Ichigo Inc. (2337) Earnings Call Transcript & Summary

So thank you, everybody, for joining. My name is Scott Callon, I'm the Chairman of Ichigo. We're really grateful for your time. I'm joined today by Tet Fujita, who is our Lead Independent Director.

Yes. Hello, everybody. I'm the Independent External Board Member and the Chairman of Audit Committee. So normally, I keep very quiet. But if you have any questions, please address to me. I'm very happy to answer any questions as I stand with the Board right now. Thank you.

Thank you, Tet. And also we have with us Dan Morisaku, who is a senior member of the finance team and our Head of Global IR.

Hi, I'm Dan Morisaku. I had calls with many of you before and excited to join the global conference this [indiscernible] in Tokyo. So thank you for joining with us.

All right. Let's get started. I'm working off of the presentation. It is on our website FY '22/2. So it's the February 2022 Fiscal Year H1 First Half Corporate Presentation. Again, thank you so much, everybody, for joining us. We're grateful for your time. Let me turn to the first page of the presentation, which is Page 8. Probably the most important thing that has happened is actually now on this page, which is [indiscernible]. So this quarter, the second quarter, it's the June, July and August quarter, in which Japan experienced an unprecedented surge of cases and fatalities, which was an extraordinary difficult time for a country. And since the -- and so that -- in August, and since then, there's been this equally extraordinary collapse in cases and fatalities. Delta is all over Japan, just like it's all over the world. We're still trying to figure out why exactly this has happened. But we are sitting today, in October, together, here in Tokyo, and those around the world, but in Japan, we're a totally different world than we were in Q2. At this point, 90% of those over 65 or older have been vaccinated. It's 66 -- totally vaccinated. 66% for the country twice and 75% once. So it looks like Japan is going with roughly a little [indiscernible]. So vaccine hesitancy is looking like it's going to go over 80% and possibly could go up as high the mid-80s. So that's -- and apologies, that's not on the page because -- that's not about Ichigo, but it is about the country and the environment we're operating in. So Japan, knock on wood, has turned a corner in a very, very powerful way, which changes everything for us going forward. And so it's not the most important thing, it's the most optimistic, positive thing I can say. We're glad to be in Japan, which is back, and Ichigo is going to come back hard and fast. So turning to what's on the page. Hotel earnings recovery is slower. What was -- what I spoke to in July, we were refracting on that Japan seem to have turned the corner on COVID before this explosion in Delta on the cases. And there was -- it looks like it was going to be the case, then we're going to have a recovery both in hotel occupancy and then activity in hotel by summer and that didn't happen. But things turned really, really good, and we had a plunge and both -- a state of emergency and much of the country kind of [ pulled ] end in activity. Those people would say, hey, we're going to [indiscernible] buying hotels. They all [ guessed ]. So the hotel earnings recovery has been prospect. And we think it's -- that's the answer. That has been pushed back and therefore, kind of more possibly delaying 3 months or 6 months. Given what's happened, at this point, we're clearly in a state where the hotel earnings are going to be down there versus [indiscernible]. There has been a minimal COVID impact from midsized offices [indiscernible] where we play. I will talk about the one big asset we have up with Odaiba, which is big and important, which is in a very different world. We're having extraordinary, strong, stable NOI out of our midsized offices. And Odaiba is different. It's a large office. There were challenges leasing it up, and I'll speak to that in some more detail. Clean Energy is growing extraordinarily well. That is, of course, fully unlinked to the economic cycle and to COVID, and so that's really exciting. We were, for the sixth year in a row, chosen for inclusion of JPX-Nikkei 400, which is arguably the index of Japan's premier companies and is thought by JPX Nikkei be -- the index of Japan's premier companies in terms of value creation. And we take -- since we exist substantially to create value for the world, including our shareholders, that makes the premier index in Japan. And we qualified for the TSE Prime Market. So we wanted that [indiscernible] of 2022. Page 9 speaks to highlights on earnings. And by the way, this was a light quarter as expected. So in the first half, it's light. We have flow earnings have come out of our value-added business that was around -- we do not spend a lot of time trying to position those earnings in any one quarter. We think that's the way you lose money rather than make money. So it was a light first half. Nonetheless, the firm has got very durable earnings. Stock earnings, so those effectively fixed earnings come in at twice our expenses. You see on the right side, some decrease in stock earnings and stable real estate. This is primarily rental income and this is Odaiba. This is our one big asset. So obviously speaking to is experiencing more vacancy than we would have expected. Asset Management under the [indiscernible] is up 17%, and Clean Energy is up 14%. Turning to Page 10. What I think is most interesting about this as it speaks very directly to the difference between accounting, reported earnings, and we would describe it as economic earnings or determinates intimately the cash generation. So to be clear, we are all about rigorous, systematic, relentless focus on cash generation. So the headline accounting numbers look for, they were, as expected, those accounting numbers will improve very, very substantially. But as I said, you've got OP down 22%. You've got net income down 38%. You've got cash EPS only down 2%. And that speaks to -- the fact of the matter is that accounting has a whole bunch of noncash stuff lying around it. And so what's important to see is just despite a significant drop in earnings, I mean, accounting earnings, of course, are linked to total earnings, we to have very, very robust cash generation. So it's the way of saying, when the categories go up, and they will go up, this cash [indiscernible] is going up also very substantially. Page 11 gives you the sector breakdown. OP, you've got Asset Management, up 27%. That's primarily an increase in Ichigo Office, Base Asset Management fees. Sustainable real estate business has got stock earnings down, that's primarily on depreciation expenses. So those are noncash, [ up on there ], of course, that hit the OP line. And that's down 7%, and the rest is a significant drop off in flow earnings, sort of, that is effectively entirely because we did more value-add sales in the first half of last year. We're going to do more in the second half. So nothing to worry about there. Clean Energy continues to grow very, very well. And we had a first power plant we brought online this year and that's contributing to earnings. Looking at Page 12. I think it's probably the most important to focus on, what's changed between Q1 and Q2. And so I won't go into particular detail on that -- on the unchanged part. So stock earnings are relatively unchanged from Q1. Very, very high impact on hotel. Not a lot of impact at all in either office, as I described. And however, I should say that's primarily midsized office. So we have 1 big asset, Odaiba. It's large-scale office. It is experiencing more of an impact. Since most we own, it's midsized office, we're speaking [ about it ] on this page. Residential Clean Energy, of course, are having no impact. I'm going to say, of course, Clean Energy, no impact. Residential, [indiscernible] has done a very good job of protecting income. There has been no impact on that performance. Turning to flow. The big change is in office or the 2 changes are in office and retail, those markets are clearly coming back. What was unexpected and what I just touched on was we thought hotel in terms of buy-sell activity, so flow earnings are about buy-sell activities in these asset types. We thought hotel was coming back, well, it was coming back. And then a sharp U-turn to, wait a minute, we're not sure we want to own these assets anymore and let see what happens. Given that we've got, as I said, we've broken [indiscernible] of Delta. In Japan, at this point, we expect the hotel activity to come back, probably push back 3, 6 months. Pages 14 and onwards speaks to the business model, and I've touched on this before, so I won't want go into great length, but happy to take any comments or questions in Q&A. It's both a stock plus flow earnings model. Stock earnings massively cover our expenses. So we effectively are structurally earners. And on top of that, we have, we think robust and high-value, high-quality flow earnings. Page 15 shows you the embedded forward earnings. So again, it's important to understand that -- and we're fine with this. But it's important for investors to understand that