COSMOS INITIA Co.,Ltd. Q4 FY2025 earnings call

Corporate Mission and History

• Mission: "Next GOOD — create one-step-ahead value for customers and society by anticipating unmet needs before customers articulate them.
• Founded in 1974 starting from condominium development, has delivered over 100,000 units to date. Gradually expanded into income-producing real estate, renovated condominiums, and accommodation business to adapt to stagnant population growth and diversifying customer demand.
• Completed business restructuring in 2013, entered capital/business alliances with Daiwa House Industry and Kyoritsu Maintenance, achieved growing revenue and profit until COVID-19, now has recovered with accommodation business as the core growth engine.

Business Strengths by Segment

• Residential Business: Integrated development and sales, incorporates customer feedback into product design, has a track record of industry-first innovations (long-term repair reserve funds, strict double quality inspection via retired general contractor experts, flexible floor plans). Growing renovated condominium business focuses on unique designs and features that new construction cannot match, won top prize at the 2025 Renovation of the Year awards.
• Solution Business: Differentiates via innovative product design: MID POINT shared third-place offices between home and corporate headquarters improves net operating income via individual contracts; nears shared residence achieves high rent efficiency via compact private rooms and centralized shared amenity space.
• Accommodation Business (MIMARU): Created the apartment hotel category in Japan, solves the unmet need for group/family accommodation that traditional hotels could not address. Has multilingual staff from over 30 countries, provides value-added services like inter-hotel luggage delivery, won multiple travel industry awards (7 consecutive years ranked in TripAdvisor's top listings, 2nd place in 2025 Japan popular hotel category). Focuses on Tokyo, Osaka, Kyoto core markets, and is evaluating regional expansion.
• Construction Business: GOOD PLACE has award-winning design capabilities, holds a strong market position for high-end office interior work.

Sustainability and Digital Initiatives

• Sustainability: Focuses on three core material topics: new real estate value creation, creating healthy urban environments for children and youth, and diverse, inclusive workplaces. Current initiatives include a dog-friendly accommodation park opening in 2026, coastal plastic waste collection and recycling, and gender-free diversity training.
• Digital Transformation: Rolled out Microsoft 365 Copilot to all employees, incentivizes IT Passport certification acquisition to build digital capabilities, focuses on process efficiency and new value creation via technology.

Strategic Priorities for Mid/Long-Term

• Maintain 3-year rolling quantitative targets for mid-term planning, with a 10-year long-term vision. Prioritizes: 1) Growth via new value creation aligned with the "Next GOOD" mission; 2) Building a robust financial base for large-scale real estate investment; 3) Increased investment in human capital; 4) Active adoption of new technology including generative AI; 5) Enhanced returns to stakeholders.

The company operates 4 business segments:

1. Residential Business: Focuses on new condominium development, renovated condominium sales, single-family home sales, and overseas residential development in Ho Chi Minh, Vietnam (approximately 2,000 units, 90% pre-sold). The core new condominium development business has not expanded much in absolute sales, and its revenue contribution percentage has been declining. Renovated condominium business is growing, with slight overall sales increase for the segment, shifting to higher price points (over 33% of sales are for properties over 100 million yen, with growth in the 50 million to 100 million yen range).
2. Solution Business: Covers income-producing real estate sales, real estate rental management, consulting, and brokerage. This segment has contributed to overall company sales growth alongside the accommodation business, expanding steadily as the company diversifies its portfolio.
3. Accommodation Business: Centered on the urban apartment hotel brand MIMARU, targeting inbound group/family travelers for medium to long stays, plus the outdoor resort ETOWA. This segment has expanded rapidly post-COVID-19 and now acts as the company's main growth engine. Current operating metrics for MIMARU: 76% occupancy, full-year forecast average daily rate of 52,000 yen per room, 95% of guests from overseas (only 6% from China/Hong Kong, with growing demand from North America and Australia).
4. Construction Business: Operated via subsidiary GOOD PLACE, focuses on office interior design and construction. It has won multiple international design awards and holds a high win rate for competitive bidding, with steady recurring business.

