Hi, everybody. Thanks so much for joining.

I'm Scott Callon, Chairman of Ichigo. I'm joined by Dan Morisaku, who is a senior member of finance team and the head of Global IR for us.

We are doing something brand new. We we just did a Japanese earnings call.

We were wearing our suit and our tie. For the global call, we've decided, we think, to to to join the globe in recognizing how incredibly hot it is everywhere in the world right now.

Forgive us if that's okay. We've we've gone casual to reflect the fact that we're in the middle of July.

I'm talking off of what's in front of you, which is the FY27/2, the February 2027 Q1 corporate presentation. Let's let's jump into it.

We've got a slightly different format today. We tried to simplify it.

Hopefully that's helpful for you. If you have any feedback, we we of course welcome it.

Please feel feel free to to to come back to us on it. The summary is, look, we're off to to a strong start.

It's not surprising. The real estate market continues to be very strong.

The Japanese market, real estate market, for for for decades has had a compelling advantage of being very low low cost of of financing, low interest rates, but with no inflation and therefore no ability to raise rents. What's changed in the most profound and powerful way is that rents are going up, and so it's made real estate a more attractive asset class.

It's flowing through in our business both because we have a balance sheet in which the value of our assets is going up, and and and second, because what's what's driving this is inflation, construction inflation in particular. As our business model, which is value-add, is very durable with respect to inflation.

We spend very little amount of money on capex, and so we we are advantaged in the operating environment. To the extent this is secular, that we have inflation in Japan, we're going to be advantaged on a on a permanent basis.

Business profit is up 45% year-on-year, net income up 24%, EPS up 32%. Of course EPS is growing faster than net income because we think our shares are extraordinarily cheap.

They're trading sub 10 times PE, something like 7.4 times cash PE. They're as compelling as as they've ever been.

We bought about 10% of our of our shares, more than 10% of our shares outstanding in the last two years. We think the We think the shares are are compelling value for for all of you our shareholders, and and and we're putting our money where our mouth is.

Cash EPS is up 70% year-on-year. Stock earnings says increase in Ichigo Owners all Owners assets, which is true, but, the whole point is stock earnings are relatively stable, they're not going to move around very much, up a tiny bit.

Flow earnings are up a a bunch on sales of value-add retail assets in a real estate subsidiary which was primarily office and residential assets. Highlights are we're trying to, and I'll talk about this later, continue to innovate on behalf of our tenants, and and therefore for our investors, because ultimately the value of a real estate asset is its ability to serve tenants well, and our investors and our shareholders by serving our tenants.

We're doing some stuff with respect to innovating in the office space. We continue to innovate in the hotel space with our hotel brand, The Knot.

We completed a ¥10 billion share buyback as I said earlier. The bottom of the page shows the full-year forecast.

We're well on track to meeting it and beating it. Just touched on the key issues there.

You should You should see we're on track for record profits this year again, and we think this is secular. It's why I think it's our job to have record profits every year.

We have We have We have your funds as shareholders, we should be deploying those those funds in a in a more powerful way on a consistent basis year after year. We're on track for another year of record profits, and again I expect that will continue.

Cash earnings are more than two times accounting earnings because we focus on long-term cash flows. This is not a company that that is is super focused on doing anything on the accounting side that does not have powerful value for shareholders, and we think it's ultimately rooted in generating cash flows for shareholders.

There's a bunch of material that I'll go through relatively quickly and is meant to give you transparency on how we're running the business, and this will be an example of it. You can see we have a diversified portfolio.

The record forecast for this year in business profit is is has got a number of drivers to it, the most important being SRE, sustainable real estate business, and and Ichigo Owners. I labeled this for first time, we called the section KPIs, which meant to give you some sense of key performance indicators, not in a narrow sense, but in a broad sense, and the and the things that we focus on to deliver enduring value for you as shareholders.

One of them is structural profitability, a KPI there is we want our stock earnings to be well above our fixed expenses to make us structurally profitable, and we are. Currently running at about 200%, 196%, is the kind of the the the relative fixed earnings, which is stock relative to fixed expenses.

