【Q1】
As Daiwa House expands its business overseas with focus in the US and Europe, I think its strength lies in the way it is doing so in a broad range of segments rather than in just Single-Family Houses. But it also seems to me that risks are rising, as exemplified by your making provisions for losses on large-scale projects in Europe in FY2024. Could you elucidate more on how Daiwa House wants to deal with risks associated with expanding your business overseas?
(Reference) Presentation on Management Policies:
P.14 "Overseas Business Expansion
- Building "mini-Daiwa House" in the U.S. and a Foundation in Europe"
【A】
Though our US businesses are doing very well, we are diversifying our portfolio to reduce risk. Our US subsidiaries have agreed among themselves to discuss how to proceed, including investment, with Alliance Residential Company, currently an equity-method subsidiary, so we can strike a happy balance between the ups and downs of demand for single-family housing and multi-family housing.
Further, regarding commercial and business facilities in the US, we are moving ahead with acquisitions and developments, accumulating building expertise in these areas that should lead to lower risk locally.
In Europe, we booked a loss on a large-scale project. Building costs jumped when the project was hit hard by increasing material prices as construction was delayed. The experience was a wakeup call
and we will use it to reduce risk at the next opportunity. However, large-scale projects undertaken for sales revenue are once-off deals where we're not seeking long-term payoffs. Our intention is to develop our business in a manner that facilitates ongoing business growth over the long term, which means setting down deep roots with local operations, including room for M&A deals, rather than focusing only on project-by-project basis.
We see geopolitical risks associated with China as one of the biggest challenges our overseas businesses face. The situation has changed since the collapse of condominium prices after China's real-estate burst in the 2010s, and we believe that the market recovery will be hard and slow. We will continue to monitor sales and the selling prices of condominiums in Suzhou and Changzhou provinces.
【Q2】
You had ¥134.9 billion in gains on sale of development properties in FY2024 but forecast a decrease to ¥104.7 billion in FY2025. Is this on account of reduced inventory because you sold so many business facilities last fiscal year, or is your forecast just conservative? Please fill us in on the outlook for sales of development properties going forward.
(Reference) Financial Highlights:
P.21 "Sale of Development Properties : Results and Forecasts"
【A】
Our original forecasts for FY2024 envisioned gains on sale of development properties of ¥98.4 billion. At the time of the forecast's formulation, parts of it were conservative; meanwhile, the realized gains deviated from forecast due to the timing of sales. We sold when we did because we believe that selling when the timing is good is important for recouping funds.
Sales were trending favorably, resulting in a slight inventory decline; nonetheless, we intend to maintain inventory levels by improving the leasing situation at both rented (occupied) and not-rented (unoccupied) properties while turning them into available-for-sale properties. Also, we believe we have a degree of momentum in investment in real estate development. There has also been an increase over the past few years in the number of fixed-term land lease development projects, which entail almost no up-front land investment.
【Q3】
In recent years, the Rental Housing, Commercial Facilities, and Logistics, Business & Corporate Facilities Businesses have accounted for a large part of your profits while the growth driver has been sales of logistics-facility development properties. Which businesses, both domestic and overseas, should we look to for growth from the next fiscal year onward?
(Reference) Presentation on Management Policies:
P.12 "Building a Global Area Portfolio"
【A】
Among our Overseas Businesses, Single-Family Houses Business is delivering the most growth. When we moved into the US housing market, we not only got into land development, but dove in with both feet early on by acquiring local companies. Seeing how our competitors are rolling out their own market entries in similar ways, I feel that our moves were mostly on target. And in advancing this market entry, we have not changed our policy. Our efforts are still rooted in the same unchanging credo: Offering customers, whether in Japan or elsewhere in the world, high-quality housing.
In Japan as well, and despite declining population and other issues, we believe the market still has future potential. As a company that since its founding has provided the people with housing, one of their three basic needs, our Overseas Businesses are predicated on that foundation in Japan. This is why we include overseas operations' results in each business segment's results rather than breaking them out.
In the Logistics, Business & Corporate Facilities Business, we have embarked on developing new asset types as exemplified by our recent completion of large ¥20 billion - ¥30 billion-scale semiconductor factory. I think this challenge can be taken as an in-house innovation, and we believe it will give us plenty of opportunities to put the right talent in the right places across our portfolio from our housing to our business-oriented segments.
【Q4】
How do you position FY2025's targets as milestones on the way to the announcement of your 8th Medium-Term Management Plan next year?
(Reference) Presentation on Management Policies:
P.7 "The Progress of the 7th Medium-Term Management Plan / To the 8th Medium-Term Management Plan"
【A】
During the current 7th Plan, we are transitioning to centralized purchasing and cutting fixed costs so as to stay ahead of soaring building-material prices and labor costs, and we want to carry the foundation thus created over into the 8th Plan. We set this fiscal year's targets with hopes of once again achieving records, the effects of any actuarial differences aside.
In the Logistics, Business & Corporate Facilities Business, we intend to take on bigger construction projects; and in Commercial Facilities Business, we expand our businesses like hotel management. In addition, in our Livness Business, which are oriented toward local revitalization, we engage in community development that enhances the value of existing building and housing stock by looking after the needs of owners and existing properties rather than relying on scrap-and-build for business growth. We have also set up a preparatory office specializing in the Data Center Business. In this way we intend this a year to seed growth in Japan that we can carry over into the next medium-term management plan.
【Q5】
Are FY2025's targets conservative enough that they take into account risks such as the impact of US tariffs?
