WADAKOHSAN CORPORATION Q2 FY2026 earnings call

• Company Overview
  • Wada Kosan is a 126-year-old real estate developer rooted in Kobe, with core developer business focused on new condominiums, supplemented by leasing and other end-user focused businesses. It has expanded into new areas including income apartment sales to wealthy individual and corporate clients, paid nursing home development, and energy storage facility investments.
  • The core Wacore condominium brand focuses on small-to-medium sized projects centered in Kobe, Akashi, and the Hanshin area, expanding to Osaka and Himeji. It holds 27 consecutive years of number 1 in number of buildings supplied in Kobe, and ranked 2nd in the Kinki region last year.
• Financial Position Highlights
  • Total assets reached 109.943 billion yen, down ~700 million yen from the end of the prior term. Net assets increased 1.183 billion yen to 34.113 billion yen, and equity ratio improved 1.3 percentage points to 31%.
  • Total borrowings increased ~3 billion yen from the prior term end to 60.371 billion yen, with partner financial institutions maintaining an active stance on funding, so project capital securing has no issues.
  • Inventory: Condominium for-sale inventory increased 2 billion yen to 2.957 billion yen, while work-in-process condominium inventory decreased 5 billion yen to 42.974 billion yen as completions outpaced new land purchases.
• Business Expansion Updates
  • The company has steadily expanded its operating area, with 7 unlaunched projects (333 units) west of Akashi and 4 unlaunched projects (314 units) in Osaka Prefecture.
  • It is participating in a 5-company joint housing complex redevelopment project in Sakai, Osaka to accumulate expertise in aging multi-family housing regeneration.
  • In the leasing segment, the company holds over 2,000 units as fixed assets, maintains over 95% occupancy across all property types, and holds ~6 billion yen in unrealized gains on marked-to-market leased property.

1. Condominium Sales Business: 18.37 billion yen in cumulative revenue for the 2nd quarter, contributing 82.8% of total company revenue. Gross margin increased 1.4 percentage points year-over-year due to a high proportion of profitable projects. Delivery volume was flat year-over-year, but higher per-unit selling prices drove revenue and profit growth, with profit beating the initial plan even as delivery volume missed the target.
2. Detached Home Sales Business: 580 million yen in cumulative revenue for the 2nd quarter, contributing 2.6% of total company revenue. Delivery volume missed the plan, and gross margin decreased to 11% year-to-date, performing below expectations.
3. Other Real Estate Sales Business: 1.545 billion yen in cumulative revenue for the 2nd quarter, contributing 7% of total company revenue. Revenue and profit decreased year-over-year because there was no bulk land sale for condominium development that occurred in the prior year period, though sales of whole for-sale income properties were strong and sold above expected prices, beating the plan.
4. Real Estate Leasing Business: 1.652 billion yen in cumulative revenue for the 2nd quarter, contributing 7.4% of total company revenue. Revenue and profit were broadly flat year-over-year, maintaining high occupancy above 95%.

• Full year 2026 February term guidance is maintained at 41 billion yen in revenue, 4.5 billion yen in operating profit, 3.5 billion yen in ordinary profit, and 2.5 billion yen in net profit. This represents year-over-year revenue growth but declining profit, but meeting this target would mean the company significantly exceeds its 3-year medium-term management plan profit target.
  • As of the 2nd quarter, revenue progress hit 54.1% of the full year plan, and all profit metrics exceeded 60% of the full year plan, putting the company on track to hit or exceed full year targets.
  • Condominium full year plan calls for deliveries that remain on track, with management expecting to make up for slight slow year-to-date sales progress with new supply starting in Q3. Land acquisition progress is intentionally slow at 34% of full year plan, as management is taking a conservative approach to purchases amid overheated market pricing while holding sufficient existing inventory.
  • Detached home full year plan targets 43 units delivered and 1.9 billion yen in revenue. Management plans to strengthen sales efforts focused on new supply in the second half to make up for slow year-to-date progress.
  • Other real estate sales plans 9 income property projects (92 units) for delivery in the second half, with strong demand from wealthy buyers for estate planning and asset allocation supporting continued above-expected pricing.
  • Dividend guidance maintains the prior year's 70 yen per share full year dividend, continuing the company's progressive dividend policy despite the forecast decline in full year profit, with a medium-term target payout ratio of 30%.

• Uncertainty remains from the impact of US economic trends (including Trump tariffs) on domestic Japanese corporate performance, which has prevented the elimination of overall macroeconomic forward-looking uncertainty.
  • Construction costs remain at high levels due to sustained high material prices and rising labor costs, with concrete prices continuing to rise and further appreciation of the yen potentially reversing declining steel prices.
  • Construction costs are expected to rise an additional 20% over the next 3 years, putting persistent upward pressure on development costs that will flow through to home prices.
  • Overall market demand for suburban detached homes is already showing softening trends as demographic shifts push more buyers toward station-adjacent condominiums.

Q: What is the current sales and market environment for condominiums and detached homes from Wada Kosan's perspective? / A: Wada Kosan's condominium business is progressing broadly as planned, with only a slight under-delivery against plan. Rising prices mean there is no need for discounting to accelerate sales, and customers have adapted to gradual price increases, with condominiums remaining very popular in the company's operating area. For detached homes, suburban locations have seen softening demand: demographic trends including dual-income households and smaller family sizes have pushed more buyers to prefer station-close condominiums over suburban detached homes.

Q: What is the progress of Wada Kosan's new business lines including paid nursing homes and energy storage facilities? / A: The first energy storage facility is already operational in Hyogo, and the second facility is planned for Kagoshima with an expected investment of 600 million to 700 million yen, matching the first project's scale. The paid nursing home business is also progressing well with 5 active projects. After developing the initial project in-house, the company will shift to a model where subsequent projects are sold to investors, improving capital turnover.

Q: How is Wada Kosan balancing maintaining financial soundness with improving capital efficiency, given its 31% equity ratio and high ROE? / A: The company targets a 30% equity ratio as a key safety benchmark for securing stable financing from financial institutions, so it will maintain this general level of leverage. The company will continue to prioritize improving ROE, but notes that its stable leasing fixed asset portfolio naturally caps ROE growth. To improve returns, the company will adjust its business model: for new lines like nursing homes, it will use a rotational model where projects are sold to investors rather than held long-term to improve capital turnover and ROE.

Q: How are rising mortgage rates impacting Wada Kosan's business, and what is the company's outlook for further changes? / A: While mortgage rates have gradually risen, variable rates still remain below 1%, staying at a relatively low level. Banks have not changed their overall lending stance for home mortgages, and have adapted to higher prices by extending loan terms to 40 years and increasing maximum loan sizes to 200 million yen per borrower, or 400 million yen for joint borrower pair loans. Further increases in maximum loan sizes may occur as home prices continue to rise.