Sumitomo Realty Q1 FY2027: Operating Profit, Net Income Hit Record Highs

Sumitomo Realty reported a 4.2% decline in first-quarter revenue to ¥281.0 billion, as fewer housing units were handed over to buyers. Despite the top-line dip, operating profit edged 1.0% higher to ¥102.8 billion, ordinary profit rose 3.3% to ¥108.7 billion, and net income attributable to shareholders surged 15.4% to ¥85.1 billion. All three profit lines marked record highs for a first quarter.

The revenue drop stemmed from a 435-unit decrease in property sales (1,076 units booked), but selling prices climbed, cushioning segment operating profit at ¥48.9 billion, nearly flat year on year. Meanwhile, the real estate leasing business benefited from a tight Tokyo office market: the vacancy rate improved 2.1 percentage points to 3.6%, and rent increases gained traction, lifting segment operating profit 9.8% to ¥58.1 billion.

Non-operating income got a boost from a ¥14.2 billion increase in dividend receipts, which more than absorbed higher interest expenses. Extraordinary items improved by ¥14.9 billion year on year, largely thanks to a ¥15.9 billion gain on sales of investment securities. As a result, net profit jumped 15.4%, putting Sumitomo Realty on track for a 14th consecutive record annual profit.

Progress against full-year forecasts stood at 26% for revenue, 32% for operating profit, 36% for ordinary profit, and 38% for net profit. Management noted that "results are progressing smoothly" and left the initial outlook unchanged.

The table below summarises the four key segments.

Real Estate Leasing
Revenue rose 7.5% to ¥121.1 billion, and operating profit climbed 9.8% to ¥58.1 billion, both setting Q1 records. The tight Tokyo office market drove occupancy gains (vacancy rate 3.6%, down 2.1 points) and allowed rent hikes to take hold. A full quarter contribution from Sumitomo Realty Roppongi Central Tower added further lift. First-quarter operating profit progress against the full-year plan reached 26%, and the company expects the benefits of higher occupancy and rising rents to broaden in coming quarters. Leasing continues to be the main earnings driver.

Real Estate Sales
Revenue fell 11.0% to ¥122.5 billion and operating profit dipped 3.4% to ¥48.9 billion. The number of condominiums and detached houses delivered dropped by 464 units to 1,029 units, but per-unit profitability improved thanks to higher selling prices. Operating profit progress against the full-year target was already 60%, reflecting a healthy forward order book. New condo contracts totalled 520 units, roughly level with a year ago, and the sales focus is shifting toward units to be booked in the following fiscal year.

Housing
Revenue declined 14.5% to ¥18.6 billion, and the segment posted an operating loss of ¥4.0 billion (versus a ¥2.5 billion loss a year earlier) as the number of completed units fell by 153 to 923. Orders, however, improved: new contracts rose to 2,148 units (up 13) and order value grew 7.6% to ¥46.1 billion. Coupled with a healthy order backlog, management sees the full-year plan as on track.

Step (Brokerage)
Revenue contracted 16.1% to ¥16.1 billion, and operating profit shrank 26.1% to ¥4.6 billion. Used-condo transactions dropped by 1,699 to 5,818 cases as high prices dampened buyer appetite. Structural reforms — including an overhaul of the commission-based pay system and store network reorganisation — also weighed on profit. Full-year operating profit progress was a low 21%, and the company acknowledged "soft conditions."

Total assets at the end of the quarter rose ¥56.4 billion from the prior fiscal year-end to ¥7,242.1 billion, mainly because investment securities increased ¥49.1 billion to ¥1,168.7 billion following an investment in an Indian subsidiary.

Total liabilities shrank ¥33.0 billion to ¥4,681.9 billion, helped by the redemption of ¥10.0 billion in bonds and a reduction in accrued income taxes. Interest-bearing debt was roughly flat, though interest expenses climbed ¥1.79 billion to ¥8.2 billion.

Net assets grew ¥89.4 billion to ¥2,560.1 billion, with retained earnings reaching ¥1,911.2 billion after booking ¥85.1 billion in quarterly net income. The equity ratio improved to 35.4% (from 34.4%).

The annual dividend forecast is ¥52 per share (interim ¥26, year-end ¥26). Taking into account the prior year's stock split (1-for-2), this represents an effective increase of ¥13, underscoring the company’s commitment to shareholder returns. No share repurchase was announced. Quarterly depreciation stood at ¥19.3 billion (versus ¥18.7 billion a year earlier).

Sumitomo Realty maintained the full-year forecast issued on May 13, 2026. It projects revenue of ¥1,070.0 billion (+1.2% year on year), operating profit of ¥320.0 billion (+7.0%), ordinary profit of ¥300.0 billion (+3.7%), and net profit of ¥223.0 billion (+4.9%). First-quarter progress rates of 36% for ordinary profit and 38% for net profit indicate a solid start, and the company described the performance as "moving in line with plans."

(Units: ¥ billion)

Sumitomo Realty disclosed a plan to sell listed securities, including cross-held policy shares with a market value of roughly ¥400.0 billion, over the next 10 years. At the end of the prior fiscal year, it placed 56 stocks (book value ¥82.2 billion, market value ¥288.2 billion) into a disposal trust. So far, ¥49.0 billion was sold in FY2026 and ¥24.5 billion in the first quarter of FY2027.

Gains from these sales will be used to offset extraordinary losses and higher interest expenses, and the proceeds will be channelled into growth investments such as the Mumbai, India project. The aim is to improve asset efficiency while sustaining long-term growth. An extraordinary gain of ¥15.9 billion (versus ¥5.1 billion a year earlier) was booked in the first quarter, and the pace of future sales will be closely watched for its impact on both the balance sheet and investment capacity.

Key risks facing Sumitomo Realty include:

• Interest rate risk: Interest expenses are already rising, and further Bank of Japan policy shifts could squeeze profits. The planned sale of policy shares is intended to offset this, but execution certainty is essential.
• Property market shifts: While office leasing is buoyant, stubbornly high used-condo prices are curbing transactions and directly weighing on the Step brokerage unit. Higher rates could also dent mortgage demand.
• Structural reform outcomes: The overhaul of Step’s commission system and sales organisation is causing short-term profit erosion. Whether these changes strengthen competitiveness over the medium term is still an open question.
• Overseas investment uncertainty: New ventures such as the India project carry growth potential but also expose the company to geopolitical risk, currency swings, and changes in local regulations.
• Large-scale disasters: Holding a vast portfolio of office towers and condominiums means that direct and indirect damage from earthquakes or other catastrophes remains a constant risk.

The company is addressing these risks through long-term, stable leasing contracts, financial discipline, and diversified investment, but external conditions warrant continued vigilance.