Hoosiers Holdings (3284) FY2026 Q3 Earnings Report

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Executive Summary

FY2025 Q3 cumulative results showed revenue of 51.3B yen (YoY +11.9%) but operating income declined sharply to 0.65B yen (YoY -80.0%). Ordinary income turned negative at -0.75B yen versus 2.49B yen in the prior year, and net income recorded a loss of -0.86B yen (YoY -157.2%). The sharp profit decline reflects deteriorating segment profitability in the Condominium and Apartments segment (operating loss of -1.58B yen) alongside elevated interest expenses of 1.58B yen. Operating margin compressed to 1.3% from 7.1% YoY, while gross margin held relatively stable at 21.2%. The divergence between revenue growth and profitability deterioration represents a concerning shift in business fundamentals.

Performance Drivers

Revenue increased 5.44B yen YoY to 51.30B yen, driven primarily by the Condominium and Apartments for Families and Singles segment which contributed 24.92B yen in revenue (up from 22.68B yen, +9.9% YoY). Asset Management revenue grew to 19.03B yen from 16.07B yen (+18.4% YoY), while Property Management and Related Services expanded modestly to 6.37B yen from 6.32B yen (+0.8% YoY). The CCRC (Continuing Care Retirement Community) segment increased to 1.96B yen from 1.64B yen (+19.5% YoY). On the profit side, operating income collapsed from 3.25B yen to 0.65B yen, a decline of 2.60B yen. The primary driver was a 2.92B yen swing in the Condominium segment from operating profit of 1.34B yen to operating loss of -1.58B yen. SG&A expenses increased to 10.20B yen (SG&A ratio 19.9%) from prior period levels, compressing margins despite revenue growth. Non-operating expenses surged, with interest expense reaching 1.58B yen, resulting in ordinary loss of -0.75B yen. Extraordinary losses of 0.30B yen (including impairment loss of 0.17B yen) further pressured net income to -0.86B yen. This represents a classic "revenue up, profit down" pattern driven by segment-level deterioration and elevated financing costs.

Segment Analysis

The Asset Management segment generated revenue of 19.03B yen with operating income of 2.27B yen (margin 11.9%), representing the core business and sole profitable segment. The Condominium and Apartments for Families and Singles segment, while largest by revenue at 24.92B yen (48.6% of total), recorded an operating loss of -1.58B yen (margin -6.3%), a dramatic reversal from 1.34B yen profit in the prior year. This 2.92B yen deterioration is the primary driver of overall profit decline and indicates severe project-level profitability issues. The Property Management and Related Services segment contributed 6.37B yen revenue with operating income of 0.42B yen (margin 6.5%), relatively stable YoY. The CCRC segment remains loss-making at -0.66B yen on 1.96B yen revenue (margin -33.5%), widening from -0.18B yen loss previously. The stark margin disparity between Asset Management (11.9%) and the loss-making Condominium segment (-6.3%) highlights concentration risk, with profitability now entirely dependent on the Asset Management operations.

Key Metrics

[Profitability] ROE of -1.7% represents a significant deterioration from positive territory, reflecting net loss generation. Operating margin compressed to 1.3% from 7.1% YoY (declining 5.8 percentage points), indicating severe operational efficiency deterioration. Gross margin of 21.2% remained relatively stable but insufficient to absorb elevated SG&A and interest costs. Interest coverage ratio stands at 0.41x, well below the 2.0x prudent threshold, signaling constrained ability to service debt from operating profits. [Cash Quality] Cash and deposits of 33.26B yen provide coverage of 1.67x against current liabilities excluding long-term debt current portion. Working capital of 110.63B yen represents substantial operating buffer, though largely comprised of real estate inventory (Real Estate for Sale and Real Estate for Sale in Progress). [Investment Efficiency] Asset turnover of 0.24x trails the industry median of 0.68x significantly, reflecting capital-intensive real estate development model with extended project cycles. [Financial Health] Equity ratio of 24.0% positions below the industry median of 31.0%, indicating elevated leverage. Current ratio of 243.3% suggests adequate short-term liquidity. Debt-to-equity ratio of 3.16x substantially exceeds the 2.0x threshold, with interest-bearing debt of 95.21B yen representing a structural financing burden that directly impacts profitability.