full-value creation is not -- accounting earnings is not only about the cash generation being different, but it's also that we do value add. And it creates value, and that value is only recognized both on accounting on a cash basis when we do the -- when we do [indiscernible]. And so what that implies is you have a significant unrealized gains that are on the balance sheet that are an earnings-backed for future periods, if you turn to -- and currently, these are external third-party appraisers. They think we've got about JPY 64 billion of unrealized capital gains on the balance sheet. That's against a book right now of about JPY 100 billion, so plus 60% gets book value. If you turn to the next page, it shows you that we systematically outperformed what the third party appraisers think in terms of the actual value created. Generally, it's between 2 and 2.5x of what the third-party appraisers said we're going to earn. If you see, in this year, in H1, we actually have a very little over 4x that's linked to us deciding to dispose of a bulk kind of regional residential portfolio that we didn't experience. And the experiment on didn't make much. We didn't lose money, but effectively, we exited that at newer profit. So we think that this systematic normalize trend continues to be about 2 to 2.5x of what third-party appraisers are saying. So even as low as 2x, given COVID uncertainty that implied, we've got about JPY 130 billion at least unrealized gains and that's a balance sheet from real estate. Again, that's more than our current shareholder equity. That does not account for what we think is a very, very large amount of unrealized gains in our Clean Energy business, and I'll speak to that later. Page 17 also speaks to how we are very focused on robust cash generation and that shows up in our economic operating cash flow, systematically being higher than [indiscernible]. Page 18, shows our financial base, continue to borrow very long, so we have the ability to finance our assets to kind of a very long time. You'll see that there's been some drop off in the period of kind of the remaining loan maturity. That's linked to the fact that Ichigo on its business are increasing large part of our business. I'll speak to that later again. Average holding period in this business is less than a year at 0.8, so what's that? Something about 9 to 10 months. And so we tend to borrow in that business around 7 years. We don't need 7 years. We're actually very conservative in making sure we have the balance sheet that's still improving. So that explains some drop off a little bit. Again, robustly massively longer period maturity of [indiscernible] financial assets. You can see there continues to be a drop off in the industry that we've [indiscernible]. Page 20 is acquisition and sales during the first half. Almost entirely on the acquisition front was Ichigo Owners. Again, that's a business that does prime -- arguably, super prime, almost entirely Tokyo residential. And [indiscernible] Tokyo, it's kind of in the prime equivalent and brand-new residential assets. Super, super liquid, good value. And for investors, this has been a very, very attractive asset class given that robust performance has been despite COVID. It is worth pointing out the sales have been JPY 11 billion. But we did a large sale, which we already disclosed to the market, about JPY 18 billion of 16 residential assets out of owners to a domestic buyer. So that's been contracted and then will close in November. So those -- the [indiscernible] earnings. The earnings from that are coming in and again in Q3. On the page, net acquisitions, slightly higher. And this is, again, residential for the Owners business overwhelmingly. It's worth pointing out that the residential sale that we did here of JPY 5.3 billion was an experiment, and we do experiments. And we think that's valuably important, this was arguably a failed experiment. We bought kind of a normal kind of -- so the Owners business is brand-new assets in great locations. It's going to get arguably super prime. We thought it was worth looking at whether or not we could -- we can generate value in regional, residential kind of the typical kind of age set of 10 to 15 years kind of old multifamily, perfectly functional, proved to be a harder business all over the country, not great economics in terms of cost structure for us in order to maintain kind of a -- drive value there. So over a number of years, we've sold out this portfolio. It was original over JPY 10 billion, so USD 100 million, and we did that -- the final exit. So we are now completely gone out of used