You can see on the right side on the in the upper pie graph, you can see that—is it a pie? It's a circle.

You can see that it's it's the stock earnings are relatively diversified. You can also see in Q1 that almost all the flow earnings came out of sustainable real estate business, and and that will change during the course of this year.

Stock earnings, another element of the business is we want to have both stock and flow. The stock earnings is contractual, the flow is also very durable.

You can have a business like a convenience store, a supermarket, and it's all flow earnings, but every day you you're creating value for your for your customers and they're coming to to to to to the stores. By no means is is a situation where the stock earnings are really valuable and the flow earnings are, should have a low multiple on them.

The source of our flow earnings is that we add value to assets in a systematic way and generate value for tenants, and therefore generate value for investors and owners of those assets when we on-sell them. We have diversity and that's another element of our of our business.

We have a portfolio of businesses, some and and it moves around a little bit. It gives us broad diversification.

I have to tell you, though, we're not a real estate conglomerate. There's a core element in everything we do, which is value-add, and we express that value-add through a number of different asset classes and business models.

We have a very strong financial position that expresses itself and in and in way and we worked to to achieve that. That expresses itself both in us wanting to have overwhelming long-term loans, and they're currently and and they've systematically over time, we managed to be about 90% of our loans being long-term, and also we reduced interest rate risk by by by hedging our loans.

Currently, fixed-rate loans are about 56% of the of the portfolio, a weighted average interest rate of 1.53%. You can see the interest rate has gone up substantially over the last couple years, which is to say it's gone off of an incredible low basis from nearly from 100 basis points to 153 basis points, but given that inflation is running at 3% and construction inflation is running between 5% and 10%, this is still extraordinarily low-cost funding in order to take advantage of the market opportunity that is in front of us.

Again, this we we're trying to provide some perspective on the drivers of the business and how they express themselves. This is what the full-year forecast looks like.

The sustainable real estate business is continues to be our our major driver, and we have significant contributions from Owners and from the hotel elements of the business. We'd like to grow clean energy and asset management more.

On the right side, you can see the assets. About half of our assets are owned and on-balance sheet, overwhelmingly real estate, and and you can see in the bottom of the page, asset management also has a substantial number of assets that we we we invest and and and manage on behalf of our investor clients.

In terms of acquisition and sale activity, net acquisitions in the first quarter, that is not what the year is going to look like. To be clear, in a sense, the the the acquisitions of ¥34 billion kind of overestimate the actual acquisition activity, which is to say Ichigo Owners, we're taking in assets that we had that we had agreed with the developer to buy generally kind of 18 to 24 months ago.

Those are not new purchase activity. In the office space, most of this is coming on, and I'll talk about it, the brand new The Village Sapporo asset, which which which is a couple years old soon.

In terms of actually brand new acquisition activity, it's on the order of something looks really like ¥3 billion, like tiny. We expect this year to take down the balance sheet.

I've been saying this for a while. We've had stuff coming in, the balance sheet has been growing.

The balance sheet is is is is is going down, folks. It's getting smaller.

It reflects, our view that we want to manage the balance sheet, we want to be capital efficient. There's a lot of risk out in the world right now.

There is continues to be a phenomenal sellers' market. We have ongoing capabilities in value-add that we can express in in highly capital efficient ways.

We don't need this size of balance sheet, the balance sheet is going down. Anyway, for the first first quarter, we had some balance sheet growth, but that that will change from the second quarter onward.

This is what the timeframe, this is what acquisitions and sales look like over time. Been some balance sheet growth, but by and large, relatively balanced, but we're going to take it down.

From here, and and to give order of magnitude, it's not as if we're going to we're going to half the balance sheet in the next kind of 18 months. Continues to be very productive.

Business is productive, but but the balance sheet shrinkage is going to occur. To go into the segment earnings, the the again we have our portfolio.

What's what's and and it moves around quite a bit. You can see asset management is is is is down quite a bit, hotel is down, sustainable real estate is up a ton, clean energy is up a bit, and that results in in a in totality of being up 45% in business in terms of business profit in the first quarter.

