Mitsui Fudosan Co Ltd

TSE:8801

Earnings Call Transcript 2021-Q2

[Wataru Hamamoto, executive]

I am Wataru Hamamoto, Executive Managing Officer of the Accounting and Finance department. Thank you for taking time out of your busy schedules to participate in Mitsui Fudosan's analyst briefing. I will present the results for the first half of the fiscal year ending March 2021. I will touch briefly on our first-half results, which we have already announced. Reflecting the impact of COVID-19, both operating revenues and profits fell on a year-on-year basis. Operating income was JPY 64.1 billion, down 49.5% year-on-year. As you are already aware, the decline was the result of the closure of many of our retail facilities and hotels during the Japanese state of emergency in April and May and the low level of completed transactions in the property sales to investors business in first half. In addition, occupancy rates for the Repark car park leasing business and the hotel and resorts business have yet to fully recover.

Net profit attributable to the owners of the parent fell 86.4% year-on-year to JPY 9 billion. The substantial year-on-year decline is the result of several large-scale, extraordinary losses incurred in first half. A major loss was incurred as a result of COVID-19. Fixed costs related to the facilities that were closed during first half were recognized as extraordinary losses.

The other major losses related to our initiatives to control the balance sheet and reflects the recovery of the real estate transaction market. Over the last few years, balance sheet control has been a key strategy. As a part of this, we chose to sell the Shinjuku Mitsui Building. We incurred an extraordinary loss in connection with the sale of this property. These factors contributed to a significant year-on-year decline at the bottom line and was a key feature of our first-half results.

Now moving on to the segments. Owing to the COVID-19 outbreak, all of our segments reported year-on-year declines in first-half revenues and profits. I will quickly touch upon the segment results.

The Leasing segment reported a JPY 14.6 billion year-on-year drop in operating income. This was due to the temporary closure of retail facilities during first half. In the office business, we did not see major changes like lease cancellations or rent relief requests. That said, the impact on the retail facilities business was significant. Our nonconsolidated Tokyo metropolitan area office vacancy rate is much lower than the overall market. Trends in our office leasing business are firm.

However, the retail facilities business was impacted by closures in first quarter, as well as a slower subsequent recovery for some retail facilities in central urban locations. While first half operating income was down year-on-year, overall retail facility GTV trends in second quarter on a stand-alone basis are already at 80% to 90% of the previous year's levels. Some facilities are actually generating positive year-on-year GTV growth. Relative to our initial assumptions, the recovery at retail facilities is proceeding faster than we had expected.

For the Property Sales segment, trends have been generally firm. In the domestic residential business, the contract rate as of the end of first half versus our full-year target of 3,800 condominium units was 92.2%. To achieve our full-year unit volume, we only need to sell another 300 units. Based on current conditions, we are confident we will be able to achieve our target.

In Property Sales to Investors, the real estate transaction market was virtually closed in first quarter, but the market returned to more normal conditions in second quarter. We have already signed contracts for more than 90% of the transactions necessary to hit our full-year operating income target. We are confident that we should be able to achieve our full-year guidance.

In the Management segment, we reported a JPY 17.2 billion year-on-year decline in operating income. This is mainly due to the lower occupancy rates for the car park leasing Repark business and the impact from the temporary closure of retail brokerage rehouse offices. In the Repark business, first quarter was hurt by the restrictions on going out during the state of emergency, but occupancy rates gradually improved in second quarter. From September, occupancy has returned to more than 90% of the previous year's levels.

In the Rehouse business, first quarter was similarly hurt by the closure of brokerage offices, with contract numbers virtually drying up. However, after reopening, demand has been very strong. As a result, from July onward, levels are essentially back to flat year-on-year.

