Ichigo Inc Stock

Hi, everybody. Thanks so much for joining. I'm Scott Callon, Chairman of Ichigo. I'm joined by Dan Morisaku, who is a senior member of Finance team and the Head of Global IR for us. We are doing something brand new. We just did a Japanese earnings call. We are wearing our suit and our tie for the global call. We decided, we think, to join the globe and recognizing how incredibly hot it is everywhere in the world right now. So forgive us if that's okay. We've gone casual to reflect the fact that we're in the middle of July. So I'm talking off of what's in front of you, which is FY '27/2, the February 2027 Q1 corporate presentation.

Let's jump into it. We've got a slightly different format today. We tried to simplify it. Hopefully, that's helpful for you. If you have any feedback, we, of course, welcome it. So please feel free to come back to us on it. So the summary is, look, we're off to a strong start. It's not surprising. The real estate market continues to be very strong. The Japanese market -- real estate market for decades has had a compelling advantage of being very low cost of financing, low interest rates, but with no inflation and therefore, no ability to raise rents. And so what's changed in the most profound and powerful way is that rents are going up.

And so it's made real estate a more attractive asset class, and it's flowing through in our business, both because we have a balance sheet in which the value of our assets is going up and second, because what's driving this is inflation, construction inflation in particular. And as you know, our business model, which is value add, is very durable with respect to inflation. We spend very little amount of money on CapEx. And so we are advantaged in the operating environment. And to the extent this is secular that we have inflation in Japan, we're going to be advantaged on a permanent basis. So business profit is up 45% year-on-year, net income up 24%, EPS up 32%. Of course, EPS is growing faster than net income because we think our shares are extraordinarily cheap.

I mean they're trading sub 10x P/E, something like 7.4x cash P/E. They're as compelling as they've ever been. We bought about 10% of our shares, more than 10% of shares outstanding in the last 2 years. We think the shares are compelling value for all of our shareholders, and we're putting our money where our mouth is. Cash EPS is up 70% year-on-year. Stock earnings says increase in Ichigo Owners of assets, which is true. But the whole point is stock earnings are relatively stable, so not going to move around very much, up a tiny bit. Earnings go up a bunch on sales of value-added retail asset and a real estate subsidiary, which was primarily office and residential assets.

Highlights are we're trying to, and I'll talk about this later, continue to innovate on behalf of our tenants and therefore, for our investors because ultimately, the value of a real estate asset is its ability to serve tenants well and our investors and our shareholders by serving our tenants. So we're doing some stuff with respect to innovating in the office space. We continue to innovate in the hotel space with our hotel brand, THE KNOT, and we completed a JPY 10 billion share buyback, as I said earlier.

The bottom of the page shows the full year forecast. We're well on track to meeting it and beating it. Just touched on the key issues there.

You should see we're on track for record profits this year again, and we think this is secular. I mean, I think it's our job to have record profits every year. We have your funds as shareholders, we should be deploying those funds in a more powerful way on a consistent basis year after year. So we're on track for another year of record profits. And again, I expect that will continue. Cash earnings are more than 2x accounting earnings because we focus on long-term cash flows. This is not a company that is super focused on doing it on the accounting side that does not have powerful value for shareholders, and we think it's ultimately rooted in generating cash flows for shareholders. There's a bunch of material that I'll go through relatively quickly, and it's meant to give you transparency on how we're running the business, and this will be an example of it.

You can see we have a diversified portfolio. The record forecast for this year in business profit has got a number of drivers to it, the most important being SRE, so the sustainable real estate business and Ichigo Owners. I labeled this for the first time we called the section KPIs. It's meant to give you some sense of key performance indicators, not in a narrow sense, but in a broad sense and the things that we focus on to deliver enduring value for you as shareholders. One of them is structural profitability.

So a KPI there is we want our stock earnings to be well above our fixed expenses to make us structurally profitable, and we are. So currently running at about 200%, 196% is the kind of the relative fixed earnings, which is stock relative to fixed expenses. You can see on the right side in the upper pie graph, you can see that -- is it a pie? It's a circle. You can see that it's the stock earnings are relatively diversified. And you can also see in Q1 that almost all the flow earnings came out of a sustainable real estate business, and that will change during the course of this year.

Stock earnings. So another element of the business is we want to have both stock and flow. The stock earnings is contractual. The flow is also very durable. You can have a business like a convenience store or a supermarket and it's all flow earnings, but every day, you're creating value for your customers and they're coming to the stores. And so by no means is this a situation where the stock earnings are really valuable when the flow earnings are -- should have a low multiple on them. The source of our flow earnings is that we add value to assets in a systematic way and generate value for tenants and therefore, generate value for investors and owners of those assets when we onsell them.

We have diversity, and that's another element of our business. We have a portfolio of businesses and it moves around a little bit. It gives us broader diversification. I have to tell you, though, we're not a real estate conglomerate. There's a core element in everything that we do, which is value add, and we express that value add through a number of different asset classes and business models. We have a very strong financial position that expresses itself in a way -- and we work to achieve that, that expresses itself both in us wanting to have overwhelming long-term loans and they currently -- and systematically over time, we managed to be about 90% of our loans being long term. And also, we reduced interest rate risk by hedging our loans.

So currently, fixed rate loans are about 56% of the portfolio, a weighted average interest rate of 1.53%. So you can see the interest rate has gone up substantially over the last couple of years, which is to say it's gone off of an incredible low basis from 100 basis points to 153 basis points by -- given that inflation is running at 3% and construction inflation is running between 5% and 10%, this is still extraordinarily low-cost funding in order to take advantage of the market opportunity that is in front of us.

Again, we're trying to provide some perspective on the drivers of the business and how they express themselves. This is what the full year forecast looks like. The sustainable real estate business continues to be our major driver. We have significant contributions from owners and from the hotel elements of the business. We'd like to grow clean energy and asset management more. On the right side, you can see the assets. About half of our assets are owned and on balance sheet, overwhelmingly real estate. And as you can see in the bottom of the page, asset management also has a substantial number of assets that we invest and manage on behalf of our investor clients.

In terms of acquisition and sale activity, net acquisitions in the first quarter, that is not what the year is going to look like. And to be clear, in a sense, the acquisitions of JPY 34 billion kind of overestimate the actual acquisition activity, which is to say, Ichigo Owners were taking in assets that we had agreed with the developer to buy generally kind of 18 to 24 months ago. So those are not new purchase activity. In the office space, most of this is coming on, and I'll talk about it, the brand new, THE VILLAGE SAPPORO asset, which is a couple of years old soon. In terms of actually brand-new acquisition activity, it's on the order of something that looks really like JPY 3 billion, like tiny.

And we expect this year to take down the balance sheet. I've been saying this for a while. We've had stuff coming in. So the balance sheet has been growing and the balance sheet is going down, folks. It's getting smaller. It reflects our view that we want to manage the balance sheet. We want to be capital efficient. There's a lot of risk out in the world right now. It is -- continues to be a phenomenal seller's market. We have ongoing capabilities and value add that we can express in highly capital-efficient ways. We don't need the size of balance sheet, so the balance sheet is going down. So anyway, for the first quarter, we added some balance sheet growth, but that will change from the second quarter on.

This is what the time frame. This is what acquisitions and sales look like over time, been some balance sheet growth, but relatively balanced, but we're going to take it down from here. And to give order of magnitude, it's not as if we're going to have the balance sheet in the next kind of 18 months, continues to be very productive, business is productive, but the balance sheet shrinkage is going to occur. So going to the segment earnings, the -- again, we have a portfolio. What's -- and it moves around quite a bit. And you can see asset management is down quite a bit. Hotel is down. Sustainable real estate is up a ton.

Clean Energy is up a bit. That results in a totality of being up 45% in terms of business profit in the first quarter. Sorry, I jumped ahead. So on SRE, sustainable real estate. So this is a business where we buy assets and improve them. It's overwhelmingly focused on office and retail, although we had some increased activity in logistics. Not a lot happening on the stock side. As I said earlier, this is stable earnings. The balance sheet is not moving around. So you wouldn't expect it to be moving that much. I think the most important thing to point out is we continue to do very, very well in the leasing activity with our biggest asset, which is Tradepia Odaiba.

As you know, that is current in the sale process, we would expect to generate some substantial returns on gains on sale this year. The full earnings up a ton. And look, this is quarter-to-quarter. And so we did less in Q1 last year. We did more in Q1 this year, but we sold an asset in FUKUOKA that we did very well on, and we sold a real estate subsidiary that we also did very well in terms of our activity, which is primarily, as I said earlier, residential and office. We continue to seek to innovate on behalf of tenants. And so one of kind of -- we think it's an insight, but we prefer to think of the world in terms of hypothesis. Don't have a view, have a hypothesis, test it against the reality and evidence as it emerges if it disproves your hypothesis then adjust your hypothesis.

And so one of the thoughts that we have is that we work, and this goes back over time, was genuinely a breakthrough in high aesthetic office and in creating communities. But WeWork is shared offices. And most of the world is not working in shared offices or in the office environment, they're in private offices. And yet, there was something very valuable, we think, in having an actual community. And so the village is our office offer that is community-based. And so literally, it's called a village. This is in Japan. So the words we use are in Japanese, but there's a village mayor in each building who is an Ichigo employee who works to support the needs of the village members who are tenants. And we have these offices that have genuine communities in them. And we think that's something that's valuable.

We have a hypothesis that all of us yearn for a community. I'm pretty sure a lot of you who are listening to this are in offices where you go up and down elevators and you don't know anybody. And it's -- you don't talk to anybody, you don't want them to talk to you, perhaps, I don't know. But for folks who want to have a genuine community in their office, this is something that we are providing. We think -- again, we think the insight/hypothesis is communities are not just for shared offices, they're actually for private offices. So in order to have a community, of course, you need to have shared spaces.

So you have shared lounges, you have shared interest areas, you have cafes, you have all these things where the community get together and we do events, and Meet The Neighbors! is what we're calling these events and which we bring together. And so that's the general framework for the village kind of offer. And specifically, in the Osaka office, we renovated an existing office which we had bought from a single tenant. It was a corporate tenant, which sold -- which is using the building for itself. They moved out. So the entire building became empty, and we actually set it up entirely as ready to move in offices. And the concept there is everything is prefitted. So the tenant doesn't have to worry about kind of anything, move-in costs and move-out costs, which are enormously expensive in Japan.

They don't have to figure about trying to get contractors and run contractors in a very difficult environment in terms of getting contract help. We do it all for them. We provide this for them and you get a rent uplift for it because you're creating value. So the leasing is going on at about a 70% premium to what a classic you have to pay for everything yourself and do everything yourself and don't have the flexibility. And so this is -- it's a very powerful offer. So it's not just in the case of VILLAGE OSAKA, it's not just a community offer. It's also a ready to move in office offer for the entire building. We also opened up the VILLAGE SAPPORO this year. In this case, we have -- we work in the first floor. It is the first we work in Hokkaido.

