Tokyo: Japanese property developer Mitsubishi Estate posted a nearly 10% drop in first-quarter profit hit by a fall in apartment sales and rising office vacancies, sending its shares down more than 4%.
Mitsubishi Estate, Japan’s No.2 developer by revenue, joined top-ranked Mitsui Fudosan Co in reporting weaker quarterly profits, though they both kept their outlooks unchanged, suggesting the sector still has a ways to recover from the tumult of the financial crisis.
Japan’s developers have recently succeeded in running down inventories of unsold apartments left over from the crisis but have done so amid tough price competition, squeezing profit margins.
Another headache is a jump in office vacancies in Tokyo — which climbed to record 9.14% in June — as companies opt for cheaper digs outside the central business district to pare spending in the face of a wobbly economy.
“We can say that their apartment sales are recovering. I would say a major concern right now would be an expected oversupply of office buildings from 2011, though such vacancies would depend on Japan’s economic health at that time,” said Takahiko Kishi, a senior analyst at Mizuho Investors’ Securities.
Mitsubishi, which owns the US Rockefeller Group and dozens of office buildings in Tokyo’s main business district, said its April-June operating profit clocked in at ¥27.1 billion ($312 million), down from ¥29.9 billion a year earlier.
Revenue fell 10% to ¥189 billion.
For the financial year to March 2011, Mitsubishi Estate stuck to its forecast for operating profit to rise 5% to ¥156 billion, slightly above a consensus estimate of a ¥153.8 billion profit in a poll of 19 analysts surveyed by Thomson Reuters.
Mitsubishi Estate executive officer Koji Kiyosawa told reporters that the company saw signs of renewed demand for apartments but acknowledged a murky outlook in the office leasing arena.
“It’s hard to tell the vacancy outlook from next year ... some say the situation will recover later this year but there also will be a number of office buildings set to open in 2011 and 2012,” Kiyosawa said.
Mitsubishi Estate group companies sold 848 apartments in the three months to June, down from 1,456 a year earlier, though the group managed to reduce the number of unsold apartments by 34% to 1,441.
Profit margins from apartment sales fell to 14.1% from 18.8%.
In the office leasing business, Mitsubishi Estate said its vacancy rate in the Marunouchi business district rose to 3.67% in June from 2.42% in March.
Meanwhile, Mitsui Fudosan said its vacancy rate for the Tokyo metropolitan area stood at 4.1% in June against 3.9% in March.
Mitsui Fudosan said after the market close on Thursday that its operating profit nearly halved to ¥18.4 billion in the April-June first quarter, hurt by lower apartment sales. It kept its annual profit forecast of ¥121 billion, slightly below ¥123.9 billion profit forecast according to the I/B/E/S.
Shares of Mitsubishi Estate closed down 4.1% at ¥1,218 after the results announcement on Friday, underperforming the benchmark Nikkei average, which fell 1.6%.
Mitsui Fudosan shares lost 3.9% to ¥1,280.