Ichigo Group Holdings Co

I'm Chuck Allen, Chairman of Ichigo. Thank you very much for joining today. I'm joined on my right, Ted Perdita, who is our lead independent director, and on my left by Dan Morisaku, who is a senior member of our finance team and head of our global IR. We're going to be going through the FY26-2, the February 2026 first half corporate presentation. That's in front of you. Thank you so much, everybody, for joining. We're really grateful for your time. let's start on page six one of the things you should know we changed and a name of one of our earnings classifications we were calling an all-in operating profit we've changed it to business profit there's no change in the definition of itself the reason we changed it is because we started doing this disclosure and I'll go into some more details a couple years ago and since then a number of big Japanese real estate firms have started using an equivalent disclosure, and they're calling it business profit. It just felt like it was easier for investors to use a similar naming scheme for it. There's also a little bit of by calling it all in, people thought it was possibly all in. Everything but the kitchen sink, it isn't. So we made a name change. So going forward, it's going to be business profit BP as opposed to all in OP. I hope that's okay. All right. So on to the summary for the first half. Business profit. We think these are the two major KPIs we should be focusing on business profit, which is a broad Definition that encompasses our core operating earnings and cash EPS are the two major measures earnings measures from the firm So one of them is up sixty percent year-on-year. There was up fifty percent. So it was a very strong quarter. It's it's it's the business environment is superb and and we run forward. Our stock earnings up 14% year-on-year, low earnings up 91%. As you know, we have a business where we have, you know, very strong seasonal, sustainable recurrent profitability coming off of just kind of stock, meaning kind of recurrent, congressional earnings, and then on top of that, we have low earnings. We are forecasting record earnings for the year that will bring in EPS at 38, so EPS growth higher than income growth because of the effect of the share buyback. But it's an ROE of 14% in cash ROE of about 18. In the first half, we completed a 5 billion yen share buyback. We acquired on the acquisition side. The main thing that we did is we acquired through hotels with value on the upside. The hotel market is very strong. It's also inefficient, and there are opportunities for us to deploy our capabilities there that we think are very powerful and will drive forward earnings for us. So just to show you how OP plus extraordinary gains feeds into business profit, one of the things that we do, we exist to serve shareholders in the world. We use the tax shield. declaring assets to be fixed assets so if you carry your assets as current assets you you don't get depreciation if you put in the fixed asset category you do and so you get a tax shelter result it means you generate more cash flow and we serve shareholders in the world by having stronger cash flow we can deploy that cash against forward investments and or buybacks, and so that's really, really positive. That's why we have cash earnings that are 1.3x accounting earnings. But the impact of that is when you put assets, and this is an accounting definition, it has real-world impact because it gives us a tax shield and generates higher cash flow for us. It means that when you record the gains, and there are gains, on the value-add, it shows up as extraordinary gains as opposed to part of operating profit. So because we are literally taking similar assets and the ones that we can get away with putting into fixed asset categories and we get the tax shield, we put into a fixed asset category, but they are equivalent assets to what we have in current assets. You want to be able to have a broader look at what our total profitability is from our barrier activity, and that's what business profit does for you. So business profit is up. 6% year-on-year and it's been very robust. To look at the breakdown of this and in fact we're having a little bit of a logistics issue because the camera is right in front of me and is blocking my view of the screen. I'm going to have to look down on occasion but that's fine. We're going to go for it anyway. The year-on-year Activity is up 60%. If you look off to the right, you can see that on the full year, at the forecast, we're expecting asset management down 31%, sustainable real estate to be up 67%, hotel down 33%. So we have an adjustment, and now I can see the screen. That's good. Thank you very much. Each owner is up 68%, clean energy down 13%. And the total is we've got year on year we're forecasting up 14%. And so we, of course, always expect to be our forecast, and you should expect us to also. But what I'm pointing to here is we have a portfolio of businesses. They all deploy our capabilities and value add in real estate. Clean energy is an example of that, of us taking undeveloped and kind of unused land in many cases, former factories, schools, dumps, and turning that in solar and wind energy. But There's going to be some volatility among the segments, but there's a portfolio effect and diversification effect that's very, very powerful. What we do at the beginning of every year is we don't forecast, in the case of the REITs, any performance fees. And yet there is significant activity within the REITs. They do generate value-add gains. and we do result in performance fees. So just as an explanation, we end up with, and go to page 10, the previous page, we end up with generally a