Heiwa Real Estate: Targets ¥29bn profit under new BX5 plan

Heiwa Real Estate's new mid-term plan, Bazukuri Transformation 5 (BX5), targets consolidated business profit of at least ¥29bn and EPS of ¥220 or more in FY2031. It sets an ROE target of at least 10%, above the outlook under the current plan through FY2026.

Consolidated business profit is calculated by adding equity-method investment gains and losses and gains on sales of fixed assets to consolidated operating profit, so it differs from the operating profit figure in the current forecast. The FY2026 outlook exceeds the current plan's original targets of operating profit of at least ¥14bn, EPS of at least ¥135 and ROE of at least 7%. Heiwa Real Estate has also raised the WAY 2040 long-term target from consolidated operating profit of about ¥25bn or more to consolidated business profit of about ¥45bn or more, using a different measure. It cited progress on projects including Sapporo redevelopment and its hotel business, with growth expected to surpass the original plan, as a reason for setting new targets.

Heiwa Real Estate plans to drive growth by expanding redevelopment, improving asset earnings and entering overseas markets. Its priorities are organized into five BX strategies.

• Redevelopment in major cities nationwide: Advance SAPPORO ONE and the Kita 4 Nishi 3 District urban redevelopment project in Sapporo. The company will also pursue projects in major cities, including hotel development in Kyoto.
• Strengthen Nihonbashi Kabutocho and Kayabacho: Move ahead with the proposed Nihonbashi Kayabacho 1-Chome 6 District development and build up financial-sector functions through the FinGATE business and commercial tenant recruitment.
• Expand rental income and capital recycling: Pursue active leasing, rent revisions and hotel earnings growth. Heiwa Real Estate assumes annual rent growth of 3.0% for existing properties.
• Enter overseas real estate: Heiwa Real Estate will undertake overseas business for the first time since its founding, seeking growth opportunities and higher capital efficiency.
• Grow asset management and brokerage income: Support the growth of Heiwa Real Estate REIT Inc. and Taisei Corporation Private Investment Corporation, aiming to increase asset management fees and other income.

Heiwa Real Estate expects more companies to view offices as investment in human capital that can help attract talent and improve productivity. It also sees hotel markets growing on inbound demand, while anticipating higher costs from inflation and rising interest rates. The company plans to combine rental income growth with capital-recycling businesses that involve property sales to improve asset efficiency.

Heiwa Real Estate plans to invest in redevelopment, property acquisitions and overseas projects from FY2027 through FY2031. It will combine funds generated by the business, proceeds from property sales and interest-bearing debt to finance investment and shareholder returns.

• Redevelopment investment: About ¥190bn, including about ¥35bn for Nihonbashi Kabutocho and Kayabacho, about ¥120bn for Sapporo and about ¥35bn for other projects.
• Other investment: About ¥50bn for property acquisitions, about ¥30bn for overseas real estate investment and other uses, and about ¥15bn in capital expenditure (CAPEX).
• Funding assumptions: Of about ¥250bn in funds from business generation and other sources, property sale proceeds are expected to account for about ¥200bn. Heiwa Real Estate also expects about ¥60bn in proceeds from interest-bearing debt.
• Cash balance: About ¥25bn at the start of FY2027 and about ¥15bn at the end of FY2031.

A substantial share of investment is earmarked for Sapporo redevelopment, while property sales are built into the funding plan. Major projects in Sapporo and Nihonbashi could support future rental income and regional value, but execution, sale terms and interest rate trends will affect earnings.

Heiwa Real Estate will target a payout ratio of about 50% and adopt progressive dividends, starting from an annual dividend of ¥103 in FY2026. It will decide on share buybacks flexibly, taking into account its share price, investment plans and financial position.

• Shareholder returns: Target a consolidated dividend payout ratio of about 50% from FY2027 through FY2031 and aim to increase dividends over time. The starting annual dividend of ¥103 includes a special dividend of ¥15.
• Human capital: Target a five-year average of at least 30% for the share of new graduate hires who are women, and a female management ratio of at least 20% by FY2030. The company also aims for a 100% male childcare leave take-up rate by that fiscal year.
• Workplace and productivity: Set a target of at least 70% paid leave utilization each year. Heiwa Real Estate will also pursue AI-enabled efficiency, health management and an organization that draws on diversity.
• Governance and environment: Reduce policy shareholdings to about 5% of consolidated net assets by FY2031. Target net-zero GHG emissions by FY2050.

The progressive dividend policy does not specify a minimum dividend, but signals an emphasis on continuity in shareholder returns. Hiring, management promotion and leave targets offer students and job seekers measures of workplace practices. Heiwa Real Estate also emphasizes AI use and a lean workforce, making the balance between business expansion and productivity a point to watch.