regional residential assets. Page 21 gives you a view on what's happening with Owners over time. This is a business we set up about 4 years ago. It's going extraordinarily well. We have -- and it is -- it is [ an engine ], right? So you buy assets and then you want to sell them. And so we all, obviously, want to be buying assets because we have a robust sales pipeline and sales activity. At this point in [ H '21 ], the progress against our targeted for acquisitions is 70% than on an executed contract basis. If you include kind of the pipeline of -- we think we're going to get this done, it's about 90% done. So Owners -- fitting the Owners engine is going quite well. Page 22 speaks to kind of the value-add business in Sustainable Real Estate. I will not go to too much length because I'm pretty sure most of you are familiar with this. It's worth pointing out the NOI uplift in our Sustainable Real Estate business has been about 20% -- it's been 25%. That's a weighted average. And what it gets at is the fact that we're selling these assets and profit are -- is intermittently because we make the asset [ portfolio ]. So you push up the NOI by 25%, you sell the asset up 25%, you're just selling it at cap rate fee. You bought it at -- once it's become a better performer, you generally get a premium for assets that weren't performing better. So you could see that growth product -- profit margin in the multi-asset business, so that's got an average hold of 3 years. It's been 32%. Owners is a much higher turnover business. We like that. I mean you're not taking risk on a holding period. It's less than a year. It has a GPM of about 11%. They are different assets -- different asset classes. Multi-asset is, at this point, doesn't do much residential primarily it's office, it's hotel. It's retail owners who use exclusively high-end brand new -- again over in the Tokyo residential prime areas. Page 23 speaks to what's happening with the 2 REITs, Ichigo Office and Ichigo Hotel, along with Ichigo Green, our solar power -- our listed solar power producer. It's worth noting that Ichigo Office is on route to being the first J-REIT. We think it -- we'll have to see some of the pieces there, but it expects to go [indiscernible] over to 100% renewable electricity and primarily solar and wind by April 2022. That would make it the first Japanese REIT to achieve that. Across the firm, as Ichigo, we expect it that by 2025, [indiscernible] we're already there. But the RE100 rules don't allow you to account -- your production the only, so we're producing the energy -- renewable energy, we need solar and wind in order to do everything we need for ourselves. RE100 doesn't count production only. It only counts when you buy, so anyway. But the Ichigo Office, we will be what we expect -- will be the first J-REIT to get to 100% renewal. Page 24 shows what's happening in the Clean Energy business. On top of the pipeline that we have here on the far right-hand side, which is the kind of royal blue part of the graph is green biomass which we're working on. We also expect will be a significant earnings driver. That is a brand-new business. We're actually pretty conservative in the way we think about how we describe our pipeline, so let's start in here. But we fully expect that to probably begin to happen in the next 18 months. It's also worth pointing out that there was a truly spectacular announced transaction in the last -- big Japanese oil company, is buying the solar, primarily solar, well, actually some kind of mixed, a renewable portfolio, solar and wind, from -- and renewable energy at about JPY 200 billion. Their current -- that business' current revenues are less than ours, so it is less than ours. They have a stated pipeline, which is bigger than ours, but it's actually worth pointing out -- see on this page the average fit, we have JPY 31. And the current -- and so -- and currently, if you are selling solar power, for example, it's going to be about 1/3 of that. So it's a way of saying we were involved in this business very early with very high tariffs. And so it's -- you should -- it's -- so for example, we've got currently 130 megawatts going under using the current fit that would be something that looks more like 400 megawatts. So the economics are radically different for the [indiscernible] that has super normal returns attached to them. So anyway, we think that's a super exciting transaction. We need to do a lot more work on it. It does speak very directly to, we think, a very high possibility that the market is, systematically very significant about our Clean Energy business. Page 