Ichigo Inc

TSE:2337

Earnings Call Transcript 2021-Q1

[Scott Callon, executive]

Hi, everybody. This is Scott Callon. Thank you so much for joining today. We're really grateful for your time. I'm here also with Dan Morisaku, who is Senior Director and Finance and our Head of Global IR. I will be working off of a presentation that's on our website entitled FY21/2 February 2021 Q1 Corporate Presentation. So let's get into it.

Turning to Page 2. This is an incredibly difficult time in the world. We expressed our deepest condolences to all of those going through this incredibly difficult period from COVID. And on top of that, as you know, in Japan, there's been just an enormous amount of destruction, particularly in the south. We wish our deepest condolences to all of those affected globally. And we hope that we can all get through this as soon as possible.

Let's go on to the presentation itself. Page 8 is the Q1 summary. This is -- continues to be a very low visibility earnings environment and a very difficult period. Despite that, as you can see on the far left, despite everything that's going on with COVID, we continue to deliver stock earnings, meaning, effectively fixed earnings that are well above our fixed expenses. That's the point. That's why we have these secure revenue streams. So we're running at 200% of our fixed expenses. And in effect, we're structurally profitable.

We use a new phrase in the middle of the pie graph called cash earnings. It was just a way to communicate to you what we think is the key KPI, the key performance indicator, of the firm. We run the firm for profitability, high returns for our shareholders for growth. And as part of that, we have an overwhelming focus on cash. I mean, it is not very interesting to generate accounting profitability without cash that comes with it. So cash earnings is a key, we think, tracker of our profitability. It's gross profits plus fixed asset gains on sales, which won't show up in gross profits because they're in the fixed asset category, plus reversal out of depreciation expenses and noncash. So that's what we're focused on growing.

You can turn to the right-hand side, you can see stock earnings continue to be relatively strong, we'd say robust, I think given what's happening in the world, minus 15% year-on-year. It's actually relatively good given the economic sensitivities that are embedded in our businesses.

As you can see, SRE, Sustainable Real Estate, is down the most. That's primarily down JPY 800 million. That's primarily variable rents down in the hotel sector, which, as you know, has just been absolutely got punched. Asset management is down a little bit. That's also hotel-linked decrease in performance fees on our hotel REIT. And Clean Energy, which is indifferent to what's going on in the world, is just doing very well.

We revised up, on the far left, you can see our full year forecast, the bottom end of the range. We kept the top end of where it is. As I said earlier, it's a very low visibility earnings environment. Arguably, this is a cautious upward revision. That's exactly correct. If things go well, we'll just keep on revising upward through the year. But it's just so hard to know, with COVID, things that can go wrong. So we choose to be conservative, chosen to be conservative.

Ichigo Owners, a business we set up 3 years ago, March 2017, is delivering enormously well. That's proven to be a very, very effective, diversifying and powerful in terms of ability to deliver earnings even with this environment. Overwhelming focus of our flow of earnings in the quarter come out of Ichigo Owners, and we're pretty -- we're very confident there's more to come. And I touched on Clean Energy, that's going just fine.

Turn to Page 9, touch on some of the COVID-19 impacts. What's so distinctive of COVID is how the sectoral impacts can overwhelming be so different. So hotels, anything linked to kind of travel, entertainment, been very, very difficult. So on the asset management side, minimally, I'm looking at the bottom half of the page. Minimal impact on offices, significant impact on hotels in terms of, for the operators themselves, for us in terms of performance-based AM fees that are linked to rental income. And Ichigo Green, the solar power, our YieldCo, has really no impact at all.

In Sustainable Real Estate, very much, again, a diverse story. Decrease in hotel and retail annual income, minimal impact on the other asset types. There's a lot of discussion about what's happening with the future of offices. I can tell you emphatically, offices today, we're experiencing effectively no impact. And that's true in residential. So the tenants are paying. The worst-case scenarios that we had to think through are not coming true, and that's real positive.