year-on-year forecast that's down. As a management forecast down for the year, we'll find out together when or not there is activity in the REITs that results in performance fees, but you should not be surprised if we end up beating that by a lot because we will if we have performance activity related activity on the REITs so I will go quickly through we just jumped past 11 asset management I will go quickly through all these slides but only very quickly and just kind of highlight things so I think I've said my bit on asset management and turning to SRE so sustainable real estate What's worth pointing out here, and just to kind of go to some kind of more unusual activity, because as you know, we want to have ongoing disclosure that's consistent, and so you see a lot of the same information, and it's updated in the current period, and so I'm not going to go into a lot of details about why we're presenting the information, and hopefully it's self-explanatory. But we had in flow earnings, we had a significant contribution from a gain on sale on a data center investment that we were involved in, We have you know, data centers are really interesting. We're constantly looking for opportunities for us to create value and new asset classes and we have been involved in data centers and and and took a two billion yen game on that we also exited as part of a cleanup we did some things that were kind of small scale and didn't work out for example in corn laundries and we have things that we experiment as a firm similar to Amazon we're happy to have things go wrong only to go wrong at small scale but there are opportunities to learn as you know we entered the storage business that went phenomenally well we exited a massive gain there was some idea that maybe coin lottery would be interesting no it hasn't proved to be interesting so we entered and we exited and we took some gains of sale on the exit in this quarter Hotel what's worth pointing out is that we have two branded hotel chains one of them is The Knot which is kind of a higher end Lifestyle or Boutique Hotel. Another one is the 1-5. These are both Ichigo proprietary brands. The 1-5 is kind of a lower cost point, but very good food. Japan people really care about good food. I think people visiting Japan do also. And so it's kind of a point that's interesting to our guests. They come and they stay in Japan and they stay at the hotel and they have really good food. Anyway, so three of those hotels. One in Tokyo, one in Hiroshima, and one in Osaka and Namba have been key to driving the hotel earnings. B2 owners, you'll have kind of volatility from quarter to quarter based on whether or not we have a transaction in terms of selling the portfolio. We did, and therefore you had four earnings up, doubled. Year-on-year, we expect to have security token activity and portfolio sales in the second half of the year is looking quite strong. Clean energy is pretty much kind of flat year-on-year. I said this before, we want to grow this business more. I'll talk a little bit about it later, but at the moment, it's just a solid contributor with a significant contribution from cash contribution, earnings contribution from Lawrence Appreciation attached to it. in addition to the earnings that we generate on an accounting basis. So again, we were forecasting a record business profit, I mean record everything, operating profit, stock earnings, slow earnings, net income across the board, but this shows kind of how this all ties together by segment on business profit. It is an important element of our business that we're structurally profitable. Our stock earnings, again, these are relatively fixed earnings. Contracts are ongoing. They're not capital gains to make that. That are going to show up in floor earnings are generally about twice our fixed expenses. And so even when we do nothing on the flow side, and we always do things on the flow side, we are profitable. And stock and fall earnings both are expected to be record this year. Again, there are going to be some pages where I barely say anything. This is going to be one of them. This shows how stock earnings break up across the segments, again, quite diversely. We have a strong financial base. We're careful about how we borrow and diversification of our borrowing and, most importantly, by the tenor long-term borrowing. So, 85% of our borrowing right now is long-term. We've actually used a certain amount of bridge activity that we're going to lengthen out this year, so we'll probably be banging up more above 90%. But the point of the matter is that we borrow very long-term. It's important to have that solid structural and durable underpinning for the liability side of our balance sheet. So dividing across our businesses, we borrow primarily for the sustainable real estate business and hotels. Generally, these are 10-year borrowings. Basic Owners has got a one-year turnover. And to show how conservative we are with about kind of the length of our borrowing, even though it has one-year turnover, we generally borrow for seven years. So as we've been growing our owners business since that's a seven year borrow versus a 10 that means the average length of our borrowing has gone down a little bit but this is very very durable coverage over kind of in terms of asset liability management. So the one thing that's worth pointing out on the page of course is that interest rates have gone up. So 36 basis point increase in interest rates over the last kind of 18 months. It is more than covered by the extraordinary increase in replacement costs, meaning construction costs, giving us much more value in terms of our existing assets. People classically describe Japan as an open