Performance trends of Sanfontia Real Estate <8934>.

Performance Overview for the 1st quarter of the fiscal year ending March 2025.

The performance for the first quarter of the fiscal year ending in March 2025 was revenue of 15,685 million yen (15.0% decrease compared to the same period of the previous year), operating profit of 2,834 million yen (32.6% decrease), ordinary profit of 2,739 million yen (34.5% decrease), and quarterly net profit attributable to parent company shareholders of 1,878 million yen (40.1% decrease). While sales of large properties were low and overall performance decreased compared to the same period of the previous year, stock-based businesses in the real estate services and hotel/tourism sectors achieved increased revenue and profit, setting a new record. The operating profit margin is at a high level of 17.5%, and selling and administrative expenses increased compared to the same period of the previous year due to employee salary increases, personnel investment, and active business and system investments, but in line with the plan. Sales including the progress of sales including contracts as of August 8, 2024 are progressing smoothly, exceeding 30% of the full-year performance forecast, so we believe there are no concerns about achieving the full-year plan.

2. Business trends by segment

(1) Real estate regeneration business

The real estate regeneration business achieved revenue of 8,711 million yen (13.2% increase compared to the same period of the previous year) and segment profit of 2,348 million yen (14.7% increase). The number of sales increased by 1 compared to the same period of the previous year, achieving increased revenue and profit. Including the number of sales pending settlement, the progress rate against the performance forecast exceeds 30%, and acceleration in the second quarter and beyond towards achieving the full-year plan is expected. The segment profit margin remain high at 27.0%, and the capitalization rate (yield) for sold properties has been stably around 3.9%. The average business period, which refers to the period from acquisition to commercialization, was 583 days (122 days decrease from the previous period), which was significantly shortened as a result of many short-term property sales. In addition to efforts to shorten the business period, we continue to strengthen acquisitions, and by focusing on operating based on the business period, we aim to achieve high capital efficiency. The acquisition amount for properties including contracted but unsettled properties was 17,153 million yen, achieving progress of more than 30% against the full-year acquisition target of 55,000 million yen. There have been no significant changes in the current acquisition situation, and we have been able to consistently make purchases at fair prices. Sales of small real estate-owned products are also steadily progressing, and the cumulative number of investors has exceeded 470 as of the end of the fiscal year March 2024. In June 2024, we launched the "Compass Jidosha (Keio University Front Landlord Project)". The landlord project is characterized by owning fragmented land and receiving land rent as operating income, regardless of the occupancy rate of tenants, ensuring stable operating income over the long term.

In the most recent release, on July 31, 2024, we opened the flagship building "SOLIX SHIBUYA" as a setup office where you can move in immediately with just one PC, aiming to support the growth of startup companies. In addition to the regular office contract (2-year contract), we have expanded the rental plans that can be used by 4 or 6 people as dedicated offices, including the "WEEK" plan that allows you to use it one day a week on each day of the week and the "Monthly" plan that allows you to use it every day (both available for a minimum of 3 months). By doing so, we have made it possible to have more flexible usage options and expanded the range of office choices. Supporting the growth of start-up companies that are in the early stages is also seen as a way to anticipate the needs of increasing relocation due to the expansion of their businesses, so we believe that there is also an aspect of attracting future potential customers.

(2) Real estate services business

Real estate services business recorded sales of 31.19 billion yen (+17.1% YoY) and segment profit of 1.696 billion yen (+9.4% YoY). The performance of the property management business, which increased the number of managed contracts, and the conference room rental business, which increased the number of locations, contributed to the growth and achieved the highest performance in the first quarter. In the property management business, the increase in the number of managed contracts resulted in increased sales and profit, while in the building maintenance business, the increase in the number of managed properties resulted in increased sales, but the increase in costs due to inflation prevented profit growth. In the leasing management business, the number of rental brokerage cases for managed properties remained stable compared to the previous year, and in the sales brokerage business, steady progress was made by closing repeat and new customer cases in addition to referral cases. In the conference room rental business, the increase in operations area due to continuous high occupancy and opening/expansion contributed to the performance, and investments for further expansion of locations also progressed. There is a high potential due to latent demand, not only from the demand for certification exams and training, but also from the demand for industry associations where companies without conference rooms and related companies gather. In the delinquent rent guarantee business, the number of new contracts increased compared to the previous year, and in July 2024, partnerships were formed with three companies, Royal Holdings <8179>, Sojitz <2768>, and SRE Holdings <2980>, to provide support services for opening small restaurants called "Omise Craft".

(3) Hotel and tourism business

The hotel and tourism business recorded sales of 36.81 billion yen (-54.2% YoY) and segment profit of 845 million yen (-68.0% YoY). In the hotel development business, there was a decrease in revenue and profit due to the impact of selling one property in the previous year, but property sales are planned for the second quarter onwards. At present, land acquisition has been progressing in Karuizawa and Akita, and development projects are steadily progressing in other regions as well. We will actively promote M&A and acquisition of development sites to increase the number of guest rooms in the operating hotels. In the hotel operation business, the occupancy rate and room rate increased due to the continuous expansion of travel demand and the recovery of inbound demand, resulting in a significant increase in sales and profit. In July, "Oriental Hills Okinawa" joined the group through M&A. This hotel is located in Onna Village, Okinawa Prefecture and consists of 14 cottage-type buildings, each equipped with the largest private pool in Japan. The business also operates multiple accommodation facilities such as "Tabi no Hotel Sado", "SADO NATIONAL PART HOTEL OOSADO", and "SADO RESORT HOTEL AZUMA" on Sado Island. Sado Island was registered as a World Cultural Heritage site in July of this year, and an increase in accommodation demand is expected in the future.

(4) Other businesses

Other businesses recorded sales of 4.81 billion yen (+30.6% YoY) and segment profit of 157 million yen (+371.5% YoY). In the construction business, sales from construction progress criteria increased compared to the previous year at Group subsidiaries, and there was also an increase in sales and profit due to the settlement of labor costs for completed projects from the previous period. In the overseas development business, the second project, "HIYORI Aqua Tower", for a new condominium project in Vietnam, started construction in August 2024. In addition, information collection for land acquisition for the third project in Danang, Vietnam, is underway in parallel.

(Author: FISCO Guest Analyst Ryoji Mogi)