Ichigo Group Holdings Co

Hi, everybody. I'm Scott Callan, chairman of Ichigo. Thank you so much for joining today's presentation. I'm joined on my right by Dan Morisaku, who is a senior member of the finance team and the global head of IR. We're going off of the FY26-2 Q1 corporate presentation. Thank you so much, everyone, for joining us today.

It's just a single quarter.

And if we're all lucky, I will speak shorter rather than longer today because it's just three months. The quarter itself was light, all in OP and cash EPS. Those are the two major KPIs you should be monitoring us for. We're down 20% and down 12% respectively. Nonetheless, things are very good. We're on track for record full year earnings. You can see the progress better in our stock earnings that are up plus 12% year-on-year. We expect record stock earnings this year. That's 26% progress versus the full-year forecast. Full earnings were down 45% year-on-year. Nonetheless, we expect to have record earnings in the flow area also on accelerated asset sales from Q2 onwards. Hotels continue to be very strong. All in OP is up 40%, 47% year on year, despite having two hotels closed for rebounding as the not as you know, that is our boutique lifestyle hotel that that will drive a significant increase in earnings at that hostels also so a lot of things in progress going to be very positive. In clean energy we're preparing battery storage entry, we expect to do that within the next year. And we've got a share buyback of 5 billion yen in progress, right now we completed about 60% of it, if we do the maximum amount of shares will be 4% of shares outstanding. Again, headline is OP all in OP down 20% cash ups down 12. As you know, we do have cash earnings, rather than accounting earnings or cash earnings or 1.6 times accounting earnings. You see on the right hand side, we expect fully OP all in OP to be up 14% and for your cash ups to be up 10%. That's not the forecast. Of course, our goal is always to beat the forecast. We have done some work that hopefully is useful for all of you to try to get give better clarity on our various businesses there. We have a variety of them. In fact, we have five operating segments. They have a joint Underlying a deliverable, which is a significant value add and sustainability. We think the two are interlinked. You do things as a business is sustainable. You do things for society. It's sustainable. That is, that is a durable source of value and activity also. And so across the five different segments, very different outcomes in the first quarter. So asset management hotel are both up about 50% year on year, say no real estate SRE is down 29% each owners almost deliver nothing is down 99%. That's going to change very, very dramatically. So a portfolio of businesses that offer diversification and earning streams but time to a core capability of each of those ability to deliver value add on a sustainable basis over the long term and growing value for our shareholders, of course, and all stakeholders. So from this quarter, we're trying to give you a very specific view on what's happening in all of our segments on an all in OP basis is what I'm not going to go through in a lot of detail, but this is this is meant to give you more more transparency. Not only when we have four segments, we also have diversity with those segments in terms of activity and so am we got stock earnings up 11% phone rings up 151% because we had each office performance fees and also some private fund fees. Stainable Real Estate SRE that's down 29% stock earnings up 11 floor earnings are down 45% we expect to have a significant uplift from that on q2 onwards. hotels, there were no flow earnings and hotels last last year in the same quarter, there are none in this quarter. But hotels are very, very, very strong. It's a combination of kind of inbound activity that's very strong and are continuing work to improve hotel services for our customers.

And it's working very, very well.