25, Tradepia Odaiba. This is the large asset that I spoke to. It's so big. It's actually -- it's about 10% of our total assets. It's 40% of our office portfolio, which means it's a [ minor ], but it's safe for [indiscernible]. We've got an S-Rank, it's the highest CASBEE, so this is renewable, sustainable building certification. It is our second asset, which is -- this was -- that's won the S-Rank. Why do we do this? We do this because we care. Ichigo works to be good for the world. Now that we care, but our investors and -- particularly global investors increasing the Japanese investors care. I point this out because it's not clear at this point that tenants really care. So when you do work to make a building more sustainable, it's good for the world, it's good for all of us. It's good for growing asset value. But what I'm telling you is when -- it's not necessarily good for growing NOI, meaning it's not clear at this point, and we hope this will change. The tenants will increasingly realize the value of being in a building, which is right for the planet and right for society. But it's -- we don't get a premium rent on it. But we do get a premium in terms of value creation. What I'm telling you is effectively a low cap rate. So we think this is a very [indiscernible]. And then this is a page about kind of Odaiba as a sustainable building. But it's worth pointing out that we are experiencing a very different leasing environment for this. So this has got a floor size, generally kind of 5 to 10 times bigger than our midsized assets. And it's clearly the case that our primarily tenants, new tenants, and were -- as far as floor points, they're not moving. They're willing to pay higher rents. In the larger size floor plate like Odaiba, you're seeing significant increases in vacancies. This is a hard [indiscernible] on the lease. We think we will lease it up fully. We thought we were going to get it done sooner rather than later. I think I guided everybody to about a year from now, which may be -- it might take longer than that. And we're looking carefully on the whole [ new view ] for the asset. I mean to give an example, it competes with -- it's a former headquarters building, it's beautiful. It is super high spec, not only it is sustainable, it's super high spec. And this [indiscernible]. And it generally competes with kind of tall buildings in the middle of Tokyo. And so what's the difference between this tall building and the tall building in Tokyo? Take a look at the picture on the page. This tall building doesn't have anything around it. So if you wanted to kind of differentiate and explain why this asset is more interesting than a Central Tokyo asset. Central Tokyo asset, it's like a central -- it's like a tall building in Manhattan. You generally [ don't ] get a better view, unless you go over the park. In this case, it's got a view, I mean, like a spectacular view. And so again, trying to understand what is distinct and valuable. Distinct and valuable, meaning, kind of distinctive and therefore, valuable to people. Distinctive is need to be [indiscernible], but isn't important. So we're working on this. But this has been -- the good news here is overwhelmingly, in small and midsize office, is what we've done. It's what we continue to do. We're beating the business plan on this asset, but it is proving to be a very different leasing environment than everything else we own. Page 25 -- sorry, Page 26. For the sixth year in a row, we're in JPX-Nikkei 400. Page 27. We believe in doing buybacks when the shares are cheap, that's been ongoing, and we fully expect it to be ongoing. And Page 28, we have a J.League Shareholder Program. We are a top partner for the J.League, a sports Japanese football league or soccer league, depending on which word you want to use. And see, it was relatively shut down during COVID. It's about to come back. So that's really exciting. We get all these tickets and generally companies -- I mean, Japanese companies, they just get tickets and give them to staff and they use it for, I don't know, business events. We work with shareholders. So we've chosen to give this all away to our shareholders, not only this company, but our 2 REITs and all this listed solar power producer. So those are my prepared remarks as it work. Thank you so much, everybody. We're going to turn to Q&A, and I'm supposed to guide you through this. [Operator Instructions] So those of you who are on Zoom or on the phone, we are open for Q&A comments, really good comments, but we actually -- we do value them. We'll look for -- so anyway looking for anything from anybody.