Cash Flow Analysis

Cash and deposits increased 13.19B yen YoY to 33.26B yen, primarily reflecting balance sheet adjustments rather than operational cash generation given the net loss position. Working capital expansion is evident with Real Estate for Sale and Real Estate for Sale in Progress comprising substantial current assets, indicating capital deployment into inventory ahead of sales conversion. Interest-bearing debt increased to 95.21B yen from 88.42B yen (+7.7% YoY), with short-term borrowings rising significantly from 13.12B yen to 19.89B yen (+51.6% YoY), suggesting increased reliance on short-term financing. Current portion of long-term debt and bonds totaling 7.36B yen creates refinancing requirements within twelve months. The combination of net loss generation, elevated inventory levels, and rising short-term debt indicates cash consumption pressures despite nominal cash balance increases. Operating cash generation quality cannot be directly assessed without cash flow statement disclosure, but the divergence between net loss and stable cash balances suggests either non-cash charges or financing-driven liquidity rather than operational cash creation.

Earnings Quality

Ordinary income of -0.75B yen versus operating income of 0.65B yen reflects net non-operating expense of approximately 1.40B yen, primarily driven by interest expense of 1.58B yen. Non-operating income of 0.99B yen includes FX gains of 0.51B yen, interest income of 0.14B yen, and dividend income of 0.08B yen. The FX gains represent 51.5% of non-operating income and constitute transactional gains subject to reversal. Non-operating expenses totaled 2.40B yen, with interest expense accounting for 65.8%, commission fees of 0.40B yen, and other expenses of 0.13B yen. The interest burden of 1.58B yen relative to operating income of 0.65B yen indicates that financing costs consume 243% of operational earnings, fundamentally undermining profitability. Extraordinary items net to -0.05B yen (extraordinary income 0.25B yen including asset sales of 0.19B yen, offset by extraordinary losses of 0.30B yen including impairment of 0.17B yen). While individually immaterial, these non-recurring items highlight asset portfolio churn. The structural concern is the reliance on non-operational items (FX gains) to partially offset the unsustainable interest burden, suggesting core operational earnings quality is weak and highly sensitive to financing structure.

Guidance Update

Full-year guidance calls for revenue of 132.5B yen (YoY +43.8%), operating income of 12.9B yen (YoY +39.8%), and ordinary income of 10.0B yen (YoY +16.2%). Q3 cumulative progress rates stand at 38.7% for revenue, 5.0% for operating income, and negative for ordinary income, all substantially below the standard 75% threshold at Q3. The severe shortfall in profit progression (5.0% of full-year operating income target versus 75% expected) implies the company anticipates an extraordinary Q4 turnaround contributing approximately 12.25B yen operating income, or 95% of the full-year target. This projection requires validation against segment-level trends, particularly given the Condominium segment loss position. The company has not revised guidance this quarter despite material underperformance, suggesting either high confidence in Q4 project completions and sales conversions, or delayed recognition of structural challenges. EPS forecast of 168.40 yen implies full-year net income of 6.5B yen, requiring a dramatic reversal from Q3 cumulative loss of -0.86B yen. Dividend forecast of 37.00 yen appears disconnected from earnings trajectory given current loss position.

Shareholder Returns

Annual dividend forecast is 37.00 yen per share (interim 29.00 yen paid, year-end 33.00 yen planned). Based on Q3 cumulative net loss of -0.86B yen and average shares outstanding of 37.845M, the calculated payout ratio is -267.2%, indicating dividend payments exceed earnings by a substantial margin. The interim dividend of 29.00 yen has been paid, representing approximately 1.10B yen cash outflow based on outstanding shares. The maintenance of dividend payments despite net loss generation reflects either strong confidence in full-year earnings recovery to forecasted 6.5B yen net income (which would yield 22.0% payout ratio on 37.00 yen dividend), or prioritization of shareholder returns over earnings coverage. With cash reserves of 33.26B yen against total annual dividend commitment of approximately 1.40B yen, near-term dividend payment capacity exists, though sustainability depends critically on achieving forecasted earnings recovery and maintaining adequate liquidity given elevated debt refinancing requirements.