So Sapporo, of course, is in the Northern Island of Hokkaido. Again, working with them to develop a community throughout the entire building itself. But this is, again, focused on not just having a cold slab of steel and glass, but an actual genuine community within the building that can interact with each other and support each other and be human beings and community participants together. Hotel business is down in the first quarter. We expect the full year to be up to be up. THE KNOT, which is -- that's our boutique hotel offer. And again, the insight/hypothesis there was that -- and we're now -- we have 6 THE KNOTs, and we'll talk about it a little bit later. We're working on our seventh one. The idea was Japan has super high-class hotels that are really expensive, just like everywhere in the world.

They have all these budget hotels. It wasn't something in the category of kind of $100 to $200 per night. That was really -- that was nice. And so we thought there was a gap that could be filled. The KNOTs all share a common characteristic of being very local and also having -- Japanese care about this and people who come to Japan care about this, having outstanding restaurants so you can go there and eat super, super well and also stay there. And so these are really -- and we'll talk a little bit later. But THE KNOT Tokyo and Hiroshima doing very well. We launched and I'll talk about this later, KNOTs in Utsunomiya and Fukuoka. We'll get a full year contribution and things are going fine. You should know that we're incorporating -- we have incorporated no flow earnings in our forecast for this year for hotels.

We don't expect to sell any hotels. If that changes, then, of course, we'll get some upside there. RevPAR is down about 10%. It's actually not, we think, the kind of Iran war, the surcharges and all that sort of thing. This is showing up primarily in decreased Chinese arrivals. There's still tensions between Japan and China. Chinese arrivals were just released a few minutes ago, down 50% year-on-year, over 50% year-on-year and also some slowdown associated to the ending of the demand for the Osaka Expo. And so we're seeing -- particularly, we're seeing Osaka and Kyoto being down about 20% year-on-year. Tokyo and Hiroshima, both KNOTs doing well or up 10%, but when you put it all together, you have about 10% drop in RevPAR.

These are the 2 THE KNOTs that we just launched. I already -- I spoke to both of them already. Again, you -- it is really more about the -- taking existing assets, improving the aesthetics, the food, the culture of the building, if we can put that and incorporating them in the community, making far better functionality, bringing them to kind of best-in-class across both the hard and soft elements of functionality and customer and guest comfort. So we've got 6 now. We're working on a seventh, which is an Osaka, and this is -- the economics are proving to be very, very powerful. And this is why we want to do more in this space. Ichigo Owners did very little in the quarter. It looks like their flow earnings are up a ton, they are because this is basically 1-year turnover business. And so you sell the assets and then you get new ones.

And so the fact that we held off on some Ichigo Owner sales last year and they're going to happen this year meant that our stock earnings, so those are the rental income off these assets went up a whole bunch. But Owners' activity is going to accelerate from the second quarter. And at the heart, Owners is about serving tenants. So we -- it is what we call a fabless model, meaning we do the design, but the development and construction is done by outsourced developers. So it has super high capital efficiency. We've gotten to be really, really good at understanding -- and the target market is prime residential areas in Tokyo, understanding what the requirements are. We have developers build to our specifications, we lease them up and then we turn over in about a year. The fully leased up assets in great locations to investors.

And the investors run the gamut from cash-rich individuals and corporations, which was the original concept, but it's turned out that this has become a very institutional market where we do a lot of bulk activity into big institutional investors who want access to this very durable and high return and with now residential rents going up, increasingly higher return asset type. As you know, we've been selling this also into security token space. So this is -- but the whole point is if you're going to make great investment products in real estate because that is one goal. We need to serve the investors who are buying these assets. The first thing you need to do is you need to tenaciously serve tenants. You need to have the best assets for tenants and then that gives you the opportunity to have the best assets for investors.

Asset Management business profit is down 51% year-on-year. Actually, we know at this point that flow earnings were down 92% because we had these large flow earnings on performance fees on asset sales in both Ichigo Office REIT, and then we had some fees off of the of private funds last year. But we actually now know that there's been some REIT activity and by our REITs, our listed REITs, and so there will be performance fees coming in. So we now know we're going to -- based on -- and we never put into our flow earning forecast anything because these are decisions being made by the REITs, not by us. But we now know that there's activity that has occurred. We will be getting the fees. And so we will come in. I think it's going to be something like plus JPY 1 billion on cash earnings at this point and plus kind of JPY 0.7 billion on business profits.

So we're actually closing in on last year at this point, and we may actually go above it. So these numbers are getting better, and we already have visibility on that. And we have a diversified portfolio, as I said earlier, both kind of asset classes and kind of vehicles. So they run the gamut from listed REITs to private REITs to private funds and our digital token business. Clean Energy is up 15%. Not a lot happened in terms of the portfolio. Stock earnings were up, and that drives business profit up 15%. But this is a business that has not grown to my frustration and to our generalized frustration. And we have spent some time reflecting on that what we needed to do.

We try to be savvy and not taking appropriate risk in a pretty dramatically changing operating environment with the end of the FiT, Feed-in Tariff structure that gave enormous structural stability to earnings to kind of a fairly dramatic changing environment. And we don't strap on risk. And these are kind of heavy upfront investments without kind of having high visibility on future earnings. It's one of the strengths of real estate. As you know, you have visibility on earnings. It is one of the strengths of our Clean Energy business, we want to have that also. So the one area that we made a new commitment on that we think qualifies is we have a battery storage business that was just launched that has pretty powerful economics.

We're now -- we think the kind of NOI 13%, 14%, something like that. And so this is an area that we have begun to grow and will be a growth driver in this business. I'll just touch briefly on shareholder returns. As I said earlier, we bought back over the last 2 years, over 10% of our shares. We think they're a compelling value, and this has been -- is good and accretive for our shareholders. We have also moved on our dividend. We took the dividend up 35% this year, raising our DOE, dividend on equity, ratio from 4% to 5%.

On the sustainability side, global warming is real. It is a fundamental element in our business to address that. We are climate positive. Our CO2 reduction efforts are 9x our CO2 emissions. We are 100% renewable electricity across all of our operations. So we've achieved RE100. We are a double A list company, one of the very few. There are only less than 1% of companies in the world that qualify for that in both climate change and water security. And being sustainable as a company is fundamentally important to us and to all of our stakeholders.

At this point, no questions. And so we're going to bring this to a close after another pause, which is hopefully not, there's a question. Okay. So this is why we needed to wait.

Can you hear me?

Yes. Thank you, [ Greg ].

One quick question I have is you mentioned on the battery business, the stationary storage battery business. The extension seems to be mostly after 2031. Obviously, as you understand in Japan, it's become a bit more of a priority. Why not be bigger sooner like 2029 onward as opposed to JPY 14 billion after 2031?

Just to be clear, and we've probably have written that for you. That secondary pipeline is '29 to '31 pipeline. So it's in an earlier process of due diligence to determine its economics and attractiveness. So that is 2029 to 2031.

Understood. And another quick question I would have is regarding the TSE free float. Obviously, you guys have been buying back shares, as you pointed out, which means you are getting it pretty close to the -- I don't know if you're aware of the borderline limit for free float adjusted market cap vis-a-vis the TSE guidelines. You're above that, but things can change. What are you guys thinking about on that front?

So we still have room to buy back shares. So the -- do you know what our exact free float number is right now? I mean we need to have at least a 35% free float. I think we're probably like 45% or high 40s or something like that.

Yes. But the way the TSE calculate is actually different. So maybe I would suggest you get in touch with them because from their rules, you are getting closer to your free float weight is 25% for them.

So we are familiar with the rules. It's just that Scott Callon is -- doesn't have the exact number for me. Is that it? Okay. So Greg, the answer is we're currently at 60%. And so we have 5% more that we could own before we touch it.

But then that means that your -- you have a market cap problem in the sense that if you are giddy on the free float and then your market cap falls, then you're at risk again on with the TSE rules, is my understanding?

Yes, and -- but the market cap level is super low. So that's not the issue. So we need to manage to the free float rule. And so our thinking on this one is we think the shares are very cheap and they're certainly buyable, and we have room to buy more. But at some point, we may have to shift towards bumping the dividend up a bunch, and we'll do that, too. So to the extent that the business doesn't require capital, then we pay it out. And so we have chosen -- and in the past, we have chosen to bump our dividend, but we've been very focused on using the buyback tool to shareholders.

And if necessary, we're going to shift the dividend. We're perfectly willing to do that. I mean this business is super productive. We can increase the dividend very substantially without any problem at all. And so the choice to have kept the dividend relatively low and to use buybacks is because we think the shares are super, super cheap. So we may end up in a world where we think the shares are super, super cheap, and we're restricted on our buybacks and so we'll just raise the dividend a whole bunch and see what happens to the shares.

And so if I may, with the last question, Scott. So you mentioned that you might start to shrink the balance sheet a little bit from Q2. But then you're also going to have maybe a big lump of cash coming if the Odaiba building sale closes.

Yes.

So you're going to have a lot of cash.

Yes.

Okay. Understood. A lot more cash than usual, I would say.

Yes. That's correct. Yes, that's what happens. You use cash in order to build out kind of your balance sheet. And when you shrink your balance sheet, the kind of cash comes flying back at you. Absolutely. You're right on that, [ Greg ], as always.

No, I'm asking because I think when we spoke maybe a couple of quarters ago, the impression was that even if you sell the Odaiba building, then you must still want to invest -- reinvest a good chunk of that. So I get the impression that the tone has changed a little bit at the margin maybe.

Yes. I mean maybe the -- I would say real estate prices have continued gone up. Global operating environment is riskier than it was a year ago in terms of things that are going on. But I don't know that we've changed that much. I mean we try to use -- we try to be as capital efficient as possible and to distribute any cash that is not necessary in some way or form back to our shareholders. And the business is very cash productive. So we did spend a couple of years and going back a little bit further than a year ago, [ Greg ], where we saw we thought inflation coming. And again, this market, I touched upon earlier, people in Japan are relatively unfamiliar with the idea that real estate prices go up every year because of inflation.

And the reason inflation drives higher real estate prices is because new supply has to come in at much higher prices because of the inflation. And so it either cannot economically come in, so new supply is restricted or comes at higher prices and gives you the ability if you have existing assets to raise rents because that's what prices are. And so I'm American. This is something that is kind of classic element of real estate all over the world, except for Japan.

So when we saw the surge in construction costs and took again a hypothesis, and we thought it was an insight plus a hypothesis that it was going to have some durability because it's linked to a fundamental shortage of construction talent as the number of construction workers in Japan decreases because of aging out of the population, we thought this would be a potential driver of higher real estate prices via higher real estate inflation. And therefore, we increased the balance sheet in anticipation of this. And [indiscernible] played out. And so now is the time we think to monetize that, and you're going to see us start shrinking the balance sheet. And cash will be generated. Yes, absolutely.

Understood. And sorry, one follow-up, if I may, one last one. So on the forecast for sustainable real estate for this year, JPY 18.5 billion, I assume a lot of that year-over-year increase is Odaiba. And I assume, as usual, you're conservative in forecasting this.

