Revenue decline offset by operating income growth, driven by gross margin exceeding 30% in DX Real Estate Value Enhancement; inventories of JPY 70.8B confirm foundation for full-year plan achievement

Key Positives From The Results

Gross profit margin improved +3.5pp from 21.7% to 25.2%, delivering operating income growth alongside lower COGS ratio. The DX Real Estate Value Enhancement segment's gross margin surged +19.8pp from 10.6% to 30.4%, lifting consolidated profitability. Inventories of JPY 70.8B (record high) and a cumulative development pipeline of 63 projects totaling approximately JPY 170.4B secure growth resources looking beyond FY2027.

• Gross Profit Of JPY 2,043M (+13.2% YoY)
  : Driven by high-margin healthcare facility dispositions in DX Real Estate Value Enhancement
• Operating Income Of JPY 1,246M (+6.1% YoY)
  : Gross margin improvement of +JPY 288M absorbed SG&A increase of -JPY 166M
• DX Renovated Real Estate Revenue Of JPY 3,393M (+38.0% YoY)
  : High-end "Premium Renovation" product sales drove the segment
• Real Estate Leasing Revenue Of JPY 303M (+19.3% YoY)
  : Newly operational healthcare facilities contributed, maintaining 60.2% gross margin
• Private Real Estate Fund "Sanitas I" Formed With Takashimaya Group Et Al.
  : Advancing asset securitization and revenue stream diversification

Key Concerns From The Results

Recurring profit of JPY 900M (-5.9% YoY) and net income of JPY 593M (-11.9% YoY) were pressured by rising non-operating expenses. Interest expense increased +54.6% from JPY 200M to JPY 309M, reflecting the tangible impact of higher funding costs amid rising interest rates. 1Q progress rates versus full-year guidance remain low at 7.1% for operating income and 5.1% for net income, and the H2-weighted plan carries inherent delivery concentration risk.

• Interest Expense Of JPY 309M (+54.6% YoY)
  : Dual headwinds of expanding interest-bearing debt and rising rates inflated non-operating expenses to JPY 391M
• DX New-Build Real Estate Segment Income Of JPY 393M (-43.0% YoY)
  : Gross margin fell to 29.6% (-8.4pp YoY), highlighting significant project-mix driven volatility
• SG&A Of JPY 796M (+26.5% YoY)
  : Rising personnel costs and other SG&A capped operating income growth
• Equity Ratio At 28.0% (-1.3pp From Prior FYE)
  : Primarily due to a JPY 1,319M reduction in capital surplus from dividend payments
• Short-Term Borrowings Of JPY 20,518M (+JPY 3,488M From Prior FYE)
  : Growing reliance on overdrafts and commitment lines to fund inventory build-up

Focus Areas / Items To Monitor Going Forward

• The DX Real Estate Value Enhancement full-year plan assumes gross profit of JPY 15,500M (gross margin of 56.2%)—an extremely high bar. While 1Q's 30.4% gross margin is robust, the profitability and delivery timing of large-scale projects scheduled for H2 are key to full-year achievement
• With interest-bearing debt on an upward trajectory amid rising rates, close monitoring is needed on full-year interest expense guidance, the fixed-rate ratio of borrowings, and the trend in average funding costs
• Timing and scale of earnings contribution from the healthcare real estate AM business, including private fund "Sanitas I"; tracking progress on capital efficiency improvement through asset securitization

Key Financial Highlights

The -28.7% YoY decline in EPS is primarily attributable to the increase in weighted average shares outstanding during FY2025/12 due to a public offering (6,175K shares → 7,629K shares, +23.5%). Note that the dilution impact exceeded the decline in net income (-11.9%).

Performance By Business Segment

Progress Versus Full-Year Guidance

1Q progress rates versus full-year guidance remain low at 13.3% for revenue, 7.1% for operating income, and 5.1% for net income. However, the company historically shows low 1Q progress (1Q operating income progress over the past six years: 4.3%–11.7%), and this fiscal year's plan is particularly H2-weighted. Inventories stood at JPY 70,852M at end-1Q, a sufficient level for full-year plan achievement, and management views the plan as achievable provided delivery progress from 2Q onward tracks to schedule.

• Due to the nature of recognizing revenue upon project delivery, quarterly earnings are inherently lumpy. 1Q progress is typically low, with revenue and profits concentrated in 3Q and 4Q
• This fiscal year in particular features large-scale project deliveries concentrated in H2, meaning progress through H1 is expected to remain subdued

Changes To Guidance

No changes to consolidated guidance for FY2026/12. Figures released on February 13, 2026 remain unchanged.

Commentary On Shareholder Returns

Interim dividend forecast revised upward by JPY 2 from JPY 175 to JPY 177 per share. The year-end dividend remains unchanged at JPY 115 post-split (equivalent to JPY 345 pre-split), reflecting the 3-for-1 stock split effective July 1, 2026. The pre-split annualized dividend is JPY 522 (up JPY 2 from prior forecast of JPY 520), marking a sixth consecutive year of projected dividend increases. A DOE floor of 6% has been newly added to the dividend policy, transitioning to a three-metric framework alongside the existing 40% payout ratio target and ROE target of 20%+. A new shareholder benefit program has been introduced (digital gift of JPY 500 for holders of 100+ shares).

Financial Position

Total assets expanded to JPY 104B driven by inventory accumulation. Interest-bearing debt increased primarily in short-term borrowings and current portion of long-term debt, while the equity ratio of 28.0% remains above the mid-term plan target of 20%+.

News Released Alongside The Earnings Announcement

Major Announcements During The Quarter

Large-Shareholding Filings / Material Proposals Over The Past Year

• Eiichi Wakita (President & CEO): 13.71% → 11.49% (2025/07/30) → 11.38% (2026/04/22) — Stable shareholding as representative director. Joint holders include an asset management company
• Summerbank LLC: 7.43% → 7.34% (2025/11/04) — Pure investment
• Summerriver LLC: 5.28% → 5.22% (2025/11/06) — Pure investment