Japan Metropolitan Fund Investment Corporation (8953) Earnings Call Transcript & Summary

Welcome to this video presentation of JRF's operating results for the 36th February 2020 period, the 6 months from September 1, 2019 to February 29, 2020. Before I begin, I would first like to express my sincere condolences to those affected by the global coronavirus pandemic. Ordinarily, we hold our results presentation in person. To help prevent the spread of COVID-19, however, we have decided to forgo a face-to-face briefing and switch to a video format. As far as the disclosure of information is concerned and meetings with individual investors, our goal is to resume all IR activities once the government has lifted the current state of emergency. Turning now to the principal topic at hand, I direct you to the Contents page. I will begin by touching briefly on the impact that COVID-19 is having on society, tenant trends and sales of properties by portfolio category. I will then turn to JRF's future strategy before passing the microphone to Mr. Araki, Head of the Asset Management Company's Retail division, who will comment on specific operating results, financial results and forecasts. Please turn to Page 3. Society at large is reeling from the effects of COVID-19. As pressure to refrain from leaving the home for anything other than essential purposes continues to mount, we are experiencing such phenomena as a drop in consumer sentiment, decrease in the number of Japan-bound tourists and outbreak of the hoarding of goods. Under these circumstances, the impact on each sector of the economy is wide-ranging and varied. On the one hand, sales of groceries and drugstore products are increasing on the back of bulk buying demand for necessities. At the same time, sales of electric home appliances and household goods are trending firm or slightly upward as people spend more and more time at home. Looking at nest-dweller consumption patterns, tenant sales of outdoor products, including bicycles and motorcycles, are also on the rise. In contrast, sales in the fashion, entertainment, restaurant and related sectors have fallen substantially since March this year. As far as JRF assets are concerned, similar trends apply. While the impact of the pandemic was limited to facilities with a high ratio of inbound consumption up to February 2020, sales at facilities that cater largely to bulk buying demand and nest-dweller consumption have risen since March while falling at other facilities. Please turn to Page 4. In announcing its financial results forecast for the 37th August 2020 and 38th February 2021 periods, JRF has factored in a portion of these COVID-19 effects. Rent based on the percentage of sales makes up roughly 3% of JRF's leasing business revenue. As a result, any direct impact on the drop in sales is limited. However, recognizing the difficulties confronted by tenants in the event of, for example, a facility closure, we have also taken into account the potential impact on certain tenants with whom we have fixed rent arrangements and factored in a certain degree of revenue downturn. Turning to the Investment Corporation's distribution per unit or DPU, JRF plans to utilize its abundant reserves to pay a DPU of JPY 4,500, unchanged from the 36th period. As of the end of the period under review, JRF reserves came to approximately JPY 6.8 billion, which equates to an amount of roughly JPY 2,628 per unit. On this basis, we remain confident in our ability to maintain a stable stream of distributions. By period, COVID-19 impacted a portion of JRF's assets entering 2020. Taking into consideration the upside in net income, excluding gains on sales of JPY 270 million compared with announced forecasts, JRF has worked diligently to stabilize distribution levels over the medium term by allocating this upside to reserves. As a result, the Investment Corporation has set aside a DPU of JPY 4,500 for the 36th period in line with its initial announcement. Uncertainties surrounding the impact of COVID-19 are most evident during the 37th period. In a bid to offset these anxieties and risks, we have factored in a decrease of revenue of around JPY 800 million. Despite this decrease, we anticipate DPU will come in at JPY 4,500. In newly announcing forecasts for the 38th period, we have set a target for sales-based rent after taking into account a certain degree of sales recovery. While considering the potential for a delay in leasing activities at a portion of assets held compared with initial plans, we have again factored in a decrease in revenue of around JPY 200 million as a result of COVID-19 in similar fashion to the 37th period. As far as ongoing efforts to replace assets are concerned, our plan is to continue with the disposition of properties preceding asset replacement in the 38th period. Taking each of the aforementioned factors into consideration, we anticipate earnings per unit or EPU will come in at JPY 4,300. DPU is forecast to reach JPY 4,500 after