Last fiscal year, against a backdrop of rising rents, especially in the Tokyo metropolitan area, and growing demand for housing among foreign nationals, we delivered results ahead of targets in the “New Growth 2028” Medium-Term Management Plan. The indicator I regard as more significant, though, is that profit grew at a rate well above revenue. Net sales were JPY 444.8 billion, up 3% year on year, while operating profit was JPY 35.9 billion, up 23% year on year. This shows, I believe, not simply that revenue grew, but that the earnings structure of the business as a whole has improved and that we are steadily approaching a sustainable business model that creates added value while delivering profit growth.

By segment, the Leasing Business, which accounts for most of our revenue, recorded net sales of JPY 429.6 billion, up about 3% year on year. The year-end occupancy rate fell slightly short of target but was up on the previous year, and we improved average unit rent, particularly in the Kanto region. I attribute this to several factors working together: better occupancy management, enhanced solution-based sales to corporate customers and a quality-focused sales strategy, supported by a favorable market environment.

Net income was down year on year, but this was due to an extraordinary loss arising from the cancellation of treasury stock acquisition rights, not to the earnings power of our core business.

The most significant achievement on the business strategy front in fiscal year 2025 was restarting the Development Business for the first time in six years since the construction defects problem came to light. Over the past six years, we have worked diligently to address the construction defects problem, with a focus on implementing our quality control framework. This period was not only one in which we worked to rebuild trust with our business partners and apartment owners who stood with us in overcoming this longstanding challenge, but also one in which we redefined governance and compliance and fostered a culture of ethics and self-discipline across the organization. Having gone through this process, we believe that our ability to make the proactive decision to fully resume the Development Business carries significance that extends well beyond the numerical results alone. From a financial perspective, we successfully achieved capital structure optimization through a tender offer for treasury stock and repurchase of treasury stock acquisition rights.

We currently face three challenges: restoring the equity ratio, sustaining the expansion of the Development Business, and improving the Elderly Care Business. The equity ratio fell from 37.5% to 23.0% due to the tender offer for treasury stock and the cancellation of treasury stock acquisition rights. Our policy is to rebuild it in stages by steadily accumulating profit and cash flows from operating activities. The Development Business plays an important part in maintaining and increasing the number of units under management. Through it, we will stabilize the earnings base by pursuing sales measures grounded on an accurate understanding of corporate demand and carry that through to sustainable growth. In the Elderly Care Business, where operating losses are widening, we will clarify the management issues by separating the business into a subsidiary and work to resolve them quickly.

The results for fiscal year 2025 exceeded the plan, marking a solid start to the first year of New Growth 2028. It is, however, no more than a waypoint on the road to sustainable growth. Having revised our plans for fiscal years 2026 and 2027 upward, I believe what matters now is shifting to a structure that earns stably regardless of market conditions.

To achieve this, we will strengthen corporate sales, expand the Development Business, and enhance cost management discipline. We were rigorous about cost control throughout the restructuring. However, one consequence was that investments aimed at creating added value, including investments in human capital, were at times constrained. Going forward, while maintaining disciplined cost management, we intend to restore an appropriate balance between cost control and growth investment in order to accelerate growth. With this approach, we will devote our full efforts to achieving the targets set forth in New Growth 2028.

As for the share price, we believe it is important that, over the medium to long term, we achieve a valuation that appropriately reflects our corporate value. By steadily delivering on our performance targets and shareholder return policy, while communicating the progress and achievements of our growth strategy to deepen understanding of our Company, we aim to improve our market valuation.

There are three main areas of focus for our future growth.

The first is advancing solution-based sales to corporate customers. We will expand the services that address the challenges mainly faced by companies—support for company housing strategy, housing solutions for foreign nationals, help with workforce-related management issues, business continuity planning support, etc.—and evolve into a Co-Creation Solutions Provider.

The second is the selective expansion of the Development Business with a focus on profitability. In building new apartments, we will carefully select locations and expand supply while maintaining a strong commitment to quality. In addition, by closely assessing regional supply-demand dynamics and market pricing, we will pursue a developer model under which we acquire and develop land ourselves. Through these initiatives, we aim to maintain and increase the number of units under management.

The third priority is the utilization of DX and AI. We possess data on approximately 540,000 units accumulated over many years of operations. Vast amounts of information that we had not been able to fully leverage in the past can now be analyzed and structured using AI, increasing the potential to transform these data assets into a source of competitive advantage. We believe this will contribute to the creation of new added values over the long term.