Risk Factors

Real estate market risk represents the primary exposure, with substantial inventory of 187.84B yen in current assets largely comprising Real Estate for Sale and Real Estate for Sale in Progress. Market price deterioration or sales velocity decline would directly impact asset values and cash conversion, with the Condominium segment already demonstrating negative operating margins of -6.3%. Interest rate risk is acute given interest-bearing debt of 95.21B yen and current interest coverage of 0.41x, with every 100 basis points rate increase adding approximately 0.95B yen annual interest expense, equivalent to 146% of current operating income. The refinancing risk is elevated with short-term borrowings of 19.89B yen (+51.6% YoY) and current portion of long-term debt of 7.36B yen requiring near-term refinancing, potentially at higher rates or tighter terms given deteriorated profitability metrics.

Industry Benchmark (Reference - Proprietary Data)

[Industry Position] (Reference - Proprietary Analysis) Profitability: ROE -1.7% substantially underperforms the real estate industry median of 11.4% (2025-Q3, n=13), positioning in the bottom quartile. Operating margin of 1.3% trails the industry median of 8.0% by 6.7 percentage points, indicating structural cost disadvantage or segment mix challenges. Net profit margin of -1.7% versus industry median of 4.4% reflects both operational underperformance and elevated financing costs.

Financial Health: Equity ratio of 24.0% falls below the industry median of 31.0%, indicating higher leverage positioning. Debt/Equity of 3.16x exceeds the industry median financial leverage of 3.07x, though within interquartile range. Current ratio of 243.3% compares favorably to industry median of 2.15x, providing relative liquidity cushion.

Efficiency: Asset turnover of 0.24x significantly lags industry median of 0.68x, reflecting capital-intensive project model with extended holding periods. Revenue growth of 11.9% trails industry median of 18.5%, suggesting market share pressure or conservative project mix.

※ Industry: Real Estate (13 companies), Comparison: 2025-Q3 period, Source: Proprietary analysis

Key Takeaways from Earnings

Structural profitability deterioration is evident with operating margin declining 5.8 percentage points YoY to 1.3%, driven by the Condominium segment swing to -6.3% margin from positive territory. The concentration of losses in the largest revenue segment (48.6% of total) indicates core business model stress rather than peripheral issues. This represents a material inflection point requiring operational restructuring or portfolio rebalancing to restore profitability. The financing structure has become unsustainable with interest coverage of 0.41x and interest expense consuming 243% of operating income. With debt/equity of 3.16x and 95.21B yen interest-bearing debt, the capital structure constrains strategic flexibility and creates vulnerability to rate increases or refinancing challenges. The company's ability to maintain dividends of 37.00 yen against current loss trajectory and elevated payout ratio suggests confidence in Q4 recovery, though execution risk is substantial given the 95% of full-year operating income target dependent on final quarter performance.

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This report was automatically generated by AI analyzing XBRL earnings data as an earnings analysis tool. This is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled from publicly available earnings data. Please make investment decisions at your own responsibility and consult professionals as needed.

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AI Financial Analysis

Executive Summary

FY2026 Q3 performance was materially weaker than the prior-year period despite double-digit revenue growth, with development-related margin pressure and financing costs driving a net loss. Revenue increased 11.9% YoY to ¥51.30bn. Operating income fell 80.0% YoY to ¥0.65bn. The operating margin compressed by 582bp to 1.3% from 7.1% in FY2025 Q3. Gross profit declined 8.4% YoY to ¥10.85bn even as revenue grew, reducing the gross margin by 464bp to 21.2% from 25.8%. SG&A expenses increased 18.6% YoY to ¥10.20bn, faster than revenue growth, and the SG&A-to-sales ratio rose by 112bp to 19.9%. Consequently, nearly all gross profit was absorbed by overheads. Ordinary income turned to a ¥0.75bn loss from a ¥2.49bn profit, as ¥1.58bn of interest expense exceeded operating income by a wide margin. Profit attributable to owners of the parent was a ¥0.97bn loss, compared with a ¥1.25bn profit a year earlier. The real estate development business recorded a ¥1.58bn segment loss, versus a ¥1.34bn profit in the prior-year period, and was the principal driver of the consolidated earnings deterioration. In contrast, real estate investment segment profit grew 23.3% YoY to ¥2.27bn, making it the core business by operating-income contribution in the reported period. The CCRC business remained loss-making, with its loss expanding to ¥0.66bn from ¥0.18bn. The company is expanding its asset base and inventory pipeline, including a ¥131.46bn increase in CCRC segment assets from the preceding fiscal year-end following property acquisitions. This supports future sales and recurring-income potential but also raises execution, valuation, and funding requirements. Total interest-bearing debt reached ¥95.21bn, and the debt burden is elevated relative to ¥50.72bn of total equity. Liquidity is presently ample, with a 243.3% current ratio and ¥33.26bn of cash, but low operating profitability provides limited interest-servicing capacity. Full-year guidance remains unchanged, but Q3 progress is substantially below the normal 75% seasonal benchmark for operating profit and net income. Delivery timing and restoration of development profitability will therefore be decisive for achieving the full-year plan.

