Ichigo Inc

TSE:2337

Earnings Call Transcript 2023-Q1

[Scott Callon, executive]

Hi, everybody. This is Scott Callon from Ichigo. Thank you very much for joining us for our FY '23/2 Q1 Corporate Presentation. I'm joined by Dan Morisaku, who is a senior member of our global Finance team and the Head of Global IR for us.

So let's jump into it. I'm going to start on page -- let's see, I've got paper in front of me, too. I'm both analog and digital today. Hopefully, I need to get digital first. So Page 8 shows the Q1 summary. And look, it's an incredibly difficult world out there. And I think it's probably a strength of the firm that in the large extent, it's not relevant to us. We just kind of run forward. Q1 was -- no positive or negative surprises, just kind of basically right on track.

So the key elements that are on the page right here are, we have been excelling acquisition of our Sustainable Real Estate assets in both on multi-asset and our Ichigo Owners business. The hotel recovery is well underway. And you can also see, though, how crushing the COVID impact has been, right? So year-on-year RevPAR, so that's revenue per available room, it's a broad indicator of how productive our hotels are, up 81% year-on-year. And despite that huge rebound, it's negative 43% versus pre-COVID. So there's a lot still to go.

We are robustly climate positive, our CO2 reductions. Meaning we have a very significant, as you know, Clean Energy business that produces clean energy with no CO2 emissions. And therefore, those subsiding for CO2 creating fuels, we have substantial reductions and they're well above our own emissions. We're also doing quite a bit of work to take down our emissions by transitioning in so-called RE100 process to go 100% renewable energy by 2025.

We've had 6 consecutive years of share buybacks, the total amount to JPY 1.5 billion or 8.4% of shares outstanding. That included the Q1 buyback that we did just over the last 3 months.

Let's go to the next page. So this is kind of information we provide on an ongoing basis. We have experienced a significant COVID impact. We continue to experience it primarily in the hotel business. It's showing up in Sustainable Real Estate [indiscernible] that. But on a year-on-year, we've gone down in terms of our stock earnings, so those are ongoing kind of fixed earnings. Fixed is less fixed during a period of massive change, but these are very, very stable earnings.

And what's happened here is this primarily Odaiba affect. As you know, we have one large office asset. Our experience has been that -- and we only have one large office in that asset. Everything else we own is small and midsized office. Small and midsized office has performed extraordinarily well. And the one big office we've had is continuing to experience this thing. Vacancy is running at about 56% occupancy right now. And so that's pushing down our stock earnings in SRE, Sustainable Real Estate. Asset Management is down a little bit year-on-year, that's just kind of some fluctuations, and Clean Energy it's flat.

Going to the next page. As you know, we've introduced all-in disclosure to increase our earnings transparency. The issue that we need to solve for you to give you more transparency on our Sustainable Real Estate business is that we have proactively used the tax shield of depreciation by moving our Sustainable Real Estate assets as much as possible into fixed asset category. That's an accounting category and the tax category, it doesn't change anything that we're doing in terms of adding value to those assets.

Well, what it does mean is, if you have those assets sitting in real estate for sale, you don't get the depreciation allowance, that pushes down your taxable earnings. And so we move them into fixed assets. It gives us this tax shield. The result of that, however, is that when you do sales on these assets it show up as extraordinary gains rather than operating profits. And in fact, this is our core operating activity, and nothing has changed. So it's confusing to look only at OP in our case because you're missing this huge contribution from our activity in the Sustainable Real Estate business.

So turning on the next page, you can see we show not only OP but we show all-in OP and recurring profit, RP and all-in recurring profit, just to give you more visibility. So the numbers are down on OP and all-on OP about 14% year-on-year. That doesn't really matter. This is quarter-to-quarter volatility. Net income and cash EPS were down about 1%, again, the same.

