Summary of Presentation
Last updated: November 29, 2011
Result for the First Half of the Fiscal Year ending March 31, 2012
Although the impact of the Great East Japan Earthquake on demand for offices, condominiums, and other properties was a concern in the real estate market, the repercussions for the Company’s business were limited. Nonetheless, credit insecurity in Europe triggered by the debt crisis in Greece combined with the appreciation of the yen to heighten uncertainty in the market, and we recognize that a full-scale recovery, particularly in the office leasing market, will take more time to achieve.
Overview of results for the first half of the fiscal year ending March 31, 2012
In the first half under review, operating revenue declined from a year ago, while operating income, ordinary income, and net income also decreased on a year-on-year basis. However, as results remained almost in line with the results forecasts announced in the financial results published on May 11, 2011, the Company has not changed its forecasts.
Specifically, operating revenue declined 11.4% year on year, to ¥63,856 million, and income was down at all levels, with operating income decreasing 8.1%, to ¥13,224 million, ordinary income decreasing 10.2%, to ¥10,376 million, and net income decreasing 8.0%, to ¥5,561 million.
By segment, operating revenue in the leasing business decreased ¥814 million, or 1.7%, year on year, to ¥45,724 million, and operating income decreased ¥877 million, or 5.7%, to ¥14,618 million.
This was attributable primarily to a fall of ¥1.2 billion in income from existing properties due to rent revisions and other factors, although rent and other income from Urbannet Shijo-Karasuma Building, which made a full-year contribution as it was completed in October 2010, from Urbannet Tenjin Building, completed in the first half under review, and from other buildings increased ¥0.4 billion.
Operating revenue in the residential property sales business decreased ¥8,729 million, or 43.9%, year on year, to ¥11,164 million, and operating income decreased ¥791 million, or 51.4%, to ¥748 million. The major factors for these declines included a fall in the units delivered of condominiums from 320 units in the same period of the previous fiscal year, to 204 units, as well as the sale of land and a condominium building in the same period of the previous fiscal year. Although the operating margin in the residential property sales business overall fell from 7.7% in the first half of the previous fiscal year, to 6.7%, the gross operating margin, excluding the sale of land and other factors in the condominium business, improved from 13% to 19%.
In other businesses, operating revenue increased ¥1,448 million year on year, to ¥9,505 million, mainly reflecting the effect of the percentage of completion method applied to Otemachi Redevelopment Project (second-phase). Operating income rose ¥630 million, to ¥1,128 million.
Total assets increased ¥15.8 billion from the end of the previous fiscal year, to ¥926.3 billion, attributable mainly to an increase of ¥17.0 billion in inventories as a result of factors including the acquisition of 1 King William Street in London, the second property for the Company’s overseas business, for ¥8.9 billion. Investments reached ¥12.6 billion, including ¥2.6 billion in Urbannet Tenjin Building, ¥2.4 billion in Umekita (Osaka Station North District) Phase 1 Development Area Project, ¥1.9 billion in UD Nakasu Building, and ¥1.3 billion in Urbannet Uchihonmachi Building. Planned investments of ¥40.0 billion for the fiscal year remain unchanged.
Liabilities increased ¥12.7 billion, to ¥732.4 billion, attributable to a rise of ¥16.6 billion in interest-bearing debt and other factors.
Net assets increased ¥3.0 billion, to ¥193.8 billion as a result of net income in the first half of ¥5.5 billion and dividends paid of ¥1.9 billion, among other factors.
Interest-bearing debt amounted to ¥504.4 billion on a consolidated basis, and the net debt-to-equity ratio was 2.54 at the end of September. The target net debt-to-equity ratio of 2.42 at the end of the current fiscal year remains unchanged.
Cash used in operating activities was ¥7.3 billion, primarily reflecting an increase in cash due to net income and depreciation and amortization as well as a decrease in cash mainly associated with a rise in inventories, income taxes paid, and interest expenses paid. Cash used in investing activities was ¥13.6 billion, attributable chiefly to cash used for the purchase of property, plant, and equipment. Consequently, free cash flows declined ¥35.7 billion year on year, to negative ¥20.9 billion. Cash provided by financing activities was ¥14.0 billion, the result of a net increase in cash due to proceeds from loans payable and the repayment of loans payable, as well as a decrease in cash owing to cash dividends paid, among other factors. Cash and cash equivalents at the end of the first half under review declined ¥6.9 billion from the end of the previous fiscal year, to ¥11.0 billion.
Although the vacancy rate in the general market remained high, albeit improving slightly, the average vacancy rate for the Company’s office buildings in five wards of central Tokyo fell from 3.7% at the end of June 2011, to 2.7% at the end of September, and the average vacancy rate nationwide declined from 6.0% to 5.7%, both figures being lower than the average vacancy rate in the market. We believe that the average vacancy rates in both the five wards of central Tokyo and nationwide at the end of the current fiscal year will be on a par with the levels at the end of September.
Efforts to achieve Medium-Term Management Plan 2012
To bolster its development capabilities, NTT Urban Development is developing new buildings. In the Tokyo metropolitan area, the construction of Otemachi Redevelopment Project (second-phase) and Urbannet Kanda Building in front of the west exit of Kanda Station are underway, with completion slated for the next fiscal year. With respect to buildings completed this year, Urbannet Uchihonmachi Building was completed in June 2011, and tenants centering on NTT Group companies have taken up occupancy.
To enhance profitability, NTT Urban Development is strengthening its leasing activities for new and existing buildings in the leasing business, and the vacancy rate is improving. In the residential property sales business, the Company is acquiring sites for condominiums, especially in large urban areas, notably Tokyo and Osaka. In addition, operating income in the residential property sales business is steadily progressing towards its target of ¥1.5 billion for the current fiscal year, with the operating margin improving, thanks to vigorous management of individual projects.
With respect to cooperation with the NTT Group, Urbannet Tenjin Building has been completed with its commercial space and office function, leasing the site of NTT Tenjin Building for a fixed period. Its commercial zone RESOLA TENJIN opened in September 2011, attracting Louis Vuitton and Barneys New York, among other tenants. With the office floors on higher stories currently operating at full occupancy, Urbannet Tenjin Building has made a promising start to bringing new vigor to the Tenjin area.
In its pursuit of growth in consideration of financial soundness, the entire NU-5 Fund, set up in 2009, was sold to Premier Investment Corporation as an exit. In overseas business, the Company acquired 1 King William Street in the City of London in June 2011, the second overseas property of the Company.
In establishing a management platform for growth, NTT Urban Development is working to strengthen its financial base by improving the net debt-to-equity ratio. The Company also issued 20-year bonds for the first time in October 2011 to diversity its financing sources and increase its financing stability into the future. It will continue to bolster its business foundations and increase its corporate value, while assessing changes in the business environment.
