Performance Trend 1. Overview of performance for FY3/2024 Consolidated performance for FY3/2024 of G-7 Holdings <7508> was 192,992 million yen in increased operating income of 9.1% over the previous year, and increased ordinary income of 7.4% to 7,318 million yen, and attributed to the parent company's net income of 5,175 million yen, an increase of 35.3% over the previous year. Sales were driven by the Business Supermarket Business and the Meat Business, and continued to set a new record high, exceeding the company's plan by 4.3%. However, in terms of profits, the automobile-related business was affected by a decrease in profits due to poor sales of winter tires due to a warm winter, and could not reach the company's plan, it turned to a profit increase for the second time due to the growth of other businesses centered on the Business Supermarket business. The sales cost ratio has increased by 0.8 points over the previous year due to changes in the sales composition ratio; however, the selling, general and administrative expense ratio decreased by 0.7 points due to the effect of increased earnings, and the operating margin decreased by 0.1 points to 3.6%. The main reasons for the increase/decrease of selling, general and administrative expenses were a decrease of 600 million yen in energy costs due to subsidies from rising electricity prices, and an increase of 1 billion yen in labor costs due to improvements in employee treatment and increased education costs. In addition to this, depreciation expenses increased by nearly 600 million yen due to rising construction material costs and rising costs of opening stores etc. The EBITDA margin has increased by 0.1 points from the previous year. Also, the reason for the large increase in the net income of the parent company's shareholders attributable to the current period is due to the elimination of 500 million yen in retirement benefits paid to executives that were recorded as special losses in the previous year, a decrease of 455 million yen in impairment losses, and a gain of 127 million yen on the sale of investment securities in FY3/2024.

2024 FY Performance Overview Consolidated performance for FY3/2024 of G-7 Holdings <7508> was 192,992 million yen in increased operating income of 9.1% over the previous year, and increased ordinary income of 7.4% to 7,318 million yen, and attributed to the parent company's net income of 5,175 million yen, an increase of 35.3% over the previous year. Sales were driven by the Business Supermarket Business and the Meat Business, and continued to set a new record high, exceeding the company's plan by 4.3%. However, in terms of profits, the automobile-related business was affected by a decrease in profits due to poor sales of winter tires due to a warm winter, and could not reach the company's plan, it turned to a profit increase for the second time due to the growth of other businesses centered on the Business Supermarket business. The sales cost ratio has increased by 0.8 points over the previous year due to changes in the sales composition ratio; however, the selling, general and administrative expense ratio decreased by 0.7 points due to the effect of increased earnings, and the operating margin decreased by 0.1 points to 3.6%. The main reasons for the increase/decrease of selling, general and administrative expenses were a decrease of 600 million yen in energy costs due to subsidies from rising electricity prices, and an increase of 1 billion yen in labor costs due to improvements in employee treatment and increased education costs. In addition to this, depreciation expenses increased by nearly 600 million yen due to rising construction material costs and rising costs of opening stores etc. The EBITDA margin has increased by 0.1 points from the previous year. Also, the reason for the large increase in the net income of the parent company's shareholders attributable to the current period is due to the elimination of 500 million yen in retirement benefits paid to executives that were recorded as special losses in the previous year, a decrease of 455 million yen in impairment losses, and a gain of 127 million yen on the sale of investment securities in FY3/2024. Changes in the ratio of revenues - while the revenue composition ratio increased by 0.8 points from the previous year, the selling, general and administrative expense ratio decreased by 0.7 points due to the effect of increased earnings, and the operating margin decreased by 0.1 points to 3.6%. The main factors affecting selling, general and administrative expenses were a drop of 600 million yen in energy costs due to subsidies from rising electricity rates and an increase of 1 billion yen in labor costs due to increases in treatment and education expenses for employees. Depreciation expenses also rose by just under 600 million yen due to increased costs of construction materials and opening new stores. The EBITDA (earnings before interest, taxes, depreciation, and amortization) margin rose 0.1 points from the previous year. Lastly, the reason for the increase in the net income of the parent company's shareholders attributable to the current period was due to the elimination of the 500 million yen for executive retirement bonuses paid in the previous period, the reduction of impairment losses by 455 million yen, and the realization of gains on investment securities of 127 million yen in FY3/2024.

For the 2024 fiscal year of Sun Frontier REIT <8934>, the sales revenue was 79.868 billion yen (-3.5% YoY), operating income was 17.6 billion yen (+18.1% YoY), ordinary income was 17.374 billion yen (+18.0% YoY), and net income attributable to parent shareholders was 11.917 billion yen (+2.6% YoY). Operating income, ordinary income, and net income attributable to parent shareholders have reached record highs, and the ordinary income ratio remains high at 21.8%. Although selling, general and administrative expenses increased YoY due to human capital investments including training and system investments, it was on track with the plan.

Looking at the trend of the achievement rate of the company’s performance forecast (ordinary income), even in a rapidly changing environment including the COVID-19 pandemic, the sincere attitude of rewarding stakeholders both inside and outside the company should be highly evaluated, as the actual results have consistently surpassed the initial forecast.

