Nomura Real Estate Holdings (3231) FY2027 Q1 Earnings Report

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Executive Summary

The Company posted lower revenue and lower earnings for the quarter, reflecting a decline in revenue from the residential development and commercial real estate businesses, combined with higher financial expenses. Revenue was ¥1,910.6B (-13.7% YoY), Operating Income was ¥255.4B (-30.6%), Ordinary Income was ¥216.5B (-36.2%), and Net Income was ¥147.7B (-36.4%). SG&A expenses increased by +6.2%, outpacing the decline in revenue and resulting in negative operating leverage. In addition, interest expenses increased by +17.3%, serving as an additional downward pressure at the Ordinary Income level.

Factors Affecting Earnings

【Revenue】Revenue was ¥1,910.6B, down -13.7% YoY. By segment, Residential Development was the largest, accounting for 51.3% of total revenue, followed by Commercial Real Estate at 24.7%, Property Management at 13.9%, Brokerage and CRE at 7.6%, Asset Management at 2.2%, and Overseas at 0.4%. Residential Development revenue was ¥1,011.1B (YoY -14.7%), while Commercial Real Estate revenue was ¥486.6B (YoY -21.8%); both core segments posted declines and led the Company-wide revenue decrease. Property Management (+4.1%) and Brokerage and CRE (+2.0%) secured revenue growth, but their smaller scale limited their impact on the overall results.

【Profit and Loss】Operating Income was ¥255.4B (YoY -30.6%), representing a decline exceeding the rate of revenue decrease. Although the gross profit margin improved slightly to 33.2% (32.8% in the previous year), SG&A expenses increased to ¥379.2B (YoY +6.2%), resulting in negative operating leverage amid declining revenue. While the Residential Development segment maintained a profit margin of 15.3%, Commercial Real Estate declined significantly to 11.1% (from approximately 17.8% in the previous year), and the Overseas segment’s operating loss widened to ▲¥29.2B (▲¥13.6B in the previous year). Ordinary Income of ¥216.5B (YoY -36.2%) was pushed down by the increase in non-operating expenses to ¥54.6B, including interest expenses of ¥49.5B (YoY +17.3%). Extraordinary items were minor, comprising extraordinary income of ¥3.0B and extraordinary losses of ¥3.9B (including impairment losses of ¥3.9B). Net Income was ¥147.7B (YoY -36.4%), resulting in lower revenue and lower earnings overall.

Segment Analysis

Residential Development generated revenue of ¥1,011.1B (YoY -14.7%) and Operating Income of ¥154.6B (YoY -16.8%), with a profit margin of 15.3%. It was the Company’s largest contributor to earnings and maintained relatively stable profitability despite lower revenue. Commercial Real Estate generated revenue of ¥486.6B (YoY -21.8%) and Operating Income of ¥53.8B (YoY -51.3%), with a profit margin of 11.1%; profit contracted more sharply than revenue, making a significant contribution to the Company-wide earnings decline. Property Management posted revenue growth of +4.1% to ¥273.6B, but Operating Income declined to ¥11.8B (YoY -35.3%), leaving the segment at a low profit margin of 4.3%. Brokerage and CRE generated revenue of ¥149.5B (YoY +2.0%) and Operating Income of ¥44.4B (YoY -15.5%), maintaining a high margin of 29.7%. Asset Management generated revenue of ¥42.5B (YoY -3.8%) and Operating Income of ¥28.8B (YoY -7.3%), with the highest profitability among all segments at 67.7%, although its scale is small. Overseas revenue was ¥7.5B (YoY -4.2%), while the operating loss widened to ▲¥29.2B (▲¥13.6B in the previous year), resulting in a profit margin of ▲387.4%. The contrast between the highly profitable Asset Management and Brokerage businesses and the underperforming Commercial Real Estate and Overseas businesses is pronounced, with disparities in segment profitability driving fluctuations in the Company-wide profit margin.

