LEOPALACE21 (8848) FY2026 Q3 Earnings Report

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Executive Summary

Operating income increased due to higher revenue and improved profitability in the Rental Business; however, net income declined significantly due to the recording of an extraordinary loss. Revenue was ¥3327.1B (+2.7% YoY), operating income was ¥286.4B (+12.5%), and ordinary income was ¥278.1B (+11.8%), indicating a trend of higher earnings. Meanwhile, net income was limited to ¥107.5B (-33.3%), and net income attributable to owners of the parent was ¥100.1B (-34.9%). The primary cause of the decline in net income was the recording of an extraordinary loss of ¥101.5B. Excluding this item, the Company continued to achieve higher revenue and earnings through the pre-tax stage.

Factors Affecting Results

【Revenue】Revenue was ¥3327.1B (+2.7% YoY). By segment, the core Rental Business generated ¥3212.3B (96.5% of total revenue), up 2.8% YoY; the Silver Business generated ¥103.3B, down 0.4% YoY; and Other Businesses generated ¥14.1B, up 21.6%. Within the Rental Business, rental income was ¥2496.1B (+2.8%) and accounted for the core of revenue. Maintenance and other services and ancillary services also expanded by approximately +2.7% each, indicating that revenue growth was supported by broad-based expansion, including peripheral revenue streams within the Rental Business.

【Profit and Loss】Operating income was ¥286.4B (+12.5% YoY), and the operating margin improved to 8.6% from 7.9% in the same period of the previous year, an improvement of 0.7pt. The segment profit margin of the Rental Business increased to 10.8% from 9.9% in the previous year, making it the primary driver of consolidated earnings. However, losses in the Silver Business (profit margin: -7.1%) and Other Businesses (profit margin: -139.4%) diluted earnings. Ordinary income continued to increase, reaching ¥278.1B (+11.8%), but due to the recording of an extraordinary loss of ¥101.5B (including an impairment loss of ¥0.8B), profit before tax was limited to ¥178.7B, and net income turned to a decline at ¥107.5B (-33.3%). The structure is one of higher revenue and earnings at the operating and ordinary income levels, alongside a decline in final profit. In conclusion, revenue and earnings increased on an operating and ordinary income basis, while net income declined due to the extraordinary loss.

Segment Analysis

The Rental Business generated revenue of ¥3212.3B (96.5% of total revenue, +2.8% YoY), segment profit of ¥347.5B (+9.5%), and a profit margin of 10.8% (9.9% in the previous year), reflecting improved profitability and serving as the substantive source of consolidated operating income. The Silver Business generated revenue of ¥103.3B (-0.4%) and recorded a segment loss of ¥7.4B (a loss of ¥6.0B in the previous year), indicating an expansion of losses. Other Businesses generated revenue of ¥14.1B (+21.6%) and recorded a segment loss of ¥19.7B (a loss of ¥18.3B in the previous year); losses expanded despite higher revenue. The combined losses of the two businesses offset approximately 9.4% of consolidated operating income, and profitability improvements in the loss-making businesses will determine the potential for future growth in the consolidated profit margin.

Key Financial Indicators

【Profitability】The operating margin of 8.6% (7.9% in the previous year) and ordinary income margin of 8.4% (7.7% in the previous year) both improved, while the net profit margin declined to 3.0% from 4.8%. The gross margin improved to 20.4% from 18.4%, whereas the SG&A expense ratio increased to 11.8%; SG&A expense growth (+14.9% YoY) exceeded revenue growth (+2.7%).【Cash Flow Quality】Cash and deposits amounted to ¥465.1B, a significant decline from ¥888.4B in the same period of the previous year. Of the ¥101.5B extraordinary loss, impairment losses on fixed assets amounted to only ¥0.8B, meaning that most of the extraordinary loss was attributable to factors other than non-cash items; this is an important point in assessing earnings quality.【Investment Efficiency】ROE (annualized) was high at 36.4%, but the Company’s structure relies on high total asset turnover and financial leverage to compensate for its low net profit margin. This includes the impact of increased leverage accompanying the decline in net assets.【Financial Soundness】The equity ratio was 24.0%, a significant decline from approximately 37.5% in the same period of the previous year. Total assets declined to ¥1641.5B (¥2166.2B in the previous year), while net assets declined to ¥393.5B (¥882.7B in the previous year), indicating continued contraction in the capital base.

