Mitsui Fudosan Co., Ltd. (8801) Earnings Call Transcript & Summary

Thank you for participating in today's investor and analyst briefing. I will explain Mitsui Fudosan's results. I will start with the highlights. For the fiscal year ending March 2023, Mitsui Fudosan grew operating revenues by 8% year-on-year or JPY 168.2 billion, operating profit by 24.7% or JPY 60.4 billion, ordinary profit by 18% or JPY 40.4 billion and profit attributable to owners of the parent by 11.3% or JPY 20 billion. We reported higher sales and income for all levels of profit, also achieving new record highs. In addition, the results for operating income and other levels of profit exceeded our full year forecast. Next, I will cover the year-on-year change in operating income by segment. First, the Leasing segment. Operating profit was JPY 149.1 billion, up JPY 19.1 billion year-on-year for a new record high. In addition to the growth in operating revenues and income from 50 Hudson Yards, we also saw a year-on-year recovery at existing retail facilities and benefited from new openings of LaLaport properties in Fukuoka and Sakai. Mitsui Fudosan's nonconsolidated Tokyo metropolitan area vacancy rate as of the end of the fiscal year was 3.8%, down 2.6 percentage points from the 6.4% as of the end of Q3. Next, the Property Sales segment. Operating profit was JPY 145.7 billion, up JPY 7.3 billion year-on-year for a new record high. Property sales to individuals domestic or the domestic residential business posted year-on-year profit growth of JPY 15.3 billion on factors, including progress on handovers for Park Court Chiyoda Yonbancho and others. For property sales to investors and individuals overseas, through continued asset turnover initiatives, we made progress on the disposal of both domestic and overseas properties to investors. Similar to the previous fiscal year, we were able to generate subsegment operating income of more than JPY 100 billion. Next is the Management segment. Operating income was JPY 63.3 billion, up JPY 6.1 billion year-on-year for a new record high. The Property Management subsegment grew profits by JPY 6.2 billion year-on-year, mainly as a result of improved occupancy rates over the previous fiscal year at the Repark business and the impact of expense reductions. The Brokerage and Asset Management subsegment profit dipped slightly year-on-year with an increase in project management fee revenue, offset by factors, including an increase in expenses for the Re-House business. Next, the Other segment. In fiscal 2022, the Other segment reported operating losses of JPY 4.2 billion, which is a JPY 25.4 billion year-on-year narrowing of losses. The hotel and resorts business reported an improvement in operating losses on the back of a significant rebound in RevPAR. Profitability at Tokyo Dome also improved, returning to the black on increases in the number of operational days and spectators. Next is an overview of the balance sheet. Total consolidated assets were JPY 8,841.3 billion, up JPY 633.3 billion year-on-year. JPY 255.5 billion of the increase is the result of changes in ForEx. The key components of change in assets are JPY 111.9 billion increase in real property for sale to JPY 2,163.6 billion and the JPY 378.9 billion rise in tangible and intangible assets to JPY 4,293.1 billion. Interest-bearing debt was JPY 4,048.5 billion, up JPY 381.2 billion from the end of the previous fiscal year, JPY 132.9 billion of the year-on-year change is the result of ForEx moves. Net assets were JPY 3,031.2 billion, up JPY 117.4 billion. The D/E ratio was 1.4x, up 0.09 points year-on-year. The equity ratio was 32.8%, down 1.3 points year-on-year. This completes the overview of the fiscal 2022 financial results. Thank you. We will now move on to the presentation by CEO, Ueda.

Good afternoon, everyone. Thank you for taking time out of your busy schedules to participate in the results briefing for Mitsui Fudosan today. I am CEO, Ueda. I became President and CEO on April 1. Today, I will start by introducing myself before discussing the competitive advantages of our businesses and assets. I will also share my thoughts as CEO and President. As this is my first presentation to investors and analysts as CEO, today's presentation is slightly longer, I ask for your understanding. First, I will talk about myself and my professional background to this point. Given the lengthy periods I have spent in the mainstay office building division as a General Manager of several departments and Chief Operating Officer of the division, you may be under the impression that I have spent my career very much in the mainstream of Mitsui Fudosan. This spring marked the 40th year of my career, having joined the company in the year that Tokyo Disneyland opened. However, of the last 40 years, I have only worked in the Mitsui Fudosan head office in Nihonbashi for slightly more than 10 years since 2009 in the wake of the global financial crisis. Until that point, I was based in branch offices or on secondments. My perspective for a very long time has been that of someone looking at the very interesting Mitsui Fudosan Corporate Group from the outside. My first assignment after joining the company was the Yokohama office. I was part of the team responsible for securing land bank for condominiums, but at that time, the team was launched with just 4 people. Within a few years, the group grew to be 120 to 130 people. Subsequently, Japan's asset bubble burst. In the aftermath, I spent more than 6 years at Mitsui