Key Financial Indicators

【Profitability】The Operating Income margin was 13.4% (16.6% in the previous year, -3.2pt), while the Net Income margin was 7.7% (10.5% in the previous year, -2.8pt). Despite the improvement in the gross profit margin to 33.2% (32.8% in the previous year, +0.4pt), profitability deteriorated below the Operating Income level due to higher SG&A expenses.【Cash Flow Quality】The effective tax rate was 31.5%. The difference between Ordinary Income and Net Income was primarily attributable to the corporate income tax burden, while the impact of extraordinary items was minor.【Investment Efficiency】ROE was 1.8%.【Financial Soundness】The Equity Ratio was 28.3% (28.5% in the previous year, -0.2pt). Total assets were ¥28,368.9B (up +0.9% YoY), and net assets were ¥8,022.8B (down -0.1% YoY). Long-term borrowings of ¥12,064.4B and bonds of ¥1,670.0B constituted the primary components of interest-bearing debt.

Cash Flow Analysis

Cash and deposits increased by +26.5% to ¥484.5B from ¥382.9B in the previous year, confirming an increase in available cash reserves. Meanwhile, accounts payable decreased by -35.2% to ¥568.4B from ¥877.6B in the previous year, while accounts receivable also declined to ¥297.7B (¥382.0B in the previous year, -22.1%), suggesting that payment and collection periods have become more normalized. Regarding inventories, real estate for sale was ¥6,516.1B (¥6,615.9B in the previous year, -1.5%), and real estate under development was ¥3,730.1B (¥3,766.4B in the previous year, -1.0%), both remaining broadly unchanged. The Company maintained stable inventory levels in line with its Full Year delivery and property sale plans. The decline in accounts payable and increase in cash indicate that the short-term liquidity buffer has become more substantial than in the previous year.

Earnings Quality

Extraordinary items were minor, consisting of extraordinary income of ¥3.0B and extraordinary losses of ¥3.9B (including impairment losses of ¥3.9B), and Net Income broadly reflects the Company’s recurring earnings capacity. The difference between Ordinary Income of ¥216.5B and Net Income of ¥147.7B was primarily attributable to corporate income taxes and other taxes of ¥67.9B (effective tax rate of 31.5%). Non-operating income was ¥15.7B, equivalent to only 0.8% of revenue. Its main components were interest income of ¥0.8B and equity in earnings of affiliates of ¥13.2B, with the latter making a limited contribution to Company-wide earnings. On the other hand, interest expenses of ¥49.5B were equivalent to 19.4% of Operating Income and increased by +17.3% from the previous year, indicating that higher interest costs are placing some pressure on earnings quality.

Earnings Forecast and Guidance

Progress toward the Full Year plan was 17.7% for Revenue, 18.2% for Operating Income, 17.3% for Ordinary Income, and 17.1% for Net Income, all below the 25% benchmark based on a simple quarterly allocation. The plan likely reflects the seasonality of residential development and commercial real estate property deliveries and asset sales being concentrated in the second half of the fiscal year. Neither the earnings forecast nor the dividend forecast was revised during the quarter.

Shareholder Returns

The annual dividend forecast is ¥22.00, representing a planned increase of ¥4.00 from the previous fiscal year’s actual dividend of ¥18.00. Based on the Company’s planned EPS of ¥100.48, the Payout Ratio is 21.9%; there was no revision to the dividend forecast as of the end of the quarter.

Risk Factors

1. Earnings volatility in the Commercial Real Estate segment: Operating Income was ¥53.8B (YoY -51.3%), and the segment profit margin declined to 11.1% from approximately 17.8% in the previous year. This indicates a structure in which quarterly earnings are susceptible to fluctuations in the timing of property sales and rent revisions.

2. Expansion of losses in the Overseas segment: The operating loss widened to ▲¥29.2B (▲¥13.6B in the previous year), and the segment profit margin was ▲387.4%. Although the segment is small, its impact on Company-wide earnings is increasing.