Profitability Analysis

The reported annualized DuPont ROE is -2.5%, comprising a -1.9% net profit margin, 0.324x asset turnover, and 4.16x financial leverage. The negative net margin is the decisive factor behind the negative ROE; leverage magnifies rather than offsets the weak operating result. Revenue growth did not convert into earnings because the gross margin contracted from 25.8% to 21.2%, while SG&A grew 18.6% YoY, exceeding the 11.9% revenue increase. Operating leverage was therefore strongly negative: the ¥5.44bn revenue increase was accompanied by a ¥2.60bn decline in operating income. EBIT margin was only 1.3%, well below the 5% concern threshold and down 582bp YoY. The five-factor decomposition also indicates that financing costs are a critical constraint: the interest burden was -1.237, reflecting negative pre-tax income after interest expense of ¥1.58bn consumed more than operating income. Interest coverage was only 0.41x, meaning EBIT covered less than half of reported interest expense. The effective tax rate was -6.3%, and the tax-burden ratio above 1.0 reflects a tax expense despite a pre-tax loss, rather than an underlying improvement in earnings quality. The ¥0.51bn net extraordinary loss, comprising ¥2.51bn of extraordinary income and ¥3.02bn of extraordinary losses, further reduced pre-tax earnings. Foreign-exchange gains of ¥0.51bn represented 78.8% of operating income, indicating that reported ordinary earnings were materially influenced by non-core currency movements. Under JGAAP, reported goodwill of ¥5.59bn is amortizable; however, goodwill equals just 1.1% of equity and 0.3% of assets, so goodwill-related accounting distortion is not a central explanation for the earnings weakness.

Growth Assessment

Consolidated revenue growth of 11.9% YoY was supported across all four reported segments. Real estate development revenue rose 9.3% YoY to ¥24.78bn, but the segment moved to a ¥1.58bn loss from a ¥1.34bn profit, indicating substantial project-level margin deterioration or delivery-mix pressure. CCRC revenue increased 19.5% YoY to ¥1.96bn, while its segment loss widened to ¥0.66bn from ¥0.18bn. Real estate investment revenue increased 19.3% YoY to ¥18.23bn and segment profit increased 23.3% to ¥2.27bn; its segment margin was 12.5%, compared with -6.4% for development and -33.5% for CCRC. Real estate-related services revenue rose 1.1% YoY to ¥6.33bn and segment profit increased 29.7% to ¥0.42bn, lifting its margin to 6.6%. The real estate investment segment is the current core business by operating-income contribution, generating more than the consolidated segment-profit total before losses in development and CCRC. The revenue base remains materially exposed to property sales and project timing, while the stronger investment segment provides a comparatively more resilient earnings contribution. Real estate inventories, including real estate for sale and real estate for sale in progress, total ¥143.64bn, equal to 68.1% of total assets. This inventory concentration is high for a developer and makes future revenue dependent on project completion, sales execution, and achievable selling prices. The unchanged FY2026 forecast calls for revenue of ¥132.50bn, operating income of ¥12.90bn, ordinary income of ¥10.00bn, and profit attributable to owners of ¥6.50bn. Q3 revenue progress is 38.7% of the full-year forecast, 36.3 percentage points below the standard 75% Q3 pace. Operating-income progress is only 5.0%, ordinary income is negative against the ¥10.00bn target, and attributable profit is negative against the ¥6.50bn target. The implied Q4 operating-income requirement is ¥12.25bn, which is far above the ¥0.65bn earned cumulatively through Q3. Achievement of guidance therefore requires an exceptionally concentrated fourth-quarter completion and profit-recognition profile.

