Mitsui Fudosan Co.,Ltd. Q2 FY2026 earnings call

Overall Financial Results

• The 2Q cumulative period achieved all-time record high results, with year-over-year increases of 190.9 billion yen in operating revenue, 73.3 billion yen in business profit, 46.2 billion yen in ordinary profit, and 63.8 billion yen in net income attributable to parent shareholders.
• Net interest expense totaled negative 37.0 billion yen for the cumulative period, a reduction of 1.8 billion yen in burden YoY due to US rate cuts.
• Extraordinary gains totaled 50.3 billion yen, up 39.7 billion yen YoY, including 40.5 billion yen in gain on sales of investment securities (driven by policy shareholding reduction) and 26.5 billion yen in gain on sales of fixed assets, offset by a 16.6 billion yen impairment loss on Malaysia's LaLaport BBCC (Mitsui Fudosan's net share is less than 8.0 billion yen, with the remaining half attributed to the JV partner).

Core Domestic Office Business

• Tokyo metropolitan area office vacancy hit a record low 0.9%, with strong demand for high-value prime office space. All four new office properties scheduled for completion this year and next are already fully leased, and leasing for the 2029 completion Yaesu 2-Chome Central District project is progressing steadily, with top rent approaching 100,000 yen per tsubo per month.
• Existing office rent increase negotiations are progressing well: nearly all rent reviews achieve increases, the number of cases with over 10% rent increase tripled YoY, and double-digit cases have rent increases exceeding 15%. Starting July 2025, new and renewed office contracts now use CPI-linked rent as a general rule, with 2-digit tenants already signed or scheduled to sign CPI-linked contracts.
• Large-scale office pipeline through 2030 is well established, including newly started projects like the Nihonbashi Honcho 1-Chome 5-block wooden rental office and the Tamachi Station West Exit redevelopment.

Asset Rotation Acceleration

• Two large asset rotation deals were completed in the rising construction cost environment: sale of Otemachi Building Nagoya Station Front Building, and sale of part of the Yaesu 2-Chome Central District office floor to Honda Motor, which accelerated capital recovery and improved asset efficiency. An additional deal will be announced soon.

Overseas Business

• Management is conducting a full review of overseas properties and replacing inefficient assets while domestic business is strong. LaLaport BBCC in Malaysia is undergoing a turnaround including outlet conversion, key tenant replacement, anime content tenant attraction and bus terminal construction, with early improvement in foot traffic and sales already visible.
• Key markets show solid progress: US Sun Belt rental residences are leasing as planned, San Francisco Mission Rock mixed-use is nearly fully leased at rents meeting or exceeding plan, Boston Innovation Square Phase III is fully pre-leased, London prime office projects have strong demand and rising rents, India Bengaluru RMZ Ecoworld 30 Phase 1 is fully occupied, Australia Sydney 55 Pitt Street is 50% leased, and Singapore luxury residential is 84% sold after launch. Three flagship New York office properties already stably generate nearly 50.0 billion yen in annual rental profit, with around 900.0 billion yen in unrealized gains.
• Target is 100.0 billion yen in annual overseas profit by the late 2020s through 2030, combining stable core rental profit with for-sale gains from asset rotation.

New Growth Areas (the "Three Paths" strategy)

• Second Path: Arena business has started construction on the second project, Nagoya Arena, and data center business targets 600.0 billion yen in investment by 2035, with new opportunities secured in the Kansai region and overseas development under consideration.
• Third Path: Semiconductor community RISE-A was established in July 2025, and a Japanese-style science park for semiconductors is under consideration in the Kumamoto area, with new growth opportunities being explored in semiconductors, life sciences and space aligned with the Japanese government's growth strategy.

1. Rental Segment: Business profit of 88.5 billion yen, an increase of 2.9 billion yen year-over-year, driven by expanded earnings from domestic and overseas offices. Mitsui Fudosan's own Tokyo metropolitan area office vacancy rate improved to 0.9%.
2. For-sale Segment: Business profit of 124.2 billion yen, a large increase of 61.1 billion yen year-over-year. Domestic residential for-sale contributed 42.6 billion yen of the increase (driven by handover progress of major projects), with a 30% operating profit margin and 96% contract progress for the planned 2,800 units. Investor-oriented and overseas residential for-sale contributed 18.5 billion yen of the increase, with business profit of 36.7 billion yen and over 85% contract progress against plan.
3. Management Segment: Total business profit of 38.5 billion yen, an increase of 4.2 billion yen year-over-year. Property management contributed 20.3 billion yen (up 1.0 billion YoY) driven by growing carsharing usage and parking rate increases; brokerage and asset management contributed 18.2 billion yen (up 3.2 billion YoY) driven by higher project management fees.
4. Facility Operation Segment: Business profit of 23.3 billion yen, an increase of 3.9 billion yen year-over-year, driven by higher ADR and occupancy for hotels/resorts, and increased usage fees for Tokyo Dome.