3. Higher financial leverage and interest expenses: With an Equity Ratio of 28.3%, long-term borrowings of ¥12,064.4B, and bonds of ¥1,670.0B, interest expenses increased to ¥49.5B (YoY +17.3%). In an environment of rising interest rates, the interest payment burden may increase further.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Points from the Earnings Report

1. The primary causes of lower revenue and lower earnings were the rapid decline in the Commercial Real Estate segment’s margin (profit margin declining from 17.8% to 11.1%) and the expansion of losses in the Overseas segment. Residential Development maintained relatively stable profitability.

2. Full Year progress remained in the 17–18% range for both Revenue and earnings, making progress on property deliveries and asset sales in the second half of the fiscal year a prerequisite for achieving the Full Year plan.

3. The gross profit margin improved by +0.4pt from the previous year, but the increase in SG&A expenses (+6.2%) exceeded the decline in revenue (-13.7%). The emergence of negative operating leverage is therefore a key point of focus in the earnings structure.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥971–¥1,029 at ±1% for the cost of equity, and ¥998–¥1,001 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the Full Year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee future share prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional adviser where necessary.

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AI Financial Analysis

Executive Summary

FY2027 Q1 was a weak start relative to the full-year earnings plan, with revenue and profits declining materially year on year. Revenue fell 13.7% year on year to ¥191.1bn. Operating income declined 30.6% to ¥25.5bn. Ordinary income declined 36.2% to ¥21.6bn. Profit attributable to owners fell 36.5% to ¥14.7bn, and EPS was ¥17.23 versus ¥26.99 in the prior-year quarter. The operating margin compressed by 280bp to 13.4% from 16.6%. The net profit margin contracted by 280bp to 7.7% from 10.5%. Gross margin modestly improved by roughly 50bp to 33.2%, indicating that the principal pressure was not at the gross-profit level. Instead, SG&A rose 6.2% to ¥37.9bn while revenue declined, lifting the SG&A-to-revenue ratio by approximately 370bp to 19.8%. Residential remained the largest earnings contributor, with ¥15.5bn of operating income, but its revenue declined 15.0% and operating income declined 16.8%. Urban development was the largest negative contributor to the consolidated profit decline, as operating income fell 51.3% to ¥5.4bn on a 22.0% revenue decline. The overseas business recorded an operating loss of ¥2.9bn, widening from a ¥1.4bn loss a year earlier. Brokerage/CRE and operating management delivered revenue growth, although their operating income also declined. The Q1 operating-income progress rate against the full-year forecast was 18.2%, below the standard 25% seasonal benchmark by 6.8 percentage points. Net-income progress was 17.1% against the full-year plan, also below the standard first-quarter run rate. The balance sheet retains strong reported current liquidity, but the capital structure is leveraged, with D/E of 2.54x and debt/capital of 63.3%. The rise in cash balances is constructive, but cash covers only 0.28x of short-term debt. Full-year delivery therefore depends on a substantial acceleration in property sales and urban-development earnings in subsequent quarters, while interest costs and overseas losses remain important constraints.