Next, the other segment, which is significantly impacted by the hotel and resorts business. Operating income fell JPY 17.1 billion year-on-year. As noted earlier, this reflects the impact of the temporary closure of hotel properties, as well as opening expenses incurred on new properties coming online. For the urban location hotels, after we started to reopen properties in late May, we have seen gradual sequential improvements in occupancy rates by month, although the improvements are modest. Occupancy rates as of October are in the 60s. Based on this, the recovery has been firm. However, compared to our initial expectations, the pace of recovery is quite slow.

In contrast, the resorts facilities have recovered faster than the urban hotel. In September, the majority of the resorts were reporting positive year-on-year sales gains. The hotel and resorts business should also benefit from the government Go To campaign, which should further boost domestic travel demand.

This covers the segment overview. I will now discuss our full-year forecast, highlighting the recent revisions. As you can see here, we have split this slide into 2 sections. The left-hand table shows the breakdown of the revisions. The right-hand table shows the COVID-19 impact, split out into the impact in first half and the forecast for second half. I will start with the revisions to our guidance on the left-hand side of the page.

For operating revenue, we have revised up our forecast by JPY 100 billion to JPY 1.95 trillion, to reflect the fact that progress in Property Sales to Investors to date has been better than expected. However, we have made no changes to our forecast for operating income, ordinary income, and net profit attributable to the owners of the parent. For operating income, although the consolidated forecast is unchanged, please note, we have revised some of our forecast for the individual segments.

The revisions reflect the differing impact of COVID-19 on each business. We have revised up our operating income forecast for the Leasing and Property Sales segment, but revised down our forecast for the Management and other segments.

Next, turning to the impact of COVID-19 in the right-hand table, the unshaded Column D shows our initial assumptions for the COVID-19 impact. At that time, visibility was extremely limited, but we chose to base our forecast on a certain set of assumptions. Next to Column d, the orientated Column E shows our assumptions for the COVID-19 impact, which underpin our revised forecast. Next to this, you can see Columns F, G, and H, which are breakdowns of the COVID impact on our revised forecast. Column F shows the revised COVID-19 impact on a full-year basis, which we then break down further into first half and second half in columns G&H.

We exclude the first half and second half breakdown of COVID-19 impact on the Property Sales business. This is because the timing of profit recognition in this business is tied to transaction timing, so a breakdown between first half and second half is not meaningful. This is in contrast to the Leasing, Management, and other businesses, where revenues and expenses are generated consistently throughout the fiscal year. Given the nature of the revenue and profit generation for these businesses, it is easier to show how the COVID-19 impact evolved over the course of the fiscal year.

Column G, which is shaded in blue, shows the actual COVID-19 impact for these segments in the first half. We have provided the quarterly breakdown for first half. Column H, shaded in green, is our forecast for the second half for the COVID-19 impact.

If you look at the first quarter and second quarter actuals and the second-half outlook for COVID-19 impact, you can see the impact for the segments of Leasing, Management, and others as well as the impact of net profit attributable to the owners of the parent at the bottom of the table. Relative to first half, the magnitude of the impact of COVID-19 in second half is expected to decline significantly. In terms of progress versus our revised forecast in November, we are making good progress towards our revised full year forecast.

Finally, with regard to our dividend guidance, we reiterate our initial guidance for an annual dividend of JPY 44 per share.

This completes my section of the presentation.

[Masanobu Komoda, executive]

Hello, everyone. I am President and CEO, Komoda. Thank you for participating in the first half fiscal 2020 Mitsui Fudosan analyst briefing. I will cover several topics today: an update on our view of the external environment, current business conditions for Mitsui Fudosan, and our asset and financial strategy. I will start with my view of the external operating environment. As you know, we are coming up on the 12-month mark since the initial outbreak of COVID-19. Despite this, there have been no signs that the outbreak is coming under control, so we have had to adjust to life with COVID-19. This new normal has already gone on for quite some time. Countries around the world have implemented many measures to address the situation, imposing lockdowns and restrictions on economic activity. As a result, macro conditions have deteriorated significantly. We are now facing the biggest economic downturn since the end of World War II. Even now, we are seeing the emergence of second and third waves of infections. Governments are struggling with the challenging task of striking a balance between implementing measures to halt the spread of infections, without also severely curtailing economic activity.