completing a partial reversal of reserves. Amid uncertainties surrounding the effects of COVID-19, forecasts for each period take into account information available as of the beginning of April. Due to the difficulties in evaluating the impact on JRF's financial results going forward at this time, we have not incorporated the effects of subsequent events, including the government's emergency declaration. Should the impact of COVID-19 sharply exceed expectations in the future, we will disclose details of revised forecasts as appropriate. As indicated here on Page 5, JRF announced details of its new medium-term DPU target in the previous period. In specific terms, the Investment Corporation is looking to secure a maximum normalized DPU of JPY 5,000 in the 43rd August 2023 period. Despite the current impact of COVID-19, the targeted maximum amount and timing for this normalized DPU remain unchanged. Looking ahead, JRF will continue to pursue internal growth, reduce debt costs, utilize free cash and curtail other expenses in a bid to achieve its target DPU. Moving on, I would like to elaborate on our growth strategy. Please turn to Page 6. Taking into consideration the ongoing impact of COVID-19, we have established clearly defined lines between our short term as well as medium- to long-term strategies going forward. From a short-term perspective, we intend to implement and consider a wide range of measures while utilizing our current free cash of roughly JPY 37 billion. As a first step, we have decided to repurchase our own investment units. JRF maintains a robust financial position backed by a long-term commitment line of JPY 60 billion, the largest among real estate investment trusts in Japan. Underpinned by reserves totaling JPY 6.8 billion, JRF is distinguished by its high distribution stability. As I mentioned a moment ago, the Investment Corporation also maintains a free cash balance of roughly JPY 37 billion to fund its growth investment activities in the future. Despite having put in place a platform of stability and growth, JRF's investment unit price has fallen roughly 50% as of the end of March 2020 compared with the beginning of the year. While acknowledging the uncertainty that surrounds the impact of COVID-19, we believe that the value of JRF's fundamentals which boast both stability and growth potential based on a substantial free cash balance, is not properly reflected in its current investment unit price. Based on each of these factors, we have taken a decision to repurchase our own investment units on the understanding that a repurchase at the current level will help increase unitholder value. Taking into consideration the impact on our finances, we have set the maximum repurchase amount at JPY 2 billion. As far as timing is concerned, we plan to undertake the repurchase and retirement of investment units during the 37th period. In the event of a repurchase to the maximum amount, the positive impact on EPU is projected to exceed JPY 30 over a normalized period. JRF's net asset value or NAV is also estimated to increase by JPY 900. Amid the potential for the real estate purchase and sale market to become increasingly soft, we will prioritize the acquisition of high-quality assets when utilizing free cash in the future. We will, of course, take into consideration the impact of COVID-19 at the time of asset acquisition. With this in mind, we will focus on acquiring high-quality properties at a reasonable price. When targeting a property, we will naturally look to acquire such straightforward retail facilities as Machinoma Omori. We will also continue to consider the purchase of mixed-use facilities, including G-Bldg. Daikanyama 02, which is comprised of shops and offices. Meanwhile, we will assess the need to repurchase additional own units in the event of a continued decline in our investment unit price. In addition to the repayment of debt, we will look to align future measures to the market environment should the indirect financial market deteriorate more than expected. Please turn to Page 7. As identified during previous financial results presentations, JRF's medium- to long-term growth strategy is to build a portfolio that focuses on urban-type assets and therefore, prioritize mainly core assets. There is no change to this basic strategy. While the initial decision to adopt a strategic focus on urban-type assets was due to comprehensive changes in demographics and the shift to a railway-centered society, our ongoing commitment reflects the understanding that further major changes are unlikely to occur going forward, even after the COVID-19 threat has dissipated. Naturally, and as mentioned just a moment ago, we will closely monitor the effects of COVID-19 when acquiring new properties. As far as our future investment activities are concerned, we will adopt a stringent screening process and work to secure assets that will remain competitive over the medium to long term. Meanwhile, in the event of a substantial change in the assumptions and scenario described in this presentation, we will transition to a flexible and bold portfolio strategy in similar fashion to the way JRF and the MCUBS Group have adapted to drastic changes in the past. Faced with a crisis of global proportions, we will place the utmost importance on increasing unitholders' value and respond in an agile manner while monitoring current conditions. This then concludes my portion of the presentation. I would now like to hand the microphone to Mr. Araki, Head of the Asset Management Company's Retail division.

