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Hulic’s Profit to Beat Target on More Rental Space, CEO Says

Hulic Co. (3003), Japan’s best-performing real estate company in the past six months, said it will beat its profit forecast after an increase in leasing space following a merger with Shoei Co. boosted rental income.

Tokyo-based Hulic, which has beaten net income forecasts for three consecutive years, will probably achieve higher profit for the year ending Dec. 31, Chief Executive Officer Saburo Nishiura said in an interview. The developer increased the total leasing space for office, apartments and nursing homes by 62 percent after acquiring Shoei in July, he said.

“Increasing office space through redevelopment is one of the main reasons we are likely to beat the forecast,” said Nishiura. “The merger with Shoei that boosted our leasing space will also contribute. Rental apartments and senior housing may also help.”

The real estate company is seeking ways to increase revenue even as Tokyo’s office vacancy rate is near a record high and Japan’s population is set to decline. Hulic is focusing on boosting rental space for medium-size buildings and plans to add more nursing homes, Nishiura said.

Hulic expected revenue to increase 7 percent to 80 billion ($1 billion) and predicted net income to gain 2 percent to 9.5 billion yen for the year, according to a company presentation published on Aug. 31.

Tenant Demand

The developer this year delisted its own shares after it bought Shoei and retained the Hulic name for the listed entity. The shares gained 89 percent in the past six months, more than seven times the 12 percent gain in the Topix Real Estate Index. They rose as much as 2.3 percent today and closed 0.2 percent higher at 560 yen as of 3 p.m. in Tokyo.

Hulic develops medium-size office buildings with 200 square meters (2,153 square feet) to 500 square meters of space per floor because that is where most of the tenant demand is, Nishiura said. Less than 1 percent of 1.8 million companies in Japan have more than 300 employees, according to the Statistics Bureau.

The company’s vacancy rate for office, apartment and nursing home space rose to 0.6 percent as of June from six months earlier, according to the Aug. 31 presentation. That compares with 3.7 percent for Mitsui Fudosan Co. (8801), and 4.47 percent for Mitsubishi Estate Co. (8802), Japan’s two-largest developers, for the same period.

Nursing Homes

The company plans to almost triple the number of nursing homes to 17 from six by next year as part of a goal to boost non-office leasing revenue to 30 percent, Nishiura said.

It recently converted a two-story residential building into a seven-story home for elderly in central Tokyo, increasing leasable space by 6,600 square meters, according to Hulic’s website.

A quarter of Japan’s 125 million people will be older than 65 years in 2014, compared with 14 percent in the U.S., according to data compiled by Bloomberg.

“As a property company, we have to look at three to five years ahead,” Nishiura said. “As we face an aging population, expanding the nursing home business is certainly the way to grow.”

To contact the reporters on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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