Investor Relations

A Message from the Management

Kojun Nishima President

Kojun Nishima
President

Results of the Seventh Management Plan

The Seventh Management Plan launched in April 2016 was concluded in the fiscal year ended March 31, 2019. The operating environment remained favorable overall, particularly with respect to leasing of office buildings in Tokyo. As a result, ordinary profit over the cumulative three-year period amounted to ¥557.8 billion, a record-high result exceeding the initial target of ¥480 billion by a wide margin. Moreover, in the fiscal year ended March 2019, the final year of the plan, we achieved record-high financial results for the sixth consecutive fiscal year, with revenue from operations exceeding ¥1 trillion and operating income and ordinary profit exceeding ¥200 billion. The Seventh Management Plan ended on a successful note with the Company having achieved substantial profit growth.

Results for the Seventh Management Plan (Apr 2016 − Mar 2019)
Outline of the Eighth Management Plan:
Office building leasing business as the driving force of growth

We launched the Eighth Management Plan in April 2019. As indicated in Figure Three-year cumulative earnings targets, the performance targets are to achieve consecutive record results for the three-year period covered, with cumulative ordinary profit of ¥700 billion, by maintaining the pace of growth attained under the Seventh Management Plan with which substantial profit increae was achieved. We also aim to achieve record results for the ninth consecutive fiscal year with respect to results for single fiscal years.
  Whereas ordinary profit during the Seventh Management Plan totaled slightly more than ¥550 billion, we target ordinary profit of ¥700 billion under the Eighth Management Plan. The pace of profit increase from the Sixth Management Plan to the Seventh Management Plan was 30% and we intend to maintain this pace of profit increase from the Seventh Management Plan to the Eighth Management Plan. The plan calls for an increase of over ¥140 billion for ordinary profit from the Seventh Management Plan and its core driver is the building leasing business. The current office building market in central Tokyo has been buoyant. In view of the steady progress of tenant acquisition for new buildings to be completed from now on, growth of the building leasing business is foreseeable and thus we believe the targets for the Eighth Management Plan are highly feasible.

Performance targets
Achieve consecutive record results for the three-year period covered, with cumulative ordinary profit of ¥700 billion.

Achieve record results for the ninth consecutive fiscal year under the three management plans since the Sixth Management Plan by maintaining the pace of growth attained under the Seventh Management Plan with which substantial profit increase was achieved.

(Reference) Comparison of Management Plan results (Years ended/ending March 31)
Performance targets by segment

Figure Performance targets and strategies by segment shows performance targets by segment. The Leasing segment is expected to grow significantly from the Seventh Management Plan to the Eighth Management Plan. In addition to the full-year contribution from buildings completed by the Seventh Management Plan and increases in rents, new buildings will steadily be completed under the Eighth Management Plan. As tenant acquisition for these new buildings has been proceeding well at a high pace, the building leasing business will be the driving force for growth in the period covered by the Eighth Management Plan.
  In the Sales segment, in order to maintain the high level of profit exceeding ¥40 billion a year achieved under the Seventh Management Plan, we will strive to maintain and enhance product planning and sales capabilities for condominiums. We have already secured land banking for projects for the Eighth Management Plan and contracts have been concluded for projects to be completed in the next 12 months or so. Thus, for the time being, we expect to attain the targets for the Sales segment.
  Both the Construction segment consisting of remodeling (Shinchiku Sokkurisan) and custom home construction and the Brokerage segment for real estate brokerage contribute to industry-leading profits and the Company aims to maintain and expand those profits.

Performance targets and strategies by segment

Office building leasing in Tokyo to be the driving force of growth.

Performance targets by segment
Further investment in leasing office assets in central Tokyo

We will continue investment in leasing office assets in central Tokyo in order to strengthen the earnings base. We will steadily implement the development plan for over 800 thousand tsubo (one tsubo is roughly 3.3 m²) of gross floor area (equivalent to over 50% of the gross floor area for leasing currently available) to generate profits.
  Figure below is a graph indicating operating income of the leasing business and gross floor area over some 40 years. At its foundation 70 years ago, the Company owned three buildings with gross floor area of 6 thousand tsubo. Ever since, we have focused on redevelopment by integrating multiple small parcels into a larger scale, constructed buildings and owned them for leasing without selling them off. As a result, we have now grown to be Tokyo´s No. 1 building owner and operate more than 220 buildings with gross floor area exceeding 1.5 million tsubo. Despite difficulties associated with the bursting of Japan´s bubble economy, financial crises, and the Lehman crisis, we have accumulated building assets step by step. This policy has supported the Company´s sustainable growth and financial stability. In view of our experience, we intend to maintain this policy.

