■Growth strategy and topics of LeTech <3497>

1. The impact of interest rate increases is minor.

In July 2024, the Bank of Japan decided to raise the policy interest rate, which is the short-term interest rate (unsecured call rate), to around 0.25%. For the real estate industry, interest rates are an important factor that has a significant impact, but so far the magnitude of the rate hike has been minor and no major changes such as a slowdown in real estate buying or a decrease in real estate prices have been observed. In the company, a certain percentage is financed through fixed-rate borrowing, thus the impact of increased borrowing costs due to rising interest rates is limited. The company emphasizes real estate liquidity due to the risk that further rate hikes may be implemented in the future and is committed to prioritizing the acquisition of properties in prime locations. Additionally, concerning the continuous rise in construction costs, the company is currently able to absorb the impact of these increases through increased cash flow brought on by rising rent prices. The company conducts careful simulations considering multiple scenarios regarding costs when examining property acquisitions. Moreover, recognizing that high dependence on development projects can pose risks, the company is strengthening the expansion of revenue that does not rely on the balance sheet. Specifically, property service operations, the promotion of a brokerage platform primarily for high-net-worth individuals, and the operation of real estate (including hotel operations) will be key to adapting to medium- and long-term environmental changes.

2. The financing situation has improved, leading to favorable procurement. Financial soundness is also maintained.

As procurement progresses favorably, the company also maintains financial soundness. The level of real estate held for sale (including those in progress) at the end of July 2024 was 20,027 million yen (a 3,619 million yen increase compared to the end of the previous period), indicating sufficient prior investment. The background includes achieving profitability for two consecutive years due to a V-shaped recovery in performance, which has increased trust from financial institutions, along with the active presentation of projects by various brokerage companies due to the recovery in performance. In terms of borrowing conditions, the average borrowing interest rate for total borrowings at the end of July 2023 was 2.57%, while the average borrowing interest rate for new borrowings in July 2024 improved by 0.27 points to 2.30%. Additionally, from the significant losses of the July 2022 period, the number of lending financial institutions, including megabanks, increased by six, indicating a significant improvement in the transaction posture of financial institutions.

Although interest-bearing liabilities increased by 1,243 million yen compared to the end of the previous period, financial soundness is maintained. The end-of-period cash and deposits balance stands at 2,572 million yen, securing over twice the monthly sales (1,232 million yen for the July 2024 period). The equity ratio has steadily improved to 21.3% at the end of July 2024 (an increase of 1.8 points compared to the end of the previous period).

(Written by FISCO Guest Analyst, Hideo Kakuta)