Fudosan Finance dealing with bad debt. It was a very challenging period, and the work was grueling and dry. After that, I spent more than 10 years from 1999 at Mitsui Fudosan Investment Advisers at a time when the real estate securitization market was just getting off the ground in Japan. In preparation for the launch of NBF, Japan's first listed J-REIT, I was tasked with the creation of a private fund. As well, I was involved in asset management as we explored a non-asset business model. We raised funds from investors to bid and win the tender for the first Tokyo Midtown in Roppongi. While I maintain my perspective as a real estate developer, this experience gave me insight into the point of view and mindset of institutional investors. This was a very deep and meaningful experience, which I believe allowed me to visually experience Mitsui Fudosan's business model of holding and leasing, development and sales and management and the joint value creation model with investors. After 2009, following the global financial crisis, I spent 14 years at the office building division, consistently focusing on capturing new business opportunities, exploring new office and working styles and advancing mixed-use development projects in Central Tokyo neighborhoods, such as Hibiya, Nihonbashi, Otemachi, Yaesu and others. Also as the Chief Operating Officer of the Office Building division, I was tasked with the mission of completing the leasing of around 200,000 [Tubo] in office floor space at large-scale new properties in Nihonbashi, Hibiya and Otemachi by 2020 when the Tokyo Olympic Games were scheduled to take place. This was a historic first for Mitsui Fudosan, which I am proud to say we achieved. Through the process, I felt strongly that rather in competing over the small pie of current demand, we needed a way to grow the [demand pie]. It is this experience that led me to focus on strengthening our international competitiveness through neighborhood creation and developing a platform capable of drumming up new demand through initiatives such as the launch of the work styling business and the Nihonbashi Life Science plan. I firmly believe I was engaged in realizing Mitsui Fudosan's neighborhood creation vision of putting people first and getting better with age in my 14 years at the Office Building division. Japan has finally downgraded COVID-19 to Category 5, the legal category that includes common infectious diseases such as influenza. It was a long 3 years. We will be transitioning into new ways of living and working as we move toward a post-pandemic period. At the same time, the business environment is changing dramatically. On the back of rising geopolitical risk, we are seeing the wave of free trade and globalization transition into an era of division. After the global financial crisis, there was an acceleration towards monetary easing globally on the back of the pandemic. This has resulted in the emergence of rapid inflation around the world, which is triggering a shift away from the low interest rate era. Climate change is taking place on a global basis and is having a massive effect on countries around the world. It is no exaggeration to say that companies that cannot respond to climate change will not survive. I feel strongly that we are at a major inflection point and that we have already transitioned from the COVID-19 recovery period into a period of change. So what do I view as my mission in these uncertain times? It is without question to draw a road map for growth for the next era. By fully capitalizing on what I have learned from my wide-ranging experience to date and my perspective of looking at Mitsui Fudosan from the outside as well as actively listening to investors, I believe I can respond to the expectations of the equity market by focusing on strengthening our competitive advantages, enhancing our resilience in the face of risk and maintaining a good balance between sustainable growth and efficiency. I will now move on to an explanation of our fiscal 2023 earnings forecast. In fiscal 2022, Mitsui Fudosan was able to post new record highs, alongside the recovery from the pandemic. In fiscal 2023, we have set our sights even higher, aiming to set new record highs in operating income of JPY 330 billion and net profit attributable to the owners of the parent of JPY 210 billion. The segment forecasts are as shown here. For the Leasing segment, we expect to benefit from full-term contributions from large-scale properties such as Tokyo Midtown Yaesu and 50 Hudson Yards. We anticipate a further recovery from COVID-19 at retail facilities. For the leasing segment as a whole, we project a year-on-year improvement in profits of JPY 12.2 billion. For the Property Sales segment, while optically, our forecast appears to be calling for a year-on-year increase of JPY 0.1 billion, when we look at the subsegments, we project year-on-year profit growth of JPY 10.6 billion for property sales to individuals domestic backed by strong sales conditions. For property sales to investors and individuals overseas, in addition to the projected JPY 96 billion in operating income, we are planning to generate extraordinary profits from the disposal of tangible assets. The combination should allow us to achieve a similar level of profits from the sale of real estate to the previous fiscal year in fiscal 2023. While we project a dip in profits owing to the absence of some one-off factors in the previous fiscal year, the Management segment is expected to maintain an operating