CENTRAL GENERAL DEVELOPMENT CO.,LTD. Q4 FY2025 earnings call

• Overall 2025 March Full Year Financial Results
  • Total consolidated revenue hit 30.883 billion yen, representing a year-over-year decrease of approximately 1 billion yen, and was more than 6 billion yen below the original full-year guidance. Ordinary income reached 0.765 billion yen, resulting in a decrease in revenue, profit, and dividend per share. Dividend per share was cut from 18 yen last year to 14 yen this year.
  • The main drivers of the underperformance: Nationwide rising construction costs pushed up selling prices, leading to buyer hesitation and slower sales. The company also faced a long-standing trend of project concentration in the second half, specifically Q4, which was more severe last year; unsold inventory of Q4 completed projects shifted handovers to the next fiscal year, directly dragging down full-year results.
  • Balance sheet highlights: Completed unsold real estate for sale increased 4 billion yen year-over-year to 6.824 billion yen; work-in-progress pre-completion real estate increased 4 billion yen to 23.436 billion yen; fixed assets (mostly rental properties) increased 0.865 billion yen from continued acquisitions. Operating cash flow generated 7.61 billion yen, investment activities used 0.969 billion yen, and financing raised 8.142 billion yen, resulting in a broadly balanced cash position.
• Strategic Updates from Past Mid-Term Plan
  • Over the past 3-year mid-term plan, the company achieved key milestones including launching the Claire Next condominium brand with partner Kyudenko, expanding into new regional markets, opening a Shikoku branch to bring total national locations to 7, and introducing a restricted stock compensation plan. However, sales and unit delivery targets were missed; operating profit margin hit 4.0% in 2024, down from a 4.9% target. Equity ratio fell to just over 20% as total assets grew, and ROE dropped to 4.9%. Rental unit delivery growth has slowed significantly.
• Product and Market Positioning
  • The company is increasingly adding ZEH-M Oriented and low-carbon certifications to new projects, which include solar power installations. This meets regulatory and consumer demand, and also qualifies buyers for mortgage rate discounts and larger tax deductions, making units more affordable amid rising interest rates. The company targets 70% of projects to have these features in FY2025, and 100% by 2030, ahead of the original schedule.
  • The company is expanding its lineup of compact end-user focused units: 1LDK (30 sqm range) to 2LDK (50 sqm range), aligned with the trend of smaller household sizes, growing single-person populations across young, middle, and senior age groups, and increasing relocation demand to city centers in regional core cities. 84% of 2026 March fiscal year planned completed units are located in regional areas, with 16% in the Tokyo metropolitan area.
• Long-Term Strategy Adjustments
  • Continue expansion into new areas, prioritizing regional core cities with established 15,000-20,000 unit annual markets, while maintaining a presence in the Tokyo metropolitan area.
  • Maintain the policy of pursuing large-scale mixed-use development projects, but increase selection scrutiny and move more cautiously, due to headwinds from rising construction costs that have hampered progress on regional redevelopment projects.
  • Slow the pace of expanding the rental property portfolio, prioritizing solid yield over unit count growth. The company cannot compete with REITs and funds on cap rates for rental properties, so it will focus on opportunities in regional core cities that REIT/fund buyers largely ignore, to deliver the original goal of stable recurring income.
  • Accelerate investment in environmentally friendly features and diverse consumer-focused added value, with a sense of urgency around upcoming stricter regulatory requirements.

1. Real Estate Sales Business (core condominium development segment): This is the company's main business. Revenue came in approximately 1 billion yen below target, and segment profit was more than 0.4 billion yen below target, driven by widespread underdelivery of planned unit handovers, which was the primary cause of the full-year's overall revenue and profit decline. No explicit revenue contribution percentage is provided, but it accounts for the vast majority of total company revenue.
2. Real Estate Leasing & Management Business: This segment covers condominium and building management, plus a portfolio of 3 operating office buildings and 8 operating rental condominiums. The segment delivered revenue growth, but the increase was not large enough to offset the decline from the core real estate sales segment.

• FY2026 March Full Year Guidance: Total revenue is guided to 46 billion yen, a sharp increase from FY2025's 30.883 billion yen, as the company targets selling down the large accumulated completed inventory from FY2025. Operating and ordinary profit are guided to be roughly flat with a small uptick, due to planned higher marketing and selling expenses to clear inventory. Dividend per share is guided to 16 yen, with a target payout ratio of 30%, up from 27% in FY2025.
  • FY2026 March is still expected to have most revenue concentrated in H1/Q4, so the first half is projected to remain in a loss position. The full-year revenue and profit profile will not improve until FY2027.
• New Mid-Term Plan (ending FY2027 March): Targets 44 billion yen in total revenue, 4.8% operating profit margin, over 1 billion yen in ordinary profit, and over 7% ROE by FY2027.
• Updated 2030 Long-Term Targets: Lowered the annual condominium delivery target from 1,100 units to 1,000 units, while raising the total revenue target to 50 billion yen (from the original 45-47 billion yen) to reflect rising average unit prices. Lowered the annual rental delivery target from 1,100 units to 700 units, a more achievable level. Operating profit target is adjusted to 3-3.5 billion yen (from the original 3.3-3.8 billion yen), with an operating profit margin target of 6-7% (down from the original 7-8%). Maintain the 2030 ROE target of over 10%, planning to recover ROE from current low levels to hit this goal. Target to maintain an equity ratio between 20% and 30%.
• Quaterly Profit Smoothing Target: The company currently has only 10% of completed units delivered in the first half, with 90% in the second half, leading to large quarterly swings (three consecutive quarterly losses, full-year profit only in Q4). Management targets raising first-half completion to 40% of annual volume starting in FY2027, which will also provide more time to sell units and reduce year-end unsold inventory. This change cannot be implemented before FY2027, as the project pipeline for FY2025 and FY2026 is already fixed.

• Nationwide construction costs have risen 20% since 2020 (30% since 2015), pushing up selling prices, reducing buyer affordability, and slowing sales velocity. Industry-wide labor shortages and limited senior site manager capacity at general contractors have extended construction timelines and pushed back project start dates, worsening the company's concentration of completions in the fourth quarter.
• Rising interest rates increase buyer financing costs, which can reduce demand for new condominiums.
• Intense cap rate competition from REITs and funds for rental properties makes it difficult for the company to hit its original rental portfolio growth targets without taking on excessive risk or accepting unacceptably low yields.
• Geographic concentration risk for large urban redevelopment projects, paired with high construction costs, has made it harder to deliver profitable large projects, requiring more careful deal selection.
• Current equity ratio of just over 20% and ROE of 4.9% are below desired levels, creating pressure to improve capital efficiency.

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