Ichigo Inc Aktie

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.

Hi, everybody. I'm Scott Callon, Chairman of Ichigo. Thank you so much for joining today's presentation. I'm joined on my right by Dan Morisaku, who is a senior member of the finance team and the Global Head of IR. We're going off of the FY '26 Q1 corporate presentation. Thank you so much, everyone, for joining us today.

It's just a single quarter. And if we're all lucky, I will speak shorter rather than longer today because it's just 3 months. The quarter itself was light. All-in OP and cash EPS. Those are the 2 major KPIs you should be monitoring us for. We're down 20% and down 12%, respectively. Nonetheless, things are very good. We're on track for record full year earnings. You can see the progress better in our stock earnings that are up plus 12% year-on-year. We expect record stock earnings this year. That's 26% progress versus the full year forecast.

Flow earnings were down 45% year-on-year. Nonetheless, we expect to have record earnings in the flow area also on accelerated asset sales from Q2 onwards. Hotels continue to be very strong. All-in OP is up 40% -- 47% year-on-year despite having 2 hotels closed for rebranding as THE KNOT. As you know, that is our boutique lifestyle hotel that will drive a significant increase in earnings other hotels also. So a lot of things in progress is going to be very positive.

In Clean Energy, we're preparing battery storage entry. We expect to do that within the next year. And we've got a share buyback of JPY 5 billion in progress right now. We completed about 60% of it if we do the maximum amount of shares, it will be 4% of shares outstanding.

Again, headline is OP, all-in OP down 20%, cash EPS down 12%. As you know, we drive cash earnings rather than accounting earnings. Our cash earnings are 1.6x accounting earnings. You can see on the right-hand side, we expect full year OP, all-in OP to be up 14% and full year cash EPS to be up 10%. And that's not the forecast. Of course, our goal is always to beat the forecast.

We have done some work that hopefully is useful for all of you to try to give better clarity on our various businesses. There we have a variety of them. In fact, we have 5 operating segments. They have a joint underlying deliverable, which is a significant value add and sustainability. We think the 2 are interlinked. You do things as a business is sustainable, you do things for society that's sustainable. That is a durable source of value-add activity also. And so across the 5 different segments, very different outcomes in the first quarter.

So Asset Management and Hotel are both up about 50% year-on-year. So real estate, SRE is down 29%. Ichigo owners almost delivered nothing is down 99%. That's going to change very, very dramatically. So a portfolio of businesses that offer diversification and earnings streams, but tying to a core capability of Ichigo's ability to deliver value add on a sustainable basis over the long term and growing value for our shareholders, of course, and all stakeholders.

So from this quarter, we're trying to give you a very specific view on what's happening in all of our segments on an all-in OP basis. Here's what -- I'm not going to go through in a lot of detail, but this is meant to give you more transparency, not only with -- we have 4 segments, we also have diversity within those segments in terms of activity. And so [ AUM ], we've got stock earnings up 11%, full earnings up 151% because we had Ichigo office performance fees and also some private fund fees.

Sustainable real estate, SRE, that's down 29%. Stock earnings up 11%, flow earnings are down 45%. We expect to have a significant uplift from that on Q2 onwards. Hotels, there were no flow earnings in hotels last year in the same quarter. There are none in this quarter, but hotels are very, very, very strong. It's a combination of -- kind of inbound activity that's very strong and our continuing work to improve hotel services for our customers, and it's working very, very well.

Owners, again, that's a business. I've said before, it arguably is one of our -- if it's not our best business and maybe one of our best businesses, it's a very high turnover. We buy brand-new residential assets in prime locations. We hold them for less than a year. We have significant leasing capability. We lease them up and we on sell them. And so that is primarily a flow business. Any kind of stock earnings is on rental income on assets we own that we get at zero occupancy and generally get up to 90% occupancy within kind of 8 months. That's how good the assets are. That's how quickly you can lease them and then on sell. So it's overwhelming a flow business. We really did very little in the business in this quarter. We're going to do a lot during the year, and we have visibility on that. So it was down 99% on an OP basis.