supply market, and they're right. There are very few restrictions on building, but the problem is not that there are very few restrictions on building in terms of owning existing assets. The problem has always been there's been no inflation, and so Some of them can put up a new building next door to yours, built at the same price as yours 20 years ago. That is not the case anymore. There's been an absolute surge in inflation. Construction inflation is running probably 3x or so. Of more general inflation, the data that you see coming out on the construction industry implies it's only running about double. I can tell you that's not accurate. What's going on is people are In order to get anything done, you need to pay more to accelerate the build itself. So you're seeing inflation running, construction inflation running up something like 10% per annum, and that's pushing up replacement costs. And what it means is when you put up a new building, you're putting up at a massive premium to what an existing building is, similar to what's the case historically been in, for example, the U.S. and Europe, and it means that we're able to raise rents. So that's one thing that's powerful for us in terms of our balance sheet is suddenly we have the ability to raise rents across our balance sheet. But more fundamentally, as each ago, we have always been long construction costs. We are not guys who build from scratch. We're guys who take existing assets and improve them. So it's been a punch in the face for those with more classic development models. It is an enormous wind in our back for us to take our capabilities in a high construction cost environment and deploy them against a bunch of assets which are not being torn down anymore and not competing with new assets because you can't build new assets at levels that are competitive with what we can do with our value add activity. So it is Without question, the single best operating environment we've ever had. In the context of, and so I'll just leave the plus and the minus is, we're all aware of the extraordinary uncertainty in the global operating environment right now. So we have, you know, we have to manage it both. One, a fantastic operating environment where we can deliver capabilities that we've built over years that are matched to that environment. And two, we should all be very careful about what the future looks like. In terms of acquisition and sale activity, as you can see, net sales, it's a small amount of net sales in the first half. We expect to be net sellers over the full year and probably going forward. We built the balance sheet a bit over the last couple of years. We saw the visibility and got there sooner on kind of how construction inflation was going to drive up Group Holdings Co Group Holdings Co Group Holdings Co how construction inflation would play through in terms of asset valuations earlier than most and accumulates mass it's very good prices it is a seller's market it you know because what I've just told you is emphatically true that at the end of the day we think that real estate needs to be underpinned by fundamentals to be worth owning the fundamentals of the assets that we own are rising rising costs have meant the ability to push through rent increases And it's a very powerful position to be in. So we've been minor net sellers in the first half. We expect to be net sellers over the full year and possibly going forward. This kind of breaks out how we've done things across the three major acquirers and sellers in terms of segments, which is your owners, overwhelmingly, since that's a high turnover model. Generally say less than a one-year hold a hotel a hotel segment and there are sustainable real estate segment You can see we have executed contracts on the far right hand side We have you know, we don't have them seem to be offset by executed contracts on the sell side. This is true Because we are going through processes that are generally auction for auction processes. Well, there are auction auction processes But we understand were well along the way with sales of our assets and we'll complete them during this year. Trade APL Diva was a problem asset and was a great asset. It was 98% occupied at peak, then Corona punched it in the face, COVID and the Coronavirus punched it in the face and we spent multiple years kind of repositioning the asset. primarily by focusing on delivering a community experience in the asset. I said this before, one of the insights that was powerful about WeWork is that better quality assets in a better environment is valuable. Some degree of trying to build community can be valuable. Our kind of perspective on this is yes, and not everybody wants to be in a shared office. So delivering kind of higher quality in the asset itself, delivering a stronger community experience in the asset, can be also associated with people having private offices, companies having their own offices, and that's what we've delivered at Trade to Be a Odaiba. And so we have had a multi-year process of building out a community and building out the aesthetics and the functionality assets and we're back at the 95% and we think we'll be at 97% again very, very soon. So this has gone very well. The result of that is we think it's ready to be sold and we'll begin a process over the next year of putting this up for sale and we think we will generate significant gains on sale as part of that process. Hotels are doing well. The significant inbound, the Japanese economy is doing fine. One has to be careful with hotels. So on the downside, because it reprised daily, unlike kind of you have longer leases with kind of every other asset category. And on the other hand, there's significant