Ichigo Earnings Call: Record Growth, Buybacks, and Expansion

Ichigo ((JP:2337)) has held its Q3 earnings call. Read on for the main highlights of the call.

Ichigo Signals Record Earnings Amid Strategic Expansion and Capital Returns

Ichigo’s latest earnings call struck a decidedly upbeat tone, with management highlighting robust double‑digit profit growth, record‑level earnings in sight, and aggressive shareholder‑friendly actions. While pockets of weakness and volatility remain in sustainable real estate, asset‑management fees, and clean energy, executives framed these as manageable headwinds against a backdrop of strong hotel and Ichigo Owners performance, disciplined funding, and a balance sheet positioned to benefit from construction inflation and attractive acquisition opportunities.

Strong Earnings Momentum with Record Results in Sight

Ichigo reported powerful year‑to‑date growth, with business profit up 25%, EPS up 24%, and cash EPS up 19%. Both stock earnings and flow earnings are expanding, with management clearly signaling confidence that the company will deliver record earnings, including record net income and EPS. This combination of broad‑based profit growth and management’s conviction on full‑year outperformance underpinned the positive tone of the call and provides a strong fundamental backdrop for equity investors.

Stock and Flow Earnings: Tokyo Bay Asset Drives Uplift

The company emphasized an improving earnings mix, with stock earnings up 9% year‑to‑date and flow earnings up 31%. A key driver was a major Tokyo Bay asset that was repositioned to materially increase NOI, contributing to a roughly 15% uplift in stock earnings. This shows Ichigo’s traditional value‑add real estate strategy is still working: by upgrading and repositioning assets, the firm can structurally enhance recurring income, even as transactional flow earnings fluctuate quarter to quarter.

Shareholder Returns: Bigger Buybacks, Share Cancellation, Rising Dividends

Capital allocation is skewing clearly toward shareholders. Ichigo doubled its share buyback program to JPY 10 billion and plans to cancel approximately 7% of shares outstanding, positioning buybacks as a permanent EPS‑accretion tool rather than a one‑off event. Together with reiterated dividend growth, management is signaling a commitment to structurally raise EPS and ROE. These actions should tighten the share count, magnify future earnings growth on a per‑share basis, and potentially help close the gap between the share price and underlying earnings power.

Breakout Performance in Hotels and Ichigo Owners

Two segments stood out as growth engines: hotels and Ichigo Owners. The hotel business surged 103% year‑to‑date, and Ichigo Owners climbed 87%. RevPAR rose 18% year‑on‑year, powered by resilient leisure and business travel and the expansion of the company’s branded hotel platforms, THE KNOT and OneFive. Despite some drag from weaker Chinese inbound demand, particularly around the November–January period, management described the China impact as non‑material overall, indicating that domestic and other international guests are more than offsetting this softness.

Acquisitions and Logistics: Benefiting from Earlier Cost Locks

Ichigo continues to selectively grow its portfolio, acquiring one hotel in Osaka and two logistics assets in the third quarter. It also brought three new logistics centers online, structured as build‑to‑suit, master‑leased assets. Because these projects were committed at earlier, lower construction costs, they now benefit from a cost advantage in an environment where construction inflation is running at two to three times general inflation. This strengthens returns on invested capital and underscores the company’s ability to use inflation to its advantage in its value‑add model.

Environmental Leadership and Climate‑Positive Operations

Sustainability is becoming a differentiator for Ichigo. The company achieved a CDP AA rating for both climate change and water security, placing it in roughly the top 1% of reporting companies globally. Ichigo now sources 100% of its internal energy use from renewables and claims that CO2 reductions from its renewable production are roughly eight times its own emissions, positioning it as climate‑positive on this measure. This environmental leadership could support tenant and investor demand while potentially lowering long‑term operational and regulatory risks.

Funding Profile and Interest-Rate Headwinds

On the financing side, Ichigo highlighted a solid funding position with long‑term borrowings and 61% of borrowing costs fixed through hedges. The average borrowing rate has risen from about 1.00% to 1.43% over two years, a roughly 43‑basis‑point increase that management characterized as a minor headwind. Strong access to bank funding and ample borrowing capacity help mitigate rate risk and support continued investment, while the relatively low absolute cost of debt still underpins attractive spreads versus property yields and project returns.

Valuation and the Logic Behind Aggressive Buybacks

Management justified the enlarged buyback by pointing to what it sees as a disconnect between Ichigo’s valuation and its earnings. The stock trades at around 11x accounting earnings, while cash earnings are about 30% higher, implying a sub‑10x P/E on a cash basis. Against this backdrop of double‑digit profit growth and a strengthening balance sheet, the company views its own shares as a compelling investment. Cancelling roughly 7% of shares magnifies the impact of this perceived mispricing on future shareholder returns.