Greg, do you have a question?

Yes, can you hear me?

Yes, we got you. Thanks so much.

Yes. I've got a couple of questions, please, Scott and the team. You made a comment regarding the gain on sales as a multiple of appraisal value presentation. It says 1.4x for the more recent period, but you expected that to go back to 2 to 2.5x. So because the latest sample of sales, so to speak, is not very representative. Is it too small to matter? Is that correct or...

That's right. I mean, we disposed the regional residential portfolio affecting the cost. So -- and it's a one-off and so -- yes, we think 2 to 2.5x is the right metric to think about as going forward.

Understood. So that was affected by the residential portfolio, okay. And then my second question is, as you pointed out, the Ichigo Owners continue to be very strong. My understanding is not fairly hard to actually source properties to buy. And obviously, price per [ tube ] have gone up.

Yes.

Are you seeing that we're kind of neither at peak at least in terms of volume? Do you see things slowing down a little bit after COVID? Or are we continuing on the same trend?

Greg, we're seeing no slowdown at all in the Owners business, meaning it's interesting. COVID has been terrible for the world. But as you look at stock markets, you look at real estate prices, it's not that terrible for them. And so you have slightly different genesis than in the various asset classes. But because -- Japan, by the way, is experiencing, as you know, absolutely no inflation. So it continues to have interest kind of [ floor ] to 0. The implication is that you get no return out of bonds and so people get it for a free yield and residential have been performing so well. We have just massive demand for those assets. As you know, our business model is we -- so how is it that we are in the return but we do in this business. We agree with developers that will buy. And so these are very small, fast developments, multifamily in good areas. So we'll do due diligence on under development. We'll agree to buy it 18, 24 months down the road. We don't take the development risk on it that needs to be built to spec. In return for us agreeing to buy it, these tend to be relatively small developers. They can take the contract for me to go, go to a bank and get it financed. So that's one thing we do is we enable these smaller developers to get kind of better financing and they're willing to give us a spread for that. And the second thing we do is we lease this up. So we'll buy them and lease them up at very good leasing team. And so those 2 are what we deliver -- and so, one, we have -- what we're doing with our final client is we're delivering kind of the economics that come from that better pricing from the developer. The economics for the risk and taking on leasing, and we don't think there's a lot of risk there, meaning kind of we do due diligence on these assets and understand what we can do with them. We're very experienced in leasing. And that's a value add that we create. The third one is we're professional real estate investors, and we know these assets and locations really, really well. So our investors are paying us for that. The gross margin is a little bit of 10%, and I think it's a lot. So we think it's actually an extraordinarily good value for the investors and the [ investors agree ]. So at this point, we're doing about -- I told you our acquisition, we expect to do about JPY 30 billion. It's a little bit less than USD 300 million per year. I think likely, Greg, that goes to more like JPY 40 billion, JPY 50 billion. It's a very successful business model. It's -- yes, it seemed to slow down a little. Happy to take other questions or comments.

I'll have another one if no one is asking.

Yes. Go ahead. I'm just pausing. It looked to me, Greg, that you had a question. I was waiting to be told that you do. Thank you. Thank you for announcing yourself, go for it.

Yes. So just on the Green Energy business. As you mentioned, this transaction for JRE by ENEOS is quite huge. Do you expect we see similar transaction from other utilities trying to make their assets or their business greener? And are you trying to kind of step up in terms of investment on that front, try to accumulate an attractive portfolio there?

Yes. What's interesting is -- I think the answer is yes. I mean energy companies all over the world are feeling tremendous pressure from zero carbon, [ and hence ], they should. And so trying to figure out a path forward that's not dependent on fossil fuels is important literally to their survival. So that was a great transaction to see. We need a bunch of work on understanding it. The headline megawatt numbers on that is basically kind of fivefold bigger than us. As I told you, their true economics are going to be -- in terms of the true economic size is going to be substantially smaller than that. It also includes Taiwanese assets and [ we understand ] kind of those economics better. Japan has had kind of much, much better returns to it. So understanding the amount of that, the amount of kind of offshore wind, which is not very profitable. On that basis, we'll have a better understanding of how our portfolio positions relative to JRE. But it has been our view that we have, clearly, somewhere between, we think, kind of JPY 50 billion and JPY 100 billion of unrealized gains in the Clean Energy portfolio. And this would suggest that, that view is accurate and going to the high end, perhaps above the high end than before. And so on the second point, if we want to do more? Yes, and we're actively involved in doing more in a sustainable and what we call Clean Energy. We have a question from [ Richard ]. [ Richard ], are you there?

So can you hear me now?

Yes, yes. Got you.

Okay. Perfect. Yes, I was wondering, could you elaborate a little bit on the rise in depreciation costs for your sustainable real estate? It was a significant jump. And was it just purely for the Odaiba building? And was this unforeseen? Or maybe you can elaborate a little bit on that, please?

