Japan Hotel Sectors - Challenges and Opportunities in the Global Pandemic
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Hotel Operation Businesses Face Increasing Financial Challenges, especially Small to Medium Scale Players
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Japanese Hotel Companies - First Cabin, and WBF Hotels & Resorts Reported Bankruptcy
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Potential Acquisitions/M&A for Opportunistic Hotel Investors
Tuesday, April 28th, 2020
As the global economies and markets continue to turmoil and continuing strengthened restrictions on global travel activities, tourism and hospitality sectors are being increasingly impacted and more and more players are hurt financially. In particular, Japan’s hospitality sector, which is significantly relying on international tourism and was previously expecting a reboost from Tokyo Olympics, are now facing increasing challenges.
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Hotel Operation Businesses Face Increasing Financial Challenges, Especially Small to Medium Scale Players
Since February, the hospitality industry has seen increasing cancellations of travel plans and roomstays, which is leading to significant decrease in occupancy and room revenues. The situation went further worse in March. The average hotel occupancy rates are extremely low during the usually crowded winter season and spring cherry blossom season. Some hotel companies, who do not have a strong financial backup, have already suffered from cashflow and financial challenges. According to Nikkei, Japanese authorities received 300,000 inquiries from small and midsize companies by the end of March regarding cash flow problems.
The pandemic has been particularly devastating for cities like Osaka that have grown more dependent on tourists, particularly those from China, to support local employment and midsize businesses. In the ancient capital city of Kyoto, the loss of foreign visitors is threatening the very survival of traditional Japanese ryokans, or family-run boutique hotels.
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Japanese Hotel Companies - First Cabin and WBF Hotels & Resorts Reported Bankruptcy
According to latest hotel news, two major hotel companies, First Cabin and WBF Hotels & Resorts, have recently reported bankruptcy.
First Cabin, which is well known for managing high-design compact hotels (luxury capsule hotels) through management contracts and franchises, recently reported bankruptcy. It is reported that the hotels were unable to achieve its target performances in FY2019 and their business is further hit in this year due to the pandemic. Their average occupancy rate dropped to 10% from the end of March to the beginning of April.
First Cabin has closed five of its hotels due to this bankruptcy application, including First Cabin Tsukiji, First Cabin Kyobashi, First Cabin Kyoto Kawaramachi Sanjo, First Cabin Kyoto Arashiyama, and First Cabin Kashiwanoha.
WBF Hotels & Resorts, a hotel management company which manages 27 facilities, with a total number of 3,900 managed guest rooms.
WBF Hotels had been performing well until in early 2020 when their business was seriously impacted by the pandemic and various travel restrictions. In early this year, the company opened Hotel WBF Shin-Osaka Sky Tower (which has 400 rooms) in January, and announced opening plan of two more hotels including Hotel WBF Iruonay Otaru (92 rooms) and Hotel WBF Grande Kansai Airport (700 Rooms), which are originally planned to open in Q2 and Q4 2020.
WBF depended on bank loans for large amounts of capital to open hotels, and suffered from the burden of interest payments and they were discussing with financial institutions to ease repayment conditions. At the time of application of its bankruptcy, WBF had a debt of JPY 16 billion, which is the largest major bankruptcy announced in Japan hospitality sector since the pandemic.
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Potential Acquisitions/M&A for Opportunistic Hotel Investors
Given the current challenging market situation, particularly for hospitality sectors, Asterisk is seeing more hotel assets/portfolios considered for dispositions.
Hotel investors who are looking for more long-term investment opportunities could potentially have access to some opportunistic assets through the potential sector restructuring/consolidation and distressed sales during the downturn and recovery stages of the market cycles.
Under the current market situation, it is getting into a timing that investors with sufficient cash and liquidity will have the possibility to acquire good quality assets. However, as lenders are positive in the long-term outlook and there are enough credit, distressed opportunities are less likely to appear in urban locations.
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Contact Asterisk for Hotel Solutions and Potential Acquisitions/M&A
In the long run, it is expected that more robust economic stimulus actions and government support actions would be taken to revitalize the tourism sectors to revise and improve on the target of 2021 and future growth. Government may potentially be more proactive in the preparation of the Olympics in Tokyo in 2021, Expo preparation in Osaka in 2025, and other major world conferences and events in the coming years. Potential stimulus may also extend to the previously on-going IR developments. Overall, the outlook of Japan’s tourism and hospitality sectors is positive in the long term growth and development.
Although under a challenging market environment, Asterisk would like to continue supporting the hotel market players, both operators and investors/owners, across Japan and in global markets, and connecting the bridges between global investors/operators and Japanese hotel players. If you look for partners for capital/operation for hospitality businesses, please do not hesitate to contact us. We would like to make our best efforts to support you and explore for new ideas/solutions in this sector for the hospitality business to continue with sustainability and resilience during this challenging time together.
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To review more on our past articles and events, please find the link: http://japanplacementagent.com/en/
For further details about our newsletter and our services, please contact: info@asteriskrealty.jp.
About Asterisk Realty & Placement Agency
Asterisk is a private fund placement agency for global alternatives in Japan. Through our unique and extensive network of Japanese investors, we support global fund managers in accessing Japanese and Asian institutional investors (including pensions, financial institutions, real estate developers, and other investment companies).
We provide access and strategies for overseas fund managers to bridge the gap between them and Japanese investors.
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Asterisk Realty & Placement Agency
3-29 Kioicho Gluckheim Suite 2003 , Chiyoda-ku , Tokyo , Japan
Telephone: 03-3263-9909
Email : info@japanplacementagent.com
Website : http://japanplacementagent.com/en/
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