United Urban Investment Corporation (8960) May 2026 (45th Period) Earnings Deep Dive Report

Introduction

United Urban Investment Corporation (Securities Code: 8960) has announced its financial results for the May 2026 period (45th fiscal period). This report, based on the attached earnings presentation materials, provides a detailed analysis of the corporation's latest performance, mid-term growth strategy, and future outlook. We will focus on key topics such as the factors driving the record-high DPU (Distributions Per Unit) , the proactive asset replacement strategy , value-up investments in existing properties , strategic property acquisitions , and a sound financial foundation , to help investors gain a deep understanding of the corporation's overall picture and growth story.

May 2026 (45th Period) Earnings Highlights and DPU Increase Factors

In the May 2026 period (45th fiscal period), Distributions Per Unit (DPU) reached 4,592 yen , marking a significant increase of +10.9% compared to the previous period and setting a new record high . This strong performance is a result of steady progress in external growth, internal growth, and strategic asset replacement. Specifically, rental business profit increased by 2.13 billion yen to 17.2 billion yen compared to the previous period, and the period-end occupancy rate remained high at 97.8% .

The detailed breakdown of DPU increase factors reveals significant contributions from revenue generated by newly acquired properties, internal growth through rent increases and improved occupancy rates in existing properties, and the recognition of gains on sale from strategic asset replacements. Notably, income from the cancellation of the UUR Shinsaibashi Building lease and the return of sale gains were crucial elements in boosting DPU.

The following slide provides a detailed breakdown of the DPU fluctuation factors for the 45th period, allowing for a concrete understanding of how each initiative contributed to DPU.

This graph clearly illustrates the breakdown of the DPU increase from 4,142 yen in the 44th period (Nov 2025) to 4,592 yen in the 45th period (May 2026). It shows that acquisitions contributed +273 million yen in profit, gains on sale contributed +586 million yen , and profit/loss changes in existing properties contributed +489 million yen , all significantly boosting DPU. In particular, income from the cancellation of the UUR Shinsaibashi Building lease contributed to the profit/loss changes in existing properties, serving as a key factor in pushing DPU higher. While there were negative factors such as divestiture-related decreases and increased selling, general, and administrative expenses, the positive factors outweighed them, enabling the record-high DPU.

Mid-term Growth Strategy and Sustainable DPU/NAV Improvement

United Urban Investment Corporation's mid-term growth strategy, covering the period from May 2025 to November 2027, aims for sustainable improvement in DPU and NAV (Net Asset Value per Unit) . The two main pillars of this strategy are 'asset replacement' and 'profit improvement' . The annual DPU target has been revised upwards from over 8,000 yen to over 9,000 yen , indicating a commitment to achieving higher levels. Specifically, the corporation plans to execute 62.4 billion yen in asset divestitures and 73.3 billion yen in asset acquisitions between May 2025 and November 2027, aiming for qualitative improvement of its portfolio. Furthermore, a +3.7% year-on-year growth in rental business profit is projected.

The following slide presents an overview of the mid-term growth strategy and key performance indicators.

This slide visually outlines the fundamental policy of the mid-term growth strategy. It emphasizes the upward revision of the annual DPU target to over 9,000 yen , clearly stating that asset replacement (62.4 billion yen in divestitures, 73.3 billion yen in acquisitions) and profit improvement (rental business profit up +3.7% year-on-year) will be the main drivers for achieving this. Additionally, a multi-faceted approach including value-up investments , own investment unit acquisitions , effective utilization of funds , and strengthening sponsor support is outlined to achieve sustainable DPU and NAV improvement. The strategy also aims to maintain financial soundness by reducing the total asset LTV by 0.8% to 44.4% .

Proactive Asset Replacement Strategy and Pipeline

Asset replacement, a crucial component of the mid-term growth strategy, is progressing steadily. Cumulative asset divestitures of over 60 billion yen were achieved ahead of schedule by November 2027, meeting the mid-term strategy's target range of 60 billion to 90 billion yen. The corporation now aims for over 90 billion yen in asset replacement , intensifying the selection of potential divestiture properties. A robust pipeline is secured, with 15 potential divestiture properties, a book value of approximately 85 billion yen, and unrealized gains/losses of approximately 18 billion yen.

This strategic asset replacement is expected not only to improve portfolio quality but also to sustainably boost DPU levels through the continuous return of sale gains . The positive impact of the UUR Shinsaibashi Building sale gains is anticipated to continue contributing to DPU from the 46th period onwards, supporting the maintenance of annual DPU over 9,000 yen .

Growth Investment Period and Value-Up Strategy for Existing Properties

The corporation designates the period from November 2026 to May 2029 as the 'Growth Investment Period' , aiming to achieve sustainable and high-level profitability. During this period, in addition to increased rental income in an inflationary environment, the corporation plans to actively implement value-up investments and large-scale renovation works to further accelerate the growth of rental business profit.

Specifically, the corporation plans to execute value-up investments totaling approximately 15 billion to 20 billion yen over three years , targeting an ROI of 10% or more . These investments will cover various property types, including hotels, offices, residential, and commercial facilities, with plans for full-scale renewals, guest room/restaurant renewals, common area renewals, interior renovations, exterior renovations, and floor division works. For instance, at the flagship property 'Loisir Hotel & Spa Tower Naha,' strategic investments totaling approximately 8 billion yen are planned, aiming for a significant improvement in property competitiveness and ADR (Average Daily Rate) through pool renewals, guest room renewals, and lounge new constructions. At 'Actiore Machida,' exterior renovations and floor division works are projected to increase total rental income by approximately 36%, with an anticipated ROI of 39% .

