Company Overview
1. Company Overview
Ichigo <2337> specializes in using real estate value enhancement know-how to invest and operate a wide range of real estate, including offices, commercial facilities, hotels, and residences. In addition, the company is a unique conglomerate that operates and manages three REITs - Ichigo Office REIT Investment Corporation <8975>, Ichigo Hotel REIT Investment Corporation <3463>, and Ichigo Green Infrastructure Investment Corporation <9282> - and utilizes both stock-type and flow-type revenue models. The proportion of stock-type income is particularly high, reaching 58%, and the company has been committed to maximizing cash flow. Ichigo went public on the Osaka Securities Exchange NASDAQ Japan market (now the Tokyo Stock Exchange (TSE) Growth Market) in November 2002, was upgraded to the TSE First Section in November 2015, and migrated to the TSE Prime Market in April 2022. The company aims to contribute to society in all its business activities, including reducing environmental impact and creating clean energy through its Ichigo building operations, participating in regional revitalization as a top partner of the J-League, and promoting sustainable social initiatives by joining RE100 and the United Nations Global Compact.
2. Business content
The company's business segments include asset management, Ichigo building operations, and clean energy. The asset management business provides deal sourcing, supply, operation and management to Ichigo Office REIT Investment Corporation, Ichigo Hotel REIT Investment Corporation, Ichigo Green Infrastructure Investment Corporation, and real estate private equity funds operated by the group. The company utilizes Ichigo building operations to improve property values and maximize investor value. In addition, since the fiscal year ending February 2022, the company has started operating Ichigo Residence Tokens, real estate investment products that use security tokens. This diversifies the company's revenue streams. In the fiscal year ending February 2024, this business accounted for 3.0% of the company's total revenue (excluding internal revenue) and contributed 11.5% of operating profit. Ichigo building operations aims to increase property values by legally ensuring standards, strengthening earthquake resistance, and through basic upgrades. In addition, the company aims to improve rent by raising tenant satisfaction through increased occupancy and improving tenant needs, such as enhancing common facilities, creating communities with surrounding areas, and hosting events for BCP countermeasures during disasters. The company then sells the property at a higher price. In the fiscal year ending February 2024, this business accounted for 89.8% of the company's total revenue, and 73.4% of operating profit. Ichigo Owners, established in March 2017, is also part of this segment and has grown to become a segment leader, acquiring new rental properties and selling and supplying properties to external investors and new businesses such as Ichigo tokenization. The clean energy business is a renewable energy business that mainly engages in solar power generation. In the fiscal year ending February 2024, this business accounted for 7.2% of the company's total revenue and earned stable profits, with operating profit contributing 15.0%.
The company's revenue structure includes both stock-type and flow-type income, and it has grown in a balanced manner. Of particular note is the stock-type income, which reached 19.417 billion yen in the fiscal year ending February 2024, surpassing pre-COVID-19 levels and recording an all-time high. Stock-type income includes rental income from owned assets, sales revenue from power generation plants, and non-asset income such as asset management (AM) base operation fees, hotel operator revenue, and OPERA usage fees, among others, which diversify revenue sources. Stock-type income covers the company's fixed costs (fixed selling, general, and administrative expenses + interest payment) by a factor of 2.14, leaving a surplus. Flow-type income mainly comes from real estate transfer income in the Ichigo building operations, which achieved a record of 14.315 billion yen in the fiscal year ending February 2024. The ratio of stock-type income to total revenue is 58%, close to the company's target of 60% KPI. This is a strength of the company, as it does not need to sell properties during economic downturns when flow-type income is declining.
3. Asset management business
The business segment engages in the excavating and supplying of investment target assets, growth support, operation and management during the investment period for listed investment trusts sponsored by the company, such as Ichigo Office REIT Investment Corporation (listed in October 2005), Ichigo Hotel REIT Investment Corporation (listed in November 2015), and Ichigo Green Infrastructure Investment Corporation (listed in December 2016). Additionally, since the fiscal year ending February 2022, the company has also been responsible for operating the investment product “Ichigo Residence Token” utilizing security tokens. Expanding the asset management business through REIT growth is a pillar of the company's strategy to maintain a sound financial foundation while maximizing cash generation.
Ichigo Office REIT Investment Corporation has a characteristic portfolio that specializes in medium-sized offices that are expected to be stable and have income growth. It is also included in the global index fund "FTSE EPRA / NAREIT Global Real Estate Index Series", which is a benchmark for institutional investors around the world. Since shifting to an office-focused REIT in the fiscal year ending October 2015 and achieving an increase in the value of its holdings through continuous active management due to factors such as an increase in operating asset balance and an increase in rental income due to higher values of held real estate, the NAV growth rate per unit has reached an increase of 39.2% (※NAV per unit ＝ (Net asset value after deducting distribution + Unrealized gain on real estate - Unrealized loss on real estate) ÷ Number of issued investment units at the end of the period, fiscal year ending October 2023). As of the end of April 2024, the operating assets are 87 properties with a balance of 210.4 billion yen. Ichigo Hotel REIT Investment Corporation is a hotel-focused J-REIT consisting of hotels with prime locations suitable for business and tourism. It has been aggressively operating by introducing the first complete performance-based fee system for J-REITs linked to the investment value of investors, and transitioning to a compensation system for the asset management company of the group. As of the end of February 2024, the operating assets are 30 hotels (9 hotels at the time of listing) with a balance of 69.8 billion yen. Although its business performance was depressed during the COVID-19 pandemic, key indicators such as room occupancy rates and average customer spending have been recovering, and it has returned to a growth phase. Ichigo Office REIT Investment Corporation and Ichigo Hotel REIT Investment Corporation are the only J-REITs that have adopted a complete performance-based compensation system and implement operation from the investor's perspective that links the profit growth of the REIT to the company's revenue contribution. Ichigo Green Infrastructure Investment Corporation is a green infrastructure-specific investment trust that was listed in December 2016. Based on long-term stable income, it makes the first 10-year performance forecast in history. As of the end of February 2024, it operates 15 power plants with a balance of 11.4 billion yen.
The company supports the growth of operating REITs as a sponsor. By bridging quickly and proposing properties for acquisition to the operating REITs, a system is established that can improve shareholder value for the entire group and generate stable income through collaboration between the sponsor (the company) and the operating REIT. In the fiscal year ending February 2024, the company provided five hotels, including "THE KNOT," to Ichigo Hotel REIT Investment Corporation (totaling approximately 15 billion yen), and provided third-party allocation subscriptions (1.5 billion yen) as funds for hotel acquisitions. Additionally, it provided growth support such as accepting investment trust bonds (350 million yen) for Ichigo Office REIT Investment Corporation as value creation capex funds.
From the transition in the fiscal year ending February 2019, the base operation fee has remained stable.
(Written by FISCO Guest Analyst, Hideo Kakuta)