As of March 31, 2019, the Heiwa Real Estate Group was pursuing a number of initiatives for tackling the various challenges and issues described below.
Management Policies, the Operating Environment, and Issues to Be Resolved
Heiwa Real Estate was founded in 1947 as the owner of buildings for stock exchanges in Tokyo, Osaka, Nagoya and elsewhere, which play a central role in Japan’s financial markets. Tokyo’s Nihonbashi Kabutocho and Kayabacho district, where the Group was founded, developed as the home of Japan’s securities industry. Later, however, as advancements in information and communications technologies transformed society, the district changed dramatically, with trading floors shutting down and securities firms relocating. Nevertheless, residents of the district increasingly hoped for its revitalization and called for a redevelopment plan that would modernize the area in line with changes in the market and society at large.
Under these circumstances, the Group will take the next step in its “Aiming to be a company that contributes to revitalizing areas,” beginning with the redevelopment project in the Nihonbashi Kabutocho and Kayabacho areas. We will aim to increase our presence in society and achieve new growth bases and higher corporate value.
Also, we will deploy the expertise acquired from the redevelopment project of the Nihonbashi Kabutocho and Kayabacho areas to the revitalization of other urban districts.
The Japanese economy is expected to remain on a moderate recovery trend backed by the continuation of the improved employment and income environment, thanks in part to the effect of the economic policies, though careful monitoring is required for the consumption tax rate hike scheduled for October 2019, uncertainty in international economic trends and policies and the internal and external impacts of fluctuating financial and capital markets, etc. In the office leasing markets in the real estate industry, the declining trend in the office vacancy rate is expected to continue and the rent level is expected to rise moderately on the back of growing demand for offices as a result of favorable corporate performance and the diversification of working styles. In the real estate investment markets, real estate transactions are expected to continue on an active trend for the time being and real estate prices are expected to remain high and hold steady.
In this business environment, we will take the next step into “Aiming to be a company that contributes to revitalizing Areas,” beginning with the redevelopment project in the Nihonbashi Kabutocho and Kayabacho areas. We will aim to increase our presence in society and achieve new growth bases and higher corporate value.
Also, we will deploy the expertise acquired from the redevelopment project of the Nihonbashi Kabutocho and Kayabacho areas to the revitalization of other urban districts. To advance in these initiatives, the Company has continued to carry out the Medium- to Long-term Management Plan: over the NEXT DECADE for the period from FY2014 (the fiscal year ended March 31, 2015) to FY2023 (the fiscal year ending March 31, 2024). We have also been implementing a management plan to cover part of the said period, the three years from FY2017 (the fiscal year ended March 31, 2018) to FY2019 (the fiscal year ending March 31, 2020), as the Medium- to Long-term Management Plan Phase II.
During Phase II, towards the final stage of the medium- to long-term management plan, the Group will aim to continuously increase corporate value by steadily implementing the Nihonbashi Kabutocho and Kayabacho Redevelopment Project and by strengthening our building leasing business. Furthermore, we position Phase II as three years in which we will build a foundation for business growth in order to achieve the target consolidated operating income of over 10 billion yen in FY2023. We will work on the key strategy listed below.
The Nihonbashi Kabutocho and Kayabacho Revitalization Project
We will launch the first stage of the project, the Nihonbashi Kabutocho 7 Development Plan (temporary name) and the Nihonbashi Kayabacho 1-6 Development Plan (temporary name), and will implement them steadily. In the consolidated fiscal year under review we have developed the FinGATE series of new financial centers in the Nihonbashi Kabutocho and Kayabacho areas in order to play a role in the “Initiatives for the Tokyo Global Financial Center” adopted by the Tokyo Metropolitan Government. Through these efforts, we are endeavoring to support the development of financial venture companies, etc. focused on asset management by supporting the growth of Fintech companies, asset management companies, start-up companies, etc.
Strengthening the Building Leasing Business
We will further enhance the revenue bases to form a base for the redevelopment project by renewing and increasing leasing assets, as well as by implementing measures to improve profitability. In the consolidated fiscal year under review we obtained Hotel Emisia Sapporo (Sapporo-shi, Hokkaido), the Sakae Sun City Building (Nagoya-shi, Aichi), etc. with a view to increasing revenue through accumulated leasing assets. We have also promoted the establishment of a stable revenue base by proactively working to raise the rents of assets held.
Expansion and diversification of the Real Estate Solution Business
We will strive to stably increase revenue with our fee business by providing HEIWA REAL ESTATE REIT Inc. our support as a sponsor in increasing its assets and improving their quality. We will also aim to diversify revenue-generating opportunities by deploying our real estate solutions business, where we sell assets after maximizing their value in ways such as developing profitable properties, leasing-up, conducting renewal construction, etc. In the consolidated fiscal year under review we earned revenue by selling off our partial interest in the Shinjuku Front Tower (Shinjuku-ku, Tokyo), as well as the Itopia Nihonbashi SA Building (Chuo-ku, Tokyo) and the Shinjuku Fuji Building II (Shinjuku-ku, Tokyo).
Strengthen the structure for implementing business strategies and provide shareholders with stable returns
- Strengthening of organizational controls and maintenance of financial discipline
While paying attention to management efficiency, we will strive to build an organizational structure suitable for pursuing the key strategies and enhance financial strength. Furthermore, we will define this is the period when we will strengthen our initiatives to meet the expectations of our stakeholders, including strengthening corporate governance, promoting dialogues with investors, implementing CSR, developing human resources and reforming work-style, etc. In the consolidated fiscal year under review the rules were amended to have an external director serve as the respective chairpersons of the Nominating Committee and Compensation Committee, discretionary advisory bodies to the Company’s Board of Directors, in order to further strengthen corporate governance.
- Capital and dividend policies
We aim to raise ROE in order to realize sustainable growth and to increase corporate value over the medium- to long-term. Also, we will maintain an appropriate D/E ratio as our basic policy while we regard the ratio as an indicator of financial discipline.
We will provide shareholders with stable returns, mainly with dividends. Considering the significance of internal reserves that are required to increase corporate value, we have set the target of consolidated dividend payout ratio at approximately 30% over the mediumto long-term. We acquired 1,200 thousand shares of treasury stock in the amount of ¥2,597 million in the consolidated fiscal year under review.
The Group will continue to work for long-term and sustainable increases in its corporate value with a view to proactively fulfilling its corporate social responsibilities as “a company that contributes to revitalizing areas.” We greatly appreciate your ongoing support and encouragement.