(Reference) Presentation on Management Policies:
P.7 "The Progress of the 7th Medium-Term Management Plan / To the 8th Medium-Term Management Plan"
【A】
They're not so much conservative targets as down-to-earth realistic ones. Although we are concerned about a slight deterioration of profit margins and a decline in real demand due to interest rates at our US housing businesses, we assume an exchange rate of ¥140 to the dollar and we believe we can achieve our targets at that forex level.
At our domestic businesses, we believe it is crucial that we improve the gross profit margin of the construction business of our pillar segments in Japan. To realize our targets, we will have to review the Single-Family Houses Business, from design to sales, and we are proceeding with that. In the Commercial Facilities Business, rises in tenant rent are sluggish, so we are watching trends closely to see what we can do to improve margins.
【Q6】
What will your share buyback policy look like going forward? Further, are you going to maintain the 7th Plan's final fiscal year ROE of 13% target in the 8th Plan and beyond?
(Reference) Presentation on Management Policies:
P.9 "Capital Policy / Shareholder Return"
【A】
Since we are ending the current plan a year earlier than scheduled, we will formulate the 8th Plan, whose initial year will be the fiscal year to March 2027, work with the 7th Plan's ROE of 13% in mind. We are currently discussing internally the ROE level for the following fiscal year and beyond.
From management's point of view, our top priority is to increase profits. But we are also aware that equity capital is accumulating due to the accumulation of profits from actuarial differences, so we will consider reducing equity capital through shareholder returns such as paying out higher dividends and share buybacks.
As an aside, I hope the markets will recognize and reward the hard work our employees put in to deliver the high level of performance we achieved last fiscal year, despite the "2024 problem" and many other constraints we have been operating under. It would be nice to see that reflected our stock price.
【Q7】
The FY2025 operating income forecast expects a decline in the US single-family housing business. Will you nevertheless continue investing in it if opportunities appear?
(Reference) Financial Highlights:
P.29 "Single-Family Houses Business (2) Overseas Business"
【A】
Because forex rates have a strong bearing on profit levels, the target appears to show a decline; but actually we target an increase. The real-demand-driven housing market that CastleRock supplies is highly sensitive to interest rates and it is struggling, but the total number January-to-March of orders received by the three companies held steady and is trending slightly ahead of target.
Working together with our three local subsidiaries, we have had more opportunities to acquire land, which has tied into an increase in sales communities, so we intend to continue investing for growth, including in our area strategies.
In addition, communication between our three local subsidiaries, led by CEO Alloy of Stanley Martin, and lively meetings across overseas businesses, including President Otomo, are producing positive outcomes.
【Q8】
Orders at the US single-family housing business were up 5% year-on-year in April alone, which is a strong showing compared to the market environment. Please tell us about the situation and strengths of each of your three US subsidiaries.
(Reference) Presentation on Management Policies:
P.14 "Overseas Business Expansion
- Building "mini-Daiwa House" in the U.S. and a Foundation in Europe"
【A】
While interest rates remain high, CastleRock in Texas, which is a real-demand area, is running an interest rate promotion, but it is struggling. Trumark is beginning to see results following its receipt of
a transfer of business including the expansion of its operational areas.
When we acquired Stanley Martin we knew from its performance during its over 50 years in business that acquiring land to build on was one of its strengths, but it turns out that it is even better positioned than we anticipated, and it is adept at taking over other businesses and expanding its area coverage. Another aspect of Stanley Martin is that it serves not only actual-demand types such as first-time buyers, but a broad range of buyers including high-income groups who are inclined to buy and less sensitive to interest rates.
【Q9】
What is your approach to the D/E ratio? Will you maintain the current level of about 0.8 times, or will you allow it to rise somewhat given that the number of businesses using the balance sheet is rising? Or do you consider an increase out of the question considering increased risk associated with the expansion of overseas businesses?
(Reference) Financial Highlights:
P.17 "Consolidated Balance Sheets (3) Liabilities and Net Assets"
【A】
We intend to manage the D/E ratio carefully over the next two years while bringing it down to about
0.6 times in the first year of the 8th Medium-Term Management Plan, but estimate that it will trend to the same level as the current fiscal year by the end of March 2026. FY2026, we intend to reduce the D/E ratio by promoting the sale of development properties, mainly logistics facilities, and selling inventory assets of our three US subsidiaries.
【President and COO Hirotsugu Otomo's message】
We will take on board the comments and opinions you have given us today as we work to formulate a direction for growth in Japan and overseas during the current medium-term management plan, the results of which will serve as a foundation for the coming 8th Medium-Term Management Plan.
At our domestic businesses in particular, we want to increase the compound annual growth rate
(CAGR) by further leveraging the strengths of our respective business segments while bearing in mind the gratitude we owe our customers. One of our strengths is that we can build whole towns and communities by providing all asset types at once. So, we also intend to focus on large-scale redevelopment projects and regional revitalization.
At the Livness Business, we reached sales of ¥400 billion two year ahead of schedule. In the 2030s, we would like to expand sales to the ¥1 trillion level, becoming a company that can achieve growth via several routes, both in Japan and overseas.
In closing, I would like to ask you for your continued support for our endeavors, as well as thank you for taking time out of your busy schedules to join us today.
End
Disclaimer:
This English translation has been prepared for general reference purposes only. The Company shall not be responsible for any consequence resulting from the use of the English translation in place of the original Japanese text. In any legal matter, readers should refer to and rely upon the original Japanese text released on May 22, 2025.
Attachments
- Original document
- Permalink
Disclaimer
Daiwa House Industry Co. Ltd. published this content on May 28, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 28, 2025 at 04:54 UTC.