Sorry, I jumped ahead. In on on SRE, sustainable real estate, this is a business where we buy assets and improve them.

It's overwhelmingly focused on on office and and and and retail, although with some increased activity in logistics. Not a lot happening on the stock side.

As I said earlier, this is this is stable earnings, the balance sheet's not moving around, you wouldn't expect it to be moving that much. I think the most important thing to point out is we continue to do very, very well in the leasing activity with our biggest asset, which is Tradepia Odaiba.

As that is currently in a sale process. We would expect to generate some substantial returns on on on gains on sale this year.

The flow earnings up a ton. Look, this is quarter to quarter, and so we did less in Q1 last year, we did more in Q1 this year, but we sold an asset in in Fukuoka that we did very well on, and we sold a real estate subsidiary that we also did very well in terms of value-add activity, which was primarily, as I said earlier, residential and office.

We continue to seek to innovate on behalf of tenants. One of kind of I I I we think it's an insight, but we we prefer to think of of the world in terms of hypotheses.

Don't have a view. Have a hypothesis, test it against reality, and if and the evidence as it emerges, if it if it disproves your hypothesis, then adjust your hypothesis.

One of the thoughts that we have is that WeWork, and this goes back over time, was genuinely a breakthrough in in high-aesthetic office and and in creating communities. WeWork is shared offices, and, most of the world is not working in shared offices when the office environment, they're in private offices.

Yet there was something very valuable we think in having an actual community, and so The Village is our is our office offer that is community based. Literally, it's called a village.

This is in Japan, the words we use are in Japanese, but there's a village mayor from in in each building who is an Ichigo employee who's on who who who works to support the needs of the the the the village members, who are tenants. We we have, we we have these offices that have genuine communities in them.

We think that's something that's that's valuable. I I we we have a hypothesis that that all of us yearn for community.

I'm I'm pretty sure a lot of you who are listening to this are in offices where you go up and down elevators and you don't know anybody, and it's you don't talk to anybody and you don't want them to talk to you perhaps, I don't know. For for folks who want to have a genuine community in their office, this is something that we are providing.

We think, as again, we think the insight/hypothesis is, communities are not just for shared offices, they're actually for private offices. To have a community, of course, you need to have shared spaces.

You have you have shared lounges, you have shared entrance areas, you have cafes, you have all these things where the community can get together, and we do events, and meet the neighbors is what we're calling these events in in which we bring together. That's the general framework for our our our our our The Village kind of offer.

Specifically in this Osaka office, we renovated an existing office which we had bought from a single tenant. It was a corporate tenant which sold it, which is using the the the the building for itself.

They moved out, the entire building became empty, and we we we actually set it up entirely as ready to move in offices. The concept there is everything is pre-fitted, the tenant doesn't have to worry about kind of anything, move-in costs and move-out costs, which are enormous expenses in Japan.

They don't have to figure about trying to get contractors and run contractors in a very difficult environment in terms of getting contract contractor help. We do it all for them, we provide this for them, and and you get a rent uplift for it because you're creating value.

The the the the leasings are going on at about a 70% premium to what a classic you have to pay for everything yourself and do everything yourself and don't have the flexibility. This is this is it's a very powerful offer.

It's not just in the case of The Village Osaka, it's not just a community offer, it's also a ready to move in office offer for the entire building. We also opened up The Village Sapporo this year.

In this case, we have WeWork in the first floor. It is the first WeWork in Hokkaido, Sapporo of course is in the northern island island of Hokkaido.

Again, working with them to develop a community throughout the entire building itself, but this is again focused on not just having a cold slab of steel and glass, but but an actual genuine community within the building that can interact with each other and support each other and be human and be human beings and community participants together. Hotel business is down in the first quarter, we expect the full year to be up.

The Knot, which is this is our that's our boutique hotel offer. Again the the the the insight/hypothesis there was that, and and we've we're now we have six The Knots and we'll talk about a little bit later, we're working on our on our seventh one.

The the idea was, Japan has super high-class hotels that are really expensive just like everywhere in the world, they have all these budget hotels. There wasn't something in the category of kind of $100, $200 per night that was really that was nice.