Clean Energy, relatively straightforward. In fact, one of the things that's missing here is it's really not an OP business. The cash earnings on this are very, very large. You can see the depreciation on this business is very substantial. That, of course, creates -- these are -- this is genuine cash to the firm and our shareholders that we deploy either on growth investments or as I say, we're doing as a original growth investments to drive EPS, we're doing a buyback right now.

So again, on the -- and I'm going to go faster from here. This is a material we provide on an ongoing basis. We think it's really important to have transparency to have ongoing disclosure to you on the same topics you can monitor as well. So I'm going to go a little bit faster from here. It's very important to us that we have ongoing structural profitability, meaning that our stock earnings overwhelming cover our fixed expenses. We don't need to do anything on the flow side, and we'll be profitable. Now the good news is we have a very durable and diverse set of flow earnings streams that are also very variable, but our stock earnings are a little higher than fixed expenses in the first quarter, the 206%. Stock earnings ratio was 75%. Again, it was light for flow in the quarter. We would expect that to be more like 50% over the full year.

And again, focused on cash earnings with a hybrid model as kind of a durable foundation, stock earnings plus, again, very significant durability in our flow earnings. This is how the earnings stream break up across stock earnings and they're diversified across multiple segments. Again, owners -- Ichigo owners is primarily a full income business, so it shows up a very small, but you've got significant deliverable of cash to us over hotel, sustainable real estate, asset management and clean energy.

We have very durable long-term borrowings and a strong financial base. As you can see, we run with over 90% long-term borrowings and have consistently done that for effectively forever. What that generates for us is an average borrowing period of about 9 years. The current remaining loan maturity is about 6 years. You can see our weighted average interest rate has gone up -- interest rates have gone up in Japan. And so we experienced that also 36 basis point increase from this quarter, we've given you because we have hedges and we gave the side, we should probably show you the actual experienced average interest rate that we have. We've switched and we've modified the data over time to show you what our actual effective interest rate is right now. So that's post hedge. And you should know right now, 57% of our borrowings have a fixing interest rate and [ 42% ] are floating. I think probably we have a preference to increase the fixed borrowings to more than that. But at the moment, it's at 57%.

We are selective in acquisitions and sales. You can see we had net acquisitions of about JPY 13 billion, so about $90 million or such. This is primarily in the owners business. Again, that's a really high turnover business. We continue to need to feed that engine. And I probably should have mentioned, it continues to be a seller's market. There is extraordinary demand for real estate. Prices are going up, prices are going up because replacement cost is going up with a way of saying that construction costs are going up. So the assets we have on our balance sheet continue to increase the amount of unrealized gains on them. Each of those owners, which tends to be kind of a less than 24-month construction period where we agree with the developer, they're going to build to spec for us at a fixed price. We don't take any development or construction risk on it. They have to deliver it to our specs at the quality and the time that we agreed to in the contract. Then we take control of the asset and we will, again, lease it up and sell it in another year.

But this is pricing that reflects kind of pricing from 24 months ago. So we have pretty short duration cycle risk, but we do take cycle risk, and we're aware of that. And so what it means is any owner's asset that we're getting today on 2 year ago pricing has significant embedded gains in it. At this point, real estate pricing is going up kind of, call it, order of magnitude, but construction costs are going up probably 10% per annum. So something like that would be on the construction side. It depends on what land value is, but all-in prices are going up probably high single digits to low double digits on an annual basis at this point.

Here's what this looks like in terms of the total over time. As you can see, we're pretty balanced in buying and selling across our businesses over the long term. In the first quarter, we did a whole bunch of acquisitions, including executed contracts. We expect to do significant selling over the year. We do not expect to grow our balance sheet. In fact, we think we will shrink our balance sheet this year in a very profitable way, but we have a nice pipeline of good assets at good prices that we're going to create value for our shareholders over the next couple of years.