Cash Flow Analysis

Direct data from the statement of cash flows was not provided, but changes in funding trends can be inferred from movements in the balance sheet. Cash and deposits amounted to ¥465.1B, a decrease of ¥418.9B YoY, while total assets contracted by ¥524.7B YoY to ¥1641.5B. Net assets declined by ¥489.2B YoY to ¥393.5B, and retained earnings also decreased to ¥214.3B, indicating simultaneous progress in capital compression and cash outflows. Short-term borrowings were maintained at ¥300.0B. Although cash exceeded short-term borrowings, cash coverage was limited relative to total current liabilities of ¥921.6B, and financial flexibility declined from the previous year.

Earnings Quality

Operating and ordinary income increased by double digits YoY, supported by the recurring factor of improved profitability in the Rental Business. In contrast, the decline in net income was primarily attributable to the non-recurring factor of the ¥101.5B extraordinary loss. The extraordinary loss includes an impairment loss of ¥0.8B on rental assets, while the remaining components account for the majority of the total extraordinary loss; their nature will require continued monitoring. Non-operating income and expenses consisted of income of ¥9.4B and expenses of ¥17.7B, resulting in a net burden of ¥8.3B. Interest expenses of ¥7.0B and fees paid of ¥6.6B were the main components. Comprehensive income was ¥88.7B, below net income of ¥107.5B, primarily due to foreign currency translation adjustments of -¥18.4B. The divergence between net income and comprehensive income indicates the impact of overseas-related asset valuations.

Earnings Forecast and Guidance

Progress rates against the full-year plan were 74.9% for revenue, 82.3% for operating income, and 84.3% for ordinary income, exceeding the 75% benchmark for the nine-month period at the operating and ordinary income levels. To achieve the full-year operating income plan of ¥348.0B, approximately ¥61.6B in operating income must be secured in Q4, with the maintenance of profitability in the Rental Business being the key focus. No revisions were made to either the earnings forecast or dividend forecast during the current quarter.

Shareholder Returns

The Q2 dividend was ¥5.00 per share, and the full-year dividend plan is ¥10.00 per share. Based on the full-year plan, total annual dividends are estimated at approximately ¥33.5B using the average number of shares outstanding during the period of 335.1 million shares, resulting in a payout ratio of approximately 25% against the full-year net income plan. Treasury shares increased YoY, and the payout ratio showed no significant change from the level in the same period of the previous year. However, given the declines in net assets and retained earnings, future shareholder returns should be assessed in terms of their consistency with the overall capital policy.

Risk Factors

1. Concentration of earnings in the Rental Business: Segment profit from the Rental Business is on a scale exceeding consolidated operating income and represents a de facto single source of earnings. This structure means that changes in rents and maintenance costs directly affect consolidated results as a whole.

2. Continued losses in loss-making segments: The Silver Business (segment loss of ¥7.4B) and Other Businesses (loss of ¥19.7B) both recorded larger losses than in the previous year. If profitability improvements are delayed, these losses could offset the earnings growth effect of the core business.

3. Contraction of capital and liquidity: Net assets decreased by ¥489.2B YoY, the equity ratio declined to 24.0%, and cash and deposits decreased by ¥418.9B. Short-term borrowings were maintained at ¥300.0B, and changes in the funding structure could affect financial stability.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (real_estate)

Profitability and Returns

The operating margin exceeds the industry median, while the net profit margin is below the industry median due to the impact of the extraordinary loss.

Growth and Capital Efficiency

The revenue growth rate is significantly below the industry median, and the pace of growth is relatively moderate within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The operating margin improved to 8.6% (7.9% in the previous year), and the ordinary income margin improved to 8.4% (7.7% in the previous year). Improved profitability in the core Rental Business is the central driver of consolidated performance.

2. Net income declined 34.9% YoY due to the recording of an extraordinary loss of ¥101.5B, resulting in a structure in which increased operating and ordinary income was not fully reflected in final profit. The details and recurrence potential of the extraordinary loss require further monitoring.

3. Net assets, retained earnings, and cash all declined YoY simultaneously. Although progress at the operating and ordinary income levels exceeded the full-year plan, changes in the capital base will require continued observation in future financial results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥219–¥233 at ±1% for the cost of equity, and ¥223–¥230 at ±0.1 for ω.

Notes:

• Net income is significantly compressed relative to operating income due to tax burdens, acquisition-related expenses, non-controlling interests, and other factors (net income ÷ operating income: 37%). This value reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and 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 release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting a professional where necessary.

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