It's probably most important to look at this page, as you can see, we do everything we can to preserve and grow cash flow. And so as you can see, our cash net income is nearly twice what our stated accounting net income is, and that's the better indicator of how productive the business is. I mentioned we've done extensive buybacks. We will continue to do so. Productivity that is generated for all of you as shareholders, your cash returns are going to be delivered back to you, with growth, EPS growth, either through growing the top line, meaning -- I'm supposed to say the bottom line, growing earnings or shrinking our shares outstanding.

Page 12 shows the segment earning details. A little bit of a sloppy and muddy quarter because none of this looks particularly good. I mean Asset Management is down 9% year-on-year, Sustainable Real Estate is down 15%, Clean Energy is down 11%. Clean Energy is just kind of bad weather in some of -- around what are some of our biggest assets. We've had -- and this is March and May, we've had like extraordinary good weather in June, meaning no rain, which is perhaps not good weather, except when you're running a solar business and no rain is like really, really good. So this is all back. Asset Management, we'll come back, and we expect to see in Sustainable Real Estate, SRE and then coming back also.

Turning to kind of the key elements of the business model. I'll go briefly over this because it's something we talk about on an ongoing basis, but it's important. So Page 14 shows that we're a hybrid business. We have both stock, very stable earnings. On top of that, we had flow earnings.

Page 15 shows what's happened with our stock earnings over time. And you can see the green is the Clean Energy business that continues to grow. The major impacts we've experienced have been in Sustainable Real Estate. That's both a function of getting kind of absolutely crushed in quarter of our assets, which are hotels that have gone from being robustly profitable to money losing over the COVID period and a decrease in buy-sell activity as kind of market is locked up. The good news is the markets are clearly coming back in a very big way in terms of buy-sell activity, which is really, really good for us, predictive of increased forward earnings.

Page 16 shows embedded forward earnings. This is what third-party appraisal to as our unrealized gains on our balance sheet. And we have stated shareholder equity of about JPY 98 billion. The third-party appraisers say we have another JPY 65 billion on top of that. If you turn to the next page, you could see, in fact, in general, we get more than twice that. And when we actually sell assets, we get twice what the appraisal or more than twice the appraisal value. And so it's a way of saying the -- at this point, the company is trading at a substantial discount to NAV despite kind of the ongoing productive business.

I will point out that very unusually and probably not to be repeated, in the first quarter, we had our actual gains on sales coming right in at appraisal value. We sold an asset in Ginza, which is like super, super prime retail. Given super, super primary retail, the appraisers feel comfortable in giving the super high valuation. We actually bought it -- we actually made substantial returns on this asset. We bought it at a 20% discount to appraisal value and sold it at appraisal value. So that's why you get to 1.0x. But going forward, you should expect kind of a 2x, 3x return from us on our Sustainable Real Estate activity.

Page 18 shows again the focus on robust cash generation. We consistently deliver kind of 2x our stated net income in terms of economic operating cash flow. 19 is what's happening with our financing. Rates have gone up everywhere in the world fairly dramatically, not nearly as much as inflation, of course, and not in Japan and certainly not for us. So we continue to finance below 100 basis points.

We've taken in the duration of our debt in part because Owners -- Ichigo Owners, which is a -- got of a less than 1-year holding period business, is an increasing part of what we do. You don't need 10-year debt against kind of a 7 months hold. 6 years of debt is more than enough. But we continue to borrow very, very long term in order to make sure that we don't have any problems with being able to write it out in a negative market environment.

I'll turn to Page 21, where we speak to kind of where we are in terms of being climate positive. As you can see, we continue to grow our solar and wind production, which are non-CO2 emissive. That means that we're replacing CO2 emissions. So those -- that shows up in the green bar as our CO2 reductions. At the same time, we're tackling our own CO2 emissions, both by increasing the share of renewables, which I'll turn to on the next page, and increasing our energy efficiency. So at this point, we are -- have CO2 reductions at 2.5x on emissions, and that's structural and will remain that way. Page 22 in front of you shows our current renewable energy ratio, which we expect to get to 70% this fiscal year, and that's up from 53% to 60%, 70% just in the first quarter.

