Thank you for watching the video of the financial results briefing for the fiscal period ended August 2026 of ORIX JREIT, or OJR for short. I am Ikuya Onda, President of ORIX Asset Management Corporation, the asset management company of OJR. First, I would like to take this opportunity to express our sincere appreciation to all unitholders and other stakeholders for their continued support of OJR. Please note that this financial results presentation video was produced with the use of generative AI. This initiative is intended to communicate accurate information to unitholders and other stakeholders in a clearer and more efficient manner. We appreciate your understanding. Now, I will explain our financial results. Please refer to page three. This slide presents the highlights of the current fiscal period. First, let me explain the distribution per unit, or DPU for short.
DPU for the fiscal period ended August 2026 was JPY 2,504, exceeding the forecast of JPY 2,450 announced at the previous financial results release by JPY 54. In addition to recording gains on the disposition of Aoyama Suncrest Building and Hamamatsu Act Tower, OJR steadily increased rents at existing properties. As a result, we achieved an upside of JPY 477 over the DPU target set under the 3% annual growth plan announced with the financial results for the fiscal period ended August 2024.
Our DPU forecasts are JPY 2,470 for the fiscal period ending February 2027, and JPY 2,300 for the fiscal period ending August 2027. The forecast for August 2027 mainly reflects the absence of the gain on disposition of Hamamatsu Act Tower to be recorded in February 2027, as well as a temporary timing difference in rent receipts associated with the revision of the lease agreement for Tokyo Bay Maihama Hotel First Resort.
Long-term interest rates are currently hovering around 3%. Given the uncertain outlook, including the upcoming U.S. midterm elections and persistent geopolitical risks, we determined that the best course is to present our guidance for the fiscal period ending August 2027, that prudently reflects this uncertainty. Excluding temporary factors, DPU still shows positive growth compared with the previous period, and we will seek further upside from gains on disposition and a recovery at the Osaka hotels. As explained later, we will target an ROE of around 8%. For both periods, our plans assume a partial reversal of internal reserves accumulated to date in order to ensure distribution stability. However, as we will continue strategic asset replacement, our policy is to return value in practice through gains on property sales.
We have also consistently met the 3% annual DPU growth target announced with our financial results for the fiscal period ended August 2024, even excluding gains on disposition, and we would like to draw your attention to this point as well. Next, I will explain our internal growth performance. Excluding properties acquired or disposed of since the fiscal period ended August 2025, NOI at existing properties increased by an annualized 2.1% from the previous period, while rental earnings increased by an annualized 0.7%. These growth rates may appear modest, primarily because rental earnings from our hotels in Osaka declined compared with the previous period.
This reflected the fading of demand associated with Expo 2025 Osaka, Kansai, which benefited the hotels in the previous fiscal period ended February 2026, as well as lower room rates across the Osaka hotel market following the Chinese government's calls since November 2025 for its citizens to refrain from traveling to Japan. Despite the decline at the Osaka hotels, earnings from other properties offset the impact, enabling positive growth for the portfolio overall. Excluding regional factors affecting the Osaka hotels, annualized growth compared with the previous period was 4.0% for NOI and 2.6% for rental earnings. The period demonstrated the strength of a diversified REIT, with other asset classes able to compensate for adverse effects in a particular sector. The slowdown in Chinese demand has affected Osaka hotels, where the share of Chinese guests is relatively high.
However, inbound demand from countries other than China continues to grow steadily, and a gradual recovery is expected from next year onward. We remain confident in the medium to long-term growth potential, and the integrated resort scheduled to open in Osaka around autumn 2030 should become another driver of future demand. I will now turn to external growth and asset replacement. To support sustainable growth, we continued replacing assets in ways that enhance portfolio quality. Most recently, we acquired the office property Toyosu Prime Square at the end of September 2026. We also announced the additional acquisition of Naha Shin-Toshin Center Building, an office-led mixed-use property in five installments. On the disposition side, we announced today that Round-Cross Kagoshima is scheduled to be disposed of in December 2026.
Including these transactions, since the fiscal period ended August 2025, we have disposed of four properties for a total disposition price of JPY 36.3 billion and acquired 10 properties for a total acquisition price of JPY 132.3 billion. Each acquired asset offers growth potential, and we will continue steadily building DPU through NOI growth. We will also continue asset replacement that contributes to unit holder value, carefully assessing market conditions and investment effectiveness while utilizing the ORIX Group sponsor pipeline. Moving on, I will address financial soundness and ROE. At the beginning of the year, long-term interest rates moved above 2%, which had effectively been regarded as the ceiling and are now around 3%. In this environment, we recognize that financial management has become substantially more important and challenging, not only for REITs but for real estate businesses generally.
