Ichigo Group Holdings Co

Hi, everybody. I'm Scott Callan, Chairman of Ichigo. Thank you so much for joining us today. I'm speaking off of the presentation that's in front of you. It's also on our website, FY25-2, so the February 2025 current fiscal year Q1 corporate presentation. I'll go through this relatively quickly. Thanks to so many of you, your veterans, you understand our company well. and we're kind of we try to be consistent the way we describe ourselves and provide disclosure to you so this will be very familiar and that's that's point we should be transparent about what we're doing and allow you to track our activities very strong quarter more to the point this is not a quarter by quarter battle of course you know years are built on quarters and decades are built on years so it's great and important to have strong quarters but more fundamentally the underlying business model is very powerful The activity we're doing right now is going to generate significant forward earnings growth, and so this quarter just kind of reflects that. I wouldn't say that we over-earned. We had a relatively light quarter in the first quarter of last year. This quarter was more normal, so we have really big year-on-year uplift, but it was a strong quarter. So all-in OP up 119%, some more than doubles here in the year, cash and income up 30%. That's probably a stronger reflection or better reflection on what kind of actual activity looks like, but we're doing very, very well. I'll touch on many of the points on this page going forward, but we're growing the asset management business. We bought a private REIT business in order to do more activity there. We're expanding our clean energy business. We actually have a set of capabilities and technology that we're I think it may surprise you that we're involved in generative AI, but we are. We've had our first customer launch there, and we're doing more in sports. The sports business has primarily been a branding business up to this point, and the branding impact is really, really powerful. We've been a top sponsor of the J League. That's Japan's soccer league, or as we say with a more British pronunciation, football league. for many, many years, and that's been great. We bought a J3 soccer club of our own. But, you know, we actually want to develop an earnings stream out of it. It's a non-asset business, and so we're doing more activity in that area also. Q1 summary, we are structurally profitable. That's really, really important. Our stock earnings, so those are contractual earnings. We want ourselves to be above twice our fixed expenses, and they'll continue to be the case. Stock earnings were particularly driven by our sustainable real estate business. We had a little bit of a drop-off in asset management. We'll get that back. That business is growing. The clean energy business had rough weather. That weather is a little bit volatile, but that's already come back. So that's off a little bit. But anyway, so we're growing stock earnings. And so what you can tell from this, though, is we had a huge uplift in the quarter, and that's what I was speaking to earlier. We are a stock plus flow earnings business model. The flow earnings were much more normalized, much bigger during the quarter, and that's what generated the really big numbers. The really big numbers you can see here. So again, all in OP up 119%, cash EPS up 34%. You can see cash EPS is up 34 and cash and income is up only 30. That's because we're buying record stock and consistently. At this share price, we are trading at below 10 times cash EPS for a business that is a really good business and that is growing. So we think the shares are very cheap and as a result, we're buying them in. And as the subtitle points out, our cash earnings are 1.3 times our accounting earnings because we focus on maximizing long-term cash flows for shareholders. We focus on economic profit rather than accounting profit. Those are slightly different statements, but we're for shareholders, and it's generating long-term cash flows, which we think is the ultimate source of shareholder value. In terms of the segment earnings details, you can see explosive activity in sustainable real estate. That's on the back of just very strong sales activity. I'll speak to this later, and we try to be transparent about what's going well and what's not going well. And, of course, more things are going well, and that creates the high-class problem. We are constrained on talent right now. particularly our residents' token business, which I'll describe again some more later, is exploding. And we really need the talent. We need more activity around our value-add because we are at this point not demand-constrained but supply-constrained. We have more demand for high-quality value-add assets. At this point, the ability to produce them, that is a problem. It's something we have to work on and we are working on. We expect record cash earnings this year. For the second consecutive year, we expect to have record stock earnings. It's worth looking a little bit at what's happening here on the page. It reflects some activity in the volatility of the hotel business. We think the hotel business that we have is a very good business, and it was devastatingly bad in COVID. We also understand that. And we understand that, you know, we didn't predict COVID, but one has to be very, very careful about hotels because they are the only asset class we own that reprices daily. Which is to say, you know, this is a daily rate for a hotel. It changes all the time. Unlike a residential contract or an office contract, which is run every year, people generally stay at hotels for a day or three days or five days. So, you know, as a result, it has more volatility in its earnings, which is why we manage this particular asset class, so that's no more than 25% of our total assets. Having said that, we think it's a really good business, a really good asset class. Hotels are hard, and hard is good, meaning if you want to add value, be in a place where adding value is harder to do, and therefore you can actually add value. And so... Japan is absolutely world-class in its restaurants. It is not world-class in its hotels. We have found an opportunity to deliver value there. And what I'm speaking to is that we're having kind of an absolute roaring back in hotel revenues. I'll touch upon that. But you can see it on this page in the hotel operator and preparer revenues and preparers are a dynamic