income level of JPY 60 billion in fiscal 2023, close to the record high level set in fiscal 2022. We have newly established the facility operations segment as a separate segment from this fiscal year, reflecting its position as the next growth driver. This segment consists primarily of the Tokyo Dome and Hotel and Resorts business. We have successfully captured demand from the COVID-19 reopening with this business already back in the black. Near term, while there is an impact from rising interest rates as a result of rate hikes in the U.S. and Europe, we expect the scale of our domestic and overseas businesses to grow. In spite of the increase in interest burden, we expect to achieve a new record high of JPY 210 billion in profit attributable to owners of the parent. We are also projecting EPS growth of more than 7% year-on-year. In keeping with our policy to date of growing DPS along with profit growth and our 30% payout ratio target versus net profit of JPY 210 billion, our fiscal 2023 guidance for dividends per share is JPY 68, up JPY 6 year-on-year. I will now move on to discuss the driving force behind Mitsui Fudosan's serial achievement of new record highs. As you know, our business model consists of 3 elements: holding and leasing, development and sales and management. I have strong confidence in the competitive advantages of our businesses and the risk resilience, which supports this business model. I would like to share several key points to remind you of the strength of our profit-generating capability. The first is the superior quality of our asset portfolio as a result of the increase in mixed-use properties with offices at the core. We show here some photos. The office market is expected to be increasingly polarized on the back of the rising penetration of remote work. Last week, the Nihon Keizai Shimbun reported a pickup in corporate moving activity on the back of a recovery in inquiry levels for new office properties in prime locations and existing buildings with superior facilities. As the COVID-19 situation stabilizes, there has been a reaffirmation of the significance and importance of offices. We are now in an era where high-spec properties in prime locations are relatively more popular given the benefits in terms of attracting talent, convenience of location and corporate branding. This slide shows the proportion of properties with building ages of 5 years or less relative to our asset portfolio. Starting with the launch of Tokyo Midtown Hibiya in 2018, we have made progress on redevelopment projects in Central Tokyo and New York as well as on asset turnover in the portfolio. As a result, compared to the past, the age of the portfolio has become younger and we have increased the proportion of properties that are high-spec mixed-use properties in prime locations as shown here. In addition, the intangible services we provide with our office properties have led to a strengthening of long-term relationships with our tenants. Examples include initiatives such as work styling, the provision of green power for dedicated tenant floor space, our [indiscernible] well service, which contributes to health management for corporate tenants and [indiscernible] Consulting, which supports the creation of offices that motivate employees to return to the office. We highlight the fact that of the companies we support with the [indiscernible] service that aim to be designated health and productivity management organizations 30% have been certified for the first time and 40% were selected to the White 500. 50% of the companies have seen an improvement in their evaluations. Although we do not show it on the slide, Mitsui Fudosan has been certified as a health and productivity stock. In addition, Nihonbashi, which is a central hub for life sciences in Japan is also the starting point for the historical centrally administered [indiscernible] routes. By also nurturing a globally successful space business in Nihonbashi, our aim would be to create a sixth route that leads into space. In this way, we provide both a forum and a community that brings together an ecosystem encompassing numerous corporates and academia. I believe this kind of activity where we create an ecosystem that lays the ground for the creation of new businesses or demand is representative of Mitsui Fudosan's unique capabilities. As the pandemic has eased and there is a reassessment of the value of [Real], Mitsui Fudosan is creating neighborhoods based on a strategy incorporating tangible and intangible elements and rooted in an understanding of evolving and diverse needs. Through a wide array of initiatives, we are creating neighborhoods that will integrate work and play where people want to be. For instance, Tokyo Midtown Yaesu, which held its grand opening in March of this year, both a combination of pleasant and attractive office space with dedicated gym and lounge space for tenants. In addition, we have launched innovation field Yaesu, which is a forum for creative exchange and innovation that brings together corporates, academia and startups. Also at the top of the tower sits the Bvlgari Hotel, which provides exclusive and opulent hospitality to satisfy even the most demanding. The foot of the tower is retail space design around concept of Japan presentation [indiscernible], showcasing Japan with a wide variety of stores. There is also a roof terrace for relaxing as well. Through a combination of many different elements and functionalities, we have created a mixed use neighborhood. I believe