Thank you, Mr. Okamoto. In my capacity as Head of the Asset Management Company's Retail division, I would like to comment on JRF's operating and financial results as well as forecasts. Please turn to Page 11. Currently, JRF is engaging in the replacement of assets in a bid to improve the quality of its portfolio. This entails the disposition of sub assets, focusing mainly on general merchandise stores, and the acquisition of urban-type core assets situated in prime locations. As a part of these endeavors, the Investment Corporation announced details of its decision to newly acquire 2 core assets in the February 2020 period. In specific terms, JRF has taken steps to acquire Machinoma Omori, a retail facility located in a densely populated residential area in Ota Ward in close proximity to Shinagawa station, one of the Tokyo's main business areas. Situated in an excellent location in a thriving retail trade area with a population of approximately 500,000 within a 3-kilometer radius, Machinoma Omori is a one-stop retail property that supports lifestyles within the community. Beginning with the major LIFE supermarket chain and roughly 40 tenants, including a drug store and a JPY 100 shop, the property is a model from each of the tenant diversification and stability perspectives. As a property purchased from Mitsubishi Corporation Urban Development, Inc., an affiliate of JRF's sponsor company, the acquisition of Machinoma Omori was achieved through sponsor company support. As the second of the core asset purchases announced in this instance, JRF has decided to acquire G-Bldg. Daikanyama 02, the Investment Corporation's third acquisition in the area. This property is situated in a prime location in the heart of central Daikanyama, one of Japan's leading retail areas, roughly 1-minute walk from Daikanyama Station. Comprising 9 tenants, including restaurants, a beauty salon and office space on the top third floor, G-Bldg. Daikanyama 02 is distinguished by its tenant diversification and ability to quickly adapt to changes in operating conditions. In carrying out the aforementioned purchase, JRF has agreed to dispose of a section of the land with leasehold interest in Arkangel Daikanyama in exchange for a portion of the land at G-Bldg. Daikanyama 02. As a part of the exchange, plans are in place to post a reduction entry with a total gain of approximately JPY 440 million deducted from the price of the acquisition property. Following the completion of this exchange scheme, the net operating income or NOI yield of the property is projected to come in at 4.3%. Taking into consideration the potential for additional rental income growth, the NOI yield after reduction entry reaches 4.5% on an appraisal value basis. As indicated on this page, JRF has undertaken a disposition of properties in advance against the backdrop of a robust real estate replacement market, while adopting a stringent screening approach towards the acquisition of urban-type core assets with reasonable yields situated in prime locations. At a local acquisition price of JPY 24.5 billion, the NOI yield after depreciation comes in at 3.5%, higher than the 3.3% target. Directing your attention to Page 12, we provide a summary of JRF's approach toward the future replacement of assets. As Mr. Okamoto explained at the start of this presentation and in the absence of a comprehensive change in the structure of society, JRF's medium- to long-term strategy is unlikely to waver. This comprehensive structural change includes a concentration in Japan's population to urban areas or the shift to a railway-centered society. Given these circumstances, our policy toward the replacement of assets also remains intact. Based on the aforementioned, we will continue to proceed with existing plans and dispose of sub assets while acquiring urban-type core assets in a bid to complete the replacement of assets to a value of approximately JPY 100 billion over the 3-year period to fiscal 2021. At this point, I'd like to touch briefly on the current real estate purchase and sale market. Only a short period has passed since COVID-19 dramatically began curbing social activities from March. While difficult to arrive at a definitive conclusion about trends in the real estate purchase and sale market, we have seen scatterings of multiple property settlements, which we suspect coincides with the closing of companies' March fiscal years. At the same