Owners again that's a business I've said before it's it arguably is one of our if it's not our best business and maybe one of our best businesses it's a very high turnover we buy. brand new residential assets and prime locations. We hold them for less than a year. We have significant leasing capability. We lease them up and we on sell them. And so that is primarily a flow business. Any kind of stock earnings is on rental income on assets we own that we get at zero occupancy and generally get up to 90% occupancy within kind of eight months. That's how good the assets are. That's how quickly you can lease them. and then on sell. So it's overwhelmingly a flow business. We really did very little in the business in this quarter. We're going to do a lot during the year. We have visibility on that. So it was down 99% on an OP basis. Clean Energy, relatively straightforward. In fact, one of the things that's missing here is it's really not an OP business. The cash earnings on this are very, very large. You can see the depreciation on this business is very substantial that of course it creates a, these are genuinely, this is genuine cash to the firm and our shareholders that we deploy either on growth investments or as I say, we're doing as a reason of growth investments to drive EPS, we're doing a buyback right now. So again, and I'm going to go fast from here. This is materially provided ongoing basis. We think it's really important to have transparency to have ongoing disclosure to on the same topics you can monitor as well. So, so I'm going to go a little bit faster from here. It's very important to us that we have ongoing structural profitability, meaning that our stock earnings overwhelmingly cover our fixed expenses. We don't need to do anything on the flow side and we'll be profitable. Now, the good news is we have a very durable and diverse set of flow earnings streams that are also very valuable, but our stock earnings are a little bit higher than fixed expenses in the first quarter, the 206%. Stock earnings ratio is 75%. Again, it was light for flow in the quarter. We would expect that to be more like 50% over the full year. And again, focus on cash earnings with a hybrid model as kind of a durable foundation, stock earnings plus, again, significant durability in our flow earnings. This is how their earnings springs break up across stock earnings and the diversified across multiple segments again owners owners is primarily a full income business, so it shows up a very small but you've got significant. variable of cash to us over hotel sustainable real estate has a management and clean energy. We have very durable long-term borrowings and a strong financial base. As you can see, we run with over 90% long-term borrowings and have consistently done that for effectively forever. What that generates for us is an average borrowing period of about nine years. The current remaining loan maturity is about six years. You can see a way to have interest rate has gone up. You know, interest rates have gone up in Japan. And so we are experiencing that also. 36 basis point increase. From this quarter, we've given you, because we have hedges and we came to decide we should probably show you the actual experienced average interest rate that we have. uh we've switched and we've modified the data over time to show you what our actual effective interest rate is right now so that's post hedge um and you should know right now 57 of our borrowings have a fisting fixing interest rate and 43 are floating um I think probably would we have a preference to increase uh the fixed borrowings uh to to more than that um but at the moment it's at 57 We are selective acquisitions and sales. You can see we had net acquisitions of about 13 billion yen, so what, $90 million or such. This is primarily in the owner's business. Again, that's a really high turnover business. We continue to need to feed that engine. I probably should have mentioned, it continues to be a seller's market. There is extraordinary demand. for real estate. Prices are going up. Prices are going up because replacement cost is going up, which is a way of saying that construction costs are going up. The assets we have in our balance sheet continue to increase the amount of unrealized gains on them. Each goes at owners, which tends to be kind of a less than 24 month construction period where we agree with the developer, they're going to build to spec for us at a fixed price. We don't take any development or construction risk on it after deliver to our specs at the quality and the time that we that we agreed to in the contract. Then we take control of the asset and we will again lease it up and sell it in under a year. But, you know, this is pricing that reflects kind of pricing from 24 months ago. So we have pretty short duration cycle risk, but we do take cycle risk and we're aware of that. And so what it means is any owner's asset that we're getting today on two year ago pricing has significant embedded gains in it. At this point, real estate pricing is going up, kind of call it order of magnitude. Well, construction costs are going up probably at 10% per annum. So something like that would be on the construction side, depends on what land value is, but all land prices are going up probably high single digits to low double digits on annual basis at this point. Here's what this looks like in terms of the total over time. As you can see, we're pretty balanced in buying and selling across our businesses over the long term. In the first quarter, we did a whole bunch of