Just to let you know, on the hotels, about 50% of our rents are fixed, 50% are variable. So the variable rents are effectively gone. And if this continues for an ongoing basis, the fixed rents are going to be eroded too as operators lose the ability to pay them. At the moment, though, we're getting payments through. We are working with our tenants on a case-by-case basis to support them. Sorry, we're supporting tenants on a case-by-case basis. It's not to imply we're only supporting certain tenants. We are working on a case-by-case basis with all of our tenants.

On the asset -- in terms of asset sales themselves, there is significant market stress in the sense that -- and we said this 3 months ago. Buyers fear the worst and price in the worst. Sellers are not willing to sell at the worst-case scenario because they think COVID is going to be resolved through treatment and/or vaccine sometime in the next kind of -- everybody has their own view, 6 months, 12 months, 24 months. So certain of the markets are fairly locked. Residential is doing just fine though.

Japan has done a very good job of protecting the population, worker's wages. The tenants are all paying their rents. So this is a market that continues to be very, very active. And it's preferred. It's a flight to safety within real estate. So the residential asset market is doing just fine. And you have kind of gaps, particularly, in the case of hotels, no one really knows what the NOI is, so you can't figure out what the cap rate is.

And in the case of office, they're performing very well. And we believe -- and we're talking to our tenants about this. We see no reason to believe that there's a dramatic shift in tenant desire to be in our offices, which are well located, relatively smaller offices in -- so there is a view and there's a bit going on as to what happens with office demand going forward. It's certainly a possibility that large offices get shrunk down. It's certainly a possibility that the demand for our assets, which tend to be smaller, well located and smaller, shrink down. There's also the opposite possibility, which is that people -- tenants migrate from large offices to small offices, and we benefit from it. And I touched on Clean Energy before, that's doing just fine.

Turning to Page 10. We're doing everything we can to support our tenants through this. We work for our tenants. And so we established a task force, doing quite a bit of work across the board. If you note on the page, policy research. I mean, one of the challenges that tenants, I mean, individuals globally, have had is you have these complicated government programs, and it's hard to know how you qualify and how to get through it. So that's something that we're doing. Our tenants are primarily SMEs, so its ability for us to effectively generate some economy of scale in terms of the research we do in order to support them through this process.

And we are already -- you can see in the second half of the page, we're working on things that are important to our tenants. We -- as you know, we always do and continue to do ongoing surveys of our tenants to understand their needs. And there's a brand-new need called, how can we be safer in offices. So it's something we're working on and it runs the spectrum of lots of small stuff, too. Big or small, we want to hear from our tenants what they want, and we're going to deliver it. So they want better ventilation. They want less touching, meaning, kind of contactless sinks and bathrooms and also going into the building. You want to be able to get in without having to touch things. So this is something that is both ongoing work today and will continue to be ongoing work.

One of the advantages you have with smaller buildings is they're overwhelmingly -- which is what we do, they're overwhelmingly 1 tenant per floor. So you have much less risk and much less tenant kind of insecurity around kind of we've got all these running around the floor with us. We don't know if it's safe or not. So it's a real advantage. But delivering high integrity safety today, and delivering kind of going forward, there's going to be a new standard. Everyone is familiar in Japan with their earthquake standards. There's a new kind of ventilation standard that has emerged, and we're very involved with the engineers and working through delivering best-in-class performance in that space.

Turning to Page 11. Current environment, stock earnings down 15%; flow earnings down 63%; and that delivers year-on-year down -- plus -- more than 50% in both OP and net income and EPS. We had such a more severe scenario on the downside when we did our forecast in April when everything was going around independent globally. So nonetheless, we've revised up the full year, but it's a very tough operating environment. And it's primarily a flow side. So the stock earnings are coming through. The flow earnings, we generate, as you know, significant earnings when we improve assets and sell them at profits, reflecting the value add, that's showing fairly substantially. It's almost entirely in residential at this point.