growth here. We're very good at this, both as an owner and operator. We have delivered, despite the crushing experience of COVID, which turned everything off, through the cycle, we have delivered extraordinary returns to our hotel business. We've built out new brands. We've built out new capabilities. And we expect this to continue to be a very productive asset for our shareholders. E.T. Learners is in its, I think it's ninth year at this point. That can be a business that goes very well. We like it a lot. I mean, it's a high turnover business with one more turnover balance sheet. We're delivering kind of, you know, a much lower margin in terms of gross margin, 10% on the business, which means we're a much better value add, value provided for our customers, the buyers of those assets. As Jeff Bezos famously said, your margin is my opportunity over at Amazon. So this is a market that has been classically occupied with people taking 20%, 30% gross margins. We can run this business very, very well at 10% and generate kind of 30%, 40%, 50% ROEs off the business. And that's what we're doing. So we are the single best, we believe, value provider in the space. This is a business focused on Tokyo, all over Tokyo. Prime Location, Brand New Residential Assets. We get them designed to our specs. This is a fabulous model. We're not building this. We're having developers build them to what we need. We use our leasing capability. We use our design capability to understand what the market needs are and the functionality and the assets. And then we use our leasing capability to lease them up, and we lease them up very quickly, and we on-sell them. And it's an extraordinarily powerful business. that's what LLP looks like over time it's bouncing around because things move between periods but it is on a growth trend and will continue to grow one of the things that we're doing with some of the owners assets we're putting them into security tokens we and so these are kind of real estate backed securities so not not crypto but backed by hard assets That's a business that is going very well. It tends to have a little bit more of a capital market cycle associated with it. So when things get nice in the markets, people back away from it. Nonetheless, it's frankly, we're taking kind of our asset management capability similar to our recent putting them on the blockchain. We did the very first Ichigo token. We actually completed the sale activity on that. We actually told the investors that they should expect a 4% annualized return on it. We sold it on that basis. We actually delivered about a 9% return. As always, we want to under-promise and over-deliver. So it is an example of us supporting our asset management capabilities and surprising people on the upside. So this is a good business. It's a good product. We're taking really good assets and serving the needs of investors, and we will continue to grow this. And so AMAs will grow on these reverse drivers. One of the things that's powerful about kind of what we've done is we've built out not only our variad capabilities over the last five years, we've developed a diverse kind of set of outlets, including, for example, security tokens in the last couple of years that give us multiple options for where we should place our assets that allows us to kind of optimize profitability for the firm. Clean energy. We should have grown more, and we have a need and desire to continue to do so. We think the most interesting new opportunity is battery storage, which is now kind of because of the drop in battery prices is meant. Good Parity to Swine means you have the ability to do very compelling economics in Japan and so we expect to grow that. We've got some activity right now going on in Greenroom Biomass. We'll see how much we can scale that. What's interesting about battery storage is it is very scalable and could provide some significant materiality to our clean energy business over time. We've been consistent in buying back the shares, and we did $5 billion year-over-date. To the extent that we're open to do so, we would expect to do more. So stay tuned. We can just think the shares are undervalued, and buying them back is a good use of shareholders' capital. And because we're so cash-generative, we can still do things in terms of growth activity. But I told you we grew the balance sheet. Deliberately recognizing how we thought replacement cost so we weren't predicting things We're just kind of watching how pre pay some cost is going up so much and not seeing that fully rejected and that surprises So we bought ahead of that. We don't expect to grow our balance sheet. We expect to shrink our balance sheet There's going to be more capital available for share buybacks going forward And we've been increasing our dividend and we'll continue to do so and the final slide is we have an Ichigo J-League program. We're a top sponsor of the J-League, so Japan's soccer or football, if you want to call it, using a non-standard term for Americans. And one of the things that we've done is we give our tickets away to all of our shareholders, not only of this company, but of our REIT and infrastructure fund shareholders because these tickets belong to them, not to us. On the renewable energy side, we're now 100% renewable. we have always been climate positive we now we have eight times CO2 reduction relative to emissions and that's delivered both on the production side in terms of substituting our clean energy activity our production via wind and solar power for fossil fuels and also pushing down really hard our fossil fuel in construction activity so that's what I have in terms of the presentation thank you so much for your patient listening

