Medium-term Management Plan

Vision for the Medium- term Management Plan
"Challenge & Progress" (FY 2020 - 2023)

Background to the Medium-term Management Plan

The Group formulated the Medium- to Long-term Management Plan “Over the NEXT DECADE” in2014, defining a vision to become a company that contributes to revitalizing districts through theNihonbashi Kabutocho and Kayabacho Revitalization Project. Following the implementation of thisPlan, the Group has achieved excellent outcomes with both internal and external growth, as well as thesuccessful commercialization of KABUTO ONE, the first project in the revitalization of the district. Inaddition, the Plan set out the numerical target of around ¥10 billion in consolidated operating income byfiscal 2023, but the Group reached this target four years early in fiscal 2019 and reportedrecord-breaking earnings.
Meanwhile, the business climate in which the Group is operating has changed significantly, includingthe need to manage risk from natural disasters, further developments in corporate governance, andgrowing awareness of Environmental, Social, and Governance (ESG) and Sustainable DevelopmentGoals (SDGs). The Group also needs to pay close attention to the impact the new coronavirus pandemicis having on real estate market conditions and domestic and overseas economies.
As well as responding to such changes in the external environment, the Group has also formulated the Medium-term Management Plan for the period from fiscal 2020 to fiscal 2023 in order to take onand further progress the business strategies implemented in the previous Medium- to Long-termManagement Plan.

Vision for the Heiwa Real Estate Group

As a “company that contributes to revitalizing districts,” the Group strives to help our society becomemore sustainable while also improving corporate value, by increasing satisfaction through interactivecommunication with stakeholders and providing solutions to environmental and social issues.

Making society sustainable as a company that contributes to revitalizing districts

The Company will help our society become more sustainable and promote the revitalization of safe and secure districts, taking into account environmental- and disaster-preparedness, through initiatives such as the revitalization of Nihonbashi Kabutocho and Kayabacho, the Sapporo redevelopment, and asset management.

Improving shareholder value as a listed real-estate company

The Company will improve shareholder value through shareholder returns and greater capital efficiency, by maximizing the use of the Group's corporate value and creating/realizing added value in real estate.

Positioning of the Medium-term Management Plan “Challenge & Progress” (Fiscal 2020–Fiscal 2023)

The new plan is positioned as a period for tackling the challenge of, and making progress in, the vision of becoming a company that contributes to revitalizing districts, by helping to make our society better positioned to address the social issue of sustainability, as well as refocusing our business model on added-value creation through external and internal growth, commercialization of the Sapporo redevelopment, and revitalization of Nihonbashi Kabutocho and Kayabacho.

Business strategy (fiscal 2020–fiscal 2023)

Redevelopment Business

  1. Nihonbashi Kabutocho and Kayabacho revitalization
    We will make progress in revitalizing diverse and sustainable districts through initiatives to create prosperity across the entire target district and to support the “Global Financial City: Tokyo” vision, as well as actual district redevelopment, including the opening for business of KABUTO ONE, the completion of works at KITOKI and the commercialization of Kabutocho 12 Projects (tentative name).
  2. Progress in commercializing Sapporo redevelopment
    The Company will make real progress in the Sapporo redevelopment, through participation in the district redevelopment of the Sapporo Station South Exit North 4 West 3 zone (area around the Sapporo Ekimae Godo Bldg.), as well as aiming to commercialize urban redevelopment projects in the Odori Nishi 4-chome south area (around the Dogin Bldg. and the Shin Odori Bldg).

Building Business

  1. Pursuing external and internal growth
    We will generate earnings from the sale of properties during the process of renewing the portfolio, while building up our portfolio through the acquisition of new lease assets. We also intend to improve portfolio profitability by raising leasing rates based on trends in the office leasing market.
  2. Sustainable building operations to improve environmental specifications and disaster preparedness
    We are guided by our long-term vision to reduce CO2 emissions through investment in building facilities and operations to help address social issues like disaster preparedness and environmental concerns.
  3. Generating earnings from inventory sales
    We aim to maximize value through development, lease up, and renewal projects, with the goal of generating earnings from the sale of profitable assets and further development of the HF Residence series.

Asset Management Business

  1. Growing asset management earnings
    We aim to grow Heiwa Real Estate Group earnings, including asset management fees, by supporting growth of HEIWA REAL ESTATE REIT, Inc.

Corporate activities

  1. Promotion of capital policy that takes into account capital costs and capital efficiency
    To promote capital policy that takes into account capital costs and capital efficiency, we have set the following targets as KPIs for the period from fiscal 2020 to fiscal 2023: at least 6% ROE and around 70% consolidated total return ratio (consolidated dividend payout ratio around 50% by fiscal 2023).
  2. Strengthening corporate governance
    We will work to further strengthen our corporate governance, including transition to a company with nomination committee, etc., with a Board of Directors structure in which a majority of members are external directors, and a reduction in cross-shareholdings. We will also promote initiatives for improved compliance such as enhancing awareness of compliance matters among our officers and employees.
  3. Practicing sustainable management
    Centered on the Sustainability Committee, we will step up the effectiveness of sustainability management by monitoring the Plan-Do-Check-Act (PDCA) cycle related to our sustainability measures including environmental measures targeting issues such as climate change and by preparing reports etc. for the Board of Directors concerning important matters, in order to achieve a sustainable society and growth, and to resolve social issues and work towards SDGs through our corporate activities. We also aim to increase corporate value by making our organization more dynamic through promotions to improve the health of employees and internal communication.

KPIs

Set internal reserves (shareholder returns) in light of the level of investment return at current real estate market prices, having set a return on equity (ROE) target recognizing capital costs.

Profit targets Earnings per share At least ¥200
(Fiscal 2023)
Consolidated operating income At least ¥12 billion*1
(Fiscal 2023)
Capital efficiency ROE At least 6%*2
(Fiscal 2020–fiscal 2023)
Shareholder return Consolidated total return ratio Approx. 70%
(Fiscal 2020–fiscal 2023)
(Consolidated dividend payout ratio approx. 50% by fiscal 2023)

(Reference) Financial soundness: Net debt-to-equity ratio of 1.8 times or less
*1 Breakdown of consolidated operating income Building Business: ¥11.8 billion;
Asset Management Business: ¥1.8 billion;
Corporate/elimination, etc.: –¥1.6 billion
*2 We target ROE of at least 5% in fiscal 2020 in light of the impact of the new coronavirus pandemic.

Investment plan (fiscal 2020–fiscal 2023)

Business Investment amount
Redevelopment Business Approx. ¥32 billion
Breakdown:
Nihonbashi Kabutocho and Kayabacho:
Approx. ¥22 billion
Sapporo: Approx. ¥10 billion
Building Business
Asset Management Business
Acquisitions: Approx. ¥60 billion
Returns from portfolio renewal: Approx. ¥20 billion
Returns from existing inventory sales: Approx. ¥34 billion

Related Documents

Contact

General Affairs Department / Corporate Planning Department, Heiwa Real Estate Co., Ltd.

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