Yes. I mean which is to say we always have -- with flow income, the 2 things we're doing as a management team. One is we want to make sure we have multiple paths to achieving the targets. And two, you want to give yourself some flexibility on, okay, we -- so in other words, if you sell these 3 assets, you'll hit your target. And so instead, we'll sell -- we'll try to sell 12 assets. And it's all -- because it's also about you have a number of assets that are available to be sold, they are going to be kind of idiosyncratic or asset-specific or buyer-specific situations where there's a better price for one and sometimes an astonishingly better price. So both in order to maximize profitability for our shareholders and also to kind of hit our targets, we always have kind of overmodeled and have extra activity around hitting the target. So yes, the numbers are conservative.

And because you've disclosed this, in your forecast, to the extent you can answer, I guess, because this is a very large asset compared to your total asset. That means that you're not...

It's about 10% of our total assets. It's a big asset. Yes.

So in terms of kind of insider rules, you've already disclosed that to the market. So it doesn't prevent you from announcing buyback during the year? To the extent you can answer.

Yes. I mean...

We don't know.

Okay. I mean I think the way the legal issue around this is that we're allowed to talk about kind of activity, and we've been transparent about it. If we're actually in contract or something like that. And I think it's fine to say that we're currently not in contract, then that would kind of prohibit activity on our part. But yes, I mean, at some point, if a contract exists, then we'll be restricted on buybacks. Yes, that's the way it works. You're absolutely right.

I think we may be done. All right. Thank you, everybody. Have a good day. We're grateful for the opportunity to work for all of you. Thanks. Bye-bye.

Hi, everybody. I'm Scott Callon, Chairman of Ichigo. I'm joined today on my right by Tet Fujita, who is our Lead Independent Director; and on my left, Dan Morisaku, who is a senior member of our Finance team and the Head of Global IR for us. We're speaking against what's right in front of you, the FY '26/2, so the February 2026 full year corporate presentation. So let's jump into it.

I think there's a summary page right before that. Here we go. And I say there's a summary page. I'm going to go relatively quickly through this presentation. Maybe I'm wrong, but we try to be consistent in the way that we present things. Maybe I'm wrong element of this. I feel like I say the same things every 3 months, which is probably better than not saying the same things every 3 months in terms of what our core business activity is and providing you the KPIs and our progress against KPIs. So I'll go relatively quickly through this and go through questions and any comments on our business. It is a very strong operating environment, and we're doing well.

So we've generated record business profit, net income, cash earnings, stock earnings. We'll go through some of the details on this later. We've done both investments for growth and significant buyback activity. We think the shares are at historically low levels on this year's earnings, the year that I'm going to describe the forecast of FY '27/2 earnings, we're at 11x PE and 8x cash PE in an environment, and I'll talk about this also, where inflation is a strong driver of positive economics for the business model, which is unlike a lot of firms in the world. So it is an extraordinary time for us to deliver positive outcomes for our shareholders. Here are some of the details. Again, I'm not going to go into -- I'm going to try to choose which areas to focus on.

One of the things that you should -- you would notice is that we were down year-on-year on cash net income relative to net income. So cash EPS is flat because we were buying back the stock. Just to explain that, on occasion, it's pretty rare, but on occasion, you have a mismatch between how you account for earnings from a tax basis. And if you account for on a tax basis, earnings, you have to pay taxes on it. And so there's a cash hit to you. And the accounting can be different. And so what happened is we sold a real estate subsidiary at the end of last year. It was accounted for on a tax basis, but it is being accounted for on an accounting basis.

And this year, it's all I was saying that cash income because of a one-off tax effect is showing down when, in fact, it would have been up about also 10%. So nothing odd going on there. We are relentlessly focused on driving high cash flows for our shareholders. That's what we believe in, not accounting earnings, but actual cash earnings. This is also the reason why the multiple to accounting earnings is only 1.1 when it would have been something more like 1.3. Anyway, a one-off artifact, you're going to see a significant increase in cash earnings this year, and I will also point to that later and say, look, this is not totally real because this is the offset of the underreporting of our earnings from last period.

One of the most important things to know is that we have a portfolio of businesses that move with different levels of activity. They are all rooted in our core capability and our core activity, a value add. But it does mean that within any fiscal period, any year, you're going to have stuff going up and stuff going down. And so this is just the same as it always is. On a total basis, we're up 13% on business profit. We've got Asset Management down a little bit. We've got Sustainable Real Estate up a lot. We've got hotel down a bit, Ichigo Owners up a bit and Clean Energy down a lot. The total generates a plus 13% year-on-year.

I'm not going to go in too much detail on any of these. The -- hopefully, we designed these presentations to be relatively self-explanatory. It's probably worth pointing out that stock earnings were up in the Asset Management business, earnings were down a little bit, but none of these are particularly material numbers. SRE, Sustainable Real Estate continues to be the major driver of earnings. And let me just speak to the inflation element that I touched on earlier. It is not a good thing for the world for everything to become more expensive. The impact of the Iran war is proving to be very significant. There are global risks to this. There are country risks to this. There are company-specific risks to this as investors or companies are going to take significant higher input costs, and this is a negative for the world.

It is a good thing for all of us that inflation actually is very positive for Ichigo. It shows up in 2 ways. It shows up in our balance sheet. We have already built assets on our balance sheet, about $2 billion worth, JPY 300 billion right now of real estate. it becomes more expensive to build new assets, and it means that our existing assets are already having kind of steel in the ground and buildings built means that when new builders come in at higher costs and they're going to be -- they're going up at kind of 10% per annum in Japan in terms of construction inflation, it means that our assets are extraordinarily competitive relative to any new assets that would compete with them.

It means we can raise rents because it's -- your ability to price rents is all about replacement cost, what does it cost to replace the building and your asset as a competitive building. So that's one element. But it's less dynamic. It's a static element. We do have a balance sheet of assets that we have added value to. The dynamic element is when inflation goes up, raw development, which is the classic development model in Japan where you tear something down, you build it from nothing, is incredibly expensive. And our Sustainable Real Estate business, we will not -- we're in the business of not tearing down assets. We keep them, we improve them. And you're putting in several percent of CapEx relative to building costs in order to improve the asset.

So the competition is facing inflation, which is against 100%, and we're facing inflation against only a small percentage point relative to the asset value. So it's a way of saying we become extraordinarily more competitive in our core Sustainable Real Estate business when there is high inflation. And this is playing out in very powerful economics, and we're forecasting for next year a significant amount of growth, and that is durable. Again, inflation, for an Ichigo shareholder, is our friend. Hotels are down. That's primarily -- as you can see, stock earnings were up year-on-year. That's primarily because we did less asset selling during the year. It's just part and parcel.

The upcoming year, we're forecasting down a little bit again on hotels, which is fine. I mean there's going to be times when we generate a huge amount of profitability of the hotel business, there's times when it's going to coming less. The point is that we manage on a portfolio basis, and we make choices around, again, the core capability and the core activity adding value between different asset classes. SRE, Sustainable Real Estate is primarily about offices and retail. Hotels broken out in this category that's turned to owners, which is primarily residential. So in owners' case, business profit was up 13% year-on-year.

It did, however, come in under forecast, as you can see, and that's because we pushed out some asset sales to the year that we're currently in fiscal year '27/2, February, the earnings environment remains very strong. There has been no backing off from a desire to own Japanese real estate assets. It's linked in part because Japan is recognized as being incredibly safe and secure in a world that feels not as safe and secure as we all want it to be. And it's because you still have the powerful economics despite Japanese interest rates have gone up of being able to fund below your cap rate, your NOI coming off an asset, and because inflation, as I just pointed out, is increasing replacement costs, meaning which is a fundamental driver of the ability to raise rents because new assets have to come in at higher rents.

And so you now have a phenomenon where you're able to raise rents on an ongoing basis, and that makes, obviously, real estate more attractive. Clean Energy down just a little bit on some higher operating costs. So this is how it shapes out. As you can see, it's a relatively nice chart. Every year, earnings going up. That is not only our goal, it's believe what we need to deliver to all of you. And again, we're going to -- we see a lot of secure growth going forward, and I'll touch on that later.

What's most important to us is that we are structurally profitable. That shows up in the left side pie graph. As you can see, our stock earnings, so these are contractually embedded earnings, are about twice our fixed expenses. That means this is a firm that almost went dead, but did survive the global financial crisis. One of the things we learned is that we need to be systematically and structurally profitable, and we are. Just going to touch on some elements of the business model. We have both stock and flow earnings. Our cash earnings that shows up in cash earnings. Again, we're focused on cash, not just accounting profit, but genuine cash in the door for all of us and our cash earnings hit a record high this year.

Similarly, we have a record high on our stock earnings. You can see they're diversified among a number of categories. It is the case, and this is not something we should run away from and it's very, very powerful. Our Sustainable Real Estate business is just an extraordinary powerful growth and earnings engine. And there are elements of us diversifying around it, but certainly not away from it. This is a very, very, very powerful engine, as I just told you. One of the things that can go horribly wrong in the world for investors and consumers is inflation. I just told you, this model is anti-fragile in that sense. It gets stronger during an inflation environment. This is a very, very powerful business model.

We're selling these assets that we add value to. We generate and monetize gains on them. And yet year after year, we'll continue to generate -- to create higher unrealized gains in our business, which effectively create forward earnings. And so at the current point in time, third-party appraisal values put our unrealized gains at about JPY 83 billion. Our total shareholder equity is only about JPY 100 billion. So it's -- the appraisers say that there's actually another 80% of value underpinning our balance sheet in terms of shareholder equity. And if you look at the reality, you can see what the multiple looks like, it is manifestly clear that the third-party appraisals underestimate the amount of actual value that we derive when we go ahead and monetize and sell assets.

So this year was a big year. We generated 2.9x on actual gains on sales relative to appraisal value. We think that number is high. However, we think consistently, we've been -- as you can see, we generated about 2x. And so I just told you the appraisers think we have JPY 80 billion plus of unrealized gains on our balance sheet, meaning kind of equity value. In reality, it's probably twice that. So we have stated equity of JPY 100 billion. We actually probably have [indiscernible] equity of JPY 260 billion. That makes us less proud of what our ROE looks like. It goes both ways. But it tells you that this is a ton of embedded forward earnings, and we're beginning monetization process.

You should know that by pushing out our sales of some of the Ichigo Owners' assets into this current year, the FY '27/2, we actually ended up the year with a slight increase in our balance sheet because we didn't do the sales that we expected, but we are actually going into balance sheet shrinkage. We will have a shrinkage in our balance sheet this -- we would have had it last year. We're going to have it more this year. The business is going to become more asset-light and more capital efficient.