• Full-year business profit for the Management segment is now forecast at 80.0 billion yen, an upward revision of 5.0 billion yen from the previous forecast, driven by strong personal brokerage and improved profitability in the parking business. Net interest burden is forecast to improve by 5.0 billion yen from the previous forecast.
• Full-year ordinary profit is revised upward to 295.0 billion yen, 10.0 billion yen above the previous forecast. Net income attributable to parent shareholders is revised upward to 265.0 billion yen, 5.0 billion yen above the previous forecast, both forecast to hit all-time records. Cumulative 2Q progress against the revised full-year forecast is ~57% for both business profit and net income, which is on track.
• Annual dividend per share is revised upward from 33 yen to 34 yen, a 1 yen increase. A 57.0 billion yen share repurchase program is approved, to be completed by the end of March 2026. Combined with the unexecuted 43.0 billion yen from the 2024 fiscal year program, a total of 100.0 billion yen in share repurchases will be conducted by the end of 2025. Total shareholder return payout ratio is forecast at 56.6% for the full year.
• Full-year ROE forecast is revised upward from the mid-8% range to the mid-8% range, putting the 2026 fiscal year target of 8.5% ROE within reach for early achievement.
• Management confirms commitment to achieve the 2030 targets of 10%+ ROE and 8%+ CAGR for EPS, driven by the "Growth, Efficiency, Return" integrated strategy.

• LaLaport BBCC in Malaysia underperformed expectations due to post-COVID delays in core tenant openings and overall mixed-use development, leading to a 16.6 billion yen impairment loss. While turnaround efforts have shown early progress, full recovery remains unconfirmed.
• Overseas markets face greater volatility in market conditions than Japan, with unexpected risks including prolonged high interest rates and post-COVID structural changes like persistent remote work that can lead to project underperformance. While management is proactively pruning inefficient assets, individual asset losses are still possible.
• China's for-sale residential projects face headwinds from deflationary recession and weak consumer spending, though risk is limited as the remaining book value is only in the 10 billion yen range and losses are expected to remain within the company's overall buffer.
• Rising construction costs create headwinds for new domestic development projects, requiring more careful investment appraisal and increased use of existing property renovation to mitigate risk.

Q: What is the outlook for early achievement of the 2026 fiscal year ROE 8.5% target and the 2030 10% ROE target? / A: Strong results across segments this year and progress on equity capital reduction via share buybacks and policy share sales have lifted the full-year ROE forecast to the mid-8% range from the initial low-8% forecast. Office rental and for-sale profit are mostly locked in, while facility businesses will capture tailwinds from inbound demand to beat targets, putting early achievement of 8.5% ROE within reach. For 2030, the company will generate stable domestic profit in the near term, then grow annual overseas profit to 100 billion yen by the late 2020s, while maximizing domestic pipeline utilization and improving asset efficiency to hit the 10% ROE target.

Q: Is the 100,000 yen per tsubo top rent level only a special case for new developements, or will it spread to existing stock? / A: No contract for 100,000 yen per tsubo has been signed yet, but the high prime location and mixed-use amenities of the Yaesu 2-Chome project have already secured leases at rates above competing nearby properties. Management believes this level of top rent is achievable and getting closer to realization for high-quality prime office projects.

Q: What is the breakdown of the 100 billion yen annual overseas profit target between rental and for-sale segments? / A: The three flagship New York office properties already stably generate nearly 50 billion yen in annual rental profit, equal to ~30% of the company's total global rental segment profit. Going forward, this base rental profit will grow gradually as new properties reach full occupancy, and the company will add hundreds of billions of yen in for-sale profit from residential and investor-oriented asset rotation as the sales market recovers, to reach the total 100 billion yen annual target.

Q: What is the company's approach to domestic investment amid rising construction costs? / A: For new domestic projects, the company factors in expected construction cost increases and schedule delays before making investment decisions. It also mixes in renovation of existing properties to capture value, as done at Lalaterrace Kawaguchi. The company is also making opportunistic moves like the recent asset sales to lock in gains in the high construction cost environment, improving balance sheet efficiency.