that all of these elements have combined to create a neighborhood that makes the office component extremely attractive to tenant's workforces. I strongly feel that this is what has made Midtown Yaesu the property of choice for many corporate leaders. As well, Mitsui Fudosan is not only developing mixed-use buildings in Nihonbashi, but also contributing to the development of a mixed-use neighborhood with the potential for further expansion. On top of a number of mixed-use buildings, such as Nihonbashi Mitsui Tower and Nihonbashi Muromachi Mitsui Tower, which combined office space and retail facilities with hotels, residences, cinemas and event halls. The neighborhood is also populated by numerous eateries and retail shops, not just along the main [indiscernible] Doty but in the smaller surrounding streets as well. It is home to a historically significant shrine and the theater for the traditional [indiscernible] . Nihonbashi is a mixed-use neighborhood that is not just an office district but a great neighborhood to explore on foot and make new discoveries. What's more, the Nihonbashi Riverside area between here, the Nihonbashi Muromachi neighborhood and Yaesu is currently home to a project to move the overhead Expressway underground and 5 redevelopment projects, all already underway. The combined projects are of an unprecedented scale even on a global basis and will take around 2 decades to complete. When completed, this area will change dramatically, opening up a riverside area integrated with a clear view of the sky in proximity to Tokyo Station. The rebirth of 1 zone within the Nihonbashi and Yaesu area populated by buildings with a diverse range of mixed use functionalities will dramatically boost the attractiveness and unified the neighborhood. I am very confident that this will only make this area even more attractive. We plan to further boost the attractiveness of the area, enhancing neighborhoods has been our top priority to date. I believe that this contributed to Nihonbashi being selected as the most popular neighborhood for office space for 4 consecutive years. This is from more rebuilding materials. The Nihonbashi and Yaesu area, where we are focused on mixed-use development is only neighborhood that has been able to achieve a significant increase in rents compared to pre-COVID levels. This data is from Mitsui Sumitomo Trust Bank. Please see the areas circled in light blue. The area in the light blue circle is the only area achieving rent growth of 5%. Furthermore, Mitsui Fudosan's metropolitan area office vacancy rate has remained below market levels despite the pandemic. As of the end of March 2023, it was 3.8%. We expect the vacancy rate as of the end of next March to decline further from this level to around 3%. 2023 is a year of higher-than-usual office supply in Central Tokyo but Mitsui Fudosan does not have any major new large-scale projects slated completion for some time. The next large-scale completion is not until March 2026, when the Nomura Securities District redevelopment in Nihonbashi completes. However, we are already seeing tenants for this property start to be confirmed. During this period, we will focus on strengthening our long-term relationships with our tenants to further maintain stable and continuous leasing cash flow while also aiming to decouple from the overall market. Mitsui Fudosan's key characteristic is the stability and consistency of profit growth of its property sales to investors and individuals overseas business. To date, we have engaged in asset turnover within the portfolio of tangible assets to realize the unrealized development gains as we show here. Mitsui Fudosan typically set its hurdle rate for Central Tokyo prime offices at around NOI yield of 5%. Compared to the market's expected return of around 2%, we believe we have locked in a sufficient buffer. With regard to our profit career or the development of properties, we have already been factoring in the risk of changes in rent levels and rising interest rates and costs for some time. We also factor in simulations of long-term market change in setting our assumed exit yield. We use a conservative assumption and take into account future rises in interest rates. This is also something that we have been doing from 10 years ago. The unrealized gains we generate in completing development projects that clear these conditions is very significant. So even if the transaction cap rate rises somewhat, we expect to lock in sufficient profits. For instance, the operational assets currently included in property sales to investors of around JPY 1 trillion generate an NOI yield of 6.3%. Hypothetically, assuming a conservative exit yield of 4% for all of these properties implies unrealized gains of more than JPY 600 billion, as you can see here. Also, as noted earlier, many of our assets are superior assets, which are younger properties in central urban locations. I believe that the liquidity of such assets remains high, even at times of uncertain market conditions. In this way, the strength of our property sales to investor business reflects the robust buffer we have put into place against rising interest rates. We will continue to promote balance sheet control going forward to stably and continuously realize unrealized gains to support shareholder returns. We will focus on nurturing a sense of security in our ability to generate profits from property sales. Finally, I will highlight the strengths of our management business. The AUM of our asset management