I'll turn to Page 24. which shows what's going on in terms of buy-sell activity in our Sustainable Real Estate business. Probably the most important point here -- well, there are a couple of things that are going on that are very, very positive. One of them is that we have gotten better at acquisitions. We have under acquired. I mean, this is a business, Sustainable Real Estate is, it's a turnover business. We buy assets, we add value to them, we sell them. And at a higher value because we have genuinely added value to them. So we need to buy assets.

And so we've been under acquiring. And so acquisitions are back to being far more robust. We've got -- kind of just gotten -- I don't know how to describe it, better execution. I mean we've recognized this as an issue. We've put more people on it, we're acquiring assets in a more substantial way, and that's really, really important. In addition to our acquisitions coming back, so the Sustainable Real Estate engine is back on, which is really important to us because as you can see from the earlier slides, the drop-off from us -- that we experienced under COVID has primarily been the Sustainable Real Estate business.

So in addition to acquisitions, the selling environment is just really, really good. So it continues to be a situation that is much easier to sell assets than to buy assets. Part of that is driven by replacement cost. So Japan is experiencing very, very substantial construction inflation over a magnitude of 20%, 30% over the last year. And what that means is, what's the value of an asset. Well, if you can rebuild it at a lower price, then the asset is not as valuable as kind of what the new activity could be.

So replacement cost is really very important. And the reason why real estate tends to go by value globally is because replacement cost -- because other countries have inflation and replacement cost goes up year after year. Japan is not experiencing broad-based inflation nearly the same as kind of much of G7. But in the real estate space in the construction space, it's been very, very extreme. And so the implication of that is existing buildings are more valuable, and they are a lot more valuable.

So we've got all these assets, I pointed to our embedded gains, unrealized gains on our balance sheet, those have gone up. And the sales environment is really, really very robust. It's getting harder to make economics work to buy raw land and put up new buildings because the numbers don't nearly work as well as buying existing assets. So again, that is very, very positive to us. The other thing is that we're seeing more global activity and investors buying Japanese real estate, and that we expect to see that expanding.

And 3 things are going on in respect to global investors. One, for 2 years, they haven't been allowed to come to Japan. So anybody wants to do a genuine due diligence and look at an asset and have discussions and understand tenants and talk to leasing agents has not been able to come to Japan. So the effect is pent-up demand as Japan has opened up to business travel again, we have all these real estate investors showing up saying, okay, we want to look at assets.

The second thing that's going on is particularly seeing this with Asian-based investors. We're taking a view on the yen. The yen has dropped 17% year-to-date. It's just -- it was just trading at JPY 139, maybe it has moved since it moves a lot, since I started speaking. And so Asian investors who are very familiar with both currency volatility and have some flight to safety needs in certain cases are finding Japanese assets very, very interesting right now. Despite the fact that they're buying a yen asset and NOI is in yen, they're taking a view of the yen at JPY 139 is very good value.

And the third thing that's going on is primarily with U.S. investors, because the yen has depreciated, if you had, for example, a $300 million budget, you want to do something in Japanese real estate, that suddenly becomes JPY 40 billion rather than JPY 30 billion, so there's a lot more money sloshing around for U.S. investors in order to buy assets. So all is the way of saying, we expect to see a significant increase in global activity, certainly with us and probably more broadly in the Japanese real estate market.

Turning to Page 25. That speaks to what's going on Ichigo Owners. Again, to remind you, Ichigo Owners, it specialized in effectively super prime residential, brand-new residential assets, overwhelmingly located in Central Tokyo and in certain cases, very prime areas that are [indiscernible] elsewhere, but it's overwhelmingly in Tokyo. And that business continues to go very, very well. Acquisitions are going well. We expect we're going to do a lot more in this business, as you see, than we did last year. And you'll see some kind of -- as is the case every year, you see selling activity with substantial capital gains in this business this year. In the first quarter, we made nothing in this business. So that's a way of telling you that more [indiscernible] are coming at it.

