■Performance trends of Sun Frontier Real Estate ＜8934＞

1. Summary of financial results for the first quarter of the fiscal year ending March 31, 2025

Financial results for the first quarter of the fiscal year ending March 31, 2025 were net sales of 15,685 million yen (down 15.0% from the same period last year), operating income of 2,834 million yen (down 32.6% from the same period), ordinary profit of 2,739 million yen (down 34.5% from the same period), and quarterly net income attributable to parent company shareholders of 1,878 million yen (down 40.1% from the same period). Sales of large properties were low, and overall performance decreased in sales and profit compared to the same period last year, but the stock type business in the real estate service business, hotel/tourism business, etc. hit record highs due to an increase in sales and profit. The ordinary profit margin has remained at a high level of 17.5%, and SG&A expenses increased compared to the same period last year due to an increase in the employee base, labor costs due to human capital investment, and amortization costs due to aggressive business investment and system investment, etc., but it is as planned. Sales, including large properties, are expected to accelerate from the 2nd quarter onwards, and progress of sales, including the contract basis as of 2024/8/8, is progressing smoothly at just over 30% compared to the full-year earnings forecast, so we believe there are no concerns about achieving the full-year plan.

2. Business Trends by Segment

(1) Real estate rehabilitation business

The real estate rehabilitation business had net sales of 8,711 million yen (up 13.2% from the same period last year) and segment profit of 2,348 million yen (up 14.7% from the same period). The number of sales was 6 (up 1 from the same period), resulting in an increase in sales and profit compared to the same period last year. Including the number of sales with contracted settlement plans, the progress rate against earnings forecasts is over 30%, and acceleration from the second quarter onwards is expected to achieve the full year plan. Segment profit margins have maintained a high level of 27.0%, and the cap rate (return yield) of sold properties has also remained stable at around 3.9%. The average business period, which indicates the period from purchase to commercialization, was 583 days (down 122 days from the previous fiscal year), and it was drastically shortened due to the fact that there were many property sales with a short business period. Along with efforts to shorten the business period, we are continuing to work on strengthening procurement, and it is our policy to achieve high capital efficiency through operations that are particular about the business period. The purchase amount of properties, including contracts and unsettled contracts, was 17,153 million yen, and progress of over 30% was achieved against the full year purchase target of 55,000 million yen. There is no major change in the current purchasing situation, and purchases are being carried out constantly at reasonable prices. Sales of real estate small-lot ownership products are also progressing steadily, and the cumulative number of investors has exceeded 470 at the end of the 2024/3 fiscal year. In 2024/6, the “Compass Landlord (Keio University Front Landlord Project)” was launched. Landlord projects are characterized by the fact that stable operation profits can be obtained over a long period of time regardless of the tenant's occupancy rate because they own small-scale land and receive land rent as operating income rather than building rent.

Also, in the most recent release, on 2024/7/31, a setup office “SOLIX SHIBUYA (SOLIX SHIBUYA),” which can be moved in immediately with a single PC, was grandly opened as a flagship building aimed at supporting growth for startup companies. In addition to a normal office contract (2-year contract), an office that can be used by 4 or 6 people is being expanded as a dedicated office, a “WEEK (week)” plan that can be used only 1 day a week for every day of the week, and two “monthly” rental plans (both can be used from a minimum of 3 months). Thus, more flexible use is possible, and the range of office selection is expanded. We believe that supporting the growth of startup companies that have just been established also has the aspect of locking in prospective future customers since needs for floor expansion and relocation are also created due to the company's business expansion.

(2) Real estate service business

The real estate services business had net sales of 3,119 million yen (up 17.1% from the same period last year) and segment profit of 1,696 million yen (up 9.4% from the same period). Business performance grew mainly in the property management business where the number of managed contract buildings increased, and the rental conference room business where the number of locations increased, and it hit a record high in terms of performance for the first quarter. In the property management business, sales and profit increased due to an increase in the number of managed contract buildings, and in the building maintenance business, sales increased due to an increase in the number of management buildings, but profit did not increase due to cost increases associated with rising prices. In the leasing management business, in rental brokerage, the number of rental brokerage cases for tenants in managed contract properties was almost flat compared to the same period last year, and in sales brokerage, in addition to referral projects, it remained steady by steadily leading repeaters and new customer projects to contracts. Also, in the rental conference room business, along with continued high operation due to a recovery in demand, an increase in the number of operating square meters due to opening and floor expansion contributed to business results, and investment to further increase the number of bases also progressed. In addition to certification tests and training demand, there is also demand for rental conference rooms in Tokyo for training by companies that do not have conference rooms and industry groups where related companies gather, which has been on the rise in recent years, and the potential due to potential demand is high. In the delinquent rent guarantee business, the number of new contracts has increased compared to the same period last year, and in 2024/7, a partner agreement was concluded with the small to medium restaurant opening support service “Omise Craft” provided by the three companies Royal Holdings ＜8179＞, Sojitz ＜2768＞, and SRE Holdings ＜2980＞.

(3) Hotel and tourism business

The hotel and tourism business had net sales of 3,681 million yen (down 54.2% from the same period last year) and segment profit of 845 million yen (down 68.0% from the same period). In the hotel development business, properties are scheduled to be sold in the 2nd quarter or later, even though sales and profit declined due to the reaction of the sale of 1 building in the same period last year. Currently, land acquisition is progressing in Karuizawa, Akita, etc., and development projects are progressing steadily in other regions as well. Going forward, we will actively promote M&A and acquisition of development sites to increase the number of guest rooms in operating hotels. In the hotel management business, occupancy rates and guest room unit prices rose due to continued expansion in travel demand and recovery in inbound traffic, resulting in a significant increase in sales and profit. “Oriental Hills Okinawa” joined the group through M&A in July. This hotel consists of a total of 14 cottage-type buildings located in Onna-mura, Okinawa-ken, and all buildings are equipped with one of the largest private pools in Japan. The same business is developing multiple lodging facilities, etc. on Sado Island, such as “Tabino Hotel Sado,” “SADO NATIONAL PART HOTEL OOSADO,” and “SADO RESORT HOTEL AZUMA.” Sado Island was registered as a World Cultural Heritage Site in July this year, and demand for lodging is expected to increase in the future.

(4) Other businesses

Other businesses had net sales of 481 million yen (up 30.6% from the same period last year) and segment profit of 157 million yen (up 371.5% from the same period). In the construction business, sales according to construction progress standards increased from the previous fiscal year at group subsidiaries, and there was an increase in sales and profit due to settlement of labor costs for construction completed in the previous fiscal year. In the overseas development business, construction of “HIYORI Aqua Tower,” which is the second project of a new condominium project in Vietnam, began in 2024/8. Additionally, we will proceed simultaneously collecting information on land purchases for Property No. 3 in Danang City, Vietnam.

(Written by FISCO Guest Analyst Ryoji Mogi)