Our economic operating cash flow, again, we're focused on cash flow is systematically higher than net income. Again, we're a cash-driven firm. We have a very strong financial base, overwhelmingly long-term borrowings. As you can see, interest rates have gone up. That is a reality. And so we're up 43 basis points relative to where we were 2 years ago. As you can see on the bottom of the page, 61% of our borrowings are fixed. We use interest rate swaps and caps to hedge interest rate exposure. We generally borrow for about 10 years, very specifically, we borrow 10 years plus in SRE, Sustainable Real Estate and Hotel businesses. We tend to borrow 15 to 20 years in our Clean Energy business. We borrow generally about 7 years in the Owners business.

We've had some coming in of the loan terms because we're doing increasing amounts of uncollateralized borrowing with no amortization. So it's really, really nice borrowing with no covenants, and that generally is like 3 to 5 years, but it's a very, very durable capital structure for the firm, both in terms of equity and debt. And we continue to work on behalf of the world. Global warming is real. The actions that we take, the core activity of the firm is deeply sustainable. We're not in the business of tearing down buildings and wasting assets and wasting value and wasting and creating environmental effects from it. Because we are significantly sustainable in our activity and Japanese financial institutions also believe in sustainability, it enables us to borrow through ESG as a sustainable loan activity at very, very good terms, and we continue to expand this activity.

As you can see on the page, we had net acquisitions of about JPY 6 billion. We thought we were actually going to be net sellers for the year. Because, again, we pushed out Ichigo Owners activity and some sales into this current year that we're in right now, we end up being relatively flat for the year. You've got some buying and selling in various asset classes. The core activity of the firm is value add. We add value to assets. And when we add value to them, we sell them. This breaks out the activity among the various key groups. Owners is the highest turnover model. We generally have a hold of a year or so. That's extended just a little bit to give us some more opportunity. Rents are going up. We finance really, really well to optimize kind of the final cap rate when we sell the asset to a brand-new owner at the highest possible rent. But it's a very high turnover business. And so you generally have largely offset buying and selling within about a year.

Hotel earnings were down year-on-year. That, as I said earlier, is not because of stock earnings, which continue to grow, as you can see, RevPAR, so revenue per available year was up -- per available room was up 12% year-on-year, but because we didn't do a large hotel sale in the year and some impact from hotel REIT performance fees, full earnings were down. We have very little China inbound exposure. So we're not seeing really any effect of that. We, of course, should all be concerned about what's happening in the Middle East right now, its impact on high airfares and how that affects things. On a positive, it probably makes Japan a better and easier destination. On the negative, airplane costs are going up, and so we are kind of modeling for some negative impact on our Hotel business this year. It's about 15% of our earnings.

So okay, if something happens there, it's just going to be fine. But FY, this is something we're, of course, focused on. Owners continues to do well, and it has diversified its sales channels in order for it to be able to sell well, I think that's on the next page. No, on the next page was -- it shows us this business profit. We came in, in the last 2 years, we're going to see a significant piece of increase really actually a doubling year-on-year in this year. And look, we have high visibility on this already. So this is going to happen.

This is a slide where we show the diversified sales channels, and that's super powerful. I mean the different segments and different parts of the market will have some cyclicality to them. We always want to sell at the highest possible price. We do. We work for our shareholders, which is to say, our buyers have alternatives. And because Ichigo is really, really good at delivering high-quality assets, we have an active bid from buyers, and we want to have the broadest set of buyers so that we can meet their needs and deliver the highest possible returns for our shareholders. AM Growth on diverse growth drivers, I say it's growth, but the truth of the matter is this year, we are down a little bit.

That's kind of -- that was a one-off. Some of the Owners activity was expected to be security tokens, which will increase again. So we expect to have growth in our -- and you'll see it visibly in our Asset Management business. Clean Energy, we shifted towards battery storage. It is -- the economics have become very, very powerful. One of the -- there's a negative impact on our Solar business, which is there is effectively some overproduction right now relative to the ability for the grid to accommodate on the solar power production. This actually gets solved with battery storage, not just by us, but broadly. And so we think that it's ratified because battery storage has become incredibly compelling in its economics. So our major activity you're going to see from us in the near term is going to be around that as opposed to kind of new activity in solar.

And when we can pick that up again when the battery infrastructure is in place. We were a J.League top partner. So J.League is Japan's soccer league, as I say, I'm an American. We pronounce football, soccer, the Japanese football league, if you want to put it that way. For a number of years, we're effectively shifting our activity towards the club that we bought, Tegevajaro Miyazaki. We bought it in 2023. It was in J3. It got promoted last year. We just think that's a better place to build the brand and build kind of our activities in the sports area. This is not done as charitable enterprises. These are businesses. We have returns along with brand value creation coming from the sports activity, and that's going to continue to be the case.

On the shareholder side, we actually announced a JPY 5 billion share buyback right at the end of the previous period, which began execution in the last year. So sort of that actually JPY 15 billion of buyback execution during the February 2026 period, of which we've got about JPY 10 billion done. The other JPY 5 billion is in execution right now. We bought a bunch of stock in. We think it was a very, very good use of capital for our shareholders. We're going to grow EPS, both through kind of bottom line growth and through shrinking the number of shares outstanding. Cash generation is significant. We can afford to do it. As I just told you, we're 11x earnings on an accounting basis. We're an 8x EPS earnings on a cash EPS basis. The shares are very, very good value. That's why we were buying them with a bucket.

And we have raised our DOE target, and we might well raise it again, which is to say, if you look over the last 5 years, we've had double-digit dividend increases. We've shrunk shares outstanding. We want to continue to reward shareholders the ability to fund growth. We're very capital efficient and becoming more capital efficient. And so the ability to fund growth through growth investments and add a capital efficient way and also to increase our dividends and do buybacks is the highest it's ever been. And so we're reflecting that in a structural permanent dividend increase by raising our DOE target. So based on today's closing price, so we've got above a 3% yield on the stock. As I said earlier, global climate change is real, and we're focused on doing our best to assuage the effects of that. We've gone to 100% renewable energy at this point. The next page shows how we're climate positive. Our CO2 reduction activity is 9x our CO2 emissions.

So turning to the forecast. This is meant to be a summary of it. Hopefully, it's relatively understandable. As you can see, business profit, so that's kind of the best measure of operating income in the firm is we're forecasting up 21% year-on-year. The other key metrics we're focused on are EPS, which we have up 13%. Cash EPS, which will be up 35%. And again, that's in part because we underreported cash earnings because of this one-off tax effects, tax and accounting mismatch during last year, but robust growth in our business that will deliver us a 15% ROE and a cash ROE of 20%. This is how it breaks down. I think I've already spoken to this.

Let's go to the next page. So again, we have a portfolio of businesses. And so one of the things you should know is that every year, we announce like a terrible forecast for Asset Management. It's not because we expect to have a terrible year in Asset Management, it's that we just put in the stock asset management fees. Our primary Asset Management business is the REITs. We do get performance fees on when we generate value and gains on sales in that business. And of course, we do that systematically on an ongoing basis. But we're -- this is a decision that's going to be made by the REITs, not by us. There's a completely different shareholder set. There are completely different Boards. It's completely separate independent governance.

So if there is value-add monetization activity in the REIT, we will earn performance fees, but we're not going to forecast them as us, as Ichigo, because in a sense it's not our right to do so, and we have no visibility on it. And so anyway, the number shows down year-on-year. We think we'll do a lot better than that. Sustainable Real Estate, we're forecasting up 42%, Hotel down 29%. That's again, we had some gains on sale. We're not forecasting for this year. Owners, we expect, as I said earlier, to be a double. Clean Energy, I just touched a little bit. We're having more power suspensions, meaning you have to turn off your delivery of power from solar power plants when there's too much power in the grid. And so we're going to have some impact from this year. We think that resolves itself over time. We have some SG&A increase also.

This is how it breaks out in terms of the various segments and business profit, again, continuing growth, and we think this is durable and will be long lasting. And again, cash earnings, we expect to be a record -- business profit, of course, was a record also. I think the next slide is the last one, which shows what stock earnings looks like. A little bit, some balance sheet shrinkage will push down some of the stock earnings. But again, that's fine because that's balance sheet shrinkage, and we expect to have very high capital-efficient earnings for you over the next year. Thank you very much, everybody. It is an honor and a privilege to work for you. We look forward to delivering the strong results that you deserve. Thank you so much.

Thank you, everybody, for waiting. I'm Scott Callon, Chairman of Ichigo. I am joined today by Dan Morisaku, who is a senior member of our Finance team and the Head of Global IR. Thank you so much, everybody, for joining us today. We're working off of the presentation in front of you, which is also on our website, FY, fiscal year '26 February. So ending next month, the Q3 corporate presentation. So let's go to it.

I think the overview is that it's both a strong operating environment, but more importantly, what's happening in real estate in Japan is deeply in line with the core capabilities of our firm. As you know, we are a value-add investor. We, in principle, don't do development. I'll talk a little bit about what we've done in logistics. And as we say internally, when people ask me, can we do development, it's like only if you don't take development risk. So we did -- we've done it with logistics.

We specialize in taking existing assets, preserving and improving real estate -- existing assets and improving them. Because of inflation, construction inflation -- and by the way, this model is the right model for not only Japan, but for the rest of the world, but Japan has classically done a lot of destructive redevelopment, which is economically and ecologically wasteful. And so what's happened now is much of that uneconomic development has become even more economic because of rising construction costs. And so -- we just have a massive opportunity, much less competition from redevelopment, much better opportunity to add value for our shareholders.

So it's a very powerful operating environment for us. The results of -- kind of show up on a quarterly basis and will be coming at you going forward. But business profit year-to-date up 25%, EPS is up 24%, cash EPS up 19%. We've got growth both in stock earnings, up 9% and flow earnings up 31%. We will hit -- we are forecasting and we will definitively hit record earnings this year, growth in net income, growth in EPS. We think there's upside against the EPS and the ROE numbers in part because of buybacks.

We did announce today that we're expanding or doubling our existing buyback to JPY 10 billion. That's both a reflection of the fact that we are enormously cash generative, one and, two, we are very sensitive to being capital efficient for our shareholders and being cash generative means you have the cash to reinvest in your business in any sort of way to drive EPS, you could actually buy assets. You can do non-asset activity. You can also buy back your shares as we're capable of doing all of the above. We're also canceling about 7% of our shares outstanding.

And again, that's just a reflection of we're taking in the shares and we're getting rid of them. They will not be coming back into the market. So this EPS growth is structural. We acquired one hotel in the period. It's in Osaka. And again, it's an existing asset that we will improve and 2 logistics assets in Q3. For the second consecutive year, the CDP, which is a major global environmental initiative. We're on the AA list for climate change and water security. There are 22,000 companies globally that are involved with CDP.

And the number of companies -- I should look this up, so I don't -- so I'll give you the actual real number. The number of companies that qualify for a AA twice is only 145. So we're literally in the top 1% of companies globally in terms of our environmental initiatives and execution. So there are a lot of pages in this presentation. I will go briefly and hope to hit on key points without spending too much time. And I think -- mostly I already touched on this. So we'll jump to the next one.