Page 12. Other segment earning details. Going through the bottom of the table, on the bottom page, you can see Asset Management OP is down 36%. Sustainable Real Estate is down 64%. Clean Energy is up 57%. Going to the top of the page, the Asset Management is primarily decreased in hotel REIT base AM fees. I mean, hotels has just really stopped right now. There's nothing to be done. Sustainable Real Estate, you've got some decrease in hotel and retail rental income. It's over JPY 1 million in the hotel space. Flow earnings are on track. We just had a monster first quarter last year. So it's a big year-on-year down, but that was to be expected. And Clean Energy, we have 7 new plants online since the second half -- since the end of the first half last year. And so you've got increase in megawatts of 33% and that delivered us our increase in OP of plus 57%.

Page 13 shows the forecast upward revision. A little bit of increase in stock earnings. So we've discovered we were more conservative. I mean, we needed to be in terms of rental income. A more substantial increase in flow earnings, primarily, this is Ichigo Owners activity, which is going very, very well. And we also revised down some of our assumptions on financing and other expenses. So that ends up delivering OP plus 19% and net income plus 75% relative to the bottom of the range than we had before. We think these numbers are conservative. And of course, needless to say, it is our goal to deliver substantially higher earnings and to push up the earnings throughout the year.

Given the forecast uncertainty, though, we're not taking assumptions. We're going to take every -- we take every day at a time. We're going to take every quarter at a time. So anyway, as of today, this is what our forecast looks like.

Page 14. We started the year in April without giving a dividend forecast. We wanted -- that was primarily -- it was a lot of COVID uncertainty, but it was also -- it was primarily, we wanted to go talk to our investors and shareholders on what you want us to do. Dividend, see if we can find distressed assets, buybacks. And investors have -- there's a spectrum of views. But there was broad support for, look, if you have a progressive dividend policy, which says you always maintain or raise your dividend. In the context of COVID, if you can keep your div, that's really powerful. And so we took that input. And so we are -- we expect to be -- gave a forecast as of today. We're going to maintain the progressive dividend policy on the same dividend as we had last year. That policy does have a DOE target, dividend over equity target, of paying at least 3% a year will put that at JPY 7.

Pages 16, 17 talk about our stock and flow earnings, our embedded forward earnings. To turn -- if we go through to page -- and this is something we do consistently, so I'll go through -- I'll step through that.

Turn to Page 18. One of the distinguishing features of our business model is that we have third-party appraisers who tell us what our assets are worth, and we just consistently, overwhelmingly beat those numbers. So Page 17, it implies that we have JPY 56 billion of unrealized capital gains, unrealized gains in the balance sheet. Page 18 suggests that we're regularly at least 2x out, which means that the company is trading sub NAV. And you can see, it's a very small and sad looking graph on the far right because there has been a very substantial decrease in our buy-sell activity. And so this represents sell activity in the first quarter because of COVID. But even in this incredibly horrible market, we're delivering 2x of third-party appraisals in terms of the profitability of our assets.

Page 19, again, reinforces the point that we're focused on cash generation, not accounting profitability, but real cash generated.

On Page 20, you can see the changes in our financing situation, and they're basically not changed. COVID has been an important opportunity for us to verify we are strong credit. We're regarded as a strong credit. We borrow incredibly cheaply. We borrow well. We borrow long term. Just a tiny bit decrease in the average maturity of our debt because we decided to go borrow more money just to give us more of a cash buffer in case that we need it. It turns out we didn't really, but that's the reason for that. We're effectively a 10-year borrower at all-in 90 basis points.

Going to Page 22 shows what we've done on the balance sheet for Sustainable Real Estate. We were net sellers in the quarter. JPY 6.4 billion. I had it in total dollars. That's about $6 million. Focus on residential assets. Big drop-off in our gross profit margin because the activities overwhelmingly shifted into Ichigo Owners. So we have a classic Sustainable Real Estate value-add business, and we have a shorter-term lighter value add, high turnover business, tighter margin, which is better for the -- for our clients. Tighter margin is appropriate because we're doing less on the assets. It's less than a 1-year hold. But Owners, Ichigo Owners is a business that we set up, as I said, 3 years ago. It's proven to be very powerful in this environment. It's been a strong diversifier and support for our earnings. You can see, it was 43% of our acquisitions last year. This year was actually 31%, but on the sales side, we did 9% -- 99% of the assets we sold in the quarter were out of Owners. It is a business that we target to have a 10% margin against acquisition cost. It ran a 15% margin in the quarter. Because of high asset turnover, it's a very strong driver of ROE. And we've got a lot more to come. So JPY 15 billion of Tokyo residential assets in the acquisition pipeline. And the environment is suggesting that those kinds of assets continue to be in strong demand.