We thought there was a gap that could be filled. The Knots all share a common characteristic of being very local, and also having for Japanese care about this and people come to Japan and care about this, having outstanding restaurants.

You can go there and eat super, super well, and also stay there. These are really and we'll talk a little bit later, but so The Knot Tokyo and Hiroshima doing very well.

We we launched, and I'll talk about this later, Knots in Utsunomiya and Fukuoka. We've got a full-year contribution and and things are going well.

You should know that we're incorporated we have incorporated no flow earnings in our forecast for this year for hotels. We don't expect to sell any hotels.

If that changes, then we'll of course we'll get some some upside there. RevPAR is down about 10%.

It's actually not, we think, the kind of Iran war, the surcharges, and all that sort of thing. It's this is showing up primarily in decreased Chinese arrivals.

There still are tensions between Japan and China. Chinese arrivals, which just released a few minutes ago, down 50% year-on-year, over 50% year-on-year, and also some slowdown associated to the the ending of the demand for the Osaka Expo.

We're seeing particularly we're seeing Osaka and Kyoto being down about 20% year-on-year. Tokyo and Hiroshima, both Knots doing well, were up 10%, but when you put it all together, you have about 10 10% drop in in RevPAR.

These are the two The Knots that we just launched. I already I spoke to to both of them already.

Again, you you you you it is really more about the taking existing assets, improving their aesthetics, the food, the culture of the building, if you can put that, and incorporating them in the community, making far better functionality, bringing them to kind of best-in-class across both the hard and soft elements of functionality and and and customer and and guest comfort. We've got six now.

We're we're working on the seventh, which is in Osaka, and this is is is the the economics have proven to be very, very powerful, and this is why we want to we want to we want to do more in this space. Ichigo Owners did very little in the in the quarter.

It looks like their flow earnings are up a ton, they are, because this is a basically one-year turnover business, and so you you sell you sell the assets and then you get new ones. The fact that we held off on some Ichigo Owners sales last year and and they're going to happen this year meant that our stock earnings, the rental income off these assets went up a whole bunch.

Owners activity is going is going to accelerate from the second quarter. At the heart, Owners is about serving in and and tenants.

We we it is a what we call a a fabless model, meaning we do the design, but the development and construction is done by outsourced developers, it has super high capital efficiency. We have gotten to be really, really good at understanding, and and the target market is prime residential areas in Tokyo, and understanding what what what the requirements are.

We we have developers build to our specifications, we lease them up, and then we turn over in about a year these these fully leased up assets in great locations to to to investors. The investors run the gamut from cash-rich individuals and and and corporations, which was the original concept, and it's turned out that this has become a very institutional market where we do a lot of bulk activity into big institutional investors who want access to this, very durable and high-return, and with now residential rents going up, increasingly higher return asset type.

As we've been selling this also into security token space, so this is But the whole The whole point is, if you're going to make great investment products in real estate, because that is one goal, we we need to serve the investors who are buying these assets, the first thing you need to do is you need to tenaciously serve tenants. You need to have the best assets for tenants, and then that that gives you the opportunity to have the best assets for investors.

Asset management, business profit is down 50 51% year-on-year. Actually, we know at this point that, and flow earnings were down 92% because we had we had large flow earnings on performance fees on asset sales in in both Ichigo Office REIT, and then we had some some some fees off of the off of private funds last year.

The the we actually now know that there's been some REIT activity and and by by the by by our REITs, our listed REITs, and so there'll be performance fees coming in. We we now know we're going to we we we based on and we never put in to our flow earning forecast anything because these are decisions being made by the REITs, not by us.

We now know that this activity has occurred, we will be getting the fees, and so we will come in I think it's going to be something like plus plus a plus a billion yen on on cash earnings at this point and plus kind of ¥0.7 billion on on on business profit. We're actually closing in on last year at this point, and we may actually go above it.

These numbers are are are are getting better, and we already have visibility on that. We have a diversified portfolio, as I said earlier, of both kind of asset classes and and and kind of and what vehicles.