pricing system for hotels. But you can see one negative, one seriously negative. during COVID, and now if you look on the right, you can see it's 567 million yen. It used to be easy when it was $100. You can see it was $5.7 million. It's somewhere below four, I think. It's roaring back. That's just in the first quarter, right? So this is a business which is doing very well. I told you that we like the hotel business because it's harder to do. The fundamentals of the business, of course, are also very strong. There is, this is a GDP plus business, meaning you get Japan's preferred destination for Asian tourists. As those economies continue to grow and there's more income there, there is additional spend that goes into tourism. Of course, the inn is very, very cheap right now, so that's an additional kind of window to back on this. But there is significant demand for Japanese hotels, significant opportunity to deliver greater value than what other operators are doing, and this is something that we will continue to do. And so watch this space. The hotel inn is going to be robust. We continue to finance very well. You can see there's been a jump in our financing costs. That's because Japanese financing costs have gone up. So Tybor, three-month Tybor, which is a base rate for most of our loans, has gone from seven basis points to 30 basis points. It's still only 30 basis points. It's still, like, screamingly cheap. But that's a 23 basis point up tick. You can see that increasing in financing costs. To be very clear, this is not interest rates going up during segulation. This is interest rates going up in a very strong economic period. So we will earn overwhelmingly more. in terms of the plus that this delivers to us in terms of our business from the strong economic environment, the interest and interest costs. But interest costs are going up, and we, of course, understand that and need to deliver to you and will deliver to you greater uptick in earnings as a result. We are selective in acquisitions and sales. We've used this slide title for probably seven years at this point because it's true. In the first quarter, we were net sellers, as you can see, 9.1 billion yen. We sold to Ichigo Office. We sold to the Ichigo Residence. Our fourth Ichigo Residence token was a securitized token I'll talk about later. And, you know, we sell externally too. It is a case that we – and I hope it's okay for me to say this – we're actually very good asset managers. We want to grow our asset management business. We like to serve the world. Investing to defend people's life savings is something really, really meaningful. This is a business we think is a good business, and so we're putting assets into these businesses. To be very clear, we could sell these assets at a higher price elsewhere. We could. It means we would lose the forward asset management fees, and so when we take a total look at this and the valuation attached to an asset management business, we think it does make sense to sell the assets at a slight discount into our asset management business, but it is only a slight discount. We're not going to do it for more than, I don't know, 2% or 3%. But on that basis, we're doing so. So to be clear, we do have opportunities to sell into asset management, but those are opportunities that exist elsewhere, too. I mean, there's this overwhelming demand for the value of assets, very generally. As I said earlier, our stock earnings are growing. They're substantially, as you've heard before, is substantially up higher. Then pre-COVID, our hotel operator won five hotels. Our revenue is up 75% year-on-year. This business is going very, very well. There's more upside to come. Each of the owners is growing very well. It's a little bit harder to see. Their economies of scale in this business, and so probably the most important part of the description on this page is the one that's a little bit harder to see, which is the growth in OP, which is literally up 50x over the initial from 70 years ago. So this is a really good business. We buy assets. We work with developers. We work primarily with mid-sized developers. So in terms of understanding the value that we create, we are very, very experienced. And this is a business where we buy Tokyo Prime residential assets, brand new. We specify with the developers what we want. So we have a much richer data set, which is moving from kind of like mid-data to this big data. We've been doing this for so long. as to what different markets need, what customers, what are they looking for, what sort of sizes, what sort of features, and what set of locations. We work with a developer to build to our spec, and then we lease up very, very rapidly. So our holding period is generally – and we'll get leased up to 85% to 9%, and we'll sell the asset on. Holding period tends to run for like seven to eight months. Group Holdings Co Robust assets that have ongoing demand, which are good for the new owners of those assets, which in many cases is proving to be these Ichigo Residence tokens. So our customers, our investor clients, so this is a business that is growing and will continue to grow. The fourth Ichigo Residence token sold out immediately. To be clear, all four have sold out immediately. This is what we were saying earlier. We cannot produce enough of this product. And to be clear, we will not compromise on delivering really, really good value for our investors. And so that means we need to continue to build out our capabilities in terms of value add activity. And that is, as I said earlier, we're working with developers. We need to be able to – we're involved in design stage. We're involved in engineering checks and all the assets. We're involved in leasing up the assets. So across the firm, we need to continue to add these capabilities, and we are. And as we have those capabilities, this business will grow. So, but anyway, this is same sort of asset we would put into a REIT. The particular wrapper on this or product profile is it's on the blockchain. It's bought through a securities firm. It's completely securitized. You get this return. It feels like a REIT investment, except for whatever reason, There is a broad customer set that prefers to buy it this way as opposed to a REIT. Our REIT investors, our REIT shareholders tend to be skew older 50s, 60s, and 70s because that's where assets are in Japan and across the world. Our residence tokens investors tend to be younger, 20s and 30s, so it's a