Profitability Analysis

Annualized Q1 DuPont ROE was 7.3%, comprising a 7.7% net profit margin, 0.269x asset turnover, and 3.54x financial leverage. This is below the 8% threshold generally associated with acceptable capital efficiency and reflects a return profile dependent on substantial leverage. Relative to the prior-year quarter, the largest negative DuPont driver was margin compression: net margin fell approximately 277bp from 10.47% to 7.71%. Annualized asset turnover also weakened to 0.269x from approximately 0.315x, reflecting the 13.7% decline in revenue against a slightly larger asset base. Financial leverage remained broadly elevated at 3.54x, with total liabilities representing 71.7% of total assets. EBIT margin fell to 13.4% from about 16.6%, despite gross margin improving to 33.2% from 32.8%. SG&A growth of 6.2% materially lagged the revenue trend, producing adverse operating leverage and reducing the operating margin. The tax burden was 0.683, slightly below the 0.70 normal benchmark, while the effective tax rate was 31.5%. The interest burden was 0.844, below the 0.90 low-debt benchmark, demonstrating the meaningful drag from financing costs. Interest expense increased 17.3% year on year to ¥5.0bn, while EBIT fell 30.6%, compressing interest coverage to 5.16x from approximately 8.72x. Residential is the core business by operating-income contribution, generating ¥15.5bn, or about 60.5% of consolidated operating income. Its operating margin was broadly resilient at 15.4%, versus 15.7% a year earlier, although volume/revenue weakness constrained earnings. Urban development's operating margin fell sharply to 11.4% from 18.2%, indicating that its profit decline was substantially more severe than its sales decline. Asset management maintained a high operating margin of 67.7%, while brokerage/CRE posted a 30.1% margin; these businesses are profitable but comparatively small in absolute earnings contribution. The overseas segment's operating loss and deterioration in urban-development profitability are the principal obstacles to restoring group return metrics.

Growth Assessment

The quarterly revenue decline was driven primarily by the residential and urban-development businesses, whose external revenues declined by ¥17.8bn and ¥13.4bn, respectively. Residential revenue was ¥100.4bn, down 15.0% year on year, while urban-development revenue was ¥47.4bn, down 22.0%. These two businesses together accounted for nearly the entire consolidated revenue contraction. Overseas revenue declined 4.2% to ¥0.8bn and the operating loss widened to ¥2.9bn from ¥1.4bn. Asset-management revenue declined 2.8% to ¥4.2bn and operating income fell 7.3% to ¥2.9bn. Brokerage/CRE revenue grew 2.4% to ¥14.7bn, but operating income declined 15.5% to ¥4.4bn. Operating-management revenue rose 2.7% to ¥23.4bn, though operating income declined 35.3% to ¥1.2bn. The stronger revenue trends in brokerage/CRE and operating management provide some diversification, but they did not offset the cyclical sales and development weakness. Real estate for sale was ¥651.6bn, down 1.5% year on year, and real estate for sale in progress was ¥373.0bn, down 1.0%. The broadly stable inventory base supports future sales capacity, although it also makes execution timing and pricing important to revenue conversion. Management's full-year forecast calls for revenue growth of 14.6% to ¥1,080.0bn and operating-income growth of 1.3% to ¥140.0bn. Q1 revenue progress was 17.7%, 7.3 percentage points below the standard 25% quarterly benchmark; operating-income progress was 18.2%, 6.8 points below; ordinary-income progress was 17.3%, 7.7 points below; and net-income progress was 17.1%, 7.9 points below. These gaps imply a back-end-loaded year and require a pronounced recovery in transaction timing, development completions, or sales recognition. The unchanged forecast indicates management confidence, but the first-quarter margin and segment mix make subsequent quarterly execution central to the outlook.