time, we have witnessed certain real estate purchases postpone their decisions to acquire properties as a result of prevailing conditions. This is in contrast to the needs of certain holders of real estate who are looking to liquidate their assets for a variety of reasons, including the refinancing of maturing debt. Taking each of the aforementioned factors into consideration and a temporary softening in the timing of transactions, the opportunity exists to purchase prime real estate. As a matter of fact, we have seen a sharp upsurge in the volume of retail property information over the past months. For several years after the Lehman shock in 2008, JRF acquired a substantial volume of prime real estate, comprised mainly of urban-type core assets at relatively inexpensive yields. These acquisitions underpin the profitability of the Investment Corporation's current portfolio. At present, however, we are carefully evaluating the effects of COVID-19 on each property under consideration. At the same time, we are taking prudent steps to ascertain the stability of future cash flows based on the continuity and substitutability of tenants. Each of these considerations form the underlying conditions for acquiring a property at an appropriate and reasonable price. While acknowledging the soft nature of the market in the short term, we feel confident that demand for the acquisition of real estate remains unchanged. Combined with the existence of several players who are bolstering their activities against the backdrop of this environment, we will continue to pursue disposition opportunities when the timing is right. Please turn to Page 13. JRF continued to secure increases in rents at the urban-type core assets in which it largely invests as lease agreements fell due for renewal throughout the February 2020 period. These increases in rents at urban-type properties reflect the need for existing tenants to renew their agreements as a result of robust sales and demand from new tenants to open stores. Meanwhile, and as identified at the start of this presentation, we have witnessed certain changes in consumer behavior amid the spread of COVID-19 from the latter half of January in Japan. In addition to the temporary closure of schools, pressures to refrain from leaving the home, work remotely and engage in other social distancing initiatives are dramatically limiting the scope of people's activities especially in urban areas. Areas of consumption are increasingly centering on locations close to the home. As far as items purchased are concerned, we are seeing a drop in nonessential goods as well as luxury items and a surge in daily necessities, including groceries and sanitary products. Moreover, inbound consumption has declined substantially. This largely reflects the drop in inbound visitors as a result of the restrictions on travel and entry. While inbound consumption only accounts for a few percentage points of Japan's total annual retail sales, the impact on tenants of properties in prime locations who cater specifically to the needs of inbound visitors is beginning to leave its mark. Furthermore, and in light of the aforementioned requests by the Tokyo Metropolitan government and surrounding prefectures to refrain from leaving the home, a number of large-scale retail and other facilities, including street-level stores, are beginning to voluntarily shutter their doors. For its part, JRF voluntarily closed 2 facilities in Greater Tokyo and another 2 facilities in Kanagawa Prefecture on March 28 and 29. An additional 3, 2, 1 and 1 facilities were closed in Greater Tokyo, Kanagawa Prefecture, Chiba Prefecture and Osaka, respectively, on April 4 and 5. Most recently, the Japanese government declared a state of emergency on April 7. As a result, we are expecting the general populace to further refrain from leaving the home, especially in the 7 prefectures affected by the state of emergency through to May 6 in the first instance. After properly ascertaining the requests and recommendations of the government, JRF will take all appropriate action. As you are all well aware, the floor space leased by JRF is largely occupied by tenant companies in the retail sector. As we have also indicated in the past, demand for redevelopment and continuous operations is extremely strong. With this in mind, we recognize that the ability and manner in which tenants, who are especially affected by COVID-19, respond to the current emergency and conditions will determine retail property revenue trends after the pandemic dissipates. Taking into consideration these downside risks, we have factored in declines in revenue of approximately JPY 800 million and JPY 200 million for the 37th and 38th periods, respectively. We have also set aside expenditures in line with the status of each tenant, beginning with a downturn in sales-based rent. Our thoughts are to utilize these adjustments to forecasts as we prepare for a drop in rents. Commenting briefly on the progress of renewal