2. Business trends by segment

(1) Real estate regeneration business

Sales revenue for the real estate regeneration business was 51.027 billion yen (+1.9% YoY), and segment income was 15.602 billion yen (+1.7% YoY). The number of sales of 25 cases (2 in New York and 1 for small real estate holdings) successfully completed the initial plan. The segment income ratio remains at a high level in the 30s, and the cap rate (rate of return) for sold properties is also secured at around 4%. The average business period, which refers to the period from purchase to sale, was 705 days (+52 days YoY), and the average business period excluding new construction properties and long-term holdings was 625 days (-28 days YoY). We will continue to work on strengthening purchase efforts together with efforts to shorten business periods, and pursue high capital efficiency through operation that emphasizes business periods. The annual purchase amount of properties reached a record high of 50.748 billion yen, an increase of 17.888 billion yen YoY. We are planning to further increase purchases to 55,000 billion yen in the fiscal year ending March 2025. Furthermore, sales of small real estate holdings are steadily progressing, and the cumulative number of investors has reached 470 at the end of the fiscal year ending March 2024.

(2) Real estate services business

Sales revenue for the real estate services business was 10.497 billion yen (+18.7% YoY), and segment income was 5.612 billion yen (+14.8% YoY). The rental meeting room business, which expanded new locations, the property management business, which increased the number of properties managed, and the leasing management business, which opened new stores, drove up performance and achieved record profits. In the property management business, sales and profits increased due to an increase in managed properties. In the building maintenance business, sales and profits decreased due to factors such as a decrease in disinfection work and the cancellation of unprofitable sites. In the leasing management business, rental brokerage revenues increased due to an increase in brokerage for tenants in managed properties. In the real estate sales brokerage business, although there was a decrease in revenue due to the decrease of large case transactions in the previous term, the business remained solid. In addition, the rental meeting room business achieved increased sales and profits due to continued high utilization from demand recovery and increased operational floor space from new openings and expansions. In the delinquent rent guarantee business, the mainstay business of credit guarantee remained solid due to renewals by existing customers and the acquisition of new customers.

(3) Hotel and tourism business

Sales revenue for the hotel and tourism business was 16.977 billion yen (-26.1% YoY), and segment income was 4.369 billion yen (+153.9% YoY). Although sales decreased in the hotel development business due to the backlash of selling two buildings in the previous year, profits increased due to the sale of one building in the first quarter. At present, land acquisition is progressing in areas such as Hakone-machi and Kawaguchiko, and development projects are progressing steadily in other regions as well. The hotel operation business achieved a significant increase in sales and profits due to rising utilization rates and room rates caused by the expansion of travel demand and recovery of inbound tourism.

(4) Other businesses

Other business achieved a revenue of 24.09 billion yen (+34.8% YoY) and a segment profit of 301 million yen (+6.4% YoY). In the construction business, orders increased in group subsidiaries, and construction progressed smoothly, leading to increased revenues and profits. In overseas development business, the second project of the Vietnam condominium project, "HIYORI Aqua Tower," is scheduled to start construction in the first half of the March 2025 period. In addition, in October 2023, SF Human Support was established with the aim of supporting the employment of skilled foreign workers. The business will start with employment support for the company group (Sanfrontia Hotel Management Co., Ltd., SF Engineering Co., Ltd.). It will gradually expand to support and develop foreign recruitment businesses in accepting enterprises, with a goal of employing 100 foreign personnel annually in two years. We see this business not only contributing to the resolution of social issues related to employment support for skilled foreign workers, but also to talent acquisition and sustainable growth in the company group's businesses.

3. Financial position

The total assets at the end of March 2024 increased by 361.41 billion yen compared to the previous year to 1,886.61 billion yen. This is mainly due to the issuance of convertible bond-type bonds with subscription rights for new shares, which raised 100 billion yen, and the recovery of funds through property sales, as well as an increase in cash and deposits of 58.51 billion yen. In addition, the inventory assets increased by 266.87 billion yen due to the acquisition of condominium construction sites in Vietnam, along with the purchase of replanning properties and construction work.

Total liabilities increased by 256.9 billion yen compared to the previous year to 942.44 billion yen. Regarding interest-bearing liabilities, borrowing for property purchases increased by 238.78 billion yen to 795.4 billion yen. Short-term borrowings increased by 120 million yen, while long-term borrowings due within one year increased by 67.65 billion yen, and bonds with subscription rights for new shares and convertible bonds increased by 9.999 billion yen and 71.02 billion yen, respectively.

Total net worth increased by 104.5 billion yen to 944.16 billion yen compared to the previous year, mainly due to the accumulated net income of 119.17 billion yen attributed to the parent company's shareholders. The self-financing ratio was 48.0%, a decrease of 4.9 points from the previous year, but it remains at a high level while actively promoting investment. We believe that the financial health is solid and there are no short-term concerns.

(Author: FISCO Guest Analyst Ryoji Mogi)