One of the things that we've done in terms of trying to innovate to accommodate tenants, and this is something a little bit perhaps harder to understand outside of Japan because we're addressing a fairly distinctive Japanese phenomenon, but we're building out more ready to move in offices. And that means we've got -- we're providing tenants with already fully fitted out offices. And that -- the tenant value to that is it's incredibly expensive in Japan. So you come into offices in Japan, they are skeletons. The owners do not take any of the expense of fitting out the office, which can be very high. It's particularly high if you don't have economies of scale or you're -- whatever you are, you're an AI start-up and you're negotiating with contractors and it's not kind of what you do.

And so we bring our pricing power, our scale, our professionalism to -- and by the way, so you move into office, you have to fit it out. And then when you exit, you have to take it back to its skeleton state. So it's very, very expensive to go into a new office. And as a result, if you can use your economies of scale, and it's economies of scale, we're saving our tenants time for the move-in. We're saving our tenants cost for the move-in. We're saving them kind of their brain power. You're an AI start-up, you don't -- you necessarily want to spend kind of hundreds of hours figuring out how you're going to fit out an office. So we do all these things. It's very valuable for the tenants.

And across the 25 offices -- ready to move in offices that we deployed at 10 assets at this point, the average rent increase has been 60%. So the economics are very, very powerful because the economics are very powerful for our tenants. What's interesting is we're not alone in doing this, but it appears to be the case, we're very good at doing this. We have effect 100% office occupancy at our ready-to-move offices. We've done some work on benchmarking. Some -- a number of our peers have tried this and their occupancy is only about 50%. So we are close to tenants. It's something we've always been very, very good at. And probably as another comment that's worth knowing, most owners like ourselves do not try to talk to tenants. They don't want to talk to tenants because in Japan, tenants are important and our customers. And if your customer says they want something, then it's kind of awkward to say, no, you can't do that or yes, you want to air condition upgrade, we need to charge you a higher rent for that.

And so what happens is that Japanese office owners, real estate firms avoid talking to their tenants. We do not. We're very distinctive. We actively spend time with our tenants. We want to know what their needs are, what we can fix. It does mean we're ready to have conversations like and we want to have this fixed or that fixed or that improved. We take complaints, we deal with complaints. And it's possibly that on that basis, we have a much richer set of information about what tenant needs are because we actually are talking to tenants on a daily basis. But anyway, we're very good at this. It has super powerful economics, and it's a business that we're expanding.

The next page is an example of a brand-new asset where we've done this. You've got it before after was on the previous page also. This is near Tokyo University. We're accommodating a whole bunch of start-ups coming out of that -- out of the university itself. In this case, the increase in rent was not 60%, but 80%. Tradepia Odaiba, an asset which was great until it was utterly terrible during COVID, that has become great again. It's the biggest asset -- office asset we own. It was -- it's on the water, Tokyo Bay Waterfront was where the Olympics were supposed to be until COVID occurred and then the Olympics were then postponed for a year and no one could really attend. And so we got this massive exit from the space. We were -- we had been leasing primarily to large IT firms, and so occupancy literally halved.

And we've battled our way back. And the way we've battled back is by building a super community -- tenant community-oriented building. The theme we've used is Tokyo Bay Village. We've set up a cafe. We have events. Meet the neighbors events, you can see everybody kind of eating together on our dime, as I say, there's all the tenants gathering together. We've set up a farm on site. Tenants can farm there. They can bring their families. We have -- we put in the gallery. It is a very community-oriented. Look, modern office buildings can be lonely and cold. And so we've done something that is really very powerful.

And this is not only at Tradepia Odaiba, we have other assets which we turned into village assets. It's a very powerful approach to solving for tenants desire for community support. And in many cases, businesses. At this point, I told you this -- the building was primarily a large IT tenant building. It's increasingly a start-up building. The start-ups are interacting with each other. We created an ecosystem that's supportive. So it is -- this is -- things go wrong -- things go wrong in the world, you need to be prepared for it and you need to take action with respect to it. So it's been a major and highly successful repositioning of this asset and is developing and has provided very, very powerful economics for our shareholders.

