that's the other higher gross profit margin properties. The gross profit margin of these contracted properties, which will be recorded this fiscal year, including those not yet contracted, can be maintained at 20% or higher. And the gross profit margin for the full year basis would be about 19% range. That will be on a path with that level of the previous year. The land acquisition status in the lower right shows that land acquisition for the March 2019 was 3,200 units worth, and this March 2020, and at the end of this fiscal year, we already have acquired 3,000 units worth of land, it's very steady. And these 3,000 units included 2 new redevelopment properties, and project already in stock for about 770 units. Just like this, the Residential Development Business Unit for the fiscal year ending March 2020 is still on track, going to the [first] quarter.

For your reference, here are some typical properties and projects that will be completed and recorded this term. First of all, this is the PROUD CITY Kichijoji, which is an example of complex developments, and what we might call an urban compact town. PROUD CITY Kichijoji is a property that's uniquely different from the other so-called the front center -- city front tower-type condominium. And with such functions like the commercial facilities and daycare centers are all seamless it develops together, it will be highly appreciated by the customers, with a high convenience, and that's the [very efficient] properties.

Our share is more than 300 units, and some of them will be recorded as sales in the first quarter. And PROUD CITY Hiyoshi is another development projects. And then we are working to create our sustainable city with higher added value by introducing a mechanism to revitalize the community, both inside and outside of the city.

It is a very large project with a total share of units of over 1,000 out of the 1,300. Since this is a very large project, so we are developing in phases. This is also scheduled to start being recorded as sales from the fourth quarter.

In the Toyosu, Harumi area, now the Harumi flag, which was launched in the Toyosu Harumi area in July this year is attracting a great deal of attention. A PROUD CITY Shinonome Canal Marks is also located in this area and is scheduled to be completed this year.

It is a rare [over] type of property in the bay area which is really unique and different from the other usual tower type. The product planning with a large courtyard and the convenience of a 1-minute walk from 24-hour commercial facility are highly appreciated. They will be also recorded sales from this fiscal year to next year.

In Osaka, PROUD Tower Kitahama is the flagship property scheduled to be recorded for sale this fourth quarter. It is a tower type property in the Central Osaka, with a total of over 280 units. And our share of the unit is 160. We have already have a full end contract of the property. In this way, now we will have about completed record in FY '22 for all these properties. And in this fiscal year, now we have about 81.8% as a contract rate with very high gross profit margin property.

The next, let me talk about commercial real estate business units. Please look at the Page 21 of the [presentation.] Our mid- to long-term business plan announced this year -- this April, this year, has stated that it will strategically manage the portfolio of the leasing assets in order to increase the efficiency of assets and capital. By the end of second quarter of this fiscal year ending March 2020, and in addition to the property such as PMO and GEMS, that we have developed on the assumption that they will be sold to REITs, the properties to be sold as part of the leasing asset portfolio management. And we have sold JPY [62.7] billion worth of property for 4 properties. In the future, we would like to make strategic decisions based on such factors as the location, size and age of building and move for the value enhancement.

Looking ahead to future, large-scale development investments, such as the Shibaura Itchome plan and the Nihonbashi Itchome, central area plan, which are planned for the future that not only for the balance sheet management, but also we'd like to seek for some strategic leasing assets so that we can manage the total portfolio in that efficient way.

We will continue to aim for the sustainable growth in order to achieve the targets of the mid- and long-term business plan. But when we look at the business environment that surrounds us, we will continue to see, for example, the population decline and the labor shortages in Japan.

These are all the social challenges we have to address. And also we are now absorbing that rapidly changing and the work style and the lifestyles, so that they will lead to us, a genuine diversification.

Our group is making various efforts to respond to the ever-changing social environments. And so today, I would like to introduce some of them.

In the Residential Development Business Units. Now taking advantage of the numerous achievements in the Tokyo Metropolitan Area, we are now rolling out and expand our redevelopment success to the other nationwide cities such as Osaka, Nagoya as well as major metropolitan areas and regional core cities. REIT development and REIT construction is an effective method for creating compact cities in highly convenient areas such as the center of the city, or in front of a station in and the metropolitan area and that we have the high expectations for citizens as well as the other local governments and because that can deal with and addressing the kind of changing society, including aging society. So we will continue our efforts to support the growth of the domestic housing business.

In the Commercial Real Estate Business Units, we started the developments of -- and on top of that, the PMO and the GEMS and the Landport. Now we have studied developments of the cities of small offices with the services called H1O. It was developed in response to the growing demand for new types of offices that's responded to the changes in work styles in the context of the working style reforms. These are requests made by the tenants resulting in our condo offices such as PMO. To meet the needs of small offices that are used by less than 10 workers. For example, we offer a convenient and comfortable and the land to facilities with high security and privacy, but also offering the various services that support business.

Based on the concept of the human-first, where people working in office are given top priority, we aim to maximize the productivity and the added value of the each worker.

In November, the very first facility of this step will open in PMO Nihonbashi Muromachi, and will continue to expand. In addition, based on the same human-first concept, we launched that human-first time, which is a satellite attached to your office. This will also be actively deployed and rolled out nationwide in the future.

Similarly, the Landport series of logistics facilities also is developed by our Commercial Real Estate Business Units, and we call it the industry-focused approach, and this is a brand-new approach for us. Due to the expansion of e-commerce, demand for highly functional logistics facilities is increasing. This industry-focused approach means that we're in a developed where the specifications for the target-specific industry and will end at other stages of the development so that we can provide the highly specialized specifications to the multi-tenant customers, which they believe flexible and short-term lease.

It will be between the traditional and build-to-suit type of approach and the traditional multi-tenant approaches, and the BTS is required as a special spec developments, only for some specific customer that need a long-term contract. On the other hand, that the traditional multi-tenant is flexible, but it will be difficult to meet the specialized requirements of the specific industry. So that's why this is would be -- between these 2 traditional types, and it's very highly competitive in the market.

The Nomura Real Estate Group will continue to achieve sustainable growth by solving social issues through this distinctive business developments and added value created by PMO and GEMS. So we'd like to make contributions to the sustainable growth.

Lastly, we have decided on the acquisition of the additional treasury shares, so let me explain about it. Please look at the Page 11.

By October this year, we have already acquired about JPY 4 billion of the treasury shares. And on top of that, now we have announced to have additional JPY 4 billion -- up to JPY 4 billion of treasury shares before March 31, 2020. In the mid to long-term business plans, total retail ratio is -- the targets will be set up with the 40% to 50% in the phase 1. And including these additional acquisitions of the treasury shares, now we'll have the forecast that we can achieve about 49.4% of total retail ratios.

Again, our group, companies and all, try to do our utmost to create an offer that's the high added value to our customers. We think that's the mission. And from the long-term perspective, including this fiscal year, we'd like to do our utmost to improve our corporate value.

That's all my presentation. Thank you very much for your attention. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]