So going by segment. I think the important thing is, I will go through the segments on the following pages is just to point out, we have a portfolio of businesses united by a core commitment and core competency in taking existing assets and making them better. And that activity and the value creation expresses itself across a number of segments, which can have volatility in them. And so on a total basis, we've got business profit up 25%. That has a hotel business up 103%, Ichigo Owners up 87%, and it has sustainable real estate down 19% and clean energy kind of flattish.

And you should expect to have volatility among the segments on a quarterly basis and sometimes on an annual basis, but the core capability expresses across the segments, and we try to be smart about deploying our capability in the areas that are going to be most profitable. So volatility within the segments and robust stability and growth from the diversification and the growth in these individual businesses.

On the asset management side, I think the only thing really pointing out is -- worth pointing out here is we had a full year forecast of down 31%. One of the things you should know is that we have stock earnings, which tend to be relatively stable in this business because of stock earnings. We also have primarily performance fees that come off of our listed REITs. We are not the decision makers for those REITs. They have independent boards. They are run for the REIT shareholders. They're run tenaciously for the REIT shareholders.

We are not able at the beginning of the year to say, Ichigo office is going to do this and this and this, and so let's price it into -- or let's put it into our forecast because that would be totally wrong. We do not make the decision on that. The REIT makes a decision on it. So what it means is year after year, we show up. And yet, we run the REITs really, really hard, and we do monetize the value that's created. And we do, as Ichigo Inc. 2337, get the performance fees on those monetizations, but we can't put that into our forecast. It would just be wrong.

It's not the right governance. It's not the right approach. And so just a reminder to you that every year, we will undoubtedly crush our forecast. Year-to-date, we've already hit the full year number -- we will beat the full year number very substantially.

I think the one thing to point out on this -- on the sustainable real estate is one, we pull earnings are down 39% and we do have asset sales moving around from quarter-to-quarter. We expect to do a bunch in the Q4. So we would -- and so we will do well in this segment on a full year basis. And the other thing to point out is that the biggest driver of the increase in stock earnings is up 15% year-to-date is we've done an enormous job in kind of repositioning and growing value at our single biggest asset, which is a massive former headquarters building for [indiscernible] on Tokyo Bay and the NOI returns from that are very, very powerful.

And hotels, I think really the only thing to point out is kind of 2 things. One, this is a very productive business. And two, and I'll talk about it a little bit later, there does -- you do get impact sometimes some activity, for example, the current kind of Japanese/Chinese geopolitical tension has pushed down a number of Chinese tourists, coming to Japan is not particularly impactful on us because we don't tend to target that segment.

But this is a powerful growth driver for us and one that we also -- all need to understand together, has more potential earnings volatility to it and which is why we're careful in not overgrowing the business, one; and two, making sure we do things such as growing out THE KNOT series, which is our boutique -- Ichigo's own branded boutique hotel, which is an enormous, enormously powerful offer that has very high returns on capital.

Ichigo Owners, up very large year-to-date. I don't think we're going to -- this also increasingly -- it started as a business 9 years ago that targeted kind of single asset sales, primarily targeted to cash-rich incorporations and individuals at this point has become a much more bigger lot business where instead of selling asset for $5 million, you're selling kind of 25 assets together for $150 million.

And so it has more kind of activity moving around depending on what quarter we do the asset sale on this one, but it's a business that continues to grow well. Clean Energy, power production up a little bit year-on-year, some increase in operating costs, so basically flat year-on-year. I've already kind of touched on -- we're going to expect record returns. So we'll go forward. Page 17, as you know, we are very, very focused on being structurally profitable, and we deliver that for you. We're a company with now a 25-year operating history. We went through the financial crisis. We went through COVID.

It's really, really important for us to be able to allow our shareholders know that we are, as I say, structurally profitable. We have a massive amount of stock earnings, which are overwhelmingly higher than our fixed expenses, and that's how we continue to deliver that for all of you. On the right-hand side, it shows how stock earnings and flow earnings break out. As you can see, I think the most important takeaway here is that Ichigo Owners is primarily a flow business and the other ones kind of tend to be more balanced.

We think it's important to have ongoing disclosure. So on a quarter-to-quarter basis, we're not something that kind of like, oh, this is going well, so we put it in and now we're going to take it out. So I mean, this is kind of ongoing disclosure. I won't go into detail. Page 18, Page 19, Page 20, which shows we are long-term borrowers; Page 21, which shows what's happening with our borrowing activity. We have -- it's in the footnote, but we have 61% of our borrowing cost fixed through hedges. That's been helpful given the increase in interest rates.

And I would point out that a difference between 1% and 1.43%, which is what the average interest rate is, has gone up over the last 2 years. It seems big, but guys, it's only 43 basis points. It really is not material. It's far more material as to how we're deploying the capital and it's far more material, and I've made this point before, that we now -- and as I talked about how the operating environment is so in tune with what we're doing, our construction cost inflation, and we are along that as a firm, meaning kind of as construction costs go up, when you're a classic developer model, you can't make the pricing work anymore. You can't put up assets without kind of increasing rents, literally 30%, 40%, 50%.

So we are very CapEx-light, very capital efficient, very light construction and therefore, very long construction inflation because it damages our competitors in a way it doesn't impact us. So the fact of the matter is that because generalized inflation has gone up, we're seeing a rise in interest rates, which is an incredibly minor negative for us, but more fundamentally, there's been an increase in construction costs, which is running 2 to 3x the generalized inflation rate, which is incredibly important for our business and the social contribution we make because we want to have good assets in Japan at the lowest possible price, and that's the core deliverable and capability of the firm.

Just to turn to kind of what buy-sell activity looks like. I think the broad information is probably most readily seen on the table on the bottom. We've been slight net sellers of retail. We bought some logistics assets, we'll talk about it in some detail. We picked up some hotels, which, again, this is part of -- these are going to go into primarily Ichigo brands. We have a high-end boutique brand called THE KNOT. We have also a kind of a value for money brand called OneFive. Both have been powerfully successful. So increasingly, we're going with our own brands. Again, that's a way to deliver higher returns without using capital. And year-to-date, we've been net sellers for Ichigo Owners, which is brand-new prime, primarily Tokyo Prime Residential. That's how it breaks out.

We'll go to the next page. So you don't have to listen to me endlessly. So we have -- we brought online 3 new logistics centers. These were all development projects. And so to go back to the point that I said earlier, our rule is if you kind of do development, you can't take development risks. So this was build-to-suit with a buyer signing the master lease with us on the day that we've decided to buy -- that we agreed to buy the asset. So to be clear, we are not in the business of taking development risk. So these are all assets that have come in line.

And we know the cost upfront. We knew the economics going forward and it's an opportunity for us to do something in an interesting sector. As you know, e-commerce continues to grow everywhere in the world. It's growing in Japan, which has lower penetration both -- this is both kind of classic warehouse and cold storage, both of which are growing well. So these are assets that are very valuable.

And over time, what happens is since we agreed on them and began construction previous to the current construction inflation, we've got them at prices that are low relative to current market pricing and what's happening with construction inflation Is getting worse rather than better. So we expect that we would generate even higher returns going forward. I talked about a little bit of hotels earlier. You can see that our RevPAR, so revenue per available room is up 18% year-on-year. A little bit of a slowdown in November, December, and January because we do have some amount -- small amount of Chinese inbound exposure, but not particularly material.

For the most part, the result of the slowdown there is that we're having a substitution effect of non-Chinese travelers. It means that we thought RevPAR is going to go up more, and it's not, but really not any material impact on us. Owners, again, this is kind of just an update of the classic material we provide. We are actually really, really good at this point. We have been doing residential for 9 years now. This is, if you can call it, kind of a fabulous model. We don't do the construction ourselves. We design with the developers, the kind of prime real estate, prime residential -- and this is multifamily residential that we want.

They build it to our spec. They take all the risk on the construction. We then lease it up using our own leasing capabilities and that's an extraordinary kind of rich and advantaged kind of understanding of the market and we deliver just super powerful economics to our shareholders. Average hold is less than a year and the IRRs are kind of -- and ROEs are uncountably high, which is a nice thing. And so -- I'm sorry, go ahead. We'll go to the next slide. And so we -- it's an interesting question on this forecast, though.

One of the things, that's a good thing, is we have pricing power. And so we've expanded the number of channels that we have. And it's a very strong market with, as I said, very high demand for our product, which is you take existing real estate and you improve it. And so we don't know if we're going to hit the forecast on Owners this year in part because we're trying to figure out -- I mean, it's -- we have buyers and it's like is it going to -- are we going to complete in the fourth quarter? Are we going to complete in the first quarter of next year? So we'll see what happens with that.

As a broad statement, we know we're going to hit this year's numbers and beat them. So we'll see -- if we end up doing this in the fourth quarter, we'll beat them by more. If we ended up doing in the first quarter, we just have a running start to next year. It's one of the things that it's important to us and as our shareholders and investors, I think it should be important to you. We do not -- we're not in the business, and I've seen a lot of Japanese companies. We have this thing as like we need to hit the numbers for the fourth quarter.

And therefore, this is not the best pricing, but we're going to have to sell. We do not do that. We make sure we have 6 ways to get to the yes, and we'll choose which one is the most optimal. So in the case of Owners, we have transactions that occur. We don't know if they close in the fourth quarter. We don't know if they close in the first quarter. We have absolutely no rush to close in the fourth quarter if there are better economics available in the first quarter next year. So we'll see what happens.

We launched a private residential fund. As you know, we acquired a asset management company last year and is focusing on private funds to again, to grow. This is in part growing our sales channels and our capability to exploit sales channels. There's a market for private funds that we wanted to do more in. That's the good news. We did not, however, do a new security token launch this year. And so that's kind of worth thinking about kind of the positives and the negatives. To start with the positive, it's because we didn't need to. We had other places to sell our product. And so we chose to sell via different channels.

The negative, though, and maybe we shouldn't call it negative, it's kind of an area that we should think about what we want to do about it. It's in part because we -- at this point, we're putting -- every time we do a security token, we sell that out instantly. So there's huge investor demand. But we are placing these via Japanese securities firms. And so what's happened over the last year was, we had kind of a bunch of stuff happening in the world and the securities firms are very capital market sensitive.

And they're like, well, we think we want kind of -- we want lower pricing on this. And it's like, no. We can sell these assets, these improved digital assets to like 5,000 other buyers. So we're not going to give you at lower price. So what do you want to do? It's like, oh, okay, well, I guess we still want to do it. But let's look at kind of the market environment. It feels little risky right now. Can we do this in 3 months? Can we do it in 6 months.

So we're constantly generating new products. So yes, we can do those things. But does raise the question as whether or not we should have our own -- put it on the blockchain directly ourselves. And so -- this is a very robust product. It's an extraordinary powerful offer. We are -- and I've said this before, so forgive me for repeating myself. This is effectively the REIT product being put on the blockchain because REITs are the same sort of thing, private REIT, a public REIT, we run assets really, really hard for the shareholders. In this case, we're running assets really, really hard and securitizing them on the blockchain.