In Japan, although we have seen a recovery in economic activity, the outlook is still mixed. The current level of activity is not particularly strong. However, compared to the situation 6 months ago, when we were in the early stage of dealing with the outbreak and a state of emergency was imposed, the national and municipal authorities and medical professionals have improved their understanding of the nature of this virus. This knowledge has helped in finding ways to live with COVID-19.

From this perspective, economic activity and the movement of people is picking up without a significant increase in severe cases. Against this backdrop, the real estate industry has restarted many activities to revitalize the economy. New initiatives are also being introduced. We are still not out of the woods, but the worst, which is the situation which we had in the spring, appears to be behind us. While the pace of recovery varies by business, I feel we are firmly on the road to recovery.

I would now like to review the first-half results. The retail facilities, hotels, Repark and Rehouse businesses were significantly impacted by COVID-19. However, as noted earlier, the recovery in the retail facilities business after the lifting of the state of emergency has been faster than we had initially expected. Also, as explained earlier by Executive Managing Officer Hamamoto, our resorts have already recovered. However, for the urban hotels, demand from inbound travelers has dried up. Restrictions on movement, efforts to reduce the risk of infection, and the curtailing of business travel has meant that occupancy rates, particularly for hotels located in Tokyo, have yet to fully recover. Even in cases where occupancy rates have improved, ADRs remain depressed. The pace of recovery is slower than we had initially assumed.

In the retail brokerage business, Rehouse, during the state of emergency, it was not possible to interact with customers in person or to show properties. This is a business where face-to-face interactions are an important part of the process, so during the state of emergency, activity effectively grown to a halt. Near term, however, contract levels have returned to virtually flat year-on-year.

For the Repark business, we had initially expected that demand would not fall off that much, given our view that driving your own car would reduce the risk of infection over public transportation. However, occupancy rates declined for park-and-ride, where commuters park their cars at the train station or parking lots near city center entertainment venues. In September, we finally saw occupancy rates get back to around 90% of the previous year's levels, but we have not seen a full recovery yet.

On the revision to our full-year forecast, as explained earlier, the longer-than-expected persistence of COVID-19 has led to a larger impact on earnings for some businesses. In response, we implemented companywide measures to boost profits and control costs. As a result, we have left our guidance for operating income and net profit attributable to the owners of the parent, unchanged. That said, we have made some revisions to the segment forecast for operating income. I won't go into details at this time, since the revisions have already been covered. However, based on the rapid recovery of the retail facilities business and the solid progress in the Property Sales to Investors business, we revised up our operating income forecast for the Leasing and Property Sales segment.

Reflecting the fact that the Repark business has yet to fully recover and that it is likely to take time for urban hotels to get back to normal conditions, we revised down our operating income forecast for the Management and other segments. We do have some concerns about the possibility that there will be a resurgence in COVID-19 infections in the winter, but we will continue with our efforts to achieve our full-year targets.

Looking at the outlook for the fiscal year ending March 2022, we view the highly unusual circumstances in which our retail facilities and hotels were closed for roughly 2 months this fiscal year, which depressed profits, as a one-off. In the absence of similar closures on the back of a third or fourth wave where we are forced to close all of our retail facilities, we think we should be able to achieve year-on-year profit growth in the next fiscal year. Moreover, if we consider continued growth in office leasing, the recovery of the retail facilities business, and the continued strength of the Property Sales to Investors business, I believe we can show a clear roadmap for profit growth in fiscal 2021.