Page 26, we acquired kind of through a rolling kind of acquisition with full consolidation as a subsidiary next year, a company called Cost Science, it's an IT consulting firm, it has significant data analysis capabilities. And it just won Japanese government DX award, DX mean digital transformation. It's working -- it's got -- most of its business is dealing with external clients. It's also working in terms of driving our business forward.

There's an example on the page of an actual application where with Cost Science we developed AI-based demand forecast system that is being used by this incredibly famous sushi restaurant to decrease lost opportunities, sales opportunities, decrease food wastage, et cetera, et cetera. So we do actually have significant internal capabilities in advanced IT. And as you know, we're deploying them across the firm and that includes Cost Science.

Page 27. We have 3 different listed entities other than 2337 Ichigo Inc., one of them is an Office REIT, one of them is Hotel REIT, one of them is Ichigo Green, and we're working to support their growth. On the next page, you can see that acquisition activity is also picking up at the REITs. Ichigo Office is doing an acquisition that closes next quarter, Ichigo Hotel is doing an acquisition that closes next quarter.

It's interesting. I mean, across the firm, including our REITs, we focus on small and midsized assets because it's an inefficient market. We think -- actually, the NOI tends to be far more durable in these assets. They don't kind of go all over the place. They're not bid to the [indiscernible] and they're not crush to the [indiscernible]. They offer really, really good value in terms of high NOI relative to -- so kind of high cap rates. And it gives you a diversified portfolio.

And so the other thing, of course, it gives you the ability to lean in and use kind of significant capabilities we have with as a firm. In small and midsized assets, not always the case that you have kind of very capable owners running these assets. So we're back to acquisitions in both these REITs, and we think -- and that was directly linked to kind of the ability to generate higher aim -- Asset Management piece going forward.

Turning to Page 29, and the Clean Energy business. It's a business that has continued to grow very, very well. It's not on the page, but the next step is we're doing local green biomass, and we expect to be active -- begin activity on that within the next year. We expect to have 3 new plants online this year and 2 of them are already online.

Page 30 shows our share buyback activity over the last 6 years. We've done buyback 6 years in a row. That is kind of an essential element of our long-term vision, Ichigo 2030. We're going to use share buybacks if we think that the shares are good value and should be bought in for all of you. We've done -- we did buy back this year. To be very -- there's no material nonpublic information here. We expect to continue to be active. That's kind of the statement, that's our capital policy. We think this year it's achieved, and so we expect [indiscernible].

Page 31 just reminds all of you of our J.League shareholder program, which is unique in Japan. We offer our shareholders, not only of Ichigo, Inc. Owners, but also all of our REITs and our listed solar power producers to gain the opportunity to go to J.League games. That is the prepared presentation. Thank you so much. I will now turn to Q&A.

[Scott Callon, executive]

And Greg. Greg, you're always first.

[Gregoire Brillaud, analyst]

Scott, can you hear me?

[Scott Callon, executive]

Yes. And thank you so much for always being first.

[Gregoire Brillaud, analyst]

Thank you very much for presenting. My question was regarding the hotel business. So last quarter, we were talking about how the situation is improving a little bit on kind of the transaction side. And obviously, this is about 25% of your portfolio. What are your thoughts regarding kind of monetization of some of those assets going forward?

[Scott Callon, executive]

So that's the one thing that's gone wrong in the last kind of literally 30 days. So I point it to kind of a structural phenomenon, which is really, really positive for us, which is construction inflation. And we're on that. We own all these assets. And our Sustainable Real Estate business is very light of construction activity. I mean we try to do as little as we can to an asset to improve it. So that's really the positive. The one thing that's negative that's happened in the last 30 days is directly COVID related, Greg, which is -- at some point -- I mean, two things have happened.