But it is a different sales channel and has kind of SKUs as a whole bunch of new buyers in it. They tend to [indiscernible] younger and kind of our REIT buyers tend to [indiscernible] older. So we like the category quite a bit and have ambitions to do more here. And so we haven't delivered against those ambitions this year. So we have to be thoughtful about do we kind of run forward and are we going to -- are we going to get this done with the securities firms as our brokers are doing is there something more substantial sales. So stay tuned. We'll work on that.

And this is growth and diverse -- growth drivers -- actually, the growth didn't happen this year because we're expecting to do stuff more in the security token space. We didn't. We had some stuff come to expiry. I pointed out last quarter that we actually offered -- ended up delivering double the return, which we had marketed to our investors in our first security token. So that was a fabulous success. As I tell you, our offer sells out instantly. And so we really do like the blockchain opportunity. We want to do more there. And that's why I say we're going to think about how we will achieve that.

In terms of the Clean Energy business, we're shifting our attention, and we've talked about this before, to battery storage. We think it's a really interesting opportunity. We've got some things that were going on there. There is a need which Japan has a very substantial clean energy -- growth in the Clean Energy mix and volatility around that from -- primarily from solar to do something with batteries because battery pricing has come down so much. It is now at this point, economic for us to do things in the space, and we expect to grow that business.

We are buying back our shares. We think they are -- we're currently trading at about 11x earnings and that's accounting earnings. And as you know, our cash earnings are substantially above that, 30% above that. So we're trading sub-10 PE with a business that is really powerful with an operating environment that I've told you, there's been a structural change and appear structural and we'll -- because it's showing durability at this point.

With the continuing decline of construction labor force, that's what points to the structural nature of cost inflation in construction, which is a very, very strong driver for our business because it damages kind of the classic Japanese development model, which is a primary amount of real estate construction in Japan. So it's really, really good for us. It is an opportunity for us to massively grow our market share.

Anyway, we don't think that's being reflected in the current share price, and so we're buying with a bucket. So we doubled our buyback. We're canceling shares, as I said earlier, because it's not coming back in the market. This is a permanent growth in EPS. We grew our dividend. You can expect us to continue to grow our dividend going forward. We still have a J.League shareholder program, which a number of first [indiscernible], and we're just going to keep on running forward.

I talked about our activity on the environmental side, and it's important. Look, climate change is real. Companies like ourselves should be responsive to it -- to do something about it, and we are. That shows up most obviously in our activity around renewable energy. So we've completed a renewable energy transition, 100% of the energy we use is now renewable. We actually have CO2 reduction through our production activities that is 8x greater than our CO2 emissions, and this is probably the best measure of us as a climate positive company.

And the final thing worth pointing out is that we bought, as an experiment, we don't play with our shareholders' money. We actually expect to do something powerful here. We bought a J3 club 2 years ago. We have been promoted in just 2 years to J2. That is an extraordinary positive and powerful outcome. As you know, it generates more -- I mean, this will not be a major driver of our profitability, but it has some significant branding value. And we're trying to do more.

As you know, Miyazaki, which is southern most prefecture in Honshu on the main island in Japan. We have a significant amount of business activity there. We think there are some -- there are major branding, community level branding opportunities that are powerful that will drive more economics for us.

We're seeing if we can take this -- we're not quite Red Bull at this point, but taking this to be a national brand as a very community-oriented soccer club that is known as an Ichigo club. So we'll do more there. But bottom line is, you can run a soccer club, you should win, and we're doing quite well. So we go to the J2, we'll see -- we have our own dreams, welcome to [indiscernible], if we can get something -- get to J1, but that's what we're aspiring to. So that's what I have.

Thank you very much for your patient listening, and I'm happy to take any questions and comments.

We have a question from Greg. Thank you very much.

Can you hear me?

Yes.

I have a couple of questions. One is you briefly highlighted the hotel situation with regard to China. Can you maybe go a little bit more granular in terms of if you are seeing more of a deterioration vis-a-vis kind of end of November or early December perhaps? Or do you feel that on the ground, the situation is fairly stable as we head into Chinese New Year in the middle of February would be my first question.

And the second question would be indirectly related to the cancellation of treasury shares. I guess this means that in terms of potential domestic M&A opportunity. Maybe there is not something that is immediately palatable to the firm. But at the same token, as you know, with the rising cost and cost of sourcing assets, scale is becoming more and more and more important. As we've seen with the example of ITOCHU, slightly different business model, but obviously, ITOCHU tying up with [indiscernible] residential to help them kind of develop some sites along railway station, et cetera, for resi.

As you highlighted, Scott, given that you guys have been a good -- you've built a good brand and you have a fabulous business model. Is there a way to kind of scale more with a partnership with another firm that perhaps has some assets, but not necessarily -- doesn't necessarily have the know-how or the marketing know-how so that Ichigo can kind of go into its -- the next scale of its development, so to speak.

Thank you, Greg. So 2 questions. The one on the Chinese tourism, we kind of -- it fell off immediately after the kind of the tension emerged between China and Japan on Prime Minister Takaichi's comments about Taiwan. It has -- it fell off and it stayed where it is. So there's no deterioration, but also no improvement. So we would expect Chinese New Year to be down relative to last year. We don't -- it's basically not particularly material for us. It is not a significant part of our inbound business. So -- but to answer your question, there's -- it's stable, not deteriorating.

In terms of the treasury share cancellation, I think the message there is -- I mean, you mentioned M&A. we do not expect -- if we buy something, and look, we are -- one has to be very, very careful about M&A and the post-merger integration issues and overpaying and all sort of things. So I would express us being much more interested in driving growth organically than through acquisitions. But if we ever to buy something, we're not going to use our shares when they're cheap. And it's probably worth pointing out that our ability to borrow well.

Now base rates have gone up, but our ability to borrow well is the best it's ever been. We have all the major mega banks coming to us and wanting to support more activity on our part. It is a very -- we've a very strong credit. We deliver on what we need to do. We've been around now for 25 years. And so if we were to do anything, we can use cash. We can -- we can use debt, but we certainly want to use shares. Your idea about combining in some sort of way, I mean, in order to work with an asset-rich Japanese company where we could deploy our real estate expertise is a great one.

And so, yes, that is something that is an ongoing conversation we have internally and with potential partners on that. So I mean, if we could do something along those lines, we would because there's no question we have a set of capabilities that are just far more relevant than even 3 years ago because of construction cost inflation. So companies who had classically like, okay, we have an old set of buildings. We're going to go find a general contractor and kind of have them do this for us. That doesn't work anymore.

So the desire to work with Ichigo among kind of asset-rich companies has gone up and our desire to take advantage of our set of capabilities. And I think this is what you're pointing to is, it's not only that there is an economic return opportunity and a social contribution opportunity, if we partner with somebody big and powerful, there's going to be likely a significant reputation brand and probably multiple expansion and possibly even more credit support, although as I just pointed out, we just -- we're able to borrow really, really well at this point that would be powerful.

So like that idea a lot. And it's something that you need to find a partner and you need to make sure you're aligned with the partner and all the sort of thing. So one has to be cautious about whether or not we can deliver on that, but it's something if we could deliver on, we certainly would like to. Did I -- Greg, did I get your 2 questions?

Yes, yes.

We will bring it to a close, if there are no more questions. Okay. Thank you very much. We are done. Thank you, everybody. It's truly an honor and a privilege to work for all of you. Have a great morning, afternoon and evening. Take care.

I'm Scott Callon, Chairman of Ichigo. Thank you very much for joining today. I'm joined on my right, Tet Fujita, who is our Lead Independent Director; and on my left by Dan Morisaku, who is a senior member of Finance team and Head of our Global IR. We're going to be going through the FY '26 to the February 2026 first half corporate presentation that's in front of you. Thank you so much, everybody, for joining. We're really grateful for your time.

So let's start on Page 6. One of the things you should know, we changed a name of one of our earnings classifications. We were calling it all-in operating profit. We've changed it to business profit. There's no change in the definition of itself. The reason we changed it is because we started doing this disclosure, and I'll go into some more details a couple of years ago. And since then, a number of big Japanese real estate firms have started using an equivalent disclosure and they're calling it business profit and just felt like it was the -- it was easier for investors to use a similar naming scheme for it.

It was also a little bit by calling it all in. People thought it was possibly all in everything, but the [indiscernible] So we went -- we made a name change. So going forward, it's going to be business profit, BP as opposed to all-in OP. I hope that's okay. All right.

So on to the summary for the first half. Business profit, we think these are the 2 major KPIs we should be focusing on. business profit, which is a broad definition that encompasses our core operating earnings and cash EPS are the 2 major measures -- earnings measures for the firm. So one of them was up 60% year-on-year and the other one was up 52%. So it was a very strong quarter. It's -- the business environment is superb, and we run forward.

Stock earnings up 14% year-on-year, flow earnings up 91%. As you know, we have a business where we have very strong sustainable recurrent profitability coming off of just kind of stock, meaning kind of recurrent contractual earnings and then on top of that, we have flow earnings. We are forecasting record earnings for the year that will bring in EPS at JPY 38. So EPS growth higher than net income growth because of the effect of the share buyback, put us an ROE of 14% and cash ROE of about 18%.

In the first half, we completed a JPY 5 billion a year share buyback. We acquired on the acquisition side. The main thing that we did is we acquired 3 hotels with value and upside. The hotel market is very strong. It's also inefficient, and there are opportunities for us to deploy our capabilities there that we think are very powerful and will drive forward earnings for us. So just to show you how OP plus extraordinary gains feeds into business profit.

One of the things that we do, we exist to serve shareholders in the world, we use the tax shield of declaring assets to be fixed assets. So if you carry your assets as current assets, you don't get depreciation. If you put into the fixed asset category, you do. And so you get a tax shelter result, it means you generate more cash flow. And we serve, as I said, shareholders in the world by having stronger cash flow, we can deploy that cash against forward investments or buybacks. And so that's really, really positive. That's why we have cash earnings that are 1.3x our accounting earnings.

But the impact of that is when you put assets -- and this is an accounting definition, it has real-world impact because it gives us a tax shield and generates higher cash flow for us. It means that when you record the gains and there are gains on the value add, it shows up as extraordinary gains as opposed to part of operating profit. So because we are literally taking similar assets and the ones that we can get away with putting into fixed asset categories we get the tax shield, we put into a fixed asset category, but they are equivalent assets to what we have in current assets, you want to be able to have a broader look at what our total profitability is from our value activity, and that's what business profit does for you. So business profit is up 60% year-on-year. And as I say, it's been very robust.

To look at the breakdown of this. And in fact, we have a little bit of logistics issue because the camera is right in front of me and is blocking my view on the screen, I'm going to look down on occasion. But that's fine. We're going to go forward anyway. The year-on-year activity has -- is up 60%. If you look off to the right, you can see that on the full year, at the forecast, we're expecting Asset Management down 31%, Sustainable Real Estate to be up 67%, Hotel down 33%. So we have an adjustment and I can see the screen. That's good. Thank you very much. Ichigo Owners up 68%, Clean Energy is down 13%. And the total is we've got year-on-year, we're forecasting up 14%.