When I think about the changes in real estate triggered by the COVID-19 outbreak on the back of progress in the digital transformation, I believe we will see major changes in not only work style, but more broadly, how people live. As a result, I believe that the delineation between different real estate products, such as offices or residential properties, will gradually become less meaningful. For instance, in future, offices may not be the only place where people work. People may work from home. It is already becoming possible to use hotel rooms as workplaces as well. Given this, when talking about the real estate business in future, instead of discussion based on asset classes, such as office, residential or retail facilities, the discussions may center on customer behaviors, like working, living, or playing. I believe the change in perspective will drive the creation of new demand and opportunities for growth.

Having said this, I will move on to talk about our businesses by asset class. I will start with offices. The market vacancy rate for the 5 central wards of Tokyo was 3.4%. It is true, this is a significant increase from the low of 1.5%. Some emphasize the fact that the vacancy rate has doubled, but on an absolute basis, it is still at a very low level.

In terms of the behavior of our tenants relative to market talk, we have not seen changes of the magnitude that have been mooted. Our tenants are relatively calm. Our earnings have not been significantly impacted by either cancellations or demands for rent relief. That said, many of our tenants have indicated that they view this as an opportunity to fundamentally rethink how they think about office space. Near-term conditions are very firm, but as you know, corporate earnings are under pressure across all industries. We recognize that this could have a delayed impact on the office market going forward. I believe we need to monitor the situation closely.

At the same time, over the last 3 years, we have completed 7 large-scale, mixed-use redevelopment projects in Central Tokyo. The leasing process has been very smooth. Almost all of this space was spoken for prior to the COVID-19 outbreak, and these properties are currently operating at virtually full occupancy. Given this, we expect to see stable growth in rent revenues going forward.

With regard to a rethinking of office space, there has been speculation, particularly by the media, that increased take-up of working from home and teleworking will translate into reduced demand for office space. We believe that this is a slightly extreme view. While many companies have found that it is possible to sustain operations to a certain extent with employees working from home, or teleworking, however, the roles that are best suited to working from home, or telework, are back office or analytical roles, which account for only a small subset of employee functions. So, while it has been possible to have employees working remotely, companies have found that, in many cases, they get better results with employees in offices.

The true purpose of office space is not as a venue for back-office functions, but instead as a forum to enhance the productivity of knowledge workers. Face-to-face communication enhances organizational capabilities and drives teamwork, bringing together internal and external expertise. Offices create opportunities for spontaneity, which can inspire new value-creating ideas. Offices, as physical spaces, are indispensable as venues that allow individuals to fully tap into their true potential. I believe the value of offices will remain unchanged in a post COVID-19 world.

Going forward, workers will choose the venue and time that optimizes productivity for each task. In future, office space will likely be a hybrid combination of a central urban location, plus satellite offices, plus working from home. I believe we will see the emergence of an era of workstyle diversification.

Mitsui Fudosan's view, even prior to the COVID-19 outbreak, had already been that the key to true workstyle reform would be to allow workers to choose when and where they want to work. In this belief, we launched the WORKSTYLING business. As a group, we offer not only fixed office space in central urban locations, but a choice of venues, spaces, and environments appropriate to individual workstyles. In response to our tenants' needs to improve productivity, we provide total solutions that accommodate different workstyles. There are hard and soft elements to this.

As shown on this slide, it is not enough to simply provide the physical hardware. We also offer services to support employee health management or services, like [ MOT ]. We offer our tenants not only such soft services, but enable virtual and real working spaces. In other words, we are able to offer total solutions, which cover the full range of choices, from real to virtual working space. I believe this will allow us to lock in a competitive advantage going forward.

Next, our retail facilities business. During the Japanese state of emergency in April and May, with the exception of some roadside shops, our retail facilities were virtually all closed. When we formulated our initial forecast, we assumed that almost all of our retail facilities would probably remain closed until the end of June. The fact that we were able to restart operations earlier than initially expected is a positive. In addition, after the reopening, our retail facilities have been doing very well. For facilities in more suburban locations, like the LaLaports and outlet parks, overall GTV is already above the 90% level compared to the previous year. Some facilities are reporting positive year-on-year growth in GTV.

