Ichigo ((JP:2337)) has held its Q3 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Ichigo presented a balanced sentiment, highlighting both notable achievements and certain challenges. The company reported significant success in its hotel and environmental sectors, alongside effective hedging strategies against interest rate increases, underscoring a commitment to sustainable operations. However, concerns were raised due to declines in operating profit and hurdles in the security token sales segment.
REIT Expansion and Strong Hotel Performance
Ichigo is advancing its REIT pipeline with a particular focus on the hotel sector, which is thriving. Sustainable real estate saw a 16% increase year-on-year, primarily driven by a robust hotel market. Additionally, their asset management grew by 12% year-on-year, while the clean energy sector saw a 5% rise.
Successful Hedging Against Interest Rate Increases
The company effectively safeguarded itself against interest rate hikes, hedging half of its JPY 200 billion portfolio. Thanks to these strategies, the increase in funding costs has not significantly impacted Ichigo’s financials, showcasing adept financial management.
Strong Hotel Economics and Growth
The hotel business witnessed a remarkable 90% growth year-on-year, fueled by a surge in inbound activity from Asia, the U.S., and Europe. OneFive Hotels, the operator, reported a substantial boost in operating income, reflecting the sector’s strong performance.
Environmental Commitment and Achievements
Ichigo achieved a milestone by operating with 100% renewable energy and made significant strides in reducing CO2 emissions. Their climate-positive status is evident with a CO2 reduction rate of 4.4 times their emissions, marking a steadfast commitment to environmental sustainability.
Decrease in Operating Profit and Cash EPS
The company faced a 7% decline in all-in operating profit year-on-year, with cash EPS also down by 9%, partially due to stock buybacks. These declines pose challenges but are offset by other growing segments.
Flow Earnings and Clean Energy Challenges
Flow earnings have decreased, affecting overall earnings despite expected increases. The clean energy sector is experiencing declines in operating profit but shows growth in cash earnings, indicating mixed results.
Challenges in Security Token Sales
Ichigo faced challenges in the security token market, having to defer some residence token activities, leading to lower-than-forecasted owner performance for the year.
Office REIT Valuation Challenges
Despite being proactive in acquiring and selling assets, the office REIT’s share price remains weak. The public markets have yet to recognize increased office rental values resulting from higher replacement costs.
Forward-Looking Guidance
Looking ahead, Ichigo anticipates a strong recovery in Q4 despite the current declines. The company forecasts record cash earnings driven by stock earnings growth and expects assets under management to reach JPY 450 billion to JPY 500 billion next year. This growth will be supported by real estate token sales and private REIT activities. Rising replacement costs are expected to enhance asset values and foster rental growth, which has not been reflected in the public REIT market yet.
In summary, Ichigo’s earnings call highlighted a balanced perspective with both achievements and challenges. The company’s strengths lie in its hotel performance and environmental initiatives, while challenges persist in operating profit and security token sales. With strategic initiatives and a positive outlook for Q4, Ichigo is poised to navigate the current economic landscape effectively.
