Investors confident of Japan’s return

As Japan’s hospitality sector salvages what little business it is allowed to, from the Paralympics, investors are already looking ahead to the country’s tourism rebounding.  

Investor SC Capital from Singapore is the latest to launch plans for greater involvement in the country’s hotel market. It has just launched a fund aiming to raise around USD550m to acquire Japanese hotels.  

SC already has significant interests in the sector, owning close to 90% of the company that manages real estate trust Japan Hotel Reit Investment Corp. 

Chairman and founder Suchad Chiaranussati, in an interview with Reuters, said: “I believe very strongly that the trend of foreign visitors coming to Japan will recover and gather strength and continue for a very long time. And among all the Asia Pacific markets, today I am most optimistic on the recovery of tourism in Japan.” He expects the new fund to return investors 14-16%, and will invest in operating platforms as well as pure real estate assets.  

Prior to the pandemic, Japan’s tourism sector was a major success story. Over five years to 2019, the country more than doubled international visitor numbers to 32m. The main source markets were China and South Korea, accounting for just over half of the total, followed by Taiwan, Hong Kong, the US and Thailand. A fresh wave of covid-19 cases in parts of the country, at the end of July, means that few are hoping for any tourism market recovery this year.  

As elsewhere, local agents are warning that the weight of capital means plenty of buyer interest – and so prices remain strong. Shares in listed hotel owners have recovered, pricing in expectations of a decent recovery.  

Already busy in the country is Blackstone, which in March agreed a deal to acquire a portfolio of eight hotels from Kintetsu Group Holdings, in a deal reckoned to be worth USD550m. As Kintetsu operates railways, two of the trophy assets include hotels adjacent to stations, with a 988 room hotel at Kyoto station and a newly built 208 room property next to Hakata station in Fukuoka.   

“This is a unique opportunity that grants Blackstone access to a sizeable, high-quality hotel portfolio in Japan’s top hospitality markets,” said Chris Heady, head of real estate Asia at Blackstone. “This transaction marks Blackstone’s third corporate carve out in Japan, a market that has seen its investment landscape transform over the years as corporations increasingly look to divest their non-core businesses with a trusted partner.” 

But making investments in Japan is not always straightforward. Listed property group Unizo, which owned hotels and offices, only agreed to a takeover deal last year from Lone Star after a bidding war, and after Lone Star offered an asset buyback option to employees. And private equity investor Cerberus invested in hotels and railway operator Seibu, but then struggled to agree a way forward with the company’s management.   

Operators and brands are also planning for the future. At the end of 2020, Singapore-based Park Hotel Group, backed by Apricot Capital, acquired the 114 room Kyoto Boutique Hotel in Japan, which it planned to convert to create the brand’s second Japanese property.  

And in April, IHG agreed a major conversion signing, with local operator Iwate Hotel and Resort Co agreeing to rebrand three hotels in the Appi Kogen ski resort. Director Hiroshi Kurosawa said the move “will further enhance our efforts towards the betterment of services and hospitality for our customers from around the globe, and will lead to a genuine global resort experience at Appi Kogen.” The three properties will rebrand by the end of 2021 to InterContinental, Crowne Plaza and Holiday Inn, between them totalling more than 1,000 rooms.  

Marriott, meanwhile, is progressing with local partner Sekisui House to launch a series of Fairfield branded properties across the country. The pair already opened 15 Fairfields, and are now working on 11 more, to be built in the next year in roadside rest locations in the Hokkaido, Hyogo, Okayama, Hiroshima and Kagoshima prefectures. The hotels, ranging in size from 50 to 100 rooms, are all expected to open in 2022. 

HA Perspective [by Chris Bown]: Around 50% of Japan’s population is reckoned to be fully vaccinated, so – in common with other countries – its latest spike in covid-19 cases is not feeding through to large numbers of deaths or hospitalisations. But the country effectively operated a closed Olympics, and is still some way from opening its borders to visitors.  

That aside, there are clearly high hopes that the previously strong tourism story in the country can revive, in time. And, taking a look at its source markets, there are plenty of other parts of the world that Japan could target for more tourists.  

With a rise in tourists from outside Asia, so it will make more sense for the global brands to make their presence known in the country. Marriott and IHG have struck effective working relationships with local partners, to build their footprint. Their moment could come, should investors such as SC Capital find their way into the Japanese market, and start picking up hotel assets.   

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