Again, Hotels are doing super well. You can see the RevPAR is up 27% year-on-year. We took 2 relatively low, as I said earlier, RevPAR hotels out of circulation, one in Utsunomiya, north of Tokyo and one in Tianjin in Fukoka, Southwest of -- I mean, so on Kyushu. And so kind of on a same-store sale basis, RevPAR is up more like a little bit over 20% year-on-year with plus 27%. But again, a very strong income and growth story for our hotels.

Owners continues to be a super robust business. We, again, fairly consistently in terms of the buy-sell activity across the board. We expect to do about JPY 52 billion of both match kind of buys and sells, roughly, we'll see we end up during the year, a super nice business. In order to sell assets, we need to buy them. So you need to kind of have the engine kicking in on this, and it's going quite well.

Some volatility, more volatility in other businesses because it's primarily a flow business. We had a drop-off last year. Some of our assets got pushed into this year. There was -- we were expecting to do more residential. Security token sales, we didn't as the market froze a little bit during last fall, things are coming roaring back. So it will be a good year for Ichigo owners.

Speaking to that point, we expect to do more in the security token space. Again, these are on the blockchain, so the digital real estate assets, but they are -- it's not crypto. They're backed by -- okay, stable coins are backed by things, hopefully. But anyway, these are highly secured real estate assets put on tokenized and put on the blockchain. It's a growth business. There was some concern post the U.S. elections last fall and some slowdown in this activity and it's coming roaring back. Inflation is real. The shift out of Japanese deposits by Japanese household and corporations, so bank deposits and cash equivalents is real, very, very big demand for our assets. Again, we did not -- as you saw, we chose not to sell a couple of months ago when the market weakened because we thought there would be an opportunity like this. And again, because rising construction costs mean that we have kind of the wind at the back in terms of value creation through the whole period. So anyway, we expect to do significant activity in this space this year.

And again, AUM is growing on various growth drivers. We think the -- I mean, the 3 major areas for us in terms of AUM growth would be our public REITs would be private funds and would be the security tokens. We think the public REITs continue to be undervalued for where they could be. So we don't necessarily see kind of much AUM growth there, although we'll see. We'll see where the market kind of takes them. However, there is, we think, a significant private fund activity, possibly even bridge funds from the public REITs. And again, we expect to see activity and growth in the securitized token area this year.

We are going to do more in Clean Energy. The brand-new activity is in battery storage. This is incredibly exciting. There's an opportunity to deploy significant amounts of capital at very, very high NOIs at this point, double-digit NOIs and very fast payback periods. We'll start with our very first one next year. The next page, let's go to the next page. We talk about what the opportunity is. Look, you're building out more volatile power generation sources. As you know, right now, there's arguably too much solar in Japan. The grid cannot accommodate it. You're constantly told, can you shut your -- I mean, I say constantly, it happens kind of on average, a couple of days a year for your solar power plants. Can you shut your plant for the moment because we can't take the energy. Battery storage is going to solve that.

And we are -- and battery storage prices have come in so quickly that there are now powerful economics of deploying them in Japan. And so we think what we're seeing at this point is we're going from solar access to probably a solar shortage very, very quickly. So that also provides an opportunity for us to do more activity in both solar and wind going forward.

On the shareholder return side, as I said earlier, we're doing a buyback right now. We believe that this is compelling value to buy our shares at the current share price and would expect to have continued activity going forward. Next page shows the dividend. We -- look, we can do buybacks. The business is super cash generative. We can do buybacks. We can pay a nice growing dividend. We can invest for the future. We can do all those things. And so we expect to grow our dividend very substantial over time. As you can see during the COVID period, we stayed -- persist for a while in Japan. We stayed unchanged for a while. We're back to growing our dividend on a double-digit basis annually. We have a daily shareholder program. If you become a shareholder, you can go to daily games, which is fine.

On the environmental side, this is something we care a lot about. It's worth pointing out that we were named on CDP to be a AA- list company of the 25,000 companies in the world to participate in CDP, only 70 made the cut. So it was literally in the top 0.3% of all companies based on CDP rankings for our environmental activity. We, at this point, 100% renewable energy. And in the next 2 slides, we show how we are climate positive in a very, very powerful way. Those are my prepared remarks. Thank you, everybody, for joining. I'm happy to take any questions or comments from anybody. Yes. Thanks so much for joining.