Hi, can you hear me?

Yep.

Thanks, Scott. Thanks for the explanation. Pretty good results. I guess in light of what you're talking about, construction costs, inflation, and it being a seller's market, let's just theoretically say that you sold TradePia and had a great return from that. A big chunk of cash comes back. Where where do you see the opportunities right now? I mean in terms of this business model you're you're you still have to spend on You know refurbishment and construction even in a value-add setting Where do you see the opportunities for for growing? You know, you're Specifically the SRE business about the value-add business so so one of the things so we

I suspect we're going to have excess capital and want to do more buybacks. But one of the things that a rise in construction costs implies are your returns to CapEx are higher. So the good news is the highest has ever been ability to deploy capital against CapEx, meaning kind of what we do to improve assets, increasing assets. And so there is ongoing and systematically will be ongoing the search for assets that we can improve but this is going to show up and this is a very positive thing our capex budget is going up because we're doing refurbishments at a scale bigger than we've done before because the opportunity set is so big so and I would describe those as the two likely kind of outcomes buybacks plus kind of more capex activity you know it is the case that the battery business for example I described could take a fair amount of capex that's slightly different from so it's not in the real estate value out of the business in the clean energy part of the business another place where we could support capital but those are the kind of my would be initial thoughts on that did I answer your question yeah I guess in terms of just the old

Which asset class do you prefer at this point in the cycle question? I mean, did you have any thoughts on that? Office, retail, data? I didn't. The data center sale was a surprise. That's not a refurbishment, is it? That's Greenfield, right?

No.

Just kind of comments on some of the, you know, where we think you are in some of these different asset class cycles.

So just to be clear, when I'm asked internally, can we do development? and I'd say only if we don't take development risk so the data center reaction was a data center conversion we were involved in the way of kind of putting the entire project together we took we took a significant gain on on it without having any equity risk so it was an extraordinary positive outcome and very much kind of the kind of thing we want to do we have begun more work in the data center space and it's possible that could become a brand new and important asset class to us. So we'll see where we can take that. Against the existing asset classes, hotels are super productive, but we don't really want to own more than 25 on the max, 30% of our total assets hotels because of their repricing. Because they're the most economic sensitive asset class. And so, you know, it's interesting actually and retail has kind of more volatility and also and so the answer is that office is actually the most productive and we're going to build out I told you we've done this kind of community activity we haven't kind of put together a full disclosure on this and we will sometime I think this year but we've been building out a set of capabilities for kind of and it's really kind of software I can put it that way I mean how we approach the assets and what we're doing with the tenants there and what we're putting into the assets on behalf of tenants but This kind of community element that we're putting into in our buildings is very powerful. The setup office, so it's something I didn't touch on today, where we, as you know, move costs and are extremely expensive, and setup costs are extremely expensive in Japan, so us kind of doing all this on behalf of the tenant, setting up ready-to-move offices is very valuable for them. It means that you can charge 20 30 40 percent more um if you have the right asset and the right kind of aesthetics and functionality that's been very productive for us so you know the answer is kind of offices um ironically and hopefully not terrifying for those of you who are sitting in the united states of america because you know offices are very challenged in the us and our situation is different it is i mean we as you know vacancy rates in tokyo office are shrinking every month um there's a shortage the construction costs haven't gone up so much so much means that you don't see a lot of incoming flow into it and so we think it's just a really interesting area along with hotels but we're going to restrict ourselves on hotels because we you know it's very productive and we're only willing to do up to a certain amount and the thing about offices you can have two releases and fire releases so they're much more durable in terms of economics to our showrooms thank you I'll Go for it. You've got the line. Go for it.

So this might not be the most – the fairest question of all, but I guess in a way it is because I get asked from the fund manager who I have to report to, it's like, why is the share price down? Why is the share price down? I say, well, I think that their fundamentals are still really strong. I think their earnings are probably going to be really good, but the share price has been really volatile. this past month. And then sure enough, your fundamentals are outstanding and you have great results. So I feel, thank you very much for delivering great results. But I guess the question is, do you know what drives some of the short-term volatility? Are there any measures maybe you can, other than having phenomenal results and buying back stock, is there anything that you can do to help prevent that or help ease that volatility a bit? and any comment on why it occurred would be helpful.

Yeah, I mean, last week the shares dropped 7% one day when there was no news, no information, and nothing particularly happened in the market. And, you know, as far as, I mean, we didn't know.