They run the gamut from listed REITs to private REITs to private funds and and our digital token business. Clean energy is is up 15%.

Not Not not a lot happened in terms of the portfolio, stock earnings were up, and and that drives business profit up 15%. This is a business that has not grown, to my frustration and to our generalized frustration, and and and, we we have spent some time reflecting on that and what we need to do.

We try to be, savvy and not take inappropriate risk in a in a pretty dramatically changing operating environment with the end of the FIT, this feed-in tariff, structure that gave enormous structural stability to earnings to kind of a fairly dramatic changing environment. We don't strap on risk on on and and these are kind of heavy upfront investments without kind of having high visibility on future earnings.

That's one of the strengths of real estate, as you have you have visibility on earnings, is one of the strengths of our clean energy business and we want to have that also. What the one area that we we we've made a new commitment on that we think qualifies is we have a battery storage business that was just launched that has, pretty powerful economics.

We're now we think they're kind of NOI 13%, 14%, something like that. This is an area that we have begun to grow and and will be a growth driver in this business.

I'll just touch briefly on on shareholder returns. As I said earlier, we bought back over the last two years over 10% of our shares.

We think they're they're a compelling value, and this has been is good and accretive for our shareholders. We have also moved on our dividend.

We took the dividend up 35% this year, raising our our DOE, dividend on equity ratio, from 4% to 5%. On the sustainability side, global warming is real.

It is a fundamental element in our business to address that. We are climate positive, our CO2 reduction efforts are 9x our CO2 emissions.

We are 100% renewable electricity across all of our operations, we've achieved the RE100. We are double A-list company, one of the very few, they're only less than 1% of companies in the world that qualify for that in both climate change and water security.

Being sustainable as a company is fundamentally important to us and to to all of our stakeholders. At this point, no questions, and so we're going to we're going to bring this to a close after another another pause, which is hopefully not Oh, wait a minute, there's a question.

This is why we needed to wait.

Can you hear me?

Yeah. Thank you, Greg.

Yes, hi, Scott. Thanks for your time.

One quick question I have is you mentioned on the battery business, the stationary storage battery business, the expansion seems to be mostly after 2031? Obviously, as you understand, in Japan it's become a bit more of a priority.

Why not be bigger sooner, like 2029 onward, as opposed to ¥14 billion after 2031?

Oh, just to be clear, and we've probably written that poorly, that secondary pipeline is 2029 to 2031 pipeline.

Oh, I see. Okay.

Understood.

It's in an earlier process of due diligence to determine its economics and attractiveness. That is 2029 to 2031.

Understood. Another quick question I would have is regarding the TSE free float, obviously you guys have been buying back shares, as you pointed out, which means you are getting pretty close to the I don't know if you're aware the borderline limit for free-float adjusted market cap, as of the TSE guidelines.

Mm. You're above that, but things can change.

What are you guys thinking about on that front?

We still have room to buy back shares. Do you know what our exact free-float number is right now?

We need to have at least a 35% free float. I think we're probably at 45% or high 40s or something like that.

Anyway...

The way the TSE calculates is actually different. Maybe I would suggest you get in touch with them because from their rules your free-float weight is 25% for them, so...

We are familiar with the rules, it's just that Scott Callon doesn't have the exact number for me.

Is that it? Greg, the answer is we're currently at 60%, and so we have 5% more that we could own before we touched it.

Understood. Then that means that you have a market cap problem in the sense that if you are giddy-giddy on the free float and then your market cap falls, then you're at risk again vis-à-vis TSE rules, is my understanding.

Yes, but the market cap level is super low, so that's not the issue. We need to manage to the free-float rule.

Our thinking on this one is we think the shares are very cheap, they're certainly buyable, and we have room to buy more. At some point, we may have to shift towards bumping the dividend up a bunch, and we will do that, too.

To the extent that business doesn't require capital, then we pay it out. In the past, we've chosen to pump up dividend, but we've been very focused on using the buyback tool to distribute to shareholders.

If necessary, we're going to shift to dividend. We're perfectly willing to do that.

This business is super productive. We can increase the dividend very substantially without any problem at all.