work at KAWASAKI Le FRONT, I ask that you turn to Page 14. A substantial undertaking, renovations at KAWASAKI Le FRONT encompass 72 blocks. Beginning with the opening of the food court at the end of April last year, work continues to progress smoothly. As of the end of March this year, 65 of the 72 blocks have opened with occupancy already coming in at 96.2%. Housed in the ninth and 10th floors, the aquarium is finally scheduled to open in the summer of 2020. In the lead-up to its debut, construction work remains firmly in line with plans. As far as the composition of tenants is concerned, demand for multi-use space as well as the ratio of service providers are increasing in line with shifts in consumer trends. In addition to the opening of satellite offices by tenants, we have witnessed the opening of a health examination center that specializes in medical checkups. Turning to profitability following the completion of renovations at KAWASAKI Le FRONT and as we projected at the time of our last financial results presentation, the ratio of fixed rents came in higher than original assumptions. As a result, annual net operating income or NOI climbed JPY 0.1 billion compared with initial forecasts. And the NOI yield improved from 6.2% to 6.5%. Accounting for each of the aforementioned factors and a fixed rent ratio reaching 93% for the facility as a whole, revenue stability at KAWASAKI Le FRONT is extremely high. Please turn to Page 15. In addition to investing in real estate that has the ability to attract people, JRF harnesses this ability to actively engage in the management of retail properties. Here on this page, I would like to provide details of 2 activities that we initiated during the current fiscal year utilizing IT technologies. First, we placed beacons at GYRE and La Porte Aoyama, 2 properties located in Omotesando. Utilizing the GPS locator installed in smartphones, we are using these beacons to track and analyze the flow of people within each facility. At mozo wonder city, we launched a proprietary JRF app. In addition to granting loyalty points using a QR code, steps have been taken to provide various services. Through this app, users can make payments via smartphones linked to credit cards and receive coupons on an exclusive basis. As an original service, this app has only been available for the past 1 month. Despite this limited period, the number of app downloads has already reached around 20,000. Our target is to lift this number to 50,000 after 1 year. Building on our success to date, plans are in place to roll out this app to Kyoto Family and KAWASAKI Le FRONT going forward. Looking ahead, JRF will combine these various new IT-based activities to ascertain customers' buying patterns and to analyze movements within each facility. This information will then be used to assist in future tenant leasing and placement as the basis for distributing coupons, event data and other information to customers and to increase profitability at retail properties. Next, I would like to comment on JRF's financial strategy. Please turn to Page 16. JRF maintains commitment lines totaling JPY 60 billion with borrowing periods of 3 and 5 years. These figures are best-in-class and the most favorable terms and conditions among real estate investment trusts in Japan. Moreover, JRF is taking positive steps to ensure a robust financial condition by leveraging the high credit standing of its sponsors. From a credit rating perspective, JRF has received a AA- rating, once again, a top-class assessment among J-REITs. The Investment Corporation's loan-to-value or LTV ratio on an appraisal value basis, excluding tenant leasehold and security deposits, comes in at 41%. If we include tenant leasehold and security deposits, JRF's LTV ratio on an appraisal value basis reaches 45.8%. With this in mind, we remain confident that the Investment Corporation maintains more than enough reserves. Please turn to Page 17. Buoyed by the credit rating of the fund and the strong standing of the MCUBS Group, JRF continued to employ its sector-leading debt procurement capabilities to forcefully cut its debt cost during the February 2020 period. In the period under review, JRF refinanced debt totaling JPY 31 billion. In lifting the average term of this debt to 9 years and reducing the average debt cost to 0.53%, successful steps have been taken to boost DPU by JPY 28. JRF is looking to refinance borrowings maturing over the 6 periods or 3 years from the February 2021 period at a conservative average debt cost of 0.7%. In this event, DPU is projected to improve by JPY 82. Changing tack, I would like to touch briefly on JRF's reserves and cash management. Please turn to Page 18. As uncertainty surrounding the effects of COVID-19 continue to mount, we recognize the important need to secure some modicum of stability, overcome this harsh operating environment and protect the interest of investors as the asset management company. Against this backdrop, JRF's abundant