And so we, of course, always expect to beat our forecast, and you should expect us to also. But what I'm pointing to here is we have a portfolio of businesses. They all deploy our capabilities in value-add in real estate. Clean Energy is an example of that of us taking undeveloped and kind of unused land in many cases, former factories, schools, dumps and turning that in solar and wind energy. But there's going to be some volatility among the segments, but there's a portfolio effect and diversification effect that's very, very powerful.

What we do at the beginning of every year is we don't forecast in the case of the REITs, any performance fees. And yet there is significant activity within the REITs. They do generate value-add gains, and we do result in performance fees. So just as an explanation, we end up with -- and go to Page 10, the previous page, we end up with generally a year-on-year forecast that's down, so you can see asset management forecast down for the year, we'll find out together whether or not there is activity in the REITs that results in performance fees.

But you should not be surprised if we end up beating that by a lot because we will if we have performance fee activity, related activity out of the REITs. So I will go quickly through -- we just jumped past 11 asset management. I will go quickly through all these slides, but only very quickly and just kind of highlight things.

So I think I've said my bit on asset management and turning to SRE, so sustainable real estate. What's worth pointing out here and just to kind of go to some kind of more unusual activity because as you know, we want to have ongoing disclosure that's consistent. And so you see a lot of the same information and it's updated in the current period. And so I'm not going to go into a lot of detail about why we presenting information and hopefully, it's self-explanatory. But we had -- in flow earnings, we had a significant contribution from a gain on sale on a data center investment that we were involved in.

We have -- data centers are really interesting. We're constantly looking for opportunities for us to create value in new asset classes, and we have been involved in data centers and took a JPY 2 billion gain on that. We also exited -- as part of a cleanup, we did some things that were kind of small scale and didn't work out, for example, in coin laundries. I mean we have things that we experiment as a firm. Similar to Amazon, we're happy to have things go wrong, only go wrong at small scale, but there are opportunities to learn.

As you know, we entered the storage business that went phenomenally well. We exited a massive gain. There was some idea that maybe coin laundry would be interesting. No, it hasn't proved to be interesting. So we entered, we exited and we took some gains of sale on the exit in this quarter.

Hotel, what's worth pointing out is that we have 2 branded hotel chains, one of them is the KNOT, which is kind of a higher-end lifestyle or boutique hotel. Another one is the OneFive. These are both Ichigo proprietary brands. OneFive is kind of a lower cost point, but very good food from -- Japan people really care about good food. I think people visiting Japan do also. And so it's kind of a point of -- that's interesting to our guests. They come and they stay in Japan and they stay at the hotel and they have really good food. Anyway, so 3 of those hotels, one in Tokyo, one in Hiroshima and OneFive Osaka Namba have been key to driving the hotel earnings.

Ichigo Owners, you'll have kind of volatility from quarter-to-quarter based on whether or not we have a transaction in terms of selling portfolio, we did, and therefore, you had to earnings up doubled year-on-year. We expect to have security token activity and portfolio sales in the second half. The year is looking quite strong. Clean Energy is pretty much kind of flat year-on-year. I said this before, we want to grow this business more. I'll talk a little bit about later. But at the moment, it's just a solid contributor with a significant contribution from cash contribution, earnings contribution from lower depreciation attached to it in addition to the earnings that we generate on an accounting basis.

So again, we are forecasting a record business profit -- I mean, record everything, operating profit, stock earnings, flow earnings, net income across the board, but this shows kind of how this all ties together by segment on business profit. It is an important element of our business that we're structurally profitable. Our stock earnings, so again, these are kind of -- these are fixed -- relatively fixed earnings, contractual ongoing. They're not capital gains, let me clear that, that are going to show up in flow earnings, are generally about twice our fixed expenses. And so even we do nothing on the flow side, and we always do things on the flow side, we are profitable.

And stock and flow earnings, both are expected to be record this year. Again, there are going to be some pages why I barely say anything, this is going to be one of them. This shows where our stock earnings break up across the segments, again, quite diversified. We have a strong financial base. We're careful about how we borrow and diversification of our borrowing and most importantly, by the tenor long-term borrowing. So 85% of our borrowing right now is long term. We've actually did a certain amount of bridge activity that we're going to lengthen out this year.

So we'll probably be banging up more above 90%. But the point of the matter is that we borrow very long term. It's important to have that solid structural and durable underpinning for the liability side of our balance sheet. So dividing across our businesses, we borrow primarily for the sustainable real estate business and hotels that -- generally these are 10-year borrowings, Ichigo Owners has got a 1-year turnover and to show how conservative we are with about kind of the length of our borrowing, even though it has 1-year turnover, we generally borrow for 7 years.

So as we've been growing our Owners business, it's a 7-year borrow versus a 10, it means the average length of our borrowing has gone down a little bit, but this is a very, very durable coverage over kind of in terms of our asset liability management. So the one thing that's worth pointing out on the page, of course, is that interest rates have gone up. So a 36 basis point increase in interest rates over the last 18 months, it is more than covered by the extraordinary increase in replacement cost, meaning construction cost, giving us much more value in terms of our existing assets.

People classically describe Japan as an open supply market, right. There are very few restrictions on building. But the problem is not that there are very few restrictions in the building in terms of owning existing assets. The problem has always been there's been no inflation. And so someone can put a new building next door to yours built at the same price as yours 20 years ago. That is not the case anymore.

There's been an absolute surge in inflation -- construction inflation, it's running probably 3x or so of more general inflation. The data that you see coming out on the construction industry implies it's only running about double. I can tell you that's not accurate. What's going on is people are in order to get things done, you need to pay more to accelerate the build itself. So you're seeing inflation running -- construction inflation running at something like 10% per annum, and that's pushing up replacement costs.

And what it means is when you put up a new building, you're putting up at a massive premium to what an existing building is similar was the case historically been in, for example, U.S. and Europe. And it means that we're able to raise rents. So that's one thing that's powerful for us in terms of our balance sheet is suddenly, we have the ability to raise rents across our balance sheet. But more fundamentally, as Ichigo, we have always been long construction costs. We are not guys who build from scratch. We're guys who take existing assets and improve them.

So it's been a punch in the face for those with more classic development models. It is an enormous wind at our back for us to take our capabilities in a high construction cost environment and deploy them against a bunch of assets which are not being torn down anymore and not competing with new assets because you can't build new assets at levels are competitive with what we can do with our value-add activity.

So it is, without question, the single best operating environment we've ever had in the context of -- and so I'll just leave the plus and the minuses, we're all aware of the extraordinary uncertainty in the global operating environment right now. So we have to manage both. One, a fantastic operating environment, which -- where we can deliver capabilities that we've built over years that are matched to that environment; and two, we should all be very careful about what the future looks like.

In terms of our acquisition and sale activity, as you can see, net sales, it's a small amount of net sales in the first half. We expect to be net sellers over the full year and probably going forward. We built the balance sheet a bit over the last couple of years. We saw the visibility and got there sooner on kind of how construction inflation was going to drive up kind of the value of assets because replacement costs are going up so high. In Japan, none of us has experienced this kind of construction inflation.

So the Japanese participants were -- I mean, we are a Japanese firm. But as you probably can tell from my accent, I'm American, this is something that we are able to kind of bring some insights from what's happening in the rest of the world and has happened in the rest of the world. So we saw how construction inflation would play through in terms of asset valuations earlier than most and accumulate some assets at very good prices.

It is a seller's market, it -- because what I've just told you is emphatically true that at the end of the day, we think that real estate needs to be underpinned by fundamentals to be worth owning. The fundamentals of the assets that we own are rising, rising costs have meant the ability to push through rent increases, and it's a very powerful position to be in. So we've been minor net sellers. In the first half, we expect to be net sellers over the full year and possibly going forward.

This kind of breaks out how we've done things across the 3 major acquirers and sellers in terms of segments, which is Ichigo Owners overwhelmingly since that's a high turnover model, generally say, less than a 1-year hold, hotel -- a hotel segment and our sustainable real estate segment. You can see we have executed contracts on the far right-hand side. We have -- we don't have them seem to be offset by executed contracts on the sell side, but this is true because we are going through processes that are generally auction processes, but they are auction processes, but we understand we're well along the way with the sales of our assets, and we'll complete them during this year.

Tradepia Odaiba was a problem asset. It was a great asset. It was 98% occupied at peak, then corona punched in the face -- COVID and coronavirus punched in the face, and we spent multiple years kind of repositioning the asset, primarily by focusing on delivering kind of a community experience in the asset. I said this before, one of the insights that was powerful about WeWork is that better quality assets and a better current environment is valuable. Some degree of kind of trying to build community can be valuable. Our kind of perspective on this is, yes, and not everybody wants to be the shared office. So delivering kind of higher quality in the asset itself, delivering a stronger community experience in the asset can be also associated with people having private offices, companies having their own offices, and that's what we delivered at Tradepia Odaiba.

And so we have had a multiyear process of building out a community and building out the aesthetics and the functionality of the asset, then we're back up to 95%. And we think we'll be at 97% again very, very soon. So this has gone very well. The result of that is we think it's ready to be sold, and we'll begin a process over the next year of putting this up for sale and we think we will generate significant gains on sale as part of that process.

Hotels are doing well. The significant inbound, the Japanese economy is doing fine. One has to be careful with Hotels. So on the downside because they reprice daily, unlike kind of you have longer leases with kind of every other asset category. And on the other hand, there's significant growth here. We're very good at this, both as an owner and operator. We have delivered despite the crushing experience of COVID, which turned everything off. Through the cycle, we have delivered extraordinary returns through our hotel business. We built out new brands. We've built out new capabilities, and we expect this to continue to be a very productive asset for our shareholders.

Ichigo Owners is -- I think it's ninth year at this point. That continues to be a business that goes very well. We like it a lot. I mean it's a high turnover business. We want more turnover on our balance sheet. We're delivering kind of a much lower margin in terms of gross margin, 10% on the business, which means we're a much better value-add, value provided for our customers, the buyers of those assets. As Jeff Bezos family has said, your margin is my opportunity over at Amazon. So this is a market that has been classically occupied by people taking 20%, 30% gross margins. We can run this business very, very well at 10%, and generate kind of 30%, 40%, 50% ROEs off the business, and that's what we're doing.

So we are the single best, we believe, value provider in the space. This is a business focused on Tokyo -- over only Tokyo prime location, brand-new residential assets.

We get them designed to our specs. This is a fabulous model. We're not building this. We're having developers build them to what we need. We use our leasing capability. We have -- we use our design capability and understanding what the market needs are and the functionality in the assets. And then we use our leasing capability, lease them up and we lease them up very quickly and we sell them. And it's an extraordinary powerful business.

That's what our OP looks like over time. It bounces around because things move between periods, but it is on a growth trend and will continue to grow. One of the things that we're doing with some of the Owners assets, we're putting them into security tokens. We -- and so these are kind of real estate-backed securities, so not crypto, but backed by hard assets. That's a business that is growing very well. It tends to have a little bit more of a capital market cycle associated with it. So when things get diced in the markets, people back away from it. Nonetheless, it's -- frankly, we're taking kind of our asset management capability similar to our REITs and putting them on the blockchain.