acquisitions, including executed contracts. We expect to do significant selling over the year. We do not expect to grow our balance sheet. In fact, we think we will shrink our balance sheet this year. in a very profitable way. But we have a nice pipeline of good assets at good prices that we're going to create value for our shareholders over the next couple of years. One of the things that we've done in terms of trying to innovate to accommodate tenants, and this is something a little bit perhaps harder to understand outside of Japan, because we're addressing a fairly distinctive Japanese phenomenon, but we're building out more ready to move in offices. And that means we've got, we're providing tenants with already fully fitted out offices. um and that you know the tenant value to that is it's incredibly expensive in Japan so you come into offices in Japan um they are skeletons the owners do not take any of the expense of fitting out the office which can be very high it's particularly high if you don't have economies of scale or you're you know whatever you are you're you're an AI startup and you're negotiating with contractors and it's not kind of what you do And so we bring our pricing power, our scale, our professionalism to, and by the way, you move into office, you have to fit it out, and then when you exit, you have to take it back to its skeleton state. So it's very, very expensive. to go into a new office. As a result, if you can use your economies of scale, and it's not just economies of scale, we're saving our tenants time for the move-in, we're saving our tenants costs for the move-in, we're saving them kind of their brain power, You're an AI startup. You don't necessarily want to spend kind of hundreds of hours figuring out how you're going to fit out an office. So we do all these things. It's very valuable for the tenants and across the 25 offices ready to move in offices that we deployed at 10 assets at this point, the average increase has been 60%. So the economics are very, very powerful. because economics are very powerful for our tenants. What's interesting is we're not alone in doing this, but it appears to be the case we're very good at doing this. We have actually 100% office occupancy and are ready to move offices. We've done some work on benchmarking. A number of our peers have tried this and their occupancy is only about 50%. So we are close to tenants. It's something we've always been very, very good at. And probably there's another comment that's worth knowing. Most owners like ourselves do not try to talk to tenants. They don't want to talk to tenants because in Japan, you know, tenants are important and they're customers. And if your customer says they want something, then it's kind of awkward to say, no, you can't do that. Or yeah, you want to air con, Air conditioning upgrade. We need to charge you a higher rent for that. And so what happens is that Japanese office owners, real estate firms avoid talking their tenants. We do not. we're very distinctive. We actively spend time with our tenants. We wanna know what their needs are, what we can fix. It does mean we're ready to have conversations like, and we want to have this fixed or that fixed or that improved. We take complaints, we deal with complaints and it's possibly that on that basis, we have a much richer set of information about what tenant needs are because we actually are talking to the tenants on a daily basis. But anyway, we're very good at this as super powerful economics. and it's a business that we're expanding. The next page is an example of a brand new asset. We've done this. You've got a before, after was on the previous page. Also, this is near Tokyo University. We're accommodating a whole bunch of startups coming out of the university itself. And in this case, the increase in rent was not 60%, but 80%. a trade appeal diva, an asset which was great until it was utterly terrible during COVID that has become great again. It's the biggest asset office asset we own. It was, you know, it's on the water Tokyo Bay waterfront was where the Olympics were supposed to be until COVID occurred and then the Olympics were then postponed for a year and no one could really attend. and so we got this massive exit from the space. We had been leasing primarily to large IT firms and so occupancy literally halved. And we've battled our way back. And the way we've battled back is by building a super tenant community oriented building. The theme we've used is Tokyo Bay Village. We've set up a cafe. We have events, Meet the Neighbors events. You can see everybody kind of eating together on our dime, as they say. This is all the tenants gathering together. We've set up a farm on site. Tenants can farm there. They can bring their families. We put in a gallery. It is a very community oriented. Look, modern office buildings can be lonely and cold. And so we've done something that is really very powerful. and this is not only at Trade to PO Hadaiba. We have other assets which we've turned into village assets. It's a very powerful approach to solving for tenants' desire for community and support. And in many cases, you know, businesses. At this point, I told you this, the building was primarily a large IT tenant building. It's increasingly a startup building. The startups are interacting with each other, creating an ecosystem that's supportive. So it is, you know, this is, things go wrong. Things go wrong in the world. You need to be prepared for it. You need to take action with respect to it. So it's been a major and highly successful repositioning of