The recovery in rental revenues is proceeding smoothly. New properties coming online in first half, such as Mitsui Outlet Park Yokohama Bayside, Rayard Miyashita Park, LaLaport Aichi Togo, and Rayard Hisaya-odori Park have gotten off to better-than-expected starts. However, the recovery at some of our retail facilities in central urban locations is still slow, particularly for dining establishments. As you know, we have not seen a full return of workers to offices in city centers, which is hurting the lunch business. There are also companies that still have bans on company events or client dinners, which has capped per-head dinner spending. We are still some way away from a full recovery.

For this part of the business, we continue to offer support to tenants in the form of rent relief. Our initial assumption was that COVID-19 would have an impact of around JPY 30 billion. However, given the better-than-expected performance, we have lowered our assumption for the COVID-19 impact to JPY 15 billion. The vast majority of the impact was already incurred in first quarter, so the situation has already bottomed out. As we look toward fiscal 2021, I expect we will be able to achieve significant profit growth.

With regard to retail facilities, the most important consideration is the change we are seeing in consumer behavior as a result of COVID-19. As you know, even prior to the outbreak, e-commerce penetration was rising, but it has been accelerated by COVID-19. That said, consumers that only shop online are virtually nonexistent. The reverse is also true; only a small proportion of consumers shop exclusively in real stores. In other words, consumers choose between shopping online versus shopping in stores, depending upon when and what they are buying. In this environment, an omnichannel strategy is very powerful, in that it gives the consumer the opportunity to choose their optimal shopping experience. From 2017, Mitsui Fudosan has operated the &mall, an e-commerce platform that complements our real store offerings. Given the GTV scale for our real facilities is JPY 1.3 trillion, if we are able to create an omnichannel platform with an attractive user interface, it could become a very powerful tool.

In addition to this, we also have a logistics facilities business. By leveraging the logistics facilities business, we can support our customers by enabling fulfillment services based on integrated management of real and online store inventory. This will dramatically enhance the consumer shopping experience. It will also enhance our tenants' inventory turnover. This triple combination of retail facilities, e-commerce platform, and logistics facilities will benefit our tenants and retail customers. Going forward, we will focus on initiatives to integrate these elements.

Additionally, another initiative that predates COVID-19 is our focus on creating unique experiences only available to consumers that visit our retail facilities. In other words, consumers are coming to our facilities, not just to shop, but to enjoy and be entertained, and to participate and engage in cultural and community activities. We will continue to focus on creating attractive experiences for the consumers in our real facilities.

Moving on to the logistics facilities business, this business is doing very well indeed. As of the end of September, the market vacancy rate for the Tokyo metropolitan area was 0.5%. For the Kinki area, it was 4%. This has been driven by the increase in demand for logistics facilities on the back of e-commerce growth. Within logistics facilities, we are seeing a shift to advanced and advanced digital logistics facilities. Increasingly, customers are seeking better efficiencies and consolidating capacity in a single location. Demand is very firm.

In terms of the leasing situation, operational properties are at 100% occupancy. Progress on leasing of properties in development is very smooth. We are also successfully negotiating for higher rents on leases at renewal. Our strength is the fact that many of our office and retail facilities tenants are also end users for logistics facilities. We are able to effectively tap into our customer base of 3,000 office tenants and 2,000 retail tenants to win end users.

Competition to acquire land is intensifying, but in our case, we have been able to capitalize on our CRE sales to buy land in noncompetitive, one-on-one transactions, or to participate in proposal-based competitions, which has allowed us to acquire high-spec properties. Our competitive and growth strategies going forward will be to develop a focus on applications, such as data center or frozen storage warehouses, and to diversify and to focus on developing facilities enabled for ICT and digitalization. Furthermore, by providing comprehensive consulting services for logistics, we believe we can strategically grow our business. One initiative we will pursue is the concept discussed earlier of integrated initiatives in tandem with our retail facilities and e-commerce mall.