Yes. So I mean, look, depreciation is a noncash expense and it matters because assets will lose value over time. So the good news is that you have this extraordinary, accelerated depreciation regimes. These are buildings that were run for 50 years, for 70 years, 100 years. You have a little bit of maintenance CapEx in it, of course. So what I'm telling you is that the accounting depreciation, which is a tax shield and that's why we like it. It's much, much higher than [indiscernible] economic depreciation. And so this is actually -- which is not kind of existing buildings that we have and suddenly have higher depreciation. This is us bringing online. It's primarily -- we brought on 2 brand-new hotels in THE KNOT series, a brand-new hotel in Hiroshima and a brand-new hotel in Sapporo last year. And that's where the new depreciation allowance is coming from.

Okay. So this is basically using the current accelerated depreciation tax scheme...

Yes.

For those 2 new assets and basically -- yes, okay.

We prefer to call it the tax shield rather than tax scheme. But it is part of the tax rules. It helps protect cash for all of you. And yes, that's exactly what it is. Let's see. I think we have [ William ]. [ William ] are you there?

I asked a question on the iPad in text. So I'll just repeat those.

We missed it.

Yes. The -- just quickly, I heard -- so hotels were beneath or below expectation, but just maybe a quick recount. In the second quarter, what was below expectation? Or basically, was it in line with expectation, despite the low, I guess, 4% margins on the asset sales or a bit of an anomaly? It's happened in the past once or twice, but that was an anomaly. So excluding that, what would you say is in line or beneath expectations in the second quarter? And then roughly for the second half, are there trends that you saw in the second quarter that are going to continue that are disappointing? Or are you pretty much confident in the second half? So that would be question one. And then while I'm at it, the second question is related to green energy, which everyone is asking about. And I always ask this, but I'm going to prod you again. I mean, isn't it that transaction that Goldman does, them obviously using the market, a robust market to exit at the right time, isn't it tempting to maybe exit a little bit of your portfolio in order to perhaps reinvest in other opportunities? That's the second question.

Okay. So H1, first half, [ Will ], was bang on exactly at -- so the numbers that you see here were -- there's no disappointment and no kind of particular [ upside ] relative to our expectations. So going forward, 2 negatives. One, I already touched on. One is that the hotel market looked like it was returning and then it just got crushed by the surge in COVID cases. And so we think -- and now again, the sort of the COVID case itself has been crushed. So we think hotel earnings have probably been pushed back, and it's twofold. That's 1 occupancy. So it's -- as we push back, whatever it is, we'll find out together what the government does, will it go to the travel, et cetera. Has it been pushed back 3 months, 6 months? Could be more because particularly, are not, which is boutique hotel series. It's been proven extraordinarily attractive for inbound tourists, primarily U.S. and European. So we don't think we're going to get full economics out of -- particularly they're not in Shinjuku, Tokyo, in Hiroshima until we have inbound back. So that the -- but that will happen at some point, presumably in the next 2 years. So there, you had a little bit of a push back in hotel revenue, a little bit of a pushback in time in sales activity in hotels. And I think we'll all find out together. But given that Japan is now -- 3 months ago, people were excited about buying Japanese hotels when we had COVID cases that were massively higher than they are today. So I think it's probably a reasonable assumption, we'll find out together that, that market comes back and we'll be again be selling hotels at the levels that we think are salable in the next 3 to 6 months. So that's just kind of probably a 3 to 6 months away on hotel earnings, which will impact the second half. And the second thing that's a negative is while that is probably harder at least in the way we expected, meaning that we're seeing kind of bigger vacancy in other large-scale assets and other owners trying to fill those assets. And so very specifically what's happened is we've had a few cases where we've got tenants kind of sign effectively. And we will be the wrong word, but say, okay, we're going to lose you. We kind of issue our notice to our existing landlord, and then see the existing landlord kind of provide a very, very good counter, powerful counter offer to it. And it tells you -- and that's not happening at all for us in small offices. So the large office space, unfortunately, it's only -- this is -- it's big enough [ math ]. It's 10% of the total assets, but it's only 10%. For those folks who own a lot more large office, it's a very difficult period. And we'll have to figure out together whether or not this is a particular point in time with COVID or -- back to work from home has had an impact on large office that's distinguishably that's seeing the difference. On the good news part of things, owners is growing at -- we're worried about our ability to buy assets and there has been some increased competition. But actually, we are proving to be more kind of -- more than competitive in getting assets and [indiscernible], so that is a surprise on the upside and will be a driver for earnings going forward. Two, I mean, the fact of the matter is that COVID is kind of receding in Japan means the country opens up. The collapse in cases has been much more rapid than we thought was going to happen -- maybe we thought that's going to happen in the last couple of months. And that implies -- it's actually an acceleration of economic activity that would be powerful for hotels. So it's a little bit of a counter example to what they said about the earlier pushback in hotel earnings. Broadly speaking for us, it's -- we have been waiting out on COVID. And so there are -- I'll give you an example, as I said in renewable energy space. We go to -- we're super committed and oriented. We'll never do a power plant without community approval. It's been hard to meet with municipalities over the last 6 months because of COVID. And so there has been a pushback in developments of our Clean Energy pipeline because -- I mean -- we're not -- if you come from Tokyo, we're not going to be -- and so that is opening up. That's super exciting. And so to your question as to whether we -- the timing might be appropriate for us to do something in Clean Energy? Yes, it could be. I mean, we are very open to that. We'll do a bunch of work on it. We certainly -- I don't know that it is the case that we're going to announce on our earnings call. The plan is -- but it could well. We're certainly capable of doing a large transaction. And at the right economics, we will do that [indiscernible] transaction. So again, we loved -- there's nothing else, JRE transaction. Did I get to your questions?