The yen has weakened, and that has meant Japan becomes even more attractive for inbound tourists. And so taking a slightly longer view to the extent the yen stays week, that's positive for hotels. But we've had a thing where it's like COVID is down, oh, lots of people want to bid it for hotels. COVID is up, no wait a minute, we're going to stay in the watch for a little bit. So clearly, quite honestly, in the last 30 days, we've seen the slowdown of people like, actually, we're going to wait and see.

So I don't -- I think really, what that implies is we've gotten more volatility kind of -- we've taken some -- we took a very conservative view on what we would be able to do in hotels because that's kind of who we are. But with some kind of hope that kind of the global and Japan -- including Japan, COVID, economic and social reopening would be really good for our hotel assets in terms of the buy-sell activity.

At this point, it's hard to say. And it's a way of saying, we do need to see kind of a lightning of COVID cases in Japan for us to do a lot of activity. We sold some assets, and we'll probably sell some more. But that has been the one disappointment in terms of the activity in the last 3 months is the exposure of COVID cases in the Japan.

[Gregoire Brillaud, analyst]

Understood. And maybe a separate question, if I could, on the solar business. As you've seen, there's been like a take private for one of the or there is a proposal to take private for one of the listed infrastructure REITs and there's been, I think, a counterproposal from Canadian Solar. I mean generally speaking, are you guys seeing more interest in Japan for those assets of these kind of transactions, proposal, kind of where you think will be the appetite for scale in that segment?

[Scott Callon, executive]

Well, I mean, broadly, world kind of we're operating in, it's a really, really terrible time in the world right now. There's a devastating war and humanitarian crisis in Europe. COVID is still everywhere. Inflation is deeply impacting people everywhere in the world. And the truth of matter is that the war in Ukraine and inflation are positive for kind of renewable energy assets, whether not experiencing -- I mean we're not using fossil fuel. So in fact, that oil is where it is or natural gas or LNG where they are is not relevant to them.

So these assets have become more valuable. And they become more valuable also from a geopolitical and geostrategic perspective because Japan is, as you know, massively dependent on imported fuels. So trying to do more in Japan is valuable, too. So that transaction actually cleared [indiscernible] solar lost. Yes, we expect there'll be more there, and we think we have a lot of value. Did that answer your question?

[Gregoire Brillaud, analyst]

Yes.

[Scott Callon, executive]

Happy to take more questions, comments of any sort. Garrett?

[Garrett King, analyst]

So you have a slide that shows the weighted average remaining loan maturity has declined from 9.6 years in fiscal '17 to 6.5 years today. And given the dramatic increase in interest rates around the world and the threat that this poses to the valuations of low cap rate assets, would you consider significantly extending the duration of your fixed rate borrowings potentially through the purchase of derivatives?

[Scott Callon, executive]

So we have actually -- so thank you, Garrett. That's a super important topic. We actually have macro hedges already on our portfolio to take that interest rate risk. And that at this point covers over half the portfolio. It's kind of gone down a little bit over the last kind of 6 months. In fact, Dan, I may need your help on this one. What percentage of our total portfolios, if you know, is fixed at this point? And you can jump in if you know the answer.

So yes, I mean, we've taken -- I mean, 6.5 years is planning long enough. And there are some elements of -- we try to be really smart about this. I mean to the extent that we can borrow for 50 years for free, we'll borrow for 50 years for free. So the reason why we pushed it down from 9.6 to 6.5 over the last number of years is one, because 6.5 years is literally 6 years longer than our holding period for our Ichigo Owners assets.

But the other reason we do it is because you get so much better kind of terms and conditions. People start wrapping all sorts of covenants on you when they -- when you go longer on that. But if I can read into your question, which is you should be smart about this and think about doing more, and I completely agree with you. And you can count on us to be pretty proactive in trying to take out interest rate risk, covenant risk, diversify our lending pool, all those things are super -- and fix up our interest rates, all those are super, super important.

The goal is to make your debt look as much as possible like equity instead of having an equity capital charge of whatever, 6% or 7%, 8%, you're running a debt that costs you 90 basis points, it looks a lot like equity. Dan, do you have an answer on percentage that were fixed?

