Full Picture of the JPY 600B Shibuya Redevelopment Kicks Off — A Two-Pronged Strategy of Price Pass-Through and Capital Management Toward "Cruising Speed" in 2032

Executive Summary

On June 9, 2026, Envalith secured a post-full-year-earnings interview with Hirohisa Fujiwara (Director and Senior Managing Executive Officer). Tokyu has established the construction framework for its three major Shibuya properties (Shibuya Upper West Project, Shibuya Scramble Square Phase II, and Miyamasuzaka District Category I Urban Redevelopment Project), clearly outlining its growth scenario toward reaching cruising speed in 2032. On existing tenant lease renewals, the company is achieving average rent increases of approximately 10–15%, while for new tenant recruitment, asking rents have reached levels enabling offers above JPY 50,000 per tsubo per month—putting a unified rent level across the portfolio within sight in six years. Hotel ADR is projected at JPY 28,000, up JPY 2,000 YoY, with flagship hotels reaching the upper JPY 60,000s to above JPY 70,000, approaching standards in major Asian cities. On the financial front, the company is also considering issuance of bond-type preferred shares, articulating a capital policy that balances interest-bearing debt levels—underscoring a strong commitment to financial soundness during this period of large-scale investment.

Message from the Company

Key Discussion Points

• Cross-Segment Price Pass-Through and Earnings Growth Blueprint

  To achieve FY2027/3 operating income of JPY 95B excluding real estate sales (+7.5% YoY), the company is pursuing a three-pronged revenue enhancement strategy: rent increases in the real estate leasing business (+9.5% YoY), hotel ADR appreciation in the hotel and resort business (JPY 28,000, +JPY 2,000 YoY), and higher spend per transaction in the lifestyle services business. This approach is designed to deliver profit growth that outpaces cost increases such as JPY 7B in additional personnel expenses and higher maintenance costs, underpinned by firm resolve to execute price pass-through.

• Assured Execution Framework for the JPY 600B Shibuya Redevelopment Investment

  All three major projects—Shibuya Upper West Project (scheduled completion FY2029), Shibuya Scramble Square Phase II (scheduled completion FY2031), and Miyamasuzaka District Category I Urban Redevelopment Project (scheduled completion FY2031)—have either completed or concretely finalized contractor agreements and construction commencement. The company indicated that contingencies for construction cost escalation have been factored in, and that additional cost risk within the JPY 600B investment budget has already been cleared for these major properties.

• Disciplined Financial Strategy and Balance Sheet Optimization

  With net interest-bearing debt of JPY 1.3T against shareholders' equity of JPY 900B—a gap of approximately JPY 400B—the company outlined a disciplined financial strategy. Management explicitly committed to managing total interest-bearing debt levels, diversifying funding sources including potential utilization of the announced bond-type preferred shares, and optimizing the balance sheet through asset disposals including cross-held shares.

Envalith's Perspectives

• 01.

  Earnings Potential from Eliminating the "Dual Standard" in Shibuya Rents

• 02.

  First-Mover Advantage in Fare Revisions

• 03.

  Hotel Business Still Has Significant Room for Earnings Improvement

• 04.

  Risk Factors

Q&A Highlights

• Q

  What Are the Drivers Behind the +7.5% Growth in Operating Income Excluding Real Estate Sales?

  A

  In the real estate leasing business, rent increase agreements have been reached with approximately 70% of tenants up for renewal, achieving roughly 10–15% rent increases. Additionally, the tight supply-demand environment has reduced free-rent concessions. Leasing operating income is expected to grow +9.5% YoY. Hotel ADR is rising from approximately JPY 26,000 last year to JPY 28,000. Although Tokyu Store experienced a temporary closure of a large-format store, operating income is expected to exceed JPY 5B. Price pass-through is advancing across all business segments, supported by the inflationary environment.

• Q

  Is the Increase in Transportation Segment Maintenance Costs a Front-Loaded Investment or a Structural Cost Increase?

  A

  It has elements of both. Rising labor costs at construction contractors and higher material costs for electrical components represent structural factors, which the company intends to offset through revenue growth from higher ridership and cost management elsewhere. CapEx of JPY 68.8B this fiscal year includes rolling stock and signaling system upgrades. Management's strategy is to enhance resilience against cost increases by strategically preparing for fare revisions now that the monitoring period has concluded.

• Q

  To What Extent Do Construction Delays in Shibuya Redevelopment Impact Investment Payback?

  A

  The original plan called for all properties to be completed by 2027 with cruising speed reached by 2030. However, COVID caused a three-year delay, various negotiation extensions added another three years, and construction timeline extensions contributed one more year—resulting in an effective delay of five to six years in total, pushing the cruising speed target to 2032. The Shibuya portfolio alone requires JPY 600B in total CapEx. For projects currently underway, construction costs and schedules were reviewed last year, and some properties are already under construction. However, management acknowledges that future projects in the planning and design stages will require strategies that incorporate cost compression and potential deferrals given elevated construction costs.

• Q

  How Will the Company Address Rising Interest-Bearing Debt and Higher Interest Rates?

  A

  The fixed-rate ratio stands at 78%, the average duration of corporate bonds is approximately 8 years, and the average tenor of long-term borrowings is approximately 7 years—levels management considers appropriate at present. Meanwhile, to maintain competitive funding capacity, the company plans to diversify its funding sources, including potential utilization of bond-type preferred shares structured to protect existing shareholder interests. The interest coverage ratio is also being monitored, with total interest-bearing debt managed on an aggregate basis. Any excess beyond the target will be reduced through disposals of cross-held shares and asset securitization.

• Q

  What Is the Timeline for Reaching a 30% Payout Ratio, and What Is the Share Buyback Policy?

  A

  Management targets reaching a 30% payout ratio upon achieving cruising speed after the completion of major properties (in approximately 6 to 10 years). In the interim, the annual dividend of JPY 32 will be steadily raised by JPY 1–2 increments. Regarding share buybacks, the treasury stock position is already sizable, so indiscriminate expansion is not planned. However, management intends to flexibly incorporate buybacks of a certain scale, anticipating share disposals by financial institutions as they unwind cross-holdings (estimated at approximately 20 million shares in the near term).