We are currently developing an AI-powered rent assessment system. By leveraging technology in the rent-setting process, we will be able to determine optimal rents based on an apartment’s characteristics, including its location, layout, age, sunlight exposure, and local supply-demand dynamics. We believe this will help reduce vacancy periods and maximize long-term rental revenue. By automating routine tasks, employees will be able to focus on higher-value activities. We will accelerate the shift from labor-intensive operations to knowledge-intensive work, enhancing productivity and improving ROE.

Our basic policy on financial strategy is to strengthen our financial base while investing for growth. We do not anticipate raising additional capital in response to the temporary fall in the equity ratio in fiscal year 2025. By generating stable earnings from the Leasing Business and accumulating cash flows from operating activities, we will strengthen our equity base and aim to gradually restore the equity ratio to 30% by fiscal year 2027 under the current accounting standards. The decline in cash and equivalents is also temporary, and a steady recovery is expected. Therefore, we do not view this as a major issue at this time.

Regarding the balance sheet, we will review our asset portfolio and shift toward income-producing assets. As part of these efforts, we will undertake land acquisition and development in-house, focusing on the three major metropolitan areas where strong demand is expected over the medium to long term. The Development Sales Division and the Finance and Accounting Department will work closely together in making investment decisions, taking into account opportunity costs and profitability.

On capital allocation, rather than viewing a stable financial base, growth investment, and shareholder returns as separate matters, we see them as interlinked and will begin by stabilizing the financial base. Our first priority is to strengthen the financial base. As the financial base becomes stronger, we will be able to pursue growth investments, and if those investments lead to earnings growth, they will in turn enable greater shareholder returns. We therefore place emphasis on capital allocation that supports and sustains this virtuous cycle.

For greater capital efficiency and higher market valuation, we believe steady EPS growth is the key. We will achieve sustainable EPS growth by improving occupancy rates and increasing rental income, expanding revenue through the monetization of the Development Business, and enhancing profitability through AI-driven operational efficiency and disciplined cost management.

We are also in the process of shifting to a management approach that prioritizes capital efficiency. Since a fund became involved in our management in fiscal year 2020, discussions from perspectives we did not have before have become much more active. These include, for instance, evaluating the profitability of the assets we hold against the cost of capital. We will continue to treat maintaining ROIC above WACC as one of our key management indicators and will assess whether invested capital is generating adequate returns, drawing on insights from our shareholders and investors as we do so. Through this work, we will achieve both profitability and capital efficiency, and pursue sustained improvement in corporate value.

We provide appropriate opportunities for stakeholder dialogue and disclose information quarterly. Going further, we will strengthen our ability to address the fundamental questions investors have and the issues of greatest interest to the market through our business activities, while also increasing the occasions on which we explain the outlook for the businesses that will drive our growth. We take the opinions and questions we receive seriously, as direct feedback to management, and will incorporate them into our management decisions and efforts to enhance our disclosures.

The construction defects problem, which significantly undermined public trust in our Company, remains at the core of our management today, and we will never forget the seriousness of what occurred. Guided by the lessons learned from this experience, we will continue to uphold sincere and responsible management and business operations, striving to restore trust and enhance corporate value.

To achieve medium- to long-term growth, we aim to further enhance our Leasing Business with a focus on company housing contracts and strengthen our role as strategic infrastructure supporting corporate human capital. Even as demographic trends and work styles continue to evolve, demand for housing among single-person households and foreign nationals is expected to remain resilient. By continuing to meet these societal needs, we will establish ourselves as a social infrastructure provider in the rental housing market.

Our roughly 540,000 units under management, our nationwide network of owners, and our corporate customer base built up over many years are intangible assets unique to us and a considerable strength that competitors cannot easily match. By making the most of them and working to create new services for owners and new business opportunities in collaboration with corporate customers, we will further strengthen our competitiveness.

Looking ahead, we aspire to move beyond the traditional real estate leasing business and evolve into a Co-Creation Solutions Provider. Building on our housing services, we will leverage the wealth of data and technological expertise accumulated over many years to deliver new value to our customers. As we seek to support our corporate customers in addressing their business challenges and fulfill our responsibilities as an indispensable social infrastructure company, we will steadily achieve our short-term performance targets while building a strong management foundation that supports sustainable growth from a long-term perspective.