[Dan Morisaku, executive]

Approximately 52%.

[Scott Callon, executive]

Okay. Which just come in, and I don't want to raise that back up.

[Garrett King, analyst]

Okay. And you mentioned like the holding period isn't supposed to be long, but what -- the Bank of Japan now is printing money to peg the interest rate at an artificially low level, it's not impossible that there could be a dramatic rise in a 6-month period, like we've seen here in the rest of the world. And you're buying a cap rate -- that's why the cap rate is like 2% or 3% and then interest rates move up like 2% and in a 6-month period, it seems like that could be potentially an issue.

[Scott Callon, executive]

Yes. And Garrett, I mean, again, I completely agree. So -- and it's worth pointing out that that's part of the reason why we do, one, assets, we don't do like super [ 12-year ] assets. So Garrett, we don't buy assets at 2% to 3% counts. We're generally buying at 4% to 5% right now. So that gives you 300 to -- generally kind of 300 to 450 basis points cover on your cost of funding. And that's super, super important. So is it -- you're exactly right. The problem with people kind of -- in a lot of markets, people find it 5% to buy assets that cost 3, and they're like, we're going to make it up on inflation and rental growth. And if works that way, great. But if it doesn't work out, then you're underwater and you're going to die.

So for us, two things are really important, a significant gap between our funding and the current running yield on the asset, and two, the fact that we add value to it. So what we're doing, Garrett, is we're buying assets that yield 4.5 and we're adding kind of 50 to 100 basis points of yield on top of it. And that also gives you protection against kind of rates going up.

Now the other thing that's worth pointing out is in a rising rate environment, it depends on what's happening with kind of broad inflation and construction inflation in particular. So if rising rates are accompanied with inflation, then we're going to get the benefit of that. The biggest risk is the stagflation risk or kind of the differential inflation where or effectively kind of interest rate rise only it doesn't pass through to kind of the economics of our assets.

But yes, I agree with you. This is super important. Work [indiscernible] died during the Lehman, the GFC kind of way back then because we had -- our duration of our debt was too short, we were buying at very low cap rates, we were financing higher, we didn't really have a value-add capability. It was more we think we're going to flip to the next company, so we've completely reworked the firm. But I agree on your points. This is something we're very careful about and we'll continue to be so.

And we'll wait for a second. Up John. Thank you very much for joining. Go ahead.

[Unknown Analyst]

I just have a quick question regarding the buy-sell market. You mentioned that it has come back strongly. In which asset classes are you seeing this positive trend in?

[Scott Callon, executive]

Yes. Look, residential is extraordinarily strong. And that's quarter of our assets. Retail is also doing well. Hotels continue to be deeply impacted. But in general, the phenomenon that we're experiencing is kind of significant. It's a seller's market -- continues to be a seller's market but the obvious one that we're involved in. Logistics is kind of the supply-demand situation and we're not very involved in, has loosened. It's still kind of more demand than supply, but a lot of supply coming on.

So that market has kind of slowed down somewhat in terms of buy-sell activity and certainly kind of the massive bid for logistic assets. But really obvious one is resi. And Japan is protected, wage incomes are very well, there's a labor shortage, wages are going up. And so residential, it's just a very durable asset and in the world. And so in Japan -- to the point, this was raised by Garrett, in Japan, the BOJ, everything has happened in the last 3 months as BOJ has doubled down on. We see -- we have an inflation outlook we don't think is durable, it is temporary.

Japan is not broken out of deflation. And so the BOJ has doubled down on staying loose. In that context, I'm trying to own an asset with a decent yield is important. And the other thing we see is a lot of the global investors are interested in resi and residential also. It's just a nice, it's durable Japanese asset with an obvious economic stream attached to it. So resi is really well bid.

[Unknown Analyst]

Understood. And in the current environment, just in case anything was to change, say Bank of Japan was to let yields rise, do you see a need to accelerate your buy-sell -- your sell activity before that window of opportunity closes? And in that regard, if we look at your targets for the Sustainable Real Estate, at what point within that range would you expect us to fall in by the end of the fiscal year?