Page 23 is, as a reminder, in the Asset Management business, we have 3 vehicles: an office REIT, hotel REIT and a solar YieldCo, and they go cheap. It's our job to prove that. We do have a shareholder meeting this Saturday, Ichigo Office, where we'll be introducing a performance-fee only -- fee structure. We think that's the right way we should eat our own cooking. That's the right way to create alignment with our -- with the shareholders of the REITs. Not a great structure in the midst of COVID because what happens when the NOI comes in, we suffer from it, we think. And when things go well, we benefit from it. So we think, in the long run, this is the right way to demonstrate our capability and have credibility with our shareholders about that.

Page 24 shows continuing growth in the Clean Energy business. We will be bringing on our first wind power plant by this year. That business continues to grow quite well.

And on Page 25, it was just a reminder that we have a J. League Shareholder Program for not only our own shareholders, but all of our 2 REITs and our YieldCo shareholders. Right now, the J.League is not allowing fans into stadiums, which is a strong choice. But when that -- when we can once again gather in football stadiums or soccer stadiums -- I'm American, I guess I should say soccer. This is something that our shareholders across the board have really enjoyed.

So those are prepared remarks. Very happy to take any questions or input from all of you. Again, we're grateful for the opportunity to talk about our business and give you an update.

[Scott Callon, executive]

So let's see. [Operator Instructions] So anybody? [Operator Instructions] We welcome your input. [indiscernible]?

[Unknown Analyst]

Yes, it's me. Yes, yes. I'm sorry, I didn't know my line was open.

[Scott Callon, executive]

No, no, no. I just opened it. You're good. Thank you.

[Unknown Analyst]

Okay. Fine. I'll start. Yes, specifically on the offices, you alluded to I think that you didn't really see any impact from your current tenants and willing to put in place anything they want with respect to air conditioning, et cetera, whatever. Yet, I mean, there has been some, yes, cautious people on offices. Today, there was an FT article about the fact that the Japanese office worker is starting to realize that, that commute is actually a waste of their time and 60% actually do not want to return to the office. So there's a very tight vacancy level now, it's maybe [ 1.5 ] in the Tokyo area.

Yes. First of all, if you were to take a longer-term view, where could that vacancy move towards in your view? And obviously, what would you do to position yourself to shield yourself from any adverse rental impact? So that would be one.

And on that comment that you would be willing to support your tenants, how does that work? Because if you were to choose to upgrade air conditioning, there could be a significant cost for relative to the value of the building. So how would you deal with that? So -- well, the market, of course, comes first. And it would be interesting to hear as well your view on the mid-sized offices and the larger-sized offices, but the mid-size have -- if you have to believe their stocks prices sold off or are in a much worse situation than the larger offices often occupied by blue chip companies? A lot of questions.

[Scott Callon, executive]

Good. Thank you. Those are all really important questions. So let's go through them together.

So look, we are hearing from our tenants 2 things, and they are very different. Meaning, they're different -- they're different statements but they have -- they don't -- they have a conclusion, that's important. We are hearing from our tenants that they're going to decrease employee counts in their offices, that they think there is a shift towards working from home, remote work. That's real. And so our tenants are, in fact, planning to have 20% fewer, 30% fewer, 50% fewer, in big cases, in the office. At the same time, they're not planning on cutting space. So one of the things that has happened -- by the way, that's part of the drivers of demand for office in Japan, is that Japanese offices have a lot of workers per area. Another way of putting it, very little area per worker. And the current environment has raised concerns about whether that is a good idea.

So just because they're going to be 30% or whatever number you want to choose, numbers of workers in the office, doesn't mean that office space decreases. And one of the things that's happened over the last couple of years that doesn't seem to have changed, is companies are competing for talent by giving better offices, which generally means bigger offices, because workers don't want to be crammed in small spaces.