Accordingly, OJR has clarified its policy of emphasizing financial soundness and ROE as the financial management foundation that sustainably supports the annual DPU growth target of 3% with additional upside. We will curb increases in funding costs through flexible financial strategies backed by high credit ratings and a robust financial foundation. At the same time, we will pursue capital-efficient management by continuously returning gains on disposition and implementing measures suited to market conditions. I will now provide further details. Please refer to page four. Let me once again explain our DPU growth strategy. OJR will maintain its policy, beginning from the fiscal period ended August 2024, of sustainably growing DPU by 3% or more annually, while seeking additional DPU growth through rent increases and the return of gains on disposition.
In the graph, the dark blue lower portion of each bar represents DPU excluding gains on disposition, while the light blue upper portion represents the DPU equivalent of gains on disposition. The figures shown in white within the bars indicate the DPU floor corresponding to 3% annual growth. DPU excluding gains on disposition, shown in dark blue, has steadily increased since August 2024 as we improved portfolio profitability. Even amid rising interest rates, DPU has continued to grow through rent increases at existing properties. Although higher interest expense and weaker demand in the Osaka hotel market are headwinds, we will continue improving portfolio profitability through rent increases and asset replacement, thereby steadily growing DPU. We also intend to continue returning gains on dispositions, shown in light blue, to unitholders.
The key point is that OJR aims to achieve sustainable annual DPU growth of at least 3% over the medium to long term. To realize this goal, we will manage the portfolio strategically with further portfolio growth at the core, while also utilizing unrealized gains and internal reserves. Please refer to page five. This slide explains financial soundness and capital efficiency, which supports annual DPU growth of 3% with additional upside. We believe that enhancing REIT value requires both operating the REIT on a stable funding base and improving capital efficiency, as represented by ROE. For financial soundness, we will maintain high credit ratings to contain increases in funding costs while appropriately managing the maturity ladder, average debt maturity, and fixed-rate debt ratio through disciplined financial operations. For capital efficiency, we target an ROE of 8%.
We believe that if a REIT, which offers stable income gains, can achieve capital efficiency close to that of corporates, it will become even more attractive as an investment. We currently maintain an ROE of over 6%, excluding gains on disposition, and achieved 8% in the fiscal period ended August 2026, partly due to recording gains on disposition. By focusing on profit growth and appropriately managing gains on disposition, we will aim for an ROE of around 8%. Please refer to page six. OJR is a diversified REIT centered on offices. Regarding the current macroeconomic environment, we will continue monitoring whether higher crude oil prices and rising procurement costs stemming from the situation in the Middle East, as well as higher domestic interest rates, constrained economic activity. At the same time, actual corporate office demand remains very strong, particularly in central Tokyo, and we have achieved solid rent increases.
To sustainably grow DPU over the long term, OJR focuses on strong internal growth in offices while incorporating hotels, retail facilities, residential properties, and logistics facilities with different income characteristics from offices into its portfolio. This office-centered, diversified portfolio allows earnings across asset classes to complement one another. As a result, the portfolio combines stability and growth and can flexibly respond to cyclical real estate markets and changes in the external environment. We will also execute acquisitions and dispositions proactively and flexibly as we assess market conditions. Most recently, in August, we announced the acquisition of office properties in Toyosu and Okinawa. Both are expected to deliver strong growth against a backdrop of solid office demand. OJR's strength lies in its ability to assess the characteristics of each use and execute asset replacement flexibly. We will continue building a diversified portfolio centered on offices while responding to environmental changes.
Please refer to page seven. I will now explain rental earnings and NOI by asset class. First, offices. Rent increases are progressing steadily. The decline in total office rental revenue reflects the loss of rental revenue from the 40% interest in Hamamatsu Act Tower sold in March this year. Rents at existing properties have increased steadily. As shown on the slide, excluding temporary costs for LED retrofitting, NOI increased by JPY 105 million period-on-period. The rent gap at our properties remains above 10%, and offices will continue to drive OJR's growth. We will steadily pursue further rent increases from the fiscal period ending February 2027 onward. Turning to hotels, as explained earlier, compared with the previous period, room rates in the Osaka hotel market declined due to the fading of Expo-related demand and a decrease in Chinese visitors to Japan. As a result, both rental earnings and NOI declined.
To maintain high occupancy, OJR's hotels reduced average daily room rates, resulting in lower rental earnings, mainly at HUP and Vita. Looking ahead, without assuming a recovery in demand from Chinese visitors, we expect earnings from the Osaka hotels to recover gradually by strengthening the use of overseas online travel agencies and capturing demand from other countries. Hotel earnings outside Osaka remain solid and inbound demand continues to expand. At the same time, rising construction costs and labor shortages in hotel operations are restraining new hotel supply. We therefore expect the overall supply-demand balance for domestic hotels to remain tight. Among our properties, Hotel Keihan Sapporo entered into a new lease agreement incorporating variable rent in June this year. At Tokyo Bay Maihama Hotel First Resort, the lease agreement was revised in October this year. Both hotels will generate substantial rent increases from the fiscal period ending February 2027 onward.