Okay. Yes.

Thanks, [ Will ]. Happy to take more questions or comments. [ Will ], I think you're back.

Yes. I mean what's the most attractive space right now for investment in your view, in just terms of asset class? And why, I suppose?

That's a good question. If we can get solar done, that's clearly the best. I mean those continue to -- it just has -- so our view -- and as a hypothesis. And you test your hypothesis against kind of evidence as it emerges is that the market continues to substantially underprice post-FIT earnings of renewable energy assets. So in other words, you had a 20-year FIT. They've seen -- there have been changes to that. But for those assets that still qualify for the FIT and, of course, all of ours do, it's like, look, after 20 years is up, what are your economics going to be? And it's still clearly the case that Japan [ can't ] meet its sustainable energy goals without more ongoing and growth in sustainable energy that we think those economics are likely to be very powerful. And so -- in solar's question, the most cost competitive, there are regular changes underway to allow, for example, more agricultural land [indiscernible] who will use hub for solar. We like wind a lot too, land-based, not ocean-based. And I've talked about that before. Japan has this huge falloff in the continental shelf, and it's really, really tough to make the economics work. We think offshore [ wind ] has been 7x more expensive than solar. So that's the place to be, and we're working on it and still it's been hard to meet people during the COVID period and to come out of it -- out of the COVID freeze, that's a place where we want to be very, very active. In terms of more [ classic ] real estate assets, yes, real estate is so specific. I mean it's not only kind of what area, it's like 1 building. And in our case, what we can do with the building? But we think small- and mid-office is very compelling, in part because the challenges I described, in large offices, which are a huge part of the market. And in fact, investors in the office market have kind of scared them off, and we're seeing totally different economics, total different durability and uplift in rents available. So we really like office a lot. Hotels are going to be a growth engine. When COVID comes back, the reason I'm not mentioning hotels right now is because we have possibly, for inbound to come back, which is going to be the big driver, we think full hotel economics in Japan and particularly for us, I don't know. Well, I mean we'll have to figure it -- we'll learn together. Is that a year away? Is that 18 months away? It's probably not 6 months away, so -- and you have some risk around it. We've covered Delta. For the moment, is there going to be something else that comes up? So because of the volatility of the sector and the terrible current economic performance, we're not kind of deciding to think of [indiscernible] get there. Open for, again, more questions or comments. Are we done? This could be a going once, going twice. Okay. I think we're done. Thank you, everybody. We appreciate your time. It's -- and it still is a tough [indiscernible] world. Have a great -- take care. Be safe. Have a very good day.