Yeah, same here.

Someone decided to sell in a hurry.

Exactly.

Were they taking a view on geopolitics? Were they taking a view on earnings? If they took a view on earnings, they were wrong. So, yeah, I mean, our job is to take the shares up, not down. And so the only silver lining in a low share price is you can buy it. Buy it and get a share of buybacks. So, yeah, we think that. the shares are significantly undervalued and are good value, and we'll demonstrate that through our earnings, and we'll deploy capital via buybacks to put our money where our mouth is.

Yeah, I think your disclosure keeps getting better, improving. The earnings are great, and buying back loads of stock and being willing to do that regularly and in good size is very helpful. So if you hear from investors why this kind of share price volatility occurs, It would be great to hear back from you, but honestly, I think you guys are doing a great job. So I wanted to say thanks.

All right.

All right. Thanks, Scott.

Yeah. And from a share price perspective, I thought we were never going to see the 300-yen handle again. And then last week, boom.

Okay. All right. Yeah. I mean, the rest of the developers and the rest of the market are all sort of on fire. And you're like, what's going on here? But I think, you know, it's just some temporary factors. You know, you guys continue to generate great results, so it's all we can ask for. Appreciate that.

Yeah, but look, I do have a hypothesis. We grew the balance sheet, and people may not have liked that. And we grew it intentionally and with good assets and with a plan to kind of monetize it for shareholders. So, look, we will work harder and hopefully smarter and deliver kind of the share returns that you need from us. So thank you so much for being with us.

Thanks. All right. Am I still the only one out there?

I don't know. Let's see. No, no. Okay. Greg, so thank you, Will. Okay, cheers. Thank you. We're going to give you the opportunity to demute. Are you able to talk?

Can you hear me?

Yes.

Hi, it's quite good, 0.72. So, thanks, Scott. So, William did all the compliments, so I don't have to. So, that's good. So, we can skip that part. So, my question was on the token part of the business. Obviously, you're doing very well there. I'm struck by the fact that, you know, there are not many players in that business in Japan. Obviously, there have been kind of a couple of large transactions announced, as you know, the MUFJ Group was one building. But in terms of kind of consistent players in the market, you're probably the only one that, you know, gives us some transparency. I guess my question is, why aren't you bigger? Because, you know, you could make a name for themselves. And that's probably being kind of a, you know, a real world asset player in the world of token in Japan probably wouldn't be bad for your valuation. either. So why not step that business up would be my question.

I like your thinking. I do think that one of the things we can and so I'm just talking with investors and shareholders and we're thinking about how to grow value for everybody. I do think there is an element of we should choose an area that we want to dominate. and it's a lot easier. I mean, I think people understand it to be a very good real estate value-add kind of asset manager. But, you know, and what one thing are we number one in Japan in? I think people struggle with that. And it may well be that we're capital allocators, but it'd be nice to have a space, and security tokens could be one of them, where we'll become number one. And so... We are spending some time, Greg, thinking about, so we certainly expect to be bigger. And we're spending some time thinking about this space and some other spaces where we could seek to dominate until people would say, you know, I'm invested in Ichigo and they are number one in this and this. So, again, I like your thinking.

I mean, it certainly seems to me that it's much better to be in that business than the data centers where, you know, Capacity of all the upgrades, etc. The cycle is totally different, very crowded, even for the small scale, you know, the LCT center, the data centers. But this one, I mean, you guys have described how, you know, instantly this offering gets sold out.

Yeah, yeah.

and again I think that would be probably quite good for valuation because you know and also that would help educate people because I think in Japan people don't realize people tend to confuse you know crypto blockchain you know those kind of things and so I mean having a higher profile with SBI I think would be would be very beneficial to the company.

And that's why we wanted to close the first token quickly. It could have been longer, but to just give people, it's real. I mean, you know, we had investors who were hoping to get a secure 4% return, and instead we gave them a 9% return. And with the same degree of security, just kind of our usual focus on making sure we have good assets and provide them to investors in the right way. So, yes, again, I like your thinking. Thank you. Okay, thank you. Okay, great. Thank you, everybody. We're grateful for the opportunity to work for you. We will run forward. Have a great morning, afternoon, evening.

Take care.