Starts Proceed Investment Corporation FY2025 Q4 Earnings Report

Financial Highlights

• Operating Income: ¥1.72B
• Net Income: ¥1.38B

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Solid bottom-line and cash generation with adequate leverage, offset by weak short-term liquidity and limited disclosure on revenue/margins typical of a J-REIT. Operating income was 17.19, ordinary income and profit before tax were both 13.84, and net income was 13.83, reflecting minimal tax burden (effective tax rate ~0.1%), consistent with REIT pass-through status. Operating cash flow was strong at 43.34, running 3.13x net income, indicating high earnings-to-cash conversion aided by non-cash depreciation of 7.04. Interest expense was 3.03, yielding EBIT interest coverage of 5.68x, which is solid for a REIT and suggests manageable financing costs. Balance sheet leverage looks moderate: total assets 1,019.88 and equity 469.84 imply financial leverage of 2.17x and a calculated equity ratio of ~46%. However, liquidity is tight: current ratio and quick ratio are both 0.75, with negative working capital of -15.31 and cash of 21.68 versus current liabilities of 61.30. Financing cash flow was -32.48, indicating net outflows likely from debt repayments and/or distributions, consistent with J-REIT cash return policies. We cannot assess revenue growth, margin expansion, or SG&A efficiency due to unreported top-line and cost details, so margin trend in basis points is not determinable this quarter. EBITDA of 24.24 implies an EBITDA-to-interest buffer of roughly 8.0x, providing additional cushion beyond EBIT coverage. Asset structure is stable with noncurrent assets at 973.57 (95.5% of total), consistent with a property-heavy portfolio; intangible assets are modest at 10.09. Debt is primarily long-term (long-term loans 426.97), reducing immediate refinancing pressure, though current liabilities still exceed current assets. The OCF strength relative to net income suggests resilient NOI and favorable working capital timing, but the absence of revenue detail prevents validation of underlying rent trends. Dividend data is unreported, but REITs typically distribute the majority of earnings; OCF capacity appears adequate to support distributions and interest costs near term. Forward-looking, key sensitivities include refinancing costs amid rate environments, occupancy and rent reversion on lease rollovers, and acquisition/disposition activity. Overall, the quarter underscores cash flow robustness and controlled leverage, but liquidity and disclosure gaps warrant monitoring.

Profitability Analysis

DuPont decomposition (ROE = Net Profit Margin × Asset Turnover × Financial Leverage): We can only quantify financial leverage at 2.17x (Assets/Equity = 1,019.88/469.84). Net profit margin and asset turnover are not calculable due to unreported revenue, so ROE cannot be directly decomposed. The component with the clearest contribution this period is financial leverage, which is moderate for a REIT and supports equity returns without appearing excessive. Operationally, EBIT of 17.19 and negligible tax (0.1%) boosted bottom-line conversion, while interest costs of 3.03 were well covered (5.68x EBIT coverage). The business driver for the earnings level is likely stable property NOI and low tax leakage, augmented by non-cash depreciation (7.04) which does not affect cash earnings. Sustainability: the low tax rate is structural for J-REITs; interest coverage sustainability hinges on the rate environment and refinancing outcomes; depreciation will continue to support cash metrics. We do not see evidence of abnormal one-off gains or losses (non-operating income modest at 0.49 and expenses 3.84). Concerning trend flags: unable to test SG&A growth versus revenue due to non-disclosure; likewise, margin expansion/compression in basis points cannot be assessed without sales and prior-period data.

Growth Assessment

Revenue trajectory and same-property NOI growth cannot be evaluated because revenue is unreported. Profit growth YoY is also not assessable (N/A YoY). Current period profit of 13.83 and operating income of 17.19 suggest stable operations with limited non-operating noise. Cash generation outpaced accounting earnings (OCF/NI 3.13x), indicative of resilient core cash flow. Outlook hinges on leasing fundamentals (occupancy, rent renewals), interest rate path affecting funding costs, and the acquisition pipeline; none of these were disclosed in the provided data. Absent top-line data, we cannot assess operating leverage or efficiency gains. Near-term growth will likely be driven by external growth (acquisitions/dispositions) and funding costs rather than organic rent growth based on available figures.

