Sumitomo Realty posts record Q1 profit on Tokyo office leasing, even as revenue slips

Sumitomo Realty & Development posted record first-quarter profit at every level — operating, ordinary and net — even as revenue fell, the company said in its earnings release for the three months to June 2026, the first quarter of fiscal year 2027.

Consolidated revenue came to ¥281.0bn, down 4.2% from ¥293.3bn a year earlier, Sumitomo Realty said. Operating profit rose 1.0% to ¥102.8bn, ordinary profit rose 3.3% to ¥108.7bn, and net profit attributable to owners jumped 15.4% to ¥85.2bn — each a first-quarter record, the company said. Progress against its full-year forecast stood at 36% for ordinary profit and 38% for net profit, which the company said keeps it on track for a sixth consecutive year of record ordinary profit and a 14th consecutive year of record net profit.

Leasing carries the quarter

The gap between falling revenue and rising profit traces mostly to the real estate leasing division, the company's largest and highest-margin segment, built chiefly around Tokyo office buildings. Leasing revenue rose to ¥121.2bn from ¥112.7bn and segment operating profit climbed to ¥58.1bn from ¥52.9bn — both first-quarter records, Sumitomo Realty said — as occupancy at existing buildings improved and rent increases took hold across a Tokyo office market it described as tight. The vacancy rate across existing buildings fell to 3.6%, down 2.1 points from a year earlier and from 4.3% at the start of the fiscal year, with contracted floor area continuing to outpace cancellations; two recently completed towers, Sumitomo Fudosan Osaki Twin Building West Wing and Sumitomo Shiba Koen Building, are now more than 90% leased, the company said.

Where the quarter was softer

Real estate sales, the condominium-development business, told a different story: revenue fell to ¥122.5bn from ¥137.7bn as delivered units dropped to 1,076 from 1,511. Segment profit held nearly flat at ¥48.9bn, down only slightly from ¥50.7bn, which Sumitomo Realty attributed to higher selling prices offsetting the lower volume; contracts for units due to be booked this fiscal year are, the company said, largely complete, leaving sales focus already shifting to next year's deliveries.

Housing — the company's built-to-order and renovation business — posted a wider operating loss of ¥4.0bn, against ¥2.5bn a year earlier, on fewer completed projects, though new orders improved. The softest division was STEP, the group's resale-property brokerage arm: brokerage transactions fell to 5,818 from 7,517 a year earlier as buyers turned more cautious after a prolonged run-up in resale prices, particularly in central Tokyo, and segment profit dropped to ¥4.6bn from ¥6.2bn — just 21% of its full-year target, a pace Sumitomo Realty linked partly to one-off costs from overhauling its sales-staff pay structure and restructuring its branch network.

A third factor behind the net-profit jump sat below the operating line: Sumitomo Realty booked ¥16.0bn in gains from selling investment securities, more than triple the ¥5.1bn a year earlier, as part of a policy — reiterated in the release — to sell roughly ¥400bn in market value of listed holdings, including cross-shareholdings, over about ten years. The company sold ¥24.5bn of that stock in the quarter alone.

Line up the pieces and the quarter reads less like an across-the-board improvement than a reweighting. The company's most defensible asset — Tokyo office space it can keep repricing as leases roll over in a market that has swung from oversupply worry to genuine tightness — is doing more of the work, while the two segments most exposed to buyer sentiment, condo delivery volume and brokerage, both slowed. Selling down cross-shareholdings for one-off gains flatters net profit further but doesn't repeat forever. None of that is guidance-threatening yet: the full-year outlook, issued 13 May, is unchanged, with a forecast annual dividend of ¥52 per share. But it does mean the record headline numbers are carrying a mix shift underneath them worth tracking as the year plays out — especially whether resale-market caution at STEP is an early read on Tokyo home-price fatigue or just a one-quarter blip.