So that's one reality. We're talking to our tenants. They're not telling us they're planning on giving space back. That may be linked in part to the third point that you made, is that mid-sized offices, again, they have a safety and efficiency element, which is 1 tenant per floor so that's a really good way to work. You don't have -- you're not carving up these big buildings. And again, we're in very good locations with smaller floor plates.

So there may be some -- in the bear cases, office demand goes down a whole bunch. The bull case is that actually, it doesn't necessarily go down. Or maybe even goes up because people want more space per worker because of this. Or they want more space because of kind of concerns about things like COVID. Why they want more space per worker? Because of the ongoing trend in Japan to offer more space per worker in order to attract talent.

Or possibly, the guys in the really big buildings that have a whole bunch of tenants on the floor with them, in certain cases, they've really big -- you have the entire floor, you've been a big building. They want to go to more satellite offices. And so they migrate to smaller buildings, and that would be a bullish case for us.

But it's interesting. There is no question, in the kind of global REIT market, including Japan, there has developed significant skepticism about future earning power. And so prices have come in. We are buyers. We see -- we have seen no changes. I say we're buyers, but we're actually not necessarily finding offices for sale at prices we want. So the public markets are trading differently from the private markets. But we see ongoing robust demand for offices. We see a change in tenant attitudes and appetite with respect to things like ventilation, things like safety. We're a very responsive owner. We spend a ton of time with our tenants, understanding every needs, and we think we're going to be able to continue to deliver against a new set of needs that have emerged.

So yes, I mean there's -- could vacancy go to 5%? Yes. And the markets are pricing right in. So the interesting question is, if vacancy doesn't go to 5%, then the pricing is wrong in the public markets. And we're not in the business of predicting the future. But again, there are reasons -- we're hearing directly from our tenants they're not planning on giving space back.

And the other final important point is when you re-lease, and we still are, you re-lease at higher rents because existing market rents are generally kind of 15% to 20% too high. So it continues to be the case, even in this environment, that if a tenant leaves, we can re-lease at a higher price. So those are reasons to be -- to feel more comfortable about the security of the earnings stream attached to offices.

But with respect to your second question on cost to retrofit, it's usually something we do in conversation with our tenants. We're not going to suddenly do a massive investment in the building primarily for our existing tenants if we can't get a return out of it. If the building is empty, that implies you can do an uplift. That depends on the building. But we have outlets, not infrequently of 20% to 40% against existing rents, and you can put in CapEx in order to make it more attractive to drive higher rents. But outside of that, we don't see this environment as one where we have to wear kind of expensive costs.

The final point I'd make a little bit is a psychological because you can do changes to HVAC, to ventilation systems to try to bring in more air, although they decrease operating efficiency so they have more energy costs attached to it. Tenants do like windows that open. And the thing with the huge glass skyscrapers is that they don't have any windows to open. And so tenants tend to like -- and the smaller buildings, they do. I mean, it's not -- it's just the way that they're designed.

And so we do have tenant traffic. That's like we want to be in buildings more like yours. That's up there. Anything on that, that I should give more?

[Unknown Analyst]

Yes. Well, what I was wondering, does it mean, this competition for talent, does it impact, to some extent, where companies want to establish themselves? So demand for the different office districts in the Tokyo area within or outside? Do they look for different locations?

[Scott Callon, executive]

That's a really interesting question. I mean, one of the things that's clearly happening, this is a really, really hard environment for startups. And so Shibuya, which has been like this incredible startup hub is -- if anything, they have these non- or barely profitable firms. And okay, financing is getting really, really tight. They tend to be very IT savvy. And so that's like, oh my goodness, this is really, really bad. Okay, maybe we need to return the space. So there has been a noticeable effect on demand for space in Shibuya, as an example.

More broadly, I mean, you're hearing it particularly from the very big companies, that they want to do more kind of satellite offices, which could kind of imply a migration of -- and a diversification of their office footprint among locations. The one thing that's clearly not changing at all is if you're going to come to the office, it should be in a good location. So -- and location -- and transport is overwhelmingly rail and subway. So we're comfortable that the strategy that we have, which is to be very close to stations, continues to be one that fits tenant and corporate demand.