In these value-up investments, optimization of construction content and cost control are thoroughly managed by specialized departments. A process emphasizing planning, transparency, and quality assurance has been established, from the formulation and review of five-year renovation plans to detailed planning, competitive bidding, and ordering, to maximize investment effectiveness. Past results show continuous cost reductions in construction, indicating efficient investment execution.

External Growth: Strategic Property Acquisitions

As part of its external growth strategy, the corporation continues focused investments in the Tokyo Metropolitan Area and Fukuoka , aiming to enhance portfolio quality. In the November 2026 period (46th fiscal period), three new properties (two hotels, one other) were acquired for a total of 11.966 billion yen . These properties were acquired at a price 18% below their appraisal value , achieving high investment efficiency with an increase of +3.1 billion yen in unrealized gains after acquisition. This also led to an increase in DPU per unit by +964 yen , reaching 184,491 yen .

Particularly noteworthy is the acquisition of 'Bouncy by Rihga Fukuoka Hakata,' a hotel property that UUR was involved in developing. This property boasts a high appraisal NOI yield of 6.0% , and through collaboration with the sponsor, UUR successfully incorporated a high-quality asset into its portfolio while mitigating development risks. This also slightly reduced the portfolio's average building age to 26.8 years .

The following slide details the newly acquired properties and their impact on the portfolio.

This slide outlines the newly acquired properties in the November 2026 period (46th fiscal period). Notably, 'Bouncy by Rihga Fukuoka Hakata,' a development property, was acquired as a hotel property with a high appraisal NOI yield of 6.0% . These properties were acquired at a favorable price, 18% below their appraisal value , generating +3.1 billion yen in unrealized gains immediately after acquisition. This demonstrates a significant contribution to portfolio quality improvement and value enhancement, including a reduction in the portfolio's average building age and an increase of +964 yen in NAV per unit .

Financial Strategy and Capital Procurement

The corporation prioritizes flexible financing to control total costs and LTV (Loan-to-Value ratio). As of the end of May 2026, the total asset LTV stood at 44.4% , maintaining a sound level within the mid-term growth strategy's target range. In June 2026, a public offering of 23.3 billion yen was executed, further reducing LTV and securing borrowing capacity to respond flexibly to future investment opportunities. New borrowings were limited to 14.3 billion yen.

Even in a rising interest rate environment, the corporation aims to suppress financing costs by flexibly managing the shortening of borrowing periods (3-5 years) and utilizing variable-rate borrowings. The fixed-rate ratio has increased to 50.4%, strengthening its response to interest rate fluctuation risks. The average interest-bearing debt cost remains low at 0.91%, indicating continued efficient fund management.

Segment-Specific Performance

• Hotels: Despite the impact of the Expo demand reversal and a soft market in the Osaka area, RevPAR landed at +2.6% year-on-year , showing steady performance. The recovery in inbound tourism contributed significantly; although the number of visitors from China decreased, visitors from other countries increased, maintaining the overall number of inbound tourists at the previous year's level. In the Fukuoka area, the corporation aims for further revenue expansion by capturing inbound demand and acquiring variable-rent type hotels.
• Offices: The robust office market continues, with backfilling progressing across all areas. The occupancy rate remained high at 98.6% , an increase of +0.8% from the previous period. Internal growth is accelerating through both replacement and revision rent increases, achieving a substantial rent increase of +14.139 million yen/month (rate of change +9.3%) . Rent gap resolution is particularly advancing in the central six wards and regional cities.
• Commercial Facilities: Maintaining high occupancy rates and supported by tenant sales growth, strategic tenant and rent increase negotiations are ongoing. Significant rent increases from large tenants and rent revisions resulted in a total increase of +13.897 million yen/month (+23.5%) .
• Residential: Through proactive replacement and renewal rent increases, rental income increased by +3.0% year-on-year. The occupancy rate remained high at 97.6% , and rent fluctuation rates at replacement were +10% and at renewal were +5.6% , indicating a continued upward trend in rents.

DPU Performance and Future Outlook

The corporation's DPU reached 4,592 yen in the May 2026 period (45th fiscal period), setting a new record high. The forecast DPU for the subsequent November 2026 period (46th fiscal period) is 4,640 yen , with the combined annual DPU for the 45th and 46th periods projected to be 9,232 yen , representing a significant +13.2% increase year-on-year. This demonstrates the steady progress of external growth, internal growth, and asset replacement in line with the mid-term growth strategy.

From the May 2027 period (47th fiscal period) onwards, the corporation aims to maintain annual DPU over 9,000 yen , striving for sustainable revenue growth and stable DPU improvement through value-up investments, strategic property acquisitions, and efficient fund management during the growth investment period.

Conclusion

United Urban Investment Corporation has achieved a record-high DPU in the May 2026 period and is making steady progress towards its mid-term growth strategy goals. Proactive asset replacement leading to qualitative portfolio improvement and the return of sale gains, large-scale value-up investments in existing properties driving internal growth, and focused property acquisitions in the Tokyo Metropolitan Area and Fukuoka contributing to external growth are the main drivers of DPU improvement. Furthermore, a sound LTV level and efficient capital procurement ensure a stable financial foundation. With the consistent execution of these multi-faceted strategies, the corporation is expected to continue pursuing sustainable revenue growth and stable DPU improvement in the future.