Consolidated Operating Income and Gross Floor Area
Investment and financing for growth from now on

In addition to the 1.5 million tsubo we have developed so far, we intend to develop 800 thousand tsubo in total, including 230 thousand tsubo during the Eighth Management Plan and development under the Ninth Management Plan and beyond. The floor area to be newly developed exceeds 50% of the gross floor area of the buildings currently owned by the Company. The 800 thousand tsubo is the sum of the concrete development projects for which we have already acquired land and redevelopment projects for which we are taking the initiative.

Pace of Gross Floor Area Development
Major New Building Development Projects

  Development on this scale will require investment of approximately ¥2 trillion of which around ¥600 billion will be required for the Eighth Management Plan. With a portfolio of buildings with a gross floor area of 1.5 million tsubo, we are now capable of covering the necessary funds for investment in new buildings with cash flows from the leasing business.
  As shown in Figure below, whereas borrowings increased in step with the increase in gross floor area through to the end of the Seventh Management Plan, under the Eighth Management Plan expansion of cash flows from the leasing business will enable us to make new investment without increasing borrowings. We have advanced to a new stage in terms of financing thanks to a stable revenue stream from the 1.5 million tsubo of leased assets that we have accumulated step by step.

Interest-bearing Debt and Gross Floor Area
Policy for shareholder returns

Reflecting the record results for the sixth consecutive year, we increased annual dividends for the fiscal year ended March 31, 2019 by ¥1 from the initial plan and paid ¥30 per share (including an interim dividend of ¥14), an increase of ¥3 per share. For the fiscal year ending March 31, 2020, we intend to pay annual dividends of ¥32 per share (including an interim dividend of ¥16), an increase of ¥2 per share.
  Our basic dividend policy is unchanged, namely, to achieve steady profit growth and sustainable dividend increase reflecting the profit growth. As our aim is further profit growth by continuing developing and leasing office buildings, we intend to allocate profit to investment in office buildings on a priority basis. Looking back at past results, as shown in Figure Consolidated Operating Income and Gross Floor Area, we maintained dividend payment at the time of the Lehman crisis without decreasing the dividends and subsequently have increased dividends in line with the Company´s financial performance.

Consolidated Operating Income and Gross Floor Area
CSR through Business

Based on our fundamental mission "to create even better social assets for the next generation" through our business we are committed to creating cities and urban spaces that are resilient to disasters, friendly to people and the environment, and in harmony with history and culture.
In the development of office buildings for lease, we have long focused on redevelopment that makes significant contributions to enhancement of disaster prevention, such as through elimination of areas with densely packed wooden houses and widening of narrow streets, and to vitalization of communities. Together with local residents and various other stakeholders, we are promoting development of thriving communities that are safe and secure.
  In the Shinchiku Sokkurisan remodeling business, we are extending the lifespan of houses through full remodeling, including seismic reinforcement. Making use of existing buildings to the extent possible leads to far less industrial waste than in the case of rebuilding while also contributing to energy saving and reduction of other environmental impacts. We are also developing communities in harmony with history and culture, such as by remodeling traditional wooden houses that are more than 100 years old and restoring streetscapes.
  In these ways, by working to resolve various social issues through business, we are striving to achieve sustainable growth of the Sumitomo Realty Group and contribute to attainment of SDGs.

The Sumitomo Realty Group will redouble our efforts to reach the targets set out in the Eighth Management Plan and continue moving forward to achieve sustainable growth. We would like to express our gratitude to our shareholders, investors and all our stakeholders, and ask for their continuous, long-term support.

Kenichi Onoder President

Kojun Nishima
President

* The Company changed its accounting policy (revenue recognition standards of Sumitomo Real Estate Sales) from the beginning of the fiscal year ending March 31, 2020.
The figures provided for the fiscal year ended March 31, 2019 (7th Plan) are those after retrospective application.