[Unknown Analyst]

Yes. So we're still looking at CBD areas, of course.

[Scott Callon, executive]

Yes.

[Unknown Analyst]

Maybe 1 follow-up on the Clean Energy business. What will that become, eventually, as part of the total activities of the company? What is the view?

[Scott Callon, executive]

Hopefully bigger. So we're working on environmental biomass, and I've talked about this before. One of the problems with -- the initial thought, kind of, I think, up until really kind of 3 years ago was that biomass was great, that it was carbon neutral. It's not. It is actually negative for the planet. And to be very clear, we care a lot about the planet, and we're not going to do anything that is negative for the planet.

So what we have chosen to do is a particular form of biomass, which we're working very hard on, which is entirely domestically sourced. So the problem with biomass is both that it is a whole bunch of stuff, with kind of ripping up trees in the southeastern United States and sending pellets across the world, which is very energy consumptive. It's also the case that, okay, fine, the cycle is that you -- at some point, you can regrow the tree. But having taken down the tree and its ability to generate -- absorb CO2 and generate oxygen, you then kind of decrease that functionality and tip the world towards global warming. And then, 50 and 80 years later, if you can actually end the cycle by regrowing the trees, that would be fine. But in the interim, you've contributed to the environmental crisis. So that's why biomass is problematic.

So anyway, what we're doing is we're doing entirely domestic, and very specifically, we're -- the problem that Japanese forests have is that they're dying off because they're not being pruned. And so by pruning the forest, we avoid the tree die off. So that they continue to have the CO2 absorption and oxygen creation. So the bio method that we're planning on doing is emphatically a very good business. And to the point, since we will only do things that are environmentally sound, it's very good for the planet.

So that's where we're trying to take the business. Solar has gotten -- the government has defeated tariffs, so the super normal profits that were available are now gone.

Wind is still interesting, except there's a lack of grid capacity. And so we have to see if grid capacity emerges. So if we can, the next stage for us on the production side is going to be an environmentally sound domestic biomass. And we'll keep you up to date on that as to whether or not we can deliver it. If we do, its first earnings contribution, we think, is 2 years out.

[Unknown Analyst]

Sorry, what did you say?

[Scott Callon, executive]

The first earnings contribution, if we deliver on kind of small-scale domestic biomass, will be 2 years out. So that's the time frame in terms of -- and the implication of that is within the next 12 months, we should be able to kind of have some granularity for all of the U.S., okay, this is viable. We're doing it. Here's what the economics look like, or not.

But that's what we're spending most of our time right now, in trying to build out a potential network of domestic ecological biomass plants.

[Unknown Analyst]

Okay. All right. I'll look into that in further detail.

[Scott Callon, executive]

Thank you. I appreciate it. We can have -- Greg, I think we're going to open the line. Go ahead.

[Gregoire Brillaud, analyst]

Scott and Dan, nice presentation.

[Scott Callon, executive]

Thanks.

[Gregoire Brillaud, analyst]

My question is on the retail segment. I guess it's more of a longer-term question. At the moment, as you mentioned, I think you're focusing on the cash flow, helping the tenants with their cash flow, helping to make their life a bit easier, which I think is great. In the longer term, I was wondering what you are thinking given the long-term prospect for tourism in Japan. Is there a way to perhaps scale a little bit the hotel business? And have you had discussion with potentially clients who want to invest in private funds about starting to consider to look at future opportunities, in either a good location or succession opportunities to make the hotel business bigger longer term, private fund, REITs? I'm interested in your thoughts there.

[Scott Callon, executive]

Yes. I mean, this is an important topic. Look, we are bringing online -- in fact, you can see in the report that we put a JPY 4 billion plus into hotels in the quarter. And the majority of that is our new KNOT hotel in Sapporo. And we're bringing on another KNOT hotel in Hiroshima, it's also about the same size, this year.