Next, the hotel and resorts business. As indicated earlier, this is the business that has been most impacted by the outbreak. That said, with our resorts business, although we expect a recovery in inbound travelers will likely take 2 years, the flip side is the Japanese that had typically chosen to travel overseas to date cannot travel. Our resorts business is benefiting from the redirected demand from outbound travelers. Even before Tokyo became eligible to participate in the government's Go To Travel campaign in October, the resort business had recovered significantly. Almost all of our resorts were either flat year-on-year or up substantially in September. With the inclusion of Tokyo in the Go To Travel campaign, performance has improved significantly. However, for urban hotels, inbound travelers accounted for around 40% of the Garden and Celestine brands.

Inbound travel has completely dried up. For this business, we think it will take time. We would hope to see a recovery in fiscal 2022. Having said this, while inbound travelers were 40% for our hotels, if you look at the proportion of inbound travelers for the overall tourism industry, inbound accounted for 18%, while domestic travelers were 82%. Given this, if we are able to capture more of what was outbound demand, this should support recovery.

On the domestic side, however, we are seeing a slow recovery in business travel. While tourism benefits from the impact of the Go To Travel campaign, in the interest of preventing the spread of infections, many corporates are choosing virtual meetings and continue to restrict business travel. The Go To campaign has definitely driven an increase in demand, but what is important, in our view, is to ensure that we are able to appropriately capture customer needs, regardless of campaigns like Go To. An example would be building a fan base for Mitsui hotels by making a good impression on customers who come to our properties through the Go To campaign.

Furthermore, hotels are not simply places to sleep, but venues where people can spend time enjoyably or productively. We have started offering work styling-like services in our hotels, using hotel rooms as workspace. We are also offering many different entertainment experiences that will allow people to enjoy their time in our hotels. Through such initiatives, we aim to cultivate new demand, including long stays for our hotels.

Moving on to the domestic residential business, there had been concerns in the early stage of the outbreak that COVID-19 would have a negative impact on the residential market. However, near term, there hasn't been a major change versus the pre-COVID-19 period. Actually, in reaction to our decision to effectively shut down the vast majority of our sales activity in April and May in light of the risk related to enclosed spaces, we have seen the emergence of pent-up demand. As a result of the experience of sheltering in place, the percentage of visitors to our showrooms that go on to sign contracts is rising. Currently, we have a situation where consumers' appetite to buy has increased, or there has been a buildup in demand.

We have seen a shift in consumer needs, however, with less of a focus on central urban locations or proximity to train stations, and more of a focus on larger floor space over convenience. It is fair to say that the outbreak has triggered a diversification in customer needs. The contract rate, relative to our fiscal 2020 target of 3,800 condominium units, is already at 92%, so we have no concerns whatsoever in terms of achieving our plan.

Although I said that we had seen almost no change in the current market, given the impact that COVID-19 has had on corporate earnings, there is a likely risk that this could lead to a deterioration in employment or wages. If this happens, it could lead to a decline in customers' purchasing power. We will be monitoring market conditions in the new calendar year very closely. The take-up of working from home does have implications for residences. I think demand for more space or infrastructure in the home to support working from home will become a theme. My impression is that the line between living and working will be increasingly blurred.

Next, the overseas business. At this time, there have been no major changes to our strategy. There has been some suggestion that the widening global pandemic is a negative side effect of globalization. For our business, however, globalization is not tied to increased cross-border movement of people. We are focused on developing a presence in local real estate markets that are overseas. This strategy is unchanged, and therefore, our target of generating 30% of our profits from overseas is also unchanged.