reserves and free cash provide a source of considerable strength. Owing to the disposition of Ito-Yokado Nishikicho over the 36th and 37th periods, JRF is looking to post a substantial gain on sale and further increase its reserves. Plans are in place to employ these reserves to offset the decline in revenue over the period that the Investment Corporation disposes of properties prior to the replacement of assets as well as the temporary downturn in revenue attributable to COVID-19. Based on this use of reserves and as we mentioned earlier in this presentation, JRF is looking to pay a DPU of JPY 4,500 in each of the 37th and 38th periods. From a balance sheet perspective, free cash stood at JPY 35 billion as of the end of February 2020 after deducting the planned payment of distributions from cash and deposits, other items including tenant leasehold and security deposits and JPY 2 billion earmarked for the repurchase of own investment units. As far as the application of this free cash is concerned, we will focus mainly on the acquisition of new properties. We will take advantage of opportunities to purchase high-quality real estate while carefully evaluating the property market. Depending on trends in our investment unit price, we will look to repurchase additional own investment units. Taking into consideration any deterioration in indirect financial market conditions, we'll also adopt a flexible approach toward the repayment of loans. Here on this page, I'd like to comment briefly on appraisal values and NAV per unit. JRF maintains one of the largest pools of unrealized gains among J-REITs. In specific terms, unrealized gains for the portfolio as a whole totaled JPY 162.1 billion in the February 2020 period. Despite a portion of unrealized gains from the sale of assets being realized, unrealized profits increased by JPY 652 million compared with the previous period. In addition, the cap rate for JRF's entire portfolio continues to decline. Based on the aforementioned, NAV per unit continues to increase, climbing 20% over the past 5 years. With an eye to the manner in which JRF addresses environmental, social and governance or ESG concerns, I direct you to Page 20. JRF remains committed to rigorously engaging in ESG activities. Based on its wide-ranging activities, the Investment Corporation is held in high esteem. As far as external party evaluations are concerned, JRF received the highest Global Real Estate Sustainability Benchmark or GRESB Green Star rating for a fifth consecutive year. The Investment Corporation also acquired an MSCI A rating, the second highest rating among J-REITs, while receiving a CDP score of B, 2 ranks higher than the previous year. In a bid to maintain these high evaluations, JRF acquired the Development Bank of Japan or DBJ and Comprehensive Assessment System for Built Environment Efficiency or CASBEE certifications for 4 and 5 new properties, respectively. As a result, the ratio of environmentally certified properties has risen to 81.8%. Moving on, I would now like to comment on JRF's financial results and forecasts. Without wishing to cover the same ground, I would first like to explain how we have factored the effects of COVID-19 into our forecasts for the 37th and 38th periods as a result of changes in people's movements and consumption patterns since March. Despite minor changes from period to period, about 97% of JRF's rent revenue is fixed, with 3% linked to sales. Turning to the 37th period, we have estimated a reduction in sales-based rent of JPY 300 million as a conservative stress factor and allowed for a further rent drop of JPY 500 million. Accounting for each of these factors, we have set aside an amount totaling JPY 800 million to cover any downside risk during the current period. While we anticipate those tenants with whom we maintain sales-based rent arrangements will experience a recovery in the 38th period, we are factoring in an amount of roughly JPY 200 million to cover the downside risk attributable to COVID-19. Keeping the aforementioned in mind, I ask that you turn to Page 22, where we provide a financial summary of JRF's actual EPU for the 36th period and forecasts for the 37th and 38th periods. As far as the Investment Corporation's distribution is concerned, JRF has announced its intention to provide a DPU of JPY 4,500 for the 36th period. For the 37th period, JRF's DPU has been revised to JPY 4,500 compared with the previous announcement of JPY 4,600. As the first time to comment on the 38th period, we are projecting a DPU of JPY 4,500. Returning specifically to the 37th period, JRF is in a position to provide an EPU of JPY 4,600 after posting a substantial gain on sale of properties. Given the uncertainty surrounding the current operating environment, we have set the 37th period distribution at JPY 4,500 with plans to allocate a portion of the gain on sale to reserves. At this juncture, I would like to elaborate on the factors that have or are expected to impact distributions