The choice to have kept the dividend relatively low and use buybacks is because we think the shares are super, super cheap. We may end up in a world where we think the shares are super, super cheap and we're restricted on buybacks, and so we'll just raise the dividend a whole bunch and see what happens to the shares.

If I may with a last question, Scott, you mentioned that you might start to shrink the balance sheet a little bit from Q2, but then you're also going to have maybe a big lump of cash coming if the Odaiba building sale closes.

Yes.

You're going to have a lot of cash.

Yes.

Understood. A lot more cash than usual, I would say.

Yeah.

Okay.

That's correct. That's what happens.

You use cash in order to build out kind of your balance sheet, and then when you shrink your balance sheet, kind of cash comes flying back at you. Absolutely, you're right on that, Greg, as always.

Give or take.

No, I'm asking because when we spoke maybe a couple of quarters ago, the impression was that even if you sell the Odaiba building, then you might still want to reinvest a good chunk of that. I get the impression that the tone has changed a little bit at the margin, maybe.

Maybe. Which is to say, real estate prices have gone up.

The global operating environment is riskier than it was a year ago in terms of things that are going on. I don't know that we've changed that much.

We try to be as capital efficient as possible, and distribute any cash that is not necessary in some way or form back to our shareholders, and the business is really cash productive. We did spend a couple years, and going back a little bit further than a year ago, Greg, where we thought inflation coming.

Again, this market, as I touched upon earlier, people in Japan are relatively unfamiliar with the idea that real estate prices go up every year because of inflation. The reason inflation drives higher real estate prices is because new supply has to come in at much higher prices because of inflation, and so it either cannot economically come in, new supply is restricted, or it comes in at higher prices and gives you the ability, if you have existing assets, to raise rents, because that's what prices are.

I'm American, this is something that is kind of classic element of real estate all over the world, except for Japan. When we saw this surge in construction costs and we thought it was an insight plus a hypothesis that it was going to have some durability because it's linked to a fundamental shortage of construction talent as the number of construction workers in Japan decreases because of aging out of the population, we thought this would be potential driver of higher real estate prices via higher real estate inflation, and therefore we increased the balance sheet in anticipation of this.

Things played out, and so now is the time we think to monetize that, and you're going to see us start shrinking the balance sheet. Cash will be generated.

Yes, absolutely.

Understood. Sorry, one follow-up if I may, one last one.

Sure. Please.

On the forecast for sustainable real estate for this year, ¥18.5 billion, I assume a lot of that year-over-year increase is Odaiba, and I assume as usual you're conservative in forecasting this.

Yes. Which is to say, with flow income, two things we're doing as a management team.

One is we want to make sure we have multiple paths to achieving the targets. Two, you want to give yourself some flexibility on, in other words, if you sell these three assets, you'll hit your target.

Instead we'll try to sell 12 assets. It's also about you have a number of assets that are available to be sold, they're going to be kind of idiosyncratic or asset-specific or buyer-specific situations where there's a better price for one and sometimes an astonishingly better price.

Both in order to maximize profitability for our shareholders, and also to kind of hit our targets, we always have kind of overmodeled and have extra activity around the hitting the target. Yes, the numbers are conservative.

Because you've disclosed this in your forecast, to the extent you can answer, I guess because this is a very large asset compared to your total asset, Yes, it's about 10% of

it's about 10% of our total assets. Big asset.

Yeah. so

in terms of kind of insider rules, you've already disclosed that to the market, it doesn't prevent you from announcing buyback during the year, to the extent you can answer.

I mean...

We don't know. Okay.

Okay. I think the way the legal issue around this is that you're more allowed to talk about kind of activity, and we've been transparent about it.

If we were actually in contract or something like that, and I think it's fine to say that we're currently not in contract, then that would kind of prohibit activity on our part. At some point, if a contract exists, then we'll be restricted on buybacks.

Yes, that's the way it works. You're absolutely right.

Great. Thank you very much, Scott.

Thank you. I think we may be done.

All right, thank you everybody. Have a good day.

We're grateful for the opportunity to work for all of you. Thanks.

Bye-bye.