Financial Health

The balance sheet combines strong headline liquidity with aggressive leverage. Current assets of ¥187.84bn exceeded current liabilities of ¥77.22bn, resulting in working capital of ¥110.63bn and a 243.3% current ratio. The quick ratio was similarly high at 243.2%, supported by ¥33.26bn of cash and deposits. Short-term loans were ¥19.89bn, while current portions of long-term loans were ¥33.00bn and current portions of bonds were ¥3.52bn. Cash covered short-term loans by 1.67x, but cash alone does not fully cover all reported current debt maturities. The funding model consequently remains dependent on refinancing capacity, property sales, customer advances, and monetization of development inventory. Interest-bearing debt totaled ¥95.21bn, comprising ¥19.89bn of short-term loans and ¥75.32bn of long-term loans, excluding current portions separately classified on the balance sheet. Debt-to-equity was 3.16x, materially above the 2.0x warning threshold and indicative of aggressive debt financing. Debt represented 65.2% of capital, above the 60% covenant-risk benchmark. Long-term loans of ¥75.32bn equal 35.7% of total assets, underscoring the importance of stable lender access and interest-rate management. Total assets increased ¥310.68bn YoY, or 17.3%, primarily in current assets associated with the development pipeline. Total equity increased ¥2.12bn YoY to ¥50.72bn, but the equity ratio declined to 21.3% from 23.4% as liabilities expanded faster than equity. Short-term loans increased ¥6.77bn YoY, or 51.6%, while long-term loans increased ¥8.02bn, or 11.9%. Accounts payable declined ¥1.67bn YoY, or 52.8%, reducing supplier-financing support. CCRC segment assets increased ¥131.46bn from the preceding fiscal year-end because of new property acquisitions, increasing the capital committed to an already loss-making segment. Goodwill rose ¥0.40bn YoY to ¥5.59bn and intangible assets increased ¥0.37bn to ¥11.41bn, but their low proportions of assets and equity limit M&A-related balance-sheet risk. The principal financial-health concern is not near-term current-ratio liquidity, but the combination of high leverage, elevated inventory exposure, and weak debt-service capacity.

Notable B/S Changes

Goodwill: +¥3.97bn (+245.1% YoY) to ¥5.59bn - acquisition-related asset increase; low at 1.1% of equity, but JGAAP amortization and future impairment should be monitored. Intangible assets: +¥3.73bn (+48.6% YoY) to ¥11.41bn - increased acquired or capitalized intangible base, though still only 0.5% of total assets. Short-term loans: +¥6.77bn (+51.6% YoY) to ¥19.89bn - greater reliance on short-term financing increases refinancing sensitivity. Accounts payable: -¥1.67bn (-52.8% YoY) to ¥1.49bn - lower supplier financing may increase the need for external funding. Real estate for sale: +¥5.75bn (+28.1% YoY) to ¥26.19bn - higher completed-property inventory increases sales-execution and valuation exposure. Real estate for sale in progress: +¥22.94bn (+24.3% YoY) to ¥117.45bn - enlarged development pipeline supports future sales but ties up capital and heightens completion risk. Retained earnings: -¥3.69bn (-14.7% YoY) to ¥214.59bn - reflects weaker earnings and distributions, reducing internally generated capital capacity. Treasury stock: +¥3.42bn (+38.3% YoY, less negative) to -¥5.51bn - consistent with disposal of treasury shares and equity funding actions.

Cash Flow Quality

Dividend Sustainability

The company paid an interim dividend of ¥37.00 per share and maintains a full-year dividend forecast of ¥74.00 per share. Based on the forecast EPS of ¥168.40, the prospective dividend payout ratio is approximately 44.0%, which is within the stated sub-60% sustainability benchmark if full-year earnings guidance is achieved. However, the Q3 attributable loss of ¥0.97bn means dividends are not covered by reported cumulative earnings at this stage. The calculated interim payout ratio based on the period loss is not economically meaningful as a sustainability measure because the denominator is negative. Dividend sustainability is therefore contingent on the anticipated fourth-quarter profit recovery rather than current-period earnings. Retained earnings declined ¥3.69bn YoY to ¥214.59bn, partly reflecting the cumulative loss and shareholder distributions. The company raised capital through a public offering, disposal of treasury shares, and third-party allotment during September 2025, which strengthened equity funding but also increased the share base used in forecast EPS calculations. With debt-to-equity at 3.16x and interest coverage at 0.41x, preserving financial flexibility remains important alongside dividend commitments. The unchanged dividend forecast signals management confidence in the full-year delivery schedule, but the coverage profile should be assessed against actual fourth-quarter property settlements and profitability.