completely different customer set. They have a voracious demand for high-quality assets in Japan now that has inflation. and we offer not only an ongoing dividend yield, which, all right, so the 10-year JDB has gone up to 1%. This gives you 300 basis points above it, plus an opportunity for capital gain. So, again, this is an asset category we expect to go. To give you some sense of that, we were at 5 billion yen two years ago. We nearly forexed it last year. This year we expect to increase it. yet again, 50%. Next year, by another 50%, we're really at this point constrained primarily by our ability to generate these assets. So this will grow and grow very rapidly. We continue to work for all of our investors, including, of course, our public REITs, which are really important to us. So we also did value-added activity on six assets, which we delivered to the to our investors, and we're also moving kind of more of our activity within the REITs themselves. So the REITs share prices have performed great over time, but we're certainly not commanding the premium that we expected we would command, because arguably we are in terms of the results we've generated, Japan's best REIT manager. And so we continue to work on how we're going to grow value within REITs and just generate really high returns from the investors. And so that is an ongoing task, which we find really meaningful, and we'll continue to deliver value on. As I said earlier, we bought a private REIT asset manager. It's just adding kind of another tool or another vehicle for us to deliver high-quality REITs. value-add real estate across multiple products and channels. We do not think this is in conflict with our other channels. As I said earlier, the buyers for the security tokens are a completely different customer set. It turns out that private REITs buyers tend to be different from public REIT buyers, so it's just another opportunity for us to work for customers and deliver value. It does add to the requirement, as I said earlier. And this is good news, but we are talent constrained. I say it's good news because The talent relative to the value you can create on our platform is low cost. And so if we have the talent, we're going to drive earnings a lot. But there's a major, major, it's a multi-year initiative, but it's really accelerated at this point. We have such demand for a product. We are a major initiative to grow our talent and develop our infrastructure so we can deliver more earnings for you going forward. Clean Energy continues to grow. We'd like to grow it a lot more. And therefore, we have begun a global expansion. We agreed to invest in Geogreen, a company we think is absolutely fantastic. Extraordinarily talented, great values, great mission. It's truly an honor and privilege to work with them. This is a business very similar to our clean energy business in Japan, so it's one that we think we understand reasonably well. We expect to learn from Giga Green. We expect, I mean, it's our job to add value in any sort of way. This is a business that we know really well. Tuesday Giga Green, if at all possible. But, you know, fundamentally, this is an alliance to work on climate change, which is real and requires a response on a global scale. So, again, it's an honor and privilege to work with the wonderful folks at Giga Green. We are working also on generative AI. We'll see how far we can take this. We have some capabilities in the area. I have our first customer, and we'll see where we can run forward. We do believe this is a fundamental technology breakthrough that is very important. It will change how all of us live, how all of us work, including Ichigo, and we're taking our capability. We're not only deploying within the front, but we're deploying on behalf of customers. And as I said earlier, we're growing a sports business. We've been very involved in soccer. We're now getting involved in basketball. And so it's a non-asset business. It's great for the brand to be involved. There's a halo effect from being involved in sports. But we would like to turn it into a pretty robust earning stream. The IRA will be high because it's non-asset. So stay tuned. We'll continue to do more in this area. In terms of shareholder returns, this is what it looks like. The $1.2 billion for this year is we did $6 billion last year. Couldn't complete the buyback last year, so we completed it once we ended this year. So a total of $6 billion was done last year. We would expect to continue to do buybacks going forward because, again, we think the shares are cheap. We have been raising our dividend. I mean, there's a version of, you know, we think our shares are very cheap. We could use all of our cash flow. I mean, look, we're able to invest for growth and we're able to return to shareholders. Given that the shares are cheap, we could do 100% share by max. We do have investors that care about dividends, and we care about serving our investors. So we have a shareholder return KPI of 4%, and we have committed to that. It gives durable and certain growing dividend, giving our earnings growth. and we'll continue that and we'll have buybacks in tandem with that. We do have a J-League shareholder program. I think you all know this, but most Japanese companies that sponsor the J-League take the tickets that they receive and give them to like management or employees. We work for shareholders, we give them to our shareholders, which makes us unique in Japan. We continue to be very, very active. We are climate positive and seeking to address the devastating impact of climate change. You can see this is both not only growing our activity in terms of CO2 reduction from production growth, meaning kind of switching out of fossil fuels and providing clean renewable energy, but also in terms of decreasing, making our own renewable energy transition in terms of what we do on the consumption side. We expect to get 100% to renewable energy on the consumption side this year for and we have recently been certified for SBT. So just to go back where I started, and I will go back quickly where I started, very strong quarter, but it's really not about the quarter. We all understand that. Very strong platform, very strong business model is our requirement to deliver a very strong execution, which I think we're doing. And so we look forward to deliver Thank you so much everybody for joining this call. We're really grateful to you. Have a nice morning, afternoon, and evening. Take care.