Financial Health

Reported liquidity is strong, with a current ratio and quick ratio of 342.6% and working capital of ¥1,182.4bn. Current assets of ¥1,669.7bn substantially exceeded current liabilities of ¥487.3bn, so there is no apparent near-term maturity mismatch on the reported balance sheet. However, cash and deposits of ¥48.5bn represented only 0.28x short-term debt, below the 0.5x caution threshold. Short-term loans were ¥175.1bn and commercial paper was ¥148.0bn, making access to bank and capital-market refinancing important. Total interest-bearing debt was reported at ¥1,381.5bn and the reported D/E ratio was 2.54x, above the 2.0x warning threshold; this explicitly signals aggressive leverage. Debt/capital was also elevated at 63.3%, above the 60% covenant-risk benchmark. Long-term loans of ¥1,206.4bn accounted for the majority of the debt structure, helping limit immediate refinancing concentration, but financing costs remain sensitive to interest-rate movements. Interest coverage of 5.16x remains above the 5x strong benchmark, although the sharp year-on-year deterioration warrants monitoring. Equity was essentially stable at ¥802.3bn, while total assets increased 0.9% to ¥2,836.9bn and liabilities increased 1.8% to ¥2,034.6bn. Cash increased 26.5% year on year to ¥48.5bn, improving liquidity reserves. Accounts payable fell 35.2% to ¥56.8bn, reducing a source of operating financing and contributing to the need for disciplined cash management. The asset base is property-intensive: PPE was ¥771.7bn, including land of ¥423.1bn, while real estate for sale was ¥651.6bn and development in progress was ¥373.0bn. This structure is typical of a developer but exposes the company to property valuation, sales-cycle, and funding-market conditions. Intangible assets were only 1.4% of total assets, limiting balance-sheet dependence on intangible asset values.

Notable B/S Changes

Accounts payable: -¥30.9bn (-35.2%) to ¥56.8bn - reduced supplier/contractor financing, increasing the importance of liquidity and operating cash discipline. Cash and deposits: +¥10.2bn (+26.5%) to ¥48.5bn - improved cash reserves, although coverage of short-term debt remains limited at 0.28x. Commercial paper: +¥72.0bn (+94.7%) to ¥148.0bn - indicates a greater reliance on short-dated market funding and heightens refinancing sensitivity. Short-term loans: +¥32.5bn (+22.8%) to ¥175.1bn - reinforces the increase in short-term funding needs despite the strong reported current ratio. Provision for bonuses: -¥9.7bn (-55.7%) to ¥7.7bn - lowers current liabilities but reduces the liability buffer associated with employee bonus accruals. Income taxes payable: -¥18.6bn (-90.6%) to ¥1.9bn - reflects lower tax settlement obligations and contributes to the year-on-year reduction in current liabilities.

Cash Flow Quality

The profit profile shows a meaningful financing-cost burden, as interest expense of ¥5.0bn absorbed 15.6% of operating income and reduced the interest burden to 0.844. Profit before tax of ¥21.6bn was close to ordinary income of ¥21.6bn, indicating that earnings were principally driven by operating and recurring non-operating activity rather than large extraordinary items. Net extraordinary losses were limited to ¥0.9bn, comprising ¥3.0bn of extraordinary income and ¥3.9bn of extraordinary loss. The extraordinary loss included a ¥3.9bn impairment loss, compared with ¥1.4bn in the prior-year quarter. This impairment was modest relative to total assets, but its increase should be monitored as an indicator of asset-level underwriting and market-value risk. Equity-method earnings were ¥13.3bn, equivalent to approximately 5.2% of operating income, and therefore represent a supplementary rather than dominant contributor to group operating profitability. The reduction in accounts payable by ¥30.9bn year on year indicates less supplier and contractor financing than in the previous year. Cash balances nevertheless increased by ¥10.2bn year on year, providing some protection against funding volatility. The combination of lower earnings, higher interest expense, rising impairment charges, and lower trade payables places a premium on disciplined inventory monetization and financing management.

Dividend Sustainability

The full-year dividend forecast is ¥44.00 per share. Against forecast EPS of ¥100.48, the implied dividend payout ratio is approximately 43.8%. This is below the 60% sustainability benchmark and leaves a reasonable earnings retention buffer. The forecast dividend is supported by the company's sizeable equity base of ¥802.3bn and retained earnings of ¥566.7bn. However, dividend resilience remains linked to delivery of the full-year profit forecast because Q1 EPS of ¥17.23 represented only 17.1% of projected annual EPS. The first-quarter earnings decline and elevated leverage increase the importance of maintaining a balanced capital-allocation approach. The unchanged dividend forecast indicates that management has not revised its shareholder-return stance following the Q1 result. Interest-bearing debt of ¥1,381.5bn, D/E of 2.54x, and cash coverage of short-term debt of 0.28x suggest that debt servicing and liquidity reserves should remain priorities alongside dividends. On the available earnings forecast, the dividend burden appears manageable, but sustainability will depend on the expected second-half profit recovery.