business, which is 1 component of this segment currently exceeds JPY 4,650 billion. Under our model of joint value creation with investors, we are the only developer that has established individual REITs for the key asset classes of offices, retail facilities, rental housing and logistics facilities. In addition, we have access to a robust array of exit channels, such as financial institutions, corporates and private REITs. Our exit strategy is not limited to our sponsored REITs. Going forward, we will accelerate asset turnover driven by balance sheet control. This will allow us to enjoy both gains on disposals and a lighter balance sheet. Our strategy is to grow management profits over the long term by managing the assets we have sold through master leases and other structures. As I have described, you can see that each of the asset classes and businesses that make up our business model of holding and leasing, development and sales and management have strong competitive advantages and resilience to risk. On top of this, we have a client network that is the result of more than [ 8 ] years of sales activity. It is not limited to just corporate. Mitsui Fudosan has broad relationships that go beyond the boundaries of our industry with strong relationships across fields such as academia, the agriculture sector and medical institutions. Our relationships also go beyond a simple relationship between landlord tenant. There are instances where we are partners in joint businesses or where we engage in joint research aimed at giving back to society. Our relationships with our clients are robust and deep. With our superior competitiveness in asset classes and businesses and a solid client network, we aim to further grow our leasing profits. In combination with development activities and the realization of unrealized gains and growth in the highly efficient management business profits, we aim to strengthen our relationship of trust with the equity markets by clearly continuing to communicate our group's capabilities in generating value. Next, I will discuss the conditions of our operational assets, which have been impacted over the last few years by the pandemic such as retail facilities, hotels and Tokyo Dome. First, on the retail facilities leasing business, it is necessary to closely monitor consumer sentiment given concerns that rising prices will dent the consumer mindset. That said, near-term GMV has virtually reverted to pre-pandemic levels. If we look at trends from April onward, GMV has been above pre-pandemic levels in some months. In addition, the rent relief we provided to retail tenants during the pandemic has improved our relationship of trust with our tenants, resulting in a very low vacancy rate of 2.2% for our retail facilities. In addition, during the 3 years of the pandemic, membership for the Mitsui shopping park loyalty program increased from 12 million to 13 million individuals. If we look at the top 10 retail facilities across Japan by GMV, Mitsui Fudosan facilities account for half, reflecting the power of our brand, as shown in the shaded area of the table. Moving on to talk about our hotel business. Our strategy has been to focus on upper middle and luxury hotels. As a result, inbound travelers accounted for a relatively high proportion of guests for our hotel properties. We are seeing a strong benefit from the lifting of entry restrictions to Japan. Near term, RevPAR has already risen above pre-pandemic levels. The Mitsui Fudosan Group chose not to streamline its hotel workforce during the pandemic. We believe that the decision to protect jobs is contributing to a relative advantage in locking in a workforce. We aim to ensure we do not miss the opportunity represented by this tailwind. We will maintain a strong focus in order to achieve improved earnings. The ratio of inbound guests at Mitsui Fudosan hotel properties located in Tokyo has already recovered to the pre-pandemic level of 60% in the January to March 2023 period despite the low level of travelers from Mainland China. Near term, the ratio of inbound travelers at our Tokyo hotels has picked up, rising to 65% in April. If we look just at Mitsui Fudosan luxury hotels in Central Tokyo, the ratio of inbound travelers is verging on a level of between 80% to close to 90%. The number of registered loyalty program members for the Mitsui Garden Hotel has more than doubled versus the pre-pandemic level rising to 770,000. The excitement of the World Baseball Classic series is probably still fresh in everyone's memories. Tokyo Dome had already returned to the black at operating profit level in the last fiscal year. This fiscal year, the number of operational days for concerts and attendance has returned to pre-pandemic levels. We expect to see a further recovery in professional baseball spectator numbers. Now all we need is for the Yomiuri Giants to return to form. Currently, we are making advanced investments to enhance the profitability and competitiveness of Tokyo Dome City. We are solidly laying the foundations to prepare for stronger post-pandemic growth. Those of you that have visited Tokyo Dome will know that prior to the recent round of renovation, the stadium felt dated. After refurbishment, spec and the stadium experience have been updated to the 21st century. Our aim is to ensure that we can meet expectations for improved earnings going forward. With regard to operational assets, we aim to leverage the learnings of the pandemic to reduce risk going forward. We aim to develop resilience to