Nomura Real Estate Holdings,Inc. 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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