• Mid-Term Management Plan 2026: Originally scheduled for completion in the next fiscal year, but is now moved forward 1 year to be completed in the current fiscal year, following stronger-than-expected post-COVID recovery. Updated targets: 11 billion yen operating profit, 30% equity ratio, 7.2% operating profit margin (up from the original 6% target). 2026 March full-year forecast: 152 billion yen sales, 11 billion yen operating profit.
• MIMARU Expansion: Target 3,000 total rooms by 2030. Currently, 380 rooms across 5 properties are under construction/secured, 400 additional rooms are in planning, with a clear pipeline for 2,200 to 2,300 total rooms to date.
• Dividend: Current fiscal year expects an annual dividend of 38 yen per share, with a payout ratio of approximately 20%, continuing the consistent progressive dividend policy.
• Next Mid-Term Management Plan: Will be announced in May 2025, will include updates to shareholder return policy.
• The company expects growing competition in the apartment hotel segment over the next 1 to 3 years, and plans to leverage first-mover operational and customer insight knowledge to maintain market leadership.

• Rising construction and land costs: Rising costs are an industry-wide issue, the company actively monitors costs, works with long-term partners to control costs, and has not experienced project cancellations to date, but high costs could pressure margins for new development projects.
• China outbound travel restrictions: Chinese/Hong Kong guests only account for 10% of MIMARU's total guests, so the direct impact of reduced Chinese travel is limited, but industry-wide hotel price declines from lower overall inbound tourism could indirectly impact the company, which will continue to monitor trends.
• Interest rate hikes: The company has long expected a move away from zero interest rates, so current hikes are within expectations. However, unmanaged rate hikes could lead to broader economic slowdown that reduces real estate demand.
• Domestic population decline: Reduces demand for new residential development, the company is addressing this via overseas expansion and urban real estate regeneration, but long-term demographic decline could pressure domestic business growth.
• Projected increase in competition: More competitors are expected to enter the apartment hotel segment over the next 1-3 years, which could increase market saturation and pricing pressure.

Q: Is Cosmos Initia considering changes to its shareholder return policy for the next mid-term plan, and what is the impact of current real estate market conditions and rising interest rates on the business? / A: The company confirms steady growth is the foundation for shareholder returns, and continues to discuss additional stakeholder return initiatives beyond consistent progressive dividends, with details to be announced in the May 2025 next mid-term plan. Management says the overall real estate market is currently strong, though high prices make land acquisition challenging; double-income young families have solid repayment capacity and demand for product remains high. Investment real estate demand from domestic and foreign investors also remains strong, and rising rates are within management's long-held expectations, but overall wage growth needs to keep up with price and rate increases to sustain market health. The current fiscal year expects a 38 yen per share dividend with 20% payout, recovering from low dividend levels during COVID-19 uncertainty.

Q: How large is the impact of reduced Chinese tourist volumes on MIMARU, and why does MIMARU attract mostly North American/European guests? / A: Chinese and Hong Kong guests only account for 10% of MIMARU's total guest mix, so direct impact is limited. While broader industry-wide price drops from lower tourist volumes could impact the company indirectly, management will monitor trends and respond as needed. The growth in North American/Australian guests is driven by strong overall growth in Japanese tourism popularity in these markets, amplified by yen weakness. Most guests from these regions are family groups staying 4-5 nights, and MIMARU's apartment-style rooms with kitchens and laundry facilities fit the need for relaxed, longer stays, which has earned high customer ratings and word-of-mouth praise.

Q: With soaring construction costs leading other firms to cancel projects, what impact has this had on Cosmos Initia's MIMARU expansion? / A: High construction costs are acknowledged as a heavy industry-wide challenge that the company actively monitors. Management reports that the company plans projects with appropriate construction cost levels at each stage, and works closely with long-term trusted construction and design partners to control costs. To date, the company has not faced any need to cancel MIMARU expansion projects. MIMARU expansion will continue with a mix of both in-house land acquisition/development and third-party development/management contracts, with third-party partnerships becoming more common due to high land and construction costs, and this two-wheel model will continue going forward.

Q: How will Cosmos Initia compete as more competitors enter the apartment hotel market, and what is the key differentiation for the renovated condominium business? / A: Management expects competition to increase substantially over the next 1-3 years, so the company plans to add more customer-facing experience services combined with digital tools to differentiate, and leverages existing first-mover knowledge of customer demand (for example, shifting to offer more 6-person rooms based on market feedback) to maintain an advantage. For renovated condominiums, the key differentiation is the company's history as a major developer, bringing precise quality and performance assurance from new construction to the renovation space, plus young employees contribute fresh, trend-aligned ideas for unique designs that meet changing customer demand, which sets the company apart from smaller renovation specialists.