Sumitomo Realty: Purchase of Development Site in Mumbai Greatly Expands Future Investment in India

We maintain our fair value estimate of JPY 4,000 for Sumitomo Realty, equivalent to 0.49 times the net asset value and 7% above the current share price, after the Japanese developer announced the acquisition of a large piece of land for a mixed-use development in the Worli district of Mumbai. This is its third investment in the Indian city since 2019. This acquisition is significant because it is even larger than Sumitomo Realty's first two projects in Mumbai, BKC1 announced in 2019 and BKC2 announced in 2022, in which the company is investing JPY 200 billion and which will add 260,000 square meters of gross floor area by March 2028. This project will add more than 1 million square meters, with completion likely in the mid-2030s per our estimation and has a total investment amount of JPY 500 billion. Given that office rents in Mumbai are currently similar to office rents in central Tokyo, we estimate that BKC1 and BKC2 will together contribute around 3% of Sumitomo Realty's total operating profit by March 2028. The new Worli project, several times larger than BKC1 and BKC2 combined, could therefore bring India's total contribution to Sumitomo Realty profits a decade from now to almost 10%, per our estimation.