Look, the hotel business is currently utterly, disastrously terrible. And so we -- that's the grim reality. It's a good thing that hotel is only 1/4 of our assets. In the longer term, Japan, as you know, is significantly underpenetrated in terms of tourism, one. Two, the growth, particularly in Asia, of incomes is a significant driver of tourism growth. And Japan is an extraordinarily popular destination for the Asian tourists and also globally, too. And three, the Japanese hotel businesses is a distinct underperformer, delivering kind of a quality relative to cost -- it's bizarre. I mean, the Japanese have the best restaurants in the planet, arguably, and they certainly don't have the best hotels on the planet. So there's this massive unmet need that we're trying to fill.

The key question, so do we want to do more? Yes. Do we want to do more given that we don't quite know what in the world is happening next month or 3 months and when the treatment is coming and when the vaccines are coming? And so -- I mean, everything has a price. But it's something that it's a very difficult business decision.

And the last thing, Greg, I'd point out is that operators are kind of not quite falling over yet. We probably need another kind of 3 to 6 months of pain to start seeing a significant shake out. And so we expect there are going to be opportunities and we're going to have to make a call at that point in time about what to do. The advantage, we do have -- THE KNOT is primarily about a branding and service offer. Propera, our AI-based hotel revenue optimization management system, is also proving to be pretty powerful. And we're thinking we can deploy that across the board.

So we think we're advantaged in hotels, but it's generating absolutely no income right now. So hard to own, hard to borrow against. We're going to have to try to solve that problem either with the kind of absolute rock bottom pricing, or kind of, when they're willing, is probably with government support, to get kind of debt at reasonable prices and reasonable duration in order to kind of be able to ride through.

At some point, we come out of COVID. We just don't know, as you know. None of us know. Is it 6 months? Is it 12 months, 24 months? Is it 36 months? Probably something in that range. Anything I can add to that?

[Gregoire Brillaud, analyst]

Just maybe a follow-up is, would you -- we've seen the success like that funds like Blackstones have had in other asset classes with having what they call dry powder with money on coal. As you know well, it takes quite a bit of time to raise funds for a new fund or -- so I mean, would you consider having that kind of structure where you have the money on coal and you're able to kind of pull the trigger on hospitality over the next 12 to 18 months? So in something which is less direct kind of value-add for Ichigo, but more of a larger opportunistic fund?

[Scott Callon, executive]

Yes, that's an interesting question. I mean, the honest answer is we haven't done that in a while. We -- as you know, we shrank our private fund business because we didn't like the economics. And -- because it was primarily kind of names like you just mentioned who were kind of own the clients and we were doing all the work and creating all the value add. And so we shifted towards doing with our own capital because the returns isn't so big.

But in the last couple of years, we've managed to both kind of do value add. And then when we finish value add, we'll actually sell on the asset. And in many cases, take an asset management contract that's 10 years or 12 years long, a pretty good economics. And so we put more resources into what you described. The way we've been having it at this point is not kind of sitting around with capital on call. But we have now a number of -- we've done -- we never get to use the names. But we've done these transactions with really big domestic and global institutions who are, effectively, kind of -- we have an ongoing relationship with them. We regularly want to talk with them about wanting to do things.

And so the capital is not sitting in a on-call vehicle. The capital sitting with institutional investors who trust us, who have been doing business with us, in many cases, have ongoing asset management relationship with us. So I think we can drive kind of an outcome similar to what you suggested without having the structure kind of established. It's a worthy question as to whether or not we'd go through that process. But yes, I mean, are we willing to do that? Of course, we're willing to do that. And certainly, if we're going to do something big in hotels, we're going to do it with partner capital. We're not going to wear a bunch of risk only ourselves. So for size of the structure you described of doing it and through some sort of asset management vehicle with performance upside for us is going to be the way that we're going to play this.

Happy to take any questions or input from anybody. [Operator Instructions]

Okay. I think we're done. Again, thank you, everybody. We're grateful for your time. And we're just going to keep on working it. So we look forward to deliver results above the bottom of our forecast and up to the top, and hopefully, to the top. So thank you. Thank you, everybody. Take care. Keep safe.