Due to the change in the timing of variable rent receipts associated with the revised rent structure at Tokyo Bay Maihama Hotel First Resort, variable rent equivalent to eight months will be recorded in February 2027, temporarily increasing earnings for that period. For retail facilities, backed by expanding inbound demand, tenant turnovers, and contract renewals at urban-type retail facilities, particularly in areas such as Omotesando and Harajuku, where luxury brand demand is rising, have been concluded at rents above expectations. At suburban-type retail facilities, several contract renewals are scheduled from the fiscal period ending February 2027 onward, and rent increases are expected. In the fiscal period ended August 2026, rental earnings increased by JPY 63 million and NOI by JPY 124 million compared with the previous period, demonstrating steady earnings growth. We will continue capturing tenant demand accurately and pursuing further rent increases.
Turning to residential properties, supported by higher tenant affordability due to wage growth, population inflows into urban areas, and stronger demand for rental apartments amid rising home prices, we achieved rent increases both upon tenant turnover and at renewals. Rental revenue increased by JPY 122 million and NOI by JPY 100 million compared with the previous period. We will continue focusing on rent increases. Finally, logistics facilities. At Komaki Logistics Center, the tenant vacated at the end of February 2026, and the successor tenant's lease commenced in April. As a result, rental earnings declined slightly compared with the previous period. Conversely, repair expenses incurred in the previous period in conjunction with the tenant's departure did not recur, and NOI increased by JPY 86 million. The facility continues to maintain 100% occupancy as an income-producing asset offering both stability and growth.
In this way, although the Osaka hotels are in an adjustment phase, the portfolio as a whole achieved NOI growth by steadily capturing strong rental market demand. Please refer to page eight. Now I will explain external growth and our asset replacement strategy since the fiscal period ended August 2025. This slide provides an overview of the acquired assets. I will add some details on the two properties whose acquisitions were announced most recently in August. First is Toyosu Prime Square, acquired on September 30th, 2026. This competitive large-scale office building offers convenient access to central Tokyo and high-grade specifications. Located near central Tokyo, it is expected to attract steady demand, particularly for back-office functions of large companies. We believe the property offers continued potential for rent increases. The other is Naha Shin-Toshin Center Building, for which we announced an additional acquisition in five installments.
We already held a 50% quasi co-ownership interest. Acquiring the remaining 50% interest and making the property wholly owned will enable more flexible operational management, including leasing strategies and the placement of repair and capital expenditure orders. In view of the property's high NOI yield and future growth potential, we determined that the acquisition would enhance unitholder value and decided to proceed with the additional acquisition. Please refer to page nine. This slide presents disposed properties and the external growth effects of asset replacement. By recording gains on disposition continuously, we contribute to distributions representing annual DPU growth of 3% with additional upside. Including the disposition of Round-Cross Kagoshima announced today, we will continue generating gains on disposition through the sale of regional properties and properties of a certain age.
At the same time, asset replacement will improve profitability and portfolio quality, including lowering the average age of the portfolio. We will continue enhancing unitholder value through strategic asset replacement, leveraging the characteristics of a diversified REIT and assessing the environment at each point in time. Please refer to page 10. I will discuss financing. As before, our basic policy is to focus on long-term, fixed-rate financing and disperse maturities to reduce refinancing risk. However, long-term interest rates have risen sharply. For the time being, we will finance flexibly, including the use of long-term floating rate borrowings to restrain interest costs and bridge the time lag until rent growth is realized. LTV is 47.5% on a total assets basis and 34.9% on an appraisal basis. We will continue close communication with the rating agencies and intend to maintain credit ratings around their current levels.
We will maintain disciplined operations with due consideration for financial soundness while remaining flexible in our approach to financing. Please refer to page 11. Based on the area subject to tenant replacement or renewal and the resulting rent increase or decrease by asset type in the fiscal periods ended February 2026 and August 2026, this slide presents the sensitivity of DPU to those changes. It also covers matters ranging from external growth based on recent acquisition results to capital policy. There are no major volatility factors in any of these areas, demonstrating the portfolio's effective diversification. In closing, uncertainty continues to surround the global economy, including the situation in the Middle East, Japan/China relations, Russia's invasion of Ukraine, and monetary policy trends in various countries. In Japan, as inflation becomes entrenched, downside factors for the JREIT operating environment are increasing.
These include the shift away from a near-zero interest rate environment and the sharp rise in long-term interest rates amid concerns over fiscal expansion under a policy of disciplined but proactive fiscal spending. In this environment, for investors to choose JREITs and OJR in particular, we will place greater emphasis than ever on balancing financial soundness and capital efficiency as newly presented today. In addition to steadily realizing annual DPU growth of 3% with additional upside, we will continue to make full use of the strengths of a diversified REIT that can respond flexibly to changing market conditions while sincerely pursuing sustainable enhancement of unitholder value. We sincerely appreciate your continued support.