Risk Assessment

Business risks include Property-sales timing and pricing risk: residential revenue fell 15.0% and urban-development revenue fell 22.0% year on year, making full-year growth dependent on subsequent project completions and sales recognition., Urban-development profitability risk: segment operating income fell 51.3% and margin compressed to 11.4% from 18.2%, representing the largest operating-profit deterioration among major segments., Overseas execution risk: the overseas operating loss widened to ¥2.9bn from ¥1.4bn, increasing the risk that international projects continue to dilute consolidated profitability., Real estate market-cycle risk: ¥651.6bn of real estate for sale and ¥373.0bn of development in progress create exposure to demand, transaction prices, construction costs, and project-completion timing., Interest-rate and construction-cost risk: a developer's project economics and buyer affordability can be pressured by higher borrowing rates and construction-cost inflation..

Financial risks include High leverage: D/E of 2.54x exceeds the 2.0x warning threshold and debt/capital of 63.3% exceeds the 60% caution benchmark, raising sensitivity to earnings volatility and asset values., Short-term liquidity stress: cash/short-term debt of 0.28x is below 0.5x, meaning short-term obligations rely materially on operating cash generation and refinancing capacity., Financing-cost risk: interest expense increased 17.3% to ¥5.0bn while EBIT declined 30.6%, causing interest coverage to fall to 5.16x., Impairment risk: impairment losses increased to ¥3.9bn from ¥1.4bn, and additional write-downs would reduce earnings and potentially indicate pressure on asset values..

Key concerns include Capital efficiency is weak: annualized ROE was 7.3% and reported ROIC was 3.3%, below the 5% warning threshold., The Q1 operating-income progress rate of 18.2% is 6.8 percentage points below the standard 25% pace despite an unchanged full-year forecast., SG&A increased 6.2% despite a 13.7% revenue decline, creating adverse operating leverage and a 280bp operating-margin contraction., The investment case is increasingly dependent on a back-half earnings recovery, particularly in residential and urban development..

Investment Implications

Key takeaways include Residential remains the core business and maintained a relatively stable 15.4% operating margin, but lower revenue reduced its earnings contribution., Urban development and overseas operations were the principal earnings drags, with urban-development operating income down 51.3% and overseas losses widening., The full-year forecast implies a material acceleration after Q1, with revenue expected to grow 14.6% for the year despite a 13.7% Q1 decline., Leverage is the principal balance-sheet constraint: D/E is 2.54x, debt/capital is 63.3%, and cash/short-term debt is 0.28x., The forecast dividend payout ratio of approximately 43.8% is moderate, but achievement of the annual earnings plan is important for preserving this coverage..

Metrics to watch include Quarterly residential and urban-development sales recognition, revenue, and operating margins, Overseas segment loss trajectory and project-level profitability, Operating-income progress relative to the ¥140.0bn full-year forecast, Interest expense, interest coverage, and refinancing of short-term loans and commercial paper, Real estate-for-sale and development-in-progress balances, turnover, and impairment charges, D/E ratio, debt/capital ratio, cash/short-term debt, and annualized ROE/ROIC.

Regarding relative positioning, The company combines a diversified Japanese real estate platform with a large residential earnings base and profitable asset-management and brokerage/CRE operations. Its current return profile is weaker than preferred sector benchmarks because annualized ROE is 7.3%, reported ROIC is 3.3%, and leverage is elevated. Relative performance in the near term will be determined by whether the comparatively resilient residential margin and backlog-like development inventory can translate into the substantial second-half sales and earnings recovery embedded in the unchanged annual plan.