We did the very first Ichigo token. We actually completed the sale activity on that. We actually told the investors that they should expect a 4% annualized return on it. We sold it on that basis. We actually delivered about a 9% return. As always, we want to underpromise and overdeliver. So it is an example of us supporting our asset management capabilities and surprising people on the upside. So this is a good -- it's a good business. It's a good product. We're taking really good assets and serving the needs of investors, and we will continue to grow this.

And so AM will grow on these diverse drivers. One of the things that's powerful about kind of what we've done is we've built out not only our value-add capabilities over the last 5 years, we've developed a diverse kind of set of outlets, including, for example, security tokens in the last couple of years that give us multiple options for where we should place our assets that allows us to kind of optimize profitability for the firm.

Clean Energy, we should have grown more, and we have needs and desire to continue to do so. We think the most interesting new opportunity is battery storage, which is now kind of because of the drop in battery prices has meant kind of -- you want to call it grid parity decline means you have the ability to do very compelling economics in Japan. And so we expect to grow that. We've got some activity right now going on in green and biomass. We'll see how much we can scale that. What's interesting about battery storage is it is very scalable and could provide kind of some significant materiality to our clean energy business over time.

We've been consistent in buying back the shares, and we did JPY 5 billion year-to-date. To the extent that we're open to do so, we would expect to do more. And so stay tuned. We continue to think the shares are undervalued and buying them back is a good use of shareholders' capital. And because we're so cash generative, we can still do things in terms of growth activity. But I told you we grew the balance sheet, deliberately recognizing how we thought replacement costs.

And so we weren't predicting things. We're just kind of watching how replacement cost is going up so much and not seeing that fully reflected in asset prices. So we bought ahead of that. We don't expect to grow our balance sheet. We expect to shrink our balance sheet. There's going to be more capital available for share buybacks going forward. And we've been increasing our dividend, and we'll continue to do so.

And the final slide is we have an Ichigo J.League program. We're a top sponsor of the J.League's Japan soccer or football, if you want to call it, using a nonstandard term for Americans. And one of the things that we've done is we give our tickets away to all of our shareholders, not only at this company, but our REIT and infrastructure fund shareholders because these tickets belong to them, not to us.

On the renewable energy side, we are now 100% renewable. We have always been climate positive. We now -- we have 8x CO2 reduction relative to emissions, and that's delivered both on the production side in terms of substituting our clean energy activity, our production via wind and solar power for fossil fuels and also pushing down really hard our fossil fuel link consumption activity. So that's what I have in terms of the presentation. Thank you so much for your patient listening.

Yes. Thanks, Scott. Thanks for the explanation. Pretty good results.

Yes.

I guess in light of what you're talking about construction cost inflation being a seller's market, let's just theoretically say that you sold Tradepia, and had a great return from that, a big chunk of cash comes back. Where do you see the opportunities right now? I mean in terms of this business model, you still have to spend on refurbishment and construction even in a value-add setting. Where do you see the opportunities for growing your -- specifically the SRE business, the value-add business?

So one of the things -- so we -- I suspect we're going to have excess capital, we want to do more buybacks. But one of the things that a rise in construction costs implies are your returns on CapEx are higher. So the good news is the highest has ever been ability to deploy capital against CapEx, meaning kind of what we do to improve assets, existing assets. And so there is ongoing and systematically will be ongoing the search for assets that we can improve. But this is going to show up, and this is a very positive thing that our CapEx budget is going up because we're doing refurbishments at a scale bigger than we've done before because the opportunity set is so big.

So I would describe those as the 2 likely kind of outcomes, buybacks plus kind of more CapEx activity. It is the case that the battery business, for example, I just described, could take a fair amount of CapEx that's slightly different from -- so it's not in the real estate value-add of the business, the Clean Energy part of the business is another place where we can deploy capital. But those are the kind of would be initial thoughts on that. Did I answer your question?

Yes. I guess in terms of just the old -- which asset class do you prefer at this point in the cycle question. I mean, do you have any thoughts on that office, retail, data -- I didn't -- the data center sale was a surprise, and that's not a refurbishment, that's greenfield, right? Just kind of comments on some of the -- where you think you are in some of these different asset class cycles?

So just to be clear, when I'm asked internally, can we do development? And I'd say only if we don't take development risk. So the data center -- actually was the data center conversion, we were involved in a way of kind of putting the entire project together. We took a significant gain on it without having any equity risk. So it was an extraordinarily positive outcome and very much kind of the thing we want to do.

We have begun more work in the data center space, and it's possible that, that could become a brand new and important asset class to us. So we'll see where we can take that. Against the existing asset classes, Hotels are super productive, but we don't really want to own more than 25%, on the max 30% of our total assets, Hotels, because of the repricing, because they're the most economic sensitive asset class. And so it's interesting actually -- and retail has kind of more volatility in also.

And so the answer is that office is actually the most productive. And we're going to build out -- I told you we've done this kind of community activity. We haven't kind of put together a full disclosure on this, and we will sometime, I think, this year. But we've been building out a set of capabilities for -- and it's really software, I can put it that way. I mean how we approach the assets and what we're doing with the tenants there and what we're putting into the assets on behalf of tenants. But the kind of community element that we're putting into in our buildings is very powerful.

The set of office, so it's something I didn't touch on today where we, as you know, move costs and are extremely expensive and setup costs are extremely expensive in Japan. So us kind of doing all this on behalf of the tenant, setting up ready to move in offices is very valuable for them. It means that you can charge 20%, 30%, 40% more if you have the right asset and the right kind of aesthetics and functionality that's been very productive for us. So the answer is kind of offices, ironically and hopefully not terrifying for those of you who are sitting in the United States of America because offices are very challenged in the U.S. and our situation is different. It is.

I mean we -- as you know, vacancy rates in Tokyo office are shrinking every month. There's a shortage. The construction costs haven't gone so much means that you don't see a lot of incoming flow into it. And so we think it's a really interesting area, along with Hotels, but we're going to restrict ourselves on Hotels because we -- it's very productive, and we're only willing to do up to a certain amount. And the thing about offices, you can have 2-year leases and 5-year leases, so they're much more durable in terms of economics to our shareholders.

I have -- I guess...

Go for it. You got the line, go for it.

So this might not be the most -- the fairest question of all. But I guess, in a way, it is because I get asked from the fund manager who I have to report to, like why is the share price down? Why is the share price down? I say, well, I don't -- I think that their fundamentals are still really strong. I think their earnings are probably going to be really good, but the share price has been really volatile this past month.

And then sure enough, your fundamentals are outstanding and you have great results. So I feel -- thank you very much for delivering great results. But I guess the question is, do you know what drives some of the short-term volatility? Are there any measures maybe you can -- other than having phenomenal results and buying back stock, is there anything that you can do to help prevent that or help ease that volatility a bit? And any comment on why it occurred would be helpful.

Yes. I mean, last week, the shares dropped 7% one day when there was no news, no information and nothing particularly happened in the market. And as far as -- I mean, we didn't know. I mean -- someone decided to sell in a hurry. Are they taking a view on geopolitics, were they taking a view on earnings? If they took a view on earnings, they were wrong. So yes. I mean I -- the -- our job is to take the shares up, not down. And so the only silver lining in a low share price is you can buy it. Buy it and be the share buybacks. So yes, we think that the shares are significantly undervalued at our good value, and we'll demonstrate that through our earnings, and we'll deploy capital via buybacks to put our money where our mouth is.

Yes. I think your disclosure keeps getting better, improving. The earnings are great and buying back loads of stock and being willing to do that regularly in good size is very helpful. So if you hear from investors why this kind of share price volatility occurs, it would be great to hear back from you. But honestly, I think you guys are doing a great job. So, I want to thank...

Yes. I was -- and from a share price perspective, I thought we were never going to see the JPY 300 handle again and then last week, it's like boom. Okay. All right.

I mean the rest of the developers and the rest of the market are all sort of on fire and you're like what's going on here, this isn't -- but I think just some temporary factors and you guys continue to generate great results. So it's all we can ask for. Appreciate that.

Yes. But look, I do have a hypothesis. We grew the balance sheet and people may not have liked that. And we grew it intentionally and with good assets and with a plan to kind of monetize it for shareholders. So look, we will work harder and hopefully smarter and deliver kind of the share returns that you need from us. So thank you so much for being with us.

All right. Am I still the only one out there?

I don't know. Let's see. No, no. Greg, so thank you. We're going to give you the opportunity to demute. Are you able to talk?

Can you hear me?

Yes.

It's Greg, at Point72. So William did all the compliments so I don't have to. So that's good. So we can skip that part. So my question was on the token part of the business. Obviously, you're doing very well there. I'm struck by the fact that there are not many players in that business in Japan. Obviously, they have been kind of a couple of large transactions announced, as you know, the MUFG Group with one building. But in terms of kind of consistent players in the market, you're probably the only one that gives us some transparency. I guess my question is why aren't you bigger because Ichigo could make a name for themselves and that's probably being kind of a real-world asset player in the world of token in Japan probably wouldn't be bad for your valuation either. So why not step that business up more would be my question.

I like your thinking. I do think that one of the things we can -- so I'm just talking with investors and shareholders, and we're thinking about how to grow value for everybody. I do think there is an element of we should choose an area that we want to dominate. And it is a lot easier. I mean I think people understand us to be a very good real estate value-add kind of asset manager. But if there's like -- and what one thing are we #1 in Japan in, I think people are struggling with that. And it may well be that we're good capital allocators, but it'd be nice to have a space and security tokens could be one of them where we will become #1.

And so we are spending some time, Greg, thinking about. So we certainly expect to be bigger. And we're trying -- we're spending some time thinking about this space and other spaces where we could seek to dominate. And so people would say, I'm investing in Ichigo and they are #1 in this and this. So again, I like your thinking.

I mean it certainly seems to me that it's much better to be in that business than data centers where the CapEx level, the upgrade, et cetera, the cycle is totally different, very crowded even for the small scale city center type data centers. So...

Yes.

But this one, I mean, you guys have described how instantly this offering gets sold out. And again, I think that would be probably quite good for valuation because and also that would help educate people because I think in Japan, people don't realize -- people tend to confuse crypto, blockchain, those kind of things. And so I mean having a higher profile with SBI, I think would be very beneficial to the company.

Yes. And this is why we were -- we wanted to close the first token quickly. It could have been longer, but to just give people -- it's real. I mean we had investors who are hoping to get a secure 4% return and instead, we gave them a 9% return. And with the same degree of security, just kind of our usual focus on making sure we have good assets and provide them to investors in the right way. So yes, again, I like your thinking. Thank you.

Okay. Great. Thank you, everybody. We're grateful for the opportunity to work for you. We will run forward. Have a great morning, afternoon and evening. Take care.