Today, I will talk about conditions in the office business in the U.S. and Europe, which is a key driver of our overseas business. Typical office leases in these markets are long, with an average term of around 15 years, which makes for a very stable business. Our existing properties are operating at virtually full occupancy, and we have not seen major lease cancellations or nonpayment of rent from our tenants. 55 Hudson yards, one of our operating properties, is fully occupied. 50 Hudson yards, which is currently under development, is already 75% leased, with contracts in place with BlackRock and Facebook. With completion slated for 2022, at this level, we are confident that we will be fully leased up at the time of completion. For White City Place in the U.K., L'Oreal has signed a new lease for approximately 10,000 square meters. As you can see, this business is very stable.

In the Property Sales to Investors business, although in the early stages of the COVID-19 outbreak, the market was paused for a period of time, given the uncertainty for the economy, from second quarter, we saw a return to more normal levels of transaction activity. Investment appetite for asset classes with stable cash flows, such as office buildings, logistics facilities, and rental residential properties remains firm. Compared to pre COVID levels, exit cap rates have not deteriorated. The financial markets have remained calm, with equity markets at highs. Central banks are expected to maintain their easy monetary stance for the foreseeable future. As you can see from the sale of the Shinjuku Mitsui Building, buyers are not experiencing issues in raising funds. Based on this, we have revised up our full-year operating income forecast for this business to JPY 81 billion. Relative to the target, we already have signed contracts in place for more than 90% of this level. The outstanding balance of real property for sale to investors is roughly JPY 1.2 trillion.

From around 2 years ago, I have been saying that I felt this level to be slightly high. However, with development assets for sale, the development process does take time, which leads to a period where such assets are idle. Although it does depend on the length of the development period, my sense is that, from the perspective of overall balance sheet control, the optimal level of real property for sale is around the JPY 1 trillion level. We aim to facilitate a cycle through which we realize unrealized gains on assets through dispositions and allocate proceeds to reinvestment.

Moving to our asset and financial strategy, our aim has been to maintain financial soundness, while continuously growing profits over time through an integrated business model that combines ownership, development, and management of properties. We have sought to control the balance sheet through this business model. However, starting with the completion of Tokyo Midtown Hibiya, as noted earlier, we have recently completed 7 large-scale mixed-use projects, which has significantly expanded the balance sheet. Taking this into account, and in the interest of further enhancing balance sheet control and the quality of our portfolio, as well as optimizing our total assets, we chose to sell the Shinjuku Mitsui Building. The property will continue to be known as the Shinjuku Mitsui Building after the sale. We will continue to be involved in the operation and management of this property, with a view to generating management profits over the longer term. We will allocate the proceeds to more efficient uses.

Going forward, we will continue to focus on controlling our balance sheet and managing the outstanding balance of assets appropriately, by regularly recycling our assets, including tangible assets, to maintain an optimized portfolio. In addition, we remain committed to continuing to reduce our strategic equity holdings, including [indiscernible]. The decline in profits as a result of COVID-19 will temporarily depress ROE, but through the combination of balance sheet control, a rapid recovery from the impact of COVID-19, and profit growth in our core businesses, we are firmly focused on returning ROE to a growth trajectory in the medium to long term and raising the absolute ROE level.

Finally, on shareholder returns, the Mitsui Fudosan Group's stated policy has been to improve shareholder returns continuously over time by achieving profit growth through reinvestment in superior properties, while also rewarding shareholders by paying a dividend and buying back shares. This policy remains firmly unchanged, regardless of the COVID-19 impact. As shown in this graph, we have consistently maintained and improved our dividend level, and have focused on maintaining a stable track record for returns. We believe this graph clearly reflects our management philosophy.

We have chosen to leave our profit forecast unchanged, but we do not believe that the true value of our businesses has deteriorated in any way. Our confidence in our ability to grow profits over the longer term is also unchanged. As such, we are guiding for a full-year dividend per share unchanged from the previous fiscal year.

As we had indicated prior to the outbreak, with regard to our total shareholder return target of 35%, when we are able to improve our cash generation capability after recovering from the COVID-19 impact, we would like to consider raising the target. This is also unchanged from our pre-COVID stance.

This completes my remarks.