potential risk while also ensuring we have an appropriate business structure that will allow us to pursue upside under normal socioeconomic conditions. For instance, with a clear understanding of the impact of COVID-19 by operational asset type, we are factoring in the potential for a recurrence of pandemics at a certain frequency into our earnings plan. This is baked into our investment decision process. In addition, for such assets, I want to further enhance strengths that are unique to Mitsui Fudosan. For example, 1 of our strengths is the integrated development of office and hotel space. Rather than targeting an increase in business scale such as an increase in room numbers, we examine opportunities from the perspective of mixed-use and the contribution to strengthening the competitiveness of the neighborhood. We believe it is necessary to sell in order to differentiate. Also, Tokyo Dome Corporation, which is a part of Mitsui Fudosan Group, possesses highly rare skills related to stadium management. In selecting a developer for the new Chichibunomiya Rugby Stadium, 1 deciding factor was the operational capabilities of Tokyo Dome Corporation. Tokyo Dome's operational know-how is a valuable branch of functionality for the Mitsui Fudosan Group, which I am confident will lead to further growth in the sports and entertainment business. The further our lives become digitalized, the higher the added value of real emotions and the visceral experiences of the 5 senses. The necessity of incorporating real elements in talking about the neighborhood creation story makes assets with mixed-use functionality indispensable going forward. By creating our own unique approach and strengthening our resilience to event risk, I believe we can differentiate ourselves from our peers. Next, I will discuss overseas business. Mitsui Fudosan's overseas business has grown to account for roughly 20% of consolidated OP. Going forward, through the completions of projects in the development pipeline, we expect to be able to largely achieve our target of 30%. Last fiscal year, 50 Hudson Yards was completed, pushing up overseas leasing profits to the next level. The average lease term for office tenants is approximately 17 years, which supports long-term stability. Occupancy rates are high we expect further contributions to solid core profits going forward. That said, as a result of rapid rises in the U.S. and European interest rates, players in the real estate transaction market are increasingly sitting on the fence. However, occupancy rates for our U.S. rental housing properties, which we view as assets targeted for turnover, are generally above 90%. Given the current environment, our primary focus at this time is to be patient and focus on income gains. Going forward, when the financial markets stabilize, we will explore the optimal time to resume disposals. We plan to be even more proactive about asset turnover at that point. In addition, the impact of sharply higher rates on our interest burden is not 0. The interest burden for our overseas business is increasing. However, in real estate, it is important to take a long-term perspective. Rather than judging the business based on the current rise in rates alone, it is necessary to evaluate the correlation between longer-term interest rate trends, inflation, rent levels and the transaction market in targeting growth in leasing profits and sustainable growth in property sales profits. I believe it is important to concentrate on growing net profit. Next is the state of the balance sheet. As of the end of fiscal 2023, Mitsui Fudosan total assets are expected to be at approximately JPY 9 trillion and interest-bearing debt is expected to rise to roughly JPY 4.5 trillion. However, we attribute the increases beyond our initial expectations as a result of factors such as the impact of foreign exchange moves and the securing of superior business opportunities. The D/E ratio is expected to reach 1.5x, close to the high end of the range we had set out of between 1.2 to around 1.5x. We have been increasingly proactive about asset turnover and portfolio turnover to this point. But when the financial and real estate markets are experiencing disruption, it can create opportunities to acquire promising assets for the future. It will be important to take a long-term perspective in executing balance sheet control initiatives without being influenced unduly by the near-term financial market conditions. I also believe that we must show a profit scale that is appropriate to the scale of the balance sheet at the time with a further emphasis on ROA and ROE, while also being mindful of a good balance between sustainable growth for the future, efficiency and financial soundness. Going forward, I am committed to maintaining discipline in the areas that we can control. I believe portfolio asset turnover should not be limited to just real property for sale we will look at the total picture, including tangible assets and investment securities. In terms of the balance between liabilities and capital, we will aim for the optimal cash flow allocation taking into account metrics such as ROA, D/E ratio and the EPS growth rate. On total shareholder returns, 1 year ago, we raised our target level from 35% to 45%. Based on this policy, for this fiscal year, we will maintain our approach of rewarding shareholders through stable dividends and flexible share buybacks, taking into account factors such as the operating environment, earnings, our financial situation and the