Risk Assessment

Business risks include Development execution risk is high: the real estate development segment generated a ¥1.58bn loss despite ¥24.78bn of revenue, versus a ¥1.34bn profit a year earlier., Inventory and property-cycle risk are elevated because real estate inventories total ¥143.64bn, equal to 68.1% of total assets. Delays in completion, lower sales velocity, or price corrections could pressure margins and capital turnover., CCRC expansion risk is material: segment assets increased ¥131.46bn from the preceding fiscal year-end while the segment loss widened to ¥0.66bn., Construction-cost inflation and subcontractor availability may further constrain development margins, particularly where sales prices were fixed before cost escalation., Rental and investment-property performance remains exposed to tenant demand, occupancy, property valuations, and financing conditions, although the real estate investment segment currently provides the strongest profit contribution., Foreign-exchange exposure is meaningful because FX gains of ¥0.51bn equaled 78.8% of operating income; volatility could materially affect ordinary income..

Financial risks include High leverage is a central risk: debt-to-equity is 3.16x and debt-to-capital is 65.2%, both above stated caution thresholds., Debt-service risk is acute: interest coverage is 0.41x, as ¥1.58bn of interest expense exceeded ¥0.65bn of EBIT., Refinancing risk remains relevant because current portions of long-term loans and bonds, together with short-term loans, create substantial near-term funding requirements relative to cash., Interest-rate risk is elevated given ¥95.21bn of interest-bearing debt; higher borrowing costs would further pressure already-low operating profitability., The equity ratio fell to 21.3%, reducing the balance-sheet cushion against asset-value declines or further earnings volatility..

Key concerns include The most immediate issue is the very large gap between Q3 cumulative operating income of ¥0.65bn and the ¥12.90bn full-year operating-income forecast., Gross-margin compression of 464bp and SG&A growth faster than revenue indicate that the earnings decline is operational, rather than solely a timing effect in below-the-line items., The low 0.8% ROIC indicates limited current returns on the enlarged capital base., Extraordinary items were sizable relative to the loss: the net extraordinary loss was ¥0.51bn, while gross extraordinary income was ¥2.51bn. These items add volatility but do not explain the underlying operating-margin contraction., No material fixed-asset impairment was reported in the period; therefore, future monitoring should focus on whether weaker project economics or slower inventory turnover create valuation pressure..

Investment Implications

Key takeaways include Revenue growth is broad-based, but profit generation has deteriorated sharply, led by the real estate development segment., Real estate investment is the core profit contributor in FY2026 Q3, with ¥2.27bn of segment profit and a 12.5% segment margin., The company has ample reported current liquidity, but its capital structure is aggressive and debt servicing is weak at the current level of EBIT., Full-year guidance depends heavily on fourth-quarter property completions, settlements, and a substantial recovery in development profitability., The balance-sheet expansion increases upside from successful monetization of the project pipeline but also heightens sensitivity to sales timing, financing conditions, and property valuations..

Metrics to watch include Real estate development segment margin and return to segment profitability, Q4 property delivery volume and progress versus FY2026 revenue guidance of ¥132.50bn, Operating-income recovery versus the ¥12.90bn full-year target, Interest coverage and the trend in interest expense, Interest-bearing debt, current debt maturities, and refinancing terms, Real estate inventory turnover, project completion timing, and inventory valuation, CCRC segment losses, asset utilization, and monetization of the ¥131.46bn asset increase, Foreign-exchange gains or losses relative to operating income.

Regarding relative positioning, Relative to a conservatively financed real estate developer, the company currently exhibits higher financial leverage, heavier inventory concentration, and materially weaker interest coverage. Its investment segment provides a comparatively stronger and higher-margin earnings base, but consolidated profitability is presently constrained by losses in development and CCRC operations.