this asset and is developing and is providing a very, very powerful economics for our shareholders. Again, hotels are doing super well, you can see the red powers up 27% year on year, we took to relatively low, as I said earlier, red par hotels out of circulation one and one and it's an omnia north of Tokyo and one intending. in Fukuoka, Southwest of, I mean, so on the MF Kyushu. And so kind of on the same store sale basis, RevPars are up more like a little bit over 20% year on year and plus 27%. But again, a very strong income and growth story for our hotels. owners continues to be a super robust business. We you know, again, fairly consistently in terms of the buy sell activity across across the board, we expect to do about 52 billion yen of both match kind of buys and sells roughly, obviously, we end up in during the year. super nice business. In order to sell assets, we need to buy them. So So you need to kind of have the engine kicking in on this and it's going quite well. Some volatility, more volatility in other businesses because it's primarily a flow business. We had a drop off last year. Some of our assets got pushed into this year. We were expecting to do more residential security token sales. We didn't as the market froze a little bit during last fall. Things are coming roaring back. So it will be a good year for edu-owners. Speaking to that point, we expected to do more in the security token space. Again, these are on the blockchain, so the digital real estate assets, but this is not crypto. They're backed by... Okay, wait a minute. Stablecoins are backed by things, hopefully. But anyway, these are highly secured real estate assets tokenized and put on the blockchain. It's a growth business. There was some... Some concern post-US elections last fall and some slowdown in this activity and it's coming rolling back. you know, inflation is real. The shift out of Japanese deposits by Japanese households and corporations, so bank deposits and cash equivalents is real. Very, very big demand for our assets. Again, we did not, as you saw, we chose not to sell a couple months ago when the market weakened because we thought there would be an opportunity like this. And again, because rising construction costs mean that we have kind of the wind in our back in terms of value creation through the whole period. So anyway, we expect to do significant activity in this space this year. and again, AM is growing on various growth drivers. I mean, the three major areas for us in terms of AM growth would be our public REITs, would be private funds, and would be the security tokens. We think the public REITs continue to be undervalued for where they could be, so we don't necessarily see kind of much AM growth there, although we'll see. We'll see where the market kind of takes them. However, there is, we think, a significant private fund activity, possibly even bridge funds from the Lubbock REITs. And again, we expect to see activity and growth in the securitized token area this year. We're going to do more in clean energy. The brand new activity is in battery storage. This is incredibly exciting. There's an opportunity to deploy significant amounts of capital at very, very high NOIs. At this point, double digit NOIs. um and very fast payback periods we'll start with our very first one next year the next page let's go to the next page we talk about what the opportunity is look you're building out more volatile power generation sources as you know right now there's arguably too much solar in Japan the grid cannot accommodate it you're constantly told Can you shut your I mean, I say constantly it happens kind of on average a couple of days a year for your solar power plants. Can you shut your plant for the moment because we can't take the energy battery storage is going to solve that. And we are and battery storage prices have come in so quickly. that there are now powerful economics deploying them in Japan. And so we think what we're seeing at this point is we're going from solar access to probably a solar shortage very, very quickly. So that also provides an opportunity for us to do more activity in both solar and wind going forward. On the shareholder returns side, as I said earlier, we're doing a buyback right now. We believe that this is compelling value to buy our shares at the current share price and would expect to have continued activity going forward. Next page shows the dividend. Look, we can do buybacks. The business is super cash generative. We can do buybacks. We can pay a nice growing dividend. We can invest for the future. We can do all those things. And so we expected to grow our dividend very substantial over time. As you can see, during the COVID period, we stayed for a while in Japan. We stayed unchanged for a while. We're back to growing our dividend on a double-digit basis annually. We have a J-League shareholder program. If you have a shareholder, you can go to J-League games, which is fun. On the environmental side, this is something we care a lot about. It's worth pointing out that we were named on CDP to be a double A-list company. Of the 25,000 companies in the world to participate in CDP, only 70 made the cut. So it was literally in the top 0.3% of all companies based on CDP rankings for our environmental activity. We're at this point 100% renewable energy. and the next two slides we show how we are climate positive in a very, very powerful way. Those are my prepared remarks. Thank you everybody for joining. I'm happy to take any questions or comments from anybody. Yes, thanks so much for joining.