share price. Our DPS guidance is JPY 68, up from JPY 62. We maintain our policy of raising the dividend over time. For share buybacks, although our stated policy is to conduct share repurchases on a flexible basis, I believe the consistency, continuity and a certain level of scale is required to be effective. Going forward, we will formulate a new long-term management policy. But with regard to shareholder returns, we will take a comprehensive approach, factoring in elements such as EPS growth and improvements to ROE as well as equity market conditions. In addition, sustainable growth is very important in order to consistently improve returns in a stable and continuous manner. I aim to maintain a good balance between continuous growth over time and strengthening shareholder returns in line with growth. In closing, I would like to talk about my vision. I was at Mitsui Fudosan Finance between 1992 and 1998, precisely during the aftermath of the asset bubble collapse. I felt Japan was in the midst of a crisis and feared that Japan might be left behind by the world. Confronted with the consequences of the asset bubble, I felt it was my mission to achieve a resolution throwing myself into my job. As well, during the time I spent at Mitsui Fudosan Investment Advisers, real estate market liquidity dried up completely. I learned a great deal through the experience of introducing real estate securitization to Japan and the contact I had with institutional investors. Under all of this, fundamentally, I wanted to improve Japan's position. In hindsight, I think that I have always focused on Japan's position in the world throughout my career. Today, even in comparison with other developed economies, there are concerns that Japan's growth is slowing and its international competitiveness is diminishing. Underpinning my approach is the desire to contribute to enhancing Japan's industrial competitiveness and growth capability and for its people to enjoy richer and more fulfilling lives. I believe that the Mitsui Fudosan Group is more than a real estate developer. I consider us to be a platformer that contributes to the development of industries. Our mixed-use neighborhood creation and life science initiatives in Nihonbashi epitomizes this. It is the provision of this platform, which enabled our initiatives to create social value and enhance economic value. Together with the local landowners, Mitsui Fudosan has undertaken initiatives to revitalize the neighborhood creating many functions necessary for the area such as office space, retail facilities, hotels and event halls as a part of our Nihonbashi Revitalization Plan. Also, historically, Nihonbashi had been home to many pharmaceutical companies dating back to the Edo period, which started in the early 1,600s. As such, there had already been many companies related to the pharmaceutical industry scattered around this neighborhood. In order to contribute to addressing the global issue of healthy longevity, Mitsui Fudosan partnered with like-minded individuals in academia to establish LINK-J in 2016. We set up a life sciences community and forum in Nihonbashi creating an ecosystem. As a result of activities designed to the creation of new industry and develop a life science cluster, LINK-J now [ both ] 652 member organizations. Despite the pandemic, the number of annual events has risen to 834 with total annual participation of more than 200,000 people. There are now 15 life science buildings in Nihonbashi and 1 in Osaka as well. Following participation in such activities, around 167 organizations became new tenants for Mitsui Fudosan in Nihonbashi and other areas. At the outset, many people asked why a real estate company was doing this, but we now have a real sense that we are a platformer. In addition, our activities are resonating with industries and sectors other than life sciences. We have been able to attract new tenants to the Nihonbashi area, such as Woven by Toyota and the Boston Consulting Group. By improving the diversity of the neighborhood, we have been able to diversify our tenants. Nihonbashi has developed into a neighborhood that commands top class rent levels for Japan, matching, Yaesu and Otemachi. Going forward, we aspire to be the developer of choice based on our people and enterprise-center approach. Mitsui Fudosan is a platformer focused on creating neighborhoods. Through our positive approach to broad industry creation, we've accumulated significant learnings and seeds for innovation. I am committed to capitalizing on this to create new businesses and cultivate and generate new demand. My mission is to create the next growth opportunities based on society and demand in 10 or 20 years' time. The growth I aspire to is not simply the increase in profit scale. We must strive to achieve sustainable growth over time while also enhancing the efficiency of assets and capital. I aim to evolve the management of Mitsui Fudosan by engaging with stakeholders and strengthening shareholder returns in line with our growth. I wouldn't go so far as to call it my motto, but the great 19th Century science fiction author, Jules Verne said, anything 1 man can imagine, other men can make real. I intend to take a rigorous look at the future beyond Vision 2025 and to engage in deep discussions on what Mitsui Fudosan should aspire to be in the future in creating a new long term management policy, which we aim to disclose sometime next year. This completes my presentation. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]