Strategic Growth: Hotels, Private Funds, and Clean Energy Storage

Beyond the current earnings surge, Ichigo outlined several strategic growth initiatives. It is expanding its branded hotel platforms, THE KNOT and OneFive, to capture higher‑margin, brand‑driven demand. The company is also launching a private residential fund and building out its private funds capability, which should diversify and deepen its fee‑earning base over time. In clean energy, Ichigo is pivoting toward battery storage as economics improve, potentially unlocking a new growth leg in an otherwise flat near‑term segment.

Community and Brand Building Through Sports Ownership

Ichigo’s ownership of a soccer club has delivered both performance and branding benefits. The club was promoted from J3 to J2 in just two years, enhancing local visibility and supporting community engagement. While not a core earnings driver, this initiative contributes to the company’s broader brand equity and creates opportunities for local economic collaboration that can indirectly support its real estate and investor relationships.

Volatile Sustainable Real Estate Performance

Not all segments are firing. The sustainable real estate division is down 19% year‑to‑date, and within that, a “pull” earnings component is down about 39%. Management stressed that this business is inherently volatile, with results heavily influenced by the timing of asset sales and transactions. The company expects continued quarter‑to‑quarter variability and has flagged this segment’s Q4 as particularly sensitive to transaction timing, even as it maintains confidence in medium‑term value creation.

Asset Management Forecast Headwinds and Fee Timing

Asset‑management earnings are another soft spot in the near term. Full‑year guidance initially assumed a 31% decline in this segment, largely due to uncertainty around performance fees and the timing of monetizations in its REIT platforms. Because REIT boards are independent, the pace and timing of asset sales and refinancings are not fully under Ichigo’s control, creating forecast variability. Management nonetheless expects the company to outperform overall guidance, suggesting that strength in other areas will offset these headwinds.

Clean Energy Segment: Flat Today, Storage‑Led Tomorrow

Ichigo’s clean energy segment delivered essentially flat performance year‑on‑year, with only a slight increase in power output and some higher operating costs. The company acknowledged that meaningful growth from this business will require further capital deployment, particularly into battery storage where economics have recently improved. While near‑term returns from clean energy are modest, Ichigo sees this as a strategic long‑term platform aligned with its environmental positioning and infrastructure capabilities.

Security Token Channel: Demand High, Launches Paused

A notable missed opportunity this year has been Ichigo’s security token business, where no new launches occurred despite strong investor demand. Management attributed the lull to weaker capital‑market conditions and pricing pressure from securities firms acting as intermediaries. This has temporarily slowed the expansion of what the company still views as a high‑potential distribution channel, suggesting upside if market conditions normalize and economics improve.

China Inbound Tourism and Hotel RevPAR Volatility

The company’s hotel segment did face some turbulence from reduced Chinese inbound tourism, following heightened geopolitical tensions. Management expects Chinese New Year arrivals to be down from the prior year, and noted that RevPAR growth was slower than anticipated in the November–January period as a result. Still, because overall hotel results remain up sharply and Chinese guests are only a modest part of the demand mix, Ichigo does not view this as a material threat to the broader hotel growth story.

Ichigo Owners: Timing Risk on Quarterly Sales

Within Ichigo Owners, management highlighted timing risk around deal closings between the fourth quarter and early next year. Because sales can easily slip from one quarter to the next, reported revenues and flow earnings may show significant quarter‑to‑quarter volatility. Investors are being cautioned to focus on the underlying momentum and full‑year results rather than any single quarter, particularly given the segment’s strong year‑to‑date growth of 87%.

Forward Guidance: Record FY2026 Earnings and Structural Upside

Looking ahead, Ichigo guided to record earnings in FY2026 and signaled confidence it will beat its current full‑year forecasts. YTD business profit (+25%), EPS (+24%), and cash EPS (+19%) support this message, alongside double‑digit growth in both stock (+9%) and flow (+31%) earnings. Segment trends are mixed—hotels up 103%, Ichigo Owners up 87%, sustainable real estate down 19%, and clean energy roughly flat—but management believes the portfolio as a whole will deliver higher profitability. The doubled JPY 10 billion buyback, cancellation of around 7% of shares, and long‑term, mostly fixed‑rate borrowing at an average 1.43% collectively underpin expectations of structural EPS and ROE expansion. Operationally, higher RevPAR, new logistics centers, selective acquisitions, and a construction‑inflation backdrop that favors its value‑add model all feed into the company’s optimistic multi‑year outlook.

In sum, Ichigo’s earnings call painted a picture of a company leveraging strong hotel and Ichigo Owners momentum, disciplined capital allocation, and sustainability leadership to offset pockets of weakness in sustainable real estate, asset management, and clean energy. With record earnings in view, an enlarged buyback and share cancellation program, and a funding base largely insulated from rate volatility, management is positioning Ichigo as a structurally stronger, more shareholder‑focused platform. For investors, the key question is whether the market will fully recognize this improving earnings profile and capital return story, particularly given management’s view that the stock still trades below its cash‑earnings potential.