Just had a quick question on Ichigo owners. Obviously, you bought a lot of assets in Q1 and you have more in the pipeline by the look of it looking at kind of contracted properties...

Yes.

On the sales side, is it -- was there is a lack of sale just a technical reason or simply a function of timing or your current inventory?

Customer timing. We adjust for the customer. So just kind of -- we tend to do -- when we started the business, it was a small lot kind of we thought we're going to primarily be serving cash-rich corporations and high net worth, and we're going to be doing selling JPY 1 billion at a time or kind of JPY 500 million at a time. So kind of -- about $3 million to $7 million sort of transactions. And then what turned out was that we had -- first, we had the rise of institutional buyers like we really, really would like to have $100 million super nice Ichigo kind of quality prime residential portfolio in Tokyo. By the way, these are overwhelming these are Tokyo assets.

And then after that, and so we came to started doing transactions that are more like $100 million, $150 million. And then we've had the emergence of the securitized tokens, which also tend to be kind of $100 million sort of plus transactions. And so now it's become more of a business about a very large institutional buyer or in the case of the tokens, a very large securities firm saying, we want to do kind of a big transaction with you in July. So it was like, okay. And July is not in Q1, so it ends up in Q2, but that's what's going on.

Okay. That's what I was thinking about.

Greg, you're back. Yes, Greg, thank you so much. You're always welcome.

Yes. Just a follow-up on [indiscernible]. So I guess we are back to 92%. Is it as good as it gets? Or do we think there is a bit more upside there?

No, it's going higher. At this point, as you know, Japanese organizations tend to be relatively conservative and tell me I'm the Chairman, telling me what they expect to deliver, but the guys and the [ Tradepia ] team think this goes to 95% this year. So that suggests that's probably a bottom. Yes, this is going higher. It's a really attractive asset. It offers, as I say, this community orientation. It's become its own little kind of ecosystem and destination for start-ups in the Tokyo Bay Area, as you know, I mean, the views are absolutely fantastic. It's -- so this is going up. We're not done at 92%.

And are we kind of thinking for the new tenants that we are signing up, is it like no free rent and things like that at the moment? Is it getting tighter or?

Yes. I mean we're -- I mean it still continues to be the case. You give a little bit of free rent. But of course, we try to shrink that as much as possible and you get it back on the ongoing kind of high -- kind of ongoing rents. But again, this is an asset that we think is something that is getting -- that is -- because it's demonstrating, its incredibly strong competitiveness is something that we think we move off the balance sheet. It's either going to be a straight sale. We have had some conversations about potential buyers taking it and having us continue to manage the asset because of the success we've had with this tenant building and community building. I know I'm going to a different point from when you just asked, Greg, but this is this is something that it's important for our shareholders to know that we think we're going to end up moving off the balance sheet probably the next 24 months.

So you guys give out free lunches, but you don't give out free rents. Okay.

Yes. Well, this is clear. We are still going to have a little bit of free rent. But look, it's -- you don't have to do as much. I mean this is all about creating great value for the tenants. And so there's -- in the market, it's like we get 6 months of free rent over there. It's like, okay, well, your assets is better. Okay, we'll have it 3 months, but it's kind of hard to do 0, but in return, you can raise the rents. So to be clear, we're raising rents at Tradepia as we can. We're running out of space. We have significant tenant demand. And at the end of the day, this is not a power play. This is about creating extraordinary levels of value for tenants. And because we are doing so, we can command higher rents. Overwhelming the higher rents higher occupancy and higher rents than any other building nearby.

Understood. Thank you.

All right. I'll go back to where I started. Like Q1, nothing to write home about, as I say, in American English, there's a lot coming over the course of the year. We expect to have record earnings across the firm, across both the stock and flow parts of the business. This is our job to deliver that for all of you, and we will do so.

Thank you very much, everybody, for joining us across the world. We're really grateful for it. Thanks.