Financial Health

Liquidity: Current ratio 0.75 and quick ratio 0.75 are below the 1.0 warning threshold, signaling tight near-term liquidity; working capital is negative at -15.31. Cash and deposits of 21.68 cover only a portion of current liabilities of 61.30; reliance on committed credit lines or refinancing is likely. Solvency: Debt-to-equity ratio is 1.17x, conservative-to-moderate for a REIT; long-term loans stand at 426.97, with total liabilities 550.04. Calculated equity ratio is approximately 46.1% (469.84/1,019.88), implying a solid capital buffer. Maturity mismatch: While most debt is noncurrent (488.74), current liabilities still exceed current assets, which may require rollovers or asset-level cash to bridge. No off-balance sheet obligations are reported in the provided data; however, REITs often have undrawn commitment lines or acquisition commitments not captured here.

Cash Flow Quality

OCF/Net Income is 3.13x (>1.0), indicating high-quality earnings and strong cash conversion, supported by non-cash depreciation (7.04). Free cash flow cannot be computed due to missing investing cash flow and capex detail; however, OCF of 43.34 comfortably covers interest expense (3.03) and provides capacity for distributions after maintenance capex, assuming typical REIT levels. Financing cash flow is -32.48, consistent with net debt repayment and/or distributions; without dividend disclosures, exact coverage is unknown. Working capital manipulation signs are not observable from the limited breakdown; the strong OCF relative to NI appears structurally driven (depreciation add-back) rather than transient timing benefits, but we cannot confirm without receivables/payables detail.

Dividend Sustainability

Dividend per share and total dividends are unreported, and payout ratios cannot be calculated. Given REIT distribution requirements, the entity likely targets high payout of distributable income. On capacity, OCF of 43.34 versus interest of 3.03 suggests room for distributions, but we cannot quantify FCF coverage due to missing investing and capex data. Policy outlook is presumed stable under J-REIT norms, contingent on maintaining occupancy/NOI and managing refinancing costs. Absent DPS and unit count, we cannot assess per-unit sustainability or growth.

Risk Assessment

Business Risks:

• Occupancy and rent renewal risk affecting NOI (revenue unreported prevents validation of trends)
• Property valuation risk impacting NAV and potential covenant headroom
• Concentration risk by asset type/geography/tenant (not disclosed here)
• Natural disaster risk in Japan (earthquake/typhoon) impacting assets and income

Financial Risks:

• Short-term liquidity risk: current ratio 0.75 and negative working capital (-15.31)
• Refinancing and interest rate risk: interest expense 3.03 with future rate resets potentially reducing coverage (EBIT/interest 5.68x)
• Maturity mismatch: current liabilities 61.30 exceed current assets 45.99, necessitating rollovers or additional liquidity
• Potential covenant risk if asset values decline or NOI weakens (not disclosed but typical for REIT structures)

Key Concerns:

• Limited disclosure of revenue, margins, and dividends constrains performance assessment
• Reliance on external financing and capital markets for growth and refinancing
• Sensitivity of distributions to changes in funding costs and transaction pipeline

Investment Implications

Key Takeaways:

• Earnings and cash generation are solid: NI 13.83 and OCF 43.34 (OCF/NI 3.13x)
• Leverage is moderate for a REIT with D/E 1.17x and calculated equity ratio ~46%
• Interest coverage is comfortable at 5.68x EBIT (and ~8.0x EBITDA)
• Liquidity is a weak spot: current ratio 0.75 and cash 21.68 vs current liabilities 61.30
• Tax leakage minimal (0.1% effective rate), supporting distributable income
• Disclosure gaps (revenue, DPS, investing CF) limit margin and payout analysis

Metrics to Watch:

• Average debt maturity and near-term refinancing schedule
• Fixed vs floating debt mix and hedging coverage; interest cost trajectory
• Occupancy rate, rent reversion, and NOI trends (same-property)
• Acquisition/disposition pipeline and its funding plan
• LTV/D/E and equity ratio movements versus appraisal value changes
• Distribution per unit (DPU) and payout of distributable cash flow

Relative Positioning: Relative to J-REIT peers, the entity shows moderate leverage and solid coverage, but weaker short-term liquidity; earnings cash conversion is strong, while lack of top-line and DPU disclosure reduces visibility on growth and income stability.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis