Tosei : Results for the First Nine Months of the Fiscal Year 2024（PDF 503KB）

This English document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translation and the Japanese original, the Japanese original shall prevail. Tosei Corporation assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.

Consolidated Financial Results

for the First Nine Months of the Fiscal Year Ending November 30, 2024

Note: All amounts are rounded down to the nearest million yen.

1. Consolidated Financial Results for the Nine Months Ended August 31, 2024 (December 1, 2023 – August 31, 2024)

3. Consolidated Earnings Forecasts for the Fiscal Year Ending November 30, 2024 (December 1, 2023 – November 30, 2024)

(Percentages indicate year-on-year changes)

• Notes
1. Significant changes in the scope of consolidation during the period: No

Newly included: –Excluded: –

(2) Changes in accounting policies and changes in accounting estimates

1. Changes in accounting policies due to other reasons: No

(3) Number of issued shares (ordinary shares)

(a) Number of issued shares at the end of the period (including treasury shares)

(b) Number of treasury shares at the end of the period

(c) Average number of outstanding shares during the period (cumulative)

• Review of the Japanese-language originals of the attached consolidated quarterly financial statements by certified public accountants or an audit firm: No
• Proper use of earnings forecasts, and other special matters

The forward-looking statements, including outlook of future performance, contained in these materials are based on information currently available to the Company and on certain assumptions deemed to be reasonable by the Company. Actual performance and other results may differ substantially from these statements due to various factors. For the assumptions on which the earnings forecasts are based and cautions concerning the use thereof, please refer to “1. Qualitative Information on Quarterly Consolidated Financial Performance (3) Qualitative Information Regarding Consolidated Earnings Forecasts” on page 5 of the attached materials.

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1. Qualitative Information on Quarterly Consolidated Financial Performance

1. Qualitative Information Regarding Consolidated Operating Results

1. Recognition, analysis and contents for discussion of business environment and business performance

During the nine months ended August 31, 2024, the Japanese economy showed a gradual recovery, although there were certain sectors where they had stalled. Meanwhile, the downturn in the overseas economies brought on by continuing high interest rate levels in Europe and the U.S. and the slowdown of the Chinese economy, among other factors, has been posing downward risks to the domestic economy, and therefore it remains necessary to monitor these trends along with rising prices, the fluctuations in the financial and capital markets, and other factors.

In the real estate industry where Tosei Group operates, domestic real estate investments for the six months from January to June 2024 increased by 21% year on year to ¥2,610.5 billion, with Tokyo continuing to rank first in the world for real estate investments by city. Despite the current rise in domestic interest rates due to the effects of the normalization of monetary policy by the Bank of Japan, neither a further rapid rise in interest rates nor a hardening of the lending stance by financial institutions is anticipated, and active investments into highly profitable domestic real estate are expected to continue (according to a survey by a private research institute).

In the Tokyo metropolitan area condominium market, the number of newly built units from January to July 2024 decreased by 19.3% year on year to 10,562 units while the average price per unit in July 2024 was ¥78.47 million (down 21.1% year on year). The number of units supplied decreased, as construction costs continued to soar and the timing of sales was reconsidered, among other factors, while the average price per unit also has been falling as a reaction to the massive number of high-priced units supplied in the Tokyo metropolitan area in the previous year. In the Tokyo metropolitan area pre-owned condominium market, the number of units contracted from January to July 2024 increased to 22,419 units (up 5.2% year on year) and the average price per unit as of July 2024 was ¥46.29 million (down 3.7% year on year). The rising prices of newly built units have driven the shift in demand for pre-owned units and as a result, the average price per unit remains high. In the build-for-sale detached house market, housing starts for the seven months from January to July 2024 were 31,516 units (down 7.5% year on year). There has been concern for a further decline in the purchasing appetite due to the likely rise in interest rates of floating- rate mortgage loans starting from the latter half of 2024, in addition to the effects of soaring construction costs (according to a survey by a private research institute).

The average costs per tsubo in terms of construction costs for the seven months from January to July 2024 were ¥1,675 thousand per tsubo (1 tsubo = 3.30 square meters) (an increase of 45.2% year on year) for steel reinforced concrete structures and ¥719 thousand per tsubo (an increase of 10.0% year on year) for wooden structures. Although the current prices of building materials have more or less remained flat, construction costs continue to rise against the backdrop of rising prices as well as soaring personnel costs and transportation costs, and therefore it remains necessary to monitor these trends going forward (according to a survey by the Ministry of Land, Infrastructure, Transport and Tourism).

In the office leasing market of Tokyo’s five business wards, the average vacancy rate as of July 2024 fell to 5.0% (6.5% in the same month of the previous fiscal year), which is said to indicate an equilibrium between demand and supply, and the average asking rent as of July 2024 was ¥20,034 per tsubo (an increase of 1.1% year on year). Thanks to the robust demand for offices as a result of such factors as office relocations and business expansion, many empty offices mainly in new and relatively new building office buildings are filled up, contributing to the improvement in the vacancy rate and the rent (according to a survey by a private research institute).

In the Tokyo metropolitan area condominium leasing market, the average asking rent of apartments as of July 2024 was ¥12,006 per tsubo (an increase of 3.2% year on year) and the average occupancy rate of condominiums held by J-REIT in the Tokyo area, as of May 31, 2024, was 97.2% (unchanged from the same month of the previous fiscal year). The demand for rental apartments remains firm, owing to rising condominium prices and concerns for a rise in mortgage interest rates, in addition to the increase in the population influx into the Tokyo metropolitan area (according to a survey by a private research institute).

In the Tokyo metropolitan area’s logistics facility leasing market, leasable stock as of July 2024 was

10.27 million tsubo (an increase of 9.9% year on year), the vacancy rate rose to 7.7% (an increase of 1.6 percentage points year on year), and the asking rent was ¥4,820 per tsubo (an increase of 6.6% year on year). As supply continues to exceed demand, a prolonged rise in the vacancy rate is expected reflecting the trend for long-term leasing activities, among other factors, and therefore it remains necessary to continue monitoring the trends in supply and demand (according to a survey by a private research

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institute).

In the real estate fund market, J-REIT assets under management in July 2024 totaled ¥23.3 trillion (an increase of ¥0.9 trillion year on year) and assets under management in private placement funds totaled ¥38.6 trillion (as of June 30, 2024, an increase of ¥5.2 trillion year on year). Combining the two, the real estate securitization market scale grew to ¥61.9 trillion (according to a survey by a private research institute).

The Tokyo business hotel market has been robust and in the six months from January to June 2024, the average guest room occupancy rate was 82.4% (an increase of 4.7 percentage points year on year) and the total number of hotel guests in Tokyo encompassing all types of accommodation amounted to 54.15 million (an increase of 20.3% year on year). Occupancy rates and the total number of hotel guests continue to be robust thanks to an increase in inbound demand fueled by the weakening yen (according to a survey by the Japan Tourism Agency).

Amid this operating environment, in the Revitalization Business and the Development Business, the Group proceeded with property sales and the acquisition of income-generating properties and various types of land for development as future sources of income. In the Fund and Consulting Business, the Group increased its balance of assets under management, while in the Hotel Business, it made efforts to improve business performance.

As a result, consolidated revenue for the nine months ended August 31, 2024 totaled ¥69,419 million (up 4.1% year on year), operating profit was ¥17,055 million (up 18.0%), profit before tax was ¥16,090 million (up 17.6%), and profit attributable to owners of the parent was ¥11,234 million (up 20.0%).

Performance by business segment is shown below.

Revitalization Business

During the nine months ended August 31, 2024, the segment sold 33 properties it had renovated and 89 pre-owned condominium units, including T’s garden Nishi Terao (Yokohama-shi, Kanagawa), Hatchobori Tosei Building II (Chuo-ku, Tokyo), LIERRE ICHIGAYA (Shinjuku-ku, Tokyo).

During the nine months ended August 31, 2024, it also acquired a total of 33 income-generating office buildings and rental apartments, nine land lots and 78 pre-owned condominium units.

In addition, the Group reviewed the valuation of its income-generating properties, recording a reversal of Inventories valuation loss of ¥48 million.

As a result, revenue in this segment was ¥33,498 million (down 19.5% year on year) and the segment profit was ¥5,931 million (down 27.3%).

Development Business

During the nine months ended August 31, 2024, the segment sold T’s Logi Ome (Nishitama-gun, Tokyo) which is a logistic facility, T’S BRIGHTIA Jiyugaoka (Meguro-ku, Tokyo) which is a commercial facility and sold 18 detached houses at such property as THE Palms Court Gakugei Daigaku (Meguro-ku, Tokyo).

During the nine months ended August 31, 2024, it also acquired four land lots for rental apartment project, 14 land lots for rental wooden apartment project, and land lots for 125 detached houses.

In addition, the Group reviewed the valuation of its income-generating properties, recording a reversal of Inventories valuation loss of ¥361 million.

As a result, revenue in this segment was ¥14,975 million (up 113.5% year on year) and the segment profit was ¥5,061 million (up 307.2% year on year ).

Rental Business

During the nine months ended August 31, 2024, the Company focused on leasing out its rental properties. As of August 31, 2024, the number of rental properties increased by nine from 114 at the end of the previous fiscal year to 123, as the segment acquired 30 properties, and begin offering for rental of seven properties, sold

24 properties, and terminated the leasing of four properties.

As a result, revenue in this segment was ¥5,826 million (up 20.9% year on year) and the segment profit was ¥2,906 million (up 21.2%).

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Fund and Consulting Business

While ¥152,633 million was subtracted due mainly to property dispositions by funds, ¥253,392 million added due to new asset management contracts, from the balance of assets under management (Note) ¥2,352,454 million for the end of the previous fiscal year. The balance of assets under management as of August 31, 2024, was ¥2,453,212 million.

As a result, revenue in this segment was ¥5,282 million (down 6.0% year on year) and the segment profit was ¥3,101 million (down 14.9%).

Note: The balance of assets under management includes the balance of assets that were subject to consulting contracts, etc.

Property Management Business

During the nine months ended August 31, 2024, the segment made efforts to win new contracts and maintain existing contracts. Consequently, the total number of properties under management was 960 as of August 31, 2024, an increase of 118 from August 31, 2023, with the total comprising 565 office buildings, hotels, logistic facilities and other such properties, and 395 condominiums and apartments.

As a result, revenue in this segment was ¥5,279 million (up 9.2% year on year) and segment profit was ¥933 million (up 38.1%).

Hotel Business

During the nine months ended August 31, 2024, domestic demand recovered as a result of the lifting of movement restrictions and the implementation of nationwide travel subsidies, while inbound demand also showed signs of recovery due to the easing of border control restrictions and border measures. In conjunction, guest room rates and occupancy rates improved to levels comparable to pre-COVID-19 times and both revenue and segment profit exceeded that of the same period of the previous fiscal year.

As a result, revenue in this segment was ¥4,557 million (up 61.2% year on year) and segment profit was ¥1,565 million (up 176.8% year on year).

2) Analysis and contents for discussion of Operating Results

In the domestic real estate investment market, which is the Group’s mainstay market, there has been no significant change in the lending stance of financial institutions as the Bank of Japan takes cautious steps in its normalization of monetary policy. Office rent is also on a rising trajectory and investment demand by real estate investors remains robust. Meanwhile, in the build-for-sale detached housing market for end users, concerns are being voiced about the waning appetite for purchasing homes caused by a rise in mortgage interest rates, while many development projects both in the public and private sectors are requiring a change in plans due to the effects of the never-ending rise in construction costs. This has resulted in the Company practicing caution in its purchasing activities.

Under such an operating environment, for the nine months ended August 31, 2024, the Group reported consolidated revenue of ¥69.4 billion (up 4.1% year on year), operating profit of ¥17.0 billion (up 18.0% year on year), profit before tax of ¥16.0 billion (up 17.6% year on year), and profit for the period of ¥11.2 billion (up 20.0% year on year), thus achieving ahead of schedule the profit for the period of ¥11.2 billion projected for the full-year forecast at the beginning of the period.

As for the operating segments, the Revitalization Business has seen brisk sales of whole buildings and condominium units such as the high-rise condominium units in central Tokyo. In the Development Business, in the first half of the year, the Company sold the major logistics facility, T’s Logi Ome, and the commercial facility, T’s BRIGHTIA Jiyugaoka, and in the third quarter, the Company sold one whole apartment made from wooden structures and detached houses which had been its focus. Although the sales of detached houses are somewhat behind schedule, the Revitalization Business and the Development Business as a whole have been achieving profit margins exceeding initial expectations and continue to engage in steady purchasing activities.

Furthermore, in the Stock and Fee Business, the Company’s stable source of income, each business is progressing mostly according to plan, and in the Hotel Business in particular, profits significantly exceeded the plan, thanks to the rise in the occupancy rate of the Tosei Hotel COCONE Tsukiji Ginza Premier, which opened last year, and the hike in guest room rates reflecting growing inbound demand. Additionally, in the Property Management Business, in conjunction with the acquisition of a property management company in Chiba Prefecture in March, the total number of properties under management reached 960 (an increase of 102 from the end of the previous fiscal year), contributing to an increase in

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profits. In the Fund and Consulting Business, while the balance of assets under management increased by ¥100.7 billion from the end of the previous fiscal year to ¥2.45 trillion, slightly undershooting the plan due to active acquisition and disposal of properties by trusted funds, earning fees from trading activities, which, in turn, resulted in strong performance. The Company will continue to closely monitor the investment trends of domestic and overseas investors, while also making efforts to further enhance service quality and bolster its capabilities to capture new management contracts.

1. Qualitative Information Regarding Consolidated Financial Positions
1. Analysis of Financial Positions

As of August 31, 2024, total assets were ¥260,038 million, an increase of ¥14,709 million compared with November 30, 2023, while total liabilities were ¥169,270 million, an increase of ¥6,260 million.

Increase in total assets were due to an increase in trade and other receivables, inventories, and other financial assets. Increase in total liabilities were due to an increase in trade and other payables and interest-bearing liabilities.

Total equity increased by ¥8,448 million to ¥90,767 million, mainly due to an increase in retained earnings, payment of cash dividends.

2) Analysis of Cash Flows

Cash and cash equivalents (hereinafter “cash”) as of August 31, 2024 totaled ¥37,601 million, down ¥1,596 million compared with November 30, 2023.

The cash flows for the nine months ended August 31, 2024 and factors contributing to those amounts are as follows:

Cash Flows from Operating Activities

Net cash used in operating activities totaled ¥1,122 million (in comparison with segment net cash provided in Operating activities of ¥10,492 million in the same period of the previous fiscal year). This is attributed to the profit before tax of ¥16,090 million, an increase in inventories of ¥14,060 million and income taxes paid of ¥5,621 million.

Cash Flows from Investing Activities

Net cash used in investing activities totaled ¥2,203 million (down 55.4% year on year). This is primarily due to payments of loans receivable of ¥7,808 million, collection of loans receivable of ¥7,791 million and purchase of other financial assets of ¥2,170 million.

Cash Flows from Financing Activities

Net cash provided by financing activities totaled ¥1,730 million (down 62.0% year on year). This mainly reflects ¥34,294 million in the repayments of non-current borrowings and ¥3,192 million in cash dividends paid, despite ¥38,664 million in proceeds from non-current borrowings.

(3) Qualitative Information Regarding Consolidated Earnings Forecasts

In light of the performance trends for the period under review, the Company has revised the full-year consolidated earnings forecasts announced on January 12, 2024. In terms of revenue, the Company made a downward revision of the previously forecasted revenue by ¥10,195 million to ¥81,921 million after incorporating several factors into the earnings forecast. These include the strategic postponement in the timing of property sales to the following fiscal year and beyond upon partially revising its sales plan for the current fiscal year in the Revitalization Business, and the slight delay in the sales of detached houses in the Development Business and the upward swing in performance of the Hotel Business. Meanwhile, in terms of profits, despite such factors as the revision of the sales plan described above, due to the profit margins of the properties sold exceeding initial expectations and the upward swing in performance compared to the initial plan in the Hotel Business and the Rental Business, the forecasts have been increased for operating profit by ¥485 million to ¥18,187 million, for profit before tax by ¥500 million to ¥17,000 million, and for profit attributable to owners of the parent by ¥514 million to ¥11,723 million. Furthermore, the year-end dividend forecast which had initially been ¥73 per share was revised to ¥77 per share (payout ratio of 31.8%), an increase of ¥4, in conjunction with the revision of the consolidated earnings forecasts.

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2. Matters Related to Summary Information (Notes)

1. Changes in Significant Subsidiaries during the Period No item to report.
2. Changes in Accounting Policies and Changes in Accounting Estimates No item to report.

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3. Condensed Quarterly Consolidated Financial Statements and notes

(1) Condensed Quarterly Consolidated Statement of Financial Position

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(2) Condensed Quarterly Consolidated Statement of Comprehensive Income

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