[Scott Callon, executive]

We're very comfortable we've going to hit our numbers. And that's because we have visibility on our transactions. I mean, look, we're -- the way we think about the world is we're not in prediction business. So we're not people like the yen is JPY 139, we think it's coming back to JPY 115 or the yen is going to JPY 159, maybe.

What we do is we run scenarios around kind of what could happen. The yen could go JPY 160, the yen could go JPY 100. And by the way, the yen movement is -- since we're effectively a domestic firm isn't super relevant to us. Although as I pointed out, there is some knock-on effects that appears to be the case, that weakening is making yen attractive for -- certain global investors are finding more -- again, more attractive.

So the real issue is one that Garrett just pointed to, which is interest rates and how do interest rates interact with the NOIs on our assets. And that's why we have run with kind of long term, that fixed, very effectively no covenants to speak of, and that's really important to us and keeping over half of our debt fixed. And in fact, we really target something that looks more like 70% of our debt being fixed is important to us.

So we've gotten a little bit light on that, and we want to push it back up. But yes, I mean, if rates go to 3%, they go to 3%, that's what's so important about having a margin in safety. We are -- it may be out of favor, but we are a value guys. And so -- the issue with owning assets that yield 4% and you're funding at 3%, if rates go up -- if rates double, if they go up 300 basis points, you just become 200 basis points under water.

And when you own assets that you buy at 4.5 and you're funding at 80 basis points, rates go up 300 basis points, which is a massive move, right? And you're still covered. You're making less money. And so that's really, really important is to maintain the big buffer between where we fund and where we yield and also to be able to add value on top of that. So again, to make the point, generally, we add a 1500 basis points worth of NOI on any asset that we buy. Did I answer your question?

[Unknown Analyst]

Yes. Yes, that answers my question. And sorry, final question would be around Odaiba. Did you mention the current occupancy rate that this is currently at in, the progress that you're making with regards to the leasing of this asset?

[Scott Callon, executive]

Yes, it's -- occupancy is about 56%, 57% right now. And Odaiba sort of drives us nuts. It's the only big office we own, big enough to matter. And it was a special case, Olympic venue, all that sort of thing made. We've done perfectly well on it in terms of -- against the business plan sort of thing. But there were lots of things that were possibly going to happen in terms of the Olympics enhancing the value of the area and giving it attention and we would be able to sell into it or after it or something like that.

And of course, we had COVID and no Olympics. So it's like, okay, that didn't work out. But it is a really striking statement about how large-scale office is really under pressure. And as I understand, it's under pressure globally. It's under pressure as far as we can tell in Japan. We're not -- this is not big data, this is small data. We only have 1 big asset. We have 1 big office asset. But it's -- our small and midsized offices are doing great, and we're keeping them. And it appears to be a function of better value, lower cost for Ichigo, but also just kind of smaller companies being more diversified and more wanting to be in the office than peers in larger companies, but anyway.

So well, that was currently at 56%, 57%. We targeted getting it to 80% if we can this year. I don't know, that may be hard to do because we're seeing continuing pressure on other large office assets. So we've actually started work on doing a fairly substantial repositioning the asset away from large companies towards more venture sorts of companies. And by the way, I mean, not kind of like crypto start-ups. As I say, we're conservative people. But companies that are smaller, have robust businesses and actually looking at creating kind of a community in that area.

So it's a big enough building that you could actually do some things that are interesting with kind of the neighborhood as it work. And so we're looking hard at that. But Odaiba, as I said, 56%, 57%. I expect that in a year, our occupancy will be higher than that. I don't know if it's going to be as high as we want it to be. We'll just have to see how kind of the next coming 6 months leasing activity works.

All right. We will declare ourselves done. Thank you so much, everybody. We're really grateful of your time. We know it's [indiscernible] in this tough time of the world. Everybody have -- take care, be safe. Have a very good day. Thanks so much.