Yeah, thank you for the presentation. Just had a quick question on Ichigo owners. Obviously, you bought a lot of assets in Q1 and you have more in the pipeline by the look of it, looking at kind of contracted properties. on the sale side, was the lack of sale just a technical reason or simply just a function of timing for your current inventory? Customer timing.

We adjust for the customer. When we started the business, it was a small lot. We thought we were going to primarily be serving cash rich corporations and high net worth and we're going to be doing You know, selling a billion at a time or kind of 500 million at a time. So kind of, you know, but three to three to $7 million sorts of transactions. And then what it turned out was that we had, you know, first we had the rise of institutional buyers who like we really, really would like to have $100 million super nice Ichigo kind of quality um Prime residential portfolio in Tokyo by the result only these are Tokyo assets um and then after that and so we came to started doing transactions that are more like 100 million dollars 150 million dollars and then um we've had the emergence of the uh securitized tokens which are also tend to be kind of 100 million dollars sorts of transit plus 10 transactions and so Now it's become more of a business about, you know, a very large institutional buyer or in the case of the tokens, a very large securities firm saying we want to do kind of a big transaction with you in July. And so it's like, OK, and, you know, July, July is not in Q1, so it ends up in Q2. But that's that's that's what's going on.

OK, that's what I was thinking about. OK, great. Thank you. Thanks.

Greg, you're back. Yes, Greg. Thank you so much. You're always welcome. Yeah, just to follow up on tradition.

So I guess we're back to 92%. Is it as good as we is it as good as it gets? Or do we think there is a bit more upside there?

Now it's going higher. At this point, you know, you know, Japanese organizations tend to be relatively conservative and telling that telling telling telling I'm the chairman and telling me what what they expect to deliver, but the guys and the the trade team think this goes to 95% this year. So that suggests that's probably a bottom. Yeah, this is going higher. It's a really attractive asset. It offers, as I say, this community orientation. It's become its own little kind of ecosystem and destination for startups. And the Tokyo Bay Area, as you know, I mean, the views are absolutely fantastic. So this is going up. We're not done at 92.

And are we kind of thinking for the new tenant that we're signing up, is it like no free rent and things like that at the moment? Is it getting tighter?

Yeah, I mean, it still continues to be the case. You give a little bit of free rent, but of course, we try to shrink that as much as possible when you get it back on the ongoing kind of high kind of ongoing rents. But again, this is an asset that we think is something that is getting that is because it is demonstrating it's incredibly strong competitiveness is something that we think we move we move off the balance sheet. which either gonna be a straight sale. We have had some conversations about potential buyers taking it and having us continue to manage the asset because of the success we've had with this tenant building and community building. I know I'm going to a different point from when just asked Greg, but this is something that it's important for our shareholders to know that we think we're gonna end up moving off the balance sheet probably in the next 24 months.

So you guys give out free lunches, but you don't give out free rent. Okay.

Yeah, well, to be clear, we are still getting a little bit of free rent, but look, it's, you know, you don't have to do as much. I mean, this is all about creating great value for the tenants. So if there's in the market, it's like, you know, we get six months of free rent over there. It's like, okay, well, your assets is better. Okay, well, how about three months? But it's kind of hard to do zero, but in return, you can raise the rents. So to be clear, we're raising rents at TradePay because we can. We're running out of space. We have significant tenant demand. And at the end of the day, this is not a power play. This is about creating extraordinary levels of value for tenants. And because we're doing so, we can command higher rents, overwhelmingly higher rents, higher occupancy and higher rents than any other building nearby.

Understood. Thank you. Thanks.

All right. I'll go back to where I started. Like Q1, nothing to write home about. As I say, in American English, there's a lot coming over the course of the year. We expect to have record earnings across the firm, across both the stock and flow parts of the businesses. It's our job to deliver that for all of you, and we will do so. Thank you very much everybody for joining us across the world. We're really grateful for it. Thanks.