REALGATE INC. Q4 FY2025 earnings call

• Overall Fiscal 2025 Performance: Realgate achieved both revenue and profit growth, with operating profit coming in above plan at 1.043 billion yen, up 36% YoY. The firm proactively made upfront investments to support continued 30%+ annual profit growth in coming years.
• Property Acquisition and Opening: 7 new projects were acquired in FY2025, 5 of which were added to the owned property portfolio, bringing total owned properties to 11 after 1 property was sold. 5 properties opened in FY2025 (3 in H1, 2 in H2), all of which already contribute to earnings. Two properties previously held under master lease were converted to owned holdings.
• Balance Sheet Status: As of end-FY2025, the equity ratio stands at 15.5%. Management expects this ratio to recover after a planned property sale completes in Q1 FY2026.
• Pipeline: 9 projects are scheduled to open in FY2026, and Realgate will continue acquiring new projects in FY2026 to build a pipeline of opening properties for FY2027 and beyond.

Realgate operates two core revenue segments: stock-type revenue from owned and master-lease properties, and flow-type revenue from property sales, construction design contracts, and project-related services. For the 2025 September full year, stock-type revenue grew steadily driven by an increase in the number of owned high-margin properties, reaching total operating profit of 1.043 billion yen (36% YoY growth). 11 owned properties as of end-September 2025 have an annual estimated rent of 1.15 billion yen when fully occupied, equal to approximately 23 billion yen in asset value at a 5% yield. No explicit separate revenue contribution percentage for each segment is provided in the transcript.

• FY2026 (ending September 2026): Management targets 1.47 billion yen in operating profit, representing 40.9% YoY growth. Key priorities are maintaining high occupancy for stock-type revenue, completing planned property sales and design contracts for flow-type revenue, and acquiring approximately 8 new properties focused on owned holdings. 60% of full-year operating profit is expected to be achieved by the end of Q1, as most flow gross profit will be recognized in Q1, while stable stock gross profit will cover fixed costs.
• Medium-Term Plan (Mid-Term Management Plan 2028, covering FY2026 to FY2028): The plan targets continued 30%+ annual growth, with an operating profit target of 2.5 billion yen for FY2028 (ending September 2028). The plan is substantially backed by already-acquired properties, so management assesses achievement probability as very high. This is an upward revision from the previous medium-term plan.
• Long-Term Target: The long-term target of 5 billion yen in operating profit for FY2031 (ending September 2031) is maintained, and management now aims to achieve this target ahead of schedule.
• New Business: Realgate will pursue new growth initiatives in FY2026, including hotel opening, urban shopping mall development, joint ventures with major developers, and exploring fund formation.

• Temporary profit volatility: Quarterly profit can fluctuate due to planned property sales, timing of planned repair work, and portfolio rebalancing; temporary declines in gross profit quarter-over-quarter may occur after property sales.
• Financial leverage risk: Expanded property acquisition has increased interest-bearing debt and lowered the equity ratio to 15.5%. While banks have confirmed remaining lending capacity at this level, continued growth will require capital increases to strengthen the balance sheet.
• Interest rate risk: Rising interest rates increase interest expense, though management expects growing operating profit will absorb this impact and allow continued net profit growth.
• Vacancy risk: While existing properties maintain very high occupancy, new development projects carry leasing risk; management accounts for this by including conservative initial leasing period assumptions in its plans.
• Hotel industry risk: The hotel business is exposed to greater external macroeconomic shocks, so Realgate will maintain a flexible approach, only expanding the portfolio if profitability meets requirements.

Q: Why does the 2026 planned stock gross profit show limited growth compared to 2025 actual results? / A: Management builds conservative occupancy and growth assumptions into all plans. As the owned property portfolio continues to build out, actual results will almost certainly exceed the conservative plan, and final full-year results will show clear growth of stock gross profit.

Q: What is the core strategy prioritized to hit medium-term targets? / A: Improving operating profit margin is the top priority, given rising construction and labor costs. This will be driven by increasing the share of high-margin owned properties, and avoiding rapid headcount growth by leveraging AI tools to improve productivity.

Q: What is the goal of pursuing JVs with major developers and fund formation? / A: Previously, Realgate could not acquire large properties (5-10 billion yen) on its own due to size and concentration risk, only providing property management and construction support. JVs and funds allow Realgate to take an equity stake in larger projects, capture capital gains, and grow the portfolio faster while enabling off-balance sheet structuring, supporting accelerated long-term growth.

Q: What is the policy for selling owned properties? / A: The core strategy is to purchase properties for long-term holding to build recurring stock revenue. Properties are only switched to for-sale and sold when needed to cover profit shortfalls to hit annual targets, and management sets no fixed target for annual sales volume. Ideally, Realgate would hit all targets without selling core owned properties.

Q: How likely is the 2028 medium-term target to be achieved? / A: The target is very likely to be achieved, since most of the required revenue is already backed by properties Realgate has already acquired. Beyond hitting the 2.5 billion yen 2028 target, management's main priority is to continue building the owned property portfolio to accelerate achievement of the long-term 5 billion yen target and sustain growth beyond 2028.