from period to period. In accordance with large-scale renewal work at KAWASAKI Le FRONT, steady progress has been made with the opening of stores throughout the 36th period. In addition, JRF posted a gain on sale of approximately JPY 2 billion in connection with the second of 3 staggered tranches in the disposition of Ito-Yokado Nishikicho, a property in the sub asset category. Accounting for each of these factors, EPU came in at JPY 4,889 in the period under review, up JPY 103 compared with the forecast announced in October 2019. Looking at a breakdown of this JPY 103 increase, JPY 61 is attributable to an increase in other income, including promotion expenses received from tenants and insurance income to cover typhoon damage. An additional JPY 17 is the result of a decrease in loss on disposal of fixed assets, with JPY 23 from the decrease in general administration fees and nonoperating expenses. Turning to the 37th period, JRF is projecting an EPU of JPY 4,680, down JPY 208 compared with the period under review. While anticipating positive contributions from an upswing in revenue as a result of the purchase of Machinoma Omori and the acquisition of G-Bldg. Daikanyama 02 through an exchange of properties as well as the progress made in large-scale renewal work at KAWASAKI Le FRONT, which are estimated to add JPY 76 and JPY 144 to EPU, respectively, this forecast decrease of JPY 208 largely reflects the amount set aside as downside risk to cover the impact of COVID-19 of roughly JPY 800 million, which we anticipate will push down EPU by JPY 306, and a decrease in gain on sale as well as absence of revenue compared with the previous period after the third progressive disposition of Ito-Yokado Nishikicho undertaken at the beginning of the period, which we estimate will have a negative effect of JPY 134. Looking further ahead to the 38th period, EPU is anticipated to total JPY 4,300, down JPY 380 compared with the 37th period. While decreases in the costs associated with COVID-19 and increases in revenue from KAWASAKI Le FRONT are projected to boost EPU by JPY 241 and JPY 93, respectively, this will be more than offset by the absence of the gain on sale of Ito-Yokado Nishikicho, which we project will push down EPU by JPY 682. As has already been mentioned, forecasts for each period take into account uncertainties surrounding the effects of COVID-19 and are based on information available to management as of the beginning of April. Due to the difficulties in evaluating the impact on JRF's financial results going forward at this time, we have not incorporated the effects of subsequent events, including the government's emergency declaration. Should the impact of COVID-19 sharply exceed expectations in the future, we will disclose details of revised forecasts as appropriate. In closing, I would like to reiterate my thoughts on JRF and the status of assets under management. The threat we face today is unprecedented. While experiencing the temporary closure of facilities where people tend to accumulate, nationwide calls to suspend the academic year, requests for major companies in city centers to allow employees to work from the home and an appeal from the government for people to refrain from going outdoors on the weekend, especially in Japan's 3 main prefectures, the scope and nature of efforts to contain the spread of COVID-19 are far from uniform. As a result, there are considerable disparities in the impact on JRF's nationwide network of 100 properties depending on the location and tenant profile. Cognizant of the need to remain vigilant as the virus expands, we also believe that people will continue to limit their movements and cut back on purchases of nonessential items for some time to come. Taking into consideration concerns surrounding the ability of tenants to maintain their stores as a principal place of business and engage in the sale and provision of goods and services, the trade-off between tenant continuity and the role of JRF as a property owner is entering a critical phase. As the manager responsible for overseeing the funds of investors, we have taken the necessary steps to address any contingencies that may arise. This includes the stable management of assets with the aim of maximizing medium- to long-term profit, the buildup and application of abundant reserves and free cash, the establishment of a sector-leading commitment line, the development of robust sponsor support and the creation of a management structure that is capable of swiftly analyzing operating conditions and acting as appropriate. Despite the threat of an uncertain environment for the foreseeable future, we will continue to adopt a speedy and flexible approach while keeping in mind a myriad of possible events. As we work toward increasing the performance of the fund, we ask for your continued support and understanding. This then concludes the presentation. We thank you for your interest and attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]